Expert Analysis of Today's Market

• The dollar traded higher against most key currencies on Monday ahead of European interest-rate decisions later this week. The yen and Swiss franc fell as equity markets gained and risk appetite increased pressuring the funding currencies in carry trades. The Australian dollar rose on increased risk appetite and higher commodity prices, while the Canadian dollar fell on plunging Canadian building permits.


• The GBP/USD fell on speculation the Bank of England will cut its benchmark interest rate at the 4/10 BOE monetary policy committee meeting. UK house prices are falling and the risk of a UK recession is increasing. That most UK mortgages are adjustable magnifies the contractionary effect of rising mortgage rates and stringent lending standards. The chart shows a large head-and-shoulder formation with long-term bearish GBP/USD implications. There is support in the 1.97 area. If this is broken, the pair will test support in the 1.95 area. We sell one unit of the GBP/USD.

Financial and Economic News and Comments

US & Canada

• Canadian building permits unexpectedly fell 1% to C$5.76 billion ($5.71 billion), the lowest since April 2007, Statistics Canada said. In Ontario, which relies on US sales of cars and other factory exports, non-residential permits plunged 45% to C$753 million.

Europe

• German industrial production unexpectedly increased 0.4% m/m and 6.1% y/y in February, the Economy Ministry reported. “The recent weakening in factory orders as well as a smaller spring upswing as a result of the mild winter indicate that the upward dynamic of the industrial sector will be less strong in the months ahead,” the Economy Ministry said.

Asia-Pacific

• Japan’s leading economic indexes were mixed in February. The diffusion index rose to 50.0 in February from 36.4 in January but the composite index still declined to 97.6 in February from 99.0 in January, the Cabinet Office reported. The coincident diffusion index rose to 44.4 in February from 20.0 in January, while the composite rose modestly to 112.4 from 111.9. The Cabinet Office downgraded its assessment of current economic conditions and said the Japanese economy is showing signs of weakness.

• Japanese Prime Minister Yasuo Fukuda nominated Masaaki Shirakawa to lead the Bank of Japan. Today’s nomination of Shirakawa, a career central banker, reflects the government’s desire to fill the top job at the BOJ before the 4/11 G-7 meeting. Parliament is likely to endorse Shirakawa as opposition leaders have expressed willingness to support the longtime BOJ official. Shirakawa would probably emphasize normalizing central-bank monetary policy over time by raising interest rates closer to those of other major nations.


• Qatar’s central bank governor Abdullah Bin Saud Al Thani said Kuwait may “repeg” its currency to the weakening US dollar in line with the region’s plans for monetary union in 2010. “We are not ruling that out but there will have to be further discussions,” he said.

FX Strategy Update