Expert Analysis of Today's Market

• The dollar fell against most key currencies on Thursday as rising stock prices increased risk appetite and eroded the support the dollar had from risk aversion during the financial turmoil earlier in the week. The dollar is also pressured by the widening interest rate disadvantage after the Federal Reserve’s emergency interestrate cut and expected further rate cut at next meeting. The yen fell against all major currencies as investors reentered carry trade positions.


• The EUR/USD gained on stronger-than-expected business confidence in Europe and ECB member Axel Weber’s hawkish comments. The pair rose to the highest level since January 16 on better EMU growth and interest rate differentials. Worse-than-expected US existing home sales also supported the pair while an unexpected decline in US jobless claims did little to help the dollar. The EUR/USD is just below resistance at the 1.48 handle. If this is broken, a test of the all-time high is likely. The stock market will continue to determine the FX market. We stopped out with a small profit today as the pair rose above our stop of 1.4760.

Financial and Economic News and Comments

US & Canada

• Existing home sales declined a larger-than-expected 2.2% m/m in December to an annual rate of 4.89 million and fell 22.0% y/y, the National Association of Realtors said. The median price of an existing home declined 6.0% y/y to $208,400 in December. Inventories of homes fell 7.4% at the end of December to 3.91 million available for sale, which represented a 9.6-month supply at the current sales pace. The data indicated that sales and prices of existing homes are still falling.

• US initial jobless claims unexpectedly fell 1,000 to 301,000 for the week ended January 19, marking the fourth-straight weekly decline to a 4-month low, the Labor Department said. The four-week average of new claims fell 14,000 to 314,750, the lowest level since October 6. The number of workers drawing unemployment benefits for more than one week fell 75,000 to 2,672,000 in the week ended January 12. The unemployment rate for workers with unemployment insurance declined to 2% in the January 12 week from 2.1% the prior week.


• The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.

  Europe

• IFO’s German business confidence unexpected posted a small gain in January. The business climate index rose to 103.4 in January from 103.0 in December. The business conditions index fell to 107.9 in January from 108.1 in December, while the business expectations index rose to 99.0 from 98.2. Although having been declining, the indexes still indicate robust German business sentiment.

• European Central Bank policy maker Axel Weber dismissed speculation of an ECB interest-rate cut as wishful thinking. “We have a positive economic outlook and as long as that doesn’t change I would say that rates are still on the accommodative side and in no way restrictive….There may be a certain wishful thinking priced in there,” said Weber


• UK mortgage approvals fell 38% y/y in December, the lowest level in at least 10 years, as banks curbed lending and higher interest rates discouraged buyers, the British Bankers’ Association said.

Asia-Pacific

• China’s economy expanded at an 11.2% y/y in Q4, following an 11.5% y/y rate in Q3, the statistics bureau said. Inflation rose 6.5% y/y in December, still double the central bank’s annual target, from an 11-year high of 6.9% y/y in November.

FX Strategy Update