Forex and Commodity Market Commentary and Analysis (29 June 2006)

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The euro came off marginally vis-?�-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2520 level and was capped around the $1.2560 level. Today??�s tight range was expected ahead of the Federal Open Market Committee interest rate decision this afternoon. Most traders believe Federal Open Market Committee policymakers will lift the federal funds target rate by +25bps to 5.25% while some are holding out for a +50bps move. Economists have astutely noted that inflation has ramped-up recently and this may keep the Fed on the offensive in their policy statement. Fed Chairman Bernanke has been criticized by the markets for perhaps being too transparent as he tries to establish his inflation-fighting credentials. Fed officials have been quite hawkish in recent weeks and if they do signal more strongly a pause or end to the long-standing rate cycle, they may pay special attention to ???inflation expectations??? in their policy statement. After the Fed meeting, focus will return back to the European Central Bank and whether or not ECB policymakers will lift rates higher next week. Data released in the U.S. today saw Q1 GDP upwardly revised to 5.6% from 5.3%, up from Q4??�s 1.7% growth level. The personal consumption expenditures index ??� the Fed??�s preferred measure of price pressures, remained unchanged at 3.0%. Weekly initial jobless claims climbed 4,000 to 313,000 last week and continuing jobless claims printed at 2.41 million. In eurozone news, Germany??�s June jobless rate fell to 10.9% from 11.0% in May and German April manufacturing orders rose 4.1% m/m. Also, German May wholesale sales were off 0.4% m/m and were up 6.9% y/y. Germany??�s Ifo institute reconfirmed it sees 2006 GDP growth at 1.8%. Euro offers are cited around the US$ 1.2650 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 ??116.60 level. Technically, today??�s intraday high was right around the 61.8% retracement of the move from ??121.40 to ??109.00. Data released in Japan overnight saw May industrial output decline 1.0% m/m. Traders continue to monitor developments involving Bank of Japan Governor Fukui. Today, a Liberal Democratic Party panel head called for his immediate resignation on account of his prior involvement in the Murakami fund scandal. Some traders believe his departure from the BoJ could slow forthcoming interest rates moves away from their current near zero per cent level. Others believe that even if Fukui remains in power, he will be distracted and this may inhibit his ability to lift interest rates. The Nikkei 225 stock index rallied 1.58% to climb to ??15,121.15. 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 ??145.60 level and was capped around the ??146.30 level. The British pound and Swiss franc came off vis-?�-vis the yen as the crosses tested bids around the ??210.45 and ??93.00 levels, respectively. The Chinese yuan appreciated vis-?�-vis the U.S. dollar as the greenback closed at CNY 7.9955 in over-the-counter trading, down from CNY 7.9984, and at CNY 7.9958 in exchange-traded activity.

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The British pound moved lower vis-?�-vis the U.S. dollar today as cable tested bids around the US$ 1.8105 level and was capped around the US$ 1.8195 level. Data released in the U.K. today saw Nationwide June house prices up 0.3% m/m and up 5.0% y/y. Bank of England Governor King today said the U.K. housing market remains in a ???reasonably stable position??? and BoE today reported mortgage lending growth was at its highest level in May in 2 ?? years. King also said he anticipates a pick-up in business investment and exports over the coming years. BoE Monetary Policy Committee member Barker today talked down the increase in household inflation expectations, adding they are ???not a matter of acute concern.??? Cable offers are cited around the US$ 1.8320 level. The euro moved higher vis-?�-vis the British pound as the single currency tested offers around the ?��0.6920 level and was supported around the ?��0.6895 level.

CHF

The Swiss franc moved lower vis-?�-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2500 figure and was supported around the CHF 1.2450 level. Data released in Switzerland today saw the consumer price index mostly unchanged m/m in June and up 1.6% y/y. The Swiss government today lifted its fiscal year 2006 Swiss GDP forecast to 2.7% from 2.0%. Dollar bids are cited around the CHF 1.2380 level. The euro moved higher vis-?�-vis the Swiss franc as the single currency tested offers around the CHF 1.5655 level while the British pound moved lower vis-?�-vis the Swiss franc and tested bids around the CHF 2.2605 level.

AUD

The Australian dollar moved higher vis-?�-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7315 level and was supported around the $0.7270 level. Technically, today??�s intraday high was right below the 61.8% retracement of the move from US$ 0.7020 to $ 0.7790. Data released in Australia today saw the job vacancies in rise 7.3% in the three months to May from the November quarter. Australian dollar offers are cited around the US$ 0.7380 level.

CAD

The Canadian dollar appreciated significantly vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1115 level and was capped around the C$ 1.1235 level. U.S. dollar offers are cited around the C$ 1.1200 figure.

NZD

The New Zealand dollar came off marginally vis-?�-vis the U.S. dollar today as kiwi tested bids around the US$ 0.5930 level and was capped around the $0.5965 level. Yesterday??�s trade deficit data released in New Zealand pushed the pair to multi-month lows and chartists are still eyeing the $0.5910 level as a major pair for the target. New Zealand dollar offers are cited around the US$ 0.6045 level.

Gold/ Silver

Gold gained ground vis-?�-vis the U.S. dollar today as the yellow metal tested offers around the US$ 591.50 level and was supported around the $579.90 level. Traders went long gold ahead of the Federal Open Market Committee??�s interest rate decision today with many players nervous about the global inflation outlook. The long holiday weekend for some U.S. traders may seem reduced activity. Silver moved higher vis-?�-vis the U.S. dollar as the pair tested offers around the US$ 10.58 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$ 73.41 level and was supported around the $72.36 level. Gasoline futures are near nine-month highs and U.S. inventories data released yesterday saw gasoline inventories climb by one million barrels in the last week. Also, crude oil stocks fell by 3.4 million barrels last week, more-than-expected. Heightened geopolitical risks involving North Korea and Iran have many traders on edge and oil may retest some key technical resistance. Additionally, some U.S. shipping lanes in the Gulf remained closed and this is having an impact on prices.