Friday July 13, 2007 - 14:42:15 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (13 July 2007)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3815 level and was supported around the $1.3760 level. Today‚Äôs intraday high represents a new lifetime high for the common currency. The pair shrugged off a report that Standard & Poors miscalculated the value of subprime mortgage bonds that it was placing on review for a possible downgrade on Tuesday. S&P initially calculated the value at US$ 12 billion and overnight confirmed the real value is around US$ 7.35 billion. The announcement, however, underscores the tenuous nature of the U.S. housing market and a risk that a further deterioration in credit quality could spillover to other segments of the economy and imperil the U.S. dollar even further. Data released in the U.S. today saw June retail sales decline 0.9%, the largest fall since the 1.5% drop in August 2005. Excluding autos, retail sales were off 0.4%. Also, June import prices rose 1% m/m, a tick lower than May‚Äôs 1.1% gains, and were up 2.3% y/y. Moreover, the mid-July University of Michigan consumer sentiment index printed at 92.4, up from 85.3 at the end of June and much stronger than expected. Traders await the release of the Federal Open Market Committee‚Äôs June meeting minutes next week along with U.S. producer and consumer price indices. Euro bids are cited around the US$ 1.3685 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•121.90 level and was capped around the ¬•122.60 level. Technically, today‚Äôs intraday low was just below the 23.6% retracement of the move from ¬•115.15 to ¬•124.15. Japanese financial markets will be closed on Monday and will reopen on Tuesday. Traders are keeping a close eye on the current nationwide election campaign that got underway in Japan yesterday. Upper house elections in Japan will be held on 29 July and the ruling Liberal Democratic Party could face a difficult time. Some traders believe an LDP defeat will render it more difficult for Bank of Japan to push through another +25bps rate hike as early as next month. Traders also await further clues regarding monetary policy, especially after BoJ Governor Fukui this week reiterated borrowing costs will continue to rise gradually. The Nikkei 225 stock index gained 1.42% to close at ¬•18,238.95. Dollar bids are cited around the ¬•120.70 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•168.25 level and was capped around the ¬•168.95 level. The British pound and Swiss franc depreciated vis-√†-vis the yen as the crosses tested bids around the ¬•248.05 and ¬•101.55 levels, respectively. The Chinese yuan came off vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5695 in the over-the-counter market, up from CNY 7.5673. Goldman Sachs reported China needs to take ‚Äúdecisive‚ÄĚ action to prevent economic overheating.
The British pound escalated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0365 level and was supported around the $2.0260 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.9925 to $2.0365. Bank of England Chief Economist Bean today said ‚ÄúThe importance of keeping inflation expectations anchored cannot be stressed enough.‚ÄĚ Bean also talked about the implication for asset prices in monetary policymaking but his remarks did not have a major impact on sterling or rate expectations. Most traders believe the MPC will hike the repo rate by at least another +25bps this year. Minutes from the MPC meeting of 5 July will be released on Wednesday and traders await details as to which members voted for a rate hike. Cable bids are cited around the US$ 2.0245 level. The euro slumped vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6775 level and was capped around the ‚ā§0.6795 level.
The Swiss franc appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1985 level and was capped around the CHF 1.2055 level. Today‚Äôs intraday low represents the pair‚Äôs weakest showing in 2007 and the pair has not been this weak since 8 December 2006. Dollar offers are cited around the CHF 1.2075 level. The euro came off vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.6550 level while the British pound moved higher vis-√†-vis the Swiss franc and tested offers around the CHF 2.4475 level.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8695 level and was supported around the $0.8655 level. The pair established a new multi-decade high today. Australian dollar bids are cited around the US$ 0.8615 level. The New Zealand dollar gained ground vis-√†-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7875 level and was supported around the $0.7815 level. New Zealand dollar bids are cited around the US$ 0.7760 level.
The Canadian dollar lost ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.0495 level and was supported around the $1.0445 level. Bank of Canada‚Äôs July Monetary Policy Report was released yesterday and the central bank confirmed economic growth and inflation were stronger than expected in H1. BoC now expects the Canadian economy will expand by 2.5% this year, up from its previous forecast of 2.2%. The central bank also believes the strength of the Canadian dollar will serve to restrain economic growth in 2008 and 2009. The loonie was bid yesterday on news that Canadian aluminum producer Alcan has attracted a takeover bid from Rio Tinto. U.S. dollar offers are cited around the C$ 1.0615 level.
Gold lost marginal ground vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 664.90 level and was capped around the $668.13 level. The pair remained bid on account of ongoing strength in crude oil prices. Silver was little-changed vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.17 level and was supported around the $13.02 level.
Crude oil appreciated vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested offers around the US$ 73.71 level and were supported around the $72.32 level. The International Energy Agency reiterated its calls for OPEC to increase production to reduce energy prices. News that Iran may agree to some United Nations inspections of its uranium enrichment facilities will be closely reviewed by traders.
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