NEWS / Trade Policy

Forex and Commodity Market Commentary and Analysis (17 August 2006)

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The euro moved higher vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2885 level and was supported around the $1.2835 level. Chartists are eyeing the $1.2890 level as the pair??™s next upside target, representing the 61.8% retracement of the move from $1.3665 to $1.1640. Data released in the eurozone today saw the EMU-12 harmonized index of consumer prices climb a final 2.4% y/y in July, down from the provisional estimate of +2.5% y/y and June??™s +2.5% y/y print. Many traders believe the European Central Bank will lift interest rates further this year, perhaps again in October and December. The core rate excluding energy and unprocessed food was up 1.6% y/y, up from June??™s 1.5% tally. Other EMU-12 data released today saw industrial output decline 0.1% m/m in June and was up 4.3% y/y. In U.S. news, weekly initial jobless claims were off 10,000 to 312,000 while continuing jobless claims were up 34,000 to 2.51 million. Dallas Fed President Fisher will speak today and yesterday said the Fed ???will not tolerate inflation??? but added ???that doesn't mean we need to take a sledgehammer to the economy.??? Regarding the current status of monetary policy, Fisher added ???If anybody tells you with absolute conviction that the Fed is done raising interest rates or with equal conviction that they have only paused and will raise rates again starting in September or October, remind yourself that at best - and I am being generous here - they are only guessing.??? Other data released in the U.S. today saw July leading economic indicators down 0.1%. Tomorrow??™s mid-August University of Michigan consumer sentiment index will be closely watched by traders. Euro bids are cited around the US$ 1.2780 level.

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The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.15 level and was capped around the ??115.90 level. Technically, today??™s intraday high was right around the 50% retracement of the move from ??117.85 to ??113.95. A Nikkei poll released overnight estimates the Japanese economy will have expanded 2.5% in the fiscal year to March 2007. Capital flows data released overnight saw foreign investors as net buyers of Japanese equities for the fourth consecutive week in the week to 12 August. The Nikkei 225 stock index shed 0.31% to close at ??16,020.84. Dollar bids are cited around the ??114.90 level. The euro came off vis-? -vis the yen as the single currency tested bids around the ??148.25 level and was capped around the ??148.80 level. The British pound and Swiss franc weakened vis-? -vis the yen as the crosses tested bids around the ??218.50 and ??94.00 levels, respectively. The Chinese yuan appreciated sharply vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9686 in the over-the-counter market, down from CNY 7.9885, and at CNY 7.9716 in the exchange-traded market.

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The British pound moved lower vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8925 level and was capped around the $1.9005 level. Chartists are eyeing the $1.8915 level as the pair??™s next downside target, representing the 23.6% retracement of the move from $1.8175 to $1.9145. Sterling was given after it was reported that U.K. July retail sales declined for the first time in six months while June??™s gains were downwardly revised to +0.7% from +0.9%. These data are important because Bank of England has noted that consumption and final private demand in the U.K. have become more solid. Cable bids are cited around the US$ 1.8855 levels. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6795 level and was supported around the ?‚¤0.6770 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2235 level and was capped around the CHF 1.2300 figure. Technically, today??™s intraday low was right around the 23.6% retracement of the move from $1.3235 to $1.1920. Dollar offers are cited around the CHF 1.2335 level. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5760 and CHF 2.3210 levels, respectively.

AUD

The Australian dollar tumbled vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7625 level and was capped around the $0.7685 level. Data released in Australia today saw average weekly earnings in the three months to May climb 0.6% and 3.5% y/y. Australian dollar bids are cited around the US$ 0.7590/ 45 levels.

CAD

The Canadian dollar gained marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1155 level and was capped around the C$ 1.1195 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.0925 to $1.1455. U.S. dollar offers are cited around the $1.1250 level.



NZD

The New Zealand dollar moved higher vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6425 level and was supported around the $0.6400 figure. The pair continues to orbit the $0.6410 level, representing the 38.2% retracement of the move from $0.7195 to $0.5925. New Zealand dollar offers are cited around the US$ 0.6505 level.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 622.95 level and was capped around the $ 639.50 level. The pair came off following a couple days of less-than-hawkish inflation data in the U.S. Silver depreciated vis-? -vis the U.S. dollar as the pair tested bids around the US$ 12.03 level and was capped around the $12.41 level.

Crude Oil

Crude oil moved lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 70.47 level and was capped around the $ 71.87 level. Inventories data released in the U.S. today saw commercial crude oil inventories fall 1.6 million barrels in the week ending 11 August but they remained above average levels for this time of year. Traders await Iran??™s response by 22 August to a European set of incentives to end its nuclear enrichment activities.