Forex and Commodity Market Commentary and Analysis (13 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$ 1.2510 level and was capped around the $1.2575 level. Technically, today??�s intraday high was right around the 76.4% retracement of the move from $1.2460 to $1.2940. Data released in the U.S. today saw September retail sales off 0.4% m/m while the ex-autos component was down 0.5%. These data were tempered by a much stronger mid-October University of Michigan consumer sentiment print of 92.3, up from an unchanged final September figure of 85.4. The sentiment data was much stronger-than-expected and several of the sub-indices such as current conditions also notched improvements. Traders are still talking about some comments made by St. Louis Fed President Poole yesterday in which he indicated he seems more risks of a slowdown in growth than he does for faster inflation. In contrast, Chicago Fed President Moskow reiterated that additional rate hikes may be required to counter inflation expectations. In eurozone news, the French September consumer price index was off 0.2% m/m with the annual rate decelerating to +1.2%. European Central Bank member Stark is expected to speak today. Most traders continue to believe the ECB will move rates higher again in December. Euro bids are cited around the US$ 1.2415 level.

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The yen depreciated vis-?�-vis the U.S. dollar today as the greenback tested offers around the ??119.65 level and was supported around the ??119.05 level. Technically, today??�s intraday low was right around the 38.2% retracement of the move from ??147.65 to ??101.30. Bank of Japan Governor Fukui spoke overnight in an attempt to manage interest rate expectations. Fukui reported ???I am asked whether or not there is any chance for another rate hike before the end of this year, I would say I do not rule this out. But we do not manage the (monetary) policy by presetting a specific timing (for any future policy action), and we are completely open to any possibility. The recent series of economic data, including our tankan survey, have not prompted us to change our policy. And with regard to any adjustment in the interest rates, we will do it slowly while carefully assessing developments in economic activity and prices. In this context, the possibility is rather high that extremely low interest rate levels will be sustained for the time being.??? BoJ voted to keep rates unchanged at +0.25% overnight, as expected, and kept its assessment of the economy unchanged in its monthly economic report. Data released in Japan overnight saw the September wholesale goods price index rise 3.6% y/y while August revised industrial output was up 1.8% m/m. Capital flows data released overnight confirmed that foreign investors were net buyers of Japanese equities in the week ending on 7 October. The Nikkei 225 stock index gained 1.02% to close at ??16,536.54. Dollar bids are cited around the ??118.95/ 40 levels. The euro moved marginally lower vis-?�-vis the yen as the single currency tested bids around the ??149.65 level and was capped around the ??150.15 level. The British pound moved higher vis-?�-vis the yen as sterling tested offers around the ??222.35 level while the Swiss franc moved lower vis-?�-vis the yen as the pair tested bids around the ??93.75 level. The Chinese yuan appreciated vis-?�-vis the U.S. dollar as the greenback closed at CNY 7.9115 in the over-the-counter market, down from CNY 7.9148, and at CNY 7.9110 in the exchange-traded market. People??�s Bank of China reported that the M2 money supply expanded 16.83% y/y at the end of September, a significant decline on account of the central bank??�s macroeconomic controls to slow the economy.

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The British pound weakened vis-?�-vis the U.S. dollar today as cable tested bids around the US$ 1.8530 level and was capped around the $1.8640 level. Technically, today??�s intraday high was just below the 23.6% retracement of the move from $1.9070 to $1.8515 and today??�s intraday low was right at the 76.4% retracement of the move from $2.0035 to $1.3680. No significant data were released in the U.K. today. Most traders continue to expect Bank of England??�s Monetary Policy Committee will hike borrowing costs next month. Cable bids are cited around the US$ 1.8300 figure. The euro moved lower vis-?�-vis the British pound as the single currency tested bids around the ?��0.6735 level and was capped around the ?��0.6755 level.

CHF

The Swiss franc lost ground vis-?�-vis the U.S. dollar today as the greenback tested offers CHF 1.2770 level and was supported around the CHF 1.2665 level. Today??�s intraday low was about 20 pips below the 23.6% retracement of the move from CHF 1.7210 to CHF 1.1285. Dollar offers are cited around the CHF 1.2815/ 60 levels. The euro and British pound rallied vis-?�-vis the Swiss franc as the crosses tested offers around the CHF 1.5965 and CHF 2.3670 levels, respectively.

AUD

The Australian dollar moved lower vis-?�-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7490 level and was capped around the $0.7530 level. Technically, today??�s intraday high was just above the 38.2% retracement of the move from $0.6770 to $0.7985. Australian dollar bids are cited around the US$ 0.7385 level.

CAD

The Canadian dollar appreciated marginally vis-?�-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1320 level and was capped around the C$ 1.1385 level. U.S. dollar offers are cited around the C$ 1.1430 level.

NZD

The New Zealand dollar depreciated vis-?�-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6555 level and was capped around the $0.6615 level. New Zealand dollar offers are cited around the US$ 0.6685 level.

Gold/ Silver

Gold moved higher vis-?�-vis the U.S. dollar today as the yellow metal tested offers around the US$ 589.25 level and was supported around the $577.25 level. Physical demand from India is cited as one reason the pair has gained ground. Silver moved higher vis-?�-vis the U.S. dollar as the pair tested offers around the $11.60 level and was supported around the $11.28 level.

Crude Oil

Crude oil gained ground vis-?�-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested offers around the US$ 59.42 level and was supported around the $57.85 level. Today??�s move higher from the recent 2006 low reflected the shutdown of oilfields in Norway. Also, traders did not anticipate that yesterday??�s U.S. weekly fuel inventories data would register a surprise decline. OPEC is still considering an extraordinary meeting to discuss a cut in production.