24 July 2006
Monday

Fundamental Outlook at 1400 GMT (EST + 0400)

€ 

The euro spun lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2610 level and was capped around the US$ 1.2710 level.  Technically, today’s intraday high was just below the 50% retracement of the move from $1.2980 to $1.2460.  The common currency finished last week on a very strong note and gave back some gains today after traders reevaluated the outlook for additional rates hikes in the U.S.  Traders are about evenly split now on whether or not the Federal Open Market Committee will lift interest rates by +25bps again on 8 August.  Traders also reduced euro exposure today on news that Israel may support the deployment of an international peacekeeping force in southern Lebanon.  The euro moved to the plus side last week after Fed Chairman Bernanke testified that a moderation in U.S. economic growth should rein in inflationary pressures.  Friday’s U.S. Q2 GDP data will be closely monitored to see how much growth decelerated by and tomorrow’s and Thursday’s home sales data will evidence the strength – or weakness – of the housing sector.  In eurozone news, European Central Bank’s Noyer voiced concern with high oil prices and home prices in France.  EMU-12 data released today saw May industrial orders climb 2.3% m/m and 14.2% y/y.  Germany’s Ifo survey of business confidence will be released on Wednesday and is expected to fall following a recent run-up to fifteen-year highs.  Euro offers are cited around the US$ 1.2720/ 80 levels. 

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥116.85 level and was supported around the ¥116.10 level.  Technically, today’s intraday high was right around the 23.6% retracement of the move from ¥101.65 to ¥121.40.  Ratings agency Fitch affirmed Japan’s debt rating overnight but warned Japan about its escalating debt load.  Data released in Japan overnight saw June supermarket sales decline 2.5% y/y.  The June trade balance and corporate services price index data will be released in Japan tomorrow night.  The Nikkei 225 stock index lost 0.18% to close at ¥14,794.50.  Dollar bids are cited around the ¥115.75 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥147.20 level and was capped around the ¥147.65 level.  The British pound appreciated vis-à-vis the yen as sterling tested offers around the ¥216.35 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥93.45 level. The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9871 in the over-the-counter market, up from CNY 7.9820, and at CNY 7.9841 in the exchange-traded market.  A People’s Bank of China advisor suggested the central bank will not raise interest rates “too high “and noted China’s increasing surpluses need to be reined in.  PBOC raised banks’ reserve requirements last week to help bring credit growth under control.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8480 level and was capped around the $1.8595 level.  Technically, today’s intraday high was right around the 61.8% retracement of the move from $1.9550 to $1.7045.  Data released in the U.K. today saw the CBI July retail sales balance print at +7, down from June’s +9 level but above forecasts.  Many traders are speculating Bank of England’s Monetary Policy Committee will lift interest rates in August after twelve months of unchanged interest rates.  Cable offers are cited around the US$ 1.8665 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6810 level and was capped around the ₤0.6835 level.

CHF

The Swiss franc lost significant ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2485 level and was supported around the CHF 1.2355 level.  Stops were hit above the CHF 1.2435 level, representing the 23.6% retracement from the move from CHF 1.1920 to CHF 1.2595.  Swiss National Bank member Hildebrand expressed some “worry” with Middle Eastern tensions and noted a “swift rise in oil prices (that) mainly affects inflation at the short end.” Regarding exchange rates, he said they are not a major concern right now because “monetary conditions are stable right now.” Dollar bids are cited around the CHF 1.2340 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5750 and CHF 2.3115 levels, respectively.

AUD

The Australian dollar gained marginal ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7540 level and was supported around the $0.7500 figure.  Technically, today’s intraday low was right around the 50% retracement of the move from $0.7985 to $0.7015.  Data released in Australia today saw Q2 final producer price inflation up 1.6% from Q1’s level of 0.7%.  Australian dollar offers are cited around the US$ 0.7615 level. 

CAD

The Canadian dollar lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1455 level and was supported around the C$ 1.1370 level.  U.S. dollar offers are cited around the C$ 1.1615 level.

NZD

The New Zealand dollar weakened vis-à-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6190 level and was capped around the $0.6240 level.  New Zealand dollar offers are cited around the US$ 0.6275 level.

Gold/ Silver

Gold lost significant ground vis-à-vis the U.S. dollar today as the yellow metal tested bids around the US$ 606.22 level and was capped around the $ 620.90 level.  The arrival of U.S. Secretary of State Rice in the Middle East and news that Israel may be close to agreeing on a temporary cease-fire from its current military foray in southern Lebanon led to gold’s pullback.  One week ago, gold was up around $676, a two-month high. Silver moved lower vis-à-vis the U.S. dollar as the pair tested bids around the $10.70 level and was capped around the $10.91 level.

Crude Oil

Crude oil lost ground vis-à-vis the U.S. dollar today as light, sweet NYMEX crude futures for August delivery tested bids around the US$ 73.55 level and was capped around the $ 74.78 level.  News of a possible cease-fire in southern Lebanon saw oil cede some recent gains and risk premia attributable to the fighting between Israel and Hezbollah.