In the aftermath of the G20 meeting it seems that policy makers are still clearly disturbed about the state of exchange rates. In the last few days we have heard choirs of high profile complaints against currency strength. With the EURCHF trading around the 1.5100 level, markets should be focused on the recent SNB comments, which forcefully defend action (not a beggar-thy-neighbor strategy) while staying committed to their current interventionist policy. In Canada, BoC Governor Carney reiterated that long term persistent strength of the CAD would be negative for the Canadian economy and prolong soft inflation figures. While yesterday ECB's Trichet and Nowotny both said a strong USD is “important” for the global economy. Perhaps the most interesting, while confusing, would be the comments from Japan. Overnight new Minister of Finance Hirohisa Fujii seems to be backtracking from recent comments and now has expressed some displeasure at JPY moves but also declined to commit to intervention, stating the market had twisted his earlier statements. In the last 24hr Fujii has said “We are watching FX moves closely” and “FX intervention is possible under extreme circumstances.” On the other side, Prime Minister Hatoyama stated that the JPY rise is already hurting small companies, hinting that the new government will probably not permit the Yen to appreciate forever. Sounds like the historical goverment policy of a weak JPY is returning. These comments have created considerable distortion in the FX markets and traders would be advised to watch out for continued verbal intervention. Wall Street was able to close on a high note and for the most part Asian regional indexes follow (lone exception Shanghai -0.21%). The rally in risk appetite feels light with only a slight rebound in risk correlated trades. Yesterday’s economic calendar was light, while today we have couple of releases, which could move the markets. The UK Q2 GDP turned out to a nonevent, printing at -5.5% y/y vs. -5.4% exp, -0.6% q/q vs -0.6% exp. And from the Eurzone September’s increase in economic sentiment to its highest level in a year is another good sign that the domestic economy continues to recover. Economic sentiment, jumped to 82.8 from 80.8 , a touch higher than expected . From the US we’re awaiting S&P/Case-Shiller Composite-20 Y/Y Jul house price index and the consumer confidence for September.


Today's Key Issues (time in GMT):

 07:30 SEK Retail sales, % m/m (y/y) Aug 1.9 (5.4) exp08:00 EUR Retail PMI, index Sep 47.1 exp

08:30 GBP Final GDP, % q/q (y/y) Q2) -0.6 (-5.4) exp, -0.7 (-5.5) P prior

08:30 GBP BoE mortgage approvals, K Aug 51.5 exp, 50.1 prior

08:30 GBP BoE net secured lending, £ bn Aug 0.2 exp, -0.4 prior

08:30 GBP BoE net consumer credit, £ bn Aug 0 exp, -0.2 prior

08:30 GBP BoE publishes sectoral breakdown of M4 data Aug

09:00 EUR Consumer confidence, index Sep -21 exp, -22 prior

09:00 EUR Industrial confidence, index Sep -24 exp, -26 prior

10:00 GBP CBI distributive trades, reported sales Sep -13 exp, -16 prior

13:00 USD S&P/Case-Shiller 20-city HPI, % m/m (y/y) Jul (-14.3) exp, -0.7 (-15.44) prior

13:00 SEK Riksbank Governor Ingves will speak on A Cure for Crisis: Confidence, Confidence and Trust

13:50 USD Fed Reserve Bank of Dallas President Fisher will speak

14:00 USD Consumer confidence Sep 57.0 exp, 54.1 prior

23:00 USD Fed Reserve Bank of Philadelphia Plosser speaks

23:01 GBP GfK consumer confidence survey, balance Sep -24 exp, -25 prior

The Risk Today:

 EurUsd EURUSD is likely to continue trading in a choppy fashion as we remain between 1.4515 and 1.4730. 14-day RSI currently stands at a benign 57 which does not suggest the pair is oversold after last week's correction lower; nevertheless, despite a resurgence of risk aversion that should focus attention on the downside, expect considerable support at the 1.4515 level. 

  GbpUsd GBPUSD remains on a downtrend after last week's head and shoulders top, but as 14-day RSI hovers around 30 and most GBP crosses are decidedly signalling oversold territory, we believe a test of the neckline around 1.5950 could well materialize given the heavy buying we have seen today. While GBPUSD remains below 1.6150 resistance, the near-term support remains just below 1.5800 and further at 1.5690. 

  UsdJpy Verbal comments will keep this pair very jumpy. USDJPY emphatically pierced through the psychologically important 90.00 handle, pointing to a resumption of a longer term downtrend in the pair. 90.50 should contain any rallies as focus turns to the 87.10 lows. 

  UsdChf traders are careful pushing this pair much lower considering the SNBs stern warning and past actions. The USDCHF correction has made a push towards intraday resistance at 1.0390, however the bigger picture remains bearish and we expect to see a resumption of selling pressure towards first support at 1.0250 and then 1.0190. 

Resistance and Support:

1.4850 1.6085 91.90 1.0490
1.4770 1.6050 91.10 1.0390
1.4720 1.5990 90.50 1.0375
1.4579 1.5842 89.76 1.0363
1.4560 1.5815 89.15 1.0250
1.4510 1.5770 88.25 1.0190
1.4460 1.5750 87.10 1.0130
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot