NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (31 July 2006)

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The euro came off marginally vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2740 level and was capped around the $1.2770 level. Today??™s relatively tight range follows last week??™s strong move higher by the common currency, emboldened by a less-than-expected print in preliminary Q2 U.S. GDP data of 2.5%. Technically, last week??™s intraweek high and low were right around the 61.8% and 50% retracements of the move from $1.3480 to $1.1640. Data released in the eurozone today saw the economic sentiment indicator improve to a record 107.7 in July. Also, it was reported that July provisional harmonized consumer prices climbed 2.5% in the eurozone, unchanged from June??™s level and above consensus. Traders await the interest rate decision from European Central Bank??™s Governing Council on Thursday and many dealers believe policymakers will lift the main refinancing rate by +25bps to 3.0%. Other data released today include June German new orders for machinery and plants up 3% y/y while June German retail sales expanded 1.9% m/m and were off 0.4% y/y. Data to be released in the U.S. today include the July U.S. Chicago PMI survey. San Francisco Fed President Yellen speaks today as does St. Louis Fed President Poole. The Federal Open Market Committee will convene on 8 August and is expected to raise the federal funds target rate to 5.5% from 5.25%. Euro offers are cited around the US$ 1.2775/ 1.2890 levels.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.25 level and was capped around the ??114.80 level. Technically, the pair continues to orbit the ??114.40 level, right around the 38.2% retracement level of the move from ??135.15 to ??101.65. Data released in Japan today saw June industrial output reach a record-high, up 1.9% to 105.7 and up after falling 1.3% in May. Notably, the government used the word ???trend??? to characterize industrial production for the first time since November 2000. These data will have a positive impact on the gross domestic product of the first quarter of Japan??™s current fiscal year. Data released on Friday saw IMM short yen positions reach record levels in the week that ended 25 July. This also means the yen could appreciate quickly if and when short yen positions are unwound. Other data released overnight saw June housing starts climb 4.7% y/y, below estimates and off from May??™s +6.7% y/y gain. The Nikkei 225 stock index climbed 0.74% to close at ??15,456.81. Dollar bids are cited around the ??113.85 level. The euro depreciated vis-? -vis the yen as the single currency tested bids around the ??145.70 level and was capped around the ??146.55 level. The British pound and Swiss franc moved lower vis-? -vis the yen as the crosses tested bids around the ??212.95 and ??92.60 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9653 in the exchange-traded market, a post-revaluation closing high for the yuan and down from Friday??™s close of CNY 7.9712. St. Louis Fed President Poole will speak today about China??™s economic growth. China??™s government estimated consumer price inflation will rise about 2% in H2 and H2 retail sales are expected to be up 13.5% y/y to CNY 4.26 trillion. People??™s Bank of China policymaker Yi reported the central bank needs ???determination??? to make the yuan a convertible currency.

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The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8665 level and was supported around the $1.8615. Technically, today??™s intraday high was right around the 61.8% retracement of the move from $1.9025 to $1.8090. Data released in the U.K. today by Bank of England saw mortgage lending near two-year highs at ?‚¤9.0 billion in June while credit card borrowing fell to a twelve-year low. May mortgage lending was downwardly revised to ?‚¤9.2 billion from ?‚¤9.3 billion. Also, Hometrack reported U.K. house prices were up 0.6% m/m in July but noted there are indications house price increases will decelerate. Additionally, it was reported that the June M4 money supply was up 1.5% m/m while M4 lending was up ?‚¤29.9 billion. Cable offers are cited around the US$ 1.8805 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6830 level and was capped around the ?‚¤0.6855 level.

CHF

The Swiss franc was little-changed vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2345 level and was supported around the CHF 1.2310 level. Traders are curious to see how the pair will react if the 48-hour Middle Eastern cease fire holds as some traders have been buying Swiss franc for its perceived safe-haven status. July Swiss PMI data will be released on Wednesday followed by July consumer prices on Thursday. U.S. dollar offers are cited around the CHF 1.2425 level. The euro moved lower vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5715 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3020 level.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7645 level and was capped around the $0.7670 level. Technically, last week??™s intraweek high was right around the 76.4% retracement of the move from $0.7795 to $0.7270 level. Data released in Australia today saw total private sector growth up 1.2% m/m and 14.2% y/y, an improvement over May??™s +1.1% m/m and +14.1% y/y levels. Most traders expect Reserve Bank of Australia to raise interest rates on Thursday and the expectations of same saw the pair move higher last week. Australian dollar offers are cited around the US$ 0.7700 figure.

CAD

The Canadian dollar moved strongly higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1235 level and was capped around the C$ 1.1315 level. Stops were triggered below the C$ 1.1255 level, around the 38.2% retracement of the move from $1.0925 to $1.1455. May GDP data will be released in Canada today. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar moved marginally lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6155 level and was capped around the $0.6205 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from $0.5925 to $0.6285. New Zealand dollar offers are cited around the US$ 0.6310 level.

Gold/ Silver

Gold moved lower vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 632.20 level and was capped around the $ 639.55 level. News that Israel has at least temporarily suspended some military activity in southern Lebanon saw the pair come off. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the $ 11.37 level and was capped around the $ 11.54 level.

Crude Oil

Crude oil appreciated vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures tested offers around the US$ 73.74 level and was supported around the $ 72.83 level. Israel??™s 48-hour suspension of air strikes in southern Lebanon is the principal focus of traders today. Additionally, oil traders are closely watching the situation in Nigeria where hostages were released at an Agip oil flow station. Moreover, improvements in Iraq??™s oil pipeline to Turkey are expected to restart in a few days.