• The dollar traded mixed versus its rivals Thursday. The European Central Bank and the Bank of England, as forecast, left their benchmark interest rates unchanged at 4% and 5%, respectively. The EUR/USD traded below 1.53 overnight but later gained as European Central Bank President Jean-Claude Trichet highlighted inflation risk. The euro was little changed in late New York trading, still above the important support; however, today’s penetration of the support will likely lower the pair. Sterling was little changed after the BOE kept rates unchanged. The Canadian dollar fell as Canadian housing starts declined more than expected. The Australian dollar advanced as Australian employment rose for a record 18th month. The yen and Swiss franc rose as investors reduced carry-trades.
  • After hitting resistance last week, the USD/JPY has been falling modestly the last four days. The pair is testing the short-term uptrend that started in March. Strongly correlated with the US equity market, the pair has been pressured by the recent consolidation in the stock market. If the pair breaks the support, it will possibly fall to 100. There are major resistances in the 105.50 and 107.50 areas.


Financial and Economic News and Comments

US & Canada

  • Canada’s April new-home starts declined more than expected to 213,900 on an annualized basis, compared with a revised 243,000 in March, Canada Mortgage and Housing Corp. said.
  • US initial jobless claims fell a more-than-expected 18,000 to 365,000 for the week ending May 3, the Labor Department said. The four-week average of initial jobless claims rose 2,500 to 367,000. Continuing jobless claims fell 10,000 to 3.02 million for the week ending April 26. Despite the declines in the initial and continuing jobless claims, underlying trends still point to a weakening labor market.


  • US wholesale inventories unexpectedly declined 0.1% to a seasonally adjusted $420.77 billion in March, following a downwardly revised 0.9 increase in February, the Commerce Department said. The unexpected decline in March wholesale inventories will subtract the final Q1 GDP growth.



  • The European Central Bank, as forecast, left its benchmark short-term policy interest rate unchanged for the 11th consecutive month at 4% as ECB President Jean-Claude Trichet said “inflation rates are expected to remain high for a rather protracted period of time.” Trichet did not use the codeword “vigilance,” a term that has previously signified an impending rate increase. He signaled no shift in the ECB’s policy stance in the near future given sustained inflationary pressure. Inflation is expected to gradually abate later in the year, but risks to price stability are “clearly to the upside,” he said.
  • The Bank of England, as expected, maintained its key interest rate at 5% as it attempts to dampen price pressures. However, future rate cuts are inevitable as the UK economy is weakening.
  • Germany’s industrial production, adjusted for seasonal swings and inflation, fell 0.5% m/m but rose 4.7% y/y in March, the Economy Ministry in Berlin said. The German economy will likely grow below potential this year due to the stronger euro and slower global economic growth.


  • German exports unexpectedly fell 0.5% in March after declining 0.2% in February, the Federal Statistics Office in Wiesbaden said. The trade surplus narrowed to €16.7 billion ($26 billion) in March from €16.9 billion in February. The surplus in the current account widened to €17.2 billion from €16.1 billion.


  • Australian employers added 25,400 staff in April after hiring an extra 18,100 in March, the Bureau of Statistics said in Sydney. The unemployment rate rose to 4.2% from 4.1%.

FX Strategy Update