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188924 Resource 128466 128654 128654 1194565363655 1194565363655 Controlled Asian Morning Update 9th November 2007

Dollar trades more quietly overnight

Overnight saw a quieter and more range trading consolidation following the sharp Dollar losses earlier in the week. News was thin on the ground and nothing really to gain any new insight.Both the Bank of England and European Central Bank retained unchanged policies which was the majority view. The BOE does not provide statements when there is no change but clearly the balance between a mild softening and credit crisis issues against higher inflationary pressures kept the committee from cutting rates as some had suggested.The debate surrounding the ECB decision was pretty much the same though some pundits were opting for a hike rather than the cut suggested for the BOE. In the end the unchanged policy was still the majority view but still saw Trichet champing at the bit to hike in the face of higher inflation. However, while his speech was more hawkish he did describe inflation as a “hump” saying “Overall, we expect the HICP inflation rate to remain significantly above 2 pct in the coming months before moderating again in the course of 2008.” The States saw Initial Jobless Claims rise by 317K and Continuing Claims by 2579K. Forecasts had centered on 330K and 2560K respectively. The rise in core continuing claims is a slight concern but given the soft outlook for the coming few months there is unlikely to be any drastic improvement until Spring next year. This was almost touched upon by Bernanke when asked on when the housing woes may improve. Clearly the deterioration is beyond what forecasted had expected but feels that Q2 next year should see the problem flatten out. Not too much of a surprise as this is when the housing market traditionally turns higher. Other comments from Bernanke during the speech to the Congressional Joint Economic Committee suggested poor Q4 growth and may remain sluggish in Q1. However, with housing expected to improve at that time and with less tension in the credit markets the outcome should be a recovery. It would depend on the credit crisis remaining on a steady to improved course and for consumer spending to remain buoyant over the coming months. Still plenty of downside risks.This does provide us with a clue on the Fed’s outlook on interest rates. They have made comment that they see risks balanced at the moment which includes the outlook Bernanke described and thus deviation from the current level of interest rates will require new factors that will alter the balance of these factors. It is probably a sign that the Fed is not about to cut rates again unless it sees a worsening in conditions for which the impact will be more detrimental than higher inflation. Of course oil prices will also play their part in the influence on inflation. The Dollar remained subdued for the most part, the market loathe to give up its bearish outlook with the only reasonable hope for strength stemming from profit taking ahead of a long NY weekend due to Veteran’s Day on Monday. Certainly at this point, unless some other issue is introduced the market is not yet willing to start buying Dollars. The only other reason the market could consider buying Dollars is on poor European data. This has been rather mixed of late and there have been signs that the strong Euro and credit crisis have begun to have impact on manufacturing. Numbers have been repeatedly falling below forecasts and it is a little unclear how soon this will stabilize. The majority of releases today are manufacturing and industrial production numbers from France & Italy while from the States the PPI numbers will provide an idea of how well U.S. manufacturers have coped with higher costs. The suggestion from the non-farm productivity results suggest quite positively and this could be a relief. However, with oil around $100 there is little suggestion the Fed will feel elated.All in all with the long weekend ahead it seems the greater risk is still for a quieter end to the trading week with a mild Dollar positive direction on the back of position squaring. More later when the analysis is complete.The following economic releases are due today from Asia:Japan – September Industrial Production (F) (MoM)   - 1.4% Industrial Production (F) (YoY)     +0.8% Capacity Utilization (F)                 109.7 9 application/xml false bernanke BOE currencies ECB Fed Forex FX Jobless claims rate decision New to Forex? Read more about currency trading http://www.gftforex.com/land/index.asp?aid=446 Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; hc; .NET CLR 1.1.4322; .NET CLR 2.0.50727) 127.0.0.1 127.0.0.1 ICopsey false true false false true 128466 blog blogsite/GFTForex/web