US Morning Notes - JPY higher, Japan’s Democratic Party wins in a landslide

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FX Highlights

• USD and JPY trade higher as the Shanghai Index falls 6% and the DPJ party wins a landslide victory in Japan’s national election taking power for the first time in 50 years, the DPJ party is expected to increase spending to boost the economy, Japan’s economic data points to recovery, China may take steps to stabilize the stock market, the decline in the Shanghai Index sparked safe haven demand for USD and JPY, UK markets closed for holiday, EU inflation falls less than expected, oil prices fall below a barrel, commodity currencies trading lower tracking weaker equities and lower crude prices
• Focus turns to today’s release of Chicago PMI and Canada’s GDP
• Japan’s opposition Democratic Party wins Japan’s national election and gains almost 2/3 majority in the lower house Diet, Japans July industrial production rises 1.5%, August manufacturing PMI rises to three-year high of 53.6, retail sales for July rise 0.4%, BOJ Governor see recovery in Japan but expects the recovery to be moderate, BOJ to maintain accommodative bias, JPY higher
• Australia’s Q2 business inventories fall 3.4% q/q, Q2 operating profits fall 7.8% July new home sales rise 0.1%, August inflation index rises 1.7%, AUD lower
• EU August CPI falls by less than expected 0.2%, EUR lower
• Hometrack reports that UK house prices rose for the first time in two years in August, GBP pressured by concerns about rising UK government debt
• Canada said it will sell up to $ 3bln US dollar bonds to lift foreign reserves and boost IMF lending, this is Canada’s first global bond auction in a decade, could increase BOC intervention speculation, Canada posted a record current account deficit in Q2, CAD lower
• Big US banks get bigger with JP Morgan Chase holding of every on deposit in the US, so does Bank of America
• Toyota closed its first assembly plant in its 72 year history
• Investors Intelligence Advisors Sentiment Index reports stock market optimism hit the highest level since late 2007
• Bank CEO say 1k US banks to fail this year so far the total is 81
• Reuters reports that the Fed is weighing delayed exit from mortgage purchases, Fed’s Dudley says the Fed can avoid inflation
• US equity markets set to open lower, European equities mixed, Nikkei closed 42 points lower

Upcoming Events

• US- Monday, Chicago August PMI will be released expected at 46 compared to 43.4 last month
• CAN- Monday, June GDP will be released expected at -3% compared to -5.4% last month

EU Morning Report – The Japanese yen gains after the DPJ won the elections

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The Japanese yen strengthened after the Democratic Party of Japan won the national election over the weekend.

• The historic victory by the DPJ ends almost half a century ruling from a single-party government over Japan.  The winning party has pledged to revive an economy emerging from its deepest recession by boosting child-care spending, cutting taxes and limiting the power of bureaucrats.
• The yen appreciated to 132.17 versus the euro in Tokyo from 135 in New York and against the greenback to 92.54 from 94.07 high on Friday.  The yen also strengthened amid speculation Japanese exporters purchased the nation’s currency because of month-end demand.
• The ECB rate announcement and press conference are due this Thursday and according to analysts the central bank will keep its main refinancing rate at 1%.
• The G20 finance ministers are scheduled to meet this coming Friday and Saturday, ahead of the G20 summit on September 24-25.  The UK markets will be closed today for a bank holiday.

Currency to watch out for: EURJPY & USDCAD

• The EURJPY pivot point is at 133.00 with a preference to enter into short positions at 132.93
• The USDCAD pivot point is at 1.0875 with a preference to enter into long positions above 1.0875

Today’s calendar and market movers:

• EU CPI Flash Estimate year on year expected to rise to -0.3%
• Canada GDP month on month expected to rise to 0.2%
• Chicago PMI expected to rise to 47.8
• Reserve Bank of Australia interest rate for overnight money market deposits is due to remain unchanged at 3.0%

Now onto Stocks:

• The US equities ended the week on Friday mixed with the Dow lower by 0.4%, the S&P lower by 0.2% and the NASDAQ up 0.05%.  However for the week, the three major indexes posted small gains between 0.3% and 0.4%.
• As of 06:05 GMT the Nikkei is trading at -0.4% and the Hang Seng -1.8%

Daily Forex Outlook - Japanese Government Change, Yen Strong

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CURRENCY TRADING SUMMARY - 31st August (00:30GMT)

U.S. Dollar Trading (USD) managed small gains into the weekend although lost more ground against the Yen as traders bet correctly on a change of government. Data was mixed with improvement in UoM Consumer Confidence at 65.7 vs. 64.5 forecast, offset by weak Personal Spending and Income Growth. Crude Oil Closed up {content}.25 at .74. In US share markets, S&P ended -2 points (-0.2%) at 1030, NASDAQ ended +1 points (0.05%) at 2028 and DOW JONES ended -36 points (-0.38%) at 9544. Looking ahead, August Chicago PMI forecast at 47 vs. 43.4 previously.

The Euro (EUR) attempted to move higher in Europe before failing once again as presumed option selling interest capped the market and sent the pair lower to supports at 1.4300. August Business Climate improved to -2.21 vs. -2.71 previously. Overall the EUR/USD traded with a low of 1.4282 and a high of 1.4388 before closing at 1.4305. Looking ahead, August Inflation forecast at -0.3% vs. -0.7% y/y.

The Japanese Yen (JPY) was strong as traders speculated on a change of government that would be consumer friendly and lead to interest rate rises in the medium term. The DPJ did in fact win with a landslide majority and the Yen opened very strong in the Asian Session Monday. Overall the USDJPY traded with a low of 93.43 and a high of 94.07 before closing the day around 93.60 in the New York session. UPDATE July Retail Sales at -2.55 vs. -3.6% forecast y/y. Also released July Industrial output at 1.9% vs. 1.4% previously.

The Sterling (GBP) received support from a revised Q2 GDP output up from -0.8% to -0.7%. USD strength in the US session capped the rally and the downside is still in focus as the market consolidates recent falls. Recent stock market gains are failing to provide solid support and are offering better intra-day sell levels. Overall the GBP/USD traded with a low of 1.6258 and a high of 1.6380 before closing the day at 1.6282 in the New York session.

The Australian Dollar (AUD) gained to 0.8470 close to year highs as traders boosted demand before the RBA meeting on Tuesday. Resistance late in the US session pulled the pair lower but still held above 0.8400 and is bullishly poised going into the new week as long as stock markets do not turn south. Overall the AUD/USD traded with a low of 0.8377 and a high of 0.8469 before closing the US session at 0.8413. Looking ahead, RBA meeting tomorrow with focus on the statement released for keys on the timing of future rate rises.

Gold (XAU) had a bullish day testing 0 before consolidating above 0 into the weekend close. Overall trading with a low of USD8 and high of USD1 before ending the New York session at USD5 an ounce.

TECHNICAL COMMENTARY

Euro - 1.4300
Initial support at 1.4201 (AUG 20 low) followed by 1.4046 (AUG 17 low). Initial resistance is now located at 1.4447 (Aug 5 high) followed by 1.4621 (61.8% retrace 1.6038 - 1.2330)

Yen - 93.15
Initial support is located at 93.10 (July 22 low) followed by 92.72 (July 14 low). Initial resistance is now at 95.29 (August 18 high) followed by 96.73 (Aug 12 high).

Pound - 1.6280
Initial support at 1.6154 (Aug 27 low) followed by 1.6034 (Jul 13 low). Initial resistance is now at 1.6444 (AUG 25 high) followed by 1.6546 (AUG 24 high).

Australian Dollar - 0.8400
Initial support at 0.8216 (AUG 21 low) followed by the 0.8126 (July 29 low). Initial resistance is now at 0.8478 (Aug 14 high) followed by 0.8519 (Sept 22 high).

Gold - 955
Initial support at 939 (Aug 17 low) followed by 930 (July 29 low). Initial resistance is now at 971 (August 6 high) followed by 990 (Jun 3 high).

Daily Forex Report - USD and JPY rebound as stocks reverse early gains

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• USD: Mixed, personal income flat, personal consumption rises, equity markets reverse early gains
• JPY: Higher, unemployment rises to a record high and core CPI falls at record pace
• EUR: Higher, EU economic confidence surges, industry and consumer sentiment improves
• GBP: Mixed, Q2 GDP revised higher, consumer sentiment falls
• CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Canadian current account deficit widens

Overview     
Another mixed performance for the USD Friday with USD initially pressured by stronger equity market trade and commodity currencies outperforming. USD recovered some of the sharp losses from Thursday trade supported by ongoing doubts about the sustainability of the US and global recovery. A sharp sell off in the Shanghai Index, weak data from Japan and report that US problem bank list hit a 15 year high contributed to mixed USD trade. Japan’s unemployment hit an all time high and CPI declined at a record pace. Better than expected economic news form Europe and above forecast earnings at Dell and Intel helped to boost European and US equity markets. The rally in equities and rise in crude above a barrel limits the USD recovery and supports demand for commodity currencies with the AUD gaining additional support from RBA rate hike speculation. Swiss KOF leading indicator posted a sharp improvement, UK Q2 GDP was revived higher and EU industry, economic and consumer sentiment improved. US economic data was mixed with personal income flat consumption marginally higher and Michigan consumer sentiment changed little from July. CHF and GBP traded higher and the EUR was mixed. EUR gains were partly limited by increased risk of SNB intervention. As the global economy recovers currencies linked to growth will likely outperform. The trade will continue to try and determine whether US economic recovery will support the USD or if the USD will be pressured by improvement in risk appetite. Recovery doubts may limit USD downside.

Today’s US data:
US August personal income was unchanged and personal consumption rose 0.2%. Final Michigan sentiment dips to 65.7 compared to 66 in July. A reading of 64.5 was expected.

Upcoming US data:
Next week’s US economic calendar includes the August 31st release of August Chicago PMI expected 46 compared to 43.4 last month. On September 1st July construction spending will be released expected at -0.1% compared to 0.3% last month along with August ISM, July pending home sales in August domestic auto sales. The ISM is expected at 50.1 compared to 48.9 in July. Pending home sales Index expected at 94.1 compared to 94.6 last month. Domestic auto sales are expected at 8.70%. On August ADP employment will be released expected -263k compared to -371k last month. Q2 final productivity and unit labor costs will be released along with July factory orders. Productivity is expected at 5.9% compared to 6.4% in the preliminary report. ULC is expected at -5.3% compared to the original report 5.8%. Factory orders are expected to rise 1% compared to 0.4% last month. On September 3rd initial jobless claims for the week ending 8/29 will be released expected 656k compared to 570k last month along with August manufacturing PMI expected 48 compared to 46.4 in July. On September 4th August unemployment rate will be released expected at 9.5% compared to 9.4 last month with nonfarm payrolls 220k compared to -247k in July.

JPY
JPY traded lower pressured by a report of weak Japanese economic data and stronger equity market trade. Japan’s unemployment rate rose to an all-time high of 5.7%, July household spending declined by 1.3% and July core CPI fell by a record 2.2% y/y. The decline in Japan’s CPI increases the risk of deflation in Japan. Midweek Japan also reported a sharp drop in July exports. These reports will likely increase the odds that the ruling LDP party will be defeated in Japan’s national elections this weekend. As we noted in our special report on Japan’s election earlier this week a DPJ victory could lead to increased domestic spending, focus on closer ties with Asia and possible reduced demand for US bonds by Japan’s new government leadership. Despite weak Japanese economic data the Nikkei closed up 62 points higher and EU and US equity markets firmed. The trade looked past a sharp fall in Shanghai Index with equities gaining from speculation that the global recession is ending. World trade flows rose 2.5% in June which may be further sign that the global economy has stabilized. JPY was also pressured in cross trade with AUD/JPY and GBP/JPY posting solid gains. JPY turned higher midsession in reaction to a reversal of early US stock gains.

Next week’s Japanese economic calendar includes the August 31st release of July housing starts expected at -2.5% compared to -1.2% last month. July construction orders will also be released on August 31st expected to fall by 24.4% compared to -28% last month along with retail sales expected at -6.8% and vehicle production expected at -34% year-over-year.

Key technical levels to watch in USD/JPY include support at 92.70 the July 14th low with resistance at 95.10 the August 24th high.

EUR
EUR traded mixed to lower despite report of better than expected EU economic data and firmer equity market trade. EU August economic sentiment improved to 80.6 from 76 last month, industry sentiment improved to -26 from -30 last month and consumer sentiment improved -22 from -23 last month. These reports contribute to speculation that the EU recession is ending but the data failed to boost additional demand for the EUR. EUR gains may have been partly limited by selling in cross trade to the GBP and CHF with GBP supported by report of an upward revision in UK Q2 GDP and CHF supported by a sharp improvement in Swiss KOF index. In addition, the slight rise in EU consumer confidence may temper optimism about the strength and sustainability of the EU recovery. Moreover, there may be an increased threat of intervention from the SNB as the SNB’s Jordan warns that the central bank would not tolerate CHF appreciation. For most of the week, better than expected economic data from the EU was met with skepticism from ECB officials warning that the recovery may not be sustainable. Thursday, the EUR rallied sharply as US equity markets reversed early losses to close higher and positive US jobless claims and GDP data contributes to improving risk appetite. EUR turned lower as US equities reverse early gains.

Next week’s EU economic calendar includes August 31st release of foreign reserves expected at 384.50. On September 1st EU unemployment will be released expected at 9.5% along with manufacturing PMI expected 46.5. On September 2nd EU PPI will be released expected -5.9% y/y along with EU GDP expected at -2.5%q/q and 0.3% m/m. On September 3rd EU retail sales would be released expected at -0.1% along with services PMI expected at 47.2.

The technical outlook for the EUR is mixed as the EUR rally stalls above 1.4400. Expect EUR support at 1.4209 the August 21st low with resistance at 1.4450 the August 5th high.

GBP
GBP traded higher supported by report of an upward revision in UK GDP and a rebound in cross trade. UK Q2 GDP was revised higher to -0.7% from -0.8% as government spending and private consumption was stronger than originally estimated. However, exports remain weak and the uncertain outlook for consumer demand may limit UK economic recovery. GDP rebounded from an 11 week low versus the EUR and rallied in cross to the JPY. GBP has been underperforming with selling pressure attributed to ongoing concern about the outlook for the UK economy and in response to the BOE’s recent decision to expand quantitative ease. In addition to GBP has been pressured by report of a record budget deficit in July and concern that rising deficit spending will force the UK government to issue more debt and eventually raise taxes to cover the spending shortfall. Recent GBP weakness in cross trade to the EUR is attributed to concern that the UK recovery will lag the EU. GBP upside is limited by report of weaker than expected consumer confidence. August GFK consumer confidence sentiment declined to -25, reading of -24 was expected. Focus turns to next week’s release of UK manufacturing and services PMI. Monday is a holiday in the UK.

Next week’s UK economic calendar includes September 1st release of manufacturing PMI expected 50.8 and mortgage approvals expected 47.6 along with consumer credit expected at all .1% and net lending expected at 0.3%. July mortgage approvals are also expected Tuesday. On September 2nd construction PMI will be released expected at 47. On September 3rd services PMI will be released expected 53.2.

The technical outlook for GBP is mixed as GBP rises back above 1.6300. Expect near-term support at 1.6150 the August 27th low with resistance at 1.6500.

CAD
CAD traded higher supported by firmer equity markets and rising crude prices. US and European equities traded higher supported by better earnings report at Dell and Intel with European equities supported by positive economic data from Europe. Crude prices rallied above a barrel. CAD rallied despite report of falling raw material prices and a bigger than expected widening of Canada’s current account deficit. July IPPI falls 0.5% at RMPI falls 3.8%. Canada’s Q2 current account deficit widened to -11.2 bln from -9.1 bln last month. The current account deficit was close to expectations which helped limit the impact of the report. CAD was also supported by a WSJ report which reports on the health and wealth of Canada’s banks. CAD had been weakening since Tuesday’s statement by the BOC’s Lane expressing concern about the impact of CAD strength on the Canadian economy. Lane sees end of Canada’s recession but he expressed concern about strength of the CAD. According to Lane, Canada’s economy is expected to start to grow this quarter along with the global economy but the recovery will be muted. Lane’s comments increase the risk that the BOC may take action to weaken the CAD. CAD direction will remain closely correlated to speculation about the global recovery and risk sentiment. Risk of intervention is rising.

Next week’s Canadian economic calendar includes the August 31st release of June GDP expected at 0.3% compared to 0.5% last month. On September 4th August unemployment rate will be released expected at 8.6% and employment growth expected at -22.7. August IVEY manufacturing PMI will also be released on September 4th expected at 53 compared to 51.8 last month.

The technical outlook for CAD has turned mixed as USD/CAD falls back below 1.0900. Look for near-term support at 1.0715 the August 25th low with resistance at 1.1020 the August 27th high.

AUD
AUD traded sharply higher supported by rising equity markets, firmer commodity markets and RBA rate hike speculation. Better than expected economic data from Europe and positive earnings reports from the US supported equity market gains and boosted demand for commodities. RBA watcher Mitchell published an article today which suggests that the RBA may hike interest rates in October. AUD was also supported by sharp gains in cross to the JPY with JPY pressured by improving risk sentiment and report of weaker than expected employment and inflation data from Japan. Thursday’s late reversal and stronger close on Wall Street helped offset the impact of a sharp decline in the Shanghai Index. The Shanghai Index was pressured by report of a drop in China’s August bank lending. AUD price direction has been closely correlated to the outlook for China and the direction of the Shanghai Index but today the impact was diminished by stronger equity market trade in the US and Europe US. AUD rallied Thursday supported by report stronger than expected Australian Q2 CAPEX spending. Australia’s Q2 CAPEX spending was reported at 3.3%. The trade had expected a -5% reading for Q2 CAPEX spending. CAPEX spending is the fuel for business investment and the report suggests that the Australian economy may begin to expand supported by increased business spending.

Next week’s Australian economic calendar includes the August 31st release of Q2 company profits expected at    -1.5% compared to -7.2% last quarter along with Q2 business inventories expected at -2.1% compared to -1.1% last quarter and private sector credit for July expected unchanged at 0.1%. On September 1st July building approvals will be released expected at 3.5% compared to 9.3% last month along with the Q2 current account expected -32.2 bln compared to -35.4 bln last quarter. On September 2nd Q2 GDP will be released expected at 0.6% compared to 0.4% last quarter. On September 3rd July trade balance will be released expected to improve 6.9 bln from 6 bln last month.

The technical outlook for the AUD is positive as AUD rallies back above 8400. Expect AUD support at 8239 the August 27th low with resistance at 8480 the August 15th high and 8525 the September 22nd high.

US Morning Notes - USD mixed, JPY pressured by weak data & firmer equities

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FX Highlights

• USD is trading mixed to lower as stocks rally, crude prices trade above a barrel and economic data from Europe is stronger than expected, growth linked currencies outperform, CHF supported by sharp improvement in the Swiss KOF indicator, EU economic, consumer and industry sentiment improves in August but EUR rally stalls, GBP supported by report of better than expected UK GDP, commodity currencies supported by firmer commodity prices, USD downside limited by sharp decline in Shanghai Index and weaker than expected economic data from Japan, Japan’s unemployment rises to record high and core inflation falls at a record pace, speculation that the global recession is ending sparked selling of the JPY and helped to offset the impact of a sharp fall in the Shanghai Index
• Focus turns to today’s release of US personal income, consumption, Michigan consumer sentiment and Canada’s wholesale and raw material prices
• Japan’s July core CPI falls by record 2.2% y/y, July unemployment hits an all-time high of 5.7% and July household spending falls 1.3%, JPY lower
• UK August GFK consumer sentiment falls to -25, a reading of -24 was expected, UK Q2 GDP revised UP to -0.7%, GBP higher
• EU August economic sentiment improved to 80.6 from 76 last month, industry sentiment improved to -26 from -30 last month and consumer sentiment improved to -22 from -23 last month, EUR lower
• Swiss August KOF leading indicator improves to -0.04 , a reading of -0.60 was expected, Swiss Q1 GDP revised to -0.9%, SNB board member Jordan says the SNB will not accept any further strengthening CHF, CHF higher
• US problem bank list hits 15 year high, FDIC fund at lowest level since 1993
• World trade flows rose 2.5% in June, a sign that the global recession is ending
• Fed Lockhart says its premature to consider rate hike, expects subdued or lackluster US recovery and protracted unemployment, Fed Bullard says monetary policy still accommodate will keep rates near zero for extended period, focus on exit strategy in 2010
• US equity markets set to open higher, European equities1.5% higher, Nikkei closed 62 points higher

Upcoming Events

• US- Friday, July personal income and consumption will be released, both reports are expected to rise by 0.2% along with final Michigan consumer sentiment expected at 64.5 compared to 63.2
• CAN- Friday, July IPPI and RMPI will be released, IPPI is expected at 0.5% and RMPI 1.5%

EU Morning Report – Japan’s unemployment rose to a record 5.7%

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Japan’s unemployment rate rose to a record 5.7% in July and deflation got worse further hurting Prime Minister Taro Aso chances of winning the upcoming election on Sunday.

• The unemployment rate is the highest since the government began collecting the data in 1953 and it exceeded analysts forecast of 5.5%.  According to a board member at the Bank of Japan, policy makers should prepare to fight a long-term battle with deflation.  He also added that the central bank of Japan cut the interest rate to 0.1% and has very little tools to deal with inflation and economic growth in the short term.
• The Japanese yen fell against most of its major counterparts on the back of the high unemployment rate and lower consumer prices.  The euro advanced higher versus the greenback on growing evidence Europe is emerging from its worst recession.  The currency has gained 0.7% this month and is heading for a second monthly gain against the US dollar.
• The US preliminary GDP came in better than expected at -1.0% for the second quarter, adding to signs the recession is easing.  FOMC member Lacker spoke yesterday and sees the economic outlook improving, but recovery to be slow and uneven.  Crude oil prices rose in the US trading session spiking as high as after dipping as low as .80 a barrel.

Currency to watch out for: GBPUSD & USDJPY

• The GBPUSD pivot point is at 1.6325 with a preference to enter into short positions at 1.6315
• The USDJPY pivot point is at 94.00 with a preference to enter into short positions at 93.95

Today’s calendar and market movers:

• UK Revised GDP quarter on quarter expected to remain unchanged at -0.8%
• EU Consumer Sentiment expected to rise to -21
• US Personal Spending month on month expected to drop to 0.3%
• US Revised University of Michigan Consumer Sentiment expected to rise to 64.6

Stocks:

• US stocks closed higher on Thursday as oil prices jumped and Boeing led the Dow Jones higher.  The three major indexes finished higher 0.2 to 0.4%.
• As of 06:00 GMT the Nikkei is trading at 0.41% and the Hang Seng at -0.49%.

Daily Forex Outlook - US GDP beats estimates

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CURRENCY TRADING SUMMARY - 28th August (00:30GMT)

U.S. Dollar Trading (USD) was sold for most of the day as China stocks beat expectations and US GDP was confirmed at initial forecasts. US Q2 GDP was unrevised at -1.0% in a surprise to the market forecasting -1.5%. Weekly Jobless Claims at 570k vs. 562k forecast was slightly worse than expected but was overlooked as GDP data took precedence. Crude Oil Closed up .06 at .49. In US share markets, S&P ended +3 points (0.28%) at 1030, NASDAQ ended +3 points (0.16%) at 2027 and DOW JONES ended +37 points (+0.39%) at 9580. Looking ahead, August UoM Consumer Confidence is forecast at 64.5 vs. 66 previously.

The Euro (EUR) German inflation data finally broke the deadlock that sellers were facing and the market surged above 1.4300 to test 1.4400 in a very bullish breakout higher. Speculation that Asian central banks are holding large 1.3950-1.4450 no touch options could come into play later if the market can hold onto the 1.4400 handle. Overall the EUR/USD traded with a low of 1.4220 and a high of 1.4407 before closing at 1.4370. Looking ahead, August Business Climate forecast at -2.48 vs. -2.71 previously.

The Japanese Yen (JPY) broke lower in Asia as China stocks went down 2% and the 94 level offered little support. 93.20 was tested then but held firm and the market bounced with US stocks to end on a slightly firmer footing. Crosses were strong as AUD/JPY led the charge higher in New York. Overall the USDJPY traded with a low of 93.22 and a high of 94.15 before closing the day around 93.70 in the New York session. UPDATE July CPI forecast at -2.2% came in at as expected and July Unemployment forecast at 5.5% was weaker at 5.7%.

The Sterling (GBP) tested Wednesday’s low at 1.6160 but held firm then the market bounced as the USD weakened with higher stocks. UK business investment fell 10% in Q2 vs. a milder -3.6% forecast. GBP/JPY bounced off month lows at 151 Yen. Overall the GBP/USD traded with a low of 1.6154 and a high of 1.6305 before closing the day at 1.6290 in the New York session. Looking ahead, UK Q2 GDP is forecast to remain unrevised at -0.8%.

The Australian Dollar (AUD) was the main gainer yesterday as Oil and stocks bounced and investor risk appetite roared back to life. Rumors that Central banks were buying added to the upside momentum with the pair rocketing to 0.8400 from 0.8250 in Asia. CAPEX was very strong at +3.3% vs. -5% forecast in Q2. Overall the AUD/USD traded with a low of 0.8239 and a high of 0.8418 before closing the US session at 0.8390.

Gold (XAU) was sold hard at the 0 level on the first attempt but regained losses to end just under the key level. Overall trading with a low of USD1 and high of USD1 before ending the New York session at USD9 an ounce.

TECHNICAL COMMENTARY

Euro - 1.4365
Initial support at 1.4201 (AUG 20 low) followed by 1.4046 (AUG 17 low). Initial resistance is now located at 1.4406 (Aug 27 high) followed by 1.4447 (Aug 5 high)

Yen - 93.65
Initial support is located at 93.10 (July 22 low) followed by 92.72 (July 14 low). Initial resistance is now at 95.29 (August 18 high) followed by 96.73 (Aug 12 high).

Pound - 1.6285
Initial support at 1.6034 (Aug 20 low) followed by 1.5985 (Jul 8 low). Initial resistance is now at 1.6444 (AUG 25 high) followed by 1.6546 (AUG 24 high).

Australian Dollar - 0.8400
Initial support at 0.8216 (AUG 21 low) followed by the 0.8126 (July 29 low). Initial resistance is now at 0.8478 (Aug 14 high) followed by 0.8519 (Sept 22 high).

Gold - 950
Initial support at 930 (Aug 17 low) followed by 925 (July 29 low). Initial resistance is now at 960 (August 13 high) followed by 971 (Aug 6 high).

Daily Forex Report - USD rebounds as stocks trade lower post GDP

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• USD: Mixed, Q2 GDP beats expectations and jobless claims decline, stocks struggle
• JPY: Higher, US borrowing costs drop below Japan, repatriation flows
• EUR: Mixed, German consumer confidence rises to a 15 month high, retail demand falls
• GBP: Lower, pressured by weaker than expected retail sales, home prices rise most than three years
• CAD and AUD: AUD & CAD higher, Aus. CAPEX spending rises, China to increase overseas investment

Overview     
USD traded mixed to lower with the AUD trading sharply higher in reaction to report of stronger than expected Australian Q2 CAPEX spending, the EUR supported by report that German consumer confidence rose to 15 month high and JPY supported by a Wall Street Journal report which says that it is now cheaper to borrow in USD then the JPY. GBP continues to underperform as UK retail sales posted an unexpected decline in August and Q2 business investment was weak. GBP traded lower despite report that UK house prices rose the most since 2006. The USD remained on the defensive and rebounded versus JPY after the release of better than expected US Q2 preliminary GDP and report of a drop in US jobless claims. These reports suggest that the US recession is ending and contributes to improving risk sentiment. Fed’s Lacker says it’s premature to consider a rate hike and he expects lackluster US recovery with protracted unemployment. Lacker’s comments capture the current uncertainty about the outlook for the US and global recovery. This uncertainty contributes to FX range trade as investors are not sure whether the USD will be supported by US economic recovery or pressured by improving risk appetite. Because the recovery is mainly supported by government spending and aggressive accommodation from the Fed there is a risk that once government spending is withdrawn and the Fed cuts quantitative ease the US economy may fall back on its own weight and could experience a double dip recession.

 As the global economy recovers currencies linked to growth will likely outperform. US equity rally continues to struggle despite improving US economic data. This may generate broader concern about recent improvements in risk sentiment and outlook for the global recovery as investors remain concerned about whether the recent improvement in economic data is sustainable. Early withdrawal of quantitative ease and the winding down of fiscal stimulus may present major headwinds for the global recovery. The Feds Lacker hinted that the Fed may soon be reducing quantitative ease and said the US may not need all planed Fed stimulus. Equities turned lower along with crude prices and USD rebounded.

Today’s US data:
US preliminary Q2 GDP was reported un-revised -1%, the trade had expected a reading of -1.4%. Jobless claims for week ending August 22nd decline by 10k to 570k dropping to a four month low. USD experienced a modest rebound after the release of these reports as equities trade lower.

Upcoming US data:
On August 28th July personal income and personal consumption will be released with both reports expected to rise by 0.2%. Final University of Michigan consumer confidence will also be released on the 28th expected at 64.5 compared to 63.2 last month.

JPY
JPY traded higher initially supported by light safe haven flows as the Nikkei closed 165 points lower. Asian markets remain vulnerable to report of China’s plan to cap lending and reduce overcapacity. JPY was also supported by a Wall Street Journal report titled “USD now cheaper to borrow than JPY” and another Wall Street Journal report which says that DPJ party plans to move towards improving relations with Asia possibly at the expense of relations with the US. USD borrowing costs dropped to the lowest level in 16 years relative to JPY rates. The narrowing of the yield gap may generate less incentive to borrow in JPY to fund investments. JPY upside was limited by selling in cross trade to AUD and EUR with the AUD supported by report of stronger than expected Australian CAPEX spending and report that China plans to increase overseas investment. The EUR was supported by report of improving German consumer confidence. GBP/JPY traded lower with GBP pressured by report of weaker than expected UK retail sales and Q2 business investment. JPY was also supported by the report that China plans to increase investment tenfold targeting Japan among other nations and by anticipation of repatriation flows as Japanese companies take advantage of tax exemption on dividends from overseas profits. JPY drifted off the day’s highs after the release of better than expected US preliminary Q2 GDP and report of a drop in US jobless claims. Positive news for US recovery tends to dampen safe haven demand for the JPY. JPY re-rallied as US equities trade lower post release of US Q2 GDP and jobless claims.

On August 28th July CPI will be released along with July retail sales and industrial output. CPI is expected to fall 0.2%, retail sales are expected to rise 0.3% and industrial output is expected at 0.5%.

Key technical levels to watch in USD/JPY include support at 92.70 the July 14th low with resistance at 95.10 the August 24th high.

EUR
EUR traded mixed initially supported by report of improving German consumer confidence. German consumer GFK confidence rose to a 15 month high increasing to 3.7% from .3.4 % in August. EUR gains were limited by report of the drop in EU retail demand and the release of better than expected US preliminary Q2 GDP and report of a decline in US jobless claims for the week ending August 22nd. EU retail PMI fell to 47.1 from 47.3 last month. EU July M3 was reported at 3% and the July leading economic index rose 1.6%. Today’s EU economic data generally confirms stabilizing of the EU economy. Wednesday Germany reported better than expected rise in the August IFO. EUR rallies have been limited despite improving EU economic outlook mainly because of questions about whether the economic recovery is sustainable. Positive US data is beginning to support the USD as well.

On August 28th EU business and economic sentiment is due for release. The business climate index is expected -2.71 and economic confidence index expected 76.

The technical outlook for the EUR is mixed as the EUR rally stalls above 1.4300. Expect EUR support at 1.4209 the August 21st low and 1.4045 the August 17th low with resistance at 1.4375 the August 21st high.

GBP
GBP traded lower pressured by report of a drop in retail sales, weaker Q2 business investment and continued selling in cross trade. UK August CBI retail sales declined to -16 from -15. The CBI retail sales were expected to improve to -13. Q2 business investments declined 10.4%. A decline of 3.6% was expected for business investment. The decline in business investments will raise more doubts about UK economic recovery. GBP downside was limited by report that UK August house prices rose by 1.6% and at the fastest pace in three years. A rise of 0.5% was expected for August house prices. GBP remains vulnerable to uncertainty about the UK recovery and speculation that the UK recovery will lag behind the US and the EU. GBP continues to weaken with selling pressure attributed to the BOE’s recent decision to expand quantitative ease and from concern about expanding UK budget deficit. The BOE expanded quantitative ease by £50 bln earlier in the month UK reported a record budget deficit in July. The UK government plans to raise a record 220 billion GBP this year and may have to increase debt issuance to cover the budget gap. Positive US Q2 GDP and jobless claims data failed to boost demand for GBP or stocks. The close correlation of GBP price direction to improving the sentiment has been breaking down. GBP traded to the day’s lows in reaction to weaker US equity market trade. Focus turns to Friday’s release of UK GDP for further clues to whether the UK economy is emerging from recession along with the rest of Europe.

On August 28th UK GDP will be released expected at -0.8% for the quarter.

The technical outlook for GBP is negative as GBP trades below support at 1.6275. Expect near-term support at 1.6025 the July 10th low with resistance at 1.6356 the August 26th high.

CAD
CAD traded mixed and failed to match gains of the other commodity currencies with upside limited by weaker equity market trade and threat of intervention. US equity markets traded both sides of settlement despite report of better than expected Q2 preliminary GDP and a drop in US jobless claims. US equity market response to yesterday’s report of a sharp jump in US new home sales and strong durable goods orders was also muted. The action in US equity markets may be a sign that investors remain cautious about outlook for the US and global recovery. CAD has been weakening since Tuesday’s statement by the BOC’s Lane expressing concern about the impact of CAD strength on the Canadian economy. Lane sees end of Canada’s recession but he expressed concern about strength of the CAD. According to Lane, Canada’s economy is expected to start to grow this quarter along with the global economy but the recovery will be muted. Lane’s comments increase the risk that the BOC may take action to weaken the CAD. CAD direction will remain closely correlated to speculation about the global recovery and risk sentiment. Report that China plans to increase overseas investment limits CAD downside. The Canadian economic recovery will be dependent on global demand and increased Chinese global investment could help boost global growth outlook. Global equity markets are struggling to maintain the current rally and this may limit demand for the CAD.

On August 28th the current account balance will be released expected at -9.1 bln along with industrial products price expected at 0.7% and the raw materials price index at 6.2%.

The technical outlook for CAD has turned mixed as USD/CAD rises back above 1.0900. Look for near-term support at 1.0831 the August 26th low with resistance at 1.1125 the August 17th high.

AUD
AUD traded sharply higher supported by report of stronger than expected Australian Q2 CAPEX spending and report that China plans to increase overseas investment tenfold. AUD gains were cut in half during the US session with selling attributed to weaker US equity markets. Australia’s Q2 CAPEX spending was reported at 3.3%. The trade had expected a - 5% reading for Q2 CAPEX spending. CAPEX spending is the fuel for business investment and the report suggests that the Australian economy may begin to expand supported by increased business spending. The impact of China’s growth outlook and global investment is key to the global recovery. The Australian economy is highly dependent on exports and global demand particularly from China. The fact that China plans to increase global investment should be a net positive for the Australian economy and may contribute to investor demand for growth linked currencies like the AUD. AUD price action has been choppy with uncertainty about the outlook for China’s economy a key factor. According to Chinese press China will take steps to curb excess capacity and wasteful investment in certain sectors. Fear that China would continue to limit lending generates uncertainty about the Chinese economic outlook and global recovery. AUD price direction is the most sensitive to developments in the China as China is a major export destination for Australian goods. The trade is closely monitoring the Shanghai Index and is wary of the threat of intervention. The Shanghai Index traded higher Thursday adding support to the AUD. AUD gains were limited as US equity markets traded lower after the release of US Q2 GDP and jobless claims.

The technical outlook for the AUD is mixed as AUD rallies fail above 8400. Expect AUD support at 8239 the August 27th low with resistance at 8388 the August 26th high.

US Morning Notes - USD lower, China to increase overseas investment

Posted by admin as Forex News

FX Highlights

• USD is trading lower despite improving US economic data, reaction to strong US durable goods and housing data was muted, equity markets trading mixed to lower, China plans to increase overseas investment targeting Japan, JPY higher, USD now cheaper to borrow than JPY for first time in 16 years reflects easing of credit market fears, UK house prices rise the most since 2006, UK CBI sales weaken, GBP continues to underperform, EUR higher as German consumer confidence improves and retail demand falls, Australia’s CAPEX spending rises more than expected
• Focus turns to today’s release of jobless claims and preliminary Q2 GDP
• China’s CIC says China to increase overseas investment tenfold
• Wall Street Journal carries an article titled “USD now cheaper to borrow than JPY”, USD borrowing costs dropped to the lowest level in 16 years relative to JPY rates, the narrowing of the yield gap may generate less incentive to borrow in JPY to fund investments, JPY at five week high
• Australia’s Q2 CAPEX rises 3.3%, AUD sharply higher
• EU July M3 rises 3%, July leading economic index up 1.6%, German consumer confidence rose to 15 month high increasing to 3.7 from 3.4% in August, EU retail PMI fell to 47.1 from 47.3 last month, EUR higher
• UK August CBI retail sales fall to -16 from -15, August house prices rise 1.6%, Q2 business investments fall 10.4%, GBP lower
• Fed Lockhart says its premature to consider rate hike, expects subdued or lackluster US recovery and protracted unemployment
• Fed Lacker says US economy is leveling out
• US equity markets set to open mixed, European equities mixed, Nikkei closed 162 points lower

Upcoming Events

• US- Thursday, jobless claims for week ending August 22nd will be released expected at 550k compared to 576k last week along with Q2 GDP expected at -1.4%
• CAN- Thursday, Wednesday, no major Canadian economic data is due for release today

EU Morning Report – USD advanced higher against most its major counterparts

Posted by admin as Forex News

The greenback advanced against most of its major counterparts as it appears that investor risk appetite is low.

• Looking at the end result of the US trading session, the major indexes finished relatively flat after mixed durable goods data and better than expected new home sales in the US.  Durable goods posted strong results but missed analyst’s expectations.  New home sales jumped 9.6% to 433,000 in July and the previous month was revised higher.
• The GBPUSD plunged almost 200 pips to 1.6160 overnight, opening the Asian session at 1.6241.  Expectations are that the Bank of England may maintain its quantitative easing program longer than any other central banks, weighing on the sterling in the medium-term.
• Today’s preliminary or second reading GDP report could show the US economy contracted at a faster pace in the second quarter than previously estimated.  The change is expected to show a 1.5% decline from April to June compared with the 1% drop reported last month. The US economy has shrunk 3.9% since last year’s second quarter, marking the deepest recession since the 1930s.  However, another report could show that claims for unemployment benefits fell to 565,000.  If realized, this would be the first drop in three weeks.
• Over in Asia, there is a sell off dragging the MSCI Index to a one-week low, after China announced it could curb production on overcapacity in industries including steel and cement.  The Japanese yen strengthened against all major currencies with the USDJPY reaching as low as 93.57; just over 100 pips from yesterday’s high.

Currency to watch out for: EURUSD & GBPUSD

• The EURUSD pivot point is at 1.4285 with a preference to enter into short positions at 1.4275
• The GBPUSD pivot point is at 1.6275 with a preference to enter into short positions at 1.6265

Today’s calendar and market movers:

• UK CBI Realized Sales expected to rise to -12
• US FOMC Member Lacker is due to speak about the economic outlook
• US Preliminary GDP quarter on quarter expected to drop to -1.5%
• US Unemployment Claims expected to fall to 565,000

Stocks:

• US equities ended yesterday’s session flat with the three major indexes lower 0.01% to 0.04%.
• As of 06:25 GMT the Nikkei is at -1.56% and the Hang Seng at -1.26%.