Daily Forex Snapshots

US Session - Dollar Collapses to All Time Low Based on Credit Concerns

July 16, 2008 8:38 AM CEST

G10 Advancers and Decliners vs USD

	Jpy	1.21
	Nzd	1.06
	Aud	0.85
	Chf	0.64
	Cad	0.52
	Gbp	0.41
	Nok	0.14
	Sek	0.15
	Dkk	0.07
	Eur	-0.04

Global Indexes

Current Level

% Change

Nikkei 225 Index	12,754.56	- 1.97
Hang Seng Index	21,174.77	- 3.81
Shanghai Index	2,779.45	- 3.43
FTSE 100 Index	10,913.93	- 1.28
CAC 40 Index	1,210.94	- 1.41
SMI Futures	2,188.17	- 1.12
DJIA Index	10,913.93	- 1.28

World Markets

Current Level

% Change

Gold	982.30	+ 1.00
Silver	19.13	+ 0.21
VIX	29.95	+ 5.16
Crude wti	144.58	- 0.41
USD Index	71.46	- 0.64

Todays Calender

Estimates

Country / GMT

Retail Sales m/m	-0.4%	-0.8%	US/13:30
PPI m/m	0.4%	-08%	US/13:30

Currency Tech

AUDUSD
R 3: 0.9923
R 2: 0.9792
R 1: 0.9758
CURRENT: 0.9788
S 1: 0.9664
S 2: 0.9597
S 3: 0.9546

EURJPY
R 3: 171.88
R 2: 170.00
R 1: 169.67
CURRENT: 168.52
S 1: 167.83
S 2: 167.13
S 3: 166.09

USDSGD
R 3: 1.3850
R 2: 1.3827
R 1: 1.3729
CURRENT: 1.3480
S 1: 1.3476
S 2: 1.3470
S 3: 1.3400

Market Brief

The Usd fell to an all time low against the Eur in the European session due to credit concerns. The EurUsd rose slightly above 1.60, and the Usd Jpy dropped substantially to 104. The cable broke its previous resistance level of 1.99 to trade with a 2.00 handle. Equity markets fell globally based on continued weakness in the financial sector and lack of clarity as to how deep the credit crisis can damage the world economy. Commodities were mixed with oil falling to 142, and gold trading higher at 980. Bond yields fell across the board in the US, seeing a major drop particularly in the 2yr treasury of 12bps based primarily on the heavy volatility and unstable market conditions.

Despite German ZEW Economic Sentiment declining to its lowest levels ever at -63.9 vs. -55.5 expected, the Euro rose to record highs against the dollar. Clearly the market will be anticipating tomorrows CPI data, in attempt to get a better clarity as to what the ECB will do regarding rates. The ECB has slowly been shifting into a more hawkish tone, which will be conducive to stronger Euro in the near-term. Balancing growth and inflation is a consistent theme in the UK, and the CPI data released today indicate a rise in price pressure on the consumer. CPI came in higher than expected at 3.8% vs. 3.6% est. which intensifies the dilemma faced by the BoE in trying to stabilize economic conditions in the UK. I still think the recent rally in the EurUsd has steam, however I would be apprehensive about stating that the current levels will persists over a long period, we should look for a range between 1.58-1.61 considering corporate earnings out of financials ahead this week. In regards to the cable, the fundamentals point to weakness in the long term due to a string of negative economic data out the of the UK. I would place a target price of 1.99 in the near term, and 1.94 over the next 6-8 months.

The US Financial markets were volatile today trading based on early economic data releases, and increased concerns about failures in the banking sector. Retail sales fell to 0.1% vs. 0.4% expected, in addition, PPI rose 1.8% vs. 1.3% expected. Following the global trend of balancing growth and inflation, the Fed continues to face pressure from the current market climate. Financials are experiencing historical losses, while rising commodity prices fuels higher inflation rates. As investors look for flight to quality assets, the commodity sector remains one of the few pockets that have shown consistent profitability. As the govt. tries to implement a strategy to stabilize the financial markets, it will be a very unpredictable road leading up to the tightening cycle needed for a long term rally in the dollar.

Asian Session - BoJ Holds & Jpy Gains

July 15, 2008 9:54 AM CEST

G10 Advancers and Decliners vs USD

	AUD	0.70
	NZD	0.67
	JPY	0.58
	CHF	0.53
	GBP	0.35
	CAD	0.30
	DKK	0.23
	EUR	0.23
	NOK	0.22
	SEK	0.11

Global Indexes

Current Level

% Change

Nikkei 225 Index	12,754.56	- 1.96
Hang Seng Index	21,147.12	- 3.94
Shanghai Index	2,779.45	- 3.43
FTSE 100 Index	5,232.90	- 1.27
CAC 40 Index	4,081.11	- 1.48
SMI Index	6,575.89	- 1.48
DJIA futures	10,968.00	- 0.60

World Markets

Current Level

% Change

Gold	973.35	+ 0.07
Silver	19.14	+ 0.26
VIX	28.48	+ 3.60
Crude wti	144.65	- 0.36
USD Index	71.73	- 0.25

Todays Calender

Estimates

Country / GMT

Consumer Prices (Jun) CPI	+0.4%(+3.6	+0.6%(+3.3	UK / 8.30
Consumer Prices (Jun) Core CPI	+1.5%	+1.5%	UK / 8.30
ZEW Economic Sentiment Index (Jul)	-55.0	-52.4	EZ / 9.00
Producer Price Index (Jun)	+1.3%(+8.6	+1.4%(+7.2	US / 12.30
Core Producer Price Index (Jun)	+0.3%(+3.2	+0.2%(+3.0	US / 12.30
Retail Sales (Jun)	+0.4%	+1.0%	US / 12.30
Core Retail Sales (Jun)	+1.0%	+1.2%	US / 12.30
Empire State Manufacturing Index (Jun)	-7.8	-8.7	US / 12.30
Bank of Canada Interest Rate Announcement	3.0%	3.0%	CA / 13.00
Business Inventories (May)	+0.5%	+0.5%	US / 14.00

Currency Tech

Market Brief

The Usd was broadly weaker in Asian sessions causing traders to brace themselves for a data heavy day as risk aversion moved back into the market. EurUsd after a short retreat, trended upwards from 1.5882 to 1.5954 while AudUsd broke easily thru 0.9737 intraday resistance heading to 0.9772 new highs. UsdJpy slipped to 105.70 as concerns over credit market losses damped risk appetite. As expected, Jpy funded carry trades were also sold off. Worries in credit markets are currently weighing on equity markets with Shanghai’s down 3.43% and DAX falling 1.77% at the open (US futures are lower across the board). Precious metals continue to surge forward with gold trading to 973.78 and silver 19.13. And given the current state of uncertainty VIX has climbed to 28.48 and 1month implied Vols have followed.

In a unanimous vote the BoJ held rates at 0.50% as expected. In addition, their half year update revised growth downwards while raising the CPI forecast. Perhaps the key take away, was the unique wording surrounding inflation which stated "in the case that downside risk to the economy eases, risks to higher fluctuations in the economy and prices may be intensified due to prolonged easy monetary conditions". This hints that the BoJ is concerned that its loose monetary policy might actually be aiding to inflation and that they therefore, are willing to tighten should CPI move above their comfort zone. We expect that this comment will only benefit Jpy in the short term as markets are still trading on yield differentials and risk appetite.

In New Zealand inflation moves higher than expected, with food and energy by far the largest contributors. Headline inflation printed strong at q/q 1.6% vs. 1.4% exp, y/y 4.0% vs. 3.8% exp. Given these elevated figures it would be difficult for the RBNZ to rationalize a rate cut in July and even puts Sept cuts in jeopardy.

In Australia the RBA minutes released today were mildly dovish. The Key takeaway for the minutes were "weighing up the various factors, the Board judged that the current stance of monetary policy remained appropriate". The RBA recognized that the economy was clearly weakening stating "Consumer spending had slowed significantly and there had been a marked decline in the growth of credit to both households and businesses. Surveys indicated that confidence had fallen further over the past month and asset prices were weakening".

In the UK markets, we will be watching CPI data which is likely to rise from 3.3% to 3.6% y/y and give the Gbp some support. In addition with signs of acceleration in June PPI the BoE will be gauging second round effects into core. In our view with inflation far from peaking, the MPC should be on hold for the next few months at least.

On the continent, German ZEW will have trades attention. We are expecting another decline to -56.0 from -52.6…getting precariously close to all time recession lows of -62.0. While this index is not very accurate in regards to predicating GDP we don’t expect the market to look kindly on the gloomy data.
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