NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (3 November 2006)

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The euro plummeted vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2685 level and was capped around the $1.2790 level. The common currency tanked after a stronger-than-expected U.S. October non-farm payrolls report that saw 92,000 new jobs created last month. The unemployment rate ticked down to 4.4%, a five-year low and likely below the natural rate of unemployment. Average hourly earnings were up +0.4%, further evidence that factory-level and consumer-level inflation may be fueling second-round wage inflation effects. Additionally, the September and August non-farm payroll tallies were upwardly revised by a collective 139,000 payrolls, evidence of further health in the U.S. jobs sector. In addition to these data turning into a pre-election talking point, traders reduced their expectations for a rate cut by the Federal Open Market Committee by January from 16% yesterday to 4% after the number. Fed officials Kohn, Kroszner, and Stern are scheduled to speak later in the day. Other data released today saw the October ISM non-manufacturing headline index print at 57.1, up from 52.9, while the prices index fell to 51.9 from 56.7. In eurozone news, traders continue to expect a rate hike from the European Central Bank next month and some traders believe ECB President Trichet??™s hawkish testimony yesterday opened the door for additional rate hikes in 2007. Data released today saw the EMU-12 September unemployment rate remain unchanged at 7.8% from August??™s level. Euro bids are cited around the US$ 1.2660/ 30 levels.

??/ CNY

The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??118.15 level and was supported around the ??116.95 level. Technically, today??™s intraday high was right around the 50% retracement of the move from ??119.65 to ??116.55. Japanese financial markets were closed for a public holiday ??“ reducing liquidity in the exchange rate market ??“ and the pair moved to multi-day highs after the stronger-than-expected U.S. jobs report. The biggest focus on yen traders??™ minds remains the timing of Bank of Japan??™s next interest rate increase. Dollar bids are cited around the ??117.35 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??149.95 level and was supported around the ??149.45 level. The British pound moved higher vis-? -vis the yen as sterling tested offers around the ??224.35 level while the Swiss franc moved lower vis-? -vis the yen and tested bids around the ??93.85 level. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8716 in the over-the-counter market, down from CNY 7.8735, and at CNY 7.8709 in the exchange-traded market. People??™s Bank of China lifted the bank reserve requirement by 0.5%, the third increase this year, and this brings the main reserve ratio to about 9.0%. This move was expected and the central bank noted it did so to help absorb the excess liquidity in the banking system. A report from a government think-tank released today predicts the economy will expand 10.5% this year with growth around 10.2% in Q4.

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The British pound came off vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8980 level and was capped around the $1.9110 level. Stops were hit below the $1.8995 level, representing the 76.4% retracement of the move from $1.9145 to $1.8515. The strong U.S. jobs report saw some cable longs book profits. Sterling was on positive footing heading into the number as the CIPS??™s services sector index spiked to a six-month high of 59.3 in October from an unrevised print of 57.0 in September. The prices charged sub-index receded to an eight-month low and the input prices sub-index fell to a fifteen-month low. Most traders believe Bank of England??™s Monetary Policy Committee will lift interest rates by +25bps next week. Cable bids are cited around the US$ 1.8900 figure. 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 ?‚¤0.6700 figure.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2570 level and was supported around the CHF 1.2445 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from CHF 1.1920 to CHF 1.2770. U.S. dollar offers are cited around the CHF 1.2685 level. The euro and British pound appreciated vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5950 and CHF 2.3860 levels, respectively.

AUD

The Australian dollar came off vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7685 level and was capped around the $0.7745 level. Stops were hit below the $0.7700 figure, representing the 23.6% retracement of the move from $0.6770 to $0.7985. Australian dollar bids are cited around the US$ 0.7615 level.

CAD

The Canadian dollar extended recent losses vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1265 level and was capped around the C$ 1.1355 level. Technically, today??™s intraday high was right around the 50% retracement of the move from C$ 1.1770 to C$ 1.0925. Data released in Canada today saw the October unemployment rate decline to 6.2% from 6.4% in September as an estimated 51,000 new jobs were created last month.

NZD

The New Zealand dollar weakened vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6685 level and was capped around the $0.6745 level. Technically, today??™s intraday low was right around 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 moved higher vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 627.10 level and was supported around the $617.75 level. Talk of a new platinum exchange-traded fund drove some metals higher, as did further evidence of inflation in the U.S. economy. Silver came off vis-? -vis the U.S. dollar as the pair tested bids around the US$ 12.33 level and was capped around the $12.68 level.

Crude Oil

Crude oil moved higher vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested offers around the US$ 58.83 level and was supported around the $57.79 level. The strong U.S. employment report suggests more people with jobs will be able to heat their houses this winter and this led to an increase in crude prices. Iran??™s successful missiles test yesterday contributed to the pair??™s gains. Many traders, however, continue to doubt that OPEC will be able to get all of its members to live up to its recent decision to curtail production output, especially Venezuela and Iran.