NEWS / Central Banks

Forex and Commodity Market Commentary and Analysis (13 November 2006)

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The euro weakened vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2825 level and was capped around the $1.2875 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from $1.2460 to $1.2940. Traders await comments from European Central Bank President Trichet and other policymakers in the North American session. Wednesday??™s producer prices data and Thursday??™s consumer prices data in the U.S. could spotlight a difficult week for the dollar if those readings come in less-than-expected. The dollar was on the defensive last week and any indication that Federal Reserve policymakers may definitely conclude their long-standing tightening cycle could add to the dollar??™s woes. Fed officials are scheduled to speak en masse on Thursday and Friday. Retail sales will also be released in the U.S. this week and these data will become more important as the holiday season edges closer. In eurozone news, German consumer price inflation data will be released tomorrow and any indication that price pressures remain above the ECB??™s 2.0% ceiling target could be positive for the common currency. Euro bids are cited around the US$ 1.2780/ 20 levels.

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The yen came off vis-? -vis the U.S. dollar today as the greenback tested offers around the ?? 117.95 level and was supported around the ?? 117.15 level. The pair recovered from an overnight sell-off after Liberal Democratic Party policy chief Nakagawa said deflation is still a problem for the Japanese economy and added he is against any interest rate hikes from Bank of Japan at this time. Data released in Japan overnight saw the September current account surplus climb 9.4% y/y to ??2.025 trillion, more-than-expected. Also, the October wholesale goods price index rose 2.8% y/y, the 21st consecutive monthly increase, and the October consumer confidence index improved for the first time in three months, rising to 48.2. Additionally, September industrial output was down 0.7% m/m. The Nikkei 225 stock index lost 0.56% to close at ??16,022.49. Dollar bids are cited around the ??117.05 level. The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??151.35 level and was supported around the ??150.80 level. The British pound came off vis-? -vis the yen as sterling tested bids around the ??224.20 level while the Swiss franc moved higher vis-? -vis the yen and tested offers around the ??95.00 figure. The Chinese yuan came off vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8667 in the over-the-counter market, up from CNY 7.8645, and at CNY 7.8651 in the exchange-traded market. Data released in China today saw January ??“ October CPI climb 1.3% y/y. The China State Information Centre today suggested China should diversify its massive US$ 1 trillion foreign reserves into crude oil, metals, and bulk commodities. This follows People??™s Bank of China Governor Zhou??™s comments last week that China will diversify its reserve holdings.

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The British pound depreciated sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.9015 level and was capped around the US$ 1.9150 level. Cable fell sharply after October input prices data confirmed a decline for the third consecutive month, off 0.1% m/m. On an annualized basis, input prices were up 3.8% y/y, the smallest annual increase since July 2004 and below expectations. Also, government data confirmed September house prices continued their climb, up 8.0% y/y in September. BRC lowered its 2007 GDP forecast to 2.3% from 2.4% and sees GDP growth around 2.5% in 2008. Traders await the release of the Bank of England quarterly inflation report on Wednesday. Cable bids are cited around the US$ 1.8985/ 25 levels. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6745 level and was supported around the ?‚¤0.6715 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2430 level and was supported around the CHF 1.2355 level. Technically, today??™s intraday high was just above the 23.6% retracement of the move from CHF 1.3235 to CHF 1.1920. There are not many Swiss data expected to be released this week and most traders believe Swiss National Bank will tighten monetary policy next month. Dollar offers are cited around the CHF 1.2445/ 1.2505 levels. The euro and British pound came off vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5910 and CHF 2.3610 levels, respectively.

AUD

The Australian dollar weakened vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7615 level and was capped around the $0.7675 level. Technically, today??™s intraday low was right around the 61.8% retracement of the move from $0.7985 to $0.7015. Reserve Bank of Australia??™s quarterly statement indicated the central bank expects the economy to moderate over the next couple of years, particularly in response to this year??™s interest rate hikes and the severe drought affecting the country. Australian dollar bids are cited around the US$ 0.7495 level.



CAD

The Canadian dollar weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1370 level and was supported around the C$ 1.1305 level. U.S. dollar offers are cited around the C$ 1.1410 level.

NZD

The New Zealand dollar depreciated vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6610 level and was capped around the $0.6665 level. Q3 producer prices will be released later in the day. New Zealand dollar offers are cited around the US$ 0.6645/ 65 levels.

Gold/ Silver

Gold weakened vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 620.80 level and was capped around the $632.80 level. The dollar??™s decent intraday run continued to the pair??™s sell-off. Some physical demand associated with the Indian wedding season and the holiday season was cited overnight by dealers. Speculation that China may increase its official gold holdings could be gold positive. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 12.71 level and was capped around the $13.14 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$ 58.54 level and were capped around the $59.86 level. Speculation that it may be warmer than usual in the U.S. northeast in December and January added to the pair??™s losses. Traders await weekly energy inventories data on Wednesday.