Expert Analysis of Today's Market

• The dollar was mostly lower Monday after Fed President Stern said the credit crunch is likely to last for months and the IMF warned about deteriorating credit conditions in the US. The Canadian dollar fell for a fifth consecutive day and the Australian dollar rose for the fist time in five days. The USD/JPY declined after testing resistance at 108 as US equity prices dropped. Sterling gained despite poor UK housing data.


• The EUR/USD gained for a second day despite lower German consumer confidence. The pair has found support and may test the 1.58 resistance. However, the short-term outlook is bearish. If the 1.58 resistance is not broken, the pair may break the 1.56 support and test the crucial 1.54 support.

Financial and Economic News and Comments

US & Canada

• The International Monetary Fund said it sees increased danger of economic fallout from the ongoing financial crisis and urged the US government to review the business model of housing-finance giants Fannie Mae and Freddie Mac. “As economies slow, credit deterioration is widening and deepening, and as banks deleverage and rebuild capital, lending is beginning to be squeezed, restricting household spending and clouding the outlook for the real economy,” said Jaime Caruana, director of the IMF’s monetary and capital markets division.


• Fed Governor Frederic Mishkin said in Washington “sharp increases” in the price of commodities have “driven inflation above rates consistent” with price stability.

Europe

• The GfK German consumer climate index is forecast to fall to 2.1 in August, its lowest level since June 2003 and down from 3.6 in July, the GfK market research institute reported. The GfK said high oil prices, increasing fears of recession and a flare-up of the financial market crisis have generated strong uncertainty among consumers. The economic expectations index in July declined by 15.5 points to -8, a level last seen in November 2005.

• UK house prices fell by the most in at least seven years in July and Hometrack’s index indicates the property slump will continue and the downturn in price may accelerate. The average cost of a residential property in England and Wales fell 4.4% y/y and 1.2% m/m to 168,500 pounds ($336,000), Hometrack Ltd. said. The majority of house-price declines were in southern England.

Asia-Pacific

• The National Australia Bank’s quarterly survey of small, medium and large Australian businesses found firms have grown more pessimistic about the Q3 2008 outlook. Its index of business confidence expectations for Q3 fell 4 points to -8, The sectors hardest hit were transport and residential construction, while positive expectations for confidence remained in mining.


• New-home sales in Australia rose in June, partly making up for weakness in prior months, a Housing Industry Association survey showed. Total sales rose a seasonally adjusted 4% m/m in June after 5% m/m in May. Private detached house sales increased 2.6%, while the volatile multi-unit sales jumped 15.5%. Despite the gain in June, sales have slowed significantly and was only up 0.4% for the first half of 2008.

FX Strategy Update