Wednesday August 8, 2007 - 16:35:24 GMT
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Forex and Commodity Market Commentary and Analysis (8 August 2007)
The euro moved higher vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.3825 level and was supported around the $1.3720 level. Technically, todayâ€™s intraday low was just above the 23.6% retracement of the move from $1.3260 to $1.3850 and the common currency came within 25 pips of an all-time high. The Federal Open Market Committee kept the federal funds target rate unchanged at 5.25% yesterday, as expected, and while policymakers acknowledged the current credit crunch, their focus remains squarely on inflation. Policymakers reported â€śAlthough the downside risks to growth have increased somewhat, the FOMC's predominant policy concern remains the risk that inflation will fail to moderate as expected.â€ť The FOMC clearly left the door open â€“ albeit slightly â€“ for easier credit conditions should the economy weaken. The impact of the credit crunch on the U.S. mortgage and housing markets could be a decisive factor in the Fedâ€™s policymaking. A continued moderation in U.S. inflation could be the ammunition the Fed needs to expand monetary policy later in the year, especially if Q3 economic growth and consumer confidence numbers begin to fade. Data released in the U.S. today saw June wholesale inventories up 0.5% with wholesale sales up 0.6%. In eurozone news, Germanyâ€™s trade surplus printed at â‚¬16.5 billion, down from Mayâ€™s level of â‚¬17.3 billion. Euro bids are cited around the US$ 1.3715 level.
The yen weakened vis-Ă -vis the U.S. dollar today as the greenback tested offers around the ÂĄ119.35 level and was supported around the ÂĄ118.70 level. Traders lifted the pair after the release of weaker-than-expected 10.4% m/m decline in core private sector machinery orders, the largest decline since July 2006. Traders dumped yen on these data in anticipation that Bank of Japanâ€™s Policy Board may be unable to move rates higher this month. Some traders still believe the BoJ will lift the overnight call rate by +25bps to +0.75%. Other data released overnight saw July bank lending rise 0.3% y/y while the July money supply was up 2% y/y. Other data released today saw foreign reserves rise to a record US$ 923.72 billion in July. Also, the economy watchersâ€™ index fell in July for the fourth consecutive month with the current conditions index lower at 44.7 from 46.0 in June. The Nikkei 225 stock index gained 0.64% to close at ÂĄ17,029.28. Dollar bids are cited around the ÂĄ118.55 level. The euro appreciated vis-Ă -vis the yen as the single currency tested offers around the ÂĄ165.30 level and was supported around the ÂĄ163.10 level. The British pound and Swiss franc gained ground vis-Ă -vis the yen as the crosses tested offers around the ÂĄ244.00 figure and ÂĄ100.25 level, respectively. The Chinese yuan depreciated vis-Ă -vis the U.S. dollar as the greenback closed at CNY 7.5748 in the over-the-counter market, up from CNY 7.5703 level. The big news involving China involved remarks from a couple of lower level officials who suggested China could play the â€śnuclear optionâ€ť by reducing their holdings of U.S. assets. Such statements â€“ while largely rhetorical â€“ reflect the trade tensions sanctions being threatened by the Democratically-controlled U.S. Congress against China for nor revaluing its yuan fast enough. Traders will pay close attention to todayâ€™s U.S. auction of US$ 13.0 billion in 10-year Treasury notes and tomorrowâ€™s auction of US$ 9.0 billion in 30-year bonds to see how much foreign interest there is. Recent auctions have seen declining participation by indirect bidders, a clue that central banks and monetary authorities are purchasing less U.S. debt in the primary market. Peopleâ€™s Bank of China released its Q2 monetary policy report today in which it noted the economy is more likely to overheat than earlier and pledged to â€śmoderately tighten monetary policy.â€ť
The British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers around the US$ 2.0395 level and was supported around the $2.0155 level. Technically, todayâ€™s intraday low was just above the 50% retracement of the move from $1.9620 to $2.0655. Bank of Englandâ€™s quarterly inflation report was released today and indicated the annual CPI rate will only recede back towards 2.0% in two years if the repo rate rises to 6.00% in the next few months. This virtually assures that BoEâ€™s MPC will enact a +25bps hike in the next couple of months absent any significant credit calamity or contagion. Many traders believe the MPC will go one step further and take the repo rate up to 6.25% before the end of the year. BoE Governor King noted â€śThe main upside risk to inflation is that, with a limited degree of spare capacity, businesses may be more confident about raising prices than assumed in the central projection.â€ť A survey released by REC/KPMG today saw U.K. salary inflation reached its highest rate since 1998. Cable bids are cited around the US$ 2.0140 level. The euro came off vis-Ă -vis the British pound as the single currency tested bids around the â‚¤0.6770 level and was capped around the â‚¤0.6770 level.
The Swiss franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1910 level and was capped around the CHF 1.1995 level. Technically, todayâ€™s intraday high was right around the 50% retracement of the move from CHF 1.2165 to CHF 1.1815. Data released in Switzerland today saw the July unemployment rate unchanged at 2.5%. Dollar offers are cited around the CHF 1.2030 level. The euro and British pound moved higher vis-Ă -vis the Swiss franc as the crosses tested offers around the CHF 1.6505 and CHF 2.4350 levels, respectively.
The Australian dollar appreciated vis-Ă -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8620 level and was supported around the US$ 0.8535 level. Technically, todayâ€™s intraday high was right around the 61.8% retracement of the move from $0.8330 to $0.8870. As expected, Reserve Bank of Australia raised its official discount rate by +25bps to 6.50% to counter inflationary pressures, near an eleven-year high. Data released in Australia today saw June housing finance by volume rise 1.1% m/m. Australian dollar bids are cited around the US$ 0.8520 level.
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