Expert Analysis of Today's Market

• The dollar traded mixed on Thursday as global equities plunged and credit spreads rose on concerns of debt deflation. The yen rose against all major currencies as declining global stocks prompted carry-trade unwinding. The EUR/USD was modestly higher after successfully testing important support at 1.37. The GBP/USD recouped earlier losses from less-than-expected UK house price gains after US new-home sales and durable-goods orders were below expectations. The dollar block currencies---the Australian, Canadian and New Zealand dollars---fell on falling global stocks.


• The USD/JPY dropped to the lowest level since April. The 200-day moving average at 119.60 was broken today indicating further losses. We lowered our stop and objective for the pair.

Financial and Economic News and Comments

US & Canada

• US durable-goods orders rose a less-than-expected 1.4% m/m in June to a seasonally adjusted $217.07 billion, led by a jump in orders for commercial aircraft, but declined 1.3% y/y, the Commerce Department said. Durable-goods orders ex transportation fell 0.5% m/m in June after a revised 0.2% m/m drop in May. Orders are still subdued.

• US new-home sales fell a larger-than-expected 6.6% m/m and 22% y/y in June, the Commerce Department said. The median price of a new home fell 2.2% to $237,900 in June from $243,200 in June 2006. The supply of homes at the current sales rate rose to 7.8 months’ worth, the most since March, from 7.4 months. Overall we expect further downward pressure on sales, residential construction and home prices.

• US initial jobless claims fell 2,000 to 301,000 on a seasonally-adjusted basis in the week ended July 21, the Labor Department said. Claims for the July 14 week were upwardly revised to 303,000 from 301,000. The 4-week average fell to 308,500 last week from a previous level of 312,500.
• Stocks fell worldwide. The Standard & Poor’s 500 index dropped to its lowest in almost three months. The FTSE 100’s biggest drop in four years led declines across Europe.

Europe

• German business confidence fell in line with expectations to 106.4 in July from 107.0 in June, the second consecutive monthly drop, the German Ifo research institute said. The expectations index fell to 101.8 in July, the lowest since November, from 102.8 in June. The current conditions index slipped to 111.3 from 111.4. Overall the report indicates continued growth but at a slower pace for the German economy.


• European money-supply growth unexpectedly accelerated in June, the European Central Bank said. M3 money supply, which the ECB uses as a gauge of future inflation, rose 10.9% y/y in June after rising 10.6% y/y in May.


• UK house prices rose at a slower-than-expected 0.1% m/m in July, the slowest pace in 15 months, Nationwide Building Society said. House prices climbed 9.9% y/y in July, down from an 11.1% y/y in June.

Asia-Pacific

• The yen rose after Bank of Japan board member Tadao Noda said the BOJ is aware of the risks associated with a weak currency. Finance minister Hiroki Tsuda said currencies “should reflect economic fundamentals” and that he is “carefully watching” the FX market.


• China received its highest-ever debt rating from Moody’s Investors Service, buoyed by $1.3 trillion of foreign reserves.

FX Strategy Update