Friday September 21, 2007 - 15:12:56 GMT
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Forex and Commodity Market Commentary and Analysis (21 September 2007)
The euro extended recent gains vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4120 level and was supported around the $1.4040 level. The common currency‚Äôs intraday high represented a fresh lifetime high for the pair. There was a dearth of economic data released in the U.S. today. Data released in the U.S. yesterday saw the Philadelphia Federal Reserve‚Äôs September manufacturing survey improve to 10.9. Fed Chairman Bernanke told Congress the current credit market crisis has created ‚Äúsignificant market stress‚ÄĚ and reiterated regulators would take steps to limit the effects from the mortgage crisis. Fed Vice Chairman Kohn today said the Fed formulates policy for the macroeconomy but added asset prices play a role in policymaking. Kohn said ‚Äú"I doubt policy would have been eased this week if housing prices had continued their upward march‚ÄĚ and surprisingly advocated inflation targeting. In eurozone news, the flash estimate for EMU-13 September manufacturing PMI fell to 53.2, its lowest level since November 2005, while the services PMI index weakened to 54.0, its lowest level since August 2005. Many traders believe these data will help tilt the European Central Bank‚Äôs policy bias from tightening to neutral or even expansionary. Also, it was reported that the eurozone‚Äôs current account surplus narrowed in July to ‚ā¨1.7 billion from ‚ā¨3.7 billion in June. ECB member Bini Smaghi verbally intervened against the euro‚Äôs rise today saying the ECB‚Äôs monetary policy must not take into account any particular exchange rate for the euro but added the ECB can decide to intervene to weaken the currency. ECB member Constancio reported ‚Äúwhat happens in the U.S. economy will affect us,‚ÄĚ a hint the ECB‚Äôs policy bias is likely to change. Constancio added ‚Äúhave no forex target, but the level of the euro is important due to its effects on inflation.‚ÄĚ Euro bids are cited around the US$ 1.3970 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•115.85 level and was supported around the ¬•114.55 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from ¬•124.15 to ¬•111.60. The yen has been quite volatile lately, torn between dollar bulls who believe Bank of Japan will not raise interest rates by the end of the year and yen bulls who are unwinding their short yen carry trades. Ministry of Finance official Shinohara spoke overnight and said ‚ÄúForeign exchange volatility has fallen a little compared with some time ago, but it is still at high levels.‚ÄĚ Data released in Japan overnight saw the July all-industries index off 0.4% m/m and up 1.2% y/y. Also, capital flows reported Japanese accounts sold a net ¬•449.6 billion in foreign bonds last week while foreign investors were net sellers of Japanese equities for the second consecutive week last week. The Nikkei 225 stock index lost 0.62% to close at ¬•16,312.61. Dollar bids are cited around the ¬•114.55 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•162.80 level and was supported around the ¬•161.10 level. The British pound and Swiss franc gained ground vis-√†-vis the yen as the crosses tested offers around the ¬•233.50 and ¬•98.50 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5036 in the over-the-counter market, down from CNY 7.5144 and the pair‚Äôs weakest close since the yuan revaluation of July 2005. People‚Äôs Bank of China Governor Zhou reported China ‚Äúdoes not have a timetable‚ÄĚ for making the yuan fully convertible on China‚Äôs capital account.
The British appreciated sharply vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0195 level and was supported around the $2.0075 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from $1.9180 to $2.0655. Liquidity conditions continued to normalize in the U.K. money markets today as the three-month sterling Libor rate fell to 6.37% from 6.39%. Traders will pay close attention to the banking system to see if a buyer emerges for troubled Northern Rock PLC. A buyout of that financial institution could lead to more sterling strength as it would imply less panicked withdrawals from the banking system. Data released in the U.K. today saw IRS pay deals remain steady at 3.5% in the three months to the end of August. Cable bids are cited around the US$ 2.0035 level. The euro came off vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6965 level and was capped around the ‚ā§0.7020 level.
The Swiss franc came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1770 level and was supported around the CHF 1.1675 level. Today‚Äôs intraday low represents the pair‚Äôs weakest showing since March 2005. Traders are debating whether or not Swiss National Bank will tighten monetary policy in December or if official Swiss interest rates have peaked. U.S. dollar offers are cited around the CHF 1.1880 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6535 and CHF 2.3725 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8700 figure and was supported around the $0.8605 level. Technically, today‚Äôs intraday high represents the pair‚Äôs strongest showing since 27 July. Australian dollar bids are cited around the US$ 0.8585 level. The New Zealand dollar climbed higher vis-√†-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7465 level and was supported around the $0.7365 level. New Zealand dollar bids are cited around the US$ 0.7275 level.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9935 level and was capped around the C$ 1.0055 level. The loonie extended recent multi-decade gains, establishing a new fresh high dating back to November 1976. Data released in Canada today saw July retail sales fell 0.8% m/m with the ex-autos component off 0.3%. U.S. dollar offers are cited around the C$ 1.0090 level.
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