Forex Daily Analysis - Wednesday, Sep 12nd

Further Weakening of the USD Expected. USD continues lower

The market is pricing in a Fed rate cut and that the fall-out from subprime mortgages will be contained. We expect EURUSD to test recent highs at 1.3852 within this week as the market participants are betting that the Fed will cut rates on the September 18th meeting. 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 08:30 UK Claimant Count Rate (AUG) 2.6% 08:30 UK Jobless Claims Change (AUG) -8.0K 08:30 UK Avg. Earnings inc/ex bonus YoY (JUL) 3.4% / 3.5% 08:30 UK Manual Unit Wage Costs YoY (JUL) Prior 0.4% 11:00 US MBA Mortgage Applications (SEP) 1.3% 14:30 US DOE U.C. Crude Oil Inventories (SEP) -2700K 21:00 NZ RBNZ Official Cash Rate (SEP) 8.25% 22:45 NZ Retail Sales MoM (JUL) 0.3% 22:45 NZ Retail Sales Ex-auto MoM (JUL) 0.3% 23:01 UK RICS House Price Balance (AUG) 10.0% 23:50 JN MOF Foreign Net Stocks / Bonds Investment (SEP) Prior JPY8.9B / JPY -52.5B This and Next Week’s Highlights: Date Region Release 13 Sep AU Consumer Inflation Expectation, Dweilling Starts 13 Sep JN Tokyo Condominium Sales 13 Sep SW Unemployment Rate 13 Sep SZ SNB 3-month Libor Target Rate 13 Sep US Initial Jobless Claims, Continuing Claims, Monthly Budget Statement 13 Sep CA Capacity Utilization Rate 13 Sep NZ Manufacturing Activity 14 Sep NZ ANZ-Business NZ PMI, NoN Resident Bond Holdings 14 Sep JN Industrial Production, Capacity Utilization 14 Sep GE A string of CPI’s, 14 Sep SZ SNB’s Roth holds speech in Lausanne 14 Sep EC A string of Euro-Zone CPI’s, 14 Sep US Current Account Balance, Import Price Index, Advance Retail Sales, Retail Sales less autos, Industrial Production, Capacity Utilization, U. of Michigan Confidence, Business Inventories, Baker Hughes US Rig Count 14 Sep CA Manufacturing Shipments, Labor Productivity What's going on? UK Trade Balance figures somewhat worse than expected. Leading and Coincident Indicators also weakening. In our opinion, the UK economy is currently at its cyclical top. There will be a lot of disappointment for the GBP going forward. EURUSD is making new, alltime highs. Watch USDCHF breaking 1.1817 later in the week. Japanese PM Shinzo Abe has resigned. JPY not really affected. Market FX: USD still edging lower. Now at alltime lows vs. EUR. FX USDCHF to break lower EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN - - + + FX Trading Strategies Pair Supp. Resis. Comments USDCHF 1.1814 1.1915 The outlook to a tightened interest differential puts downward pressure on USDCHF. We will sell the break of 1.1837 offer and add below August lows at 1.1814. Initial stop bid at 1.1867, which we will move to entry if spot trades below 1.1814. Targeting April 2005 lows at 1.1740. MAJOR HEADLINES – PREVIOUS SESSION AU Foreign Reserves (Aug), out at A$70.4B vs. A$80.3B prior. FR Industrial Production MoM/YoY (Jul), out at 1.3%/2.6% vs. 0.4%/1.2% expected. -0.5%/-0.8% prior. FR Manufacturing Production MoM/YoY (Jul), out at 1.5%/2.9% vs. 0.5%/1.4% expected. -0.5%/-1.0% prior. NO CPI MoM/YoY (Aug), out at -0.1%/0.4% vs. -0.2%/0.4% expected. -0.3%/0.4% prior. NO CPI Underlying MoM/YoY (Aug), out at 0.1%/1.8% vs. -0.2%/1.6% expected. -0.4%/1.4% prior. IT GDP QoQ/YoY (2Q F), out at 0.1%/1.8% vs. 0.1%/1.8% expected. 0.3%/2.3% prior. IT Private Consumption (2Q), out at 0.6% vs. 0.3% expected. 0.7% prior. IT Government Spending (2Q), out at 0.1% vs. 0.1% expected. 0.1% prior. IT Total Investments (2Q), out at 0.1% vs. -0.2% expected. 0.7% prior. IT Exports/Imports (2Q), out at -1.0%/-0.3% vs. 0.9%/0.9% expected. 0.4%/-0.9% prior. NO Producer Prices incl. Oil MoM/YoY (Aug), out at -2.8%/-7.4 vs. -0.6%/-5.0% expected. 0.4%/-4.2% prior. UK PPI Input MoM/YoY (Aug), out at -0.5%/0.6% vs. -0.3%/1.3% expected. -0.5%/0.1% prior. UK PPI Output MoM/YoY (Aug), out at 0.1%/2.5% vs. 0.2%/2.5% expected. 0.2%/2.4% prior. UK PPI Output Core MoM/YoY (Aug), out at 0.2%/2.4% vs. 0.2%/2.3% expected. 0.2%/2.3% prior. UK DCLG UK House Prices (Jul), out at 12.4% vs. 11.4% expected. 12.1% prior. EC Sentix Investor Confidence (Sep), out at 18.1 vs. 18.6 expected. 26.3 prior. NZ Manpower Survey (4Q), out at 26% vs. 24% prior. •AU Manpower Survey (4Q), out at 29% vs. 24% prior. JN Manpower Survey (4Q), out at 31.0 vs. 21.0 prior. •US Consumer Credit (Jul), out at $7.5B vs. $8.0B expected. $13.2B prior. NZ Terms of Trade Index QoQ (2Q), out at 0.6% vs. 4.0% expected. 2.0% prior. JN Machine Orders MoM/YoY (Jul), out at 17.0%/8.0% vs. 5.0%/-2.8% expected. -10.4%/-17.9% prior. AU NAB Business Confidence (Aug), out at 10 vs. 12 prior. •AU NAB Business Conditions (AUG), out at 19 vs. 19 prior. With little new data or major news, Monday saw markets cooling off after the frenzied session on Friday. Consumer credit rose by $7.5 billion in the month of July, taking the outstanding credit amount to $2.5 trillion. Lagging the expected increase by half a billion, the increase in July is the smallest increase in three months, and is reflective of the wider ramifications of interbank credit crunch. In the currency markets, sideways trading prevailed, as euro was little changed against the dollar, weighed down by hedge funds taking profits on euro longs and dollar easing against the yen by the pair moving up from the Monday low of 112.58 to settle to upper end of the 113.40-89. Today's European session was off to a start with all major European indexes in the positive territory and with the Swedish inflation figures- both headline and underlying CPI numbers- coming out slightly below expectations. Following the data release, EURSEK rapidly spiked up to 9.3754 and has since settled in the 9.3335-70 area. We continue to prefer the downside in the pair. THEMES TO WATCH – UPCOMING SESSION The markets are still digesting the surprisingly weak US job report on Friday, where the change in nonfarm figure came out negative for the first time since 2003 at -4K vs. expectations at around 100K and we have seen the USD taking a beating, sending EURUSD above 1.38 and USDJPY below 114. Looking forward, the market will position itself ahead of the very important Fed meeting on September 18th. Consensus in the market is currently biased towards a 25 bp cut, but the range in a survey conducted by Bloomberg is between an unchaged stance at 5.25 pct. to a 50 bp cut to 4.75 pct. In our opnion, the Fed will most likely cut do what is demanded in the market by cutting 25 bp despite the fact that it probably will fuel growth and inflation. EURUSD closed above 1.38 yesterday and we still see further upside in the pair - a test of recent highs at 1.3852 is within reach. In the light of a weakening USD, USDCHF looks attractive on the downside. As we expect the Swiss National Bank to take action on Thursday and raise rates 25bp to 2.75 pct. This will decrease the interest spread versus the US ahead of the Fed decision which probably will decrease the spread even further. We expect a test of August lows at 1.1817 where a break of this will target April 2005 lows at 1.1740. FX Orderbook

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