Expert Analysis of Today's Market

• The dollar traded mixed on Thursday ahead of Friday’s US employment report. The yen rose supported by carry-trade unwinding. The USD/JPY was testing support at 109 as risk aversion increased. The EUR/USD was boosted by stronger-than-expected EMU data and ECB Governor Athanasios Orphanides’ hawkish comments. Sterling fell to a new record low against the euro after the Bank of England said lenders will reduce the supply of credit to consumers and companies, threatening to deepen the economic slowdown. The Swiss franc was higher while the dollar-block currencies were modestly lower.


• The EUR/USD rose as euro money supply rose at the fastest pace in 28 years, putting pressure on the ECB to tighten monetary policy. The US non-farm payrolls report tomorrow is likely to determine whether the 1.48 resistance will hold. A weaker-than-expected payrolls number may lead to a test of the EUR/USD’s all-time high while a stronger-than-expected number is likely to set the stage for a test of the 1.42-area support.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims fell 21,000 to 336,000 in the week ended December 29, the Labor Department said. Only a 4,000 drop was expected. Although declining more than expected, the jobless claims level is increasing and showing weakness in the labor market. The four-week average of new claims fell slightly by 750 to 343,750.

• The latest employment report from ADP suggests further deterioration in the job market but less than earlier forecast by the market. ADP said private non-farm payroll employment rose a seasonally adjusted 40,000 in December. Assuming 20,000 new government jobs, non-farm payrolls would increase 60,000 in December, down from 94,000 payroll jobs created in November.


• US factory orders rose a stronger-than-expected 1.5% m/m in November, the most in four months, following an upwardly revised 0.7% m/m increase in October, the Commerce Department said. Excluding transportation, orders increased 1.4% m/m.


• The United Arab Emirates said it will retain the dirham’s 30-year link to the US dollar after a review.

Europe

• UK banks curbed secured credit for households materially and cut debt to companies significantly in Q4 2007, the Bank of England said in a quarterly survey. Banks plan to reduce loans to household and companies further, the report said.


• The German unemployment rate fell to 8.4% in December, the lowest level since March 1993, the Federal Labor Office said. The adjusted number of the unemployed fell by 78,000 to 3.51 million, more than double the decline predicted.


• The new ECB Governor from Cyprus, Athanasios Orphanides, said he considers the ECB’s own staff inflation projections of 2.0%-3.0% from last month as being too optimistic. The forecasts were “based on the premise that the recent price rises in oil, commodities and food won’t lead to second round effects,” Orphanides said.


• The ECB reported that the rolling 3-month average of the M3 annual growth rates, the ECB’s broad money supply measure, rose 11.9% y/y in the September-November period, compared to 11.7% in August to October. M3 rose 12.3% y/y in November. The ECB views strong money growth as a leading inflation signal.

Asia-Pacific

• Tokyo markets were closed today and Japan’s markets and government offices will open tomorrow.

FX Strategy Update