• Trading mixed Friday, the dollar rose against the yen on higher global equity prices but modestly declined
    versus the euro and sterling. The Canadian dollar was supported by stronger-than-expected Canadian job
    growth while the Australian dollar was little changed. Today’s employment report did not affect the dollar and
    did not change the perception of a Fed rate cut next week. The market is split between a 25 and 50 basispoint
    cut. We bet the Fed will cut the Fed funds rate target by 25 basis points and the discount rate by 50
    basis points to address the credit crunch. The dollar is very cheap, possibly supporting its long-term outlook.
    However, the timing of a dollar rally is uncertain. At important technical levels against most key currencies, the
    greenback is supported by rallying stocks, more accommodating stances among foreign central banks, and
    less risk of aggressive Fed cuts in light of a relatively strong US labor market.
  • After breaking its 3-month uptrend and making an all-time high of 1.4966 on November 23, the EUR/USD has
    declined. If the pair breaks the 1.45-handle support, the fall will continue.

12_7_2007_IMG1onClick=photos_realsize(this,this.src); class=hand />

Financial and Economic News and Comments

US & Canada

  • US non-farm payrolls rose 94K in November, following a 170K increase in October, the Labor Department
    said. The unemployment rate remained at 4.7% for the third month in a row. Average hourly earnings
    increased 0.5% m/m and 3.8% y/y to $17.63. The employment gain matched expectations of about 85K.
    Although the ADP forecast on Wednesday showed a much stronger number, the ISM lower employment
    indication turned out to be more accurate.

12_7_2007_IMG2onClick=photos_realsize(this,this.src); class=hand /

  • The Reuters/University of Michigan preliminary index of consumer sentiment dropped to a lower-thanexpected
    74.5 in December, from 76.1 in November. The expectations component fell to 63.2, from 66.2,
    while the one-year inflation forecast rose to 3.5% from 3.4%.
  • Canadian employment rose a much higher-than-expected 42,600 jobs in November, following 63,000 in
    October, Statistics Canada said. The unemployment rate rose to 5.9% in November, as forecast, from 5.8%
    in October.

Europe

  • Germany’s industrial output fell a less-than-expected 0.3% m/m in October, following a 0.1% m/m increase in
    September, the Economy and Technology Ministry said. Output gained 6% y/y.

Asia-Pacific

  • Japan’s economy grew an annualized 1.5% in Q3, slower than the initially reported 2.6%, the Cabinet Office
    said. The economy shrank an annualized 1.8% in Q2, revised lower from the earlier estimate of a 1.6%
    contraction. Business investment was revised lower to 1.1% y/y from 1.7% y/y.

FX Strategy Update