Expert Analysis of Today's Market

• The dollar traded mixed in volatile trading Friday. Central banks injected more cash into the banking system to avert a confidence crisis in global credit markets. US stocks stabilized after the Federal Reserve added $38 billion to the banking system to alleviate a credit crunch. The yen pared its gains and declined versus the euro and dollar. Sterling fell against the dollar and euro this week.


• The USD/CAD was pressured as Canada’s unemployment rate unexpectedly fell to the lowest since 1974. However, we believe the USD/CAD will move higher. The downward sloping trend has been broken and an inverted head-and-shoulder bottom is forming.

Financial and Economic News and Comments

US & Canada

• Central banks in the US, Europe, Japan, Canada and Australia added about $132.7 billion to the banking system to avert a confidence crisis in global credit markets. The European Central Bank injected €61.05 billion ($83.6 billion) today after allocating an unprecedented €94.841 billion ($130.2 billion) yesterday. The Federal Reserve, in a second day responding in concert with the ECB, provided $38 billion of reserves. The Bank of Canada offered another C$1.69 billion ($1.60 billion) into financial markets today. The Bank of Japan added ¥1 trillion ($8.5 billion) and the Reserve Bank of Australia loaned A$4.95 billion ($4.2 billion) to the financial system.


• The Federal Reserve, in today’s statement that underscores severe developments in credit markets, said it is “providing liquidity to facilitate the orderly functioning of financial markets.” According to the statement, the Fed will “provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee’s target rate of 5-1/4 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding.”


• US import prices surged a more-than-expected 1.5% m/m in July on higher energy prices and a record increase in prices of products from China, after climbing a downwardly revised 0.9% m/m in June, the Labor Department said. July’s import prices rose 2.8% y/y, up sharply from June’s 2% y/y rate. July’s petroleum import prices jumped 7% m/m, 4.1% y/y. Excluding petroleum, import prices increased 0.2% m/m, 2.8% y/y. The jump in import prices is likely to keep the Federal Reserve on edge over inflation concerns.


• Canada’s unemployment rate unexpectedly fell to 6.0% in July, the lowest since December 1974, from June’s 6.1%, Statistics Canada reported.

Europe

• European equities fell the most in 4 years on concerns deepening developments in credit markets may hurt economic growth and earnings.


• The OECD reported its leading economic indicators index for EMU rose to 108.0 in June from 107.9 in May.

Asia-Pacific

• Japan’s industrial production rose a more-than-expected 1.3% m/m in June on a seasonally adjusted basis, revised government data showed. The capacity utilization index increased 0.8% m/m.


• Japan’s consumer confidence index unexpectedly fell to 44.6 in July from June’s 45.2.

FX Strategy Update