EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2970 level and was capped around the $1.3150 level. The common currency has not been this weak since 15 September. Stops were reached below the $1.3035 level, representing the 76.4% retracement of the $1.2650 – 1.4280 range. Traders continue to fret about eurozone sovereign finances with dealers taking scrutinizing Italy's, Portugal's, and Spain's fiscal positions.
Spanish deputy finance minister Campa said the current market "turbulence" is being caused by the German proposal that would have the private sector absorb losses in future sovereign debt crises. Some members of the Irish government today said the European Central Bank "bounced" Ireland into its €85 billion bailout deal. ECB member Kranjec said the euro will "absolutely" survive and said membership in the euro is "irrevocable." Many dealers believe it is only a matter of time before the ECB is forced to increase its purchases of Spanish and Portuguese debt as a backstop to prevent market rates from escalating too high. Contagion fears are expected to dominate in the short-term and could lead to additional euro weakness.
Data released in the eurozone today saw the flash EMU-16 November consumer price inflation reading remain steady at 1.9% while the October unemployment rate remained unchanged at +10.1%. Germany's November unemployed total shrank 9,000 with the unemployment rate steady at 7.5% and French October producer prices were up 0.8% m/m and 4.3% y/y. In U.S. news, data released today saw the September CaseShiller home price index off 0.80% m/m and up 0.59% y/y. Also, the November Chicago purchasing managers' index climbed to 62.5 and November consumer confidence exceeded expectations at 54.1. Federal Reserve Chairman Bernanke speaks today and is likely to reiterate his defense of the Fed's decision to expand its balance sheet by purchasing up to US$ 600 billion in U.S. Treasury securities. Euro bids are cited around the US$ 1.2780 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥83.40 level and was capped around the ¥84.30 level. Technically, today's intraday low was right around the 61.8% retracement of the ¥82.80 - ¥84.40 range. The Japanese government confirmed it did not conduct yen-selling intervention in November. Bank of Japan reported it will double the amount of loans to commercial lenders as part of its program to stimulate investments in growth areas. BoJ Governor Shirakawa spoke about the yen this week saying "In the short run, the appreciation of the yen depresses the revenue and profits of exporting firms. It should also be noted that the appreciation of the yen, from a longer-term perspective, has the positive effect of bringing about an improvement of the terms of trade through a decline in import prices." Shirakawa again vowed to take "appropriate action" on the yen and reiterated the Japanese economy is "pausing." Additionally, Shirakawa said he "doesn't feel the need to change in a major manner our judgment that economic risks are roughly in balance."
Data released in Japan overnight saw November manufacturing PMI tick higher to 47.3 while October household spending was off 0.4% y/y. Also, the October jobless rate ticked higher to 5.1% and October industrial production was off 1.8% m/m and up 4.5% y/y. October labour cash earnings slowed to +0.6% y/y. Other data saw October housing starts up +6.4% y/y to an annualized rate of 813,000. Also, October construction orders improved to -5.6% y/y. The Nikkei 225 stock index lost 1.87% to close at ¥9,937.04. U.S. dollar offers are cited around the ¥84.60 level.
The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥108.35 level and was capped around the ¥110.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.35 level while the Swiss franc moved higher vis-à-vis the yen and tested bids around the ¥83.55 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6673 in the over-the-counter market, up from CNY 6.6603. Data to be released overnight include November manufacturing PMI. People's Bank of China official Sheng said the central bank should clearly note that it is shifting to a "prudent" monetary policy and permit additional yuan appreciation to address rising inflation. The yuan remains on the defensive on account of European sovereign debt concerns and elevated military tensions on the Korean peninsula. PBoC official Jiao reported China's consumer price inflation has peaked and will likely not exceed October's 4.4% level, adding the central bank will maintain a policy of "continuity" in 2011.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5485 level and was capped around the US$ 1.5570 level. Cable reached its lowest level since 15 September as traders absorbed stops below the $1.5530 level, representing the 76.4% retracement of the $1.5295 – 1.6300 range. Data to be released in the U.K. overnight include Nationwide house prices and November PMI data. Bank of England Chief Economist Dale reported the U.K.'s economic recovery is poised to continue despite fiscal spending reductions and tax increases. Regarding inflation, Dale reported "Inflation is above target at the moment and I think it will be above target for the next year or so, in part pushed up by the rise in VAT." Bank of England Monetary Policy Committee member Sentance this week noted the central bank's commitment to its inflation target is being questioned and added interest rates "need to rise gradually." Cable bids are cited around the US$ 1.5295 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8360 level and was capped around the £0.8445 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9925 level and was capped around the CHF 1.0015 level. Technically, today's intraday low was just below the 23.6% retracement of the CHF 0.9545 – 1.0055 range. Data released in Switzerland today saw the October consumption indicator climb to 1.716 from the revised prior reading of 1.695. Other data to be released this week include November PMI, Q3 GDP, October retail sales, and November CPI. Swiss National Bank Chairman Hildebrand this week reported banks must be disincentivized from returning to their old risk models of the past. Last week, Hildebrand noted exchange rate moves are a "major challenge" to Switzerland. U.S. dollar offers are cited around the CHF 1.0180 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2925 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5445 level.
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