NEWS / Monetary Policy

Forex and Commodity Market Commentary and Analysis (26 September 2006)

?‚¬

The euro moved significantly lower vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2685 level and was capped around the $1.2760 level. Technically, today??™s intraday low was just above the 76.4% retracement of the move from $1.2630 to $1.2830. Data released in the eurozone today saw the headline German Ifo survey print at 104.9 this month, down from August??™s 105.0 reading. The result was stronger-than-expected but the common currency soon reversed course and sold off when traders realized that the expectations sub-index weakened to 98.9 from a downwardly revised 101.4. The pair came off as traders scaled back their expectations of additional monetary tightening from European Central Bank. Traders believe the ECB will lift interest rates two additional times in 2006 but there is greater uncertainty about the course of action for 2007. Other eurozone data released today saw German August import prices climb 0.2% m/m and 5.5% y/y. In U.S. news, traders await the release of consumer confidence data today along with the Richmond Fed manufacturing index. Fed Governor Bies testifies in the Senate today about Basel capital reforms. Dealers await the release of personal consumption expenditures data later in the week. Fed funds futures are currently pricing in about a 26% chance the Fed will reduce interest rates in December from their current level of 5.25%. Euro bids are cited around the US$ 1.2650/ 1.2560 levels.


??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??116.25 level and was capped around the ??116.60 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from ??113.95 to ??118.30. Data released in Japan today saw the August corporate services price index rise 0.3% y/y to 92.8, the first increase in more than eight years. This represents the latest evidence that deflation is a fading memory in the Japanese economy. Shinzo Abe became the new Prime Minister of Japan today and named Koji Omi as his new finance minister. Also, Hiroko Ohta was named the new minister for fiscal and economic policy. Omi was a surprise pick and his selection could signal Abe??™s desire for tax reform. The Nikkei 225 stock index moved 0.49% lower to close at ??15,557.45. Dollar bids are cited around the ??115.60 level. The euro moved lower vis-? -vis the yen as the single currency tested bids around the ??147.70 level and was capped around the ??148.65 level. The British pound and Swiss franc depreciated vis-? -vis the yen as the crosses tested bids around the ??220.45 and ??93.60 levels, respectively. The Chinese yuan appreciated sharply vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9105 in the over-the-counter market, down from CNY 7.9212, and at CNY 7.9145 in the exchange-traded market.

?‚¤

The British pound moved lower vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8935 level and was capped around the $1.9025 level. Technically, today??™s intraday low was right around the 61.8% retracement of the move from $1.9045 to $1.8600. Data released in the U.K. today saw Q2 business investment climb 1.6% q/q from an annual rise of 4.8%. Most traders believe these revisions to business investment will not result in an overall GDP growth of 0.8% q/q and 2.6% y/y. Cable bids are cited around the US$ 1.8905/ 1.8875 levels. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6690 level and was capped around the ?‚¤0.6715 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2435 level and was supported around the CHF 1.2365 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from CHF 1.2620 to CHF 1.2290. Data released in Switzerland today saw the August UBS consumption indicator fall slightly to 1.71 from 1.88 in July and 2.12 in June. U.S. dollar offers are cited around the CHF 1.2455/ 95 levels. The euro came off vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5770 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3575 levels.