Expert Analysis of Today's Market

• The dollar reversed its Tuesday sharp gains in NY trading Wednesday on concerns the Federal Reserve’s plan to lend primary dealers $200 billion in Treasury securities and accept a wider array of mortgage debt as collateral to ease tight credit conditions would not do enough to revive credit markets and boost the slumping US economy.


• The EUR/USD rose to a new all-time high, supported by increased growth and interest rate advantage. Data showed European industrial production rose more than expected, increasing bets the European Central Bank is in no hurry to cut interest rates. ECB President Jean-Claude Trichet, for the second time this week, said he was concerned about excessive exchange rate moves; however, his remark did not stop the EUR/USD’s advance. The pair is testing the 1.55-handle resistance. If this is broken, the pair will likely move higher despite its overbought condition. There are support from the uptrend in the 1.53 area and very strong support in the 1.49-1.50 area.

Financial and Economic News and Comments

US & Canada

• The US federal government ran a record monthly budget deficit of $175.56 billion in February, following a budget surplus of $17.84 billion in January, the Treasury Department said. Outlays were $281.29 billion during February, up 17% from February 2007’s $240.31 billion. Government receipts in February were $105.72 billion, down 12% from February 2007’s $120.31 billion. The deficit in February was slightly bigger than the Congressional Budget Office’s estimate of a deficit of $174 billion.

Europe

• The ZEW’s German investor economic expectations index increased more than expected to -32.0 in March from -39.5 in February. The gauge reached a 15-year low of -41.6 in January. The current economic situation index fell to 32.1 in March from 33.7 in February.

• Chancellor of the Exchequer Alistair Darling reduced his forecast for UK 2007 economic growth to 1.75%- 2.25% from his earlier growth forecast of 2%-2.5%. “Turbulence in global financial markets, which started in the American mortgage market, has affected all economies from the United States to Asia, as well as Europe,” Darling said. Inflation in 2008 is forecast at 2.5%.


• UK’s trade deficit in goods narrowed to £7.5 billion ($15.6 billion), £10 million less than in December, the Office for National Statistics said. Exports rose 6.3% y/y and imports rose 4.4% y/y. Import prices rose 2.5% m/m, the most since July 2005. Excluding oil and erratic items, import prices rose 2.2% m/m, the most since 1993.

Asia-Pacific

• Japan’s consumer confidence fell to 36.1 in February, its lowest level since March 2003, from 37.5 in January, the Cabinet Office said. More consumers expect Japan’s prices to keep rising. A record 86.5% of respondents said prices will be higher in a year.

• Japan’s economy grew a downwardly revised 3.5% y/y in Q4 2007 on strong exports, the Cabinet Office said.


• Australian consumer confidence fell to 88.6 in March, the lowest level in almost 15 years, according to a Westpac Banking Corp. and Melbourne Institute survey. All the sub-indexes were also sharply lower. Readings below 100 show pessimists outnumber optimists.

FX Strategy Update