Wakeup Call: Hawkish Fed Comments Ignited USD-Bidding

Daily Forex Fundamentals | Written by Saxo Bank | Jul 23 08 06:56 GMT |

After turning lower on Monday, both the USD and equities reversed higher. Oil fell, fueling a rally in equities led by airlines and financials. Fixed income fell as risk willingness increased. Overnight News Bullets SZ Trade Balance (Jun) out at 2.41B vs. 1.60B expected. Prior at 1.87B. IT Consumer Confidence (Jul) out at 95.8 vs. 99.0 expected. Prior at 99.9. PD Net Core Inflation MoM/YoY (Jun) out at 0.3%/3.4% vs. 0.3%/3.3% expected. Prior at 0.6%/3.2%. CA Retail Sales MoM (May) out at 0.4% vs. 0.6% expected. Prior at 0.6%. Core Retail Sales MoM out at 0.4% vs. 0.7% expected. Prior at 1.2%. US Richmond Fed Manufacturing (Jul) out at -16 vs. -9 expected. Prior at -12. US House Price Index MoM (May) out at -0.3% vs. -0.8% expected. Prior at -0.8%. AU CPI QoQ/YoY (2Q) out at 1.5%/4.5% vs. 1.3%/4.3% expected. Piror at 1.3%/4.2%. AU RBA Trimmed Mean QoQ/YoY (2Q) out at 1.2%/4.3% vs. 1.1%/4.2% expected. Prior at 1.2%/4.0%. AU RBA Weighted Median QoQ/YoY (2Q) out at 1.0%/4.5% vs. 1.1%/4.4% expected. Prior at 1.3%/4.4%. Markets FX: The hawkish comments from Fed’s Plosser made the USD reverse, taking most USD-pairs up by almost a figure. EURUSD not able to close below 1.5775, which is key for further short term downside. Fixed Income: Bunds, 10yrs and JGBs all kept the bearish momentum with bunds coming closer to key support at 109.65. Stocks: Mixes session in Europe with FTSE down 0.7%, DAX up 0.3%. US closing in positive with major indices up around 1.0%. Asia in positive on positive news from the financial sector. Commodities: USD-rally caused hard times for commodities, with both precious metals and oil in negative. O/N Data Heat map: EU US JP UK SZ AU CA NZ NO SE FR + + - Calendar Today's Highlights: Time (GMT) Region Release Consensus 08:30 UK BOE Minutes 08:30 UK BBA Loans for House Purchase (Jun) 09:00 E-Z Industrial New Orders MoM/YoY (May) -1.3%/2.1% 11:00 CA Consumer Price Index MoM/YoY (Jun) 0.5%/2.9% 11:00 CA Bank Canda CPI Core MoM/YoY (Jun) 0.1%/1.6% 11:00 US MBA Mortgage Applications (Jul 18) 14:35 US DOE U.S. Crude Oil Inventories (Jul 18) -600K 18:00 US Feds Beige Book 21:00 NZ RBNZ Official Cash Rate (Jul 24) 8.25% (Unchanged) 23:50 JN Merchnds Trade Balance Total (Jun) Y500.0B 23:50 JN Adjusted Trade Bal. (Jun) Y342.7B This and Next Week’s Highlights: Date Region Release Jul 24 SW PPI, Unemployment Rate Jul 24 GE IFO Figures Jul 24 E-Z Euro-Zone Current Account, PMI Services, PMI Composite Jul 24 UK Retail Sales Jul 24 US Initial Jobless Claims, Existing Home Sales, EIA Nat Gas Change Jul 24 JN Tokyo CPI, Natl CPI Jul 25 GE Import Price Index Jul 25 SW Trade Balance, Household Lending Jul 25 E-Z Euro-Zone M3 Jul 25 UK GDP, Index of Services Jul 25 US Durable Goods Orders, Durables Ex Transportation, U. Of Michigan Confidence, New Home Sales, Baker Hughes U.S. Rig Count What's going on? The dollar traded near a two-week high against the euro after Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised. U.S. stocks rallied, pushing the Dow Jones Industrial Average up 127 points in the last hour, after Deutsche Bank said financial companies are overcoming credit losses. The financials gained more then 4% after the close in Europe. U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Excluding the effect of speculation, oil would be around $80 a barrel, 38% lower than yesterday's price, according to Jesus Reyes Heroles, the chief executive officer of Petroleos Mexicanos. FX EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN + - - - + - FX Trading Strategies Pair Supp. Resis. Comments GBPUSD 1.9650 2.0160 USD pairs reversed yesterday after Plosser's hawkish comments, and with the bearish outlook for the GBP, we have placed an order to sell ½ a position at 1.9898 offer, which is just below the 50% fibo (1.9650-2.0150), targeting 1.9845, stop bid at 1.9920. Equities Markets Seem To Like The Absence of Bad News Equities: We expect the European markets to open 0.9% higher Wednesday. The US stock indices rallied 1.2% after the European close yesterday and the S&P 500 future is flat. The late gains were mainly driven by financials with an increase of more than 4% on positive comments from a Deutsche Bank analyst saying financial companies are overcoming credit losses. We expect positive sentiment for financials will continue during the European session even if we are still skeptical over a medium-term view. We believe Royal Bank of Scotland, Barclays, UBS and Allied Irish Banks may benefit. Watch out for a big Q2 reporting day with earnings out or expected from Volkswagen, GlaxoSmithKline, Merck, Fiat Peugeot, AT&T, Philip Morris, Pepsico, McDonalds, Amazon and Pfizer. Trading Strategy: Trade Idea (Equities - TrendSpotter - Buy BMW (BMWG:xetr) For the longer term we maintain our bearish stance on the Auto industry however with the recent drop in oilprice and somewhat strengthening of the USD, we feel there is room for a small rally. For the German car producer we look for a break of 30.95 for confirmation, thus we place an order to buy at 31 bid, with a stop offer at 30.50 initially targeting next resistance at 32.50. DAX UKX CAC OMX KFX OBX SMI NDX DJI SPX NKY + + + + + + +