Since we are coming to the end of the month, it is worthwhile to look at the dollar not only in terms of its daily performance but its general trend as well. Wednesday’s session ended in the red; but selling momentum was markedly curbed. This is both remarkable given the developments in Treasury auctions and European finances; and at the same time, it is exactly in line with the lack of underlying speculative investment and the lack of tangible event risk. Yet, when all is said and done, performance is a function of the market’s concerns and forecasts. In these regards, we can see the stain of fear quite clearly. In the past 13 active trading days, the Dollar Index has declined nine times. More importantly, the pace to this bearish move accelerating as it crosses technical boundaries. In fact, if we were to stamp the week at Wednesday’s close, we would be looking at the biggest decline on this higher time frame since May of last year. At this point, technical momentum is finding its greatest support from the remarkable rallies for EURUSD (the most liquid currency pair in the market) and AUDUSD. Additional drive could be encouraged should GBPUSD, USDCAD and USDJPY forge their own trend-bearing breakouts. Yet, considering many of these pairs are already at or near multi-month or -year highs; we need to consider how feasible it is to maintain aggressive selling without obvious ‘excess value’ to unwind.
If we were looking to indentify the primary fundamental current behind the greenbacks’ descent through the past 24 hours, we would come up with the same catalyst that has maintained selling pressure through the past two weeks: speculation of stimulus expansion by the Federal Reserve. How far can mere conjecture of a fundamental event extend without hard evidence that it will occur? As long as the fundamental backdrop is conducive to these specific concerns and the dollar keeps breakout through support levels, the self-sustained move can last for a longer time than many investors’ fundamental convictions can hold out. Through Wednesday’s session, there were no significant risk trends to interrupt the dollar’s debasement with questions of safe haven status. Furthermore, we are reminded of the fragile situation the US finds itself in when we consider that in between Fed Treasury purchases, the Treasury itself is still selling debt at a remarkable clip. A $29 billion issue of seven-year notes today drew a record low yield and the highest bid-to-cover since the maturity was revived. Low yields are helpful from an economic perspective as they reduce lending costs for consumers and investors in a bid to maintain the recovery. That being said, the natural reaction to increased supply of Treasuries is reduced face value and increased demand for return (higher yields). The Fed’s purchases are encouraging speculators to ‘front-run’ the stimulus effort which backs international demand for US safe haven assets. Realistically, this is not a long-term solution. The cracks are already showing through. It was rumored in the Asian session that the central banks of Singapore, South Korea, Thailand and Indonesia all intervened on behalf of the dollar. This mix of stimulus, intervention and speculation can’t hold forever.
Expanding our focus from the dollar specifically to the markets in general, all traders should take note of the marked change in activity and associations. We have already noted deterioration in correlations; but the transformation runs deeper than that. Recently, brokers have reported steep declines in trade revenue, major hedge funds have shuttered and flash crashes are becoming more frequent. Seismic changes.
30 сент. 2010 г.
The Economy and the Dollar
The Economy and the Dollar
The dollar has extended an aggressive an unremitting selloff this past week; and considering the fundamental basis for the move, the slump could certainly continue. Three months ago, an analysis of the greenback’s health would be assigned to one of three factors: growth potential; interest rate potential or risk appetite trends. In recent weeks, these three pillars of price action have essentially crumbled as traders have turned their attention to a more rudimentary dynamic of value – the money supply. If money supply is so imperative, why has the term not circulated through the financial headlines more frequently? In fact it has. Growing speculation that the Federal Reserve will soon expand its stimulus program is a natural amplifier of funds in the system. In the central bank’s current program, they are keeping a $2 trillion floor under stimulus by purchasing Treasuries with the proceeds of principle repayments on mortgage backed securities. Many believe this figure will actually increase by as much as another $1 trillion as the economic recovery continues to decelerate. With more dollars circulating, the value of currency is naturally depressed. However, if this is the primary catalyst behind such an aggressive tumble from the benchmark currency; what happens if speculation never becomes reality? Furthermore, what if the focus on stimulus is distracted by a swell in risk aversion flows? It is an aggressive but speculative trend.
The dollar has extended an aggressive an unremitting selloff this past week; and considering the fundamental basis for the move, the slump could certainly continue. Three months ago, an analysis of the greenback’s health would be assigned to one of three factors: growth potential; interest rate potential or risk appetite trends. In recent weeks, these three pillars of price action have essentially crumbled as traders have turned their attention to a more rudimentary dynamic of value – the money supply. If money supply is so imperative, why has the term not circulated through the financial headlines more frequently? In fact it has. Growing speculation that the Federal Reserve will soon expand its stimulus program is a natural amplifier of funds in the system. In the central bank’s current program, they are keeping a $2 trillion floor under stimulus by purchasing Treasuries with the proceeds of principle repayments on mortgage backed securities. Many believe this figure will actually increase by as much as another $1 trillion as the economic recovery continues to decelerate. With more dollars circulating, the value of currency is naturally depressed. However, if this is the primary catalyst behind such an aggressive tumble from the benchmark currency; what happens if speculation never becomes reality? Furthermore, what if the focus on stimulus is distracted by a swell in risk aversion flows? It is an aggressive but speculative trend.
29 сент. 2010 г.
FOREX: Euro Eyes EU Rules Update, Pound Looks to Lending Data for QE Clues
The Euro was little-changed in overnight trade, with prices drifting sideways in a narrow range below the 1.36 figure as markets digested NY-session gains. The British Pound edged higher, adding 0.2 percent against the US Dollar in what appeared to be a correction after the UK unit underperformed its major counterparts in US hours.
Japan’s Tankan Survey of large manufacturers’ sentiment narrowly topped expectations, with a gauge of firms’ assessment of current conditions climbing to the highest in since the first quarter of 2008. The details of the report point toward a far less rosy outcome than the headline figure would suggest, however. Indeed, the third-quarter increase amounts to the smallest in over a year, while the forward-looking Outlook index unexpectedly dropped into negative territory. Furthermore, a forecast for capital spending growth in the year through March 2011 was downgraded to 2.4 percent, marking the first decline this year, amid expectations for an increase of 3 percent following a gain of 2.7 percent in the second quarter.
Taken together with lackluster export figures released earlier this week, the outcome may prod policymakers to step up efforts to drive down the still-buoyant Japanese Yen after intervening into currency markets for the first time since 2004 earlier this month and allegedly stepping in again last week. The Ministry of Finance is set to reveal the sum total of September’s intervention efforts on Thursday, promising to offer a clue on Japanese authorities’ commitment to depreciating the currency as standby policy tool as well as its goal, whether it be to protect a given price level or manage volatility.
New Zealand’s Trade Balance deficit widened to NZ$437 million in August as exports plunged 11.5 percent to NZ$3.15 billion, the lowest in nine months, led by declines in shipments of dairy and meat products, which fell 33 and 31 percent respectively. Exports make up close to a third of overall economic growth, with today’s report reinforcing the likelihood that the Reserve Bank of New Zealand will keep monetary policy unchanged at its meeting in late October and trimming the outlook for future rate hikes, with a Credit Suisse gauge of priced-in policy changes over the coming year dropping 3 basis points to a four-week low following the release.
The economic calendar looks fairly tame in European hours. The Euro Zone Business Climate Indicator is expected to tick lower for the second consecutive month in September after snapping a 15-month winning streak in August while Economic Confidence – a composite gauge of industrial, consumer and service-sector sentiment – is expected to tick lower for first time since May. The figures may not prove market-moving in and of themselves however, amounting to little more than a reinforcement of economic slowdown expectations for the second half of ht year that have likely been priced in at this point.
Rather, Euro price action is likely to focus on the announcement an EU announcement of proposed changes to sanctions for countries that violate the Stability and Growth Pact, a treaty setting budget deficit limits for member states meant to prevent future sovereign risk flare-ups akin to the scare on the region’s southern periphery (most notably Greece) earlier in the year. Traders will size up the details of the proposal to gauge the single currency’s viability as an alternative to the US Dollaramid fears that the greenback will suffer if the Federal Reserve unleashes another round of quantitative easing (QE). Meanwhile, the European Central Bank will announce the results of yesterday’s offering of a 3-month lending facility; the 7-day facility offered earlier this week saw an uptake of 166.4 billion euro, so an outcome at or above 59 billion euro today will mean that Friday’s expiry of 225 billion across three LTROs (as we discussed in our weekly fundamental trends monitor) will not amount to a shrinking of the money supply, which promised to boost the single currency.
Turning to the UK, Mortgage Approvals are set to drop to the lowest in five months in August while Net Consumer Credit declines to 0.1 billion pounds. Elsewhere, the Bank of England will release updated M4 Money Supply figures, with the focus likely to focus on a 3-month annualized gauge that factors out deposits in OFCs – decoded as “other financial institutions” – that specialize inintermediation between banks, a measure that is believed to give a more accurate measure of “core” money supply growth. The figures may prove to weigh heavily on the British Pound as weak lending growth would spur fears of renewed QE efforts.
Japan’s Tankan Survey of large manufacturers’ sentiment narrowly topped expectations, with a gauge of firms’ assessment of current conditions climbing to the highest in since the first quarter of 2008. The details of the report point toward a far less rosy outcome than the headline figure would suggest, however. Indeed, the third-quarter increase amounts to the smallest in over a year, while the forward-looking Outlook index unexpectedly dropped into negative territory. Furthermore, a forecast for capital spending growth in the year through March 2011 was downgraded to 2.4 percent, marking the first decline this year, amid expectations for an increase of 3 percent following a gain of 2.7 percent in the second quarter.
Taken together with lackluster export figures released earlier this week, the outcome may prod policymakers to step up efforts to drive down the still-buoyant Japanese Yen after intervening into currency markets for the first time since 2004 earlier this month and allegedly stepping in again last week. The Ministry of Finance is set to reveal the sum total of September’s intervention efforts on Thursday, promising to offer a clue on Japanese authorities’ commitment to depreciating the currency as standby policy tool as well as its goal, whether it be to protect a given price level or manage volatility.
New Zealand’s Trade Balance deficit widened to NZ$437 million in August as exports plunged 11.5 percent to NZ$3.15 billion, the lowest in nine months, led by declines in shipments of dairy and meat products, which fell 33 and 31 percent respectively. Exports make up close to a third of overall economic growth, with today’s report reinforcing the likelihood that the Reserve Bank of New Zealand will keep monetary policy unchanged at its meeting in late October and trimming the outlook for future rate hikes, with a Credit Suisse gauge of priced-in policy changes over the coming year dropping 3 basis points to a four-week low following the release.
The economic calendar looks fairly tame in European hours. The Euro Zone Business Climate Indicator is expected to tick lower for the second consecutive month in September after snapping a 15-month winning streak in August while Economic Confidence – a composite gauge of industrial, consumer and service-sector sentiment – is expected to tick lower for first time since May. The figures may not prove market-moving in and of themselves however, amounting to little more than a reinforcement of economic slowdown expectations for the second half of ht year that have likely been priced in at this point.
Rather, Euro price action is likely to focus on the announcement an EU announcement of proposed changes to sanctions for countries that violate the Stability and Growth Pact, a treaty setting budget deficit limits for member states meant to prevent future sovereign risk flare-ups akin to the scare on the region’s southern periphery (most notably Greece) earlier in the year. Traders will size up the details of the proposal to gauge the single currency’s viability as an alternative to the US Dollaramid fears that the greenback will suffer if the Federal Reserve unleashes another round of quantitative easing (QE). Meanwhile, the European Central Bank will announce the results of yesterday’s offering of a 3-month lending facility; the 7-day facility offered earlier this week saw an uptake of 166.4 billion euro, so an outcome at or above 59 billion euro today will mean that Friday’s expiry of 225 billion across three LTROs (as we discussed in our weekly fundamental trends monitor) will not amount to a shrinking of the money supply, which promised to boost the single currency.
Turning to the UK, Mortgage Approvals are set to drop to the lowest in five months in August while Net Consumer Credit declines to 0.1 billion pounds. Elsewhere, the Bank of England will release updated M4 Money Supply figures, with the focus likely to focus on a 3-month annualized gauge that factors out deposits in OFCs – decoded as “other financial institutions” – that specialize inintermediation between banks, a measure that is believed to give a more accurate measure of “core” money supply growth. The figures may prove to weigh heavily on the British Pound as weak lending growth would spur fears of renewed QE efforts.
Prospects for USD Recovery Fading Fast; Reserve Diversification Talk Returns
Another day, another round of massive USD depreciation, with the Greenback getting hit hard again and extending declines against most major currencies, with much of the price action attributed to elevated expectations for a second round of quantitative easing from the Fed, after a softer US consumer confidence print on Tuesday. Fed Lockhart has however recently been on the wires saying that QE2 is by no means a done deal, and it will be interesting to see how the markets respond in Tuesday trade.
For now, the prospects for the Buck are looking quite gloomy, with data so far in Asia exceeding expectations after the Japanese Tankan came out quite solid, while the New Zealand trade balance was also better than forecast. This should further bolster risk sentiment and appetite for higher yielding and seemingly better positioned currencies. The topic of reserve diversification away from the USD has also been resurrected, with the slide in the buck rehashing concerns that the single currency is undergoing a major secular decline. Nevertheless, the Greenback is showing oversold on a short-term technical basis, and we would caution investors from adding to USD shorts at current levels.
Looking ahead, there is a batch of UK data due at 8:30GMT including; index of services, M4 money supply, mortgage approvals, net consumer credit and net lending on dwellings. Then at 9:00GMT, attention shifts to the Eurozone where business climate and confidence indicators are released. The Swiss KOF leading indicator caps things off for the European calendar at 9:30GMT. US equity futures and commodity prices are all marginally bid, with gold trading by record highs just over $1310.
Written by Joel Kruger
For now, the prospects for the Buck are looking quite gloomy, with data so far in Asia exceeding expectations after the Japanese Tankan came out quite solid, while the New Zealand trade balance was also better than forecast. This should further bolster risk sentiment and appetite for higher yielding and seemingly better positioned currencies. The topic of reserve diversification away from the USD has also been resurrected, with the slide in the buck rehashing concerns that the single currency is undergoing a major secular decline. Nevertheless, the Greenback is showing oversold on a short-term technical basis, and we would caution investors from adding to USD shorts at current levels.
Looking ahead, there is a batch of UK data due at 8:30GMT including; index of services, M4 money supply, mortgage approvals, net consumer credit and net lending on dwellings. Then at 9:00GMT, attention shifts to the Eurozone where business climate and confidence indicators are released. The Swiss KOF leading indicator caps things off for the European calendar at 9:30GMT. US equity futures and commodity prices are all marginally bid, with gold trading by record highs just over $1310.
Written by Joel Kruger
28 сент. 2010 г.
FOREX: Dollar Recovery will be Short-Lived without a Meaningful Collapse in Risk
Dollar Recovery will be Short-Lived without a Meaningful Collapse in Risk
For those lingering dollar bulls or long-term fundamentalists, the dollar’s bounce to start the week may be encouraging; but it is hardly confirmation of a new trend. The single currency was merely finding reprieve from last week’s progressive selling momentum in the absence of a meaningful current in underlying speculative trends. If we were to take a look at the Dollar Index, we see that the currency would recover only a quarter of Friday’s losses and would fall well short of even testing former support (around 79.75 or 80) as contemporary resistance. Against some of its more liquid counterparts, the greenback’s strength would look just as feeble. For EURUSD, a test of the magnetic 1.35 level (the midpoint of the November 2009 to June 2010 decline) temporarily rebuffed an unconvincing follow up to Friday’s massive rally. Elsewhere, GBPUSD stalled in its advance for the first time in five trading days, USDJPY posted a slight bullish close for the first time in six active trading sessions and AUDUSD’s progress to two-year-plus highs was in more technicality than conviction. In all likelihood, the dollar’s performance today is a reference to stalled risk appetite trends best characterized by the S&P 500’s slip from four-month highs. On the one hand, this is discouraging because momentum is still pretty convincing behind optimism; but at the same time, this does help reconnect the currency to risk.
The hesitancy on risk trends and the dollar is indisputable; but it is also somewhat remarkable when we consider some of the fundamental developments in the backdrop. For risk appetite trends, the unfavorable growth outlook and potential for near-term European financial troubles should at least raise some concern. Yet, for economic activity, the market has already proven itself adept at ignoring looming downshifts in economic activity, investment and capital flow regardless of how certain it may seem. Therefore, the novel issue Monday was the financial waves from the Euro Zone. Ireland was once again in focus for its ability to cover its Anglo Irish Bank liabilities. This is one of the few situations where one institution can clearly swamp an entire nation’s financial system. The bigger concern though lies a little bit down the road. On Thursday, a round of ECB loans spanning twelve, six and three-month maturities and totaling 225 billion euros will come due. If the banks didn’t have other avenues of raising capital through more opaque means; this could be a concerning event. However, the rollover itself will likely do little to confirm any troubles that lie ahead. Aside from general risk trends, it is further unusual that the dollar would not be put to task for greater volatility given more pervasive developments in market manipulation. Chatter that the Treasury is planning to sell its stake in AIG was soundly offset by the Fed’s sale of $36 billion in two-year government debt. Unchecked though is the growing anger by some policy officials that the world is turning to outright currency manipulation to improve competitiveness in exports. Brazil’s Finance Minister Guido Mantega said there is a “currency war” going on; and that he would buy all “excess dollars” to prevent the real from rallying. Keep an eye on this.
As for scheduled event risk, the docket was relatively light. Yet, it is worth mentioning that the Dallas Fed’s manufacturing report sets a dour precedence for Friday’s ISM report. More interesting the Chicago Fed’s national activity composite for August supported a stalled recovery. Tomorrow’s consumer confidence report, however, has market-moving precedence and a tangible fundamental impact for growth forecasts.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: What Would it Take to Trade EURUSD Near EURUSD?
Euro Faces a Considerable Fundamental Wave as Regional Banks’ ECB Loans Come Due
It is somewhat surprising that the euro is not more responsive to its own fundamental uncertainties. I say somewhat because speculative interests are always selective in what they deem to be pertinent as prevailing winds of risk and reward. Today’s off-docket updates were a good reminder that the future is far from smooth sailing. Financial headlines Monday were dedicated to doubts surrounding Ireland’s financial future. German business paper Handelsblatt quoted an unnamed source that the European Union was considering tapping its bailout fund to save Ireland at one point. Reports like this encouraged Irish Finance Minster Lenihan to deny the country is in such trouble and promise a reassessed cost of Allied Irish bailout by October 1st. What is really concerning going forward though is the coming expiry of ECB loans. More on that later.
British Pound Holds Steady Despite a Drop in Home Prices and IMF Doubts Over Growth
The pound was essentially unmoved Monday against most of its major counterparts. This performance is at once notable and unremarkable. It is noteworthy given housing prices measured by Hometrack marked their biggest drop in 18 months and demand hit a January 2008 low; and the IMF slightly downgraded its growth forecast. And yet, this doesn’t necessarily clarify the mix of rates, financial stability and economic activity.
Japanese Yen may Face a Two Tiered Assault as Rumors of a New Stimulus Program Joins Intervention
We haven’t heard definitive confirmation that Japanese officials were responsible for Friday’s sharp rally in USDJPY, which is probably why the pair immediately reversed said gains. How influential can a back be in its currency manipulation? How effective does the BoJ think it will be? Well, intervention alone may not do it; but early rumors of a 1.6 trillion yen stimulus package could mark a more expansive and lasting plan.
New Zealand Dollar Rapidly Losing its Investment Status as 10 Year Yield Slides Below Australia Return
What is the New Zealand dollar’s role in the FX market? It is not a growth engine; nor do its agricultural commodity exports make it a major trade economy. No, the kiwi’s real value is as an investment currency. Typically, the currency sustains a much higher yield that its counterparts. And yet, today, the 10-year government bond yield for Australia actually overtook its New Zealand counterpart for the first time in two years.
Australian Dollar Scaling Dangerous Heights with Heavy Dependence on Four-Month High Rate Outlook
The Australian dollar is at or near multi-year highs against the US, Canadian, New Zealand dollars, British pound and euro. While relative economic stability and yield support general strength for the commodity currency; at what level is it out of line? This is hard to gauge; and that is why we look for a specific event to trigger a speculative shift. For this currency it will likely be a collapse in rate expectations.
For those lingering dollar bulls or long-term fundamentalists, the dollar’s bounce to start the week may be encouraging; but it is hardly confirmation of a new trend. The single currency was merely finding reprieve from last week’s progressive selling momentum in the absence of a meaningful current in underlying speculative trends. If we were to take a look at the Dollar Index, we see that the currency would recover only a quarter of Friday’s losses and would fall well short of even testing former support (around 79.75 or 80) as contemporary resistance. Against some of its more liquid counterparts, the greenback’s strength would look just as feeble. For EURUSD, a test of the magnetic 1.35 level (the midpoint of the November 2009 to June 2010 decline) temporarily rebuffed an unconvincing follow up to Friday’s massive rally. Elsewhere, GBPUSD stalled in its advance for the first time in five trading days, USDJPY posted a slight bullish close for the first time in six active trading sessions and AUDUSD’s progress to two-year-plus highs was in more technicality than conviction. In all likelihood, the dollar’s performance today is a reference to stalled risk appetite trends best characterized by the S&P 500’s slip from four-month highs. On the one hand, this is discouraging because momentum is still pretty convincing behind optimism; but at the same time, this does help reconnect the currency to risk.
The hesitancy on risk trends and the dollar is indisputable; but it is also somewhat remarkable when we consider some of the fundamental developments in the backdrop. For risk appetite trends, the unfavorable growth outlook and potential for near-term European financial troubles should at least raise some concern. Yet, for economic activity, the market has already proven itself adept at ignoring looming downshifts in economic activity, investment and capital flow regardless of how certain it may seem. Therefore, the novel issue Monday was the financial waves from the Euro Zone. Ireland was once again in focus for its ability to cover its Anglo Irish Bank liabilities. This is one of the few situations where one institution can clearly swamp an entire nation’s financial system. The bigger concern though lies a little bit down the road. On Thursday, a round of ECB loans spanning twelve, six and three-month maturities and totaling 225 billion euros will come due. If the banks didn’t have other avenues of raising capital through more opaque means; this could be a concerning event. However, the rollover itself will likely do little to confirm any troubles that lie ahead. Aside from general risk trends, it is further unusual that the dollar would not be put to task for greater volatility given more pervasive developments in market manipulation. Chatter that the Treasury is planning to sell its stake in AIG was soundly offset by the Fed’s sale of $36 billion in two-year government debt. Unchecked though is the growing anger by some policy officials that the world is turning to outright currency manipulation to improve competitiveness in exports. Brazil’s Finance Minister Guido Mantega said there is a “currency war” going on; and that he would buy all “excess dollars” to prevent the real from rallying. Keep an eye on this.
As for scheduled event risk, the docket was relatively light. Yet, it is worth mentioning that the Dallas Fed’s manufacturing report sets a dour precedence for Friday’s ISM report. More interesting the Chicago Fed’s national activity composite for August supported a stalled recovery. Tomorrow’s consumer confidence report, however, has market-moving precedence and a tangible fundamental impact for growth forecasts.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: What Would it Take to Trade EURUSD Near EURUSD?
Euro Faces a Considerable Fundamental Wave as Regional Banks’ ECB Loans Come Due
It is somewhat surprising that the euro is not more responsive to its own fundamental uncertainties. I say somewhat because speculative interests are always selective in what they deem to be pertinent as prevailing winds of risk and reward. Today’s off-docket updates were a good reminder that the future is far from smooth sailing. Financial headlines Monday were dedicated to doubts surrounding Ireland’s financial future. German business paper Handelsblatt quoted an unnamed source that the European Union was considering tapping its bailout fund to save Ireland at one point. Reports like this encouraged Irish Finance Minster Lenihan to deny the country is in such trouble and promise a reassessed cost of Allied Irish bailout by October 1st. What is really concerning going forward though is the coming expiry of ECB loans. More on that later.
British Pound Holds Steady Despite a Drop in Home Prices and IMF Doubts Over Growth
The pound was essentially unmoved Monday against most of its major counterparts. This performance is at once notable and unremarkable. It is noteworthy given housing prices measured by Hometrack marked their biggest drop in 18 months and demand hit a January 2008 low; and the IMF slightly downgraded its growth forecast. And yet, this doesn’t necessarily clarify the mix of rates, financial stability and economic activity.
Japanese Yen may Face a Two Tiered Assault as Rumors of a New Stimulus Program Joins Intervention
We haven’t heard definitive confirmation that Japanese officials were responsible for Friday’s sharp rally in USDJPY, which is probably why the pair immediately reversed said gains. How influential can a back be in its currency manipulation? How effective does the BoJ think it will be? Well, intervention alone may not do it; but early rumors of a 1.6 trillion yen stimulus package could mark a more expansive and lasting plan.
New Zealand Dollar Rapidly Losing its Investment Status as 10 Year Yield Slides Below Australia Return
What is the New Zealand dollar’s role in the FX market? It is not a growth engine; nor do its agricultural commodity exports make it a major trade economy. No, the kiwi’s real value is as an investment currency. Typically, the currency sustains a much higher yield that its counterparts. And yet, today, the 10-year government bond yield for Australia actually overtook its New Zealand counterpart for the first time in two years.
Australian Dollar Scaling Dangerous Heights with Heavy Dependence on Four-Month High Rate Outlook
The Australian dollar is at or near multi-year highs against the US, Canadian, New Zealand dollars, British pound and euro. While relative economic stability and yield support general strength for the commodity currency; at what level is it out of line? This is hard to gauge; and that is why we look for a specific event to trigger a speculative shift. For this currency it will likely be a collapse in rate expectations.
A Lack of Speculative Interest and Dollar Bounce Curb Crude, Gold Monday
Following Friday’s impressive rally, crudes performance to start the week would leave both bulls and bears disappointed. While the US benchmark for the commodity would mark a two-week high on an intraday basis, the market essentially closed the day unmoved from where it opened. This lack of performance wasn’t unique to the energy bloc. In fact, this was the pace that most markets would take as traders sought out a clear driver for speculative interest but would ultimately come up short. And, in the absence of a particular catalyst, congestion would lead traders to unwind some of their high-risk positions and dollar shorts. Naturally, this would weigh on oil as an asset that is both growth-dependent and sensitive to risk appetite.
For a tangible assessment on the supply-and-demand aspect of the energy market, we would turn to an otherwise light macroeconomic docket. Perhaps the most influential piece of data through the day was the Chicago Federal Reserve’s National Activity Index for August. While all the individual components to this report are previously known, it is nonetheless helpful to see all these elements come together as a proxy economic activity forecast for the US. That being said, the -0.53 reading was worse than expected and further supports the general consensus amongst policy officials and economists that the world’s largest economy is cooling. As activity cools, so does the need for the fuel that drives production and output. For decisive influence, tomorrow’s listings will likely carry more weight. The US and German consumer confidence indicators will be particularly interesting to energy traders for their close ties to general growth forecasts as well as their influence over risk appetite trends. If we had to choose which of these two held greater potential, we would have to defer to the US reading as it has a greater precedence for stoking volatility and has been more consistently linked to growth trends. Secondary readings to take note of will be the final reading of the UK’s 2Q GDP figures and, the same region’s CBI Distributive Trades survey and US API inventory numbers due in the New York afternoon.
Looking more critically at the performance of the oil markets, it is important to take note of a few changes. First, the price differential between the benchmark US (WTI) and UK (Brent) futures contracts dropped to $2.05 Monday (the smallest deficit in two weeks). Interestingly enough, this contraction comes on news that Enbridge Energy Partners have begun a “gradual restart” of their Line 6B pipe which has was shut down for a spill and subsequently curbed supply at US refiners. Another interesting point to make is that the difference between the current Nymex futures contract and that set for expiration in two years (the contango) dropped to $8.17 – a marked improvement the spread hit a 20-month high back on the 17th of $10.29. As for speculative interest, volume in the November futures contract dropped dramatically from its Friday record high (457,956 contracts to 270,713) while the COT net speculative long holdings report showed a 9 percent drop in through the week ending on the 21st.
Crude Futures Chart (240 Minutes)
Chart generated usingFXCM Strategy Trader
Commodities - Metals
Within Reach of $1,300 and Yet Investors are Taking Their Time with Gold
Spot Gold - $1,294.35 // -$1.60 // -0.12%
After week of consistent gains to fresh record highs, spot gold finally put in for a correction Monday. The timing of this pull back is particularly meaningful. While a week of steady advance certainly taxes the speculative stability of the market, the correction is far more interesting in that it has happened just below $1,300. Already at record highs, investors need mile markers with which to gauge conviction. Without historical precedence to work with, we defer to round psychological figures and momentum itself. The eight-weeks of consistent advance from this metal is almost unheard of; but this is also a meaningful argument for an overdue correction. Will gold automatically abandon its steadfast drive in reverence to an even number? Unlikely. In fact, the presence of such a remarkable level will likely attract a speculative rush of bids as opportunists and long-term investors alike attempt to trigger a potential wave of entry (or stop) orders set above this figure.
For fundamental guidance Monday, a slight pull back in risk appetite was as influential as the S&P 500’s rally this past week: virtually ignored. However, an indirect impact would be felt through the US dollar. Gold is one of the favored alternatives to the traditional fiat asset class and in particular is an attractive substitute to the greenback. With the advance from the currency today, we would see only a correction as the current of speculative appetites ebbed. There is still considerable overhead for the dollar to overcome before it is back on a bullish pace. Furthermore, there was a constant pressure to be noted on the traditional fiat. Today, the Fed bought another $36 billion in two-year Treasuries to flood the market with dollars and further distort the financial system. What’s more, Brazil’s Finance Minister, Guido Mantega, drew a critical assessment of the foreign exchange market by suggesting to many central banks were embarking on competitive intervention in order to lower the value of their own currencies. In response to this perceived threat, Mantega said he would be buying up “excess dollars” in the market. With this blatant manipulation, it shouldn’t be too surprising that investors are concerned. Going forward, talk over European debt will likely grow in clout as a primary driver. While the ECB reported buying only 134 million euros in sovereign debt this past week; but come this Thursday, European banks will see 225 billion euros in 12, 6 and 3-month loans from the ECB come due.
Looking more specifically at gold flows, the World Gold Council noted today that the IMF and central banks sold only 94.5 tons in the year through the 25th. This was the smallest sale since 1999 within the period when limits were imposed on annual sales. For speculators, we note that the COT report for the week ending September 21st marked a modest 238-contract decline to 244,013. At the same time, gold holdings by ETFs slipped modestly for a third day from record highs to 67.112 million ounces.
Spot Silver - $21.42 // -$0.03 // -0.12%
After Friday’s remarkable $0.32 (1.5 percent) rally, it isn’t really surprising that silver would curb its momentum Monday. Having just tested 30-year highs, the metal can run on its own momentum and seek justification for a continued advance (closing a perceived value gap with gold or advancing on risk appetite) where it needs. In the meantime, ETFs are holding are just at record highs.
Spot Gold Chart (Daily)
For a tangible assessment on the supply-and-demand aspect of the energy market, we would turn to an otherwise light macroeconomic docket. Perhaps the most influential piece of data through the day was the Chicago Federal Reserve’s National Activity Index for August. While all the individual components to this report are previously known, it is nonetheless helpful to see all these elements come together as a proxy economic activity forecast for the US. That being said, the -0.53 reading was worse than expected and further supports the general consensus amongst policy officials and economists that the world’s largest economy is cooling. As activity cools, so does the need for the fuel that drives production and output. For decisive influence, tomorrow’s listings will likely carry more weight. The US and German consumer confidence indicators will be particularly interesting to energy traders for their close ties to general growth forecasts as well as their influence over risk appetite trends. If we had to choose which of these two held greater potential, we would have to defer to the US reading as it has a greater precedence for stoking volatility and has been more consistently linked to growth trends. Secondary readings to take note of will be the final reading of the UK’s 2Q GDP figures and, the same region’s CBI Distributive Trades survey and US API inventory numbers due in the New York afternoon.
Looking more critically at the performance of the oil markets, it is important to take note of a few changes. First, the price differential between the benchmark US (WTI) and UK (Brent) futures contracts dropped to $2.05 Monday (the smallest deficit in two weeks). Interestingly enough, this contraction comes on news that Enbridge Energy Partners have begun a “gradual restart” of their Line 6B pipe which has was shut down for a spill and subsequently curbed supply at US refiners. Another interesting point to make is that the difference between the current Nymex futures contract and that set for expiration in two years (the contango) dropped to $8.17 – a marked improvement the spread hit a 20-month high back on the 17th of $10.29. As for speculative interest, volume in the November futures contract dropped dramatically from its Friday record high (457,956 contracts to 270,713) while the COT net speculative long holdings report showed a 9 percent drop in through the week ending on the 21st.
Crude Futures Chart (240 Minutes)
Chart generated usingFXCM Strategy Trader
Commodities - Metals
Within Reach of $1,300 and Yet Investors are Taking Their Time with Gold
Spot Gold - $1,294.35 // -$1.60 // -0.12%
After week of consistent gains to fresh record highs, spot gold finally put in for a correction Monday. The timing of this pull back is particularly meaningful. While a week of steady advance certainly taxes the speculative stability of the market, the correction is far more interesting in that it has happened just below $1,300. Already at record highs, investors need mile markers with which to gauge conviction. Without historical precedence to work with, we defer to round psychological figures and momentum itself. The eight-weeks of consistent advance from this metal is almost unheard of; but this is also a meaningful argument for an overdue correction. Will gold automatically abandon its steadfast drive in reverence to an even number? Unlikely. In fact, the presence of such a remarkable level will likely attract a speculative rush of bids as opportunists and long-term investors alike attempt to trigger a potential wave of entry (or stop) orders set above this figure.
For fundamental guidance Monday, a slight pull back in risk appetite was as influential as the S&P 500’s rally this past week: virtually ignored. However, an indirect impact would be felt through the US dollar. Gold is one of the favored alternatives to the traditional fiat asset class and in particular is an attractive substitute to the greenback. With the advance from the currency today, we would see only a correction as the current of speculative appetites ebbed. There is still considerable overhead for the dollar to overcome before it is back on a bullish pace. Furthermore, there was a constant pressure to be noted on the traditional fiat. Today, the Fed bought another $36 billion in two-year Treasuries to flood the market with dollars and further distort the financial system. What’s more, Brazil’s Finance Minister, Guido Mantega, drew a critical assessment of the foreign exchange market by suggesting to many central banks were embarking on competitive intervention in order to lower the value of their own currencies. In response to this perceived threat, Mantega said he would be buying up “excess dollars” in the market. With this blatant manipulation, it shouldn’t be too surprising that investors are concerned. Going forward, talk over European debt will likely grow in clout as a primary driver. While the ECB reported buying only 134 million euros in sovereign debt this past week; but come this Thursday, European banks will see 225 billion euros in 12, 6 and 3-month loans from the ECB come due.
Looking more specifically at gold flows, the World Gold Council noted today that the IMF and central banks sold only 94.5 tons in the year through the 25th. This was the smallest sale since 1999 within the period when limits were imposed on annual sales. For speculators, we note that the COT report for the week ending September 21st marked a modest 238-contract decline to 244,013. At the same time, gold holdings by ETFs slipped modestly for a third day from record highs to 67.112 million ounces.
Spot Silver - $21.42 // -$0.03 // -0.12%
After Friday’s remarkable $0.32 (1.5 percent) rally, it isn’t really surprising that silver would curb its momentum Monday. Having just tested 30-year highs, the metal can run on its own momentum and seek justification for a continued advance (closing a perceived value gap with gold or advancing on risk appetite) where it needs. In the meantime, ETFs are holding are just at record highs.
Spot Gold Chart (Daily)
27 сент. 2010 г.
Forex: Euro Looks To Test 1.3500, Risk Trends To Dictate Price Action For U.S. Dollar
The Euro bounced back from a low of 1.3425 during the overnight trade following a risk appetite and the single-currency may continue to push higher going into the North American session as the economic docket remains fairly light for Monday. However, as the EUR/USD struggles to push above the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500, the single-currency may hold within a narrow range unless we see a shift in market sentiment. Indeed, daily studies show that the euro remains overbought following the recent rally from earlier this month, and a corrective retracement may unfold this week as the daily relative strength index falls back from a high of 74.
Meanwhile, the Organization for Economic Co-operation and Development held a cautious outlook for Portugal and said that the debt crisis has weakened the growth prospects for the region as increasing spreads amongst government debt dampens the recovery. As a result, the group encouraged European policy makers to increase taxes while scaling back on public spending, and the ongoing weakness in public finances could the central bank to support the economy going into 2011 as it aims to balance the risks for the region. Nevertheless, as the Irish government is scheduled to announce the cost of saving Anglo Irish Bank Corp. later this week, concerns surrounding the European banking system could spur bearish sentiment towards the single-currency and spark a pullback in the exchange rate as the EUR/USD finds resistance around 1.3500.
The British Pound tipped higher during the European trade to reach a fresh monthly high of 1.5852, and the sterling may continue to appreciate throughout the day as the exchange rate clears the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700. As the pound-dollar breaks out of its recent range, price action looks poised to make another run towards 1.6000 as it continues to retrace the decline from the previous month. However, there could be a corrective retracement in the days ahead as the RSI approaches overbought territory, and we may see the GBP/USD carve out a double-top if price action fails to push above 1.6000. As the Bank of England is widely expected to maintain its current policy throughout the remainder of the year, a shift in the vote count remains the only catalyst that could trigger another bullish breakout in the pound-dollar as board member Andrew Sentance continues to push for a 25 rate hike, but a three-way split within the MPC would weigh on the exchange rate as investors speculate the BoE to expand quantitative easing in the coming months. Meanwhile, the economic docket showed home prices in the U.K. weakened for the third month in September, with the Hometrack survey falling 0.4% after contracting 0.3% in the previous month, and the ongoing weakness in the housing market may lead the BoE to support the economy going into the following year as policy makers expect the slack within the economy to bear down on inflation.
U.S. dollar price action was mixed overnight, with the USD/JPY tipping to a low of 84.12, and the rebound in market sentiment could drag on the greenback as equity futures foreshadow a higher open for the U.S. market. Nevertheless, the Chicago Fed National Activity index is forecasted to fall back to -0.50 in August from 0.0 in the previous month, while the Dallas Fed Manufacturing survey is projected to increase to -7.0 in September from -13.5 in the month prior, and the mixed batch of data could spur choppy price action amongst the majors as investors weigh the prospects for future growth.
Meanwhile, the Organization for Economic Co-operation and Development held a cautious outlook for Portugal and said that the debt crisis has weakened the growth prospects for the region as increasing spreads amongst government debt dampens the recovery. As a result, the group encouraged European policy makers to increase taxes while scaling back on public spending, and the ongoing weakness in public finances could the central bank to support the economy going into 2011 as it aims to balance the risks for the region. Nevertheless, as the Irish government is scheduled to announce the cost of saving Anglo Irish Bank Corp. later this week, concerns surrounding the European banking system could spur bearish sentiment towards the single-currency and spark a pullback in the exchange rate as the EUR/USD finds resistance around 1.3500.
The British Pound tipped higher during the European trade to reach a fresh monthly high of 1.5852, and the sterling may continue to appreciate throughout the day as the exchange rate clears the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700. As the pound-dollar breaks out of its recent range, price action looks poised to make another run towards 1.6000 as it continues to retrace the decline from the previous month. However, there could be a corrective retracement in the days ahead as the RSI approaches overbought territory, and we may see the GBP/USD carve out a double-top if price action fails to push above 1.6000. As the Bank of England is widely expected to maintain its current policy throughout the remainder of the year, a shift in the vote count remains the only catalyst that could trigger another bullish breakout in the pound-dollar as board member Andrew Sentance continues to push for a 25 rate hike, but a three-way split within the MPC would weigh on the exchange rate as investors speculate the BoE to expand quantitative easing in the coming months. Meanwhile, the economic docket showed home prices in the U.K. weakened for the third month in September, with the Hometrack survey falling 0.4% after contracting 0.3% in the previous month, and the ongoing weakness in the housing market may lead the BoE to support the economy going into the following year as policy makers expect the slack within the economy to bear down on inflation.
U.S. dollar price action was mixed overnight, with the USD/JPY tipping to a low of 84.12, and the rebound in market sentiment could drag on the greenback as equity futures foreshadow a higher open for the U.S. market. Nevertheless, the Chicago Fed National Activity index is forecasted to fall back to -0.50 in August from 0.0 in the previous month, while the Dallas Fed Manufacturing survey is projected to increase to -7.0 in September from -13.5 in the month prior, and the mixed batch of data could spur choppy price action amongst the majors as investors weigh the prospects for future growth.
Euro Goes Down on Concern for European Banks’ Health
The euro slipped today against the US dollar and the Japanese yen as the concern that the European banks would require to raise more funds damped demand to the European assets.
The report this week shall tell how much it’ll be for Ireland to bailout Anglo Irish Bank Corp. Brian Lenihan, Ireland’s Minister for Finance, promised that the costs would be “manageable”. The government expects the bailout to cost about €22 billion, but the Standard & Poor’s estimates put it closer to €35 billion, which is equal to 20 percent of Ireland’s GDP. The euro also fell as the Der Spiegel said that the European Commission lacks the confidence in the vitality of the German lenders.
EUR/USD slipped from 1.3483 to 1.3440 today as of 9:38 GMT, while EUR/JPY went down from 113.66 to 113.18.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
The report this week shall tell how much it’ll be for Ireland to bailout Anglo Irish Bank Corp. Brian Lenihan, Ireland’s Minister for Finance, promised that the costs would be “manageable”. The government expects the bailout to cost about €22 billion, but the Standard & Poor’s estimates put it closer to €35 billion, which is equal to 20 percent of Ireland’s GDP. The euro also fell as the Der Spiegel said that the European Commission lacks the confidence in the vitality of the German lenders.
EUR/USD slipped from 1.3483 to 1.3440 today as of 9:38 GMT, while EUR/JPY went down from 113.66 to 113.18.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
Euro Threatened Ahead of Meeting on Euro Zone Rule Changes
The Euro and the British Pound were little changed in overnight trade, with the single currency oscillating below the 1.35 to the US Dollar while sterling tracked sideways in a well-defined range above the 1.58 figure. We remain flat EURUSD and GBPUSD. UK House Prices fell 0.4 percent in September according to a survey from property market researcher Hometrack Ltd, marking the third consecutive decline and the largest one in 18 months. In a statement accompanying the release, Hometrack’s research director Richard Donnell chalked up recent weakness to “growing concerns over the economic outlook and public-spendingcuts,” adding that current trends are likely to persist “well into 2011”. However, Donnell added that the pace of price declines is likely to be contained as falling demand is coupled with a moderation in the volume of new supply coming to the market.
Japan’s Trade Balance surplus shrank to 103.2 billion yen in August as export growth slowed for the sixth consecutive month, adding 15.8 percent from the previous year to post the smallest increase in eight months. Shipments to China and the US – Japan’s top two trading partners that collectively account for a whopping 35 percent of the island nation’s overseas sales – increased the least since November and December 2009, respectively. The outcome hints that Japan’s export-driven recovery on the back of global stimulus efforts in the aftermath of the 2008 Great Recession is faltering, prodding policymakers to step up efforts to drive down the still-buoyant Japanese Yen after intervening into currency markets for the first time since 2004 earlier this month and allegedly stepping in again last week.
The economic calendar is conspicuously bare in European hours, hinting risk sentiment is likely to be in focus. Shares soared overnight, with the MSCI Asia Pacific regional benchmark index adding 1.2 percent to trade at a five-month high, while S&P 500 stock index futures are up 0.4 percent, pointing toward ample support behind risk appetite to start the trading week.
The implications of such an environment for major currency pairs are uneven however, with the relationship between the US Dollar and stock prices no longer as one-sided as it had been until recent weeks. Indeed, while the Australian, Canadian and New Zealand Dollars’ values against their US counterpart remain closely correlated with the MSCI World Stock index, the same cannot be said of the Euro, Pound or Yen, where the relationship has materially faded (each for their own reasons).
For the Euro, this means the spotlight will likely fall on the outcome of a meeting between European Council President Herman Von Rompuy and Euro Zone finance ministers, with the group set to discuss proposed changes to the rules governing the currency bloc in the aftermath of this year’s sovereign risk flare-up on the region’s southern periphery. The outcome may prove critical, with the markets’ confidence in the single currency as a viable alternative to the US Dollar seemingly in the balance. The summit may also prove significant for the Pound in that it may encourage traders to shift capital out of Euro-denominated assets in favor of European alternatives including sterling, first as a precautionary measure ahead of the summit and potentially in its aftermath as well. Finally, for the Yen, the landscape remains clouded amid fears of renewed intervention from Japanese authorities, particularly in the aftermath of today’s Trade Balance figures (see above).
Japan’s Trade Balance surplus shrank to 103.2 billion yen in August as export growth slowed for the sixth consecutive month, adding 15.8 percent from the previous year to post the smallest increase in eight months. Shipments to China and the US – Japan’s top two trading partners that collectively account for a whopping 35 percent of the island nation’s overseas sales – increased the least since November and December 2009, respectively. The outcome hints that Japan’s export-driven recovery on the back of global stimulus efforts in the aftermath of the 2008 Great Recession is faltering, prodding policymakers to step up efforts to drive down the still-buoyant Japanese Yen after intervening into currency markets for the first time since 2004 earlier this month and allegedly stepping in again last week.
The economic calendar is conspicuously bare in European hours, hinting risk sentiment is likely to be in focus. Shares soared overnight, with the MSCI Asia Pacific regional benchmark index adding 1.2 percent to trade at a five-month high, while S&P 500 stock index futures are up 0.4 percent, pointing toward ample support behind risk appetite to start the trading week.
The implications of such an environment for major currency pairs are uneven however, with the relationship between the US Dollar and stock prices no longer as one-sided as it had been until recent weeks. Indeed, while the Australian, Canadian and New Zealand Dollars’ values against their US counterpart remain closely correlated with the MSCI World Stock index, the same cannot be said of the Euro, Pound or Yen, where the relationship has materially faded (each for their own reasons).
For the Euro, this means the spotlight will likely fall on the outcome of a meeting between European Council President Herman Von Rompuy and Euro Zone finance ministers, with the group set to discuss proposed changes to the rules governing the currency bloc in the aftermath of this year’s sovereign risk flare-up on the region’s southern periphery. The outcome may prove critical, with the markets’ confidence in the single currency as a viable alternative to the US Dollar seemingly in the balance. The summit may also prove significant for the Pound in that it may encourage traders to shift capital out of Euro-denominated assets in favor of European alternatives including sterling, first as a precautionary measure ahead of the summit and potentially in its aftermath as well. Finally, for the Yen, the landscape remains clouded amid fears of renewed intervention from Japanese authorities, particularly in the aftermath of today’s Trade Balance figures (see above).
Japanese Trade Surplus Data Shows Impact of Strong Yen on Exports
Very little in the way of any meaningful price action thus far on Monday, with all currencies consolidating their latest gains against the buck and contemplating the possibility of yet another round of strength. The Euro has been exceptionally well bid over the past several trading sessions, with technical traders scratching their heads after the market finally ended a sequence of 9 consecutive daily higher lows on Friday to warn of a healthy corrective pullback, before totally negating this sequence-break and rallying to yet another multi-day high just shy of 1.3500.
The gains in the currency market continue to be driven by the latest Federal Reserve monetary policy statement which has signaled to the markets that the central bank is ready and willing to implement yet another round of quantitative easing should it be necessary. Since the decision last Tuesday, weak housing data has been the key stand out, and should economic data in the US disappoint some more over the coming weeks, then we will surely see another round of accommodation.
On Monday thus far, we have already seen a much weaker than expected Japanese trade surplus which shows the dramatic negative impact of the stronger Yen on exports and could start to scare away some of the Yen bulls. Also generating some volatility in the Yen has been the fiscal half-year end price action and hedging, and rumors of bankruptcy from Japan’s third largest consumer lender. Meanwhile in China, despite some fresh highs for the Yuan against the USD, the end result was rather unimpressive with the Yuan depreciating at the fixing. Finally, UK Hometrack Housing was weaker than the previous print, while in the Eurozone, the IMF said that it saw German GDP growth at 3.3% in 2010, and 2.0% in 2011.
Looking ahead, the European economic calendar is extremely light, with only Eurozone M3 money supply (0.2% expected) out at 8:00GMT. As a result of the anemic calendar, market participants will undoubtedly look to broader global macro themes for directional bias. US equity futures are pointing to a mildly firmer open, while commodities are also bid with gold consolidating just under its recently set record highs and critical barriers by $1300.
Written by Joel Kruger
The gains in the currency market continue to be driven by the latest Federal Reserve monetary policy statement which has signaled to the markets that the central bank is ready and willing to implement yet another round of quantitative easing should it be necessary. Since the decision last Tuesday, weak housing data has been the key stand out, and should economic data in the US disappoint some more over the coming weeks, then we will surely see another round of accommodation.
On Monday thus far, we have already seen a much weaker than expected Japanese trade surplus which shows the dramatic negative impact of the stronger Yen on exports and could start to scare away some of the Yen bulls. Also generating some volatility in the Yen has been the fiscal half-year end price action and hedging, and rumors of bankruptcy from Japan’s third largest consumer lender. Meanwhile in China, despite some fresh highs for the Yuan against the USD, the end result was rather unimpressive with the Yuan depreciating at the fixing. Finally, UK Hometrack Housing was weaker than the previous print, while in the Eurozone, the IMF said that it saw German GDP growth at 3.3% in 2010, and 2.0% in 2011.
Looking ahead, the European economic calendar is extremely light, with only Eurozone M3 money supply (0.2% expected) out at 8:00GMT. As a result of the anemic calendar, market participants will undoubtedly look to broader global macro themes for directional bias. US equity futures are pointing to a mildly firmer open, while commodities are also bid with gold consolidating just under its recently set record highs and critical barriers by $1300.
Written by Joel Kruger
26 сент. 2010 г.
Second Week of Gains for Euro, Analysts Continue Forecast Decline
The euro rallied last week despite the grim forecasts. This week the currency extended its rally, most notably against the dollar, against which it rose to the highest level since April. The analysts remained largely unconvinced, though, and continue predict the weakening of the euro.
It’s true that main reason for the euro’s strength against other currencies was the weakness of those currencies. The US dollar weakened after the Federal Reserve signaled about the next phase of the quantitative easing. The Japanese yen lost its strength on the talks about the intervention. The Great Britain pound suffered from the concerns about the possible influence of the budget cuts on Britain’s economy.
While all that is true, some good news from Europe itself also emerged. Germany was the main “producer” of the favorable data as the report about the improving German business climate and the increasing import and export prices contributed the most to the improving sentiment about the European economy. Nevertheless, most analysts think that the fundamentals remain largely depressed and the euro rose for the most part due to the weakness of the other currencies. Therefore, they don’t expect the rally to last long.
EUR/USD rose from 1.3050 to 1.3490 this weak, closing near its weekly high of 1.3493m the highest level since April 20th. EUR/GBP rallied from 0.8334 to 0.8523 after touching the weekly high of 0.8576. EUR/JPY went up from 111.89 to 113.67. This week was the second week of gains for the euro against all these currencies.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
It’s true that main reason for the euro’s strength against other currencies was the weakness of those currencies. The US dollar weakened after the Federal Reserve signaled about the next phase of the quantitative easing. The Japanese yen lost its strength on the talks about the intervention. The Great Britain pound suffered from the concerns about the possible influence of the budget cuts on Britain’s economy.
While all that is true, some good news from Europe itself also emerged. Germany was the main “producer” of the favorable data as the report about the improving German business climate and the increasing import and export prices contributed the most to the improving sentiment about the European economy. Nevertheless, most analysts think that the fundamentals remain largely depressed and the euro rose for the most part due to the weakness of the other currencies. Therefore, they don’t expect the rally to last long.
EUR/USD rose from 1.3050 to 1.3490 this weak, closing near its weekly high of 1.3493m the highest level since April 20th. EUR/GBP rallied from 0.8334 to 0.8523 after touching the weekly high of 0.8576. EUR/JPY went up from 111.89 to 113.67. This week was the second week of gains for the euro against all these currencies.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
25 сент. 2010 г.
Rand Drops as Central Bank & Importers Buy Dollars
The South African rand weakened today as the rand’s gains encouraged the central bank and the importers to take advantage of the stronger currency and buy the US dollars.
The rand’s rally may hurt the country’s exports but the central bank has limited resources to curb the currency’s gains. Gill Marcus, the central bank’s governor, said that there is no “easy solution” and the measures to trim the advance of the rand can be “hugely costly”. The currency surged previously as the US Federal Reserve signaled that it’ll keep the interest rates low for extended period of time, increasing the demand for the higher-yielding currencies.
USD/ZAR went up from 7.036 to 7.064 today as of 10:36 GMT after it previously slumped to 6.996.
If you want to comment on the South African rand’s recent action or have any questions regarding this currency, please, feel free to reply below.
The rand’s rally may hurt the country’s exports but the central bank has limited resources to curb the currency’s gains. Gill Marcus, the central bank’s governor, said that there is no “easy solution” and the measures to trim the advance of the rand can be “hugely costly”. The currency surged previously as the US Federal Reserve signaled that it’ll keep the interest rates low for extended period of time, increasing the demand for the higher-yielding currencies.
USD/ZAR went up from 7.036 to 7.064 today as of 10:36 GMT after it previously slumped to 6.996.
If you want to comment on the South African rand’s recent action or have any questions regarding this currency, please, feel free to reply below.
New Zealand Dollar Slumps as GDP Grows Less Than Forecast
The New Zealand dollar slumped today after the government reported that the nation’s economy expanded less than expected, damping the prospect for the interest rates hikes.
The New Zealand gross domestic product rose 0.2 percent in the third quarter of this year, following the 0.5 percent growth in the second quarter. The actual growth was much smaller than the forecast 0.8 percent increase. The slow economic growth reinforced the outlook that there will be no interest rates increases until the next year.
NZD/USD tumbled from 0.7384 to 0.7279 today as of 9:26 GMT.
If you want to comment on the New Zealand dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.
The New Zealand gross domestic product rose 0.2 percent in the third quarter of this year, following the 0.5 percent growth in the second quarter. The actual growth was much smaller than the forecast 0.8 percent increase. The slow economic growth reinforced the outlook that there will be no interest rates increases until the next year.
NZD/USD tumbled from 0.7384 to 0.7279 today as of 9:26 GMT.
If you want to comment on the New Zealand dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.
Yen Slumps on Talks About Another Intervention
The Japanese yen is rising after it previously declined today on the speculation that Japan intervened to trim the currency’s gains in order to protect the nation’s exporters.
Japan perhaps sold the yen today after it intervened last week for the first time in six years. Yoshihiko Noda, the Minister of Finance, said that the government may perform the ”bold” actions to limit the excessive appreciation. The yen also fell on the rumors that the Bank of Japan Governor Masaaki Shirakawa may resign. The bank later denied these rumors.
USD/JPY is heading to its opening level of 84.37 as it trades near 84.58 as of 9:14 GMT today after it jumped as high as 85.37.
If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.
Japan perhaps sold the yen today after it intervened last week for the first time in six years. Yoshihiko Noda, the Minister of Finance, said that the government may perform the ”bold” actions to limit the excessive appreciation. The yen also fell on the rumors that the Bank of Japan Governor Masaaki Shirakawa may resign. The bank later denied these rumors.
USD/JPY is heading to its opening level of 84.37 as it trades near 84.58 as of 9:14 GMT today after it jumped as high as 85.37.
If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.
Capital Inflows Bolster Indian Rupee
The Indian rupee, together with other Asian currencies, rose today on the speculation that the increasing capital inflows from the global funds in the region’s economy would allow the Asian countries to profit from Asia’s fast economic growth.
The rupee also gained after the Indian government allowed the foreign investors to double the holdings of the government bonds to $10 billion and increased the cap on investment in the corporate debt by the third to $20 billion. This measure may help India to decrease the nation’s growing current account deficit of $13 billion.
USD/INR fell from 45.475 to 45.310 as of 9:41 GMT today after it reached the intraday high of 45.660 and the intraday low of 45.250.
If you want to comment on the Indian rupee’s recent action or have any questions regarding this currency, please, feel free to reply below.
The rupee also gained after the Indian government allowed the foreign investors to double the holdings of the government bonds to $10 billion and increased the cap on investment in the corporate debt by the third to $20 billion. This measure may help India to decrease the nation’s growing current account deficit of $13 billion.
USD/INR fell from 45.475 to 45.310 as of 9:41 GMT today after it reached the intraday high of 45.660 and the intraday low of 45.250.
If you want to comment on the Indian rupee’s recent action or have any questions regarding this currency, please, feel free to reply below.
Good Economic Reports from US & Europe Push Loonie Higher
The Canadian dollar went up today against the US dollar, paring previous losses, as the German business sentiment unexpectedly increased and the number of the US durable good orders grew, increasing the attractiveness of the growth-related currencies. The currency later weakened somewhat but remained above the opening level. The loonie fell versus the euro.
The new orders for the US durable goods, excluding transportation, grew 2.0 percent in August, following the 2.8 percent decline in July. The analysts expected 0.9 percent growth. The Ifo Business Climate for industry and trade in Germany has again slightly improved in September, as a result the Ifo Business Climate Index rose from 106.7 to 106.8. The increase was small, but it’s not bad anyway, considering the forecasts promised a decline.
The loonie, as the Canadian currency nicknamed, rose also as the stocks rallied and the prices for crude oil, the main Canada’s export, increased. The MSCI World Index of stocks went up 1.6 percent, following the decline by 0.4 percent. November delivery for crude oil gained as much as 1.9 percent.
USD/CAD dropped from 1.0431 to 1.0270 today as of 17:07 GMT, following the decline to the intraday low of 1.0225. EUR/CAD went up from 1.3769 to 1.3837.
If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.
The new orders for the US durable goods, excluding transportation, grew 2.0 percent in August, following the 2.8 percent decline in July. The analysts expected 0.9 percent growth. The Ifo Business Climate for industry and trade in Germany has again slightly improved in September, as a result the Ifo Business Climate Index rose from 106.7 to 106.8. The increase was small, but it’s not bad anyway, considering the forecasts promised a decline.
The loonie, as the Canadian currency nicknamed, rose also as the stocks rallied and the prices for crude oil, the main Canada’s export, increased. The MSCI World Index of stocks went up 1.6 percent, following the decline by 0.4 percent. November delivery for crude oil gained as much as 1.9 percent.
USD/CAD dropped from 1.0431 to 1.0270 today as of 17:07 GMT, following the decline to the intraday low of 1.0225. EUR/CAD went up from 1.3769 to 1.3837.
If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.
Brighter Outlook for Economic Recovery Makes Euro Stronger
The euro rallied today against the US dollar and the Japanese yen, erasing its losses, after the global equities advanced and the good macroeconomic data from Europe suggested that the economic recovery continues.
The Standard & Poor’s 500 Index rose 2 percent, the biggest advance in three weeks. The MSCI Emerging Markets Index went up 0.8 percent, heading for the highest closing level since July 2008. The MSCI Asia Pacific Index deviated from the common trend, declining 0.1 percent after the four consecutive weekly gains.
Today’s reports signaled about improving economic conditions in Europe. The German business confidence unexpectedly improved. The import and export prices in Germany rise in August, by 0.2 percent and 0.4 percent respectively. The seasonally adjusted Italian retail trade index was unchanged In July 2010 with respect to the previous month, while the experts predicted it to decline 0.4 percent.
EUR/USD went up today from 1.3313 to 1.3483 as of 19:35 GMT after it earlier touched the daily low of 1.3286. EUR/JPY advanced from 112.33 to 113.68.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
The Standard & Poor’s 500 Index rose 2 percent, the biggest advance in three weeks. The MSCI Emerging Markets Index went up 0.8 percent, heading for the highest closing level since July 2008. The MSCI Asia Pacific Index deviated from the common trend, declining 0.1 percent after the four consecutive weekly gains.
Today’s reports signaled about improving economic conditions in Europe. The German business confidence unexpectedly improved. The import and export prices in Germany rise in August, by 0.2 percent and 0.4 percent respectively. The seasonally adjusted Italian retail trade index was unchanged In July 2010 with respect to the previous month, while the experts predicted it to decline 0.4 percent.
EUR/USD went up today from 1.3313 to 1.3483 as of 19:35 GMT after it earlier touched the daily low of 1.3286. EUR/JPY advanced from 112.33 to 113.68.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.
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