Expert Analysis of Today's Market

EUR/JPY Falls from All-time High

Hans Nilsson 2007-06-19

The dollar was lower against most key currencies on Tuesday after US housing starts fell for the first time in four months indicating continued weakness in residential real estate. Sterling and the dollar block currencies were strong. The euro was little changed against the dollar and lower in the cross-trades after a report showed German investor confidence unexpectedly declined. The Canadian dollar rose today as investors bet on an interest-rate increase as early as the next policy meeting on July 10.

The EUR/JPY fell for the first time in five days after hitting a new all-time high yesterday and breaking resistance last week. The 164-area, now acting as support, will possibly be a good entering point for a long position. We do not see any major setback for the pair. The risk to the pair would be a major decline in equity markets.

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Financial and Economic News and Comments

US & Canada

US housing starts decreased to an annual rate of 1.474 million in May, a 4-month low, from a revised 1.506 million in April, the Commerce Department said. Housing starts fell 24.2% y/y. Building permits were slightly stronger than expected at 1.501 million annual rate, up 3% m/m after the decade low in April. The numbers indicate continued weakness in the housing sector.

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Canadian core inflation accelerated a less-than-forecast 2.2% y/y in May, Statistics Canada reported. Overall inflation rose 2.2% y/y, matching estimates. The core rate has been above the Bank of Canada’s 2% target for 10 months.

Europe

German investor confidence unexpectedly fell in June. The ZEW indicator of economic sentiment declined to 20.3 (29.0 expected) in June from 24.0 in May, while the current situation rose to 88.7 from 88.0, the ZEW Center for European Economic Research reported.

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Asia-Pacific

The yen was supported after Finance Minister Koji Omi said he is watching currency rates carefully and that economic fundamentals are favorable. That was firmer than his usual remarks that exchange rates should reflect economic fundamentals.

China will reduce export rebates on 2,831 products to curb the country’s record trade surplus, ease friction with other countries and spur industries to use less energy, the Ministry of Finance said.

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