Expert Analysis of Today's Market

• The dollar was marginally lower against the euro but stronger against the yen on Tuesday. The yen declined for the first time in 4 days against the dollar and euro as global stocks rebounded. The EUR/USD is testing support at 1.31 ahead of the ECB’s interest rate decision on Thursday and the US employment report on Friday. We do not expect a major move until then.

• The EUR/JPY rose after a week of carry trade unwinding took the euro to a 3-1/2 month low at strong support around the 150-area. The USD/JPY rose after testing support at 115 yesterday.

image 2 of USD/JPY

Financial and Economic News and Comments

US & Canada

• US pending sales for existing homes fell 4.1% in January after a 4.5% jump in December, suggesting a softening in February existing home sales.


• US factory orders dropped a larger-than-expected 5.6% in January. Total orders fell 1.6% y/y, but capital goods orders rose 5.8% y/y. Core capital goods orders fell 0.6% y/y.


• US productivity last quarter grew less than the government initially estimated, and labor costs accelerated more than forecast, suggesting inflation pressures persist. US productivity for Q4 was revised lower. Productivity for Q4 rose 1.6% q/q and unit labor costs 6.6% q/q. Annual productivity growth of just 1.4% compares to the stronger 3.4% y/y in unit labor costs, a measure the Federal Reserve is closely monitoring as a read on inflation pressures.

• Treasury Secretary Henry Paulson said bad debts arising from the US housing slump will be limited. “Credit issues are there, but they are contained,” Paulson said in Tokyo during a 4-day tour of Asia. The US financial sector is healthy and most institutions will not feel a big impact, he said.


• Paulson do not see any downside to the US economy while former Fed chairman Alan Greenspan quantified the risk for a recession to 33%.


• The Bank of Canada kept its key interest rate unchanged at 4.25% for a sixth meeting and signaled policy makers are not leaning toward a rate cut or hike soon. “Despite recent volatility in global financial markets, the Bank continues to judge that the risks to its inflation projection are roughly balanced,” BOC policymakers said in a statement from Ottawa.

Europe

• Europe’s economic growth in Q4 accelerated as exports rose at the fastest pace in 6 years. The eurozone Q4 GDP grew 0.9% q/q after a revised 0.6% rise in Q3, the European Union’s statistics office in Luxembourg said. Exports grew 3.7%, the most since a 4.1% rise in Q4 2000.

Asia-Pacific

• Australia’s trade deficit narrowed more than expected to A$876 million ($677 million) in January from A$1.38 billion in December, the Bureau of Statistics said in Sydney. Exports rose 2% and imports decreased 1%.