"We still look for the Fed to eventually cut the funds rate to 1% as Fed deals with the intensifying credit crunch, continued decline in home prices and an unfolding economic recession. We still hold an out-of-consensus view that 10-year yields will dip below 3% in 2009, as the economic rebound in 2009 will be disappointingly modest."

Arch Coal Inc The second-largest U.S. coal producer reported first-quarter profit more than doubled on increased output and higher prices.

Bank Of America Corporation The largest U.S. retail bank wrote down $1.9B in the value of its collateralized debt obligations and leveraged loans; profit fell 77% to $1.21, or 23 cents a share, down from the year-ago $5.26 billion, or $1.16 a share.

Merck & Co., Inc The third-largest U.S. drugmaker said first-quarter profit rose 94% due to increased demand for its diabetes pill and cervical cancer vaccine and a $2.2B payment from AstraZeneca Plc.

National City Corporation The Midwestern bank will raise $6B to $7B in new capital from private investors; the bank is heavily exposed to the worsening mortgage and housing markets.

Novartis A G Switzerland's second-largest drugmaker reported first-quarter profit that beat analyst estimates on sales of the Gleevec cancer treatment and cost-cutting.

Thornburg Mortgage Asset Corp The mortgage lender, which is trying to avoid bankruptcy, reported an indirect subsidiary defaulted on $300M of commercial paper.

Ual Corp The world's second-largest carrier is increasing business-travel fares and ticket-change fees to offset fuel costs.

The major indices are on the decline, lead by weakness in financials (-1.8%). Within the sector, regional banks (-4.3%), diversified banks (-2.8%), and multi-line insurance (-2.7%) are showing the most weakness.

The stock market made a recent push higher, led by large cap tech names, to reach its best level in afternoon trading. The Nasdaq has crossed into positive territory, but the Dow Jones and S&P 500 remain in the red.
The combined influence of Apple (AAPL 164.77, +3.73), Cisco (CSCO 24.88, +0.37), and Texas Instruments (TXN 30.62, +1.02) has pushed the tech sector (+0.5%) to its session high.
The only other sectors trading in positive territory are energy (+0.5%) and utilities (+0.5%).

The euro rose to within a cent of a record against the dollar as European Central Bank officials reiterated concern inflation has accelerated, increasing chances interest rates will stay at a six-year high.
Europe's currency gained for the first time in three days after policy maker Klaus Liebscher said record oil prices are starting to push up wages. The pound fell against the euro on speculation the Bank of England's plan to swap government bonds for mortgage-backed securities won't be enough to revive lending between banks. Mounting inflation in the euro area may lead policy makers to consider a rate increase, the Wall Street Journal quoted ECB policy maker Erkki Liikanen as saying. His colleague, Axel Weber, who last week said policy makers will assess whether the benchmark rate of 4 percent is high enough to contain ``intolerably'' fast inflation, speaks in Munich today.
``The ECB is so hawkish on inflation that they are going to keep the rate on hold for the next couple of meetings,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``The euro-dollar has potential to move above $1.60.''
The U.S. currency remained lower against the euro as Bank of America Corp., the second-largest U.S. bank, reported a 77 percent drop in first-quarter profit. The dollar rose the most against the euro in more than two weeks on April 18 after Citigroup Inc., the biggest U.S. bank, reported first-quarter revenue above analysts' consensus forecasts, fueling speculation financial firms will weather credit losses.
Futures on the Chicago Board of Trade show no chance the Federal Reserve will reduce the target rate for overnight lending by a half-percentage point at its April 30 meeting, compared with 42 percent odds a week ago. There's a 96 percent chance that policy makers will cut by a quarter-percentage point and 4 percent odds of no cut.
Sterling weakened as the Bank of England's plan to swap 50 billion pounds ($100 billion) of government bonds for mortgage- backed securities disappointed investors.
``The Bank of England's plan of injecting 50 billion pounds is not a lot compared with the 1.2 trillion pound mortgage market in the U.K.,'' said Rafael Martorell, chief dealer of spot foreign exchange at BNP Paribas in New York.
Lehman Brothers Holdings Inc. today recommended investors sell the pound against the dollar as the worst housing slump in 30 years will force the BOE to cut its target lending rate by 1 percentage point to 4 percent by January.

After steadily climbing higher, the major indices are heading sideways. All ten of the major indices are trading off their session lows.
European markets finished their session in the red, with the FTSE falling 0.2%, the Dax sliding 0.9% and the CAC shedding 1.0%. They faced some selling pressure after Bank of America (BAC 37.70, -0.86) announced disappointing earnings.

The euro's reluctance to revisit Friday's highs near $1.5955/60 may have been one factor, as well as US stocks bouncing off their earlier lows and oil off earlier highs. Euro bids in the $1.5890/$1.5900 area filled, and light stops being currently filled. Additional bids seen at $1.5850/60, with stops below.

The major indices remain in the red, but have recovered off their worst levels. The tech-heavy Nasdaq Composite is outperforming, thanks to relative strength in Apple (AAPL 163.11, +2.07), Microsoft (MSFT 30.50, +0.50) and Gilead Sciences (GILD 52.43, +0.67).
Only tech (+0.1%) remains in the green as energy falls into negative territory as crude oil prices (+0.6% to $115.96) retreat.

Bank of America was hit hard by the credit market fallout, with profit in the first quarter falling 77% to 23 cents per share from $1.16 a share a year ago. Analysts surveyed by Thomson Financial expected earnings of 41 cents per share.
Drugmaker earnings. Dow component Merck reported higher quarterly earnings that topped estimates on higher sales that were short of forecasts. Fellow drugmaker Eli Lilly reported higher quarterly sales and earnings that were short of forecasts.
Commodity prices spike. Oil prices surged to a record $117.60 a barrel after an attack on a Japanese oil tanker off the coast of Yemen. The national average price for a gallon of regular unleaded gas hit an all-time record of $3.50, AAA reported

The major indices are trading slightly above their worst levels of the session. The negative sentiment has been present since the opening bell.
Shares of toy maker Mattel (MAT 20.00, -1.78) are getting hammered after the company said sales declined 2%, leaving the firm with a loss of $0.13 per share, compared to the expected profit of a penny. Conversely, competitor Hasbro (HAS 33.92, +2.37) has seen its shares get a nice lift after its sales rose 13%. Hasbro earned $0.25 per share, which topped expectations by nine cents.

The Bank of Canada is expected to lower the repo rate, currently at 5.0%, by either 25bp or 50 bps on Tuesday. The Riksbank and Norges Bank meet Wednesday, with the Norges Bank seen raising the deposit rate by 25bp to 5.50% and the Riksbank expected to keep rates on hold at 4.25%. The Reserve Bank of New Zealand meets Thursday (announcement Weds aft US time), with the OCR expected to be left unchanged at 8.25%

The major indices take out fresh session lows. Losses are substantial, but are modest when compared to last week's strong gains.
In usual fashion, crude oil has traded in a choppy manner. It is currently down 0.1% to $116.56 per barrel after being down as much as 0.5% and up as much as 0.8% when it hit an all-time high of $117.60 per barrel. Crude oil has spiked 22% higher in 2008 and has gained 85% compared to one year ago.

EUR/JPY printed high on Y164.80, above Friday's high at Y164.68. Offers mentioned on approach to Y165.00.

GBP/USD breaks out of the base of its consolidation range of $1.9850/80, holding currently at $1.9835. Bids placed between $1.9830/20, a break below to open bids near $1.9800. Offers remain in place at $1.9880.

USD/JPY: Y104.00, Y103.00, Y101.50
GBP/USD: $2.0000
AUS/USD: $0.9385, $0.9300

AUS/USD has extended highs above $0.9440, Aussie now running into resistance at the March 17 high ($0.9445). Traders reported offers at $0.9450/60. Currently cross holds near $0.9427.

Stocks were poised to struggle at Monday's open, as investors mulled weaker-than-expected earnings from Bank of America and the effect of a record trading high for oil prices following an attack on an oil tanker off the coast of Yemen.

Weakening credit conditions hammered Bank of America in the first quarter. The bank said profit fell 77%. Bank of America also took $1.9 billion in writedowns in the value of its collateralized debt obligations and leveraged loans, although that was less than the writedowns in the fourth quarter.

Meanwhile, the attack on the Japanese oil tanker sent oil prices spiking to a record of $117.40 a barrel.

There were no economic data released.

From ML: “We reduce our 2008 US GDP forecast to 0.7% from 0.9%, though we now see the Fed cutting rates just 25bp at month's end. In Canada, we see the BoC easing 25bp.”

“ECB talk is still very much on the hawkish side and that's likely to support the euro,” said Ian Stannard, a senior currency strategist at BNP Paribas SA. “There's still a possibility we could see a spike up to $1.60.”

The euro rose against the dollar after European Central Bank officials reiterated their concern inflation is accelerating, making it more likely the ECB will keep interest rates at a six-year high.

Europe's single currency rose for the first time in three days after policy maker Klaus Liebscher said today record oil prices are starting to push up wages. The U.S. currency also dropped as Bank of America Corp., the nation's second-largest, reported a 77% drop in first-quarter profit.

EUR/USD opened around $1.5830. Euro met with good demand on approach to $1.5790 with rate able to trigger reported stops through $1.5850 and advance to $1.5884 initially before another leg higher to $1.5921.

GBP/USD opened at $1.9998. Sterling came under pressure ahead of the 0 BOE announcement. Later cable dropped to an eventual low of $1.9812. Later rate recovered to $1.9850.

USD/JPY failed to set above Y104.00, spurring the retreat to Y102.95. Now rate holds near Y103.25.

There are no economic reports today, so likely rates will trade under techs factors or may be influenced by corporate reports later in the evening.

USD/JPY: Y104.00, Y103.00, Y101.50
GBP/USD: $2.0000
AUS/USD: $0.9385, $0.9300

USD/CHF refreshed session lows around Chf1.0065 before recovered back to current Chf1.0089. Next area of demand comes in around Chf1.0040.

EUR/GBP printed highs on stg0.8026, as rate gets a boost from euro-dollar's reactive rally from release of weaker than expected BOA earnings data. Currently rate holds near stg0.8000. Offers remain between stg0.8025/35, more toward stg0.8050.

GBP/USD printed low at $1.9808, triggering bids around $1.9825/20. rate tested bids ahead of $1.9800 and currently holds near $1.9846. Offers near $1.9850, then – at $1.9880.

1.Taxpayers' interess are protected in BOE plan
2.Will take time for BOE plan to have impact
3.No quick fix for credit crunch
4.Urges lenders to help mortgage borrowers.

The dollar fell against a basket of major currencies on Monday, with residual nerves about inflation pressures outweighing the positive spin seen from first quarter banking results last week. Investors were still worrying about the inflationary effect of oil prices, which stayed on firm ground, near a record high of $117.40 a barrel.

The euro gained, but stayed well below last week's record high of $1.5983. Hawkish European Central Bank inflation rhetoric continued to support the common currency. The comments were seen as continuing to cement expectations that euro zone interest rates will stay at 4.0% for now.

The pound weakened further after the Bank of England confirmed it will allow banks to swap mortgage-backed assets in exchange for government bonds in an effort to improve conditions in financial markets. The BoE said that discussions with the banks suggest the initial size of the scheme is likely to be around 50 billion pounds.

Resistance 3: Y105.30
Resistance 2: Y105.00
Resistance 1: Y104.60
Current price: Y103.50
Support 1: Y103.30
Support 2: Y102.70
Support 3: Y102.20
Comments: Dollar slowly retreats. Support is near session low at Y103.30, stronger – near Thursday's lows on Y102.70. Below correction may reach Y102.20. The nearest resistance comes at Y104.60. Above the target comes at Y105.00 and than - at Y105.30.

Resistance 3: Chf1.0350
Resistance 2: Chf1.0280
Resistance 1: Chf1.0200
Current price: Chf1.0122
Support 1: Chf1.0100
Support 2: Chf1.0040
Support 3: Chf0.9960
Comments: Dollar still under pressure. Resistance comes at session high on Chf1.0200 with a break above will extend rally to Chf1.0280 and then – to Chf1.0350. Support comes at session low on Chf1.0100, stronger – at Chf1.0040 (Friday's low). Under losses may widen to Chf0.9960.

Resistance 3: $2.0080
Resistance 2: $2.0020
Resistance 1: $1.9950
Current price: $1.9841
Support 1: $1.9800
Support 2: $1.9740
Support 3: $1.9630
Comments: Pound slids with support comes at $1.9800, then – on $1.9740. Stronger level is around trend support line from Apr 2006 at $1.9630. Resistance is around $1.9950, stronger – on $2.0020 session high. Further – near $2.0080.

Resistance 3:$1.5980
Resistance 2: $1.5950
Resistance 1: $1.5880
Current price: $1.5852
Support 1: $1.5790
Support 2: $1.5750
Support 3: $1.5700
Comments: Euro tries to rebound. Above session high at $1.5880 the rise may reach records Friday’s high on $1.5950 and then – record pick on $1.5980. Strong support comes near session low on $1.5790. Below correction may target $1.5750 (Wednesday’s low) and $1.5700 (Friday's low).

USD/JPY fell to the Y103.30 lows before recovering to current Y103.60/ Demand in the Y103.00 area is still noted, with good support at Y102.95 (Ichimoku Cloud Top). Offers are back at Y104.00/10 and Y104.50/60, traders say.

Major focus would be on Asian equity market's on Friday's US stock rally and subsequent impact on yen and swiss franc. US existing home sales & new home sales, durable goods could trigger further volatility in all markets with inter-react with the forex markets too. Japanese Mar CPI will also catch some attention. Also, markets will pay close attention to EUrozone PMI manufacturing and services, M3 money supply and in particular, the Germany Ifo too.

On Wednesday morning, the Bank of England minutes from the April 10 meeting, at which the MPC cut rates 25 bps, will be released along with BBA mortgage lending data for March. Thursday morning sees March retail sales and the CBI (Confederation of British Industry) quarterly industrial trends survey. Friday finishes with the advance 1Q GDP estimate, forecast to show a 2.6% YoY increase, down from the prior 2.8%.

Two central banks are scheduled to meet this week. BoC is widely expected to lower rates by 50bps to 3.00% while RBNZ is expected to leave rates unchanged at 8.25%. Canadian retail sales & Australian Q1 PPI & CPI. will also be eyed.

"We believe the economy has slipped into a mild recession and expect the recovery to be feeble. Weak growth should tame inflation and keep the Fed cutting interest rates." - Lehman Brothers. And says - "Given our below-consensus (GDP) forecast, we expect the Fed to cut rates another 125bp while the consensus expectation is for rate hikes by early next year."

- Downside risks are greater due to development in financial markets
- We are far away from falling into "tristesse" (melancholy) when it comes to economic growth rates.

Extends losses to $1.9885, and now seen struggling to break back above $1.9900. Rate currently trades around $1.9889. Bids have been reported between $1.9880/70 ($1.9882 Friday Europe low/NY low $1.9884), a break below to open a deeper move toward $1.9850. Offers now seen placed to $1.9900, stronger on approach to $1.9950.

The yen fell for a sixth day against the euro, the longest losing streak in two months, as a rally in stocks gave investors confidence to buy higher-yielding currencies with funds from Japan.
The Australian dollar climbed as a government report showed producer prices rose by a record in the first quarter, backing the central bank's case for keeping interest rates at a 12-year high of 7.25 percent, compared with 2.25 percent in the U.S.
The British pound touched a two-week high of $2.0027 as people familiar with the matter said the Bank of England plans to swap about 50 billion pounds ($100 billion) of government bonds for mortgage-backed securities to revive the credit market.
The euro may extend gains on speculation that European Central Bank officials will reiterate their concern that consumer prices are rising too quickly.

EUR/USD gained from $1.5790 to $1.5840.
GBP/USD printed high at $2.0023 nefore retreating till $1.9985.
USD/JPY consolidated within Y103.70/Y104.05.

European events start at 0730GMT when ECB Governing Council member Klaus Liebscher speaks at news conference, in Vienna. At 0830GMT,the IMF presents a report on the European regional economic outlook, in Frankfurt, while at 0900GMT, ECB President Jean-Claude Trichet and Executive Board member Gertrude Tumpel-Gugerell speak at a conference in Frankfurt before, at 1000GMT, the Bundesbank publishes its monthly report.

The Nikkei 225 Stock Average advanced for a fifth day, climbing 220.10, or 1.6 percent, to close at 13,696.55 in Tokyo, the longest streak of gains since July 5. The broader Topix index added 27.45, or 2.1 percent, to 1,331.51. Both benchmarks rose to the highest since Feb. 28.

U.S. stocks rallied, capping the best week since February for the Standard & Poor's 500 Index, after companies from Citigroup Inc. to Google Inc. to Caterpillar Inc. posted results that topped analysts' estimates.
The market, battered last week by General Electric Co.'s disappointing results, climbed today after Citigroup's loss was less than the most pessimistic projections and profits at Google and Caterpillar were boosted by overseas growth. Honeywell International Inc. and Xerox Corp. also advanced on better-than- forecast results. All 10 industry groups in the S&P 500 rose, extending its weekly gain to 4.3 percent. Citigroup increased $1.08, or 4.5 percent, to $25.11. The bank said revenue fell 48 percent to $13.2 billion, topping the average estimate of $11.1 billion from analysts surveyed.Google rallied $89.87, or 20 percent, to $539.41, the most since its August 2004 initial public offering and the biggest gain in the S&P 500. The owner of the most popular Internet search engine said sales rose 46 percent as more users clicked on text advertisements. Overseas sales, accounting for 51 percent of revenue, increased 55 percent.
Caterpillar rose $6.69 to $85.28, its steepest rally in more than seven years and today's biggest gain in the Dow average. First-quarter earnings rose 13 percent, topping analysts' estimates, as sales to China and India increased.
Google's good news came on the heels of a battery of better than expected earnings reports and outlooks from other tech bellwethers, namely Intel (INTC) and IBM (IBM). All three companies provided reassuring comments on the demand for their products and services and acknowledged the continued strength in international markets.

The dollar touched an all-time low against the euro on speculation the European Central Bank won't follow the Federal Reserve in cutting interest rates.
The dollar touched a record low against the euro on April 16 as a report showed European inflation accelerated to 3.6 percent last month, the highest in almost 16 years.
The dollar pared its losses the next day after Luxembourg Finance Minister Jean-Claude Juncker said the euro's gain wasn't ``desirable.'' Juncker, who leads a group of finance chiefs of the 15 nations that share the euro, said financial markets have misunderstood the Group of Seven's position on currency volatility.
The G-7 finance ministers said after a meeting in Washington on April 11 that they're concerned ``sharp fluctuations'' in currency markets may hurt the global economy.
Futures on the Chicago Board of Trade show no chance the Fed will cut its 2.25 percent target lending rate by a half- percentage point on April 30, compared with 46 percent odds a week ago. There's a 98 percent likelihood of a quarter-point reduction and 2 percent odds of no cut.
Sales of existing homes in the U.S. fell to an annual rate of 4.90 million in March, from 5.03 million the previous month, according to the median forecast of economists surveyed by Bloomberg News. Sales dropped to 4.89 million in January, the lowest since data began nine years ago. The National Association of Realtors is due to release the report on April 22.
Japan's currency fell against all of its major counterparts this week as a rally in stocks encouraged investors to increase purchases of higher-yielding assets funded by low-cost loans in Japan.
``Many people seem to think we are off the worst now in terms of the credit crisis, or at least close to the end of the game,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, in an interview on Bloomberg Television. ``That's helping risk appetite.''
The yen depreciated 2.6 percent to 103.67 per dollar this week, from 100.95 on April 11. It's the biggest loss since November. Japan's currency decreased 2.8 percent to 163.96 versus the euro, from 159.55. The dollar was little changed at $1.5817 per euro, compared with $1.5808. The dollar touched $1.5983 on April 17, the lowest level since Europe's currency debuted in 1999.
The British pound increased 1.5 percent this week to within a cent of $2 on speculation the Bank of England will take mortgages off lenders' balance sheets. Sterling rose 1.4 percent to 79.17 pence against the euro after touching an all-time low of 80.99 pence on April 16.

Resistance 3: Y105.30
Resistance 2: Y105.00
Resistance 1: Y104.60
Current price: Y103.80
Support 1: Y103.60

Support 2: Y102.70

Support 3: Y102.20

Comments: Dollar consolidates. The nearest resistance comes at Y104.60. Above the target comes at Y105.00 and than - at Y105.30. Support is near session low at Y103.60, stronger – near Thursday's lows on Y102.70. Below correction may reach Y102.20.

Resistance 3: Chf1.0350
Resistance 2: Chf1.0280
Resistance 1: Chf1.0200

Current price: Chf1.0176

Support 1: Chf1.0090
Support 2: Chf1.0040

Support 3: Chf0.9960

Comments: Dollar tries to rebound. Resistance comes at session high on Chf1.0200 with a break above will extend rally to Chf1.0280 and then – to Chf1.0350. Support comes at Chf1.0090, stronger – at Chf1.0040 (Friday's low). Under losses may widen to Chf0.9960.

US index futures are trading in positive territory in early European dealing Monday. The Jun S&P contract was last up 1.20 points at 1389.10, with the Nasdaq Jun contract up by 0.50 points at 1903.50.

Resistance 3: $2.0190

Resistance 2: $2.0050

Resistance 1: $2.0020
Current price: $1.9964
Support 1: $1.9960

Support 2: $1.9880
Support 3: $1.9800

Comments: Cable got under pressure. Rate has got close to $2.0020(session high), but failed to break above. Above $2.0020 the upside target comes at $2.0050, then – strong level on $1.0190 (Mar 27 high). Support comes near session low at $1.9960, stronger – on Friday's lows $1.9880. Then losses may widen to $1.9800.

- Not sure how quickly slower growth will affect inflation
- EU HICP may be back around 2.0% within 18 months
- Inflation risks strengthen our will to anchor expectation.

Resistance 3:$1.5980
Resistance 2: $1.5950
Resistance 1: $1.5845
Current price: $1.5807

Support 1: $1.5790
Support 2: $1.5750
Support 3: $1.5700

Comments: Euro rebounds. Above Thursday's low at $1.5845 lift may reach records jn $1.5950 with further gains possibly extending till $1.6020 and $1.6080. Strong support comes near session low on $1.5790.. Below correction may target $1.5750 (Wednesday’s low) and $1.5700(Friday's low).

Japan's tertiary index, which measures spending in the services sector, fell 1.7 percent in February from January, due to lower spending on financial and insurance services as well as on real estate, the Ministry of Economy, Trade and Industry said on Monday. The index slipped to 108.4 in February from 110.3 in January. The index hit a record 110.9 in August last year. The services sector employs more than half of Japan's workforce. Spending on services such as retail, dining and travel is closely tied to changes in income and consumer confidence.

High Low Close
EUR/USD 1.5953, 1.5710, 1.5808
USD/JPY 104.62, 102.24, 103.69
GBP/USD 1.9996, 1.9878, 1.9947
USD/CHF 1.0281, 1.0037, 1.0186

EUR/JPY 164.64, 162.65, 163.96
EUR/GBP 0.7993, 0.7874, 0.7923
GBP/JPY 208.95, 203.55, 206.84
GBP/CHF 2.0494, 1.9991, 2.0320

Change % Change Last
Nikkei 225 +78.15 +0.6% 13,476.45
Topix +10.74 +0.8% 1,304.06.
FTSE 100 +76.10 +1.27% 6,056.50
CAC 40 +99.55 +2.05% 4,961.69
Xetra Dax +161.27 +2.41% 6,843.08

DOW +228.87 +1.81% 12,849.36
NASDAQ +61.14 +2.61% 2,402.97
S&P 500 +24.77 +1.81% 1,390.33
10yr Note +0.1400 +0.038% 3.743%
NYMEX Crude Oil +1.83 +1.59% 117.00
Gold -27.70 -2.94% 915.20

05:00 Japan Coincident Index (Feb) 44.4
05:00 Japan Leading Economic Index (Feb) 50.0