UN's Conference on Trade & Development Calls for Reduction in USD Role

We are starting to see a bit of moving and shaking in the FX markets during the start of European trading, with the USD under pressure. But the big story was gold, which penetrated the $1000oz on its way to $1006.50oz (see our daily gold report). Perhaps the interesting news was the call by the UN Conference on Trade and Development (UNCTAD) to reduce global trades dependency on the USD. Overnight, UK media speculated that a rate cut on bank reserves (in order to stimulate lending) might be in the cards.

[B]News and Events:
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We are starting to see a bit of moving and shaking in the FX markets during the start of European trading, with the USD under pressure. The USDCHF was able to break the 1.0530 horizontal support , while the AUDUSD continued to push to new 2009 highs. But the big story was gold, which penetrated the $1000oz on its way to $1006.50oz (see our daily gold report). Strong trading by the precious metal put additional pressure on the USD. Perhaps the interesting news was the call by the UN Conference on Trade and Development (UNCTAD) to reduce global trades dependency on the USD. The report also called for the creation of Bretton-Woods like system, which would monitor exchange rates of member countries. The knee jerk reaction was to sell the USD, since the report represented one more call for the removal of the greenback as the world�s reserve currency. In addition, economically critical countries such as China , Brazil and Russia have already made agreements to circumvent the USD. We expect the USD to eventually share its role as the world�s reserve currency but with currently no viable alternatives we see reports like this a just short term noise. Risk correlated trades are clearly en-vogue today, with stronger German factory orders and M&A activity picking up (takeover bid by Kraft for Cadbury). In the UK, Chancelor Darling stated that a reduction is government spending could potentially damage Britain fragile recovery. He suggested that any move towards austerity should wait until “the recovery has been established”. We believe the BoE rate announcement will be an interesting event. Overnight, UK media speculated that a rate cut on bank reserves (in order to stimulate lending) might be in the cards. We believe this is unlikely and are still expecting an expansion in asset purchases. In Switzerland, seasonally adjusted unemployment rate spiked higher to 4.0% from 3.9% prior reading. Asian equity markets were higher across the board, with Shanghai composite posting a 1.71% gain. With a light economic calendar for the remainder of the day we expect choppy, non-directional trading.

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Today’s Key Issues (time in GMT):[/B]

07:00 TRY Industrial production, % y/y Jul -9.7 prior
08:30 GBP Industrial production, % m/m (y/y) Jul 0.2 (-10.1) exp, 0.5 (-11.1) prior
08:30 GBP Manufacturing output, % m/m (y/y) Jul 0.2 (-11.1) exp, 0.4 (-11.7) prior
10:00 EUR Germany: Industrial production, % m/m (y/y) Jul (-16.2) 1.3 exp
19:00 USD Consumer credit, $ bn Jul -3.8 exp, -10.3 prior
23:01 GBP Nationwide consumer confidence, index Aug 60 exp

[B]The Risk Today: [/B]

[B]EurUsd:[/B] �fter testing the 6 month uptrend back down at 1.4191 last week, the pair printed a hammer on a four hour chart (bullish) and has been on a run ever since. At last EUR USD has broken the 1.4380 resistance and looks to test the major resistance today at 1.4445 where it should attract some shorting and long selling, at least on its first visit to the level. Momentum indicators are confirming the bullish move on a 60 minute chart with the RSI finally breaking out to its highest level in over a month. In summary, expect some short interest at 1.4445 and from there long buying should be on the cards if the pair revisits the medium term uptrend which now comes in at 1.4240 / 77

[B]GbpUsd:[/B] It is best to look at cable on a daily picture these days as it is the best illustration of the upcoming cap on risk currencies that we have been discussing for weeks now. After breaking the medium term mid uptrend channel, the pair has caught some support from one of the long term lower down trend channels at 1.6115, just above the support at 1.6080. We have also been discussing a potential head and shoulders where we would like to see a neckline between 1.5947 and 1.5985, but after the pairs rally to back above 1.6435, we can say that for now the visit to 1.6115 is close enough for a neckline. The top of the shoulder on this head and shoulders would come in between 1.6663 and 1.6745 so should we get there expect some sensible short interest from anybody who is paying attention the the long term state of the UK economy.

[B]UsdJpy:[/B] The Yen continues to gain strength despite the risk currencies making a move higher and after testing the 8 month uptrend last week the pair is repeating the exercise, toying with the vital support level at 92.24. A clear break and daily close above 93.20 is needed to even show some hope for the long players on the pair. Expect some doubling down at this level and the bulls who held the trend last week are unlikely to let the pair break to the downside without a fight.

[B]UsdChf:[/B] Well it looks like we finally have our answer on USD CHF as the pair is breaking down from the descending triangle (at time of writing) and the USD continues to weaken across the board. If we see a close on the 4 hour bar below 1.0520 then we can expect continued CHF strength and possibly even be looking for parity on the pair.

[B]Resistance and Support:

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


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