There was some consolation after the news when the FED Bernanke stated they will allow the two Government Sponsored Enterprises to access the discount window, but it will not let them off the hook.

The price of Oil at $147 has also pressured the USD on speculation that Israel may attack Iran. There is talk that the EUR is safe haven for the near term as JPY and CHF also weakened against the EUR as a consequence of outflows from GSE’s.
AUD micro data remain strong and IR differentials holding in AUD favour, at present. The coming week is expected to be volatile under current sentiment with the financials as two banks have reported bailout/bankruptcy concerns and a call for FDIC to come in. The challenge may become the ability of the financial depth of the FDIC and their financial integrity to hold up to claim demand if the financial crisis worsens.

Paulson said financial firms must be allowed to fail. I view this has healthy and natural to allow the market run its own course, regardless of fallout.
ECB - Trichet said in his testimony before European Parliament that "The annual HICP inflation rate is likely to remain well above the level consistent with price stability for some times, moderating only gradually in 2009," and "risks to price stability remain clearly on the upside and have intensified over recent months earlier slowed from 4.9 to 3.7% yoy growth, but was above expectation of 3.3%.

AUD - The job data, which expanded for 19 out of the past 20 months, and last week's strong gain in retail sales, were both showing the underlying robustness in the Aussie economy, particularly so in a climate of significant global uncertainty. The National Australia Bank's index of overall business conditions shed 7 points in June to 0, the worst reading since late 2001. Business confidence dropped further from -4 to -9. Westpac consumer confidence dropped -6.7% in Jul.

The Week Ahead

• It's an extremely busy week in the US with highlights on Bernanke's Semiannual Monetary Policy Testimony and FOMC meeting minutes and forecasts. Retail sales is expected to maintain momentum by growing 0.5% mom in June, with ex-auto sales climbing 1.0%.
• Inflation data will be another focus in early part of the week with PPI featured on Tuesday.
• CPI will follow on Wednesday, and is expected to show acceleration to 4.5% yoy, with ore CPI unchanged at 2.3% yoy.
• Empire state index and Philly Fed index are both expected to improve mildly in July.
• More housing data will be released, including NAHB housing market index and new residential construction which are expected to show further deterioration in the housing markets.
• From Eurozone, main focus is on Germany ZEW which is expected to deteriorate further to -55 in Jul. ZEW will typically poses risk and volatility in the event of a surpise if it is not overrun by US factors.
• Jun HICP final is expected to be at 4.0% yoy.
• Inflation is a main focus in UK, in particular, headline CPI is expected to be unchanged at 3.6% yoy in Jun. PPI will also be featured. Other important focus in UK include Jun employment report.
• BoJ is expected to leave rates unchanged at 0.5%. BoC is expected to be on hold at 3.00%. From Australian, main focus will be on RBA minuets to be released on Tuesday. New Zealand Q2 CPI, May retail sales.
• AUDJPY to remain strong – risk remains with potential deleveraging or natural risk aversion inspired by the next financial secret or fed speak. Buy AUDJPY on dips to key levels.

Anticipate signs of life from USD on the crosses as some data will surprise over sentiment or the print to some degree. Watch ZEW, HICP, BoC and RBA minutes to get familiar with the market response to the events, in relation to what is expected and how the data is scrutinized.

As usual, I will be trading off the technical’s either long or short, depending on the patterns and impulse.

Good Luck with your trading and Be Careful Out There!

Chris Lori
CTA

Tags: USD