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24 March 2006
Friday 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 offers around the US$ 1.1985 level and was supported around the $1.1950 level. Technically, the common currency stopped just short of testing the 23.6% retracement of the move from $1.2325 to $1.1825. Data released in the U.S. today saw February headline durable goods orders up 2.6% while the ex-transportation component printed at -1.3%. January’s tally was upwardly revised to -8.9%. Also, February new home sales declined 10.5%, significantly below expectations. Data released yesterday saw February existing home sales rise 5.2% last month to an annual rate of 6.91 million. It is noteworthy that these data were strong despite the Federal Reserve’s continued rate hikes. The Federal Open Market Committee convenes next week and is expected to lift the federal funds target rate by +25bps to 4.75% and then possibly again on 10 May by another +25bps to 5.0%. The Fed has made it abundantly clear that it is now in a data-dependent, wait-and-see mode with regard to monetary policy and traders are very interested to see if the Fed’s statement next week will be markedly different than its prior statement. In eurozone news, Austria – the current holder of the rotating EU presidency – announced European leaders plan to create some two million new jobs by 2010. Traders are alert for any clues from European Central Bank policymakers about the likely course of monetary policy in the eurozone. EMU-12 futures markets are currently discounting about a 50% chance the ECB will hike borrowing costs in May. Euro offers are cited around the US$ 1.2015/ 75 levels. ¥/ CNY The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥118.30 level and was supported around the ¥117.75 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from ¥119.20 to ¥115.50. Data released in Japan overnight saw the January tertiary index rise 2.2% m/m while the all-industries index was up 1.4%. Also, February department store sales were up 0.5% y/y, the first rise in two months, while February supermarket sales were of 1.7% y/y, the 23rd decline in 24 months. Bank of Japan released a quarterly flow of funds report that confirmed companies increased their borrowings from banks in 2005 for the first time in a decade. The Nikkei 225 stock index was up 0.43% to close at ¥16,560.87. Dollar bids are cited around the ¥117.35 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥141.60 level and was supported around the ¥140.95 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥205.05 and ¥89.80 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0302 in the over-the-counter market, up from CNY 8.0276, and at CNY 8.0300 in the exchange-traded market. U.S. Senator Schumer said a decision will be made next week on whether or not to push forward a proposed trade bill that would slap a 27.5% tariff on imported Chinese goods. Former U.S. Secretary of State Baker said he objects to such measures because a stronger yuan is “not an end-all or be-all solution.” £ The British pound gained marginal ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7360 level and was supported around the $1.7310 level. Technically, today’s intraday low was just below the 23.6% retracement of the move from $1.7620 to $1.7230. Sterling has been on the defensive for most of the week. The U.K. National Statistics office reported that the Budget introduced by Chancellor Brown this week will impact inflation more than last year’s Budget. On Wednesday, Brown announced increases in some sin taxes. Cable offers are cited around the US$ 1.7425 level. The euro was little-changed vis-à-vis the British pound as the single currency tested bids around the £0.6885 level and was capped around the £0.6910 level.
CHF The Swiss franc gained marginal ground vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3150 level and was capped around the CHF 1.3190 level. Technically, the pair is poised to possibly close the week above the $1.3145 level, representing the 76.4% retracement of the move from $1.3230 to $1.2870. Dollar bids are cited around the CHF 1.3090 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5785 and CHF 2.2875 levels, respectively. AUD The Australian dollar extended recent losses vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7060 level and was capped around the $0.7150 level. This represents the pair’s weakest footing since September 2004 and opens up the $0.69 handle. Major stops are thought to be in place below the psychologically-important $0.7000 figure. Australian dollar offers are cited around the US$ 0.7140 level. CAD The Canadian dollar moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1705 level and was supported around the $1.1640 level. Technically, today’s intraday high was right around the 61.8% retracement of the move from $1.1975 to $1.1300. U.S. dollar offers are cited around the C$ 1.1815 level. NZD
The New Zealand dollar moved sharply lower vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6085 level and was capped around the $0.6255 level. This represents the pair’s weakest showing since May 2004 and opens up a move below the psychologically-important $0.6000 figure. Data released in New Zealand today saw Q4 GDP fall 0.1% q/q and was up 1.8% y/y. Some traders believe the New Zealand economy could fall into a recession and expect Reserve Bank of New Zealand to lower interest rates. RBNZ Governor Bollard has indicated he has no plans to reduce borrowing costs this year. New Zealand dollar offers are cited around the US$ 0.6180 level. Gold/ Silver Gold moved higher vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 554.70 level and was supported around the $548.60 level. There has been a lot of congestion for the pair between the $555-$560 levels. Some dealers believe gold could be emboldened by the Federal Reserve’s interest rate announcement next week, particularly if Fed policymakers intimate additional rate hikes may be needed to contain inflation. Silver moved higher vis-à-vis the U.S. dollar and tested offers around the $10.72 level and was supported around the $10.39 level. Crude oil
Crude oil moved higher vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for May delivery tested offers around the $63.33 level and was supported around the $63.48 level. Prices firmed after Italy’s ENI declared force majeur on some 200,000 barrels per day of exports from its terminal in Nigeria after militants attacked its pipeline last Friday. Traders also await word from the United Nations Security Council about Iran’s nuclear program.
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