Forex and Commodity Market Commentary and Analysis (26 June 2006)

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The euro appreciated vis-?�-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2585 level and was supported around the $1.2500 figure. The common currency reached stops above the $1.2560 level, representing the 50% retracement of the move from $1.3480 to $1.1640. The euro??�s resurgence today was fueled by hawkish comments from European Central Bank officials. ECB??�s Quaden said ???We don't have taboos. We will continue to discuss month after month the incoming data. If needed we are able to act independently of logistical considerations and constraints. There is no reason to exclude on principle a decision by teleconference. We act at our own pace and not in an unconditional manner but as a function of the information that we collect month after month. There is no pre-determined calendar.??? This fueled speculation the central bank could hike rates again as early as next month. ECB??�s Wellink reiterated the central bank will move at its own pace and ECB??�s Mersch was also hawkish. The pair also got a lift when the central bank governor from the United Arab Emirates said he plans to convert 10% of the central bank??�s foreign exchange reserves into euros, a diversification theme that periodically crops up and supports the euro. Additionally, it was reported that German inflation was up 0.2% m/m in May and 2.0% y/y, more-than-expected. In U.S. news, traders await the Federal Open Market Committee??�s interest rate decision on Thursday with most market participants pricing in a +25bps hike in the federal funds target rate to 5.25%. Still, there is some market talk about a +50bps move higher in rates and additional monetary tightening even if the Fed only lifts rates by +25bps. Data released in the U.S. today saw May new home sales rose 4.6% to 1.234 million, significantly above expectations. Euro offers are cited around the US$ 1.2660 level.

??/ CNY

The yen appreciated vis-?�-vis the U.S. dollar today as the greenback tested bids around the ??116.10 level and was capped around the ??116.55 level. The pair consolidated recent gains despite a 0.3% m/m decline in the May corporate services price index. The yen??�s move higher was fueled by a comment from Bank of Japan Policy Board member Atsushi Mizuno who said the central bank remains on track to lift interest rates from zero per cent. Some trades are speculation the BoJ could lift rates as early as next month while others see a move later in the year. BoJ Governor Fukui remains embroiled in the Murakami scandal and today faced fresh calls for his resignation. Prime Minister Koizumi will visit the U.S. this week and the pending North Korean missile launch could remain topical and impact the yen. The Nikkei 225 stock index climbed 0.19% to close at ??15,152.40. Dollar bids are cited around the ??115.30 level. The euro gained ground vis-?�-vis the yen as the single currency tested offers around the ??146.25 level and was supported around the ??145.55 level. The British pound and Swiss franc moved higher vis-?�-vis the yen as the crosses tested offers around the ??212.10 and ??93.55 levels, respectively. The Chinese yuan came off vis-?�-vis the U.S. dollar as the greenback closed at CNY 8.0020 in over-the-counter trading, up from CNY 8.0002, and at CNY 8.0016 in the exchange-traded market. People??�s Bank of China Governor Zhou noted the economy is expected to have grown at least 10% in Q2 and also in 2006 even though the central bank has been trying to moderate the economy. Another report surfaced today that China??�s 2006 trade surplus may be at least US$ 120 billion.

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The British pound rallied vis-?�-vis the U.S. dollar today as cable tested offers around the US$ 1.8245 level and was supported around the $1.8170 level. Technically, the pair found an intraday floor around the 23.6% retracement of the move from $1.3680 to $1.9550. A couple of U.K. property websites indicated the housing market may moderate over the coming months. A large amount of U.K. economic data will be released on Thursday and Friday and will provide inflation about the mortgage market and economic growth. Cable offers are cited around the US$ 1.8300 figure. The euro moved higher vis-?�-vis the British pound as the single currency tested offers around the ?��0.6905 level and was supported around the ?��0.6870 level.

CHF

The Swiss franc appreciated vis-?�-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2420 level and was capped around the CHF 1.2495 level. Technically, today??�s intraday low was right around the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Data released in Switzerland today saw April retail sales off 0.7% y/y. The Bank for International Settlements annual meeting was held today and BIS general manager Knight said central banks ???may well have to act more forcefully on policy rates.??? Dollar bids are cited around the CHF 1.2390 level. The euro moved higher vis-?�-vis the Swiss franc as the single currency tested offers around the CHF 1.5645 level while the British pound moved lower vis-?�-vis the Swiss franc and tested bids around the CHF 2.2635 level.

AUD

The Australian dollar gained marginal ground vis-?�-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7340 level and was supported around the $0.7300 figure. The Australian Bureau of Agricultural and Resource Economics reported export earnings are likely to increase 16% y/y to A$ 143 billion. Australian dollar offers are cited around the US$ 0.7385 level.

CAD

The Canadian dollar rallied vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1170 level and was capped around the $1.1225 level. Canadian GDP and earnings data will be released on Thursday. U.S. dollar offers are cited around the C$ 1.1250/ 1.1350 levels.

NZD

The New Zealand dollar moved lower vis-?�-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6025 level and was capped around the $0.6090 level. New Zealand dollar offers are cited around the US$ 0.6120 level.

Gold/ Silver

Gold moved higher vis-?�-vis the U.S. dollar today as the yellow metal tested offers around the US$ 586.90 level and was supported around the $583.05 level. Silver moved higher vis-?�-vis the U.S. dollar as the pair tested offers around the US$ 10.41 level and was supported around the $10.28 level.

Crude Oil

Crude oil weakened vis-?�-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested bids around the US$ 70.58 level and was capped around the $70.97 level. News of an increase in Iraqi production kept the pair pressured. Heightened geopolitical pressures involving North Korea and Iran continue to factor into the markets??� moves.