Tuesday February 28, 2006 - 15:46:29 GMT
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Forex and Commodity Market Commentary and Analysis (28 February 2006)
The euro climbed higher vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1895 level and was supported around the $1.1835 level. Technically, today‚Äôs intraday high was just below the 61.8% retracement of the move from $1.1640 to $1.2325. Data released in the U.S. today saw revised Q4 GDP print at an annualized 1.6% pace, up from the initial 1.1% estimate. Notably, the government reported that inventory rebuilding accounted for all economic growth at the end of 2005 as final sales were flat, the weakest showing since Q1 2002. Poor automobile sales, decelerated business investment, a decline in federal spending, and an increase in imports all contributed to the deceleration in economic activity from Q3‚Äôs +4.1% pace. Notably, there was a 16.6% decline in durable goods spending in Q4, the largest drop in nineteen years. On an annualized basis, the economy expanded 3.2% y/y ‚Äď the slowest year-on-year growth in nine business quarters and the economy was up 3.5% for all of 2005, compared with 2004. Traders continue to note that the economy appears to have grown at a much healthier clip in Q1 2006. On the inflation front, core inflation was up at an annualized 2.1% in Q4, down from the earlier 2.2% estimate and the core personal consumption expenditures were up 1.9% over the past year. Most economists believe this is on the high side of the Federal Reserve‚Äôs perceived comfort zone. Most traders expect to raise the federal funds target rate by +25bps at the Federal Open Market Committee meeting at the end of March and some dealers also anticipate another +25bps move at the 10 May FOMC meeting. Other data released in the U.S. today saw same-store retail sales notch 1.5% weekly growth. Additionally, February consumer confidence came in at 101.7, down from January‚Äôs 106.8 pace and expectations were at their lowest level in three years. Moreover, existing home sales were off 2.8% to 6.56 million units, the lowest level since February 2004, while the February Chicago PMI came in at 54.9, down from January number. New York Fed President Geithner and Chicago Fed President Moskow speaks today. In eurozone news, it was reported that EMU-12 inflation was up 2.4% last month from 2.2% in December and the first increase in inflation since September‚Äôs climb. In many traders‚Äô minds, these data all but guarantee the European Central Bank will tighten monetary policy this Thursday by +25bps, lifting the main refinancing rate to 2.50%. Other eurozone data released today saw the European Commission‚Äôs business climate indicator rise 0.61 this month from January‚Äôs 0.34 print while the EMU-12 economic sentiment indicator came in at 102.7 from January‚Äôs 101.5 pace. Also, German unemployment data confirmed more than five million people remained out of work in February with the unemployment rate at 11.3%, unchanged from January‚Äôs 11.3% pace. German January wholesale sales were off 2.3% m/m and up 3.0% y/y. ECB President Trichet spoke yesterday about enlargement of the European Union and urged policymakers to ‚Äúcontinue to pursue a policy directed towards macroeconomic stabilisation to avoid excessive domestic demand and the resulting price pressures in the countries concerned.‚ÄĚ Euro offers are cited around the US$ 1.1935/ 80 levels.
The yen was little changed vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•116.45 level and was supported around the ¬•116.00 figure. Technically, today‚Äôs intraday high was just below the 38.2% retracement of the move from ¬•108.75 to ¬•121.40. Finance minister Tanigaki, who just yesterday said he would respect Bank of Japan‚Äôs decision to unwind its long-standing quantitative easing policy, today reiterated ‚Äúmild deflation‚ÄĚ persists in Japan. Some trader believe the central bank will announce a policy shift as early as its 8-9 March Policy Board meeting while others believe the 28 April Policy Board meeting will be a more suitable time for the BoJ to make a move. Interest rate futures are predicting the BoJ‚Äôs short-term rate target will be nearly 0.50% by the end of 2006. Many economic data were released in Japan overnight. First, January industrial output was up 0.3% m/m and February output is expected to climb 0.5%. These data represent the longest stretch of monthly growth in this sector since 1998 but were below estimates. Second, January commercial sales were up 5.4% y/y, the third consecutive monthly climb, while retail sales were off 0.2%. Third, January housing starts were down 2.2% y/y at 92,899. Fourth, January orders received by the 50 largest Japanese contractors were down 21.5% y/y. The government announced it did not intervene in the FX market between 28 January and 24 February and this means the government has nearly gone two years with conducting overt yen-selling intervention. Traders‚Äô attention will be firmly glued to Friday‚Äôs core inflation numbers. The Nikkei 225 stock index climbed 0.08% to close at ¬•16,205.43. Dollar bids are cited around the ¬•115.60/ 114.80 levels. The euro sputtered higher vis-√†-vis the yen as the single currency tested offers around the ¬•138.30 level and was supported around the ¬•137.45 level. The British pound and Swiss franc appreciated vis-√†-vis the yen as the crosses tested offers around the ¬•203.40 and ¬•88.30 levels, respectively. The Chinese yuan appreciated marginally vis-√†-vis the U.S. dollar today as the greenback closed at CNY 8.0403 in the over-the-counter market, down from CNY 8.0408, and closed at CNY 8.0402 in the exchange-traded market. Data released in China overnight saw 2005 GDP unrevised at 9.9%.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.7495 level and was supported around the $1.7375 level. Stops were hit above the $1.7435 level, representing the 61.8% retracement of the move from $1.7130 to $1.7935. Data released in the U.K. today saw Nationwide February house prices decline 0.2% m/m for the first time in eight months. The GfK February consumer confidence figure came in at -4 from January‚Äôs -3 level. On a negative note, CBI reported 40% of retailers noted sales volumes were off from one year ago while only 22% said they had improved. CBI also reported the sector lost jobs at its fastest pace in the 22-year history of the survey. Some traders believe these data will increase the pressure on Bank of England to reduce interest rates when its Monetary Policy Committee convenes next month. Cable offers are cited around the US$ 1.7530/ 1.7610 levels. The euro was largely unchanged vis-√†-vis the British pound as the single currency tested offers around the ¬£0.6820 level and was supported around the ¬£0.6790 level.
The Swiss franc moved higher vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3130 level and was capped around the CHF 1.3235 level. Stops were reached below the CHF 1.3160 level, representing the 23.6% retracement of the move from CHF 1.2925 to CHF 1.3235. February Swiss PMI data will be released tomorrow followed by Thursday‚Äôs Q4 GDP data. Ongoing heightened geopolitical tensions, particularly involving Iran and Nigeria, continued to be watched by Swiss franc bulls. Dollar bids are cited around the CHF 1.3115/ 1.3080 levels. The euro and British pound slumped vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.5635 and CHF 2.2955 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7395 level and was supported around the $0.7365 level. Data released in Australia today saw the Q4 current account deficit widen to -A$14.45 billion while the deficit in goods, services, and investment worsened to ‚ÄďA$13.67 billion. It was also reported that January private sector credit was up 1.3%. Australian offers are cited around the US$ 0.7400 figure.
The Canadian dollar moved higher vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1380 level after testing offers around the C$ 1.1420 level. The pair remains supported just above multi-year lows around the C$ 1.1375 level. U.S. dollar offers are cited around the C$ 1.1515 level.
The New Zealand dollar moved higher vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6610 level and was supported around the $0.6580 level. Data released in New Zealand today saw the National Bank Business Outlook report a net 62% of those surveyed anticipate business conditions to worsen over the coming year. Finance minister Cullen said talk of ‚Äúfalling into recession is both na√Įve and a little dangerous.‚ÄĚ Cullen reiterated the economy is expected to expand 1.6% this year. New Zealand dollar offers are cited around the US$ 0.6645/ 95 levels.
Gold appreciated vis-√†-vis the U.S. dollar today as gold tested offers around the US$ 558.80 level and was supported around the US$ 552.50 level. The gold market continues to consolidate after trading with a $574 handle just weeks ago and then backing off to a $535 handle. Silver moved higher vis-√†-vis the U.S. dollar and tested offers around the US$ 9.72 level and remained supported around the $9.58 level.
Crude oil came off vis-√†-vis the U.S. dollar today as NYMEX crude futures for April delivery tested bids around the $60.35 level and were capped around the $60.90 level. Algeria called on OPEC to keep supplied robust when officials convene in Vienna on 8 March. OPEC President Daukoru visits Washington, D.C. later today to discuss energy policy. Heightened geopolitical tensions involving Nigeria, Iraq, and Iran have traders nervous but their concerns appear to be overshadowed by decent supply figures and a relatively warm winter in the U.S. northeast. Weekly inventory data will be released in the U.S. tomorrow and are expected to evidence a 900,000 barrel increase in crude inventories.
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