Forex and Commodity Market Commentary and Analysis (6 July 2006)

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The euro moved higher vis-?�-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2780 level and was supported around the $1.2715 level. Technically, the pair continues to orbit the $1.2775 level, representing the 61.8% retracement of the move from $1.3480 to $1.1640. As expected, European Central Bank did not raise interest rates today following last month??�s monetary tightening. ECB policymakers have been quite hawkish in their remarks lately and inflation readings remain elevated hence many market participants believe the ECB will raise rates again soon, perhaps as early as next month. Remarks from ECB President Trichet will be closely scrutinized, especially to see if he uses the word ???vigilance??? in his remarks. Data released in the eurozone today saw German manufacturing orders fall 1.2% m/m in May and rise 17.3% y/y. In U.S. news, weekly initial jobless claims fell 2,000 to 313,000. The big number this week remains tomorrow??�s June non-farm payrolls report with many forecasts focusing on new job creation of about 200,000. Some traders are anticipating a good result on account of yesterday??�s strong ADP employment report that evidenced about 368,000 new jobs created last month. The employment report ??� while volatile ??� is important because the Federal Open Market Committee signaled last week that softening aggregate demand should contain price pressures. If fewer jobs were created last month, it will play into the notion that the Fed is closer to ending its long-standing rate tightening cycle. On the other hand, monetary hawks believe the Federal Open Market Committee will lift rates again ??� possibly as early as 8 August ??� on account of heightened inflationary pressures in the economy. Data released in the U.S. today saw the June ISM non-manufacturing index print less-than-expected at 57.0 while the new orders, employment, and prices paid sub-indices also came in lower-than-expected. Euro offers are cited around the US$ 1.2890 level.

??/ CNY

The yen appreciated vis-?�-vis the U.S. dollar today as the greenback tested bids around the ??115.20 level and was capped around the ??115.70 level. Technically, today??�s intraday high was right around the 61.8% retracement of the move from ??116.70 to ??114.10. Bank of Japan Governor Fukui reiterated the central bank will conduct ???appropriate??? monetary policy but did not offer any clues about timing. Also, Fukui added Japan??�s ???prolonged economic expansion is expected to continue??? and predicted core consumer prices will remain in an uptrend. Bank of Japan??�s Policy Board will convene on 13-14 July and some dealers believe the central bank will lift interest rates from their current near zero per cent level. Data released in Japan today saw May leading indicators improve to 75.0 from 54.5 in April, consistent with forecasts. Capital flows data saw foreign investors as net buyers of Japanese shares for the first time in four weeks. The Nikkei 225 stock index shed 1.30% to close at ??15,321.40. Dollar bids are cited around the ??114.70/ ??113.85 levels. The euro moved lower vis-?�-vis the yen as the single currency tested bids around the ??146.90 level and was capped around the ??147.40 level. The British pound and Swiss franc slumped vis-?�-vis the yen as the crosses tested bids around the ??211.60 and ??93.60 levels, respectively. The Chinese yuan depreciated vis-?�-vis the U.S. dollar as the greenback closed at CNY 7.9925 in over-the-counter trading, up from CNY 7.9915. Data released in China today saw the Q2 business confidence index fall 0.6% q/q and rise 4.0% y/y.

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The British pound gained ground vis-?�-vis the U.S. dollar today as cable tested offers around the US$ 1.8395 level and was supported around the $1.8335 level. As expected, Bank of England did not change monetary policy today, instead electing to keep the headline repo rate at 4.50% for the eleventh consecutive month. Data released in the U.K. today saw Halifax June average house prices decline 1.2% m/m with the annual gain printing lower-than-expected at 9.4%. Similarly, Nationwide reported June house prices rose 0.3% m/m. Additionally, it was reported that May industrial production climbed 0.3% m/m. Cable offers are cited around the US$ 1.8445 level. The euro was little-changed vis-?�-vis the British pound as the single currency tested offers around the ?��0.6950 level and was supported around the ?��0.6930 level.

CHF

The Swiss franc moved higher vis-?�-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2265 level and was capped around the CHF 1.2325 level. Technically, the pair continues to orbit the CHF 1.2285 level, representing the 50% retracement of the move from CHF 1.1285 to CHF 1.3285. Dollar bids are cited around the CHF 1.1230/ 1.1155 levels. The euro gained ground vis-?�-vis the Swiss franc as the single currency tested offers around the CHF 1.5695 level while the British pound moved lower vis-?�-vis the Swiss franc and tested bids around the CHF 2.2555 level.

AUD

The Australian dollar moved higher vis-?�-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7435 level and was supported around the $0.7405 level. Australian dollar offers are cited around the US$ 0.7520 level.

CAD

The Canadian dollar appreciated vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1095 level and was capped around the C$ 1.1150 level. U.S. dollar offers are cited around the C$ 1.1250 level.

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 US$ 0.6055 level. New Zealand dollar offers are cited around the US$ 0.6120 level.

Gold/ Silver
Gold depreciated vis-?�-vis the U.S. dollar today as the yellow metal tested bids around the US$ 622.50 level and was capped around the $628.30 level. Traders booked profits after the pair??�s run-up following North Korea??�s missile tests this week. North Korea warned overnight that it may launch additional missiles but the pair could not sustain its rally. Remarks from ECB President Trichet will also be closely watched as any perceived hawkishness in his comments could result in a stronger gold price. Silver moved lower vis-?�-vis the U.S. dollar as the pair tested bids around the US$ 11.27 level and was capped around the $11.42 level.

Crude Oil

Crude oil lost ground vis-?�-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested bids around the US$ 74.74 level and was capped around the $75.21 level, just below an all-time record. Jitters over hotspots like Iran, Iraq, and North Korea have traders on edge and dealers await the release of weekly U.S. energy inventories data.