Comments From China Provide Some Buzz on this Quiet Summer Friday

Chinese offical states “we should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies.” As stated yesterday we are carefully monitoring both the EURCHF and USDJPY since both are at levels that will make there respective officials very uncomfortable. In an interesting turn the BoE opted not to expand its asset purchase program which could potentially run out before August meeting.

[B]News and Events:
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On this slow summer Friday participants are making the most out of any news. Such is the case with Chinese representative State Counselor Dai Bingguo comments regarding reserve currency system. On the final day of the G8 meeting, he stated “we should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies” interestingly enough leaving out specific mention of the USD. With China�s President Hu Jintao�s sudden departure from the G8 meeting and President Obama�s Moscow trip which skirted the issue it seemed that the debate on the USD role as the world�s reserve currency would be avoided. Dai�s comments sparked the media imagination although the comments were generic and the markets reaction was muted. Asian equity markets closed lower and European markets are red across the board. Commodity and commodity currencies are trending lower with crude prices slipping below $60bll (first time since may) and AUDUSD trading down to 0.7765. As stated yesterday we are carefully monitoring both the EURCHF and USDJPY since both are at levels that will make there respective officials very uncomfortable. In a newspaper article, SNB Chairman Roth re-affirmed the SNB’s commitment to halting CHF appreciation by intervening directly in the FX markets. EURCHF, which had traded towards 1.51, spiked higher to 1.5175 (illustrating how jumpy traders are) on the report and has settled at 1.5140. In an interesting turn the BoE opted not to expand its asset purchase program which could potentially run out before August meeting. Members wanted to monitor the strength of the UK economy and forecast for growth and inflation. The market responded by driving up the sterling with GBPUSD running to 1.6400. We believe the markets over reacted to the news since we expected the MPC to expand at August meeting and there is nothing stopping the MPC from increasing the size of purchases when it issues its Inflation report. What seems as a foot note the BoE held rates at 0.50%. Moving forward we are cautious regarding the sterling prospects and believe it is perhaps the most vulnerable of the G10 currencies.

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Today’s Key Issues (time in GMT):[/B]

08:00 SEK AMV unemployment rate, % Jun 5.0 exp, 4.7 prior
08:00 NOK CPI, % m/m (y/y) Jun 0.1 (3.0) exp, 0.2 (3.0) prior
08:00 NOK CPI-ATE, % m/m (y/y) Jun 0.0 (2.8) exp, 0.3 (2.9) prior
08:30 GBP Producer input prices, % m/m (y/y) Jun 0.8 (-12.3) exp, 0.4 (-9.4) prior
08:30 GBP Producer core output prices, % m/m (y/y) Jun 0.2 (1.1) exp, 0.2 (1.2) prior
08:30 GBP Producer output prices, % m/m (y/y) Jun 0.3 (-0.7) exp, 0.4 (-0.3) prior
12:30 USD Trade balance, $ bn May -30.0 exp, -29.2
12:30 USD Import prices, % m/m (y/y) Jun 2.2 (-18.3) exp, 1.3 (-17.6)
12:30 USD Non-petroleum import prices, % m/m (y/y) Jun 0.2 (-5.8)
13:55 USD Michigan consumer sentiment Jul-P 71.0 exp, 70.8 prior

[B]The Risk Today: [/B]

[B]EurUsd:[/B] A sideways consolidation day is the trend, or lack of. Thusrsday we should be seeing the single currency comfortably in it’s 1.3825 to 1.4050 range. A relatively calm instrument at the moment given the moves elsewhere

[B]GbpUsd:[/B] Moving averages show cable to be mildly bearish, but its a grind lower. We are in a wide range, but see risk to the downside and in the medium term the 1.5800 level to slow the slide, on top 1.6370 the top. On the day see 1.6260 to provide the cap and 1.6000 the low

[B]UsdJpy:[/B] Yesterday saw the USDJPY break out of its previous range that has remained intact for the past five months. Once 94.00 gave way conclusively the head and shoulders formation gave way to the downside. We see a continuing support for a strong Japanese currency, and further if we stay below the 94.00 area we see a much lower usdyen in the upcoming months

[B]UsdChf:[/B] A sideways moving, rangebound USDCHF sits in it’s two months old 1.1020 to 1.0630 zone. We see unexciting price action and choose to avoid this pair until a concerted move in either direction is seen. There is a small trendline which comes in at 1.0780/85 which could provide small intraday support.

[B]Resistance and Support:

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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland