NEWS / Foreign Exchange

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

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The euro came off vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2670 level and was capped around the $1.2725 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.2980 to $1.2460. As expected, European Central Bank lifted its benchmark refinancing rate to 3.25% and ECB President Trichet suggested rates may move higher if the central bank??™s economic assumptions remain correct. Euribor interest rate futures gave back ground after Trichet??™s comments and the markets now expect the ECB to lift rates again in December. Provisional September EMU-12 inflation data came off but this development did not dissuade policymakers who are focused on their long-term inflation objectives. In U.S. news, weekly initial jobless claims came off 17,000 to 302,000 in the latest week while continuing jobless claims climbed to 2.45 million. Fed Chairman Bernanke spoke yesterday and warned the forthcoming retirement of the baby boomer generation will ???strain??? the U.S. economy and federal budget. Anecdotal retail sales data released in the U.S. today suggest retail sales rose sharply last month. Most traders expect tomorrow??™s U.S. September non-farm payrolls number to evidence new job creation of about 120,000. Euro bids are cited around the US$ 1.2640/ 1.2580 levels.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??117.45 level and was capped around the ??117.95 level. Chartists are eyeing the ??117.35/ 20 levels as the pair??™s next downside targets. Bank of Japan Deputy Governor Muto indicated monetary policy adjustments will be made ???slowly??? and added ???very low??? interest rates will likely continue ???for a while.??? Regarding timing of moves, he added ???If economic developments move in line with our forecasts in the April (semi-annual) outlook report, there is a high possibility that the current very low interest rates will be maintained for a while.??? It was also announced that Japan will seek tough measures against North Korea if that country follows through on its threat to conduct a nuclear test. The August coincident index and leading index will be released in Japan tonight. The Nikkei 225 stock index climbed 2.28% to close at ??16,449.33. Dollar bids are cited around the ??116.75 level. The euro depreciated vis-? -vis the yen as the single currency tested bids around the ??149.00 figure and was capped around the ??149.95 level. The British pound and Swiss franc moved lower vis-? -vis the yen as the crosses tested bids around the ??220.45 and ??93.70 levels, respectively. Chinese financial markets will return to normal next week after this week??™s National Day holiday period.

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The British pound slumped sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8750 level and was capped around the $1.8865 level. Chartists are eyeing the $1.8740 level as the pair??™s next downside target, representing the 38.2% retracement of the move from $1.8090 to $1.9145. As expected, Bank of England left its benchmark repo rate unchanged at 4.75% today and traders await the release of the minutes on 18 October. Many dealers now believe the BoE??™s Monetary Policy Committee will lift its repo rate to 5.00% next month. Cable bids are cited around the US$ 1.8710 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6760 level and was supported around the ?‚¤0.6730 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2545 level and was supported around the CHF 1.2475 level. Technically, today??™s intraday high was right around the 76.4% retracement of the move from CHF 1.2620 to CHF 1.2290. KOF raised its Swiss GDP forecast for 2006 and 2007 to 2.6% and 2.1%, respectively. Dollar offers are cited around the CHF 1.2425 level. The euro gained ground vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5915 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3495 level.

AUD

The Australian dollar came off marginally vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7445 level and was capped around the $0.7475 level. Data released in Australia today saw the NAB quarter business confidence index recede to +2 in the three months to September. Also, the AIG services performance index printed at 47.7 in September, down from 50.2 in August. Australian dollar bids are cited around the $0.7405/ 0.7310 levels.

CAD

The Canadian dollar gained marginal ground vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1240 level and was capped around the C$ 1.1285 level. Technically, today??™s intraday low was right around the 50% retracement of the move from C$ 1.1455 to $1.1030. September employment data will be released tomorrow. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar gained marginal ground vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6655 level and was supported around the $0.6620 level. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold appreciated vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 574.50 level and was supported around the $562.50 level. The move higher in crude prices supported gold. Silver gained ground vis-? -vis the U.S. dollar as the pair tested offers around the US$ 11.12 level and was supported around the $10.69 level.

Crude Oil

Crude oil jumped gained ground vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested offers around the US$ 60.92 level and was supported around the $59.35 level. An OPEC member indicated OPEC plans to reduce output by one million barrels per day to keep prices supported. Inventories data saw U.S. crude stocks rise 3.3 million barrels last week, against expectations for a decline. Traders continue to monitor developments in Iran and Nigeria.