Forex Market Update: Risk Aversion Still The Dominant Theme As A New Week Begins

Daily Forex Fundamentals | Written by Saxo Bank | Jul 13 09 06:43 GMT |

GBP especially suffers as weekend press has nothing positive to report HEADLINES - PREVIOUS SESSION US May Trade Balance out at -$26.0 bln vs. -$30.0 bln expected and -$29.2 bln prior US Jun Import Price Index out at +3.2% m/m vs. +2.0% expected US Jun Univ. of Michigan Sentiment Index out at 64.6 vs. 70.0 expected and 70.8 prior NZ May Retail Sales out at +0.8%m/m vs. +0.2% expected and +0.5% prior NZ May Retail sales ex-autos out at +1.6% m/m vs. +0.5% expected and revised flat prior JP May Final IP out at +5.7%m/m, -29.5% y/y vs. +5.9%/-29.5% prior JP May Final Capacity Utilization out at +8.0% m/m vs. +10.2% prior JP Jun Consumer Confidence out at 38.1 vs. 39.5 expected and 36.3 prior THEMES TO WATCH - UPCOMING SESSION UK US Tres Sec Geithner meets PM Brown, Canc. Darling (N.A.) Swiss PPI (0715) EU ECB's Trichet speaks (1030) CA BOC Business Outlook Survey (1430) CA BOC Loan Officer Survey (1430) US Monthly Budget Statement (1800) Market Comments Weekend press did not have much positive news for the UK, and consequently the pound. UK's Telegraph reported that the IMF has warned that the UK could not afford the vital stimulus required by the economy over the next 18 months due to the precarious state of its public finances. In its recent paper presented to a G20 meeting, it highlighted that every other G20 country apart from the UK and Argentina had been able to budget for temporary spending increases or tax cuts next year to pull their respective currencies out of recession. The news underlines prior warnings from S&P about the dire state ok UK finances and the risk of a possible ratings downgrade. Meanwhile the UK's Times reported that Lloyds Banking Group is poised to write off as much as GBP13 bln on its loans to commercial property, businesses and mortgage holders. GBPUSD broke through recent lows early in the Asian session and looks set to extend its fall. Also in the Telegraph, columnist Ambrose Evans-Pritchard's piece featured further bearishness on Europe as he lambasted the ECB, expressing concerns that its actions in refusing to join the 'club' of quantitative easing central banks could end in pushing the weakest states under its auspices into a debt-compound spiral that could end in bond crises and/or the disintegration of the EU. EUR started the Asian session with a mild bid tone but soon gave up the gains after struggling to break through the key 1.40 mark. Japanese politics hit the headlines over the weekend after metropolitan elections results saw PM Aso's LDP party lose its majority in the Tokyo assembly to the opposition DPJ party for the first time in 44 years. The result is seen as a good barometer for the pending general election and has stirred up a host of calls for immediate dissolution of parliament, possibly as early as tomorrow, as Aso faces increased pressure to resign from both within and outside the party. An early dissolution is regarded as being positive for markets as it removes the uncertainty early on. While the JPY is not seen as the most politically-influenced currency, and delay, and extreme opposition rhetoric (recall the DPJ spoke recently, and repeated at the weekend, about diversifying Japan's FX reserves away from the dollar medium-term), may take some of the shine off JPY's recent sparkle. Latest update: Reuters reports LDP has decided on an August 30 election. As we enter another week, tomorrow is beginning to shape up as the major event risk on the horizon. Goldman Sachs will be the first of a number of financial institutions reporting Q2 numbers while economic data features retail sales numbers for June. A NY Times article gave risk sentiment a lift during the Asian morning as it suggested Goldman's could produce astounding profits from its Q2 trading. On the retail sales data, markets are hoping that constructive rebounds in PMI readings of late will transfer into end-user demand. However, given the fragile nature of recent US consumer confidence data, any improvement will likely be marginal. Recent polls suggest a 0.4% increase following last month's +0.5% with the data series ex-autos remaining steady at +0.5%. On this theme, the latest Bloomberg poll showed economists upgrading their US growth estimates for the second half of the year and 2010 as a revival in consumer spending signals an end to the recession, the report suggests. The poll suggests growth will average 1.5% for the July-December period compared with last month's 1.2% forecast. However, the same report highlights that unemployment will likely exceed 10% early next year and average 9.8% for 2010. Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated. SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations. The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time. In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions.