NEWS / Foreign Debt

Forex and Commodity Market Commentary and Analysis (28 July 2006)

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The euro depreciated vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2660 level and was capped around the $1.2700 figure. Technically, today??™s intraday low was right around the 50% retracement of the move from $1.2680 to $1.2460. Data released in the U.S. today saw preliminary Q2 GDP print at 2.5%, below expectations and down from 5.6% in Q1. Also, the GDP price index came in at 3.3%, up from 3.1%, while personal consumption was up a relatively strong 2.5%. Moreover, the core personal consumption expenditures index climbed 2.9% q/q from 2.0% and the Q2 employment cost index expanded 0.9% from 0.6%. These data are important because traders are trying to determine whether or not the Federal Open Market Committee will lift the federal funds target rate by 25bps on 8 August. Fed Chairman Bernanke has recently suggested the current ???moderation??? in U.S. economic activity will reduce inflationary pressures. In fact, these data are probably exactly what the Federal Reserve did not want to see: a slowdown in economic activity and a pick-up in inflationary pressures. The final July University of Michigan consumer sentiment index will be released later today. In eurozone news, the EMU-12 M3 money supply expanded 8.5% y/y in June, down from May??™s downwardly revised 8.8% level. Traders are also wondering if European Central Bank will tighten monetary policy next week. Also, German wholesale sales fell 0.4% m/m and were off 0.1% y/y. Euro offers are cited around the US$ 1.2710/ 65 levels.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.25 level and was capped around the ??116.00 figure. Technically, the pair is orbiting the 23.6% retracement of the move from ??109.00 to ??117.85. Many economic data were released in Japan overnight and the most important was the eighth consecutive monthly increase in core consumer prices, the latest evidence the Japanese economy is overcoming deflation; June prices rose +0.6% y/y and Chief Cabinet Secretary Abe noted the end of deflation ???is in sight.??? Other data released today saw June retail sales climb 0.4% y/y while the June unemployment rate rose to 4.2% from 4.0% in May. Also, June household spending was off 2.2% y/y. The yen also continues to derive support on the news announced this week that U.S. Senators Graham and Schumer will seek a vote by 30 September on protectionist anti-Chinese tariffs if Chinese does not further liberalize its foreign exchange regime. The Nikkei 225 stock index climbed 1.07% to close at ??15,342.87. Dollar bids are cited around the ??114.45 level. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??146.25 level and was capped around the ??147.10 level. The British pound and Swiss franc moved lower vis-? -vis the yen as the crosses tested bids around the ??214.35 and ??93.00 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9712 in the exchange-traded market. People??™s Bank of China??™s Tang Xu talked about the yuan??™s exchange rate saying ???I'm not saying that it's not necessary to widen the band - what I'm saying is that there's no immediate need to widen the band as (the current range) is still enough. As Premier Wen said, yuan flexibility should be increased gradually.??? A government think tank reported Chinese GDP is expected to increase about 11% y/y in Q3 while the government also reported 2006 CPI will likely be up 3.5%. Also, it was reported that urban unemployment was 4.2% at the end of June.

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The British pound weakened vis-? -vis the U.S. dollar as cable tested bids around the US$ 1.8545 level and was capped around the $1.8615 level. Technically, today??™s intraday low was right around the 76.4% retracement of the move from $2.0035 to $1.3680. Data released in the U.K. today saw IRS manufacturing pay awards remain relatively benign in the year to May while NIESR reported the U.K. economy is expected to grow around its trend rate through 2008 with consumer price inflation expected to be above 2%. Cable offers are cited around the US$ 1.8960 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6815 level and was capped around the ?‚¤0.6840 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2420 level and was supported around the CHF 1.2370 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. The July KOF leading indicator will be released today. Dollar bids are cited around the CHF 1.2285 level. The euro moved lower vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5710 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3065 level.

AUD

The Australian dollar weakened vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7630 level and was supported around the $ 0.7595 level. Technically, the pair continues to orbit the 61.8% retracement of the move from $0.7985 to $0.7015. Most traders expect Reserve Bank of Australia to raise interest rates next week, especially after this week??™s CPI data printed strong. Australian dollar offers are cited around the US$ 0.7700 figure.
said.


CAD

The Canadian dollar moved marginally lower vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1370 level and was supported around the C$ 1.1340 level. Technically, the pair continues to orbit the 23.6% retracement of the move from $1.2730 to $1.0930. U.S. dollar offers are cited around the C$ 1.1615 level.

NZD

The New Zealand dollar depreciated vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6145 level and was capped around the $0.6210 level. New Zealand dollar offers are cited around the US$ 0.6225 level.

Gold/ Silver

Gold moved lower vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 627.30 level and was capped around the $638.07 level. Traders booked profits ahead of the weekend, especially with the Middle East fighting involving Israel and Hezbollah. Traders are also reducing exposure of next week??™s European Central Bank interest rate decision. Silver came off vis-? -vis the U.S. dollar as the pair tested bid around the US$ 11.29 level and was capped around the $11.43 level.

Crude Oil

Crude oil gave back ground vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 73.95 level and was capped around the $74.75 level. A major supply disruption in Nigeria and the continued fighting in the Middle East are keeping the pair relatively bid.