Fundamental Analysis 28 October 08

October 28th 2008, The Currency Rollercoaster USD Judging from the final results of trading yesterday, it would be easy to say the USD simply traded in a tight range and that the day’s trading was non eventful, however the opposite is true. The USD was wildly volatile in early trading picking up large swatches of territory against the GBP and EUR. As the day transpired though, the USD gave back its initial gains and did finish the day back in familiar ground. Interestingly, the USD had positive data coming from New Home Sales. The release showed a number of 464K, which was above the forecasted 452K. Today the CB Consumer Confidence figures will be released and are expected to show a reading of 52.2. Also the S&P/CS Composite HPI is due and is projected to produce a number of minus -16.6%. Traders must also bear in mind that the Federal Reserve’s FMOC meetings begin today and will most likely end tomorrow with an announcement regarding its interest rate policy. Wall Street showed poor results yesterday as the crisis in confidence for investment continued. Markets have certainly reached a point in which traders are asking - what is fair market value for equities. Investors have many things on their respective plates to consider in the coming days, the decision of the Federal Reserve which will likely come tomorrow is at the forefront. Most investors believe the Fed will cut their interest rate, which stands at 1.50% currently. In fact, investor debate centers on the amount of the rate cut that will be enacted. There has been some critical talk that the Fed along with other central banks have not reacted quick enough to quell fears of a global recession. Even though the major central banks had a coordinated cut across the boards a few weeks ago, it is now probable that individual governments such as the U.S. will begin to tackle their slowing economies on a case per case scenario. The Federal Reserve is in a rather uncomfortable position, this because its interest rate is relatively low compared to many other central banks already. Yet, fear of an oncoming

recession and the relative weakness in prices that has been shown in the commodities markets – thus less threat of inflation – leaves the Fed with the ability to act. The question is just how strong a statement the Federal Reserve and Chairman Bernanke want to take. Look for cautious trading within the USD once again today as investors wait for the Fed’s decision. EUR The EUR appeared ready to fall off the table completely beginning yesterday’s trading, but it managed to rebound as the day progressed and finished with a positive gain. The German Ifo Business Climate index was released on Monday and it came out with a 90.2 result, slightly lower than the 91.2 forecast. Importantly ECB President Trichet expressed the possibility of another interest rate cut when the European Central Bank meets again in November. While Trichet’s statement was not a surprise to investors it did help to confirm trading sentiment. Today the German’s will release their Consumer Climate reading and it is expected to show a figure of 1.5. EUR traders must also continue to keep their attention on the European bourses and 3rd quarter reports. Tomorrow the German Preliminary CPI numbers are scheduled for publication. The EUR will continue to trade based on investment sentiment as it is affected by central bank moves and the stability (or instability) of international markets. It is possible that the EUR will move today in a dollar centric fashion as investors look across the Atlantic.

GBP The Sterling like the EUR experienced a rollercoaster ride of trading as it dipped early and then climbed later in the day. The Bank of England released their Financial Stability Report yesterday which served largely as a review of the recent financial meltdown that occurred. It outlined the weakness in financial institutions, poor risk decisions, and the lack of proper bank reserves to withstand the crisis as it broke out. The BoE seems to be under no illusions regarding the current economic climate, but investors continue to question the Bank of England’s actions – mainly the interest rate of 4.50%. The U.K. will release their CBI Realized Sales figures today and it is expected to have a reading of minus -35. Tomorrow will see the Net Lending to Individuals report and Mortgage Approval data. Investors may take a look at the above information, but they will also continue to monitor all speeches coming from various BoE and government officials looking for clues to monetary policy. The GBP will likely reflect the volatility of the marketplace once again today.

JPY The JPY lost a bit of ground to the major currencies on Monday but continued to show its overall strength. The Asian stock markets yesterday continued to suffer dramatic losses and this was followed by weakness from U.S. equities. While Japanese officials including its finance minister are saying that the JPY is too strong, that certainly has not stopped carry traders from getting out of their classic trading positions and using the JPY as a safe haven. The G7 (Group of Seven) has also confirmed its belief that the JPY is too strong. While this may mean that some type of intervention may come from the Bank of Japan to weaken its own currency, it remains to be seen if this will be enough to stop the JPY from gaining strength. Written by: Robert Petrucci, Bforex Chief Commodity Expert and Forex Analyst [email protected] None of the Above Analysis Can Be Copied or Re-distributed without the direct consent of BForex and Robert Petrucci. Market Analysis Disclaimer: The information and opinions expressed in these analyses are solely for general information use and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. Opinions and information contained herein are subject to change without notice. These analyses reports have been prepared without regard to the specific investment objectives, financial situation, and needs of any specific recipient. Bforex does not guarantee the accuracy or completeness of the information contained herein, even though it was obtained from sources believed to be reliable and trustworthy. Furthermore, Bforex does not assume any liability for any direct, indirect, or consequential loss as a result of any person(s) reliance on information or opinions expressed herein.