NEWS / Indicators

Forex and Commodity Market Commentary and Analysis (20 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$ 1.2535 level and was capped around the $1.2595 level. Technically, the pair continues to orbit the $1.2560 level, representing the 50% retracement of the move from $1.3480 to $1.1640. The common currency moved to intraday lows after it was reported that U.S. May housing starts rose 5% to 1.957 million, above April??™s pace and above expectations. These data are importance because they suggest the Federal Reserve??™s continued interest rate hikes may not be having a significant impact on the U.S. housing sector. Housing permits for new construction receded by 2.1% last month, however, and these could presage a slowdown in the industry. These data follow yesterday??™s news that the June NAHB??™s business confidence index fell to 42, its lowest level in eleven years. Most traders believe the Federal Open Market Committee will lift the federal funds target rate by +25bps to 5.25% at the end of the month. If so, the question then becomes what the Fed will do at the FOMC meeting on 8 August and later in the year. In eurozone news, French finance minister Lagarde characterized the euro??™s exchange rate vis-? -vis the U.S. dollar as ???reasonable.??? German May PPI data released today saw increases of +0.1% m/m and +6.2% y/y. The European Union and U.S. are meeting in Vienna tomorrow to try and resolve some trade barriers. Euro offers are cited around the US$ 1.2650/ 1.2775 levels.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.60 level and was capped around the ??115.60 level. Chartists are eyeing the ??114.40 level as the pair??™s next downside target. The yen moved higher after Bank of Japan Governor Fukui indicated monetary policy decisions need to be taken ???early??? if economic conditions warrant same. Some traders are speculating the central bank could lift interest rates from their near zero per cent level as early as July while others see a move later in the year. This represents the most hawkish talk from Fukui in several weeks. Data released in Japan today saw May convenience store sales fall 2.9% y/y. Traders continue to monitor geopolitical events in Asian as North Korea is said to have fueled some missiles and is threatening to test missiles. The yen could be pressured if and when North Korea actually fires a missile. The Nikkei 225 stock index shed 1.43% to close at ??14,648.41. Dollar bids are cited around the ??113.85/ 112.75 level. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??144.15 level and was capped around the ??145.30 level. The British pound and Swiss franc depreciated vis-? -vis the yen as the crosses tested bids around the ??211.25 and ??92.45 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 8.0029 in the over-the-counter market, down from CNY 8.0060 level.

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The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8460 level and was supported around the $1.8365 level. This is the second consecutive day the pair has found a floor around the $1.8365 level. Traders await the release of the minutes from Bank of England??™s June Monetary Policy Committee meeting tomorrow for some possible direction on U.K. interest rates. Cable offers are cited around the US$ 1.8535 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6815 level and was capped around the ?‚¤0.6835 level.

CHF

The Swiss franc lost marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2380 level and was capped around the CHF 1.2440 level. Swiss National Bank Chairman Roth today said ???Will we regularly see growth rates of 2 to 3 percent? I don't think it's possible to be convinced of that at the moment.??? Roth reiterated inflation is under control despite the country??™s strong growth rate. Dollar bids are cited around the CHF 1.2285 level. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5580 and CHF 2.2820 levels, respectively.

AUD

The Australian dollar moved higher vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7405 level and was supported around the $0.7360 level. Australian dollar offers are cited around the US$0.7500 figure.

CAD

The Canadian dollar moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the US$ 1.1155 level and was capped around the $1.1245 level. Data released in Canada today saw headline May CPI print at a hotter-than-expected 2.8% while the core rate came in at 2.0%. These data fueled speculation Bank of Canada may need to tighten monetary policy again. U.S. dollar offers are cited around the US$ 1.1335 level.

NZD

The New Zealand dollar rallied vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6220 level and was supported around the $0.6155 level. New Zealand dollar offers are cited around the US$ 0.6230 level.

Gold/ Silver

Gold moved higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 572.65 level and was supported around the $561.30 level. The pair appreciated after Bank of Japan Governor Fukui made some hawkish remarks that led to a decline in the U.S. dollar. Gold is also bid on speculation that North Korea may be ready to test a missile. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 10.17 level and was supported around the US$ 9.83 level.

Crude Oil

Crude oil jumped higher vis-? -vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$ 70.25 level and was supported around the $69.22 level. The pair moved higher after President Bush warned of ???progressively stronger political and economic sanctions??? if it does not suspend its nuclear activities. Traders are also watching U.S. weather developments with this current hurricane season expected to be a potentially strong one near the oil-laden Gulf region. Tomorrow??™s weekly U.S. energy inventories data will be closely watched by traders.