Expert Analysis of Today's Market

• The dollar fell modestly in NY trading Monday on mixed US economic data. The yen, trading little changed, did not get any boost from China’s monetary tightening move. The Canadian dollar was strong. Tight ranges will likely prevail in currencies as liquidity is thinning due to the Japan Golden Week and Europe May Day holidays.


• The EUR/USD is again testing resistance at the all-time high. The trend is clearly up, but the pair is extremely overbought. The weekly chart indicates an overbought condition and a double-top could indicate a reversal.

Financial and Economic News and Comments

US & Canada

• The US personal spending in March rose a less-than-forecast 0.3% m/m and 5.8% y/y, compared to 6.0% y/y in February. In real terms, spending fell 0.2% m/m in March, the most since September 2005. Personal incomes in March rose a more-than-forecast 0.7% m/m and 5.7% y/y from 5.5% y/y in February. Overall, income gains were strong, but real consumption was weak.

• Consumption (PCE) prices in March rose 0.4% and 2.4% y/y. Core consumption prices, which exclude food and energy, were unchanged and up 2.1% y/y, still above the Fed’s comfort zone of 1-2%.


• US construction spending in March rose 0.2% m/m after February’s revised 1.5% rise. Residential activity in March fell 1% after February’s revised 1.8% gain. Business investment rose 2.4% as public spending increased 0.4%. From a year ago, the 2% decline in construction spending was all confined to residential construction (-14% y/y) as business investment was rising strongly (17% y/y) as was public spending (9% y/y).


• The Chicago Fed regional activity index fell sharply from 61.7 to 52.9 in April. New orders were still quite strong at 56.5 as production only eased off slightly to 62.2. Employment pushed above 50 as order backlogs, inventories and deliveries were all below the 50 growth/decline mark. Prices paid rose to 64.9.


• The Canadian economy grew a stronger-than-expected 0.4% m/m in February, compared with a 0.1% in January, Statistics Canada reported.

Europe

• The European Commission’s economic sentiment indicator remained broadly stable close to a 6-year high in April. The indicator edged down by 0.1 in the euro area, to 111.0, from a revised 111.1 in March, the European Commission said. Economists had expected the April confidence index to rise to 111.7 from a previously reported 111.2 in March.


• Eurozone annual inflation is forecast to be 1.8% in April 2007, according to a flash estimate by Eurostat. It was 1.9% in March,, still below the European Central Bank’s 2% limit for an eighth month.


• German retail sales interrupted their post-VAT recovery in March, posting an unexpected drop, while February’s reading was revised down, according to seasonally adjusted data by the Federal Statistical Office.


• UK consumer confidence improved to a better-than-expected -6 in April, up 2 points from March’s -8 reading, according to GfK/NOP’s latest barometer.


• UK house prices rose by 0.7% m/m and 6.8% y/y in April, up slightly from 6.7% y/y in March, according to Hometrack’s latest survey.

Asia-Pacific

• China’s central bank will raised the share of deposits banks must keep on reserve for the seventh time. The increase in reserve requirement will take effect May 15 following accelerated economic growth and inflation. The Chinese government announced this month that the Q1 2007 GDP expanded at a faster-than-expected 11.1%. China’s consumer-price index rose 3.3% y/y in March.


• Japan is closed for Golden Week holidays.

FX Strategy Update