Forex Daily Analysis - Thursday, Aug 23rd

Range Bound Markets
Rumours that the Fed would make a surprise cut in benchmark rates were unjustified - the Fed is not alarmed, but they are still monitoring closely and will act if necessary.

Overnight News Bullets

• SW Unemployment Rate July, out at 5.0% vs 4.7% exp.
• EC Euro-Zone Current Acount June, out at 5.9B vs -.8.6B.
• EC Industrial Orders June, out at 4.4% vs 2.2% exp. YoY out at 13.8% vs 12.4% exp.
• US Mortgage Approvals Aug 17, out at -5.5% vs 3.4% exp.
• US Crude Inventories Aug 17, out at 2549K vs a prior reading of -2515K.
• JN MOF Foreign Net Stocks Invest Aug, out at -818.1B vs a prior reading -323.5B (revised).
• JN MOF Foreign Net Bonds Invest Aug, out at 751.6B vs a prior reading of 1268.9B (revised).
• JN BOJ leaves target rate at 0.5% as exp.
  

O/N Data Heat map:

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

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Calendar

Today's Highlights:

Time (GMT)	Region	Release	Consensus
07:15	SZ	Employment Level (2Q)	Prior 3.708M
07:15	SZ	Employment Level YoY (2Q)	Prior 1.8%
08:00	NO	GDP QoQ (2Q)	0.6%
08:30	UK	Total Business Investment QoQ/YoY (2Q)	2.0% / 8.8%
09:00	SZ	ZEW Survey Expectations (AUG)	Prior -2.1
12:30	US	Initial Jobless Claims (AUG)	320K
12:30	US	Continuing Claims (AUG)	2555K
14:30	US	EIA Natural Gas Storage Change (AUG)	28
22:45	NZ	Trade Balance (JUL)	-535.0M
22:45	NZ	Imports (JUL)	3.28M
22:45	NZ	Exports (JUL)	2.75B

This and Next Week’s Highlights:

Date	Region	Release
24 Aug	GE	Import Price Index
24 Aug	NO	Unemployment Rate (AKU)
24 Aug	UK	GDP, Private Consumption, Government Spending, Gross Fixed Capital Formation, Exports, Imports, Index of Services
24 Aug	US	Durable Goods Orders, Durables Goods Orders ex. Transportation, New Home Sales, Baker Huges U.S. Rig Count
27 Aug	SW	Trade Balance
27 Aug	US	Existing Home Sales

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What's going on?

• BoJ leaves rates at 0.50% as we expected, which has been supported on the new wires by FinMin Omi it was "appropriate to leave rates unchanged". BoJ leaves assessment of economy unchanged and continues to see moderate expansion to the economy. For USDJPY the next to key resistance areas are 117.20 and again at 119.55. In EURJPY the key area to watch is the 159.50 to 160.00 area.

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FX

Market: JPY continues weaker across the board. EURUSD breaking above 1.3550 resistance supported by a lot of cross buying in EURJPY.

MAJOR HEADLINES – PREVIOUS SESSION

• SZ Trade Balance (Jul) out at 1.57B vs. 1.65B prior.
• GE ZEW Survey (Aug): Econ Sentiment at -6.9 vs. -1.5 expected, Current Situation at 80.2 vs. 85.0 expected.
• E-Z ZEW Survey (Aug): Econ. Sentiment at -6.1 vs. 0.0 expected.
• E-Z Trade Balance (Jun) out at 5.2B vs. 3.0B expected.
• E-Z Construction Output MoM/YoY (Jun) out at 0.6%/2.7% vs. 0.1%/1.6% prior.
• CH – PBOC raises benchmark lending rate to 7.02 pct. vs. 6.84 pct. prior.
• CA CPI MoM/YoY (Jul) out at 0.1%/2.2% as expected. Core CPI at 0.1%/2.3% as expected.
• CA Leading Indicators (Jul) out at 0.4% vs. 0.3% expected.
• CA Retail Sales MoM (Jun) out at -0.9% vs. -0.5% expected. Core retail sales out at -0.3% as expected.
• JN Merchandise Trade Balance (Jul) out at Y671.2B vs. Y844B expected.
• JN Adjusted Merchandise Trade Bal. (Jul) out at Y822.6B vs. Y746B expected.
• AU Westpac Leading Index MoM (Jun) out at 1.0% vs. 0.2% prior.
• AU DEWR Skilled Vacancies (Aug) out at0.7% vs. 0.1% prior.

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THEMES TO WATCH – UPCOMING SESSION

The storm has calmed down, but is still creating jitters in the market. Yesterday the movements in the market were primarily caused by romours that the Fed would surprise the market by cutting benchmark rates to ease the tense situation in credit markets. However we see the cut in the discount rate as the only move that could be done by the Fed ahead of the FOMC meeting on the 18th of September. The cut in discount rates should have benefited the problems related to short-term funding. EURUSD is currently trading in the range 1.3450-1.3550 and is currently lacking direction as the jitters in credit markets are overshadowing fundamental data. The most important issue this week will be the release if the US durable goods orders on Friday, where current consensus is at a 1.0 pct. increase.

Carry trades which are regarded as risky positions sold off yesterday, but has come back somewhat today in the very range bound market. If EURJPY trades above 155.40, we think there's potential for a come back of carry trades in the short term, also supported by the fact that the Bank of Japan in our mind will not commence their rate hiking cycle before we see inflation picking up. As the inflation bias not has shown any signs of increasing, the JPY is still favourable as a funding currency.

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

FX Trading Strategies

Pair	Supp.	Resis.	Comments
USDCAD	1.0460	1.07	Investors are pricing in a US rate cut in September, which is why we see USD weakness. USDCAD's showing a petential bear-flag formation, suggesting that we will take a leg lower. Sell the break of 1.0577 offer, stop bid at 1.0598, targeting 1.05.

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