Thursday September 6, 2007 - 15:56:04 GMT
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Forex and Commodity Market Commentary and Analysis (6 September 2007)
The euro strengthened vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3705 level and was supported around the $1.3635 level. Technically, today‚Äôs intraday high was just below the 23.6% retracement of the move from $1.3260 to $1.3850. As expected, European Central Bank kept its main refinancing rate unchanged at 4.00%. ECB President Trichet reported policymakers will act in a ‚Äúfirm and timely manner‚ÄĚ to keep inflation below its 2.0% annual target ceiling rate. Trichet also added the ECB will ‚Äúvery closely‚ÄĚ monitor price risks over the coming months, noted monetary policy remains on the ‚Äúaccommodative side,‚ÄĚ and said policymakers have not ruled out additional tightening by the end of the year. Data released in the eurozone today saw German July manufacturing orders off 7.1% m/m. In U.S. news, the Federal Reserve injected US$ 31.25 billion in temporary reserves today, its latest attempt to provide additional liquidity to the credit markets. Data released in the U.S. today saw Q2 non-farm productivity upwardly revised to an annualized 2.6% growth rate from 1.8%, the highest level since Q3 2005. On the flip side of the coin, unit labour costs fell to their lowest level in one year, reduced to +1.4% from +2.1% and up 4.9% y/y. Anecdotal evidence from U.S. retailers were released today and suggested retail sales were solid last month. Other data released in the U.S. today saw the August ISM services index print at 55.8, unchanged from July‚Äôs print. Also, weekly initial jobless claims fell 19,000 to 318,000 while continuing jobless claims rose to 2.598 million. The Fed‚Äôs Beige Book was released yesterday and noted ‚Äúlimited‚ÄĚ reports of financial markets problems affecting the general economy outside of real estate. Euro bids are cited around the US$ 1.3620 level.
The yen came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•115.55 level and was supported around the ¬•114.80 level. The yen was pressured on traders found little impetus to unwind short yen carry trades. Many traders believe the decisions by major central banks this week to keep interest rates unchanged will pressure Bank of Japan‚Äôs Policy Board to keep borrowing costs unchanged for the time being. The most likely scenario probably involves a +25bps increase in the overnight call rate to +0.75% by the end of the year. Data released in Japan overnight cam August machine tool orders up 12.3% y/y. Also, capital flows data reported that foreigners sold a net ¬•52.5 billion in Japanese bonds last week. The Nikkei 225 stock index gained 0.61% to close at ¬•16,257.00. Dollar bids are cited around the ¬•114.55 level. The euro gained ground vis-√†-vis the yen as the single currency tested offers around the ¬•157.90 level and was supported around the ¬•156.75 level. The British pound and Swiss franc gained ground vis-√†-vis the yen as the crosses tested offers around the ¬•234.00 and ¬•96.00 figures, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5384 in the over-the-counter market, down from CNY 7.5497. People‚Äôs Bank of China announced it will lift banks‚Äô reserve requirements on deposits by 0.5%, effective on 25 September. Most traders believe PBOC will tighten monetary policy further this year and today‚Äôs action represented the seventh tightening this year. Chinese President Hu told President Bush China will liberalize the yuan further.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0265 level and was supported around the $2.0140 level. Technically, today‚Äôs intraday low was right around the 50% retracement of the move from $2.0655 to $1.9650. As expected, Bank of England kept its benchmark repo rate unchanged at 5.75%. Notably, BoE issued its first statement to an unchanged interest rate decision in more than eight years. The central bank reported it is too early to determine how recent financial market turmoil will impact the availability of credit but stressed its mandate to keep interest rates in line to meet the government‚Äôs inflation target. The BoE‚Äôs August quarterly inflation report had made it clear that an additional +25bps of monetary tightening would be forthcoming. Three-month sterling Libor rose to 6.88% today, 113bps above the BoE‚Äôs target rate ‚Äď the greatest spread in twenty years and an indication of the premium banks are paying to secure funding. Cable bids are cited around the US$ 2.0090 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6775 level and was supported around the ‚ā§0.6740 level.
The Swiss franc gained 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 1.2060 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from CHF 1.2470 to CHF 1.1815. Data released in Switzerland today saw the August unemployment rate tick up to 2.6% from 2.5% in July. Dollar offers are cited around the CHF 1.2120 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6460 and CHF 2.4415 levels, respectively.
The Australian dollar escalated higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8280 level and was supported around the $0.8185 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $0.8865 to $0.7675. Data released in Australia today saw the August unemployment rate hold steady at 4.3% while the number of employed people rose 31,900. Australian dollar bids are cited around the US$ 0.8160 level. The New Zealand dollar moved higher vis-√†-vis the U.S. dollar as the kiwi tested offers around the US$ 0.6935 level and was supported around the US$ 0.6835 level. Data released in New Zealand today saw the ANZ Bank‚Äôs World Commodity Price Index rise for the twelfth month in a row, up 1.4% m/m and 36.3% y/y. New Zealand dollar bids are cited around the US$ 0.6760 level.
The Canadian dollar gained marginal ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0505 level and was capped around the C$ 1.0580 level. Data released in Canada today saw July building permits decline to -11.3% while the August Ivey purchasing managers‚Äô index rallied to 58.5 from 54.6 in July. U.S. dollar offers are cited around the C$ 1.0655 level.
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