Expert Analysis of Today's Market

• After its Friday steep losses, the dollar rose against most key currencies Monday following the better-thanforecast US April leading economic indicators index. The yen was pressured by higher global equity prices and increased risk appetite. The Australian dollar saw some profit-taking after reaching a 24-year high. The Canadian dollar rose after breaking important technical levels in thin trading during the Victoria Day celebration. Both the Australian and Canadian dollars have been supported by rising commodity prices fueled primarily by loose US monetary policy. Despite data on higher UK house prices, the pound fell as other UK recent economic data do not confirm an improvement in the UK housing sector or overall economy.


• Following the better-than-expected US LEI, the EUR/USD reversed its Friday gain and fell today. The Federal Reserve’s minutes this Wednesday will hint the market regarding the Fed’s assessment on the risk of prolonged inflation. Indications that the Fed is done lowering rates could support the dollar and push the EUR/USD below the 1.54-level support. There is resistance at the 1.57-handle.

Financial and Economic News and Comments

US & Canada

• The Conference Board US leading economic indicators index, rising for a second month in April, increased 0.1% m/m, better than forecast and matching March’s gain, the Conference Board said. The month-on-month April coincident index was unchanged. The LEI fell 1.8% y/y, while the coincident index rose 0.5% y/y. The increase in the April month-on-month LEI signals the US economic slowdown may not be as bad as expected, but it is too early to conclude that the US economy is turning around.

• According to a survey by the National Association for Business Economics, the worst of the US credit crunch and housing slump is about over, and economic growth will pick up to 2.1% in the second half. The NABE survey pointed to gradual improvement in 2009 with the US GDP possibly growing 2.7%.

Europe

• UK house prices rose 1.2% m/m in May to £242,500 ($473,000), up 2.2% y/y, Rightmove Plc reported. House prices in London increased 0.2% m/m. “Not enough sellers are coming onto the market with realistic prices and it’s the wrong tactic for the current set of market conditions….There’s far fewer mortgages around, buyers are in more limited supply. It’s a tough market that’s likely to continue for some time,” Rightmove commercial director Miles Shipside said in a Bloomberg Television interview.

• Germany’s inflation slowed to 2.6% in April from 3.3% in March when calculated using a harmonized European Union method. However, inflation may accelerate in coming months, Germany’s Bundesbank said. “We expect a renewed increase in inflation rates,” the bank said in its monthly report.


• Sweden’s Riksbank, calling for more measures, said the available measures for dealing with “weak” banks are “inadequate.” Riksbank Governor Stefan Ingves said a regulatory framework should include an insolvency “regime” allowing banks that go bankrupt to be closed at “a low cost to the depositor guarantee system,” as well as an “effective” system to pay back depositors in such an event.

Asia-Pacific

• Japan needs to reduce corporate taxes and review investment restrictions to attract more foreign direct investment, a government advisory group said. “Foreign direct investment is extremely important....Japan needs to work harder as global competition is becoming intense,” Haruo Shimada, head of the panel and also president of Chiba University of Commerce, said at a press conference in Tokyo. The panel will present its proposal to the Council on Economic and Fiscal Policy chaired by Prime Minister Yasuo Fukuda tomorrow.


• The yuan rose to the highest since the end of a fixed exchange rate in 2005 after US Treasury Undersecretary David McCormick, urging China to allow faster appreciation, said China has made “progress at an accelerated pace” in moving the yuan to a market-driven exchange rate.

FX Strategy Update