Friday August 18, 2006 - 14:55:23 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (18 August 2006)
The euro gained marginal ground vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2845 level and was supported around the $1.2780 level. Technically, today‚Äôs intraday low was right at the 61.8% retracement of the move from $1.2980 to $1.2460. Data released in the U.S. today saw the mid-August University of Michigan consumer sentiment index print at 78.7 from July‚Äôs reading of 84.7 and yesterday‚Äôs Philadelphia Fed business conditions index reached its highest level since April 2005. Traders are increasingly adopting the view that the Federal Reserve has definitively ended its long-standing rate tightening cycle. In eurozone news, German producer prices increased 0.5% m/m in July and were up 6.0% y/y with energy prices up 11.3% y/y. Many traders believe European Central Bank will raise borrowing costs in October and December and this view could support the common currency through the end of the year. Euro bids are cited around the US$ 1.2720 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•115.45 level and was capped around the ¬•116.05 level. Traders moved into yen overnight after it was reported that People‚Äôs Bank of China lifted interest rates. The yen is often seen as a proxy for the Chinese yuan and traders believe this latest PBOC tightening will result in stronger Asian currencies. The yen‚Äôs gains, however, were limited by comments from Bank of Japan Governor Fukui who reiterated the central bank will only remove monetary stimulus gradually. The Nikkei 225 stock index climbed 0.53% to close at ¬•16,105.98. Dollar bids are cited around the ¬•114.90 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•148.10 level and was capped around the ¬•148.95 level. Today‚Äôs intraday high represented a fresh all-time high for the cross. The British pound and Swiss franc moved lower vis-√†-vis the yen as the crosses tested bids around the ¬•217.45 and ¬•93.65 levels, respectively. The Chinese yuan moved lower vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.9737 in the exchange-traded market, up from CNY 7.9716. People‚Äôs Bank of China raised the one-year deposit rate by 27bps to 2.52% and the one-year lending rate to 6.12%. There is intense speculation in the Chinese media that China will further widen the yuan‚Äôs trading band. The last time China widened its band was 21 July 2005 when it revalued the yuan by 2.1% and China‚Äôs trade surplus is growing so rapidly that it needs to limit the amount of imported capital.
The British pound tumbled vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.8780 level and was capped around the $1.8865 level. Technically, today‚Äôs intraday low is right around the 38.2% retracement of the move from $1.8175 to $1.9145. Data released in the U.K. today saw BBA net mortgage lending up ‚ā§5.7 billion from June‚Äôs ‚ā§5.6 billion pace while BSA saw July mortgage approvals at their highest level ever for that month. Similarly, CML reported gross mortgage lending reached ‚ā§30.4 billion last month, the second highest on record after June‚Äôs ‚ā§32.4 billion reading. These data evidence the notion that Bank of England‚Äôs Monetary Policy Committee is not choking the housing market with its monetary policy and traders want to see how much the industry slows down after this month‚Äôs surprise rate hike. BoE reported the M4 money supply expanded 13.1% y/y and its continued growth is one reason why it tightened policy this month. Cable bids are cited around the US$ 1.8765/ $1.8675 levels. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6820 level and was supported around the ‚ā§0.6800 figure.
The Swiss franc lost marginal ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2380 level and was supported around the CHF 1.2290 level. Technically, today‚Äôs intraday low was right around the 50% retracement of the move from CHF 1.1285 to CHF 1.3285. Data released in Switzerland today saw June retail sales climb 0.8% y/y and 4.8% y/y. It was also announced that Swiss National Bank Blattner will retire in April. Dollar offers are cited around the CHF 1.2425/ 1.2520 levels. The euro and British pound came off vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.5785 and CHF 2.3165 levels, respectively.
The Australian dollar came off vis-√†-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7565 level and was capped around the $0.7620 level. Stops were triggered below the $0.7590 level, representing the 61.8% retracement of the move from $0.7790 to $0.7270. Reserve Bank of Australia Macfarlane hawkishly testified that inflation is likely to exceed previous forecasts and justified May‚Äôs and August‚Äôs rate hikes. He added ‚ÄúWhile the pick-up has not been excessive, the general message from the growth of employment and consumer spending was that the household sector is still in good shape, and has not retreated into its shell as a result of the rises in petrol (gasoline) prices and the May interest rate increase.
The fact that borrowing by the household and business sectors had accelerated over the past six months or so confirmed this general picture." Australian dollar bids are cited around the US$ 0.7545 levels.
The Canadian dollar moved lower vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1255 level and was supported around the C$ 1.1195 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from C$ 1.0925 to $1.1455. Data released in Canada today saw June wholesale sales fall 0.6% m/m, below expectations of a +0.3% gain. U.S. dollar offers are cited around the C$ 1.1330 level.
The New Zealand dollar moved lower vis-√†-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6370 level and was capped around the $ 0.6425 level. New Zealand dollar offers are cited around the US$ 0.6410/ 0.6505 levels.
Gold moved higher vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 628.00 level and was supported around the $610.55 level. The pair has been given for three weeks and has increasingly been correlated to movements in the oil markets. Iran continues to defy the international community by enriching uranium and two deadlines ‚Äď 22 August and 31 August ‚Äď are fast approaching. Silver gained marginal ground vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 12.14 level and was supported around the $11.86 level.
Crude oil moved marginally lower vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 71.03 level and was capped around the $72.44 level. Iran appears unlikely to suspend its enrichment activities by 22 August and a U.S. official said the United Nations Security Council is likely to ‚Äútake up its responsibilities‚ÄĚ and impose sanction against Iran if it does not end its nuclear program.
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