Forex Daily Analysis - Thursday, Aug 16th

GBP Continues Lower after BoE Minutes
Policy makers in the UK voted 9-0 for to keep rates fixed August, but were fairly neutral with regards to additional hikes causing additional selling of GBP.

Overnight News Bullets

• SZ Retail Sales YoY (Jun) out at 1.0% vs. 4.9% expected.
• NO Trade Balance (Jul) out at 26.1B vs. 28.7B expected. Prior at 25.3B.
• UK Claimant Count Rate (Jul) out at 2.6% vs. 2.7% expected.
• UK Jobless Claims Change (Jul) out at -8.5K vs. -10K expected. Prior at -14.1K.
• UK ILO Unemployment (Jun) out at 5.4% as expected.
• US MBA Mortgage Applications out at 3.4% vs. 8.1% prior.
• Norwegian Central Bank Raises rates 25bp to 4.75% as expected.
• US CPI MoM/YoY (Jul) out at 0.1%/2.4% as expected. Core CPI out at 0.2%/2.2% as expected.
• US CPI Index NSA (Jul) out at 208.299 vs. 208.387 expected.
• US Empire Manufacturing (Aug) out at 25.1 vs. 18.0 expected.
• CA Manufacturing Shipments (Jul) out at -1.8% vs. -0.2% expected.
• US Industrial Production (Jul) out at 0.3% as expected.
• US Capacity Utilization (Jul) out at 81.9% vs. 81.7% expected.
• US DOE Inventories: Crude at -5167K vs. -2500K expected, Gasoline at -1057K vs. -750K expected, Distillate at 153K vs. 1250K expected., Refinery at 0.58% vs. 0.50% expected.
• US NAHB Housing Market Index (Aug) out at 22 vs. 23 expected.
• NZ ANZ-Business PMI (Jul) out at 54.6 vs. 50.6 prior.
• AU Average Weekly Wages (May) out at 1.7%/4.6% vs. 1.2%/3.5% prior.
  

Market

• FX: Major sell-offs in carry trades as well as the GBP. Demand for USD still high.

O/N Data Heat map:

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

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Calendar

Today's Highlights:

Time (GMT)	Region	Release	Consensus
07:30	SW	Industrial Production MoM/YoY (JUN)	0.8% / 5.5%
07:30	SW	Industrial Orders MoM/YoY (JUN)	Prior 5.3% /11.3%
07:30	SW	Activity Index Level (JUN)	119.5
08:30	UK	Retail Sales MoM/YoY (JUL)	0.1% / 3.4%
09:00	EC	Euro-Zone CPI MoM/YoY (JUL)	-0.2%/1.8%
09:00	EC	Euro-Zone CPI Core YoY (JUL)	1.9%
12:30	CA	International Securities Transactions (JUN)	CAD1.250
12:30	US	Housing Starts (JUL)	1400K
12:30	US	Building Permits (JUL)	1400K
12:30	US	Initial Jobless Claims (AUG)	315K
12:30	US	Continuing Claims (AUG)	2550K
14:30	US	EIA Natural Gas Storage Change (AUG)	26
16:00	US	Philidelphia Fed (AUG)	8.6

This and Next Week’s Highlights:

Date	Region	Release
17 Aug	JN	Leading Economic Index, Coincident Index, Nationwide Department Store Sales, Tokyo Department Store Sales
17 Aug	GE	Producer Prices
17 Aug	CA	Wholesale Sales
17 Aug	US	University of Michigan Confidence, Baker Hughes U.S. Rig Count

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What's going on?

• A branch of Credit Agricole said yesterday that the total impact of the subprime situation will cost global investors $150 billion.
• Huge sell-offs in AUD and NZD as positions in carry trades are getting reduced. AUDUSD now close to March ’07 break-out level at 0.8005. NZDUSD now below 0.69. Also ISK, TRY and ZAR selling off.

MAJOR HEADLINES – PREVIOUS SESSION

• GE GDP QoQ/YoY (2Q P) out at 0.3%/2.5% vs. 0.4%/2.8% expected.
• FR GDP QoQ/YoY (2Q P) out at 0.3%/1.3% vs. 0.5%/1.5% expected.
• UK CPI MoM/YoY (Jul) out at -0.6%/3.8% vs. -0.2%/2.3% expected. Core CPI YoY out at 1.7% vs. 2.0% expected.
• UK RPI MoM/YoY (Jul) out at -0.6%/3.8% vs. -0.1%/4.3% expected. Core RPI out at 2.7% vs. 3.2% expected.
• E-Z GDP QoQ/YoY (2Q A) out at -0.1%/2.3% as expected.
• E-Z Industrial Production MoM/YoY (Jun) out at -0.1%/2.3% as expected.
• US Trade Balance (Jun) out at -$58.1B vs. -$61.0B expected.
• US PPI MoM/YoY (Jun) out at 0.6%/4.0% vs. 0.2%/3.4% expected. Core PPI MoM/YoY at 0.1%/2.3% vs. 0.2%/2.5% expected.
• CA Int’l Merchandise Trade (Jun) out at C$5.3 vs. C$5.6 expected.
• US IBD/TIPP Economic Optimism (Aug) out at 49.5 vs. 47.0 expected.
• AU Wage Cost QoQ/YoY (Aug) out at 1.1%/4.0% vs. 1.1%/4.1% expected.

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THEMES TO WATCH – UPCOMING SESSION

The general theme in the market is still a high presence of risk aversion due to the turmoil in credit market and danger in the subprime markets. JPY strengthened across the board partly because of the theme in the market, but also due to the fact that Bank of Japan drained two trillion yen from the market. Draining funds was appropriate because overnight call rates were below the target in the morning, a Bank of Japan official in charge of money market operations said today. He said the bank adjusts funds while monitoring market rates. In our mind, this move from BoJ has eliminated all possibilities for a rate hike in August.

In the US, the PPI yesterday came out mixed, that is, the headline figure came out above expectations, but the core rate fell below. As the Fed is mainly watching the core rate, we see that the economy is turning in favor of the Fed as inflation is cooling off. Today's CPI will reveal further, the Fed is right in their monetary policy. We see the possibility for soft figures today very likely.

In the UK, after the weak CPI figures yesterday, where the Core CPI YoY fell below BoE's target rate at 2.00 pct. focus was on the minutes from the Bank of England. The minutes revealed that the policy makers voted 9-0 for an unchaged rate on the August meeting. However, most policy committee members ``emphasized that they had no firm view on whether rates would need to rise further,'' and that they require more time to assess the impact of five increases in the past year. A report yesterday showed inflation fell below the BOE's 2 percent ceiling for the first time since March 2006.

At 12:00 GMT, the Norwegian Central Bank will probably raise benchmark 25bp rates to 4.75 pct. As the interest rate differential will widen on this, we are looking to short EURNOK, hoping for the same big movement we saw on the 27th of June, when Norwegian rates also were raised. This morning the Norwegian trade balance for July came out at 26.1B - a tad softer than expectations at 28.7B. Despite the weaker than expected figure, it was still up from the June figures at 25.3B.

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FX

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

FX Trading Strategies

Pair	Supp.	Resis.	Comments
USDJPY	115.20	117.00	If the ongoing theme in credit markets will continue, we expect USDJPY to take further pounding. We sell the break of 115.55 offer stop bid at 115.80, targeting 114.50.
GBPCHF	2.4060	2.44	Sell at 2.4060 offer, stop at 2.4101 bid, targeting 2.3795.

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