Monday May 21, 2007 - 15:25:45 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (21 May 2007)
The euro came off vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3435 level and was capped around the $1.3530 level. Stops were hit below the $1.3465 level, representing the 50% retracement of the move from $1.3255 to $1.3680. Today‚Äôs intraday low is the pair‚Äôs weakest showing since 12 April. Group of Eight finance ministers who convened in Potsdam, Germany this weekend did not refer to exchange rates in their communiqu√©. Data to be released in the eurozone this week include Germany‚Äôs ZEW sentiment indicator tomorrow and German Ifo indicator on Thursday. Germany‚Äôs Bundesbank‚Äôs monthly report today reported the European Central Bank must exercise ‚Äústrong vigilance‚ÄĚ against inflation risks. Most traders expect the ECB will lift its main refinancing rate by +25bps to 4.00% on 6 June. Three-month interest rate futures indicate most traders expect additional rate hikes later this year after the anticipated move in June. ECB‚Äôs Papademos suggested more rate hikes are coming and ECB‚Äôs Liebscher said there is no ‚Äúcomplacency‚ÄĚ among ECB policymakers. In U.S. news, the Chicago Fed national activity index printed at -0.10 in April, a slight improvement over March‚Äôs -0.11 reading. Euro bids are cited around the US$ 1.3415 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•121.60 level and was supported around the ¬•121.00 figure. Today‚Äôs intraday high was the pair‚Äôs strongest showing since 22 February. Traders sold yen after the media reported Japanese finance minister Omi told German finance minister that he is not concerned about the euro‚Äôs appreciation on account of short yen carry trades. It is estimated that there are more than US$ 100 billion in short yen carry trades in the market and when traders begin to unwind these trades, they will likely lead to significant yen appreciation. One risk factor for the yen this week is the meeting between U.S. and Chinese officials regarding economic and trade issues between the two countries. China tightened monetary policy and widened the yuan‚Äôs daily trading band on Friday and any indication that more action could be forthcoming may cause the yen to appreciate. The Nikkei 225 stock index gained 0.90% to close at ¬•17,556.87. Dollar bids are cited around the ¬•120.80 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•163.25 level and was capped around the ¬•163.90 level. The British pound and Swiss franc gained marginal ground vis-√†-vis the yen as the crosses tested offers around the ¬•239.50 and ¬•98.80 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.6673 in the over-the-counter market, up from CNY 7.6686. Meetings will commence today between the U.S. and China following China‚Äôs decision on Friday to increase the daily trade range of the yuan from 0.3% to 0.5%. U.S. Treasury Undersecretary Kimmitt speculated that China‚Äôs decision to diversify its foreign exchange reserves will likely not result in less demand for U.S. government bonds.
The British pound extended recent losses vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $1.9755 level. Technically, today‚Äôs intraday low was right around the 76.4% retracement of the move from $1.9545 to $2.0130. U.K. property website Rightmove reported the average asking price for U.K. houses rose 0.4% m/m in May, below April‚Äôs 3.6% pace. Also, Bank of England reported the April M4 money supply expanded 1.4% m/m and 13.3% y/y while public sector net borrowing was ‚ā§1.1 billion in April, an improvement in the U.K. public deficit. Minutes from BoE Monetary Policy Committee‚Äôs May interest rate meeting will be released on Wednesday. BBA, BSA, and CML all reported that mortgage activity slowed in April and this deceleration in housing market activity is attributable to higher interest rates. Most traders expect the MPC will lift rates higher by +25bps by August. Cable bids are cited around the US$ 1.9550 level. The euro weakened vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6820 level and was capped around the ‚ā§0.6850 level.
The Swiss franc came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2330 level and was supported around the CHF 1.2265 level. Technically, today‚Äôs intraday high was just above the 50% retracement of the move from CHF 1.2770 to CHF 1.1875. Data released in Switzerland today saw April producer and import prices climb 0.9% m/m and 2.6% y/y. Dollar offers are cited around the CHF 1.2395 level. The euro and British pound weakened vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6545 and CHF 2.4190 levels, respectively.
The Australian dollar lost ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the US$ 0.8180 level and was capped around the $0.8250 level. The Westpac March leading index will be released on Wednesday. Australian dollar bids are cited around the US$ 0.8160/ 20 levels.
The Canadian dollar extended recent gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0825 level and was capped around the C$ 1.0900 figure. The pair has not been this weak since December 1977. Canadian financial markets will reopen tomorrow. U.S. dollar offers are cited around the C$ 1.0905 level.
Gold appreciated vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 662.55 level and was supported around the $655.35 level. Silver gained ground vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.02 level and was supported around the $12.84 level.
Crude oil lost minor ground vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for June delivery tested bids around the US$ 65.33 level and were capped around the $66.37 level. Traders cited reports that Nigerian militants attacked France‚Äôs Total oil facility in Nigeria and production in that country is off about 25% on account of ongoing militant activity in that country. A strike by Nigerian oil unions is possible on Thursday. Traders anticipate a report on 23 May from the International Atomic Energy Agency regarding Iran‚Äôs ongoing nuclear activity and this may result in further sanctions against that country. U.S. gasoline stocks remain tight and this week‚Äôs inventories data will be closely scrutinized.
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