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

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The euro gained ground vis-?�-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2620 level and was supported around the $1.2560 level. Technically, today??�s intraday low was right around the 50% retracement of the move from $1.3480 to $1.1640. Chartists are eyeing the $1.2650/ 1.2710 levels as the pair??�s next upside targets. The pair moved higher on account of hawkish comments from European Central Bank policymakers including Garganas who said the ECB could raise interest rates more aggressively and would not dismiss a move greater than +25bps. Likewise, ECB President Trichet added the central bank is ???permanently alert??? and added the ECB has a light level of credibility because it is ???able to solidly anchor inflation expectations.??? Some traders believe the ECB will lift rates higher as early as next month. The euro also benefited from a jump in the German June Ifo headline business climate index to 106.8, a fifteen-year high and above expectation while the business expectations index also rallied. In U.S. news, traders will pay close attention to the Senate confirmation hearings of Treasury Secretary nominee Henry Paulson. Most traders believe the Federal Reserve will lift the federal funds target rate higher by +25bps to 5.25% on Thursday and some believe the Fed will shift its language to suggest it is closer to ending its long-standing tightening cycle. In contrast, other traders believe the Fed will continue to be hawkish, particularly as core inflation has recently picked up steam. Data released in the U.S. today saw May existing home sales fell 1.2% to 6.67 million units while June consumer confidence rose to 105.7 from May??�s level of 104.7. Euro offers are cited around the US$ 1.2650/ 1.2700 offers.

??/ CNY

The yen lost marginal ground vis-?�-vis the U.S. dollar today as the greenback tested offers around the ??116.70 level and was supported around the ??115.85 level. Technically, today??�s intraday high was just below the 76.4% retracement of the move from ??119.20 to ??109.00. The yen continues to be dented by speculation that troubles involving Bank of Japan Governor Fukui will limit the central bank??�s ability to raise interest rates from near zero per cent. A growing number of Japanese legislators are calling for his resignation on account of his previous investment in the Murakami fund and the conventional wisdom is that if he was to be replaced, the central bank could delay a move higher in rates. Some traders suspect BoJ??�s Policy Board will lift rates from zero per cent as early as next month. The Nikkei 225 stock index climbed 0.13% to close at ??15,171.81. Dollar bids are cited around the ??115.30 level. The euro raced higher vis-?�-vis the yen as the single currency tested offers around the ??146.65 level and was supported around the ??146.10 level. The British pound and Swiss franc moved lower vis-?�-vis the yen as the crosses tested bids around the ??211.40 and ??93.25 levels, respectively. The Chinese yuan appreciated vis-?�-vis the U.S. dollar as the greenback closed at CNY 7.9983 in over-the-counter trading, down from CNY 8.0020, and at CNY 7.9980 in exchange-traded activity. The Chinese government announced it will not tighten fiscal policy to slow the economy.

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The British pound moved lower vis-?�-vis the U.S. dollar today as cable tested bids around the US$ 1.8185 level and was capped around the $1.8260 level. Trading in sterling could get busier later this week when many U.K. data will be released including GDP growth, mortgage lending data, and more. Data released today saw BBA mortgage lending escalate by its highest amount in nearly two years last month, up some ?��5.7 billion, while gross mortgage lending reached a record high of ?��18.2 billion. Cable offers are cited around the US$ 1.8305 level. The euro moved higher vis-?�-vis the British pound as the single currency tested offers around the ?��0.6915 level and was supported around the ?��0.6895 level.

CHF

The Swiss franc lost marginal ground vis-?�-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2470 level and was supported around the CHF 1.2400 figure. Technically, today??�s intraday low was just above the 23.6% retracement of the move from CHF 1.1920 to CHF 1.2530. Traders are paying extra close attention to developments in the Middle East where Israel has promised a major attack against Hamas if a kidnapped Israeli soldier is not released imminently. Dollar bids are cited around the CHF 1.2300 figure. The euro moved higher vis-?�-vis the Swiss franc as the single currency tested offers around the CHF 1.5670 level while the British pound came off vis-?�-vis the Swiss franc and tested bids around the CHF 2.2635 level.

AUD

The Australian dollar gained ground vis-?�-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7350 level and was supported around the $ 0.7305 level. Australian dollar offers are cited around the US$ 0.7375 level.

CAD

The Canadian dollar moved higher vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1190 level and was capped around the $1.1250 level. Technically, today??�s intraday high was right around the 38.2% retracement of the move from C$ 1.1770 to C$ 1.0930. U.S. dollar offers are cited around the C$ 1.1350 level.

NZD

The New Zealand dollar was little-changed vis-?�-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6020 level and was capped around the $0.6085 level. New Zealand dollar offers are cited around the US$ 0.6120 level.

Gold/ Silver

Gold appreciated vis-?�-vis the U.S. dollar today as the yellow metal tested offers around the US$ 591.55 level and was supported around the $ 584.55 level. Hawkish talk from European Central Bank officials and a flare-up in tensions in the Middle East added to the pair??�s gains. Silver moved higher vis-?�-vis the U.S. dollar as the pair tested offers around the US$ 10.48 level and was supported around the $10.22 level.

Crude Oil

Crude oil appreciated vis-?�-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$ 72.47 level and was supported around the $71.80 level. Traders moved the market higher in anticipation that tomorrow??�s weekly inventories data will evidence a decline in U.S. gasoline supplies for the first time in more than two months. Tensions between Israel and Hamas are also adding to the pair??�s gains as is news that Iran may delay until 22 August a response to a global offer regarding Iran??�s nuclear enrichment activities.