NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (4 September 2006)

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The euro gained ground vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2870 level and was supported around the 1.2840 level. Today??™s tight range was mostly attributable to today??™s Labour Day holiday in the U.S. Data released in the eurozone today saw July EMU-12 producer prices climb 0.6% m/m and 5.9% y/y. On an ex-energy basis, producer prices were up 3.4% in July from June??™s 3.0% pace, the fastest annual increase since November 1995. These factory-level inflation data are likely to put further pressure on European Central Bank to tighten monetary policy further. Most traders expect the ECB to lift rates next month and then probably again in December. ECB policymaker Liikanen speaks today. The outlook for U.S. interest rate policy is more clouded. Last Friday??™s August employment data were generally in-line with expectations and traders are split as to whether or not the Federal Open Market Committee will lift rates on 20 September. PMI services surveys will be released in the eurozone tomorrow. Euro offers are cited around the US$ 1.2825/ 1.2780 levels.

??/ CNY

The yen scored major gains vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.85 level and was capped around the ??117.10 level. Stops were triggered below the ??116.65/ 15 levels, representing the 23.6% and 38.2% retracements of the move from ??113.95 to ??117.50. Data released in Japan today saw a quarterly government survey confirm Japanese companies lifted their capital spending in the three months to June at the fastest pace on record. Revised GDP data will be released next Monday and economists are uncertain if the increase in capital spending will result in additional economic growth. It was previously reported that the Japanese economy expanded 0.2% q/q in the three months to June and today??™s data saw April ??“ June capital expenditures up 16.6% y/y. Other data released in Japan today saw the monetary base decline in August for the sixth consecutive month, off 20.2% y/y. The yen has been pressured recently on account of declining expectations for another Bank of Japan monetary tightening in 2006 and on account of generally week economic data. The yen snapped back so acutely overnight because net yen short positions were at record highs in the week to 29 August according to data released on Friday. The Nikkei 225 stock index gained 1.39% to close at ??16,358.07. Dollar bids are cited around the ??115.20/ 114.50 levels. The euro moved sharply lower vis-? -vis the yen as the single currency tested bids around the ??149.05 and was capped around the ??150.35 level. The British pound and Swiss franc depreciated vis-? -vis the yen as the crosses tested bids around the ??220.70 and ??94.25 levels, respectively. The Chinese yuan appreciated sharply vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9385 in the over-the-counter market and at CNY 7.9410 in the exchange-traded market. Chinese Vice President Zeng reported China??™s foreign exchange reserves reached US$ 954.5 billion at the end of July and added ???We (will) take comprehensive measures to avoid further significant growth in the foreign exchange reserves. In addition, (we will) diversify foreign exchange reserve management reasonably, including adding imports of strategic resources for our reserves, accelerating technical upgrades by key state firms and allowing residents access to more foreign exchange.???

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The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9075 level and was supported around the $ 1.9030 level. Technically, the pair continues to orbit the $1.9055 level, representing the 76.4% retracement of the move from $1.9145 to $1.8775. Data released in the U.K. today saw CIPS construction activity appreciate at its sharpest pace in five months with the headline purchasing managers index rising to 54.5 in August from July??™s 53.2 level. Cable bids are cited around the US$ 1.8960/ 1.8895 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 ?‚¤0.6750 level and was supported around the ?‚¤0.6735 level.

CHF

The Swiss franc gained marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2280 level and was capped around the CHF 1.2305 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from CHF 1.2595 to CHF 1.2180. U.S. dollar offers are cited around the CHF 1.2340 level. The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5815 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3405 level.

AUD

The Australian dollar gained ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7720 level and was supported around the $0.7665 level. Stops were reached above the $0.7700 figure, representing the 23.6% retracement of the move from $0.6770 to $0.7985. Data released in Australia today saw total building approvals rise 8.3% in July. Australian dollar bids are cited around the US$ 0.7615 level.

CAD

The Canadian dollar lost ground vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1070 level and was supported around the C$ 1.1040 level. Bank of Canada will announce its interest rate decision on Wednesday and is not expected to change interest rates at that time. U.S. dollar offers are cited around the C$ 1.1130 level.

NZD

The New Zealand dollar moved lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6485 level and was capped around the US$ 0.6580 level. New Zealand dollar offers are cited around the US$ 0.6685 level.

Gold/ Silver

Gold moved higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 628.00 figure and was supported around the $ 625.04 level. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 13.09 level and was supported around the $12.89 level, a three-month high.

Crude Oil

Crude oil moved lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for October delivery tested bids around the $68.34 level and was capped around the $69.57 level. Trading activity was thin on account of the U.S. Labour Day holiday and will likely be dictated by geopolitical events including Iran??™s refusal to suspend its nuclear ambitions. The U.S. hurricane season will also impact the market.