Expert Analysis of Today's Market

Dollar at Critical Juncture

Hans Nilsson 2007-04-18

The dollar was little changed against most key currencies but lower against the yen on Wednesday. After several days of losses, the yen and Swiss franc were strong across the board as traders took profit. Sterling touched a 26-year high after a report showed UK wage growth accelerated and the Bank of England’s minutes said two policy makers voted for higher interest rates.

The EUR/USD is testing critical resistance at the January 2005 high. The trend and momentum are up, but the dollar is extremely oversold and sentiment in the investment community is bearish on the dollar. We think the resistance will hold and a double top with bearish implication for the pair will form.

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Financial and Economic News and Comments

US & Canada

The US weekly MBA mortgage applications index fell 2.5% last week, with purchasing applications down by 4.2%. The fixed 30-year mortgage rate rose to 6.22%. The 1-year adjustable rate mortgage rate was flat at 5.89%.

Europe

UK jobless claims fell 9,200 in March from February. Meanwhile, average earnings rose an annual 4.6% in the three months through February, the biggest jump since March 2004. The gains were mostly the result of large bonuses.

Germany’s five leading economics think tanks expect domestic GDP growth of 2.4% for 2007 and 2008, slightly lower than the 2.7% in 2006.

Asia-Pacific

Japan’s leading economic indicators index for February stood at a revised 27.3, staying below the key 50 level for four consecutive months, the Cabinet Office said.

FX Strategy Update

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