U.S. Forex Market Commentary

EURO

The euro weakened vis-? -vis the U.S. dollar today as the single currencytested bids around the US$ 1.3585 level and was capped around the $1.3635level. Technically, today??™s intraday lowwas right around the 76.4% retracement of the move from $1.3680 to$1.3260. Data released in the U.S. todaysaw pending sales of existing homes fall an annualized 3.5% m/m and 13.3% y/yin May, underscoring the fragile state of the U.S. housing market. Also, Redbook U.S. retail sales were off 1.1% m/min the first four weeks of June and ISCS-UBS chain store sales were up 0.1%last week. Other data released today sawMay factory orders down 0.5% from a revised +0.5% in April. The major data in the U.S. will bereleased on Friday when June non-farm payrolls data are released one day afterthe ADP private employment report. Many economists are expecting new jobscreation in the vicinity of 120,000 new jobs. In eurozone news, EuropeanCentral Bank member Bini Smaghi talked about intervention today and said theECB could act ???promptly??? but his remarks were not seen as threatening themarkets with actual intervention. TheEuropean Commission warned a further appreciation of the euro could slowexports in the eurozone. Data releasedin the eurozone today saw May producer price inflation up 0.3% m/m and 2.3% y/ywhile May unemployment ticked lower to 7.0% from 7.1%. Euro bids are citedaround the US$ 1.3550 level.

JPN/CNY

Theyen appreciated marginally vis-? -vis the U.S. dollar today as the greenback tested bids around the ??122.10 leveland was capped around the ??122.65 level. Technically, today??™s intraday low was just above the 61.8% retracementof the move from ??120.75 to ??124.15. TheMinistry of Finance announced a shakeup today in which Naoyuki Shinohara willbecome the vice finance minister for international affairs, succeeding HiroshiWatanabe as the country??™s top currency diplomat. This move will likely result in more verbalintervention. Bank of Japan DeputyGovernor Muto reiterated the central bank??™s gradualist stance on interest ratessaying ???Asstated in the (BoJ??™s) outlook report (released in April), the BoJ willgradually adjust rates in tandem with the pace of an improvement in the economyand prices, and after confirming the likelihood that sustainable economicgrowth will continue under stable price conditions.??? Data released in Japan today sawthe June monetary base fall 4.1% y/y, down for the sixteenth consecutive month.The Nikkei 225 stock index climbed 0.02% to close at ??18,149.90. Dollarbids are cited around the ??121.55 level. The euro came off vis-? -visthe yen as the single currency tested bids around the ??166.20 level and wascapped around the ??167.15 level. TheBritish pound and Swiss franc weakened vis-? -vis the yen as the crossestested bids around the ??246.25 and ??100.50 levels, respectively. InChinese news, the yuan??™s central parity rate was set at CNY 7.5951vis-? -vis the U.S. dollar, down from CNY 7.6075 yesterday.

STERLING

The Britishpound weakened marginally vis-? -vis the U.S. dollar today as cable tested bids around the US$ 2.0130 level andwas capped around the $2.0195 level. Today??™sintraday high represents a fresh multi-decade high for the pair. Traders bid the pair higher ahead ofThursday??™s interest rate decision from Bank of England??™s Monetary PolicyCommittee. Most traders believe the MPCwill lift the repo rate by +25bps to 5.75%. Data released in the U.K.today saw the June construction sector PMI survey improve while REC reportedJune wage pressures remained elevated. Cable bids are cited around the US$ 2.0090 level. Theeuro came off vis-? -vis the British pound as the single currency testedbids around the ?‚¤0.6740 level and was capped around the ?‚¤0.6755 level.

SWISS

The Swiss franc came off vis-? -vis the U.S. dollartoday as thegreenback tested offers around the CHF 1.2175 level and was supported aroundthe CHF 1.2090 level. Technically,today??™s intraday high was right around the 61.8% retracement of the move fromCHF 1.1995 to CHF 1.2475. Data releasedin Switzerlandtoday saw June consumer prices up 0.1% m/m and 0.6% y/y, relatively tameinflation data that diminish the chances Swiss National Bank will move interestrates higher before their next scheduled meeting in September. The most likelyscenario remains a +25bps monetary tightening in September even though consumerprices are within the central bank??™s target zone for price stability. Dollar offers are cited around the CHF 1.2235level. The euro and British pound moved higher vis-? -vis the Swiss francas the crosses tested offers around the CHF 1.6555 and CHF 2.4530 levels,respectively.