November 11th 2008, Range Bound and Averse

USD

The USD finished the day at the strong end of its range on Monday on a day in which the
greenback had no official U.S. economic data to decipher. The USD once again showed that
its status as a safe haven currency remains in tact. Though there is significant negative news
coming from the U.S. economically, including a re-worked rescue package for AIG, the fear
that General Motors may need government intervention by December in order to avert
disaster, and poor unemployment data it has become clear that many investors have had little
choice but to put their holdings into the USD, this while the global market place continues to
roil. Safety has become a key component of USD trading as questions linger about
transparency and bottom lines from the emerging markets. There is a banking holiday in the
U.S. today as the country observes Veterans Day and this could affect liquidity, the equity and
future markets however will remain open. There is no official data scheduled from the U.S.
tomorrow either.

Investors up until now have not focused too heavily on the possibility of a new stimulus
package for the U.S. automobile manufacturing sector. If General Motors were to go out of
business its impact would be immediate within the economic sphere, having said that it
remains highly questionable if the U.S. should be funding a company which has shown little
inclination to innovate the past thirty years and shows little ambition to produce new products
that would provide anything but a basic commodity – the fuel driven automobile. The reason
for pointing this out is because of the question it beggars philosophically when the U.S.
government is thinking about investing perhaps a hundred billion dollars into a company that
could in essence become a fiscal black hole. Does the U.S. really want to nationalize its auto
industry? Wouldn’t that go against the idea of a free market place and to some degree be a
purely socialistic move? Particularly when it is highly questionable if General Motors can
return to profits long term as it is organized now. The point being that with the new
Presidential administration due to take over in January, we are bound to see protective
measures that may be like putting a band aid on someone who is actually suffering from a
broken arm. Look for the USD to remain range bound today as traders remain cautious in this
market environment.

EUR

The EUR had another day of choppy trading as more negative data was released from Europe.
The broad European Sentix Investor Confidence survey came in with a minus -36.4 reading
compared to the estimate of minus -34.0. Italian Industrial Production numbers were also poor
coming in with a minus -2.1% figure, below the expectation of -1.6%. French Industrial
Production didn’t offer much hope either coming in with a minus -0.5% statistic, only slightly
above the forecast of minus -0.6%. Today the German ZEW Economic Sentiment publication
is due and it is projected to have an outcome of minus -62.5. Also the broad European ZEW
Economic Sentiment numbers will be announced and they are expected to have a result of
minus -60.0. Adding fuel to the fire, ECB President Trichet said at a conference in South
America that the downside risks of inflation leaves the door open for decreasing interest rates
further. This coming Friday the ECB will be hosting its Central Banking Conference, which is
sure to produce interesting comments from a variety of officials. Like its counterparts
globally, Europe finds itself facing recessionary data and weak economic prospects. The EUR
is likely today to have its recent consolidation tested but without a breakout unless the ZEW
Economic Sentiment data due comes in far off the mark.

GBP

The Sterling experienced yet another session of range trading. The U.K. released its PPI Input
numbers and they came in with a figure of minus -5.6% compared to the forecast of minus
-2.6%. This number clearly highlights that the risk of inflation has shrank starkly as the
economy has come to a grinding halt in the U.K. Hindsight is always 20/20, but a
groundswell of investors will certainly be displeased with this the inflation data and point out
that the Bank of England took too long to act aggressively with their interest rate cuts. Today
Trade Balance figures are scheduled and they are projected to have a minus -8.0 billion GBP
result. Also the DCLG HPI is due, last month it produced a reading of minus -5.5% as the
U.K. housing market continued to falter. Investors however may be gearing themselves up for
the BoE Inflation Report tomorrow. This report could act as a springboard for market action
and provide an impetus for a breakout from the current values the Sterling has lingered at
recently.

JPY

The JPY experienced a quick reversal on Monday, picking up strength against the major
currencies as the U.S. equity market began to turn in negative numbers. Though the promise
of the Chinese stimulus program provided Asian equity markets a short term bounce, the
positive sentiment the move created subsided as poor news from corporate earnings continued
to prey upon investors globally. JPY carry traders have continued to show that for the most
part they remain highly risk averse under the present market conditions. It should be noted by
traders too, that the price of Gold has moved in a very consolidated pattern as of late too.

Written by: Robert Petrucci

Bforex Chief Commodity Expert and Forex Analyst

Robert@BForex.com Please contact Robert Petrucci directly with any questions or

comments you may have about the analysis.

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