Forex Daily Analysis - Monday, Oct 1st

USD weakness continues


USD continues lower, despite better than expected data on Friday. The sentiment is still bearish.

Overnight News Bullets

  • SW Retail Sales Aug, out at -0.9% vs 0.3% exp. YoY out at 7.3% vs 8.9% exp.
  • NO Retail Sales Aug, out at -0.5% vs 0.6% exp. YoY out at 7.0% vs 8.6% exp.
  • NO Unemployment Rate (AKU) July, out at 2.5% in line with exp.
  • EC Consumer Confidence Sep, out at -5 vs -4 exp.
  • EC Indust. Confidence Sep, out at 3 vs 4 exp.
  • EC Business Climate Indicator Sep, out at 1.09 vs 1.30 exp.
  • EC CPI Estimate (YoY) Sep, out at 2.1% in line with exp.
  • EC Economic Confidence Sep, out at 107.1 vs 109.0 exp.
  • EC Services Confidence Sep, out at 18 vs 19 exp.
  • UK Gfk Consumer Confidence Sep, out at -7 vs -6 exp.
  • GE IFO Business Climate Industry Sep, out at 18.2 vs a prior reading of 18.2.
  • US Personal Income Aug, out at 0.3% vs 0.4% exp.
  • US Personal Spending Aug, out at 0.6% vs 0.4% exp.
  • US PCE Deflator (YoY) Aug, out at 1.8% vs 1.7% exp.
  • US PCE Core Aug, out at 0.1% in line with exp. YoY out at 1.8% in line with exp.
  • CA GDP July, out at 0.2% vs 0.3% exp.
  • CA Industrial Product Price Aug, out at -1.0% vs -0.5% exp.
  • JN Tankan Lge Manufactures Index Q3, out at 23 vs 21 exp.
  • JN Tankan Lge Mfg Outlook Q3, out at 19 vs 20 exp.
  • JN Tankan Non-Manufacturing Q3, out at 20 vs 21 exp.
  • JN Tankan Non-Mfg Outlook Q3, out at 21 in line with exp.
  • JN Tankan Large All Indust Capex Q3, out at 21 in line with exp.
  • JN Labor Cash Earnings (YoY) Aug, out at 0.1% vs a prior reading -1.7%.
  • JN Overtime Earnings (YoY) Aug, out at 1.2% vs a prior reading -0.1%.
  • JN Vehicle Sales (YoY) Sep, out at -9.5% vs prior reading -1.9%.
Market FX: Dollar making new 2007 lows against EUR and CHF. Carry still remains supported.


Calendar

Today's Highlights:

Time (GMT) Region Release Consensus
07:30 SZ SVME-Purchasing Managers Index (SEP) 52.7
08:00 NO Credit Indicator Growth YoY (AUG) 14.6%
08:30 UK M4 Money Supply MoM/YoY (AUG) Prior 1.2%/13.5%
08:30 UK M4 Sterling Lending (AUG) Prior 23.0B
08:30 UK Net Consumer Credit (AUG) 0.9B
08:30 UK Net Lending Sec. on Dwellings (AUG) 8.9B
08:30 UK Mortgage Approvals (AUG) 110K
08:30 UK BoE Housing Equity Withdrawal (2Q) £12.6B
14:00 US ISM Manufacturing (SEP) 52.5
14:00 US ISM Prices Paid (SEP) 62.3
23:30 AU AiG Performance of Mfg Index (SEP) Prior 52.4
23:50 JN Monetary Base YoY (SEP) 0.1%

This and Next Week’s Highlights:

Date Region Release
2 Oct SZ CPI
2 Oct EC E-Z PPI, E-Z Unemployment Rate,
2 Oct US Pending Home Sales, Total Vehicle Sales, Domestic Vehicle Sales
2 Oct UK Nationwide Consumer Confidence
2 Oct AU RBA Cash Target
3 Oct AU Retail Sales, Trade Balance, Exports, Imports, Official Reserves
3 Oct EC PMI Composite, E-Z Retail Sales
3 Oct UK BoE Monetary Policy Committee meets, Official Reserves, BRC September Shop Price Index
3 Oct SW Riksbank’s Wickman-Parak Speaks on Rate Forecasting
3 Oct US MBA Mortgage Applications, Challenger Job Cuts, ADP Employment Change, ISM Non-manufacturing, DOE U.S. Crude Oil, ABC Consumer Confidence
3 Oct AU AiG Performance of Service Ind
3 Oct JN MOF Foreign Net Stocks/Bond Invest


What's going on?

  • Gold rose in Asian trading, topping once again the 27-year highs, with the December contract reaching $753.40 an ounce. The same contract had already reached $752.80 on Friday, the highest level for a most-active contract since January 1980.


FX

USDJPY break-out in store?

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

FX Trading Strategies

Pair Supp. Resis. Comments
USDJPY 114.50 115.90 BO-play in USDJPY: Volatility has contracted in the past sessions
giving scope for a BO-play. Buy the break of 115.11 bid, stop offer at
114.91, targeting 115.70. To the downside, we sell the break of
114.66 offer, stop bid at 114.86, targeting 114.

MAJOR HEADLINES – PREVIOUS SESSION

    • SW Household Lending YoY Aug, out at 11.8% vs a prior reading of 11.7%.
    • GE Unemployment Change Sep, out at -50K vs -20K exp.
    • GE Unemployment Rate Sep, out at 8.8% vs 8.9% exp.
    • GE CPI Sep, out at 0.2% vs 0.0% exp. YoY out at 2.5% vs 2.3% exp.
    • NO Unemployment Rate Sep, out at 1.8% vs 1.7% exp.
    • EC M3 YoY Aug, out at 11.6% vs 11.7% exp.
    • US GDP Annualized Q2F, out at 3.8% in line with exp.
    • US Personal Consumption Q2F, out at 1.4% in line with exp.
    • US GDP Price Index Q2F, out at 2.6% vs 2.7% exp.
    • US Core PCE Q2F, out at 1.4% vs 1.3% exp.
    • US Initial Jobless Claims Sep 22, out at 298K vs 316K exp.
    • US Continuing Claims Sep15, out at 2551K vs 2550K exp.
    • US New Home Sales Aug, out at 795K vs 825K exp. Aug, out at -8.3% vs -5.2% exp.
    • US Help Wanted Index Aug, out at 23 vs 24 exp.
    • NZ GDP Q2, out at 0.7% vs 0.5% exp. YoY out at 3.2% vs 2.6%.
    • JN Jobless Rate Aug, out at 3.8% vs 3.6% exp.
    • JN Overall Household Spending YoY Aug, out at 1.6% vs 1.2% exp.
    • JN Natl CPI YoY Aug, out at -0.2% in line with exp. Ex- Fresh Food, Energy, out at -0.2% vs -0.4% exp.
    • JN Industrial Production Aug, out at 3.4% vs 3.0% exp. YoY out at 4.3% vs 3.7% exp.
    • JN Retail Trade YoY Aug, out at 0.5% vs -0.3% exp.
    • JN Housing Starts YoY Aug, out at -43.3% vs -15.8% exp.
    • JN Construction Orders YoY Aug, out at -14.2% vs -3.1% exp.

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THEMES TO WATCH – UPCOMING SESSION

NZD

As we wrote in our abstract it has been a good week for New Zealand macro data and with relatively low volatility as currency such as the Kiwi with 8.25% rates does extremely well. NZDUSD has been grinding higher and today's break of 61% retracement at 0.7550 (from 0.8110 - 0.6640) is key for further upside. A close above would give scope for a test of 0.7717 in the short term, which is the wave low from the 11th of July 2007. So despite keeping our long term bearish outlook for the Kiwi, it remains with a bullish bias for now. On the 24th of October is RBNZ with the official cash rate which we expect to stay at 8.25% which is also consensus, but we will look for Retail Sales on the 11th of October and Net Foreign Bond Holding on the 16th to be key for rates looking into the last quarter of 2007.

JPY

The carry trades continue their come back from the sharp sell-off in August as risk appetite and stock trends continue to rise and with central banks reassuring investors and financial institutions that they will cope with the crisis, especially the Fed (we are certainty not convinced of this view), it seems as if stocks and carry trades will continue flat to higher in the upcoming month unless the sub-prime crisis intensifies.....Today's data out of Japan doesn't exactly make traders want to run out and buy JPY. Inflation figures YoY continues to run below 0.0% and with Q2 growth out at -1.2%, the recovery from Japan seems to be to once again prolonged. EURJPY looks to me to be the most "safe carry" out there. European economy will likely to expand in 2007 and an additional rate hike by ECB is still our preferred scenario. So looking at the short term we think the weekly close above 161.42 gives scope for a test of the 165.40-166.50 area´, which can still be done with a decent risk reward.

USD

Still not much going for the dollar. Housing data continue to dissapoint and the fear of further downside in the housing market still lingers in the market and we expect further downside will be felt. Especially in the upcoming September figures we think the fear will be felt in both the confidence and spending figures, which should send the dollar weaker from here against the euro. Also supporting this fact is that another 25 bps in October is likely by the Fed (we don't agree as we think they should remain on hold), which would cause additional downside pressure. We expect a likely target for EURUSD is 1.4325-50 within the next two months.

Risk warning : ForexWebTrader shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Forexwebtrader that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very peculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

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FOREX : Foreign Exchange Market

FOREX is a word play on the term Foreign Exchange Market. It is a market for buying and selling of currencies from all over the world. Certainly, such transactions are bound to be voluminous. It is just an estimate that there are about transactions of $1.5 trillion USD on a daily basis in the FOREX. Now just compare this with the paltry $300 billion USD a day transactions for the US Treasury Bond and the $100 billion a day transactions for the US Stock Exchange.

The FOREX came into existence in 1971 when the fixed currency exchanges were abolished. Currencies no longer had fixed values after that; on the contrary, their rates (mostly taken in comparison with the USD) were fluctuating, and changed on a daily basis. Throughout the seventies and the eighties the FOREX grew steadily, showing more advancement in the later years. The market has stupendously grown from $70 billion USD a day to the staggering amount that it transacts today on a daily basis.

There are actually about five thousand trading institutions in the FOREX. These include international banks, central government banks such as the US Federal Reserve, and commercial companies and brokers for all types of foreign currency exchange. The best thing that shows the unbiased nature of the FOREX market is that it has no fixed headquarters anywhere – it operates primarily from all major cities like New York, Tokyo, London, Hong Kong, Singapore, Paris, Frankfurt, etc. One can even use the telephone or the internet to make the transactions. The major businesses at the FOREX are the buying and selling of products in other countries. Several transactions are also conducted from the currency brokers or traders who stand to make small profits with the daily fluctuations in the market.

Most of the FOREX business is centered on big banks and financial institutions, but it doesn’t mean that the FOREX is inaccessible to small investors. The recent changes in the financial regulations have effectuated this accessibility. Earlier, a minimum transaction size was required to conduct business with the FOREX. But the current rules have made it possible to break large inter-bank units into smaller bits. Each bit is worth as less as $100,000. This makes it possible to each individual investor through loans that are extended for trading, known as leverage. The ratio to control the lots is 100:1. This means, every $1000 USD will allow one to control $100,000 on the FOREX.

The benefits of trading with the FOREX are mentioned below:-

(1) Liquidity of Investments – As the FOREX is a huge market, the funds have a very high degree of liquidity. This is because of the presence of the international banks who provide their bids and carry out a large number of transactions on a daily basis. Therefore, there is always a buyer or seller for any type of currency.

(2) Highest Degree of Accessibility – The FOREX is open 24 hours a day for 5 days a week. Every Monday morning the exchange opens at Australian Standard Time and closes on Friday afternoon at New York time. Greater accessibility is provided because the transactions can be conducted from the person’s home or office.

(3) Open Market – At the FOREX, there are no secrets. All the fluctuations that occur in the market are made accessible to everyone at the same time. There is no insider trading in the FOREX.

(4) No Commission – There is no hassle of paying commission to the brokers in the FOREX. Here the brokers earn by setting up a difference between the buying price and the selling price of a currency, which is known as a spread.

It must be understood by now that for the FOREX to work effectively, the currencies must always be traded in pairs. For instance, the Japanese yen must be traded against the euro. When one kind of currency is sold, there should be another to be bought in its stead.

The profit happens because there is always mobility between the different currencies. Even if there is a miniscule change in the exchange rate, then it could mean substantial changes in the profits due to the large amount of money involved in the transactions. People are thronging to the FOREX and not any other institution due to the trust that they have in it. To add to the advantage, the market is absolutely well-advanced and uses sophisticated software for dealing out its transactions.

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