Expert Analysis of Today's Market

• The dollar was modestly lower on Monday ahead of US inflation data and Congressional testimony by Federal Reserve Chairman Ben S. Bernanke later this week. Investors are looking for clues of US monetary policy outlook and how worried the Fed is about the troubled sub-prime mortgage sector and whether the Fed may switch its focus from core inflation data to overall inflation figures. The high yielding currencies were strong. The New Zealand dollar rose to a 22-year high on stronger-than-expected inflation and the Australian dollar traded at an 18-year high. The yen rose in thin trading (Japanese holiday) on reports that North Korea closed down a nuclear reactor. Sterling traded at a 26-year high.


• The EUR/USD was close to an all-time-high today. The pair is in a clear uptrend and overbought. Dollar sentiment is negative. Yield and growth differentials are pressuring the greenback as the Fed is on hold and interest rates are expected to rise abroad and growth is outpacing the US. The equity market and other leading economic indicators signal renewed strength in the US economy, but the market has ignored these signs of strength. There are resistance around the 1.38 handle and strong support in the 1.36-1.37 area.

Financial and Economic News and Comments

US & Canada

• The Federal Reserve Bank of New York’s general economic index advanced to its highest in a year, indicating the manufacturing sector is expanding. The index rose to 26.46 in July, the highest since June 2006, from 25.75 in June, the New York Fed said. Readings above zero signal expansion. The measure of new orders rose to 26.5 from 17.2.


• Canadian factory shipments in May fell 0.1% to C$49.7 billion ($47.5 billion), after a revised 0.7% drop in April, Statistics Canada said. Excluding motor vehicles and parts, shipments rose 0.2%. New factory orders fell 0.5% to C$50.5 billion and inventories declined 0.4% to C$62.9 billion.

Europe

• Consumer price inflation in the eurozone rose 1.9% y/y in June, the same inflation rate as in May, the European Union’s statistics office said. Inflation in the EMU remained below the European Central Bank’s 2% ceiling for a 10th month in June as costs of fuel and phone services declined from a year earlier.


• Inflation in Germany rose 2.0% y/y and 0.1% m/m in June, unchanged from May, when measured using a harmonized European Union method, the Federal Statistics Office said.

Asia-Pacific

• New Zealand’s consumer price inflation rose more than expected in Q2 prompting markets to price in an interest-rate rise to 8.25% as soon as next week.


• The Thai baht gained to the highest in almost a decade in the offshore and onshore markets, as global funds bought more of Thailand’s equities. The baht rose 1.4% and passed 30 per dollar in the offshore market.

FX Strategy Update