Forex Daily Analysis - Friday, Sep 7th

All Eyes on the US Job Report

Markets still in ranges after no changes in rates from the BoE or the ECB yesterday. The trigger for further direction will be the US job report at 12:30 GMT, where the key is the Nonfarm Payrolls.

Overnight News Bullets

SZ Unemployment Rate (Aug) out at 2.6% vs. 2.5% expected. Prior at 2.5%.

  • SW Industrial Production MoM/YoY (Jul) out at 0.3%/5.2% vs. 0.5%/5.2% expected.
  • SW Activity Level (Jul) out at 121.9 vs. 121.4 prior.
  • UK Industrial Production MoM/YoY (Jul) out at -0.1%/0.9% vs. 0-2%/1.0% expected. Manufacturing Production MoM/YoY (Jul) out at -0.3%/0.8% vs. 0.2%/1.2% expected.
  • GE Factory Orders MoM/YoY out at -7.1%/9.8% vs. -2.5%/10.5% expected.
  • UK BoE keeps rates unchanged at 5.75% as expected.
  • E-Z ECB keeps rates unchaged at 4.00% as expected.
  • US Nonfarm Productivity (2Q F) out at 2.6% vs. 2.4% expected.
  • US Unit Labor Costs (2Q F) out at 1.4% vs. 1.5% expected.
  • US Initial/cont. Claims out at 318K/2598K vs. 330/2575 expected.
  • CA Building Permits MoM (Jul) out at -11.3% vs. -3.3% expected. Prior at 0.1% (revised from -0.3%.)
  • US ISM Non-Manufacturing (Aug) out at 55.8 vs. 54.5 expected. Prior at 55.8.
  • US Mortgage Delinquencies (2Q) out at 5.12% vs. 4.84% prior.
  • CA Ivey PMI (Aug) out at 58.5 vs. 56.0 expected. Prior at 54.6.
  • US DOE Inventories: Crude at -3972K vs. 2200K exp, Gasoline at -1481K vs. -1300K exp., Distillate at 2256K vs. 1000K exp., Refinery at 1.82% vs. -0.25% expected.
  • US EIA Natural Gas Storage out at 36 vs. 44 expected.
  • US ICSC Chain Store Sales YoY (Augh) out at 2.9% vs. 2.5% expected.
  • UK NIESR GDP Estimate (Aug) out at 0.7% vs. 0.8% prior.
  • JN Leading Economic Index (Jul P) out at 70.0% as expected. Prior at 75.0% (revised from 72.7%.)
  • JN Coincident Index (Jul P) out at 66.7% as expected. Prior at 81.8% (revised from 80.0%)

O/N Data Heat map:

EU US JP UK SZ AU CA NZ NO SE FR
0 + 0 - - 0 0 0 0 0 0


Calendar

Today's Highlights:

Time (GMT) Region Release Consensus
07:30 SW Budget Balance (AUG) Prior 12.4B
07:30 SW Riksbank Interest Rate (SEP) – hike expected from 3.50% 3.75%
08:00 NO Industrial Production MoM/YoY (JUL) 1.0% / 1.1%
08:00 NO Industrial Production Manufacturing MoM/YoY (JUL) 0.7% / 5.0%
10:00 GE Industrial Production MoM/YoY (JUL) 4.9% / 0.9%
10:00 EC E-Z OECD Leading Indicators (JUL) Prior 108.0
11:00 CA Unemployment Rate (AUG) 6.0%
11:00 CA Net Change in Employment (AUG) 18.0K
12:30 US Change in Nonfarm Payrolls (AUG) 100K
12:30 US Unemployment Rate (AUG) 4.6%
12:30 US Change in Manufacturing Payrolls (AUG) -10K
12:30 US Average Hourly Earnings MoM/YoY (AUG) 0.3% / 3.9%
14:00 US Wholesale Inventories (JUL) 0.4%
17:00 US Baker Hughes U.S. Rig Counts (SEP) Prior 1829

This and Next Week’s Highlights:

Date Region Release
9 Sep NZ New Zealand House Prices, Producer Prices Input
9 Sep JN A string of GDP’s, Money Supply M2, Broad Liquidity, Bank Lending, ECO Watchers Survey
9 Sep AU Home Loans, Investment Lending, Foreign Reserves
10 Sep NO A string of CPI’s, Producer Prices,
10 Sep UK A string of PPI’s, DCLG UK House Prices,
10 Sep AU Australia Manpower Survey,
10 Sep US Consumer Credit
10 Sep JN Machine Orders


What's going on?

  • ECB and BoE keeping rates unchanged as expected. Trichet not using “strong vigilance†, but still indicating that a rate hike is possible down the road. Liquidity injections still relevant.
  • Mortgage lenders seizing properties on 0.65% of all mortgages in Q2. Late payment from subprime borrowers surging to one out of seven.
  • Gold breaking forcefully higher. Now trading just below 695 key resistance. With credit spreads again widening, the fear of additional market turmoils seems rising.


FX

Market FX: Dollar range trading as investors await the influential U.S. job report coming out.

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EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN
0 - 0 - 0 0 0 0 0 + 0

FX Trading Strategies

Pair Supp. Resis. Comments
USDSEK 6.8071 6.8900 A potential fundamental double-whammy could be seen in this pair today as we expect a weak US job report and bullish news from the Riksbank. Sell the break of 6.8071 offer, stop bid at 6.8101, targeting 6.7650.
GBPCHF 2.42 2.4450 Sell at 2.4242 offer, stop bid at 2.4265, targeting below support.

MAJOR HEADLINES – PREVIOUS SESSION

  • SZ GDP (2Q) out at 0.7/%2.8% vs. 0.7%/2.4% expected.
  • E-Z PPI MoM/YoY (Jul) out at 0.3%/1.8% vs. 0.1%/1.7% expected. Prior at 0.1%/2.2%.
  • E-Z GDP QoQ/YoY (2Q P) out at 0.3%/2.5% as expected.
  • E-Z Gross Fix Cap (2Q P) out at -0.2% vs. 0.0% expected.
  • E-Z Household Consumption (2Q P) out at 0.5% as expected.
  • E-Z Govt. Expenditures (2Q P) out at 0.1% vs. 0.3% expected.
  • E-Z GDP Forecasts unchanged. Q4 expected at 0.2-0.8%, Q1 2008 at 0.2-0-9%.
  • US ISM Manufacturing (Aug) out at 52.9 vs. 53.0 expected. Prior at 53.8.
  • US ISM Prices Paid (Aug) out at 63.0 as expected. Prior at 65.
  • US Construction Spending MoM (Jul) out at -0.4% vs. 0.0% expected. Prior at 0.1% , revised from -0.3%.
  • UK Nationwide Consumer Confidence (Aug) out at 94 as expected. Prior at 96.
  • AU RBA Cash Target rate out unchanged at 6.50% as expected.
  • AU AiG Performance of Service Index (Aug) out at 51.6 vs. 56.0 prior.

While the markets nervously await the Thursday’s rate decision by ECB, the jittery carry trades continued to unwind through the Asian session with JPY well bid across the board, hitting a low of 115.65 against the USD and 231.94 against the GBP.

The USD was higher across the board, rallying against the Euro to a low of 1.3550, with gains being limited by slightly weaker than expected ISM figures. The manufacturing index, surveying the purchasing executives of roughly 300 industrial companies, came out at index value 52.9 vs 53 expected for the month of August, with the prior figure at 53.8.

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THEMES TO WATCH – UPCOMING SESSION

The proxy for the Non-Farm payrolls, the ADP report, will be released at 12:15 GMT and we expect this to attract some attention to the market players. However, as the report disappointed the market severely (at 48K vs. 80K expected) and was way off the real figure at 92K, we recognise that it should not be underestimated and will have some impact in the market. The pending home sales, released at 14:00GMT will be an important figure, where expectations currently is at -2.0 pct., but we could see the figure surprising to the downside, sending the USD offered against most other majors. We also expect the ISM-Service index tomorrow to fall short of expectations, following the manufacturing index lower. We still see a reading above 50, indicating that the sector still is expanding. Currently we are looking to sell USDCHF at 1.2092 offer, targeting the 1.20 figure with a stop bid at 1.2113.

The Canadian rates at 13:00 GMT will also be of importance. USDCAD has traded sideways for 3 weeks largely between 1.0470 and 1.0670 with the market uncertain where the next big trend will emerge. The technical picture shows a flat correction since June and with the 100-day MA still in decline (now at 1.0712) the downside remains vulnerable in the medium-term. Short-term fluctuations are reacting to changes in the oil price but the main focus is on the BoC announcement later, expected to hold steady at 4.5% in view of the liquidity crisis.

FX Orderbook

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