"Financial turmoil peaked six weeks ago, but the economic downturn is only beginning. It's still a recession, in our view, and that's no longer in the price. Indeed, reflecting higher energy quotes and slipping growth abroad, we see weaker US growth over the next few quarters than we did a month ago."

Thomas Lam, economist at United Overseas Bank - "There is a bit of a caution and there is no incentive to stretch some of these currencies ahead of these meetings. The rhetoric after the ECB meeting could potentially sway the direction of the euro and the dollar."

The dollar fell for a second day against the euro as Fannie Mae reported a larger-than-expected $2.19 billion loss, indicating the worst of financial-market turmoil may not be over. The currency also weakened versus the yen after the largest U.S. mortgage-finance company said it will cut its dividend and raise $6 billion in capital. The Swiss franc increased against the Brazilian real, the Australian dollar and the pound on speculation investors will reduce holdings of higher-yielding assets financed with loans in Switzerland.
The Canadian dollar was the best performer against the U.S. dollar among the major currencies. It rose 1 percent to C$1.0030, the most in almost three weeks, after a report showed business and government spending increased in April more than analysts forecast.
The yen may strengthen about 5 percent to 100 per dollar in the next three months on speculation investors will cut holdings of higher-yielding assets as housing and economic growth slow further, according to a UBS AG note to investors today. The Bank of Japan held its target rate at 0.5 percent last week.Federal Reserve Chairman Ben S. Bernanke said yesterday mortgage delinquencies will weigh on the economy, adding to speculation policy makers will cut borrowing costs. He spoke at a Columbia Business School dinner in New York.
Crude oil rose above $122 a barrel for the first time in New York on threats to supply in Nigeria and Iraq and growing global fuel consumption. The price may go as high as $200 a barrel within two years, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report yesterday.
The euro earlier rose against the dollar on a European Union report showing producer-price inflation accelerated more than forecast in March, increasing pressure on the European Central Bank to keep interest rates on hold.

The major indices extend their advance as the Dow joins the Nasdaq and S&P 500 in positive territory. Six of the ten sectors are now posting a gain, and financials (+1.0%) are leading the charge. MasterCard (MA 298.62, +7.82) is showing notable strength, as it has managed to hit a life-time high of $300.77 per share, before retreating a bit. AIG (AIG 48.36, +0.97) and Fannie Mae (FNM 30.10, +1.81) are also aiding in the financial sector's rebound.

FTSE 100 -0.30 0.00% 6,215.20
CAC 40 -22.44 -0.44% 5,040.92
Xetra Dax -34.98 -0.50% 7,017.10

``The financial crisis and economic weakness continue to take center stage in the U.S.,'' Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, said in an interview on Bloomberg Television. ``We expect pressure to remain on the dollar in the near term.''

U.S. stocks declined for a second day after Fannie Mae posted a wider-than-estimated loss and UBS AG, Europe's largest bank, predicted ``tough business conditions'' because of the collapse of the subprime mortgage market.
Fannie Mae slumped after the largest U.S. home-loan financer reported a $2.19 billion loss, cut its dividend and said it will raise $6 billion in capital. Merrill Lynch & Co. dropped the most in five weeks after the largest U.S. brokerage reported a 70 percent increase in so-called Level 3 assets, the holdings most vulnerable to writedowns. Stocks fell in Europe and Asia as UBS lost $17.3 billion in its investment banking unit and Swiss Reinsurance Co.'s profit trailed estimates.
Stocks also retreated after Federal Reserve Chairman Ben S. Bernanke said accelerating home foreclosures may hurt the U.S. economy. Profits have slumped 13 percent on average for the 373 companies in the S&P 500 that have reported results so far, according to data compiled by Bloomberg.
D.R. Horton declined. The homebuilder reported a fiscal second-quarter net loss of $1.31 billion, or $4.14 a share, its biggest ever and almost seven times higher than analysts' estimates.
Wachovia Corp. retreated 68 cents to $29.10. The fourth- largest U.S. bank by assets said its net loss for the first quarter was $708 million more than previously disclosed because of valuation losses on bank-owned life insurance.
Legg Mason Inc. retreated. The asset- management company posted a bigger-than-expected loss, its first as a public company, after bailing out money-market funds hurt by investments in debt backed by subprime mortgages.
Cisco Systems Inc. fell. The largest maker of networking devices will announce its earnings and outlook today after financial markets close. Cisco may predict a 9.1 percent jump in fiscal fourth-quarter revenue to $10.3 billion, according to the average of estimates in a survey of analysts.

The major indices are trading at their best levels of the session, with the Nasdaq posting a slight gain. The S&P 500 is now clutching the unchanged mark after being down as much as 0.7%.
Tech is outperforming on a relative basis, as it trades with a slight gain. Yahoo! (YHOO 25.34, +0.97) is posting a decent gain of 4.0% as traders speculate there is still a chance Microsoft (MSFT 29.62, +0.54) will acquire the company. Shares of Yahoo fell 15% in yesterday's session after Microsoft announced it had abandoned its $47.5 billion bid.

Currency strategists at UBS issue a note, they say "The current surge in oil prices put our short EURUSD and short EURGBP under pressure. We are closing EURGBP (short from stg0.7857 at spotstg 0.7879) and EURUSD (short from $1.5665, spot $1.5575) realising a marginal gain of 0.3%. We will reenter EURUSD shorts on either the markets inability to overcome 1.5700 - a key resistance - or a reversal in oil. Note rising oil prices remain a concern to the ECB, meeting this week."

James Hughes, analyst at CMC Markets - "Yesterday's surprise jump in U.S. ISM data failed to offer any real support for the dollar, arguably as the threat of recession continues to be associated with the US economy by a number of commentators."

The major indices open on modestly lower note, with financial companies (-1.7%) acting as the main drag in the early-going.
Fannie Mae (FNM) is fueling the selling interest after reporting a larger than expected loss, cutting its dividend by 30% and announcing it is raising $6 billion in capital. UBS (UBS) is not helping things either, after announcing it is going to sell $15 billion in mortgage assets to Blackrock (BLK), and will eliminate 5,500 jobs.
Meanwhile, crude oil is continue its record run, hitting as high as $129.93 per barrel. Crude oil has since eased a tad, trading up 0.5% to $120.55 per barrel.

Stocks set for weak open as mortgage finance giant Fannie Mae reports a wider-than-expected loss; record-high oil prices also weigh on Wall Street.
Stock futures are off their worst levels, but continue to point to a lower start to the trading day: S&P futures vs fair value: -6.2. Nasdaq futures vs fair value: -7.8.
High oil prices could knock sentiment again Tuesday. Oil futures hit a new trading high of $120.93 a barrel in electronic trading, then retreated to $119.81, off 16 cents from the record closing high reached Monday.
The recent surge in crude prices come amid growing hopes that the downturn in the U.S. may not be as deep as originally feared.
Fannie Mae (FNM) announced early Tuesday that it posted a wide loss in the first quarter. The mortgage finance giant announced plans to slash its dividend and raise additional capital.
Shares were down 7% in pre-market trading after it reported a $2.2 billion loss, or $2.57 a share. Analysts surveyed by earnings tracker Thomson First Call had been forecasting a much narrower loss of 81 cents.
No major economic readings are due Tuesday, but Disney and Cisco Systems post results after the market close.
In major corporate news, Bank of America (BAC) is committed to its takeover of Countrywide Financial (CFC), according to a report in the Wall Street Journal.
Swiss banking giant UBS (UBS) said it plans to cut 5,500 jobs after posting an expected $11 billion quarterly loss.
Microsoft (MSFT) may be in preliminary talks with Time Warner (TWX) related to buying AOL, according to the Times of London. Yesterday, Microsoft withdrew its offer to buy Yahoo! (YHOO), although Yahoo CEO Jerry Yang has said he is willing to continue talks, according to Reuters.

Stops triggered on the break below Y104.50, with added sales taking rate down to fresh intraday lows of Y104.43. If rate can continue to build on the move seen allowing for an extension toward Y104.30 ahead of Y104.00/103.90.

The euro was little changed against the dollar as investors bet the European Central Bank will say this week the economy is deteriorating, increasing the chances of an interest-rate cut as soon as September.
The euro earlier fell on speculation the fallout from the U.S. subprime-mortgage crisis will erode the region's economy. UBS AG, battered by $17.3 billion of first-quarter losses at its investment-banking unit, said today it plans to cut about 5,500 jobs, or about 7 percent of the workforce.
Any gains in the dollar against the euro may be limited due to lingering concern over the U.S. economy. Rising mortgage foreclosures may push home prices down further, hurting the broader economy and threatening the financial system, Federal Reserve Chairman Ben S. Bernanke said in a speech to a Columbia Business School dinner in New York.
``It's going to be a bumpy ride for the dollar,'' said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, the nation's second-largest lender. ``Bernanke's comments may cause the dollar to fall against the euro. The implication is the Fed is going to continue to provide liquidity.''
The dollar may decline to $1.56 per euro in the next few days, he forecast. EU data including service PMI reports, and EU PPI release for March failed to affect the trades, while release of weak CIPS services PMI weighed heavily on the pound.

EUR/USDrecovered from $1.5450 on stronger than expected eurozone PMI data back above $1.5500 and posted session high at $1.5545. Bids $1.5455/45, $1.5420/00. Offers $1.5560

GBP/USDrecovered off post CIPS release lows of $1.9635 and extended gains to the offers zone between $1.9715/25. Supply growth, toward overnight highs of $1.9750. Bids $1.9680/70.

USD/JPY fell from Y105.12 to Y104.40. Bids Y104.30. Offers Y105.10/20, Y105.40/50

There is no key economic data from US scheduled for today.

Currency strategists at BBH say of the euro "While we continue to believe that the euro is carving out a long term top and that the puzzle pieces that will contribute to a euro downtrend this year are beginning to fall into place, the market has now priced in these positive dollar developments. Further evidence that the US economy is not experiencing a sharp contraction in Q2 and further weakness in the euro zone economy that could help trigger a shift to a dovish ECB stance are needed to propel the euro lower."

Recovery off post CIPS release lows of $1.9635 extended to the offers zone between $1.9715/25. Supply growth, toward overnight highs of $1.9750. Bids $1.9680/70.

The euro was little changed against the dollar as investors bet the European Central Bank will say this week the economy is deteriorating, increasing the chances of an interest-rate cut as soon as September.
The currency also declined against the Canadian dollar and the South African rand after ECB policy maker Miguel Angel Fernandez Ordonez said today that soaring food and oil prices are ``negative'' for growth. The ECB will leave the benchmark rate at a six-year high of 4 percent on May 8, according to all 53 economists surveyed by Bloomberg News.
``Trichet is likely to heavily emphasize risks on growth rather than inflation this week,'' said Geoffrey Yu, currency strategist in Zurich at UBS AG, the world's second-biggest foreign-exchange trader. ``We are looking for deterioration in euro region data in coming months, and for the ECB to start cutting interest rates by the end of September.''
The euro earlier fell on speculation the fallout from the U.S. subprime-mortgage crisis will erode the region's economy. UBS AG, battered by $17.3 billion of first-quarter losses at its investment-banking unit, said today it plans to cut about 5,500 jobs, or about 7 percent of the workforce.
The International Monetary Fund predicted last month the euro region economy will grow 1.4 percent this year and 1.2 percent next year, compared with a 2.6 percent rate last year, because of the slowdown in the U.S. economy.
The euro will peak against the dollar at $1.60 before easing in the second half, said Thomas Harr, a currency analyst at Standard Chartered Bank in Singapore.
``We are seeing the first signs of weakness in the euro zone and in the U.K. and that is going to be a key theme in the second half of this year,'' Harr said.
Any gains in the dollar against the euro may be limited due to lingering concern over the U.S. economy. Rising mortgage foreclosures may push home prices down further, hurting the broader economy and threatening the financial system, Federal Reserve Chairman Ben S. Bernanke said in a speech to a Columbia Business School dinner in New York.
A quarterly Fed survey showed yesterday a net 70 percent of U.S. banks increased loan rates over their cost of funds for commercial and industrial borrowing. That compares with 45 percent in the January survey, the Fed said.
``It's going to be a bumpy ride for the dollar,'' said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, the nation's second-largest lender. ``Bernanke's comments may cause the dollar to fall against the euro. The implication is the Fed is going to continue to provide liquidity.''
The dollar may decline to $1.56 per euro in the next few days, he forecast.

Extends recovery rally above $1.5500, moves on to $1.5525 as the dollar comes under another round of general pressure. Offers remain from around the earlier highs at $1.5536, with interest said to extend to $1.5540. Stops noted above this latter level, which if triggered seen opening a move on toward $1.5560, though Asian traders warned earlier that a break above $1.5540 could prompt sales.

Resistance 3: Y106.60
Resistance 2: Y106.30
Resistance 1: Y105.70
Current price: Y104.72
Support 1: Y104.30

Support 2: Y103.20

Support 3: Y102.60

Comments: Dollar holds within the narrow range. Support near session low on Y104.30, then – at Y103.20 with a break under will widen losses to Apr 22-23 lows around Y102.60/70. Resistance comes near Friday’s highs on Y105.70. Above there is a room for a rise up to Y106.30, then – to Y106.60.

Resistance 3: Chf1.0730

Resistance 2: Chf1.0670
Resistance 1: Chf1.0600
Current price: Chf1.0484

Support 1: Chf1.0430
Support 2: Chf1.0360

Support 3: Chf1.0330

Comments: Techs is steady. Strong resistance comes at Friday’s highs on Chf1.0600. Above the target comes at Chf1.0670 and Chf1.0730 (Feb 01 high). Support is around Friday’s lows near Chf1.0430. Below there is a risk of sliding to Chf1.0360 and then – to Apr 30 lows on Chf1.0330.

Resistance 3: $1.9960
Resistance 2: $1.9900
Resistance 1: $1.9780

Current price: $1.9690
Support 1: $1.9650

Support 2: $1.9600
Support 3: $1.9550

Comments: Cable tested support at $1.9640/50. Stronger one lies at $1.9610/00. Cable hold within the range with resistance comes near session high on $1.9780. Stronger level is around Friday’s high on $1.9900, then – Apr 28 highs on $1.9960.

Resistance 3:$1.5780

Resistance 2: $1.5640

Resistance 1: $1.5540

Current price: $1.5486

Support 1: $1.5440
Support 2: $1.5360
Support 3: $1.5280

Comments: Euro slowly gets higher with resistance comes at session high on $1.5535/40. Break above will point to last week’s highs on $1.5640 and then – to $1.5700 and $1.5780. Support is around $1.5440, stronger – on $1.5360 and March 11 low $1.5280.

EUR/USD: $1.5750

USD/JPY: Y105.30, Y104.00, Y107.00

EUR/JPY: Y160.50

AUS/USD: $0.9475, $0.9150

GBP/USD slides through support $1.9680 to new lows around $1.9640. Stops said to be mixed in between $1.5450/45, which if triggered seen opening a deeper move toward $1.9630/20. Offers now seen placed between $1.9695/05.

EUR
Bids: $1.5420/00, $1.5500/1.5490, $1.5480
Offers: $1.5536/40, $1.5560

JPY
Bids: Y104.60/50, Y104.30/20, Y104.00/103.90
Offers: Y105.00, Y105.20/30, Y105.60/70

GBP
Bids: $1.9680, $1.9655/45
Offers: $1.9750

ML economist David Rosenberg says past recessions have started even if GDP was positive. "Employment peaked in December/07. Real income peaked in September/07. Production peaked in January/08. Real sales peaked in October/07. So, it is still reasonable to believe that the recession started some time between September and January."

The dollar fell for a second day against the euro after Federal Reserve Chairman Ben S. Bernanke said mortgage delinquencies will weigh on the economy, adding to speculation policy makers will avoid raising interest rates.
The Australian dollar fell after the country's central bank said borrowing costs at a 12-year high today may be enough to curb inflation. The Reserve Bank of Australia kept its benchmark rate at 7.25 percent.

EUR/USD printed high on $1.5530 before retreated to $1.5505.

GBP/USD consolidated near session highs on $1.9750 before sliding to $1.9700.

USD/JPY rose from Y104.60 to Y104.90.

EU data include service PMI reports, while EU will release PPI data for March. There is no key economic data from US scheduled for today.

Stock market fixing:
Nikkei 0.00 0.00% 14,049.26
FTSE +128.20 +2.11% 6,215.50
DAX +8.85 +0.13% 7,052.08
CAC -6.35 -0.13% 5,063.36
DOW -88.66 -0.68% 12,969.54
NASDAQ -12.87 -0.52% 2,464.12
S&P 500 -6.42 -0.45% 1,407.48
10yr Note 0.0000 0.000%   3.845%
NYMEX Crude Oil +3.43 +2.95% 119.75
Gold +16.20 +1.89% 874.20

Japan stock market was closed in observance of national holiday.

European stocks fell for the first time in three days, led by technology companies, as investors speculated earnings growth won't be strong enough to extend a two-month rally.
Ericsson AB posted the biggest two-day decline in six weeks on concern profit margins won't expand. Deutsche Telekom AG slipped the most in almost two weeks after Der Spiegel reported the region's largest phone company is considering an offer to buy Sprint Nextel Corp.
Ericsson fell 1.1%. Nokia Oyj lost 1.5%. Deutsche Telekom fell 1.5%.
Accor SA climbed 1.1%. Colony Capital LLC and Eurazeo plan to increase their stake in Accor to 30%.
Deutsche Post AG gained 2.9%. Europe's biggest postal service said operations were ``very satisfactory'' in the first quarter and that it's making progress in plans to turn around the ailing DHL Express unit in the U.S.

Wall Street fell Monday on rising oil prices and the abandoned Microsoft-Yahoo deal.
Microsoft said Saturday that it was abandoning its sweetened $46 billion deal for Yahoo and would not pursue a hostile takeover. The talks fell apart over the weekend after Yahoo rejected Microsoft's higher offer.
Shares of Googlerose after a Goldman Sachs analyst boosted its price target, saying that the company could benefit from the fallout from the failed Microsoft-Yahoo deal.
In other potential deal news, Deutsche Telekom is reportedly considering making a bid for Sprint Nextel, according to a Wall Street Journal article Monday.
The day's one economic report was surprisingly strong. The April ISM services sector index rose to 52.0 from 49.6 versus forecasts for a drop to 49.1. Any reading over 50 indicates expansion in the sector.

The euro rose against the dollar for the first time in three days on speculation the European Central Bank will keep interest rates at a six-year high this week to control inflation.
The ECB will leave its main refinancing rate at 4% when policy makers meet May 8, according to a survey.
Consumer prices in the 15-member euro area rose 3.6% in March from a year ago, the highest in 16 years and way above the ECB's 2% average inflation target. The European Commission has recently raised its inflation projection for the euro area to 2.9% for the whole of 2008 from as low as 2.1% previously.
The U.S. currency briefly pared its drop against the euro as a private report showed service industries expanded in April. The Institute for Supply Management's index of non-manufacturing businesses, which make up almost 90% of the economy, increased to 52, from 49.6 the prior month.

EUR/USD slowly rose from $1.5430 to $1.5500. But rate failed to break above the figure and retreated to $1.5440, later to $1.5420. Then rate rose again to $1.5520.
GBP/USD printed lows around $1.9650 before slowly strengthened to $1.9720.
USD/JPY consolidated for some time within the Y105.14/50 range before it declined to the lows around Y104.70.

EU data include service PMI reports, while EU will release PPI data for March. There is no key economic data from US scheduled for today.

Resistance 3: Y106.60
Resistance 2: Y106.30
Resistance 1: Y105.70
Current price: Y104.92
Support 1: Y104.30
Support 2: Y103.20
Support 3: Y102.60
Comments: Dollar holds within the narrow range. Support near session low on Y104.30, then – at Y103.20 with a break under will widen losses to Apr 22-23 lows around Y102.60/70. Resistance comes near Friday’s highs on Y105.70. Above there is a room for a rise up to Y106.30, then – to Y106.60.

Resistance 3: Chf1.0730
Resistance 2: Chf1.0670
Resistance 1: Chf1.0600
Current price: Chf1.0524
Support 1: Chf1.0430
Support 2: Chf1.0360
Support 3: Chf1.0330
Comments: Techs is steady. Strong resistance comes at Friday’s highs on Chf1.0600. Above the target comes at Chf1.0670 and Chf1.0730 (Feb 01 high). Support is around Friday’s lows near Chf1.0430. Below there is a risk of sliding to Chf1.0360 and then – to Apr 30 lows on Chf1.0330.

Resistance 3: $1.9960
Resistance 2: $1.9900
Resistance 1: $1.9780
Current price: $1.9728
Support 1: $1.9700
Support 2: $1.9650
Support 3: $1.9610
Comments: Cable hold within the range with resistance comes near session high on $1.9780. Stronger level is around Friday’s high on $1.9900, then – Apr 28 highs on $1.9960. Strong support comes at Friday’s low on $1.9700, with a break under widens the correction to $1.9660 and $1.9610/20.

Resistance 3:$1.5780
Resistance 2: $1.5640
Resistance 1: $1.5530
Current price: $1.5507
Support 1: $1.5480
Support 2: $1.5360
Support 3: $1.5280
Comments: Euro slowly gets higher with resistance comes at session high on $1.5530. Break above will point to last week’s highs on $1.5640 and then – to $1.5780. Support is around $1.5480, stronger – on $1.5280.

High Low Close
EUR/USD 1.5518 1.5422 1.5498
USD/JPY 105.60 104.73 104.92
GBP/USD 1.9786 1.9654 1.9726
USD/CHF 1.0595 1.0508 1.0529

EUR/JPY 163.07 162.29 162.60
EUR/GBP 0.7871 0.7814 0.7854
GBP/JPY 208.29 206.46 206.98
GBP/CHF 2.0856 2.0706 2.0772

Change % Change Last
Nikkei 0.00 0.00% 14,049.26
FTSE +128.20 +2.11% 6,215.50
DAX +8.85 +0.13% 7,052.08
CAC -6.35 -0.13% 5,063.36
DOW -88.66 -0.68% 12,969.54
NASDAQ -12.87 -0.52% 2,464.12
S&P 500 -6.42 -0.45% 1,407.48
10yr Note 0.0000 0.000% 3.845%
NYMEX Crude Oil +3.43 +2.95% 119.75
Gold +16.20 +1.89% 874.20

Japan Bank holiday
03:30 Australia RBA meeting announcement 7.25%
07:45 Italy PMI services (April) - 48.8
07:50 France PMI services (April) - 57.3
07:55 Germany PMI services (April) seasonally adjusted - 51.8
08:00 EU(15) PMI services (April) - 51.6
08:30 UK CIPS services index (April) - 52.1
09:00 EU(15) PPI (March) - 0.6%
09:00 EU(15) PPI (March) Y/Y - 5.3%
12:55 USA Redbook (03.05)
23:01 UK Nationwide consumer confidence (April)