NEWS / Foreign Exchange

European Market Update

• *** ECONOMIC DATA***
• SW Oct Budget Balance [sek]: 1.2B v 19.4B prior
• While the drop from September to October was sharp, it is not uncommon as the budget balance is generally pretty volatile. The 1.2B was only slightly below its 5-year average.
• NO Sep Industrial Production Manufacturing: M/M ??“0.1% v 0.3%e || Y/Y 4.0% v 4.6%e
• The Norwegian industrial production manufacturing unexpectedly softened in September on the back of a decline in oil and gas output. The data is in line with the recent results, but the recent trend seems to lean towards a general slowing as the NOK has shown a general strengthening over the past few months
• *** SPEAKERS/COMMENTS ***
• GE Wise Men: See no signs that the German economic upswing will end
• GE Wise Men: Sees the rapid Euro rise, oil prices over $80, and mortgages woes as the main risks to the German economy
• GE Wise Men: Warn the government not to reverse reforms; Says that the economic policy strategy is lacking
• PBOC Official: The USD is losing its status as a world currency
• FR Jouyet: Has confidence in the ECB
• FR Jouyet: The ECB should take reforms made by other countries into account
• FR Prime Minister: The rise in oil prices is inexorable
• FR Prime Minister: Sees stronger GDP growth in the next two quarters
• FR Prime Minister: Sees 2008 GDP growth of around 2.5%
• *** FIXED INCOME/FX/COMMODITIES/ERRATUM ***
• Prudential: The USD is more likely to stabilize and strengthen than to collapse in 2008
• Russian Central Bank proposes converting rouble funds of its oil stabilization fund
• Russian Central Bank proposes depositing free budget funds on bank accounts
• Russian Central Bank proposes admitting eurobonds in repo operations

• EUR/USD Analysis: The USD is approaching a critical juncture, particularly against the Euro. The atmosphere above 1.4700 EUR/USD opens the door for 2.20 technically, particularly on a monthly close basis. The downward spiral of weaker USD, weaker asset prices and higher inflation is problematic for the industrialized world??”the G7 may in fact have lost its ability to influence major currencies. For a historical comparison, analysts may look back at 1998, when the USD/JPY pair seemed poised to test 200 level on techicals, but G7 acted in June 1998 to offset such technical damage. The same situation could be now unfolding in the Euro; with EUR/USD above 1.50, G7 members may be poised to intervene again.
• Crude oil continues to move towards the ???$100 magnet??? on some upcoming weather-related supply shortages, while spot gold and spot silver also trade higher in the session.

By: John J. Phillips IV