NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (15 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$ 1.2775 level and was capped around the $1.2830 level. Technically, today??™s intraday high was just above the 23.6% retracement of the move from $1.2460 to $1.2940. Data released in the U.S. today saw the New York Fed??™s November manufacturing index improve to 26.66 from 22.92 in October, above expectations. The factory news order, prices paid, future expectations, and factory employment sub-indices all improved. Traders await the release of tomorrow??™s consumer price inflation data for October to see if the deceleration in core producer price inflation announced yesterday materializes in a pullback in price pressures at the consumer level. Minutes from the Federal Open Market Committee??™s latest interest rate deliberations will be released today and traders want to assess if there were any indications of hawkishness or dovishness in their discussions. In eurozone news, EMU-12 September industrial output was off 1.0% m/m and up 3.3% y/y. European Central Bank member Bini Smaghi spoke today about household financial assets and their impact on the M3 money supply. Euro bids are cited around the US$ 1.2755/ 20 levels.

??/ CNY

The yen came off vis-? -vis the U.S. dollar today as the greenback tested offers around the ??118.20 level and was supported around the ??117.50 level. Technically, today??™s high was just below the 23.6% retracement of the move from ??113.45 to ??119.85. Data released in Japan today saw the September tertiary index fall 1.3% m/m while October corporate failures were up 23.3% y/y. Also, Tokyo-area October condominium sales were off 28.8% y/y. Traders await comments from Bank of Japan Governor Fukui overnight following the central bank??™s Policy Board meeting. Fukui is likely to talk up interest rates and reiterate the central bank??™s plan to lift rates gradually, but not before inflation is too high. In contrast, some Japanese government officials continue to report deflation has not been fully vanquished and are calling on the BoJ to not raise borrowing costs now. Strong comments from U.S. automaker company bosses yesterday about the undervalued yen following a meeting with President Bush suggest the Bush administration may become less tolerant with the artificially week yen. Also, there was an 8.1 earthquake overnight and a tsunami warning was issued northern Japan. Today represents a quarterly U.S. Treasury redemption day and about US$ 40 billion in interest is being paid. Japan is a major holder of U.S. Treasuries and if these coupon payments are repatriated, they will be U.S. dollar-negative. Most coupons payments, however, are likely to be reinvested in the market. The Nikkei 225 stock index lost 0.28% to close at ??16,243.47. Dollar bids are cited around the ??116.65 level. The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??151.15 level and was supported around the ??150.60 level. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??222.45 and ??94.35 levels, respectively. The Chinese yuan appreciated marginally vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8687 in the over-the-counter market, down from CNY 7.8669, and at CNY 7.8685 in the exchange-traded market. Data released in China today saw October actual foreign direct investment climb 15.92% y/y at US$ 5.99 billion while January ??“ October foreign direct investment is at US$ 48.57 billion. Also, October industrial output improved 14.7% y/y.

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The British pound depreciated sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8835 level and was capped around the $1.8970 level. Technically, today??™s intraday low was just below the 50% retracement of the move from $1.8515 to $1.9175. Data released in the U.K. today saw the jobless claimant count rise 1,200 in October to 961,300, the highest level since December 2001, while the claimant count rate remained unchanged at 3.0%. Wage growth remained subdued but as the January negotiating period for pay awards approaches, wage growth could accelerate, particularly if headline inflation remains above the central bank??™s 2.0% ceiling target. Overall average earnings were up 3.9% in the three months to September, down from 4.2% in the previous three months. The big news in the U.K. today saw a relatively benign quarterly inflation report from Bank of England. Policymakers left the door open to possibly raising interest rates one more time but suggested inflation would likely fall below 2.0%. The central bank also predicted the U.K. economy will expand more than it estimated in its August quarterly inflation report. Notably, the central bank predicted the annual CPI inflation rate could peak at 2.7% at the end of 2007 and then move lower over the next two years. Cable bids are cited around the US$ 1.8790 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6785 level and was supported around the ?‚¤0.6755 level.

CHF

The Swiss franc came off vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2520 level and was supported around the CHF 1.2430 level. Technically, today??™s intraday high was right around the 38.2% retracement of the move from CHF 1.1285 to CHF 1.3285. Swiss National Bank Chairman Roth yesterday indicated the Swiss franc??™s traditional safe-haven appeal appears to be diminishing. Data released in Switzerland today saw bankruptcies decline during the first ten months of the year, off 1.2%. Dollar offers are cited around the CHF 1.2555/ 80 levels. The euro gained strong ground vis-? -vis the Swiss franc as the single currency tested offers around the psychologically-important CHF 1.6000 figure and was supported around the CHF 1.5930 level. The British pound came off vis-? -vis the Swiss franc as sterling tested bids around the CHF 2.3520 level.

AUD

The Australian dollar weakened vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7630 level and was capped around the $0.7660 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from $0.7415 to $0.7765. Data released in Australia today saw the Q3 wage cost index rose 0.8% q/q and 3.8% y/y. Also, the Westpac November consumer sentiment index was off 9.7% m/m, its second lowest print since early 2001. Australian dollar bids are cited around the US$ 0.7590 level.

CAD

The Canadian dollar weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1425 level and was supported around the C$ 1.1360 level. The pair has not been this strong since late July of this year. Data released in Canada today saw September manufacturers??™ factory shipments fall 3.3% to their lowest level in nearly two years. U.S. dollar offers are cited around the C$ 1.1450 level.

NZD

The New Zealand dollar came off vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6575 level and was capped around the $0.6635 level. New Zealand dollar offers are cited around the US$ 0.6640 level.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 615.90 level and was capped around the $623.83 level. The dollar??™s surge higher and a general sell-off in base metals added to gold??™s woes. Silver came off vis-? -vis the U.S. dollar as the pair tested bids around the US$ 12.49 level and was capped around the $12.82 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$ 60.97 level and was supported around the $60.21 level. EIA crude inventories were up 1.3 million barrels last week and OPEC intimated it may reduce output again next month. OPEC officials will convene in Nigeria on 12 December to assess the impact of its 1.2 million barrel per day reduction in output that was agreed on 1 November.