6 June 2006
Tuesday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2830 level and was capped around the $ 1.2930 level.  The common currency has been given since Fed Chairman Bernanke yesterday hawkishly said the Fed needs to remain “vigilant” on inflation. Before Bernanke’s comments, the fed funds futures market were evenly split as to whether or not the Federal Open Market Committee would lift the federal funds target rate at the end of this month. After Bernanke’s comments, the market began to price in a 75% chance that rates would move higher later this month.  St. Louis Fed President Poole entered the fray today when he noted “going a little too far” on raising interest rates to reduce inflation expectations is better than not going far enough.  The euro has been on the defensive as a result of Bernanke’s and Poole’s comments but that could change very soon. The European Central Bank’s Governing Council convenes on Thursday and is expected to raise interest rates by at least +25bps.  A +50bps is expected by some traders and even if the ECB does not raise rates by +50bps, ECB’s Trichet is expected to be hawkish in his remarks, especially given the recent run of strong EMU-12 economic data and increasing inflation pressures in the eurozone.  Despite a fall in Germany’s May services PMI survey, the EMU-12 May services PMI survey printed at 58.7, up from 58.3 in April – its strongest growth in some six years.  French Treasury’s Musca reiterated his country’s concern with the euro’s appreciation, noting France is “very attentive” to the euro’s volatility.  ECB’s Trichet yesterday reiterated the call for EMU-12 countries to enhance structural reform in the eurozone.  Euro offers are cited around the US$ 1.2890/ 1.3040 levels.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥112.85 level and was supported around the ¥112.05 level.  Technically, today’s intraday high was just above the 38.2% retracement of the move from ¥118.85 to ¥109.00.  Chartists are eyeing the ¥113.35/ 95 levels as the pair’s next upside targets.  May official reserve assets will be released overnight followed by the April leading and coincident economic indices and May machine tool orders data.  The Nikkei 225 stock index lost 1.81% to close at ¥15,384.86.  Dollar bids are cited around the ¥111.70/ 20 levels.  The euro gained marginal ground vis-à-vis the yen as the single currency tested offers around the ¥145.10 level and was supported around the ¥144.50 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥210.60 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥92.65 level.  The Chinese yuan came off vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0141 in the over-the-counter market, up from CNY 8.0077, and at CNY 8.0135 in the exchange-traded market.  People’s Bank of China Governor Zhou indicated the central bank has no plans to tighten policy further at this time.

₤

The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8615 level and was capped around the $1.8770 level.  Technically, today’s intraday high was right around the 50% retracement of the move from $1.9025 to $1.8530 and chartists are now eyeing the $1.8595 level as the pair’s next significant downside target.  BRC’s May retail sales report was off from April’s decent levels on account of bad weather.  U.K. Chancellor of the Exchequer Brown called on the public sector to combat inflation by keeping pay deals near the Treasury’s 2% inflation target.  Cable offers are cited around the US$ 1.8720 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6880 level and was capped around the ₤0.6895 level.

CHF

The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2170 level and was supported around the CHF 1.2040 level.  Technically, today’s intraday low was just below the 61.8% retracement of the move from CHF 1.1285 to CHF 1.3285.  Dollar bids are cited around the CHF 1.1990 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5610 and CHF 2.2670 levels, respectively.

AUD

The Australian dollar weakened vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7440 level and was capped around the US$ 0.7485 level.  Many data were released in Australia today. First, the Q1 current account deficit printed at –A$ 13.999 billion, down from –A$ 14.330 billion in Q4.  Second, April housing finance by volume was down 0.5% m/m.  Third, the Westpac industrial activity index receded to 48.4 in June from 51.1 in March, its lowest level since June 2001.  Australian dollar offers are cited around the US$ 0.7500 figure.

CAD

The Canadian dollar came off vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1165 level and was supported around the C$ 1.1050 level.  Technically, today’s intraday low was just below the 38.2% retracement of the move from C$ 1.1275 to C$ 1.0930.  April building permits and the May Ivey PMI survey will be released today.  U.S. dollar offers are cited around the C$ 1.1190 level.

NZD

The New Zealand dollar came off vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6275 level and was capped around the $ 0.6325 level.  Technically, today’s intraday low was right around the $0.5910 to $0.7465.  New Zealand dollar offers are cited around the US$ 0.6375 level. 

Gold/ Silver

Gold moved lower vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 627.60 level and was capped around the $642.00 figure.  The dollar’s resurgence added to gold’s losses as did hawkish remarks from Fed chief Bernanke.  Silver moved lower vis-à-vis the U.S. dollar as the pair tested bids around the $11.76 level and was capped around the $12.13 level.

Crude Oil

Crude oil came off vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for July delivery tested bids around the US$ 71.43 level and was capped around the $72.84 level.  A member of Iran’s Supreme National Security Council received proposals from the West today about suspending Iran’s nuclear ambitions and noted the proposals “had some positive steps in them and some ambiguities which should be removed.”