Expert Analysis of Today's Market

• The dollar fell against the euro and the yen Tuesday after US consumer conference and housing data reinforced expectations that the US economy is in trouble. The yen strengthened against major currencies on increased risk aversion. The dollar index touched 78.21, just above the 1992 all-time low. Sterling fell on reports UK’s deposit insurance fund is under funded. The dollar block currencies were little changed against the greenback.


• The EUR/JPY is just below strong resistance in the 163 area. The recent stock market rally has renewed interest in carry trades as investors have increased risk appetite, but this resistance has not been penetrated Unless the stock market rally continues, the pair is likely to test support in the 159-160 area. We are selling the pair with a stop at 164.35.

Financial and Economic News and Comments

US & Canada

• The US home re-sales fell a slightly less-than-expected 4.3% m/m to an annual rate of 5.50 million in August, the National Association of Realtors said. There is no recovery in sight for this sector.

• Home prices in 10 U.S. metropolitan areas fell 4.5% in July, indicating the threat to consumer spending was rising even before credit markets seized up in August, according to the S&P/Case-Shiller home-price index.

• The Conference Board consumer confidence fell to 99.8 in September from a revised 105.6 in the previous month. The drop was large than expected and the lowest reading in nearly 2 years.

Europe

• German Ifo business confidence in September fell slightly more than expected to a 19-month low. The business climate index was at 104.2 in September, compared with a forecast of 105.0 and August’s 105.8, indicating the German economy is also affected by the credit crunch.


• European Central Bank council member Nicholas Garganas said the euro’s rally to a record against the dollar will not be enough to diminish price pressures, suggesting he would support raising interest rates again.

Asia-Pacific

• The Bank of Japan refrained from raising interest rates in August after losses in global financial markets clouded the Japanese economic growth outlook. Most members said: “there had been large swings in global financial markets,” according to the August 22-23 minutes released today. Market moves, “as well as global economic developments behind them, should be watched closely.”

FX Strategy Update