Thursday November 16, 2006 - 16:35:52 GMT
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Forex and Commodity Market Commentary and Analysis (16 November 2006)
The euro came off vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2795 level and was capped around the $1.2840 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $1.2900 to $1.2775. Data released in the U.S. today saw October headline consumer price inflation fall 0.5% m/m while the core monthly increase was up 1.3% y/y. The all-important core annualized increase printed at +2.7%, down from September‚Äôs +2.9% tally but still far above the Federal Reserve‚Äôs perceived comfort zone. Other data released in the U.S. today saw weekly initial jobless claims fall 2,000 to 308,000 while September U.S. Treasury International Capital foreign long-term securities purchases printed higher-than-expected at US$ 53.7 billion. Moreover, October industrial output was up +0.2% and capacity utilization stood at 82.2%. The dollar has had a bid tone since yesterday‚Äôs North American session because minutes from the Federal Open Market Committee‚Äôs most recent policy meeting were released and were more hawkish-than-expected. Fed policymakers reported ‚Äúrisks remained the dominant concern and that additional policy firming was possible‚ÄĚ and added ‚ÄúNearly all participants viewed the current rate of core inflation as uncomfortably high and stressed the importance of further moderation.‚ÄĚ Traders cannot yet price in a definitive end to the Fed‚Äôs long-standing tightening cycle, even after three successive pauses. Many Fed officials including Kroszner, Moskow, Poole, and Pianalto are scheduled to speak today. In eurozone news, EMU-12 inflation printed at 1.6% y/y in October, consistent with the flash estimate and down from September‚Äôs 1.7% y/y harmonized rate. Euro bids are cited around the US$ 1.2780/ 55 levels.
The yen appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•117.85 level and was capped around the ¬•118.25 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from ¬•119.85 to ¬•116.55. Bank of Japan Governor Fukui spoke about the timing of the central bank‚Äôs next monetary tightening overnight saying ‚ÄúI would not eliminate any timing, because we do not pre-set future monetary policy action. If we conclude that a rate hike is necessary after having made a thorough assessment of economic fundamentals and price trends, it would not make any difference if we did it in December, January, or even later. Fukui added ‚ÄúOverall, we do not see any need from the recent set of weak economic data to reassess our view shown in the recent economic outlook report. Since a positive correlation of production, income and spending is at work, the possibility is high that Japan will see a long-lasting recovery. As the output gap no longer exists, the year-on-year rate of change in consumer prices is projected to continue to follow a positive trend going forward.‚ÄĚ A hike in Japanese borrowing costs will likely result in a stronger yen as traders will unwind some short yen carry trades in which proceeds are invested in higher-yielding foreign assets. BoJ‚Äôs monthly report reiterated the economy continues to expand moderately with easing deflationary pressures. Data released today saw the September leading index downwardly revised to 18.2 from 20.0. The Nikkei 225 stock index lost 0.49% to close at ¬•16,163.87. Dollar bids are cited around the ¬•117.35 level. The euro moved lower vis-√†-vis the yen as the single currency tested bids around the ¬•151.10 level and was capped around the ¬•151.45 level. The British pound moved higher vis-√†-vis the yen as sterling tested offers around the ¬•223.30 level while the Swiss franc moved lower vis-√†-vis the yen and tested b ids around the ¬•94.50 level. In Chinese news, October wholesale prices were up 3.8% y/y while urban fixed-asset investment was up 26.8% in the January ‚Äď October period. Also, it was reported that China‚Äôs foreign reserves stood at US$ 1.0096 trillion at the end of October and People‚Äôs Bank of China Deputy Governor Wu reported the central bank has been buying Japanese yen to lift its reserves.
The British pound gained marginal ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.8930 level and was supported around the $1.8850 level. Cable continues to orbit the $1.8895 level, right around the 23.6% retracement of the move from $1.8090 to $1.9145. Data released in the U.K. today saw October retail sales climb 0.9% m/m, the largest rise since November 2005. Also, RICS October U.K. house prices increased at a four-year high while the government reported Q3 housing starts were off 9% y/y. It was also announced that Chancellor of the Exchequer Brown will deliver his pre-Budget report on 6 December and is expected to upwardly revise his growth forecasts from earlier in the year. Cable bids are cited around the US$ 1.8835 level. The euro moved lower vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6775 level and was capped around the ‚ā§0.6795 level.
The Swiss franc came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2490 level and was supported around the CHF 1.2440 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.2770 to $1.2345 level. Data released in Switzerland today saw the Credit Suisse economic outlook indicator recede to -21.3 in November from -14.1 in October. Dollar offers are cited around the CHF 1.2505/ 55 levels. The euro came off vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.5970 level while the British pound moved higher vis-√†-vis the Swiss franc and tested offers around the CHF 2.3590 level.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7695 level and was supported around the $0.7640 level. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from $0.6770 to $0.7985. Data released in Australia today saw average weekly earnings climb 0.7% q/q in the three months to August, and up 2.9% y/y. Australian dollar bids are cited around the US$ 0.7610 level.
The Canadian dollar weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1420 level and was supported around the C$ 1.1365. The pair is trading at levels not seen since July of this year. U.S. dollar offers are cited around the C$ 1.1455 level.
The New Zealand dollar appreciated vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6660 level and was supported around the $0.6580 level. New Zealand dollar offers are cited around the US$ 0.6710 level.
Gold moved higher vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 627.95 level and was supported around the $622.15 level. Today‚Äôs core CPI data in the U.S. may have limited the pair‚Äôs upside and traders await remarks from Fed officials later in the North American session. Silver appreciated vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.12 level and was supported around the US$ 12.76 level.
Crude oil moved higher vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for January delivery tested offers around the US$ 61.37 level and was supported around the $60.62 level. An increase in tensions between Iran and Israel is adding some risk premium into the market, as is the expectation that OPEC could reduce output further next month.
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