Friday February 24, 2006 - 14:50:32 GMT
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Forex and Commodity Market Commentary and Analysis (24 February 2006)
The euro weakened vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1885 level and was capped around the $1.1935 level. Technically, today‚Äôs intraday high was just above the 23.6% retracement of the move from $1.2190 to $1.1850. The common currency was unable to sustain its brief spike above the $1.1960 level yesterday and failed to gain much ground after the release of a much weaker-than-expected U.S. January headline durable goods orders number that saw activity tumble 10.2%. The ex-transportation component gained +0.6% and U.S. dollar bulls noted the December headline figure was upwardly revised to +2.2% from +1.3% while the ex-transportation component moved higher to +1.9%. Many traders are beginning to complain about the lack of range and movement of the euro vis-√†-vis the U.S. dollar now. The implied volatility of one-month euro/ dollar options are at fresh three-year lows, signaling a lack of movement in the spot market. Traders will pay close attention to remarks from U.S. Treasury Secretary Snow and Fed Chairman Bernanke later in the day. Philadelphia Fed President Santomero spoke yesterday and indicated U.S. interest rates are close to a neutral level. Santomero also predicted the U.S. economy may slow to a 3.0% growth rate this year. In eurozone news, traders await remarks from European Central Bank President Trichet and fellow ECB policymakers Bini-Smaghi and Issing. Data released in the eurozone today saw provisional German February consumer price inflation up +0.4% m/m and +2.1% y/y. Many dealers believe the ECB will raise interest rates by +25bps to 2.50% next week. German January import prices were up +0.9% m/m and +6.8% y/y. Euro offers are cited around the US$ 1.1980 level.
The yen extended recent gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•116.40 level after failing to get above the ¬•117.15 level. Today‚Äôs intraday low represented the pair‚Äôs lowest print since 27 January 2006 and technically, today‚Äôs intraday low was just below the 38.2% retracement of the move from ¬•108.75 to ¬•121.40. Bank of Japan Governor Fukui again stole the headlines overnight saying ‚ÄúBased on a recovering overall economic climate, the consumer price index, excluding fresh food prices, was at or above zero percent for the third consecutive month since October. The rise in the index will become clearer in the figures to be released. In that sense the conditions are slowly maturing. Our top priority is to help bring about sustained economic growth, and moving out of deflation is only half way there.‚ÄĚ ‚ÄĚ Fukui is clearly preparing the markets for an eventual end to the central bank‚Äôs long-standing quantitative easing policy. Nationwide core CPI data for January are to be released on 3 March and many traders believe the BoJ could shift its policy as early as 28 April. Finance minister Tanigaki, in contrast, reiterated the government‚Äôs position that deflation continues to loom over the economy and called on the BoJ to work cooperate with the government ‚Äúin stemming deflation.‚ÄĚ Another reason for the yen‚Äôs surge overnight was a story in the Yomiuri newspaper that the central bank was considering a change in policy as early as its 8-9 March Policy Board meeting. Data released in Japan today saw January department store sales fall 0.4% y/y, its first decline in five months, while January supermarket sales were off 2.5% y/y, the 22nd decline in 23 months. The Nikkei 225 stock index climbed 0.04% to close at ¬•16,101.91. Dollar bids are cited around the ¬•115.70 level. The euro weakened vis-√†-vis the U.S. dollar today as the single currency tested bids around the ¬•138.75 level after testing offers around the ¬•139.60 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from ¬•143.60 to ¬•137.10. The British pound and Swiss franc came off vis-√†-vis the yen as the crosses tested bids around the ¬•203.95 and ¬•88.90 levels, respectively. The Chinese yuan gained significant ground vis-√†-vis the U.S. dollar as the greenback closed at CNY 8.0421 in over-the-counter trade, down from CNY 8.0480 and the pair‚Äôs lowest closing price since People‚Äôs Bank of China revalued the yuan on 21 July 2005. The pair closed at CNY 8.0424 in the exchange-traded market. Today‚Äôs yuan appreciation was clearly a signal from the Chinese government that it does not want to be labeled a ‚Äúcurrency manipulator‚ÄĚ by the Bush administration. PBOC today confirmed it will expedite the process of making the yuan fully convertible under China‚Äôs capital account, another sign that Chinese officials want to avoid the ramifications of an unfavourable report from the U.S. Treasury.
The British pound came off vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.7465 level and was capped around the $1.7535 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $1.7130 to $1.7935. Data released in the U.K. today saw Q4 2005 GDP grow 0.6% q/q, unchanged from the initial estimate and right around the U.K. economy‚Äôs long-term trend growth rate. A +0.7% q/q increase in household expenditures was responsible for the improvement. Bank of England Monetary Policy Committee member Walton spoke yesterday and dovishly said there have been relatively few signs that escalated energy prices over the past couple of years are seeping into wage demands. BoE Chief Economist warned that higher energy costs are still ‚Äúa risk.‚ÄĚ Cable offers are cited around the US$ 1.7560 level. The euro was little-changed vis-√†-vis the British pound as the single currency tested bids around the ¬£0.6795 level and was capped around the ¬£0.6710 level.
The Swiss franc came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3130 level and was supported around the CHF 1.3070 level. Data released in Switzerland today saw the February KOF economic barometer improve to 1.30 from 1.26 in January and 1.21 in December. These data confirm a continued acceleration in economic activity in Switzerland and suggest the economy will continue to improve through the end of H1 2006. Traders are also paying very close attention to heightened geopolitical tensions, focusing on four primary areas. First, Iran continues to ignore global calls to suspend its nuclear enrichment activities. Second, Nigerian militants continue their assault on that country‚Äôs oil producing facilities. Third, Venezuela has announced it will prevent some U.S. airline carriers from landing in that country ‚Äď the latest in a tit-for-tat game between the Bush administration and Venezuelan President Hugo Chavez. Fourth, there was a reported suicide bombing attempt at a major oil production facility in eastern Saudi Arabia today. Dollar bids are cited around the CHF 1.3045 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5615 and CHF 2.2960 levels, respectively.
The Australian dollar gained marginal ground vis-√†-vis the U.S. dollar today as the Aussies tested offers around the US$ 0.7415 level and was supported around the $0.7380 level. Q4 house prices were released in Australia overnight. The pair is set to close the week with a slight gain. Australian dollar offers are cited around the US$ 0.7435 level.
The Canadian dollar shed marginal ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1555 level and was supported around the C$ 1.1500 figure. Technically, today‚Äôs intraday high was just above the 61.8% retracement of the move from C$ 1.1610 to $1.1450. U.S. dollar offers are cited around the C$ 1.1570 level.
The New Zealand dollar gained marginal ground vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6650 level and was supported around the ¬£0.6605 level. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from US$ 0.6915 to US$ 0.6560. New Zealand dollar offers are cited around the US$ 0.6695 level.
Gold made a sharp move higher vis-√†-vis the U.S. dollar today as gold tested offers around the US$ 555.80 level and was supported around the $547.00 figure. Traders moved into gold after a suicide bombing attempt at a Saudi Arabian oil production facility. Current levels are more than fifteen dollars higher than last week‚Äôs low around the $535 level and are down from this month‚Äôs 25-year highs. A rebound in Tokyo Commodity Exchange futures overnight kept gold bid. Silver moved higher vis-√†-vis the U.S. dollar today as silver tested offers around the US$ 9.58 level and was supported around the $9.49 level.
Crude oil gained ground vis-√†-vis the U.S. dollar today as NYMEX April crude futures tested offers around the US$ 62.60 level and was supported around the $60.70 level. Traders put on fresh long positions after a suicide bombing attempt at a Saudi oil production facility. Saudi news sources reported security forces thwarted the attempt but the knee-jerk reaction pushed crude higher. Data from the U.S. Energy Department and American Petroleum Institute reported petroleum supplies remain above levels from one year ago. Many traders believe oil prices may come down because U.S. gasoline stocks are at their highest levels in seven years. Still, disruptions in Nigeria caused by militants in that country could keep the price of oil elevated. In Iranian news, the International Atomic Energy Agency convenes on 6 March to deliberate its next step regarding Iran‚Äôs nuclear ambitions. Traders are also closely watching a flare-up in sectarian violence in Iraq.
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