Forex - FX Markets Wait for Wyoming

Forex News and Events:

An uncanny tranquility has spread over the Forex Market this morning. There was a feeling leaving the office yesterday that renewed fears of a global double-dip recession and sovereign risks were going to spiral out of control. However, US equity markets managed to close in positive territory while bond yields were mixed.

During the Asian session, regional equity market indexes were able to stabilize and Forex risk-correlated trades gained some ground. After yesterday’s torrent of dismal US numbers, including a weak durable goods print and new home sales which collapsed -12.4%, it seemed that the writing was on the wall. But as of this morning, there is a lack of follow-through on the bad US data - which in and of itself, is peculiar.

In the EU where the fundamentals are shaky at best, German Finance Minister Schaeuble stated that he was not worried about the recent yield spread-widening across the Eurozone. The downgrade of Ireland was a stark reminder that the EU’s sovereign credit problems are far from over and austerity-geared budgets are still in their infancy. EUR has been able to claw its way back verse the USD and CHF but needs a solid close above 1.2730 to relieve selling pressure. Today’s light economic calendar will have forex traders dreaming of possible scenarios developing from the Jackson Hole Symposium.

With the world’s central bankers all meeting in one place, the market will be particularly interested in any statements from Jackson Hole. Recent comments from members and articles on the meeting have suggested that there will be considerable divergence among central bankers over monetary policy. As for the BoJ, there is mounting calls for the Japanese central bank to intervene on the Yen’s behalf. If there were ever a time for the Japanese to get the necessary concessions from trading partners, why not in Wyoming? We are taking a wait-and-see strategy leading up to the meeting and are not overly convinced by today’s risk rally. It will take only minimal effort for a piece of bad news to send market capital back into the safe havens.

Today's Key Issues (time in GMT):

06:00 EUR GER Sep Gfk sentiment index, 4.0 exp; prior 3.9.
06:00 EUR GER Jul import price index; prior +0.9% m/m, +9.1% y/y.
07:00 EUR ESP Q2 GDP, +0.2% q/q, -0.2% y/y exp; prior +0.1%, -1.3%.
07:15 CHF Q2 payrolls; prior 3.961 mln.
07:30 EUR ITA Aug consumer confidence index, 105.2 exp; prior 105.6.
07:30 SEK Jul household lending; prior +8.9% y/y.
07:30 SEK Jul PPI; prior +1.3% m/m, +1.6% y/y.
07:30 SEK Jul trade balance; prior SEK11.4 bln surplus.
07:30 SEK Jul unemployment, 7.9% exp; prior 9.5%.
08:00 EUR Jul private loans, +0.5% m/m exp; prior +0.3%.
08:00 EUR Jul M3, 3-mo avge, +0.3% m/m exp for M3; prior +0.2%, 3-mo avge unch.
08:00 EUR Jul M3; prior +0.2%. 1
0:00 GBP Aug CBI distributive trades survey index, 20.0 exp; prior 33.0.
12:30 USD Initial jobless claims, thous (4wma) 490K EXP
23:30 JPY Tokyo CPI,

The Risk Today:

EurUsd EURUSD has taken on a neutral tone for the first time since the break of its 2-month uptrend, but the minor technical support we highlighted yesterday seems to be holding. We would leave a limit order to sell just ahead of 1.2750, a level that is protected by both the 50-day moving average and 100-day moving average (1.2756 & 1.2741 respectively). A recovery above this level would imply further upside. There is also scope to place a further order to add to longs on a rally back up to the former 2-month uptrend (currently 1.2820) or the top of the current downtrend (currently 1.2850). On the downside the path now looks clear for a return to 1.2522 (13 Jul low) and the 2 & 6 Jul lows of 1.2483. Resistance remains at 1.2930 (12 Aug high) and 1.2990 (23.6% fibonacci retracement of 1.1876 –1.3333).

GbpUsd GBPUSD’s Yesterday strong reversal had bullish overtones but failure to recover above 1.5620 call to question the rallies sustainability going into a long UK holiday. The broader risk aversion / global slowdown dynamics seem to have overshadowed prior week’s bout of largely GBP-supportive data releases and does skew our bias in favour of shorts as bulls start heading for the exit. Minor resistance levels were taken out yesterday but pockets of supply have been noted at 1.5620 then at 1.5715 major resistance (12 Aug high) 1.5800 (psychological resistance), and 1.5820 (11 Aug relief rally peak). Our core view is that GBPUSD is vulnerable to a lot more downside in the short-to medium-term, so first targets should be at 1.5377 (the 200-day moving average), then 1.5115-30 (a major support including the 50.0% fibonacci retracement of 1.4229 –1.6000 AND the 100-day moving average).

UsdJpy FM Noda’s Tuesday botched press conference gave the JPY bulls all the ammo they needed and prompted a frenzy of JPY buying. Currently the USDJPY has a very bearish tone sitting over it but strong bounce back towards 85.50 (channel high) could suggest a reversal. However, with the 1-month downtrend still in full force and USDJPY still a figure away, we feel the pair looks more vulnerable than ever for a move lower The solid break of 84.73 support has move us even closer to uncharted water but demand should looks to be located at 83.65. Should we get a reprieve from the selling pressure (such as a dose of BoJ intervention), the first resistance will be 84.83 (5-day moving average), then major supply at 86.50 (channel high). Above there, further rallies will be weighed by sellers back towards 86.89 (2 Aug high), 87.52 (55-day moving average), and 88.00 (psychological barrier and 28 Jul high

UsdChf The USDCHF reversed sharply on the former pivot level since the CHF has become the darling of safe-haven flows. Our gut instinct was that 1.0460 was a robust enough area of USD-supply and that the pair will resume its downward trajectory in due course. We continue to prefer to sell on rallies around 1.0430 and look for a return to 1.0250 levels. Short term corrective rallies are likely to be hindered by resistance through 1.0329 (5 -day moving average) 1.0410 (bearish channel resistance) and 1.0640 (27 Jul high). The price action at the end of prior week that saw us break through to fresh lows of 1.0258 (19 Aug) portends to us that a move lower is on the cards, the downside is now further exposed for a return visit to 1.0229 (19 Jan low) and1.0140 (lower edge of the 2-week downtrend).

Resistance and Support:

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