5 July 2006
Wednesday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2710 level and was capped around the $1.2835 level.  Stops were triggered below the $1.2730 level, representing the 50% retracement level of the move from $1.2980 to $1.2480.  Traders moved into U.S. dollars overnight as a safe haven play after North Korea fired missiles into the Sea of Japan.  Data released in the U.S. today saw May factory orders for manufactured goods rebound 0.7% after declining 2% in April.  The big news of the week will of course be Friday’s June non-farm payrolls report as traders want to assess the strength of the U.S. labour market.  The ADP employment survey released today saw 368,000 new jobs created last month and this may bode well for a strong non-farm payroll number.  In eurozone news, May EMU-12 retail sales were off unexpectedly, down 0.6% m/m and were up 0.8% y/y.  European Central Bank’s Governing Council meets tomorrow and is expected to keep interest rates unchanged.  Some traders, however, anticipate a +25bps move higher in interest rates on account of elevated inflation levels.  ECB officials have been hawkish over the past several weeks and the futures market is currently pricing in about a 50% change the ECB will move rates higher in August.  Remarks from ECB President Trichet will be scrutinized tomorrow as dealers want to see if the mentions the word “vigilant” to describe his inflation-fighting crusade.  Other data released in the eurozone today saw the EMU-12 June services PMI survey print at 60.7, its highest level since June 2007 and Germany’s services PMI survey rose to 61.0.  German finance minister Steinbrueck today ascribed a “high probability” that Germany’s public deficit would be below 3% this year.  Euro offers are cited around the US$ 1.2790/ 1.2860 levels. 

¥/ CNY

The yen came off vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥115.45 level and was supported around the ¥114.60 level.  Technically, today’s intraday high was right around the 50% retracement of the move from ¥116.70 to ¥114.10.  News that North Korea test-fired seven missiles yesterday and overnight saw traders sell the yen.  In 1998, North Korea flew missiles over Japan and Japan’s physical proximity to North Korea leaves the yen vulnerable to North Korean military maneuvers.  The Nikkei 225 stock index shed 0.73% to close at ¥15,523.94.  Dollar bids are cited around the ¥114.45/ ¥113.85 levels.  The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥147.25 level and was supported around the ¥146.55 level.  Today’s intraday high represented a fresh multi-year high for the currency.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥211.50 and ¥93.45 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9958 in over-the-counter trading, down from CNY 7.9995, and at CNY 7.9955 in the exchange-traded market.  Data were released today that confirmed China’s foreign reserves printed at US$ 925 billion at the end of May.  Also, it was reported that the Q2 business climate index was up 4.2% y/y. 

₤

The British pound lost significant ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8325 level and was capped around the $1.8485 level.  Chartists are eyeing the $1.8295 level, around the 50% retracement of the move from $1.9550 to $1.7045.  Data released in the U.K. today saw the June services PMI survey recede to 58.7 from May’s 59.2 level while BRC’s June shop prices index was up 0.01% m/m.  Also, the Voca take-home pay index saw a 5.2% print in June, up from May’s 4.0% print, and these suggest wage price pressures may be escalating.  Additionally, REC noted demand for staff increased at its fastest pace last month in some eighteen months.  Cable offers are cited around the US$ 1.8535 level.  The euro gained marginal ground 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.

CHF

The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2355 level and was supported around the CHF 1.2200 figure.  The pair moved higher today after North Korea test fired missiles into the Sea of Japan.  Dollar bids are cited around the CHF 1.2230 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5700 and CHF 2.2645 levels, respectively.

AUD

The Australian dollar came off vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7400 figure and was capped around the $0.7470 level.  Reserve Bank of Australia kept its official cash rate unchanged at 5.75% overnight as expected.  Many dealers, however, believe RBA will hike rates again this year.   Data released in Australia today saw the AIG services index rise 3.3 index points in June to 52.6.  Australian dollar offers are cited around the US$ 0.7520 level. 

CAD

The Canadian dollar weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1140 level and was supported around the C$ 1.1040 level.  U.S. dollar offers are cited around the C$ 1.1250 level.

NZD

The New Zealand dollar weakened vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6030 level and was capped around the $ 0.6115 level.  New Zealand dollar offers are cited around the US$ 0.6120/ 80 levels.

Gold/ Silver

Gold moved higher vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 630.25 level and was supported around the $ 617.75 level.  Today’s intraday high represented a one-month high and the pair gained ground after North Korea test-fired missiles into the Sea of Japan.  Silver gained ground vis-à-vis the U.S. dollar as the pair tested offers $11.46 level and was supported around the $11.22 level. 

Crude Oil

Crude oil moved higher vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested offers around the US$ 74.25 level and was supported around the $73.37 level.  Talks between Iran and the European Union were postponed and the global community has given Iran until 12 July to respond in writing to a formal package of incentives and penalties regarding Iran’s nuclear ambitions.  Traders await the release of weekly U.S. energy inventories data today.