Friday June 30, 2006 - 15:27:03 GMT
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Forex and Commodity Market Commentary and Analysis (30 June 2006)
The euro appreciated strongly vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2770 level and was supported around the $1.2655 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from $1.3480 to $1.1640. Yesterday‚Äôs Federal Open Market Committee decision to raise the federal funds target rate by +25bps to 5.25% was largely expected by the market, but the markets deemed the Fed‚Äôs policy statement to be less hawkish than expected. The Fed reported ‚ÄúRecent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices. Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.‚ÄĚ The federal funds futures market is now pricing in about a 65% change the Fed will raise rates by +25bps on 8 August, down from 80% before yesterday‚Äôs meeting. Data released in the U.S. today saw May core personal consumption expenditures grow 0.2% m/m and unchanged at 1.9% y/y. Other data released today saw the June Chicago PMI survey recede to 56.5 from May‚Äôs reading of 61.5 while the prices paid component printed at an eighteen-year high. Also, the final June University of Michigan consumer sentiment index rallied to 84.9 from 79.1. In eurozone news, German retail sales came of 2.2% m/m and were up 1.9% y/y. Moreover, EMU-12 inflation came in at a provisional 2.5% rate this month, above forecasts, while the European Commission‚Äôs business climate indicator jumped to 1.41, its strongest print in some six years. The EC also said EMU-12 growth may exceed expectations in the coming quarters. The provisional June inflation data will result in increased speculation the European Central Bank will tighten interest rates again soon, possibly as early as next week. Euro offers are cited around the US$ 1.2890 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•114.15 level and was capped around the ¬•115.20 level. Stops were triggered below the ¬•114.45 level, representing the 38.2% retracement of the move from ¬•135.15 to ¬•101.65. Data released in Japan today saw May core consumer prices rise 0.6% y/y, up for the seventh consecutive month. These data will add more pressure on Bank of Japan to end its near zero per cent interest rate policy sooner rather than later. May household spending was off 1.8% y/y, the fifth consecutive monthly decline, while the May unemployment rate eased to 4.0% from 4.1%, an eight-year low. Also, May housing starts were up 6.7% y/y and the value of construction orders received by the 50 largest contractors in Japan fell 0.2% y/y. Traders await the release of the Bank of Japan‚Äôs quarterly tankan survey of business sentiment with more economists expecting an increase in manufacturing sentiment, corporate profits, and capital expenditure plans. BoJ‚Äôs Policy Board will convene on 13-14 July and some players believe the central bank may raise rates at that time. The Nikkei 225 stock index climbed 2.54% to close at ¬•15,505.18. Dollar bids are cited around the ¬•112.25 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•146.15 level and was supported around the ¬•145.55 level. The British pound and Swiss franc gained ground vis-√†-vis the Swiss franc as the crosses tested offers around the ¬•211.00 and ¬•93.25 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.9943 in over-the-counter trading, down from CNY 7.9955, and at CNY 7.9920 in the exchange-traded market.
The British pound gained significant ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.8465 level and was supported around the US$ 1.8260 level. Technically, today‚Äôs intraday high was above the 38.2% retracement of the move from $1.9025 to $1.8090. Data released in the U.K. today saw the Q1 current account deficit narrow to ‚ā§8.3 billion from ‚ā§9.1 billion in Q4. Data released in the U.K. today saw GDP upwardly revised to +0.7% q/q from +0.6% q/q. Also, GfK reported June consumer confidence improved to -4 from -5. Traders are again speculating Bank of England‚Äôs Monetary Policy Committee will lift interest rate later this year. Cable offers are cited around the US$ 1.8530 level. The euro moved lower vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6910 level and was capped around the ‚ā§0.6945 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2250 level and was capped around the CHF 1.2375 level. Stops were hit below the $1.2290 level, representing the 38.2% retracement of the move from $1.1920 to $1.2520, and chartists are now eyeing the $1.2220 level, the 50% retracement of this range. Dollar bids are cited around the CHF 1.2150 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5685 and CHF 2.2660 levels, respectively.
The Australian dollar gained ground vis-√†-vis the U.S. dollar today as the Aussie tested offers around the $0.7450 level and was supported around the $0.7380 level. Data released in Australia today saw May private sector credit growth up 1.1%. Australian dollar offers are cited around the US$ 0.7470 level.
The Canadian dollar weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1135 level and was supported around the C$ 1.1080 level. U.S. dollar offers are cited around the C$ 1.1150/ 1.1200 levels.
The New Zealand dollar appreciated vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6125 level and was supported around the $0.6025 level. New Zealand dollar offers are cited around the US$ 0.6175 level.
Gold scored major gains vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 615.10 level and was supported around the $597.30 level. The FOMC‚Äôs policy statement added to gold‚Äôs gains as Fed officials intimated they are closer to ending their long-standing rate hike cycle. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 11.10 level and was supported around the $10.60 level.
Crude oil appreciated vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$ 73.83 level and was supported around the $ 73.28 level. Speculation that supply disruptions in Iran, Iraq, Nigeria, Bolivia, Turkmenistan, and the U.S. gulf led to higher oil prices.
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