Expert Analysis of Today's Market

• The dollar fell against major currencies on Tuesday. The EUR/USD rose on speculation the European Central Bank will raise interest rates this week. The yen was lower after the Bank of Japan decided to keep its benchmark rate at 0.5%. The EUR/JPY touched the 160-handle after BOJ Governor Toshihiko Fukui said inflation in Japan may hover near 0% in coming months. The AUD/USD rose to a 17-year high on speculation acquisitions will spur demand for the Australian dollar after Mexico’s Cemex SA won management support for a takeover of Rinker Group Ltd. The dollar’s weakness also stemmed from brewing trade tensions after Washington yesterday said it would take legal action against China for failing to stop counterfeiting of American goods.


• The EUR/USD is testing resistance at recent highs and getting oversold. The pair’s weakness following last week’s strong US labor report was short-lived. Futures trading signaled increased anticipation of higher rates in the Economic and Monetary Union when the ECB meets to determine rates on Thursday. The risk is the pair will test all-time highs, but we do not think it will be penetrated. Rather, it will be a double top.

Financial and Economic News and Comments

US & Canada

• No major economic releases today.

Europe

• Germany’s seasonally adjusted trade surplus narrowed in February, as growth in imports exceeded a rise in exports. German exports rose 1.9% from January when they stagnated, the Federal Statistics Office in Wiesbaden said.


• French manufacturing output increased more than expected in February, strengthened by gains in most sectors, particularly autos, according to data released by Insee.

Asia-Pacific

• The Bank of Japan announced Tuesday that its 9-member policy board voted unanimously to maintain the target for the overnight call rate at 0.5%, as widely expected.


• The Japanese economy is expanding “moderately” and will maintain the trend, backed by solid domestic and overseas demands, the BOJ said in its monthly report released today.


• China’s trade surplus almost doubled in Q1 2007. The surplus widened to $46.4 billion from $23.3 billion a year earlier, the China’s customs bureau said. However, the surplus for March was $6.87 billion, smaller than expected.
• The momentum behind the growth of China’s trade surplus has slowed “markedly,” China’s Customs Administration said, just hours after releasing data showing March’s monthly surplus at its lowest level in over a year.

FX Strategy Update