Expert Analysis of Today's Market

• The dollar rose for a second day against most key currencies on Tuesday. The euro fell as the French government increased the rhetoric about the strong euro. European concerns over the euro’s strength are increasing before the G-7 October 19 meeting in Washington. The aussie fell from an 18-year high and the loonie declined from a 31-year high after becoming extremely overbought. The yen rose as US equity prices declined modestly.


• The EUR/USD broke support at 1.42 on tame EMU inflation data. The pair is overbought, testing the bullish trend-line support. If this support is broken, the pair may decline. However, the US employment report this Friday is likely to determine the pair’s direction.

Financial and Economic News and Comments

US & Canada

• The National Association of Realtors’ index for US pending home sales fell at a seasonally adjusted annual rate of 6.5% to 85.5 in August from July’s 91.4, the NAR said. The August index was at its lowest level since tracking began in January 2001 and 21.5% below the August 2006 level, indicating another blow in the battered US housing market.

Europe

• European producer-price inflation unexpectedly eased in August to the lowest rate since April 2004, reflecting a drop in energy costs. The inflation rate in the eurozone fell to 1.7% y/y in August from July’s 1.8% y/y, Eurostat reported. Prices rose 0.1% m/m in August compared with a 0.3% m/m rise in July, possibly easing pressure on the European Central Bank to hike interest rates. ECB policy makers, holding their next meeting on October 4, remain concerned about inflation and aim to keep it below 2%. Consumer-price growth in the eurozone accelerated last month to a 13-month high of 2.1%.

• The EMU unemployment rate remained at 6.9% in August, the lowest since the data series began in 1993. The rate is down from 7.8% a year earlier.

• The euro has seen a “significant increase, which complicates the work of exporters,” Spain’s Deputy Finance Minister David Vegara said.


• French Finance Minister Christine Lagarde said Europe needs a common plan to reverse the euro’s advance against the dollar, yen and yuan.

Asia-Pacific

• China’s purchasing managers’ index for manufacturing rose to a 3-month high of 55.0 in September from 53.4 in August, CLSA Asia Pacific Markets said. The output index rose to 58.3 in September from 54.6 in August, while the new orders index climbed to 59.3 from 54.6. The export orders index increased to 52.9 from 52.3. Overall, the PMI indicates acceleration in China’s already strong manufacturing growth.

FX Strategy Update