Expert Analysis of Today's Market

• The dollar fell against other key currencies on Thursday on deteriorating US growth and interest rate differentials. The euro reached a new all-time high and the yen rose strongly. In his prepared testimony to the House Financial Services Committee, Federal Reserve Chairman Ben S. Bernanke said the financial system remains in a “relatively strong position” despite the recent turbulence in financial markets. His remarks, however, did not help the already weak dollar. Bernanke did not indicate the aggressive interest-rate cut would rescue the US economy; thus, leading to speculation of further rate cuts. The Australian dollar rallied and the Canadian dollar traded at par with the greenback. The dollar index moved below 79, likely to test the all-time low of 78.76.


• After breaking the psychological important resistance at the all-time high of 1.40 today, the EUR/USD is likely to test the 1.42 resistance. The pair is overbought but may become more overbought in this situation when the dollar is nearly in a freefall. The 1.40 area now acts as support.

Financial and Economic News and Comments

US & Canada

• Federal Reserve Chairman Ben S. Bernanke told US law makers that the Fed is “actively working” to avoid a repeat of the subprime-mortgage turmoil. “We are looking closely at some mortgage lending practices, including prepayment penalties, escrow accounts for taxes and insurance, stated-income and lowdocumentation lending, and the evaluation of a borrower’s ability to repay,” Bernanke said today in his prepared remarks to the House Financial Services Committee on subprime mortgage lending. He added “we will use our rulemaking authority under the Home Ownership and Equity Protection Act to propose additional consumer protections later this year.”


• US jobless claims unexpectedly fell 9K to 311K in the week ended September 15, the Labor Department said. That was the lowest level of weekly initial jobless claims since July 28. The 4-week average fell 3,500 last week to 320,750. The numbers show no deterioration in the labor market despite the credit turmoil and the weak non-farm payrolls in August.


• The Conference Board’s leading economic index for the US economy fell a more-than-expected 0.6% in August, after a 0.7% increase in July. The coincident indicators, a gauge of current economic activity, rose 0.1% in August after a 0.2% gain in July. The drop in the LEI increases the risk of a recession. Former Fed Chairman Alan Greenspan said the risk has increased from his previous prediction of a 1-in-3 chance of a recession. Our Globicus LEI indicates more than a 50% chance of a recession.


• Canadian wholesale sales rose a faster-than-expected 2.0% m/m to C$44.1 billion ($44 billion), Statistics Canada said.

Europe

• Bank of England Governor Mervyn King, defending the bailout of Northern Rock Plc, said British and European Union laws hampered the BOE’s ability to prevent the worst banking crisis since 1973. King would have liked less transparency. The “bank would have preferred to have acted covertly as lender as last resort, to have lent to Northern Rock without publishing it. As a result of the market abuses directive we were unable to carry that out,” King said.


• UK retail sales rose a stronger-than-expected 0.6% m/m and 4.9% y/y in August, Office for National Statistics said.

Asia-Pacific

• Japan’s economy will keep expanding gradually, Bank of Japan Governor Toshihiko Fukui said, a day after stressing that Japan’s “very low” interest rates need to rise. “The economy continues to grow moderately,” Fukui said at an annual meeting of Japanese brokerages in Tokyo. “We will adjust rates gradually in accordance with developments in the economy and prices.”


• Chinese bankers’ confidence dropped to a record low in Q3 as executives grew more pessimistic about the Chinese economy. An index tracking the confidence of 2,850 heads of financial institutions fell to 21 in Q3 from 36.7 in Q2, the People’s Bank of China stated.

FX Strategy Update