9 June 2006
Friday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2595 level and was capped around the $1.2670 level.  Chartists are eyeing the $1.2555 level as the pair’s next downside target. Traders continue to reduce long euro exposure as Federal Reserve officials make it clear the Federal Open Market Committee is leaning towards raising rates at the end of the month.  Fed Governor Kohn testified yesterday that he has “found recent inflation data somewhat troubling…that raises a warning flag that something might be in train.”  The fed funds futures market is now discounting about an 80% chance the federal funds target rate will be lifted by +25bps to 5.25% on 29 June.  Kohn is the Bush administration’s nominee to become the new Vice Chairman of the Fed and it’s apparent that both he and Chairman Bernanke are on the same page regarding inflation.  Bernanke will issue a commencement address later today. Data released in the U.S. today saw the April trade deficit print at –US$ 63.4 billion, less-than-expected but up from a revised –US$ 61.9 billion.  Also, the May import price index came in a little hotter-than-expected at +1.6%.  Next week’s April Treasury International Capital inflows data will be closely watched to see if the U.S. covered its trade deficit two months ago with portfolio inflows.  Traders are also carefully watching the Group of Eight summit in St. Petersburg this weekend to see if finance ministers address currency or trade imbalances.  In eurozone news, dealers continue to sell the euro following European Central Bank President Trichet’s comments yesterday after the ECB decided to lift interest rates by +25bps.  Trichet stopped short of using the word “vigilant” to describe the central bank’s focus on inflation.  ECB’s Papademos said he sees growth remaining strong while ECB’s Tumpell-Gugerell said she does not expect a slowdown in growth.  ECB’s Gonzalez-Paramo said the ECB considers the euro’s value in its interest rate decisions while ECB’s Weber noted “It is important as a matter of principle that there is no subordination of monetary policy to exchange rate considerations.” The ECB yesterday reduced its 2007 EMU-12 growth forecast to 1.8% from 2.0% but kept its 2006 forecast intact at 2.1%. Euro offers are cited around the US$ 1.2775 level.

¥/ CNY

The yen appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥113.70 level and was capped around the ¥114.30 level.  The Nikkei reported the Japanese government’s June economic report will emphasize deflation is receding.  In contrast, Bank of Japan policymakers maintain deflation is still a threat to the economy and as a result, they are in no hurry to lift interest rates from their near zero per cent level.  Data released in Japan today saw April machinery orders rise 10.8% m/m.  The Nikkei 225 stock index climbed 0.81% to close at ¥14,750.84.  Dollar bids are cited around the ¥113.35 level.  The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥143.85 level and was capped around the ¥144.55 level.  The British pound and Swiss franc spun lower vis-à-vis the yen as the crosses tested bids around the ¥209.65 and ¥92.25 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0112 in over-the-counter trade, up from CNY 8.0089, and at CNY 8.0115.  Data released in China today saw May PPI up 2.4% y/y while the broad M2 money supply increased 19.5% y/y as of the end of May.

₤

The British pound lost marginal ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8365 level and was capped around the US$ 1.8455 level.  Data released in the U.K. today saw the April trade in goods deficit print at -₤5.8 billion, worse-than-expected.  NIESR reported the U.K. economy likely expanded at 0.6% in the three months to May.  Cable offers are cited around the US$ 1.8525 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6855 level and was capped around the ₤0.6875 level.

CHF

The Swiss franc was mostly unchanged vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2285 level and was capped around the CHF 1.2365 level.  U.S. dollar bids are cited around the CHF 1.2230 level. The euro and British pound slumped vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5560 and CHF 2.2650 levels, respectively.

AUD

The Australian dollar gained ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7495 level and was supported around the $0.7410 level.  Australian dollar offers are cited around the US$ 0.7545 level.

CAD

The Canadian dollar moved sharply higher vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1070 level after testing offers around the C$ 1.1230 level.  Data released in Canada today saw the May unemployment rate fell 0.3% to 6.1%, its lowest level since December 1974.  U.S. dollar offers are cited around the C$ 1.1190 level.

NZD

The New Zealand dollar climbed higher vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6335 level and was supported around the $0.6250 level.  New Zealand dollar offers are cited around the $0.6375 level.

Gold/ Silver

Gold appreciated vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 616.10 level and was supported around the $604.35 level.  Inflation jitters continue to keep the pair relatively bid.  Silver moved higher vis-à-vis the U.S. dollar as the pair tested offers around the US$ 11.51 level and was supported around the $11.11 level.

Crude Oil

Crude oil appreciated vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for July delivery tested offers around the US$ 71.01 level and was supported around the $69.96 level.  The markets are doubting that the death of terrorist al-Zarqawi in Iraq will lead to significant stability in that country.  Also, an IAEA report that Iran continues to enrich uranium despite a diplomatic offer from the West involving a suspension of said efforts has kept crude bid.