• The stock market continues to be the main driver for the FX market. US stocks had a volatile day but ended the day sharply higher after earlier losses. The greenback was higher against the Canadian dollar and sterling, lower against the Swiss franc and yen, and little changed versus the euro and Australian dollar. The yen pared earlier strong gains on rising US equities but was still higher against most key currencies.
  • The EUR/USD was little changed after testing both the 1.48-handle support and the 1.49-handle resistance. Focus now turns to Friday's important non-farm payrolls and ISM manufacturing data.


  • The dollar index is at an important support level at 75, which is an all-time low. If this level is broken, the dollar is likely to fall further. If it holds, a short-term dollar rally may occur.


Financial and Economic News and Comments

US & Canada

  • US personal consumption increased 0.2% m/m in December following a downwardly revised 1.0% m/m rise in November, the Commerce Department said. Personal income rose at a seasonally adjusted rate of 0.5% m/m in December after increasing 0.4% m/m in November. Disposable personal income (income after taxes) increased 0.5% m/m in December and rose 5.6% y/y.


  • The overall PCE deflator (inflation) increased 0.2% m/m in December and rose 3.5% y/y. The core PCE deflator, which excludes food and energy, also increased 0.2% m/m in December and rose 2.2% y/y.
  • US initial jobless claims rose a stronger-than-expected 69,000 to 375,000 in the week ended Jan. 26, to its highest level since October 2005, reversing four straight weeks of declines. The sharp rise in claims last week and low claims earlier this year may have been the result of difficulties in seasonally adjusting data. The fourweek average of new claims, which smoothed out weekly volatility, rose 10,250 to 325,750 and is probably a better representation of the unemployment situation.


  • The US employment cost index in Q4 rose 0.8% q/q. Wages also rose 0.8% q/q as benefits rose 0.9%. The annual growth rate was 3.3% for compensation, as wages rose 3.4% y/y and benefits rose 3.1% y/y.
  • The Chicago PMI manufacturing index fell to 51.5 in January from 56.4 in December. Still over 50, the index indicates a modest expansion. However, new orders fell to 44.7 and employment was below 50 for the second month. Prices rose to a strong 81.7.
  • Canada's GDP increased 0.1% m/m in December following a 0.2% m/m rise in November, Statistics Canada reported. Canada's retail sector was strong while manufacturing weak, reflecting the high value of the Canadian dollar.


  • EMU inflation unexpectedly rose to 3.2% y/y in January from 3.1% y/y in December, preliminary Eurostat data showed. Meanwhile, EMU unemployment rate was steady at 7.2% in December. The high inflation and relatively low unemployment rate will reinforce the European Central Bank's concerns over secondary inflation effects from high wage claims.
  • The EMU business climate index fell more than expected to 78 in January from 89 in December. EMU consumer confidence fell from -9 to -12.
  • Germany's unemployment rate fell to the lowest level in 15 years in January. In western Germany, the number of the unemployed fell a seasonally adjusted 55,000 to 2.23 million in January, while the number in eastern Germany fell 34,000 to 1.18 million, the labor agency said. Meanwhile, German retail sales declined 0.1% m/m in December and fell 2.2% y/y in 2007.


  • The Bank of Japan is ready to take flexible policy action should risks to economic growth rise, BOJ policy maker Kiyohiko Nishimura said.

FX Strategy Update