Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3650 level and was capped around the $1.3680 level. Today’s range was relatively thin absent many economic data. As expected, European Central Bank kept its main refinancing rate unchanged at 4.00% today but surprised the markets with a statement from ECB President Trichet wherein he stated “strong vigilance is of the essence to ensure that risks to price stability over the medium term do not materialize.” Based on the ECB’s past use of similar statements, most traders believe the ECB will tighten monetary policy by +25bps in September. Data released in the eurozone today saw EMU-13 June producer price inflation up 0.1% m/m and 2.3% y/y. In U.S. news, weekly initial jobless claims were up 4,000 to 307,000 while continuing jobless claims were off 16,000 to 2.53 million, Also, June factory orders were up +0.6%, an improvement over May’s -0.5% level. Tomorrow’s July non-farm payrolls number will be closely watched by the markets and estimates have been scaled down on account of yesterday’s weaker-than-expected ADP payrolls report. Euro bids are cited around the US$ 1.3555 level.

¥/ CNY

The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.25 level and was supported around the ¥118.35 level. A late-day rally in U.S. equity markets yesterday saw diminished demand for yen as traders bargain-hunted and early yen gains in the Australasian session reversed course overnight. A Japanese Ministry of Finance official anonymously reported that most yen carry trades are “resistant to exchange rate fluctuations.” Data released in Japan overnight saw the July monetary base fall 2.3% y/y, down for the seventeenth consecutive month, while foreign investors were net sellers of Japanese equities for the first time in five weeks, selling ¥291.1 billion last week. The Nikkei 225 stock index gained 0.67% to close at ¥16,984.11. Dollar bids are cited around the ¥117.25 level. The euro gained marginal ground vis-à-vis the yen as the single currency tested offers around the ¥163.00 figure and was supported around the ¥161.55 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥240.15 and CHF 98.30 levels, respectively. In Chinese news, the yuan’s central parity rate was set at CNY 7.5723 vis-à-vis the U.S. dollar, up from CNY 7.5660.