Weak German GDP Increased Demand on Safe Haven

Although some optimism was seen within the financial markets this morning after Google agreed to buy Motorola Mobility for $12.5 billion in its largest acquisition while Warren Buffett said “I like buying on sale”, the release of the German and EU’s GDP managed to increase demand on safe haven once again.

Germany released a worse than expected GDP report today. Growth slowed in the second quarter to 0.1% from 0.5% expected and 1.5% previous, sparking concerns about a possible slowdown in the region. Growth also slowed in the EU to 0.2% from 0.3% expected, confirming those fears.

This data is adding pressures on the policymakers to act fast and solve the region’s debt problems. Thereby the leaders of Germany and France, Chancellor Angela Merkel and President Nicolas Sarkozy, will meet today in Paris to discuss potential solutions to Europe’s debt crisis.

No concrete solution are expected, thereby investors started looking for safe haven. Meanwhile the yen continues to trade within the strongest parts of its range around 76.77. The CHF strengthened today trading around 0.7805 despite a possible invention by the Swiss National Bank.

Gold continues to trade near its highs around $1777.00 per ounce, while oil fell slightly trading around $86.90. The dollar index is trading near today’s highest of 74.16 although the empire manufacturing index was very disappointing yesterday which puts the manufacturing sector in an alarming position.

Today the U.S. will release its building permits and housing starts numbers along with the industrial production for the month of July, yet eyes will be Europe today, since the global conditions are deteriorating and a possible recession started being discussed.

The euro fell today from a three-week high versus the dollar trading as of this writing around the 1.4395 level. The GBP however saw some limited losses, trading around the 1.6375 as of this writing, after a report showed than inflation rose more than expected during July to 4.4% from 4.2% previous, adding pressures on BoE to increase rates.

USD/JPY Daily Fundamental Analysis for August 17, 2011

The USD/JPY pair traded in a narrow range early Tuesday, as the Japanese yen and the dollar gained more momentum against their major counterparts, where investors abandoned higher yielding currencies after the uncertainty about the global recovery.

The Japanese economy contracted by 0.3% during the second quarter better than the expected reading, where domestic demand and the recovery efforts from the Japanese government and the BOJ helped the economy slow the contraction.

Investors increased demand for the Japanese currency as a safe haven, after risk aversion returned to control the market increasing pressure on the yen to soar to the danger zone against greenback.

The USD/JPY pair is now trading near the pre-intervention levels, which fueled fears of another intervention from the BOJ, especially with the ongoing drop in the global bourses which increased demand for safe haven currencies like the green back and the Japanese yen.

On Wednesday, the U.S. economy will release the PPI index for July at 12:30 GMT, where the previous reading was down by 0.4% and expected at 0.1%, while the annual reading is expected to come at 7.0% in line with the previous.

NZD/USD Daily Fundamental Analysis for August 17, 2011

The NZD/USD pair dropped for the second day after the US dollar regained momentum against most of its major counterparts; on the other hand the disappointing manufacturing figures from the U.S. encouraged investors to abandon higher yielding currencies.

The risk aversion is paramount in the FX market, as investors increase demand for the greenback over other higher yielding currencies. Financial and economic problems are still causing fears between market participants, which translated to a negative market sentiment for currencies.

The New Zealand economy witnessed some improvement in the second quarter after the natural disaster that hit the economy. Further, the European crisis with the sluggish U.S. economy is still affecting the global economy, where New Zealand economy is one of the countries that are affected by this crisis.

On Wednesday, the U.S. economy will release the PPI index for July at 12:30 GMT, where the previous reading was down by 0.4% and expected at 0.1%, while the annual reading is expected to come at 7.0% in line with the previous.

AUD/USD Daily Fundamental Analysis for August 17, 2011

The AUD/USD pair retreated early Tuesday for the first time in four days, as the RBA minutes showed a dovish stance from the central bank, which reduce demand on the Aussie and gave greenback the chance to cover most of its previous losses.

The Reserve Bank of Australia August meeting minutes reflected concerns about the current debt crisis in EU and United States, in addition to the weakening global recovery affecting negatively the Australian economy and its recovery chances.

The Australian dollar lost ground against the dollar after the dovish stance from the RBA, which confirms the previous comments from the central bank that the interest rates will be steady at 4.75% till the end of this year.

On Wednesday at 00:30 GMT, the Australian economy will report the Westpac leading index for the month of June, while the previous declined to -0.1% in May.

The U.S. economy will release the PPI index for July at 12:30 GMT, where the previous reading was down by 0.4% and expected at 0.1%, while the annual reading is expected to come at 7.0% in line with the previous.

EUR/USD Technical Analysis August 16, 2011

The EUR/USD pair continues to rise on Monday as the possibility of a bullish flag being formed is still contemplated. The flag look like the final target would be as high as 1.65, based upon the “pole” of the pattern. Also, there is the possibility that we are not in a flag pattern, but rather a downward channel. Either way, this pair will be beholden to the Tuesday meeting between Sarkozy and Merkel. The reaction to that meeting could be the key for the destination for the pair in the long-term. If the EU cannot come to some kind of solution to the debt crisis, this pair will sink like a stone. In the meantime, the top of the flag is roughly 1.45, and if we can close above that level on the daily chart, we will be long this pair for several weeks if not months or years. Tuesday really could be that important. A failure to come to terms will be a simple sell and watch it fall scenario. In the interim, we are sitting still in this pair.

USD/JPY Technical Analysis August 16, 2011

The USD/JPY pair did very little on Monday as traders have learned that the Bank of Japan isn’t very amused by the attempts to push this pair below 77. The last several candles do in fact make several hammers, and this looks very supportive. We have been looking for that thrust upwards in which to join in. Until that happens, we can only watch. The entry point for us is the 77.60 mark – this is to give us a move above not only the 77 level, but the .50 level that often produces reactions in price as well. We won’t sell – the Bank of Japan won’t let us.

GBP/USD Technical Analysis August 16, 2011

The GBP/USD pair found itself rallying on Monday as traders took on more risk around the world. The pair has been bouncing between 1.60 and 1.65 or so for some time now, but it should be noted that the pair wasn’t able to reach the 1.60 on the last move down. This can be a sign of a failed run by the bears, and that the pair could rise once it breaks above the 1.65 level.

The Bank of England puts out the Inflation Letter on Tuesday, and the CPI also comes out. If either of these looks bullish or surprise to the upside, this pair will certainly break above that resistance area. However, the consensus is that they won’t, and if that is the case we might still be consolidating for a while.

USD/CHF Technical Analysis August 16, 2011

The USD/CHF has risen quite rapidly on Monday, as well as over the last few days as the Swiss National Bank looks like it wants to attempt a peg to the Euro in order to stem its rise. The conversation has scared a lot of the weaker players out of the markets, and we have shot straight up to the 0.8000 level. As you can see on the chart, it appears that we have failed to break above that level so far, and that we could get another leg down.

Any confirmation or refusal to peg this currency will have massive effects on the future of the Franc. The action on the Monday candle looks somewhat exhaustive, and as such – we are willing to step in on the short side if we can break the bottom of the Monday range. The pair certainly looks vulnerable suddenly, and this latest spike might just be another selling opportunity after all. We would have to close above 0.8000 on the daily chart to consider going long of this pair.

EUR/CHF Technical Analysis August 16, 2011

Threats of a currency peg continued to drive the price of EUR/CHF higher on Monday as traders have been running from the CHF in droves. However, at the end of the session, we have seen that the pair has failed at the 1.15 level, and is forming a shooting star. The trend is down, and as such – we like sell signals. The word is that if a peg is done, it will be to the 1.10 level, and that would mean that the market has to fall from here. We like the candle shape, the location, and the trend being part of this potential move. We are sellers if the bottom of the Monday range gives way to the downside. A break above this candle sends this pair looking for 1.18 and 1.20 respectively.

AUD/USD Technical Analysis August 16, 2011

AUD/USD rose again on Monday as traders took on more risk around the world. The pair has slammed into the 1.05 area, which is an area that once served as support. Because of this, we would assume that it serves as resistance in the near-term. Even with the massive fall last week, the trend is still most definitely up, and we would expect that level to give way eventually. In the meantime, we want to see a pullback in order to go long. The 1.04 could be supportive as well, based upon recent action.

USD/CAD Technical Analysis August 16, 2011

The USD/CAD pair fell fairly hard as oil markets rallied on Monday, pushing demand for the Loonie higher. If should be noted that this is with the trend, and as such – we expected this move. We had told you that the oil markets would hold the key for this pair, and this has proven true. The 0.98 level will be somewhat supportive as all round numbers tend to be, but in reality – this pair going down is natural as it is with the overall trend.

If oil can break above the $90 mark, you can pretty much bet that this pair falls hard in reaction. The 0.9450 level would be inviting as traders know that the situation in this pair is decidedly down. If economic numbers out of the US are good this week, (CPI on Thursday as well as Philly Fed numbers) this could accelerate the down move as traders will certainly buy oil, and then buy the CAD in turn.

NZD/USD Technical Analysis August 16, 2011

NZD/USD had a very quiet day as traders embraced all things risk-related on Monday. This is particularly odd as the Kiwi is considered a massive “risk on” play. The pair has gravitated towards the 0.83 level, even if it is somewhat minor in its importance. The upcoming PPI Input number on Tuesday could move this pair a bit, but in the meantime, we see this as being in a “holding pattern”. If the PPI Input number comes in higher than expected, ( > 1.2%) we could see a surge back to 0.85 in short order. If not, we think this pair wants to meander around the current level.

USD/CAD Daily Fundamental Analysis for August 16, 2011

The USD/CAD pair fell on Monday, where rising risk appetite around global financial markets after the Japanese economy contracted yet the contraction was above estimate, which boosted higher yielding assets, and provided the CAD with momentum to rise against the USD, accordingly, the USD/CAD pair dropped to the downside. Moreover, rising crude oil prices further supported the CAD against the USD.

The uncertainty that continues to dominate global financial markets should continue to boost demand for lower yielding and more safe assets, and accordingly, we preserve our bullish outlook for the USD/CAD pair, and any downside movements are not expected to prevail for long, since risk aversion will provide the USD/CAD pair with the needed bullish momentum.

Tuesday August 16:

Germany will start the GDP day at 06:00 GMT with the expected slowing pace of expansion into the second quarter with 0.5% from 1.5% recorded in the first quarter.

The GDP data from the euro zone is due at 09:00 GMT for the second quarter and surely expectations are for slowing pace of expansion at 0.3% following 0.8% in the first quarter of the year.

Other than the critical GDP data, the focus will also be on the scheduled meeting between Merkel and Sarkozy to discuss the worsening crisis in the euro area which markets will track closely and increase the volatility.

From the United States the Housing Starts for July is due at 12:30 GMT which is expected with 3.3% drop to 608 thousand from 629 thousand.

At 12:30 GMT, Canada will release the manufacturing sales index for June, where it’s expected to drop by 0.5%, compared with the prior drop of 0.8% back in May.

At 13:15 GMT, the Industrial Production for July is expected with 0.5% rise following 0.2% while the Capacity Utilization to rise marginally to 76.9% from 76.7%.

Optimism Spreads Across Global Markets, as Rising Stock Markets Boost Risky Assets

Optimism spread through global financial markets on Monday, leading global equity markets to rise, which supported confidence among traders and boosted demand for higher yielding assets, as Japan reported a better than expected economic contraction during the second quarter of this year, which encouraged investors to target risky assets.

Moreover, Google announced it agreed a deal to buy Motorola Mobility Holdings Inc for $12.5 billion in cash, where the deal was struck at $40 per share, offering more than 60% in premium, which boosted confidence among traders, as stock valuations dropped to multi-year lows after the recent selloff.

The United States though released the empire manufacturing index for the month of August, where the empire manufacturing index showed a bigger than expected contraction, however, markets shrugged the empire manufacturing report and focused on the positive data.

Stocks in the United States rose by opening on Monday, where the Dow Jones Industrial Average was up by nearly 1.20% to trade around 11,405, while the S&P 500 index was up by nearly 1.35% to trade around 1194. European stock indexes were higher as well before closing on Monday, where FTSE 100 was up by nearly 0.85% to trade at 53644and the DAX was up by nearly 1.15% to trade around 6067.

The U.S. dollar fell against a basket of major currencies on Monday, where the U.S. dollar index was trading at 73.97, compared with the opening level at 74.48. The Euro gained strongly against the Dollar, where the EUR/USD pair rose to trade at $1.4451, compared with the opening level at $1.4283, and the British Pound extended its gains against the Dollar for a third day, where the GBP/USD pair traded around $1.6373, compared with the opening level at $1.6283.

Gold prices extended the drop for a third day on Monday after rising to a new record high above $1800 an ounce last week, as gold dropped to trade around $1739 an ounce, and crude oil prices extended the rise to trade around $86 a barrel.

GBP/USD Daily Fundamental Analysis for August 16, 2011

On Tuesday, U.K. CPI and RPI data will grab attention at 08:30 GMT where expectations refer to rise in CPI annual reading for July to 4.4% from the prior 4.2%. The data is predicted to have an impact on the pair if it came much higher or lower than forecasts.

Last week, the BoE lowered inflation outlook in the medium term, yet the bank referred previously that the rate may climb to 5% over the coming few months.

For the US, at 12:30 GMT, the market’s attention will be back to housing data with the release housing starts and building permits for July as it will provide evidence about the status of the housing market that triggered the 2008 crisis. Housing starts are predicted to retreat to 608,000 from 629,000 a month earlier, while building permits is set to decline to 606,000 from 624,000. At the same time, with lower relevance, import price index is due. At 13:15 GMT, industrial production and capacity utilization for July will be out.

On Monday, the pair continued its rise as the jittery situation eased with the release of the better-than-estimated growth report from the Japanese economy which showed that the third largest economy is recovering after the devastating quake, which triggered demand on high-yielding currencies.

Yet, the outlook for the British economy worsened with the cut in growth outlook by the BoE in last week’s inflation report which may not help the pound to continue its upside direction.

USD/CHF Daily Fundamental Analysis for August 16, 2011

On Tuesday, at 12:30 GMT, the market’s attention will be back to housing data with the release housing starts and building permits for July as it will provide evidence about the status of the housing market that triggered the 2008 crisis.

Housing starts are predicted to retreat to 608,000 from 629,000 a month earlier, while building permits is set to decline to 606,000 from 624,000. At the same time, with lower relevance, import price index is due. At 13:15 GMT, industrial production and capacity utilization for July will be out.

On Monday, the franc dropped against majors, including the dollar, after opening on a gap as better-than-estimated growth report by the Japanese economy boosted hopes, thereby lowering demand on low-yielding currencies. Also, the franc continued to benefit from the SNB monetary interventions, where it was reported that there are talks between the Swiss National Bank and the government to put a target for the franc to halt its appreciation which affected Swiss exporters. Thus, with the strong intention from the SNB to halt the franc’s rally along with the anemic outlook for the U.S. economy, the pair is predicted to move further to the upside.

EUR/CHF Daily Fundamental Analysis for August 16, 2011

The EUR/CHF started the pair with heavy volatility and a clear upside bias as the franc continued to weaken versus the euro and other major counterparts like the dollar on expected further intervention from the SNB to stem the currency’s rally.

We can clearly see the strong movement for the franc and the upside tendency for the pair for now biased on rumors and not strong intervention from the SNB, especially after the initial moves did little to weaken its status as a haven currency.

Investors started to abandon the franc on fear of intervention or decisive and invasive action only after comments from SNB that setting exchange rates or a peg where of the range of options considered.

Still, we expect the volatility to remain evident this week and especially on Tuesday with the focus drifting towards Markel and Sarkozy’s meeting which investors hope will provide any agreement and a strong front to fight the worsening debt crisis.

Also growth figures from the euro area are expected weak which will further weaken the euro and push the pair lower in an attempt to cover the opening bullish gap and accordingly more fluctuation will be seen.

Germany will start the GDP day on Tuesday at 06:00 GMT with the expected slowing pace of expansion into the second quarter with 0.5% from 1.5% recorded in the first quarter.

The GDP data from the euro zone is due at 09:00 GMT for the second quarter and surely expectations are for slowing pace of expansion at 0.3% following 0.8% in the first quarter of the year.

At the same time, we also have the euro area trade balance for June after the recorded deficit of 0.6 billion euros in May.

As we said, the focus will also be on the scheduled meeting between Merkel and Sarkozy to discuss the worsening crisis in the euro area which markets will track closely and increase the volatility.

EUR/USD Daily Fundamental Analysis for August 16, 2011

The EUR/USD started the week with a general upside bias on a slight eased sentiment and unwinding of some of the pessimism that haunted the market after good data eased the fear of a double-dip recession.

Investors still have their eyes on growth and financial markets tension with anticipation to what the next move might be from policy makers which marked the start of the week for the euro ahead of the German-Franco summit.

Still, we expect the volatility to remain evident this week and especially on Tuesday with the focus drifting towards Markel and Sarkozy’s meeting which investors hope will provide any agreement and a strong front to fight the worsening debt crisis.

Also the second quarter growth figures from the euro area are expected to confirm the slowing pace of expansion across the region and might pressure the euro to the downside versus the dollar. Nevertheless, the expansion and any strong and united comments from the meeting between Merkel and Sarkozy the euro will be able to hold the gains and unwind the losses on eased jitters.

Germany will start the GDP Tuesday at 06:00 GMT with the expected slowing pace of expansion into the second quarter with 0.5% from 1.5% recorded in the first quarter.

The GDP data from the euro zone is due at 09:00 GMT for the second quarter and surely expectations are for slowing pace of expansion at 0.3% following 0.8% in the first quarter of the year.

At the same time, we also have the euro area trade balance for June after the recorded deficit of 0.6 billion euros in May.

Other than the critical GDP data, the focus will also be on the scheduled meeting between Merkel and Sarkozy as we said to discuss the worsening crisis in the euro area which markets will track closely and increase the volatility.

From the United States the Housing Starts for July is due at 12:30 GMT which is expected with 3.3% drop to 608 thousand from 629 thousand.

At 13:15 GMT, the Industrial Production for July is expected with 0.5% rise following 0.2% while the Capacity Utilization to rise marginally to 76.9% from 76.7%.

USD/JPY Daily Fundamental Analysis for August 16, 2011

The USD/JPY pair started the week with low trading volume, while the Japanese yen retreated against most of its major counterparts as the Japanese second quarter GDP came better than estimated, increasing demand for riskier assets.

The Japanese economy contracted by 0.3% during the second quarter better than expected, where domestic demand and the recovery efforts from the Japanese government and the BOJ helped the economy to ease the contraction affected by the March Tohoku Earthquakes.

On the other hand, the Japanese currency retreated against other majors after the Japanese Finance Minister declared that the government is monitoring the yen’s movements, and another intervention in the FX market could be witnessed.

On Tuesday, the U.S. economy will release the import price index for July, where the previous reading was – 0.5% and expected to come at –0.1%, while the annual import price index for July is expected to come at 13.4% from the previous 13.6%.

The U.S. housing starts index for July will be up released at 12:30 GMT, where it had a previous reading of 629 thousand and expected to come at 608 thousand down by 3.3%.

As for the building permits for July it will be up at 12:30 GMT, where it’s expected at 605 thousand down by 1.9% from the previous 624 thousand.

On the other hand, the industrial production for July will be published at 13:15 GMT, where it had a previous reading of 0.2% and expected to come at 0.5%. The capacity utilization for July is expected to come at 76.9% from the previous reading of 76.7%.

NZD/USD Daily Fundamental Analysis for August 16, 2011

Kiwi started the week with an upside movement against the American dollar, as Asian stock markets extended a global equities rebound, spurring demand for higher yielding currencies.

TheNew Zealandeconomy witnessed some improvement in the second three months after the natural disaster that hit the economy. Further, the European crisis with the sluggish U.S. economy are still affecting the global economy at this time, so the New Zealand economy is one of the countries affected by this crisis.

New Zealand’s Central Bank expect economic growth in New Zealand to expand 0.3% during the first three months of 2011 after economic activity showed some signs of recovery along with household spending expected to widen softly. The outlook for the New Zealand economy is improving.

On Tuesday, the NZ economy will release the producer price inputs for the second quarter at 22:45 GMT (Monday) that is expected to rise by 1.0% compared with a previous 2.2%.

The U.S. economy will release the import price index for July, where the previous reading was – 0.5% and expected to come at –0.1%, while the annual import price index for July is expected to come at 13.4% from the previous 13.6%.

The U.S. housing starts index for July will be up released at 12:30 GMT, where it had a previous reading of 629 thousand and expected to come at 608 thousand down by 3.3%.

As for the building permits for July it will be up at 12:30 GMT, where it’s expected at 605 thousand down by 1.9% from the previous 624 thousand.

On the other hand, the industrial production for July will be published at 13:15 GMT, where it had a previous reading of 0.2% and expected to come at 0.5%. The capacity utilization for July is expected to come at 76.9% from the previous reading of 76.7%.