7 April 2006
Friday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2165 level and was capped around the $1.2230 level.  Technically, today’s intraday high was right around the 61.8% retracement of the move from $1.2590 to $1.1640.  The big news today was the March U.S. non-farm payrolls report that saw 211,000 new jobs created last month while the unemployment rate printed at +4.7%, down from 4.8%.  Average hourly earnings receded to +0.2% from +0.3% and there was a downward revision to February’s non-farm tally to 225,000 from 243,000.  These data initially caused a sell-off in the dollar even though they were a little stronger than expected.  Many traders believe continued decent jobs growth above 200,000 every month and an unemployment rate that is structurally near full employment will force the Federal Reserve to tighten monetary policy at least one more time.  The Federal Open Market Committee next convenes on 10 May and many dollar bulls are calling for another +25bps rate hike at the end of June also.  Chicago Fed President Moskow yesterday said there’s a risk that Asian central banks will one day reduce their appetite for U.S. assets and begin to invest more capital closer to home.  This is a major issue for the dollar as the U.S. economy’s structural imbalance given its massive current account deficit requires sizable monthly purchases of U.S. assets by overseas parties just to finance the trade gap.  In eurozone news, Eurogroup President Juncker said the EMU-12 economy will likely accelerate and European Central Bank President Trichet recently said the economy is growing at its long-term trend rate.  The common currency, however, is soft after Trichet’s remarks yesterday in which he cast doubts on the possibility of additional monetary tightening from the ECB next month.  Euro offers are cited around the US$ 1.2340 level.

¥/ CNY

The yen notched minor gains vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥117.40 level and was capped around the ¥117.95 level.  Technically, today’s intraday high was right around the 23.6% retracement of the move from ¥113.40 to ¥119.40.  The pair moved to intraday lows after the release of the March U.S. non-farm payrolls number.  Data released in Japan today saw March foreign exchange reserves climb to US$ 852.03 billion, up from February’s US$ 850.06 billion level.  Some dealers report a resurgence in short-yen carry trades in which trades borrow yen to invest in other currencies. This reflects the belief that Bank of Japan’s Policy Board will not be raising interest rates anytime soon.  Notably, however, the yield on the benchmark ten-year Japanese government bond has risen about 50 basis points over the past three months.  Traders believe the BoJ could begin to lift rates in Q3.  The Nikkei 225 stock index climbed 0.42% to close at ¥17,563.37, its first close since July 2000.  Dollar bids are cited around the ¥116.80 level.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥143.15 level after running out of steam just below the ¥144.00 figure.  The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥205.60 and ¥90.80 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 8.0111 in over-the-counter trade, up from CNY 8.0080, and at CNY 8.0111 in exchange-traded activity.  Data released in China today saw the Q1 consumer confidence index unchanged at 94 q/q.

£

The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7445 level and was capped around the $1.7530 level. Technically, today’s high was right around the 50% retracement of the move from $1.7130 to $1.7935.  Data released in the U.K. today saw IDS wage settlements remain subdued in the three months to March.  Cable offers are cited around the US$ 1.7530 level.  The euro weakened vis-à-vis the British pound as the single currency tested bids around the £0.6950 level and was capped around the £0.6975 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2885 level and was capped around the CHF 1.2975 level.  Data released in Switzerland today saw the March unemployment rate fall to 3.6% from February’s print of 3.8%.  Dollar bids are cited around the CHF 1.2895 level.  The euro weakened vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5745 level while the British pound moved higher and tested offers around the CHF 2.2665 level.

AUD

The Australian dollar was little-changed vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7340 level and was supported around the $ 0.7280 level.  Data released in Australia today saw February housing finance up 1.1% m/m to 59,091 units.  Australian dollar offers are cited around the US$ 0.7350 level.

CAD

The Canadian dollar extended recent gains vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1440 level and was capped around the C$ 1.1560 level.  Data released in Canada today saw the March unemployment rate recede to 6.3% from 6.4%, the lowest level in 32 years.  About 330,000 new jobs have been created in Canada over the past twelve months.  U.S. dollar offers are cited around the C$ 1.1555 level.

NZD

The New Zealand dollar weakened vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6110 level and was capped around the $ 0.6165 level.  New Zealand dollar offers are cited around the US$ 0.6230 level.

Gold/ Silver

Gold depreciated vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 587.10 level and was capped around the $598.02 level.  The pair pulled back from the psychologically-important US$ 600.00 figure after establishing 25-year highs this week.  Many traders believe gold could escalate to US$ 635 after first consolidating.  June COMEX benchmark gold futures reached US$ 601.90 yesterday, the highest print since January 1981.  Silver moved lower vis-à-vis the U.S. dollar as the pair tested bids around the US$ 11.98 level and was capped around the $12.19 level.

Crude oil

Crude oil came off vis-à-vis the U.S. dollar today as light, sweet crude for May delivery tested bids around the US$ 66.83 level and was capped around the $67.85 level. Traders are already speculating the U.S. will not have enough gasoline to meet demand this year and this has kept a floor under crude.  Royal Dutch Shell indicated it plans to restart oil production in Nigeria soon following recent militant activity in that country.