NEWS / Indicators

Forex and Commodity Market Commentary and Analysis (23 October 2006)

?‚¬

The euro moved lower vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2535 level and was capped around the $1.2620 level. Stops were reached below the $1.2560 level, representing the 50% retracement of the move from $1.3480 to $1.1640. The common currency came off as traders positioned themselves ahead of Wednesday??™s Federal Open Market Committee interest rate decision. Most traders believe the Fed will keep its federal funds target rate unchanged at 5.25% for the third consecutive meeting. Two-thirds of primary dealers of U.S. government bonds believe the Fed??™s next rate move will be lower at some point while one-third believes the Fed will be forced to resume their long-standing rate hikes. As always, the Fed??™s interest rate statement will be closely parsed to see if the Fed provides any written clues about its current views on the economy. In all likelihood, the Fed will acknowledge the continued pullback in energy prices but will note that core energy prices remain elevated. Friday??™s Q3 GDP data in the U.S. will be closely evaluated to see if the economy recovered after Q2??™s deceleration. In eurozone news, Germany??™s Bundesdbank noted the ???upward trend in the German economy continued at a speedy pace in the third quarter.??? Traders await the release of Germany??™s Ifo business confidence index on Wednesday. Data released in the eurozone today saw the EMU-12 2005 deficit fall to 2.4% of GDP from 2.8% while debt rose to 70.8% from 69.8%. Euro bids are cited around the US$ 1.2415 level.

??/ CNY

The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??119.35 level and was supported around the ??118.55 level. Stops were hit above the ??118.95 level, representing the 23.6% retracement of the move from ??116.05 to ??119.75. Data released in Japan overnight saw September supermarket sales off 1.9% y/y. September trade balance data will be released tomorrow night and traders await and clues about the ongoing nuclear testing standoff with North Korea. The Nikkei 225 stock index gained 0.82% to close at ??16,788.82. Dollar bids are cited around the ??118.40 level. The euro was little-changed vis-? -vis the yen as the single currency tested bids around the ??149.50 level and was capped around the ??149.90 level. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??223.00 and ??94.00 figures, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar today as the greenback closed at CNY 7.8991 in the over-the-counter market, down from CNY 7.9025, and at CNY 7.8980 in the exchange-traded market. People??™s Bank of China Vice Governor Su Ning reported ???We should perfect the yuan's exchange rate formation mechanism and improve the management of foreign exchange. We should reform the interest rate system so that interest-rate instruments can be used as leverage in the financial market.??? European Union officials warned China to liberalize its trade practices or face rising protectionism.

?‚¤

The British pound fell sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8685 level and was capped around the $1.8835 level. Technically, today??™s high was right at the 50% retracement of the move from $1.9145 to $1.8515. The CBI industrial trends survey will be released tomorrow. Traders are talking about market chatter that Dubai??™s investment arm may lift its holdings in Standard Chartered Bank to 20%. Cable bids are cited around the US$ 1.8665 level. The euro gained marginal ground vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6710 level and was supported around the ?‚¤0.6695 level.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2685 level and was supported around the CHF 1.2575 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from CHF 1.7210 to CHF 1.1285. U.S. dollar offers are cited around the CHF 1.2735/ 1.2815 levels. The euro and British pound moved higher vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5910 and CHF 2.3740 levels, respectively.

AUD

The Australian dollar came off vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7570 level and was capped around the $0.7610 level. Data released in Australia today saw Q3 final PPI up 1.0%, down from Q2??™s 1.6% pace. Australian dollar bids are cited around the US$ 0.7520 level.

CAD

The Canadian dollar came off vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1280 level and was supported around the C$ 1.1240 level. Data released in Canada today saw August retail sales climb 1.0% m/m, more-than-expected. U.S. dollar offers are cited around the C$ 1.1295/ 1.1355 levels.



NZD

The New Zealand dollar depreciated vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6625 level and was capped around the $0.6690 level. Technically, today??™s intraday high was right at the 50% retracement of the move from $0.5910 to $0.7465. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold came off sharply vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 582.15 level and was capped around the $ 593.20 level. The pullback in the price of oil led to a lower price of gold as the two commodities remain highly correlated. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 11.64 level and was capped around the $11.94 level.

Crude Oil

Crude oil extended recent losses vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 58.23 level and was capped around the $ 59.45 level. Traders sold the pair as some expressed doubt that all OPEC members would follow Saudi Arabia??™s lead to reduce oil production in a bid to prop up prices. Traders are already talking about another OPEC cut in December. Geopolitical hotspots including Iran and North Korea are also being monitored by traders.