Greenback Turns Bullish

* The dollar and yen rose on Monday as risk aversion spiked and global stock markets plunged led by the largest drop in Chinese stocks since November 2008. The dollar index has been negatively correlated with risk appetite and surging equity and commodity markets. Stocks and commodities, currently overbought, are at strong resistances, while the dollar index has formed a bottom. We expect this correlation to continue; however, the dollar will likely appreciate with stocks and commodities consolidating the last six months’ huge gains. The S&P 500 declined 24.36 points to 979.73. The USD/JPY dropped, testing the 94-area support. The euro fell despite the widening eurozone trade surplus. The Australian and Canadian dollars were pressured by plunging risk appetite and commodity prices.

* The GBP/USD fell as risk sentiment improved. The pair has been in the 1.60-1.65 trading range most of this summer. However, last week it broke the long-term uptrend that corresponds to the sharp stock-market rally; thus, making us concerned about the medium-term GBP/USD outlook. The global economic recovery is on track as signaled by our leading economic indexes and most other forward-looking indicators. Still, equity markets have risen over 40% in US and in some other markets much more in the last 6 months without a correction. Therefore, we believe corrections in risky assets and currency pairs are possible. Having been long the GBP/USD since 1.4845 and the AUD/USD since 0.6601, we are moving up stops to 1.6170 and 0.8070, respectively, to lock in profits.

www.cmsfx.com

Financial and Economic News and Comments

US & Canada

* The NAHB/Wells Fargo US housing market index increased in August to 18, as forecast, from 17 in July, indicating US builder confidence rose this month to the highest level since June 2008, according to the latest release from the National Association of Home Builders. The index gauging sales expectations in the next six months climbed 4 points to 30 in August; the index measuring traffic of prospective buyers increased 3 points to 16; and the index gauging current sales conditions held steady at 16.

* The New York Fed general business conditions index rose to a higher-than-expected 12.1 in August from -0.6 in July, indicating manufacturing in the New York region expanded for the fist time since April 2008 and grew to the highest level since November 2007, according to the Empire State Manufacturing Survey, released by the Federal Reserve Bank of New York. The new orders index rose to 13.4 in August and the shipments index advanced to 14.1, their highest levels in more than a year. Employment indexes, although remaining negative, improved in August. Future indexes jumped, suggesting business conditions for New York State manufacturers should continue to improve in the months ahead.

* Net foreign purchases of long-term securities were $90.7 billion in June after -$19.4 billion in May, while monthly net TIC flows were -$31.2 billion following May’s -$65.7 billion, the Treasury said.

Europe

* The eurozone trade surplus widened to ?4.6 billion in June from an upwardly revised ?2.1 billion in May, nonseasonally adjusted trade data from Eurostat showed. The seasonally adjusted trade surplus, however, narrowed to ?1.0 billion from May’s upwardly revised ?1.1 billion. Seasonally adjusted exports declined 0.1% m/m in June, while imports remained stable.

* UK house prices slid 2.2% m/m in August, the deepest decline in eight months, to £222,762 ($367,808), after a 0.6% m/m increase in July, Rightmove Plc reported. August house prices fell 3.1% y/y, the same year-on-year rate as in July.

* Switzerland’s retail sales gained 0.9% y/y in June after a 1.4% y/y decline in May, the Swiss Federal Statistical Office said.

Asia-Pacific

* Japan’s GDP expanded 0.9% q/q in Q2 2009 after a revised 3.1% q/q decline in Q1, according to preliminary Q2 GDP data from the Cabinet Office. The Japanese economy grew at an annualized 3.7% rate, the first expansion in five quarters and emerging from the recession, following Q1’s revised -11.7% pace. The economy fell 6.4% y/y in Q2.

Источник: Hans Nilsson

17.08.2009