Expert Analysis of Today's Market

• The dollar fell against most major currencies on Monday as a gauge of corporate bond risk rose, fueling speculation on a weakening US growth outlook. The yen was slightly lower versus the dollar as US stock indexes rebounded. The pound fell to a 2-week low against the euro and traded near the weakest versus the yen in almost two months. The Canadian dollar declined for a fourth day on US subprime impact speculation. The Australian and New Zealand dollars fell to a 1-month low as declines in equities prompted investors to reduce holdings in higher-yielding currencies.


• The Swiss franc advanced on speculation investors are unwinding carry trades. The Swiss franc rose versus key currencies after Germany’s IKB Deutsche Industriebank AG reported losses on US subprime mortgages and the risk of holding corporate debt surged to a record. The USD/CHF is testing support at 1.20. If this support is broken, the pair will fall further.

Financial and Economic News and Comments

US & Canada

• The Federal Reserve Bank of Dallas said its production index moved to -9.7 in July from 14.0 in June. The bank’s general business activity index stood at -3.6 in July from 10.8 in June. The numbers point to weakening factory activity in July. Despite July’s slowdown, the 6-month outlook remained optimistic, the Dallas Fed stated.


• The Federal Reserve Bank of Chicago named research director Charles Evans as its president, replacing retiring President Michael Moskow. Evans will take over as president on September 1, the Chicago Fed said.

Europe

• The eurozone retail PMI fell to a seasonally adjusted 46.2 in July, the lowest since May 2004, from 48.2 in June, according to NTC Economics Ltd.


• UK house prices in July rose at the slowest pace since January 2006. The average cost of a home in England and Wales rose 0.1% in July to £176,300 ($358,000), Hometrack Ltd. reported. Price gains in the capital slowed to the weakest in 18 months, falling to 0.2% from 0.7%.

Asia-Pacific

• Japan’s industrial production rose a seasonally adjusted 1.2% in June, rebounding from 3-month declines, the Ministry of Economy, Trade and Industry said.


• Prime Minister Shinzo Abe insisted he will remain in office after voters angered by a botched pension system and government scandals handed his ruling coalition an overwhelming defeat in Japan’s upper house elections yesterday.


• China increases reserve requirements for banks for the sixth time this year to curb lending and investment. Lenders are required to put aside 12% of deposits as reserves, beginning August 15, up from 11.5%, the People’s Bank of China announced.

FX Strategy Update