Wednesday January 3, 2007 - 16:04:28 GMT
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Forex and Commodity Market Commentary and Analysis (3 January 2007)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3180 level and was capped around the $1.3290 level. Stops were reached below the $1.3210 level, representing the 50% retracement of the move from $1.3365 to $1.3050. The common currency moved to intraday lows after the release of U.S. economic data that saw the December ISM manufacturing index improve to 51.4 from 49.5 in November, above expectations and evidence of an expansion in that sector. The new orders sub-index improved to 52.1 from 48.7 in November while the prices paid component receded to 47.5 from 53.5, evidence of a slowdown in inflationary pressures. Other data released today saw November construction spending fall 0.2% on account of a pullback in home building to two-year lows. Moreover, the December ADP employment number evidenced a 40,000 decrease, confounding expectations. The all-important December non-farm payrolls number will be released in the U.S. on Friday and is expected to show a little more than 100,000 new jobs were created last month. Fed Chairman Bernanke is also scheduled to speak on Friday later in the North American session. In eurozone news, Germany‚Äôs jobless tally fell 108,000 last month and some traders believe this may offset the 3% increase in VAT that commenced two days ago. Germany‚Äôs DIW institute now expects 2006 GDP growth to have been around 2.3% with a decline to 1.7% in 2007. Euro bids are cited around the US$ 1.3125 level.
The yen came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•119.45 level and was supported around the ¬•118.65 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from ¬•119.20 to ¬•118.25. Japanese financial markets are expected to return to normal tonight after the New Year holiday with liquidity back around usual levels. Bank of Japan Deputy Governor Muto was hawkish in comments he made saying ‚ÄúThe sluggish consumption stems from temporary factors such as unseasonable weather and consumers holding off on purchases as they wait for the launch of new products. While base wages are hardly budging, overtime and bonuses are rising.‚ÄĚ Muto added ‚Äúconsidering the risks, we can follow the outlook's projections (made in October 2006), we will maintain the ultra low interest, expansionary policy for some time, and hike rates gradually according to economic and consumer price trends. We are not following a schedule. Since we need to study upcoming economic indicators, it is not feasible to provide a concrete time frame. The BoJ's role is to contribute to sustained growth by achieving price stability. Keeping interest rates low for a long period of time is not necessarily the most important factor to ensure sustained growth. If rates are maintained (at a low level) even amid steady growth, distortions are bound to emerge. We risk, for example, having to pay heavy adjustment costs because of sharp economic expansions and contractions, as well as nipping growth in the bud. The ideal recipe is to achieve a gradual normalization of interest rates as the economy itself gets back to normal.‚ÄĚ Muto‚Äôs comments are the first from any Japanese official in 2007 and are important because some traders believe the central bank could lift interest rates in a couple of weeks. Dollar bids are cited around the ¬•118.10 level. The euro gained marginal ground vis-√†-vis the yen as the single currency tested offers around the ¬•158.05 level and was supported around the ¬•157.65 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•233.25 and ¬•97.65 levels, respectively. In Chinese news, China will officially launch the SHIBOR benchmark interbank rare from tomorrow.
The British pound lost major ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9500 figure and was capped around the $1.9750 level. Major stops were hit below the $1.9535 level, representing the 23.6% retracement of the move from $1.8515 to $1.9845. The pair moved lower after the release of stronger-than-expected U.S. manufacturing data. In U.K. news, the December construction sector PMI survey rose to 57.5 from 54.8 in November and John Lewis post-Christmas retail sales are up 8.2%. Traders continue to expect a +25bps rate hike from Bank of England‚Äôs Monetary Policy Committee next month. Cable bids are cited around the US$ 1.9340. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6760 level and was supported around the ‚ā§0.6725 level.
The Swiss franc lost major ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2255 level and was supported around the CHF 1.2120 level. Stops were hit above the CHF 1.2230 level, representing the 23.6% retracement of the move from CHF 1.3235 to CHF 1.1920. Data released in Switzerland today saw the December PMI survey fall to 65.0 from 67.0 in November. Dollar offers are cited around the CHF 1.2325 level. The euro gained ground vis-√†-vis the Swiss franc as the single currency tested offers around the CHF 1.6155 level and was supported around the CHF 1.6105 level. The British pound weakened vis-√†-vis the Swiss franc as sterling tested bids around the CHF 2.3845 level.
Gold weakened vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 633.40 level and was capped around the $644.95 level. The U.S. dollar‚Äôs resurgence contributed to the pair‚Äôs losses. A couple of Eurosystem central banks have recently been active in the gold market. Silver came off vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 12.86 level and was capped around the $13.21 level.
Crude oil depreciated vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for February delivery tested bids around the US$ 58.81 level and were capped around the $61.01 level. Mild temperatures in parts of the oil-dependent U.S. are keeping a lid on prices. Traders are watching news of a cyclone in Australia and Iran‚Äôs continued response to sanctions recently imposed by the United Nations Security Council.
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