18 July 2006
Tuesday

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2495 level and was capped around the $1.2560 level.  Technically, today’s intraday high was right around the 50% retracement of the move from $1.3480 to $1.1640.  The common currency was dented by a report that the German July ZEW expectations index receded to +15.1 from +37.8 in June, much worse than expected.  Eurozone economic data have been relatively strong lately and these data have some dealers rethinking the magnitude of additional monetary tightening from the European Central Bank.  Germany’s BDI industry federation reported it expects German exports to climb more than 10% this year.  In U.S. news, the headline June producer price index was up +0.5% m/m while the ex-food and energy core component was up +0.2%.  On an annualized basis, the headline index was up 4.9% y/y and the core rate expanded 1.9%, consistent with the Federal Reserve’s inflation objectives.  Also, May Treasury International Capital securities data were released today and they evidenced an increase in net long-term portfolio flows into the U.S. of US$ 69.6 billion, up from the previous month and above expectations.  These data are important because the U.S. requires more than US$ 2 billion of daily portfolio inflows to cover its massive trade and current account deficits.  Tomorrow’s U.S. CPI data and the start of two days of testimony from Fed Chairman Bernanke highlight traders’ calendars.  Euro offers are cited around the US$ 1.2560/ 1.2650 levels.

¥/ CNY

The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥116.70 level and was capped around the ¥117.20 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥101.65 to ¥121.40.  Data released in Japan today saw the May leading index downwardly revised to 77.3 from 75.0 while the May tertiary index rose 0.5% m/m.  Also, June corporate failures were up 1.8% m/m and June department store sales were off 2.2% y/y.  Bank of Japan reiterated it will move slowly on raising interest rates just a few days after it lifted the overnight call rate to +0.25% from 0.0%.  Most traders believe short-term rates will be around 0.50% by the end of the year and at about 0.75% at the end of the current fiscal year in March 2007.  The Nikkei 225 stock index shed 2.75% to close at ¥14,437.24.  Dollar bids are cited around the ¥115.20 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥146.20 level and was capped around the ¥146.75 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥214.25 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥93.50 level.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9982 in the over-the-counter market, down from CNY 8.0048, and at CNY 8.0005 in the exchange-traded market.  Chinese GDP was up 11.3% in Q2 while H1 CPI climbed 1.3% y/y.  Also, H1 fixed-asset investment expanded 29.8% y/y while H1 industrial value-added output was up 17.7% y/y.  Moreover, the June producer price index climbed 3.5% y/y and June retail sales were up 13.9% y/y.

₤

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8330 level and was supported around the $1.8180 level.  Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.3680 to $1.9550.  Two bullish pieces of data were released in the U.K. today.  Most importantly, June consumer price inflation was up 2.5% y/y, the highest reading since September 2005 and significantly above the Bank of England’s 2.0% target.  Many dealers believe this will push the central bank closer to a rate hike at the August Monetary Policy Committee meeting.  Secondly, RICS reported June house prices climbed at their fastest rate since May 2004.  Cable offers are cited around the US$ 1.8360 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6840 level and was capped around the ₤0.6885 level.

CHF

The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2535 level and was supported around the CHF 1.2445 level. Technically, today’s intraday high was just above the 38.2% retracement of the move from CHF 1.1285 to CHF 1.3285.  Data released in Switzerland today saw May retail sales climb 5.9% y/y.  Dollar bids are cited around the CHF 1.2425 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5660 and CHF 2.2885 levels, respectively.

AUD

The Australian dollar moved marginally higher vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7530 level and was supported around the $0.7465 level.  Australian dollar offers are cited around the US$ 0.7615 level.

CAD

The Canadian dollar moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1305 level and was capped around the C$ 1.1375 level. U.S. dollar offer are cited around the C$ 1.1615 level.

NZD

The New Zealand dollar gained ground vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6285 level and was supported around the $0.6205 level.  New Zealand dollar offers are cited around the $0.6310 level.

Gold/ Silver

Gold moved higher vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 654.65 level and was supported around the $642.60 level.  Heightened Middle Eastern tensions are keeping the pair bid as Israel has reiterated it will not stop disarming Hezbollah until its kidnapped soldiers are released.  Silver moved higher vis-à-vis the U.S. dollar as the pair tested offers around the $11.17 level and was supported around the $10.88 level.

Crude Oil

Crude oil appreciated vis-à-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for August delivery tested offers around the US$ 77.95 level and were supported around the $76.70 level.  Escalating Middle Eastern tensions and extremely hot weather in the U.S. are keeping prices elevated.