Daily Analysis for JULY 31, 2007

USD Weakness Should be Reintroduced


We saw strong US growth figures along with weakish quarterly PCE figures resulting in a sell-off in the USD.
JPY lower, USD range bound. EUR stronger.


MAJOR HEADLINES -- PREVIOUS SESSION


# GE GfK Consumer Confidence Survey (AUG) out at 8.7, while 8.8 expected, 8.4 prior.
# SW Retails Sales MoM/YoY (JUN) out at 1.9%/8.5%, while 1.0%/6.5% expected, 0.2%/5.7% prior.
# SZ KOF Swiss Leading Indicator (JUL) out at 2.13, while 2.01 expected, 1.98 prior.
# US GDP Annualized (2Q) out at 3.4%, while 3.2% expected, 0.7% prior.
# US Personal Consumption (2Q) out at 1.3%, while 1.5% expected, 4.2% prior.
# US GDP Price Index (2Q) out at 2.7%, while 3.4% expected, 4.2% prior.
# US Core PCE QoQ (2Q) out at 1.4%, while 1.4% expected, 1.4% prior.
# GE Consumer Price Index MoM/YoY (JUL) out at 0.4%/1.9%, while 0.4%/1.8% expected, 0.1%/1.8% prior.
# GE CPI EU-harmonised MoM/YoY (JUL) out at 0.7%/2.2%, while 0.4%/1.9% expected, 0.1%/2.0% prior.
# US University of Michigan Confidence (JUL) out at 90.4, while 91.2 expected, 92.4 prior.
# US Baker Hughes U.S. Rig Count (JUL) out at 1775, while 1790 prior.
# NZ Building Permits MoM (JUN) out at 15.8%, while 5.5% prior (revised 5.8%)
# JN Industrial Production MoM/YoY (JUN) out at 1.2%/1.0%, while 1.0%/0.9% expected, -0.3%/3.8% prior.
# AU NAB Business Confidence (2Q) out at 12, while 10 prior.
# AU HIA New Home Sales MoM (JUN) out at -0.8%, while -4.4% prior.
# JN Vehicle Production YoY (JUN) out at -2.9%, while 6.3% prior.
# NZ M3 Money Supply (JUN) out at 10.8%, while 13.2% prior.

O/N Data Heat map:

EU	US	JP	UK	SZ	AU	CA	NZ	NO	SE	FR
0	0	-	0	0	+	0	0	0	0	+

Calendar

Today's Highlights:

Time (GMT)	Region	Release	Consensus
07:55	GE	Unemployment Change (JUL)	-28K
07:55	GE	Unemployment Rate (JUL)	9.0%
08:00	SZ	UBS Consumption Indicator (JUN)	Prior 2.090
08:00	NO	Credit Indicator Growth YoY (JUN)	14.6%
09:00	EC	Euro-Zone Consumer Confidence (JUL)	-2
09:00	EC	Euro-Zone Unemployment Rate (JUN)	7.0%
09:30	UK	GfK Consumer Confidence Survey (JUL)	-4
12:30	US	Personal Income (JUN)	0.5%
12:30	US	Personal Spending (JUN)	0.1%
12:30	US	PCE Core MoM/YoY (JUN)	0.2% / 1.9%
12:30	US	PCE Deflator YoY (JUN)	2.3%
12:30	US	Employment Cost Index (2Q)	0.9%
12:30	US	S&P/CS Composite-20 YoY (MAY)	-2.9%
12:30	CA	GDP MoM (MAY)	0.4%
13:45	US	Chigago Purchasing Manager (JUL)	58.4
14:00	US	Consumer Confidence (JUL)	105.0
23:01	UK	Nationwide Consumer Confidence (JUL)	93
23:30	AU	AiG Performance of Mfg Index (JUL)	Prior 53.1

This and Next Week’s Highlights:

Date	Region	Release
1 Aug	AU	Retail Sales, Retail Sales Ex Inflation, Trade Balance, Exports, Imports, RBA Commodity Index.
1 Aug	JN	Vehicle Sales, Net Stocks Investment, Net Bonds Investment, Monetary Base
1 Aug	UK	HBOS House Prices, BoE Monetary Policy Committee Meets.
1 Aug	SW	Swedbank PMI Survey.
1 Aug	US	MBA Mortgage Applications, Challenger Job Cuts, ADP Employment Change, Pending Home Sales, ISM Manufacturing, ISM Prices Paid, DOE U.S. Crude Oil Inventories, Total Vehicle Sales, Domestic Vehicle Sales.
2 Aug	NO	PMI, Unemployment Rate.
2 Aug	SW	GDP.
2 Aug	EC	Euro-Zone PPI.
2 Aug	UK	BoE announces Interest Rates.
2 Aug	EC	ECB announces Interest Rates.
2 Aug	US	Initial Jobless Claims, Continuing Claims, Factory Orders, EIA Natural Gas Storage.
2 Aug	AU	AiG Performance of Service Index.

What's going on?

• Not much data to go by yesterday, which gave carry trades a breather. But USDJPY needs to close above 121.80 and EURJPY above 166.00 to bring the bullish bias back from a technical outlook.
• Big day for US data where PCE Core should the main focus. We think it is very likely that YoY could fall further to 1.8%, which is 0.1% below consensus. This should be an additional damping factor for US yields going forward.
• As expected US Stocks rebounded y’day from the worst two-day decline, gains led by banks, homebuilders and retailers.

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THEMES TO WATCH – UPCOMING SESSION

The US growth figures on Friday should in our mind not be supportive for the USD heading into this week and we're likely to see some USD weakness coming reentering the theme. We're especially focusing on the weak GDP Price Index as well as the Core PCE QoQ coming out lower than last time as the Fed expected, reducing investors expectations towards a rate hike in the US. We regard the figures as very supportive for the Federal Reserve strategy with regards to growth and inflation and have in our mind increased the credibility of Bernanke as chairman. The US job report on Friday is key this week, but prior to the report, the PCE Core MoM/YoY (exp. at 0.2%/1.9% vs. 0.1%/1.9% prior) as well as the personal income (exp. at 0.5% vs 0.4% prior) and spending (exp. at 0.1% vs. 0.5% prior) figures are the key things to watch.

In the UK we have today just seen the Mortgage Approvals and Net Consumer Credit beating expectations supporting the pound. The Mortgage Approvals came out at 114K vs. 110K expected, and the Net Consumer Credit came out at 0.9B vs. 0.8B expected and prior figures were for both revised higher.

All in all this means that intra-week we expect GBPUSD to come back af ter last weeks sell-off. We are buyers on dips towards the 2.02 figure with a target intra-week above 2.0430. In EURUSD we will look to buy the break of April highs at 1.3680 targeting the 1.38 figure.

We expect some correction with regards to the recent unwinding of carry trades, but will stand off in USDJPY unless the break of current support at 118 figure will occur.

FX

EUR	USD	JPY	GBP	CHF	AUD	CAD	NZD	NOK	SEK	PLN
0	-	0	+	+	0	+	-	+	+	0

FX Trading Strategies

Pair	Supp.	Resis.	Comments
USDCAD	1.04	1.0760	We are looking fora potential double whammy as we are looking at soft PCE figures along with strong Canadian GDP. Sell the break of 1.0635 offer, stop bid at 1.0665, targeting iitially 1.0560.
EURSEK	9.13	9.2325	Sell the break of 9.1825 offer, stop bid 9.1852, targeting 9.15

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