USD Bulls Back in Business

While EUR continues to come under heavy weight of poor fundamentals, this time around contracting German economy, US dollar looks to establish itself almost as an alternative flight-to-safety currency

MAJOR HEADLINES - PREVIOUS SESSION

• NZ Food Prices MoM (Jul) out at 0.6% vs. 1.3% prior.
• SW Trade Balance SEK (Jul) out at 9.4B vs. 8.2B prior.
• US Existing Home Sales (Jul) out at 5.00M vs. 4.91M expected.
• US Existing Home Sales MoM (Jul) out at 3.1% vs. 1.0% expected.
• NZ Trade Balance (Jul) out at -781M vs. -538M expected.
• JN Corporate Service Prices YoY (Jul) out at 1.3% vs. 1.2% expected.
• NZ RBNZ 2-year Inflation Expectation (3Q) out at 3.0% vs. 2.9% prior.

THEMES TO WATCH - UPCOMING SESSION

Key Risk Events (All times in GMT)

• US June S&P/CaseShiller Home Price Index (13:00)
• US August Consumer Confidence (14:00)
• US July New Home Sales (14:00)
• US August Richmond Fed Manufacturing Index (14:00)
• Minutes of FOMC August 5th Rate Decision Meeting (18:00)
• US Weekly ABC Consumer Confidence (21:00)

Market Comments

While USD-longs are back firmly in a dominating role in the FX theater, broad equity losses are pushing for a curious environment where unwinding carries such as EURJPY are accompanied by weaker gold and every stronger USD, even in places like USDJPY. On the equity front, the American stocks have dropped by largest amount in a month as eroding confidence in the financials is exasperated by Credit Suisse's evaluation that AIG's mortgage writedown related losses for Q3 may run up to a staggering $2.41B.

Today's US economic calendar is rich with housing and consumer confidence related releases, with median surveyed expectations for July New Home Sales pointing to a near 1% monthly drop in the purchases of new houses or to annual rate of 525K houses. March figure of 513K this year has so far marked the lowest level since 1991. Should a tragic drop in housing figures indeed materialize, a steady profit taking could be expected in dollar-longs.

Re-visiting the bigger picture in EURUSD, however, we have already set our eyes at the final retracement level of the last great up-wawe, or 1.4440 area to be exact. Break and a weekly close below this level is set to take us straight towards the 1.4365-1.4310 zone.

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.

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