NEWS / Fiscal Policy, Budget

Forex and Commodity Market Commentary and Analysis (28 June 2006)

?‚¬

The euro slumped lower vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2585 level and was supported around the $1.2530 level. Technically, the pair continues to orbit the $1.2540 level, representing the 38.2% retracement of the move from $1.1825 to $1.2970. The pair is caught between hawkish talk from European Central Bank officials and jitters ahead of tomorrow??™s Federal Open Market Committee interest rate decision. ECB??™s Garganas today reiterated additional interest rate increases are expected while ECB??™s Weber said the central bank is ready to ???act swiftly??? to arrest inflationary risks. ECB??™s Mersch will speak later today and is expected to be hawkish in his remarks also. The markets are currently pricing in about a 50% chance the ECB will raise interest rates on 3 August. Data released today saw the July German GfK consumer climate index print at 7.8, up from 7.0 in June. In U.S. news, a growing number of traders believe the Federal Open Market Committee may lift the federal funds target rate by +50bps tomorrow, but they remain in the minority. Most traders believe the FOMC will hike borrowing costs by +25bps. As always, what the Fed actually says in its policy statement will be more important than what it actually does. Monetary hawks are quick to point out that inflation has recently picked-up and some Fed-watchers believe Fed Chairman Bernanke will err on the side of overshooting on rates. Some U.S. dollar-selling was cited yesterday during the Senate confirmation hearing on Treasury Secretary Paulson when he did not specifically reiterate the U.S.??™s long-standing ???strong dollar??? policy. Euro offers are cited around the US$ 1.2650 level.

??/ CNY

The yen gained ground vis-? -vis the U.S. dollar today as the greenback tested bids around the ??116.05 level and was capped around the ??116.45 level. Today??™s range was thin but that may change tonight with industrial production and trade balance data to be released. Data released in Japan today saw May retail sales climb 0.1% y/y, the fifth rise in seven months. Pressure remains fairly intense on Bank of Japan Governor Fukui to resign his post on account of a previous investment in the Murakami fund. The yen has recently been on the defensive as traders have concluded Fukui may be too preoccupied with his own troubles to oversee a move higher in interest rates from near zero per cent. Others have concluded Fukui??™s ousting is imminent and that a new BoJ Governor would have less influence in raising interest rates. The Nikkei 225 stock index shed 1.88% to close at ??14,886.11. Dollar bids are cited around the ??115.30 level. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??145.85 level and was capped around the ??1463.35 level. The British pound and Swiss franc moved lower vis-? -vis the yen as the crosses tested bids around the ??211.30 and ??93.30 levels, respectively. The Chinese yuan lost marginal ground vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9984 in over-the-counter trading, up from CNY 7.9983, and at CNY 7.9977 in exchange-traded activity. A report released overnight saw China??™s foreign reserves climb to US$ 925 billion by the end of May.

?‚¤

The British pound moved lower vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8140 level and was capped around the $1.8240 level. Technically, today??™s intraday low was below the 23.6% retracement of the move from $1.3680 to $1.9550. Retail sales data released in the U.K. today saw the headline balance of sales reading print at +9, unchanged from May??™s reading, just below expectations. Many U.K. data will be released tomorrow and Friday. Cable offers are cited around the US$ 1.8300 figure. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6895 level and was capped around the ?‚¤0.6915 level.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2490 level and was supported around the CHF 1.2420 level. Data released in Switzerland today saw the June KOF economic barometer rise to 2.50, a six-year high, from a revise 2.34 in May and 2.14 in April. These data suggest the Swiss economy should remain fairly robust in six months??™ time. Dollar bids are cited around the CHF 1.2380 level. The euro moved lower vis-? -vis the Swiss franc as the pair tested bids around the CHF 1.5620 level while the British pound moved higher vis-? -vis the Swiss franc and was capped around the CHF 2.2675 level.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7270 level and was capped around the $0.7325 level. Australian dollar offers are cited around the US$ 0.7325 level.

CAD

The Canadian dollar moved lower vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1265 level and was supported around the C$ 1.1220 level. U.S. dollar offers are cited around the C$ 1.1350 level.


NZD

The New Zealand dollar came off sharply vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.5925 level and was capped around the $0.6060 level. This is the pair??™s lowest level since May 2004 and traders are eyeing major stops seen below the $0.5910 level. Data released in New Zealand today saw the May trade deficit print at a larger-than-expected ??“NZ$ 104 million. New Zealand dollar offers are cited around the US$ 0.6375 level.

Gold/ Silver

Gold moved lower vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 586.50 level and was supported around the $ 577.70 level. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the $10.40 level and was supported around the $10.14 level.

Crude Oil

Crude oil moved higher vis-? -vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$72.78 level and was supported around the $71.97 level. The pair edged higher as traders continue to react to news that a Louisiana shipping channel remains closed and deliveries from three refineries are being impacted. Weekly U.S. energy data will be released today.