Forex Analysis & Today's Strategy EURUSD 28 July 08

The USD is staying in its range from the past to trading days. EURUSD vulnerable below 1.56. USD rally looking strongest versus commodity currencies. Busy economic calendar this week for the EuroZone and the US… Overnight News Bullets § GE Import Price Index MoM/YoY (Jun) out at 1.5%/8.9% vs. 1.0%/8.4% expected. § SW Trade Balance (Jun) out at 8.2B vs. 10.3B prior. § SW Household Lending YoY (Jun) out at 10.6% vs. 10.8% prior. § E-Z M3 YoY (Jun) out at 9.5% vs. 10.3% expected. § UK GDP QoQ/YoY (2Q A) out at 0.2%/1.6% as expected. § UK Index of Services (May) out at 0.4% as expected. § US Durable Goods Orders (Jun) out at 0.8% vs. -0.3% expected § US Durables Ex Transportation (Jun) out at 0.8% vs. -0.3% expected. § US Univ. of Michigan Confidence (Jul F) out at 61.2 vs. 56.4 expected. § US New Home Sales (Jun) out at 530K vs. 503K expected. § US New Home Sales MoM (Jun) out at -0.6% vs. -1.8% expected. § NZ Trade Balance (Jun) out at -223M vs. -350M expected. § AU HIA New Home Sales MoM (Jun) out at 4% vs. -5% prior. § AU NAB Business Confidence (2Q) out at -8 vs. -4 prior. O/N Data Heat map: EU US JP UK SZ AU CA NZ NO SE FR + + - + Calendar Today's Highlights: Time (GMT) Region Release Consensus 22:45 NZ Building Permits (Jun) 23:30 JN Jobless Rat (Jun) 4.0% 23:30 JN Job-To-Applicant Ratio (Jun) 0.91 23:30 JN Household Spending (Jun) -2.8% 23:50 JN Large Retailers’ Sales (Jun) -3.8% 23:50 JN Retail Trade MoM/YoY (Jun) -0.5%/-0.2% This and Next Week’s Highlights: Date Region Release Jul 29 SE Retail Sales Jul 29 UK M4 figures, Net Consumer Credit, Mortgage Approvals Jul 29 US S&P/CS Composite Home Prices, Consumer Confidence, ABC Consumer Confidence Jul 29 JN Industrial Production Jul 30 AU Building Approvals Jul 30 NZ Money Supply Jul 30 E-Z A string of Euro-Zone confidence figures Jul 30 SZ KOF Swiss Leading Indicator Jul 30 US MBA Mortgage Applications, ADP Employment Change, DOE/API Inventories Jul 30 CA Industrial Product Price, Raw materials Price Index Jul 30 UK GfK Consumer Confidence Survey What's going on? § Following Friday’s news of National Australia Bank selling off heaviest since September 2001 on credit concerns, this time around Australia & New Zealand Banking Group has forecast the biggest full-year profit drop since 1992, once again highlighting the widespread nature of credit-driven losses. § Despite the slump in financial shares after ANZ Banking Group news, most Asian stocks have advanced on Monday’s trading, as higher metals prices were seen to benefit commodity and resource materials producers. § With softer demand levels having already pushed the crude oil prices lower, signs of increased output by China and OPEC members has now pulled the prices to 7-wk low, with prices now resting on a key 38.2% Fibo support level (147.88 – 83.44) around $123.26. FX EURUSD to break lower... EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN + - - - FX Trading Strategies Pair Supp. Resis. Comments EURUSD 1.5680 1.5730 With the pair now in no-man's land, we once again look for the downside to open. We will be selling below today's low at 1.5685 offered with a stop at 1.5705 bid. We will look to add to our short at 1.5670 offered, with ultimate target around 1.5585. MAJOR HEADLINES – PREVIOUS SESSION § US Jun. Durable Goods Orders rose +0.8% vs. -0.3% expected and ex Transportation rose 2.0% vs. -0.2% expected § US Jul. Final University of Michigan Confidence rose to 61.2 vs. 56.4 expected and 56.6 for the preliminary July data § US Jun. New Home Sales out at 530k vs. 503k expected and May data revised up from 512k to 533k. § New Zealand Jun. Trade Balance out at -223.0M vs. -350.0M expected § Australia Jun. New Home Sales rose 4.0% vs. -5.0% in May § Australia Q2 NAB Business Confidence fell to -8 from -4 in Q1 THEMES TO WATCH – UPCOMING SESSION Key Risk Events (All times in GMT) § Germany GfK Consumer Confidence (0610) § US Fed's Mishkin to speak (1600) § New Zealand Jun. Building Permits (2245) § Japan Jun. Jobless Rate (2330) § Japan Jun. Household Spending (2330) § Japan Jun. Retail Trade (2350) Market Comments EURUSD decided to spend most of the day consolidating on Friday, and had a look at the first key resistance area at 1.5750/70. The good economic data points out of the US on Friday put an end to the rally, keeping the pair within the lower range for now between 1.56. The German import prices data on Friday looked downright scary, but with commodity prices coming off steeply, we may have seen a peak in inflation rates for a while now. In the commodity currencies, the USD continues to look strong, with USDCAD following through sharply on Friday on continued signs of weakness in energy markets. Although CAD has shown little reaction to the dramatic developments in energy markets, the good-sized sell-off in crude and absolutely titanic sell-off in natural gas in recent weeks have an enormous impact on the trade balance between the two North American counterparts. Australian data was mixed overnight, with a bounceback in New Home Sales overnight, but perhaps more importantly, also showing business confidence falling to the lowest level since early 1991. One of the reasons for a rather resilient Euro was the chunky sell-off in treasuries on Friday, which partially reversed the more dramatic development on Thursday, which saw the largest rally in treasuries (fall in yields) in months. The treasury weakness triggered an enormous rally in the carry currencies, which had sold off impressively from new highs just the previous day. One of the drivers of Euro weakness may be the popularity of shorting EURJPY. Again, if we area seeing a peak in inflation here, then those countries that have kept rates high the longest will have the most to cut as the global economic weakness spreads and central banks are allowed to focus on growth as much as inflation. And if inflation has peaked here, the ECB is likely to have to slash at least 100 basis points from its overnight rate in the coming 12 months. If this story unfolds, it favors the low-yielding Yen as it would mean a rapid contraction in the interest rate differentials that have driven the carry trade, as the Bank of Japan is unlikely to move on rates in the foreseeable future. The snapback rally in carry trades Friday, however, showed that any transition to a carry trade bear market might continue to be a treacherous one as traders dive for the exit on the least provocation from fixed income markets. Looking at the week ahead, Europe has a busy calendar this week, particularly Germany. On Tuesday, we have the German CPI number - but again wonder to what degree the market will react as the commodity markets are obviously leading the inflation data and deserve more focus right now. On Wednesday we see the latest German retail sales number and the various Confidence surveys for the EuroZone. On Thursday, we get German unemployment data and Friday we get the final numbers for the German and EuroZone Manufacturing PMIs. The US calendar heats up towards the end of the week as well with the Manufacturing ISM and employment report on Friday. Considering the very elevated jobless claims numbers of recent weeks, we are likely to see another ugly report on Friday. Chart: AUDUSD AUDUSD is trading at interesting levels this morning, as it trades on the big rising trendline from earlier this year and just below the 55-day SMA. It seems an extension of the sell-off would do further damage to the longer term bull market.

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