NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (16 June 2006)

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The euro gained minor ground vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2670 level and was supported around the $1.2625 level. Technically, the pair continues to orbit the $1.2650 level, the 50% retracement of the move from $1.3665 to $1.1640. Fed Chairman Bernanke spoke yesterday and was not as hawkish as some market participants expected him to be, noting the impact of higher energy costs has been relatively limited so far. St. Louis Fed President Poole reiterated the Fed will combat inflation with policies that prevent it from escalating further. Most traders continue to speculate the Federal Open Market Committee will tighten monetary policy on 29 June and the big question on traders??™ minds is if ??“ and by home much ??“ Fed policymakers will lift rates before calling it quits during the current, long-standing tightening cycle. Fed officials scheduled to speak today include Kohn, Kroszner, and Olson. Data released in the U.S. today saw the Q1 current account deficit print at ??“US$ 208.67 billion, down from Q4 2005??™s level of ??“US$ 223.11 billion. Bernanke spoke about the current account deficit yesterday and said the U.S. should work to gradually reduce it over the next several years. Other data released today saw the mid-June University of Michigan consumer sentiment index print at 82.4, above estimates around 79.0. In eurozone news, the European Commission warned of ???significant risks and uncertainties??? regarding Portugal??™s ability to reduce its 2008 deadline for reducing its deficit. It was also announced that Slovenia is likely to adopt the euro from January 2007. Data released in the eurozone today saw March EMU-12 industrial output fall 0.6% m/m and climb 1.9% y/y. Additionally, it was reported that EMU-12 labour cost growth moved higher 2.2% y/y in Q1. Euro offers are cited around the US$ 1.2775 level.

??/ CNY

The yen came off vis-? -vis the U.S. dollar today as the greenback tested offers around the ??115.05 level and was supported around the ??114.55 level. Technically, today??™s intraday low was just above the 38.2% retracement of the move from ??135.15 to ??101.65. Bank of Japan Governor Fukui reiterated that lifting interest rates from their current near zero per cent level depends on economic developments and prices. The dollar is poised to end the week on a positive note, and one bullish signal is that it has remained bid right at the ??113.85 level, the 38.2% retracement of the move from ??101.65 to ??121.40. The Nikkei 225 stock index climbed 2.82% to close at ??14,879.34. Dollar bids are cited around the ??113.85/ 112.25 levels. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??145.55 level and was supported around the ??144.90 level. The British pound and Swiss franc appreciated vis-? -vis the yen as the crosses tested offers around the ??213.10 and ??93.60 levels, respectively. The Chinese yuan shed minor ground vis-? -vis the U.S. dollar as the greenback closed at CNY 8.0020 in the over-the-counter market, up from CNY 8.0015, and depreciated to CNY 7.9982 in the exchange-traded market, down from CNY 7.9982. U.S. Treasury Undersecretary Adams today said it appears China??™s economy is again overheating and called for additional yuan flexibility. The Chinese May property index was off 0.30% y/y.

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The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8555 level and was supported around the US$ 1.8475 level. Technically, today??™s intraday high was just above the 76.4% retracement of the move from $2.0035 to $1.3680. Data released in the U.K. today saw John Lewis Partnership same-store sales at U.K. department sales climb 4.6% y/y in the week to 10 June. Minutes from the June Bank of England Monetary Policy Committee will be released next week and will be closely watched. Cable offers are cited around the US$ 1.8595 level. The euro was off marginally vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6820 level and was capped around the ?‚¤0.6835 level.

CHF

The Swiss franc lost ground vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2325 level and was supported around the CHF 1.2265 level. The pair is poised to end the week largely unchanged after running out of steam just below the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1300. Dollar bids are cited around the CHF 1.2285 level. The euro and British pound escalated vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5570 and CHF 2.2810 levels, respectively.

AUD

The Australian dollar weakened vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7380 level and was capped around the $0.7445 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from $0.7985 to $0.7015. Australian dollar offers are cited around the US$ 0.7500 figure.

CAD

The Canadian dollar moved lower vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1195 level and was supported around the C$ 1.1110 level. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar shed ground vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6190 level and was capped around the $0.6250 level. New Zealand dollar offers are cited around the US$ 0.6230/ 75 levels.

Gold/ Silver

Gold shed ground vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 572.50 level and was capped around the $585.30 level. The pair could not sustain early intraday gains as the U.S. dollar moved into positive territory during North American dealing. Silver came off vis-? -vis the U.S. dollar as the pair tested bids around the US$ 10.00 figure and was capped around the $10.37 level.

Crude Oil

Crude oil lost ground vis-? -vis the U.S. dollar today as light, sweet NYMEX crude futures for July delivery tested bids around the US$ 69.69 level and was capped around the $70.85 level. Fairly benign comments from Fed Chairman Bernanke yesterday gave oil some room to regain lost ground. Iranian President Ahmadinejad yesterday said in Shanghai that the global offer of proposed incentives and penalties regarding Iran??™s nuclear ambitions was a positive step.