The US Dollar continued its fall backed by rising equity markets as Chinese equities started its rebound after the 4% decline on Wednesday. Leading indicators posted a reading of a rise of 0.6% backed by improvements in job sector and positive equity markets while the Philadelphia Fed manufacturing activity showed a positive reading at 4.2 against an expectation of -2.0 and better than the previous reading of -7.5 as new orders received increased. Also released was the Initial Jobless claims reading which showed that the new claims rose 15,000 unexpectedly to 576,000 while the total claims till date rose 2,000 to 6.241 million.
[B]News and Events:
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The US Dollar continued its fall backed by rising equity markets as Chinese equities started its rebound after the 4% decline on Wednesday. AIG said that it plans to repay the money borrowed from the US government which also helped push the equity markets higher. Leading indicators posted a reading of a rise of 0.6% backed by improvements in job sector and positive equity markets while the Philadelphia Fed manufacturing activity showed a positive reading at 4.2 against an expectation of -2.0 and better than the previous reading of -7.5 as new orders received increased. This data shows that the manufacturing sector has gained the most majorly boosted by the auto sector where the cash-for-clunkers program has helped the most. Also released was the Initial Jobless claims reading which showed that the new claims rose 15,000 unexpectedly to 576,000 while the total claims till date rose 2,000 to 6.241 million. The mortgage delinquencies rose 9.24% up from 9.12%, the highest in till date. The Pound fell yesterday being the weakest among the majors after the UK government posted a deficit of 8 Billion pounds, the highest till date to lows of 1.6451 after positive retail sales boosted the Pound to 1.6606 as the retail sales rose by 0.4% while the annual rate rose to a 14 month high of 3.3%. Upcoming releases for today, we have the PMI Manufacturing and Services data from the Germany and the Euro Zone while the US will release the Existing Home Sales data at 1400 GMT. The Home sales data could be a factor in determinign the breakout levels for the major pairs as continued weakness in the housing market is dominant as unemployment rate still holds the key to economic growth.
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Today’s Key Issues (time in GMT):[/B]
07:28 EUR Germany: “Flash” services PMI, index Aug 48.9 exp
07:58 EUR “Flash” manufacturing PMI, index Aug 47.5 exp
07:58 EUR “Flash” services PMI, index Aug 46.3 exp
07:58 EUR “Flash” composite PMI, index Aug 47.8 exp
14:00 USD Existing home sales, mn Jul 4.97 exp, 4.89 prior
14:00 Fed Chairman Bernanke speaks on “Reflections on a Year of Crisis” 07:28 EUR Germany: “Flash” manufacturing PMI, index Aug 47.4 exp
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Thursday was a rather tedious day for the EUR USD as range traders played the triangle formation that seemed to last forever, with a breakout finally occuring just after US lunchtime. A brief retest of the break back at 1.4208 has been passed by the bulls and the pair has now moved to the first resistance at 1.4291 / 1.4306 where intraday supply can be expected. 1.4240 and 1.4178 have now become new support levels and with the 3 week downtrend now broken, the trend is Euro bullish on all time frames bar a possible intraday pullback from the 1.4300 area.
[B]GbpUsd:[/B] Good follow through from the sellers at 1.6587 yesterday and the intrady players are no doubt having some good times, not the biggest moves but certainly very tradeable. The pair must hold 1.6381 to maintain the medium term uptrend but for now the 3 week downtrend is still in control with sellers expected just below todays high at 1.6518. More rangey behaviour expected until we break out of the triangle formation that is shaping up, but again, triangles provide some very easy intraday range trading and a fast buck when they finally break, as we saw with EUR USD this morning and USD CHF on Wednesday.
[B]UsdJpy:[/B] The bears have been keeping the pair under pressure for the last 24 hours, selling off from the mid downtrend channel repeatedly and even broken the support at 93.86 which was fairly significant. As mentioned yesterday, the medium term bulls can take some hope in the fact that the channel is getting tested to the upside without ever having visited the lower downtrend line and this is typical when an asset class is carving aout a bottom. There is also some decent RSI divergence to confirm this on the 60 minute chart. After continued weakness in the pair over the last 2 weeks, USD JPY may finally be approaching an interesting level as the lower downtrend channel, the medium term lower uptrend and a support level all coincide around the 93.00 mark. At that level one would expect to see support buyers, short covering and medium term buyers all arriving at the same spot. An hourly close above 95.00 would then be needed some time next week to confirm a break in the short term downtrend.
[B]UsdChf:[/B] look today at USD CHF long term as there is a interesting trading opportunity coming up within the next couple of months. A descending triangle formation on the USD CHF daily chart will no doubt start attracting some big players and the opportunity is not to be missed. The formation, more often than not, is a continuation pattern but in the odd case it can be a reversal. So how can we tell the difference without waiting for a breakout? Firstly, pay close attention to the RSI and stochastics - an uptrending RSI and oversold stochastics would skew the picture to an upside breakout. In this particular case we also have an uptrend channel from March - July 08 and the pair is resting on this level today. If the pair continues to trade sideways through the uptrend channel towards 1.0550 then one can expect the triangle to be a continuation pattern and to drop rather significantly. If it stays above the channel and works its way into the 1.0690 vicinity then we can expect the start of a major USD bull run. Fundamentals will give other clues to early positioning so keep your ears open for comments regarding SNB intervention - latest talk is that they are not interested in intervening anymore so if they are telling the truth this would be bearish for the pair. Also keep an eye on commodity prices - deflating prices will be sure to send the USD through the roof. More on this picture as it develops.
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland