NEWS / Indicators

Forex and Commodity Market Commentary and Analysis (16 October 2006)

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The euro appreciated marginally vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2535 level and was supported around the $1.2490 level. On Friday, the common currency reached its lowest level since 19 July as traders remain reluctant to call an end to the Federal Open Market Committee??™s long-standing monetary tightening cycle. Traders may get more insight into the likelihood of another Fed pause or possible end to the Fed??™s rate hike cycle this week when consumer price inflation data are released tomorrow followed by producer price inflation data on Wednesday. The U.S. dollar gave up ground today when the New York Fed??™s Empire survey of manufacturing activity indicated raw materials prices receded to their lowest level in more than one year, even as the headline index rose above expectations to 22.9 in October from 13.84 in September. Chicago Fed President Moskow said on Friday that core inflation pressures remain ???too high??? and traders await comments from Fed Chairman Bernanke later today. In eurozone news, European Central Bank President Trichet characterized the eurozone??™s growth potential as ???mediocre??? and said structural reforms are needed to support economic growth. Bank of France today lifted its GDP estimates for Q3 to 0.5% and at least 2.2% for all of 2006. Eurozone inflation data will be released this week and may clarify the view that the ECB will tighten monetary policy in December. Euro bids are cited around the $1.2460 level.

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The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??119.00 figure and was capped around the ??119.80 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from ??147.65 to ??101.25. The big news involving the yen today involved comments from First Deputy Chairman Ulyukayev of Russia??™s central bank who indicated Russia will increase the number of currencies in its foreign reserves portfolio and added this includes the yen, noting the current holdings involving the yen is near zero. Data released in Japan today saw September corporate failures off 13.8% y/y. The Nikkei 225 stock index climbed 0.94% to close at ??16,692.76. Dollar bids are cited around the ??118.40/ ??117.95 levels. The euro depreciated vis-? -vis the yen as the single currency tested bids around the ??149.05 level and was capped around the ??149.75 level. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??221.40 and ??93.60 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.9098 in the over-the-counter market, down from CNY 7.9115, and at CNY 7.9120 in the exchange-traded market. People??™s Bank of China Assistant Governor Yi Gang reported ???The yuan exchange rate will remain basically stable at a reasonable and balanced level, with a gradual yuan rise to counter long-term appreciation pressure.??? Vice Governor Wu Xiaoling defended the sizable amount of foreign exchange reserves on PBOC??™s balance sheet and indicated they can??™t directly be used for other purposes. Data released in China today saw foreign direct investment between January and September fall 1.52% y/y to US$ 42.59 billion.

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The British pound gained ground vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.8645 level and was supported around the $ 1.8520 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from $1.9070 to $1.8515 level. Data released in the U.K. today saw Rightmove house prices rise at their highest annual rate in 2006. Cable bids are cited around the US$ 1.8535 level. The euro moved lower vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6720 level and was capped around the ?‚¤0.6745 level.

CHF

The Swiss franc appreciated marginally vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2690 level and was capped around the CHF 1.2755 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from CHF 1.7225 to CHF 1.1285. The September trade balance will be released on Thursday. Dollar offers are cited around the CHF 1.2815 level. The euro came off vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5910 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3685 level.

Crude Oil

Crude oil came off vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested bids around the US$ 58.08 level and was capped around the $59.23 level. Oil moved lower after Norwegian oilfields resumed production. Also, OPEC announced it will convene this Thursday in Qatar to decide how to reduce production supplies by an estimated one million barrels per day. Additionally, traders will pay close attention to the United Nations Security Council on Tuesday as the European Union??™s foreign ministers are likely to ask the U.N. to impose sanctions on Iran.