German business confidence gains

Forex News and Events:

As many mourn the untimely passing of legendary Senator Edward Kennedy last night market analysts mull the prophesized return of risk aversion as the doping effects of earnings season wears off. The German IFO this morning confirmed that business confidence has definitely improved – coming in at 90.5 from 87.4 last month (and beating a forecast of 89.0) This had an immediate positive effect on the Euro, sending it as high as 1.4352 against the dollar and 0.8793 against the Sterling. While EURGBP is still on it’s highs the dollar move quickly reversed – yet another example of the dollar gaining on positive news.

We have mentioned numerous times in this column that the relationship the dollar has with risk was a straight forward one. The dollar was very much a bearer of risk, a haven currency rising on any bad news and falling on any sign of improvement in economic conditions. This has reigned true ever since this crisis started however, as risk aversion begins to thaw in its intensity and long lasting effects this dynamic is slowly starting to change. We saw this transpire on the 7th Aug after better than expected NFP’s, the 21st Aug on strong existing home sales and yesterday on the back of a good consumer confidence number.

The U.S deficit forecast was reduced form $1.84 Trln to $1.58 Trln however, the longterm defecit projections were revised up by roughly $2 Trln over the next 10 years – in the long term this is seen to be an incredibly weight on the dollar. This said, at the current juncture the reduced effects of risk aversion will likely push the dollar higher in the medium term as the economy improves. One must remember that as the economy improves the dollar will be used more as a vehicle for investment, rebuilding the economy than the safe haven status it has had throughout this crisis. CHF and GBP are seen to regain this status as market dynamics change. 

Today's Key Issues (time in GMT):

12:30 USD Durable Goods Orders (JUL) - 3.0% Vs. -2.5%
14:00 USD New Home Sales (JUL) - 390K Vs. 384K
16:00 USD Fed Lockhart speaks on Economy
16:00 EUR French Total Jobseekers (JUL)

The Risk Today:

EurUsd We sadi yesterday that the pair was fairly lifeless and rangebound and the view poitn still stands. The most exciting thing to happen was a touch on the medium term uptrend channel at 1.4252 where the pair caught a strong bid up to the resistance at 1.4338 / 60. There remains an upward bias on the pair trend wise as all time frames are trending up but 1.4445 has behaved like a brick wall in the past so expect the range bound trading to continue and a possible test of the 1.4445 major resistance. A break of 1.4250 to the downside will likely lead to a short term downtrend.

GbpUsd We mentioned yesterday that the pair was breaking one of the medium term uptrend channels at 1.6381 and despite hanging around there for a few hours the pair has moved straight towards the support level at 1.6272. Expect some bouncing around these levels and a possible retest of the breakdown back up at 1.6435. A break through this support targets 1.5947.

UsdJpy The support level at 93.86 has been re-established but a new short term downtrend channel has proven to be a problem for the intraday and short term bulls. The pair is now workign its way into the corner of a symmetrical triangle and unfortunately one has to wait for a break and 60 minute close outside of the triangel to determine the short term trend, ie. a 60 minute close above 94.45 for continuation of the medium term uptrend or below 93.86 to resum the short and long term downtrend.

UsdChf An inability to clear 1.0632 should be rather concerning for the bulls as the short term mid downtrend channel continues to dominate the pair. Nothing has changed in the picture from yesterday so again, look for range trading between 1.0556 / 78 and 1.0632 / 54. An hourly close above 1.0692 would confirm a breakout from the 2 week downtrend. A break below 1.0556 will be confirmation of the decensding triangle breakdown but for now there is easy money to be made in intraday range trading.

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot