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Thursday May 4, 2006 - 12:54:09 GMT
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Forex and Commodity Market Commentary and Analysis (4 May 2006)

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2570 level and was capped around the $ 1.2640 level. Stops were hit below the $1.2590 level, representing the 23.6% retracement of the move from $1.2265 to $1.2690. As expected, European Central Bank’s Governing Council kept interest rates unchanged today. Some dealers expected a +25bps tightening in the ECB’s main refinancing rate but most market participants believe the ECB will tighten policy at next month’s meeting. ECB President Trichet seemingly ruled out a move higher in rates today when he last month said policymakers do not share the market’s view that rates need to tighten now. Remarks from Trichet today will be closely watched for clues about additional monetary tightening. Data released in the eurozone today saw EMU-12 April service sector PMI rise to 58.3 from 58.2 in March with German PMI up to 57.3. Other data released today saw EMU-12 retail sales come off 0.8% m/m and 0.2% y/y in March, below forecasts. In U.S. news, Fed Chairman Bernanke did not offer any clues about the Federal Open Market Committee’s thinking on monetary policy in remarks yesterday. Most traders believe the Fed will lift interest rates next week by +25bps to 5.00%. There’s much less certainty surrounding the FOMC meeting in late June and whether or not Fed officials will move then, pause, or end their current tightening cycle. Most Fed-watchers suggest the Fed simply does not know what it will do then at this time either. Data released in the U.S. yesterday saw the April non-manufacturing ISM survey reach 63%, up from March’s 60.5% level. Other data released yesterday saw March factory goods orders up 4.2%, the largest gain in factory orders in ten months and a sizable gain over February’s 0.4% climb. U.S. data released today saw the Q1 non-farm productivity up a healthy 3.2%, up from the revised Q4 level of -0.3%. Q1 unit labour costs came in at +2.5%, a little hotter-than-expected, while weekly initial jobless claims were up 5,000 to 322,000. Tomorrow’s April non-farm payrolls data will be closely watched by traders. Euro offers are cited around the US$ 1.2650/ 1.2775 levels.

¥/ CNY

The yen came off vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥114.15 level and was supported around the ¥113.50 level. Stops were hit above the ¥113.85/ 90 level, representing the 23.6% retracement of the move from ¥118.85 to ¥112.30. Chartists are eyeing the ¥114.35 level as the pair’s next upside target. Liquidity remains significantly reduced on account of the closure of Japanese financial markets for the Golden Week holiday with liquidity conditions returning to normal on Monday. Finance minister Tanigaki talked overnight and said financial markets did not correctly understand the G7 communiqué from two weekends ago that traders interpreted as a call for the U.S. dollar to depreciated. He noted too much focus on currency adjustments could lead to heightened market speculation as far as correcting global imbalances are concerned. His remarks followed comments from Treasury Secretary Snow in which he called for an “orderly adjustment of global economic imbalances.” Dollar bids are cited around the ¥111.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers just above the ¥144.00 figure and was supported around the ¥143.40 level. Technically, the pair briefly tested offers above the ¥143.95 level, representing the 61.8% retracement of the move from ¥145.50 to ¥141.45. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥210.05 and ¥92.10 levels, respectively. In Chinese news, Chinese financial markets continue to be closed and will reopen on Monday. The big news in China today was that Union Bank of Switzerland told Bank of China to reduce its foreign exchange position ahead of its initial public offering. Bank of China registered CNY 5.1 billion net foreign exchange loss last year and is expected to lose money this year and next year as well. In a broader context, many traders would say this is indicative of China’s problem as a whole: too many foreign exchange reserves and too much pressure on the yuan to appreciate vis-à-vis foreign currencies.


The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8335 level and was capped around the $1.8435 level. As expected, Bank of England’s Monetary Policy Committee kept its headline repo rate unchanged at 4.50% for the ninth consecutive month. This decision was expected by the financial markets, especially given the recent spike in energy prices, a pick-up in U.K. inflation expectations, and decent U.K. economic data. Many BoE-watchers believe the MPC will be on hold for the remainder of the year while others anticipate a cut later in the year. Other data released in the U.K. today saw April house prices up 2.0% m/m and 8.0% y/y. Also, the April CIPS services PMI survey fell back to 54.1 from 57.4 in March. Additionally, Halifax reported March net mortgage lending was up ₤9.3 billion, its highest level since November 2003, with April house prices up 2.0% m/m and 8.0% y/y. Cable offers are cited around the US$ 1.8535 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.6835 level and was capped around the ₤0.6870 level.


The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2420 level and was supported around the CHF 1.2350 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from CHF 1.4270 to CHF 1.1285. Data released in Switzerland today saw the April consumer price index climb 0.8% m/m and 1.1% y/y. Dollar bids are cited around the CHF 1.2185 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5645 and CHF 2.2840 levels, respectively.


The Australian dollar came off vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7650 level and was capped around the $0.7710 level. Technically, the pair continues to orbit the $0.7700 figure representing the 23.6% retracement of the move from $0.6770 to $0.7985. The pair’s next upside target is around the $0.7755 level. Traders continue to express some surprise with Reserve Bank of Australia’s decision to tighten monetary policy yesterday. Australian dollar offers are cited around the $0.7750 level.


The Canadian dollar moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1140 level and was supported around the C$ 1.1075 level. March building permits data will be released today and April employment numbers will be released tomorrow. U.S. dollar offers are cited around the C$ 1.1210 level.


The New Zealand dollar came off vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6360 level and was capped around the $0.6425 level. Technically, today’s intraday low was just below the 38.2% retracement of the move from $0.7000 to $0.5990. New Zealand dollar offers are cited around the US$ 0.6495 level.

Gold/ Silver

Gold came off vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 661.15 level and was capped around the $ 667.65 level. The pair pushed away from recent 25-year highs but many traders expect the pair to make a run at the psychologically-important US$ 700.00 figure. Continued tensions in the Middle East, inflation jitters, and a negative outlook for the U.S. dollar have contributed to gold’s gains. Gold mining leader Barrick reported it reduced its forward gold sales by 5.7 million ounces as of yesterday. Silver slumped vis-à-vis the U.S. dollar as the pair tested bids around the US$ 13.54 level and was capped around the $13.85 area.

Crude oil

Crude oil fell vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for June delivery tested bids around the US$ 71.19 level and was capped around the $ 72.28 level. Inventory data released in the U.S. yesterday evidenced an unexpected increase in gasoline inventories there in the latest week, up 2.1 million barrels to 202.8 million barrels. Traders are awaiting word as to what sort of resolution will be announced by the United Nations Security Council to content with Iran’s nuclear ambitions. France and Great Britain yesterday issued a draft resolution that calls on Iran to end its nuclear program, pledging “further measures” if Iran fails to agree.


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