Wakeup Call: USD Strength Across The Board

Almost all major resistance levels taken out in the USD-crosses. But negative Citigroup and Merrill Lynch news might weigh heavily on stocks.

Overnight News Bullets

• SW Budget Balance (Jul) out at 51.5B vs. 13.8B prior.
• SW CPI Headline Rate MoM/YoY (Jul) out at -0.1%/4.4% as expected.
• SW CPI Underlying MoM/YoY (Jul) out at -0.3%/3.2% vs. -0.3%/3.2% expected.
• NO Industrial Production MoM/YoY (Jun) out at -0.7%/5.9% vs. 1.6%/2.8% prior.
• NO Ind. Prod. Manufacturing MoM/YoY (Jun) out at -1.2%/4.7% vs. -1.3%/5.3% expected.
• UK HBOS House Prices MoM/YoY (Jul) out at -1.7%/-8.8% vs. -1.5%/-8.6% expected.
• GE Industrial Production MoM/YoY (Jun) out at 0.2%/1.7% vs. 0.8%/1.5% expected.
• UK BoE Rate Announcement out at 5.00% (unchanged) as expected.
• E-Z ECB Rate Announcement out at 4.25% (unchanged) as expected.
• CA Building Permits MoM (Jun) out at -5.3% vs. -1.0% expected.
• US Initial/Continuing Claims out at 455K/3311K vs. 425K/3255K expected.
• US Pending Home Sales MoM (Jun) out at 5.3% vs. -1.0% expected.
• US EIA Natural Gas Storage Change out at 56 vs. 62 expected.
• US ICSC Chain Store Sales YoY (Jun) out at 2.6% vs. 3.4% expected.
• US Consumer Credit (Jun) out at $14.3B vs. $6.3B expected.
• JN Bank Lending incl. Trusts YoY (Jul) out at 1.8% vs. 2.0% expected.
• JN Eco Watchers Survey Current/Outlook (Jul) out at 29.3/30.8 vs. 28.9/32.1 expected.
• SZ Unemployment Rate (Jul) out at 2.3%/2.5% as expected.

Markets

• FX: Dollar stronger across he board with EURUSD and GBPUSD taking out key support. But EURUSD remains capped by 200 day MA.
• Fixed Income: Bunds had a strong close yesterday after Trichet's comments. US 10-year close to testing key resistance.
• Stocks: Stocks lower in US with financials and insurance leading the pack. Asian session showed little change.
• Commodities: Gold and silver following the stronger dollar. Crude oil sell-off capped by 117.02 61% (from 97.92-147.91).

O/N Data Heat map:

Calendar

Today's Highlights:

This and Next Week's Highlights:

What's going on?

• Euro has sank to a 5-month low against the dollar as Trichet's comments regarding weak growth estimates have caused the markets to reduce bets on future rate increases by the European Central Bank.
• AIG's largest reported loss since 1969 and Wal-Mart forecast of slower sales have taken the steam out of this week's advance in US equities, with S&P registering near 2% decline on Thursday's trading.
• Q2 earnings by the S&P500 companies show about 21% decline in earnings compared to a year earlier, with large automobile and consumer finance companies taking a disproportionately large hit.
  

FX

USDJPY to continue the uptrend after breaking the 50% Fibo Resistance...

FX Trading Strategies

Equities

Banks will drop on Citigroup story

Equities:

We expect the European markets to open 0.5% lower Friday. The US equity markets lost 1% after the close in Europe but the S&P 500 future is up by 0.3%. Main driver for the losses in the final trading hours in the U.S. were the financials with a drop of 2% after Citigroup settled regulatory claims for selling untradeable bonds (ARS) to private customers. As the face value of the bonds is lower today the bank has direct losses by buying back the bonds as well as having to pay a USD 100 million fine. A couple of European banks have sold these kind of products to U.S. private and institutional clients and we believe that UBS, Deutsche Bank and Barclays will lead the drop today

Trading Strategy:

Trade Idea (Equities - Fundamental Call - Deutsche Telekom (DTEGn:xetr) : We see another wave down as we were rejected at the upper end of the channel. The entry range is between 11.00-11.30 targeting 10.60. Keep a stop-loss at 11.60.

Equity Index Levels

Futures

We are looking for a technical rebound.

• Buy December Gold (gcz8) @ $972.20/967 area with a stop below $965.00 target $891.00.
• Despite the solid downward trend and lower levels to come, we are looking for a technical bounce in front of the week end, amid oversold technicals, the $869 00 level should offer a good opportunity, otherwise if broken down, $858 will be quickly reached.

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