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Friday March 31, 2006 - 15:18:42 GMT
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Forex and Commodity Market Commentary and Analysis (31 March 2006)

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2080 level and was capped around the $1.2175 level. Technically, today’s intraday low was just above the 23.6% retracement of the move from $1.3480 to $1.1640. Traders are talking about a rumour that incoming White House Chief of Staff Bolten wants to replace U.S. Treasury Secretary Snow and this has led to some speculation the long-standing U.S. “strong dollar policy” may be jostled with. It is unlikely that a change at Treasury would impact the U.S. government’s official position with regard to the dollar. Snow is expected to speak this morning in the U.S. Many data were released in the U.S. today. First, February personal income and spending were up +0.3% and +0.1%, respectively, consistent with expectations. Second, the headline personal consumption expenditures deflator was up +2.9%, down from January’s +3.1% print. The core PCE deflator – the Federal Reserve’s preferred yardstick for inflation – was up +0.1% m/m and +1.8% y/y. Also, the final March University of Michigan consumer sentiment index printed at 88.9, up from February’s 86.7 level and above expectations. The lingering question on traders’ minds is how many more rate hikes the Fed has left in its ammunition. The fed funds futures market is now fully discounting an additional 25bps hike at the Federal Open Market Committee meeting on 10 May and about a 30% chance of a rate hike in June. In eurozone news, European Central Bank President Trichet yesterday said the central bank is “very, very serious” about maintaining price stability. The ECB will convene next week to deliberate rates but most traders do not expect a rate hike at that time. A monetary tightening in May, however, is fully priced in. Trichet also said high wage growth in some EMU-12 countries means they are losing competitiveness. Data released in the eurozone today saw German February retail sales off 0.6% m/m and up 1.1% y/y. Also, EMU-12 harmonized consumer prices receded to 2.2% in March from 2.3% in February but remain above the ECB’s 2.0% ceiling target. Additionally, the EMU-12 March economic sentiment indicator printed at 103.5, up from 102.7 in February. In contrast to Trichet’s fairly hawkish statement, French finance minister Breton said “We do not see any return of inflation. Inflation is well under control." "Despite the significant increase of energy prices, we have not seen any second-round effects.” Euro offers are cited around the US$ 1.2225 level.

¥/ CNY

The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥117.15 level and was capped around the ¥117.95 level. Technically, today’s intraday low was just above the 38.2% retracement of the move from ¥113.40 to ¥119.40. Many Japanese data were released today, the last day of Japan’s current fiscal year. First, February consumer prices were up 0.4% y/y while the core CPI was up 0.5%. Bank of Japan ended its long-standing quantitative easing policy on 9 March on the premise the economy will not slide back into recession and these data are a positive reaffirmation for the central bank. Second, the February unemployment rate fell to 4.1% from 4.5% in January, a seven-year low. Third, February wage-earner household spending was off 1.5% y/y. Fourth, February orders received by the 50 largest Japanese contractors was up 27.4% y/y. Fifth, February housing starts were up 13.7% y/y, the first increase in three months. Collectively, these data paint a picture of a Japanese economy that is on the mend and could easily outgrow the economies of Japan’s G7 counterparts. The MoF reported no intervention in the FX market between 25 February and 29 March. All eyes are on this Monday’s quarterly tankan survey of business sentiment from the Bank of Japan. Most economists expect a slight improvement q/q to headline sentiment from large manufacturers. The Nikkei 225 stock index climbed 0.08% to close the day, month, quarter, and fiscal year at ¥17,059.66, its third consecutive quarterly improvement. Dollar bids are cited around the ¥116.80 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥143.00 figure and was supported around the ¥142.30 level. Chartists are eyeing the ¥143.40 level as the pair’s next upside target. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥204.10 and ¥90.05 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0172 in the over-the-counter market, down from CNY 8.0268 yesterday, and at CNY 8.0164 in the exchange-traded market. Today’s closing price represented the yuan’s strongest showing after People’s Bank of China revalued the yuan on 21 July 2005.


The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7335 level and was capped around the $1.7475 level. Technically, today’s intraday high was right around the 61.8% retracement of the move from $1.7620 to $1.7230. Stops were hit below the $1.7380 level, the 38.2% retracement of the same range. Data released in the U.K. today evidenced a deterioration in consumer confidence with the March GfK consumer confidence index falling to -7 from -4 in February. A retreat in consumer confidence implies a retreat in final private demand and consumption and in theory increases the chances Bank of England will keep interest rates steady or lower them. Other data released today saw John Lewis Partnership department store sales climb 14.3%. It was also reported that the 2005 U.K. budget deficit printed above 3.0% of GDP, the limit associated with the European Union’s Stability and Growth Pact. Cable offers are cited around the US$ 1.7435 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6975 level and was supported around the $0.6960 level.


The Swiss franc receded vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3080 level and was supported around the $1.2955 level. Technically, today’s intraday low was right at the 23.6% retracement of the move from CHF 1.3230 to CHF 1.2870. Chartists are eyeing the CHF 1.3090/ 1.3145 levels as the pair’s next upside targets. Dollar bids are cited around the CHF 1.2975 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5810 and CHF 2.2710 levels, respectively.


The Australian dollar came off vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7110 level and was capped around the $0.7170 level. Technically, today’s intraday high was just above the 38.2% retracement of the move from $0.7410 to $0.7015. Data released in Australia today saw February private sector credit increase 1.4%, above forecast, while February building approvals were up 2.2% m/m. Australian dollar offers are cited around the US$0.7210 level.


The Canadian dollar weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1685 level and was supported around the $1.1575 level. Technically, today’s intraday low was right at the 38.2% retracement of the move from $1.1300 to $1.1745. Data released in Canada today saw January GDP climb +0.2% m/m and +3.3% y/y. U.S. dollar offers are cited around the C$ 1.1715 level.


The New Zealand dollar weakened vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6090 level and was capped around the $ 0.6140 level. The pair briefly traded with a $ 0.59 handle this week for the first time in a couple of years. New Zealand dollar offers are cited around the US$ 0.6230 level.

Gold/ Silver

Gold extended recent gains vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 588.70 level and was supported around the $580.60 level, a fresh 25-year high. Precious metals were up against the board with silver at 22-year highs and platinum near or at all-time highs. Gold is now up some 38% over the past twelve months and many technicians are eyeing the psychologically-important $600 figure. End-of-quarter buying, rumours involving the U.S. dollar’s “strong dollar policy,” physical demand, and concern over Iran’s nuclear ambitions are adding to gold’s gains. European Central Bank announced it sold 57 tons of gold and reported it plans no additional sales pursuant to the central banks’ gold agreement that requires central banks to cap total sales at 2,500 tons during the 2004-2009 period. Silver leapt higher vis-à-vis the U.S. dollar today and tested offers around the US$ 11.91 level after testing bids around the $10.91 level.

Crude oil

Crude oil came off vis-à-vis the U.S. dollar today as light, sweet crude for May delivery tested bids around the US$ 66.16 level after running out of steam around the $ 67.14 level. Some oil production resumed in Nigeria, reducing some existing supply risks and supply disruptions and this added to crude’s gains. Traders continue to monitor developments involving Iran’s nuclear ambitions and the United Nations Security Council’s response to same.


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