Expert Analysis of Today's Market

• The dollar rose against most key currencies on Thursday after a government report showed US new-home sales unexpectedly jumped in April. The yen rose in the cross trade on weakness in international stock markets as well as Alan Greenspan’s and Jim Rogers’ comments. Greenspan warned of the unsustainability of the Chinese stock market and Jim Rogers warned about a potential implosion in carry trades.


• The EUR/USD has moved lower after failing to penetrate resistance at the late-April all-time high. The pair, having broken the 3.5-month uptrend, is testing minor support at the 1.34-handle. If the support is broken, the pair will test the important 1.33-support.

Financial and Economic News and Comments

US & Canada

• US new-home sales unexpectedly jumped 16.2% m/m in April, to an annual pace of 981,000, the most in 14 years, from a downwardly revised 844,000 rate in March, the Commerce Department said. April new-home sales fell 11% y/y, compared with the level in April 2006. The average price of a home in April decreased to $299,100, from $324,700 in March and $310,300 in April 2006. The median price dropped 11% in April, the biggest decline since 1970, to $229,100, from $257,600 in March and $257,000 in April 2006. The number of homes for sale at the end of April dropped to 532,000 from 540,000 in March. That left the supply of homes at the current sales rate at 6.5 month’s worth, the lowest this year, compared with 8.1 months in March. Despite the big jump in April’s new-home sales m/m, contraction in the housing market is not over yet.

• The US durable-goods orders rose for a third straight month in April, the longest period in almost two years, indicating improving sales in the manufacturing sector. Durable-goods orders increased 0.6% m/m in April after an upwardly revised 5.0% increase in March, the Commerce Department said. Order backlog growth was strong. New orders excluding transportation gained a more-than-expected 1.5%. Durable-goods orders rose 2.8% y/y after falling a few months.

• US initial jobless claims rose by 15,000 to 311,000 in the week ended May 19, the Labor Department said. Claims for the May 12 week were revised to 296,000 from 293,000. The four-week average fell by 3,500 to 302,750, the lowest reading since February 25, 2006.

Europe

• The Ifo institute’s sentiment index for Germany remained strong at 108.6, indicating Germany will keep expanding at a fast pace. The gauge of current business conditions fell to 112.5 from 113.1 while the measure of expectations for the coming six months increased from 104.3 to 104.8.


• The OECD today raised its forecast for German growth in 2007 to 2.8% from 1.8%, on stronger business investment. That would match 2006’s economic expansion, which was the fastest since 2000.

Asia-Pacific

• The Bank of Japan should leave its interest rates unchanged until an upward trend in the consumer price index has been confirmed, the International Monetary Fund said.


• Japan’s exports rose 8.3% y/y in April, cooling from 10.3% in March, the Ministry of Finance said. Exports to the US fell 4.8%, the steepest decline since May 2004. Exports to all other regions rose, with shipments to Asia climbing at the fastest pace in three months, led by China.


• Congress branded yesterday’s US-China agreements on financial services and aviation inadequate and moved to consider new trade measures against China even as Vice Premier Wu Yi met with lawmakers.


• Former Federal Reserve Chairman Alan Greenspan said the stock market in China faces a “dramatic contraction.”

FX Strategy Update