Tuesday May 8, 2007 - 15:27:05 GMT
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Forex and Commodity Market Commentary and Analysis (8 May 2007)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3550 level and was capped around the $1.3620 level. Technically, today‚Äôs intraday high was just below the 61.8% retracement of the move from $1.3680 to $1.3535. A couple of factors contributed to the common currency‚Äôs move lower. First, there were reports that eurozone bond redemptions were repatriated into other currencies including the yen, leading to selling pressure on the euro. Second, albeit many traders believe the Federal Open Market Committee‚Äôs monetary policy statement tomorrow could reference a possible moderation in the U.S. labour market and ongoing weakness in the housing sector, policymakers are likely to include a statement about elevated energy costs and/ or inflationary pressures. Some dealers sense the FOMC may not be able to move as close to neutral as it would prefer with its policy bias tomorrow and this is keeping the euro under pressure. The U.S. National Association of Realtors updated its forecasts today and now sees existing home sales off 2.9% this year with new home sales off 17.8%. Third, eurozone officials verbally intervened against the euro‚Äôs recent strength with German finance minister Steinbrueck noting ‚ÄúWe asserted that exchange rates should reflect the economic fundamentals. We confirmed what we said in the past, that excessively abrupt exchange rate fluctuations are not very good for economic development. Our American partners have an interest in a strong dollar as well. As before, the development is very sound in the U.S., so that should have a greater influence on exchange rate developments.‚ÄĚ In eurozone news, most traders believe the European Central Bank will keep its main refinancing rate unchanged at 3.75% on Thursday with a +25bps hike in June the most likely scenario. Data released in Germany today saw March industrial production off 0.1% m/m and was up 4.4% y/y. Euro bids are cited around the US$ 1.3465 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•119.50 level and was capped around the ¬•120.10 level. Technically, today‚Äôs intraday low was right around the 61.8% retracement of the move from ¬•122.15 to ¬•115.15. There was a dearth of data or trading news in Japan overnight and traders await tonight‚Äôs coincident and leading economic indices. The yen gained ground on many of its cross rates overnight and this may reflect some traders paring back their short yen carry trades. Remarks from Bank of Japan Governor Fukui on Thursday will be closely scrutinized to see if they yield any clues about another interest rate increase. The Nikkei 225 stock index lost 0.07% to close at ¬•17,656.84. Dollar bids are cited around the ¬•119.20/ 118.65 levels. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•162.05 level and was capped around the ¬•163.40 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•238.15 and ¬•98.25 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.6960 in the over-the-counter market, down from CNY 7.7039, a fresh post-revaluation low. Sources reported People‚Äôs Bank of China raised the foreign exchange reserve ratio that lenders must hold as reserves to 5% from 4% effective 15 May. This would be a monetary tightening and many traders believe PBOC will continue to tighten monetary policy to slow the economy and money supply growth. A government think-tank predicted the economy will expand 10.8% y/y in 2007 with the CPI up 3.0%. Also, the State Administration of Foreign Exchange confirmed the new foreign exchange reserve management agency will commence operations by the end of the year. China currently has about US$ 1.2 trillion in foreign reserves.
The British pound lost ground vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9890 level and was capped around the $1.9960 level. Cable moved to intraday lows during the North American session and was pushed lower by strong selling of the Swiss franc. U.K. payment services provider Voca reported the annual gain in take-home pay decelerated to 3.6% in April from 3.7% in March. Sterling is also suffering from a perception that Bank of England‚Äôs Monetary Policy Committee will lift the repo rate higher by +25bps on Thursday but then could be on hold for at least a few months. Cable bids are cited around the US$ 1.9860/ 40 levels. The euro weakened vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6790 level and was capped around the ‚ā§0.6825 level.
The Swiss franc lost ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2195 level and was supported around the CHF 1.2100 figure. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from CHF 1.2435 to CHF 1.1995. Traders await the release of the SECO consumer climate index on Thursday. Dollar offers are cited around the CHF 1.2215/ 80 levels. The euro and British pound gained ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6505 and CHF 2.4275 levels, respectively.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8310 level and was supported around the US$ 0.8240 level. Technically, today‚Äôs intraday low was right around the 61.8% retracement of the move from US$ 0.8150 to $0.8390. Data released in Australia today saw March building approvals fall 11.4% m/m and 9.6% y/y while March retail sales climbed 1.1% m/m. The Australian government is now forecasting a budget surplus of A$ 13.6 billion during the 2007 fiscal year. Australian dollar bids are cited around the US$ 0.8210 level.
The Canadian dollar lost ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1060 level and was supported around the C$ 1.1005 level. Data released in Canada today saw April housing starts off 1.0%. These data follow yesterday‚Äôs data that saw March building permits expand 27.4%. The C$ was also bid yesterday on news that U.S. giant Alcoa could make a play for Canada‚Äôs Alcan. Many traders believe Bank of Canada will accelerate its future monetary tightenings and this could support the loonie. U.S. dollar offers are cited around the C$ 1.1150 level.
Gold lost ground vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 682.65 level and was capped around the $688.95 level. The U.S. dollar‚Äôs intraday strength contributed to the pullback in gold. Metals traders await the Fed‚Äôs interest rate policy statement tomorrow. Silver moved lower vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 13.30 level and was capped around the $13.55 level.
Crude oil slipped lower vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for June delivery tested bids around the US$ 61.25 level and were capped around the $61.94 level. Oil moved up overnight on news that Nigerian militants renewed attacks on oil installations on that country. Chevron closed a 42,000 bpd pumping station in that country yesterday and about 25% of the country‚Äôs oil production remains suspended. Traders await tomorrow‚Äôs weekly U.S. inventories data ahead of the U.S. summer driving season that begins at the end of this month.
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