Expert Analysis of Today's Market

• The greenback was lower against the euro, Australian dollar and sterling but higher versus the yen on Monday. The Bank of England is expected to lower interest rates this week, while the Reserve Bank of Australia is expected to raise rates and the European Central Bank is expected to keep rates unchanged. The yen and Swiss franc fell as European and Asian stocks rose, increasing demand for carry trades. Our short AUD/USD position stopped out. We are selling it again, with stop at 0.9135, as we do not think the RBA will hike rates.


• The EUR/USD rose slightly on Monday testing support at the 1.48-handle. There is important resistance in the 1.50 area. If this is broken, the pair will rally substantially. The pair rallied on the Fed’s 125 basis-point rate cut. The ECB will not raise or cut rates this week. ECB president Jean-Claude Trichet’s Q&A session after the ECB rate decision on Thursday will give us some clue on the prospect of ECB rate hike/reduction, which will determine the EUR/USD direction.

Financial and Economic News and Comments

US & Canada

• US factory orders increased a slightly weaker-than-expected 2.3% m/m in December following an upwardly revised 1.7% m/m rise in November, the Commerce Department said. On a year-over-year basis, orders have started to recover. Total orders rose 6.1% y/y; excluding transportation, new orders rose 5.9% y/y.

• Job cuts rose 19% y/y in January, Challenger, Gray & Christmas Inc. reported.

Europe

• European producer-price inflation accelerated in December to the fastest pace in a year, boosted by surging energy costs. Producer prices increased 4.3% y/y after gaining 4.2% y/y in November, the European Union statistics office said. Energy prices jumped 8.3% y/y.

Asia-Pacific

• Australia’s trade deficit narrowed more than expected to A$1.94 billion ($1.8 billion) in December from a revised A$2.16 billion in November, the Bureau of Statistics said.

FX Strategy Update