International Markets

USD While improving equity prices and reduced risk support a more positive USD outlook, weak corporate issuance and falling bond prices suggest that the USD is unlikely - yet - to break the recent trading range.

JPY Increasing prospects of a BOJ easing to complement aggressive bank restructuring suggest that the JPY is likely to weaken further. The JPY TWI is testing long-term trend-line support off the 1998 low.

EUR Increasing confusion about fiscal policy continues to weigh on the EUR as economic conditions continue to soften. Our economics team continues to project 50bp of ECB easing over the next 6 months, suggesting an eventual break lower for EUR/USD.

GBP As global conditions stabilize, strong inflation pressures should lead to more tightening than discounted in the futures market; CitiFX recommends long GBP/CHF exposure.

CHF While political and financial risks remain; underlying fundamentals suggest that CHF overvaluation cannot last indefinitely. EUR/CHF may close above its 55-week MA (1.4677) for the first time since May.

SEK While upside SEK potential remains, comments over recent weeks suggest an EMU entry level in the 8.70-8.90 range, a somewhat weaker SEK entry level than previously expected.

NOK Central Bank comments helped correct the strong NOK to what we estimate as "fair value". Further declines in NOK interest rates or oil prices would support further NOK declines.

CAD The CAD has rallied on foreign buying of Canadian bonds and relief about the global environment. But further gains in commodity prices appear necessary to generate further CAD gains versus the USD.

AUD Inflation in IIIQ'02 (release Oct. 23) may rise above the RBA's 2-3% target range. While an immediate tightening is unlikely, higher rates and rising commodity prices should continue to favor short EUR/AUD exposure into 2003.