Expert Analysis of Today's Market

• In NY mixed trading Monday, the dollar was lower against the yen and Swiss franc but higher versus the highyielding currencies on continued carry-trade unwinding as falling US stocks increased risk aversion. Both the US stocks and USD/JPY are at significant support levels. If these are broken, we expect further declines. The dollar block currencies fell on lower commodity prices and carry-trade unwinding. Sterling initially was boosted by strong PPI inflation but reversed direction on the increased risk aversion.


• The EUR/USD fell from close to a record after European Central Bank President Jean-Claude Trichet said the ECB is “concerned about excessive exchange-rate moves in the present circumstances.” It is the first time Trichet has specifically expressed worry about the currency since November 2007. The EUR/USD reached an all-time high of 1.5461 last week. The pair is overbought and the ECB is under pressures from European politicians to ease monetary conditions. A weak ZEW report tomorrow may lead to some EUR/USD profittaking.

Financial and Economic News and Comments

US & Canada

• US wholesale inventories increased a stronger-than-expected 0.8% m/m in January at a seasonally adjusted $414.82 billion, the Commerce Department said. Sales of US wholesalers surged 2.7% m/m in January to a seasonally adjusted $387.73 billion, the biggest increase since a 3.3% m/m rise in March 2004. The inventory-to-sales ratio fell to 1.07 month in January from 1.09 in December. Sales rose 15.1% y/y, while inventories rose 6.4% y/y in January.


• Canadian new-home starts unexpectedly rose to 256,900 units in at an annual basis in February, following a 222,700 units rate in January, Canada Mortgage and Housing Corp said.

Europe

• German industrial production rose a stronger-than-expected 1.8% m/m and 6.9% y/y in January, led by demand for construction and investment goods, the Economy Ministry said.

Asia-Pacific

• Japanese machinery orders rose at a stronger-than-expected 19.6% m/m in January, the fastest pace in seven years, after dropping 3.2% m/m in December, the Cabinet Office said. Manufacturing-equipment orders climbed 13.8% m/m. Non- manufacturing orders surged 21.9% m/m.


• Japan’s Economy Watcher’s index for current conditions rose to 33.6 in February from 31.8 in January, while the future conditions component rose to 39.5 in February from 35.8 in January, the Cabinet Office said. The gauges indicate some improvement in the Japanese economic outlook.

• China’s trade surplus fell much more than expected as the worst blizzards in half a century disrupted shipments and US demand weakened. The surplus narrowed 64% y/y in February to $8.56 billion, the customs bureau said. Exports rose 6.5% y/y in February, the slowest pace in almost six years. Imports increased 35.1% y/y in February, the biggest gain in more than three years, on higher commodity prices. For the first two months combined, the surplus narrowed 29% y/y to $28 billion.

FX Strategy Update