Daily Forex Snapshots

US Session-Dollar Extends Rally across the G10

July 17, 2008 8:03 PM CEST

G10 Advancers and Decliners vs USD

	Sek	0.48
	Nok	0.18
	Dkk	0.00
	Eur	0.00
	Gbp	-0.01
	Cad	-0.22
	Aud	-0.38
	Chf	-0.58
	Jpy	-1.30
	Nzd	-1.34

Global Indexes

Current Level

% Change

DJIA Index	11,239.28	+ 2.52
S&P 500 Index	1,245.36	+ 2.51
NASDAQ 100 Index	2,284.85	+ 3.12
FTSE futures	5,282.50	+ 2.56
CAC 40 Index	4,220.80	+ 2.64
DAX futures	6,293.48	+ 2.24
SMI Futures	6,745.09	+ 2.45

World Markets

Current Level

% Change

Crude wti	133.83	- 0.57
Gold	959.13	- 0.09
Silver	18.72	- 0.29
USD Index	72.04	- 0.04
VIX	25.10	- 12.05

Todays Calender

Estimates

Country / GMT

BoC Monetary Policy Report

CA/22:30

Currency Tech

AUDUSD
R 3: 0.9895
R 2: 0.9850
R 1: 0.9817
CURRENT: 0.9767
S 1: 0.9709
S 2: 0.9664
S 3: 0.9597

EURJPY
R 3: 169.67
R 2: 168.95
R 1: 166.85
CURRENT: 167.16
S 1: 165.23
S 2: 164.75
S 3: 163.60

USDSGD
R 3: 1.3717
R 2: 1.3660
R 1: 1.3565
CURRENT: 1.3517
S 1: 1.3451
S 2: 1.3399
S 3: 1.3300

Market Brief

The Usd rose in the European session due to better than expected financial earnings and solid economic data. The EurUsd Is trading lower from this week’s high of 1.60 at 1.58, while UsdJpy moved higher to 105 based on dollar strength. Equity markets gained momentum in the US and Europe, based on strong earnings out of the financial sector. Commodities were mixed with, oil trading lower at 133 and gold moving higher to 972. Bonds sold off across the board with yields increasing across the curve treasuries, and gains throughout Europe, based on investors slowly moving back into risk.

The EU parliament discussed revising the ECB’s inflation objective upward, based on yesterday’s CPI data. The ECB is likely to be proactive about containing inflation, through tightening rates before year end. This may not translate into a major move for the Euro, as I think the rate hike will be priced into the Euro within the current range of 1.57-1.59. Considering we do not experience a major news event such as a major bank failure, we are likely to see the Eur trade at current levels. The cable seems to finding support around the 2.00 level, but I don’t expect that to be the case in the long term. Economic fundamentals in the UK definitely point to a major slowdown over the next few months, hence why we look for the cable to trade down to the 1.94-1.96 range before year end.

Financial markets in the US are trading higher acting as a catalyst for the rally in the Usd. Better than expected earnings by JP Morgan are a major contributor to the change in market sentiment. JP Morgan who is the 3rd largest US bank took a $10 billion writedown vs. the $43 billion charge Citigroup reported last quarter. Despite the writedown, JP Morgan was still profitable overall, which was enough to extend yesterday’s rally another day. In addition to the positive news in financials, the economic data that was released today provided much needed support to the dollar rally. Housing starts rose to 1.07mm vs. 960k expected, while building permits also increased to 1.09mm vs. 960k showing surprising signs of life in the economy. Unemployment claims fell to 366k as opposed to the consensus figure of 380k, which also contributed to the positive turn in trading today. If we continue to see a consistent trend in growth, the Fed will be in a better position to raise rates before year end. The EurUsd should trade through the 1.57 level if Fed decides to shift into a tightening cycle.

Asian Session - Fed looking at Growth over Inflation

July 17, 2008 10:42 AM CEST

G10 Advancers and Decliners vs USD

	SEK	0.37
	NOK	0.29
	AUD	0.25
	EUR	0.16
	DKK	0.13
	GBP	0.10
	NZD	0.08
	CAD	0.01
	CHF	-0.03
	JPY	-0.60

Global Indexes

Current Level

% Change

Nikkei 225 Index	12,887.95	+ 0.99
Hang Seng Index	21,732.02	+ 2.39
Shanghai Index	2,684.78	- 0.77
FTSE 100 Index	5,245.20	+ 1.83
CAC 40 Index	4,182.15	+ 1.69
SMI Index	6,712.71	+ 1.96
DJIA futures	11,209.00	+ 0.02

World Markets

Current Level

% Change

Gold	963.43	+ 0.36
Silver	18.84	+ 0.34
VIX	25.10	- 12.05
Crude wti	133.95	- 0.48
USD Index	71.99	- 0.10

Todays Calender

Estimates

Country / GMT

Housing Starts (Jun)	960k	975k	US / 12.30
Initial Jobless Claims (Jul 12th)	380k	346k	US / 12.30
Int'l Securties Transaction (July)	c$3.5	c$9.75	CA / 12.30
Philly Fed Index (Jul)	-15.0	-17.1	US / 14.00
Bank of Canada Monetary policy Report	--	--	CA / 14.30
Interest Rate Announcement	16.75%	16.25%	TUR / 16.00

Currency Tech

Market Brief

Usd has been able to hold gain in the Asian session as risk appetite slowly crept back into the markets. EurUsd was range bound between 1.5801 – 1.5868 while UsdJpy bounced around the 104.70 - 105.30 levels. Jpy fueled carry trades saw renewed buying with AudJpy and EurJpy trending upward to 102.76 and 166.73. EM currencies also got a boost with UsdMxn and EurPln sliding to 10.2200 and 3.2083. The Usd was help as oil prices dropped sharply as EIA data showed an unexpected rise in inventories.

The Fed minutes released yesterday were perhaps slightly more hawkish then the market had anticipated. While members were clearly apprehensive with placing inflation worries over growth concerns, the minutes did state "the next change in the stance of policy could well be an increase in the funds rate". Note, that given the rapid evolution of events, these minutes are old news and therefore the weight we attached should be limited. Especially considering at the time of the FOMC meeting there was a general feeling that the US was stabilizing (which we know now is not the case). With yesterdays sharp increase in Junes headline inflation (5.0% vs. 4.5% exp) the Fed will have to stay diligent but given the downside risk to growth it would be irresponsible for the Fed to tighten. We expected the pause in Usd volatility will be short lived as uncertainty around domestic economic conditions, inflation and unsettled GSEs position are still very much outstanding.

With no major data to be released in the UK, Eurozone todays movement will be purely based on sentiment and positioning. A good way to guage what the fx market is thinking. In addition, keep an eye on other assets classes such as the equity market and energy prices for directional confirmation.

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