Expert Analysis of Today's Market

• The dollar was mostly higher Friday following better-than-expected US economic data. US June durable-goods orders unexpectedly rose and a decline in June new-home sales was smaller than forecast, easing concern that the US economic slowdown will worsen. An unexpectedly rise in the Reuters/University of Michigan consumer sentiment index also supported the greenback. The Canadian and Australian dollars fell for a fourth day. The USD/JPY was higher, close to important resistance, as US equity prices advanced. The EUR/JPY was also higher, at important resistance, on increased risk appetite. The European currencies gained.


• The EUR/USD pared earlier gains on the better-than-expected US economic reports. The pair touched 1.60 in April and July but failed to penetrate this resistance. This could be a double top, indicating lower prices. Fundamentally the US economic weakness is spreading to Europe. Supports at 1.54 and 1.56 are significant. If these are broken, the pair will drop.

Financial and Economic News and Comments

US & Canada

• US durable-goods orders unexpectedly rose 0.8% m/m in June to a seasonally adjusted $215.43 billion, the Commerce Department said. Excluding transportation, orders unexpectedly gained 2.0% m/m. Durable-goods orders fell 1.1% y/y, but up 6.2% y/y excluding transportation. A barometer of business equipment spending -- orders for non-defense capital goods excluding aircraft -- increased 1.4% m/m in June following May’s 0.1% m/m decline. The barometer increased 3.8% y/y, indicating capital spending has not collapsed despite tight credit conditions.


• US new-home sales fell 0.6% m/m to an annual rate of 530,000 in June from May’s upwardly revised 533,000, the Commerce Department said. The decline, the fifth in six months, was smaller than expected. Sales dropped 33.2% y/y. Sales increased in the Northeast and Midwest but declined in the South and West. At the current sales pace, the supply of unsold new homes fell to 10.0 months in June. Three months ago, the months’ supply was at 11.2, the highest since 1981. The inventory of new homes fell to 426,000, down 25.4% from the peak in mid-2006. The median price of new homes sold was $230,900 in June, down 2.0% y/y. The average price of new homes sold was $298,600, down 2.6% y/y.

• The Reuters/University of Michigan final index of consumer sentiment unexpectedly rose to 61.2 in July, up from a preliminary reading of 56.6 in early July and from 56.4 in June. The measure averaged 85.6 in 2007. The consumer expectations index increased to 53.5 in July from 49.2 in June. The current conditions index rose to 73.1 from 67.6. The figures showed slight improvement in US consumer confidence.

Europe

• The UK economy grew 0.2% q/q in Q2 2008, the slowest pace since 2001, as the UK is headed for a recession. The Q2 GDP grew 1.6% y/y, the least since 2005, preliminary data from the Office for National Statistics showed.

Asia-Pacific

• Japan’s core consumer-price index, which excludes volatile fresh food prices but includes oil prices, rose 1.9% y/y in June, in line with expectation. Excluding both food and energy, prices increased 0.1% y/y in June. The Tokyo-area core CPI, available a month before nationwide data, rose 1.6% y/y in July, the biggest increase since 1998.

FX Strategy Update