Expert Analysis of Today's Market

• The dollar fell versus most key currencies but rose against the pound and yen on Thursday. Sterling declined on weakening UK property prices. The yen fell against all major currencies as rising global equities boosted carry trades and the Bank of Japan kept interest rates unchanged. The dollar-block currencies rose on a continued rally in oil and commodity prices.


• After breaking resistance earlier this week, the EUR/JPY is extending its rally and likely to test the 169-area resistance. Higher stocks and commodity markets are fueling carry trades. In addition, the BOJ’s low interest policy induces Japanese investors to seek higher rates abroad. The risk to the trade is a European verbal intervention or stock market correction. Technically the rally seems near a peak, making a double-top formation.

Financial and Economic News and Comments

US & Canada

• The US trade deficit narrowed a more-than-expected 2.4% to $57.59 billion in August from July’s revised $59.00 billion, the Commerce Department said. US exports rose 0.4% to $138.34 billion, while imports declined 0.4% to $195.92 billion. US trade deficits with China fell to $22.53 billion in August from $23.80 billion in July, as US exports to China rose to a record.


• US import prices rose 1.0% m/m in September after falling 0.3% in August, the Labor Department said. September’s import prices increased 5.2% y/y, up sharply from August’s 1.9% y/y and the highest since August 2006. Excluding petroleum, import prices in September fell 0.2% m/m and rose 2% y/y. Import prices from China rose 0.2% m/m in September after rising 0.4% m/m in August. US export prices rose 0.3% m/m and 4.5% y/y.


• US initial jobless claims unexpectedly fell 12K to 308K in the week ended October 6, the Labor Department said. Claims for the September 29 week were revised up to 320K from 317K. The four-week average fell 3K last week to 310K. Overall the data indicates a healthy job market.


• US home foreclosures filings doubled to 223,538 in September, the RealtyTrac Inc. said. California had the most with 51,259 and Florida was second with 33,354.

Europe

• The Royal Institution of Chartered Surveyors diffusion index indicates weakening UK house prices. 14.6% more Chartered Surveyors reported a fall than a rise in September house prices, down from 3.3% reporting in August. September’s number is the fastest decline since September 2005, when 19.4% Chartered Surveyors reported a fall than a rise.


• UK service industry growth cooled in the third quarter. The British Chambers of Commerce survey of domestic services sales fell 7 to 29, while a measure of export sales declined 2 to18.

Asia-Pacific

• Bank of Japan, as expected, left its benchmark overnight call rate unchanged at 0.5% by a vote of 8-1. BOJ Governor Toshihiko Fukui said upward price pressure was gradually rising, but Japanese wages were rising less than expected.


• Australia’s unemployment rate fall to its lowest level in 33 years in September, increasing chances of an interest-rate rise. Employment rose 13,000 new jobs in September, sending the jobless rate down to 4.2% from 4.3%. The job rise was lower than forecast but came after August’s numbers were upwardly revised by 34,300.

FX Strategy Update