NEWS / Trade Policy

Forex and Commodity Market Commentary and Analysis (5 September 2006)

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The euro moved lower vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2800 figure and was capped around the $ 1.2870 level. Stops were hit below the $1.2810 level, representing the 38.2% retracement of the move from $1.2940 to $1.2725. Liquidity condition and volumes returned to normal today after yesterday??™s U.S. Labour Day holiday. Tomorrow??™s data in the U.S. include August??™s ISM non-manufacturing index and the Beige Book. In eurozone news, European Central Bank member Noyer predicted French and EMU-12 growth in 2006 will ???probably??? be closer to 2.5% than 2.0%. Likewise, German finance minister Steinbrueck indicated 2006 GDP growth will ???likely??? be at least 2% with the state budget deficit below required EU limits for the first time since 2001. Data released in the eurozone today saw July retail sales up 0.6% m/m and 2.5% y/y, bearing forecasts. Also, the EMU-12 business activity index pulled back to 57.1 in August from 57.9 in July, below forecasts. Most traders continue to speculate the European Central Bank will raise interest rates in October and then possibly again in December. Other data evidenced a deceleration in services sector growth to its lowest level since January but these data were overshadowed by resilient inflation data that saw the prices charged index and input prices index respectively pull back to 53.6 and 59.9, still at heightened levels. Euro bids are cited around the US$ 1.2775 level.


??/ CNY

The yen extended recent gains vis-? -vis the U.S. dollar today as the greenback tested bids around the ??115.55 level and was capped around the ??116.20 level. Technically, today??™s intraday low was just above the 38.2% retracement of the move from ??117.85 to ??113.95. Traders moved heavily into yen after speculating that yesterday??™s stronger-than-expected capital spending data could increase the chances of a rate hike from Bank of Japan this year. The central bank??™s Policy Board convenes this week to discuss borrowing costs and while no policy action is expected, BoJ Governor Fukui will speak on Friday and may shed some clues about policy. The move higher in yen may be overdone as short yen positions on the IMM were at all-time highs and the short squeeze may have been exaggerated. The Nikkei 225 stock index climbed 0.17% to close at ??16,385.96. Dollar bids are cited around the ??114.90 level. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??148.25 level and was capped around the ??149.40 level. The British pound and Swiss franc depreciated vis-? -vis the yen as the crosses tested bids around the ??219.35 and ??93.70 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9488 in the over-the-counter market, up from CNY 7.9385, and at CNY 7.9390 in the exchange-traded market.

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The British pound moved sharply lower vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8930 level and was capped around the US$ 1.9060 level. Stops were reached below the $1.8960 level, representing the 50% retracement of the move from $1.9145 to $1.8775. Data released in the U.K. today saw a pullback in services sector growth with PMI slowing to 56.7 from 57.9. The prices sub-indices, however, moved higher and this may have implications for Bank of England policymaking. Other data released today saw BRC high street sales slow acutely last month with like-for-like sales up +2.5% y/y in August, off from July??™s +3.4% y/y pace. Cable bids are cited around the US$ 1.8895/ 60 levels. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6765 level and was supported around the ?‚¤0.6740 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2365 level and was supported around the CHF 1.2280 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from CHF 1.2595 to CHF 1.2180. Data released in Switzerland today saw August inflation climb 0.2% m/m and 1.5% y/y. Most trades expect Swiss National Bank to tighten interest rates again this month and probably also in December. U.S. dollar offers are cited around the CHF 1.2390/ 1.2435 levels. The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5830 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3365 level.

AUD

The Australian dollar moved lower vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7685 level and was capped around the $0.7715 level. Traders await Reserve Bank of Australia??™s interest rate decision tonight. Australian dollar bids are cited around the US$ 0.7635 level.



CAD

The Canadian dollar depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1135 level and was supported around the C$ 1.1065 level. Today??™s intraday high was right around the 23.6% retracement of the move from C$ 1.1455 to C$ 1.1030. Traders await Bank of Canada??™s interest rate decision tomorrow. U.S. dollar offers are cited around the C$ 1.1195 level.

NZD

The New Zealand dollar moved lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6440 level and was capped around the $0.6250 level. New Zealand upwardly revised its 2007 GDP growth forecast to 1.5% from 0.8% but Standard & Poors warned that the country??™s widening current account deficit may threaten the country??™s sovereign rating. New Zealand dollar offers are cited around the US$ 0.6495 level.

Gold/ Silver

Gold shot higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 638.30 level and was supported around the $626.52 level. The pair was pushed higher by strong moved in silver and platinum. Silver tested offers around the US$ 13.25 level and was supported around the $12.98 level.

Crude Oil

Crude oil appreciated vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for October delivery tested offers around the US$ 69.03 level and was supported around the $ 67.98 level. The big news in the market today was an announcement by oil giant Chevron Corp. may have discovered a significant oil source in the Gulf of Mexico.