Expert Analysis of Today's Market

Dollar Rally Continues

Hans Nilsson 2007-05-21

The dollar rose against most major currencies on Monday. The yen, testing important technical levels, was lower against the dollar but slightly higher against the euro. The EUR/JPY earlier touched a new all-time high after the G-8 did not mention the yen’s weakness. The Canadian dollar rose to the strongest level in almost 30 years as surging demand for commodities and persistent economic growth boost speculation the Bank of Canada will raise interest rates this year. G-8 finance ministers issued a communiqué that was upbeat on global growth.

The EUR/USD continues to move lower after failing to penetrate resistance at the late-April all-time high. The pair fell to a 5-week low and broke the 3.5-month uptrend. This indicates a further fall and a possible test of the important 1.33-support.

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Financial and Economic News and Comments

US & Canada

Kuwait dropped its exchange rate peg to the dollar and adopted a basket of “major world currencies,” Kuwait’s News Service said.

Europe

UK house prices inflation moderated to its slowest pace since December 2006, Rightmove Plc said. Prices rose 0.4% m/m and 13% y/y in May from 3.6% m/m and 15% y/y in April.

European Central Bank Governing Council member Klaus Liebscher and ECB Vice President Lucas Papademos indicated European monetary policy needs to be pre-emptive.

Bundesbank expects the Germany’s total public deficit to sink in 2007 to “markedly below 1%” of GDP from 1.7% in 2006, the central bank said in its latest monthly report released Monday.

Asia-Pacific

Japan will not follow China in diversifying its foreign reserve investments, Chief Cabinet Secretary Yasuhisa Shiozaki said, after China’s government agreed to buy a $3 billion stake in New York-based buyout firm Blackstone Group LP to diversify its overseas investments.

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