Expert Analysis of Today's Market

• The dollar fell against most key currencies after US new-home sales underperformed expectations. The greenback weakened on speculation signs of weakness in the housing market may encourage the Federal Reserve to cut interest rates in Q3 2007 while other central banks are raising rates. The dollar, testing critical support against major currencies, may fall more dramatically if the support is broken. The yen was little changed against the dollar but fell against other key currencies. Our USD/CAD stopped out.


• The EUR/USD is testing an all-time high after the German IFO confidence was higher than expected and US new-home sales disappointed investors. The extremely bullish sentiment and oversold condition indicated by the RSI suggests a possible double top in the EUR/USD. Fundamentally the dollar is undervalued on most measures. The major risk to this outlook is the US economy slows more than expected.

Financial and Economic News and Comments

US & Canada

• US new-home sales rose 2.6% in March to an annual rate of 858,000 from a downwardly revised 836,000 rate in February, the US Commerce Department said. The consensus expectation was a bounce to 890,000. The average price of a home rose to $330,900, up from $326,000 in February and $298,800 in March 2006. The median price was $254,000, higher than $251,800 in February and $238,800 in March 2006. New-home sales fell 23.5% y/y.

• US durable goods orders rose a stronger-than-forecast 3.4% m/m in March, signaling business spending started to recover. Orders for February were revised higher to 2.4% m/m, the US Commerce Department said. Orders excluding transportation equipment increased 1.5% m/m in March after a 0.4% drop in February.

Europe

• The April German IFO business sentiment index was 108.6, just above a forecast of 108.0 and above March’s 107.7. The current conditions and expectations indices also beat forecasts.


• UK GDP rose a stronger-than-expected 0.7% q/q and 2.8% y/y in Q1 2007, supported by strong growth in the service sector, National Statistics reported.


• The German government raised its 2007 GDP forecast to 2.3% from 1.7%. Meanwhile, the German bankers association forecast growth in 2007 at 2.1%. Both saw strong investment and exports but moderate consumptions.

Asia-Pacific

• Japan’s trade surplus widened to a record in March on strong exports to China and Europe. The surplus rose 73.9% to ¥1.633 trillion ($14 billion) from a year earlier, the Ministry of Finance said. Exports jumped 10.2% while imports were unchanged.

FX Strategy Update