Fundamental Analysis 3 November 08

November 3rd 2008, A New Trading Month USD The USD continued to be strong on Friday closing out the week with a solid performance even though the Federal Reserve did cut its main interest rate on Wednesday to 1.00%. International investors may be grateful upon waking this morning and seeing that the calendar month of October is now complete and the first trading day of November is beginning. October produced a tumultuous variety of results in the markets and investors no doubt will hope for more normality. This week will be full of risk events for USD traders with the U.S. Presidential election on the horizon tomorrow, European central bank interest decisions to come, and the ever important Non Farm Employment Change numbers that will be released on Friday. Today the U.S. will release its ISM Manufacturing PMI figures, they are forecasted to have a reading of 41.6 compared to the previous outcome of 43.5. Tomorrow Factory Order numbers are due. Currencies like the equities and commodities markets last week began to show signs that stability has begun to emerge once again as investors have largely digested the many stimulus packages and speeches made by government officials. Certainly most eyes will be cast on the results of the U.S. elections tomorrow which will not only elect the next President but decides how the U.S. Congress will operate. It appears that the Democrats are on the verge of winning a significant amount of power and how the markets will react to such a dynamic is debatable. Last Friday’s U.S. data showed that overall confidence of the economic outlook in the U.S. is not particularly good, the Chicago PMI survey showed a poor result of 37.8, far below the estimate of 48.5. The University of Michigan Revised Consumer Sentiment index came in with a 57.6 number, slightly below the projection of 57.7. Having said this, the USD has maintained a strong range of trading based on its safe haven status during the financial crisis. It will be a busy week for investors, the USD will most likely continue to muster strength.

EUR The EUR continued to find itself on unsure footing as it lost further ground to the USD and any steam that it might have had because of the Federal Reserve’s rate cut. The EUR has now been left to trade on it own data which remains unpromising. The German Retail Sales figures on Friday came in below the already negative forecast, coming in at minus -2.3% compared to the estimated minus -1.0%. Today Europe will release their broad Final Manufacturing PMI survey and it is expected show a number of 41.3. EUR investors remain concerned regarding the meeting of the ECB that is scheduled for this Thursday. The European Central Bank is expected to cut its interest rate, which remains extremely high in many investors eyes at 3.75%. While it seems likely that the ECB will at least match the recent half a basis rate cut by the Federal Reserve, the real question is what President Trichet will say during his press conference afterwards and whether he will indicate further rate cuts to come. The EUR will is bound to face renewed pressure today.

GBP The Sterling continues to find itself under intense scrutiny and slid against the USD once again on Friday. The economic news from the U.K. was given a day off going into the weekend, but will face more tests today. Scheduled for release this morning is the Manufacturing PMI survey which is forecasted to have a reading of 40.0, slightly below last month’s result of 41.0. Importantly, however, a potentially mammoth market mover will be the testimony given by Bank of England Governor Mervyn King today to the Treasury Committee of the Parliament along with Chancellor of the Exchequer Alistair Darling. Investors are certain to have their ears tuned to this testimony for any clues regarding the expected interest rate cut that is likely to come on Thursday after the meeting of the Bank of England’s MPC. As is the case with the ECB, GBP investors are studying the BOE closely not only for the interest rate cuts which are expected, but for evidence that other moves are planned in the short term in order to confront economically what Prime Minister Gordon Brown described as a recession last week. Sterling traders should expect another day of volatility with the GBP.

JPY The JPY lost some of its strength on Friday as traders reacted to the interest rate cut by the BOJ that was less than expected and to the slight improvement in the global equities markets. Carry traders still appear to be weary about entering the trading waters as vital questions loom regarding the upcoming decisions of the BOE and ECB this week. Of interest also should be that Gold and Oil prices continued to show signs of calm. It appears that trading in the JPY will be cautious and traders should also note that the Japanese banks and Nikkei stock market are closed for holiday today.

Written by: Robert Petrucci Bforex Chief Commodity Expert and Forex Analyst [email protected] Please contact Robert Petrucci directly with any questions or comments you may have about the analysis. 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.