25 April 2006
Tuesday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro gained marginal ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2415 level and was supported around the $1.2365 level.  Technically, today’s intraday high was right around the 23.6% retracement of the move from $0.8340 to $1.3665 and many dealers believe the common currency is eyeing other key resistance like the $1.2560 and $1.2775 levels.  The common currency moved to multi-month highs after the release of the German April Ifo business climate index leapt to a fresh fifteen-year high, printing at 105.9 and up from March’s 105.4 tally.  These data are important because they suggest Germany’s economic recovery is gaining momentum.  The business assessment index moved higher while the business expectations index contracted marginally.  Other German data released today saw March import prices climb 0.5% m/m and 5.5% y/y.  Eurozone data released today for February saw a trade deficit of -€3.1 billion, compared with a surplus of €3.4 billion in February 2005.  European Central Bank President Trichet yesterday said the G7 communiqué released this weekend was “carefully crafted” when asked if the dollar’s sell-off was appropriate.  U.S. Treasury’s Adams said the G7 meeting was “extremely successful.”  In U.S. news, traders await testimony on Thursday from Fed Chairman Bernanke on Thursday.  Dealers seek clues as to whether or not the Federal Open Market Committee will lift the federal funds target rate by +25bps when policymakers convene on 10 May.  There is a growing consensus in the market that the FOMC will not lift rates at their meeting at the end of June but as policymakers have noted, this decision will be guided by economic data.  Data to be released in the U.S. today include April consumer confidence and housing data. Q1 GDP data will be released in the U.S. on Friday.  Euro offers are cited around the US$ 1.2555 level.

¥/ CNY

The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.30 level and was capped around the ¥114.75 level.  The pair dropped precipitously during yesterday’s North American session and reached levels not seen since 23 January of this year. Data released in Japan last night saw the March corporate services price index rise 0.5% m/m, the second gain in four months.  On an annualized basis, the index was off 0.2% y/y, the 66^th consecutive monthly decline.  Notwithstanding these numbers, deflation has recently ended in Japan and traders await word as to when Bank of Japan’s Policy Board will lift interest rates from their current near-zero per cent level.  BoJ policymakers will meet on Thursday to deliberate interest rates and many economic data will be released on Friday including March CPI, household spending, retail trade, and industrial production.  The Nikkei 225 stock index climbed 0.33% to close at ¥16,970.29.  Dollar bids are cited around the ¥113.60 level. The euro gained marginal ground vis-à-vis the yen as the single currency tested offers around the ¥142.15 level and was supported around the ¥141.45 level.  The British pound and Swiss franc weakened vis-à-vis the U.S. dollar as the crosses tested bids around the ¥204.10 and ¥89.95 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 8.01410 in over-the-counter trading, down from CNY 8.0150, and at CNY 8.0131.  Traders are still talking about this weekend’s G7 statement in which finance ministers and central bankers called on China to liberalize its foreign exchange regime further. 

£

The British pound notched margin gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7900 figure and was supported around the $1.7825 level.  The pair traded near multi-month highs yesterday and today’s gains followed an improvement in the U.K. manufacturing sector.  The April CBI industrial trends survey saw its quarterly business optimism balance print at -2, up from -14 in January, much better-than-expected and the least negative since April 2000.  Moreover, it was the first improvement in export optimism since July 2004.  Output improved appreciably on a quarterly basis with a balance of +2% of firms reporting higher output in the three months to April, reversing four consecutive quarters of declines.  On a negative note, the survey reported manufacturing employment was reduced by some 34,000 in the previous three months.  Cable offers are cited around the US$ 1.8005 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.6945 level and was supported around the ₤0.6920 level. Technically, the ₤0.6975 level represents the pair’s next significant upside hurdle.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2655 level and was capped around the CHF 1.2715 level.  Technically, today’s intraday low was right around the 61.8% retracement of the move from CHF 1.2240 to CHF 1.3285.  Data due in Switzerland today include the March trade balance and March UBS consumption indicator.  Swiss National Bank President Roth speaks on Friday.  Dollar bids are cited around the CHF 1.2520 level.  The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around CHF 1.5735 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 2.2635 level.

AUD

The Australian dollar moved higher vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7480 level and was supported around the US$ 0.7430 level.  Q1 consumer prices will be released on Wednesday and Reserve Bank of Australia Governor Macfarlane speaks on Friday.  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$ 1.1360 level.  Bank of Canada’s interest rate decision is expected later today.  U.S. dollar offers are cited around the C$ 1.1410/ 80 levels.

NZD

The New Zealand dollar was little-changed vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6305 level and was supported around the $0.6260 level.  Technically, today’s intraday low was just below the 76.4% retracement of the move from $0.5910 to $0.7465.  New Zealand dollar offers are cited around the US$ 0.6375 level.

Gold/ Silver

Gold appreciated vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 630.10 level and was supported around the $619.05 level.  Physical buying in India was cited as a key factor and traders continue to push the pair higher ahead of the Friday deadline for the United Nations Security Council’s decision on Iran.  Most Iran-watchers do not believe Iran will suspend its uranium-enrichment activities and gold could be strongly bid higher as a result.  Silver moved higher vis-à-vis the U.S. dollar as the pair tested offers around the US$ 12.56 level and was supported around the $11.96 level. 

Crude oil

Crude oil moved higher vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for June delivery tested offers around the US$ 73.92 level and was supported around the $ 72.87 level.  An IAEA envoy today said ElBaradei’s report to the U.N. Security Council on Friday regarding Iran’s nuclear ambitions “will be negative.”  Iran announced today that it will suspend relations with the IAEA if sanctions are imposed.  Oil also moved higher after it was reported that China’s oil demand rose 6% y/y in March to some 6.44 million barrels per day.