Gold and oil join the "down with the US dollar" chorus. Risk bears seem to be beating a full retreat.


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand Jul. Credit Card Spending out at -2.0% YoY vs. -2.1% in Jun.

  • Germany Aug. Preliminary PMI Manufacturing rose to 49.0 vs. 47.0 expected and 45.7 in Jul.

  • Germany Aug. Preliminary PMI Services rose to 54.1 vs. 48.6 expected and 48.1 in Jul.

  • EuroZone Aug. Preliminary PMI Manufacturing rose to 47.9 vs. 47.5 expected and 46.3 in Jul.

  • EuroZone Aug. Preliminary PMI Services rose to 50.0 vs. 48.0 expected and 47.0 in Jul.


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Jul. Existing Home Sales (1400)

  • US Fed's Bernanke to Speak at Jackson Hole Conference (1400)

Market Comments:

More gyrations in the Asian session arrived like clockwork as rumors emerged of Chinese plans to tighten capital requirements for banks, a move that could threaten the recovery in Chinese asset markets. So Asia closed on a bit of a sour note, Later, however, it was the very strong preliminary European PMI manufacturing and services data that had the risk-takers swarming around the punch bowl once again for another dose of bullishness. It appears that the major US and European equity markets want to test the highs for the cycle again after the recent correction lower, and this is equating to a testing of the low for the US dollar.

It's tough going for the bears here - the very final retracement levels are arguably still in place for the last shreds of hope that we could yet see a follow up move in the USD to the strong side, but if the risk elephants keep trampling the bearish camps here, it appears we will have to test to new lows in the USD if equities burst to new highs. Sentiment and positioning seemed to stretch for us to want to switch sides for now. Yes, there is no absolute reason we can't continue on to 1100 in the S&P and 1.50 in Euro if current market conditions hold - the first six months of 2008 showed us how long fantastic delusions can hold in the marketplace (the idea that the US meltdown could be contained and that the rest of the world could simply ignore its center of gravity). But it is our firm belief that the market has really moved dangerously out of line with reality.

Watch out for Bernanke's appearance at the Jackson Hole conference today. This is traditionally a more informal conference that gathers Fed governors, other bureaucrats and figures from the private sector to discuss major economic issues and monetary policy. It is a chance for Bernanke to give a high profile speech about monetary policy and where it is going, if only in very broad-strokes. Still, after having engineered this recovery with unprecedented stimulus. It certainly bears watching for any hint of Mr. Bernanke's thinking as market perceive that we are one stop from economic nirvana and a full-bore recovery, while we suspect that the Chairman has his worries. The Fed managed to keep the US economy from disappearing off the map, and it will remain highly dependent on Fed and government actions to keep it alive - it is still on life support. Any hint at removal of life support at some time down the road could test the market's mettle.

USDCHF just touched new lows for the year as we are writing this and EURCHF touched its 200-day moving average in today's trade as well - where are you, SNB? EURSEK is punching through to new lows since last November today, as CEE currencies continue to recover from their recent consolidation due to the rampant risk-taking. In other action, gold popped almost 20 dollars higher off the day's lows and crude is making a run at $75 as all market's are now joining in on the "greenback punching bag" game today. This market is fearsome for the fearful. Let's see how we end the week. Next week's event risk calendar looks fairly light, with the most interesting data points the German IFO and US Consumer Confidence (after the ugly preliminary Michigan data for August.) In the meantime, have a wonderful weekend.