Expert Analysis of Today's Market

• The dollar fell versus all major currencies except the yen on Wednesday after Federal Reserve Chairman Ben S. Bernanke’s public acknowledgement for the first time that a US recession is possible and reports that the International Monetary Fund is reducing growth forecast for the US economy. Sterling rose as UK stock gains boosted demand for higher-yielding assets. The Canadian and Australian dollars advanced on strengthening commodity prices and increasing risk appetite inducing investors to resume carry trades.


• The USD/JPY rose for the third day following optimism the worst may be over in the credit market. The pair has worked off its oversold condition after the mid-March low. The pair’s downtrend is still intact and we do not expect the resistance to be broken unless the US stock market rallies significantly. The pair has been trading in tandem with the US equity market and will continue to do so.

Financial and Economic News and Comments

US & Canada

• US factory orders fell a second consecutive month in February, declining 1.3% m/m, after a revised 2.3% m/m drop in January, the Commerce Department said. Orders slowed from 7.9% y/y in January to 6.0% y/y in February. The figures indicate weakness in the manufacturing sector.

• US companies unexpectedly increased payrolls by 8,000 in March following a revised drop of 18,000 in February that was less than previously estimated, ADP Employer Services said.

• Acknowledging for the first time that a US recession is possible, Federal Reserve Chairman Ben S. Bernanke told the Joint Economic Committee of the United States Congress: “It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly.” While the Fed expects US economic growth to return to its sustainable pace in 2009, “in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside,” Bernanke said.


• The International Monetary Fund cut its forecast for global growth in 2008 saying there is a 25% chance of a world recession. According to the IMF, the world economy will expand 3.7% in 2008, the slowest pace since 2002.

Europe

• The euro-area industrial producer price index increased 0.6% m/m in February after a 0.9% m/m increase in January, Eurostat reported. The PPI rose 5.3% y/y in February after rising 5% y/y in January.

Asia-Pacific

• US Treasury Secretary Henry Paulson said in Beijing that China has made “material progress” in allowing faster yuan appreciation.

FX Strategy Update