Expert Analysis of Today's Market

• The dollar pared earlier losses versus major currencies on Friday after Federal Reserve Chairman Ben S. Bernanke is leaving the door open to an interest-rate cut but is not committed to one. Carry trades continue to dominate the FX market. The yen fell overnight but recovered in New York trading as Bernanke seemed more hawkish than the market expected. President Bush announced a plan to help homeowners avoid subprime default but promised not to bail out “speculators.”


• The USD/JPY volatility continues in the same direction of global equities. The yield differential remains a major negative for the yen. The pair has been in a downtrend since the beginning of July. If this resistance is broken, the pair will rally. The USD/JPY has been testing the support and resistance the last few days without being able to penetrate neither of them.

Financial and Economic News and Comments

US & Canada

• Federal Reserve Chairman Ben S. Bernanke said the Fed is prepared to act as needed to provide liquidity but will not protect investors or mortgage lenders. “The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets,” Bernanke said.


• President George W. Bush pledged to help people who have fallen behind in their mortgages and to tighten safeguards against predatory lending, while rejecting a bailout for “speculators.”


• US consumer spending increased a stronger-than-expected 0.4% m/m in July and personal incomes also rose a stronger-than-expected 0.5% m/m in July, the Commerce Department said. The savings rate rose to 0.7% in July from 0.5% in June. The core price deflator excluding food and energy, the Fed’s preferred inflation measure, rose 0.1% m/m (0.2% expected) and 1.9% y/y in July, the Commerce Department said.

• US factory orders rose 3.7% m/m in July, the Commerce Department said.


• Canada’s Q2 GDP grew at a faster-than-expected annualized 3.4% rate, less than a revised 3.9% in Q1, Statistics Canada said.

Europe

• Eurozone consumer and business confidence fell as expected to 110 in August from 111 in July, the European Commission in Brussels said.


• Eurozone inflation was unchanged at 1.8% y/y in August, according to a government report, below the European Central Bank’s 2% upper limit for a 12th straight month.

Asia-Pacific

• Japan has struggled to shake off deflation that emerged after a stock and property-price bubble burst in the early 1990s and compelled the Bank of Japan to cut interest rates near 0%. The BOJ raised the benchmark overnight lending rate for the first time in almost 6 years in July 2006 and doubled it to 0.5% in February. Kaoru Yosano, the government’s new chief spokesman, said Japan’s deflationary spiral has ended.


• The Japanese jobless rate fell to 3.6% in July, the lowest since February 1998. Factory output decreased 0.4% and household spending fell 0.1%.

FX Strategy Update