NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro appreciated vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.4345 level and was supported around the $1.4250 level.  Thecommon currency came within a couple of pips of establishing a newlifetime high and was pushed higher following a mixed bag of U.S. data. First, September building permits were upwardly revised to -4.6% but these data still evidence weakness in the U.S. housing sector.  Second, September new home sales were up 4.8% to 770,000 annualized units, a rare bit of positive data for the beleaguered U.S. housing sector.  Third, September new orders for durable goods were off 1.7%, principally on account of a major pullback in defense spending.  The core capital goods, non-defense excluding aircraft component was up 0.4%.  Fifth, weekly initial jobless claims fell 8,000 to 331,000 while continuing jobless claims were up 7,000 to 2.530 million.  TheU.S. dollar has been on the defensive over the past couple of sessionson growing expectations the FOMC will reduce the federal funds targetrate by up to 0.50% on 31 October. Some market rumours circulated thatthe FOMC held an emergency meeting yesterday.  Ineurozone news, the German October Ifo business climate index fell to103.9, continuing the recent trend. The German government lifted its2007 GDP forecast to 2.4% from 2.3% but reduced its 2008 growthforecast to 2.0%.   Euro bids are cited around the US$ 1.4220 level.

JPN/CNY

The yen moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the ??113.85 level and was capped around the ??114.55 level.  Technically, today??™s intraday high was right around the 23.6% retracement of the move from ??124.15 to ??111.60.  MoF??™sShinohara reported speculative short-yen carry trade positions have???virtually disappeared??? since the credit market turmoil of August.  The yen has recently been bid on account of global equity market volatility as traders have reduced risk appetite.  Data released in Japanovernight saw the September corporate services price index up 0.7% m/mand 1.4% y/y and traders await the release of CPI data tonight todetermine if core consumer price pressures are still in negativeterritory.  Capital flows data saw foreign investors as net sellers of Japanese equities for the first time in four weeks.  The Nikkei 225 stock index lost 0.45% to close at ??16,284.17.  Dollar bids are cited around the ??112.55 level.  The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??164.000 figure and was supported around the ??162.45 level.  The British pound came off vis-? -vis the yen as sterling tested bids around the ??233.05 level and was capped around the ??235.10 level.  The Swiss franc gained ground vis-? -vis the yen as the pair tested offers around the ??98.15 level and was supported around the ??97.15 level. The Chinese yuan appreciated sharply vis-? -vis the U.S. dollar as the greenback closed at CNY 7.4820 in the over-the-counter market, down from CNY 7.4930.  Many data were released in China overnight. First, Q3 GDP was up 11.5% y/y. Second, September PPI was up 2.7% y/y.  Third, September CPI was up 6.2% y/y.  Fourth, September retail sales were up 17% y/y.  Fifth, September industrial value-added output was up 18.9% y/y.  Sixth, September urban fixed-asset investment was up 24.8% y/y.  Collectively, these data suggest China may be forced to tighten monetary policy at least one more time in 2007.

STERLING

The British pound strengthened vis-? -vis the U.S. dollar today as cable tested offers around the US$ 2.0550 level and was supported around the $2.0450 level.  The pair reached its strongest level since 26 July and was about one big figure from establishing a new lifetime high.  Bank of England??™s financial stability report was released today and reported the U.K. financial system is still vulnerable to risks and shocks following the ongoing liquidity crisis and credit market turmoil.  Data released in the U.K. today saw BBA September mortgage approvals slow to 52,685 from 61,051.   Cable bids are cited around the US$ 2.0420 level.  The euro jumped highervis-? -vis the British pound as the single currency tested offers aroundthe ?‚¤0.6985 level and was supported around the ?‚¤0.6955 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1635 level and was capped around the CHF 1.1735 level.  The pair came within 35 pips of establishing its lowest level since March 2005.  September producer and import price data will be released tomorrow.  Dollar offers are cited around the CHF 1.1805 level.  The euro and British pound lost ground vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.6675 and CHF 2.3885 levels, respectively.    

AUD/NZD

The Australian dollar appreciated vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9080 level and was supported around the $0.9010 level.  Today??™s intraday high represented a new multi-decade high for the pair.  Most traders believe RBA will lift its official cash rate by +25bps on 6 November.  Australian dollar bids are cited around the US$ 0.8950 level. The New Zealand dollar moved higher vis-? -vis the U.S. dollar as the kiwi tested offers around the US$ 0.7620 level and was supported around the $0.7520 level.  RBNZ kept it official cash rate at 8.25%   New Zealand dollar bids are cited around the US$ 0.7415 level.

CAD