Forex: EUR/USD: Euro contemplates challenging supports at 1.3975/24 - Commerzbank

FXstreet.com (Barcelona) - The Euro has turned down from 1.4170 session high during Asian trading hours, dipping to levels below 1.4100 on early European session, to test support at 1.4085 area; and , according to Karen Jones, technical analyst at Commerzbank, the pair could head to levels below 1.4000.

Jones affirms that the Euro contemplates challenging 1.3975/24 area: "EUR/USD has held steady as it contemplates challenging the more important supports located at 1.3975/24 (Fibo and 6 month uptrend). While we would expect these to hold the initial test and prompt a near term rebound, the short to medium term risk remains on the downside - the daily RSI is under pressure and the weekly RSI has diverged."

Regarding intra-day trade, the bias is on the downside, while below 1.4340, says Jones: "Intraday while capped by 1.4340, a negative bias persists and below 1.3924 will target 1.3600/1.3550.

BOE Holds Steady But Extends QE by GBP50B; Unexpected

Recent polls by Bloomberg and a Shadow MPC report calling for an end to QE from the Bank of England are way off the mark with the Bank of England announcing this morning that not only will they extend the QE programme, but also double the expected GBP25B addition to GBP50B. This takes the total programme to GBP175B.

The MPC has said that the world economy remains in recession, despite increasing signs that the output in the UK’s export market is stabilizing, and that financial markets are still fragile even with noticeable improvements. This has weighed tremendously on Sterling across the board, and could very well set the tone for the day. Rates were left unchanged at 0.50% as expected.

Wed, Aug 5 2009 news

• Forex: GBP/USD breaks 1.7000 resistance

The Sterling has finally broken the 1.7000 key resistance against the Dollar after rising around 90 pips in the last hour from 1.6960 to post fresh 9-month highs.

GBP/USD has jumped above the 1.7000 key resistance after several attempts since the yesterday opening. Pair has risen around 90 pips from 1.6960 to post 1.7045 as fresh highest level since last October 21.

Currently the pair is trading around 1.7035/45, 0.50% above today's opening price action.

According to Carol Harmer, technical analyst at Charmer Charts, the Pound could break above 1.7000 heading to 1.72: "Now today the market does remain looking as though it could trade higher back to 1.7005. Here will be quite crucial. The sellers failing to hold off buyers will see this then trade higher with 1.72 targeted. 1.72 is the measured target from the continuation pattern we experienced all through June and July."

todays update

Finance Minister Halts Canadian Dollar Rally

The Canadian dollar, which has gaining heavily versus several most traded currencies, finally stopped its rally after the national Finance Minister affirmed that eventual measures may be taken to damp the rising demand for the loonie, which is already jeopardizing Canadian exports.

The Canadian currency was one of the best performing ones since the world started to post more solid signs of economic recovery last month, creating a bullish pattern for high-yielding currencies fueled by a new wave of risk appetite. The current rise of the loonie, may already affect Canadian exporters negatively, since the national currency rose intensively, more than its Australian and New Zealand counterparts for example. Yesterday, Canadian Finance Minister Jim Flaherty stated that the rapid rise of the national currency is already a reason of concern, and measures may be taken to halt its continuation, affecting immediately the Canadian dollar, which dropped from a 10-month high level.

Analysts examine the loonie’s short term situation as an obstacle for Canada to grow, since a high loonie will affect Canadian’s exports and consequently different sectors of the economy. The Bank of Canada may indeed intervene in the currency market, being Flaherty’s declaration already an effective psychological measure that pushed the dollar down for the first time in a almost a week.

USD/CAD traded at 1.0763 as of 10:21 GMT from yesterday’s rate of 1.0681.

Forex: GBP/USD posts 9-month high at 1.6987

The Sterling has risen around 170 pips against the Dollar during the American session from 1.6820 to post the highest level since October 21 at 1.6987 in its way to test 1.7000 level. Currently the pair is trading around 1.6935/45, 1.40% above today's opening price action.

Valeria Bednarik, Fxstreet.com collaborator, comments: “Pair has resume midterm uptrend, after breaking to the upside, both, 61.8% retracement of last weekly fall, and the roof of the range the pair has been trapped since early June. First strong resistance level comes at the 1.7120 area, followed by 1.7400 level. Downside corrections will find support around 1.6700, that should hold to keep bias intact. Intraday supports come at 1.6950 and 1.6900, while resistances from actual price lie 1.6980 and 1.7030.”

ECB On Hold Once More?

ECB On Hold Once More?

The ECB meets this week in Frankfurt (Germany). Rates should stay on hold once more, as the recovery process is just beginning in Europe. The U.S. dollar, in the mean time, is still at key support levels against major currencies.

U.S.: Consumer confidence weak.

The process might be slow and the recovery could not take the form of the classical V shape. However, the worst should be over for U.S. economy, after more than one year of losses. Leading indicators increased last month for the third consecutive time, while some corporate earnings have risen above expectations. In addition, manufacturing industries have reduced inventories and orders have improved, despite the sector remaining very volatile. In June, durable goods new orders slumped 2.5% after having increased 1.3% in May and 1.4% in April. Nevertheless, excluding transportation, orders would have jumped 1.1%. The real estate market has found a bottom at current levels and the increase of sales could boost consumer confidence. New home sales moved up 11% in June to 384,000 units. The up move was well distributed among all the U.S. regions with the exception of the South where sells declined 5.3%. Inventories are now at 8.8 months of supply from 10.2 months, while building permits, a forecasting indicator, rose almost 9.0%.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

Forex Top Story

Dollar Hits The Skids As Recovery Hopes Rise

The dollar plummeted across the board versus major counterparts on Friday as traders expressed increased risk appetite after a report showed that the US economy contracted less than analysts were predicting.

The report fueled hopes that the world's biggest economy could lead the world out of the worst recession in decades, and sooner than once feared.

Traders had been hedging of late, refusing to go all-in on the prospect of a global recovery beginning by year's end. However, with stocks on the rise and a number of key indicators showing a faint pulse in the housing and labor markets, the dollar could be in for some big losses to higher-yielding counterparts.

Its already been a rough month for the dollar versus resource-linked currencies, and the euro and sterling joined the buck-bashing party on Friday.

The dollar tumbled to 1.4270 versus the euro, giving back all of its gains from earlier in the week. With the loss, the dollar moved within a penny of its 2009 lows.

The dollar plunged from a month-long trading range versus the sterling, slipping to a 4-week low of 1.6732 before finding support. Back in June, the dollar hit a 2009 low of 1.6744.

Even the yen battered the dollar on Friday. The buck slipped to 94.58 by mid-day after challenging a monthly high near 96 in the previous session.

Versus the loonie, the dollar dropped to C$1.0762, coming within a hair of Monday's 10-month low of C$1.0749.
The U.S. economy continued to shrink in the second quarter, according to new government statistics released Friday, although the pace of contraction slowed by more than economists had been expecting.

The U.S. Commerce Department revealed that Gross Domestic Product, a closely watched measure of broad economic performance, fell at a pace of 1 percent for the second quarter. Economists had expected GDP to fall at a 1.5 percent rate.

And while the Institute for Supply Management - Chicago released a report on Friday showing a continued contraction in manufacturing activity in the month of July, the pace of contraction slowed by a little more than economists had been expecting.

North of the border, Canadian real gross domestic product (GDP) decreased 0.5% in May, a faster rate of decline than in the previous three months, according to data released Friday by Statistics Canada.

Economist were looking for GDP to fall 0.3% in May.

Gold Prices Rally Above $950 As Dollar Falls

Gold prices saw notable strength on Friday, boosted by a weaker U.S. dollar. The rise pared losses seen earlier in the week.

August-stamped gold settled at $953.70 per ounce, up $18.80 on the session. Prices touched as high as $958.10 after earlier touching $932.

Gold gained $2.40 on the volatile week as uncertainty in the global markets led to mixed feelings on the need for a hedge investment. The metal rallied about 2.8% in the month of July.

The dollar tumbled versus the euro and moved within a penny of its 2009 lows. The buck also fell to a four-week low against the pound.

Bank of England urged to extend quantitative easing

The Bank of England’s monetary policy committee (MPC), which meets this week, is under pressure from economists and business to extend its policy of “quantitative easing”, or creating money.

The shadow MPC, which meets under the auspices of the Institute of Economic Affairs, says interest rates should stay at 0.5% but the Bank should extend quantitative easing.

The policy, which has mainly been achieved by purchases of gilts, has so far amounted to £125 billion, within the £150 billion limit agreed with the Treasury.

The shadow MPC says the Bank should proceed with the remaining £25 billion and then go further, with between £50 billion and £300 billion of additional easing.

Japanese Yen May Trade Heavy If Risk Appetite Continues

Fundamental Forecast for Japanese Yen

The Yen was mixed to end the week as it rallied against the dollar on the better than expected GDP figures and braid based greenback weakness. However, it would end the week unchanged against the Euro and weaker against the pound as risk appetite continues to weigh it against riskier currencies. Equity markets have show no signs of abating but they are near significant resistance levels and with the U.S. employment report scheduled next week a pull back is possible. Meanwhile, Japanese fundamental data continues to point toward a slow recovery as unemployment rose to a six year high of 5.4% signaling that gains in domestic growth will be challenging going forward. Consumer prices falling at a record pace of -1.8% will continue to squeeze corporate profits and limit the potential for a Japanese recovery. Optimism from the economy can be derived from industrial production rising for a fourth month by 2.4% and PMI returning to expansion levels, which could be a sign that global demand is improving. There were some signs of hope domestically with improvements in small business confidence and household spending.

BoJ member Tadoa Noda stated this week that central bank shouldn’t end their emergency credit programs prematurely as it could limit the scope of a recovery. The central bank this month extended the credit-support programs of buying corporate debt from banks and providing them with unlimited loans to Dec. 31 from Sept. 30 as lending conditions remain frozen. The upcoming economic docket is relatively light with labor cash earnings and leading and coincident reading. The forward looking gauge for the economy is expected to rise to its highest level since November as the outlook continues to improve for the economy. However, price action will most likely be dependent again on risk sentiment which could be limited with US NFP’s looming. The USDJPY has been in a downward trending channel and which was kept intact with Friday’s sell off. Trend line resistance is near 96.15 which is being reinforced by the 38.2% Fibo of 110.69- 87.14. Support may be found at the 20-Day SMA at 94.19 and 93.09-the 7/22 low.

Gold Unaffected by the Economic Crisis?

I am no gold bug. I am not one of the fanatical core, the priesthood, a worshiper of the shiny metal. I have, however, recommended it from time to time, and believe it to be an excellent core component of a balanced portfolio. And as such, I take a gander at it, fairly frequently. Not the actual metal itself - that would make me strange. But rather the stock chart of the GLD, the ETF

Gold hasn't done much over the past several months, aside from chop around in a sloppy range. There has been a lot of swapping in and out of gold by flighty traders, used as a hedge against fears of future inflation, bought and sold by institutions, and as of late, exited in favor of material possession of the shiny metal itself by some hedge funds (those who pay attention to the paper-to-metal arbitrage).

But irrespective of this continued, underlying jostlithat tracks the price of gold bullion.ng of positions, one thing is certain - the price of gold has largely been unaffected, for good or bad, by the economic crisis, and consequently by the most recent "flight from safety" rally.

So what gives? The dollar has been getting crushed, emerging markets assets have surged. The best emerging markets movers have been consumer-related, anticipating the effectiveness of these countries recovery efforts. Gold has been unimpressed by the decline of the dollar, and at the same time unaffected by the move away from safe haven assets. It is nearly the same price now as it was to start 2008. Who would have guessed?

With the markets at overbought levels, it may be worth keeping an eye on GLD here. Obviously many investors have core positions in gold. And buying the GLD for a trade while it is still muddled within the parameters of its range is probably unnecessarily risky.

However, taking a step back and eying the GLD from a longer-term time frame certainly lends one the confidence that this range should eventually be resolved to the upside, and potentially in dramatic fashion. Longstanding consolidations often beget powerful moves.

NewZealand Dollar May Lead Losers If Stock Rally Reverses

NewZealand Dollar May Lead Losers If Stock Rally Reverses

The NewZealand Dollar will continue to look to risk trends to guide directional momentum in the week ahead: further gains can be expected if stock markets are to remain supported, but any opportunity for economic fundamentals to recapture the spotlight will likely open the door for a sharp reversal lower. The comparatively higher-yielding currency has attracted risk-seeking capital despite admonitions from RBNZ Governor Alan Bollard, who said following the central bank’s last policy meeting that recent appreciation of the New Zealand Dollar is “not helping the sustainability of future growth, and brings with it additional economic risks.” Talking down the currency may not prove fruitful, however, with the market firmly focused on US news to drive risk sentiment and with it the Kiwi dollar. On that front, the calendar is packed with market-moving event risk in the week ahead, culminating with the always significant Non Farm Payrolls report. Modest improvements are expected nearly across the board, which points to smooth sailing for risky assets barring any significant downside surprises on key metrics or a particularly disappointing second-quarter earnings outcome from a major company.

That said, technical positioning is hinting that the equities rally that began in March is starting to run out of momentum and may be on track to putting in a double top at the October 2008 swing high, with volumes steadily declining since early May and clear negative divergence between rising prices and stalling relative strength studies. If stock markets do indeed turn lower, the New Zealand Dollar stands to lose disproportionately more than it’s equally risk-driven counterpart in Australia as the market’s attention shifts back to the dismal state of the smaller antipodean economy, complete with a precarious sovereign credit outlook and the central bank’s clear promise to keep interest rates “at or below the current level [through] the latter part of 2010.”

Turning to scheduled economic data releases, the stand-out report to watch is July’s ANZ Commodity Price Index. The metric is likely to underline once again the damaging effect of a stronger local currency on New Zealand’s exporters, a sector that contributes up to 30% to overall economic growth, and help open the door for sellers to gain the upper hand. Recent Kiwi dollar appreciation has made the country’s goods comparatively more expensive for foreign buyers, leading Prime Minister John Key to conclude that the exchange rate was “derailing” the economy. Ratings powerhouse Fitch has also decried the fact that the currency is “more responsive to global financial conditions than to domestic economic fundamentals,” saying this complicates the necessary adjustments to New Zealand’s current account and budget deficits. These comments in addition to similar sentiments out of the central bank (noted above) could fuel expectations that, as we noted in last week’s forecast, an interest rate cut is the next logical step to check the currency’s ascent.

Elsewhere on the docket, private sector Labor Costs are expected to grow by a meager 0.5% in the second quarter, the least in over 4 years, reflecting the same kind of aggressive cost-cutting that has been seen across firms in industrial economies and that has produced upside earnings surprises over recent weeks despite small to non-existent revenues. The release will foreshadow employment numbers set to cross the wires two days later, with forecasts suggesting the jobless rate ticket higher to 5.7% in the three months through June, the highest reading since the fourth quarter of 2000.

Forex: EUR/USD tests intra-day at 1.4280

The Dollar weakness continues across the board. EUR/USD is near intra-day high at 1.4280 testing those levels, after Greenback recovery found support at 1.4235. The Euro is rallying on Friday against the Dollar. The pair is up 1.40% from the opening price and has recovered form Wednesday loses.

Ralph Shell, ForexRazor's analyst, comments: “It looks like the government's popular (up tp $4500 back) cash for clunkers program, it about to be junked. Coming from this group of Washington spendthrifts, excessive cost to the government is cited as the unlikely reason. More likely President Obama, and his keepers of the Chicago Way, are searching for a way receive, in return, a portion of this government largess. Reinstatement of the program will likely occur if some of these details are remedied. The trade Monday should prove to be interesting. Are we getting ready for an assault on the 1.4300 resistance or the 1.4000 support?”

Forex Rates

Forex Rates

Mid-market rates at 2009-08-01 12:00 UTC. More currencies...

USD EUR GBP 1 USD = 1.00000 0.70731 0.59825 Inverse: 1.00000 1.41380 1.67154 1 EUR = 1.41380 1.00000 0.84581 Inverse: 0.70731 1.00000 1.18230 1 GBP = 1.67154 1.18230 1.00000 Inverse: 0.59825 0.84581 1.00000 1 JPY = 0.01057 0.00747 0.00632 Inverse: 94.65000 133.81635 158.21145 1 CAD = 0.92704 0.65571 0.55460 Inverse: 1.07870 1.52507 1.80309 1 AUD = 0.82810 0.58573 0.49541 Inverse: 1.20758 1.70728 2.01852 1 CHF = 0.93607 0.66209 0.56000 Inverse: 1.06830 1.51036 1.78571 1 RUB = 0.03210 0.02270 0.01920 Inverse: 31.15339 44.04473 52.07420 1 CNY = 0.14635 0.10352 0.08755 Inverse: 6.83290 9.66037 11.42148 1 ZAR = 0.12812 0.09062 0.07665 Inverse: 7.80497 11.03469 13.04634 1 MXN = 0.07569 0.05353 0.04528 Inverse: 13.21252 18.67988 22.08528

Turkey's July exports fall 27 percent yr/yr

CORRECTED-Turkey's July exports fall 27 percent yr/yr

Turkish exports fell 27.2 percent year-on-year in July to $8.89 billion, according to figures from the Turkish Exporters Association (TIM) on Saturday.

Exports in the first seven months of the year declined 20.4 percent from a year earlier to $52.76 billion, the state-run Anatolian news agency said, citing TIM's head, Mehmet Buyukeksi.

But July's exports were the highest in 2009 and the decline has slowed in June and July, Anatolian quoted Buyukeksi as saying. The automotive sector accounted for $1.715 billion, making it the country's biggest exporter, he said.

TIM's figures are released about a month before official data, which they usually match.

Official June trade data on Friday showed exports fell 29 percent year-on-year to $8.33 billion. Imports fell 36 percent to $12.48 billion.

The global recession has sapped demand for Turkish products overseas, while domestic demand has also fallen as the economy contracted. Gross domestic product fell 13.8 percent in the first quarter, the latest government data showed.

Daily Forecast

Japanese Yen (JPY)

The Yen was sold as risk appetite improved and the USD/JPY rose above resistance at 95.50. AUD/JPY and GBP/JPY also surged higher with US stocks. June Unemployment came in at 5.4% vs. 5.2% previously.

Euro (EUR)

The Euro remained in a tight band as the market consolidated recent losses. Germany's July Unemployment remained at 8.3%. Looking ahead, July Inflation is forecast at -0.4% vs. -0.1% previously y/y

Fri, Jul 31 2009 update

Dollar plunged as Wall Street ended a great July.

Markets in US finished mix on Friday. The Dow Jones rose 0.20% and the Nasdaq fell 0.30%. Both indexes ended the week in positive and the Dow Jones finished July with the highest monthly increase since 2002. Gold and oil rallied today rising 2% and 3.75% respectively, after a collapse in the price of the Dollar. Greenback fell across the board losing previous gains and ended near multi-month low.

EUR/USD rallied during the American session rising more than 150. The pair failed to break above 1.4300 but erased previous losses and ended the week with gains for the third time in a row.

GPB/USD jumped above 1.6700 posting a fresh one-month high. The pair rose more than 200 pips after the opening bell at Wall Street and finished the day above 1.6700 for the first time since October 21 of 2008

Colombia Peso Gained As Venezuela Concerns Ease; Stks Up

Colombia Peso Gained As Venezuela Concerns Ease; Stks Up

The Colombian peso gained slightly on Friday as concerns about possible trade

disruptions with Venezuela eased.

The Colombian peso ended at 2,037.90 to the dollar from COP2,045.30 on Friday amid a session that exchanged $730 million, less than the average $1 billion it trades on a regular day as it is the end of the month.

"Chavez has threatened Colombia many times in the past and nothing has happened. I don't see trade disruptions happening this time because the diplomatic spat is not that severe," said German Grijalba, analyst at Banco Popular.

On Tuesday evening, Chavez froze diplomatic relations with Bogota while threatened Colombian companies on Venezuelan soil with expropriation. He also pledged to break commercial ties if there is any new "aggression" from the neighboring country.

The deteriorating ties follow accusations from top officials in Bogota that Swedish-made rocket launchers sold to Venezuela were found in the hands of the Revolutionary Armed Forces of Colombia, or FARC.

As a result, Chavez ordered the withdrawal of his ambassador to Bogota.

On the equity market, the IGBC stock index rose 0.6% to 10,329.95 points.

The most-heavily traded stock was state-owned oil company Ecopetrol (EC), which rose 0.4% to COP2,775.

On Friday, crude-oil futures settle at a one-month high as the dollar plunged against major currencies. September settles at $69.45 a barrel, up $2.

Shares of the country's largest cement company Cementos Argos (CEMARGOS.BO) closed 0.6% higher to COP9,100. Shares hit as much as COP9,300 earlier Friday after the company agreed to buy cement grinding stations in Panama and the Caribbean from Switzerland's Holcim Ltd. (HOLN.VX).

Meanwhile, the yield on the benchmark local peso-denominated bond, known as TES maturing in 2020 ended at 8.876% from 8.92% on Thursday.

Central Bank dollar holdings - good for gold, bad for dollar

The latest figures from the US Department of the Treasury show not only how the US liabilities to other central banks have rocketed by 31% over the eleven months to May, but also that the balance of the maturities of these liabilities is shifting towards the short end as major counter parties increase their flexibility.

Gold surges above 950 dollars on plummeting greenback

Gold futures on the COMEX Division of the New York Mercantile Exchange went back above 950 dollars on Friday due to a much lower dollar. Silver and platinum both finished higher.Gold futures on the COMEX Division of the New York Mercantile Exchange went back above 950 dollars on Friday due to a much lower dollar. Silver and platinum both finished.

Daily Report:

Dollar Soft on Rally in Stocks and Commodities, All Eyes on 2Q GDP

Dollar and yen are generally soft today so far on the back of another day of rally in Asian stocks and further rebound in commodities. Following 0.92% rise in DOW, Nikkei gapped higher and surged 1.9% to close strongly at 10356. Crude oil is ba

ck above 67 level, after two volatile days of price actions on Wednesday and Thursday which saw the black gold dipped to as low as 62.70. Gold is also trading above 940 level again. Note that dollar has contrasting outlook against two groups of currencies. Against Euro, Yen and Swissy, the greenback is noticeably strong this week and some upside is in favor in near term. However, against Aussie, Loonie and Sterling, dollar remains weak and a new low is still expected.

Technically, Dollar index's rebound from 78.32, t hough strong, was limited by mentioned 79.66 resistance and retreated sharply. With 4 hours MACD crossed below signal line, intraday outlook is turned neutral for the moment. Note again that with 79.66 resistance intact, there is no clear indication of reversal yet. Below 78.76 will suggest that correction from 78.32 has completed and will bring fall resumption towards 77.69 key support. However, a break above 79.66 will firstly indicate that fall from 80.89 has completed. Also, this will build up the case of double bottom reversal in the index (78.33, 78.32) and will bring stronger rise to 81.47 resistance for confirmation

Is GDP Optimism Bad for U.S. Dollar? July 31st, 2009

Is GDP Optimism Bad for U.S. Dollar?

The U.S. dollar is falling against the euro for the second day today as the traders expect a decline in the contraction of the U.S. GDP for the second quarter of 2009.

British House Price Data Influence Pound

The Great Britain pound recovered from the two days of losses against the U.S. dollar and continued to gain against the euro today after the U.K. house prices data was released.

British Pound

British Pound Volatility Ahead on BOE Rate Decision, Equities Reversal

The British Pound is all but guaranteed a week of heavy volatility as the busy economic calendar headlined by a pivotal interest rate announcement from the Bank of England is compounded by hints of a downward reversal in risk appetite. An a

ctual change in benchmark borrowing costs is effect

ively off the table for the central bank, but traders will be closely watching to see if policymakers choose to ramp up quantitative easing measures after promising to “review the scale” of the program for the August rate decision in conjunction with the release of their quarterly inflation report. Despite the BOE’s apparent optimism and signs of stabilization in some leading indicators, economic growth disappointed in the second quarter, bolstering dovish arguments from the likes of the British Chamber of Commerce and the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-bas

ed Institute of Economic Affairs). A timely GDP estimate tracking the pace of economic growth in the three months through July from the National Institute of Economic and Social Research (NIESR) will help set the tone for the monetary policy announcement: while usually quite good at estimating official economic growth figures, NIESR missed the mark in the second quarter having called for output to shrink just -0.4% only to be faced with a -0.8% result; this time around, the prestigious think tank will have likely identified the reason for their previously over-optimistic reading and may offer valuable insight on potentially overlooked weaknesses in the UK economy.

The remainder of the economic calendar is comparatively considering the themes behind further marginal improvements in PMI and Industrial Production are likely to have already been priced into the exchange rate while signs of moderating turmoil in the property market expected to be reported by Halifax have been adequately telegraphed by the latest Hometrack Housing Survey and the Rightmove House Prices report. Indeed, only a meaningful downside surprise in these metrics is likely to prove particularly market-moving, as the trajectory of stock prices and 12-month interest rate expectations (derived from trading in overnight index swaps) over recent months suggest traders are surely looking for the recession to begin to bottom.

Turning to risk sentiment, technical positioning is hinting that the equities rally that began in March is starting to run out of momentum and may be on track to putting in a double top at the October 2008 swing high, with volumes steadily declining since early May and clear negative divergence between rising prices and stalling relative strength studies. A trade-weighted average of the Pound’s value against a basket of major currencies is now over 83% correlated with the MSCI World Stock Index, suggesting sterling will be dragged along if stock markets do indeed turn lower. That said, US news has been the key fundamental catalyst in setting the trajectory of risk-related assets, and expectations of modest improvements for nearly all of the scheduled releases on the US calendar point to smooth sailing for equity markets (barring any significant downside surprises on key metrics or a particularly disappointing second-quarter earnings outcome from a major company).

U.S: Recession is over or not?

During his testimony in front of the house panel last week, president Bernanke confirmed a tentative stabilization for the U.S. economy at these levels, although rates should remain low for the next months as well. In reality, the huge consumer and business debit will require years to be repaid. Private sector spending has fallen to record lows and savings have increased. The average duration of the unemployment rate in the United States is at a record high, while tax incomes have declined sharply for the government agencies. The decrease of spending by the private sector has been only marginally substituted by the various government interventions and the trend should continue in the years to come. Unemployment remains the weakest spot, as jobless claims rose to 554,000 in the week of July 18th from 524,000 the previous week. The housing market is at the contrary designing an interesting bottom, albeit prices are still declining. For the third consecutive month, home sales rose 3.6% in June (+1.3% expected) to 4.84 million. The increase was broad-based with condos rising 14% and single-family homes moving up 2.4%. Unsold home inventories declined instead to 9.4 months from the all-time high of 11.3 months registered in March of 2008. In effect, the worst might be over for the real estate market, if history repeats itself. Since1963 important bottoms occurred every 8/9 years: 1967, 1975, 1983, 1991, 2000, 2008/9 (?)

Market Movers of the Day

Asia-Pacific

*Australian Building permits rose 9.3%MoM versus a fall of -11% a month before

*In Japan Nomura/JMMA manufacturing PMI rose to 50.4

Europe

*UK Gfk consumer confidence remained unchanged at -25

*UK Housing prices rose 1.3%MoM

*German Unemployment remained steady at 8.3%

*EU consumer confidence was -23 versus -25 a month before

Americas

*US Initial Jobless claims rose to 584K

The Overall Sentiment

As data publications stud largely in line with market expectations it was equities and equities profits that took the lead. Equity indexes across the board pushed to higher levels with a strong positive sentiment. The Dow rose close to 1% the S&P rose 1.19% and settled at the 986price zone. Oil the commodity which is one of the most strongly linked to the recovery story rose steeply and settled at the 67$ price zone. The FX trade was rather subdued although the Euro rebounded slightly from the 1.4$ support and the Sterling pushed back to the 1.65 zone. All in all it seems that whenever the market is gearing up for a bearish correction the bulls take the lead and push the market back to the higher range and keep the FX market in a typical August sideways.

The Day Ahead

Official data publications on the world economy will return to the centre stage with highly important data due to be published. The EU unemployment figure and CPI due at 9:00 AM will reflect the health of the EU job market and will shed light on the deflationary pressures in the region . Nevertheless it will be again data from North America which will dictate the sentiment. Both the GDP of the US and Canada are due this Friday and will conclude a week loaded with economic data mainly from the US. However the GDP will not be the only US data concluding for the week the Real consumption expenditure figures and Chicago purchasing managers index are also due this Friday and will help draw a clearer picture on the state of the world’s largest economy. Investors seem to wait for signs the steep economic nose dive is over thus if data publication will generally show a declining past of economic contraction the risk trade will remain a float whereas a rather negative data will spur some confusion among investors and could push markets to test the lower range.

UPDATE 2009-07-31

UPDATE 1-EU Commission to clear Lufthansa's buy of AUA

Lufthansa looked set on Friday to win approval from EU anti-trust authorities to buy ailing Austrian Airlines (AUA) after the German air carrier proposed remedies to address competition concerns.

'After talks earlier today about the results of this week's market test, Lufthansa has put forward further improved remedies to address the competition concerns raised in this case,' EU Competition Commissioner Neelie Kroes said in a statement.

'The draft decision will be submitted to the Advisory Committee of the Member States and a final proposal will be presented, for adoption, to the College of Commissioners as soon as possible,' she added.

With the committee having only an advisory role in the case, the Commission is expected to back Kroes' proposal. A Commission source said the final decision could be made in two weeks at the earliest.

The Commission did not say what remedies Lufthansa had proposed, but a source close to the deal earlier said the air carrier would give up some key takeoff and landing slots in Vienna to competitors.

Lufthansa has asked the Austrian Takeover Commission to extend the Aug. 31 to give it and the Commission more time to reach agreement, after a weeks-long standoff over EU concerns that combining the airlines would affect fair competition.

Lufthansa had originally agreed to pay up to 377 million euros ($531.3 million) for AUA and has since had to offer the European Union some concessions on lucrative routes. To offset rising costs of the purchase, AUA on Wednesday approved a 150 million euro savings programme.

AUA lost 429 million euros last year and has piled up more than 1 billion euros in debt, or more than five times its equity. It only survived this spring due to a 200 million euro lifeline from the Austrian government, two thirds of which it has used up.

unemployment rate increased

Colombia's urban unemployment rate increased to 13% in June from 11.7% in the same month last year amid a negative unemployment outlook for 2009, the country's DANE statistics agency said Friday.

The figures apply to the country's 13 major metropolitan areas, and observers of the Colombian economy tend to consider the urban unemployment rate - as opposed to the national rate - to be a better gauge of the job market's health.

On the national level, including rural areas, the average unemployment rate in June was 11.4%, up slightly from 11.2% in the same month last year but lower than the 11.7% registered last month.

DANE said there were 2.39 million unemployed people in Colombia in June 2009, up from 2.15 million in June 2008.

The Colombian economy is slowing down because of the global economic crisis. Colombia's economy contracted 1% in the fourth quarter of 2008 from the same period the year before and 0.6% year-on-year in the first quarter of this year.

Daniel Lozano, analyst at local brokerage Profesionales de Bolsa, believes urban unemployment could increase to 14% at the end of the year because the economy of the U.S., Colombia's largest trade partner, has not recovered.

"We believe the international financial crisis is not over yet. As long as the U.S. doesn't recover, Colombia will be hit," Lozano said.

Dollar Fails to Extend Post 2Q GDP Recovery

Dollar Fails to Extend Post 2Q GDP Recovery

There is no cheering in the financial markets on better than expected 2Q GDP report from US which showed recession in the economy eased quicker than expected. US stocks open nearly flat which commodities recover from earlier knee jerk reactions. Dollar fails to extend post GDP recovery and is back under pressure against most major currencies. After all, there isn't any clear direction in the financial markets in general.

Real GDP in US dropped -1.0% annualized rate in 2Q, better than expected -1.5% and showed significant improvement over 1Q's -5.5% contraction. However, personal consumption expenditures dropped -1.2% annualized rate versus a slightly increase in 1Q, suggesting consumer demand remains weak. Investment was another negative in the GDP report even though the decline of -13.5% was much better than 1Q's -39%. GDP price index rose just 0.2% comparing to expectation of 1.0%. Data from Canada saw GDP dropped more than expected by -0.5% mom in May.

Released earlier, Eurozone CPI dropped more than expected by -0.6% yoy in July comparing to consensus of -0.4%. However, unemployment rate rose slightly from downwardly revised 9.3% to 0.4% in Jun against expectation of 0.7%. Swiss KOF leading indicate also improved more than expected to -0.99 in Jul. Released from UK, Gfk consumer confidence was unchanged at -25 in July.

Data from Japan released overnight were generally negative. CPI inflation dropped more than expected by -1.7% yoy in June, a record low in at least 33 years. Unemployment rate rose more than expected to 5.4% in June, its highest level since June 2003. Household spending rose less than expected by 0.2% yoy in June. Housing starts dropped more than expected by -32.4% yoy in June. Though, Manufacturing PMI is back above 50 at 50.4 in July.

Forex Top Story

Second Quarter GDP Contracts At Slower Than Expected Pace


The U.S. economy continued to shrink in the second quarter, according to new government statistics released Friday, although the pace of contraction slowed by more than economists had been expecting.

The U.S. Commerce Department revealed that Gross Domestic Product, a closely watched measure of broad economic performance, fell at a pace of 1 percent for the second quarter. Economists had expected GDP to fall at a 1.5 percent rate.

This marks the fourth consecutive quarter of contraction, but the pace slowed considerably from the 6.4 percent decline that was seen in the first 3 months of the year.

While the moderated pace of decline is a step toward economic stability, experts are uncertain about the second-quarter report, noting that components of the report were mixed.

"We are set up for an improvement in inventories and trade, but consumer spending still remains in question."

Personal consumption was down 1.2 percent in the second-quarter report, significantly more than economists had been expecting. This followed a 0.6 percent increase in the first quarter.

forex update 31-7-2009

Score One for the Taxpayer as Goldman Sachs Repays Loans

Goldman Sachs quietly paid $1.1 billion to get out from under the thumb of – I mean – to redeem the US Treasury for the warrants held by the government since last fall. With this transaction, and the earlier repayment of the original $10 billion loan received as part of the massive taxpayer-funded bank rescue plan last October, Goldman Sachs is now free of its government debt. And what great timing! Now there is no need to figure out how to divide the record $3.44 billion profit the firm made last quarter with 300 million or so additional share holders.

Seriously though, it must be somewhat heartening for taxpayers to see that a major bank that appeared so close to collapse just nine months ago, is now able to pay back its public debt obligations. In fact, according to a statement released by Goldman Sachs, all told, the government received an annualized rate of return of 23 percent on its $10 billion investment in Goldman Sachs. Not too shabby at any time – especially now considering the current state of the economy.

Dig a little deeper however, and there may be more to this miraculous turnaround than first appears. Yes, Goldman Sachs did manage to make a healthy profit and pay off its government loans in a timely manner; a fact that both parties are eager to share with the public for obvious PR reasons. However, neither camp is really talking much about the AIG connection and the role this had in improving Goldman Sachs’ fortunes.

American International Group – which sold about $440 billion or so in credit default swaps – imploded in spectacular fashion when the financial crisis came to a head last fall. When its credit rating was subsequently downgraded, AIG found itself unable to meet the resulting increase in collateral obligations on its swaps and the government felt compelled to come to the insurer’s rescue to the tune of $85 billion. The total cost of this rescue has since grown to more than $180 billion, and in return, the government – read, the taxpayer – now holds 80% of the company. Finding itself suddenly flush, AIG immediately settled a series of its default swaps obligations; and at the top of its list of recipients was Goldman Sachs which received a payout of nearly $13 billion.

You can decide for yourself if Goldman Sachs could have turned its ship around so quickly without this payment. Nevertheless, by clearing its debts with the government, Goldman Sachs once again controls its own destiny and any talk of moderating compensation levels – even in a show of goodwill – was tossed out the window when the firm announced that $11.4 billion has been earmarked for employee pay and benefits. This works out to around $900,000 per employee so clearly, things are back to normal at the nation’s largest investment bank.

But honestly, was there ever a real expectation that we would see meaningful changes on executive compensations? Even President Obama – whose administration has been hinting at implementing more “control” over executive pay practices – seemed particularly resigned to the return of the status quo. When responding to a question in a recent interview, the President acknowledged that since Goldman Sachs has paid back its government loans, the government no longer “has the same kind of levers on them we might have”.

Perhaps taxpayers should just be happy they received their investment back and move on

French Economy Is Challenging

IMF: Near-Term Outlook For French Economy Is Challenging

The near-term outlook for the French economy is challenging and the provision of short-term stimulus without derailing medium-term fiscal consolidation objectives would be the main challenge for the country's fiscal policy, the International Monetary Fund said Friday.

The IMF forecasts France's real gross domestic product to drop by 3% in 2009, followed by a gradual recovery in 2010. It added that there are downside risks to this outlook due to the sensitivity of the French economy to a worse-than-foreseen contraction in the European Union and underlying tail risks, in particular in the financial sector.

After Article IV consultation with France, the International lender said the steep increase in unemployment could further shake confidence and weaken private consumption. A worsening of the financial crisis would hurt banks' balance sheets and could further depress credit growth. At the same time, lower trade openness and higher social protection are expected to continue to shelter the French economy relative to its peers.

Moreover, the IMF noted that some modest additional fiscal action might be needed if downside risks materialize, but should be focused on temporary and investment-based measures given France's limited fiscal space. At the same time, some of the IMF officials are of the view that there is no scope for additional fiscal support, in light of the sizable stimulus already in train and the pressing consolidation needs.

The IMF stressed that safeguarding medium-term fiscal sustainability and avoiding unsustainable debt dynamics is a key priority for French authorities in the coming years.

The near-term outlook for the French economy is challenging and the provision of short-term stimulus without derailing medium-term fiscal consolidation objectives would be the main challenge for the country's fiscal policy, the International Monetary Fund said Friday.

USD Edges up as Stocks Drift

The greenback recovered from its earlier losses against the majors as the US equity bourses slipped into negative territory by afternoon trading. The dollar bounced off its near 2-month lows versus the euro near the 1.43-level and recovered slightly after touching a new 10-month low against the Canadian dollar at 1.0781.

The June new home sales report blew away consensus estimates, posting its largest advance in 8-years, increasing to 384,000 units and up 11% on the month. The data reinforced sentiment that the US economy is beginning to bottom out. The reports slated for release during the week include the Richmond Fed manufacturing survey, the Conference Board’s consumer confidence survey, durable goods orders, weekly jobless claims, Q2 GDP and the July Chicago PMI. Forecasts for this week’s reports predominantly reveal improving fundamentals, which are likely to be positive for stocks and detrimental to the dollar.