Expert Analysis of Today's Market

• The dollar traded mixed against key currencies on Wednesday. The euro rose modestly but the pound fell slightly ahead of tomorrow’s ECB and BOE’s interest-rate decisions. The ISM’s US service sector indicator had little effect on the dollar as the number came in line with expectations. Caution ahead of Friday’s US employment report is limiting movements in the FX market as traders position themselves for the important job numbers. The yen was weak as carry-trades were rebuilt on increased risk appetite. The Australian dollar edged back toward 18-year highs versus the greenback on strong Australian retail sales and speculation Australia’s interest-rate differential will widen.


• The EUR/USD is at a crossroad awaiting tomorrow’s ECB’s interest-rate decision and Friday’s US employment report. Investors wait to see whether the ECB’s rhetoric will remain hawkish. The pair has the support from the bullish trend-line and resistance from last week’s all-time high. The US employment report this Friday will determine the pair’s direction.

Financial and Economic News and Comments

US & Canada

• The ISM’s non-manufacturing index fell to 54.8 in September from 55.8 in August; however, staying well above the 50 waterline between growth and contraction, indicating continued growth in the US service sector. New orders slipped to 53.4 from 57.0 while employment recovered from contractionary territory to 52.7. Prices paid rose to 66.1, a sign of inflation.

• Companies in the US added more jobs in September. ADP Employer Services estimated private payroll growth at 58K in September following a revised gain of 27K in August.

Europe

• Growth in the eurozone’s service industries weakened in September, a sign the recent credit turmoil is starting to slow the pace of economic growth. The Royal Bank of Scotland Group Plc said its services index fell in line with expectations to 54.2 in September, the lowest since August 2005, from 58.0 in August. The data indicates growth at a slower pace in the eurozone.

• UK’s purchasing managers’ index for the service sector fell to 56.7 in September from 57.6 in August, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said. The index is at its lowest level in 13 month, still indicating strong growth in the UK service sector.


• Germany’s services PMI declined to 53.1 in September from 59.8 in August, the Royal Bank of Scotland said. A reading above 50 indicates expansion in the German service sector.


• European politicians are rumored to push for a stronger statement against exchange rate volatility from the G- 7 at the G-7 October 19 meeting.

Asia-Pacific

• Australian retail sales rose a stronger-than-expected 0.7% m/m in August, the third straight increase, the Bureau of Statistics said. Meanwhile, imports surged 5% m/m to a record and exports grew 2% m/m in August as Australia’s trade deficit widened to A$1.61 billion in August ($1.43 billion) from a revised A$883 million in July, the Bureau of Statistics said.


• The Reserve Bank of Australia, as expected, left interest rates unchanged at 6.5%, but the strong retail sales number increased speculations the RBA will raise rates at its next meeting.

FX Strategy Update