NEWS / Macroeconomic Stories

Forex and Commodity Market Commentary and Analysis (3 July 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$ 1.2760 level and was capped around the $1.2805 level. Technically, the pair continues to orbit the $1.2775 level, the 61.8% retracement of the move from $1.3480 to $1.1640. The common currency scored major gains late last week after traders reduced long U.S. dollar exposure following the Federal Open Market Committee??™s interest rate decision and policy statement. Data released in the U.S. today saw the June ISM manufacturing index print at 53.8 from 54.4, the lowest reading since August 2005, while the prices paid component came in around consensus at 76.5. Also, May construction spending was off 0.4%, further ammunition for the interest rate doves who believe the Fed??™s rate hikes may be choking the housing and construction sectors. In eurozone news, European Central Bank??™s Mersch retained his hawkish stance in comments today and some dealers believe the ECB could tighten monetary policy again this week. May EMU-12 unemployment eased to 7.9 from 8.0 in April ??“ a 4 ?? year low ??“ and the EMU-12 PMI improved to 57.7 in June from 57.0 in May, its fastest rate in nearly six years. Focus will remain on hawkish chatter from ECB officials, especially with the Fed closer to the end of its tightening cycle than it was perhaps just one week ago. Euro offers are cited around the US$ 1.2890 level.

??/ CNY

The yen weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the ??114.90 level and was supported around the ??114.10 level. The yen did not gain significant ground even though the June quarterly tankan survey of manufacturing sentiment was decent with the large manufacturers??™ diffusion index printing at +21. The index for large non-manufacturers rallied to 20 from 18. All firms saw capital expenditures increasing +6.2% in the year to March 2007, an important factor for business investment in the Japanese economy. Speculation that Bank of Japan may lift interest rates from near zero per cent increased after the tankan??™s release. Many dealers, however, continue to focus on the problems faced by Bank of Japan Governor Fukui who remains embroiled in a scandal involving a previous investment in the scandal-ridden Murakami fund. Government officials verbally intervened on interest rates overnight, reiterating deflation is still evident in the economy and calling on the central bank to leave them unchanged. The Nikkei 225 stock index gained 0.43% to close at ??15,571.62. Dollar bids are cited around the ??113.85 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??147.00 figure and was supported around the ??145.95 level. Today??™s high represents the pair??™s all-time high. The British pound and Swiss franc moved higher vis-? -vis the yen as the crosses tested offers around the ??211.85 and ??93.75 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar today as the greenback closed at CNY 8.0027 in the over-the-counter market, up from CNY 7.9943, and at CNY 7.9946 in the exchange-traded market. Data released in China today saw June PMI printed at 54.1, down from 54.8 in May, while January ??“ May property investment was up 21.8% y/y.

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The British pound depreciated vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8425 level and was capped around the $1.8485 level. Sterling had a solid run-up on Thursday and Friday in reaction to the Fed??™s policy statement. Data released in the U.K. today saw June CIPS manufacturing PMI print at 55.1, its highest print since July 2004, while Q1 productivity slowed to 0.3 from 0.9 in Q4. Bank of England??™s Monetary Policy Committee convenes this week and is not expected to change interest rates. Many traders, however, believe the MPC may move on interest rates later this year after having last changed interest rates in August 2005. Cable offers are cited around the US$ 1.8535 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6940 level and was supported 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 1.2275 level and was supported around the CHF 1.2225 level. The pair lost more than 225 pips late last week after the Federal Reserve??™s interest rate decision. Data released in Switzerland today saw June PMI improve to 64.0 from 63.5 in May, a three-month high. Dollar bids are cited around the CHF 1.2160 level. The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5680 level and was supported around the CHF 1.5640 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.2575 level.

AUD

The Australian dollar depreciated vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7410 level and was capped around the $0.7460 level. Data released in Australia today saw May building approvals rise 3.3% m/m but were off 11.7% y/y. Also, May retail sales were off 0.3% m/m. Australian dollar offers are cited around the US$ 0.7500 figure.


CAD

The Canadian dollar moved marginally higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1105 level and was capped around the C$ 1.1185 level. U.S. dollar offers are cited around the C$ 1.1250 level.

NZD

The New Zealand dollar depreciated vis-? -vis the U.S. dollar today as kiwi tested bids around the US$ 0.6055 level and was capped around the $0.6110 level. New Zealand dollar offers are cited around the US$ 0.6120 level.

Gold/ Silver

Gold extended recent gains vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 625.25 level and was supported around the $613.60 level. Higher oil prices contributed to gold??™s run-up and conditions were seen as thin ahead of tomorrow??™s Independence Day holiday. News that China??™s government and the United Arab Emirates??™s government could increase their gold holdings has the pair bid. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 11.27 level and was supported around the $10.99 level.

Crude Oil

Crude oil rallied vis-? -vis the U.S. dollar today as London Brent crude oil futures tested offers around the US$ 73.99 level. NYMEX crude oil futures dealing was closed for a market holiday and will reopen on Wednesday. Strong demand from U.S. motorists kept the pair bid and tensions involving Iran, Iraq, North Korea, and Nigeria continue to result in price pressures.