Expert Analysis of Today's Market

• The dollar rallied in NY trading Thursday following a WSJ report that the Federal Reserve may signal an interest-rate pause at the next FOMC meeting due to inflation concerns. The yen and Swiss franc fell on increased interest in carry-trades as risk aversion is diminishing. Sterling fell following falling UK retail sales and declining corporate sentiment. The Australian dollar was pressured by softness in commodity prices and the Reserve Bank of New Zealand’s decision to keep its benchmark rate unchanged at a record-high 8.25%.


• The EUR/USD fell the most since August 2004 after unable to penetrate the 1.60-handle resistance. The pair was pressured after an Ifo survey showed German corporte sentiment deteriorated more than expected in April and another report showed US initial jobless claims unexpectedly fell. The pair broke its short-term uptrend and we expect a test of the 1.54-area support.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims unexpectedly fell by 33,000 to a seasonally adjusted 342,000 in the week that ended April 19, the Labor Department said. The 4-week moving average of initial jobless claims declined last week by 7,250 to 369,500. Continuing claims fell by 65,000 to 2,934,000 in the week that ended April 12, the latest period for which these data are available. Still the 4-week moving average for continuing claims rose by 20,500 to 2,959,500, the highest level in almost four years.

• Unexpectedly declining for a third-straight month in March, US durable goods orders fell 0.3% m/m to a seasonally adjusted $212.2 billion, following February’s revised 0.9% m/m decline, the Commerce Department said. Excluding transportation, orders increased a more-than-expected 1.5% m/m. Orders fell 2.1% y/y but rose 2.2% y/y excluding transportation. Overall March data suggest continuing downturn in the US manufacturing sector and broader economy.


• US new-home sales dropped a more-than-expected 8.5% m/m in March to a seasonally adjusted annual rate of 526,000, the lowest level since October 1991, after February new-home sales fell a revised 5.3% m/m to an annual rate of 575,000, data from the Commerce Department showed. March new-home sales dropped 36.6% y/y. The median price of a new home fell 13.3% y/y to $227,600 in March and the average price decreased 11.3% y/y to $292,200. The month’s supply of homes for sale rose in March to 11 months, the highest since September 1981. Overall figures indicate slim prospect of any near-term turnaround in the US housing market.

• A Wall Street Journal report by Fed watcher Greg Ip said the Federal Reserve may cut the federal funds rate by 25 basis points next week and then keep the rate steady from there.


• In the Bank of Canada April Monetary Policy Report, the BOC said: “Growth in the global economy has weakened since the January Monetary Policy Report Update, reflecting the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets. Growth in the Canadian economy has also moderated.” The BOC forecasts that “the Canadian economy will grow by 1.4 per cent this year, 2.4 per cent in 2009, and 3.3 per cent in 2010. The emergence of excess supply in the economy should keep inflation below 2 per cent through 2009. Both core and total inflation are projected to move up to 2 per cent in 2010 as the economy moves back into balance.”

Europe

• The Ifo business climate index for Germany fell more than expected to 102.4 in April from 104.8 in March, the Ifo research institute reported. The business conditions index fell more than forecast to 108.4 from 111.5. The business expectations index fell more than expected to 96.8 from 98.4. The trend in the three indicators is down, indicating slowing German business conditions.

• UK retail sales fell 0.4% m/m in March, following January’s upwardly revised 1.5% m/m increase and February's upwardly revised 1.1% m/m gain, the Office for National Statistics said. March retail sales rose 4.6% y/y, down from 6.3% y/y in February.

• The balance of UK manufacturers who said their total order books during April were higher was -13, according to the Confederation of British Industry industrial trends survey. That marked a 20-point swing, the biggest since records began in April 1977, on March’s 7. The average prices balance for the next three months was unchanged at the near 13-year high of 25.

Asia-Pacific

• The Reserve Bank of New Zealand kept its benchmark interest rate unchanged at a record-high 8.25%. RBNZ Governor Alan Bollard signaled borrowing costs may fall this year as economic growth slows. “We expect that the official cash rate will need to remain at current levels for a time yet,” Bollard said.

FX Strategy Update