22 March 2006
Wednesday

Fundamental Outlook at 1500 GMT (EST + 0500)

€

The euro was little-changed vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2065 level and was capped around the $1.2115 level.  Technically, today’s intraday high was right around the 50% retracement of the move from $1.2590 to $1.1640.  Traders are still talking about Fed Chairman Bernanke’s recent remarks in which he appeared non-committal in terms of how much additional monetary tightening may be required.  Some traders believe the Federal Open Market Committee will end its tightening cycle at the end of this month while others see 10 May or possibly 29 June as the end of the current tightening cycle.  Bernanke also said the record U.S. trade deficit will not necessarily effect a “precipitous” decline in the U.S. dollar and added the markets may be able to absorb such a slide.  Data released in the U.S. today saw MBA mortgage applications decline 1.6% w/w.  In eurozone news, the EMU-12 January trade deficit printed at -€10.8 billion from a revised deficit of ­-€0.7 billion in December.  Also, EMU-12 January industrial orders were off 5.9% m/m and up 9.7% y/y.  The EMU-12 January current account figures will be released tomorrow. Euro offers are cited around the US$ 1.2135/ 50 levels.

¥/ CNY

The yen gained ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥116.65 level and was capped around the ¥117.40 level.  Technically, today’s intraday high was right around the 50% retracement of the move from ¥121.40 to ¥113.40.  Bank of Japan Governor Fukui said the central bank has no plans to reduce its ¥1.2 trillion monthly purchases of Japanese government bonds after it normalizes monetary policy.  BoJ ended its long-standing quantitative easing policy on 9 March and the JGB futures markets are discounting about one monetary tightening by the central bank this year.  Fukui has also made it quite clear the central bank has no plans to raise interest rates at this time.  The February corporate services price index and merchandise trade balance will be released tonight. The Nikkei 225 stock index lost 0.78% to close at ¥16,495.48.  Dollar bids are cited around the ¥115.70 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥141.05 level and was capped around the ¥141.95 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from ¥143.60 to ¥137.10.  The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥203.90 and ¥89.65 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0287 in the over-the-counter market, down from CNY 8.0309. U.S. Senators including Graham and Schumer remain in China and continue to press authorities there to permit a stronger yuan in exchange for avoidance of anti-China, protectionist U.S. legislation.  Data released in China today saw January – February industrial firms’ profits climb 21.8% y/y. 

£

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7505 level and was supported around the $1.7450 level.  Sterling was lifted by the release of the minutes from Bank of England’s Monetary Policy Committee meeting on 9 March in which there was an 8-1 vote to keep the headline repo rate unchanged at 4.50%.  Lone dissenter Nickell, who leaves the MPC on 31 May, again called for a 25bps decrease in rates, arguing the BoE’s output forecasts in its February quarterly inflation report were too optimistic.  Nickell suggested there is a “degree of spare capacity” on account of rising unemployment and current capacity utilization levels.  Moreover, he believes inflation will drop below the central bank’s 2.0% target after year-on-year effects from higher energy prices are stripped out.  The MPC as a whole reported Q1 output is expected to be “firm” and suspect that “aggregate consumption” may be stronger than household spending indicators are suggesting.  Regarding inflation, the MPC reported “little evidence” of second-round effects and added earnings growth “remains benign.” Cable moved higher on this news because it suggests the central bank is in no hurry to lower rates.  Cable offers are cited around the US$ 1.7530 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6905 level and was capped around the £0.6925 level.

CHF

The Swiss franc was little-changed vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3045 level and was supported around the CHF 1.2990 level.  Technically, today’s intraday high was right around the 50% retracement of the move from CHF 1.3230 to CHF 1.2870.  Heightened geopolitical risks in hotspots such as Iran and Iraq continue to be monitored by some traders who favour the franc as a safe-haven play.  Dollar bids are cited around the CHF 1.2955 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5745 and CHF 2.2790 levels, respectively.

AUD

The Australian dollar gained marginal ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7190 level and was supported around the $ 0.7150 level.  Data released in Australia today saw the January Westpac leading index fall 0.1 index points m/m.  The survey indicated its coincident index was up 0.5 index points m/m and overall, the report suggests economic growth may be sluggish in about six months’ time.  Other data released today saw the AIG/ PWC manufacturing survey report a decline in the sector’s downturn.  Australian dollar offers are cited around the US$ 0.7215 level.

CAD

The Canadian dollar extended recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1720 level and was supported around the C$ 1.1625 level.  Technically, today’s intraday high was right around the 61.8% retracement of the move from C$ 1.1975 to C$ 1.1300.  U.S. dollar offers are cited around the C$ 1.1815 level.

NZD

The New Zealand dollar gained marginal ground vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6255 level and was supported around the $0.6175 level.  Prior to notching some intraday gains, the pair established a new multi-year low dating back to June 2004.  New Zealand dollar offers are cited around the US$ 0.6315 level.

Gold/ Silver

Gold came off vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 546.70 level and was capped around the $553.30 level.  The $560 level remains tough for the pair to reclaim and expectations that the Federal Reserve will continue to push interest rates higher are limiting gold’s upside. Silver moved higher vis-à-vis the U.S. dollar as the pair tested offers around the US$ 10.59 level.  U.S. regulators have nearly approved a silver-backed, exchanged-traded fund and this is expected to keep the pair firm.

Crude oil

Crude oil moved higher vis-à-vis the U.S. dollar today as light, sweet crude futures for May delivery tested offers around the US$ 62.49 level and was supported around the $61.98 level.  Traders await the release of weekly U.S. oil and gasoline inventories data from the U.S. government.  A decline in supplies and stocks could cause the pair to move higher.  On the geopolitical front, Iran announced it is not concerned that it is being referred to the United Nations Security Council.