Daily Analysis for JULY 26, 2007

EUR beaten with the ugly stick

The EUR was getting a severe beating in FX markets Wednesday with JPY, AUD, CAD and NZD the strongest currencies. JPY stronger, USD stronger. EUR weaker.

THEMES TO WATCH – UPCOMING SESSION

The Subprime Mortgage worries are still in focus with more stories about delinquencies and defaults in financial news media. The fear is that these problems might spread to other sectors of the US economy and other parts of the world - except the UK where home prices are going through the roof and home buyers are talking about avoiding to get "gazumped".

All commodity and high-yield currencies have been strenghtening across the board and the CAD made 30-year highs vs. the USD, but came back after commodity prices were. USDCAD tested the trendline support from 2004 early in the session. This comes in around 1.0335 and we would be sellers if the trendline is broken. Parity is within reach and it is difficult to assess the magnitude of impact such an event would have the the USD sentiment, but it is unlikely to be bullish.

It is a bit surprising to see how FX volatility has picked up at the same time as high-yielders are still performing well. We would have expected this to lead to more pronounced tendencies to unwinding among the most risky JPY-crosses. So far, only EURJPY (and USDJPY) look vulnerable. The CHF is continuing to weaken with even EURCHF making new highs.

TRY and ZAR were weakening this morning, but they have both come back nicely late in the session. We wondered if ISK would also get hit, but we have seen no such tendencies.

O/N Data Heat map:

EU	US	JP	UK	SZ	AU	CA	NZ	NO	SE	FR
	-		-							-

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Calendar

Today's Highlights:

Time (GMT)	Region	Release	Consensus
07:15	SW	Manufacturing Confidence (2Q)	9.3
07:15	SW	Consumer Confidence (JUL)	20.8
07:30	SW	PPI MoM/YoY (JUN)	0.4% / 5.4%
08:00	GE	IFO – Business Climate (JUL)	106.4
08:00	GE	IFO – Current Assessment (JUL)	111.0
08:00	GE	IFO – Expectations (JUL)	102.0
08:00	EC	Euro-Zone M3 YoY (JUN)	10.7%
12:30	US	Durable Goods Orders (JUN)	1.9%
12:30	US	Durable Goods Goods Orders Ex Transportation (JUN)	0.6%
12:30	US	Initial Jobless Claims (JUL)	310K
12:30	US	Continuing Claims (JUL)	2543K
14:00	US	New Home Sales (JUN)	890K
14:00	US	New Home Sales MoM (JUN)	-2.7%
22:45	NZ	Trade Balance (JUN)	-0.299B
22:45	NZ	Imports / Exports (JUN)	3.37B / 3.02B
23:30	JN	Tokyo CPI YoY (JUL)	-0.1%
23:30	JN	National CPI YoY (JUN)	-0.2%
23:50	JN	Retail Trade MoM / YoY (JUN)	0.2% / 0.6%

This and Next Week’s Highlights:

Date	Region	Release
27 July	GE	GfK Consumer Confidence Survey, CPI.
27 July	SW	Retail Sales.
27 July	US	A string of GDP’s, Core PCE, University of Michigan Confidence, Baker Hughes U.S. Rig Count
27 July	NZ	Building Permits.
27 July	JN	Industrial Production.
29 July	NZ	Building Permits.
29 July	JN	Industrial Production.
30 July	NZ	Money Supply M3.
30 July	JN	Vehicle Production, Jobless Rate, Overall Household Spending.
30 July	GE	Retail Sales.
30 July	FR	Producer Prices, Unemployment Rate, Unemployment Change.
30 July	UK	M4 Money Supply, M4 Sterling Lending, Net Consumer Credit, Net Lending Sec. on Dwellings, Mortgage Approvals.
30 July	CA	Industrial Product Price, Raw Materials Price Index.

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What's going on?

• EUR beaten with the ugly stick yesterday. This might be related to the rather strong expectations for the US Q2 GDP figures to be released tomorrow (expected at 3.2%).

FX

NOKSEK to test trendline support

EUR	USD	JPY	GBP	CHF	AUD	CAD	NZD	NOK	SEK	PLN
			-			+	+

FX Trading Strategies

Pair	Supp.	Resis.	Comments
NOKSEK	1.1566	1.1630	We have a breakout signal in NOKSEK which gives good odds of an increase in volatility. Today's swedish PPI today could be the trigger. We prefer the downside so we placed an order to sell at 1.1566 offer stop bid at 1.1586 target left open.

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