Expert Analysis of Today's Market

EUR/USD Stalls on Strong US Retail Sales

Hans Nilsson 2007-10-12

Trading mixed in NY Friday, the dollar was higher against the euro and yen but lower versus the pound and dollar-block currencies after US retail sales exceeded forecasts, reducing recession concerns and the scope for the Federal Reserve’s interest-rate cuts. Higher US stocks revived carry trades and the yen declined. The Canadian dollar rose to a 31-year high.

The EUR/USD fell today after straight 3-day gains. The pair’s short-term and long-term trends are still up. We expect volatility in the pair next week as the FX market awaits the October 19 G-7 meeting.

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Financial and Economic News and Comments

US & Canada

US producer price index rose a stronger-than-expected 1.1% m/m and 4.4% y/y in September, the Labor Department said. The core PPI, which excludes food and energy, increased a less-than-forecast 0.1% m/m. Core PPI rose 2.0% y/y.

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US retail sales rose a stronger-than-expected 0.6% m/m and 5.0% y/y in September, the Commerce Department said. Automobile and parts sales rose a strong 1.2% m/m in September while sales excluding auto and parts dealers increased 0.4% m/m. Positive September retail sales suggest real consumption will be over 3% annual rate in the third quarter.

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President Bush said he believes in a strong dollar policy and US Treasury Secretary Henry M. Paulson said strong dollar is in US interest. Paulson also said FX levels should be determined by the markets and fundamentals. Interestingly, their comments came just a week before the October 19 G-7 meeting.

Europe

EMU industrial production rose a stronger-than-expected 1.2% m/m in August and 4.3% y/y, following July’s upwardly revised 0.7% m/m and 3.9% y/y increase, Eurostat reported.

Asia-Pacific

Japan’s producer price index rose a less-than-expected 1.7% y/y, extending 3 1/2 years of gains and following a revised 2.0% y/y advance in August, the Bank of Japan said.

China’s trade surplus rose a stronger-than-forecast 56% in September to $23.9 billion. The surplus widened from $15.3 billion a year earlier, the Chinese customs bureau said.

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