Wednesday July 11, 2007 - 15:50:59 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (11 July 2007)
The euro extended recent gains vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3785 level and was supported around the $1.3730 level. Today‚Äôs intraday high represented a fresh lifetime high for the common currency. Traders continued to dump U.S. dollars on subprime mortgage jitters in the U.S. Standard & Poors announced it may downgrade the credit rating of around US$ 12 billion in residential mortgage-backed securities while Moody‚Äôs Investors Service downgraded 399 mortgage-backed securities. Most dealers believe there will be more fallout in the credit markets on account of subprime mortgage troubles. The dollar is also on the defensive on the notion that continued subprime woes could force the Federal Reserve to lower interest rates. Philadelphia Fed President Plosser said the housing market won‚Äôt have any ‚Äúsignificant spillover effects.‚ÄĚ Fed Chairman Bernanke spoke about inflation yesterday but his remarks were largely theoretical. In eurozone news, European Central Bank member Garganas remarked that ‚Äúinterest rates are still relatively low‚ÄĚ and most traders believe the ECB will lift its main refinancing rate by +25bps to 4.25% in September. ECB member Hurley reiterated the central bank will ‚Äúmonitor closely‚ÄĚ developments in the eurozone. Hurley added ‚ÄúAgainst the backdrop of high capacity utilization and the rapidly improving labor market, there is the potential for supply side pressures to emerge and also the risk of further unexpected increases in oil prices.‚ÄĚ ECB member Draghi reported GDP expanded around an annualized 2% in Q2. Euro bids are cited around the US$ 1.3660 level.
The yen came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•122.00 figure and was supported around the ¬•120.95 level. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from ¬•115.15 to ¬•124.15. Bank of Japan Policy Board‚Äôs two-day interest rate meeting started overnight and traders await their interest rate decision along with remarks from BoJ Governor Fukui. Any indication that the likely decision to keep the overnight call rate unchanged at +0.50% is not unanimous will likely lead to yen appreciation on the premise the central bank could lift interest rates by +25bps to +0.75%, perhaps as early as next month. Data released in Japan overnight saw the wholesale goods price index rise 2.3% y/y in June while the May current account surplus was up 31.1% y/y. Also, the June domestic corporate goods price index was up 2.3% y/y, up from +2.2% in May. Additionally, June consumer confidence fell to 45.0 in June from 47.3 in May, weaker for the second consecutive month and its lowest reading since December 2004. There is increasing speculation the Japanese government will establish a new entity to help manage some of its US$ 900 billion+ foreign reserves holdings. Such a move could pressure the U.S. dollar even further as Japan could seek higher yields in currencies other than the U.S. dollar. The Nikkei 225 stock index lost 1.11% to close at ¬•18,049.51. Dollar bids are cited around the ¬•120.70 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•168.00 figure and was supported around the ¬•166.50 level. The British pound and Swiss franc gained ground vis-√†-vis the yen as the crosses tested offers around the ¬•248.20 and ¬•101.55 levels, respectively. The Chinese yuan appreciated sharply vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5633 in the over-the-counter market, down from CNY 7.5810. Data released in China today saw that China‚Äôs foreign exchange reserves increased US$ 130.6 billion in Q2 to US$ 1.333 trillion. China upwardly revised its 2006 GDP growth rate to 11.1% from 10.7% and Bank of China reported the People‚Äôs Bank of China may raise interest rates twice in H2. Data released in China today saw the M2 money supply up 17.06% y/y. Also, a government think-tank reported real retail sales growth is expected to be about 12.8% y/y for the year.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0360 level and was supported around the $2.0240 level. Sterling established a fresh, multi-decade high as U.S. dollar woes continued. Bank of England Deputy Governor Gieve reported U.K. economic growth has weathered the recent monetary tightenings from Bank of England. Most traders believe the BoE‚Äôs MPC will lift the repo rate again by +25bps to 6.00% in the autumn. Cable bids are cited around the US$ 2.0190 level. The euro lost ground vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6765 level and was capped around the ‚ā§0.6795 level.
The Swiss franc gained marginal ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1990 level and was capped around the CHF 1.2045 level. The pair reached its lowest level since 13 December 2006. Dollar offers are cited around the CHF 1.2105 level. The euro and British pound appreciated vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6550 and CHF 2.4450 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8640 level and was supported around the $0.8570 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $0.8355 level and was supported around the $0.8640 level. Data released in Australia today saw the leading employment indicator rise to +0.057 in July from +0.035 in June. Also, the Westpac consumer sentiment index fell to 120.8 in July, off 0.6% m/m. Australian dollar bids are cited around the US$ 0.8530 level. The New Zealand dollar appreciated vis-√†-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7800 figure and was supported around the $0.7715 level. New Zealand dollar bids are cited around the US$ 0.7690 level.
The Canadian dollar came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.0610 level and was supported around the C$ 1.0530 level. Traders continue to react to yesterday‚Äôs decision from Bank of Canada to lift interest rates by +25bps and the central bank‚Äôs policy statement in which it indicated the strength of the loonie will likely inhibit economic growth this year and next year. U.S. dollar offers are cited around the C$ 1.0735 level.
Gold slumped vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 659.90 level and was capped around the $665.50 level. Oil‚Äôs intraday downturn led to the pair‚Äôs move lower. Silver came off vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 12.81 level and was capped around the $12.98 level.
Crude oil depreciated vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested bids around the US$ 72.17 level and were capped around the $72.92 level. OPEC head el-Badri indicated high oil prices are ‚Äúnot linked to crude supplies.‚ÄĚ Weekly U.S. EIA energy inventories data saw gasoline stocks rise 1.2 million barrels in the week to 6 July while crude inventories were off 1.4 million barrels.
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