Expert Analysis of Today's Market

• The dollar traded mostly higher on Friday. US retail sales dropped by the most on record, indicating the US economy is in its worst slump in decades. The eurozone GDP contracted for a second quarter, indicating a recession. A global recession is deepening. Federal Reserve Chairman Ben S. Bernanke said central bankers worldwide are prepared to take additional actions as needed, signaling further interest-rate cuts. The dollar rose against the European currencies as weak economic data pushed stocks lower increasing safe haven flows. The Canadian and Australian dollars suffered on increased risk aversion and falling commodity prices.


• The USD/JPY fell as stocks consolidated yesterday’s gains. Stocks are building a possible bottom, but the trend is still down. The USD/JPY, highly correlated with the stock market, is also in a downtrend. For a return of risk appetite, the short-term downtrend in the stock market needs to be broken. This would reduce carrytrade unwinding and break the negative trend in the USD/JPY.

Financial and Economic News and Comments

US & Canada

• US retail sales dropped a larger-than-expected 2.8% m/m in October, a fourth consecutive decline and the most on record, Commerce Department figures showed. Retail sales less autos fell a larger-than-forecast 2.2% m/m in October, also the worst performance on record. Retail sales were down 3.3% y/y.

• US import prices fell a larger-than-expected 4.7% m/m in October, pointing to a rising danger of deflation, Labor Department figures showed.


• US businesses inventories declined a larger-than-forecast 0.2% m/m in September, indicating businesses were anticipating weaker sales, Commerce Department data showed. Despite the fall in inventories, companies had enough goods on hand to last 1.29 months at the current sales rate, the most since January 2007 as sales declined.


• The Reuters/University of Michigan preliminary index of US consumer sentiment remained near the lowest level since 1980, standing at 57.9 in November compared with 57.6 in October. Consumer expectations fell to 55.7 in November from 57.0 in October. Current conditions improved slightly to 61.4 from October’s 58.4.

Europe

• The eurozone economy is in a recession, contracting 0.2% q/q for the second straight quarter, Eurostat advanced Q3 GDP data showed. The eurozone economy will worsen in Q4 and economic growth is unlikely to return before the end of 2009.

• Eurozone consumer-price inflation slowed to 3.2% y/y in October, down from September’s 3.6% y/y rate, Eurostat reported. On a monthly basis, the eurozone CPI showed no change in October compared to September’s level. The core CPI growth rate remained at 1.9% y/y.


• Germany’s CPI contracted 0.2% m/m in October, following September’s 0.1% m/m decline, final data from the Federal Statistical Office showed. The October CPI was at a 2.4% y/y rate, down from September’s 2.9% y/y level.

Asia-Pacific

• Japan pledged $2 billion to a World Bank fund to revive struggling banks in developing countries.


• China’s central government will contribute just over a quarter of the 4 trillion yuan ($586 billion) economic stimulus package. The government will provide 1.18 trillion yuan to fund spending on railways, roads, healthcare and housing, Mu Hong, vice chairman of the nation’s top economic planning agency, said.

FX Strategy Update