Thursday May 10, 2007 - 15:55:19 GMT
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Forex and Commodity Market Commentary and Analysis (10 May 2007)
The euro came off vis-Ă -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3495 level and was capped around the $1.3565 level. Technically, todayâ€™s intraday low was right around the 38.2% retracement of the move from $1.3255 to $1.3680. As expected, the Federal Open Market Committee did not change the federal funds target rate from 5.25% yesterday and reported â€śEconomic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters. Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures. In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.â€ť Most traders believe the FOMC is trying to steer its policy bias back to a neutral level while some still believe the FOMC will be forced to lower interest rates later this year. Data released in the U.S. today saw the U.S. March trade deficit expand to â€“US$ 63.80 billion, worse-than-expected. Also, weekly initial jobless claims fell 9,000 to 297,000 while continuing jobless claims rose 65,000 to 2.55 million. Also, April import prices were up 1.3% m/m and 1.9% y/y with the ex-petroleum figure up 0.2% m/m. In eurozone news, the European Central Bank kept interest rates unchanged at 3.75% as expected. ECB President Trichet reported â€śAll in all, taking into account both short-term factors and the underlying trend of the continued vigorous expansion of money and credit, there are clear indications of upside risks to price stability at medium to longer-term horizons. Strong vigilance is of the essensce in order to ensure that risks to price stability over the medium term do not materialize.â€ť Traders widely interpreted his use of the words â€śstrong vigilanceâ€ť as an indication the ECB will raise rates in June by +25bps. Trichet also verbally intervened on the euro saying â€śI have noted with great interest that the U.S. authorities have confirmed that a strong dollar is in the interests of the U.S.â€ť Euro bids are cited around the US$ 1.3445 level.
The yen weakened vis-Ă -vis the U.S. dollar today as the greenback tested offers around the ÂĄ120.55 level and was supported around the ÂĄ119.95 level. The pair reached its loftiest level since 27 February and traders are now eyeing the ÂĄ121.60 level as the pairâ€™s next upside target. Bank of Japan Governor Fukui reiterated interest rates will be raised gradually but warned ultra-low rates will hurt the economy if they are kept low for too long. Data released in Japan today saw the April economy watchersâ€™ index off 1.1% m/m while April bank lending climbed 1.0% y/y. Also, the April money supply expanded 1.1% y/y, consistent with forecasts, while March industrial machinery orders were up 13.1% y/y. Finance minister Omi predicted â€śforeign exchange wonâ€™t become a main topicâ€ť when Group of Eight officials convene. Omi also noted Europeansâ€™ comments about the yenâ€™s weakness have recently moderated. The Nikkei 225 stock index lost 0.06% to close at ÂĄ17,736.96. Dollar bids are cited around the ÂĄ119.85/ 40 levels. The euro gained ground vis-Ă -vis the yen as the single currency tested offers around the ÂĄ163.00 figure and was supported around the ÂĄ162.30 level. The British pound came off vis-Ă -vis the yen as sterling tested bids around the ÂĄ238.60 level while the Swiss franc appreciated vis-Ă -vis the yen as the pair tested offers around the ÂĄ98.90 level. The Chinese yuan depreciated marginally vis-Ă -vis the U.S. dollar as the greenback closed at CNY 7.6936 in the over-the-counter market, up from CNY 7.6935. Peopleâ€™s Bank of Chinaâ€™s quarterly monetary policy indicated it will diversify the use of its US$ 1.2 trillion in foreign reserves but said this will not involve any large-scale sales of its U.S. dollar holdings. It was also reported that China registered a current account surplus of US$ 249.9 billion in 2006, up from US$ 160.82 billion in 2005.
The British pound came off vis-Ă -vis the U.S. dollar today as cable tested bids around the US$ 1.9805 level and was capped around the $1.9960 level. Technically, todayâ€™s intraday low was just above the 61.8% retracement of the move from $1.9590 to $2.0130 level. As expected, Bank of Englandâ€™s Monetary Policy Committee lifted its repo rate by 25bps to 5.50%. The MPC reported Although indicators of consumer spending have been volatile, the underlying picture is one of steady growthâ€ť and added â€śthe pace of expansion of the international economy remains robust.â€ť Also, policymakers noted â€śthe margin of spare capacity in firms appears limited and there are signs that businesses are more able to push through price increases. Relative to the 2% target, the risks to the outlook for inflation in the medium term consequently remain tilted to the upside.â€ť Many traders believe the MPC will lift rates higher by another +25bps later this year. Data released in the U.K. today saw the March global trade in goods deficit print at -â‚¤7.0 billion, the widest since May 2006. Also, March manufacturing output was up 0.6% m/m and Halifax April house prices were up 1.1%, the smallest rise this year. Cable bids are cited around the US$ 1.9770 level. The euro moved higher vis-Ă -vis the British pound as the single currency tested offers around the â‚¤0.6820 level and was supported around the â‚¤0.6785 level.
The Swiss franc lost ground vis-Ă -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2210 level and was supported around the CHF 1.2155 level. Technically, todayâ€™s intraday level was right around the 23.6% retracement of the move from CHF 1.2570 to CHF 1.1025. Data released in Switzerland today saw the April consumer sentiment index rise to +20 from +17 in January. Dollar offers are cited around the CHF 1.2280 level. The euro and British pound came off vis-Ă -vis the Swiss franc as the crosses tested bids around the CHF 1.6470 and CHF 2.4175 levels, respectively.
The Australian dollar appreciated vis-Ă -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8335 level and was supported around the $0.8270 level. Technically, todayâ€™s intraday high and low were right around the 23.6% and 50.0% retracement levels of the move from $0.8150 to $0.8390 level, respectively. Data released in Australia today saw the April jobless rate decline to a 30-year low of 4.4% from 4.5% in March. Australian dollar bids are cited around the US$ 0.8240 level.
The Canadian dollar lost ground vis-Ă -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1090 level and was supported around the C$ 1.1045 level. Traders await comments from Bank of Canada Governor Dodge later today. Data released in Canada today saw the March new house price index climb 0.3% m/m and 9.3% y/y. Also, the March trade surplus printed at C$ 4.64 billion from a revised C$ 5.24 billion in February. April jobs data will be released tomorrow. U.S. dollar offers are cited around the C$ 1.1150 level.
Gold weakened vis-Ă -vis the U.S. dollar today as the yellow metal tested bids around the US$ 671.25 level and was capped around the 680.50 level. The U.S. dollarâ€™s intraday strength contributed to goldâ€™s decline. Silver moved lower vis-Ă -vis the U.S. dollar as the pair tested bids around the $13.17 level and was capped around the $13.41 level.
Crude oil moved higher vis-Ă -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for June delivery tested offers around the US$ 62.47 level and was supported around the $61.49 level. Recent violence and kidnappings in Nigeria have underpinned the price.
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