News & Fundamental Analysis

Exacerbating the decline seemed to be concerns over the allotment of cash by major Central Banks as they continue to inject liquidity to institutions for the third straight day. EUR fell against the USD last night as market speculate that the central bank may decide to hold off tightening monetary conditions given the very precarious nature of money markets in the 13 member region. Also, with increased risk aversion, more unwinding of carry trades on the AUD, NZD and STG are likely to continue for a while.

The USD index, a measure of USD’s value against a basket of six major currencies, was up 0.44% to a reading of 81.087 yesterday, rebounded from a 15-year low reached a week ago at 79.957. A close above 81 would indicate a bullish pattern for the USD.

Markets will be anxiously awaiting Wednesday's CPI report, as signs that price pressures remain uncomfortably high for the Fed could lead fixed income markets to stop pricing in a September rate cut, since the central bank is unlikely to risk letting inflation get out of hand in order to spare the equity markets

Sell USD to JPY at 118.55 for target at 115.55. Place stop if breaks 119.20.

Highlights

Concerns over the widening fallout from the US sub-prime mortgage debacle have propelled global stock markets and high-yielding currencies to go lower and sought shelter in government bonds. The US Dow Industrials dropped through the 13,100 figure only to close at 13,240 ahead of the weekend. The Federal Reserve provided $38 billion in reserves in three separate moves to curb current credit crunch concerns that seem bent on not disappearing any time soon

Aside from the Canadian dollar, both the New Zealand and Australian dollars continued to remain under pressure throughout the session. The AUD and NZD both fell below its support levels of 0.8600 and the 0.7600. However, helping the Canadian dollar remain afloat was a report on employment in the New York morning. Although the net change in employment was far less than expected at 11.3K, the employment rate dropped to lowest in 33 years. Incidentally, the survey results give some indications that the labor market continues to remain tight, bolstering speculation of a rate hike in the commodity.

USD highlights

Dollar gained some lost ground after Fed kept rates on hold and reiterated that inflation remains the primary concern. EURUSD traded to a low of 1.3734 while USDJPY traded to a high of 119.05. Although the recent market volatility and tighter credit conditions were mentioned in the statement, the Fed is still optimistic about growth picking up in the future.

Weaker than expected retail sales growth in July brought the Pound to its lowest level against EUR for the past 2 months. EURGBP traded to a high of 0.6818 and is still hovering above the 0.6800 levels. Sterling is also pressured by the recent run of weaker than expected data, causing the market to pare back on expectations for further BoE hikes. Attention will be turned to the BoE Quarterly Inflation Report for clues on the rate outlook.

RBA raised rates to 6.50% as expected. AUDUSD rose as a result but remain under 0.8600 as market remains concerned over the stability of the US stock and credit market. However, RBA cited developments to date do not appear to have change the broader global outlook and world commodities prices will remain a driver for the Australian economy.

XAU/USD Gold remains on the uptrend. Buy on dips to 665 target 685. Place stop below 650.

UK highlights

Despite UK Industrial production reporting an increase of 0.1% m/m in June, as expected by the market, a technical break on the EURGBP cross-triggered a Sterling sell-off. GBPUSD dropped to a low of 2.0281 below rebounding to 2.0321.

However, all eyes will be on the FOMC meeting today, with market widely expecting the Fed to keep interest rate on hold at 5.25%. If the Fed maintains that inflationary pressure remains a predominant concern, we may see a possible rebound in the dollar as technicals are pointing towards dollar-oversold levels.

Having broken out the downtrend line EURAUD look to rally up to 1.6400. Long on dips at 1.6050. Place stops below 1.5950.

News Highlights

The Dow Jones Industrial Average had the first two-day gain in two weeks to 13,463.33 and the S&P500 rose to 1,472.20 causes the investors to resume the carry trades both to global equity and to high yielder currencies.

EUR may gain against the dollar after the ECB President Trichet said at the post meeting press conference that “strong vigilance is of the essence”, which is a clear signal of a Sep rate hike.

Today USD may be under pressure as market eyeing for US July Non-farm payroll report, which may be weaker. This is due to earlier US ADP report on Wednesday, which came in at 48k, weaker than expectations of 100k.

Buy AUD/JPY at 101.85 for target 105. Stops at 100.47

Better take vacation

The US stock market rally in computer and consumer shares lifted the Dow Jones Industrial Average 150 points to 13,362.37 and the S&P500 increased 0.7% to 1465.81 as investors think it’s a good time to get in. The FX market moves accordingly as risk aversion drives the direction of carry trades.

The dollar weakens after the ADP estimate for July’s US non-farm payroll came in at 48k fell below market expectation of 100k.

Today's important news will be the rate decision from BOE and ECB, expects no change. But market will see the statement from ECB President Trichet, if he signal further tightening needed, the EUR is likely to strengthen.

Sell USD/CAD at 1.0600 for target 1.0350. Stops at 1.0755

News Highlights

Expect the unwinding of carry trade to continue. Both the AUD and NZD likely to dip further. However if we have stronger AUD June Retail Sales data this morning, AUD should be more supported than NZD. AUDNZD will remain firm.

Buy EUR/JPY at 161.50 for target 164.00. Stops at 159.60