Cautiously Bearish on weekly EURJPY below 104.97

A bullish daily Hammer at 101.93 in EURJPY, last Monday’s 9 year low, signalled a temporary bounce and did occur with a 3 Big Fig improvement. But with bounces also signalled as temporary selling opportunities and with the longer-term forecast negative, investors sold into strength on Friday for sentiment to deteriorate by 2 Big Figs from the week’s 104.97 top.

This is negative and signals continue to point lower this week below 104.97, but until Tuesday’s low is broken the call is a cautious one. The immediate objective is 102.84, Tuesday’s low, with a move through this point targeting 101.93, last week’s 9 year base and then towards 101.10.

The risk to this call, however, would be with buying through a stop at 104.97, last week’s high, a cautiously positive signal temporarily improving sentiment to 105.52, the 21st Sep top and then towards 106.16, the 2 week high trade.

Flag formation on EURJPY gives great risk/reward potential

The pullback yesterday was in three waves (a classic pattern for a correction) with the cross stopping between 50 and 61.8 percent. This whole move lower can been seen as a corrective flag with the bias now strongly to the upside. The risk / reward facture here is very good with the upside target at 106.20. The stop can be placed inside the flag (-103.90).

For further confirmation we can use the cloud as support.

Daily Report: Euro Soft after Italy Downgrade, Greece Talk Continues

Euro remains generally weak after S&P downgraded Italy's credit rating. Also there are rumors that a major China bank has stopped foreign exchange swaps with several European banks in response to recent downgrades. Though, there was some relief as Greece said the country is close to getting the next tranche of bailout funds after a conference call with the international lenders. Dollar is steady on risk aversion and as FOMC will start its two days meeting today. Yen is also firm on news that the Japanese government is going to unveil some measures to cushion the image of its strength. Australia dollar stabilizes a bit as RBA minutes signals that the bank is in no hurry to cut rates.

S&P's cut the credit rating of Italy to A from A+, with a negative outlook, amid concern that deteriorating growth and a 'fragile' government would make the country unable to reduce its deficits. S&P's currently forecasts Italy's GDP to grow +0.7% this year, down from previous estimate of +1.3%. According to the agency, 'the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve'. Moreover, the 'fragile governing coalition and policy differences within parliament will continue to limit the government's ability to respond decisively to domestic and external macroeconomic challenges'.

There rumors that Bank of China, a major market-maker in China, stopped forwards and swaps trading with some European banks. Those banks include Societe Generale, Credit Agricole and BNP Paribas and recent downgrade by Moody's was cited as one of the major reasons. The bank declined to comment so far. It's believed that another China bank has followed and stopped trading yuan interest rates swaps with European banks too.

Greece Finance Minister Venizelos said that "substantive" discussion was held with EU and IMF officials on securing the EUR 8b installment of the first bailout. While the troika stressed the country should speed up activities in trimming spending and raising taxes, . Bob Traa, the IMF's resident representative in Greece, stated that 'impressive fiscal consolidation has happened' in Greece. The discussion will follow with another conference call today.

The RBA minutes of its September 6 meeting showed that bank is still confident that the boom engulfing the mining sector will continue to support the economy and gave little hints of rate cuts in near term. The minutes noted that "the international outlook had become significantly more clouded since the previous board meeting." But, "members considered that the current setting of monetary policy left the board well placed to respond to evolving global and domestic economic conditions."

It's reported that Japan is going to unveil a string of measures to cushion the impact of yen strength on domestic economy. The measures would likely include subsidies for companies to establish facilities in Japan. Also there will be measures for job creation and support to finances of SMEs. Economy Minister Furukawa said Japan needs to "establish a strong economic structure that won’t be affected by movements in currency markets, whether it’s a strengthening or a weakening in the yen."

The Fed will begin its FOMC meeting today. It's widely expected policymakers will announce something called 'operation twist' -increasing the average maturity of securities holdings by swapping holdings of lower maturities Treasuries with longer ones, after the 2-day meeting. Compared with outright bond purchases (QE3), one advantage of operation twist is that the size of the Fed's balance sheet would remain unchanged and is less unlikely to invoke inflation.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 104.01; (P) 104.75; (R1) 105.55; 

Intraday bias in EUR/JPY remains on the downside with focus on 103.88 support. Break there will confirm resumption of whole fall from 123.31 and should target medium term projection level at 103.42 first. On the upside, above 105.27 minor resistance will turn bias neutral and extend the consolidation pattern from 103.88. Nevertheless, even in case of another recovery, we'd continue to expect upside to be limited by 108.01 support turned resistance and bring fall resumption eventually.

In the bigger picture, the break of 105.42 support indicates that whole down trend from 169.96 has resumed. As noted before, the up trend in weekly MACD is broken and EUR/JPY is possibly building up downside momentum again. Next target will be 61.8% projection of 139.21 to 105.42 from 123.31 at 102.42. And sustained break there will pave the way to 100% projection at 89.52, which is close to 88.96 all time low. On the upside, break of 123.31 resistance is needed to signal trend reversal or we'll stay bearish. 

EUR/CHF  Daily Outlook

EUR/CHF spikes higher to 1.2213 today on rumor that SNB could raise the floor from 1.2 to 1.22, or even 1.25 tomorrow. The break of 1.2190 resistance argue that rise from 1.0061 might be resuming. But we'd prefer to see sustained trading above 1.22 level to confirm. In that case, EUR/CHF should head towards 1.2399 support turned resistance. Meanwhile, if SNB disappoints tomorrow, EUR/CHF could dropped back to prior range but again, SNB has made it clear about their intention to keep a floor at 1.2 and any decline attempt should be contained by this level.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
1:30	AUD	RBA Minutes
5:45	CHF	SECO Economic Forecasts Sep
6:00	EUR	German PPI M/M Aug	-0.30%	0.10%	0.70%
6:00	EUR	German PPI Y/Y Aug	5.50%	5.80%	5.80%
6:00	CHF	Trade Balance (CHF) Aug	0.81B	1.97B	2.83B
9:00	EUR	German ZEW Survey (Economic Sentiment) Sep		-45	-37.6
9:00	EUR	German ZEW Survey (Current Situation) Sep		40	53.5
9:00	EUR	Eurozone ZEW Survey (Economic Sentiment) Sep		-42.3	-40
12:30	CAD	Leading Indicators M/M Aug		0.20%	0.20%
12:30	CAD	Wholesale Sales M/M Jul		0.30%	0.20%
12:30	USD	Housing Starts Aug		590K	604K
12:30	USD	Building Permits Aug		590K	597K

Daily Report: Focus Turns to EU Meeting in Poland

Markets responded positively to yesterday's joint announcement by ECB and other major central banks to provide liquidity to Eurozone's banking system through the end of the year. DOW rose 186 pts while Asian equities follow today with Nikkei up 195 pts and broad based strength is seen in other Asian indices. Dollar index is back trading below 76.5 level as major currencies recovered against the greenback. Focus will now turn to EU Finance Ministers meeting in Poland, where UK Chancellor Osbourne and US Treasury Geithner will join. Main focus of discussion is on efforts to ratify the EUR 109b second bailout of Greece. European Commission President Barroso's proposal on eurobonds would likely be discussed there. Geithner is expected to talk about the possibility of leveraging the EUR 440b EFSF fund, like what US did back in 2008 in tackling the credit crunch. Back then, under the Term Asset-Backed Securities Loan Facility, US treasury offered up to USD 20b in credit protection to New York Fed, allowing it to lend up to USD 200b in return.

Yesterday, the ECB announced that, in coordination with the Fed, the BOE, the BOJ and the SNB, to conduct 3-month USD liquidity operations for 3 times through the year. In addition to the 7-day USD facility announced on May 10, 2010, the new operation aims to ensure sufficient liquidity in banks. The offerings will be carried out at in the form of repo, at fixed rate and with full allotment. Tender dates will be October 12, November 9 and December 7. The move had sent stocks higher on improved sentiment as central bankers attempted to ease liquidity problems associated to Eurozone's sovereign debt crisis.

On the data front, Eurozone current account and trade balance will be released in European session. Canadian international securities transactions, US TIC capital flow and U of Michigan consumer sentiment will be the main focus in US session.

Relieve in Eurozone liquidity condition is quite well reflected in XAU/EUR's sharp fall yesterday. Also, it's getting increasing likely that 1374.77 is a medium term formed on bearish divergence condition in daily MACD, after hitting 261.8% projection of 954.11 to 1088.1 from 1021.21 at 1372. Deeper decline should be seen in near term to 55 days EMA (now at 1222.5) and possibly below. Nevertheless, there should be trend reversal yet and we'd expect strong support above 61.8% retracement of 1021.21 to 1374.77 at 1156.27 to contain downside and bring rebound to extend the consolidation from 1374.77.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 105.33; (P) 106.16; (R1) 107.23; 

EUR/JPY's recovery from 103.88 extends further to as high as 106.98 so far and is pressing 4 hours 55 EMA. Further rise might be seen but at this point, we'd continue to expect upside to be limited by 108.01 support turned resistance and bring fall resumption. Below 105.08 minor support will flip bias back to the downside and should send EUR/JPY through 103.88 towards next medium term target at 102.42.

In the bigger picture, the break of 105.42 support indicates that whole down trend from 169.96 has resumed. As noted before, the up trend in weekly MACD is broken and EUR/JPY is possibly building up downside momentum again. Next target will be 61.8% projection of 139.21 to 105.42 from 123.31 at 102.42. And sustained break there will pave the way to 100% projection at 89.52, which is close to 88.96 all time low. On the upside, break of 123.31 resistance is needed to confirm trend reversal or we'll stay bearish. 

Daily Forecast for Crosses

EURJPY Forecast
The EURJPY had another volatile but indecisive movement yesterday, made another Doji on daily chart. The bias remains neutral in nearest term. A quick look at the hourly chart easily reveals that price is moving in a sideways mode since Monday but as long as price stays below the trend line resistance my overall technical outlook remains strongly to the downside, still targeting May 2001 low at 100.08. Immediate resistance is seen around 105.50. A clear break above that area could trigger further upside pullback testing 106.57 but overall I still prefer a bearish scenario at this phase. On the downside, we need a clear break and daily close below 103.88 to continue the bearish scenario.

GBPJPY  Forecast
The GBPJPY continued its bearish momentum yesterday and hit 121.14 earlier today in Asian session. The bias is bearish in nearest term and looks like the hammer formation bullish pullback scenario is diminishing now as price seems ready to resume its bearish scenario still targeting 118.83. Immediate support, which is also the nearest bearish target is seen around 120.00. Immediate resistance is seen around 121.60. A clear break back above that area could lead price to neutral zone in nearest term testing 122.00/50 but as long as price stays below 122.93 my overall intraday bias remains strongly to the downside.

AUDUSD Forecast
The AUDUSD was indecisive yesterday, made a Doji on daily chart but had a bearish momentum earlier today in Asian session hit 1.0209. The bias is bearish in nearest term testing 1.0120 and the lower line of my triangle as you can see on my daily chart below. Immediate resistance is seen around 1.0300. A clear break back above that area could lead price to neutral zone in nearest term as direction would become unclear. Price is now below EMA 200 on daily, h4 and hourly chart suggests a strong bearish outlook, but we need a clear break from the triangle to see a clearer long term direction.

Euro Continues to Stumble, Aussie Playing Catchup

Aussie and its ilk are playing catchup to the downside as the deteriorating risk conditions stemming from the Euro Zone’s existential crisis are making waves all across global markets.

If you missed it Friday, please see our bigpicture look at the G10 currencies, a series of charts showing the relative strength of each of the G10 currencies against an evenly weighted basket of the remainder of its G10 peers.

Dreading the drachma?

The Euro continues to suffer in the wake of Stark’s exit from the ECB, on rumors that Germany is girding itself for a Greek exit from the EU and on ongoing signs that the ECB and EU governments are simply unable to get ahead of the galloping fears of a systemic banking crisis triggered by the lack of trust in sovereign debt. CDS’ on Italian sovereign debt ended last week at a new high for the cycle and Greek 2-year debt trades at a stratospheric yield of 57%, suggesting the investors believe they will receive well under 50 cents on the Euro for their Greek debt in the event of a default. Greece is still making quite a show of trying to meet fiscal targets as Finance Minister Venizelos announced a plan to cut a month’s salary from all publicly elected officials and to impose a new property tax that would be collected via consumers’ electricity bills to secure collection (Greece has an enormous tax dodging problem). The measures are looking increasingly desperate and untenable and we can be sure that there won’t be a third bailout option for Greece – it will either meet the targets or opt to default, with odds rapidly rising of the latter.

European bank equities also continue to crater, led by French banks like SocGen and BNP Paribas. These stocks are the easiest way to track a “live barometer reading” on EU breakup fears in addition to the Euro itself. The technical break of the 1.40 area in EURUSD has also opened up an enormous area that has few support levels for guidance until we get down close to 1.30.

Chart: EURJPY

As bond yields continue to crate, the BoJ has only been barely successful in holding the line on JPY appreciation against the USD, so the yen is rushing higher elsewhere. Against the Euro, the JPY reached its strongest level since well before the actual circulation of the single currency, trading as low as 104.00 before this article’s pixel time. Japanese officials continue to rail against the strong yen and the new FinMin Azumi promised “bold action, especially against speculative trading”. Looking at the JPY charts today, it will take bold action indeed – can Japan succeed in pulling an SNB?

Of course, as the Euro is grabbing all of the headlines for its weak ways, it’s hard for us not to point out that the single currency has rallied, yes, rallied 200 pips versus the Aussie in today’s trading from the lows, as our comment late last week that the Aussies would have some catching up to do on the downside if risk appetite continue to sour proved correct.

Focus this week

The main focus this week will continue to be on the Euro Zone and whether we will continue to see the pressures pushing the Euro into the abyss or whether the ECB and EU can muster a sufficiently robust response to give the market some pause. No signs of the latter just yet, by any means.

In the UK, a government plan to ring fence retail banking operations from investment banking ones is under consideration. Banks are obviously against this due to its high cost, and though the pound continues to thrive as an anti-Euro and a benefactor in the face of risk aversion, it’s popularity may wear off a bit if this package moves toward passage. EURGBP has in fact bounced considerably on the day after the recent steep retreat, with 0.8675 as a key resistance/pivot area.

This week we should look for the first reactions to the new Obama stimulus plan and a taking of the Republican opposition’s temperature that may give an indication on how difficult the birthing process will be for a new stimulus bill. Again, simple game theory dictates that the Republicans will be moved to pass some similar version of this bill, perhaps with a few future spending cut caveats as Obama has crafted a package proposal that could have easily been created by non-Tea party Republicans. The more critical issue

It will be interesting to hear what the Dallas Fed’s Fisher has to say at his speech on monetary policy later today. He is the most vocal of the voting dissenters and may use today’s appearance to speak out against the next steps the Bernanke majority is considering, not that this will necessarily deter them as they meet next week.

On the economic data front, we’ve got inflation data up from the UK tomorrow and from the US on Wednesday (PPI) and Thursday (CPI). US Aug.  Retail Sales data is set for release on Wednesday as well. Among the central banks, the RBNZ is set to meet Thursday, as is the SNB. The first two regional US manufacturing surveys, the Empire and Philly Fed, are set for Thursday, though last time around, these were misleading as a still resilient Chicago PMI was a better indicator of a better than expected ISM manufacturing number in August. Stay tuned.

Economic Data Highlights

• China Aug. Trade Balance out at $17.76B vs. $24.6B expected and $31.5B in Jul.
• China Aug. New Yuan Loans out at 548.5B vs. 500B expected and 492.6B in jul.
• Japan aug. Domestic CGPI out at -0.2% MoM and +2.6% YoY vs. -0.2%/+2.7% expected, respectively and vs. +2.9% YoY in Jul.
• Australia Jul. Trade Balance out at 1826M vs. 1900M expected and 2052M in Jun.

Upcoming Economic Calendar Highlights (all times GMT)

• US Fed’s Fisher to Speak on Monetary Policy (2000)
• New Zealand Q2 Manufacturing Activity (2245)
• UK Aug. RICS House Price Balance (2301)
• New Zealand Aug. QV House Prices (0000)
• Australia Aug. NAB Business Confidence/Conditions (0130)

EURJPY - Bearish below 109.10

Bearish signals for the quarter and for last week have been confirmed with investors selling EURJPY to a new nine-year low on Friday at 105.30. A one year bullish weekly trend of higher lows has been broken and prices remain firmly below the pivotal 200 day average rate. While last week’s over two Big Fig losses and second down-week in a row is negative, daily signals for sentiment are at oversold extremes and the market has not posted more than two significant down-week’s in over a year, since May 2010. So while there is no sign yet that Yen strength is ending, this week’s outlook remains just cautiously bearish below 109.10. The immediate objective is 105.30, last week’s nine-year low, with a move through this point targeting 104.00 and then towards 101.00.
The risk to this call however would be with buying through a stop at 109.10, Wednesday’s high, a cautiously positive signal improving sentiment to 109.98, last week’s top and then towards 111.94, the August high trade.

Big picture G10 Currency Charts

The charts below are for each of the G10 currencies versus an evenly weighted basket of the remainder of their G10 peers. The charts are small (as we work on updating the blog to allow links to larger graphics), but they nonetheless do cover quite a bit of ground – 2500 data points for each in fact, which hopefully gives an interesting perspective. Each of the time series starts at indexed 100 as of early February 2002. (The start point of the index changes with every refresh of the charts on  a rolling basis.)

Note that the charts were cut before the last leg of the action in the early US session after the news that Stark will resign from the ECB (rumored because of disagreements on bond buying) and on news ECB will back off on penalty rates for banks accessing emergency facilities.

USD

The US dollar has been dropping forever – note that while the dollar index crossed the 200-day moving average, the USD/G10 basket has not yet crossed this important level, though it is trading at the highest level in months and may be confirming a transition to a bullish trend after the recent basing action and loss of downside momentum.

EUR

How ironic is it that, as the EU is experiencing its worst existential crisis to date, the Euro is back close to its lowest levels in years….which are also the lowest levels since the Euro was launched amid intense skepticism over the entire idea of a single currency back in 2002.

JPY

The JPY remains resilient and relatively strong – but will likely only be so as long as rates remain absurdly low and/or the BoJ and Japanese government steal a page from the SNB’s book on the intervention front

GBP

GBP is experiencing a bit of a revival on Euro misery and as its down trend has been losing steam for a long time. Could the market be getting too complacent on further GBP weakness?

CHF

The magnitude of the run-up and the subsequent reversal is breathtaking, but leaves us, amazingly, still poised above the 200-day moving average! There’s a lot more room for franc weakness if the SNB’s intervention project succeeds.

AUD

AUD is extremely overvalued if the Asian growth story in any way derails. The focus has been intense on Europe, but many risk appetite signals are flashing around the world, which are most often associated with Aussie downside. Aussie hasn’t been garnering sufficient notice.

CAD

CAD has been a relatively low beta currency over the years relative to some of its peers. It is generally out of favor now, but could put up a fight or at least avoid broad weakness if the US economy and USD prove stronger than the market is currently expecting.

NZD

The NZD bull market has enjoyed an Indian summer, but it may fade on the potential for an Asian hiccup and if the post NZ earthquake GDP bump fades in the months ahead.

SEK

The krona is gaining favor as a safe haven from Euro turmoil. It may rally passively for a while, but historically has a hard time if its export markets are threatened.

NOK

NOK is very credible as a safe haven from a fundamental standpoint and has room to rally further, but what point does the Norges Bank begin to rattle it saber when EURNOK is already at almost decadal lows?

Humdinger of a day expected by markets Friday

Pretty quiet this last week in the UK really, with few economic releases of any substance - lacklustre retail sales figures, mixed CBI surveys, (orders better than expected, but sales worse), the Prime Minister even felt able to return to his holiday!

On balance, sterling suffered a little against the dollar and the euro, falling by about 1% against both - maybe because the pound has become a newly annointed safe-haven currency over the recent frenzied months, due to the UK's apparent strict fiscal probity, and this week safe havens of many types were ditched as hopes for QE3 grew, taking equities tentatively higher.

I would be tempted to fade these moves as, even if Bernanke does signal that QE3 is just around the corner, we'll see a very graphic example of the law of diminishing returns, as I believe the market will quickly re-focus upon the Eurozone debt disaster waiting to happen. If he doesn't deliver, and just does the minimum - which will be a verbal guided tour through the various easing options at the Fed's disposal should they need them - then it's 'goodnight Vienna'; risk will be spurned like a rabid dog, and Sterling will be off to the races again.

We're still in a deflationary, debt-trapped world in the West, with the UK being a prime example, and this time next year we'll look back longingly on 2.7% gilt yields.

Tomorrow should be a humdinger of a day, with UK GDP figures, (the Office for National Statistics' second guess, so shouldn't surprise) and, of course, Bernanke on stage tomorrow late afternoon UK time - a must-watch, but I can't see him changing the world by too much, for too long.

Daily Report: Yen Shrugs off Moody's Downgrade and Rises as MOF's Measures Disappoints

The Japanese yen slipped initially early in the morning as Moody's downgraded Japan's sovereign rating for one notch to Aa3 with a stable outlook and on news MOF scheduled announcement at 2:30GMT. The rating agency blamed the Japanese government for large budget deficits and building up of debt since 2009 global recession, whilst unstable leadership hammered the effectiveness of the country's economic strategies. Moody's also indicated that Japan needs to achieve 3% of nominal GDP growth in order to get the nation's deficit problem in check, the plan of doubling the sales tax from 5% to 10% by 2015 may not be enough to solve the debt issue. However, the impact of the sovereign downgrade together with negative rating actions on most Japanese banks proved to be short-lived. Firstly, this was only a catch-up action with S&P's) and secondly, Moody's see current yen level is stressful to the Japanese economy but not dreadful. More importantly is the disappointment after the announcement of MOF Noda for new measures to dead with the yen strength. Japanese Ministry of Finance announced an emergency credit facility will be created at the amount of US$100 billion to assist Japanese firms to cope with the yen's strength. This facility will use dollar funds in the FX reserves to facilitate acquisition of foreign firms by Japanese firms. This emergency package is temporary and will last for one year. Nevertheless, as Noda did not mention anything about intervention and just talked about the government will strengthen its monitoring of the currency market for excessive speculative moves and has asked financial firms to report of their FX positions for the period to end of September, the Japanese yen rose again after the announcement. Still noted bids around 76.45/50 and further out at 76.00-10 with stops remain below 75.90 whilst on the upside, offers from exporters are lined up at 76.85-95 with some stops seen at 77.00 but sizeable stops only emerging above 77.25/30.

The greenback rebounded against other major currencies with EUR/USD slipped from day's high of 1.4442 to 1.4387, once again due to risk aversion as Asian equities are all in the red zone. Yesterday's comments from PBOC adviser Xia saying the FX reserve should be used to buy resources, energy and equities rather than euro debts, seemed still pressuring the euro. In addition, Finland Prime Minister told reporters that he would say yes if Finland could drop out of the Greek bailout plan. This also caused concerns over the effectiveness of the rescue package for eurozone debt crisis. Last in the line of negative comments on euro was former Fed chairman Alan Greenspan, who simply said that the euro is breaking down whilst U.S. is not yet in a double-dip territory. At the moment, bids are still noted at 1.4380-90 for protection of stops below 1.4370 and 1.4345/50 whilst offers from Japanese names (EUR/JPY) related are tipped at 1.4440-50 and further out at 1.4500-10 with stops placed above 1.4520 and 1.4550.

The Swissy extended yesterday's rebound on the back of active buying in EUR/CHF (jumped from yesterday's low of 1.1315 to today's high of 1.1460) and dollar's broad-based strength against European currencies. It seemed that recent actions by Swiss National Bank, including zero rates and intervening in the forward market did put a floor on the USD/CHF and EUR/CHF. More and more analysts are expecting the headline pair to retest last week's high of 0.8020 in the near term. We heard bids from model funds are located at 0.7880/85 whilst offers from European names remain at 0.7990-0.8000. With investors still hoping Fed Chairman Bernanke to announce QE3 on Friday in Jackson Hole speech, dollar's upside is likely to be limited.

Elsewhere, Asian names were seen selling aussie this morning partly due to the release of soft Conference board leading index (-0.8% vs previous -0.1%) and weaker-than-expected construction work done in Q2 (0.7% vs forecast of 1.0%). At the moment, offers are still noted from 1.0500 up to 1.0550, stops at 1.0470 were triggered but bids from real money accounts are still noted at 1.0450/55.

USD/JPY Daily Outlook

Daily Pivots: (S1) 76.43; (P) 76.68; (R1) 76.89; 

USD/JPY continues to stay inside tight range of 75.94/77.19 and intraday bias remains neutral. More consolidative trading would be seen and above 77.19 will bring another recovery. But we'll stay bearish as long as 80.23 and expect more downside ahead. Break of 75.94 will confirm decline resumption and should target 100% projection of 81.46 to 76.28 from 80.23 at 75.05 next.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we'll stay cautiously bearish in the pair.

Eurozone council - a logical solution to an obvious problem?

Well in many ways it’s what rational market pundits have been calling for, for quite some time now.
A logical solution to what seems an obvious problem, a haphazardly thrown together union of disparate nations all clambering for what little positive cash flow there is to cover an overwhelming amount of individual debt.
It’s always been thought that if you’re pulling together all these wallets, some fat, most thin, that there should be one grand pooba in charge of the purse strings, coming and going.
And this is what team uber tops Merkel/Sarkozy (and there are so many great acronyms yet to come) has so bravely proclaimed to have produced after a lovely afternoon of fresh roasted French blend coffee and deep rich Black Forest Torte.
Their version however, reads a bit more George Orwell, “1984” than it does Lewis Carroll “Alice in Wonderland”...
In a nutshell and one sound bite/headline at a time here’s how it reads,
• Electing a President every 2.5 years
• Accumulating all fiscal responsibility into one big pool and administering it accordingly (centrally)
• Bank taxes and other creative ways of finding extra cash where none existed (blood from a stone style)
Translation a couple of deep (ish)pockets paying the bill for 17 different diners who are just as likely to partake in a classic dine and dash as they are to bend to the will of those extending the dinner invitation, and stick to just the salad starter instead of the full 12 course degustation menu.
Initial market reaction as I watched all the pretty little numbers dance in colour was a topside cleanout of EURUSD stops above 1.4430, extreme spike high hitting at 1.4471.
While Cable (reaction high 1.6470) followed the EURUSD, other USD pairs were somewhat muted with the CHF crosses taking some of the shine. Gold held well and US equities got a small boost, while the European indices just tracked the EURUSD move.
This however all lasted only mere minutes as punters got a chance to digest and wait for the next bloke to pull the trigger, invariably quickly reversing most of the above, after which we then settled in to what turned out again to be another fairly quiet night.
Walking in this morning all the excitement centres around the Swiss National Bank and that ridiculous “peg” (leg). Having met for their weekly meeting they have dodged the peg bullet and instead have extended sight deposits and increased the swap lines from 120bn to an effective 200bn, thus diluting the market. Nervousness still runs through the market as there is no clear idea about whether there will be further announcements etc: Needless to say the EURCHF has been thrown around like the proverbial rag doll and will continue likewise for the bulk of the day.
The EURUSD has moved in union with the EURCHF and was down 80 pips, to then recover at least 70 and now continues to bob around.
The day ahead holds UK unemployment, MPC minutes and US PPI. The last of which will be perhaps of most interest to the market.
On the equity front (S&P500), I look for a reversal today as yesterday proved to be the culmination of what I had been waiting for, an inside day (by my measure) and thus we look to reverse recent gains, with 1170 the first downside target, with a break likely and sights sets on 1130. It might take a day or two, but this is my call and I’m sticking to my guns.
On the majors, I stay away from EURUSD but maintain my bearish stance.
In the Cable I fade this strength and look for rallies into last night’s reaction high as selling opportunities could emerge, with stops probably needing to go in above 1.6530/40, looking for an initial move into 1.6330.
The AUDUSD can also be faded cautiously, but I wouldn’t rush out of the starting blocks in  this one.
Of more interest to me right now is the EURJPY which could be considered a sell into 110.70, with stops above 111.30 and looking for 109.50 and then 108.80.
Watch for me on Twitter (@KenVeksler), put your helmets on and good luck.

Daily Report: Euro Retreats from 3-week High ahead of Eurozone GDP

The single currency retreated from 3-week high against the greenback as some traders booked profit on their long euro position ahead of the meeting between French President Sarkozy and German Chancellor Merkel. The meeting will be held in Paris and is scheduled to start at 1400 GMT, followed by a joint news conference at 1600 GMT. As indicated in our previous update that Eurobonds will not be discussed in the summit, investors bet the meeting will be very much non-event and only the two leaders may only talk about improving economic governance, so no specific measures will be announced to deal with the regional debt crisis contagion. If that is that case, then traders' focus will probably shift back to the release of several European economic data today, including German Q2 GDP (forecast at 0.5% vs previous 1.5%) at 06:00GMT and eurozone Q2 GDP (consensus at 0.3% against prior 0.8%). Both are preliminary data and the forecasts are weaker than previous readings, if the data (especially the eurozone GDP) do come in weaker than expected, concerns over debt crisis of peripheral countries plus Spain and Italy will be once again heightened. Basically traders are already betting there may be higher chance the number will be weak with previous manufacturing PMI all showed soft readings. Stops below 1.4400 were triggered and only light bids are reported at 1.4370 and 1.4350 with more stops seen below latter level and 1.4300.

The retreat in EUR/CHF was another reason on today's pullback in euro, after surging over 1300 points from the record low of 1.0075, the currency pair finally reached a temporary top at 1.1458 yesterday. Although EUR/CHF opened higher yesterday and rose by 2.2% on Sunday's newspaper report that the SNB was poised to set a target rate above 1.10 Swiss franc per euro, the pair retreated as traders found the level of 1.13-1.14 too attractive to buy Swiss franc. With more and more dealers not convince of an actual EUR/CHF peg plus persistent eurozone debt problem, sooner or later renewed safe-haven demand will emerge again. Current speculation is that the SNB may take action tomorrow (17 Aug) and if there is any disappointment caused by the Swiss authorities, the franc may once again surge across the board. It was quite obvious that the Swissy met heavy offers right ahead of the psychological 0.8000 level and bids at 0.7800 were absorbed this morning, next batch of buying interest is tipped at 0.7700 by UK name and offers from same party are also noted at 0.7850-60 and further out at 0.7900-10.

The British pound also slipped since overnight New York session as traders squared there long cable position ahead of some important UK data due out later today. The highlight of the day will be on July CPI with forecast centered at -0.1% m/m and 4.3% y/y, consensus for core CPI at 3.0%; UK RPI will also be released at 08:30GMT with economists expecting -0.2% m/m and 5.0% y/y. DCLG house price data will also be published at the same time but will have much less effect on sterling. Some traders already priced in a lower-than-expected CPI which may lead to a downward revision of BOE quarterly inflation report, hence put pressure on the British pound.

Elsewhere, the release of RBA's August meeting minutes dragged aussie down a bit, overall tone from the minutes was quite balance but it did not suggest any sign that the central bank was considering cutting rates in the near future. In wake of the ‘acute' uncertainty in global financial markets, committee members voted against a rate hike in the last meeting. The minutes also stated that subdued consumer spending and higher Australian dollar were seen dampening inflation, the central bank saw downside risks more pronounced and it was prudent to hold rates whilst assessing the economic growth. Nevertheless, no surprise was seen from the document but some traders interpreted as there is very much unlikely that RBA will raise rates.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 109.94; (P) 110.49; (R1) 111.49; 

Intraday bias in EUR/JPY remains neutral for the moment. While recovery from 108.01 might extend further, we'd continue to expect upside to be limited by 111.23 minor resistance and bring fall resumption. Below 109.62 minor support will flip bias back to the downside. Further break of 108.01 will extend the whole decline from 123.31 towards 105.42/106.28 support zone. On the upside, above 111.23 will bring stronger rebound. But after all, we'd stay cautiously bearish as long as 114.17 resistance holds and expect more downside ahead.

In the bigger picture, current development suggests that rebound from 105.42 medium term bottom was merely a correction and has completed at 123.31 already. Whole down trend from 2008 high of 169.96 was not finished yet and should extend beyond 105.42. Also, as weekly MACD will most likely break its trend line as the current fall from 123.31 extends, EUR/JPY is possibly regaining medium term downside momentum too. Break of 105.42 will target 61.8% projection of 139.21 to 105.42 from 123.31 at 102.42 first. Though, note that break of 123.31 resistance will in turn revive the case that the medium term trend has reversed and will turn focus back to 139.21 resistance instead. 

Daily Report: Swiss Franc and Japanese Yen Both Slip on Possible Actions by SNB and BOJ

Once again the Swiss franc took center stage and dropped against most major currencies, hitting a 2-week low against the greenback and euro this morning in Asia on persisting speculation that the Swiss National Bank would take further action to weaken the franc. Bet on a EUR/CHF peg intensified after a Swiss newspaper report over the weekend, 

SonntagsZeitung newspaper reported on Sunday that the SNB is likely to set a target rate for EUR/CHF in coming days (probably 17 Aug) above the 1.1000 level. EUR/CHF surged to as high as 1.1325 this morning on such report and USD/CHF also opened higher and rose well above last week's high to around 0.7990. SNB Chairman Philipp Hildebrand and the other policy makers are working closely to seek appropriate plan to stop further appreciation in Swiss franc, some measures had already been taken such as boosting liquidity in money market and cutting rates to zero. Swiss government and lawmakers have expressed their support for the central bank to take drastic measures to curb franc's ascent in order to protect the country's economy. Having said that, some traders considered the speculation of a EUR/CHF peg has been over exaggerated and the franc may rebound this week when traders start realizing such a peg may not materialize. In addition, with U.S. and eurozone still having their own economic problem, Swiss franc remains the major safe-haven target for investors, so if nothing happen on the rumor day of implementation on 17 Aug, the Swiss franc may rally later this week.

The Japanese yen also slipped on fear of possible intervention by Bank of Japan, the Ministry of Finance of Japan Yoshihiko Noda changed his tone and indicated that he is ready to intervene in currency market again. During a television show on NHK, Noda not only said he is closely watching the markets but he would also take decisive and bold action if it becomes necessary as an unstable situation is continuing. EUR/JPY bounced above 110.00 to as high as 110.27 and USD/JPY also marked an intra-day high of 77.10 on Noda's comment. The government echoed Noda's remark and according to a policy overview approved by the cabinet, the government considered the excessive FX moves will hurt economic and financial stability and pledged to take decisive steps when necessary. The government also wanted the BOJ to boost the nation's economy through appropriate flexible policy. However, the Japanese yen then rebounded after the release of stronger-than-expected Japanese economic data, Japan's Q2 GDP shrank at a rate of -0.3%, less than economists' forecast of -0.6%. Macro funds were seen buying USD/JPY since last Friday but offers from exporters in good size are still noted from 77.20 up to 77.40 with some stops seen at 77.30 and 77.50.

The single currency opened higher this morning on the back of rising EUR/CHF and EUR/JPY due to risk appetite as Asian stock markets rebounded following Friday's strength in European and U.S. equities. Stops above 1.4300 were triggered and traders are working on offers reported from 1.4320 up to 1.4350. The single currency may continue to be underpinned on speculation tomorrow's meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy may help easing concerns on French debt crisis contagion. The two leaders are expected to discuss improvement of European governance and expansion of EFSF's role and some traders hope them to come up with some measures to contain the eurozone debt crisis.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.0809; (P) 1.0952; (R1) 1.1218; 

EUR/CHF jumps further to as high as 1.1366 so far today and momentum remains strong. It looks likely that 1.1404 support turned resistance will be taken out by the current rebound and that would raise the possibly of medium term reversal. In any case, intraday bias remains on the upside for the moment and break of 1.1404 will target 55 days EMA (now at 1.1635) next. On the downside, below 1.1047 minor support will turn bias neutral and bring retreat. But another rise will now remain in favor as long as 1.0685 minor support holds.

In the bigger picture, while 1.0061 is a short term bottom, there is no indication of trend reversal yet. Whole down trend from 1.6827 (2007 high) is still in progress. Medium term outlook will remain bearish as long as 1.1404 resistance holds and we'd expect an eventual break of parity. Nevertheless, note that a break of 1.1404 resistance will argue that 1.0061 could indeed be a medium term bottom and stronger rebound might then be seen back to 1.2399/3243 resistance zone. 

Daily Report: Euro and Sterling Trade Lower on Massive Risk Aversion as Global Equities Selloff Intensifies

The single currency and sterling both dropped on risk aversion, USD/JPY also fell as stock markets as Asian stock markets followed the selloff in European and U.S. equity markets and tumbled, most European indices slipped over 3% (STOXX 50 and FTSE 100) with German DAX dived over 5%, then U.S. major indices were also sharply lower, DJI (-5.55%, biggest selloff since December 2008), S&P 500 (-6.66%) and NASDAQ (-6.9%). Nikkei 225 and Hang Seng opened lower this morning and Nikkei broke 9000 and currently still down by 2.3% whilst Hang Seng once plunged over 6% below 20000 but has rebounded from low. The greenback against the Japanese yen back to the launching pad level right before Bank of Japan intervened the currency market last week, however, still heard decent bids around 77.00. Japan's Finance Minister Yoshihiko Noda repeated today that he is closely watching the financial markets, then BOJ Governor Masaaki Shirakawa also said that he is worried by volatile exchange rate and excessive yen rise would have a negative impact on the country's economy, however, early comments from Noda saying G7 did not discuss specifics on intervention in the meeting yesterday gave traders signal that there may not be joint intervention like back in March. USD/JPY did rebound briefly on verbal warnings from Japanese officials but the pair was down again due to the lack of real action by BOJ/MOF. Bids are still noted from 77.00 down to 76.50 with sizeable stops remain below 76.20 and 76.00, On the upside, offers are lined up around 77.80-90 with some stops seen at 78.00 but more selling interest should emerge around 78.50 with next batch of stops located at 79.10 and 79.50.

Intensified risk aversions on free falling European and U.S. shares pressed euro sharply lower yesterday from 1.4432 to as low as 1.4130, statements from Standard & Poor's also bough relief to the greenback as the rating agency indicated that despite the downgrade of U.S. sovereign rating, the ratings of some states and local government will be kept and stay above the statues of the sovereign, S&P's also stated that rating on U.S. banks will not be affected by the downgrade of nation's sovereign. Having said that, the single currency rebounded in Asian session after finding decent demand from sovereign names, unwinding in EUR/JPY as Hang Seng recovered almost 50% of early losses also seen supporting the pair. Good bids from same parties are still noted from 1.4150 down to 1.4130 with stops placed below latter level, more buying interest is likely to emerge around 1.4100 and 1.4070 with next batch of stops below 1.4050. On the upside, offers are reported at 1.4250-60 and further out at 1.4300.

Sterling basically followed euro's foot-steps, dropped throughout yesterday and hit a low of 1.6269 this morning on massive risk aversions and youth riots in London, however, cable also rebounded from low as Asian bourses bounced off lows. The release of better-than-expected UK data also seen lifting sterling, BRC sales data came in at 0.6% versus forecast of -0.5% and RICS House Price data also showed higher-than-expected number at -22.0% against consensus of -28.0%. The British pound is likely to confine in narrow range ahead of the release of UK June industrial and manufacturing production data at 08:30GMT with forecast at 0.4% m/m and 0.2% m/m respectively. Order books are relatively light today with some offers tipped at 1.6350-60 and 1.6380-90 with stops placed above 1.6400 whilst bids from Asian and Middle East sovereign names noted from 1.6300 down to 1.6270 with stops placed below 1.6250-60.

Continued safe-haven demand pushed Swiss franc higher again and Swissy was hovering near its record low formed at 0.7480 and stops below this level are in focus with option barrier tipped at 0.7450, offers are reported at 0.7650 with stops only emerging above 0.7700 and 0.7750.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0093; (P) 1.0272; (R1) 1.0363; 

AUD/USD dives to as low as 0.9926 but drew some support from mentioned 38.2% retracement of 0.8066 to 1.1079 at 0.9928 and recovers. Intraday bias is turned neutral for the moment and some sideway trading might be seen. But near term outlook will remain bearish as long as 1.0526 resistance holds and another fall could still be seen. Decline from 1.1079 is treated as a correction in the long term up trend. Below 0.9926 will target channel support (now at 0.9652). Though, break of 1.0526 will indicate short term bottoming and will flip bias back to the upside for retesting 1.1079 high.

In the bigger picture, bearish divergence condition daily MACD suggests that rise from 0.8066 might be finished. And that's possible considering that AUD/USD has just missed a long term projection target at 1.1084. The break of 1.0390 support affirms this case and deeper decline would now be seen towards long term channel (now at 0.9652). But we will treat it as a correction only. And, as long as 0.9404 resistance turned support holds, the whole up trend from 2008 low of 0.6008 should still be in healthy status.

Daily Report: The Greenback Finally Rallies against the Japanese Yen on Aggressive Interventions by MOF

Finally, as suggested in our previous updates that the Bank of Japan did ease policy by increasing the amount of its Asset Purchase Program and the MOF also took this chance as indicated in our updates to intervene the forex market to curb recent yen's strength. The Bank of Japan increased purchasing assets (including JGBs, Treasury discount bills, CPs, corp bonds, ETSs, REITS and fix-rate lending operations) by 10 trillion yen to 50 trillion yen, the amount was well above previous raise of 5 trillion yen back in March after the 9.0 earthquake and tsunami. Although the BOJ left its call rate target unchanged at 0-0.1% unanimously, all council members agreed to temper the yen's rise to avoid further damage to the country's export-led economy. The MOF ordered BOJ to intervene the FX market on its behalf and the BOJ sold yen very aggressively from around 77.00-10, pushed the USD/JPY sharply higher to as high as 79.41 so far, lots of stops were triggered, including 77.50, 78.10, 78.50 and also 79.00. Although some traders reported offers from exporters at 79.50, dealers expect the Bank of Japan to act again in European session with next batch of stops tipped at 80.00-10. Japan's Finance Minister Yoshihiko Noda confirmed about the intervention in the forex market, he said the action was conducted by Japan itself but the MOF had communicated with other countries on the move. Whilst Noda did not provide further details on the yen selling intervention, source from Japanese news agency suggested that Japanese authorities spent around 800-900 billion yen (approx. over US$ 11 billion) this morning in Tokyo which pressed the Japanese currency lower by over 2.7%. The record amount that Japanese authorities used for intervention is 2.1 trillion yen back in September last year, BOJ governor Shirakawa will hold press conference from 07:00GMT and further details would be unveiled.

EUR/JPY also rallied in Tokyo, easily broke above yesterday's high of 110.61 to as high as 113.35, tough offers at 112.00 and 113.00 were all cleared, however, the pair's upside was limited partly due to the weakness in the single currency. Euro retreated quite sharply after hitting an intra-day high of 1.4375 (stop-hunting to trigger stops at 1.4350), surging Italian and Spanish bond yields put pressure on euro, more and more investors started losing faith on Italian economy and expected the nation to face debt crisis following Greece. However, downside is likely to be limited as some traders await the rate decision by European Central Bank later today at 11:45GMT and more importantly the press conference at 12:30GMT as the ECB is expected to keep rate unchanged but investors hoped the ECB could unveil aggressive measures to address the eurozone debt crisis such as the resumption of bond purchases in the secondary market. If ECB President Trichet does sound less hawkish as before and focus on monetary easing approaches like bond purchases, this would put extra burden on the single currency. At the moment, some bids are reported at 1.4260-70 with stops placed below 1.4250 and further out at 1.4200 whilst on the upside, offers are still noted at 1.4375/80 and 1.4400.

The British pound followed euro and fall in Aisa mainly on dollar's broad-based rally, slipped from Australia high of 1.6440 to as low as 1.6343, although cable found some support there and has recovered, consolidation should take place ahead of the Bank of England rate decision at 11:00GMT with markets expected the BOE to keep rate unchanged at 0.5% and asset purchase funds will stay on hold at GBP 200 billion. With speculations on possible QE3 in the U.S. and more debt crisis in eurozone, sterling could benefit from current atmosphere and trade with a relatively firm tone especially against the yen. We heard bids from Asian sovereign names around 1.6340-50 and also 1.6300 with some stops seen at 1.6270 and 1.6220 whilst on the upside, first offers are tipped at 1.6400 and sizeable selling interest remains at 1.6440-50.

USD/JPY Daily Outlook

Daily Pivots: (S1) 76.76; (P) 77.08; (R1) 77.38; 

USD/JPY's rebound from 76.28 accelerates further on Japan intervention and the break of 78.46 resistance indicates that a short term bottom is at least formed after USD/JPY missed 100% projection of 85.51 to 79.56 from 82.22 at 76.27. Intraday bias is back on the upside and further rise should be seen back to 79.56/82.22 resistance zone first. Though, we'd prefer to see sustained break of 82.22 (which is close to 61.8% retracement of 85.51 to 76.28 at 81.98) before confirming reversal. On the downside, below 77.84 minor support will turn bias back to the downside for 76.20. Meanwhile, break of 82.22 should pave the way to 85.51 and above.

In the bigger picture, note that USD/JPY's rebound from 75.98 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 towards 70 psychological level. In any case, break of 82.22 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to revive the case that USD/JPY's down trend has finished. Otherwise, we'll stay cautiously bearish in the pair.

USD basking in risk aversion, while Aussie stumbles on RBA

The USD got more pronounced relief overnight on continued unwinding of the risk premium from the debt ceiling issue and failing risk appetite. Meanwhile, Aussie longs stumbled on a very dovish RBA statement.

RBA
The RBA left rates unchanged as expected and expressed more marked concern than previously about the state of the global economy. While concern was still expressed on the inflation front, there was a healthy dose of extra concern in the statement that was aimed at the domestic growth front as well, including the observation that credit growth is in decline and there is more “cautious behavior” on the part of households. The strong Aussie was also noted as having a “noticeable dampening effect.”

The market took this report as very dovish as the timing of the first projected RBA cut was shifted dramatically forward. September 2012 Australia STIR futures rallied a full 26 ticks, fully overwhelming the downside from the highQ2 inflation report from last week. AUDUSD swooned and is suddenly much  closer to the 1.0800/1.0775 zone of support than it was yesterday. The Aussie yield curve is now inverted again (as the 10-year yield fell below the overnight rate), a classic sign of an economy moving into – or already in – a recession. A nasty drop in building approvals in June did little to support the currency either, which was the weakest among the G-10 since the end of yesterday’s US session.

Chart: AUDUSD
AUDUSD saw a significant correction lower on the back of a dovish RBA. The direction in risk appetite is a headwind at the moment as well, though the pair still has the significant 1.0775/1.0800 area of support in place as well as the longer term trendline. Bears will note the recent inability of the pair to maintain new highs above 1.10. The lines in the sand are drawn and the maneuvering room rather constricted, so it appears the pair will commit one way or another soon.

US debt ceiling in rear-view mirror
While the US debt ceiling issue will now fast disappear in the rear view mirror for a while until US politicians attack the subject of the nation’s indebtedness in presenting their visions for the country’s future in next year’s presidential election, it is worth noting that Texas representative Ron Paul pointed out that a mere spending freeze would have accomplished more on the spending side than the bill that was passed. Extend and pretend, indeed.

Euro strains continue
European yields at the periphery (with the focus now on Spain and Italy and not the three little PIGs) continue to rush higher while bond yields at the core push lower. Italian 2-year yields reached a new high for the cycle close to 5.0% before pulling back a bit, and Spain’s Zapatero felt the situation in Spain is serious enough that he delayed his vacation plans. There is a growing fear that the lame-duck government will not be able to act with sufficient force to avert a new crisis as the election period lasts all the way until November. The Spanish-German 10-year yield spread reached 400 basis point before easing later in the day.

Low yields and the JPY
While bonds traded to new highs (pushing US 10-year benchmark yield all the way down to 2.68% in today’s trade, a steep 30 bp drop from last week and the lowest yield since the weeks ahead of and around the announcement of the Fed’s QE2 policy), USDJPY has failed to make further progress lower in correlation with yields as is its wont. The saber-rattling at the Japanese Ministry of Finance is becoming more urgent and traders are perhaps reluctant to dive in here and are perhaps hoping for an intervention spike to put on a position. Japan’s MOF’s Noda said that he was talking to the Bank of Japan and other countries on how to deal with the strong JPY.

US consumption
The US Personal Spending data for the month of June was the weakest since the fall of 2009 and all consumption related data out of the US has looked very weak of late – particularly the 0.1% annualized consumption growth for Q2. It will be interesting to see whether this trend is underlined by tomorrow’s July ISM non-manufacturing release.

Looking ahead
The US S&P500 – a generic world risk benchmark if there is one – closed right on the 200-day moving average yesterday after a brief foray below that level intraday. This same moving average was touched on numerous occasions, though never broken, back in June. Ahead of today’s US open, the action is taking the index below the average again, and also within a stone’s throw of the neckline a large head and shoulder formation. The USD is having a banner day at the same time on the reduction of the risk premium associated with the end of the immediate pressures on the debt ceiling issue and on the shakiness of risk appetite in general – largely in line with its previous behavior. As long as the US avoids a new blowup in sovereign debt concerns and as long as risk appetite remains off, the greenback stands a chance of further upside in the near term. That 200-day moving average in the S&P500 will serve as the trench across which the tug of war rope between the bulls and bears has been strung.

The data coming out of the US seems to be weakening so rapidly that the focus is likely to swivel back to the Fed and what it plans to do, if anything, to keep the US economy afloat.  On that note, tomorrow’s ISM non-manufacturing and Friday’s employment report are critical for further impressions of the weakness in “incoming data” and whether we await a new hint of the next round of QE at this year’s Jackson Hole conference later this month. Tune in on August 26th at 1400 GMT…

In Asia, look out for a further heavy load of Aussie data.

Stay careful out there

Economic Data Highlights

• New Zealand Q2 Private wages Excluding Overtime rose +0.5% QoQ as expected and vs. +0.4% in Q1
• Australia Q2 House Price Index fell -0.1% QoQ and -1.9% YoY vs. -1.0%/-3.0% expected, respectively and vs. 0.0% YoY in Q1
• Japan Jun. Labor Cash Earnings fell -0.8% YoY vs. +0.5% expected and +1.0% in May
• Australia Jun. Building Approvals fell -3.5% MoM and -15.5% YoY vs. +3.0%/-10.3% expected, respectively and vs. -13.3% YoY in May
• Australia RBA Cash Target left unchanged at 4.75% as expected
• Norway Jul. PMI out at 56.5 vs. 55.5 expected and 56.4 in Jun.
• Switzerland Jun. Retail Sales out at +7.4% YoY vs. -3.9% in May
• Switzerland Jul. PMI Manufacturing out at 53.5 vs. 52.5 expected and 53.6 in Jun.
• UK Jul. PMI Construction out at 53.5 vs. 53.1 expected and 53.6 in Jun.
• EuroZone Jun. PPI out at 0.0% MoM and +5.9% YoY vs. +0.1%/+5.9% expected, respectively and vs. +6.2% in May
• US Jun. Personal Income out at +0.1% MoM vs. +0.2% expected and +0.2% in May
• US Jun. Personal Spending out at -0.2% MoM vs. +0.1% expected and vs. +0.1% in May
• US Jun. PCE Deflator out at +2.6% YoY as expected and vs. 2.6% in May
• US Jun. PCE Core rose +0.1% MoM and +1.3% YoY vs. +0.2%/+1.4% expected, respectively and vs. +1.3% YoY in May

Upcoming Economic Calendar Highlights (all times GMT)

• US Weekly API Crude Oil and Product Inventories (2030)
• US Jul. Vehicle Sales (2100)
• Australia Jul. AiG Performance of Service Index (2330)
• China Jul. Non-manufacturing PMI (0100)
• Australia Jun. Trade Balance (0130)
• Australia Jun. Retail Sales (0130)
• China Jul. HSBC Service PMI (0230)