Forex and Commodity Market Commentary and Analysis (27 February 2006)

GCI Financial -

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The euro came off vis-?�-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1825 level and was capped around the $1.1875 level. The common currency continues to trade in a very narrow range and some implied volatilities in the options market are lingering at three-month lows resulting from the tight underlying range in the spot market. This will be a very busy week for traders with Q4 GDP and consumer confidence out tomorrow in the U.S. and many Fed speakers lined up to talk this week. The European Central Bank convenes on Thursday and is expected to lift its main refinancing rate by +25bps to 2.50%. Remarks from ECB President Trichet will punctuate Thursday??�s meeting insofar as he may offer clues about additional monetary tightenings by the central bank. Traders are pricing an official interest rate of 3.00% by the end of the year. Data released in the eurozone today saw EMU-12 M3 money supply growth accelerate to 7.6% y/y from 7.3% y/y in December. In U.S. news, Federal Reserve Chairman Bernanke spoke on Friday and said low unemployment and price stability can co-exist. Data released in the U.S. today saw January new home sales off 5% to 1.233 million units while January median prices moved higher. NABE reports the U.S. economy is likely to grow some 4.5% in Q1, a start contrast to the initial estimate of 1.1% for Q4 2005 GDP growth. Tomorrow??�s revised Q4 GDP data are expected to be upwardly revised and the Fed??�s preferred measure of inflation ??� core personal consumption expenditures ??� will be released on Wednesday. Euro offers are cited around the US$ 1.1910/ 55 levels.

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The yen scored major gains vis-?�-vis the U.S. dollar today as the greenback tested bids around the ??115.70 level and failed to pierce the ??117.10 level during Australasian dealing. This is the pair??�s weakest showing since 26 January of this year and today??�s intraday low was right around the 61.8% retracement of the move from ??113.40 to ??119.40. The big news in Japan overnight involved comments from three Japanese government officials regarding the forthcoming end to Bank of Japan??�s long-standing quantitative easing policy. Economy minister Yosano said the central bank should ???feel free??? to shift its policy and his comments were echoed by Prime Minister Koizumi and finance minister Tanigaki. The yen galloped higher on this news because it implies real interest rates in Japan are moving higher and many short-yen carry trades will be covered as traders search for other funding currencies with low real interest rates. Many traders believe the central bank could shift its policy as early as 8-9 March while others foresee a move around the BoJ Policy Board meeting on 28 April. Friday??�s core consumer price inflation data may play a key role in the central bank??�s decision and is expected to have risen some 0.4%. A Nikkei poll released overnight saw regional business leaders more confident about their local economic recoveries. January industrial production and retail trade numbers will be released tonight. The Nikkei 225 stock index gained 0.57% to close at ??16,192.95. Dollar bids are cited around the ??115.30 level. The euro tumbled vis-?�-vis the yen as the single currency tested bids around the ??137.20 level and was capped around the ??138.95 level. Technically, today??�s intraday low was just above the 50% retracement of the move from ??130.60 to ??143.60. Euroyen futures reached their lowest level in some seven years overnight on account of BoJ monetary policy expectations. The British pound and Swiss franc weakened vis-?�-vis the yen as the crosses tested bids around the ??201.60 and ??87.70 levels, respectively. The Chinese yuan extended recent gains vis-?�-vis the U.S. dollar as the greenback closed at CNY 8.0408 in over-the-counter trading, down from CNY 8.0421, and at CNY 8.0407 in exchange-traded activity. The yuan??�s recent appreciation is a signal from the Chinese government that it does not want to be labeled a ???currency manipulator??? by the Bush administration in April and is making efforts to narrow the U.S.-China trade deficit. The government reported China??�s GDP is likely to grow about 9.6% y/y in Q1 with CPI up about 2.2%. People??�s Bank of China indicated the idea that ???China will sell its U.S. dollar assets is a misunderstanding??? but added a fast rise in the yuan is a ???risk for the economy.???

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The British pound weakened vis-?�-vis the U.S. dollar today as cable tested bids around the US$ 1.7375 level and was capped around the $1.7450 level. Technically, today??�s intraday low was about fifteen pips below the 23.6% retracement of the move from $1.8495 to $1.7045. Data released in the U.K. painted a mixed picture of the U.K. housing market. On a positive note, Hometrack reported February house prices were up 0.4% m/m, their largest climb since June 2004. On a negative note, BBA reported January mortgage approvals recede to 45,039 from 51,233 in December. February Nationwide houses data will be released tomorrow along with the February CBI distributive trades survey. Cable offers are cited around the US$ 1.7435/ 1.7530 levels. The euro was little-changed vis-?�-vis the British pound as the single currency tested offers around the US$ 6820 level and was supported around the ??0.6795 level.

CHF

The Swiss franc depreciated vis-?�-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3225 level and was supported around the CHF 1.3165 level. Today??�s intraday high was the pair??�s strongest showing since 2 December 2005. Some traders moved out of Swiss francs after Iran announced a ???basic agreement??? with Russia to jointly enrich uranium but the agreement does not take into account Iran??�s domestic uranium enrichment. The January UBS consumption indicator will be released tomorrow followed by February PMI data on Wednesday. Dollar bids are cited around the CHF 1.3155 level. The euro scored marginal ground vis-?�-vis the Swiss franc as the single currency tested offers around the CHF 1.5650 level while the British pound came off vis-?�-vis the Swiss franc and tested bids around the CHF 2.2920 level.

AUD

The Australian dollar weakened vis-?�-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7370 level and was capped around the $0.7395 level. Technically, today??�s intraday low was right around the 61.8% retracement of the move from $0.7235 to $0.7585. Data released in Australia today saw Q4 gross company profits climb 0.8% q/q, down from Q3??�s 2.9% rise. Q4 current account data will be released overnight. Australian dollar offers are cited around the US$ 0.7410 level.

CAD

The Canadian dollar moved higher vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1415 level and was capped around the C$ 1.1505 level. Stops were reached below the C$ 1.1430 level representing the 76.4% retracement of the move from the C$ 1.1375 level to the C$ 1.1610 level. Q4 GDP data will be released in Canada tomorrow followed by January industrial producer prices on Wednesday. U.S. dollar offers are cited around the C$ 1.1490 level.

NZD

The New Zealand dollar weakened vis-?�-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6570 level and was capped around the $0.6610 level. January trade data were released in New Zealand overnight and the February ANZ commodity price index will be released on Thursday. Kiwi offers are cited around the US$ 0.6645/ 95 levels.

Gold/ Silver

Gold depreciated vis-?�-vis the U.S. dollar today as the precious metal tested bids around the $552.60 level and was capped around the $558.70 level. The pair??�s recent range has been a 25-year high of $574.60 on 2 February and a 5-week low of $534.40 on 14 February. Notably, front-month futures contracts are less expensive than later delivery contracts implying traders anticipate higher gold prices in the future. Silver came off vis-?�-vis the U.S. dollar and tested bids around the US$ 9.57 level.

Crude oil

Crude oil weakened vis-?�-vis the U.S. dollar today as U.S. light sweet crude for April delivery tested bids around US$ 61.99 and Brent crude futures were as low as $61.80. Friday??�s thwarted Al-Qaeda attack on Saudi Arabia??�s Abqaia oil production and processing facility led to a decline in oil prices. Traders continue to monitor tensions and developments in Nigeria and Iran for how they will impact the energy markets. The International Atomic Energy Agency convenes on 6 March in Vienna to discuss Iran and OPEC then meets on 8 March.