Market Update
The USD remained under pressure in Asian trading on Thursday with the EUR/USD bumping above $1.4140, Cable pushing towards $2.0180 and the AUD and NZD looking pretty well bid. The yen remains soft on the cross rates and the USD, and while BoJ members were on the wires suggesting that the BoJ would need to raise rates at some point or else risk an overheating economy, given the run of data recently, one would expect they were talking about a theoretical situation, not what is at hand. The markets remain split in their thinking = Fed funds are looking for a rate cut before year end, while the bounce in Asian stock markets o/n is being partially attributed hopes for a quick bounce back in the US economy. Hmmm… the Aug. durables data was soft on the outside (-1.8% ex-transport) but given that the July figures were quite strong this was to be expected, while the non-defense capital goods shipments was up 0.8% (used for GDP figures), while the unfilled orders of capital equipment component was up 1.2% – pipeline for goods still healthy? The data is whippy at the best of times, and with aircraft orders and seasonals probably swinging the figures around time will tell whether or not demand is holding up. For today, there are plenty of Fed speakers on the table with the data focus on the new home sales figure. The final Q2 GDP reading will only move markets if it really changes away from 3.9%-4.1% sort of range, and even then the markdowns for Q3 and Q4 are so severe (economists lining up behind a 2% yoy GDP reading for ’07) that Q2 data may not matter. Housing sales are expected to slump, while Fed speakers will probably try and draw a line under the subprime fall out again. On the charts the USD is soggy vs. the European and commodity FX rates, bottom fishing looks a bit premature except vs. GBP and maybe the CAD, but the latter remains the puzzle as energy plays are one thing, but parity with the USD is a bit rich. Still, trend is your friend and all that, unless the EUR/USD starts to turn below $1..41 today then $1.43+ remains at risk, CAD needs to push through 1.0180 to look more basey, while the AUD is eyeing 0.88 for a push to new highs, NZD tagging along. Top picking? Tempting, but waiting for payrolls next Friday may be best?
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