Expert Analysis of Today's Market

• Trading mixed versus other key currencies on Monday, the dollar gained against the dollar-block and European currencies but fell against the yen. The yen benefited from massive carry-trade unwinding as investors dumped high-yielding assets financed in yen. The dollar got some support from the increased risk aversion in the cross rates, but it is extremely oversold and cheap, so we sell one unit of the EUR/USD.


• The USD/JPY had fallen dramatically the last few days. The yen rose beyond 110 per dollar for the first time in 1 1/2 years. The Bank of Japan meets today, likely to keep interest rates unchanged at its rate announcement tomorrow. The USD/JPY is at important support and the pair’s short-term outlook correlates to the direction of equities. A short-term bounce in the pair and stock market is likely. We buy one unit of the pair.

Financial and Economic News and Comments

US & Canada

• No major economic releases today. US holiday in an observance for Veterans Day.

Europe

• UK factory output prices rose a stronger-than-expected 3.8% y/y in October, the fastest annual pace in 12 years, the Office for National Statistics said. Core output prices increased a seasonally adjusted 0.3% m/m and 2.3% y/y.

Asia-Pacific

• Japan’s producer price index rose a stronger-than-expected 2.4% y/y in October, following a 1.7% y/y increase in September, the Bank of Japan said.


• Japan’s household sentiment fell in October to a 3-year low on a weak labor market and rising energy prices. Household confidence fell to 42.8 in October from 44.1 in September, the Cabinet Office said.


• China increased banks reserve requirements for the ninth time this year to cool its economy that expanded 11.5% in Q3 and to damp speculation in equities and real estates. “To strengthen liquidity management in the banking system and curb excessive loan growth,” lenders must set aside 13.5% of deposits (up from 13%) from November 26, the People’s Bank of China said.


• The Reserve Bank of Australia said core inflation will accelerate to 3.25% y/y by December and remain there until June, exceeding its target, the Reserve Bank of Australia said. The RBA cut its economic growth forecast to 3.75% for the year ending June 30, from 4.25%, because drought has slashed farm output. It kept its forecast for growth in the non-farm economy unchanged at 3.5% for the 12 months ending June 30, 2008. “The continued strength in demand and activity at this stage of a long expansion has brought the Australian economy to a position where productive capacity is stretched and labor-market conditions are tight,” the RBA said.

FX Strategy Update