Expert Analysis of Today's Market

• The dollar traded mixed on Thursday after government reports showed US inflation in line with expectations and a softening US labor market. The dollar fell versus the yen and Swiss franc but rose against most other key currencies. Sterling weakened as UK retail sales hit a 9-month low in October. The Canadian dollar declined as politicians want to question Bank of Canada Governor-Designate Mark Carney about the loonie’s appreciation. The yen and Swiss franc rose against all major currencies and particularly against the highyielding currencies as concerns about the effects of the credit crunch and weak equity markets led investors to pare back risky carry trades.


• In a well-defined uptrend, the EUR/USD is testing the resistance from the all-time high in the 1.47-area. If this resistance is broken, we expect 1.50. The pair is supported by better growth and interest-rate differentials. The dollar sentiment is negative and the pair is overbought. Therefore, a break in the short-term uptrend could lead to a big sell-off.

Financial and Economic News and Comments

US & Canada

• US consumer inflation rose in line with expectations as contained housing and clothing prices offset rising energy costs. The consumer price index rose 0.3% m/m in October, the Labor Department said, matching September’s increase. The core CPI increased 0.2% m/m for a fifth straight month. On a yearly basis, inflation is less well contained and above the Federal Reserve’s comfort zone. The CPI rose 3.5% y/y while the core CPI rose 2.2% y/y.

• US initial jobless claims jumped a more-than-forecast 20K to 339K on a seasonally-adjusted basis in the week ended November 10, the Labor Department said. The rise suggests some softening in labor-market conditions. The four-week average was unchanged at 330K. Continued increases in the claims numbers would be worrisome.


• The New York Federal Rerserve Bank’s manufacturing index showed manufacturing activity in the district fell modestly in November, with the overall index slipping to a reading of 27.4 from 28.8 in October.


• The Philadelphia Federal Reserve Bank’s general economic index unexpectedly accelerated to 8.2 in November from 6.8 in October. A reading above zero signals manufacturing growth in the Philadelphia region. The index averaged 5.3 in the first half of the year.


• Canadian lawmakers have taken the unusual step of requesting a hearing with Bank of Canada Governor- Designate Mark Carney, to hear his views on the soaring Canadian dollar.

Europe

• UK retail sales decreased 0.1% m/m in October as shoppers bought less food and clothing, after a 0.3% m/m increase in September, the Office for National Statistics said. Sales rose 4.4% y/y in October from 4.6% y/y in September.


• Abrupt changes in the euro’s exchange rate are unwelcome, European Central Bank Governing Council member Jürgen Stark said. Stark said politicians should not underestimate that a stronger euro has also helped dampen “very notable price rises, particularly in oil and commodities.”

Asia-Pacific

• China’s industrial production grew 17.9 y/y in October as automobile and electronics output accelerated, compared to September’s 18.9% y/y rate, China’s statistics bureau said.


• Japan’s tertiary index, a gauge of service demand, fell 1.6% m/m in September, following a 1.2% m/m gain in August, the Trade Ministry said. The index stood at 109.4 in September, down from a record high of a revised 111.2 in August. The tertiary index rose 0.7% y/y in September.

FX Strategy Update