NEWS / Government Ministries

Forex and Commodity Market Commentary and Analysis (13 July 2006)

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The euro gained marginal ground vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2730 level and was supported around the $1.2685 level. Technically, today??™s intraday high was right at the 50% retracement of the move from $1.2980 to $1.2480. European Central Bank??™s monthly bulletin was released today and it reiterated ???strong vigilance??? is required to combat inflation, adding ???If the governing council's assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation remains warranted.??? The ECB will next convene on 3 August and is expected to tighten monetary policy by +25bps at that time. The ECB also indicated the euro??™s appreciation over the past four years ???has been associated with a decline in the euro area??™s export market share.??? In other eurozone news, France??™s June consumer price index was unchanged m/m and up 1.9% y/y, both weaker-than-expected. Also, German June consumer prices were up 0.2% m/m and 2.0% y/y, consistent with forecasts. In U.S. news, weekly initial jobless claims rose 19,000 to 332,000 while continuing jobless claims were off 18,000 to 2.43 million. Tomorrow??™s June retail sales and June import prices data in the U.S. will be closely watched by traders. Euro offers are cited around the US$ $1.2770 level.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.00 figure and was capped around the ??115.50 level. Technically, today??™s intraday low was just below the 50% retracement of the move from ??116.70 to ??113.45. Bank of Japan??™s Policy Board began its two-day interest rate deliberations overnight and is widely expected to lift the overnight call rate from about 0% to possibly as high as 0.25% tonight. Liberal Democratic Party policy chief Nakagawa said the markets have factored in a move higher in Japanese interest rates and added BoJ needs to make sure deflation does not return. Similarly, a Nikkei report today indicated the BoJ Policy Board believes economic growth and escalating consumer prices warrant a move higher in borrowing costs. Data released in Japan today saw the May current account surplus rise 15.9% y/y while May industrial output was upwardly revised to 1.3% m/m from 1.0% m/m. Capital flows data saw foreign investors as net sellers of Japanese equities for the second consecutive month. The Nikkei 225 stock index shed 0.99% to close at ??15,097.95. Dollar bids are cited around the ??114.70/ 20 levels. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??146.25 level and was capped around the ??146.80 level. The British pound and Swiss franc moved higher vis-? -vis the yen as the crosses tested bids around the ??212.40 and ??93.80 levels, respectively. The Chinese yuan weakened vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9924 in the over-the-counter market. A Chinese newspaper reported China??™s GDP rose 10.9% y/y in Q2 and People??™s Bank of China indicated an adjustment in the yuan??™s exchange rate will have minimal impact in reducing China??™s massive trade surplus.

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The British pound gained strong ground vis-? -vis the U.S. dollar today as cable tested offers around the US$ $1.8465 level and was supported around the $1.8330 level. Stops were hit above the $1.8430 level, representing the 23.6% retracement of the move from $1.8090 to $1.8535. Chancellor of the Exchequer Brown nominated two people to join Bank of England??™s Monetary Policy Committee today, specifically Tim Besley and Andrew Sentence. Sentence is a member of the Times newspaper??™s shadow monetary policy committee that voted to keep interest rates unchanged at 4.5% this month, mirroring the actual decision. BCC??™s quarterly economic survey was released today and it spotlighted the ???worrying??? declines in export balances and noted the improvement in confidence appears ???vulnerable.??? Cable offers are cited around the US$ 1.8535 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6890 level and was capped around the ?‚¤0.6930 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2270 level and was capped around the CHF 1.2345 level. Stops were reached below the CHF 1.2300 figure, representing the 38.2% retracement of the move from CHF 1.2525 to CHF 1.2185. A flare-up in tensions between North Korea and South Korea and a rapid increase in Israeli military activity in Palestine and Lebanon contributed to the Swiss franc??™s move higher. Dollar bids are cited around the CHF 1.2255/ 30 levels. The euro moved lower vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5615 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.2675 level.

AUD

The Australian dollar moved higher vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7565 level and was supported around the $0.7515 level. Data released in Australia today saw the June unemployment rate remain unchanged at 4.9% m/m and these data spurred more talk about an additional monetary tightening by Reserve Bank of Australia. RBA Deputy Governor Stevens today said consumer price inflation data are the key statistic in formulating monetary policy. Australian dollar offers are cited around the US$ 0.7615 level.

CAD

The Canadian dollar moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1290 level and was capped around the C$ 1.1350 level. It was reported that Canada??™s trade surplus expanded 5% in May to C$ 4.1 billion even though exports declines for the fourth time in five months. Bank of Canada released its July Monetary Policy Report today and it indicates the Canadian dollar is trading in a higher range that was envisaged in April. BoC predicts economic growth of 3.2% in 2006 and 2.9% in 2007 with CPI inflation just above 1.5% from mid-2006 to mid-2007. U.S. dollar offers are cited around the C$ 1.1450 level.

NZD

The New Zealand dollar moved higher vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6200 figure and was supported around the $0.6150 level. Technically, the pair continues to orbit the $0.6180 level, representing the 50% retracement of the move from $0.6430 to $0.5930. New Zealand dollar offers are cited around the $0.6235 level.

Gold/ Silver

Gold slumped vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 644.75 level and was capped around the $654.75 level. Gold moved away from intraday highs that were reached after Israel bombed the international airport in Lebanon. Also, North Korea abruptly ended talks with South Korea over North Korea??™s recent missile launches. The pair may see some additional volatility tomorrow as June U.S. CPI data will be released. Silver came off vis-? -vis the U.S. dollar as the pair tested bids around the US$ 11.40 level and was capped around the $11.70 level.

Crude Oil

Crude oil moved higher vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested offers around the US$ 76.40 level ??“ a fresh all-time high ??“ and was supported around the $75.11 level. Israel??™s military action in Lebanon contributed to the pair??™s gains, as did tensions on the Korean peninsula.