Expert Analysis of Today's Market

• The dollar fell versus the yen but pared overnight losses against the euro in NY mixed trading Wednesday, the day after the Federal Reserve lowered the US economic outlook. The dollar and particularly the yen gained against the high-yielding currencies. Sterling was little changed after today’s dovish Bank of England minutes. The Canadian dollar fell on weaker-than-expected retail sales and the Australian dollar declined on strong unwinding of carry trades. The volatility in the FX market is likely to continue for the rest of the week with thin trading volumes during Thanksgiving holidays.


• Today’s trading major feature was continued deleveraging of risky assets. The yen gained against all major currencies as international equities declined. The USD/JPY fell below the important support at 109, trading at the lowest level since September 2005 on concerns widening credit-market losses and record fuel costs will slow economic growth. The pair is likely to fall further and test the support at 105 unless there is a recovery in the stock markets.

Financial and Economic News and Comments

US & Canada

• The Conference Board’s index of leading US economic indicators fell a more-than-forecast 0.5% in October, following a downwardly revised 0.1% increase in September. Seven of the index’s 10 components declined, led by a 6.6% slump in building permits. The data does not predict a recession yet but indicates slow US economic growth. The index of coincident indicators was unchanged in October after increasing 0.2% in September.


• US initial jobless claims fell by 11,000 to 330,000 in the week ended November 17, the Labor Department said. The four-week moving average slipped to 329,750 from 330,500. Labor market seems to hold up well despite retail and credit troubles


• The Reuters/University of Michigan final sentiment index dropped to 76.1 in November, the lowest level since October 2005, compared with a final reading of 80.9 in October and a preliminary reading of 75 in November.


• US Treasury Secretary Henry Paulson said the number of potential US home-loan defaults “will be significantly bigger” in 2008 than in 2007, the Wall Street Journal reported.


• Canadian retail sales unexpectedly decreased 0.2% m/m in September after increasing 0.7% m/m in August, Statistics Canada said.

Europe

• Bank of England policy makers voted 7-2 to keep the benchmark interest rate unchanged at 5.75% as Deputy Governor John Gieve joined David Blanchflower in arguing for the first rate cut in more than two years. The majority wanted to see more evidence of a slowdown and argued a rate cut could be misinterpreted and that there was a risk that higher oil and commodity prices may stoke inflation, today’s minutes of the November 8 decision showed.

Asia-Pacific

• Japan’s exports rose 13.9% y/y and imports rose 8.6% y/y, the Finance Ministry said. Record exports helped lift the trade surplus 66.1% to ¥1.02 trillion ($9.3 billion). Shipments to China and the European Union surged to the highest, cushioning a drop in exports to the US.

FX Strategy Update