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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
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
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
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.
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.
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.
