Expert Analysis of Today's Market

• The dollar rose Tuesday as Federal Reserve Chairman Ben S. Bernanke said the Fed may extend its emergency credit facility program for Wall Street banks into 2009. The greenback was also supported by higher US equity prices. The EUR/USD declined and traded just above the 1.56-handle support. The GBP/USD fell as UK house prices rose at the slowest annual pace since 2006. The Australian and Canadian dollars fell as gold and crude prices declined.


• The USD/JPY rose on more signs of a slowing Japanese economy as Japan’s business confidence fell to a new business cycle low in June. The pair has been higher since the March low. After unsuccessfully testing the 108-area resistance in mid-June, the USD/JPY is likely to test this resistance again. If the resistance is penetrated, the pair will rise to 110. There is support in the 106-area.

Financial and Economic News and Comments

US & Canada

• The USD/JPY also was supported by rising US stocks. However, the close relationship between the pair and US stock market has broken down as shown in the chart below.

• US pending home sales declined more than expected a seasonally adjusted 4.7% m/m to 84.7 in May, following an upwardly revised 7.1% m/m increase in April, signaling falling home prices have yet to touch bottom, data from the National Association of Realtors showed. May pending home sales fell 14.6% y/y. “The overall decline in contract signings suggests we are not out of the woods by any means,” Lawrence Yun, NAR chief economist, said. “The housing stimulus bill that is still being considered in the Senate is critical to assure a healthy recovery in the housing market, jobs and the economy,” Yun said.

• US wholesale sales rose twice as fast as expected in May, boosted by higher food and energy prices, while inventories increased slightly above expectations, according to data from the Commerce Department. Wholesale inventories increased 0.8% m/m in May following an upwardly revised 1.4% gain in April. Wholesale sales in May rose 1.6% m/m for the second month in a row. The inventory-to-sales ratio fell to a record low 1.08 months.


• US consumer credit rose $7.78 billion in May to $2.57 trillion, more than forecast, after rising $7.76 billion in April, data from the Federal Reserve showed.


• US financial markets need to be made more resilient and stable, Federal Reserve Chairman Ben S. Bernanke said, by possibly giving the Fed much broader authority to exercise control over US financial firms. He suggested the Fed may extend its emergency-loan program for Wall Street banks into 2009. “The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said.

Europe

• UK house prices rose 3.7% y/y in May, the smallest annual increase since March 2006, the Department for Communities and Local Government said. Loans for home purchase dropped 44% y/y in May, the Council of Mortgage Lenders said.

Asia-Pacific

• The Economy Watchers index fell to 29.5 in June from 32.1 in May, indicating sentiment among Japanese merchants dropped to a 6-year low in June, Cabinet Office said. The future conditions index slid to 32.1 in June, the lowest since September 2001, from May’s 35.1.

FX Strategy Update