Expert Analysis of Today's Market

• The greenback advanced against the euro and commodity currencies on Thursday. The dollar also benefited as investors pared some heavy bets against the currency ahead of the Easter holiday. The dollar block currencies fell as massive commodity deleveraging continued for a second day. The Australian and New Zealand dollars headed for a weekly decline and the Canadian dollar fell to its lowest versus the greenback in almost two months. Sterling rose the most against the euro in two months, paring a weekly decline, following a report showing an unexpected rise in UK retail sales.


• Since its all-time high on Monday, the EUR/USD had made lower highs for the week. Today the pair broke support from the short-term uptrend, indicating a negative EUR/USD outlook. The pair is overbought with support at the 1.53-area. If this is broken, the pair will possibly test the 1.49-1.50 support. Deleveraging in the commodity market is likely to pressure the pair.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims rose 22,000 to 378,000 in the week ended March 15, more than expected and the highest since the week of January 26, from 356,000 the prior week, the Labor Department said. The number of people staying on benefits increased to 2.865 million from 2.833 million. The four-week moving average of initial jobless claims rose 6,000 to 365,250, the highest since October 2005, from 359,250 a week earlier. Continuing jobless claims rose 32,000 to 2,865,000 in the week ended March 8, the highest since August 2004. The four-week average of those continuing claims rose as well, indicating it is more difficult for the unemployed to find jobs.

• The Conference Board leading economic indicators index fell 0.3% in February, lower-than-expected and the fifth consecutive monthly drop, according to preliminary estimates by the Conference Board. The composite index of leading indicators fell to 135.0 in February after a revised 0.4% drop in January, a 0.1% decline in December, a 0.5% decline in November and a 0.5% decline in October. The February LEI number indicates the US economy is at greater risk of a recession. The composite index of coincident indicators was unchanged for the third consecutive month in February, at 124.9, after revisions to November-January data due to lower personal income data.


• Manufacturing in the Philadelphia region contracted for a fourth consecutive month in March. The Philadelphia Federal Reserve said its factory index was at -17.4 in March, compared with -24 in February. The Philadelphia Fed’s measure of new orders rose to -9.3 from -10.9, and a measure of shipments increased to -6.3 from - 12.2. A gauge of unfilled orders fell to -18.7 from -10.9, while the index of inventories declined to -13.5 from - 13. The employment index dropped to -4.7 from 2.5. A measure of prices paid rose to 54.4 from 46.6, while a gauge of prices received fell to 21.2 from 24.3.

• Canada’s index of leading economic indicators unexpectedly fell 0.3% in February, Statistics Canada reported. The index’s measure of new orders for factories dropped 3.3% and measure of housing starts and sales fell 1.5%.

Europe

• The Organisation for Economic Co-operation and Development (OECD) lowered its economic forecasts for the US, euro zone and Japan for the first half of 2008. The OECD revised its growth forecast for Q1 US GDP to 0.1% and predicted Q2 GDP would be to flat. “The U.S. economy is now essentially moving sideways, if not contracting outright,” the OECD said. “It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly.” For the euro zone, the OECD forecasts that Q1 GDP will edge 0.5% higher, with no improvement in Q2, which is expected to show a 0.4% gain. The OECD expects Japanese Q1 GDP to increase 0.3% and predicts a 0.2% rise in Q2.


• Growth in European service and manufacturing industries slowed more than expected in March, a sign that the euro’s appreciation and oil prices above $100 a barrel are hurting economic growth. A preliminary estimate of Royal Bank of Scotland Group Plc’s composite index declined to 51.9 in March from 52.8 in February. A reading above 50 indicates expansion. A gauge of manufacturing activity fell to 52 from February’s 52.3. A measure of growth in the services sector declined to 51.7 from 52.3.

• Germany’s economic expansion is “intact” even after the euro’s exchange rate and oil prices rose to new records, the Finance Ministry said. “Positive industrial indicators and optimistic sentiment among companies -- despite financial market turbulence -- reflect the German economy’s robust shape,” the ministry said in its monthly report.


• Germany’s producer-price inflation accelerated to the fastest pace in more than a year, led by energy costs. Prices for goods increased 0.7% m/m and 3.8% y/y in February, the Federal Statistics Office reported.


• UK retail sales unexpectedly rose for a second month in February, led by food and clothing. February sales climbed 1% m/m and 5.5% y/y, the Office for National Statistics said.

Asia-Pacific

• The yuan rose to the highest since the end of a dollar peg in 2005 on speculation China will quicken the pace of appreciation to cool inflation. The yuan extended the year’s advance to 3.6% as Premier Wen Jiabao pledged this week to take “forceful” steps to combat inflation.

FX Strategy Update