Expert Analysis of Today's Market

• Unable to penetrate resistance last week, the dollar was on the defenses falling modestly on Monday against major currencies on speculation of higher rates in Europe. Few important data are released this week, but the European Central Bank, the Reserve Bank of Australia, and the Bank of England are scheduled for interest-rate setting meetings. Only the ECB is expected to raise interest rates this week. Sterling gained possibly on expectation on a more hawkish BOE stance on Thursday. The USD/CAD made new lows on rumors that Warren Buffet had an interest in the Canadian dollar. China’s Shanghai stock index slipped roughly 8% overnight, but global equity markets had so far largely shrugged off the move with no evidence today that carry trades were under major pressure.


• The EUR/JPY, still overbought, is testing resistance. Due to the resilience of the stock markets and carry trades, buying one unit of the EUR/JPY with a narrow stop should be OK

Financial and Economic News and Comments

US & Canada

• US factory orders rose a less-than-expected 0.3% m/m in April. Non-durable orders fell and offset the pick up in durable good orders. Non-defense capital goods rose 2.1% and rebounded the last two months. The inventory to shipment ratio fell 0.1 to 1.24.

Europe

• Energy and intermediate goods prices increases fueled eurozone producer price index in April. PPI rose a stronger-than-expected 0.4% m/m in April, Eurostat reported.


• German press reported that the ECB’s staff forecast for 2007 eurozone growth will be revised upward when released on Wednesday and that inflation estimates for 2008 will be above the ECB’s inflation target.


• ECB President Jean-Claude Trichet said that there is no time for complacency in the eurozone despite encouraging growth, supporting market expectations of an interest-rate hike this week and at least one more increase by yearend. Trichet also said economic developments were very encouraging. Reforms could add 0.5% to EMU growth.


• Interest-rate futures showed investors have increased bets the ECB will raise interest rates to 4.5% this year. The yield on the December Euribor contract was 4.56%, up from 4.49% a week earlier.

Asia-Pacific

• China’s key stock index plunged over 8% after the government’s main securities daily signaled officials will not try to halt a slump in Chinese stocks after the government’s recent tax hike on stock trades. The Chinese stamp tax is expected to create a $40 billion windfall for the government if the volume maintains current levels


• Japanese largest companies’ spending increased to a record in Q1, indicating the Japanese economy probably grew at a faster pace than the 2.4% initially estimated by the government.


• Japan’s capital spending rose a stronger-than-expected 13.6% y/y in Q1, the Ministry of Finance said.


• Australia’s company operating profits in Q1 rose 7.6% q/q, the fastest pace in almost two years, the Bureau of Statistics said.

FX Strategy Update