Expert Analysis of Today's Market

• The dollar traded lower versus key currencies on Thursday on increased expectations of further interest-rate cuts by the Federal Reserve. The yen was stronger against the dollar and dollar-block currencies as increased risk aversion led to further carry-trade unwinding. The USD/JPY and EUR/JPY are testing important support levels; if those are broken, the yen will gain further. The Swiss franc was strong on carry-trade unwinding and sterling rose on better-than-expected UK retail sales.


• The EUR/USD rose to a new record high today after US jobless claims rose the most since February 2007. The pair is testing important resistance at the 1.43-handle. If this is broken, the pair will possibly test the 1.4570 area.

Financial and Economic News and Comments

US & Canada

• The Conference Board’s index of US leading indicators rose 0.3% in September as only two of the ten components showed declines. The index has been oscillating between monthly gains and declines indicating continued sluggish growth into 2008.


• US initial jobless claims rose a larger-than-expected 28K to 337K in the week of October 13. It is still too early to presume this the beginning of a deteriorating labor market, as the series are volatile. However, if the claims continue to increase, it would be an important warning sign of a deteriorating job market. The 4-week average rose to 317K and continued claims increased 19K in the week.

• The Philladelphia Fed’s manufacturing index for the mid-Atlantic region fell from 10.9 in September to 6.8 in October, indicating continued expansion but at a slower pace. Indicators for general activity and new orders remained positive but fell from their readings last month. Overall employment was higher. Significantly, more firms reported a rise in prices for inputs, and price increases for finished goods were more widespread, the Philadelphia Fed reported.

Europe

• UK retail sales rose a stronger-than-expected 0.6% m/m in September after increasing 0.7% m/m in August, the Office for National Statistics said. Prices in stores fell 1.5% y/y, the most since January 2005.


• European Central Bank council member Axel Weber said there is still a risk of inflation exceeding the ECB’s upper ceiling of its inflation target of 2% this year and next.

Asia-Pacific

• China will step up measures to curb excess liquidity in the economy and may use more frequent and larger rate increases to prevent overheating. “We don’t rule out steeper or more frequent moves if necessary,” Zhou Xiaochuan, Governor of the People’s Bank of China, said. Measures so far “haven’t been very effective.” The timing of his comment ahead of the G-7 meeting tomorrow is interesting.

FX Strategy Update