Expert Analysis of Today's Market

• The dollar rose against the European currencies on Wednesday after Federal Reserve Bank of St. Louis President William Poole yesterday downplayed the risk of subprime contagion and the chance of lower interest rates in the US. Sterling and the New Zealand dollar retreated from multi-year highs against the dollar, but the Australian dollar hit an 18-year high on strong inflation data. The yen was little changed against the dollar but stronger in cross trades on continuing unwind of carry trades as risk aversion remained dominant.


• The EUR/USD hit an all-time high yesterday but unable to penetrate resistance at 1.3850. Today the pair fell the most in a year after becoming extremely overbought. The pair, still in an uptrend, is testing support at 1.37. If the support is broken, the pair may fall to 1.34.

Financial and Economic News and Comments

US & Canada

• US existing home sales in June fell a more-than-expected 3.8% m/m and 11.4% y/y to an annual rate of 5.75 million, the slowest pace since November 2002, from a downwardly revised 5.98 million in May, the National Association of Realtors said. Inventories of homes fell 4.2% at the end of June to 4.20 million, the first decline in inventories this year. At the current sales pace, that represented 8.8 months’ worth, the same as at the end of May. The median price of an existing home rose 0.3% y/y to $230,100, the first increase in 11 months, from the price of $229,300 in June 2006. Overall the housing sector is likely to remain a drag on the US economy for the rest of the year.

• St. Louis Fed President William Poole said inflation is “moderating just a bit” and suggested the Fed can afford to wait before lowering interest rates as mounting delinquencies among subprime mortgages will not hurt the US economy much. “Given that the real economy is doing quite well, there is certainly no reason to believe we have to quickly respond to signs of moderation in inflation,” Poole said.


• The IMF world economic outlook sees 2007 GDP at 5.2% and 2008 GDP at 5.2%. The April outlook was 4.9% for both years. The US outlook was cut to 2.0% from 2.2% in April but US consumers are vigorous and business investment strong. The IMF expects further central bank tightening and financial market risks contained.

Europe

• ECB council member Guy Quaden said euro strength is not incomprehensible given economic growth.

Asia-Pacific

• Japan’s trade surplus surged 53.4% y/y to ¥1.23 trillion ($10.2 billion) in June as exports rose at the fastest pace in five months, the Ministry of Finance said. Exports rose 16.2%.


• Australia’s consumer prices rose a stronger-than-expected 1.2% q/q in Q2, following a 0.1% q/q in Q1, the Bureau of Statistics said. Prices advanced 2.1% y/y.

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