Alex Chernomordin's blog

Canadian Prime Minister Harper notes there are no signs of a real recession. He added the following:

• Harper adds that income growth is significant; employment is staying at high levels.
• 2 consecutive quarterly GDP declines are not a recession.
• Employment numbers are softening but remaining quite high.

The GDP quarter over quarter came in significantly better than expected at 3.3% versus the 2.7% survey and the 1.9% reading the prior quarter.

The Personal Consumption indicator was also better than expected at 1.7% versus the 1.6% estimate. Exports were revised up (+13.2% versue +9.2% in earlier report) while imports were revised lower (-7.6% versus-6.6%).  Imports subtract from GDP.  Inventories were also revised higher.  The Core PCE came in on the number at 2.1%.

Overall this is a very positive report for the USD and it has reacted appropriately getting bid against most of its counters.

The current rise in oil prices, fueled most recently by the developing category 4 hurricane Gustav headed for the Louisiana coast and the Gulf of Mexico has helped lead USD/CAD lower. Looking at this move on a retracement analysis from mid-July when the pair traded below parity, we are noticing some short term technical levels developing. For the last week with oil coming off of its lows the pair tested the 200 hour moving average and failed lower through 2 retracement levels. The current rise in the price of the pair, likely a rebound from the initial reaction related to rising oil prices due to the hurricane has just penetrated the 100 hour moving average and has a chance to test the 200 hour again.

Reviewing the Aussie Kiwi pair on a daily chart using the 3/26/08 lows and 7/24/08 highs, we notice some key technical levels that have come into play. With the markets building in more aggressive interest rate easing in Australia and well as some earlier easing concerns in New Zealand, the losses the Aussie sustained against the Kiwi have been more measured than against other currencies. Today however, we find the pair trading in a tight range, between the 38.2% and 50% retracement for the second half of August, with one close above 38.2%. With the 100 day and 200 day moving averages providing some resistance and support along this range, a break in either direction could create a revised perspective.

The Euro Swissy pair has received a slight bid early in NY Trading today, breaking north of the 38.2% retracement and hitting the 55 hour moving average then trading lower. Using the hourly retracement analysis from the lows on July 16th and the highs of July 31st, as well as the 55 and 200 hour moving averages, we can see a number of important technical levels the pair needs to break to the upside in order to recapture recent levels. However, moving lower seems to be the easier path as a growing climate of concern surrounding the inflationary and slowing economic growth picture in the Euro Zone continues. In addition, the 55 hour moving average has again crossed below the 200 hour, continuing the negative sentiment.

The US Durable Good Orders expected flat at 0.0% came in above expectations at 1.3%, the prior months reading was +0.8%, revised up 1.3%. The Durable Good Orders removing the Transportation sector was expected at -0.7% came in better than expectations at .7%, the prior months release was +2.0%, which was revised up to 2.4%. The USD is reacting positively to this report.

Orders for Non Defense Capital Goods excluding aircraft increased by 2.6 percent.  Shipments for these orders increased by 0.6%. This was higher than 0.4% in June. The June number was revised down from 0.7%.  This figure is used in GDP figure and may therefore have a negative effect on the 2nd quarter revision announced tomorrow. Expectations are currently for the 2nd quarter GDP to come in at 2.7%. 

Reviewing the last year on the AUD/USD we notice the pair is poised to make new lows for 2008. Using a retracement analysis from August 2007, the pair has broken the 61.8% retracement early this trading week. The chart below shows the truly drastic nature of the Aussie sell off, and although it is currently trading above the 61.8% retracement, another break below could lead to much lower prices as the markets continue to price in further easing by the Reserve Bank of Australia.

The following are the highlights of the Federal Reserve Open Market Committee's meeting:

• Significant concern on inflation risk.
• Generally saw next Fed move as raising rates.
• Raising capital grew more difficult for banks.
• Higher mortgage rates may worsen housing crisis.
• Many Fed officials saw markets as fragile.
• Several Fed officals saw market risks receding.
• Some officials were concerned inflation wont ease in 2009.

The Richmond Fed Index for August expected to come in at -10  came in at -16, worse than expected and the same as for July of -16.

The CONCAF Consumer Confidence expected at 53 came in at 56.9, better than last months reading of 51.9.

The New Home Sales reading for July expected at 525K came in at 515K, the prior months reading was 530K, revised back to 503K. The other associated reading was as follows:

• New Home Sales month over month -   -.9% survey    2.4% actual

The S&P CaseShiller Home Price Index for June was released better than expected at 167.69 versus the 167.20 estimate and worse than the 168.54 reading the prior month. The 20 year over year composite had a reading of -15.92% versus the expected reading of -16.20%. The markets have had little reaction to this better than expected report for June, after a huge USD rally overnight on continued global economic weakness.

The Federal Reserve Bank's Fisher had the following comments this morning in regards to the US Economy:

• US GDP may turn negative in 2008.
• Remains concerned about inflation outlook
• Unclear whether to offer new liquidity sources.
• US Growth likely to maintain slow pace during the second half.
• Cannot determine whether energy will continue a downward trend, Fed will act if inflation pressures continue.
• Fisher feels the housing sector has not reached its bottom, sees house price continue to decline.
• Treasury and Congress are the best support for the GSE's.

The big mover on a light volume trading session to begin the week has been the Sterling. Sterling pairs are trading lower across the board, with the Cable hitting 2 year lows on an abrupt move lower. The Cable at the end of last week broke the 200 hour moving average twice, see the attached chart. The GBP/CHF pair is also approaching the full retracement of its recent August 14th lows, see the chart below.

The USD/CHF pair moved back into our old channel after a brief stint below on some relative USD weakness last week. In addition the pair ran into an old resistance level at 1.1030 area, detailed in the chart below. The significance of this level is obvious with the USD/CHF trading lower each time it has hit that level and the large time frame used to devise the 38.2% retracement also speaks to its importance (November 2005 highs and the March 2008 lows.) Stay tuned for further developments on this analysis as the pair might retest its recent highs with a slew of US Economic and Housing data due out this week. CLICK THE ATTACHED CHART FOR THE WEEKLY VIEW AND THE FULL RETRACEMENT ANALYSIS.

Examining the Euro Swissy pair we notice that after a retest of recent lows (highlighted below), the pair seems to have some upward momentum. With the 55 hour moving average attempting to cross above the 200 hour moving average now, a break of the 38.2% retracement level could lead toward the 50% retracement and more resistance at the 1.6230 range.

The following are the highlights on the BOJ Monetary Policy Meeting Minutes:

• Agreed global inflation rising further.
• Have not seen secondary inflation, must watch out for signs.
• Companies will restrain wages for now.
• Should watch risk of keeping rates low.
• Economic growth will probably be sustained.

Taking a step back on the EUR/USD pair after the huge move the last few weeks, we notice some interesting levels to come if the US economic recovery is truly on the horizon and the Euro-zone's economic deterioration accelerates. Using the pairs lows in November of 2005 and the new recent highs we see the pair break the 55 week moving average 100 pips ago and the 38.2% retracement looks like good long-term support below the 1.44 handle. Further down the road we notice the 61.8% retracement and 200 week moving average converging. We will keep you clued in if these economic developments unfold and these levels become more realistic.

Reviewing our old USD/CHF channel, we note again how well it's held for over a month, with recent upside and downside movements reacting strongly to the channel (view the highlighted areas below.) In addition to our channel, we've incorporated retracement levels using the highs from 11/16/05 and the lows from 3/16/08. Zooming in on the 38.2% retracement on the hourly, we notice that the key 1.1030 area which tops our channel. The pair seems to be consolidating its recent gains right below and a real break of the channel or this key resistance area could create a new dynamic for the pair ahead of any significant geopolitical or economic events.

Utilizing the July 23rd highs and the August 13th lows we developed the retracement analysis below, showing a number of barriers the pair needs to break in order to gain any momentum to the topside (highlighted below). The 100 hour simple moving average is also providing good resistance on recent retracement attempts.

The Australian Westpac Leading Index Indicator came in better than the prior month at .1% for June versus a 0% reading the prior month. The index grew at an annualized rate of 2% in June, slowing from an annualized rate of 2.4% in May. This is the slowest growth rate of the index since July 2001. Westpac said the slower growth is attributable mainly to falling share prices, tighter liquidity, weak housing approvals and soft data for US Industrial Production.