The euro strengthened vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3925 level and… … was supported around the $1.3860 level.

The common currency established a new lifetime high and then yielded gains during the North American session. The Federal Reserve injected US$ 21 billion in liquidity today one day after it added US$ 13.5 billion to the banking system. Most traders believe the Federal Open Market Committee will reduce the federal funds target rate between 25bps and 50bps next Tuesday on account of the slowness in the U.S. housing sector and turmoil in the credit markets. Fed Chairman Bernanke will testify before the House on 20 September about the U.S. subprime mortgage meltdown. Data released in the U.S. today saw weekly initial jobless claims rise 4,000 to 319,000 while continuing jobless claims fell 6,000 to 2.585 million. Traders are paying close attention to any evidence that the U.S. labour market continues to worsen following August’s 4,000 jobs contraction as reported in last week’s non-farm payrolls tally. In eurozone news, the European Central Bank reported it will act in a “firm and timely” manner to counter price risks in its monthly bulletin. The ECB is expected to lift its main refinancing rate target by +25bps before the end of the year. Germany’s IfW research institute lowered its German 2007 GDP forecast to 2.7% from 3.2%. EMU-13 Q2 provisional employment was up 0.5% q/q and 1.7% y/y. Euro bids are cited around the US$ 1.3620 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥115.45 level and was supported around the ¥114.10 level. Traders dumped yen following yesterday’s resignation of Prime Minister Abe and his subsequent hospitalization on concerns that his successor may not carry forward Japan’s economic reform agenda. During his short stint in office, Abe has tightened fiscal policy and a reversal away from that could see more Japanese government bonds issued. Dealers also moved out of yen after a report emerged that Japan’s government will downgrade its assessment of its economy this month on account of weaker consumer spending and capital investments. Many traders believe Bank of Japan’s Policy Board next +25bps rate hike to +0.75% is being pushed back further with a possibility one will not emerge by the end of 2007, but perhaps by the end of Japan’s fiscal year at the end of March 2008. Around this time, BoJ Governor Fukui will leave office and the markets perceive him as wanting to lift rates before he leaves office. The Nikkei 225 stock index climbed 0.15% to close at ¥15,821.19. Dollar bids are cited around the ¥112.55 level. The euro appreciated vis-à-vis the yen as the single currency tested offers around the ¥160.35 level and was supported around the ¥158.55 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥234.05 and ¥97.25 levels, respectively. The Chinese yuan appreciated sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5105 in the over-the-counter market, down from CNY 7.5216, a new post-revaluation low. Data released in China today saw actual foreign direct investment up 11.9% y/y in August while industrial value-added output was up 18.4% y/y between January and August.

₤

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0235 level and was capped around the $2.0300 level. Traders continue to pare back their expectations that Bank of England’s Monetary Policy Committee will lift the repo rate by another +25bps to 6.00% by the end of the year. BoE’s inflation expectations survey was released today and remained steady at 2.7% despite the sizable decline in July’s inflation rate. The view that the MPC is on hold with interest rates was reaffirmed after RICS reported the first decline in house prices for the first time in nearly two years. BoE reported it will offer banks more flexibility regarding the amount of reserves they maintain with the central bank. The three-month sterling Libor rate fell to 6.88% today but is still 113bps above the BoE’s 5.75% repo target rate – the latest evidence of funding difficulties in the money market. Cable bids are cited around the US$ 2.0160 level. The euro slumped vis-à-vis the British pound as the single currency tested bids around the ₤0.6840 level and was capped around the ₤0.6875 level.

CHF

The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1890 level and was supported around the CHF 1.1800 figure. The pair earlier reached its lowest level since April 2005 before moving higher. As expected, Swiss National Bank tightened monetary policy today, its eighth consecutive interest rate rise in less than two years. SNB lifted its three-month Libor target band by 0.25% to 2.25% – 3.25% and the central bank will target the middle of that band, or 2.75%. Most SNB-watchers believe the SNB focused on upward pressures in GDP and inflation. In making the policy shift, the SNB also asserted its independence, especially after the ECB’s and BoE’s recent decisions to keep rates unchanged. Another major reason why the SNB lifted rates is on account of the relatively stong euro/ Swiss franc exchange rate. SNB reported “The volatility of the exchange rate can increase rapidly… participants in the Swiss franc credit market and entrepreneurs should always be aware of the exchange rate risks.” The SNB now sees 2007 inflation around 0.7%. Data released in Switzerland today saw August corporate bankruptcies up 19.1% y/y. Dollar offers are cited around the CHF 1.2120 level. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6495 and CHF 2.4095 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

(Bid Price) (Today’s Intraday Range)

EUR/ USD 1.3875 1.3927, 1.3862

USD/ JPY 115.12 115.27, 114.09

GBP/ USD 2.0257 2.0299, 2.0233

USD/ CHF 1.1868 1.1884, 1.1801

AUD/ USD 0.8381 0.8437, 0.8368

USD/CAD 1.0355 1.0379, 1.0312

NZD/USD 0.7141 0.7162, 0.7070

EUR/ JPY 159.69 159.86, 158.55

EUR/ GBP 0.6848 0.6874, 0.6842

EUR/ CHF 1.6471 1.6478, 1.6405

GBP/ JPY 233.11 233.37, 231.43

CHF/ JPY 96.93 97.24, 96.24

Support Resistance Support Resistance

EUR/ USD USD/ JPY

L1. 1.3515 1.3900 119.35 122.45

L2. 1.3415 1.3970 118.25 123.40
L3. 1.3245 1.4060 117.15 124.50

GBP/ USD USD/ CHF

L1. 2.0460 2.0660 1.1875 1.2200

L2. 2.0385 2.0735 1.1740 1.2325

L3. 2.0260 2.0840 1.1650 1.2430

AUD/ USD USD/ CAD

L1. 0.8720 0.8940 1.0350 1.0580

L2. 0.8640 0.9025 1.0280 1.0695

L3. 0.8560 0.9110 1.0190 1.0785

NZD/ USD EUR/ JPY

L1. 0.7925 0.8030 166.05 168.95

L2. 0.7885 0.8090 164.35 169.60

L3. 0.7780 0.8180 162.50 170.40

EUR/ GBP EUR/ CHF

L1. 0.6705 0.6760 1.6545 1.6610

L2. 0.6660 0.6840 1.6475 1.6680

L3. 0.6535 0.6930 1.6390 1.6770

GBP/ JPY CHF/ JPY

L1. 247.50 250.10 100.25 101.40

L2. 245.65 251.40 99.20 101.90

L3. 243.95 252.60 98.65 102.60

SCHEDULE

Thursday, 13 September 2007
all times GMT
(last release in parentheses)

0030 Australia September consumer inflation expectations

0130 Australia Q2 dwelling starts (1.3%)

0400 Japan August Tokyo-area condominium sales (-10.0% y/y)

0600 Luxembourg European Central Bank member Mersch speaks

0630 France August Bank of France business sentiment

0645 France August consumer price index (1.1% y/y)

0645 France August consumer price index, harmonized (1.2% y/y)

0645 France Q2 non-farm payrolls (0.0% q/q)

0800 Eurozone September European Central Bank monthly bulletin

0800 Italy August consumer price index (1.6% y/y)

0800 Italy August consumer price index, harmonized (1.7% y/y)

0900 Eurozone Q2 employment rate (1.4% y/y)

1200 CH Swiss National Bank interest rate decision

1230 US Weekly initial jobless claims (318,000)

1230 US Continuing jobless claims (2.598 million)

1230 Canada Q2 capacity utilization (83.0%)

1800 NZ Q2 manufacturing activity (0.8%)

Friday, 14 September 2007
all times GMT
(last release in parentheses)

0000 NZ August PMI survey (54.6)

0430 Japan July industrial production (-0.4% m/m)

0430 Japan July industrial production (3.2% y/y)

0430 Japan July capacity utilization (105.8)

0600 Germany August consumer price index (-0.1% m/m)

0600 Germany August consumer price index (1.9% y/y)

0600 Germany August consumer price index, harmonized (2.0% y/y)

0800 Italy July industrial production (-0.1% y/y)

0900 Eurozone August consumer price index (-0.2% m/m)

0900 Eurozone August consumer price index (1.8% y/y)

1230 US Q2 current account balance (-US$ 192.6 billion)

1230 US August import price index (1.5% m/m)

1230 US August import price index (2.8% y/y)

1230 US August advance retail sales (0.3%)

1230 US August retail sales, ex-autos (0.4%)

1230 Canada Q2 labour productivity (0.7% q/q)

1230 Canada July manufacturing shipments (-1.8% m/m)

1315 US August industrial production (0.3%)

1315 US August capacity utilization (81.9%)

1400 US September University of Michigan consumer sentiment (83.4)

1400 US July business inventories (0.4%)

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