Wednesday June 21, 2006 - 14:14:58 GMT
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Forex and Commodity Market Commentary and Analysis (21 June 2006)
The euro appreciated sharply vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2650 level and was supported around the $1.2575 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $1.3665 to $1.1640. The common currency gained ground after European Central Bank President Trichet testified the central bank‚Äôs ‚Äútimely‚ÄĚ interest rate increases are anchoring inflation expectations and reiterated ‚Äúmonetary policy in the euro area remains accommodative.‚ÄĚ He also added economic growth remains strong in the eurozone and many traders believe the ECB will lift borrowing costs again over the next couple of months. In U.S. news, traders await today‚Äôs U.S. weekly energy inventories data to determine oil and gasoline reserve levels ahead of the crucial summer driving season. Traders continue to price in a 100% chance the Federal Open Market Committee will lift the fed funds target rate by +25bps to 5.25% on 29 June. According to the fed funds futures market, there is about a 60% chance of another +25bps move after the next anticipated rate hike and this reflects the recent pick-up in core inflation. Euro offers are cited around the US$ 1.2775 level.
The yen was little-changed vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•115.20 level and was supported around the ¬•114.35 level. Technically, today‚Äôs intraday low was just below the 38.2% retracement of the move from ¬•135.15 to ¬•101.65. Traders are still talking about yesterday‚Äôs comment from Bank of Japan Governor Fukui in which he hawkishly said the central bank would consider moving rates higher from zero per cent ‚Äúearly‚ÄĚ if needed. Some traders had been speculating the central bank may be distracted by a minor scandal involving Fukui‚Äôs investments with a fund more than a decade ago that is now under investigation. Finance minister Tanigaki today said he wants BoJ to make policy decisions with a consideration that mild deflation remains in the economy. Data released in Japan today saw large firms‚Äô business sentiment index print at 1.8 in the April ‚Äď June quarter, down from 6.1 in the January ‚Äď March quarter. High oil prices were cited as one reason for the decline in sentiment. The Nikkei 225 stock index lost 0.03% to close at ¬•14,644.26. Dollar bids are cited around the ¬•113.85 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•145.50 level and was supported around the ¬•144.45 level. The British pound and Swiss franc climbed higher vis-√†-vis the yen as the crosses tested offers around the ¬•212.15 and ¬•93.10 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.9970 in over-the-counter trading, down from CNY 8.0029, and at CNY 7.9989 in exchange-traded activity. Today‚Äôs closing price represents the yuan‚Äôs strongest showing since its revaluation on 21 July last year. Standard Chartered issued a report today that suggests China continues to struggle with the US$ 1 billion+ per day of inflows it receives per day and how to sterilize the effect of the huge daily surplus in liquidity.
The British pound moved higher vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.8470 level and was supported around the $1.8405 level. Minutes from the June Bank of England Monetary Policy Committee meeting were released today and they evidenced a 7-to-1 vote to keep the headline repo rate unchanged at 4.75%. MPC member Walton voted to raise rates by 25bps to 4.75% for the second consecutive month. Sterling came off because the minutes were less hawkish than expected and some dealers expected a 6-to-2 vote to hike rates. Notably, policymakers seemed pleased with the recent decline in inflation expectations and stressed the lack of significant second-round wage effects from higher energy prices. Cable offers are cited around the US$ 1.8535 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6860 level and was supported around the ‚ā§0.6825 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2340 level and was capped around the CHF 1.2390 level. The pair may be losing ground on account of heightened global jitters with North Korea threatening to test fire a missile and Iran‚Äôs defiance of international calls to end its uranium enrichment activities. Dollar bids are cited around the CHF 1.2285 level. The euro moved higher vis-√†-vis the Swiss franc as the single currency tested offers around the CHF 1.5620 level while the British pound moved lower vis-√†-vis the Swiss franc and tested bids around the CHF 2.2740 level.
The Australian dollar moved lower vis-√†-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7345 level and was capped around the $0.7405 level. Data released in Australia today saw the June skilled vacancies index climb 1.2% m/m and was unchanged y/y. Also, the Westpac April leading index of economic activity came in above its long-term trend. Australian dollar offers are cited around the US$ 0.7385/ 0.7500 levels.
The Canadian dollar scored major gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1050 level and was capped around the C$ 1.1185 level. Data released in Canada today saw April retail sales climb 1.7%, more-than-expected. Bank of Canada Governor Dodge speaks today in Montreal and could signal higher interest rates are on the way, especially after yesterday‚Äôs core consumer inflation data came in hotter-than-expected. U.S. dollar offers are cited around the C$ 1.1355 level.
The New Zealand dollar moved lower vis-√†-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6160 level and was capped around the $0.6220 level. New Zealand dollar offers are cited around the US$ 0.6230/ 75 levels.
Gold moved lower vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 570.85 level and was capped around the $579.55 level. North Korea‚Äôs threat test-fire a missile may be keeping a floor under the pair, and continued hawkish comments from EMU-12 and U.S. officials are also keeping the pair supported. Silver moved lower vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 10.17 level and was capped around the $10.40 level.
Crude oil moved higher vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$ 69.56 and was supported around the $68.92 level. Traders await weekly U.S. energy inventories data that are to be released today. Heightened geopolitical pressures involving Iran and North Korea are adding the crude‚Äôs gains.
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