NEWS / Foreign Debt

Forex and Commodity Market Commentary and Analysis (14 July 2006)

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The euro weakened vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2640 level after encountering resistance around the $1.2695 level. Technically, today??™s intraday low was just below the 50% retracement of the move from $1.3665 to $1.1640. Data released in the U.S. today saw the June import price index print at +0.1%, down from +1.7% in May. In theory, this suggests imported inflation may be ebbing and could reduce the pressure on the Federal Open Market Committee to lift interest rates further on 8 August. Also, headline June retail sales were off 0.1% while the ex-autos component printed at +0.3%, below expectations. Additionally, the mid-July University of Michigan headline consumer sentiment index receded to 83.0 from 84.9 with both the current conditions sub-index and consumer expectations sub-index posting declines. Collectively, these data suggest some of the moderation that was evident in the U.S. economy in Q2 may have carried over to early Q3. In eurozone news, European Central Bank member Bini-Smaghi reported the ECB??™s current monetary stance is ???appropriate??? and is not hindering EMU-12 economic growth. Euro offers are cited around the US$ 1.2775 level.

??/ CNY

The yen came off vis-? -vis the U.S. dollar today as the greenback tested offers around the ??116.15 level and was supported around the ??115.30 level. Stops were hit above the ??115.95 level, representing the 76.4% retracement of the move from ??116.70 to ??113.45 levels. As expected, Bank of Japan??™s Policy Board lifted the overnight call rate to 0.25%, its first rate hike in six years, while the official discount rate was lifted to 0.4% from 0.1%. The central bank noted it intends to keep interest rates at ???very low??? levels for quite some time and added it is not aiming for consecutive rate hikes. Also, BoJ will keep its outright purchases of Japanese government bonds at ??1.2 trillion per month and its monthly report upgraded its view of the economy, noting it is ???expanding moderately with deflation easing.??? The futures markets are now estimating BoJ will lift rates once more this year to about 0.5% and to about 0.75% by the end of the current fiscal year in March. The Nikkei 225 stock index shed 1.67% to close at ??14,845.24. Dollar bids are cited around the ??115.45 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??147.20 level and was supported around the ??146.35 level. The British pound and Swiss franc gained ground vis-? -vis the yen as the crosses tested offers around the ??213.70 and ??94.30 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9980 in the over-the-counter market, up from CNY 7.9924, and at CNY 7.9963 in the exchange-traded market. A government economist suggested the yuan should appreciate 3% to 4% per year and People??™s Bank of China reported the M2 money supply expanded 18.4% y/y.

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The British pound tumbled vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8340 level and was capped around the $1.8445 level. Technically, the pair??™s intraday high was just below the 61.8% retracement of the move from $1.8535 to $1.8310. Traders continue to speculate about the impact of Chancellor Brown??™s two nominations to Bank of England??™s Monetary Policy Committee. Cable offers are cited around the US$ 1.8425/ 85 levels. The euro gained marginal ground vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6890 level and was supported around the ?‚¤0.6875 level.

CHF

The Swiss franc lost ground vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2375 level and was supported around the CHF 1.2285 level. Technically, today??™s intraday low was right around the 50% retracement of the move from CHF 1.1285 to CHF 1.3285. Dollar bids are cited around the CHF 1.2295/ 25 levels. The euro and British pound moved higher vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5630 and CHF 2.2710 levels, respectively.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7480 level and was capped around the $0.7545 level. Stops were hit below the $0.7500 figure, representing the 50% retracement of the move from $0.7985 to $0.7015. Data released in Australia today saw the May trade deficit print at A$ 2.266 billion and some traders believe this will result in increased pressure on Reserve Bank of Australia to tighten monetary policy further. 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$ 1.1255 level and was capped around the $ 1.1325 level. Data released in Canada today saw May factory shipments increase 0.3% and were off 1.1% ex-aerospace. U.S. dollar offers are cited around the C$ 1.1450 level.


NZD

The New Zealand dollar gained marginal ground vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6210 level and was supported around the $0.6150 level. Technically, the pair continues to orbit the 50% retracement of the move from $0.6430 to $0.5930. New Zealand dollar offers are cited around the US$ 0.6230 level.

Gold/ Silver

Gold moved higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 666.00 figure and were supported around the $ 659.55 level. Gold tracked oil higher amid escalating tensions in the Middle East. Israel has ratcheted up its military actions in Lebanon and Gaza and there is a risk that Syria and Iran could soon become more overtly involved. This weekend??™s statement from the Group of Eight in St. Petersburg, Russia will be closely monitored. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 11.72 level and was supported around the $11.53 level.

Crude Oil

Crude oil appreciated vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested offers around the US$ 78.40 level and was supported around the $77.15 level. Today??™s intraday high represents a lifetime high and several factors are conspiring in crude??™s favour. Israel??™s military forays into Gaza and Lebanon are pushing up prices, as is news that Nigerian militants attacked oil pipelines belonging to Agip ??“ resulting in 120,000 barrels lost per day. Tensions on the Korean peninsula are also keeping the paid bid.