Expert Analysis of Today's Market

• In NY trading Thursday, the greenback traded near an all-time low versus the euro on a larger-than-forecast slump in August’s US new-home sales, increasing speculation the Federal Reserve will cut interest rates for a second time this year. The yen fell against most key currencies on a renewed interest in carry trades. Sterling advanced as a report showed UK house prices rose at the fastest pace in 3 months in September. The Canadian dollar rose for the first time in 4 days on speculation a weakening US housing market will slow the US economy. The Australian dollar approached an 18-year high as the yield premium for holding the nation’s bonds instead of Treasuries widened to the most since 2004.


• The EUR/USD gained although not breaking resistance at 1.42 yet. Supports are at 1.40 and 1.38. The trend is up; however, the pair is overbought possibly requiring some consolidation before moving higher. We are selling one unit of AUD/USD with stop at 0.8880.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims unexpectedly fell 15,000 to 298,000 on a seasonally-adjusted basis in the week ended September 22, the lowest level since May 12, the Labor Department reported. That is the third decline in 4 weeks and below the 300,000 threshold that indicates a tight labor market. Claims for the September 15 week were revised to 313,000 from 311,000. The 4-week average declined 9,750 last week to 311,500, the lowest level since August 4.


• US new-home sales in August dropped more than forecast to the lowest level in 7 years and prices plunged the most since 1970, indicating a worsening housing recession will remain a drag to the US economy. The August new-home sales fell 8.3% m/m to a seasonally adjusted annual rate of 795,000, following July’s revised 3.8% m/m increase to an annual rate of 867,000, the Commerce Department said. New-home sales in August dropped 21.2% y/y. The median price of a new home declined 7.5% to $225,700 in August from $243,900 in August 2006. The average price fell 8.0% to $292,000 from $317,300 a year earlier.

• The US Q2 GDP rose at a still-robust 3.8% annual rate, compared to a previously reported 4.0% rise, following a small 0.6% increase in Q1, the Commerce Department said. The 3.8% rise was in line with expectations and the strongest increase since a 4.8% surge in Q1 2006. The price index for personal consumption rose 4.3% in Q2, compared to a previously estimated 4.2% rise and Q1’s 3.5% increase. The PCE price index excluding food and energy rose at 1.4%, compared to a previously estimated 1.3% increase and Q1’s 2.4% rise.

Europe

• UK house prices rose at the fastest pace in 3 months in September. The cost of a house increased 0.7% in September, after gaining 0.6% in August, to an average £184,723 ($372,309), Nationwide Building Society reported.


• Inflation in Germany accelerated to the highest rate in more than 6 years in September as prices of heating oil and food rose. The inflation rate rose to 2.7% in September from 2% in August, the Federal Statistics Office said.


• Germany’s unemployment rate fell more than forecast in September to a 14-year low. The unemployment rate fell to 8.8% in September from 8.9% in August, the lowest since June 1993, the Federal Labor Agency said.


• The September eurozone retail PMI stood at 50.5, following August’s 51.0, according to data compiled for Bloomberg LP by NTC Research Ltd.


• The European Central Bank lent €3.9 billion ($5.5 billion) to banks at its penalty rate, the most since 2004. According to the British Bankers’ Association, the 3-month London inter-bank offered rate for euros rose to 4.79% today, a 6-year high, from 4.73%.

Asia-Pacific

• The Bank of Japan should raise interest rates gradually to keep the Japanese economy from overheating, BOJ board member Miyako Suda said. “It’s desirable that early and gradual action is taken,” Suda said in a speech in Tsu, western Japan. “If adjustments are too slow, the risk of the economy overheating may rise.”

FX Strategy Update