Expert Analysis of Today's Market

• The dollar rose against most major currencies in NY trading Tuesday on speculation the Federal Reserve will signal a pause in lowering interest rates at tomorrow’s FOMC rate decision meeting, and on increased concerns the US economic slowdown is spreading to other countries. The euro fell to a 3-week low as the Bloomberg European PMI dropped the most in more than four years in April. The Australian dollar declined as the NAB Australian business confidence index fell to the lowest since March 2001.


• The GBP/USD fell on weak UK data and Bank of England Monetary Policy Committee member David Blanchflower’s call for aggressive rate cuts. In a downtrend, the pair is likely to fall further. There are support at 1.96 and 1.94 and resistance at 2.0.

Financial and Economic News and Comments

US & Canada

• The Conference Board’s consumer confidence index fell to 62.3 in April, a 5-year low and the biggest 3-month decline since the recession in 2001, from March’s upwardly revised 65.9, Conference Board data showed. The present situation index declined to 80.7 and the expectations index fell to 50.1 in April. The decline in April consumer confidence signals a deepening threat to US consumer spending.

• House prices in 20 US metropolitan areas dropped 12.7% y/y in February, more than expected and the most since S&P/Case-Shiller’s records began in 2001, following a 10.7% y/y drop in January, the S&P/Case-Shiller home-price index showed. House prices dropped 2.6% m/m in February, after a 2.4% m/m decline in January. US home prices will likely keep falling.

Europe

• European retail sales declined for a second month to a seasonally adjusted 41.8, the most in more than four years in April, from 48.2 in March, the Bloomberg purchasing managers index showed. A reading below 50 indicates contraction.
  
• UK retail sales fell sharply in April as fears of an economic slowdown were compounded by bad weather and early Easter, the Confederation of British Industry reported. According to the CBI monthly distributive trades survey, net balance of sales volume worsened sharply to -26% in April from 1% in March, marking the lowest level since November 2005. New orders fell to -28% in April from -10% in March. Sales will remain weak next month, with retailers’ expectations falling to -15%, the weakest level since December 2005. The 3-month moving average continued falling from a peak of +36% last May to -9% in April, the lowest since April 2006.

• Bank of England Governor Mervyn King said UK inflation will rise above 3% in the next year and keep close to the government’s upper limit for longer than it did in 2007. “It’s likely that inflation will reach 3 percent, or possibly higher, because of the impact of higher food and energy prices,” King told Parliament’s Treasury Committee.


• Bank of England Monetary Policy Committee member David Blanchflower said monetary policy is restrictive and “we need to take action to loosen policy sooner rather than later.” He called for BOE aggressive interestrate cuts to avoid a recession and to keep inflation from falling below target.

Asia-Pacific

• The NAB Australian business confidence index fell 10 points to -4 in Q1 2008, the lowest reading since March 2001, National Australia Bank Ltd. reported. The decline signals the Australian economy may be slowing faster than expected.

FX Strategy Update