Forex Daily Analysis - Wednesday, Aug 29th

USD Lower Across the Board
US existing home sales revealed yesterday that unsold homes rose to a 16-year high last month sending the USD offered today. The market is also slightly pricing in the chance for a rate cut in the US. Overnight News Bullets SZ UBS Consumption Indicator (Jul) out at 2.261 vs. 2.311 prior (revised from 2.309.) SW PPI MoM/YoY (Jul) out at 0.4%/5.5% as expected. SW Retail Sales MoM/YoY (Jul) out at 0.9%/9.4% vs. 0.3%/8.1% expected. GE IFO Indices(Aug): Business Climate out at 105.8 vs. 105.4 expected, Current Assessment at 111.5 vs. 110.7 expected. Expectations at 100.4 vs. 100.3 expected. US S&P/CaseShiller Composite-20 YoY (Jun) out at -3.5% vs. -3.3% expected. US Consumer Confidence (Aug) out at 105.0 vs. 104.0 expected. US Richmond Fed manufacturing Index (Aug) out at 7 vs. 2 expected. US ABC Consumer Confidence (Weekly) out at -19 vs. -20 prior. AU Construction Work Done (2Q) out at -1.9% vs. 2.0% expected. O/N Data Heat map: EU US JP UK SZ AU CA NZ NO SE FR + - - - + Calendar Today's Highlights: Time (GMT) Region Release Consensus 07:00 SW Manufacturing Confidence S.A. (AUG) 8 07:00 SW Consumer Confidence (AUG) 19.9 07:00 SW Economic Tendency Survey (AUG) 116.6 09:30 SZ KOF Swiss Leading Indicator (AUG) 2.15 11:00 US MBA Mortgage Applications (AUG) Prior -5.5% 14:30 US DOE U.S. Crude Oil Inventories (AUG) -600K 22:45 NZ Building Permits (JUL) Prior 15.8% 23:50 JN Large Retailer’s Sales (JUL) -3.0% 23:50 JN Retail Trade MoM/YoY (JUL) -0.8% / -1.1% This and Next Week’s Highlights: Date Region Release 30 Aug AU Private Capital Expenditure, Current Account Balance 30 Aug NZ Money Supply M3, NBNZ Business Confidence, Producer Prices Input 30 Aug JN Small Business Confidence 30 Aug UK Nationwide House Prices, M4 Money Supply, M4 Sterling Lending, Net Consumer Credit, Net Lending Sec. on Dwellings, Mortgage Approvals, U.K. CBS August Distributive Trades 30 Aug GE ILO Unemployment Rate, Unemployment Change, Unemployment Rate 30 Aug SW Current Account 30 Aug NO Retail Sales, Unemployment Rate 30 Aug US GDP Annualized, GPD Price Index, Personal Consumption, Core PCE, Initial Jobless Claims, Continuing Claims, Help Wanted Index, House Price Index, EIA Natural Gas Storage Change 30 Aug CA Current Account, Industrial Product Price, Raw Materials Price Index 31 Aug SZ CPI 31 Aug GE Retail Sales 31 Aug NO Credit Indicator Growth 31 Aug UK GfK Consumer Confidence Survey 31 Aug US Personal Income, Personal Spending, PCE Deflator, PCE, Chigago Purchasing Manager, Factory Orders, University of Michigan Confidence, NAPM-Milwaukee, Baker Hughes U.S. Rig Count, Bernanke speaks at FED symposium. 31 Aug AU Retail Sales, Trade Balance, Private Sector Credit, Exports, Imports, 31 Aug JN Vehicle Production, Housing Starts, Annualized Housing Starts, Construction Orders 31 Aug CA GDP FX Risk Aversion should lead EURCHF lower EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN - + - + - - FX Trading Strategies Pair Supp. Resis. Comments EURCHF 1.6290 1.6450 As the markets are getting more and more dovish with regards to ECB rates and there's ongoing risk aversion in the markets, EURCHF looks attractive on the downside. We sell the break of 1.6316 offer, targeting 1.6260. Stop bid at 1.6341. Watch 200 day daily MA at 1.6306.
What's going on? Carry Trades again getting hit with JPY strength and EM weakness. Market expect the Fed to cut rates to 5.00% at or before the 18th of September meeting. MAJOR HEADLINES – PREVIOUS SESSION SW Trade Balance (Jul), out at 8.3B, vs. 11.0B exp. expected. 15.2B prior. US Existing Home Sales (Jul), out at 5.75M, vs. 5.75M expected. 5.75M prior. US Existing Home Sales (Jul), out at -0.2%, vs. -0.9% expected. -3.8% prior. AU Conference Board Leading Index (Jun), out at 0.4% vs. 0.2% prior. THEMES TO WATCH – UPCOMING SESSION Yesterday, ECB's Trichet commented on the productivity in the Euro-Zone as well as monetary policy, where he confirmed that the Council have not met since early August, which was before the major turbulence in the markets and the surprising move to cut discount rates 50 bp. by the Fed. Trichet emphasized that the 'paramount' is still to keep inflation in check, but market participants are speculating if the ECB will keep rates unchanged. Trichet noted that the Council always has been strongly vigilant, but it is not predetermined to any interest rate movement. Todays IFO figures from the Euro-Zone showed, despite better-than-expected figures across the board, a drop from last month in the Business Climate and the Expectations. The Current Assessment came out very strong. Figures from the Euro-Zone showed that the M3 money supply rose 11.7% annualy vs. 10.7 pct expected, suggesting that inflationary bias still is towards a rate hike on the 6th of September. We maintain our view that the ECB will hike on the 6th. With regards to EURUSD, the pair traded in a tight 50 point range yesterday, and we think that the upside looks attractive - the break of 1.3685 bid will give scope for a test of 1.3710 and then 1.3730. As subprime jitters have now also infiltrated the Asian markets as DBS Group Holdings from Singapore reported more risk at asset-backed securities than earlier anticipated, creating an aversion in risk, which was highly visible in AUD- and NZD-crosses, who sold off overnight.

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