Wakeup Call: USD On The Retreat... Short-Term

It looks like we will have a correction here. Keep a bearish bias for the short term, unless the USD makes new highs.

Overnight News Bullets

• GE PPI MoM/YoY (Jul) out at 2.0%/8.9% vs. 0.7%/7.5% expected.
• SW Total Number of Employees YoY (2Q) out at 2.0% as prior.
• SW Industry Capacity (2Q) out at 90.4% vs. 91.4% prior.
• GE ZEW Econ. Sentiment (Aug) out at -55.5 vs. -62.0 expected.
• GE ZEW Curr. Situation (Aug) out at -9.2 vs. 10.0 expected.
• EC ZEW Econ. Sentiment (Aug) out at -55.7% vs. -65.0 expected.
• CA Wholesale Sales MoM (Jun) out at 2.0% vs. 0.7% expected.
• US PPI MoM/YoY (Jul) out at 1.2%/9.8% vs. 0.6%/9.3% expected.
• US PPI Ex Food & Energy (Jul) out at 0.7%/3.5% vs. 0.2%/3.2% expected.
• US Housing Starts (Jul) out at 965K vs. 960K expected.
• US Building Permits (Jul) out at 937K vs. 970K expected.
• US ABC Consumer out at -49 vs. -50 expected.
• JN All Industry Activity Index MoM (Jun) out at -0.9% as expected.
• AU Westpac Leading Index MoM (Jun) out at 0.1% vs. 0.0% prior.
• AU DEWR Skilled Vacancies MoM (Aug) out at -1.7% vs. -0.5% prior.

Markets

• FX: USD went slightly lower yesterday and is likely to correct further today.
• Fixed Income: 10-year contracts finally performing negative price patterns, especially in Bunds.
• Stocks: Massive downside in European session, down more than 2%. US session down 1%. Nikkei unchanged. 
• Commodities: Precious metals coming back, but not really impressive. Crude Oil trading @ $115.

O/N Data Heat map:

Calendar

Today's Highlights:

This and Next Week's Highlights:

What's going on?

• Asian stocks have staged a broad-based rally, with Hong Kong and Chinese stocks leading the gains. Speculation that the Chinese government would seek to bolster the economy through possible tax cuts and eased monetary policy acted as a primary motivation for this round of a rally.
• Following the Asian equity rally and the bearish BoJ outlook, JPY is kept on the offer as risk appetite is emboldened and the carry trade formation is looking strong.
• The Bank of England's minutes from the last round of interest rate decision, scheduled for release today at 8:30 GMT, will be keenly observed for hints of future policy decisions. The speculation is currently pointing towards a language of easing inflationary pressures and as such fueling expectations of a future rate cuts.
  

FX

GBPUSD to break higher...

FX Trading Strategies

Equities

Stocks will trade higher led by energy and mining companies

Equities

We expect the European markets to open 0.2% higher Wednesday. The US equity indices were flat after the close in Europe and the S&P 500 future was up by 0.4%. Commodities rebounded overnight after recent drops, supported by a weak USD. Oil (1.6%), gold (1.6%), silver (1.2) and copper gained and will drive the mining companies and oil producers higher today. Our favorites are BHP Billiton, Rio Tinto and ArcelorMittal (due to higher steel prices) as well as Royal Dutch Shell and BP. We believe that car producers will be relative underperformers against the market after a newspaper in Japan speculated that Toyota has to cut its global sales target

Trading Strategy:

Trade Idea [Equities - Fundamental Call - buy Novartis (NOVN:xvtx)]: We are looking to buy within the entry range of 61-62, targeting 67. Keep a stop-loss at 59. The medical company has recently shown a strong uptrend and after a minor correction downwards we think there will another wave up.

Equity Index Levels

Analysis Disclosure & Disclaimer

Saxo Bank 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 Saxo Bank 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 do not occur as anticipated.

Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained.

Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment.

If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations.

The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time.

In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.

Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.