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Daily Forex Strategy Briefing

Greenback at Important Support

Tue, Nov 14 2006, 02:44 GMT
by Hans Nilsson

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• The dollar rose modestly against most major currencies on Monday on speculation US yield advantage will remain wide a bit longer than previously thought. Japan's ruling party’s former policy chief Heizo Takenaka said he opposed a near-term interest rate hike, raising doubts on a BOJ rate hike this year. The EU business association UNICE said the European Central Bank should pause its monetary policy tightening next year until it sees clear signs of inflation in the eurozone. We think there will be one more rate hike and then a rate pause in Europe while there is unlikely to be any hikes in Japan until 2007 Q1. The dollar is at important support around the 84-85 area as illustrated in the chart below. If the support was broken, the dollar would decline further. However, we believe the support will hold as the dollar is extremely oversold.

Financial and Economic News and Comments

US & Canada
• No important US and Canadian data today but the rest of the week is filled with important economic data.

Europe
• The Eurozone’s business lobby group UNICE has urged the ECB to be prudent in its monetary policy. UNICE President Ernest-Antoine Seillière said the ECB ought not to raise rates after the beginning of December until it has evidence of inflationary risks. We expect the ECB to raise its main refinancing rate to 3.5% from 3.25% in early-December and then to pause.

• UK’s growth for 2007 is expected to be at 2.3%, compared to previous forecast of 2.4%, the British Chambers of Commerce (BCC) reported. The business lobby left its forecast of 2.6% growth for 2006 unrevised.

• House prices in the UK rose 8% y/y in September (0.8% m/m) and the average house price is ₤198,552, the Department for Communities and Local Government said.

• According to the British National Statistics, product prices at the producer level decreased 0.2% in October m/m and producer prices fell 1.7% y/y. Core output PPI, excluding volatile prices of food and tobacco, however, rose 0.2% on the month and 2.5% on the year. Input prices on a seasonally adjusted basis fell 0.1% in October m/m. On a y/y basis, input prices rose 3.8%.

Asia-Pacific
• The BOJ is reining in money supply too quickly, an “irrational” policy that is contributing to weakness in the Japanese economy, Japan's ruling party’s former policy chief Heizo Takenaka said.

• The BOJ will raise interest rates in the future, but the size and timing of such moves will be data-dependent; therefore, difficult to predict, BOJ Deputy Governor Kazumasa Iwata said Saturday.

• Japan's consumer confidence index rose to 48.2 in October from 46.3 in September as households regained some confidence in their income and job prospects compared with the previous few months, the Cabinet Office said Monday.

• The BOJ wholesale goods price index rose 2.8% in October y/y but dropped 0.3% m/m.

• China's GDP is expected to rise 9.5% in 2007, slightly above the projected growth for 2006, the State Information Center (SIC) said.

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Published on  Tue, Nov 14 2006, 02:51 GMT

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