USD Index takes a peek above 200-day moving average for the first time since early 2007 ahead of ECB, BOE.

• New Zealand Q2 Unemployment Rate out at 3.9% vs. 3.8% expected
• New Zealand Q2 Employment Change out at 1.2% vs. 0.2% expected
• Australia Jul. AiG Performance of Construction Index out at 41.6 vs. 40.3 in Jun.
• Japan Jun. Machine Orders out at -2.2% vs. -9.9% expected.
• Australia Jul. Employment Change out at 10.9k vs. 5.0k expected and the Jun. number revised down -7.6k
• Australia Jul. Unemployment rate out at 4.3% as expected
• Germany Jun. Trade Balance out at 19.7B vs. 15.5B expected

• Sweden Jul. CPI (0730)
• Norway Jun. Industrial Production (0800)
• UK Jul. HBOS House Prices (0800)
• Germany Jun. Industrial Production (1000)
• BOE to Announce Rates (1100)
• ECB Announces Interest Rates (1145)
• ECB Press Conference (1230)
• Canada Jun. Building Permits (1230)
• US Weekly Initial Jobless Claims (1230)
• US Jun. Pending Home Sales (1400)  

Market Comments

The key for today's ECB meeting is watching how president Trichet follows up on the last meeting's shift to a "no bias" stance. It's probably too early to expect the ever-vigilant president of the ECB to signal a rate cut just yet, but that is the high odds direction of the next move. Yet, the market is not pricing in decent odds of any easing until early next year. As the commodities sell-off is still rather young, and as the latest batch of inflation data is still very high, we can likely expect a general repeat of the inflation rhetoric this time around, especially since Trichet remains worried about wage deals and 2nd round effects. The focus then would shift to how Trichet talks about the risks to growth, which certainly have deteriorated since the last time around, whether it's the lynchpin German economy or the broader EuroZone numbers, all sentiment and activity indicators seem to be pointing distinctly south now. Societe Generale estimates that the EuroZone economy shrank 0.5% in Q2. It's difficult to see any huge surprise on the hawkish side of the equation, though we can't rule out stark warnings about wage deals combined with growing concerns about the growth outlook. The highest odds for the forward rates projection will likely remain stable as it did for the US after the Fed's most recent meeting.

The Bank of England is not expected to move on rates as inflation levels are still at their highest in more than a decade and after the bizarre 3-way split decision the last time around. Of the largest developed economies, the UK has probably the weakest potential outlook and yet also features the highest interest rate. The math is not complex...it's just a question of timing and finding the right currency to sell GBP against. Although GBPUSD looks technically "overdone" in the short term, if the 1.9400 area gives way in coming sessions, we could see a large extension of the sell-off.

One news item hitting the wires yesterday that offered the USD further support was a move by China to impose tight new capital controls aimed at stemming speculative inflows that have aggravated China's rapid accumulation of an unbelievable $1.8 trillion in foreign reserves. The new measures allow Chinese companies and individuals easier access to overseas investments. They will also mean tighter monitoring of money entering the country and higher penalties levied on illegal transactions. This is a potentially a very important development for the USD as the China reserve accumulation and diversification needs has had enormous affects on the course of EURUSD over the last 5 years.

AUDUSD finally found some support overnight at its 55-week moving average in the 0.9065 area on a slightly better than expected employment report, though this report was virtually in-line considering downward revisions of previous data. Is it time for the AUDUSD sell-off to take a breather? We're not ones to catch a falling knife, but that one has gone awfully far, awfully fast. NZDUSD also headed to a new 10-month low on its worse than expected employment report for Q2. The weak NZD story is maturing rapidly.

JPY was sharply weaker on a combination of resilience in equities yesterday - particularly in technology, but also as resistance in USDJPY above 108.50 gave way with a bang and likely triggered a flurry of stops and new momentum buy orders. The old highs are now the key support level there.

Chart: EURUSD
EURUSD is in a well organized downward trajectory, though it is still within the old range with a lower boundary at 1.5285. The first key resistance comes in at the flatline area at 1.5515 that coincides with the falling trendline. Then the key 55-day moving average at 1.5650 bars the way. To the downside, a move below the 1.5285 level and 200-day moving average could open up for a try at 1.5000.