Expert Analysis of Today's Market

• The dollar traded modestly higher against most key currencies on Monday. The USD/JPY was little changed, but the EUR/JPY fell. The GBP/USD traded below $2.00.


• The EUR/USD touched a 27-month high last week but got little support from the EU weekend meeting where policy makers seemed lax about further euro appreciations. A test of the all-time high at 1.3665 is possible, but we think the pair will peak and create a double-top with bearish implication for the pair. The major risk to this outlook is that the US economy slows more than expected.


• The Commodity Futures Trading Commission data showed that net long euro positions rose to a record 106,770 contracts in the week to April 17, indicating the euro’s overbought condition.

Financial and Economic News and Comments

US & Canada

• The Canadian dollar held near a 5-month high before a Bank of Canada rate meeting tomorrow on speculation the BOC may tighten its monetary policy as inflation exceeds the BOC’s inflation target.

Europe

• Eurozone policymakers said over the weekend that they did not have problems with a euro reflecting the region’s economic strength but were wary of excessive exchange rate movements.


• The combined budget deficit of the 13 eurozone governments fell to 1.6% of GDP in 2006 from 2.5% in 2005, while the level of government debt declined to 69.0% of GDP from 70.5%, Eurostat reported today.

Asia-Pacific

• Standard & Poor’s raised its long-term sovereign rating on Japan to AA from AA-minus, the third-highest grade, ahead of a Bank of Japan monetary policy meeting on Friday.


• Australian producer’s prices were unexpectedly unchanged in Q1 2007; thus, reducing expectations the Reserve Bank of Australia will raise interest rates next week. The producer price index was unchanged q/q and rose 2.8 % y/y, the smallest annual advance in almost three years, the Bureau of Statistics said.

FX Strategy Update