Expert Analysis of Today's Market

• In NY trading Friday, the dollar declined versus most major currencies and fell to a fresh record low against the euro on recent weak US economic data, increasing speculation for a Federal Reserve interest-rate cut next week. The Canadian dollar climbed to the highest level since 1974 and the Australian dollar rose to the highest since 1984 on rising commodity prices. Gold surged to the highest since 1980 and crude oil rose to a record. The yen fell in cross trades as higher equities and commodities encouraged carry trades.


• The EUR/USD broke the 1.43-area resistance and rose to a record high today on bets the Fed will cut interest rates at least 25-basis points at the October 31 FOMC meeting. The short-term uptrend looks positive; as long as the support of this uptrend is intact, the pair will possibly rise to the 1.4550-area. This is the level that the synthetic euro/dollar, compiled by using pre-euro-era D-mark rate, reached in September 1992. The risks to the EUR/USD bull market are a uniformly negative view of the dollar and a buy-the-rumor-sell-the-fact reaction in the market following a possible Fed rate cut.

Financial and Economic News and Comments

US & Canada

• The October US consumer confidence fell more than forecast to 80.9, the lowest level since May 2006, as the housing slump deepened and fuel prices increased, from 83.4 in September, the Reuters/University of Michigan consumer sentiment index showed. The expectations index fell to 70.1 from 74.1 and the current conditions gauge declined to 97.6 from 97.9. Inflation expectations remained at a 3.1% inflation rate in one year, as same as in the September survey.


• Canadian manufacturers' optimism is waning for the fourth quarter as the Canadian dollar rose, new orders declined and many factory managers predicted weakening production. The percentage of factories predicting lower output in Q4 rose to 23% from 15% for Q3. The percentage of factories predicting higher output was 25%, just 2 percentage points higher than the number of factories predicting lower output. The difference between the two numbers is the lowest since the beginning of the year.

Europe

• Luxembourg’s PM Jean-Claude Juncker said he preferred a strong euro over a weak one, adding that the euro was not yet at alarm-causing levels.


• Germany’s consumer climate forecast for November fell to 4.9, following the revised figure of 6.7 in October, the German research institute Gfk consumer climate survey showed. The current decline at this relatively high level signals that German consumers are still anticipating positive economic growth for the future. The consumer confidence measure in the economic outlook fell to 39.1 from 40.7. The income expectations measure declined to -0.7 from 2.3 and the indicator of households’ willingness to spend dropped to -12.9 from -2.4.

Asia-Pacific

• Japanese core consumer prices declined 0.1% y/y, as expected, in September; the rate has been below 0 since January 2007, damping the outlook for a Bank of Japan interest-rate hike. The core inflation rate for Tokyo was unchanged in October.

• The end of Japan’s battle to escape deflation has been “delayed,” Economic and Fiscal Policy Minister Hiroko Ota said at a briefing following the inflation data release.
• Japan’s industrial production fell 1.4% m/m in September, slightly more than the median estimate for a 1.2% m/m decline.

FX Strategy Update