Expert Analysis of Today's Market

• The dollar rose against other key currencies except the yen and Swiss franc in NY trading Monday. Despite a G-7 statement expressing concern about excessive yen volatility, the yen traded near a 13-year high versus the dollar and climbed to the strongest level against the euro since May 2002. Sterling fell against the dollar and euro following a UK house-price decline to a 7-year low, another evidence of a looming UK recession. The Canadian dollar declined to the lowest since September 2004. The Australian dollar approached a 5-year low versus the greenback and a record low against the yen.


• The EUR/USD fell to the lowest since May 2006 after European stocks had another big sell-off and German business confidence dropped to the lowest since 2003. European Central Bank President Jean-Claude Trichet indicated he may cut interest rates next week. Ongoing deleveraging and repatriation of US funds have pressured the pair. Since its June 15 peak of 1.6036, the EUR/USD fell nearly 22% and is currently testing the 1.25 support. The next support is in the 1.20 area. Resistances exist in the 1.30 and 1.35 areas.

Financial and Economic News and Comments

US & Canada

• US new home sales unexpectedly increased 2.7% m/m in September to an annual rate of 464,000 in September from August’s downwardly revised 452,000, the Commerce Department said. New home sales dropped 33.1% y/y. The median sales price fell 9.1% y/y to $218,400, the lowest since September 2004. The supply of unsold new homes at the current sales pace declined to 10.4 months in September from August’s 11.4 months. Sales rebounded in the West, gained slightly in the South, but fell in the Northeast and Midwest. Overall, the new home sales increase in September will likely be short-lived.

• Texas manufacturing activity continued to deteriorate in October with indexes for production, capacity utilization, volume of shipments, volume of new orders, and growth rate of orders remaining negative due to continued sluggish demand, the Federal Reserve Bank of Dallas said. Production was at -13.7 in October compared to -21.4 in September; capacity utilization was at -19.6 compared to -18.5; shipments were at -9.8 compared to -21.6; new orders were at -25.5 compared to -27.1; and the growth rate of orders was -28.5 compared to -35.9.

Europe

• The German Ifo business confidence declined more than expected to a 5-year low of 90.2 in October from 92.9 in September, the Ifo Institute for Economic Research reported. The business expectations index fell more than expected to 81.4, the lowest level since the data began in 1991, from September’s 86.5. The business conditions index was little changed to 99.9 from 99.8.

• The average cost of a residential property in England and Wales fell 7.3% y/y to £163,200 ($254,000) in October, the largest annual drop since the index began in 2001, Hometrack reported. Prices declined 1.3% m/m in October. In London, prices fell 1.6% m/m in October, the biggest decline among the regions surveyed. Prices dropped the least in Yorkshire and Humberside in northern England.


• D. Carnegie & Co AB, Scandinavia’s largest independent investment bank, received a 1 billion-krona ($125 million) loan from Sweden’s Riksbank. “Conditions in the bank sector have recently made it difficult for Carnegie to finance its payments. The bank has suffered liquidity problems. Given the currently prevailing anxiety, the Riksbank has decided to grant liquidity assistance to Carnegie to reduce the risk of a serious disruption to the financial system,” Riksbank Governor Stefan Ingves said.

Asia-Pacific

• The Bank of Korea slashed its benchmark rate 75 basis points to 4.25%, the second rate cut in less than three weeks. Vice Minister Kim Dong Soo said the government will increase spending to bolster South Korea’s slowing economic growth.


• The People’s Bank of China and the finance ministry said they will deposit 30 billion yuan ($4.4 billion) of the treasury’s cash with commercial banks to encourage lending. The cash will be deposited with lenders for three months starting October 30-January 30, 2009, the PBC said. The cash deposit rate will be decided through an auction with the banks that offer to handle the deposit.

FX Strategy Update