Currency Pair Overview

Overall: Dallas Federal Reserve bank President Richard Fisher, who is generally considered to be an inflation hawk, said in speech today he expects that "US economic growth will decelerate to a snail's pace, if not completely grind to a halt, in the second half of this year." While adding that it was "quite possible" that the economy will "resume a more normal growth trajectory" at some point in 2009, he believes "we may see the slowdown extend into 2009 as the excesses that drove the housing markets unwind before the economy can again gear up to its cruising speed." He also warned that unless "the US economy can quickly pass the recent burst of cost-push pressures, we risk a reinforcing spreading of inflationary impulses and expectations. Should this happen and the Fed were to fail to address it, we would run the risk of losing the public's confidence in our ability to constrain inflation."

The euro (Euro/Usd) gained after better-than-expected reports on economic sentiment. A declining euro and lower oil prices helped German investor confidence in August, according to the ZEW Center for European Economic Research . Expectations rose to -55.5 from July's read of -63.9, which was the lowest read in the series’ history. German GDP may rise just 0.1% in the three months through September, the Berlin-based DIW economic institute predicted yesterday, although ZEW does not believe the German economy will contract into a recession. In the second quarter, the economy shrank 0.5% from the first three months. The economic expectations for the euro zone improved in August as well. The indicator increased by 8.0 points and now stands at minus 55.7 points. The indicator for the current economic situation in the euro zone decreased by 18.9 points and now stands at minus 22.2 points.

The cable (Gbp/Usd) tested the support in the lower 1.8500's but rose to finish virtually flat against the dollar ahead of the Bank of England's MPC meeting minutes, scheduled to be released on August 20 at 04:40 EDT. The market is expecting to see a 7-2 vote to hold and will search the minutes for additional clues as to the direction of monetary policy in the short term. The big question will be what might happen if the minutes reveal that three members voted for a decrease. Debate always rages around how much information may be priced in, but a break below the established support could once again turn traders against the pound.

The aussie (Aud/Usd) gained for just the third time in the last fifteen trading sessions as gold climbed near $810 per ounce. The minutes from Australia's central bank meeting on June 5 indicated it may soon cut interest rates for the first time in seven years to avoid a "deeper and more persistent" economic slowdown. "A case could be made for an early reduction in the cash rate," members of the Reserve Bank's board said. The market had already priced in the expected dovishness ahead of the minutes release.

The cad (Usd/Cad) fell for the third time in the last six trading sessions after a report from Statistics Canada said that Canadian wholesale sales rose 2.0% to Cad$45.2 billion in June. This was the fifth increase in wholesale sales in the last six months. Reports on June retail sales and the leading indicator for July will be released on August 20 at 08:30 EDT.

The swissy (Usd/Chf) decline for just the second time in the last ten trading sessions as U.S. equity markets declined. There were no economic reports issued from Switzerland on Tuesday.

The yen (Usd/Jpy) declined with the S&P on Tuesday. The Bank of Japan left its call rate at 0.5% for the 21st straight meeting on Tuesday and will release its monthly report at 02:00 EDT on Wednesday August 20.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.