NEWS / Trade Policy

Forex and Commodity Market Commentary and Analysis (17 July 2006)

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The euro came off sharply vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2520 level after failing to get above the $1.2655 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.3665 to $1.1640 and stops were hit below the $1.2560 level, representing the 50% retracement of the move from $1.3480 to $1.1640. Further military action in the Middle East involving Israel and Hezbollah continue to support the U.S. dollar. Data released in the eurozone today saw EMU-12 HICP print at 2.5% y/y in June, unchanged m/m and unchanged from a provisional estimate. Also, EMU-12 industrial output was up 1.6% m/m and 4.9% y/y in May. Some dealers are rethinking their outlook about European interest rates now and are actually pricing in less monetary tightening from European Central Bank. Bundesbank reported German economic growth was probably ???markedly??? higher than Q1??™s +0.4% growth rate while Bank of France reduced its Q2 GDP forecast to +0.6% and its H1 growth forecast to 1.5%. Traders monitored the Group of Eight meeting in St. Petersburg, Russia this weekend. G8 officials??™ communiqu?© noted ?????¦global growth remain strong and has become more broadly based.??? The big focus this week in the markets will be testimony from Fed Chairman Bernanke on Wednesday and Thursday. The Federal Open Market Committee next convenes on 8 August and some traders believe the Fed will not move rates higher at that time, particularly after June non-farm payrolls came in less-than-expected. Data released in the U.S. today saw June industrial output up +0.8% while capacity utilization printed at 82.4%. Additionally, traders will pay very close attention to U.S. CPI data expected on Wednesday. Euro offers are cited around the US$ 1.2640 level.

??/ CNY

The yen moved sharply lower vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.15 level and was supported around the ??116.15 level. Stops were reached above the ??116.75 level, representing the 23.6% retracement of the move from ??101.65 to ??121.40. Liquidity was reduced in Japan overnight on account of the Marine Day holiday and will normalize tonight. The pair has not been this strong since 21 April of this year. Dollar bids are cited around the ??116.55/ 115.10 levels. The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??147.15 level and was supported around the ??146.50 level. The British pound and Swiss franc moved higher vis-? -vis the yen as the crosses tested offers around the ??213.85 and ??212.75 levels, respectively. The Chinese yuan weakened vis-? -vis the U.S. dollar today as the greenback closed at CNY 8.0048 in the over-the-counter market, up from CNY 7.9980, and at CNY 7.9992 in the exchange-traded market.

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The British pound lost significant ground vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8190 level and was capped around the $1.8385 level. Stops were reached below the $1.8300 figure, representing the 50% retracement of the move from $1.9550 to $1.7045. Data released in the U.K. today saw Righmove monthly house prices notch their highest monthly rise since August 2001. Also, the London Retail Consortium reported June like-for-like retail sales in London decelerated in June y/y. Cable offers are cited around the US$ 1.8290 level. The euro moved marginally lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6870 level and was capped around the ?‚¤0.6890 level.

CHF

The Swiss franc moved significantly lower vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2485 level and was supported around the CHF 1.2325 level. Stops were triggered above the CHF 1.2425 level, representing the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Traders are paying little attention to the Swiss franc as a safe haven currency during the current inflammation of violence and tension in the Middle East. Swiss May retail sales will be released tomorrow. Dollar bids are cited around the CHF 1.2285 level. The euro and British pound appreciated vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5635 and CHF 2.2720 levels, respectively.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7475 level and was capped around the US$ 0.7535 level. Technically, the pair continues to orbit the 50% retracement of the move from $0.7985 to $0.7015. Australian dollar offers are cited around the US$ 0.7615 level.

CAD

The Canadian dollar lost marginal ground vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1345 level and was supported around the C$ 1.1275 level. U.S. dollar offers are cited around the C$ 1.1615 level.


NZD

The New Zealand dollar was little-changed vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6225 level and was supported around the $0.6185 level. New Zealand dollar offers are cited around the US$ 0.6275 level.

Gold/ Silver

Gold lost ground vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 657.22 level and was capped around the $676.10 level. The pair reached a level not seen in a couple of months before coming off and this was attributable to the escalation of tensions in the Middle East. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 11.31 level and was capped around the $11.74 level.

Crude Oil

Crude oil fell back vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested bids around the US$ 75.60 level and was capped around the $77.69 level. The pair backed off after an Israeli official was quoted as saying Israel??™s offensive into Lebanon may be over in a matter of days. Bilateral military action involving Israel and Lebanon??™s Hezbollah has kept the pair bid over the past week; an escalation of attacks or overt involvement of Syria and Iran will likely see the pair move higher.