Expert Analysis of Today's Market

• The dollar rose against the European and dollar-block currencies on Thursday after stronger-than-expected US retail sales and producer inflation reduce the chance that the Federal Reserve will cut interest rates aggressively. The yen rose in cross-trades as risk aversion increased and global equity prices declined.


• The EUR/USD fell to the 1.46 support today. The pair has been moving sideways after breaking the 3-month uptrend on November 30. Stronger support is at the 1.45 handle. If it is penetrated, the pair will extend its decline.

Financial and Economic News and Comments

US & Canada

• The US producer price index for November rose a stronger-than-expected 3.2% m/m and 7.7% y/y. The PPI increase in November was partly due to energy prices, which rose 14.1%. The core PPI rose 0.4% m/m and 1.9% y/y. The PPI 3.2% m/m increase in November is the largest single-month hike since 1973, and the 7.7% y/y is the largest 12-month increase since 1981. This is a reminder of the Fed's difficult tradeoff between growth and inflation at the present time.

• US retail sales increased a stronger-than-forecast 1.2% m/m in November, the largest since May, following a 0.2% gain in October, the Commerce Department said. Purchases excluding automobiles rose 1.8% m/m, the most since January 2006.

• US initial jobless claims fell by 7,000 to 333,000 last week, the Labor Department said. The four-week average of new claims fell by 2,000 to 338,750. The previous four-week average was the highest since October 2005, indicating some softening in the labor market.

Europe

• Britons' inflation expectations rose to the highest in at least eight years, according to a Bank of England survey conducted in November. Consumers predict prices will increase 3.0% in the next 12 months, the highest median forecast since the report started in 1999, the BOE said.
  
  
• The Royal Institution of Chartered Surveyors said its index of expected house prices in UK fell to -47 in November from -35.3 in October. The result was the lowest since the group first recorded the outlook for future property values in 1998.
  
  
• The Ifo institute cut its growth forecast for Germany economic growth in 2008 to 1.8% from its earlier forecast of 2.5%. Meanwhile, the IfW institute reduced its outlook to 1.9% from its earlier forecast of 2.4% expansion.

Asia-Pacific

• Australian employment rose a stronger-than-expected 52,600 in November, the 13th consecutive increase, following a revised 5,400 gain in October, the Bureau of Statistics said. The jobless rate rose to 4.5% from 4.4%.


• Bank of Japan Deputy Governor Kazumasa Iwata said the effect of the US subprime mortgage problem is gradually spreading among Japanese lenders. "The effect is gradually spreading, more than we had initially anticipated," Iwata said. So far Japanese lenders have been able to absorb losses related to US subprime loans with their profits and capital, he added.

FX Strategy Update