Expert Analysis of Today's Market

• The greenback rose against major currencies on Thursday ahead of tomorrow’s US GDP release. The EUR/USD retreated from the all-time high resistance, sterling fell back below $2.00 and the yen was broadly weaker on renewed interest in carry trades. Japanese investors last week bought foreign bonds at the fastest pace in five months for a net ¥653.4 billion ($5.5 billion), the Ministry of Finance said.


• The EUR/JPY, testing resistance, touched a record high on speculation European central banks will raise interest rates and the Bank of Japan will refrain from increasing rates anytime soon. The pair is overbought, but Japanese retail investors’ appetite for higher yields is strong; thus, it is risky to bet on an immediate fall in the pair. This is also the beginning of Japan’s Golden Week holiday, which traditionally is a weak period for the yen. For the last six years, the yen has fallen during this week. If resistance at 162.50 is broken, the pair will likely rally.

Financial and Economic News and Comments

US & Canada

• US Initial jobless claims fell by 20K to 321K in the week ended April 21, the US Labor Department said. The 4-week moving average of claims rose to 332K from 329K.


• The Bank of Canada today released its April monetary policy report. The BOC said growth of the Canadian economy has been in line with the bank’s expectations but inflation has been higher than expected. According to the BOC, the Canadian economy was operating just above its production capacity in Q1 2007. Core inflation should remain slightly above 2% over the coming months, given pressures on capacity. As the economy returns to its production capacity in the second half of this year, upward pressure on core inflation is expected to moderate, bringing core inflation back to 2% the end of 2007. The bank continues to judge that the risks to its inflation projection are roughly balanced despite a slight tilt to the upside.

Europe

• Germany’s GfK confidence index for May rose a stronger-than-expected 5.5 from 4.4 in April, the GfK said. Economists expected a reading of 4.7.


• House prices in the UK rose at the quickest pace in four months in April, Nationwide Building Society said. The average cost of a home rose 0.9% m/m in April, following a 0.5% m/m rise in March.

Asia-Pacific

• The Reserve Bank of New Zealand raised the benchmark interest rate to a record 7.75%. “The resurgence in economic activity has continued, with domestic demand continuing to expand strongly,” Reserve Bank Governor Alan Bollard said. For the first time in six statements, Bollard omitted reference to more rate hikes, increasing speculation he is done raising rates for now. The New Zealand dollar fell after the announcement as the bank also warned that the currency was “unjustified” at exceptionally high levels.

FX Strategy Update