Expert Analysis of Today's Market

• The dollar pared overnight losses but traded near lows against key currencies on Monday. The yen was weak across the board pressured by carry trades on strength in equity markets.


• The EUR/USD pared gains after making an overnight new record. The pair is overbought, testing resistance at 1.43, but the short-term trend is up. As long as this is not broken, the pair is likely to move higher. A test of the euro’s synthetic high of 1.4535 is possible.

• The dollar index lost 3.8% in September, more than doubling its year-to-date fall, as a squeeze in credit markets and increased risk of a recession prompted the Federal Reserve to cut interest rates by 50 basis points, fueling expectations of more rate cuts. The dollar index hit a record low of 77.657 overnight before rebounding slightly. All natural supports were broken and will act as resistance, making it difficult for the dollar to make significant advances.

Financial and Economic News and Comments

US & Canada

• US manufacturing grew at a slower rate in September as the purchasing managers’ index (PMI) registered 52%, a decrease of 0.9 percentage point compared to August’s reading of 52.9%, the Institute for Supply Management (ISM) reported. A reading above 50% indicates expansion. ISM’s new orders index registered 53.4% in September, 1.9 percentage points lower than August’s 55.3%. ISM’s production index registered 54.6% in September, 1.5 percentage points lower than August’s 56.1%.

Europe

• Europe’s manufacturing industry grew at the weakest pace in almost 2 years in September. The PMI for the European manufacturing sector declined to 53.2 in September, the lowest since November 2005, from 54.3 in August, Royal Bank of Scotland Group reported.


• The UK index of manufacturing activity fell from a 3-year high of 56.1 in August to 55.1 in September, the Chartered Institute of Purchasing and Supply and NTC said, slightly lower than expected.


• The average cost of a home in England and Wales was unchanged in September at £176,300 ($358,000) from a month earlier. Prices in London increased 0.1% m/m in September. England and Wales house prices rose 5.0% y/y in September from 5.4% y/y in August, Hometrack Ltd. said. “Turmoil in the financial markets has created a period of inertia in the housing market, with buyers and sellers unwilling to commit until the outlook becomes clearer,” Richard Donnell, Hometrack’s director of research said. “Demand and sales volumes look set to remain weak over the rest of the year.”


• UBS AG, Europe’s biggest bank, had a third-quarter loss and plans to cut 1,500 jobs after writing down the value of its mortgage-backed securities by about 4 billion Swiss francs ($3.4 billion).


• Swiss manufacturing growth slowed more than expected in September. An index of manufacturing fell to 57.6 in September, the first decline since May, from 65.1 in August, Credit Suisse Group reported. A number above 50 indicates growth.

Asia-Pacific

• Japan’s business confidence held near a 2-year high. The quarterly Tankan index of sentiment at large manufacturers stayed at 23 points in September, the same as in June, the Bank of Japan said. The median estimate was for a decline to 21 points. A positive number means optimists outnumber pessimists. The large companies plan to increase investment 8.7%, slightly higher than June’s projection of 7.7%.


• Japan’s wages rose for the first time in 9 months in August. Monthly wages increased 0.1% y/y in August, ending the longest run of declines since 2004, the Labor Ministry said. The Tankan survey showed Japan’s largest companies expect the tightest labor market in 15 years. The Tankan showed labor demand at the country’s largest manufacturers fell to -7, matching March’s level, the lowest since 1992. A negative number means companies are unable to fill positions.


• Manufacturing activity in China expanded at a faster pace in September, a survey of purchasing managers showed. The PMI rose to 56.1 in September from 54.0 in August, the China Federation of Logistics and Purchasing and the National Bureau of Statistics said. That is the highest reading in 5 months.

FX Strategy Update