Fundamental Outlook at 1400 GMT (EDT + 0400)

By GCI Fx Research

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4320 level and was capped around the $1.4390 level.  Data released in the U.S. today saw July personal income growth at 0.0%, up from June’s revised -1.1% decline.  July personal spending printed at +0.2%, down from June’s revised print of +0.6%.  Also, the July personal consumption expenditures deflator was off 0.8% y/y, worse than the 0.4% June reading.  At the core level, the July core rate up 0.1% m/m and 1.4% y/y.  Finally, the University of Michigan consumer sentiment indicator came in at 65.7, above the prior mid-August reading of 63.2 but below the July reading of 66.0.  The common currency failed to sustain its gains through the North American session as U.S. equity prices retreated in the session.  St. Louis Fed President Bullard was on the wires earlier and dovishly said the Fed needs to see much more “convincing” economic data before contemplating an increase in rates.  In eurozone news, the European Commission’s economic sentiment indicator improved to 80.6 from a reading of 76 in July.  Many economists believe the eurozone economy will expand around 0.5% q/q in the third quarter.  Bundesbank reported German banks expect a modest increase in lending volumes in the second half of 2009 and in 2010, corroborating the central bank’s assessment there is no credit crunch in the eurozone’s largest economy.  German Chancellor Merkel today reported the German economy might contract 5% or 6% in 2009.  Euro bids are cited around the US$ 1.3900 figure.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥93.40 level and was capped around the ¥94.05 level. All eyes are focused on this weekend’s general election in Japan where the long-incumbent Liberal Democratic Party looks poised to lose its stronghold on power to the Democratic Party of Japan.  Some Japan-watchers believe this will result in increased Japanese government bond issuance to finance the expected increase in public works spending.  It is unclear how a DPJ victory would impact the yen.  Japan is expected to battle deflation through early 2012 and will need all the help it can get from its slumping export sector through a weaker yen.  Many data were released in Japan overnight.  First, the July unemployment rate rose to 5.7% from 5.4 in June, the largest print since World War II and significantly above expectations.  Second, the July nationwide consumer price index was off 0.3% m/m and off 2.2% y/y with the core rate off 0.2% m/m and 2.2% y/y.  The Tokyo-area August consumer price index was up +0.3% m/m and +0.1% y/y with the core component flat m/m and off 0.2% y/y.  Other data saw July all household spending off 2.0% y/y while the trade surplus for the first ten days in August printed at ¥48.08 billion, off 69.2% y/y.  The Nikkei 225 stock index climbed 0.57% to close at ¥10,534.14.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.00 figure and was supported around the ¥134.00 figure.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥153.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.90 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8256 in the over-the-counter market, down from CNY 6.8273.  Chinese Premier Wen this week said the markets need to avoid being “blindly optimistic” about the global economic recovery and added China must maintain its “moderately loose” monetary policy and “active” fiscal policy.  PBoC has reported it will ensure “reasonable and ample” liquidity.

Daily Market Commentary provided by GCI Financial Ltd.

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