NEWS / Macroeconomic Stories

Forex and Commodity Market Commentary and Analysis (14 August 2006)

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The euro moved marginally higher vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2760 level and was supported around the $1.2705 level. Technically, the pair continues to orbit the 38.2% retracement of the move from $1.2460 to $1.2915. Traders will pay close attention to the release of U.S. producer price inflation data tomorrow followed by consumer price inflation on Wednesday. These data are important because they will help to share the Federal Reserve??™s interest rate policymaking through the end of the year. The fed funds futures market is now pricing in about a 38% chance that the Federal Open Market Committee will lift interest rates by 25bps on 20 September. In eurozone news, it was reported that German Q2 GDP climbed 0.9% q/q. Similarly, it was reported on Friday that France??™s economy expanded 1.1%-1.2% in Q2, the fastest pace of growth since 2000. Overall, EMU-12 GDP was up a provisional 0.9% q/q and +2.4% y/y while the European Commission lifted its GDP forecast for Q3 but reduced its GDP forecast for Q4. These data have traders anticipating the European Central Bank will lift its main refinancing rate by +25bps, perhaps as early as September. Many dealers believe the ECB will be forced to raise borrowing costs by another +50bps in 2006. French finance minister Breton reiterated his recent comment that the ECB does not have to raise interest rates sharply. Euro bids are cited around the US$ 1.2685/ 30 levels.

??/ CNY

The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??116.65 level and was supported around the ??116.15 level. Technically, today??™s intraday high was just below the 23.6% retracement of the move from ??101.65 to ??121.40. Traders continue to add to their long dollar exposure on the notion that Bank of Japan will be slow to raise interest rates further this year. Most traders believe the central bank may raise rates only one more time this year. Minutes from Bank of Japan??™s Policy Board meeting will be released on Wednesday. Data released in Japan today saw July corporate failures climb 0.3% m/m. The Nikkei 225 stock index climbed 1.45% to close at ??15,790.82. Dollar bids are cited around the ??115.80 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??148.55 level and was supported around the ??147.85 level. The British pound and Swiss franc appreciated vis-? -vis the yen as the crosses tested offers around the ??94.00 and ??89.35 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar today as the greenback closed at CNY 7.9790 in the over-the-counter market, up from CNY 7.9760, and at 7.9888 in the exchange-traded market. Data released in China today saw July retail sales climb 13.7% y/y while July wholesale prices were up 2.5% y/y.

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The British pound came off marginally vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8840 level and was capped around the $ 1.8950 level. Technically, today??™s intraday high was just below the 76.4% retracement of the move from $1.9550 to $1.7045. Data released by the U.K. government today saw June annual house price inflation decline to 5.2% while July like-for-like retail sales increased 13.8% y/y according to the London Retail Consortium. Other data released today saw July input prices increase 1.1% m/m, the largest increase since January. On an annualized basis, input prices were up 9.6%, the lowest print since October 2005. Cable bids are cited around the $1.8775 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6745 level and was supported around the ?‚¤0.6725 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S dollar today as the greenback tested bids around the CHF 1.2375 level and was capped around the CHF 1.2435 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Swiss National Bank President Roth spoke today and said ???We will stick to a strategy of gradual interest rate rises.??? He noted full employment, strong oil prices, and the franc??™s weakness as risks to price stability with the franc ???leading to an undesirable loosening of fundamental monetary conditions.??? Most traders believe SNB will lift borrowing costs next month and again in December. U.S. dollar offers are cited around the CHF 1.2520 level. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5785 and CHF 2.3415 levels, respectively.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7600 figure and was capped around the $0.7680 level. Stops were hit below the $0.7615 level, representing the 61.8% retracement of the move from $0.7930 to $0.7015. Australian dollar bids are cited around the US$ 0.7500 figure.

CAD

The Canadian dollar moved lower vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1205 level and was capped around the C$ 1.1275 level. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar moved lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6305 level and was capped around the $ 0.6375 level. Chartists are eyeing the $0.6275 level as the pair??™s next downside target. New Zealand dollar offers are cited around the US$ 0.6410 level.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 624.40 level and was capped around the $ 635.05 level. Traders bailed out of gold after a United Nations-brokered ceasefire in the Middle East took root to suspend five weeks of fighting between Israel and Hezbollah. Silver climbed higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 12.07 level and was supported around the $11.75 level.

Crude Oil

Crude oil lost ground vis-? -vis the U.S. dollar today as light, sweet NYMEX crude ol futures for September delivery tested bids around the US$ 72.70 level and was capped around the US$ 73.87 level. The ceasefire in the Middle East and news that British Petroleum will continue to pump oil at its Prudhoe Bay facility in Alaska contributed to the pair??™s losses. Iran is very much still on the radar of traders as that country has until 31 August to end its uranium enrichment activities or face sanctions.