NEWS / Government Ministries

Forex and Commodity Market Commentary and Analysis (27 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$ 1.2715 level and was supported around the $1.2670 level. Technically, today??™s intraday low was just below the 76.4% retracement of the move from $1.2630 to $1.2830. Data released in the U.S. today saw August durable goods orders for new goods decline by 0.5% m/m, defying expectations and following July??™s downwardly-revised 2.7% fall. Notably, this is the first time durable goods orders have declined for two consecutive months since April and May 2004. These data are likely to result in some traders scaling back their interest rate expectations. Other U.S. data released today saw new home sales rise 4.1% in August, defying expectations of a pullback, while median house prices weakened for the first time since December 2003. July??™s tally was downwardly revised to -7.5% and many dealers are concerned a slide in the housing market could presage a recession. On an annualized basis, August sales were down 17.4% y/y. These data follow yesterday??™s stronger-than-expected consumer confidence data. In eurozone news, the EMU-12 M3 money supply expanded 8.2% y/y in August, up from July??™s tally of 7.8% and above expectations. These data have some traders speculating the European Central Bank may become more hawkish to contend with growing inflationary pressures. Dealers still contend the ECB will raise rates in October by +25bps while a minority of them foresee a move as much as +25bps. Additionally, the German GfK consumer climate index for October improved to 8.8, the index??™s strongest showing since November 2001 and the twelfth consecutive month. Euro bids are cited around the US$ 1.2650/ 1.2560 levels.

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The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.65 level and was supported around the ??116.90 level. Technically, today??™s intraday low was right around the 50% retracement of the move from ??115.55 to ??118.30 and today??™s intraday high was right around the 23.6% retracement of the same range. Ratings agency Standard & Poors warned that new Prime Minister Shinzo Abe may decelerate the pace of fiscal reform. Abe today indicated he is seeking summits with China and South Korea, a sign he is looking forward to improving relations with those countries. The Nikkei 225 stock index gained 2.51% to close at ??15,947.87. Dollar bids are cited around the ??116.65/ 15 levels. The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??149.25 level and was supported around the ??148.25 level. The British pound came off vis-? -vis the yen as sterling tested bids around the ??221.05 level while the Swiss franc appreciated vis-? -vis the yen as the pair tested offers around the ??94.35 level. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9020 in the over-the-counter market, its lowest close since last year??™s yuan revaluation, and at CNY 7.9022 in the exchange-traded market.

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The British pound weakened sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8850 level and was capped around the $1.8960 level. Technically, today??™s intraday high was right around the 76.4% retracement of the move from $1.9550 to $1.7045 while today??™s low was right around the 50% retracement of the move from $1.9090 to $1.8600. Many data were released in the U.K. today. First, Q2 GDP growth was downwardly revised to +0.7% q/q from +0.8% q/q. Second, Bank of England Monetary Policy Committee member Blanchflower gave a dovish speech in which he indicated inflation and growth are likely to come in lower-than-expected. Blanchflower was the lone dissenter in last month??™s interest rate vote to raise interest rates. Moreover, BBA August net mortgage lending rose a record ?‚¤6.2 billion last month and the U.K. Q2 currency account deficit registered -?‚¤7.0 billion compared to -?‚¤8.7 billion in Q1. Finally, CBI??™s distributive trades survey saw U.K. retail sales improve at their fastest pace in some two years this month. Cable bids are cited around the US$ 1.8790 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6730 level and was supported around the ?‚¤0.6690 level.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2470 level and was supported around the CHF 1.2415 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 September KOF economic barometer fall to 2.32 index points while the August tally was upwardly revised to 2.44. This could presage a deceleration in economic activity at the beginning of 2007. Dollar offers are cited around the CHF 1.2540 level. The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5820 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3475 level.