Expert Analysis of Today's Market

• The dollar fell against most major currencies on Tuesday but gained versus the yen ahead of tomorrow’s US existing home sales report. Today risk appetite returned to the FX market as stocks rose. The yen suffered significant losses in the cross-trades reversing yesterday’s gains. Sterling rose on hawkish comments from Bank of England Monetary Policy Committee member Kate Barker. The dollar-block currencies rallied as investors returned to carry trades. The euro strengthened after a report showed eurozone industrial new orders rose more than forecast, bolstering the European Central Bank’s case for raising interest rates.


• Today the EUR/USD found the support from the bullish uptrend on better-than-expected European factory orders and hawkish comments from ECB Governing Council member Axel A. Weber. The EUR/USD is likely to test the 1.43-area resistance again. If this resistance is broken, the pair will possibly test the 1.45 area. A test of the 1.40 support will likely follow a break of the uptrend.

Financial and Economic News and Comments

US & Canada

• The manufacturing activity in the central Atlantic region fell more than expected in October after expanding during the previous four months. The manufacturing index fell to -5 in October from September’s reading of 14, according to the Richmond Fed’s latest survey. Among the index’s components, shipments declined 27 points to -5, new orders fell 22 points to -8 and the jobs index edged down 4 to finish at 0.


• Canadian retail sales rose a stronger-than-expected 0.7% m/m to C$34.5 billion ($35.6 billion) in August, as domestic spending picked up for the first time since May, Statistics Canada reported.

Europe

• The eurozone industrial new orders index increased a more-than-expected 0.3% m/m in August following a 2.6% m/m decline in July. Orders rose 5.1% y/y.


• European Central Bank Governing Council member Axel A. Weber said he still sees medium-term inflation risks and the ECB must be ready to act, Boersen-Zeitung reported.


• Bank of England policy maker Kate Barker said the increase in borrowing costs may not significantly hurt the UK housing market because the pace of economic growth will support consumer spending. “It is not clear why recent events should prove a trigger which significantly alters previous expectations of continued robust house-price growth,” Barker said in Southampton, England. “And even if there were a major weakening in the housing market, the response of household consumption may be muted.”


• Confidence among UK manufacturers fell to the lowest in almost two years. The Confederation of British Industry’s quarterly diffusion index of manufacturing optimism at 529 companies fell to -13 in October from -2 in the three months through July.

Asia-Pacific

• “We are encouraging key reforms that will help China manage the blistering pace of its economic growth,” US Treasury Secretary Henry Paulson said. Paulson reiterated that China should allow the yuan, to rise faster in the short term, and let markets set the currency’s value in the medium term.

FX Strategy Update