Daily Analysis for Tuesday, Aug 7th

USD Offered on back of US Job Report
The market is digesting the weak US job report which on Friday showed rising unemployment rate along with very poor development in the nonfarm payrolls. What will the Fed say tomorrow?

MAJOR HEADLINES – PREVIOUS SESSION

• UK PMI Services July, out at 57.0 vs 57.5 exp.
• UK Official Reserves (changes) July, out at $503M vs a prior reading of -$90M.
• US Change in Non Farm Payrolls July, out at 92K vs 127K exp.
• US Unemployment rate July, out at 4.6% vs 4.5% exp.
• US Change in Manufact. Payrolls July, out at -2K vs -15K exp.
• US Average Hourly Earnings July, out at 0.3% in line with exp. YoY out at 3.9% vs 3.8%.
• US ISM Non-Manufacturing July, out at 55.8 vs 59.0 exp.
• CA Ivey Purchasing Managers Index July, out at 54.6 vs 57.0 exp.
• NZ Labor Cost All Wages Priv QoQ, Q2 out at 0.8% vs 0.7 exp.
• NZ Labor Cost Private Sector QoQ, out at 0.7% in line with exp.
• JN Leading Eonomic Index June, out at 80.0% in line with exp.
• JN Coincident Index June, out at 77.8% in line with exp.
• NO Unemployment Rate (AKU) (Jul) out at 2.5% vs. 2.6% expected. Prior at 2.7%.

• UK Industrial Production MoM/YoY (Jun) out at 0.1%/0.8% as expected.

• UK Manufacturing Production MoM/YoY (Jun) out at 0.2%/0.9% vs. 0.2%/1.0% expected.

  
  

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THEMES TO WATCH – UPCOMING SESSION

The ADP was right in their projection that the change in the nonfarm payrolls would come out below 100K. However, the real figure was higher than the ADP report, but still lower than market expectations at 127K (according to Bloomberg.) The unemployment rate rose to 4.6 pct. vs. 4.5 pct. expected adding support to USD-bears. Also the ISM Non-manufacturing index fell below expectations as the other ISM manufacturing indices did earlier in the week. USDCHF took a severe pounding taking out support at 1.1980 and fell to as low as 1.1867 before dropping to 1.1817 in the Asian session today. We are looking for further downside and expect this pair to test the lows from Arpil 2005 at 1.1780.

Today, the amount of data releases has been fairly light, and markets are eyeing tomorrows statement from the FOMC. The intereting item is not the actual rate decision, expected at 5.25 pct, but the comments afterwards. In our view we have seen core inflation across the board going lower on a YoY basis. At the same time the subprime/credit risk-story is a theme that we find hard to grasp. We have seen secretary Paulson downplaying the amount of significance it could possibly have on the US economy, but we think that the FOMC statement tomorrow will be a good direction indicator because as we look ahead we expected Fed to stay on hold until end of 2007 as the comittee would be comfotable cutting rates with inflation running closer to their comfort zone at 2.0 pct. However, if the 'elevated' risk-to-inflation is being downplayed to a more 'neutral' stand by the Fed, this suggests that credit risk is a much more substantial factor to the outlook of the US economy and could possibly persuade us to change our present view to a possible cut before year-end 2007. This should significantly create USD-weakness across the board in the short term, especially against the CHF and the JPY.

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Overnight News Bullets

• NO Unemployment rate (AKU) July, out at 2.5% vs 2.6% exp.
• UK Industrial Production June, out at 0.1% in line with exp. YoY out at 0.8% in line with exp.
• UK Manufacturing Production June, out at 0.2% in line with exp. YoY out at 0.9% vs 1.0% exp.
• GE Factory Orders June, out at 4.6% vs -0.6% exp. YoY out at 15.9% vs 10.5% exp.
• UK NIESR GDP estimate July, out at 0.8% vs a prior reading of 0.7.
• AU AiG Perf. of construction inde July, out at 48.8 vs 51.3.
• NZ ANZ Commmodity Price July, out at 4.7% vs a prior reading of 6.1%.

Market

• FX: Carry trades remained bid through the NY session. Dollar range bound ahead of today's FOMC rate decision.

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
07:30	SW	Budget Balance (JUL)	Prior -4.6B
07:30	SW	CPI MoM/YoY (JUL)	-0.2% / 1.9%
07:30	SW	CPI Core MoM/YoY (JUL)	-0.2% / 1.0%
08:00	NO	Industrial Production MoM/YoY (JUN)	Prior -4.1%/-3.9%
08:00	NO	Industrial Manufacturing Production MoM/YoY (JUN)	0.2% / 6.8%
10:00	GE	Industrial Production MoM/YoY	0.5% / 5.1%
12:30	US	Non-farm Productivity (2Q)	2.0%
12:30	US	Unit Labor Costs (2Q)	1.8%
18:15	US	FOMC Rate Decision Expected (AUG)	5.25%
19:00	US	Consumer Credit (JUN)	$5.8B
21:00	US	ABC Consumer Confidence (AUG)	Prior -8
23:30	AU	RBA Cash Target (AUG)	6.50% (+25 bps.)
23:50	JN	Machine Orders MoM/YoY (JUN)	-1.1% / -9.3%
23:50	JN	Bank Lending incl./excl. Trusts YoY (JUL)	0.5% / 0.5%

This and Next Week’s Highlights:

Date	Region	Release
8 Aug	AU	House Price Index, Home Loans, House Price Index, Investment Lending, Foreign Reserves
8 Aug	FR	Trade Balance
8 Aug	GE	Trade Balance, Current Account, Imports, Exports
8 Aug	JN	Eco Watchers Survey: Current, Eco Watchers Survey: Outlook, Machine Tool Orders, Net Stocks Investment, Net Bonds Investment
8 Aug	NZ	Unemployment Rate, Employment Change
8 Aug	SZ	Unemployment Rate
8 Aug	UK	Bank of England Quarterly Inflation Report
8 Aug	US	MBA Mortgage Applications, Wholesale Inventories, DOE U.S. Crude Oil Inventories
9 Aug	AU	Employment Change, Unemployment Rate, Participation Rate
9 Aug	CA	Housing Starts, New Housing Price Index
9 Aug	JN	Domestic CGPI
9 Aug	NO	Retail sales
9 Aug	SW	Unemployment Rate
9 Aug	UK	Visible Trade Balance, Trade Balance Non EU, Total Trade Balance
9 Aug	US	Initial Jobless Claims, Continuing Claims, ICSC Chain Store Sales, EIA Natural Gas Storage Change

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What's going on?

• Carry Trades getting a revival as risk-willingness is re-entering the market. USDJPY rejecting new lows and again trading above 118. EURUSD holding on to its gains – close to new highs.
• Later tonight, the RBA is expected to hike rates to 6.50%. AUDUSD might see some buying interest here. We could have a central bank induced double-whammy in AUDUSD tonight (key resistance just above 0.86).

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FX

EURSEK to break lower on higher than expected inflation figures

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

FX Trading Strategies

Pair	Supp.	Resis.	Comments
EURSEK	1.1990	9.2600	EURSEK showing a break of the bear flag here early in European trading. We look for confirmation in today's CPI figure from Sweden exp at -0.2, we look for 0.2-0.4%. Sell the break of 1.1990 stop look to trail with 20-40 pips, target left open, but 9.1830 is our first target.

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