NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (30 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$ 1.2700 figure and was capped around the $1.2735 level. Technically, today??™s intraday low was right around the 50% retracement of the move from $1.2460 to $1.2940. Today??™s range was thin as traders held their fire ahead of a busy two days of market events in the U.S. and eurozone. Data released in the U.S. today saw the September personal consumption expenditures price index decline 0.3%, the first decline since November 2005, whole the core PCE index was up 0.2%, down from August??™s 0.3% reading. Notably, core inflation has risen 2.4% over the past twelve months, lower than August??™s 2.5% gain but well above the Federal Reserve??™s perceived comfort zone. These continued high readings of the core PCE index are why the Fed continues to retain a tightening bias on the monetary policy front. Other data released in the U.S. today saw consumer spending rise 0.1% in September, down from August??™s 0.2% rise. Richmond Fed President Lacker ??“ who continues to vote for higher rates on the Federal Open Market Committee ??“ and Chicago Fed President Moskow speak later in the day. In eurozone news, traders await the European Central Bank??™s interest rate decision on Thursday. Most traders expect the ECB to keep rates unchanged but will be interested to hear from ECB President Trichet as most policymakers expect an ECB move higher on rates in December. German wholesale sales were up 0.2% m/m and 1.1% y/y in September. The euro did not show much reaction to news that the central bank of the United Arab Emirates may diversify its foreign exchange reserves further in favour of the common currency. Euro bids are cited around the US$ 1.2640/ 1.2570 levels.

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The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??117.20 level and was capped around the ??117.60 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from ??108.95 to ??118.95. Data released in Japan today saw September industrial output decline 0.7% m/m, down from August??™s +1.8% m/m climb, and was up 5.1% y/y. Traders await Bank of Japan??™s semi-annual outlook on the economy and prices tomorrow along with comments from BoJ Governor Fukui. Short yen positions in the Commitment of Traders report for the week ending 24 October were a record 137,290 contracts. The Nikkei 225 stock index lost 1.90% to close at ??16,351.85. Dollar bids are cited around the ??116.75/ 115.70 levels. The euro weakened vis-? -vis the yen as the single currency tested bids around the ??149.10 level and was capped around the ??149.65 level. The British pound moved higher vis-? -vis the yen as the cross tested offers around the ??223.40 level while the Swiss franc moved lower vis-? -vis the yen as the pair tested bids around the ??93.85 level. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8738 in the over-the-counter market, down from CNY 7.8896, and at CNY 7.8734 in the exchange-traded market. The Chinese government reiterated China??™s 2006 trade surplus is likely to reach US$ 150 billion and added China??™s economy is likely to expand by more than 10% this year.

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The British pound escalated vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9040 level and was supported around the $1.8955 level. Stops were reached above the $1.8995 level today, representing the 76.4% retracement of the move from $1.9145 to $1.8515. Data released in the U.K. today saw September mortgage approvals reach their highest level since February 2004, according to Bank of England. Also, the September M4 money supply was up 14.5% y/y, the highest measure in sixteen years and these data precipitated some additional concern about inflation. Most traders continue to expect BoE??™s Monetary Policy Committee will lift interest rates next month. Cable offers are cited around the US$ 1.9090/ 1.9140 levels. The euro came off vis-? -vis the British pound as the single currency tested bids around the ?‚¤0.6680 level and was capped around the ?‚¤0.6715 level.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2505 level and was supported around the CHF 1.2470 level. Technically, today??™s intraday low was right around the 50% retracement of the move from CHF 1.2180 to CHF 1.2770. Swiss National Bank governing board member Hildebrand was quoted as saying investors should ???not believe that the exchange rate situation will continue to always be as stable??? and added ???fundamentals for the Swiss franc are very good.??? U.S. dollar offers are cited around the CHF 1.2545/ 1.2630 levels. The euro came off vis-? -vis the Swiss franc as the single currency tested bids around the CHF 1.5880 level while the British pound moved higher vis-? -vis the Swiss franc and tested offers around the CHF 2.3780 level.

AUD

The Australian dollar gained marginal ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7700 figure and was supported around the $0.7675 level. Australian dollar bids are cited around the US$ 0.7610 level.
CAD

The Canadian dollar weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1235 level and was supported around the C$ 1.1175 level. Data released in Canada today saw September raw materials and manufactured goods prices down 5.2% and 1.6%, respectively. U.S. dollar offers are cited around the C$ 1.1355 level.

NZD

The New Zealand dollar appreciated vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6645 level and was supported around the $0.6605 level. New Zealand dollar offers are cited around the US$ 0.6685 level.

Gold/ Silver

Gold made a strong move higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 610.40 level and was supported around the $598.85 level. The weaker-than-expected U.S. GDP data released on Friday and today??™s stronger-than-expected U.S. core PCE data contributed to gold??™s rise. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 12.24 level and was supported around the $12.04 level.

Crude Oil

Crude oil came off vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 58.85 level and was capped around the $61.02 level. Anticipated cold weather in the U.S. at the end of the week may give the market some support while doubts that all OPEC members will curtail production in line with OPEC??™s recent statement have added some selling pressure.