Expert Analysis of Today's Market

• After hitting a record low on the dollar index at 77.09 earlier, the dollar bounced back versus major currencies except the yen on Monday. The yen rose against all the key currencies on risk aversion as international equities declined. The USD/JPY fell to a 6-week low and the EUR/JPY fell to a 5-week low as investors sold riskier assets bought with loans in Japan.


• The EUR/USD failed to break the 1.43 resistance and dropped to the support from the bullish uptrend today. If the support is broken, the pair will possibly test the 1.40 area. There is stronger support in the 1.38 area.

Financial and Economic News and Comments

US & Canada

• The G-7 did not address the dollar’s record decline and stuck to language in prior statements, saying excess volatility in currencies is undesirable and that currencies should trade in line with fundamentals. However, the G-7 intensified calls for China to let the yuan strengthen.


• The Institute of International Finance warned that the proposed $80 billion mortgage securities superfund must be transparent in its pricing of assets if it is to help restore market confidence. The statement reflects concern that the superfund, backed by Citigroup, JPMorgan Chase and Bank of America, is proposing to buy assets from troubled investment vehicles at higher than true market prices.


• Federal Reserve Governor Randall Kroszner saw a recovery in credit markets as “relatively gradual.” “The recovery may be a relatively gradual process, and these markets may not look the same when they reemerge…. The investment in data, modeling, and assessment will take time,” Kroszner said in Washington.

Europe

• European Central Bank Governing Council members see inflation risks. “Inflation risks have increased recently” and the ECB will “have to counter these risks should they materialize,” ECB Governing Council member Axel A. Weber said. The threat of faster inflation is “significant,” ECB Governing Council member Klaus Liebscher said.

Asia-Pacific

• Australian Q3 producer prices rose a faster-than-expected 1.1% q/q and 2.4% y/y, from 1.0% q/q and 2.3% y/y in Q2.


• Japan’s government cut its assessment of consumer spending for the first time in 11 months and lowered its evaluation of housing construction for the first time since April. “Private consumption is almost flat,” the Japanese government said in its monthly economic report for October, after formerly describing consumer spending as “picking up.” The government cut its assessment of housing construction to “declining recently” from “generally flat.”

FX Strategy Update