4 July 2006
Tuesday

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$ 1.2785 level and was capped around the $1.2820 level.  Today’s tight range was attributable to the Independence Day holiday in the U.S. as liquidity conditions were markedly reduced.  Traders continue to speculate about European Central Bank’s Governing Council meeting on Thursday and whether the ECB will lift interest rates at that time or at a later date.  ECB President Trichet has hawkishly noted the central bank may opt to raise interest rates aggressively from time to time and with elevated inflation levels in the eurozone, a move on Thursday cannot be ruled out.  Germany’s DIW Institute noted it expects GDP growth of 1.8% in 2006 followed by 1.4% in 2007.  Tomorrow’s factory orders data and Friday’s non-farm payrolls data will be closely watched in the U.S.  Euro offers are cited around the US$ 1.2890 level.

¥/ CNY

The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.40 level and was capped around the ¥114.80 level.  Technically, today’s intraday low was right around the 38.2% retracement of the move from ¥135.15 to ¥101.65.  Japanese government officials talked down interest rates overnight with finance minister Tanigaki saying Bank of Japan should “create a favorable environment in which there will not be a return to deflation” while Internal Affairs minister Takenaka added “Prices have gone up simply because the price of crude oil has gone up.”  In contrast, economic and fiscal policy minister said conditions to raise interest rates from near zero per cent “have not been met” but added “they are falling into place.”  Yosano added “Whether the Bank of Japan raises interest rates in July or August, it should be independent in its decision-making. I have faith in their judgment.” BoJ’s Policy Board will convene on 13-14 July and some dealers believe policymakers will lift interest rates from their current near zero per cent level at that time.  Data released in Japan overnight saw the June monetary base decline 16.2% y/y, the fourth consecutive monthly decrease.  The Nikkei 225 stock index climbed 0.43% to close at ¥15,638.50.  Dollar bids are cited around the ¥113.85 level.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥146.50 level and was capped around the ¥146.90 levels.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥211.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥93.40 level.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9995 in the over-the-counter market, down from CNY 8.0027, and at CNY 7.9998 in the exchange-traded market. 

₤

The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8480 level and was supported around the $1.8410 level.  Data released in the U.K. saw CIPS construction sector activity recede for the third consecutive month.  Also, Nationwide reported its main June U.K. consumer confidence index remained unchanged at 94 while the spending index fell two index points.  Cable offers are cited around the US$ 1.8535 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6925 level and was capped around the ₤0.6950 level.

CHF

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2260 level and was supported around the CHF 1.2225 level.  Today’s U.S. market holiday saw tight ranges that will normalize tomorrow.  U.S. dollar bids are cited around the CHF 1.2155 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5685 and CHF 2.2635 levels, respectively.

AUD

The Australian dollar gained ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7465 level and was supported around the $0.7415 level.  Australian dollar offers are cited around the US$ 0.7500 figure.

CAD

The Canadian dollar appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1055 level and was capped around the C$ 1.1125 level.  U.S. dollar offers are cited around the C$ 1.1125 level.

NZD

The New Zealand dollar moved higher vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6115 level and was supported around the $0.6060 level.  New Zealand dollar offers are cited around the US$ 0.6180 level.

Gold/ Silver

Gold moved lower vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 616.63 level and was capped around the $623.05 level. Silver moved lower vis-à-vis the U.S. dollar as the pair tested bids around the $11.09 level and was capped around the $11.31 level.

Crude Oil

Crude oil moved lower vis-à-vis the U.S. dollar today as London Brent crude futures moved below the US$ 73.00 figure.  U.S. futures trading will reopen tomorrow.  The global community yesterday warned Iran it has until 12 July to formally respond to a written offer of incentives and penalties regarding its nuclear ambitions.