Expert Analysis of Today's Market

• The dollar was flat against the euro and yen after the Institute for Supple Management’s manufacturing index indicated slow manufacturing growth in the US in March. Investors await important US data this week for clues on the severity of the US economic slowdown. The most important will be Friday’s US labor market report, which will likely be stronger than expected. Sterling and the Australian dollar rose overnight. The AUD/USD hit a 10-year high of 0.8183 on a stronger-than-expected rise in Australian February retail sales and we stopped out at 0.8135 on our short position.


• The EUR/USD is approaching critical resistance. We do not think the pair will be able to penetrate this resistance as the pair is overbought. If the resistance holds, there should be a correction down to the 1.30 handle. The new US protectionist measures worry us as they could lead to a drop in the dollar.

Financial and Economic News and Comments

US & Canada

• The ISM’s US manufacturing index fell to 50.9 in March from 52.3 in February. New orders fell to 51.6 as production dipped to 53. Inventories, employment and order backlogs were all below the 50 mark that indicates contraction. The prices paid index rose to 65.5. Export orders rose as import orders edged lower. Overall the report indicates slow growth in the US manufacturing sector and no sign of abating inflationary pressures.


• The Bush Administration took a dangerous step toward protection last Friday by putting tariffs on Chinese paper imports. It is an open invitation for other industries to seek protection as well. This could lead to further trade sanctions and possible retaliation from China. The move threatens to slow an already fragile US economy, and could raise both inflation and interest rates and further devalue the dollar.

Europe

• The Royal Bank of Scotland Group Plc’s manufacturing index in the eurozone slowed in March. The index fell marginally to 55.4 in March from 55.6 in February. Exports cooled and a tax increase in Germany reduced consumer spending.

Asia-Pacific

• Japanese companies plan to invest at a slightly faster pace than expected. The Tankan, the Bank of Japan’s business-confidence survey showing the status of the Japanese economy, showed large companies plan to increase spending by 2.9% in the year that began April 1.


• Australia’s retail sales rose 0.9% in February, twice as fast as expected, the Bureau of Statistics said in Sydney. Home-building approvals unexpectedly jumped 10.6%, the biggest monthly gain since September 2003, increasing the chance of further interest-rate hikes.


• The US and South Korea reached a free-trade accord. The agreement will eliminate duties on products such as South Korean autos and apparel, and cut investment barriers for American beef producers and financial companies.

FX Strategy Update