Forex Market Update: Back In The Range Trading Mode After Last Week's USD Buying Party

While the markets have taken a breather in the frenzied USD-buying, with this afternoon's July PPI and Housing Starts figures from the US expected to give further direction to USD-longs.

MAJOR HEADLINES - PREVIOUS SESSION

• FR Bank of France Business Sentiment (Jul) out at 92 vs. 94 expected.
• EC Euro-Zone Trade Balance (Jun) out at -3.0B vs. 0.5B expected.
• CA Int'l Securities Transactions (Jun) out at C£7.247 vs. C$5.000 expected.
• US NAHB Housing Market Index (Aug) out at 16 as expected (all time low).
• NZ PPI Inputs QoQ (2Q) out at 5.6% vs. 2.3% prior.
• NZ PPI Outputs QoQ (2Q) out at 3.5% vs. 1.8% prior.
• AU Preliminary BoP Imports MoM sa (Jul) out at 5.0% vs. -2.0% prior.
• JN BoJ Target Rate out at 0.50% (unchanged) as expected.
• GE Producer Prices MoM/YoY (Jul) out at 2.0%/8.9% vs. 0.7%/7.5% expected.

THEMES TO WATCH - UPCOMING SESSION

Key event risks today (all times GMT):

• Canadian June Wholesale Sales (12:30)
• US July Producer Price Index (12:30)
• US July Housing Starts & Building Permits (12:30)
• US Aug 17th ABC Consumer Confidence (21:00)

Market Comments

While the Japanese central bank chose to keep its benchmark rates unchanged at 0.50% overnight in a decision that was widely anticipated by the markets, the accompanying statement was rather gloomy as both economic situation and economic outlook assessments were revised yet again lower. This statement is again set to heat the speculation on a potential rate cut - amounting to 25bp- in the near future. Even in the event of such a cut, the rate spreads in carry trades will not be significantly changed. However, expectations of possible rate cuts in an environment of gradually and slowly creeping inflationary pressures is certain to keep yen on the offer and as a uncontested funding currency in carry trades.

After last week's continued bidding for USD, markets are taking breather as US equities come under pressure, with USD-longs standing ready for a potential wave of profit taking and unwinding. While EURUSD has been kept in a tight range today, we look, however, for this range to be broken once again and have positioned ourselves to buy into a upside break at 1.4697 bid with an eye on 1.4750+ and selling into a downside break at 1.4631 offered, now a key support level, with a target below 1.46.

We also turn our attention to EURCHF as the risk aversion and USD-strenght take a double swing at euro, with EURCHF looking rather vulnerable below the 100 day SMA. In particular, we are looking for a key break on the downside at 1.6095 offered, which would open the scope towards the 1.6010 level and further on towards the 1.5950 mark.

Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

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.