NEWS / Macroeconomic Stories

Forex and Commodity Market Commentary and Analysis (6 November 2006)

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The euro was little-changed vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2690 level and was capped around the $1.2720 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.2980 to $1.2460. Traders remain torn between strong inflation and employment measures in the U.S. and the European Central Bank??™s likely continued monetary tightenings. Friday??™s October non-farm payrolls data evidenced a dramatic upward revision in August??™s and September??™s jobs tally, declining unemployment, and strength in average hourly earnings. Coupled with elevated core inflation pressures, the jobs data are keeping the U.S. dollar supported. Absent these factors, the U.S. dollar would likely be lower, especially after ECB President Trichet pledged ???strong vigilance??? on Thursday regarding interest rate expectations. Most traders now expect ECB to tighten rates again in Q1 2007 and by that time, it is likely the Federal Open Market Committee will have definitively ended its long-term tightening cycle ??“ if inflation pulls back from current levels. Traders await comments from Cleveland Fed President Pianalto and Chicago Fed President Moskow later today. In eurozone news, EMU-12 September PPI was off 0.5% m/m and up 4.6% y/y and the EMU-12 October services PMI index receded to 56.5, its lowest showing since November 2005. Also, German manufacturing orders fell 2.5% m/m in September. Euro bids are cited around the $1.2650/ 1.2580 levels.

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The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??118.45 level and was supported around the ??117.80 level. Technically, today??™s intraday high was right around the 76.4% retracement of the move from ??121.40 to ??109.00. Traders are again monitoring the situation in North Korea where that country has agreed to return to nuclear talks but does not want Japan to participate. The main issue on traders??™ minds now remains Bank of Japan??™s monetary policy and when the central bank will raise rates. Most dealers believe BoJ will raise rates in Q1 2007 by 25bps to 0.50%. The yen has been dented for several months by carry trades in which the yen is borrowed and sold as a financing vehicle to invest in higher-yielding currencies. The Nikkei 225 stock index gained 0.09% to close at ??16,364.76. Dollar bids are cited around the ??117.35 level. The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??150.50 level and was supported around the ??149.85 level. The British pound and Swiss franc gained ground vis-? -vis the yen as the crosses tested offers around the ??224.65 and ??94.25 levels, respectively. The Chinese yuan depreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8811 in the over-the-counter market, up from CNY 7.8716, and at CNY 7.8801 in the exchange-traded market. The big news in China today was a report that China??™s foreign exchange reserves have officially topped the psychologically-important US$ 1 trillion level. Japan, by comparison, has about US$ 881.27 billion in reserves.

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The British pound depreciated vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8945 level and was capped around the $1.9025 level. Stops were hit below the $1.8990 level, representing the 23.6% retracement of the move from $1.8515 to $1.9135. Most traders expect Bank of England??™s Monetary Policy Committee to tighten its repo rate by +25bps to 5.00% on Thursday. Data released in the U.K. today saw September manufacturing output unchanged m/m with its annual rate at its highest level since June 2004, while September industrial production was up 0.2% m/m. Cable bids are cited around the US$ 1.8895 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6700 figure and was supported around the ?‚¤0.6680 level.

CHF

The Swiss franc weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2575 level and was supported around the CHF 1.2525 level. Technically, today??™s intraday high was right around the 50% retracement of the move from CHF 1.3235 to CHF 1.1920. Swiss October unemployment will be released tomorrow. Dollar bids are cited around the CHF 1.2425 level. The euro and British pound moved higher vis-? -vis the Swiss franc as the crosses tested offers around the CHF 1.5970 and CHF 2.3850 level, respectively.

AUD

The Australian dollar came off vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7670 level and was capped around the $0.7710 level. Data released in Australia today saw October job advertisements up 5.8% m/m and 25.3% y/y. Australian dollar bids are cited around the US$ 0.7615 level.

CAD

The Canadian dollar came off vis-? -vis the U.S. dollar today as the U.S. dollar tested offers around the C$ 1.1360 level and was supported around the C$ 1.1285 level. Technically, today??™s intraday low was right around the 76.4% retracement of the move from C$ 1.1455 to C$ 1.1030. Data released in Canada today saw the value of building permits fall 2.5% to C$ 5.7 billion. U.S. dollar bids are cited around the C$ 1.1245 level.

NZD

The New Zealand dollar came off vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6650 level and was capped around the $0.6700 figure. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 622.90 level and was capped around the $ 623.00 figure. The stronger U.S. dollar and weaker crude oil prices contributed to the pair??™s intraday losses. Anecdotal evidence from CBOT and COMEX suggest traders are speculating that gold prices will increase. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 12.71 level and was supported around the $ 12.46 level.

Crude Oil

Crude oil appreciated vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested offers around the US$ 59.79 level and was supported around the $58.45 level. News of a new attack on Nigerian oil facilities pushed the pair higher, as did comments from OPEC President Daukoru who suggest more reductions in output may take place next month.