The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4680 level and was capped around the $1.4825 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from $1.2475 to $1.6040. Traders are awaiting details from testimony from Federal Reserve Chairman Bernanke and Treasury Secretary Paulson before the Senate Banking Commission. Many dealers are pessimistic about the U.S. government’s plan to transfer US$ 700 billion in toxic assets from banks’ balance sheets and believe it could require more than US$ 1 trillion to recapitalize the U.S. financial system. Others are asking what would happen if the government bailout fails to achieve its desired results. Bernanke’s prepared remarks will report “financial markets remain under extraordinary stress” while Paulson will call for “further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.” The government will need to adopt legislation enabling it to hold illiquid mortgage-backed securities that have made it difficult for financial institutions to issue new asset-backed commercial paper. The Fed approved the applications of Goldman Sachs and Morgan Stanley to become bank holding companies. Data released in the U.S. today saw the Richmond Fed’s September manufacturing index worsen to -18 from -16 in August while the July house price index fell 0.6%. In eurozone news, the EMU-15 PMI survey fell to 47.0 in September from 48.2 in August, its lowest reading since November 2001. Also, EMU-15 July industrial orders were up 1.0% m/m. European Central Bank’s Kranjec cited a “slowing down of activity” while ECB’s Provopoulos cited a “slowing economy and higher inflation.” Additionally, ECB’s Liikanen said financial markets are the “biggest risk to growth” while ECB’s Gonzalez-Paramo said the central bank is dissatisfied with current inflation. ECB President Trichet said the financial market correction is an “ongoing process.” The ECB will likely be displeased with reports that Germany’s IG Metall union is seeking an 8% wage hike. Euro bids are cited around the US$ 1.3840 level.

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.00 figure and was supported around the ¥105.15 level. Liquidity was reduced on account of a market holiday in Japan. Three-month implied options volatility for dollar/yen rose to 14.25%, nearing the six-month peak of 14.80% reached last Friday. This suggests the spot rate may trade in wider ranges through early 2009. On the political front, former Taro Aso is expected to be formally named the next Prime Minister of Japan tonight and he may name former trade minister Nakagawa as the next finance minister, replacing current finance minister Ibuki. The Nikkei 225 stock index will reopen overnight. U.S. dollar bids are cited around the ¥102.45 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥155.20 level and was capped around the ¥156.30 level. The British pound gained ground vis-à-vis the yen as sterling tested offers around the ¥196.40 level while the Swiss franc weakened vis-à-vis the yen and tested bids around the ¥97.45 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8135 in the over-the-counter market, down from CNY 6.8300.

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8635 level and was supported around the $1.8485 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from $2.0155 to $1.7440 level. Data released in the U.K. today saw BBA August mortgage approvals fall to a record low. CBI’s retail sales survey will be released tomorrow. Cable bids are cited around the $1.7605 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7930 level and was capped around the ₤0.7980 level

The Swiss franc slumped vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0855 level and was supported around the CHF 1.0725 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from CHF 1.2465 to CHF 0.9645. Swiss National Bank allotted US$ 10 billion in repo to provide U.S. dollar liquidity to the markets. U.S. dollar offers are cited around the CHF 1.1430 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5960 and CHF 2.0100 levels, respectively.