NEWS / European Community

Forex and Commodity Market Commentary and Analysis (10 August 2006)

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The euro lost significant ground vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2755 level and was capped around the $1.2915 level. Stops were hit below the $1.2775 level, representing the 61.8% retracement of the move from $1.3480 to $1.1640. Dealers sold the common currency after it was reported the U.S.??™s trade deficit narrowed 0.3% to -US$ 64.8 billion in June, while May??™s trade deficit was revised to -US$ 65 billion from ??“US$ 63.8 billion. June??™s imbalance was the fifth largest deficit on record and for the first half of 2006, the deficit is around ??“US$ 768 billion. To cover its massive current account and trade deficits, the U.S. must import in excess of US$ 2 billion daily from overseas. Other data released today saw weekly initial jobless claims rise 7,000 to 319,000. Traders await the release of July import prices and retail sales data tomorrow. In eurozone news, German wholesale prices were off 0.2% m/m and up 4.6% y/y. Euro offers are cited around the US$ 1.2890 level.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.65 level and was capped around the ??115.45 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from ??117.85 to ??113.95. Traders moved into yen overnight on account of the terror alert that originated in the U.K; traders moved into yen on account of the country??™s strong external trade position. Data released in Japan today saw the June current account surplus recede 7.2% y/y to ??1.02 trillion while the trade account registered a surplus of ??857.0 billion in June, off 12.7% y/y. Other data released today saw the July wholesale goods price index gain 0.7% m/m and 3.4% y/y. Capital flows data released overnight saw foreign investors as net buyers of Japanese shares for the third consecutive week in the week to 5 August. Traders await the conclusion of Bank of Japan Policy Board??™s meeting tonight with most market participants not expecting any change in policy. In fact, most traders do not expect any rate hike before October when the central bank will release its semi-annual economic outlook. BoJ Governor Fukui will speak overnight and even though the BoJ will not tighten policy now, any comments from him that are perceived as hawkish could lead to yen appreciation. Other data released today saw the July consumer confidence index improve to 48.6 from 47.2. The Nikkei 225 stock index shed 0.16% to close at ??15,630.91. Dollar bids are cited around the ??114.40 level. The euro lost significant ground vis-? -vis the yen as the single currency tested bids around the ??147.25 level and was capped around the ??148.60 level. The British pound and Swiss franc weakened vis-? -vis the yen as the crosses tested bids around the ??218.20 and ??93.25 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9710 in the over-the-counter market, down from CNY 7.9772, and at CNY 7.9660 in the exchange-traded market. Data released in China today saw the July trade surplus print at a record US$ 14.61 billion while July producer prices were up 3.6% y/y. Also, the government reported Q2 property prices in major cities climbed 5.7% y/y. People??™s Bank of China reiterated it will gradually reduce its participation in the foreign exchange market, an indication it will permit the yuan to appreciate further.

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The British pound depreciated sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8865 level and was capped around the $1.9090 level. Stops were reached below the $1.8960 level, representing the 76.4% retracement of the move from $1.9550 to $1.7045. News that U.K. authorities uncovered a major terror plot that was directed at outbound London flights on U.S. airline carriers saw the pair give up significant recent gains. Traders also continue to talk about Bank of England??™s quarterly inflation report that was released yesterday. Cable bids are cited around the $1.8740 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6770 level and was supported around the ?‚¤0.6745 level.

CHF

The Swiss franc moved lower vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2380 level and was supported around the CHF 1.2195 level. Data released in Switzerland today saw the SECO consumer sentiment index improve to +12 in July from April??™s reading of +7. U.S. dollar offers are cited around the CHF 1.2435 level. The euro and British pound moved higher vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5790 and CHF 2.3415 level.

AUD

The Australian dollar moved higher vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7715 level and was supported around the $0.7645 level. Data released in Australia today saw the July unemployment rate print at 4.8%, down from 4.9% in June. Australian dollar offers are cited around the US$ 0.7755 level.

CAD

The Canadian dollar lost ground vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1280 level and was supported around the C$ 1.1185 level. Data released in Canada today saw the June trade surplus print at C$ 4.75 billion, up from May??™s C$ 4.11 billion level. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar gained ground vis-? -vis the U.S. dollar today as kiwi tested offers around the US$ 0.6360 level and was capped around the $0.6280 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from $0.7195 to $0.5925. New Zealand dollar offers are cited around the US$0.6410 level.

Gold/ Silver

Gold depreciated vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 636.10 level and was capped around the $ 653.85 level. Gold could not sustain the intraday gains it realized after news broke of the U.K.-based terror plot. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 12.10 level and was capped around the $12.67 level.

Crude Oil

Crude oil futures moved lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 74.54 level and was capped around the $ 76.51 level. Prices came off after news broke that U.K. authorities uncovered a massive plot to bomb U.S.-bound aircraft. Traders also sold oil on speculation that British Petroleum may not need to completely close its Prudhoe Bay oil production facility in Alaska. Data released yesterday saw gasoline stocks decline 3.2 million barrels to 207.7 million barrels in the week to 4 August.