NEWS / Indicators

Forex and Commodity Market Commentary and Analysis (7 June 2006)

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The euro came off vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2760 level and was capped around the US$ 1.2835 level. The common currency moved lower after Fed officials made additional hawkish remarks. WSJ quoted St. Louis Fed President Poole as saying the current economic slowdown may not be sufficient to reduce inflationary pressures while Fed Governor Bies said the Fed is unable to say when it will be done raising interest rates. These remarks were consistent with recent remarks from Fed Chairman Bernanke who reiterated the Fed needs to be vigilant on inflation. The dollar??™s recent upswing reflects the fact it seems like the Fed will tighten monetary policy at the end of this month while the 8 August Federal Open Market Committee meeting remains an unknown. In eurozone news, European Union finance ministers met and EMU-12 finance ministers made it very clear they oppose much more appreciation in the euro. Austria??™s Grasser said the euro is tolerable between US$ 1.20 and $1.30 while France??™s Breton and Luxembourg??™s Juncker said common currency is near the top end of its comfort zone. Most traders believe the European Central Bank will raise interest rates by at least +25bps tomorrow and some see a +50bps move as a possibility. Recent eurozone economic data have been strong and data released today saw EMU-12 retail sales grow sharply in April, up 1.4% m/m and 2.8% y/y, exceeding forecasts. German economic ???Wise Man??? Bofinger warned that the ECB should not raise rates tomorrow because ???A rising key interest rate poses the risk that the euro appreciation continues and thus becomes a danger to the economic recovery.??? Euro offers are cited around the US$ 1.2830/ 65 levels.

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The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??113.65 level and was supported around the ??112.90 level. Today??™s intraday high was the pair??™s strongest showing since 5 May. Data released in Japan saw May foreign reserves escalate to a record US$ 864.11 billion and the April index of leading economic indicators printed at 50.0, unchanged from March, while the coincident index improved to 77.8. The Nikkei 225 stock index extended recent losses and was off 1.88% to close at ??15,096.01. Dollar bids are cited around the ??112.50/ 111.80 levels. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??144.70 level and was capped around the ??145.40 level. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??210.35 and ??92.70 levels, respectively. The Chinese yuan came off vis-? -vis the U.S. dollar as the greenback closed at CNY 8.0172 in the over-the-counter market, up from CNY 8.0141, and at CNY 8.0165 in the exchange-traded market. A Chinese government research body called on the government to widen the yuan??™s trading band.

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The British pound depreciated vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8530 level and was capped around the $1.8645 level. Technically, today??™s intraday high was around the 23.6% retracement of the move from $1.9025 to $1.8530. Data released in the U.K. today saw Nationwide May consumer confidence improve while BRC reported its May shop price index was up 0.42% m/m and off 0.48% y/y. CML reported U.K. house prices are expected to increase about 7% in 2006. Cable offers are cited around the US$ 1.8720 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6870 level and was capped around the ?‚¤0.6895 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2240 level and was supported around the CHF 1.2140 level. Technically, today??™s intraday low was just below the 38.2% retracement of the move from CHF 1.1920 to CHF 1.2300. U.S. dollar bids are cited around the CHF 1.2110/ 1.2065 levels. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5625 and CHF 2.2710 levels, respectively.

AUD

The Australian dollar gained marginal ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7430 level and was supported around the $0.7390 level. As expected, Reserve Bank of Australia left its official cash rate unchanged at 5.75% following its decision to tighten rates last month. Data released in Australia today saw Q1 GDP rise 0.9% q/q and 3.1% y/y. Australian dollar offers are cited around the US$ 0.7380 level.

CAD

The Canadian dollar gained marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the $1.1120 level and was capped around the $1.1165 level. U.S. dollar offers are cited around the C$ 1.1190 level.



NZD

The New Zealand dollar depreciated vis-? -vis the U.S. dollar today as kiwi tested bids around the US$ 0.6225 level and was capped around the US$ 0.6300 figure. New Zealand dollar offers are cited around the US$ 0.6375 level.

Gold/ Silver

Gold shed significant ground vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 617.40 level and was capped around the $630.90 level. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 11.43 level and was capped around the $11.95 level.

Crude Oil

Crude oil moved lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude futures for July delivery tested bids around the US$ 70.83 level and was capped around the $72.55 level. Traders continued to sell oil after Iran said the proposal from the West regarding suspension of Iran??™s nuclear ambitions has ???some positive points.??? Traders also sold crude when it was revealed part of the proposal involves the U.S. sharing nuclear technology with Iran. Weekly U.S. government energy inventories data are expected today.