Wednesday October 25, 2006 - 15:04:39 GMT
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Forex and Commodity Market Commentary and Analysis (25 October 2006)
The euro gained ground vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2590 level and was supported around the $1.2550 level. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from $1.2980 to $1.2460. Today‚Äôs range was thin ahead of the Federal Open Market Committee interest rate decision in which Fed policymakers are expected to keep the federal funds target rate unchanged at 5.25%. The Fed will likely acknowledge that core inflation levels remain elevated and note that economic activity continues to moderate, possibly mentioning the slowing housing market. The Fed‚Äôs statement may also try to reduce the market‚Äôs expectations of a rate cut as the federal funds futures contract is now pricing in about a 15% chance of a monetary easing in Q1 2007. In eurozone news, Germany‚Äôs October Ifo business climate index improved for the first time in four months to 105.3 from 104.9 in September. These data followed a surprise increase in French business confidence and suggest the eurozone‚Äôs largest economy will continue its momentum in growth. Other German data released today saw September import prices off 1.3% m/m and up 3.7% y/y. German finance minister Weber talked today and hawkishly indicated the current pullback in inflationary pressures is probably temporary, noting he sees ‚Äú"a number of risks that would again result in an inflation rate of clearly above two per cent.‚ÄĚ In contrast, French finance minister Breton said he wants the pause in ECB rate hikes to continue and said the euro is ‚Äúabsolutely fully valued‚ÄĚ in relation to the U.S. dollar with any further appreciation ‚Äúexcessive.‚ÄĚ Breton also said Asian currencies need to appreciate further. Euro bids are cited around the US$ 1.2460/ 15 levels.
The yen appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•119.00 figure and was capped around the ¬•119.40 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from ¬•116.06 to ¬•119.85. Data released in Japan today saw the September trade surplus unexpectedly increase 6.9% y/y. The September corporate services price index will be released overnight. The Nikkei 225 stock index lost 0.48% to close at ¬•16,699.30. Dollar bids are cited around the ¬•118.75/ 50 levels. The euro gained marginal ground vis-√†-vis the yen as the single currency tested offers around the ¬•150.00 figure and was supported around the ¬•149.55 level. The British pound climbed marginally vis-√†-vis the yen as sterling tested offers around the ¬•223.75 level while the Swiss franc came off marginally vis-√†-vis the yen and tested bids around the ¬•94.00 figure. The Chinese yuan appreciated marginally vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.9020 in the over-the-counter market, down from CNY 7.9025, and at CNY 7.9000 in the exchange-traded market. NDRC reported Chinese GDP may reach 10.6% in 2006 and added it may fell below 10% in 2007. Former People‚Äôs Bank of China official Yu Yongding today said China should make the yuan more flexible to reduce economic imbalances and added the capital account should undergo more liberalization. Yu also said China should decelerate its accumulation of foreign reserves.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.8785 level and was supported around the $1.8720 level. Sterling moved higher after Bank of England Chief Economist Bean ‚Äď also a member of the Monetary Policy Committee ‚Äď said it is ‚Äúbetter to err on the side of caution‚ÄĚ with regard to interest rates despite the pullback in oil prices. Most traders saw this comment as a reconfirmation the MPC will lift borrowing costs by +25bps in November. Cable bids are cited around the US$ 1.8665 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around ‚ā§0.6705 level and was supported around the ‚ā§0.6690 level.
The Swiss franc appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2635 level and was capped around the CHF 1.2675 level. U.S. dollar offers are cited around the CHF 1.2735 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5925 and CHF 2.3765 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7615 level and was supported around the $0.7575 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from $0.7985 to $0.7015. Data released in Australia today saw Q3 CPI up 0.9% q/q and 3.9% y/y. These data were stronger-than-expected and the markets now see about a 92% chance the Reserve Bank of Australia will lift rates by +25bps next month. Australian dollar bids are cited around the US$ 0.7520/ 00 levels.
The Canadian dollar weakened marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1285 level and was supported around the C$ 1.1250 level. The October business conditions index will be released tomorrow. U.S. dollar offers are cited around the C$ 1.1295/ 1.1355 levels.
The New Zealand dollar depreciated vis-√†-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6585 level and was capped around the $0.6630 level. Technically, today‚Äôs intraday low was right at the 23.6% retracement of the move from $0.6145 to $0.6720 level. Data released in New Zealand today saw Q3 CPI wise 0.7% q/q, less-than-forecast, and was up 3.5% y/y, below Reserve Bank of New Zealand‚Äôs forecasts. New Zealand offers are cited around the US$ 0.6685 level.
Gold appreciated vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 587.20 level and was supported around $580.20 level. Gold moved higher on account of stronger oil. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the $11.83 level and was supported around the $11.67 level.
Crude oil moved higher vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested offers around the US$ 60.33 level and was supported around the $59.21 level. The pair reclaimed the $60.00 figure after evidence emerged that other OPEC members would follow Saudi Arabia‚Äôs lead in enforcing the recent decision to reduce production. An expected cold weather snap in the U.S. northeast also has prices bid. Traders await the release of weekly U.S. energy inventories data today.
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