NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (20 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$ 1.2645 level and was supported around the $ 1.2585 level. The common currency was energized yesterday by testimony from Fed Chairman Bernanke who indicated a moderation in economic growth should help to keep inflation in check. Fed funds futures are pricing in about a 65% chance the Federal Open Market Committee will lift the federal funds target rate by +25bps to 5.50% on 8 August. Bernanke testifies again today and traders will be alert for any clues regarding monetary policy and economic growth. Minutes from the FOMC??™s June policy meeting will be released this afternoon and could evidence additional discussion about policymakers not wanting to overshoot on interest rates. Kansas City Fed President Hoenig spoke yesterday and intimated there is a chance that monetary policy may become too restrictive - likely the first time a Fed policymaker has suggested this during the current rate tightening cycle. Data released in the U.S. today saw weekly initial jobless claims decline 30,000 to 304,000 while continuing jobless claims were up 85,000 to 2.51 million. Additionally, June leading economic indicators rose 0.1% while the coincident index index increased 0.2% and the lagging index increased 0.6% June. The Philadelphia Fed??™s July business activity index will be released later today. Euro offers are cited around the US$ 1.2775 level.

??/ CNY

The yen lost marginal ground vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.00 figure and was supported around the ??116.55 level. Technically, the pair continues to orbit the ??116.75 level, representing the 23.6% retracement of the move from ??101.65 to ??121.40. Data released in Japan overnight saw June same-store convenience store sales rise 0.6% y/y, the first expansion in 23 months. Most traders continue to short the yen as they believe interest rates will remain low in Japan and that Bank of Japan will continue remove monetary policy accommodation at a gradual pace. The May all-industries activity index will be released tonight. The Nikkei 225 stock index climbed 3.08% to close at ??14,946.84. Dollar bids are cited around the ??115.75 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??147.85 level and was supported around the ??146.95 level. The British pound and Swiss franc moved higher vis-? -vis the yen as the crosses tested offers around the ??216.55 and ??94.10 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9920 in the over-the-counter market, down from CNY 8.0028, and at CNY 7.9926 in the exchange-traded market. Data released in China today saw H1 urban fixed asset investment up 31.3% y/y while June wholesale prices were up 0.4% m/m and 2.3% y/y.

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The British pound extended recent gains vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8515 level and was supported around the $1.8415 level. Chartists are eyeing the $1.8535 level as the pair??™s next upside target. Many economic data were released in the U.S. today. First, June U.K. retail sales climbed 0.9% m/m, the fifth consecutive monthly increase. Second, BSA reported June mortgage lending reached their highest-ever levels for that month. Third, CML reported June mortgage lending reached a new peak, surpassing the levels established in May 2005. Fourth, June provisional M4 money supply was up 1.6% m/m. Fifth, the U.K. government registered its largest-ever June deficit at ?‚¤7.3 billion. Bank of England Monetary Policy Committee member Gieves spoke today and reported that imported inflation has so far been ???offset by lower price increases elsewhere.??? Cable offers are cited around the US$ 1.8595 level. The euro moved marginally lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6820 level and was capped around the ?‚¤0.6840 level.

CHF

The Swiss franc moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.2420 level and was capped around the CHF 1.2490 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Data released in Switzerland today saw June producer and import prices rise 3.1% y/y while Switzerland??™s June trade surplus printed at CHF 935.5 million. Dollar bids are cited around the CHF 1.2285 level. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5695 and CHF 2.2970 levels, respectively.

AUD

The Australian dollar moved higher vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7530 level and was supported around the $0.7490 level. Australian dollar offers are cited around the US$ 0.7615 level.

CAD

The Canadian dollar moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1315 level and was capped around the C$ 1.1350 level. Canadian June consumer prices will be released tomorrow. U.S. dollar offers are cited around the C$ 1.1615 level.

NZD

The New Zealand dollar moved lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6190 level and was capped around the $0.6255 level. New Zealand dollar offers are cited around the US$ 0.6375 level.

Gold/ Silver

Gold moved lower vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 636.60 level and was capped around the $645.25 level. Gold was up yesterday following less-than-hawkish comments from Fed Chairman Bernanke but the pair gave back some gains today on profit-taking. The tensions in the Middle East continue to impact all precious metals. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 11.18 level and was supported around the $10.96 level.

Crude Oil

Crude oil moved marginally lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 74.50 level and was capped around the $75.30 level. Israel has threatened an all-out invasion of Lebanon and tensions are escalating in the nine-day old fighting. OPEC yesterday suggested prices should be in the mid-$60 range and an Iranian official intimated his country wants to resolve its nuclear enrichment issue diplomatically with the international community.