27 March 2006
Monday

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$ 1.2015 level and was capped around the $1.2055 level.  Many traders are loath to assume new market risk ahead of tomorrow’s Federal Open Market Committee interest rate decision in the U.S. Most Fed-watchers believe policymakers will lift the federal funds target rate by 25bps to 4.75% and fed funds futures are discounting about a 75% to 80% chance the Fed will lift the target rate another 25bps to 5.00% on 10 May.  Tomorrow’s policy statement will be of critical importance in assessing the Fed’s characterization of current economic trends.  Policymakers have made it abundantly clear that their decisions are largely being driven by economic data at this point in time.  The dollar ended last week with broad gains but ceded some of them after February U.S. new home sales plunged some 10.5%, the largest drop in nine years.  The housing market is therefore back on the radar of traders who are concerned continued Fed tightening will depress the housing market.  In eurozone news, France’s March business climate indicator printed at 105, down from 106 in February.  The all-important German March Ifo sentiment number will be released tomorrow followed by March employment data on Thursday and several EMU-12 confidence data on Friday. Euro offers are cited around the US$ 1.2115 level.

¥/ CNY

The yen made sharp gains vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥116.40 level after encountering resistance around the ¥117.65 level.  Technically, today’s low was right around the 38.2% retracement of the move from ¥121.40 to ¥113.40.  Data released in Japan overnight saw the February corporate services price index climb 0.4% m/m while large firms’ January – March business conditions index fell to 6.1 from 10.5 in the October – December quarter.  The latter survey also reported Japanese companies see capital expenditures up 11.1% in the year to March.  Oil prices were cited as the reason for the pullback in sentiment for the first time in four quarters but most economists predict Japan’s economic recovery will continue unimpeded.  Notably, this report precedes next week’s all-important quarterly Bank of Japan tankan survey of business sentiment.   Japan’s fiscal year ends at the end of this week and a lot of today’s gains for the yen were said to relate to companies repatriating overseas profits to bolster their balance sheets.   The Nikkei 225 stock index was up 0.54% to close at ¥16,650.10.  Dollar bids are cited around the ¥115.70 level.  The euro moved sharply lower vis-à-vis the yen as the single currency tested bids around the ¥140.10 level and was capped around the ¥141.60 level.  Stops were hit below the ¥140.35 level, representing the 50% retracement of the ¥143.60 – 137.10 level.  The British pound and Swiss franc lost ground vis-à-vis the yen as the crosses tested bids around the ¥203.35 and ¥88.95 levels, respectively.  In Chinese news, the yuan’s daily central parity rate was set at CNY 8.0245 from CNY 8.0338.  People’s Bank of China reported it sees 2006 GDP up 8.9%, down from 2005’s 9.9% growth rate, and February industrial value-added output was up 20.1% y/y. The all-important German March Ifo sentiment number will be released tomorrow.

£

The British pound notched modest gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7490 level and was supported around the $1.7415 level.  Stops were hit above the $1.7470 level, representing the 61.8% retracement of the move from $1.7620 to $1.7230.  Hometrack reported March house prices were up 0.5% m/m, the fourth consecutive monthly rise.  These data reaffirm the notion that the housing market has stabilized and continues to register at least nominal growth.  More housing data are expected on Wednesday and Thursday in a fairly busy week for the U.K.  Cable offers are cited around the US$ 1.7530 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6875 level and was capped around the £0.6905 level.

CHF

The Swiss franc registered gains vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3060 level and was capped around the CHF 1.3110 level.  Stops were reached below the CHF 1.3075 level, representing the 23.6% retracement of the move from CHF 1.2555 to CHF 1.3235.  The February Swiss UBS consumption indicator will be released tomorrow.  Dollar bids are cited around the CHF 1.2975 level.  The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5720 and CHF 2.2800 levels, respectively.

AUD

The Australian dollar extended its recent slide vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7035 level and was capped around the $0.7090 level.  The pair has not been this week since September 2004.  February retail sales data will be released on Friday.  Australian dollar offers are cited around the US$ 0.7125 level.

CAD

The Canadian dollar moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1730 level and was supported around the C$ 1.1665 level.  The pair has not been this strong since mid-January and chartists cite the $1.1815 level as the next upside target.  The Canadian government reported its budget surplus was C$ 9 billion in the first ten months of the 2005 – 2006 fiscal year ending 31 March, above C$ 3.9 billion lower than the surplus from a year earlier.  Notably, Canada has had budget surpluses since 1998 in stark contrast to other large industrialized countries.  February industrial prices will be released on Thursday.  U.S. dollar offers are cited around the C$ 1.1815 level.

NZD

The New Zealand dollar came off vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6045 level and was capped around the $ 0.6115 level.  Technically, the pair has been unable to reclaim the $ 0.6275 level, a previous technical support level, and this bodes poorly for the kiwi which has not been this weak since May 2004.  New Zealand dollar offers are cited around the US$ 0.6270 level.

Gold/ Silver

Gold moved higher vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 565.95 level and was supported around the $558.20 level.  Traders moved back into gold ahead of tomorrow’s Federal Open Market Committee interest rate announcement.  Gold also moved higher as Taiwan finished its first day of trading in a new gold futures contract.  Also, a Bank of China official was quoted as saying China should utilize some of its fast-growing foreign exchange reserves to purchase gold.  Silver appreciated vis-à-vis the U.S. dollar as the pair tested offers around the US$ 10.90 level and was supported around the $10.72 level.  Continued rumours about complete U.S. regulatory approval for a new silver-backed, exchange-traded fund supported the pair. Also, Dubai’s commodity exchange will begin trading deliverable silver futures-contracts tomorrow.

Crude oil

Crude oil came off vis-à-vis the U.S. dollar today as light, sweet NYMEX crude for May delivery tested bids around the US$ 63.55 level and was capped around the $64.50 level.  The pair came off after Nigerian militants freed three foreign oil workers who had been held hostage for weeks.  Traders are curious to see what U.S. weekly supply and inventories data will look like on Wednesday.