Expert Analysis of Today's Market

• The dollar traded modestly lower versus key currencies on Wednesday after US housing starts plunged more than forecast in September. The yen pared earlier losses as the US stock market was unable to hold on to early gains.


• The EUR/USD traded in a narrow trading range the last few days. Investors are probably reluctant to take any big bets ahead of the October 19 G-7 meeting. It is unlikely the G-7 would say anything else more than its usual comments that exchange rates should be traded freely and reflect fundamentals. Technically, the EUR/USD has important resistance at the 1.43-handle. If this is broken, the pair will possibly test the 1.4570 area. The short-term support from the short-term bullish trend is shown in the chart. If this is broken, tests of supports in the 1.40 and 1.38 areas will be possible.

Financial and Economic News and Comments

US & Canada

• The US consumer price index rose 0.3% m/m and 2.8% y/y in September, the Labor Department said. The core CPI, which excludes food and energy prices, advanced 0.2% m/m and 2.1% y/y. This is still above the Fed’s comfort zone for annual core inflation.

• US September housing starts fell a sharper-than-expected 10.2% m/m to a seasonally adjusted 1.191 million annual rate, the lowest since the 1.083 million pace during March 1993, the Commerce Department said. Building permits fell 7.3% m/m to a 1.226 million annual rate in September, the lowest pace since 1.174 million in July 1993. Starts fell 30.8% y/y and permits declined 25.9% y/y, unlikely to rebound anytime soon.

• The IMF lowered its forecast for global growth next year to 4.8% from 5.2% and warned that even its new prediction may be too optimistic given credit-market problems. The IMF reduced its forecast for US growth to 1.9%, from 2.8%.

Europe

• UK jobless claims fell for the twelfth straight month in September, while the rate of wage growth picked up a little in the three months to August. The number of unemployed people fell 12,800 in September while the unemployment rate was unchanged at 2.6%, the Office for National Statistics said. UK average earnings increased 3.7% for the three month ending in September compared to a year earlier. The numbers, in line with estimates, indicate the UK economy was yet to show signs of weakening following the credit-market turmoil.


• Minutes of the Bank of England’s monetary policy committee showed that one member favored an interestrate cut, but was outnumbered by the remaining eight, who said November forecasts would give a clearer picture of the state of the UK economy.


• European Central Bank council member Klaus Liebscher said the ECB remains focused on significant and rising inflation risks, suggesting the ECB may still raise interest rates. “The message was and is that risks to price stability are clearly pointing to the upside,” Liebscher said.

Asia-Pacific

• Japan’s tertiary industry activity index in August increased 1.3% to 111.3, seasonally adjusted, Ministry of Economy, Trade and Industry said.

FX Strategy Update