NEWS / Monetary Policy

Forex and Commodity Market Commentary and Analysis (25 September 2006)

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The euro depreciated vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2755 level and was capped around the $1.2815 level. Technically, today??™s intraday high was right around the 61.8% retracement of the move from $1.2940 to $1.2630. Provisional September German CPI data released in German states today evidenced 0.4% m/m declines in Hesse, Bavaria, and North Rhine-Westphalia and traders await the release of provisional inflation data for the country as a whole. Other data released in the eurozone today saw the French business climate indicator decline to 107 from 108 in July. In U.S. news, Dallas Fed President Fisher and New York Fed President Geithner are scheduled to speak today. Their comments will be of interest to traders, particularly against the backdrop of waning price pressures and the marginally more dovish Federal Open Market Committee announcement from last week. Data released in the U.S. today saw existing home sales fall 0.5% to 6.30 million units, less-than-expected. Euro bids are cited around the US$ 1.2700 figure.

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The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??116.75 level and was supported around the ??116.10 level. Technically, today??™s intraday low was right around the 50% retracement of the move from ??113.95 to ??118.30 and today??™s intraday high was right around the 23.6% retracement of the move from ??101.65 to ??121.40. All eyes are on the formation of Japan??™s new government this week as Shinzo Abe becomes prime minister tomorrow. Traders want to see who Abe??™s finance minister will be and want to see how the new administration will interact with Bank of Japan. Abe presented a message to China confirming ???Japan-China relations are extremely important bilateral ones.??? Nikkei reported the U.S. and Japan are contemplating a new framework to discuss economic issues. The Nikkei 225 stock index came off 0.01% to close at ??15,633.87. Dollar bids are cited around the ??115.60 level. The euro came off vis-? -vis the yen as the single currency tested bids around the ??148.55 level and was capped around the ??149.15 level. The British pound and Swiss franc appreciated vis-? -vis the yen as the crosses tested offers around the ??222.05 and ??94.55 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9212 in the over-the-counter market, up from CNY 7.9195, and at CNY 7.9192 in the exchange-traded market. Deutsche Bank predicted China??™s economic growth will decelerate to 8.9% in 2007 from 10.4% in 2006. People??™s Bank of China member Fan Gang today predicted China??™s foreign exchange reserves will reach US$ 1 trillion this month or next month.

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The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9070 level and was supported around the $1.8995 level. Sterling reached levels not seen since 4 September. Bank of England Deputy Governor Gieve was quoted as saying he considered voting for higher interest rates this month, contrary to the indications traders noted when minutes from the Monetary Policy Committee??™s meeting were released last week. Cable bids are cited around the US$ 1.8975/ 40 levels. The euro depreciated vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6705 level and was capped around the ?‚¤0.6750 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2375 level and was supported around the CHF 1.2290 level. Technically, today??™s intraday low was right around the 50% retracement of the move from CHF 1.1285 to CHF 1.3285. The UBS August Swiss consumption indicator will be released tomorrow. Dollar offers are cited around the CHF 1.2415/ 55 levels. The euro came off vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5755 level while the British pound gained ground vis-? -vis the Swiss franc and tested offers around the CHF 2.3550 level.

AUD

The Australian dollar gained marginal ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7535 level and was supported around the $0.7490 level. Technically, today??™s intraday low was just below the 50% retracement of the move from $0.7985 to $0.7015. The Australian government predicted earnings from Australia??™s commodity exports are expected to climb about 14% to A$ 140.2 billion in the year to June 2007. Australian dollar bids are cited around the US$ 0.7405 level.

CAD

The Canadian dollar gained marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1140 level and was capped around the C$ 1.1185 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from C$ 1.1455 to C$ 1.1030. August industrial prices data will be released on Thursday. U.S. dollar offers are cited around the C$ 1.1245 level.

NZD

The New Zealand dollar moved sharply higher vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6710 level and was supported around the $0.6605 level. The pair reached levels not seen since February of this year. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold extended its recent losses vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 582.55 level and was capped around the $590.85 level. The decline in oil to below the psychologically-important $60.00 figure added to the pair??™s losses. Silver gained marginal ground vis-? -vis the U.S. dollar today as the pair tested offers around the US$ 11.23 level and was supported around the $11.04 level.

Crude Oil

Crude oil moved lower vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested bids around the US$ 59.52 level and was capped around the $60.50 level. The pair has not been this week since February of this year. Traders are concerned that a deceleration in U.S. economic growth will reduce demand for crude in that country. Also, British Petroleum reported it will seek to restore output at its Alaskan oilfield sooner than expected and reduced supply-side concerns. The markets remain shaky over the implications of possible economic and political sanctions against Iran.