The Euro is recovering today after yesterday’s sell-out session, according to Nicole Elliott, senior technical analyst at Mizuho Corporate Bank, today’s will be a consolidation session: “Recovering from the bottom of the Ichimoku ‘cloud’ and we expect the Euro to hold above the top of the cloud today. Expect nervous consolidation between 1.5650 and 1.5750.”

In regards to strategy, Elliott advices: “Possibly attempt longs on a dip to 1.5655; stop/reverse below 1.5600 for 1.5465. Cover ahead of 1.5750.”
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The Euro has gained positions against the Dollar in today’s European session, according to Valeria Bednarik, analyst at MolFX management, breaking a descendant trendline: “Eur/Usd is right now at 1.5735, with bullish signals in 4 hours charts, breaking a descendant trend line; however the pair needs to break above 1.5760 to continue running higher, first to the zone around 1.5790 and finally 1.5810” Next support levels, according to Bednarik, stand as follows: “Supports from here will be 1.5715 (pullback to the mentioned trend line), the zone around 1.5680 and finally 1.5654.”
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• US Treasuries profit from safe haven buying
  Ongoing weakness in equities, this time on a Lehman report about Fannie and Freddie, supports Treasuries. The curve steepens in bullish fashion. All Treasury maturities are now at crucial resistance levels that if broken would improve the technical picture. The calendar is again unexciting today, but equities and oil will keep traders awake.
• European bonds try to break above first key resistance levels
  Yesterday, the European bond markets extended their recent gains above first important resistance levels. A confirmation today would signal sentiment is improving. Although inflation worries may still come back, market attention is currently focused on the economic woes. More equity losses would only further support the bond markets.
• Renewed credit concerns block dollar rebound
  The dollar took a strong start to the new trading week, but resurfacing (US) credit concerns block the rebound of the US currency. The technical picture for the major dollar cross rates remains highly indecisive. For now, the G8 meeting also provides no trigger to unlock the current deadlock.

The Sunrise Headlines

• US equities continue their slide and close 0.50% (Dow) and 0.8% (S&P) lower, as financials (Lehman report) and energy (drop oil) sell off. Tech sector outperforms
• Asian equities fall overnight on renewed nervousness on the financial sector following Wall Street
• World economy faces uncertainty and downside risks, also due to oil, says G-8
• US bank shares plummeted to lowest level in a decade on more analysts’ reports on soaring credit losses and fears Q2 earnings will again disappoint.
• Freddie Mac and Fannie Mae sharply down on Lehman report that suggests they may need more capital (75 billion $), also because of a change of accounting rules.
• Crude oil fell sharply yesterday in a profit taking move that hit other commodities too, down 3.92 $ to 141.37 $/barrel during another volatile session, but is half a dollar higher overnight on the first hurricane alert of the year and supply concerns at Mexico oil field.

Currencies: Renewed Credit Concerns Block Dollar Rebound

On Monday, EUR/USD trading first was mostly driven by technical factors as the calendar was thin. The dollar was well bid at the start of the new trading week pushing EUR/USD to the 1.5620 area at the start in Europe. Expectations for the G8 to take a bolder approach to slow the decline of the US dollar were a good excuse to drive EUR/USD lower in the established range. German production data came out weak, while sliding oil prices were a support for the USD, too. However, later in US trading credit concerns came again into the spotlight as a US investment bank published a report that Fannie Mae and Freddie Mac might need to raise a huge amount of additional capital. So, at least for now, negative (US) credit related headlines apparently are a factor of importance for the US currency. EUR/USD recouped the early losses and closed the session at 1.5728 compared to an1.5706 close on Friday.

Today, the European calendar is again empty. In the US some second tier data will be published. From an intraday perspective we keep an eye on the pending home sales. Mr. Bernanke speaks on financial regulation. This is important, but if he wants to address market sensitive items, its appearance before the House Financial Services Committee on Thursday probably is more suitable. Markets will also continue to watch the G8. However, at least for now, the meeting didn’t yield many high profile comments on the dollar. The statement after the second day only had a message on emerging markets as it said that ‘In some emerging economies with large and growing current account surpluses, it is crucial that their effective exchange rates move so that necessary adjustments will occur’.

Already for some time, we have a neutral bias on EUR/USD and assume the pair to extend its sideways trading in the wide 1.6020 to 1.5285 range. The US and Europe both faces a similar context of low/slowing growth and the Fed and the ECB have very little room of maneuver. The ECB is more inclined to take bold interest rate action, which is a short-term positive for the single currency, but last week Trichet also indicated that he will be cautious in modeling its monetary response to the inflation threat. So, the prospects for additional interest rate support for the euro are limited.

Technically, EUR/USD tested the key 1.5842 area last week. However a break could not be sustained and after the US payrolls and the ECB press conference, EUR/USD fell back in the longstanding sideways range. The short-term momentum is still slightly euro positive and the single currency still gets the benefit of the doubt in times of renewed market stress. However, we hold on to our view that we don’t see many fundamental arguments for EUR/USD to move aggressively higher over time. If the eco situation in Europe continues to deteriorate, markets will question the adequacy/room for additional ECB interest rate hikes and if the ECB sticks to a tough anti-inflationary approach, it might push the economy over the cliff, killing growth and laying the groundwork for a euro decline

EUR/USD: dollar rebound blocked by renewed credit woes

Support stands at 1.5673 (Break-up) 1.5627/11 (Daily envelope + Bollinger mid-line/St low) and at 1.5576 (MT break-up hourly), at 1.5535/27 (Reaction low/MT Break-up + weekly envelope).

Resistance is seen at 1.5741/52 (STMA/Reaction high), at 1.5765/73 (daily envelop breakdown daily), at 1.5795 (62% retracement ST), at 1.5874/94 (breakdown hourly/Bollinger top), at 1.5909 (Reaction high).

The pair is in neutral territory

USD/JPY

On Monday, USD/JPY trading showed two different faces. In Asia and early in European trading the dollar gained some ground. A cautiously better sentiment on the equity markets, a lower oil price and markets betting on USD positive comments for the G8 caused USD/JPY to test offers in the 107.75 area early in US trading. However, later in the session renewed credit woes and receding stock markets caused USD/JPY to give up its previous gains and the pair closed the session at 107.18, marginally higher compared to the 106.80 close on Friday.

This morning, there were only some second tier eco data on the agenda in Japan. Asian stocks feel the heat from the negative credit headlines in the US yesterday evening and this gives the yen some (albeit moderate support), capping the upside in USD/JPY.

Recently, we turned neutral on USD/JPY. The rejected test of the 108.58/62 area triggered a correction, but also this move petered out last week. The pair currently tries to regain the medium term moving average (106.90) and the uptrend line from the lows. If this attempt succeeds, it would improve the short-term technical picture. However, for the pair to resume the gradual uptrend of late beyond the key 108.60 area, an easing of global market tensions and/or a material decline in the oil price are needed. Those conditions are not fulfilled, convincing us to maintain a wait-andsee approach.

USD/JPY: dollar rebound blocked by renewed credit woes

Support stands at 106.81 (Daily envelope), at 106.73/63 (STMA/ST low), at 106.30 (LTMA), at 105.93/71 (Reaction lows + Bollinger bottom) and at 104.99 (Last week low).

Resistance comes in at 107.39/60 (Break-down/Uptrendline),at 107.75/77 (ST high/daily envelope), at 108.16 (Weekly envelope), at 108.58/62 (Reaction high/14 Febr. high).

The pair is in overbought territory

EUR/GBP

On Monday, EUR/GBP decoupled from the price action in EUR/USD. Poor UK production data fuelled fears that the UK economic is losing momentum at an accelerated pace and caused EUR/GBP to move higher from the 0.7920 area to around 0.7960 after the publication of the data. Later in the session, EUR/GBP hardly reacted to the rebound in EUR/USD, which was a dollar move initiated by negative headlines on the US mortgage agencies. Nevertheless, at the end of the session sterling still traded materially lower in a day perspective. EUR/GBP closed the session at 0.7959 compared to 0.7924 on Friday.

Today the UK calendar is again thin with only the DCLG house prices on the agenda.

Since mid April, EUR/GBP develops a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral on EUR/GBP recently as an attempt to move higher ran into resistance (0.7955 area) and as the pair shows no trading momentum at all. Last week, the pair again tried to move above that key resistance area on global euro strength, but also this attempt failed. In a day-to-day perspective, it looks as if the EUR/GBP pair is again traded with a slightly positive bias, but a sustained break above 0.8018 is needed to conclude that the pair is able to unlock the current stalemate. We hold on to our view that the room for a sustained comeback of the sterling is limited. The 0.7766 is the key range bottom that should provide strong support

EUR/GBP: stalemate persists.

Support comes in at 0.7941 (STMA), at 0.7928/21 (Break-up/daily envelope + MTMA), 0.7900/94 (ST low) at 0.7885 (Break-up), at 0.7868 (last week low) and at 0.7847/31 (S4, reaction lows).

Resistance stands at 0.7967 (Reaction high/Bollinger top), at 0.7978/80/86 (breakdown hourly/weekly envelope/Daily envelope) and at 0.8003 (Reaction high).

The pair is moving into overbought territory.

News

EMU: German production slows down

German industrial production plunged in May, as it fell 2.4%M/M to be up a feeble 0.8% Y/Y (5% Y/Y in April. Consensus was looking for a small rise. The decline was driven by a large 2.6% M/M decline in the cyclical manufacturing output, the second consecutive monthly drop. While special factors were probably at work, the report points to a sharp softening of activity in the industrial sector and a negative contribution to Q2 GDP. Q1 production was unusually strong due to weather-induced construction output.

Other: UK industrial production falls in May

In the UK, industrial output fell by 0.8% M/M and 1.6% Y/Y in May. The drop in output was mainly due to the manufacturing sector (-0.5% M/M) and energy supply (- 5.2%), as demand for electricity and gas declined because May 2008 was the warmest May on record across the UK. Within the manufacturing sector, there was a significant decrease in the machinery and equipment industries, which suggests that companies are reining in investments. This would be bad news, as also from the consumer side no improvement should be expected given the deteriorating situation on the housing market, labour market and the negative impact of inflation on disposable incomes.

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The U.S released its pending home sales for the month of May coming in at -4.7% worse than both the expected reading of -3.0% and the prior reading of 6.3%. While the wholesale inventories came in at 0.8% slightly better than the expected 0.7% but still lower than the previous 1.3%. Still the release of this news hardly moved the markets as Mr. Ben Bernanke spoke today saying he may extend direct loans to Wall Street this year in order to help the financial markets crisis, boosted the greenback in the market.

The single currency deteriorated in the market as Bernanke’s comments gave support to the dollar while taking the attention away from the euro. The EU Zone today lacked fundamental as the rise of the dollar, was the reason behind the slip of the euro. The EUR/USD is trading around the support of 1.5677 at 1.5673. The pair recorded a high of 1.5738 and a low of 1.5659.

The pound still remains weak on the back of the gaining greenback as the UK economy is also fundamental free. The rate decision this Thursday will help the sterling take a trend as the expectations show that the BoE will keep rates steady at 5% in fear of high inflation and sluggish growth. The GBP/USD is currently trading at 1.9704 while recording a high of 1.9795 and a low of 1.9690.

Currently in the market we see carry trades where investors buy high yielding currencies and sell low yielding currencies in which we call carry trades. The yen a victim to carry trades is currently seen losing ground in the market as the USD/JPY is currently trading between the support of 106.25 and the resistance of 107.45 at 107.30 while recording a high of 107.42 and a low of 106.24.

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disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

Today’s Comment

Majors & Scandies

Risk aversion weighed heavily on the Asian stock markets following slides in the major US stock indices. It was the financial shares in particular that took the hardest blow, as funding concerns kicked in once again after a Lehman Brothers research report said that a pending accounting change could force Fannie Mae and Freddie Mac (the two largest mortgage lenders in the US) to raise a total of 75 billion USD in capital.

In the FX markets the JPY strengthened somewhat thus causing EURJPY to recede from recent highs. However for the time being we the technical case isn’t quite in place for a selling recommendation on the currency cross. Thus we prefer to maintain a neutral stance for the time being.

Yesterday the SEK weakened after having strengthened quite dramatically following the surprisingly hawkish statement made by Riksbanken after the monetary policy meeting on Thursday. Thus it seems like investors are awaiting macro economic data that shows whether the hawkish stance can indeed be justified or not. Hence the CPI data which is due for release on Thursday morning will be crucial for the short term trend in EURSEK. At this point we don’t believe that inflation in Sweden has peaked as food- and energy prices keep rising. Thus we also believe that short term risks on SEK are on the upside following the CPI data. For now however technical indicators suggest that there is a bit further to go on the upside on EURSEK (resistance around 942.50 - 943.00). Thus we prefer to maintain a neutral stance for the time being but will consider going short on the currency cross on a further correction higher towards the 943.00- area. More on this subject later.

Emerging Markets

Yesterday the markets were still celebrating that Thursdays ECB rate hike seems like being a ‘one off event’. And it is now likely ECB will stay unchanged at 4.25 % for the rest of 2008. However the party stopped when the US market opened and during the US trading session the local currencies lost what was gained during the European session. In general EM currencies have still performed well since the ECB meeting. As an example TRY has gained 3.4 % since the ECB meeting Thursday.

We will not get carried away by the gains we have seen since Thursday. We therefore maintain a defensive view on the emerging markets and stay neutral in most of our currencies. However we have two important changes today:

1) We almost reached our target in PLN yesterday. We move our take profit in EURPLN to 3.25 (PLNDKK 229.45) and have a tight stop profit at 3.32 (PLNDKK 224.61). Background: We think Poland will continue to perform in nervous markets.

2) In EURISK we open a new position. We buy EURISK at 119.2160 (selling ISKDKK at 6.26). We take profit at 126.00 and stop loss at 116.00 (take profit placed at 5.92 and stop loss at 6.43 in ISKDKK). Background: ISK has done very well lately - it is time for a correction.

Today’s key events

• 09:00 Consumer prices (CZK)
• 09:00 Unemployment (CZK)
• 09:00 Industrial production (TRY)
• 14:00 Fed’s Bernanke speaks (USD)
• 16:00 Pending home sales (USD)
• 18:30 Fed’s Lacker speaks on economic outlook (USD)
• 21:00 Consumer credit (USD)

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Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. Markets will be jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent Euro and Pound selling pressure may substantially intensify.

Key Overnight Developments

Critical Levels

The Euro consolidated around the 1.57 level overnight following an upward jolt during US hours. As reported by DailyFX Chief Strategist Kathy Lien, the move was sparked by sharp selling of US equities. Technical Analyst Jamie Saettele expects EURUSD to continue to correct lower in the near term with support in the 1.5550-1.5600 area ahead of a return to historic highs above 1.60. Meanwhile, Sterling closed the US session just above support at 1.9744 and extended below it overnight. The selloff now threatens key support at 1.9583.

Asia Session Highlights

Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. New Zealand’s Business Opinion Survey remained static at -64 in the second quarter, remaining at the lowest levels since 1986. While this certainly does not bode well for the economy, it is hardly surprising to traders that have are already primed for the first RBNZ rate cuts since 1993 to materialize this year.

NIESR’s UK GDP Estimate highlighted the current tug of war between floundering growth and booming inflationary pressure. All bets appear to favor an anti-inflationary rather than a pro-growth stance, with NIESR’s own director noting that “despite the fact that the economy is now scarcely growing, we share the view that concerns about inflation make it more likely that interest rates will be raised than reduced in the coming months.'’ This confirms recent commentary by Bank of England Governor Mervyn King who forecast that the UK faces “a period of rising inflation and falling economic growth.” With the markets acutely aware of the BoE’s bias for some weeks, the release did not coincide with acceleration in existing GBPUSD selling into the Asian session.

The Australian dollar oscillated in a tight 23-pip range despite a dismal June Business Confidence report. The headline figure printed at the worst level since a spike low in September 2001. The Yen behaved in a similar fashion, as the lowest Eco Watchers Survey since 2001 failed to jolt USDJPY out of a 30-pip range.

Euro Session: What to Expect

Today’s session is virtually barren of event risk with May’s DCLG UK House Prices index the only item on the docket. We have already seen June’s Nationwide House Prices data, making this release profoundly backward looking and therefore unlikely to affect the market. In any case, Nationwide’s May result revealed prices fell -2.5% since April, suggesting today’s data will show the same pattern.

Markets will be jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent EURUSD and GBPUSD selling pressure may substantially intensify.

To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.

U.S. Dollar Trading (USD) with little data out today the Dollar took its cue from stocks and commodities. Initial speculation that the G8 would try to tackle the high cost of oil buoyed the Dollar during the Asian and European sessions before reversing on US stock weakness. More concerns from the banking sector lead by mortgage lenders Fannie Mae and Freddie Mac sent stocks spiraling lower dragging the dollar down as well. In the U.S. share markets, the NASDAQ was down 2 points (-0.09%) and the Dow Jones was down 56 points (-0.50%). Crude Oil closed down $3.70 ending the New York session at $141.20 per barrel. Looking ahead, Pending Home Sales are forecast to fall -2.4% in May from a 6.3% rise in April. Fed Chief Bernanke also speaks tonight.

The Euro (EUR) touched day lows as oil was sold off from last weeks record highs and ECB President Trichet reiterated his ‘no bias’ on rates comments. The Euro was able to recover as US Equities nosedived in the US session and oil and gold recovered some of there losses. Eurozone data was discouraging with German Industrial Production falling a surprising -2.4% in May after falling -0.2% in April. Overall the EUR/USD traded with a low of 1.5612 and a high of 1.5754 before closing the day at 1.5725 in the New York session.

The Japanese Yen (JPY) was well offered during the Asian and European sessions as equities gained on falling oil. A spike in risk aversion from more banking woes in the US though reversed these gains and left most crosses on the back foot. EUR/JPY performed well reclaiming the 168 handle and holding it throughout the day. Overall the USDJPY traded with a low of 106.62 and a high of 107.75 before closing the day around 107.20 in the New York session.

The Sterling (GBP) had a very volatile day, initially sold throughout the Asian session the losses gained momentum as more UK data came in weaker than forecasted. Both the Industrial (-0.8%) and Manufacturing (-0.5%) Output disappointed in May with both expecting a more modest -0.1% decline. The Cable was able to recover as the Euro bounced in the US session. Overall the GBP/USD traded with a low of 1.9796 and a high of 1.9848 before closing the day at 1.9928 in the New York session. Looking ahead, May Industrial Output (April, 0.2%) and Manufacturing Output (April, 0.1%) both expected at -0.1% m/m.

The Australian Dollar (AUD) took a break from recent strength falling hard across the board as commodities slumped on a stronger USD. Rising risk aversion hurt the AUD/JPY and EUR/AUD made good gains as the Euro recovered. Overall the AUD/USD traded with a low of 0.9515 and a high 0.9635 before closing the day at 0.9560.

Gold (XAU) bowed to general USD strength and falling Oil although the sharp fall in US stocks allowed gold to pare losses as safe haven flows increased. Overall trading with a low of USD$915 and high of USD$936.5 ending the New York session at USD$925 an ounce.

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The US economic calendar is very light this week, leaving pending home sales as one of the few potentially market moving numbers. The housing market is one of the US economy’s biggest problems.  A deteriorating housing market has hurt everyone from Wall Street to Main Street.  With that in mind, stability in the housing market may be exactly what the US economy needs to get back on track.

What Are The Markets Facing?

The US economic calendar is very light this week, leaving pending home sales as one of the few potentially market moving numbers. The housing market is one of the US economy’s biggest problems.  A deteriorating housing market has hurt everyone from Wall Street to Main Street.  With that in mind, stability in the housing market may be exactly what the US economy needs to get back on track.  10-year bond futures and USDJPY have traded themselves into very tight ranges – a breakout is imminent for both and perhaps pending home sales is the catalyst currency and bond traders are waiting for.

Bonds - 10-Year US  Bond Futures

Over the past 2 weeks, US bond futures have quietly trended higher as expectations for a rate hike get pushed further out the calendar year.  With prices now above the 50 and 200-day SMA, there is a decent chance that the 10-year bond futures could hit 116.  Surprisingly weak pending home sales could help to send prices in that direction and yields lower in the process.  However critical support sits not far from current levels.  If pending home sales are strong, it could drive treasuries below 114, which would open the door for a move down to 112.

FX – USD/JPY

Like bond prices, USD/JPY is at an important crossroad.  The currency pair is trapped between the 10 and 200-day SMA which translates into a range of 106.70 and 107.60.  Interestingly enough, this is also the support and resistance levels for the triangle indicated in the chart below.  The stability of the housing market plays an important role in the outlook for the US economy.  Therefore weak numbers could drive USD/JPY below 106.70, which would open the door for a move down to 105.  Good numbers could take the currency pair above 107.60, leading to a possible move beyond 108. Judging from the price action of the treasuries, bond traders are leaning towards dollar bearish numbers.

Equities – DJIA Composite Index

Uncertainties in the financial sector pushed the DJIA to retrace early morning gains, with market participants suggesting that a bear market has come into play as the index closed near a 2 year low of 11,230. Ongoing credit concerns paired with a decline in the Pending Home Sales release could further induce bearish sentiment as the home sales are expected to decline. A fall in home sales may push the DJIA below the near-term support of 11,000, but better-than expected results could help to stave off downside pressures and may lift the index to test for resistance at 11,450 and then possibly 11683 over the medium term. Market participants should also be aware of the slew of earnings report due out this week, which may reflect additional write downs and ongoing weakness in the financial sector.

Written by Kathy Lien, Chief Strategist and David Song

Questions? Comments? E-mail klien@dailyfx.com

The Bank of Canada’s summer 2008 Business Outlook Survey showed a deterioration in the outlook for inflation on a number of fronts. Even more surprising, there was not a similar deterioration in the outlook for growth, with some of the measures even managing to retrace some of the weakness recorded in the spring. The summer survey was conducted between May 20 and June 13, 2008.

The survey results are reported as diffusion measures, or balance of opinion, that essentially take positive responses less negative responses to various survey questions. A key question on inflation asks respondents where they expect CPI inflation to average during the next two years. The summer survey showed a jump to 36% of those who expected inflation to average more than 3% during the next two years. This is up from the 17% recorded in the spring and is the highest percentage ever recorded in the survey.

The balance of opinion for the outlook for input and output prices showed a similar deterioration. For example, the balance of opinion for input prices deteriorated to 38 in the summer survey from 26 in the spring, while the measure for output prices rose to 20 from 10 during the same period.

The deterioration largely reflected the continuing strong gains in energy prices. However, it was also consistent with a re-emergence of concerns about capacity constraints. Those companies facing some or significant difficulties meeting an unexpected increase in demand rose 49% from 44% in the spring. Most of the pressure emanated from the western provinces, the Prairie provinces in particular. Similarly those firms encountering shortages of labour rose to 40% in the summer survey from 30% last quarter. The Bank of Canada indicated that the labour shortages were once again concentrated in western Canada, although mostly in British Columbia.

The balance of opinion on the outlook for future sales improved slightly to a reading of 4 and thus returned to positive territory after recording a -2 in the spring. However, the Bank of Canada characterized the results as little changed and remaining relatively close to zero.

One area that showed a marked improvement was the outlook for M&E investment, which soared to a net reading of 24 after falling to 1 in the spring. The low level of the balance of opinion in earlier quarters had been surprising. With commodity prices remaining at historically high levels, there seemed to be a reason for producers to add to capacity, which is more consistent with the strong reading registered in the summer survey.

The balance of opinion for past sales deteriorated slightly to a reading of 7 from 9 in the spring. The balance of opinion for employment remained unchanged, although it is already at a relatively high reading of 33, with 44% of respondents in the summer survey expecting to increase employment compared to 11% who expect to reduce hiring.

The continuing deterioration in the outlook for inflation is consistent with the recent shift in tone at the Bank of Canada with increased concern being raised about the inflation outlook. This does imply a rising probability that interest rates could be raised near-term, particularly with indications of some improvement in the near-term growth outlook. However, the central bank will likely also have to take into consideration the recent deterioration in financial markets that are indicative of the cost of capital once again starting to rise with attendant downward implications for growth and capital spending. As a result, we continue to expect the overnight rate will be held steady through the remainder of the year with the neither the downside risks to growth nor the upside risks to inflation becoming sufficiently pronounced to prompt any policy response.

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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.