NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro appreciatedvis-? -vis the U.S. dollar today asthe single currency tested offers around the US$ 1.3475 level and was supportedaround the $1.3425 level.  Technically,today??™s intraday high was just above the 23.6% retracement of the move from US$1.3680 to $1.3405.  Traders pushed thecommon currency higher after the release of weaker-than-expected U.S. Q1 GDPdata that estimated the economy expanded at an annualized 0.6% pace, downsharply from the initial 1.3% estimate. Declining housing market investments, declining inventories, and thelarge trade gap contributed to the deceleration in growth.  At the same time, however, the core personalconsumption expenditures price index was up 2.2%, above the Federal Reserve??™sperceived comfort zone.  Collectively,these data evidenced a slowing U.S.economy at the beginning of the year with stubbornly elevated inflationpressures ??“ a difficult economic environment that precludes the Fed fromexpanding monetary policy and lowering interest rates.  Other data released in the U.S. today sawthe May Chicago Purchasing Managers??™ Index improve to 61.7 from 52.9 in Aprilwhile the prices paid index increased to 70.2 from 64.9 ??“ further evidence ofinflationary pressures in the economic pipeline that may not have reached theconsumer yet.  Also, weekly initialjobless claims were off 4,000 to 310,000. The U.S. dollar improved marginally yesterday after the release of theminutes from the Federal Open Market Committee??™s interest rate meeting fromearlier this month revealed ???Nearly all participants viewed core inflation asremaining uncomfortably high and stressed the importance of further moderation.???   In eurozone news, the German Mayunemployment rate fell to 9.1% while the unemployment count rose 3,000 followinga decline of 8,000 in April.  Also, theEuropean Commission??™s monthly survey of economic sentiment in the eurozoneimproved to -1 from -4 in April. European Central Bank member Draghi hawkishlysaid ???Money and credit continue to grow strongly,??? an indication rates willcontinue to rise in the eurozone.  Otherdata released there today saw EMU-13 May provisional harmonized consumer pricesremain unchanged at +1.9% y/y.  Also, Germanwholesale sales were off 1.5% m/m and up 3.0% y/y. Euro bids are cited aroundthe US$ 1.3375 level.

JPN/CNY

The yenweakened marginally vis-? -vis the U.S. dollar today as the greenback tested offers around the ??122.00figure and was supported around the ??121.45 level.  The pair reached its strongest print since 12February after Bank of Japan Policy Board member Nishimura reported the centralbank ???does not see any urgent situation at this point in time, so it is notdesirable to stress (that interest rates left too low too long could distortflows of funds and allocation of resources). Most traders believe BoJ will not raise interest rates until after theJuly parliamentary elections.  Datareleased in Japantoday saw April housing starts fall 3.6% y/y while employees??™ average pay wasoff 0.7% y/y, the fifth consecutive monthly decline.  Also, orders received by the 50 largestcontractors were up 1.8% y/y in April.  TheNikkei 225 stock index gained 1.63% to close at ??17,875.75.  Dollar bids are cited around the ??120.85level.  The euro improved vis-? -vis the yen as the single currency testedoffers around the ??163.95 level and was supported around the ??163.00figure.  The British pound and Swiss franc moved higher vis-? -vis the yen asthe crosses tested offers around the ??241.05 and ??99.45 levels,respectively.  The Chinese yuan appreciated marginally vis-? -vis the U.S. dollaras the greenback closed at CNY 7.6465 in the over-the-counter market, down fromCNY 7.6471.  Vice Premier Wu said China ???has taken its own initiativeto resolve the exchange rate regime. External pressure "won't hasten thisprocess."

STERLING

TheBritish pound appreciated vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9815 leveland was supported around the $1.9735 level. Technically, today??™s intraday high was right around the 38.2% retracementof the move from $1.9675 to $1.9900. Sterling gained some ground yesterday after Bank of England MonetaryPolicy Committee member and reputed monetary archdove Blanchflower said ???The rationale for mydecision to vote for a rate rise this month was to ensure that inflationexpectations remain anchored, given rising food prices, recent furtherincreases in oil prices, more robust world growth, and the March inflationoutturn.???  While Blanchflower did notindicate if he would vote for additional tightening in the near future, he didvote for a rate cut as recently as March thus his comments are significant andsuggest the MPC could lift borrowing costs again by August.  Data released in the U.K. today sawNationwide house prices rise 0.5% m/m and 10.3% y/y in May.  Also, the April final M4 money supply was up1.3% m/m and 13.3% y/y. Additionally, the monthly GfK/ NOP main headlineconsumer confidence index climbed to -2 in May from -6 in April, its highestlevel since July 2005.  Also,Confederation of British Industry??™s volume of sales balance decline as expectedto +31% in May from +44% in April but this was tempered by news that retailerspushed up prices in May by their largest amount in nine years.  Cable bids are cited around the US$ 1.9715level. The euro lost marginal groundvis-? -vis the British pound as the single currency tested bids around the?‚¤0.6795 level and was capped around the ?‚¤0.6810 level.

SWISS

The Swissfranc appreciated marginally vis-? -vis the U.S. dollar today as the greenback testedbids around the CHF 1.2230 level and was capped around the CHF 1.2270level.  Technically, today??™s intradayhigh was right around the 23.6% retracement of the move from CHF 1.2355 to CHF1.1995.  Data released in Switzerlandtoday saw Q1 GDP up 2.4% y/y.  Dollaroffers are cited around the CHF 1.2325 level. The euro and British pound gainedground vis-? -vis the Swiss franc as the crosses tested offers around theCHF 1.6495 and CHF 2.4260 levels, respectively. 

AUD

The Australiandollar moved higher vis-? -vis the U.S. dollar today as the Aussie tested offersaround the US$ 0.8290 level and was supported around the $0.8215 level.  Technically, today??™s intraday low was rightaround the 23.6% retracement of the move from $0.8390 to $0.8160. Data releasedin Australiatoday saw April private sector credit growth up 1.2% m/m and 14.5% y/y while Q1capital expenditures were up 9.1% q/q and 4.7% y/y.  Also, the April trade deficit narrowed to ??“A$962 million from ??“A$ 1.628 billion in March. Australian dollar bids are cited around the US$ 0.8160 level.

CAD

The Canadian dollar extended recent gains vis-? -visthe U.S. dollar today as the greenback tested bids around the C$ 1.0665 level and was cappedaround the C$ 1.0745 level, a fresh multi-decade low. Data released in Canada todaysaw the economy expand 0.9% in Q1 and 3.7% y/y, more than twice the rate of Q42006.  U.S. dollar offers are citedaround the C$ 1.0790 level.