Fundamental Analysis 5 November 08

November 5th 2008, New President, Same Markets USD On Tuesday the USD gave back the gains that it made on Monday. Election Day brought about the victory of President-elect Obama and U.S. equities markets staged a rally. The question that investors will ask is what changes the U.S. elections may bring economically. President-elect Obama will have a short lived honeymoon concerning economic policies and it should be remembered that he will not take office officially until January 21st. Clearly with Democrats controlling the White House and the U.S. Congress there will be policy shifts, but the underlying currents of the economy and financial crisis that has come to the fore will have to be dealt with in a manner that will certainly encompass the stimulus packages that have been enacted the previous month. History shows that the Democrats have more of a penchant for taxes, companies and investors will monitor this looming possibility closely. The U.S. yesterday did release economic data, Factory Orders came in slightly worse with a minus -0.2% figure compared to the estimate of minus -0.1%. Today’s data from the U.S. will include the ISM Non Manufacturing PMI, which is expected to have a reading of 47.3, below the last reading of 50.2. Also the ADP Non Farm Employment Change survey will be published, the projected number today is minus -100K. Crude Oil Inventories will also be released today but are not expected to provide a compelling impetus to the market because of the relative calm in the commodities markets. Tomorrow will see the Unemployment Rate. However, look for a spill over today due to market sentiment that may be affected from the results of the U.S. election. Typically the U.S. stock markets have a way of producing a good rally in the immediate days following national elections. While the same realities stand before investors, they will seriously consider if the rhetoric from the President-elect will help or hinder their long term outlooks when push

comes to shove economically in the coming months. The USD may trade to the strong side of its range today pushed by a wave of election exuberance. EUR The EUR had a good rally on Tuesday against the USD, but it is questionable if this had anything to do with fundamentals other than a strong move within a consolidated range. There was little in the way of economic data from Europe yesterday and it remains crystal clear that the European Union is battling a slowing economy. Today Europe will release its broad Retail Sales data and it forecasted to produce a minus -0.4% result, below the previously positive number of 0.3%. Also the Final Services PMI figure will be released by the European Union and it is expected to have a reading of 46.9. The focal point for EUR investors will however be the meeting being held by the ECB tomorrow. It is anticipated that the ECB will be making a cut of at least half a basis point which would bring their key interest rate to 3.25%. It remains to be seen exactly what the cut will be, there is some speculation that the cut should be more aggressive considering the differential between the European interest rate compared to the U.S. and the threat of recession that looms. However, a more aggressive rate cut from the ECB would be a surprise considering the very methodical approach ECB President Trichet has shown in the past. It is more likely that the rate cut comes in line with expectations and the real fireworks will be when Trichet addresses reporters in his news conference afterwards. Today EUR investors may prove cautious and trading may face dollar centric sentiment. GBP The Sterling had a good day of trading yesterday against the USD reclaiming some lost ground from the previous session. However, this movement did not come on the wings of strong data. The U.K. released its Construction PMI numbers and they had a result of 35.1, short of the 37.1 estimate. Today the U.K. will publish their Manufacturing Production figures and it is forecasted to be minus -0.4%, which would match the outcome from last month. Also the Service PMI data will be released and it is projected to have a reading of 44.5. This information may have an affect today on the market, but most eyes will be gearing themselves towards the Bank of England’s MPC meeting tomorrow. The BoE like the ECB would send a shock wave through the marketplace if they didn’t cut their interest rate tomorrow. Most investors are expecting a cut to 4.00% and there is a real clamoring among British politicians and the public for the Bank of England to be aggressive. The question really is if the BoE will surprise traders with a cut that is bigger than expected to try and stimulate the U.K. economy which is suffering. Look for the Sterling to trade under pressure today.

JPY The JPY traded in a consolidated range on Tuesday, the result of strong global equities markets and questions surrounding the upcoming decisions by the ECB and BoE. Carry traders appear to have started to crawl out from the shadows and take on a certain amount of risk appetite in the past few trading sessions. Look for the JPY to react to the results from the equities markets today and with an eye cast on tomorrow’s central bank decisions coming from abroad.

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.