Expert Analysis of Today's Market

• The dollar was little changed against most key currencies on Thursday. The yen initially rallied across the board as sliding international stocks caused traders to pare investments in higher-yielding currencies funded in the yen. The yen later pared gains as US stocks recovered.


• The EUR/JPY fell overnight as stocks fell in Asia and Europe but pared losses after US stocks just showed modest losses. The trend and momentum are up, but the pair is extremely overbought. The EUR/JPY’s support at the 160-handle held today, but another test of this support is likely in the near future.

Financial and Economic News and Comments

US & Canada

• Manufacturing in Philadelphia stalled in April. The Federal Reserve Bank of Philadelphia’s general economic index was unchanged at 0.2 in April from March, the Philadelphia Fed Bank said.


• The Conference Board’s leading economic indicators index (LEI) rose 0.1% in March to 137.4 after a 0.6% drop in February. The index fell 0.8% y/y and dropped at a 0.3% annualized rate for the last six months, indicating a slow growing economy but no recession.


• Jobless claims fell 4,000 to 339,000 on a seasonally adjusted basis in the week ended April 14, the US Labor Department said. Claims for the week ended April 7 were revised to 343,000 from 342,000. However, the 4-week average of new claims rose 5,250 to 328,750.


• Canada’s consumer price index (CPI) rose more than expected to 2.3% y/y in March from 2.0% y/y in February, Statistics Canada reported. The core rate moderated to 2.3% y/y in March from 2.4% in February.

Europe

• The European Central Bank said in its monthly bulletin today: “Monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate….The medium-term outlook for price stability remains subject to upside risks, so that very close monitoring of all developments is warranted.”


• Germany’s producer prices index (PPI) for industrial products (domestic sales) in March rose 0.3% m/m, 2.5% y/y. This 2.5% rise was the lowest year-on-year rate of price increase since September 2004 (+2.3%).


• The current level of the euro is not too high, Eurogroup Chairman Jean-Claude Juncker said. “I don't think the euro is too strong. I think that it was too weak in 1999 and 2000,” Juncker said.

Asia-Pacific

• China’s economy grew at a faster-than-expected 11.1% y/y in Q1 2007 from 10.4% in Q4 2006, the statistics bureau said. This increases the probability of an interest-rate rise. Premier Wen Jiabao said the government will take steps to curb lending and investment to reduce in the record trade surplus. Inflation accelerated to 3.3% y/y, the fastest pace in more than two years and above the central bank’s 3% target. The Chinese stock market index CSI 300 fell 4.7%, triggering declines in European and Asian stocks, increasing risk aversion and strengthening the yen.


• Japan’s tertiary index, a gauge of the services sector, rose a stronger-than-expected 1% in February, the Trade Ministry said. This raises the probability of a rate hike in Japan. The index climbed to 110.7, the highest since the current survey began in 2002. From a year earlier, the index rose 1.7% in February after a 1.1% gain in January.

FX Strategy Update