Fundamental Analysis 30 October 08

October 30th 2008, The Fed’s Whirlwind USD The USD lost considerable ground to the EUR and GBP as the Federal Reserve fulfilled many expectations and cut their key interest rate by half a basis point to 1.00%. The USD has weakened in the past couple of days except against the JPY as traders have followed what could be described as a whirlwind taking into consideration that the Fed’s move was widely anticipated. The past few weeks have seen markets mostly trade based on the momentum of sentiment as the financial crisis has unearthed critical news in a consistent manner. Now that the Federal Reserve has made its move it will be up to other central banks to follow suit in order to battle what investors fear could become a prolonged global recession. Economic data such as yesterday’s Core Durable Goods report which came out with a minus -1.1% result, slightly better than the predicted minus 1.5% have had little impact on currency trading. Today the U.S. will release its Advance GDP and the number is projected to be minus -0.5%. Also on schedule are weekly Unemployment Claims which are forecasted to be 476K. These numbers would typically have a severe impact on the markets and traders should be weary of surprises which could spur on a sudden move. U.S. equities remain on a hair trigger, having gained well earlier in the day, the markets dropped suddenly and significantly as exchanges were closing. This was largely on fears about poor earnings data from 3rd quarter reports still due in the near term, but also because traders may be taking advantage of any daily gains to cash out and book any profits at the end of the trading day. Commodity markets also gained significantly yesterday as Crude Oil and Gold showed strength in the wake of the dollar weakening. The U.S. will release Personal Spending data and Revised Consumer Sentiment figures tomorrow. The question that USD traders will face is - the real fair value of the greenback based on the discounting that investors obviously factored in the past couple of

sessions because of the expected move which came to fruit from the Federal Reserve. Volatility is sure to be a companion in all trading today for the USD. EUR The EUR gained steadily against the USD on Wednesday as investors largely reacted to the interest rate cut by the Federal Reserve. Fundamental data and news from the European Union remains lackluster and the ECB will get their opportunity to stake out their monetary policy next week. Germany did release their Preliminary CPI data yesterday and it met expectations with a drop of -0.2%. Today the German’s will publish their Unemployment Change figures and it is expected to have a number of minus -12K. Also the broad European Consumer Confidence statistics are due and are forecasted to have a reading of minus -21. EUR investors were able to largely trade on the knowledge that the Federal Reserve was going to cut their interest rate the past two days. Now investors will have to prepare for the next move from the European Central Bank. It is expected that upon meeting next week the ECB will cut their interest rate to combat a slowing economy, in the meantime EUR investors will have to watch economic data and news. Tomorrow German Retail Sales, the broad European CPI Flash Estimate, and the European Unemployment Rate data will be published. Today expect the EUR to be tested with a wide range of movement. GBP The Sterling gained favorably against the USD on trading largely impacted by the U.S. interest rate cut. The U.K. did release data that which showed that Net Lending to Individuals climbed to 2.4 billion from the expectation of 1.9 billion. Mortgage approval data from the BoE came in with a number of 33K, just above the forecast of 32K. However, none of these numbers were the root cause for the strength in the GBP and it is possible that the gains made yesterday will be fleeting. Bank of England MPC member David Blanchflower spoke yesterday, his dovish rhetoric was not a surprise, but he did stress that the BoE should cut their interest rate and with a decisively strong action. The U.K. economy remains on shaky footing and there appears little on the horizon which is going to provide a quick fix. Today the U.K. will see the release of Nationwide HPI and it is forecasted to show a number of minus -1.5%. Also, the GfK Consumer Confidence index is scheduled and it is estimated that there will be a reading of minus -35. The BoE does have their MPC meeting next week and like the ECB, they are expected to cut their interest rate. Sterling investors will have plenty of trading opportunities in what should prove to be a busy day.

JPY The JPY continued to give back ground to the major currencies on Wednesday as the combination of stronger equity markets across Asia and rumors that the Bank of Japan may be considering an interest rate cut on Friday have factored into trading. The JPY has an extremely low interest rate of .50% already. Any cut will be sure to cause a rapid reaction, this because investors are less confident about the BoJ taking action as opposed to their central bank counterparts. However, it should be remembered that the questions investors are asking is if a rate cut by the Japanese of a quarter of a point would really have any impact on the economy particularly if the JPY does not act favorably. The Japanese government has stated that they would like to see the JPY weaken, this in order to help spur exports from their country in order to obviously help their economy which is perilously close to recession. Carry traders have shown the past couple of days that they are still looking for good trading opportunities, they are certain to be waiting for tomorrow’s Bank of Japan’s monetary policy statement with anticipation. 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.