NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro gained marginal ground vis-? -vis the U.S. dollar today as the single currencytested offers around the US$ 1.3565 level and was supported around the $1.3525level.  Stops were hit above the $1.3555level, representing the 23.6% retracement of the move from $1.3680 to$1.3515.  Traders await today??™s interestrate decision from the Federal Open Market Committee with most traders expectedthe Fed to keep borrowing costs unchanged. As always, today??™s monetary policy statement will be dissected to seehow preoccupied the FOMC remains with elevated energy costs and inflationpressures.  Traders will look to see howthe Fed??™s statement will offer policymakers more flexibility to reduce interestrates if needed later in the year, particularly if the slowdown in the U.S. housingmarket worsens.  Last week??™s Aprilnon-farm payrolls data were weaker-than-expected and this may offer the Fed anopportunity to move policy closer to a perceived neutral level.  Ahead of the Fed, three U.S.congressional sub-committees are holding hearings on currency manipulation.There could be some jawboning about the yuan and yen as a result of themeetings.  In eurozone news, Germany??™sMarch trade surplus expanded to ?‚¬18.4 billion from ?‚¬14.2 billion inFebruary.  European Central Bank is notexpected to raise interest rates tomorrow and remarks from ECB PresidentTrichet will be closely watched. The ECB is expected to lift borrowing costs by+25bps next month.  Euro bids are citedaround the US$ 1.3485 level.

JPN/CNY

The yen appreciatedvis-? -vis the U.S. dollar today asthe greenback tested bids around the ??119.75 level and was capped around the??120.10 level.  Traders moved into yen onincreasing speculation that next week??™s GDP data for the January ??“ March periodwill be stronger-than-expected and accelerate Bank of Japan??™s next monetarytightening.  Remarks from Bank of Japan Governor Fukui tomorrow will be closelyscrutinized, particularly given Japan??™srecent move back towards deflation at the consumer price level.  Data released in Japan today saw the March leadingindex improve to 40.0 from 27.3 in February while the coincident index came offto 22.2 from 30.0.  The Nikkei 225 stockindex climbed 0.52% to close at ??17,748.12. Dollar bids are cited around the??119.20 level.  The euro moved higher vis-? -vis the yen as the single currencytested bids around the ??162.05 level and was capped around the ??162.55level.  The British pound gained ground vis-? -vis the yen as sterlingtested offers around the ??239.40 level while the Swiss franc weakened vis-? -vis the yen and tested bids aroundthe ??98.25 level.

STERLING

The British pound expanded sharply vis-? -vis the U.S. dollar today as cable tested offersaround the US$ 1.9995 level and was supported around the $1.9880 level.  Technically, today??™s intraday high was rightaround the 23.6% retracement of the move from $1.9590 to $2.0130.  Data released in the U.K. today sawBRC??™s measure of like-for-like retail sales rise 2.4% y/y in April.  Also, REC reported U.K. April permanent wage inflationreached its highest level in nearly seven years and Nationwide reported itsApril consumer confidence index improved to +90 from +88 in March.  Traders continue to expect Bank of England??™sMonetary Policy Committee will lift the repo rate by +25bps tomorrow but aminority believe a +50bps hike is in the cards. Cable bids are cited around the US$ 1.9925 level.  Theeuro moved lower vis-? -vis the British pound as the single currency testedbids around the ?‚¤0.6780 level and was capped around the ?‚¤0.6810.

SWISS

The Swissfranc appreciated vis-? -vis the U.S. dollar today as the greenback testedbids around the CHF 1.2140 level and was capped around the CHF 1.2185 level.  Technically, today??™s intraday low was rightaround the 50% retracement of the move from CHF 1.2280 and CHF 1.1995.  Traders await the release of the SECOconsumer climate index tomorrow.  Dollaroffers are cited around the CHF 1.2215/ 65 levels.  Theeuro weakened vis-? -vis the Swiss franc as the single currency tested bidsaround the CHF 1.6465 level and theBritish pound moved higher vis-? -vis the Swiss franc as sterling testedoffers around the CHF 2.4305 level.

AUD

The Australiandollar gained ground vis-? -vis the U.S. dollar today as the Aussie tested offersaround the US$ 0.8305 level and was supported around the $0.8265 level.  Technically, today??™s intraday high was rightaround the 23.6% retracement of the move from $0.8150 to $0.8390.  Data released in Australia today saw the weightedaverage of established houses prices in Australian capital cities rise 1.1%q/q.  Australian Treasurer Costello deliveredhis budget and is estimating a budget surplus of A$ 10.6 billion for 2007/2008. The government also lifted its economic growth forecast to 3.75% from2.5%. Australian dollar bids are cited around the US$ 0.8240 level.

CAD

The Canadiandollar weakened marginally vis-? -vis the U.S. dollar today as the greenback testedoffers around the C$ 1.1090 level and was supported around the C$ 1.1040level.  Technically, today??™s intradayhigh was right around the 38.2% retracement of the move from C$ 1.1225 to C$1.1005 level.  Traders await the Marchnew house price index and March merchandise trade data tomorrow.  U.S. dollar offers are cited around the C$ 1.1150level.