Expert Analysis of Today's Market

• The dollar traded mostly lower versus key currencies on Friday on concerns the US housing slump will spread to other sectors of the US economy, further deteriorating the US growth and interest-rate outlook. The yen rose against the dollar and in cross trades on increased risk aversion as US equities declined on the 20-year anniversary of Black Monday. The USD/CAD fell to new lows as the Canadian inflation rate rose more than forecast, increasing the possibility of Bank of Canada interest-rate increases. The GBP/USD was strong, testing resistance at the 2.05 handle on stronger-than-expected UK Q3 GDP growth. We have lowered our target and stop on the USD/JPY to expect profits. Our USD/CAD position stopped out.


• The EUR/USD, testing important technical levels and trading lower today after yesterday’s record close, has so far been unable to stay above the 1.43 resistance. However, the pair is in a clear uptrend. If the resistance is broken, the pair will possibly test the 1.4570 area. This area corresponds to the all-time high of the old Dmark. Traders await the G-7 meeting’s statement released late afternoon.

• The dollar index touched a new low at 77.40 today, its weakest level since the Federal Reserve launched the data series in 1973. The dollar index may find support at the new low despite the lack of obvious support. As most investors seem bearish on the dollar, that could work as a contrarian factor for a bullish dollar possibility. Fundamental factors like the purchasing power parity also indicate a stronger dollar. We are concerned over the small but increasing risk of a dollar meltdown.

Financial and Economic News and Comments

US & Canada

• Canada’s consumer price index accelerated to 2.5% y/y in September, from 1.7% y/y in August, primarily due to higher fuel costs, Statistics Canada reported. The Bank of Canada’s core CPI rose 2.0% y/y in September, a deceleration from August’s 2.2% y/y. The September number was the lowest rate of growth in the core CPI since August 2006.

Europe

• UK’s Q3 GDP grew a slightly stronger-than-expected 0.8% q/q, the same as in Q2, the Office for National Statistics said. The annual growth rate was 3.3%, the most since 2004.

Asia-Pacific

• The Bank of Japan remains committed to raising interest rates but will be data dependent, Deputy Governor Toshiro Muto said. “The Bank of Japan will gradually adjust the level of interest rates in accordance with the pace of improvements in the economy and prices and check risk factors,” Muto said.

FX Strategy Update