Market Update - 12 Sept 2012

The US trade deficit widened ever so slightly in July to USD 42.0bn from a downwardly revised USD 41.9bn in June.

With US likely to announce QE3 this month and ECB having recently announced “unlimited” bond buying last week, the immediate risk have been taken off the table and market is reacting accordingly with risky asset prices increasing at the start of the week.

USDMYR broke the 3.1000 support firmly and we have now shifted to the 3.1600-3.2100 trading range for this week. USDMYR opened lower again today at 3.0850 and we expect it to trend lower as risk-on sentiment prevails right now.

AUDUSD also rallied back above 1.0400 while EURUSD also broke the 1.2800 resistance, in fact the squeeze up could be due to a lot of stop loss orders being triggered as market traded very close to the resistance levels.

In the Eurozone, the German  Constitutional Court reaffirmed that it will announce its ruling on the legality of the ESM on Wednesday (04:00 ET). A German parliamentarian had attempted to delay the decision following last week's announcement by the ECB of its bond buying program, but that will not stop the Court from rendering its decision Wednesday.

Moody warn on US rating, saying US could lost its Aaa rating if the policy makers fail to agree on measures to reduce the country debt to GDP ratio next year.

Looking forward, today’s data suggest that trade is on track to have a broadly neutral impact on GDP growth in Q3 as current trends in real exports and imports suggest that both are likely to grow anaemically in the quarter.

For those who are keen on the US trade deficit details - the broadly unchanged nominal deficit in the month was the result of two offsetting forces; an improvement in the terms of trade worked to lower the deficit while the real trade deficit widened significantly in the month.

Export prices received a particularly large boost in July from the recent surge in grains prices due to the drought. As expected, real goods exports weakened substantially in July, falling 2.2% after surprisingly gaining 3% in June.