Expert Analysis of Today's Market

• In NY trading Wednesday, the dollar fell versus key currencies but traded near an 8-week high against the yen. The Federal Reserve’s September minutes released yesterday reduced the odds of an October Fed interest-rate cut to 36% from about 50% prior to the release of the minutes. It also reduced the risk of a recession and Asian equities rallied overnight. Various risk measurements have declined increasing demand for carry trades. The Swiss franc traded at a new low after Swiss National Bank Governing Board Chairman Jean-Pierre Roth signaled he has no plan to raise interest rates.


• The USD/JPY is trading just below significant resistance boosted by strong carry trades. We believe the 117- 118-area resistance will hold so we sell one unit of the USD/JPY. We also sell one unit of the GBP/USD.

Financial and Economic News and Comments

US & Canada

• The Federal Reserve said yesterday the 50-basis-point interest-rate cut in September had been prompted by worries that a credit crunch and financial market disarray could hit the US economy.


• Fed staff economists cut their estimate for Q4 growth, the Fed September minutes said, while stopping short of predicting a recession. Two Fed bank presidents yesterday said credit market conditions have improved, yet remain fragile. The current US economic condition suggests the Fed will be data-dependent and possibly leave rates unchanged at its next October 30-31 meeting.


• San Francisco Fed President Janet Yellen said yesterday liquidity constraints “are gradually being resolved,” although markets are not back to “business as usual.” Meanwhile, St. Louis Fed President William Poole said financial markets have stabilized, yet “have not returned to normal and are still fragile.”


• US wholesale inventories increased a less-than-expected 0.1% m/m to a seasonally adjusted $399.02 billion in August, after rising 0.2% in July, the Commerce Department said. Sales of US wholesalers climbed 0.4% in August to a seasonally adjusted $360.92 billion after increasing an upwardly revised 0.2% in July. On a yearto- year basis, sales rose 6.8%, while inventories increased 4.4% since August 2006.

Europe

• Euro group president Jean-Claude Juncker said eurozone growth may slow next year due to the euro’s “historically high” level against the dollar, yuan and yen.


• Swiss National Bank Governing Board Chairman Jean-Pierre Roth late Tuesday said the SNB remains comfortable with the inflation outlook despite uncertainties due to the credit crunch.

Asia-Pacific

• Core machinery orders in Japan rose 17.0% in July, underlining strong business capital expenditure.


• The Bank of Thailand kept its key interest rate unchanged at 3.25% at a second meeting, after 5 rate cuts since January, citing concern inflation may accelerate as spending recovers a year after the September 19 military coup.

FX Strategy Update