NEWS / Indicators

Forex and Commodity Market Commentary and Analysis (27 October 2006)

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The euro appreciated vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2750 level and was supported around the $1.2660 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from $1.2980 to $1.2460 and today??™s intraday high was right around the 38.2% retracement of the move from $1.2460 to $1.2940. The common currency moved to its highest level since 3 October after U.S. preliminary Q3 GDP data were released that saw the economy expand at a 1.6% annualized pace, down from Q2??™s 2.6% growth rate and Q1??™s strong 5.6% growth rate. These data were lower-than-expected and slowdowns in housing and business investment contributed to the pullback. The core PCE index ??“ the Federal Reserve??™s preferred measure of inflation ??“ rose 2.3% in Q3, down from Q2??™s 2.7% pace. Over the past twelve months, however, the core PCE price index is up 2.4%, its sharpest annual rise since Q2 2005. Notably, spending on home building was off 17.4% in Q3, the largest decline since Q1 1991. Other data released in the U.S. today saw the final October University of Michigan consumer sentiment index print at 93.6, stronger-than-expected. In eurozone news, the EMU-12 M3 money supply expanded 8.5% y/y in September, up from August??™s heady 8.2% pace. These data were stronger-than-expected and cement a +25bps rate hike in December by the European Central Bank. ECB member Gonzalez-Paramo said the eurozone CPI needs to be below 2% in the medium-term. Euro bids are cited around the US$ 1.2660 level.

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The yen appreciated sharply vis-? -vis the U.S. dollar today as the greenback tested bids around the ??117.55 level and was capped around the ??118.70 level. Technically, today??™s intraday high was just below the 38.2% retracement of the move from ??119.85 to ??118.05 and today??™s intraday low was right around the 61.8% retracement of the move from ??116.05 to ??119.85. The yen gained ground even though September core CPI was up 0.2% y/y, below forecasts. These data have many traders rethinking the notion that Bank of Japan??™s Policy Board will lift interest rates again in 2006, with many now seeing additional tightening pushed back until 2007. Other data released today saw September retail sales climb 0.8% y/y. MoF??™s Watanabe verbally intervened overnight and said the yen is not likely to weaken further. The Nikkei 225 stock index lost 0.85% to close at ??16,699.07. Dollar bids are cited around the ??116.95 levels. The euro weakened vis-? -vis the yen as the single currency tested bids around the ??149.70 level and was capped around the ??150.70 level. The British pound and Swiss franc moved lower vis-? -vis the yen as the crosses tested bids around the ??223.05 and ??94.15 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8896 in the over-the-counter market, down from CNY 7.8959, and at CNY 7.8905 in the exchange-traded market. Data released in China today saw the urban unemployment rate at 4.1% as of the end of September.

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The British pound moved sharply higher vis-? -vis the U.S. dollar today as cable tested offers around the psychologically-important US$ 1.9000 figure and was supported around the $1.8870 level. Technically, today??™s intraday high was right around the 76.4% retracement of the move from $1.9145 to $1.8515. NIESR reported that U.K. CPI inflation is expected around 2.6% in Q4 and said a rate hike will be needed in Q4 and Q1. Cable bids are cited around the US$ 1.8905 level. The euro came off vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6700 figure and was capped around the ?‚¤0.6720 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2465 level and was capped around the CHF 1.2570 level. Stops were hit below the CHF 1.2520 level, representing the 38.2% retracement of the move from CHF 1.1285 to CHF 1.3285. Data released in Switzerland today saw the KOF economic barometer recede to 2.00 in October from a revised 2.19 in September, an indication that GDP growth could decelerate in early 2007. Most traders continue to expect Swiss National Bank will raise interest rates by 25bps in December. Dollar offers are cited around the CHF 1.2580 level. The euro came off vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5890 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3740 level.

AUD

The Australian dollar climbed higher vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7695 level and was supported around the $0.7620 level. Australian dollar bids are cited around the US$ 0.7610 level.


CAD

The Canadian dollar appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1175 level and was capped around the C$ 1.1260 level. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar moved higher vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6610 level and was supported around the $0.6560 level. New Zealand dollar offers are cited around the $0.6630/ 65 levels.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 592.15 level and was capped around the $600.10 level. The pair failed to gain ground above the $600 figure. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 11.98 level and was capped around the $12.19 level.

Crude Oil

Crude oil came off marginally vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 59.87 level and was capped around the $60.82 level. Traders await details about future OPEC production cuts.