Wednesday February 14, 2007 - 16:09:58 GMT
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Forex and Commodity Market Commentary and Analysis (14 February 2007)
The euro appreciated sharply vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3150 level and was supported around the $1.3025 level. The common currency rocketed to its highest level since 4 January after testimony from Federal Reserve Governor Bernanke was released in which he indicated inflation fears seem to be receding but reiterated the Federal Open Market Committee is prepared to lift borrowing costs if need be. The Fed also widened its 2007 growth forecast to 2.5%- 3.0%, noting oil costs are a large unknown, and added consumer spending seems to be underpinning the U.S. economy. In recent days, traders had pushed the U.S. dollar higher under the premise that Fed policymakers have been increasingly hawkish in recent remarks and Bernanke‚Äôs remarks today appear to be more dovish than anticipated. Nonetheless, Bernanke‚Äôs remarks do little to counter the view of a ‚Äúgoldilocks‚ÄĚ U.S. economy. Data released in the U.S. today saw January retail sales unchanged m/m with the ex-autos component up +0.3%. In eurozone news, Germany‚Äôs DIW economic institute reiterated a German growth forecast of 0.4% in Q1 2007, down from 0.9% in Q4 2006. Euro bids are cited around the US$ 1.3045 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•120.85 level and was capped around the ¬•121.35 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from ¬•122.15 to ¬•119.95. Bank of Japan Governor Fukui spoke about the Japanese economy overnight saying ‚ÄúI'm not too optimistic about risk factors to say they are fading away. The housing market in the US is still going through an adjustment phase," he said. "Fortunately, it (the US economy) is coming closer to a so-called soft landing, but we will have to watch cautiously if such an adjustment in the economy may go too far and if the economy can fully absorb inflationary pressures. In order to guide the economy onto a sustained growth path under price stability, supported by balanced domestic and overseas demand, we must conduct monetary policy by closely monitoring the situation.‚ÄĚ Traders await the release of Q4 GDP data tomorrow to evaluate whether or not BoJ will lift interest rates to 0.5% at its Policy Board meeting on 20-21 February. Data released in Japan overnight saw the December current account surplus fall 5.0% to ¬•1.777 trillion but reached a record for calendar year 2006. Also, December industrial output was up 0.9% m/m, above initial estimates. Bank of England Governor King entered the fray about the yen‚Äôs weakness overnight saying lower borrowing costs lead to weaker exchange rates and that this is inconsistent with the call for flexible currencies. The Nikkei 225 stock index climbed 0.74% to close at ¬•17,752.64. Dollar bids are cited around the ¬•120.10 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•158.75 level and was supported around the ¬•157.75 level. The British pound and Swiss franc appreciated vis-√†-vis the yen as the crosses tested offers around the ¬•237.20 and ¬•97.65 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar today as the greenback closed at CNY 7.7575 in the over-the-counter market, down from CNY 7.7762. Data released in China overnight saw actual January foreign direct investment climb 13.86% y/y while the January consumer price index was up 2.2% y/y.
The British pound gained significant ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9640 level and was supported around the $1.9450 level. Stops were hit above the US$ 1.9585 level, representing the 50% retracement of the move from $1.9260 to $1.9915. The pair moved to multi-day highs after the release of testimony from Fed Chairman Bernanke. Bank of England‚Äôs quarterly inflation report was released today and came in on the dovish side with the central bank predicting inflation will drop below the 2% level over the next twelve months and then move back to 2% over the medium-term. BoE Governor King noted the inflation outlook is ‚Äúhighly uncertain‚ÄĚ on account of ‚Äúuncertainty about energy prices.‚ÄĚ Most traders believe the BoE‚Äôs Monetary Policy Committee will lift interest rates by +25bps in Q2. Data released in the U.K. today saw the January claimant count of unemployment recede 13,500, the largest drop in 2 ¬Ĺ years and the fourth consecutive monthly decline. Also, earnings growth receded slightly despite the current pay award negotiations. Cable bids are cited around the US$ 1.9535 level. The euro came off vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6685 level and was capped around the ‚ā§0.6715 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2365 level and was capped around the CHF 1.2475 level. Stops were hit below the CHF 1.2395 level, representing the 38.2% retracement of the move from CHF 1.3235 to CHF 1.1875. Traders await the release of the February ZEW survey tomorrow. Dollar offers are cited around the CHF 1.2445 level. The euro and British pound appreciated vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6280 and CHF 2.4335 levels, respectively.
The Australian dollar extended recent gains vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7845 level and was supported around the $0.7785 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from $0.7935 to $0.7695. Data released in Australia today saw the February Westpac consumer sentiment index climb 1.7% m/m and 3.2% y/y. Australian dollar bids are cited around the US$ 0.7765 level.
The Canadian dollar appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1645 level and was capped around the C$ 1.1685 level. Technically, today‚Äôs intraday low was just below the 38.2% retracement of the move from C$ 1.1285 to C$ 1.1875. U.S. dollar bids are cited around the C$ 1.1580 level.
Gold moved higher vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 671.55 level and was supported around the $663.90 level. The pair was lifted by weakness in the U.S. dollar and the recent move higher in oil prices. It was also reported that South African gold output fell 12.4% y/y in volume terms in December. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 14.11 level and was supported around the $13.85 level.
Crude oil weakened vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for March delivery tested bids around the US$ 58.33 level and were capped around the $59.22 level. Data released in the U.S. today saw crude oil inventories decline 600,000 in the latest week with distillates and gasoline inventories off three million and two million barrels, respectively.
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