NEWS / Foreign Exchange

Forex and Commodity Market Commentary and Analysis (23 November 2006)

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The euro gained marginal ground vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2975 level and was supported around the $1.2930 level. The common currency gained significant ground yesterday and is now just short of a 2006 high. The pair is eyeing the US$ 1.3000 figure as its next upside target and stops are seen above the $1.2980 level. U.S. markets are closed for the Thanksgiving day holiday and even though banks will be open tomorrow, liquidity will remain subdued. Data released in Germany today saw the November Ifo business climate index rise to 106.8 in November from 105.3 in October. This print was stronger-than-expected and these data bolstered the view the European Central Bank will tighten monetary policy by 25bps next month to 3.50%. Other components of the Ifo data saw the business assessment index and forward-looking business expectations index improve. Ifo??™s Nerb suggested German exporters can tolerate an exchange rate around US$ 1.30 but would suffer above $1.35. Other eurozone data released today saw German GDP expand 0.6% in Q3, down from 1.1% in Q2. European Central Bank member Ordonez spoke today and reiterated inflation risks are rising, adding interest rates remain favourable for economic growth. Euro bids are cited around the US$ 1.2855 level.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??116.20 level and was capped around the ??116.80 level. Technically, today??™s high was right around the 23.6% retracement of the move from ??101.65 to ??121.40. Japanese financial markets were closed overnight for a market holiday and will reopen tonight but no major economic data are expected to be released. Dealers continue to cite increasing evidence that short yen carry trades are being unwound as traders are getting nervous about the possibility Bank of Japan will lift interest rates again this year. Most traders expect BoJ to tighten policy further in Q1 2007 by +25bps but the amount of short yen carry trades is thought to exceed US$ 120 billion, hence any nervousness about rate policy can see the yen strengthen substantially. Dollar bids are cited around the ??115.90/ 70 levels. The euro came off vis-? -vis the yen as the single currency tested bids around the ??150.55 level and was capped around the ??151.10 level. The British pound and Swiss franc weakened vis-? -vis the yen as the crosses tested bids around the ??222.40 level and ??94.90 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8620 in the over-the-counter market, down from CNY 7.8647, and at CNY 7.8605 in the exchange-traded market. People??™s Bank of China Vice Governor Su Ning said the central bank is encouraging an increase in imports to ???achieve balance in international payments.???

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The British pound gained marginal ground vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9165 level and was supported around the $1.9130 level. The pair established a fresh 2006 high today and reached its strongest level dating to April 2005. Data released in the U.K. today saw Q3 business investment increase a record amount, up ?‚¤31.013 billion in the latest quarter and 6.9% y/y. These data are important for two reasons. First, they make it likely that Q3 GDP growth will come in around 0.7% q/q despite a pullback in industrial production. Second, they increase the likelihood that Bank of England will tighten monetary policy in 2007. Cable bids are cited around the US$ 1.8960 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6775 level and was supported around the ?‚¤0.6755 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2220 level and was capped around the CHF 1.2280 level. Stops were hit below the CHF 1.2230 level, representing the 23.6% retracement of the move from CHF 1.3235 to CHF 1.1920. Dollar offers are cited around the CHF 1.2345 level. The euro and British pound moved lower vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5835 and CHF 2.3400 levels, respectively.

AUD

The Australian dollar depreciated vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7730 level and was capped around the $0.7755 level. Technically, today??™s intraday high was right at the 76.4% retracement of the move from $0.7985 to $0.7015. Australian dollar bids are cited around the US$ 0.7700 figure.

CAD

The Canadian dollar appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1395 level and was capped around the C$ 1.1425 level. U.S. dollar offers are cited around the C$ 1.1450 level.


NZD

The New Zealand dollar weakened vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6700 figure and was capped around the $0.6720 level. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold appreciated vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 631.77 level and was supported around the $ 629.00 figure. The pullback in the dollar saw the pair move higher and liquidity was reduced during the North American session. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 13.13 level and was supported around the $13.04 level.

Crude Oil

Crude oil depreciated vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for January delivery tested bids around the US$ 58.66 level and was capped around the $59.23 level. Data released in the U.S. yesterday saw crude oil stockpiles come in much larger than expected with crude stock up 5.1 million barrels. Supply disruptions at the Alaska Valdez export terminal and the Louisiana Offshore Oil Port have not had a significant impact in prices. Kuwaiti and Venezuelan oil officials suggested OPEC will decide to reduce output again next month when they officials convene in Nigeria.