Daily Analysis for Wednesday, Aug 8th

FOMC to Soften Rhetorics?
We have no doubt that the Fed will maintain the current benchmark rate level at 5.25 pct., but the thing to watch is whether Bernanke will change to a 'neutral' stance or not...

MAJOR HEADLINES – PREVIOUS SESSION

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%.

THEMES TO WATCH – UPCOMING SESSION

With another day with lack of interesting data, the markets are eyeing tonights 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.

Overnight News Bullets

SW Headline CPI July, out at -0.2% in line with exp. YoY out at 1.9% in line with exp.
SW Core CPI july, out at -0.3% vs -0.2% exp. YoY out at 1.0% in line with.
SW Budget Balance July, out at 12.4B vs a prior reading of -4.6B.
NO Industrial production June, out at -4.0% vs a prior reading of -4.1%. YoY out at -8.6% vs a prior reading of -3.9%.
NO Ind Prod Manufacturing June, out at -1.0% vs 0.2% exp. YoY out at 5.0% vs 6.8% exp.
GE Industrial Production June, out at -0.4% vs 0.5% exp. YoY out at 5.1% in line with exp.
US Non-farm Productivity Q2, out at 1.8% vs 2.0% exp.
US Unit Labor Costs Q2, out at 2.1% vs 1.8% exp.
US FOMC leaves rates unchaged at 5.25% as expected.
US Consumer Credit June, out at $13.2B vs $5.8B exp.
US ABC Consumer Confidence Aug 5, out at -9 vs a prior reading -8.
AU RBA hike rates 25 bps to 6.50% as exp.
AU House Price Index Q2, out at 6.50% in line with exp. YoY out at 9.2% vs a prior reading of 8.6%.
AU Home Loans June, out at 1.1% vs 2.0% exp.
AU Investment Lending June, out at 14.8% vs a prior reading of 8.9%.
JN Machine Orders June, out at -10.4% vs -1.1% exp.
JN Broad Liquidity (YoY) July, out at 4.2% vs 3.6% exp.
JN Bank Lending incl Trusts (YoY) July, out at 0.3% vs 0.5% exp.

Market

FX: Stil high volatility in carry trades through NY, but lacks real direction, with dollar continuing to look weak against majors with the pound being the excemption.

O/N Data Heat map:

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

Calendar

Today's Highlights:

Time (GMT)	Region	Release	Consensus
06:00	GE	Trade Balance (JUN)	17.8B
06:00	GE	Current Account (JUN)	12.0B
06:00	GE	Imports / Exports (JUN)	2.9% / 1.5%
09:30	UK	BoE Quarterly Inflation Report
11:00	US	MBA Mortgage Applications	Prior -0.3%
14:00	US	Wholesale Inventories (JUN)	0.4%
14:30	US	DOE U.S. Crude Oil Inventories (AUG)	Prior -6497K
22:45	NZ	Unemployment Rate (2Q)	3.7%
22:45	NZ	Employment Change QoQ/YoY (2Q)	0.3% / 1.1%

This and Next Week’s Highlights:

Date	Region	Release
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
10 Aug	FR	Industrial Production, Manufacturing Production, Central Govt. Balance
10 Aug	JN	Industrial Production, Capacity Utilization, Bankruptcies, Consumer Confidence, Consumer Confidence Households
10 Aug	NO	CPI, CPI Core, Producer Prices incl.Oil
10 Aug	CA	Unemployment Rate, Net Change in Employment
10 Aug	US	Import Price Index, Baker Hughes U.S. Rig Count, Monthly Budget Statement

What's going on?

AUDUSD not really taking notice.
Strong reversals in carry crades supported by last night's action in US stock markets, but EURJPY still needs to clear the 166.00 level and USDJPY 121.50 before the technical picture turns to bullish bias.

FX

FX Trading Strategies

Pair	Supp.	Resis.	Comments
GBPCHF	2.4126	2.4260	GBPCHF still able to close above daily 200 MA, but with recent price action and today's BoE inflation report we expect a more solid intra-week direction. Trade breaks of either 2.4165/2.4216 with open targets and manually trail stops with 30 pips.

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FOREX-DD

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