Fundamental Analysis 6 November 08

November 6th 2008, BoE & ECB Under the Spotlight USD The USD experienced a day of whipsaw trading as it was affected by a few key factors. The greenback moved rapidly in volatile action and finished the late trading session on the strong side of its range against the EUR and GBP. Any euphoria that existed after the victory of President-elect Obama was short lived in the U.S. equity markets, which suffered a record poor performance on the day after a Presidential election. The ADP Non Farm Employment Change results discouraged many investors, the actual figure of minus -157K was severely below the forecast of minus -100K. The ISM Non Manufacturing PMI offered no help either coming in with a reading of 44.4 compared to the projected 47.3. Today the U.S. will release weekly Unemployment Claims data and a number of 480K is estimated. Tomorrow the ever important official U.S. government release of its Non Farm Employment Change is due, also coming will be the Unemployment Rate. Too, the Pending Homes Sales data will be released on Friday and closely monitored due to the underlying concerns which remain in the housing market, which has been a central component of the current financial crisis. Certainly there is plenty of U.S. data coming into the market for traders to consider, but critically USD investors will be looking across the ocean today for the interest rate decisions and statements coming from the BoE and the ECB today. The USD has shown remarkable strength the past month within this critical international financial juncture. Yet, the greenback does have major questions surrounding it due to fears of a U.S. slowdown and the results of the election yesterday. Investors must await Presidentelect Obama’s and Democratic Party official policies but traders can start trying to figure out now what the affects of ‘windfall taxes’ on U.S. businesses would bring and any changes to NAFTA and other international trade agreements would cause within the global markets. However for today, USD investors will monitor the decisions coming from the BoE and ECB

intently. If the actions and comments are more dovish than expected coming from across the Atlantic, the USD could gain strong momentum. EUR The EUR had a rather turbulent trading day but did manage to stay within a consolidated range against the USD. The European Central Bank will take center stage for investors today. The ECB is scheduled to announce their interest rate which currently stands at 3.75%. It would be an absolute shock to the global marketplace if the ECB did not cut their interest rate today, it is widely expected that a rate cut of .50% will be coming. All eyes will be on ECB press conference that comes after the announcement of the minimum bid rate, President Trichet has a reputation for being blunt in these proceedings. Investors will be keen to hear what the Europeans Central Bank’s short and mid term outlook are regarding monetary policy but also about the overall health of the European economy. Yesterday the German Retail Sales figures came in with a minus -0.2% drop, this did beat expectations slightly which were calling for a decline of minus -0.4%. Europe released its broad Final Services PMI and it came in with a 45.8 reading, below the forecast of 46.9. The question standing before EUR investors today is whether the stance taken by the ECB will continue to be more dovish or somehow take a neutral mode. Negative economic sentiment is spreading in Europe and the ECB will be looked to in order to decipher the official modus operandi of its officials. If the interest rate cut today meets expectations, look for President Trichet to be the lynch pin for any break out due to the tone of his rhetoric.

GBP The GBP awaits a tumultuous day of trading, and yesterday’s results reflected this as investors cautiously tested the Sterling’s range. The Bank of England’s MPC is expected to cut the Official Bank Rate today, the question on everyone’s mind is the amount of clarity they will show. The U.K. has shown obvious signs of being recessionary and there is a throng of investors, politicians, and the populace which is calling for an aggressive action today from the BoE. The key interest rate of the U.K. stands at 4.50%. Many investors believe that a rate cut of .50% will be forthcoming today. Having said that there are so many questions about the U.K. economy and the depths of its problems that there are many people who believe it is a possibility that a rate cut of greater depth could be seen and that it is actually needed. Upon an interest rate cut today, the BoE will release a MPC Rate Statement. If an interest rate cut were not to happen today it would be an utterly brutal shock for traders, having said this – when the

interest rate cut is announced today investors will look to the Statement for all clues regarding monetary policy to come. Yesterday’s U.K. data from its Manufacturing Production and Services PMI were negative. Investor sentiment surrounding the GBP is precarious, expect plenty of volatility with the Sterling as the BoE steps into the spotlight.

JPY The JPY gained on the USD as equity markets suffered from negative results. Without a doubt carry traders will be cautious today as they await news from central bank monetary policy developments coming from the ECB and BoE. The Japanese government is facing intense pressure as its economy is standing on the threshold of a recession and its currency continues to be stubbornly strong.

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.