10 July 2006
Monday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro slumped sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2720 level and was capped around the $1.2815 level.  Technically, today’s intraday low is right around the 50% retracement of the move from $1.2980 to $1.2480.  Traders are awaiting details from today’s meeting between eurozone finance ministers and European Central Bank officials.  ECB President Trichet last week signaled the ECB will continue to exercise “strong vigilance” with regard to combating inflation and most traders believe the central bank will move rates higher, possibly as early as 3 August.  ECB’s Gonzalez-Paramo reiterated EMU-12 inflation is likely to remain above 2% for quite some time and policymakers are expected to retain their hawkish stance in upcoming statements.  Data released in the eurozone today saw French May industrial output climb 2.0% m/m, more-than-expected.  In U.S. news, data released today saw May wholesale inventories rise 0.8% while wholesale sales were up 1.6% y/y.  Also, Henry Paulson will be sworn in as the new U.S. Treasury Secretary at 1500 GMT and dealers will be very curious to see how he handles the sticky subject of the U.S.’s long-standing dollar policy during the remainder of Bush’s term in office.  Despite today’s move higher in the dollar, traders are still weary of assuming too much long dollar exposure on account of this past Friday’s weaker-than-expected June non-farm payrolls figure in the U.S.  The Federal Open Market Committee may elect to not raise interest rates on 8 August if it believes the moderating economy has sufficiently curtailed inflation pressures.  Euro offers are cited around the US$ 1.2890 level.

¥/ CNY

The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥113.45 level and was capped around the ¥114.10 level.  Technically, the pair continues to orbit the ¥113.85 level, the 38.2% retracement of the move from ¥101.65 to ¥121.40.  All eyes are on Bank of Japan’s Policy Board this week as traders expect the central bank to lift the overnight call rate from near zero per cent to 0.25%.  Albeit there is a huge gap between U.S. and Japanese interest rates, higher Japanese borrowing costs disincentivizes traders to conduct yen-selling carry trades and could result in a stronger yen.  Economics minister Yosano reiterated now is the time to discuss ending Japan’s zero per cent interest rate policy while chief cabinet spokesman Abe suggested the central bank should leave interest rates unchanged to support the economy.  Data released in Japan overnight saw June bank lending up 1.8% y/y, the fastest increase in ten years, while the June M2+CDs money supply was up 1.2% y/y.  Other data released today saw May machinery orders decline 2.1% m/m.  Another important factor that traders are monitoring is a report that Japan is considering a military strike against North Korea.  The yen was recently pressured before North Korea test-fired missiles into the Sea of Japan and an increase in military tensions could exacerbate yen weakness.  The Nikkei 225 stock index gained 1.60% to close at ¥15,522.81.  Dollar bids are cited around the ¥112.25 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥145.00 and was capped around the ¥146.10 level.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥209.50 and ¥92.50 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9900 in the over-the-counter market, up from CNY 7.9859, and at CNY 7.9870 in the exchange-traded market.  China’s June trade surplus printed at a record US$ 14.5 billion, more-than-expected, and its M2 money supply came in at +18.4% y/y.

₤

The British pound slumped lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8365 level and was capped around the $1.8520 level.  Stops were triggered below the $1.8445 level, representing the 38.2% retracement of the move from $1.9025 to $1.8090.  Data released in the U.K. today saw the government’s May house prices index climb 5.6% y/y, up from 5.1% y/y in April.  Also, June headline input prices were off 0.2%m/m, the second consecutive monthly decline while the core component was up 0.3% m/m with the annual rate at a nineteen-month high of 2.9%, up from May’s 2.5% level.  Output prices at the factory gate were up 0.1%, lower than May’s 0.4% climb.  Cable offers are cited around the US$ 1.8535 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.6930 level and was supported around the ₤0.6910 level.

CHF

The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2320 level and was supported around the CHF 1.2220 level.  Technically, today’s intraday high was just below the 23.6% retracement of the move from CHF 1.3235 to CHF 1.1920.  Stops were triggered above the CHF 1.2285 level, the 50% retracement of the move from CHF 1.1285 to CHF 1.3285.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5680 and CHF 2.2665 levels, respectively.

AUD

The Australian dollar depreciated vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7475 level and was capped around the $0.7530 level.  Data released in Australia today saw ANZ June job advertisements climb 3.2% m/m and 23.4% y/y.  Australian dollar offers are cited around the US$ 0.7615 level.

CAD

The Canadian dollar lost significant ground vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1260 level and was supported around the C$ 1.1130 level.  Technically, today’s intraday high was right around the 50% retracement of the move from C$ 1.1775 to C$ 1.0925.  Bank of Canada’s interest rate decision will be released tomorrow.  U.S. dollar offers are cited around the C$ 1.1350 level.

NZD

The New Zealand dollar lost marginal ground vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6100 figure and was capped around the $0.6155 level.  New Zealand dollar offers are cited around the US$ 0.6180 level.

Gold/ Silver

Gold depreciated vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 620.85 level and was capped around the $ 632.55 level.  The U.S. dollar’s strength added to gold’s weakness but heightened geopolitical tensions involving hotspots like Iran, Iraq, and North Korea could keep gold bid.  Silver back away from the U.S. dollar today as the greenback tested bids around the $10.91 level and was capped around the $11.40 level.

Crude Oil

Crude oil lost marginal ground vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested bids around the US$ 73.49 level and was capped around the $74.65 level.  Traders will pay close attention to tomorrow’s meeting between European Union foreign policy chief Solana and Iranian negotiators.