NEWS / Foreign Debt

Forex and Commodity Market Commentary and Analysis (24 August 2006)

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The euro appreciated vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2840 level and was supported around the $1.2750 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from $1.2460 to $1.2940. Data released in the U.S. today saw July new home sales fall 4.3%, worse-than-expected. These data follow yesterday??™s weak existing homes sales data. The U.S. housing market is seen to be the most vulnerable component of the U.S. economy since it is driven by interest rates and the Federal Reserve may or may not have recently ended its long-standing rate tightening cycle. Fed officials Guynn and Moskow hawkishly indicated this week that interest rates may continue to rise on account of stubbornly high inflation. Other data released today saw July durable goods orders fall 2.4%, worse-than-expected, while the ex-transportation component was up +0.5%. Traders will pay very close attention to remarks from Fed Chairman Bernanke tomorrow at the annual Fed symposium in Jackson Hole. Most traders do not believe the Fed will lift interest rates by +25bps on 20 September, but many traders do believe the Fed will tighten policy once more in 2006 and conclude their tightening cycle. Minutes from the Federal Open Market Committee??™s rate-setting meeting on 8 August will be released on Tuesday. In eurozone news, the German August Ifo business climate index exceeded expectations and printed at 105.0. This number was a big concern for euro bulls because this week??™s German ZEW sentiment and Belgian sentiment indicators were on the weak side. Most traders believe the European Central Bank will lift interest rates again in October. Other data released today saw German final Q2 GDP up +0.9% q/q, the highest growth rate in five years, while German July import prices were up 1.2% m/m and 6.3% y/y. Euro bids are cited around the US$ 1.2775 level.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the US$ 116.20 level and was capped around the $116.55 level. Today??™s intraday range has been quite tight and yen bulls are eyeing the ??115.90 level as the pair??™s next downside target. Data released in Japan overnight saw the July corporate services price index print at 93.0 in July, unchanged from June??™s level. On an annualized basis, the measure was off 0.1% y/y, the 70th consecutive monthly decline. The Nikkei 225 stock index shed 1.25% to close at ??15,960.62. Dollar bids are cited around the ??115.75/ 45 levels. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??149.45 level and was supported around the ??148.55 level. The British came off vis-? -vis the yen as sterling tested bids around the ??219.90 level while the Swiss franc moved higher vis-? -vis the yen and tested offers around the ??94.55 level. The Chinese yuan weakened vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9725 in the over-the-counter market, up from CNY 7.9699, and at CNY 7.9715 in the exchange-traded market.

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The British pound was little-changed vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8970 level and was supported around the $1.8875 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.9145 to $1.8775. Data released in the U.K. today saw business investment rise 1.7% q/q in Q2 and 4.2% y/y. Cable bids are cited around the US$ 1.8860 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6780 level and was supported around the ?‚¤0.6750 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2305 level and was capped around the CHF 1.2390 level. Technically, today??™s intraday high was right around the 50% retracement of the move from CHF 1.2595 to CHF 1.2180. Dollar offers are cited around the CHF 1.2435 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 2.3305 levels, respectively.

AUD

The Australian dollar appreciated vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7640 level and was supported around the $0.7595 level. Australian dollar bids are cited around the $0.7520 level.

CAD

The Canadian dollar appreciated marginally vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1075 level and was capped around the C$ 1.1130 level. Technically, today??™s intraday high was right around the 61.8% retracement of the move from $1.0925 to $1.1455. U.S. dollar offers are cited around the C$ 1.1190/ 1.1255 levels.



NZD

The New Zealand dollar moved lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6340 level and was capped around the $ 0.6400 figure. New Zealand dollar offers are cited around the US$ 0.6505 level.

Gold/ Silver

Gold depreciated vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$620.75 level and was capped around the $626.50 level. Most dealers expect see gold in a tug-of-war between the weakening U.S. dollar and energy prices that lack a current impetus to move higher. Silver gained marginal ground vis-? -vis the U.S. dollar as the pair tested offers around the US$ 12.61 level and was supported around the $12.36 level.

Crude Oil

Crude oil moved higher vis-? -vis the U.S. dollar today as light, sweet crude oil futures for October delivery tested offers around the US$ 71.97 level and was supported around the $ 71.40 level. Traders continue to monitor developments in Iran as most dealers expect that country defy international calls to end its nuclear development plans and risk sanctions. The deadline for Iranian action to end its nuclear enrichment activities is 31 August.