NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro came off vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.4135 level and was capped around the $ 1.4350 level.  Technically,today??™s intraday low was just above the 23.6% retracement of the movefrom $1.3360 to $1.4395. Today??™s intraday high represented a newlifetime high for the pair.  The G7??™s communiqu?©was light on FX references, opting to focus on the yuan instead of thedollar or yen. A draft of the communiqu?© was leaked during Friday??™sNorth American session and the euro??™s weakness reflects turmoil inglobal equity markets during the past few sessions.  Traders are again preoccupied with recent sub-prime mortgage crisis and U.S. dollar-buying reflects safe-haven activity.  U.S. Treasury chief Paulson reiterated the U.S.??™s official strong dollar policy.  The dollar??™s short-term activity will likely be directed by the Fed??™s interest rate decision and statement on 30-31 October.  Data released in the U.S.  Eurogroup member Juncker warned against ???the risk of one-way bets.??? Data to be released in the U.S. this week include existing home sales on Wednesday and new home sales on Thursday.  Fed Governor Kroszner speaks later in the U.S. session as does ECB boss Trichet.  In eurozone news, Bundesbank estimated economic growth accelerated in Q3 compared with H1.  Data released in the eurozone today the EMU-13 2006 deficit print at 1.5% of GDP, down from 2.5% in 2005.  ECB??™s Weber warned ???inflation risks have increased recently??? and pledged to counter them should they materialize.  Euro bids are cited around the US$ 1.4045 level.

JPN/CNY

The yen appreciated vis-? -vis the U.S. dollar todayas the greenback tested bids around the ??113.25 level and was cappedaround the ??114.30 level. The pair gapped lower about 40 pips fromFriday??™s close during the Australasian open today and stops were hitbelow the ??113.85 level, representing the 76.4% retracement of the movefrom ??112.60 to ??117.90.  Traders unwound shortyen carry trades as concerns about the sub-prime crisis were reignitedand traders moved into perceived ???safe-haven currencies.???  Thegovernment kept its assessment of the economy unchanged in its Octobermonthly report. Notably, the government reduced its assessment onprivate consumption and lifted its assessment on industrial production.Most traders believe the BoJ will not lift the overnight call rate from0.50% before the end of the year.  BoJ boss Fukuireported the economy is experiencing ???moderate growth??? while financeminister Nukaga said ???fundamentals should surely be reflected in thevalue of the yen.??? The Nikkei 225 stock index lost 2.24% to close at??16,438.47.  Dollar bids are cited around the ??112.60 level.  The euro fell sharply vis-? -vis the yen as the single currency tested bids around the ??160.45 level and was capped around the ??163.75 level.  The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??230.25 and ??96.45 levels, respectively.  The Chinese yuan weakened vis-? -vis the U.S. dollar as the greenback closed at CNY 7.5086 in the over-the-counter market, up from CNY 7.5080.  Data released in China saw September urban registered unemployment at 4.0%.  PBOC Deputy Governor Wu talked about the yuan saying ???Tosolely adjust the exchange rate in the absence of restructuringpolicies will hurt the real economy and global growth.??? In contrast,ECB boss Trichet noted the G7??™s communiqu?© was tougher on China with officials ???stressing (China??™s) need to allow an accelerated appreciation of its effective exchange rate.???

STERLING

The British pound fell sharply vis-? -vis the U.S. dollar today as cable tested bids around the US$ 2.0285 level and was capped around the $2.0545 level.  Technically, today??™s intraday high was just above the 61.8% retracement of the move from $2.0655 to $1.9650.  Sterlingfell on account of the flight to quality in the markets as tradersunwound positions in currencies with positive yield differentials.  Dealersare closely watching meetings between business leaders and ChancellorDarling regarding the latter??™s plan to increase the capital gains tax.  Cable bids are cited around the US$ 2.0155 level.  The euro gained groundvis-? -vis the British pound as the single currency tested offers aroundthe ?‚¤0.6995 level and was supported around the ?‚¤0.6965 level.

SWISS

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1600 figure and was capped around the CHF 1.1770 level.  The pair reached its weakest showing since March 2005.  TheSwiss franc benefited from heightened risk aversion today as tradersreduced speculative exposure to currencies with positive ratedifferentials.  Dollar offers are cited around the CHF 1.1835/ 1.1910 levels.  The euro and British pound came off vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.6630 and CHF 2.3790 levels, respectively. 

AUD/NZD

The Australian dollar fell sharply vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8750 level and was capped around the $0.8915 level.  Technically, today??™s intraday low was right around the 23.6% retracement of the move from $0.7675 to $0.9075.  Data released in Australia today saw the Q3 producer price index up 1.1% q/q, exceeding expectations, and was up 2.4% y/y.  CPI data will be released on Wednesday could yield signals regarding Reserve Bank of Australia??™s likely policy decision on Wednesday.  Australian dollar bids are cited around the US$ 0.8585 level. The New Zealand dollar lost ground vis-? -vis the U.S. dollar as the kiwi tested bids around the US$ 0.7365 level and was capped around the $0.7500 figure. New Zealand dollar bids are cited around the US$ 0.7305 level.

CAD