Forex and Commodity Market Commentary and Analysis (28 November 2006)
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The euro appreciated vis-?-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3180 level and was supported around the $1.3120 level. Today??s intraday high is the common currency??s strongest showing since March, 2005. The pair gained ground in the North American session after U.S. October durable goods orders were released and evidenced a decline of 8.3% on the headline figure with the ex-transportation component off 1.7%. Traders shrugged off an upward revision to September??s durable goods data on account of October??s lower-than-expected prints. Other data released in the U.S. today saw November consumer confidence print at a lower-than-expected 102.9. Additionally, October existing home sales were up a surprising 0.5% to 6.42 million annual units, the first increase since February, and were down 11.5% y/y. All eyes will be on a speech by Federal Reserve Chairman Bernanke later in the North American session in which he is expected to talk about the economy. Most traders do not believe the Federal Open Market Committee will tighten interest rates when policymakers convene in a couple of weeks. In eurozone news, EMU-12 finance ministers convened last night and some surprisingly did not express dissatisfaction with the euro??s recent strength. Austria??s Grasser said ???it??s nothing special at all.??? while Eurogroup chairman Juncker said excessive exchange rate volatility is ???excessive.??? Juncker added ???We were of the opinion that excessive volatility and disorderly movements in the exchange rate are undesirable for economic growth.??? There were a couple of reasons the common currency moved higher today. First, German GfK consumer sentiment improved to 9.4 for December from an upwardly revised 9.3 in November. Second, the October EMU-12 M3 money supply improved 8.5%, unchanged from September??s reading and a further continuation that liquidity conditions remain ample. Most dealers believe the ECB will lift interest rates in early December by +25bps to 3.50%. Euro bids are cited around the US$ 1.3080/ 45 levels.
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The yen depreciated vis-?-vis the U.S. dollar today as the greenback tested offers around the ??116.40 level and was supported around the ??115.90 level. Technically, the pair is orbiting the ??116.15 level, representing the 23.6% retracement of the move from ??118.60 to ??115.40. Data released in Japan today saw October retail sales climb 0.1% y/y, the third consecutive monthly increase. Bank of Japan Governor Fukui reiterated his mantra that the central bank will raise interest rates gradually, noting the economy is ???expanding moderately.??? Fukui said ???We will proceed with rate hikes slowly, which is not to hurt economic expansion but to support sustained growth?? We are seriously tackling the issue of raising rates not too late or not too soon.??? Regarding exchange rates, the BoJ chief reported ???We are always keeping asset prices, including forex, in mind when conducting monetary policy. But the basic stance is to monitor domestic economic and price developments.??? Dealers still continue to cite evidence that traders are putting on short yen carry trades and investing the proceeds in higher-yielding currencies. The Nikkei 225 stock index came off 0.19% to close at ??15,855.26. Dollar bids are cited around the ??115.20 level. The euro moved higher vis-?-vis the yen as the single currency tested offers around the ??153.00 figure and was supported around the ??152.30 level. Today??s intraday high represents a fresh lifetime high for this cross. The British pound and Swiss franc appreciated vis-?-vis the yen as the crosses tested offers around the ??226.45 and ??96.45 levels, respectively. The Chinese yuan appreciated sharply vis-?-vis the U.S. dollar today as the greenback closed at CNY 7.8400 in the over-the-counter market, down from CNY 7.8436, and today??s closing price represents the pair??s weakest showing after the yuan??s revaluation in July, 2005. U.S. Treasury Secretary Paulson characterized ???the need for greater currency flexibility??? as a short-term issue for U.S.-Chinese relations. Paulson will visit Beijing in a couple of weeks to discuss pressing economic trade issues.
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The British pound escalated further vis-?-vis the U.S. dollar today as cable tested offers around the US$ 1.9490 level and was supported around the $1.9365 level. Today??s intraday high represents cable??s strongest showing since December, 2004. Data release din the U.K. today saw Land Registry house prices in England and Wales climb 1.2% m/m in October with annual growth now at a 17-month high of 7.0%. Cable bids are cited around the US$ 1.9260 level. The euro came off vis-?-vis the British pound as the single currency tested bids around the ?0.6755 level and was capped around the ?0.6780 level.
CHF
The Swiss franc appreciated vis-?-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2030 level and was capped around the CHF 1.2080 level. Data released in Switzerland today saw the October UBS private consumption indicator improve to 1.96 from 1.83 in September. U.S. dollar offers are cited around the CHF 1.2145 level. The euro and British pound moved higher vis-?-vis the Swiss franc as the crosses tested offers around the CHF 1.5880 and CHF 2.3515 levels, respectively.
A$
The Australian dollar appreciated vis-?-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7820 level and was supported around the $0.7775 level. Reserve Bank of Australia economist Tony Richards predicted Australia??s annual headline inflation rate may fall below 2% in the middle of 2007. Australian dollar bids are cited around the US$ 0.7755 level.
C$
The Canadian dollar appreciated vis-?-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1285 level and was capped around the C$ 1.1330 level. Traders are trying to determine if and how Canada??s decision to consider Quebec a ???nation??? within Canada may impact the Canadian dollar. Traders await many Canadian economic data tomorrow. U.S. dollar offers are cited around the C$ 1.1355 level.
NZ$
The New Zealand dollar appreciated vis-?-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6750 level and was supported around the $0.6685 level. Technically, today??s intraday low was right around the 50% retracement of the move from $0.5910 to $0.7465. New Zealand dollar offers are cited around the US$ 0.6870 level.
Gold/ Silver
Gold came off vis-?-vis the U.S. dollar today as the yellow metal tested bids around the US$ 636.95 level and was capped around the $ 641.70 level. Traders booked some profits today following the U.S. dollar??s recent sell-off. Silver gained marginal ground vis-?-vis the U.S. dollar today as the pair tested offers around the US$ 13.54 level and was supported around the $13.42 level.
Crude Oil
Crude oil notched gains vis-?-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for January delivery tested offers around the US$ 60.83 level and was supported around the $ 60.22 level. Weather forecasts for a cold spell in the U.S. northeast added to the pair??s gains as did news that China may try to add to its strategic oil reserves. Traders are also talking about the OPEC meeting in Nigeria on 14 December.