11 August 2006
Friday

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$ 1.2715 level and was capped around the $1.2795 level.  Stops were hit below the $1.2735 level, representing the 38.2% retracement of the move from $1.2460 to $1.2910.  The common currency’s pullback accelerated after data were released in the U.S. that saw July headline retail sales climb 1.4%, above expectations and the highest since January, while the ex-autos component was up +1.0%.  Over the past year, retail sales have climbed 4.8% despite the fact that June’s tally was downwardly revised to -0.4%.  Other data released today saw July import prices climb +0.9% m/m and +7.0% y/y.  These are the first inflation data released after the Federal Open Market Committee voted this week to keep borrowing costs unchanged on Tuesday for the first time in a couple of years.  Traders are still trying to determine if the pause represents the end of the FOMC’s long-standing tightening cycle or just a temporary break.  In eurozone news, final Italian July CPI was up +0.3% m/m and 2.2% y/y while preliminary Q2 Italian GDP was up 0.5% q/q and 1.5% y/y.  French finance minister Breton was quoted as saying the euro is “fully valued” and added it would not be good for the U.S. to pursue a policy that would effect an acute deprecation of the dollar.  Breton also said it is important that the European Central Bank’s monetary policy does not lead to a strengthening in the common currency.  Other EMU-12 data released today saw final German July CPI up 0.4% m/m and 1.9% y/y.  Traders are curious to see when the ECB will lift interest rates further this year.  Euro bids are cited around the US$ 1.2685 level.

¥/ CNY

The yen came off sharply vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥116.40 level and was supported around the ¥115.10 level.  Technically, today’s intraday high was right around the 61.8% retracement of the move from ¥117.85 to ¥113.95.  The yen weakened overnight when it was reported that Japan’s gross domestic product in the April – June period was up 0.2% q/q with the annual growth rate seen at +0.8, below expectations.  Exports weakened in the latest quarterly reading but most economists believe Japan’s economic recovery remains intact.  Other data released overnight saw June industrial output upwardly revised to +2.1% m/m.  As expected, Bank of Japan’s Policy Board voted unanimously to keep the overnight unsecured call rate unchanged at +0.25%.  The central bank also indicated the economy continues to recover moderately and BoJ Governor Fukui indicated he is not ruling out another interest rate hike before the end of the year.  Economy minister Yosano noted he does not expect a “quick” second rate hike from BoJ.  The Nikkei 225 stock index lost 0.42% to close at ¥15,565.02.  Dollar bids are cited around the ¥115.45 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥148.35 level and was supported around the ¥147.25.  The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥220.10 and ¥93.85 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.9760 in the over-the-counter market, up from CNY 79710, and at CNY 7.9766 in the exchange-traded market.  Data released in China today saw July CPI up 1.0% y/y while June industrial output growth was upwardly revised to 2.1% m/m.  Additionally, the M2 money supply was up 18.4% y/y as of the end of July.

₤

The British pound moved marginally lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8835 level and was capped around the $ 1.8985 level.  Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.8090 to $1.9145.  Dealers are still selling sterling on account of yesterday’s news that U.K. authorities foiled a plot to bomb as many as ten U.S.-bound airlines.  Cable bids are cited around the US$ 1.8740 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6730 level and was capped around the ₤0.6755 level.

CHF

The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2420 level and was supported around the CHF 1.2335 level.  Technically, today’s intraday low was right around the 38.2% retracement of the move from CHF 1.1920 to CHF 1.2595.  Dollar offers are cited around the CHF 1.2520 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5800 and CHF 2.3475 levels, respectively.

AUD

The Australian dollar gained marginal ground vis-à-vis the U.S. dollar today as the Australian dollar tested offers around the US$ 0.7700 figure and was supported around the $0.7650 level.  Technically, today’s intraday high was right around the 23.6% retracement of the move from $0.6700 to $0.7985.  Data released in Australia today saw the June trade balance print at –A$ 722 million, down from May’s reading of –A$ 2.219 billion.  Australian dollar bids are cited around the US$ 0.7615/ 0.7520 levels.

CAD

The Canadian dollar moved sharply higher vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1170 level and was capped around the C$ 1.1280 level.  Stops were reached below the $1.1190 level, representing the 50% retracement of the move from $1.0925 to $1.1455 level.  U.S. dollar bids are cited around the US$ 1.1130 level.

NZD

The New Zealand dollar moved higher vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6355 level and was supported around the $0.6320 level.  New Zealand dollar offers are cited around the US$ 0.6410 level.

Gold/ Silver

Gold moved higher vis-à-vis the U.S. dollar today as the yellow metal tested offers around the US$ 644.05 level and was supported around the $635.90 level.  Traders continue to buy gold on the premise that the Federal Reserve may have ended its long-standing rate tightening cycle this week.  Firm oil prices and continue Middle East fighting are also supporting gold. Silver moved higher vis-à-vis the U.S. dollar as the pair tested offers around the US$ 12.33 level and was supported around the $12.12 level.

Crude Oil

Crude oil appreciated vis-à-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for September delivery tested offers around the US$ 74.79 level and was supported around the $ 74.04 level.  The International Atomic Energy Association maintained its estimates for global oil demand growth for 2006 and 2007.  Oil was given yesterday on news that U.K. authorities foiled a plot to bomb U.S.-bound airliners but traders are speculating air travel will not suffer significantly as a result.