Expert Analysis of Today's Market

• The dollar traded mixed on Wednesday after US existing-home sales dropped more than forecast and Merrill Lynch reported its biggest quarterly loss ever, adding to speculation the Federal Reserve will cut interest rates at its next meeting to contain the housing slump. The European currencies were modestly lower against the greenback while the Australian dollar was boosted by the higher-than-expected core inflation rate.


• Reversing yesterday’s loss, the yen rallied in cross-trades on increased risk aversion as US stocks declined. The USD/JPY fell after failing to penetrate the 115-area resistance. The pair may test the 113-area support if the US stock-market decline continues.

Financial and Economic News and Comments

US & Canada

• US existing-home sales fell more than forecast to a 5.04 million annual rate in September, an 8.0% decrease from August’s downwardly revised 5.48 million annual pace, the National Association of Realtors said. The September sales fell 19.1% y/y. The median price declined 4.2% y/y to $211,700. The number of homes for sale at the end of the month rose to 4.4 million. At the current sales pace, that represented 10.5 months’ supply, up from 9.6 months in August. Existing-home sales tumbled in all regions. Sales dropped 7.0% in the Midwest, 10.0% in the Northeast, 9.9% in the West, and 6.0% in the South. Overall September’s numbers indicate a continued real-estate slump.

Europe

• The Royal Bank of Scotland Group Plc’s eurozone PMI services index unexpectedly rose to 55.6 in October from 54.2 in September, according to a preliminary estimate. Meanwhile, the eurozone PMI manufacturing index decelerated for a fourth month, to 51.5 October from 53.2 in September. The October numbers for these two indexes still indicate an expanding economy but at a decelerating rate. The composite index for services and manufacturing fell to 54.5 from 54.7, the weakest reading since September 2005.

Asia-Pacific

• Japan’s exports rose 6.5% y/y and imports declined 3.2% y/y, the Finance Ministry said in Tokyo. Imports declined for the first time in more than three years, helping the trade surplus widen 62.7% y/y to a record ¥1.64 trillion.


• Australia’s core inflation rate rose a stronger-than-expected 1.0% q/q in Q3, the biggest jump since 1991, and advanced 3.1% y/y, fueling expectations the Reserve Bank of Australia will raise interest rates next month.

FX Strategy Update