US Economic Indicators: DJ Survey Of Forecasters-Jul 27

US Economic Indicators: DJ Survey Of Forecasters-Jul 27

   Forecasts based on the projections from 20 economists as of Friday,
Jul 27. NA = not available. E = estimate. R = revised. **** = tentative.


      Time                               --Forecast--
Date   EST     Indicators               Median   Low  High    Prev  Actual
07/31 :0830: Q2 07 ECI                 :   0.9   0.7   1.0:    0.8 :
07/31 :0830:  ECI Annual               :   NA    NA    NA :    3.5 :
07/31 :0830: Jun Personal Inc (% chg)  :   0.6   0.0   0.6:    0.4 :
07/31 :0830:  PCE (% chg)              :   0.2   0.1   0.5:    0.5 :
07/31 :1000: Jun Constrcn Spdg(% chg)  :   0.2  -0.1   0.8:    0.9 :
07/31 :1000: Jul Consumer Confidence   : 105.0 102.0 110.7:  103.9 :
08/01 :1000: Jul ISM                   :  55.5  54.0  57.6:   56.0 :
08/01 :1000:  Employment               :                  :   51.1 :
08/01 :1000:  Prices                   :   NA    NA    NA :   68.0 :
08/02 :0830: Unemploy Clms p/e Jul 28  :   310   305   315:    301 :
08/02 :1000: Jun Factory Ord (% chg)   :   1.0   0.6   1.8:   -0.5 :
08/02 :1630: Jun Domestic Vehicle Sales:  12.3  12.2  12.6:   12.5 :
08/03 :0830: Jul Jobless Rate          :   4.5   4.4   4.6:    4.5 :
08/03 :0830:  Jobs (chg)               :   135   100   170:    132 :
08/03 :0830:  Private (chg)            :                  :     92 :
08/03 :0830:  Manufac (chg)            :   NA    NA    NA :    -18 :
08/03 :0830:  Avg Hourly (% chg)       :   0.3   0.3   0.4:    0.3 :
08/07 :0830: Q2 Pre Productivity       :   NA    NA    NA :    0.5 :
08/07 :0830:  Unit Labor Costs         :   NA    NA    NA :    1.9 :
08/07 :1500: Jun Consumr Crdt (bln$)   :   NA    NA    NA :   12.9 :
08/10 :1400: Jul Treasury Budget Stmt  :   NA    NA    NA :   27.5 :
08/13 :0830: Jul Retail Sales (% chg)  :   NA    NA    NA :   -0.9 :
08/13 :0830:  Ex-Auto (% chg)          :   NA    NA    NA :   -0.4 :
08/13 :1000: Jun Busin Invty (% chg)   :   NA    NA    NA :    0.5 :
08/14 :0830: Jun Trade Balance         :   NA    NA    NA :  -60.0 :
08/14 :0830:  Goods Total              :   NA    NA    NA :  -69.0 :
08/14 :0830: Jul PPI (% chg)           :   NA    NA    NA :   -0.2 :
08/14 :0830:  PPI Core (% chg)         :   NA    NA    NA :    0.3 :
08/15 :0830: Jul CPI (% chg)           :   NA    NA    NA :    0.2 :
08/15 :0830:  CPI Core (% chg)         :   NA    NA    NA :    0.2 :
08/15 :0915: Jul Industl Prod (% chg)  :   NA    NA    NA :    0.5 :
08/15 :0915:  Capacty Util             :   NA    NA    NA :   81.7 :
08/16 :0830: Jul Housing Starts        :   NA    NA    NA :  1.467 :
08/16 :0830:   % change                :                  :    2.3 :
08/16 :0830:  Housing Permits          :   NA    NA    NA :  1.406 :
08/16 :0830:   % change                :                  :   -7.5 :
08/20 :1000: Jul LEI (% chg)           :   NA    NA    NA :   -0.3 :
08/24 :0830: Jul Durable Goods (% chg) :   NA    NA    NA :    1.4 :
08/24 :1000: Jul S/F Home Sales        :   NA    NA    NA :    834 :
08/27 :1000: Jul Existing Home Sales   :   NA    NA    NA :   5.75 :
08/27 :1000:  % change                 :                  :   -3.8 :
08/30 :0830: Q2 Pre GDP                :   NA    NA    NA :    3.4 :
08/30 :0830:  Final Sales Dom Prchsr   :   NA    NA    NA :    6.0 :
08/30 :0830:  PCE Defltr               :   NA    NA    NA :    1.3 :
08/30 :0830:  Price Defltr             :   NA    NA    NA :    2.7 :
08/30 :0830: Q2 Pre Corp Profits       :                  :    1.7 :
  -By Rodney Christian; Dow Jones Newswires; 202-646-1880;
   csstat@dowjones.com
   Related fixed stories:
    84698    US Economic Indicators: Latest 6 months data
    80055-57 US Economic Calendar

(END) Dow Jones Newswires

July 27, 2007 16:14 ET (20:14 GMT)

Dollar up vs. euro, pound

NEW YORK (AP) - The dollar strengthened against the euro and British pound on Friday after new data showed the U.S. economy grew at a solid clip during the second quarter, its best performance in more than a year.

The 13-nation currency fell as low as $1.3628 before climbing back to $1.3649 in late New York trading, still below its level of $1.3718 late Thursday.

The dollar also rebounded against the British pound, which dropped to $2.0270 from $2.0462 late Thursday. Despite the slip, the U.S. currency has fallen against the pound to levels last seen in 1981.

The U.S. Commerce Department reported Friday that the economy grew at a 3.4 percent pace in the second quarter, with revived business spending boosting the new growth.

An inflation gauge closely watched by the Federal Reserve showed "core" prices -- excluding food and energy -- rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and marked the smallest increase in four years.

Fed Chairman Ben Bernanke has said the biggest threat to the economy is that inflation will fail to moderate as expected.

Higher interest rates, a weapon against inflation, can support a currency by offering investors better returns on investments denominated in that currency.

Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump, the report showed. The sour housing market continued to weigh on national economic activity in the spring, but not nearly as much as it had in previous quarters.

The dollar fell further against the Japanese yen, dropping as low as 118.40 before edging up to 118.78 on Friday, still lower than 119.46 late Thursday.

Fears about the fallout from the subprime loan problem in the United States have piled on top of a narrowing interest rate gap between the U.S. and Europe to help push the dollar down.

The U.S. Federal Reserve is holding its main rate steady at 5.25 percent, while the European Central Bank and the Bank of England are expected to further raise rates.

In other trading, the dollar bought 1.2086 Swiss francs, down from 1.2095 late Thursday, and 1.0610 Canadian dollars, up from 1.0492.

FOREX-Dollar gains on repatriations, solid GDP reading

NEW YORK, July 27 (Reuters) - The U.S. dollar rebounded sharply on Friday, after a fall in the previous session, as trouble in the U.S. credit markets led investors to repatriate funds from overseas.

Worries about ongoing problems in the U.S. subprime mortgage and corporate bond markets have led investors to to shun bets in riskier assets such as foreign stocks this week, helping buoy the dollar as money flows back into the United States.

Meanwhile the flight from risk has led some traders to cut their exposure to carry trades, or purchases of high yielding currencies such as the New Zealand dollar, financed by selling low-interest rate currencies like the yen or Swiss franc.

"The focus of the market is still taking risky trades off the table," said David Powell, senior currency strategist at Ideaglobal in New York. "Overall, it's not really a dollar story, but it's about rallying low-yielders and falling high-yielders."

The U.S. dollar held on to its overnight gains after a preliminary estimate from the government showed the U.S. economy in the second quarter grew at its fastest pace since the first three months of last year.

Mid afternoon in New York, the euro was down 0.7 percent against the dollar at $1.3645, around two cents below a record high hit earlier in the week

he dollar was on track to post its highest weekly gain against the euro since early January this year.

Against the yen , the dollar rose 0.3 percent to 118.75. Earlier, the dollar fell as low as 118.02 , according to electronic trading platform EBS, its lowest in around three months.

On the week though, the yen was still up about 2.4 percent against the dollar and on pace for its largest gain in about four months.

The New Zealand dollar dropped 1.8 percent to US$0.7670 , while the Australian dollar sank 1.7 percent to US$0.8545 .

Some analysts said the U.S. dollar's rebound was likely to soon loose steam, particularly given concerns that weakness in the U.S. housing market will spill over into the broader economy, slowing growth.

"While the USD rebound could have a bit farther to run, particularly against some of the higher-yielding currencies, we think its strength will be limited over the medium term by a return of focus to an economy at risk," analysts at Scotia Capital wrote in a note to clients.

The futures market is indicating an 82 percent chance the Fed will ease monetary policy by year-end , up from 76 percent overnight. Before Thursday's rally, prospects for a Fed cut this year were below 50 percent.

(Additional reporting by Gertrude Chavez-Dreyfuss)

Massive US farm bill faces Bush veto, may impact WTO talks

massive US farm bill packed with consequences for global trade is moving through the Democratic-controlled Congress in the face of a veto threat by President George W. Bush.

The House of Representatives is poised to vote on the multibillion-dollar five-year plan that provides the safety net for farmers and ranchers, governing the amount of subsidies and aid available and a raft of other provisions, such as nutrition and conservation programs.

Bush's Republican administration has been threatening to veto the legislation, partly over what it says are high subsidies, a major stumbling block in the Doha Round of global trade negotiations.

Some observers suggest the threat may be difficult to deliver on, considering the already heated political maneuvering for the 2008 presidential race.

Still, the veto threat was renewed Wednesday after a House panel signaled it wanted to raise taxes on some foreign-owned companies with US subsidiaries in order to partly fund government nutrition programs.

The proposed tax hikes, anathema to Republicans, drew blistering fire.

"I find it unacceptable to raise taxes to pay for a farm bill that contains virtually no reform," Agriculture Secretary Mike Johanns said.

"Myself and the president's entire team of senior advisers will recommend that he veto this bill if it is adopted in its current form. We are unanimous on this point."

The estimated 286-billion-dollar measure was approved last week by the House Agriculture Committee after wrangling to get bipartisan support.

Agriculture Committee chairman Collin Peterson said the bill delivers "significant reform" and strikes "the balance necessary" to ensure that farmers' "safety net is still strong and secure."

The pressure is on to approve the 2007-2012 measure as the current bill expires on September 30, the end of the government's fiscal year.

The bill was taken up by the House late Thursday, but it was not clear when it would come to a vote. Congress adjourns on August 3 for its summer recess and reconvenes in September.

If approved by the House, the legislation must be reconciled with a Senate counterpart before the measure is presented to the president for signing.

Among the most difficult issues to resolve is farm subsidies, which prompted a revolt among 22 developing countries, stalling the Doha Round of World Trade Organization negotiations.

Under the current farm bill, government subsidies are paid to farmers with incomes of up to 2.5 million dollars per year.

The House bill would cut that cap to one million dollars annually and eliminate limits on some loans.

The Bush administration says the subsidy reduction falls far short. It had sought an income cap of 200,000 dollars, averaged over three years. Republicans argue that the House bill would deprive about 7,000 farmers of subsidies, compared with the 38,000 that would be affected by their proposal.

"The House bill actually takes a step backward, creating farm policy that is less responsive to the free market, and it paints an even larger bull's eye on the backs of American farmers when it comes to international trade," said Johanns.

The Bush administration is under fierce pressure to help unblock the WTO Doha Round, launched in the Qatari capital nearly six years ago and aimed at lowering trade barriers and encouraging development.

Developing nation critics of farm subsidies say they allow developed countries to dump excess production on world markets at an unfairly low cost, depriving many developing and poor countries of strengthening their own farm-sector exports.

The United States and the European Union, also known for lavish farm subsidies, have given a lukewarm response to the latest WTO proposals to cut farm subsidies.

"We would underscore that, while we have indicated that we are prepared to offer more on OTDS (Overall Trade Distorting Support), our ability to make further cuts depends upon securing significant real increases in market access," the US ambassador to the WTO, Peter Allgeier, said Thursday.

Daily Report: Focus on New Homes Sales and Durables, Kiwi Tumbles after RBNZ Hike

Dollar is generally firm and sets to continue the current recovery as markets are turning focus to today’s new home sales and durable goods orders data. As pointed out before, the greenback was in extremely oversold condition and the current correction is inevitable. Even if today’s data disappoints, reaction could be muted as the more important Q2 GDP is on the card for release tomorrow. Though, Euro should also be provided some support by stronger than expected M3 growth which reaccelerated to Mar’s peak of 10.9%. Germany Ifo dropped to 106.4, slightly below expectation of 106.5 but remains health.

Overnight, RBNZ raised OCR again by 25bps to 8.25%. In the accompanying statement, Governor Bollard pointed to the recent strength in the economy and growing capacity constraints to justify today’s move. Also, he once again mentioned the overvalued Kiwi currency. Conditionally, RBNZ believed that this would be the last rate hike in their cycle if no surprises come in with the next round of data. Kiwi tumbled after the news as markets believe that RBNZ will at least be on hold to assess the impact of the prior successive rate hikes before making another move. EUR/USD

Daily Pivots: (S1) 1.3667; (P) 1.3749; (R1) 1.3803; «www.actionforex.com»

EUR/USD’s correction from 1.3851 is still in progress today. Outlook remains unchanged. A short term top is likely in place at 1.3851, with bearish divergence condition in 4 hours MACD and RSI, and after failing to sustain above 1.3822 projection target. Intraday bias is currently still on the downside and further decline should be seen towards support zone of 1.3567 to 1.3658, with 38.2% retracement of 1.3262 to 1.3851 at 1.3626. On the upside, above 1.3711 will turn intraday outlook consolidative first and could probably bring recovery to 4 hours 55 EMA (now at 1.3770). But sustained break of 1.3851 is needed to confirm recent rally has resumed. Otherwise, risk remains on the downside.

In the bigger picture, the current development dampened the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.

Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.

On the downside, as long as 1.3481 cluster support (61.8% retracement of 1.3262 to 1.3851 at 1.3487) holds, any pull back will still be treated as correction to rally from 1.3262 only and another rise is still in expected after completion. However, break will put 1.3262 low into focus. And break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.

GBP/USD

Daily Pivots: (S1) 2.0470; (P) 2.0550; (R1) 2.0615; «www.actionforex.com»

Cable’s correction from 2.0652 is still in progress and continues to press 4 hours 55 EMA (now at 2.0485). As discussed before, a short term top is in likely place at 2.0652, with bearish divergence condition in 4 hours MACD and RSI. Intraday bias is still on the downside and further decline is expected to be seen to short term rising trend line (now at 2.0400). On the upside, above 2.0652 will indicate an intraday low is formed. But sustained break of 2.0677 fibo resistance is needed to confirm recent rally has resumed. Otherwise, risk remains on the downside.

In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first. Sustained trading above 2.0677 will target 2.1 psychological resistance.

On the downside, in case of a pull back, downside should be contained by support zone between 2.0056 and 2.0206 and bring another rally. Break of 2.0056 will suggest that lengthier consolidation will come first with the prospect of another test the medium term rising trend line (now at 1.9823) But medium term outlook will be neutral at worst at long as 1.9621 support remains intact.

USD/CHF

Daily Pivots: (S1) 1.2048; (P) 1.2107; (R1) 1.2192; «www.actionforex.com».

USD/CHF’s correction from 1.1960 is still in progress today. Intraday bias remains on the upside as long as 1.2114 minor support holds and further rebound should still be seen. On the downside, below 1.2114 will turn intraday outlook consolidative fist. Also, since a short term bottom is in place at 1.1960 with bullish convergence conditions in 4 hours MACD and RSI, firm break of 1.1960 is needed to confirm fall from 1.2467 has resumed. Otherwise, consolidation could still extend further.

In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).

On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn’t change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.

USD/JPY

Daily Pivots: (S1) 119.99; (P) 120.31; (R1) 120.81; «www.actionforex.com»

4 hours MACD’s cross above signal line suggest that a short term low is possibly in place at 119.76. But still, break above 190.95 resistance is needed to confirm. Otherwise, intraday bias remains on the downside and further decline is still in favor towards 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57).

On the upside, above 120.95 will indicate a short term bottom is formed and turn into consolidation. But a break above 120.60 resistance is still needed to indicate fall from 124.13 has completed. Otherwise, risk remains on the downside after finishing recovery.

In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31.

However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.

EUR/JPY

Daily Pivots: (S1) 164.57; (P) 165.44; (R1) 166.18; «www.actionforex.com»

EUR/JPY turns sideway after reaching as low as 164.70. At this point, correction 168.93 is still in progress and intraday bias remains on the downside as long as 166.18 minor resistance holds. Next downside target will be 164.23 cluster support (61.8% retracement of 161.49 to 168.95 at 164.34). On the upside, above 166.19 will indicate a temporary low is formed and bring consolidation, probably with recovery to 4 hours 55 EMA (now at . But break of 167.32 resistance is needed to indicate fall from 168.93 has completed. Otherwise, risk remains on the downside even in case of recovery.

In the bigger picture, break of the short term rising trend line suggest that rally from 150.75 has possibly completed with bearish divergence condition in daily MACD and RSI. Deeper correction could not be seen to 161.49 support first. And break will confirm that a medium term top is in place at 168.93 and bring deeper correction, possibly with a retest of medium term trend line support (now at 155.67

However, with medium term trend line remains intact, whole medium term rally from 130.60 is still treated as in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.

WTO floats ways to save global trade pact

MEDIATORS at the World Trade Organisation made a bid to salvage a global free trade deal today by proposing compromises to overcome impasses in the key areas of agriculture and industrial goods.

The proposals are seen as possibly the last chance to save the so-called Doha round, which has lurched from crisis to crisis since it was launched in Qatar in 2001 to help lift millions of people out of poverty.

In an attempt to break the deadlock, diplomats chairing the WTO negotiations floated detailed texts spelling out ranges of cuts for farm subsidies and a formula for import tariff cuts for agricultural and industrial goods.

"Some of those narrow ranges or target numbers or technical draft text will be very painful, for sure. But that pain will be required to get agreement," said New Zealand's ambassador to the WTO, Crawford Falconer, who chairs the agriculture negotiations.

Under his plan, the United States would have to cut a ceiling for farm subsidies to between $US13 billion ($14.96 billion) and $US16.4 billion ($18.87 billion) a year, lower than its offer so far of $US17 billion ($19.56 billion).

The European Union would have to cut its highest tariffs on farm imports by 73 per cent, more than its offer of 60 per cent.

Don Stephenson, Canada's ambassador to the WTO and chairman of the industrial goods talks, said countries needed to "search for balance" between their competing interests.

"This text is a bridging exercise," he told a Geneva news conference after proposing that developing nations should accept deeper cuts to manufacturing tariffs than their recent offers.

Developing countries would have tariffs for industrial goods below 12 per cent on average and only a handful would have them above 15 per cent, although the poorest countries would be permitted to maintain higher average duties.

Developed countries should cut tariffs to below three per cent on average with "peaks", or individually high duties, under 10 per cent, Mr Stephenson said.

Trade diplomats say reactions from WTO countries to the proposals will determine whether the Doha round can be wrapped up in 2007. WTO chief Pascal Lamy has warned that without a deal this year, the talks could be put on ice for several years.

The EU welcomed the proposals as "a useful step forward" but warned it had "important concerns and other significant issues in the negotiations that are not included in these texts".

The United States, India and Brazil, other core members of the WTO, said it was too early to comment although Washington said it hoped the new texts could pave the way for a deal.

Disputes over farm and industrial goods have dogged the Doha round negotiations for years.

The talks were suspended last July for six months after some countries resisted exposing sensitive industries such as rice, dairy, clothing and car parts, to more foreign competition.

Hopes for a Doha deal, which would also include trade in services, took another hit in June when a meeting between the EU, the United States, India and Brazil collapsed acrimoniously.

If the chairs' proposals are well-received, diplomats say trade ministers could be called to Geneva this fall for another try at concluding the deal which the World Bank says could add $US96 billion ($110.47 billion) annually to the global economy.

"This deal is still doable," Mr Stephenson said. "This deal is still within the members' grasp if they want it."

Wells Fargo Q2 Profit Up On 13% Revenue Growth - Update [WFC]

7/17/2007 1:01:33 PM Banking and financial products and service provider Wells Fargo & Co. (WFC) announced Tuesday morning a 9% rise in net income for the second quarter fuelled by 13% top line growth as average total loans witnessed 11% upside helped by both commercial and consumer loan growth apart from favorable operating leverage and stable credit quality. The company's earnings result was in line with Street expectations.

Second Quarter Results

The San Francisco, California-based Wells Fargo reported net income of $2.28 billion, up 9% from $1.09 billion and earnings rose 10% to $0.67 per share from $0.61 in the same quarter last year. Twenty-three analysts, on average, polled by First Call/Thomson Financial estimated the company to earn $0.67 per share. Sequentially, net income rose marginally from $2.24 billion or $0.66 per share in the first quarter.

Latest quarter revenues increased 13% to $9.89 billion from $ 8.79 billion in the previous year quarter. Twelve Wall Street analysts expected the company to generate revenues of $9.64 billion. Compared to the first quarter, revenues rose from $9.44 billion in the current quarter. The company attributed the revenue upside to double-digit growth in consumer and business lending and deposits apart from a robust growth in all of its diverse, fee-based products and services.

Total interest income grew 6% to $8.57 billion from $8.08 billion, while net interest income after provision for bad loans slipped 2% to $4.48 billion from $4.55 billion in the preceding year second quarter. Total non-interest income surged 23% to $4.7 billion from $3.81 billion in the comparable 2006 period.

Average loans expanded 11% to $332 billion from $300.4 billion backed by average commercial and commercial real estate loan growth of 12% and average consumer loans upside of 10%. Similarly, average core deposits grew 14% to $300.5 billion from $264.1 billion in the year earlier quarter. Wells Fargo said that it could either lift or maintain operating margins with net interest margin of 4.89% compared to 4.76%.

Total non-performing assets were $2.72 billion or 0.79% of loans versus $1.92 billion or 0.64% of loans recorded in the second quarter of 2006 and $2.69 billion or 0.82% of loans registered in the first quarter. The company attributed the improvement in non-performing assets to slender commercial increase as a result of portfolio growth and seasoning and almost no consumer increases as it concentrated on loan resolution and asset sales.

Wells Fargo said that credit quality was in line with its expectations. The company added that home equity losses were at higher levels due to real estate values remaining weak during the second quarter with no signs of reversal of trend in the second half of 2007.

Segment-wise, Community Banking contributed revenues of $6.33 billion, up 11% from $5.72 billion with average loans of $186.6 billion compared to $173.9 billion. Average deposits rose 8% to $259.9 billion from $232 billion. But the alarming factor was the sharp rise in provision for credit losses of $353 million compared to $187 million in the prior year quarter. Still, the division posted 14% rise in net income to $1.55 billion helped by fee revenue growth in retail banking and investment income.

Another segment, wholesale banking earned net income of $570 million, up 13% from $506 million. Total revenues advanced 20% to $2.15 billion from $1.79 billion in the comparable 2006 period as loan recorded 16% upside due to double-digit increase in all of its wholesale lending units. Wells Fargo added that robust loan and deposit coupled with higher fee income contributed to the division's higher profitability.

Wells Fargo financial unit produced net income of $156 million, down 31% from $226 million in the corresponding period last year. Total revenues, however, rose 10% to $1.41 billion from $1.28 billion in the same period a year ago. The company said that it closed shutters of about 5% of its customer stores to cut down excess infrastructure cost and redundancies.

Commenting on the results, the company's president and chief executive officer John stumpf said, “We continue to earn more business from current customers and invest in future growth through internal investments and acquisitions. Our time-tested vision and business model have delivered double-digit annual compound growth in revenue, earnings per share and total stockholder return for the past five, ten, 15 and 20 years. The vast majority of this growth has come from earning more business from our current customers, but we've also been a disciplined, effective acquirer, which brings us more new customers and the opportunity to satisfy all their financial needs.”

Year-To-Date Results

For the six-month period, Wells Fargo revealed net income of $4.52 billion or $1.33 per share, up 10% from $4.11 billion or $1.21 per share in the corresponding period last year.

Total revenues for the same period advanced 11% to $19.33 billion from $17.34 billion in the previous year six-month period.

Competitors

Among others in the industry, Bank of America Corp. (BAC) is scheduled to announce its second quarter numbers on July 19. Street analysts have consensus earnings target of $1.20 per share on revenues of $18.58 billion.

Another peer, U.S. Bancorp (USB) earlier in the day reported second quarter net income of $1.16 billion or $0.65 per share compared to $1.2 billion or $0.66 per share in the corresponding quarter in the previous year.

Total net revenues grew 1.5% to $3.51 billion, from $3.45 billion in the prior year quarter. Net interest income slackened to $1.65 billion from $1.69 billion, while non-interest income rose to $1.86 billion from $1.76 billion in last year.

Washington Mutual Corp. (WM), in the same industry, is slated to reveal its second quarter results on July 18. Wall Street analysts, on average, are looking for earnings of $0.89 per share on revenues of $3.69 billion.

Stock Movement

Shares of Wells Fargo reached a year high of $36.99 and a low of $33.01. During the day, the stock ranged between $35.40 and $35.98. Currently, shares of the company are trading $0.28 or 0.79% up to trade at $35.73 on a volume of 6.12 million shares.

CURRENCIES: Dollar Rises Vs. Yen On Core PPI, Sterling Hits New 26-year Peak

The dollar rose against the yen Tuesday after U.S. government reports showed core inflation at the wholesale level rose more than forecast last month while monthly capital flows to the U.S. jumped in May.

The British pound rallied to a new 26-year peak against the dollar after a report showed U.K. inflation didn't cool as much as forecast last month, reinforcing expectations that the Bank of England will continuing hiking interest rates.

"The take away from today's deluge of U.S. data is that the recent decline in the dollar owes more to positioning than real money flows," said Michael Woolfolk, senior currency strategist at The Bank of New York. "However, players appear cautious of buying dollars ahead of [Fed Chairman Ben] Bernanke's congressional testimony tomorrow."

In New York trading, the euro stood at $1.3781, compared with $1.3772 late Monday. The euro hit a record high at $1.3813 last Friday. The dollar was quoted at 122.26 yen, compared with 121.86 yen.

The British pound was quoted at $2.0458, compared with $2.0369. Sterling had earlier risen to $2.0474, a fresh 26-year high. The dollar also changed hands at 1.2031 Swiss francs, compared with 1.2030 francs.

The euro was at 168.65 yen, compared with 167.81 yen.

The yen came under selling pressure, as a rally in U.S. stocks, which propelled the Dow Jones Industrial Average past the 14,000 level for the first time, encouraged carry trades. Carry trades refer to the practice of borrowing low-yielding currencies and reinvesting in higher-return currencies and assets.

U.S. data

Wholesale prices fell 0.2% in June as food and energy prices declined after four months of hefty increases, the Labor Department reported Tuesday. The producer price index fell for the first time since January, against economists' expectations for a 0.2% increase in prices for goods at the wholesale level.

Excluding volatile food and energy prices, the core PPI rose 0.3%, a tenth higher than the 0.2% gain expected. It's the biggest gain since February.

The dollar extended its gains against the yen after the Treasury Department said monthly capital flows to the U.S. rose to $105.9 billion in May, up from a revised $97.8 billion in April. Net foreign purchases of long-term U.S. securities, meanwhile, climbed to $163.5 billion from $97.4 billion.

Separately, the Federal Reserve said U.S. industrial production rose 0.5% in June, while capacity utilization rose to 81.7% from 81.4%. Economists were expecting production to rise 0.6% and capacity utilization to rise to 81.6%.

Bernanke, CPI awaited

The Labor Department will release the consumer price index for June on Wednesday morning. With gasoline prices falling during the month, economists surveyed by MarketWatch are looking for the CPI to show a very tame 0.1% increase. Excluding food and energy prices, the core CPI should increase a moderate 0.2% for June, they say.

Two days of congressional testimony by Fed chief Ben Bernanke will likely be the most significant event of a busy week for economic news, but analysts don't expect much change in the central bank's approach to growth, inflation and interest rates in his semiannual testimony for Wednesday and Thursday.

Bernanke will likely repeat the Fed's mantra that inflation risks are elevated, while growth can be expected to strengthen slightly, but remain semi-soft. The bottom line will likely be to cement expectations that the Fed won't change interest rates in either direction for quite a while.

Dollar sentiment

The dollar posted a loss of more than 1% against the euro and the yen last week after Wall Street's two largest rating agencies signaled that problems in the subprime market aren't going away and will probably get worse.

There's "continued uncertainty regarding the housing market," said Gareth Sylvester, currency strategist with HIFX.

"We're looking for a neutral policy from the Fed...and with the market focusing primarily on yields, the yield advantage continues to move away from the U.S. dollar" in favor of the pound, the Australian and New Zealand dollars, he said.

Bank of New York's Woolfolk said the market remains short dollars and is "likely to increase these positions if core CPI show further improvement tomorrow or Bernanke indicates price pressures are subsiding in line with the Fed's expectations."

U.K. inflation

U.K. consumer level inflation fell in June to 2.4% from 2.5% in May, the National Statistics Office said Tuesday, citing the impact from falling average gas and electricity bills. But that was higher than the 2.3% forecast by economists and the statistics office noted rising gasoline prices and sea fares.

The Bank of England targets inflation at 2%.

Core CPI, which excludes food, energy, tobacco and alcohol prices, rose to a 10-year high of 2%.

"With core CPI reaching its highest level in 10 years, the news will only serve to stiffen BoE's already hawkish posture as U.K. monetary officials make every effort to contain persistent price pressures in the system," said Boris Schlossberg, senior currency strategist at DailyFX.com.

"Unless U.K. consumption falls precipitously in the next few months, the BoE is very likely to push short term rates to 6% in order to diffuse further inflation expectations," he said, in a note to clients.

The euro showed little reaction after a report showed the German ZEW indicator of economic expectations fell to 10.4 in July, from a reading of 20.3 a month ago. Analysts had been forecasting a reading of around 19.5.

(END) Dow Jones Newswires

Mid-Day Report: Sterling Extends Rally, Dollar Rebounds against Yen on a Data Driven Day

It’s clearly a data driven day. Dollar remains pressured at fresh 26 years low against Sterling in US session, but steadies against Euro. Even though headline PPI in US slowed more than expected to 3.3% yoy, dollar is supported by stronger than expected core PPI which accelerated to 1.8% vs exp of 1.6% which core PPI stayed there for 3 months. In addition, dollar is indeed driven higher against the Japanese after TIC capital flow rose to fresh record high of $126.1b, much higher than expectation of $70b.

Sterling was boosted higher earlier today on higher than expected consumer inflation data. In Jun, CPI moderated to from 2.5% yoy to 2.4%. However, that was higher than consensus of 2.3%. Meanwhile, RPI, retail price index, indeed accelerated from 4.3% yoy to 4.4% even though core RPI stayed at 3.3%. The data clearly indicates that there is no solid support by BoE to relax its tightening bias yet as inflation may not moderate as fast as BoE members would like to see. And, should inflation stabilizes above the 2% target, or even worse, re-accelerates, BoE will be forced to have another hike. The MPC meeting minutes will be released tomorrow and will then be closely watched on how nervous the members were and thus provide a more accurate assessment on the possibility of another near term hike.

On the other hand, Germany’s ZEW was a big disappointment today, nose-diving from 20.3 to 10.4, much worse than expectation of 21. The index peaked in May at 24.7 and has been deteriorating since then. The drop in business confidence highlighted the risk that current rise in the Euro, in particular against dollar and yen, are starting to weigh on export driven manufacturing economy and domestic demand to import. Euro is still steady against dollar but is under tremendous pressure against Sterling. EUR/USD

Daily Pivots: (S1) 1.3753; (P) 1.3778; (R1) 1.3796; «www.actionforex.com»

Not much to add. EUR/USD continues to trade in tight range below key medium term resistance of 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Though mild bearish divergence conditions in 4 hours MACD and RSI suggest upside momentum is diminishing, a break below 1.3729 minor support is needed to indicate a short term top is formed. Otherwise, further rally is still in favor. Below 1.3729 will bring deeper pull back to 4 hours 55 EMA (now at 1.3706 first).

In the bigger picture, the current development is dampening the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.

Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.

On the downside, failure to take out 1.3822 decisively, followed by a break of 1.3262 support, will retain the original case. That is, medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as expected. Deeper decline should then be seen to 1.2978 cluster support first (38.2% retracement of 1.1639 to 1.3813 at 1.2983) and then next cluster support at 1.2483 (61.8% retracement of 1.1639 to 1.3813 at 1.2469). Also, since in such case, rise from 1.1639 is likely merely part of a larger scale consolidation that started at 1.3668 there will be much chance of extending the fall to retest 1.1639 low before completing the consolidation.

GBP/USD

Daily Pivots: (S1) 2.0320; (P) 2.0361; (R1) 2.0400; «www.actionforex.com»

Sterling powers through 2.04 level today and surges to as high as 2.0474 so far. Rally from 1.9621 is still in force and at this point, as long as 2.0348 support holds, further rise is expected to be seen towards next upside target of 100% projection of 1.9183 to 2.0132 from 1.9621 at 2.0570. However, as bearish divergence could continue to stay in 4 hours MACD and RSI, a break below 2.0348 support will argue that a short term top is possibly formed and bring pull back to 4 hours 55 EMA (now at 2.0262) first. But downside should be contained by 2.0056 support and bring another rise.

In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first.

Having said that, even in case of a short term correction, downside should be contained above 1.9783 resistance turned support and bring medium term rally resumption. Also, break of 1.9862 low is needed to indicate a medium term top is formed and turn outlook neutral. Otherwise, medium term outlook will remain bullish.

USD/CHF

Daily Pivots: (S1) 1.2006; (P) 1.2021; (R1) 1.2049; «www.actionforex.com».

Once again, USD/CHF fails to take out 1.1993 cluster support (61.8% projection of 1.2467 to 1.2089 from 1.2232 at 1.1998) decisively and recovers back to established range. Nevertheless, intraday bias remains ont he downside as long as 1.2038 resistance holds. Further decline is still in favor towards next downside target of 1.1878 (06 low). However, above 1.2038 will indicate that a short term bottom is likely formed with bullish convergence condition in 4 hours MACD and RSI. This should bring stronger rebound to 4 hours 55 EMA (now at 1.2081) and above.

In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).

On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn’t change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.

USD/JPY

Daily Pivots: (S1) 121.56; (P) 121.87; (R1) 122.19; «www.actionforex.com»

USD/JPY rebounds strongly on broad based yen weakness. Break of 122.18 minor resistance shifts intraday bias back to the upside and further rise should be seen to 122.60 resistance. Break will indicates the rally from 120.96 has resumed. In other words, this will also add much weight that correction from 124.13 has completed at 120.96. Further rise should then be seen to 123.66 resistance. Break will bring retest of 124.13 high.

On the downside, below 121.54 will turn short term outlook mixed again. In such case, correction from 124.13 could still be in progress for another test of 120.76 cluster support (38.2% retracement of 115.13 to 124.13 at 120.70) before completion.

In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is still in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31. However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.

EUR/JPY

Daily Pivots: (S1) 167.60; (P) 167.97; (R1) 168.22; «www.actionforex.com»

EUR/JPY’s strong rebound and break of 168.41 minor resistance suggests that retreat from 168.93 has completed after drawing support from 4 hours 55 EMA. Intraday bias is turned back to the upside for retest of 168.93 high. Break will indicate recent rally from 161.49 has resumed for next upside target of 100% projection of 161.49 to 166.94 from 164.23 at 169.68. However, a break below 167.71 again will indicate that a short term top has likely completed, possibly with bearish divergence conditions in 4 hours MACD and RSI. In such case, deeper decline should be see to166.69 support first.

In the bigger picture, whole medium term rally from 130.60 is still in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.

However, break of the short term rising trend line support (now at 165.22) will dampen this view and indicate that the rise from 150.75 has possibly completed earlier then we thought.In such case, deeper decline should be seen to test 161.49 low first.

Latin America, Africa & Middle East, Asia, Emerging Europe & Cis

LATIN AMERICA

Argentina

Argentine President Nestor Kirchner's approval rating fell to 52 percent in June from57 percent the previous month, according to pollster Poliarquia. The president's ratings have fallen from as high as 82 percent in February 2002. The president's image has suffered as Argentines cope with cold weather and energy rationing coupled with food shortages stemming from the second-fastest inflation rate in South America. Kirchner, 57, has said he or his wife, Senator Cristina Fernandez de Kirchner, may run for president in October.

Brazil

Brazil's central bank raised its economic growth forecast for this year to 4.7 percent from a previous estimate of 4.1 percent in March. In addition, policy makers lowered their 2007 inflation forecast to 3.5 percent from an earlier estimate of 3.8 percent, according to the central bank's quarterly report on inflation released on its Web site today. For 2008, the central bank lowered its estimate for consumer prices to 4.1 percent compared with a previous 4.4 percent, the report showed. Central bankers, led by Henrique Meirelles, lowered the overnight lending rate by half a percentage point to 12 percent on June 6. The bank has cut the rate from a high of 19.75 percent in September 2005.

Brazil's foreign currency reserves surpassed the country's foreign medium- and long-term debt, the Estado news agency reported. Foreign reserves rose by $736 million last Tuesday and reached $145.501 billion, the agency said without citing where it got the information. That was more than the $145.401 billion in foreign medium- and long-term debt at the end of April, the latest data available, Estado said. The rise in foreign reserves Tuesday came in part from a recent 750 million Brazilian real ($386 million) reopening of the Treasury's 2028 bond, and from central bank dollar purchases at a spot market auction Friday, according to Estado.

Mexico

Mexico may win a credit rating increase should President Felipe Calderon push legislation through congress that would boost tax collection, said Joydeep Mukherji, a sovereign ratings director at Standard and Poor's. The government last week sent legislators a proposal to boost annual tax revenue by the equivalent of 3 percent of gross domestic product in an effort to ease Mexico's dependence on oil export income and keep the budget deficit in check. Calderon's success in pushing a bill through opposition-controlled congress to cut pension spending in March, just four months into his term, has sparked optimism that he'll be able to cobble together the votes needed for the tax bill. Calderon has courted opposition support through telephone calls and meetings in a bid to break the political logjam that torpedoed the legislative efforts of his predecessor Vicente Fox.

Venezuela

Bond prices suffered last week, especially CDS spreads on oil company PDVSA widened significantly on fears of a technical default.

Colombia

Fitch upgraded Colombia's ratings to one level below investment grade, citing improved debt dynamics, disciplined fiscal policies, and the government's continuous debt liability management. The outlook on all the ratings is stable.

Moody's revised the outlook on Colombia's ratings to positive from stable, citing improvement of key debt rations as a result of a recovery in growth and continued fiscal restraint.

Colombia's economy grew a higher-than-expected 8 percent in the first quarter of this year compared with a year earlier, driven by strong expansion in construction and industry. Quarterly growth was 8.09 percent without including illicit drug crop cultivation. With that data, the growth was 7.98 percent, according to the DANE government statistics agency. Analysts and the government had expected economic growth for the first quarter at around 6.5 percent to 7 percent. The Andean country is enjoying strong growth as President Alvaro Uribe draws more foreign investment by cracking down on the armed groups fighting a four-decade-old insurgency fueled by the drug trade.

AFRICA & MIDDLE EAST

Turkey

The European Union agreed to extend membership talks with Turkey to two new policy areas but stopped short of opening discussions on the key area of economic and monetary policy, central to EU membership. Ambassadors decided the EU would open talks with Ankara on the statistics and financial control negotiating chapters at an accession conference on Tuesday in Brussels, a German EU presidency spokesman said. But the presidency left the third area off the agenda after France made clear it would block starting talks on that politically sensitive issue to mark President Nicolas Sarkozy's opposition to eventual Turkish EU entry, diplomats said. A Turkish foreign ministry official said Ankara was unhappy with the fact that the bloc did not agree to start negotiations on the more important area of economic and monetary policy.

The Turkish government agreed to give state workers a 10 percent pay rise for 2007, more than double its inflation target, ahead of general elections next month. The rise would be backdated to January. Turkish inflation target for 2007 is four percent, but the actual rate is hovering near 10 percent. The 323,000 public workers' wages would be raised by 3 percent in the first half of 2008 and by another 3 percent in the second half. If inflation exceeds the pay rise in 2008, then the government will pay compensation, the minister said. Turkey will hold general elections on July 22. The pay rises would cost 800 million lira ($600 million) in extra state spending.

ASIA

Philippines

The World Bank sounded the alarm over the Philippines' failure to meet its five-month revenue target, saying it puts in question the state's ability to sustain its fiscal reforms and meet deficit goals. Outgoing country director Joachim Von Amsberg said the government should improve the efficiency of its tax collections and protect revenue collectors from political pressure. The country has set a budget deficit goal of 63 billion pesos ($1.3 billion), or 0.9 percent of GDP, for the year. But financial markets are building in expectations the government will miss its full-year target for the first time in four years as tax collections disappoint. Total revenues for the first five months of the year reached 432.6 billion pesos, 8 percent short of the government's internal targets, and inefficiencies in tax collection and administration were blamed for the shortfall. Amsberg said the government must get better at collecting what it is owed by fully implementing tax laws and reforms already in place. He added: "The second element is just absolute steadfast political support to protect the revenue generating agencies and that requires political commitment from the highest level to ensure that the tax collectors can do their job effectively and for the benefit of public coffers." The Bureau of Internal Revenue (BIR), which accounts for about two thirds of state revenues, has yet to bring about the conviction of an evader since it launched a campaign against tax evasion in 2004. It lost high-profile tax cases this year after local courts dismissed tax evasion charges against former first lady Imelda Marcos and one of the country's richest man, Lucio Tan, for lack of evidence. President Gloria Macapagal Arroyo sacked the head of the BIR this month for failing to meet targets. Finance Secretary Margarito Teves has insisted the government will meet its full-year budget deficit target with the help of privatisation proceeds estimated to reach 105 billion pesos. The Philippine central bank expects annual inflation in June to come in between 2.2 and 2.9 percent after 2.4 percent in May largely due to higher oil prices and spending related to the start of the school year, the governor said.

EMERGING EUROPE & CIS

Poland

The central bank of Poland raised its main interest rate by 25 basis points to 4.5 percent to combat soaring wages and growing inflation pressures, surprising markets and sparking speculation of at least one more increase this year.

Russia

Russia c.bank sees June inflation at 0.6 pct. Russia targets 8 percent inflation in 2007 but consumer prices rose by 4.7 percent in the first 5 months of the year as inflows of capital continue to push up money supply growth. After strong private capital inflows at the start of the year the central bank upped its full-year inflows forecast to $70 billion from $35 billion while many analysts raised doubts about the bank's ability to meet the inflation target.

Ukraine

Ukrainian President Viktor Yushchenko wants to change the constitution to create upper and lower houses of parliament, reduce the number of lawmakers and shorten theirterms in office. Yushchenko, who wants to move Ukraine closer to the European Union, dissolved parliament on April 2 and called early elections for Sept. 30. He accused the ruling coalition of bribing opposition lawmakers to oust him.

Ukrainian prime minister Viktor Yanukovych??™s political party was backed by 32 percent of voters in a May 31-June survey. Former Prime Minister Yulia Timoshenko's alliance ranked second with 17.9 percent, while President Viktor Yushchenko's Our Ukraine party came in third with 8.5 percent, the poll showed.

U.S. Forex Market Commentary

EURO

The euro weakened vis-? -vis the U.S. dollar today as the single currencytested bids around the US$ 1.3585 level and was capped around the $1.3635level. Technically, today??™s intraday lowwas right around the 76.4% retracement of the move from $1.3680 to$1.3260. Data released in the U.S. todaysaw pending sales of existing homes fall an annualized 3.5% m/m and 13.3% y/yin May, underscoring the fragile state of the U.S. housing market. Also, Redbook U.S. retail sales were off 1.1% m/min the first four weeks of June and ISCS-UBS chain store sales were up 0.1%last week. Other data released today sawMay factory orders down 0.5% from a revised +0.5% in April. The major data in the U.S. will bereleased on Friday when June non-farm payrolls data are released one day afterthe ADP private employment report. Many economists are expecting new jobscreation in the vicinity of 120,000 new jobs. In eurozone news, EuropeanCentral Bank member Bini Smaghi talked about intervention today and said theECB could act ???promptly??? but his remarks were not seen as threatening themarkets with actual intervention. TheEuropean Commission warned a further appreciation of the euro could slowexports in the eurozone. Data releasedin the eurozone today saw May producer price inflation up 0.3% m/m and 2.3% y/ywhile May unemployment ticked lower to 7.0% from 7.1%. Euro bids are citedaround the US$ 1.3550 level.

JPN/CNY

Theyen appreciated marginally vis-? -vis the U.S. dollar today as the greenback tested bids around the ??122.10 leveland was capped around the ??122.65 level. Technically, today??™s intraday low was just above the 61.8% retracementof the move from ??120.75 to ??124.15. TheMinistry of Finance announced a shakeup today in which Naoyuki Shinohara willbecome the vice finance minister for international affairs, succeeding HiroshiWatanabe as the country??™s top currency diplomat. This move will likely result in more verbalintervention. Bank of Japan DeputyGovernor Muto reiterated the central bank??™s gradualist stance on interest ratessaying ???Asstated in the (BoJ??™s) outlook report (released in April), the BoJ willgradually adjust rates in tandem with the pace of an improvement in the economyand prices, and after confirming the likelihood that sustainable economicgrowth will continue under stable price conditions.??? Data released in Japan today sawthe June monetary base fall 4.1% y/y, down for the sixteenth consecutive month.The Nikkei 225 stock index climbed 0.02% to close at ??18,149.90. Dollarbids are cited around the ??121.55 level. The euro came off vis-? -visthe yen as the single currency tested bids around the ??166.20 level and wascapped around the ??167.15 level. TheBritish pound and Swiss franc weakened vis-? -vis the yen as the crossestested bids around the ??246.25 and ??100.50 levels, respectively. InChinese news, the yuan??™s central parity rate was set at CNY 7.5951vis-? -vis the U.S. dollar, down from CNY 7.6075 yesterday.

STERLING

The Britishpound weakened marginally vis-? -vis the U.S. dollar today as cable tested bids around the US$ 2.0130 level andwas capped around the $2.0195 level. Today??™sintraday high represents a fresh multi-decade high for the pair. Traders bid the pair higher ahead ofThursday??™s interest rate decision from Bank of England??™s Monetary PolicyCommittee. Most traders believe the MPCwill lift the repo rate by +25bps to 5.75%. Data released in the U.K.today saw the June construction sector PMI survey improve while REC reportedJune wage pressures remained elevated. Cable bids are cited around the US$ 2.0090 level. Theeuro came off vis-? -vis the British pound as the single currency testedbids around the ?‚¤0.6740 level and was capped around the ?‚¤0.6755 level.

SWISS

The Swiss franc came off vis-? -vis the U.S. dollartoday as thegreenback tested offers around the CHF 1.2175 level and was supported aroundthe CHF 1.2090 level. Technically,today??™s intraday high was right around the 61.8% retracement of the move fromCHF 1.1995 to CHF 1.2475. Data releasedin Switzerlandtoday saw June consumer prices up 0.1% m/m and 0.6% y/y, relatively tameinflation data that diminish the chances Swiss National Bank will move interestrates higher before their next scheduled meeting in September. The most likelyscenario remains a +25bps monetary tightening in September even though consumerprices are within the central bank??™s target zone for price stability. Dollar offers are cited around the CHF 1.2235level. The euro and British pound moved higher vis-? -vis the Swiss francas the crosses tested offers around the CHF 1.6555 and CHF 2.4530 levels,respectively.

CURRENCIES: Sterling Stays Well Above $2 Mark

The dollar failed to recover against the British pound on Tuesday, as market participants were nonplussed by data showing declines in pending-home sales and a smaller-than-expected drop in factory orders.

Instead the market remained focused on expected rate hikes in the U.K. and the euro zone, and speculation that the U.S. could cut rates.

"The market is broad in a sell-dollar mode," said Michael Cairns, trading desk manager at FX Solutions.

The pound last traded at $2.0166 against the dollar. The sterling had reached a 26-year record high in late New York trading, touching $2.0195 at one point.

Meanwhile, the dollar was up 0.1% at 122.35 yen, and down 0.5% against the euro at $1.3613.

The U.S. housing market weakened further in May, with contract signings on sales of previously owned homes falling 3.5%, the National Association of Realtors reported.

Pending sales are down 13.3% compared with a year earlier and are down 21% from the peak year in 2005. Pending-home sales represent home sale contacts that have originated but have not yet closed.

After three straight gains, orders for U.S.- made factory goods fell 0.5% in May, the Commerce Department estimated.

Economists had been looking for a drop of about 1.2% in factory orders, according to a survey conducted by MarketWatch.

Although that report beat expectations, traders remained unconcerned about the figures.

It would be "a stretch" to say that traders were focusing on factory-goods numbers, according to Vassili Serebriakov, an economist for 4Cast, a financial market analysis company.

Housing data still is a big mover, Serebriakov added.

"The [housing] numbers were softer than expected, which just adds to U.S. dollar worries," Serebriakov said. "However, the market already is probably quite short the U.S. dollar going into the holidays, and I would not expect a significant downside from here into tomorrow's Independence Day."

Partially due to strong U.K. housing data, the Bank of England is expected to raise rates by a quarter-point to 5.75% at its Wednesday meeting, according to the consensus on Wall Street.

If the bank's statement is dovish, the currency market could see some selling, Cairns said. "The pound has held up very well since Friday [and] traders have an exceptional amount of appetite for risk in the market."

Meanwhile, the European Central Bank is expected to lay the groundwork for at least two more rate hikes at its Thursday meeting. Last week's euro-zone data, which included a 25-year low unemployment figure in France and high consumer confidence index, might contribute to the ECB's hawkish demeanor.

Bank President Jean-Claude Trichet could again use the codeword "vigilant" to suggest that there might be more rate hikes in the pipeline, Cairns said.

Meanwhile, the yen gained a bit on the dollar Tuesday, but stood still against most other major currencies, indicating that investors practicing the carry trade still felt quite comfortable. The trade refers to the borrowing of low-yielding currencies to invest in higher yielding assets.

Although the yen and dollar might look better today, dollar levels against the pound, euro and others have remained largely unchanged.

Meanwhile, because there already were European rate hike expectations built into currency prices last week, the catalyst for this week's slide in the dollar could be due to "sanguine expectations" built into U.S. dollar-denominated risk assets, along with developments on the subprime front, according to Naomi Fink, directory of foreign exchange strategy at BNP Paribas.

"I think that we're very, very far from pricing in [the subprime problems]," Fink added. "It's anyone's guess what the full extent of a potential contagion might be."

The rise in default rates and delinquencies still remains contained for now to the sector, Fink said. However, she said she is not convinced that the problems won't spill over.

The Independence Day holiday might see some significant shifts in the market, as investors take advantage of the lower volume of trades.

Fewer participants around the holidays creates higher volatility in the markets, allowing a small group of traders to push currency movements up with large sells and purchases.

(END) Dow Jones Newswires

03.07.2007 - Producer prices rose by 0.3% in the euro area in May

The producer price index in the euro area rose in May by 0.3%, which was up to analysts’ estimates (0.3%), but slightly below the preceding reading (0.4%).

In May 2007, compared with May 2006 producer prices increased by 2.3%, which was below economists’ expectations (2.4%). In April annual producer price index was 2.4%.

Producer prices excluding energy sector rose in May by 0.4% compared with the previous month, and by 3.2% compared with May 2006. Prices in the energy sector increased in May by 0.5% compared with the previous month and fell by 0.5% toward May 2006.