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Sep 17, 2007

US economic data on Friday came out weaker than expected, keeping pressure on the greenback. US Retail Sales rose 0.3% in August, below an expected 0.4%. Core Retail Sales fell 0.4% versus 0.2% expected growth. US import prices dropped 0.3% in August, blamed primarily on rising crude oil prices, and export prices rose 0.2%, in line with expectations. Business inventories were up by 0.5%, and the University of Michigan consumer sentiment index almost unchanged at 83.8. However, US Treasury Secretary Henry Paulson did say in an interview on Friday that the credit markets showed signs of a recovery and that a stronger dollar is in US economic interest. Paulson’s comments disallowed the Euro to make new record highs, closing at 1.3876, unchanged for the day.

The U.K.’s fourth largest mortgage lender, Northern Rock, received emergency funding from the Bank of England to offset an unspecified amount of losses from the recent subprime woes in the United States. The worry that the credit crunch in the US may hit the Kingdom sent the Pound in free fall to 2.0056. Today, the Pound furthered it’s slide to 2.0000 in early trading.

The market expects a rate cut of 25 basis points from the Fed this week, to curb the affect on the broader economy. Investors should know, however, that inflation still remains a medium-term threat.

Today's Key Issues (time in GMT):

06:50 USD U.S.'s Paulson, France's Lagarde talk to Reporters in Paris

09:00 EUR Euro-Zone Trade Balance (JUL) 7.0B vs 7.8B
09:00 EUR Euro-Zone Trade Balance, sa (JUL) 4.0B vs 5.2B

11:00 EUR ECB Council Member Liikanen Speaks in Turku, Finland

12:30 CAD International Securities Transactions (JUL)
12:30 USD Empire Manufacturing (SEP) 20.0 vs 25.1

16:45 USD U.S.'s Paulson, U.K.'s Darling Talk to Reporters in London

The Risk Today:

EurUsd: Downside risk remains high through to 1.3765, although Friday’s low was well away from it at 1.3844. On the upside, anything above 1.3920 is very bullish.

GbpUsd has for the second time broken down through its long term trend line on Friday AND closed below, at 2.0077. Today, the pair continues to trade below down to 1.9999, which is confortably bearish. The upside risk remains getting back into its channel. Anything above 2.0093 is, again, bullish.

UsdJpy is approaching a strong resistance at 115.66, which, if broken, will open the door back to 117.60. Downside remains fairly well supported to 112.60.

UsdChf remains with key support found at 1.1816, however still bearish under 1.1962.

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