Tuesday July 24, 2007 - 15:44:33 GMT
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Forex and Commodity Market Commentary and Analysis (24 July 2007)
The euro extended recent gains vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3850 level and was supported around the $1.3795 level. Today‚Äôs intraday high represents a new lifetime high and the common currency was about 150 pips away from the psychologically-important US$ 1.40 figure. European Central Bank policymakers made some hawkish remarks today with ECB‚Äôs Kranjec saying ‚Äú"I am an inflation hawk. I understand that the ECB is constantly vigilant with regard to inflation and I support this policy.‚ÄĚ Similarly, ECB‚Äôs Stark reported ‚ÄúWhat some observers have not quite noticed is that we have not changed extensively our language in July after the interest rate increase in early June. After the June decision (on raising interest rates), the expectations in the markets have developed that a rate increase in September or in October is seen as more likely. If the ECB President says he sees no reason to correct such expectations, that is only consistent.‚ÄĚ Regarding the euro, Stark added the common currency‚Äôs moves have represented a ‚Äúrather gradual appreciation‚ÄĚ and said it will only be problematic if there is an ‚Äúabrupt‚ÄĚ change. Data released in the eurozone today saw the EMU-13 PMI manufacturing survey fall to 54.8 from 55.6 in June. Also, EMU-13 May industrial orders were up 1.7% m/m and 9.1% y/y. Additionally, the EMU-13 current account deficit widened to ‚ā¨8.6 billion in May while the Belgian National Bank July business confidence indicator fell to 4.2 from 5.5 in June. In U.S. news, Treasury Secretary Paulson was quoted as saying the U.S. economy is ‚Äúvery healthy.‚ÄĚ Traders are closely monitoring earnings forecast revisions by U.S. mortgage giant Countrywide. The subprime credit shakedown in the U.S. remains the U.S. dollar‚Äôs most immediate vulnerability. Data released in the U.S. today saw Redbook retail sales up 0.5% m/m in the first two weeks of July. Traders await remarks from St. Louis Fed President Poole later in the North American session. Euro bids are cited around the US$ 1.3775 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•120.40 level and was capped around the ¬•121.15 level. Stops were hit below the ¬•120.70 level, representing the 38.2% retracement of the move from ¬•115.15 to ¬•124.15. Traders await this Sunday‚Äôs Upper House election with expectations that the ruling Liberal Democratic Party will lose its majority. An LDP defeat could render it difficult for Bank of Japan to move the overnight call rate higher next month. The BoJ‚Äôs next policy move will clearly be a +25bps interest rate increase but the political backdrop could delay a move. Traders await the release of this week‚Äôs June consumer inflation data. The Nikkei 225 stock index climbed +0.21% to close at ¬•18,002.03. Dollar bids are cited around the ¬•119.65 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•166.35 level and was capped around the ¬•167.35 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•248.40 level and ¬•99.90 levels, respectively. The Chinese yuan depreciated marginally vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5630 in the over-the-counter market, up from CNY 7.5625. A Chinese state planner reported China may need to tighten monetary policy several more times to slow the economy.
The British pound extended recent gains vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0635 level and was supported around the US$ 2.0585 level. Sterling established a new multi-decade high. Data released in the U.K. today saw the CBI new orders book balance fall to -6 in July from +8 in June, below forecasts, while the output balance and confidence balance both moved lower. Also, the CBI‚Äôs industrial output balance fell to +10 in July from +25 in June. Bank of England Deputy Governor Gieve today cautioned against placing too much emphasis on external forecasts. He also warned that some of the current subprime mortgage industry problems that are impacting the U.S. economy may impact the U.K.‚Äôs ‚Äúunsecured credit and commercial property‚ÄĚ markets. Cable bids are cited around the US$ 2.0510 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6710 level and was supported around the ‚ā§0.6685 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2010 level and was capped around the CHF 1.2065 level. Traders await the release of the July KOF leading indicator on Friday. Dollar offers are cited around the CHF 1.2155 level. The euro came off vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.6630 level while the British pound moved higher vis-√†-vis the Swiss franc and tested offers around the CHF 2.4895 level.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8860 level and was supported around the $0.8825 level. The pair reached its highest level since February 1989. Australian dollar bids are cited around the US$ 0.8740 level. The New Zealand dollar appreciated vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.8105 level and was supported around the $0.8050 level. Traders await tomorrow‚Äôs interest rate decision by Reserve Bank of New Zealand. New Zealand dollar bids are cited around the US$ 0.8015 level.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0365 level and was capped around the $1.0470 level. Data released in Canada today saw May retail sales rise 2.8% m/m while the ex-automobiles component was up 2.3%. The loonie has not been this strong since February 1977. U.S. dollar offers are cited around the C$ 1.0515 level.
Gold appreciated vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 687.80 level and was supported around the $681.30 level. The U.S. dollar‚Äôs intraday weakness contributed to gains in precious metals. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.49 level and was supported around the $ 13.22 level.
Crude oil slid lower vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested bids around the US$ 72.98 level and were capped around the $74.98 level. Traders await tomorrow‚Äôs weekly U.S. energy inventories data. The pair came off following hints this weekend that OPEC may decide to increase production output.
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