Wednesday August 1, 2007 - 16:11:28 GMT
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Forex and Commodity Market Commentary and Analysis (1 August 2007)
The euro weakened vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3635 level and was capped around the $1.3710 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.3260 to $1.3850. Today‚Äôs session was volatile as traders continue to react to worsening conditions in U.S. credit markets. It was reported yesterday that American Home Mortgage Investments cannot meet its debt service obligations and that led to an acute sell-off in U.S. equity markets late in the session yesterday. There is an increasing sense in the financial markets that the subprime problems in the U.S. economy may be spreading to other asset classes, higher-grade credit instruments, and to other global financial markets. St. Louis Fed President Poole spoke about recent market conditions saying the Fed will not ‚Äúignore what happened last week‚ÄĚ but added ‚Äúit is important that the Fed not permit uncertainty over policy to add to the existing uncertainty.‚ÄĚ Data released in the U.S. today saw the June pending home sales index up 5.0%, the largest gain in three years. These data suggest the significant slowdown in the U.S. housing sector may be moderating, although it is too early to characterize the improvement as a definitive turnaround. Other data released today saw the July ISM manufacturing index fall to 53.8 from 56.0 in June with the new orders, employment, and prices paid sub-indices all moderating. The most important data released today were the July ADP national employment report that confirmed 48,000 jobs were created last month, less than half of what was expected. These data suggest Friday‚Äôs crucial July non-farm payrolls data in the U.S. may print lower than the 135,000 tally expected. In eurozone news, most traders expect the European Central Bank will keep interest rates unchanged tomorrow. Data released in the eurozone today saw the July purchasing managers‚Äô index upwardly revised to 54.9 but that remains lower than June‚Äôs 55.4 total. Euro bids are cited around the US$ 1.3555 level.
The yen weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•118.95 level and was supported around the ¬•117.60 level. The pair reached its lowest level since 2 April as traders continued to unwind short yen carry trades on account of growing risk aversion in global markets. Data released in Japan overnight saw average land prices up 8.6% y/y in 2006, the second consecutive annual rise. Traders continue to assess the fallout from this weekend‚Äôs defeat by the Liberal Democratic Party in the Upper House elections. Prime Minister Abe has resisted calls for his resignation but his reform agenda is now in jeopardy. The Nikkei 225 stock index came off 2.19% to close at ¬•16,870.98. Dollar bids are cited around the ¬•117.30 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•162.90 level and was supported around the ¬•160.45 level. The British pound came off vis-√†-vis the yen as the single currency tested bids around the ¬•237.60 level while the Swiss franc moved higher vis-√†-vis the yen and tested offers around the ¬•99.00 figure. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5704 in the over-the-counter market, down from CNY 7.5724. Treasury Secretary Paulson met with Chinese leaders today and reported ‚Äú"I make the case that they and the whole entire world would be better off, and they would have better financial security and stability, if they would pick up the pace of appreciation (of the yuan) in the short term, and put in place conditions for a market determined currency in the medium term.‚ÄĚ The Chinese media reported China‚Äôs economy is on the verge of overheating. Data released in China today saw the CFLP July manufacturing PMI measure at 53.3 from 54.5 in June while the CLSA July PMI survey printed at 53.2, down from 55.0 in June.
The British pound moved lower vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0200 figure and was capped around the $2.0350 level. Technically, the pair continues to orbit the 38.2% retracement of the move from $1.9620 to $2.0655. Most traders expect Bank of England‚Äôs Monetary Policy Committee will keep the repo rate unchanged when its interest rate decision is announced tomorrow. Notwithstanding the impact of the ongoing global credit crunch, the most likely scenario involves the MPC lifting the repo rate by +25bps to +6.00% in September or October with another possible +25bps move by the end of the year. Data released in the U.K. today saw the CIPS PMI survey rally to a three-year high of 55.7 from 54.7 in June. Also, Nationwide reported that consumer confidence remained steady in July and BRC July shop prices were up 0.6% y/y. Cable bids are cited around the US$ 2.0140 level. The euro moved marginally higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6755 level and was supported around the ‚ā§0.6730 level.
The Swiss franc came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2050 level and was supported around the CHF 1.1980 level. Most traders expect Swiss National Bank will tighten monetary policy by +25bps next month. Dollar offers are cited around the CHF 1.2080 level. The euro and British pound gained marginal ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6465 and CHF 2.4450 levels, respectively.
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