Expert Analysis of Today's Market

• The dollar rallied as investors’ risk appetite rose the first day of the new quarter. US stocks rose more than 3% as data on US manufacturing and construction spending were better than expected. The yen plunged on renewed interest in carry-trades and a weak Tankan report increasing recession risk in Japan. The Australian dollar fell as the Reserve Bank of Australia indicated it was done raising interest rates. The European currencies were pressured by more fallout from the credit-market turmoil as UBS said it wrote down an additional $19 billion of assets and Deutschebank wrote down $3.9 billion.


• The EUR/USD fell on dovish ECB comments and falling German retail sales. The pair has not broken its uptrend. If the support from the uptrend is broken, the pair will fall further.

Financial and Economic News and Comments

US & Canada

• The ISM US manufacturing index unexpectedly increased to 48.6 in March from 48.3 in February, the Institute for Supply Management said. New orders decreased to 46.5 from 49.1, while a production measure fell to 48.7 from 50.7. The prices paid index jumped to 83.5 from 75.5. The employment increased to 49.2 from 46.0. The official dividing line between expansion and contraction is 50.

• US construction spending fell 0.3% m/m in February as home building tumbled for a record 24th straight month, the Commerce Department said. Only government building projects gained in February. Residential construction fell 0.9% m/m and private non-residential building declined 0.1% m/m.

Europe

• The RBS/NTC eurozone purchasing managers index for the manufacturing sector eased to 52.0 in March from 52.3 in February, in line with expectations and unchanged from the flash estimate published earlier. The north-south divide widened as Italy and Spain reported outright contraction in manufacturing, in sharp contrast to accelerating growth in Germany and solid performance in France.

• European Central Bank council member Christian Noyer said: “A solid anchoring of inflation expectations remains a pre-requisite for rate cuts in times of heightened financial uncertainty and downside risks to growth.” While the ECB must remain “especially cautious” in assessing price expectations, there are reasons to believe the outlook has not deteriorated markedly, Noyer said.


• European unemployment held steady at 7.1% in February, Eurostat reported.


• Germany retail sales fell 1.6% m/m in February, the Federal Statistics Office said.


• The German unemployment rate declined more than expected to 7.8% in March, the lowest level since August 1992, from 8% in February, the Federal Labor Agency reported.

Asia-Pacific

• Japanese big manufacturers confidence deteriorated during Q1 2008, increasing the risk a slowdown in corporate activity could push the Japanese economy into a recession. Bank of Japan’s Tankan survey showed the confidence index for large manufacturers fell to 11 in March, the weakest reading since December 2003, from 19 in December. The companies expect conditions will continue to worsen over the next quarter with the index falling to 7 in March. Sentiment was even worse for smaller companies and non-manufacturers, which tend to depend more on domestic consumers.


• The Reserve Bank of Australia left as expected its benchmark interest rate unchanged at 7.25%. Governor Glenn Stevens said the benchmark rate is now “appropriate” to slow the fastest inflation rate in almost two decades.

FX Strategy Update