Expert Analysis of Today's Market

• In NY Thursday trading, the dollar was lower against the euro and Canadian dollar but slightly higher versus the yen and sterling. Overnight the greenback fell to a record low against the euro and multi-year trough versus other major currencies. Later the dollar recovered on strong gains in the US equity market calming scares of the US sub-prime mortgage trouble. The yen was weak as the Bank of Japan left its key interest rate unchanged at 0.5% and risk appetite returned on rising equity prices. The Canadian dollar rose after Canada’s trade surplus was little changed at C$5.9 billion ($5.6 billion) in May.


• The GBP/USD fell modestly on Thursday as UK house prices gained at the slowest rate in 1.5 years. Trading in a steep uptrend, the pair is overbought at a 26-year high. There is support from the upward sloping bullchannel, but a test of the 2.00 level is likely.

• The US dollar index is trading just above the critical support and yesterday’s low of 80.57. Rising stock prices without new sub-prime mortgage fear would support the index.

Financial and Economic News and Comments

US & Canada

• The US trade deficit widened 2.3% to $60.0 billion in May from $58.7 billion in April as a jump in imported oil costs outpaced record exports, the Commerce Department said. Exports rose 2.2% to a record $132 billion, as sales of civilian aircraft and electrical equipment strengthened. Imports rose 2.3% to $192.1 billion, also the highest ever.

• US initial jobless claims fell last week to the lowest in almost two months, the Labor Department said. Applications fell by 12K to 308K in the week ended July 7, adding to evidence that the labor market is strong.


• Fed Governor Randall S. Kroszner said the Fed is looking at sub-prime problems and is sensitive to the issue.


• The Bank of Canada said inflation will peak at 3% in Q4 and take half a year longer than expected to slow to its 2% target.


• Canada’s trade surplus narrowed to C$5.9 billion ($5.6 billion) in May from a revised C$5.91 billion in April, Statistics Canada said. A decline in the surplus in May to C$5.5 billion was expected.

Europe

• Eurostat’s second GDP estimate raised the growth estimates to 0.7% q/q from 0.6% for Q1 as consumption and net export proved stronger than initially estimated. GDP rose 3.1% y/y compared to 3.0% y/y in the first estimate.


• The eurozone industrial production staged a clear though slightly weaker-than-expected rebound in May, as all major economies recorded higher output, led by Germany, according to Eurostat.


• The European Commission’s dynamic factor model “projects GDP growth to remain strong in the second and third quarters of 2007, before slowing down marginally in the last quarter of the year,” the Commission said.


• UK house prices rose at the slowest pace since January 2006 on higher interest rates. The number of realestate agents and surveyors reporting higher home values in England and Wales outnumbered those showing declines by 10.6% in June, the Royal Institution of Chartered Surveyors said. In London, the balance of houseprice gains matched the lowest since February.

Asia-Pacific

• The Bank of Japan, as expected, left interest rates on hold at 0.5%. BOJ policymakers voted 8-1 to keep rates unchanged, a sign that monetary tightening may still be a couple of months away. BOJ Governor Toshihiko Fukui said BOJ policymakers wanted more time to assess the Japanese economy before raising rates.


• Japan’s industrial production fell 0.3% m/m in May, revised up from the initial estimate of a 0.4% fall, the Ministry of Economy, Trade and Industry said. Production increased 3.8% y/y in May following a 2.2% y/y rise in April.


• Australia’s unemployment rate unexpectedly rose to 4.3% in June from a 33-year low of 4.2% in May, the Bureau of Statistics said.

FX Strategy Update