Expert Analysis of Today's Market

• The dollar traded mostly lower versus key currencies on Monday ahead of the Federal Open Market Committee's interest-rate decision on Wednesday. The dollar index touched a new low of 76.78. The Canadian and Australian dollars rose on rising commodity prices. The main feature of the trade was the rebuilding of carry-trade positions as global equity markets rose. As a result, the yen fell against all major currencies despite stronger-than-expected Japanese retail sales. We lowered the USD/JPY's stop to 115.60.


• The EUR/USD rose to a record high today on expectations the Federal Reserve will cut interest rates at least 25-basis points at the October 31 FOMC rate decision meeting. A cut to 4.50% from the current 4.75% is 100% priced in by the futures market. The EUR/USD’s short-term uptrend is intact. As long as the uptrend support is not penetrated, the pair is likely to rise above 1.45. As the rate cut is already discounted by the market, a dollar rally is likely after the Fed cut.

Financial and Economic News and Comments

US & Canada

• The Bank of Canada made C$650 million ($681 million) in one-day securities purchases, for the first time since October 16, to keep overnight interest rates close to its benchmark.

Europe

• UK house prices fell for the first time in two years in October, led by price declines in London. The average cost of a home in England and Wales fell 0.1% m/m to £176,100 ($361,462), Hometrack Ltd said. “After several months of weaker buyer confidence, falling levels of demand and declining sales volumes, prices were bound to be affected,” Richard Donnell, Hometrack’s head of Research, said.


• Banks granted 102,000 loans for UK house purchase in September, the lowest since July 2005, the Bank of England said.

Asia-Pacific

• Japan’s retail sales unexpectedly increased 0.5% y/y for a second month in September, the Ministry of Economy, Trade and Industry said.

• The yuan rose the most in two years after the People’s Bank of China signaled it will allow faster appreciation to help narrow a record trade surplus.

FX Strategy Update