Expert Analysis of Today's Market

• Extending gains against its rivals Thursday, the dollar advanced on optimism a government rescue of Fannie Mae and Freddie Mac will allow the Federal Reserve to hike interest rates later this year to reduce inflationary pressures. All 12 regional Federal Reserve bank districts reported “elevated or increasing” inflation during June and July as prices of food, fuel and metals rose. The EUR/USD fell on weak eurozone industrial orders. The GBP/USD rose after Bank of England minutes showed Timothy Besley favored a rate increase. The Australian and Canadian dollars fell on lower commodity prices. The yen and Swiss franc declined on increased risk appetite as US equities rose.


• The USD/JPY gained for the fifth out of six days on rising US stocks. If the stock market rally continues, the USD/JPY will probably break the strong 108-area resistance and continue its ascent. However, the pair is getting overbought. Therefore, we sell the USD/JPY with narrow stop at 108.50.

Financial and Economic News and Comments

US & Canada

• Canada’s consumer-price inflation accelerated to 3.1% y/y in June, more than forecast and the highest since September 2005 as energy prices surged, following May’s 2.2% y/y pace, data from Statistics Canada showed. CPI rose a faster-than-expected 0.7% m/m in June after rising 1.0% m/m in May. Core CPI rose 1.5% y/y and 0.1% m/m in June.

• The Fed said all 12 of its regional bank districts reported “elevated or increasing” price pressures during June and July amid US economic slowdown. “Reports from the 12 Federal Reserve districts suggest that the pace of economic activity slowed somewhat since the last report,” the beige book said. “Many districts reported on manufacturers' plans to raise selling prices as a result of higher input prices, with several commenting on fears of a corresponding decrease in customer demand and overall sales volume,” the beige book said.

Europe

• Eurozone industrial orders fell a more-than-expected 3.5% m/m in May, as cooling global growth and the euro’s advance damped demand, after rising a downwardly revised 2.0% m/m in April, data from Eurostat showed. Industrial orders dropped 4.4% in May on an annualized basis, the steepest decline since August 2003.


• Bank of England policy makers split three ways in the decision to keep interest rates unchanged this month, as Timothy Besley cast the first vote for an increase in a year and David Blanchflower favored a reduction. Governor Mervyn King and six other members of the Monetary Policy Committee kept the benchmark rate at 5%, minutes of the July 10 decision showed.

Asia-Pacific

• Australia’s consumer-price index rose a stronger-than-expected 1.5% q/q in Q2 2008 and 4.5% y/y, the Australian Bureau of Statistics said. The Reserve Bank of Australia’s trimmed mean CPI rose 1.2% q/q and 4.3% y/y in Q2 2008. The figures indicate the RBA is likely to keep interest rates unchanged at its next policy meeting.

FX Strategy Update