24 April 2006
Monday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2405 level and was supported around the $ 1.2340 level.  The common currency gapped up about 25 pips at the Asian open and reached a level not seen since 12 September 2005 before consolidating.  Notably, G7 officials changed the foreign exchange rhetoric in their communiqué for the first time since 2003 or so this weekend and focused attention on global imbalances and the U.S. dollar’s vulnerability.  This was a watershed event that could have far-reaching implications for the greenback.  Russian finance minister Kudrin signed a law allowing Russia to invest its ruble-denominated oil stability fund in U.S. dollars, euros, and British pounds.  Sweden’s Riksbank on Friday reported it has reduced its U.S. dollar holdings in its FX reserves basket and Qatar’s monetary authority today announced it is buying euros and that it may do so until euros comprise 40% of its foreign exchange reserves.  Data released in the eurozone today saw EMU-12 2005 GDP print at 2.4%, compared with 2.8% in 2004.  Bundesbank’s April monthly bulletin was released today in which policymakers noted “a continuation of the upward economic trend” will continue in Germany.  Buba’s Weber predicted Germany’s economy could expand about 1.5% this year.  Traders await the release of Germany’s Ifo business sentiment index tomorrow and a positive print could see further euro appreciation.  Remarks from Fed Chairman Bernanke are expected on Thursday and could also be market-moving.  Euro offers are cited around the US$ 1.2560 level.

¥/ CNY

The yen made major gains vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.85 level and was capped around the ¥115.95 level.  The pair gapped significantly lower at the open of the Asian session on account of the communiqué from G7 finance ministers and central bankers that read “Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur.” The yen is viewed as a proxy for the yuan by many traders, hence the yen’s appreciation across the board.  MoF’s Hosokawa verbally intervened saying he is monitoring exchange rate moves with “strong interest” and pledged “appropriate action,” the government’s catch-phrase for intervention.  Notably, the government has not overtly intervened in the FX market for a couple of years but increasing pressure on China to liberalize its exchange rate regime further could result in more yen strength.  Data released in Japan last night saw March department store sales climb 2.0% y/y to ¥683.6 billion while March supermarket sales were off 2.1% y/y.  Also, a Bank of Japan survey saw an increase in commercial loan demand from Japanese companies between January and April.  The Nikkei 225 stock index lost 2.81% to close at ¥16,914.40.  Dollar bids are cited around the ¥113.55 level.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥142.05 level and was capped around the ¥143.40 level.  The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥205.25 and ¥90.40 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0150 in over-the-counter trading, down from CNY 8.0170, and at CNY 8.0164 in the exchange-traded market.  G7 officials called on China to let the yuan currency float further this weekend in their communiqué.  People’s Bank of China Governor Zhou said the yuan could appreciate more rapidly but said “gradualism” is China’s preferred approach. A Chinese government agency predicted the Chinese economy will expand 9.6% in 2006 and data released in China today saw March wholesale prices up 0.8% y/y.

£

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7930 level and was supported around the US$ 1.7830 level.  Data released in the U.K. today supported the pair.  First, BBA reported net mortgage lending growth reached its highest peak in 21 months last month.  Second, BSA reported March mortgage approvals rocketed to ₤5.64 billion, the highest level since 1988.  Third, March retail sales were up 0.7% m/m, the largest rise in four months. This was reassuring to Bank of England Monetary Policy Committee policymakers who have noted the importance of final private demand in their monetary policymaking.  The CBI industrial trends survey will be released tomorrow.  Cable offers are cited around the US$ 1.7945 level.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.6905 level and was capped around the ₤0.6930 level.

CHF

The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2680 level and was capped around the CHF 1.2740 level.  The March trade balance and March UBS consumption indicator will be released tomorrow and SNB President Roth will speak on Friday.  Dollar bids are cited around the CHF 1.2640 level.  The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5705 and CHF 2.2670 levels, respectively.

AUD

The Australian dollar came off marginally vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7420 level and was capped around the $0.7485 level. Data released in Australia today saw Q1 final producer price inflation up 0.8% q/q. Australian dollar offers are cited around the US$ 0.7500 figure.

CAD

The Canadian dollar weakened marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1390 level and was supported around the C$ 1.1340 level.  Bank of Canada’s interest rate decision is expected tomorrow.  U.S. dollar offers are cited around the C$ 1.1430 level.

NZD

The New Zealand dollar weakened vis-à-vis the U.S. dollar today as kiwi tested bids around the US$ 0.6295 level and was capped around the $0.6370 level. April NBNZ business confidence will be released tomorrow. New Zealand dollar offers are cited around the US$ 0.6380 level.

Gold/ Silver

Gold moved lower vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 620.50 level and was capped around the $639.00 figure.  The markets were very volatile again today as a large sell-off of the U.S. dollar during the Australasian session caused the pair to move higher.  The greenback erased some of its losses during the North American session and gold came off.  Silver moved lower vis-à-vis the U.S. dollar as the pair tested bids around 12.37 level and was capped around the $13.22 level.

Crude oil

Crude oil moved lower vis-à-vis the U.S. dollar today as light-sweet NYMEX crude for June delivery tested bids around the US$ 74.07 level and was capped around the $75.21 level. The pair traded as high as $75.35 on Friday. Iran vowed it will continue its uranium enrichment activities and some dealers believe up to US$ 15.00 of additional risk premium is priced into oil at the moment.