Expert Analysis of Today's Market

• The dollar traded slightly higher against the euro, sterling and dollar-block currencies on Monday despite a group of six Arab nations said they will review their fixed exchange rates to the dollar as it got a bid from flight to safety as carry trades were unwound. The yen rose against all major currencies on increased risk aversion as global equities fell due to renewed credit-market concerns.


• The USD/JPY fell after not penetrating the 112-area resistance last week. The pair is trading in tandem with the stock market. There is strong support in the 109-area. If this support is broken, the pair will fall dramatically.

Financial and Economic News and Comments

US & Canada

• The Gulf Cooperation Council, which includes Saudi Arabia, United Arab Emirates and Qatar, said members will discuss a proposal in December to change their fixed exchange rates to the dollar. The case for a revaluation will be presented to heads of state in a summit in Doha, Qatar, on December 3-4, Secretary General Abdul Rahman al-Attiyah said yesterday.


• Federal Reserve Bank of Minneapolis President Gary Stern said: “The adjustment in the housing market still has a way to go.” However, he added US consumers are in “reasonably good shape.”


• The Canadian dollar fell after Bank of Canada Governor David Dodge said an interest-rate cut is possible because of “risks” to economic growth.

Europe

• European Central Bank President Jean-Claude Trichet said “excess volatility and disorderly movements in foreign exchange rates are undesirable for economic growth.” He said the G-10 all agrees that such movements hurt economic growth.


• UK home values fell this month in every part of the country except London and a more protracted slowdown is on the way, Rightmove Plc said. The average asking price dropped 0.7% m/m in November to £239,986 ($491,000). Prices rose 7.9% y/y, the slowest increase in 17 months.

Asia-Pacific

• China’s government is under unprecedented policy pressure regarding massive foreign-currency reserves, Premier Wen Jiabao said. “We now have $1.4 trillion in foreign exchange reserves, and I tell my foreign friends I have never been under more pressure….Such a massive reserve is both our strength as well as our huge responsibility,” Wen said.


• The G-20 meeting near Cape Town this weekend agreed that Asian nations should improve exchange-rate flexibility. French Finance Minister Christine Lagarde said the yuan is causing “tensions” at the meeting. Officials from the G-7 have also increased pressure on China to allow the yuan to appreciate more and take the burden off other currencies.


• People’s Bank of China Governor Zhou Xiaochuan said China supports a strong dollar as policy makers try to stem the dollar’s slide. “We hope to see a strong dollar, we support a strong dollar,” Zhou said.

FX Strategy Update