NEWS / Foreign Debt

Forex and Commodity Market Commentary and Analysis (15 August 2006)

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The euro appreciated sharply vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2795 level and was supported around the $ 1.2695 level. Stops were reached above the $1.2775 level, representing the 61.8% retracement of the move from $1.3475 to $1.1640, and chartists are eyeing the $1.2805/ 1.2890 levels as the pair??™s next upside target. The move higher was precipitated by U.S. economic data that saw July producer price inflation rise 0.1% m/m, below the 0.5% rate economists were expecting, while the ex-food and energy core rate fell 0.3% m/m ??“ the first decline since October. The U.S. dollar declined on these data because they imply less pressure on the Federal Reserve to tighten monetary policy to deal with wholesale price increases. If tomorrow??™s consumer price inflation data also evidence weak inflation gains, the dollar will again be vulnerable. Other data released today saw the August Empire State manufacturing index print lower-than-expected at 10.3 while June U.S. Treasury International Capital data saw portfolio inflows of US$ 75.1 billion into the U.S. These portfolio inflows data mean the U.S. imported enough foreign capital to bridge its US$ 64.8 billion trade gap. Euro bids are cited around the US$ 1.2740/ 1.2685 levels.

??/ CNY

The yen appreciated sharply vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.95 level and was capped around the ??116.70 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from ??101.65 to ??121.40. Data released in Japan overnight saw the June tertiary index decline 0.6% m/m, the first decline in three months, while July Tokyo condominium sales were up 3.6% y/y. The Nikkei 225 stock index lost 0.26% to close at ??15,816.19. Dollar bids are cited around the ??115.80/ 114.50 levels. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??148.60 level and was supported around the ??148.05 level. Today??™s intraday high represented a fresh lifetime high for the cross. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??219.70 and ??93.55 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 8.0015 in the over-the-counter market, up from CNY 7.9790, and at CNY 7.9937 in the exchange-traded market. Data released in China overnight saw July industrial value-added output climb 16.7% y/y while July actual foreign direct investment declined 5.49% y/y.

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The British pound rocketed higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8975 level and was supported around the $1.8855 level. Stops were triggered above the $1.8960 level, representing the 23.6% retracement of the move from $1.9550 to $1.7045. RICS reported U.K. prices expanded at their fastest clip in more than two years in July while a survey revealed inflation expectations among U.K. consumers grew for the first time in five months in July. On another positive note, CBI reported exported orders for small and medium-sized manufacturers are expanding for the first time in about a decade. Inflation data released in the U.K. today saw the July annual CPI rate fall to 2.4% from June??™s 2.5% level. Core inflation receded to a nineteen-month low of 0.9% from June??™s 1.2% level. Cable bids are cited around the US$ 1.8920/ 1.8775 levels. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6750 level and was supported around the ?‚¤0.6730 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2340 level and was capped around the CHF 1.2440 level. Technically, today??™s intraday high was just above the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Dollar offers are cited around the CHF 1.2520 level. The euro gained marginal ground vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5825 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3410 level.

AUD

The Australian dollar gained ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7650 level and was supported around the $0.7585 level. The pullback in U.S. wholesale inflation saw the Aussie move higher. Australian dollar bids are cited around the US$ 0.7520 level.

CAD

The Canadian dollar moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1230 level and was capped around the C$ 1.1315 level. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar appreciated vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6340 level and was supported around the $0.6280 level. Technically, today??™s intraday low was right around the 76.4% retracement of the move from $0.5910 to $0.7465.

Gold/ Silver

Gold pulled back vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 620.70 level and was capped around the $628.25 level. The pair gave back recent gains as the ceasefire in the Middle East entered its second day. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the $11.86 level and was capped around the $12.13 level.

Crude Oil

Crude oil gained ground vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested offers around the US$ 73.70 level and was supported around the $72.84 level. Dealers are loath to assume too much crude exposure as the ceasefire between Israel and Hezbollah is now in its second day. Additionally, U.S. regulators gave British Petroleum approval to resume delivery from its oilfield in Prudhoe Bay, Alaska. Two big dates on the horizon are 22 August, when Iran??™s response to the European Union??™s proposals is due, and 31 August, when Iran is supposed to end its uranium enrichment activities.