News Highlights

Investors risk aversion eased after the global stock market rebounded yesterday, the S&P’s 500 index surged 1.15% to 1474, the Dow Jones industrial average roses more than 100pts to 13358.

Important data today will be the release of US June personal spending and income expecting 0.5% vs. 0.4% in May. We’ll also see the release of Canada May GDP tonight, the market expects a reading of 0.4% m/m vs. 0.3% m/m in Apr.

News Highlights

Risk aversion was the theme that marked most of yesterday’s sessions. Global equity markets fell more than 2%, prompting carry trades liquidation, a long-awaited move. Overnight, USD/JPY traded to a low of 118.03; AUD/USD to 0.8667 and NZD/USD to 0.7783. U.S. new home sales dropped 6.6 percent in the month of June. Clearly, the U.S. housing market is in the slumps as credit woes worsen.

Earlier, the German Ifo survey revealed a deterioration of business sentiment, dropping from 107 to 106.4 in July.

The yen’s gains this morning however were capped by the release of a negative CPI of –0.1%. Nonetheless, a further meltdown of the equity markets could ignite another round of risk aversion.

U.S. GDP is due tonight. With the recent disappointment in U.S. data, GDP could come out on the weaker side.

News Highlights

The dollar regained strength during yesterday sessions despite a weak U.S. existing home sales that showed a decline of 3.8%. The Fed's Beige Book report on economic conditions for July was in line with the June report, noting that housing construction and lending continued to decline. Nonetheless, weak credit conditions in the U.S. is likely to continue to place pressure on the dollar going forward. Look out for U.S. new home sales tonight, which will shed more light on the U.S. housing market.

Australian CPI released yesterday morning was better than expected, a 1.2% q/q increase versus 1% forecast. The release drove the currency up above 0.88 level to a high of 0.8870 from the morning’s low of 0.8789.

The Reserve Bank of New Zealand, as expected hiked rates to 8.25%. However, they indicated that there were done with their hiking frenzy and that a high NZD would be unsustainable. New Zealand trade balance is due later in the day.

In Asia, Japan CPI is due today, continued flat or negative y/y readings on CPI should dampen expectations of an August rate hike. Any yen gains would be capped.

News Highlights

The dollar extends its decline against the yen and high yielders amidst a dearth of economic data yesterday. The continual rise in the high-yielders indicate that markets are still risk-taking. News that one of China’s state owned banks has bought a 3.1 percent stake in Barclays, one of the UK’s biggest banks send the pound soaring above 2.0600.

Overnight, NZD/USD traded to a high of 0.8072; AUD/USD to 0.8841 whilst GBP/USD to 2.0597. The AUD and NZD are likely to remain firm on the back of strong Australian producer prices and speculation that the Reserve Bank of New Zealand will be raising interest rates to 8.25 percent later this week.

Elsewhere in Asia, the yen struggles to keep its gains. If a break of 120.80 is sustained, we would see a test of 118.70.

With renewed concerns on U.S. subprime mortgage crisis, new and existing U.S. home sales tomorrow would be key data to look out for.

GBP/USD Buy at 2.0605 for 2.0750 target. Stops at 2.0540.

Technical Analysis GBP/USD using Bollinger Band System

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News Highlights

The dollar continues to be pressured by U.S. subprime woes. New York session saw a fall in U.S. equities on rumors that a German bank will be reporting large subprime losses and also talk that Standard and Poor's could be downgrading European mortgages. This spurred an unwinding of carry trades. USD/JPY traded to a low of 120.88 on risk aversion. Overnight, AUD/USD traded to a low of 0.8755 whilst NZD/USD traded to a low of 0.7936. However losses were brief as markets took the chance to buy on dips. The pound however held steady on stronger second quarter GDP growth, growing 3.0% y/y.

Strong commodity prices continue to support the AUD, NZD and gold. Gold continues its rally to 686.00

A further fall in equities could trigger yet another bout of risk aversion. With the subprime sector being watched so closely, next week's reports of existing, new and pending home sales will be particularly market moving.

Sell USD/JPY at 121.90 for 120.77. Stops at 122.49.

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