Currencies Well Bid Post G20 That Only Reinforces Status Quo

At this point, the fallout from the G20 has been anything but US Dollar positive, with the Greenback selling off across the board in reaction to the latest communiqué. In the end, despite some mild changes to language and some very vague agreements, the key takeaway only reinforces the status quo. The fact that no countries were singled out, and that there were no explicit calls for flexibility, were key developments in reinforcing this fact. Another point that we felt was very interesting with the language, was that the communiqué made reference to “competitive devaluation” rather than “competitive undervaluation.” The use of the term “competitive devaluation” suggests that the Group was not concerned with the possibility that certain countries may look to intervene in the near future on behalf of their currencies, and in fact, was arguably more of a disapproval message with current quantitative easing policy in the US. However, even this language was rather broad, and here too, the door was left wide open for the US to implement another round of quantitative easing and for Japan to come in and intervene in the future if necessary.


Technically, our view over the shorter-term has been USD bullish and this outlook is being threatened into the early week. The 1.4060 level in Eur/Usd will be the key level to watch in our opinion, as it represents the 78.6% fib retracement off of the latest 1.4160-1.3695 move. Should the market be able to sustain a break above 1.4060, then we could very well see a full retracement back to 1.4160 and then beyond. Clearly the next key upside target in the Euro comes in by the major falling trend-line resistance off of the record highs, which currently comes in by the 1.4500 figure. However, should gains seen in early Asia stall out by or ahead of 1.4160, then we could see yet another topside failure, which will help to once again encourage our short-term USD bullish bias. All other price action should be well correlated to moves in the Euro, and therefore we would recommend that market participants look no further than price action in the major for hints at future directional bias.


Interestingly enough, despite a communiqué that at a minimum would not be interpreted as Yen bullish, Usd/Jpy has dropped considerably since the Asian open, with the market looking like it wants to break a bearish consolidation and head down towards the record lows just below 80.00 from 1995. However, we continue to stress that any setbacks below 80.00 should be very well supported, with the greater likelihood for a major upside reversal over the medium and longer-term. Perhaps right now, the fact that Toyota has announced that it will cut its second half Usd/Jpy rate assumptions to 80.00, along with some trade data that has come in better than expected, has helped to bolster Yen gains in early trade. Elsewhere, the Australian Dollar is the strongest currency on the day thus far, with USD bearish price action and some higher than expected producer prices helping to drive the relative strength.


Looking ahead, the economic calendar in European trade is quite light with UK BBA loans for house purchases (31000 expected) due at 8:30GMT, followed by Eurozone industrial new orders (2.2% expected) at 9:00GMT. US equity futures and commodities are very well bid ahead of the European open, but we would take the price action with a grain of salt and allow more time for the markets to digest the weekend event risk.



Written by Joel Kruger, Technical Currency Strategist

How G-20 Meeting May Influence Japanese Yen

The Japanese yen demonstrated yesterday the same pattern as other currencies as it was highly volatile, yet closed near its opening level. Unlike some other currencies it managed to close above the opening level against most currencies.

The explanation for such behavior is simple: the traders were agitated, anticipating the G-20 meeting, yet was unwilling to risk as the outcome of the meeting is far from clear. It was obvious for most traders that Japan wouldn’t perform another intervention before the meeting, but what it’ll do after?

The Japanese policy showed that they are ready to stem the currency’s appreciation to protect the economy. Yet the widespread depreciation of the currencies across the world causes concerns for the global economy and will likely be discussed on the meeting. Some analysts said that the increase of the interest rates was clever political move by China so it now can avoid blames for devaluation of its currency and to be able to blame others. Now China can say “hey, I demonstrated willingness to allow my currency to appreciate and what are you doing? Weakening your currencies?” Will Japan dare to weaken its currency in case China would take such stance?

Some economists say that, in fact, the G-20 meeting isn’t important at all. The countries are divided and it isn’t likely that they’ll make any major decision. So traders should trade on fundamentals, “forgetting” to some degree about this meeting, and wait for any major reports, notably the US third quarter GDP. Anyway, as it was shown by the previous Japan’s intervention, market sentiment may outweigh the government’s efforts to control the currency. For now, there is no reason for the yen to stop its rally.

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.

German Business Confidence Supports Euro

The euro rose today against the Swiss franc after the report showed the unexpected growth of the German business confidence. The euro fluctuated versus the US dollar, but had tendency to rise gradually.

The Ifo Business Climate indicator for industry and trade in Germany advanced from 106.8 to 107.6 in October. The analysts’ estimates promised a value of 106.5. Germany’s government more than doubled its growth forecast for this year to 3.4 percent.

EUR/USD traded at 1.3924 as of 12:46 GMT today after opening at 1.3920. EUR/CHF rose from 1.3470 to 1.3542.

If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.

Dollar Attempts to Reverse Downward Trend Ahead of G-20 Meeting

The US dollar fluctuated today, attempting to rise but meeting a resistance, as Timothy Geithner, the US Secretary of the Treasury, suggested that the G-20 countries should agreed on the targets to reduce the current account imbalances.

Geithner proposed, as a measure to ease the currencies tensions and prevent the so-called currency wars, the countries with the positive trade balance to decrease their surpluses, in the same time helping the countries with the trade deficits. The leaders of other countries divided in their opinions on this proposal. Yoshihiko Noda, Japan’s Minister of Finance, said that “setting numerical targets would be unrealistic”, while Jim Flaherty, Canada’s Minister of Finance, named such measures as a ”step in the right direction”.

The traders today weren’t willing to make any big moves, awaiting for the outcome of the G-20 meeting, which started today. The analysts say that, while it’s hard to predict how the meeting may influence the currencies, the dollar remained weak in the longer term.

EUR/USD fell from 1.3920 to 1.3931 today as of 18:49 GMT. GBP/USD dropped from 1.5703 to 1.5667 after it rose to the intraday high of 1.5749. USD/JPY went up from 81.33 to 81.40 after it slid as low as 80.99.

If you want to comment on the US dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

ForexLive Asian market wrap: Consolidation after big moves overnight

The market opened on a very risk averse note after big moves overnight. EUR/USD opened near its NY lows and fell again after the Duke comments. A Japanese bank bought significant amounts of EUR/USD near the 1.3700 low and that proved to be the base for the session. Despite the Nikkei continuing to fall, normal risk averse trades like EUR/JPY and EUR/CHF managed mild gains on the session. Ranges: EUR/USD 1.3700/77, EUR/CHF 1.3308/47 and EUR/JPY 111.59/112.19

USD/JPY has drifted slowly through the session with the market concious on one hand of possible BOJ intervention yet also aware of heavy selling towards 82.00 from real money funds and Japanese corporates. More tight ranges loom it seems. Ranges: 81.33/66

AUD/USD fell in early Tokyo as the lower Nikkei and talk of foreign-bond redemptions encouraged heavy AUD/JPY sellling. This petered out once the EUR/USD bounced and since then we’ve had a gradual short-covering session. Ranges: AUD/USD .9665/.9754

Cable has been quiet ahead of what’s expected to be a busy London session. Talk of good sized bids starting at 1.5610 through 1.5550. Ranges: Cable 1.5655/1.5724, EUR/GBP .8742/65.

China Raises Interest Rates, Can It Prevent Asset-Bubble?

The Chinese yuan slumped today against the US dollar, before rebounding later, after China’s policy makers raised the interest rates for the first time since 2007 to prevent the asset-bubble. The Chinese currency gained versus the euro.

China’s central bank increased the benchmark one-year lending rate from 5.31 percent to 5.56 percent and the deposit rate from 2.25 percent to 2.5 percent. Such measures were taken to restrain lending and prevent the asset-bubble. The economists theorize that this action may have totally different effect, attracting speculative capital to the country.

Last week Japan’s leaders said that China and South Korea should “take responsible actions” and their currencies would be “closely watched”. These remarks were met with protests and complaints from China’s and South Korea’s officials. Yoshihiko Noda, Minister of Finance, explained that there was misunderstanding. He explained that Japan’s government “meant that currencies will likely be the main” and China’s and South Korea’s currencies would likely be discussed.

USD/CNY traded at 6.6454 as of 23:24 GMT today after opening at 6.6452 and rising as high as 6.6507. EUR/CNY fell from 9.2594 to 9.1252 after jumping to the intraday high of 9.2898.

If you want to comment on the Chinese yuan’s recent action or have any questions regarding this currency, please, feel free to reply below.

Growing Consumer Prices Bolsters New Zealand Dollar

The New Zealand dollar strengthened today after the report showed that the inflation in New Zealand accelerated in the third quarter of this year, allowing the kiwi to gain versus 14 of 16 most traded currencies.

The New Zealand Consumer Prices Index rose 1.1 percent in the third quarter of 2010, compared to the 0.2 percent growth in the second quarter and the expected 1.0 percent increase. John Key, the Prime Minister of New Zealand, said that the strong currency would hurt the exports, yet the business confidence and the employment should improve. He doesn’t plan the intervention as it “does not work”.

Alan Bollard, the governor of the Reserve Bank of New Zealand, left the borrowing costs unchanged on September 16th. He also cut his outlook for the economic growth on the signs of the weak domestic spending and the slowing global demand.

NZD/USD rose from 0.7548 to 0.7561 as of 21:23 GMT today, while EUR/NZD fell from 1.8502 to 1.8427.

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.

Dollar Rally Struggles to Maintain Traction as the Fed Keeps Talking up Stimulus, Earnings Feed Appetites

Dollar Rally Struggles to Maintain Traction as the Fed Keeps Talking up Stimulus, Earnings Feed Appetites

With Monday’s close, the dollar put in for its first back-to-back gain since the currency was pitched into its aggressive bear over a month ago. This is both a remarkable development and a cautionary one at the same time. On the one hand, with the follow up to Friday’s bullish reversal from 10-month lows; the trade-weighted Dollar Index has technically broken the consistent descending trend channel that has defined the greenback’s bearing and pace for five weeks. This is a critical first step towards posting a true reversal; and we can see this same development through a few liquid majors – namely EURSD, AUDUSD and USDCAD. On the other hand, we have to refer to the stubborn consistency of the anti-dollar trend in GBPUSD, USDJPY and USDCHF. Considering this is a deeply engrained selling trend, a meaningful recovery will have to be supported across the board. And, therein lies the true burden for a bullish turn for the US dollar: fundamental reinforcement.


Through the first 24 hours of active speculating this week, we would see developments that would seem to support the mature selling effort. Breaking it down, there are two fundamental fonts that have a high potential influence over the dollar: risk appetite trends and the extent of speculation over the Fed’s stimulus efforts. Starting with the most prominent driver in recent months, the probability that the central bank will vote to expand its bond purchasing program was leveraged moderately through macroeconomic data and a few well-placed comments by policymakers over the weekend. From the calendar, the September industrial production and October NAHB housing market activity index were notable readings of economic activity. The top release on the day was without doubt the factory activity report; which subsequently dropped 0.2 percent – the first decline since June 2009. The reason this is a meaningful development is that the manufacturing sector (a component of industrial production) has been one of the most consistent performers for the world’s largest economy where domestic consumption, private investment and trade have fallen short. In the absence of this bulwark, a cooling in the economy looks far more likely and therefore stimulus seems more necessary. Another reading that gives a different angle on the Fed effort going forward was the August TIC capital inflows. At the very beginning of the speculative wave that would eventually consume traders’ attention with stimulus expectations, there was a notable pickup in foreign treasury purchases ($117 billion versus $30 billion previously). Is everyone joining or frontrunning the central bank?


Perhaps more direct in today’s market for speculative influence were the clearly dovish comments from the Fed’s Lockhart and Evans. The former suggested he was leaning towards more stimulus; but the latter said he was concerned that the US was falling into a liquidity trap which required “much more” accommodation that was needed “today.” And, yet, with these blatant comments, dollar selling was limited. If the market has not fully priced in an expansion of bond purchases, it is likely that we are close. We will likely confirm whether that is the case tomorrow the Fed expected to produce comments from: Evans, Dudley, Lockhart, Fisher, Kocherlakota, Duke and Bernanke. Watch both the dollar’s and S&P 500’s reaction to this wave. Another aspect to keep our eye on: 3Q earnings. Will US banks show the same performance as Citi did Monday?


Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Dollar One Step Closer to a True Reversal


Euro Redeemed in Greenback’s Weakness but ECB’s Trichet Cubs Talk of an Early Stimulus Withdrawal

It is important not to underestimate the influence that the dollar’s strength or weakness has on the euro. The two currencies are the most heavily traded in the market, so it is easy to see that EURUSD liquidity is heavy; and where one currency heads, the other often takes the opposite side of the trade. Through this line of reasoning, we can reflect on the euro’s stability through an otherwise fundamentally discouraging session. For positives, we saw the Bundesbank suggest that they may upgrade their German 2010 GDP assessment and Spain said they were soon to tap the capital market with a15-year debt issue. Far more important though was ECB President Trichet’s rebuttal to fellow policy member Weber’s suggestion that the bond program should be retracted now. This curtails a very appealing hawkish support. Also worth noting, Irish EU Parliament member Kelly plans on asking the EC why Allied Irish passed the stress test only to receive a massive bailout just a short time later.


Canadian Dollar Tops the List for News-Based Trading Opportunities with the BoC Rate Decision

There is little doubt that the round of commentary from the Fed Board holds considerable influence over the dollar; but the impact that the Bank of Canada’s rate decision has over the Canadian currency is far more tangible. Economists don’t expect a change; but the market is still pricing in a 16 percent probability of a 25 bps hike. A hold is likely; but it is the lean of the subsequent commentary that will really sway the loonie.


British Pound Traders Can Garner More from Former BoE Members than Current Policymakers

Sterling traders would have a confusing Rightmove House Prices Index to absorb. Conflicting with the Halifax’s recent 27-year low reading, the Rightmove report accelerated to a 3.1 percent expansionary pace. With a refreshing dose of clarity, we turn to the comments of former BoE members Goodhart and Blanchflower. Both lamented government spending cuts in a way that standing members simply can’t express.


New Zealand Dollar Moves Advances as Demand for Yield Fills in for CPI’s Suggestion of Few Hikes Ahead

In the coming 12-months the market is pricing in 55 basis points worth of hikes by the Reserve Bank of New Zealand (RBNZ). This is rather anemic for a historically hawkish policy body; but it certainly fits Governor Bollard’s dovish turn at his last meeting and the 3Q CPI data we read very early Monday. Slowing to a 1.5 percent annual clip, headline inflation is far from the 3 percent tolerance band that would force a hike.


Australian Dollar Puts in for a Short-Lived Rally after RBA Minutes Call Last Decision ‘Finely Balanced’

Just how close was the RBA’s decision to hold the benchmark lending rate unchanged on October 5th? Considering the Aussie’s reaction, it seemed quite the surprise (initially at least). Well, in the minutes for that meeting, the group said its decision was “finely balanced” and members saw the need for rates to rise “at some point” down the line. If we needed justification for AUDUSD’s proximity to parity, this certainly helps.

By John Kicklighter, Currency Strategist    http://www.dailyfx.com/real_time_news/

Euro Carves Near-Term Top, U.S. Dollar Benefits From Safe-Haven Flows

The Euro slipped to a low of 1.3830 during the overnight trade as policy makers in Europe held a cautious outlook for the region, and the single-currency may trend lower throughout the day as investors scale back their appetite for risk. European Central Bank President Jean-Claude Trichet said that the Governing Council remains “cautious” on the recovery during a conference in Marrakech, Morocco, and warned that excess volatility in the currency market could have an adverse effect on economic stability as it bears down on global trade. Mr. Trichet argued that the euro-area needs “more ambitious” reforms as the governments operating under the fixed-exchange rate system struggle to manage their public finances, and went onto say that most members of the ECB agrees with continuing its asset purchase program as the economic outlook remains clouded with uncertainties.


At the same time, Governing Council board member Ewald Nowotny voiced his support to maintain the emergency programs during an interview with an Austrian newspaper and said that the extraordinary measures will help to “correct imbalances in the capital markets” as the global financial system remains fragile. As European policy makers retain a cautious outlook for the region, we may see the ECB maintain the expansion in monetary policy throughout the beginning of 2011, and the soft tone held by the central bank could drag on the exchange rate as investors weigh the outlook for future policy. As the EUR/USD struggles to hold above 1.3900, the 61.8% Fibonacci retracement from the 2009 high to the 2010 low, we may see a corrective retracement unfold this week as the daily relative strength index finally falls back from overbought territory, and the exchange rate may work its way back towards the 50.0% Fib at 1.3500 to test for near-term support.


The British Pound slipped to a low of 1.5837 on Monday to maintain the narrow range from the previous week, and the GBP/USD may continue to trend sideways over the next 24 hours of trading as investors wait for the Bank of England policy meeting minutes due out on Wednesday at 8:30 GMT. We expect to see an 8-1 vote count amongst the MPC as board member Andrew Sentance sees scope to start normalizing monetary policy, but the central bank may hold a dovish tone for future policy given the substantial amount of slack within the real economy. However, a three-way split within the central bank is likely to trigger a selloff in the British Pound as market participants speculate the BoE to expand monetary policy further, and lead the GBP/USD to retrace the advance carried over from the previous month. Nevertheless, the economic docket showed home prices in the U.K. increased at the fastest pace in eight months, with the Rightmove index jumping 3.1% in October following the 1.1% in the previous month, and the stickiness in price growth could lead the BoE to maintain a neutral policy stance going into the following year as it aims to balance the risks for the economy.


The greenback continued to bounce back against most of its major counterparts, while the UJSD/JPY slipped to a low of 81.12 as the Japanese Yen strengthened across the board, and safe-haven flows are likely to dictate price action throughout the day as the economic docket remains fairly light for Monday. Industrial outputs in the world’s largest economy is forecasted to expand 0.2% for the second consecutive month in September, while the NAHB housing market index is projected to increase to 14 in October from 13 in the month prior, but the dollar may show little reaction to the economic developments as risk trends continue to dictate price action in the foreign exchange market.

Pound Falls on Concerns Budget Cuts Won’t Help with Deficit

The Great Britain pound dropped today ahead of the announcement this week about the detail of the spending cuts to decrease the nation’s significant budget deficit.

George Osborne, the Chancellor of the Exchequer, should announce his plans for the spending cuts on Wednesday. He hopes that the budget deficit would be nearly eliminated by the planned measures. Yet the economists aren’t convinced that the planned cuts would be able to reduce the deficit fast enough.

GBP/USD dropped from 1.5980 to 1.5886 as of 10:41 GMT today, following the drop to 1.5837. GBP/JPY went down from 130.13 to 129.01, following the decline to 128.69.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to reply below.

Pound Falls on Concerns About BOE Stimulus

The Great Britain pound fell today on the concern that the slow recovery would force Britain’s central bank to extend its stimulus measures. Earlier the currency surged versus the US dollar to the strongest level since January.

The sterling was weakened by the concerns that the weak UK economy would prompt the Bank of England to keep its benchmark interest rate at the record low level of 0.5 percent. The speculation that the Bank plans to buy the bond for £200 billion, while the Central European Bank pursue plans to end the stimulus, wasn’t helpful either. Rachel Lomax, the former Deputy Governor of the Bank of England, voiced concern that the stimulus may cause the asset bubble.

DeAnne Julius, the former policy maker, supported this outlook saying:

It is time to begin withdrawing the stimulus. Interest rates are very low and the deficit is very large, so it is tricky to come out of a situation of extreme policy stimulus like that. I know that people in those positions at the Bank of England are debating very actively about what needs to be done.

GBP/USD fell from 1.6009 to close at 1.5928 after it climbed as high as 1.6102. GBP/JPY closed at 130.12 after opening at 130.44.

Dollar’s Slide to 10-Month Lows Lacks Momentum Ahead of Heavy Data Flow, Bernanke Discussion

After its early Asian session slide, there was little for the dollar to do through the rest of Thursday’s active session but to drift to fresh lows for the year. The stumble below 77 on a trade-weighted basis was the notably the work of EURUSD’s drive above the closely watched 1.40 figure (a level that also happens to be the mid-point of the range between the July 2008 high and June 2010 low) with additional contributions by a renewed drive to 15-year lows for USDJPY and a rally towards parity for AUDUSD. That said, the meaningful break during the typically quiet and relatively illiquid trading period did not translate into the kind of follow through we would expect after such a hard-fought breakout. Typically, a meaningful breakout of this import will carry significant follow through as those stops and entry orders are triggered. Yet, shortly after the move, progress was immediately halted. Furthermore, with the influx of European and US trading interest, there was more of an effort to correct the sharp move than there was to catalyze it. The failure to generate momentum is most likely a consequence of light fundamental winds through Thursday’s session and the threat of high seas come tomorrow and into next week.


For fundamental trends, dollar traders’ primary concern remains stimulus expectations. Since the market caught the whiff of speculation surrounding stimulus expansion, the dollar has been under consistent and heavy pressure. Yet, as we track the influence this driver has on the currency, we note that the reaction following the decidedly dovish minutes was far more temperate than when the market was running on pure conjecture. This could very well be evidence of a buy-the-rumor-sell-the-fact scenario. However, there is still considerable time until we know definitively whether or not the central bank will increase its asset purchases. This is burdensome if momentum behind this trend flags now; because it will be far more predisposed to chop and false moves compared to the impact that confirmation would have if it came when speculative momentum was still fresh. Feeding doubt that the currency has overshot the reasonable bounds of the Fed’s likely stimulus contribution, we had a counter-trend stimulus comments through Thursday’s session. Richmond Fed President Lacker weighed with a warning that overemphasizing employment while making policy decisions could risk the central bank’s credibility for fighting inflation. What’s more, he said that he felt economic activity and inflation were more or less in line with the expectations he had set for maintaining policy. Less of an independent voice on the matter, the St. Louis Fed released a paper that suggested additional quantitative easing would do little to encourage growth as it would be absorbed by banks. For a definitive view on benchmarking stimulus, we look ahead to Fed Chairman Bernanke’s discussion tomorrow, aptly titled: ‘Monetary Policy Objectives in a Low Inflation Environment.’


In addition to commentary, those that are aren’t so certain of a November 3rd deadline for stimulus have been keeping an eye on macroeconomic data. The sharp increase in the trade deficit ($46.3 billion) and increase in jobless claims has little pull. Tomorrow, we have retail sales, consumer confidence and the consumer price index lined up. That is a perfect mix for gauging the balance of growth and inflation.


Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Watch and See on Dollar Selling, GBPNZD Short Term Setup


Euro Advances Slowly as Countries Wean off ECB Liquidity, Policy Officials Intensify he Hawkish Tone

The euro would put in for a none-too-shabby performance Thursday with the combined efforts of dollar selling and well-directed remarks made by policy officials. The effort to unwind the dollar has had the most remarkable influence on the shared currency as it is the market’s preferred alternative. If we were to ignore the effects of the cross winds, we would likely find a currency that was stable or still tipped towards depreciation. That said, such bearings would have been under pressure over the previous session given the general lean in financial developments and commentary from policy makers. On the financial crisis front, both Greek and Spanish banks cut their dependency on the ECB for liquidity in September (with 97.6 and 94.3 billion euros in repos respectively). From policymakers, Weber kept up the ‘end stimulus’ march, Mersch said it was time to go back to a normal framework and Smaghi said a strong euro wasn’t the problem, it was a weak dollar.


British Pound Draws Modest Strength from BoE Sentance's Ongoing Crusade for Rate Hikes

It is remarkable nowadays that central banks have three way splits with very vocal members on the extremes. The Bank of England is no different with MPC members Posen and Sentance on opposite sides of the wall. The latter member was up again this past session saying that the recent record drop in housing prices was more likely a reflection of volatility than a renewed recession for the real estate market.


Canadian Dollar Stumbles despite Reports of a Halved Trade Deficit

There remains a stubborn association between the Canadian dollar and its higher-yielding cousins even though the growth forecasts and policy officials have said patently that the economy would see restrained performance and rates would be held through the foreseeable future. Therefore, economic data becomes more important to anchor the masses to reality. After the drop in the deficit, we now look to factory orders.


Australian Dollar Sustains its Bullish Bearing thanks to Rising Inflation Forecasts, Fitch’s Assessment of Housing

It seems to have gone under the radar; but ratings agency Fitch recently released the preliminary results of its Australian housing market stress test. According to the group, Australia’s banks would hold up in the face of a 40 percent drop in home prices and 8 percent default rate. Impressive. Adding another degree of speculative optimism, we see that the consumer inflation outlook jumped from 3.1 to 3.8 percent.


Japanese Yen Traders Skeptical of BoJ Governor’s Speech on the Financial System

Few traders nowadays will take commentary from the Prime Minister, Finance Minister or BoJ officials at face value. Early in the Asian session Friday, we would have the usual warnings that the government was prepared to act to curb the yen’s advance – with little to no effect on price action. The BoJ Governor’s vows were similarly ignored. Until the next intervention or stimulus program is issued, the market remains skeptical.

International Pressure Makes Yuan Rise to Record vs. Dollar

The Chinese yuan climbed against the US dollar today to its highest level since 1993 on the speculation the Chinese policy makers will submit to the international pressure to allow the currency appreciate with faster pace.

China’s central bank set the reference rate at 6.6582 per dollar, the highest level since the end of the dollar-peg in July 2005. Timothy Geithner, the US Secretary of the Treasury, in his speech to the International Monetary Fund urged China to let the yuan appreciate faster. Max Baucus, the chairman of the Senate Committee on Finance, said yesterday the bill for the sanctions against China may pass in the Senate.

As with other currencies, the gains versus the dollar was not in small part due to the weakness of the dollar itself. The investors bet that the yuan will appreciate 3.5 percent further in span of a year.

USD/CNY dropped from 6.6522 to 6.6515 as of 22:54 GMT today. EUR/CNY fell form 9.3696 to 9.3614.

If you want to comment on the Chinese yuan’s recent action or have any questions regarding this currency, please, feel free to reply below.

Swiss Franc Falls After Hitting Record vs. Dollar, Drops vs. Euro

The Swiss franc slipped today against the euro after Axel Weber said that the European Central Bank should end its bonds-purchase program. The franc also fell after reaching the record high level versus the US dollar.

Weber, the President of the Deutsche Bundesbank and the Member of the Governing Council of the European Central Bank, said yesterday “these securities purchases should now be phased out permanently”. Weber’s comments provided support for the euro against the franc. The ECB President Jean-Claude Trichet said that “the positive but modest underlying momentum of the recovery remains in place”.

The franc also fell against the dollar. Previously it reached the record high level versus the US currency as the Federal Reserve signaled about next round of the quantitative easing. The franc still tries to rebound.

USD/CHF rose from 0.9568 to 0.9590 as of 20:07 GMT today after it reached the all-time low of 0.9544. EUR/CHF went up from 1.3323 to 1.3385, following the advance to 1.3421.

If you want to comment on the Swiss franc’s recent action or have any questions regarding this currency, please, feel free to reply below.

Loonie Trades at Parity with Greenback for First Time Since April

The Canadian dollar gained today, reaching parity with the US currency for the first time since April, on the rally of the commodity prices and as Canada expected to be the first nation among the Group of Seven to balance its budget.

The weakness of the US currency itself also helped the loonie to reach parity. The meeting of Canada’s central bank policy makers on October 19th should has great impact on the moves of the Canadian currency, as on this meeting the interest rates will be set. The analysts expect the rates to remain unchanged at 1.0 percent.

USD/CAD opened at 1.0032 and dropped to 0.9978, below 1.00 got the first time since April 27th, before rebounding to 1.0025 as of 13:23 GMT today.

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.

Aussie Hits New Record, Trades Near Parity with Greenback

The rally of the Australian dollar continues and the Aussie traded near the parity with the greenback today as the Asian stocks gained, suggesting the global recovery is gaining momentum.

The MSCI Asia Pacific Index of regional shares advanced 1.8 percent today, while the Standard & Poor’s 500 Index gained 0.7 percent yesterday to the highest level since May 3rd. The riskier currencies, including the Australian dollar, were also supported by the forecast that the report would show tomorrow the US retail sale grew.

AUD/USD traded near 0.9952 as of 12:46 GMT today after it opened at 0.9903 and reached the intraday high of 0.9993.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Bearish U.S. Dollar Sentiment Gathers Pace, Euro Breaks Narrow Range

The U.S. dollar weakened further against its major currency counterparts, with the EUR/USD rallying to a high of 1.4121 on Thursday, and the bearish momentum behind the greenback may carry into the end of the week as investors expect the Fed to expand monetary policy further. As EUR/USD breaks out of the narrow range from earlier this week, we are likely to see the pair continue to retrace the decline from earlier this year, and euro-dollar looks poised to make a run at 1.4440-50, the 78.6% Fibonacci retracement from the 2009 high to the 2010 low, as price action holds steadily above the 61.8% Fib around 1.3890-1.3900. With the 50-Day moving average (1.3158) approaching the 200-Day SMA at 1.3165, the bullish crossover suggests that the exchange rate will continue to push higher throughout the month, but there could be a corrective retracement in the coming days as the recent rally remains overbought. Given the strong bearish sentiment underlying the greenback, we would need the RSI to fall back below 70 to see a pullback in the exchange rate, and the rally may carry into the following week as the index bounces back to 78.


Meanwhile, the European Central Bank reiterated that the interest rate is “appropriate” in its monthly report and went onto say that price growth remains contained as the ongoing slack within the economy bears down on inflation. At the same time, ECB board member Yves Mersch said that the recovery in Europe remains in-line with the central bank’s forecast and that the recent slew of soft data “does not warrant increased pessimism” for the region, but went onto say that it remains “too early to claim victory” as the economic outlook remains clouded with uncertainties. As the Governing Council maintains a neutral outlook for future policy, the ECB may look to reestablish its exit strategy going into 2011, which would instill a bullish outlook for the single-currency in the beginning of the following year as the Fed maintains a dovish stance.


The British pound rallied to a fresh monthly high of 1.6066 during the overnight, and the exchange rate is likely to push higher going into the end of the week as carves out a short-term bottom around 1.5700, the 38.2% Fibonacci retracement from the 2009 low to high. As a result, the GBP/USD looks poised to test the 23.6% Fib around 1.6230-40, and the pair may continue to retrace the decline from the beginning of this year as the rally gathers pace. Meanwhile, Bank of England board member Adam Posen said that the global economy needs increased monetary stimulus according to an article in the Handelsblatt newspaper, and Mr. Posen may push to expand policy further in the coming months given the substantial amount of slack within the real economy. As a result, the British Pound is likely to face increased volatility over the following week as the BoE is scheduled to release its policy meeting minutes on Wednesday, and a three-way split within the MPC could spark a sharp selloff in the GBP/USD as market participants see scope for the BoE to expand quantitative easing further over the coming months.


The greenback weakened against all of its major counterparts, with the USD/JPY tumbling to a fresh yearly low of 80.88, but the dollar is likely to face increased volatility going into the end of the week as the economic docket is expected to reinforce a mixed outlook for future growth. Producer prices in the world’s largest economy is forecasted to increase at an annualized pace of 3.7% in September after rising 3.1% in the previous month, while the trade deficit is expected to widen to -$44.0B in August from -$42..8B in the month prior. However, market participants may turn a blind eye to the economic developments as they look towards the Fed’s interest rate decision on November 3, and comments from the central bank are likely to play an increased role in dictating price action as investors weigh the prospects for future policy.

Can Euro Resume Its Rally After Decline?

The euro retreated today against the US dollar and the Japanese yen on the speculation that it rallied too much earlier. It may still resume its rally depending on the decisions of the US and Japanese policy makers.

The minutes of the Federal Reserve policy makers’ meeting scheduled to be released today. In case the Fed would perform the expected quantitative easing the dollar would resume its downfall. The talks suggest that Japan may intervene to weaken its currency. Therefore, we can expect the rally of the euro not because of its inherent strength, but due to the weakness of other currencies.

EUR/USD fell from 1.3877 to 1.3809 as of 11:29 GMT today, following the decline to 1.3775. EUR/JPY went down from 113.89 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.

GBPUSD Traders Shift Their Focus to the U.K. Jobless Claims Report

Jobless claims in the U.K. are expected to rise 4.5K in September after climbing 2.3K in August, according to the median number of economists surveyed by Bloomberg News. At the same time, the claimant count rate is forecasted to remain unchanged at 4.5 percent during the month, while the ILO unemployment rate is estimated to stay unaffected at 7.8 percent.
Indeed, tomorrow’s report precedes the Bank of England Minutes which will be released on October 20th. Market participants may witness a three-way split as Andrew Sentance is expected to continue to call for a rate hike, while Adam Posen may reiterate his recent comments concerning additional quantitative easing. At the same time, other members of the MPC may continue their wait and see approach. All in all, a rise in jobless claims may add additional weight onto the single currency as the outlook for the economy remains blurry.


GBPUSD:After working its way into a ascending channel, the pair looks poised to close below the range, which is indicative or additional losses. At the same time, a crossover of the MACD may be on the horizon as the RSI neared overbought levels. Not to over look, the speculative sentiment index stands at 1.3, and signals for declines in the upcoming days.

China Weekly; Yuan in Focus After IMF and G7.

With its long national holiday now over, China has returned to center stage as comments from European officials last week indicate that pressure is mounting on China to act on the yuan. The pressure heaped upon Chinese leaders by US leadership over recent months is well known though US jaw-boning has had very limited real effect on the yuan. Their European counterparts gave it a go last week with ECB President Trichet leading the charge saying that the yuan’s appreciation “is not exactly what we would have hoped” for, expressing his disappointment with the extent of the yuan’s appreciation since China ended its two-year peg to the dollar in June. Various other European Union and European Commission added their own version of Trichet’s comments as the week wore on. In response, China’s central bank head Zhou Xiaohuan defended his country’s decision to only allow the yuan to strengthen gradually, saying an alternative “shock therapy” approach would be dangerous. It appears that officials are set to continue to exchange comments in the media as fears of an all-out currency war begin to grow. Officials are quick to blame China for the recent tensions surrounding the currency market since it is the largest and most effective administration pursuing interventionist policies. Not to mention China’s huge export sector, which has fueled much of the stellar growth seen in China over the last three decades, and Chinese officials protect by keeping the yuan artificially under-valued making their exports more competitive causing problems for countries trying to export their way out of recession.



Despite this all looking rather bleak from wherever you are sitting progress is being made, albeit in especially small increments. The WSJ reported last week that the yuan may soon be traded electronically by banks in the US and Europe. Currently ICAP and Thomson Reuters allow trade of the yuan on their electronic platforms, which supports trade with Chinese and foreign banks located in Hong Kong. The platform however, could be expanded beyond the city’s limits in what would mark another step toward the currency being traded in the global market. The report said that talks are ongoing with US and European banks about using the new system, until recently Hong Kong banks have been trading the yuan between themselves using over-the-counter (OTC) transactions or brokers. Electronic dealing would provide open pricing and volume data, key to enhancing the transparency, and would connect a larger pool of market participants.


Elsewhere, data released Friday showed that China had reversed its purchases of Japanese bonds in August silencing analysts who had suggested in recent weeks and months that China’s flight to safety, in the form of Japanese bonds, had led to the recent bout of yen strength. The Japanese yen trades close to its 15-year highs against the US dollar and Japanese officials had publicly expressed concern that China’s government bond purchases were adding unwelcome pressure to the yen, however, the officials seem to have been mistaken. The data showed that China sold 2.018 trillion yen worth of Japanese assets in August, selling back most of the 583 billion yen it bought in July and the 2.3 trillion yen it had accumulated in the first half of the year. Our understanding of this reversal was reflective of a different reversal taking place in China’s diversification plans. The shift by China to yen bonds came amid the fiscal crisis in Europe. Now that the crisis looks to be over, these assets are ‘meant’ to be euro denominated and have now returned to be so. The flight from euro denominated assets seen across the market, in which China partook, is now in the process of being unwound. Chinese Premier Wen Jiabao last week even showed support for purchasing Greek debt when the country reintroduces open sales. Wen said that he believed Greece had weathered the worst of the financial crisis and was beginning to emerge on a path to brighter days. Therefore, it appears that the flight to safety that has led to the recent yen strength cannot be blamed on China’s actions leaving Japanese officials somewhat perturbed.


Looking at the week ahead, China is due to release its trade figures for September on Tuesday which should be closely watched by many of China’s trading partners. A second downside surprise in the trade surplus could serve to lift some of the pressure off Beijing to allow its currency to appreciate. Meanwhile, at the end of the week the Communist Party of China’s meeting to discuss the nation’s next Five-Year Plan gets underway. While the Five-Year Plan doesn’t carry the same weight it did before China moved to a market-orientated economy it’s still the nation’s key policy blueprint and players will be on the look out for any information leaked as the debate begins. Final details won’t be released until the National People’s Congress meets next March, the plan will cover 2011 through to 2015.

Another Week of Dollar Weakness on Talks About Easing

This week was marked by the talks about the possible quantitative easing by the US Federal Reserve, the talks which were further fueled by the unexpectedly poor report about the US employment. In such environment the dollar has no choice but to go down.

The unexpected cut of 95,000 jobs by the US employers added the incentive for the Fed to start next round of the bonds purchases to stimulate the US economy. The price of the US currency dropped as the traders expect the inflow of new dollars into the economy. The analysts speak about interesting effect all this talks about the easing may have: when the actual quantitative easing occur it won’t cause much impact on the dollar price. The stimulus simply already priced in, so there’s no reason for the dollar to react even more.

The dollar fell for the fourth straight week against the Swiss franc, the euro and the pound. Against the yen it dropped for the third consecutive week, going below the 82 yen-per-dollar level for the first time since 1995. The greenback declined for the sixth week against the Canadian dollar for the seventh week versus the Australian dollar.

USD/CHF opened at 0.9753 and closed at 0.9638 this week after declining to 0.9554. USD/CAD went down from 1.0194 to 1.0112. AUD/USD rose to 0.9859 after opening at 0.9725 and falling to the weekly low of 0.9541.

If you want to comment on the US dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Another Week of Dollar Weakness on Talks About Easing

This week was marked by the talks about the possible quantitative easing by the US Federal Reserve, the talks which were further fueled by the unexpectedly poor report about the US employment. In such environment the dollar has no choice but to go down.

The unexpected cut of 95,000 jobs by the US employers added the incentive for the Fed to start next round of the bonds purchases to stimulate the US economy. The price of the US currency dropped as the traders expect the inflow of new dollars into the economy. The analysts speak about interesting effect all this talks about the easing may have: when the actual quantitative easing occur it won’t cause much impact on the dollar price. The stimulus simply already priced in, so there’s no reason for the dollar to react even more.

The dollar fell for the fourth straight week against the Swiss franc, the euro and the pound. Against the yen it dropped for the third consecutive week, going below the 82 yen-per-dollar level for the first time since 1995. The greenback declined for the sixth week against the Canadian dollar for the seventh week versus the Australian dollar.

USD/CHF opened at 0.9753 and closed at 0.9638 this week after declining to 0.9554. USD/CAD went down from 1.0194 to 1.0112. AUD/USD rose to 0.9859 after opening at 0.9725 and falling to the weekly low of 0.9541.

If you want to comment on the US dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

USD/JPY for First Time in 15 Years Below 82 on US Payrolls

The US dollar fell today against the Japanese yen to the lowest levels since 1995 as the nonfarm payrolls report was far worse than expected. The currency also fell versus the Great Britain pound and was declining versus the euro before rebounding and closing near the opening level.

The nonfarm payrolls dropped 95,000 in September, following the 57,000 decline in July. The analysts expected the 1,000 growth. The unemployment rate remained at the same 9.6 percent level. The payrolls report added just one more reason for the Federal Reserve to perform the quantitative easing.

As the talks about the quantitative easing intensified the stocks rallied, driving the Dow Jones Industrial Average above 11,000, the highest level since May. Gold also gained, following the advance to $1,366 per ounce yesterday, and may rise further on the speculation the demand increase for the precious metal as the alternative to the dollar.

USD/JPY closed at 82.0 after opening at 82.39 and falling to 81.74, dropping for the first time since 1995 below the 82.00 level. GBP/JPY closed at 1.5955 after it opened at 1.5874 and dropped to the intraday low of 1.5822. EUR/USD closed at 1.3928, near its opening level of 1.3925, after rising to 1.3982 and falling as low as 1.3834.

If you want to comment on the US dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Euro is as Strong as EURUSD, But is This Pair Set to Reverse?

Fundamental Forecast for Euro: Neutral


- Moody’s says it is impressed with Greek’s efforts while Fitch downgrades Ireland

- Has the EURUSD finally reached a point of exhaustion with a double doji pattern signaling a short-term reversal?


If we were to measure the euro’s strength in an absolute world with no reference to its counterparts; the currency’s trajectory and pace would likely be a lot different. However, this is a market; and all is relative. For the second most traded currency in the world, the troubles of the most liquid are a natural booster. For evidence of this dynamic, we see that this past week the euro was able to keep its bullish bearings through Ireland’s downgrade, policy officials’ verbal attempts to curb the rally in exchange rates and a surge in ECB purchases of sovereign debt. Helping to offset all these issues: EURUSD produced an unnaturally consistent, three-week rally to five month highs. When the euro’s troubles are set in contrast to the dollar’s tangible troubles, the shared currency looks robust. Yet, this speculative schadenfreude cannot last forever. Eventually the euro’s troubles will swell or the dollar’s troubles will recede to the point that they reach some level of equilibrium and eventually trade places. Is this the week that the reversal occurs?


From a purely technical standpoint, speculative resolve behind EURUSD may soon reach a point of exhaustion. EURUSD has rallied as much as 1,441 points in the span of approximately four weeks. This is approximately the same distance the pair ran from early June to early August (a two month run) at 1,457 points. Furthermore, the pair is at a meaningful psychological barrier and five-month high at 1.40. And, looking at crosses like EURGBP, EURJPY and EURAUD; there is evidence of early selling pressure. Can we extend this sense of an overbought market to fundamentals? Certainly. EURUSD’s performance to this point has been founded on the speculation of an imminent increase in stimulus by the Fed and a general stabilization in the European financial (a rebalancing of the scales so to speak with the greenback previously standing in as a safe haven and the Euro suffering for sovereign downgrades and evaporating liquidity). That being said, the US central bank has not actually taken meaningful steps towards increasing its bond purchases and the cost of Europe’s recovery (through debt servicing, downgrades, diminished bond demand, etc) continues to grow. What is needed is a shift in sentiment. What will likely start out as an overdue technical correction will evolve into speculative unwinding, financial media attributing the move to some intangible shift in actual fundamentals, investors changing their prejudice towards data (ignoring the bullish and responding to the bearish) and ultimately a self-sustained reversal. Fundamentals are not facts, they are the popular interpretation of events and data.


If instead of dominant trends, we are looking for volatility; there are a number of scheduled events and releases that should be noted. From the docket, the data is actually second tier in nature. The Eurozone CPI reading will be used to gauge the still distant potential of an ECB rate hikes. Industrial production and trade for the region will be important growth measures; but the market has shown little taste for such objective readings. Instead, the ECB’s monthly economic report will carry a little more weight as an overview of the bigger picture of what policy makers deem important to future policy decisions. Speaking of the ECB, the Central Bank President Trichet is scheduled to speak on Monday about the financial system – a prescient topic given Europe’s long-term problems with its recovery / deficit cutting balance set against a rapidly rising currency

New Zealand Dollar Stumbling, But Not against the Greenback

This kiwi dollar’s performance against the dollar and versus its other liquid crosses is very different. Against the benchmark greenback, the high-yield currency has rallied to a near one-year high – though in a rather choppy ascent. Yet, when we set the New Zealand against currencies like the Australian dollar, euro, British pound or Japanese yen; we see that it has actually stalled or lost ground over the past weeks. That being said, most traders make reference to the kiwi dollar’s strength or weakness just as it is reflected in NZDUSD. This is selective bias; which is reasonable considering this particular pair is the most liquid of the kiwis-crosses. However, when we get lost in the performance of this one pairing; it is easy to miss an impending shift or to inaccurately assess the performance of the other crosses. If we were to take the greenback’s influence out of this question, we would be looking at a weakening currency. With that said, NZDUSD likely carries a considerable amount of the influence by keeping the single commodity currency higher than it should be otherwise. What then happens should this US currency find traction?


If the dollar starts to appreciation, the impact will echo across the markets – and not just the FX market. An advance for the US dollar would likely drag most of its counterparts down (with perhaps the exception of the Japanese yen and Swiss franc). A natural side effect of such a development would be a wholesale desertion of yield demand that will completely undermine the kiwi and its other high-yield counterparts. For this particular currency, however, such a shift would be more severe. Whereas the Aussie and Canadian dollars have otherwise steady economies, New Zealand has actually seen its pace slow with notable troubles in domestic consumption, growing housing sector instability and tremors in the banking system. What’s more, when the sheer demand for return (through capital gains) dissipates; the kiwi will be exposed for a significant lack of potential through future interest rate growth. New Zealand’s Prime Minister summarized this situation well when he said last week that he expects the currency will not fall even as growth and interest rate expectations slow. This is probably true – so long as risk appetite itself holds up. What could spark a collapse in self-sustained investor confidence? There are a number of potential catalysts; but the most remarkable driver would be one that sees a loss of faith in stimulus expansion.


When we evaluate the New Zealand dollar for its place in the bigger themes, we find that the currency isn’t on a rising interest rate track, the country isn’t engaging in what is now popularly coined a “trade war” and the nation’s policy officials have not taken meaningful steps towards easing policy. As for particularly catalysts, there are notable market movers that are generally grouped over two periods. Sunday brings the card spending report which is good for measuring consumer spending and lending conditions. More influential will be the wave of releases of housing sales, retail sales and business activity on Wednesday evening / Thursday morning. These will give a meaningful assessment of the country’s economic health and could help establish interest rate expectations.

USD Graphic Rewind; Beleaguered DXY Erases Steep Drop to Close Flat

On the left side of the above chart we can see the trend of ‘sell the dollar and then sell the dollar some more’ remained in place early Thursday despite a raft of data in Europe which was largely ignored, unless it could be interpreted as a USD negative. This trend started on the back of the market pricing in further quantative easing by the Fed but has now turned into a slightly ridiculous trend that lacks a logical catalyst. However, we reached a short-term inflection point when the euro crossed the psychological 1.40 level and the currency was hit with a bout of profit taking as some traders wished to lock in their profits at such a key level (despite longer term charts suggesting the euro could rise as high as 1.44 and still be in a downtrend). Also at this point the dollar index encountered some moderate support below 77.00 and managed to put in a decent intraday bounce allowing the index to end flat on the day. After this dip and recovery move played out yesterday markets quietened down significantly, not surprisingly, as traders turned cautious ahead of earnings season and the US jobs report which is due later today.


Looking ahead, we are cautious in suggesting that today will be a day of consolidation ahead of the key NFP release since in recent days we have seen dollar selling sparked from the smallest of events. Therefore, we suggest taking some money off the table and locking in profit for those holding short-dollar positions while searching for new entry levels. However, we do caution that a significant correction is due with technical studies severely stretched in almost all of the USD’s trading partners.

Dollar Recovers its Composure as the ECB, BoE Hold Balances Fed Outlook, Now on to NFPs

Dollar Recovers its Composure as the ECB, BoE Hold Balances Fed Outlook, Now on to NFPs

If we were looking at just the economic docket for fundamental catalysts for the US dollar, the currency’s essentially unchanged close to close performance would seem reasonable. However, as we well know at this point, the greenback’s temperament is far more complex than a simple academic assessment of economic activity. The ‘sleeper’ element of price action over the past weeks - risk appetite trends - would contribute little to direction Thursday. The benchmark S&P 500 index showed a modest increase in volatility through the day; but the session’s performance was ultimately unchanged just like the previous day’s. And, considering the benchmark currency and investor optimism have been fully vested in the influence and omnipotence of stimulus; there was considerable interest in how the day’s monetary policy meetings and commentary (from both within and outside the US boarders) would influence the ailing greenback. Despite an opposing current of policy chatter from Fed officials and a decidedly more neutral/hawkish lean from US counterparts, the dollar would maintain stability. Is this a sign that the dollar is searching for a bottom in its aggressive selloff or perhaps a pace shift in reverence to tomorrow’s NFPs? Time and fundamentals will decide.


As for today’s fundamental cross winds, the most remarkable development was in the global stimulus debate. While the focus has been on the US dollar, because it has suffered for the Fed’s superfluous policy stance; an accommodative monetary and fiscal approach is really a global approach. Point in case, is the Bank of Japan’s decision to open the floodgates earlier this week, the Bank of England’s 200 billion sterling bond purchasing program and the ECB’s three-month unlimited lending facility as well as its sovereign debt purchase program. However, the concern is expansion. Both the ECB and BoE had the chance to ‘go with the flow’ and increase their support of the stressed recovery. Instead, both groups would vote to maintain their current programs and wait for further developments. This could have worked against the greenback as it would highlight the Fed as one of the few authorities that are still loosening the reins. That being said, the Federal Reserve hasn’t actually taken a step towards expanding its program. To this point, the group has put a floor under its existing $2 trillion in support and a few members have argued the legitimacy of additional stimulus. The real momentum in this debate is speculation. Eventually, speculation will require action to legitimize the significant shift in value.


This debate over the future of stimulus will maintain its influence going forward; and it may very well leverage Friday’s top-tier event risk. The US labor statistics for September have significant influence over expectations for the pace of economic output going forward. On the one hand, this data can boost or undermine risk appetite and cater to the greenback’s safe haven status. But more likely, the employment figures will reinforce or negate the need for additional Fed stimulus. For the near-sighted speculators, the change in payrolls (NFPs) is the primary concern. A 5,000 net contraction would offer modest support for expansion. A real sense of employment health though resides with the jobless rate and average earnings as a gauge for wealth and spending – and this data is already following a bearish bias.


Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: ECB Rate Decision Setups up EURJPY, BoE Includes EURGBP


Euro Steady after ECB President Trichet Keeps Policy Out of the Stimulus Current

On a relative basis, the euro received a significant fundamental boost Thursday after the European Central Bank maintained its neutral policy stance. When we look at the Bank of Japan which lowered rates and created a new stimulus program while the Fed is heavily expected to step up its support, the ECB’s decision to maintain its bearing is remarkable. In fact, the group could actually be considered to have taken a modestly hawkish shift in its approach. After maintaining rates, central bank President Jean-Claude Trichet confirmed the need for a gradual exit from its unorthodox policy efforts and a return to a competitive bid. This is juxtaposed a position the ECB can take to the Fed’s bearings without hiking or ending its liquidity programs altogether. Also of interest in the policy authority’s comments was the suggestion that exchange rates should reflect fundamentals. While this isn’t exceptionally remarkable; it reminds us that there is a G7 meeting tomorrow that will focus on the FX markets.


British Pound Can’t Rally on MPC’s Avoidance of Stimulus as Economic Data Cools

Between the ECB and BoE’s rate decisions, the British group’s decision to hold was far more remarkable. In the weeks leading up to the meeting, speculation stimulus increase was bolstered by Posen’s advocating further bond purchases. Instead, the BoE remains mum and is probably in a three-way split in its vote. In the meantime, annual factory activity hit a 16-year high and home price growth slowed to record low.


Japanese Yen Pushes Easily to a 15-Year High against Dollar as BoJ Comes Up Short on Intervention

Where is the BoJ? That is what currency traders were likely wondering when USDJPY dropped below 83 and proceeded to forge new 15-year lows. This pair has completely unwound the reaction to intervention and ignored the expansion in the BoJ’s policy effort this week (a far more active effort than the Fed). The Vice Finance Minister may have had something to do with it, saying intervention wasn’t for competitiveness.


Canadian Dollar Positioned for Volatility as Employment Data Looks to Compete with US NFPs

The Canadian dollar plunged across nearly all of its major counterparts Thursday. And, interestingly enough, this was a move that wasn’t heavily influenced by visible, scheduled event risk. Building permits dropped to their lowest level since February 2009; but does this undermine growth? Tomorrow’s employment data could carry more weight in this respect. Domestic consumption is vital to growth and interest rate speculation.


Australian Dollar Retraces from a Record High as Capital Markets and Risk Appetite Stall

After the dramatically bullish reaction to Thursday morning’s employment data, the Aussie dollar would maintain its advance through the early trading hours and test a technical record high against its US counterpart. However, this extraordinary effort wouldn’t hold up for long. Without risk appetite to provide support or global rates at least showing a level of stability, the Australian currency’s benefits will inevitably dissipate.
By John Kicklighter, Currency Strategist

Forex: Euro Falls Back As Fitch Cuts Credit Rating For Ireland, Bearish Sentiment Behind U.S. Dollar Gathers Pace

The Euro slipped to a low of 1.3797 during the overnight trade as Fitch Ratings lowered its sovereign debt rating for Ireland to A+ from AA-, and the single-currency may consolidate over the next 24 hours of trading as investors wait for the European Central Bank interest rate decision on Thursday. As the advance in the EUR/USD stalls ahead of 1.3890-1.3900, the 61.8% Fibonacci retracement from the 2009 high to the 2010 low, the single-currency may carve out a near-term top in the days ahead as the recent rally remains overbought. The ECB is widely expected to hold the benchmark interest rate at 1.00% this month, but investors will certainly turn their attention to the press conference with President Jean-Claude Trichet as they weigh the outlook for future policy.


We expect the Mr. Trichet to maintain a cautious outlook for the region as policy makers see the economic recovery tapering off, and the central bank head is likely to talk down the risks for inflation as he expects price growth to remain subdued going into 2011. However, a shift in the Governing Council’s economic assessment is likely to stoke increased volatility in the exchange rate, and the board may adopt an increasingly dovish tone as the outlook for future growth remains clouded with uncertainties. Nevertheless, the final 2Q GDP reading for the Euro-Zone showed economic activity expanded 1.0% from the first three-months of the year, which was largely in-line with expectations. However, the breakdown showed household consumption tipped 0.2% higher amid an initial forecast for a 0.5% rise, while gross fixed capital formations increased 1.5% versus earlier projections for a 1.8% expansion, and the ongoing weakness in the private sector could lead the ECB maintain a loose policy stance throughout the beginning of 2011 as it aims to encourage a sustainable recovery.


The British Pound fell back from a high of 1.5938 during the European trade to maintain the narrow range carried over from the previous month, and the GBP/USD is likely to hold steady ahead of the Bank of England interest rate decision due out tomorrow. The BoE is anticipated to hold the benchmark interest rate at 0.50% and maintain its asset purchase target at GBP 200B this month, but the central bank may refrain from releasing a policy statement, which could produce muted price action for the event. As a result, the GBP/USD may trend steady in the coming days until we get the BoE policy meeting minutes due out on October 20, and we expect board member Andrew Sentance to push for a 25bp rate hike as inflation continues to hold above the government’s 3% limit for price growth. However, if we see a three-way split within the MPC, speculation for further easing is likely to generate a bearish breakout in the exchange rate, which could lead the GBP/USD to retrace the advance from the previous month.


The greenback weakened across the board, with the USD/JPY slipping to a fresh yearly low at 82.72, and the bearish sentiment surrounding the dollar may carry into the end of the week as the economic docket is expected to reinforce a weakened outlook for future growth. The ADP employment report showed private payrolls unexpectedly slipped 39K in September amid forecasts for a 20K rise, and the data does not bode well for Friday’s non-farm payrolls report given the underlying weakness in the U.S. labor market. Nevertheless, risk trends may play a greater role in driving price action for the major currencies on Wednesday given the soft batch of economic event risks, and a shift in risk sentiment could prop up the greenback as it benefits from safe-haven flows.

EURUSD At Crossroads of The 61.8% Fibonacci Retracement; Fitch Cuts Ireland's Credit Rating

Fundamental Headlines

• Dollar Falls on Fed Speculation – Wall Street Journal

•Asian Stocks Climb as Gold Hits Record – Wall Street Journal

• IMF Chief Warns on Exchange Rate Wars - Financial Times

•Goldman Sachs Says U.S. Economy May Be “Fairly Bad” - Bloomberg

• Global Central Bank Action May Follow BoJ Moves On Rates– Bloomberg



EURUSD: Factory orders in Germany jumped 3.4 percent in August after falling some 1.6 percent the month prior, while the annualized figures soared 20.3 percent during the same period. Taking a look at the breakdown of the report, capital goods rose a massive 6.7 percent to mark the largest advance this year in the component, while consumer goods shed 3.9 percent to taper the advance. Despite today’s advance in factory orders, the euro was little changed against the U.S. dollar as focus turns to the ADP employment change for the month of September, which is being released ahead of the highly anticipated Nonfarm payrolls report.


At the same time, the EURUSD is at the crossroads of the 61.8 percent Fibonacci retracement on the December 3rd 2009 to June 7th 2010 downswing. Failure to break above this level will expose downside risks back towards 1.3512.


Meanwhile, the European Union during the overnight trade said that Greece’s 2006-2009 deficit will be revised to the upside, and went onto add that “areas of uncertainty” remain for Greece’s debt and deficit. This does not bode well for Greece as the country will implement tough austerity measures along with some of its neighbors, which will in turn weigh on growth. Thus, the EURUSD may return towards 1.300 during the first quarter of next year. Not to overlook, Fitch cut Irelands credit rating from AA- to A+.



Written by Michael Wright, Currency Analyst

USD Graphic Rewind

The dollar climbed steadily yesterday to notch up only its third positive close in the last thirteen trading sessions. A variety of factors lifted the dollar against its main trading partners, varying from revived concerns about Europe’s banks to simple profit taking in euro long positions which had entered over-bought territory. Global equities traded lower for most of the day Monday which lifted the dollar as investor’s exited positions. We were looking for the dollar to break back across Friday’s low against the euro at 1.3620 to alleviate topside pressure, something the dollar has been unable to do thus far and as such leaves the current move as little more than consolidation after such sharp dollar losses, but the overall structure remains in place and as we mentioned yesterday we now favour the possibility of the index testing support at 75.00.


Looking ahead, the index has started brightly again today and if it can managed a second consecutive higher close it will be the first time since early September to put in two consecutive higher closes. Looking at the way investors normally taking holding patterns ahead of the NFP release we still favour only moderate moves for the dollar the rest of the week in either direction.





Written by Jonathan Granby, DailyFX Research Team

Aussie and Yen Hit Hard Following Unexpected Rate Decisions

The Australian Dollar is by far the weakest currency on the day thus far, and should continue to be one of the weaker currencies for the remainder of the day after the Reserve Bank of Australia surprised markets by leaving rates on hold at 4.50%, while also offering a far less than hawkish accompanying statement. Although the central bank conceded that higher rates would be appropriate at some point in the future, comments that the “financial markets were still uncertain” and “overall credit growth remained subdued” were enough to send chills down the spines of Aussie bulls.


Technically, the pullback in the currency is certainly warranted, with daily studies rolling over from overbought after the antipodean rallied most impressively against the buck over the past 5 weeks. Rallies have stalled about a hundred points off the key multi-year highs from 2008 by 0.9850, but as we have mentioned in our analysis, the Australian Dollar sits by longer-term cycle highs and is at risk for a material pullback over the medium and longer-term. The fundamental catalyst has yet to fully reveal itself, but we anticipate that today’s rate decision could start to paint that picture with an economy that is becoming more aware of just how reliant it is on a shaky global outlook.




One must not overlook some other key developments over the past few hours that only help to reaffirm the case for additional Aussie weakness. On the data front, Australian retail sales have come in softer than expected, while at the same time, China services PMI has dropped in September. Aussie bulls have been very quick to discount problems in the US and Eurozone, on stronger local fundamentals and a very upbeat China outlook, and although it is only one day’s worth of economic data, the results are sure to force some reconsideration of positioning.


Another major development has been the latest Bank of Japan rate decision which has opened some decent selling in the Yen after the BOJ also surprised markets by easing monetary policy further, effectively lowering rates to 0.0% (0.0%-0.10%) and concurrently stepping up asset purchases. The BOJ cited a strong Yen and slower global economy as the reasons for the Japanese slowdown and deterioration in corporate sentiment.


Looking ahead, Swiss inflation data (0.0% expected) is due out at 7:15GMT, followed by German services PMI (54.6 expected) and Eurozone services PMI (53.8 expected) at 7:55GMT and 8:00GMT respectively. UK services PMI (51.0 expected) is then out at 8:30GMT, along with UK official reserves (changes), while Eurozone retail sales (0.2% expected) caps things off for the European economic calendar at 9:00GMT. US equity futures are tracking marginally higher, while commodities are also bid, with gold still just off of its record highs.




Written by Joel Kruger, Technical Currency Strategist

Forex Weekly Trading Forecast

US Dollar Will Follow Fed Speeches, NFPs for Stimulus Clues

There is little denying it: the US dollar is tumbling. There is only one step below the performance that the greenback is experiencing now and that is ‘free-fall.’ The difference between these two states? A free fall would denote irrational selling that would soon reach its peak and turn the market to stability or a reversal. Therefore, the benchmark currency may actually be experiencing the worst scenario because its losses are steady. Even technical traders should be aware that momentum is the key to gauging the eventual deceleration and inevitable turn for the US dollar. That being said, fundamentals can certainly accelerate this process; but does the scheduled and exogenous event risk on tap for next week seem like it will curb the dollar’s losses or add to them?

First and foremost, it is import to establish that the greenback’s primary catalyst is not risk appetite trends but rather speculation that the Federal Reserve is on track to expand stimulus – not that it would matter too much at this point because investor optimism has maintained a bullish bias since the beginning of September. With this in mind, we scan what we have on the calendar that can spark speculation surrounding monetary policy plans. The most pertinent driver therefore could be the range of Fed speeches that are spread throughout the week. It will start off heavy with Q&A and a statement on fiscal sustainability from Fed Chairman Ben Bernanke. The Board of Directors may decide stimulus on a consensus system; but the chair holds particular sway over opinions. Later in the week, we will see the Fed’s Fisher, Hoenig and Tarullo. Interestingly enough these three have shown a hawkish lean at one point or another in the past; so if they fold to the need for more stimulus; it will be construed as far more likely that easing is an ultimate outcome.


When reviewing the economic data scheduled for release over the coming week, we need to view it with the same stimulus angle that we will watching the Fed commentary from. Notable improvements in the economic forecast could go a long way towards dissuading the central bank from expanding its already massive $2 trillion stimulus plan and therefore flooding the system with dollars while simultaneously putting the nation’s finances in a further stressed situation. There is a lot to review including: factory orders, pending home sales, consumer credit, ADP employment change and ISM services. All of these are meaningful in the bigger picture framing. However, since this is a speculative reaction we are looking at, the NFPs carries the most weight as it is considered an easy to interpret gauge of economic activity. That being said, this indicator is due on Friday; and a lot can happen between the start of the week and that release.


And, while it is pretty clear that the market is fully preoccupied with the stimulus debate at the moment; we should not merely ignore the implications of risk appetite trends. If the capital markets find traction once again, will the dollar leverage its losses or will sentiment help by restraining the need for a government safety net. Then again, if confidence collapses, won’t it amplify the need for help?

Forex: Euro Extends Advance on U.S. Dollar Weakness, British Pound Holds Tight Range

After clearing 1.3500, the 50.0% Fibonacci retracement from the 2009 high to the 2010 low, the EUR/USD remains well overbought as the daily relative strength index holds above 70, but the exchange rate may continue to push higher over the near-term given the bearish sentiment underlying the U.S. dollar. Meanwhile, European Central Bank board member Lorenzo Bini Smaghi said policy makers was a risk for a crowding-out effect as policy makers prepare to implement the new Basel III regulations, and said it could lead to increased “risk-taking behavior” once banks start to change their investment strategies.


Mr. Bini Smaghi went onto say that the shift in the financial system could affect the central bank’s ability to manage “short-term rates, and thus to signal its monetary policy stance,” and pledged to monitor “whether a shift in demand from short-term to longer-term operations will take place” as it aims to strengthen the financial system. Meanwhile, the economic docket showed confidence in the Euro-Zone unexpectedly increased to its highest level since 2006, with the index rising to 103.2 in September from 101.8 in the previous month, while the gauge for business sentiment advanced to 0.77 from a revised 0.72 in August to mark the highest reading since December 2007. As growth prospects improve, policy makers may raise their economic outlook going into 2011, but the ongoing weakness in the financial system paired with the implementation of the austerity measures could lead the ECB to maintain a loose policy stance throughout the beginning of the following year as it aims to stem the downside risks for the region. As a result, the euro may face strong headwinds going into the end of 2010 as the central bank continues to see a risk for an uneven recovery, and ECB President Jean-Claude Trichet may continue to talk down speculation for a rate hike as price growth remains subdued.


The British Pound fell back from a high of 1.5874 during the European trade and may test 1.5700, the 38.2% Fibonacci retracement from the 2009 low to high, for near-term support as it pares the sharp rally from the previous week. However, as price action holds within the previous day’s range, the GBP/USD may consolidate further going into the end of the week as the recent advance stalls just shy of 1.5900. Meanwhile, a report by the Bank of England showed mortgage approvals in the U.K. increased 47.4K in August after expanding a revised 48.3K in the previous month, while consumer credit unexpectedly slipped GBP 0.1B during the same period amid forecasts for a GBP 0.1B rise. Given the ongoing weakness within the real economy, the BoE may increase its willingness to expand quantitative easing over the coming months, and speculation for further easing could lead the GBP/USD to retrace the advance from earlier this month as investors weigh the prospects for future policy.


The greenback continued to weaken against most of its major counterparts, with the USD/JPY slipping to a fresh weekly low of 83.49, and the bearish sentiment behind the dollar could intensify going forward as investors maintain a cautious outlook for the world’s largest economy. As equity futures foreshadow a higher open for the U.S. market, a rise in risk appetite could fuel further weakness in the greenback, and the dollar-yen may continue to retrace the sharp rally from the Bank of Japan currency intervention as price action looks poised to test 83.00 again.

Hungarian Forint Rises on Austerity Pledges & Economic Outlook

The Easter European currencies, including the Hungarian forint, were rising today as the improving sentiment about Europe’s economy and the governments’ pledge to cut the budget deficits attracted the foreign funds.

The Hungarian government pledged to narrow the nation’s budget deficit below 3 percent, causing the speculation that Hungary’s rating wouldn’t be downgraded by the Standard & Poor’s. The Hungarian currency was also helped by the improving outlook for the whole European economy, caused by the growing economies in such countries as Germany and Poland.

USD/HUF dropped today from 202.29 to 199.29 as of 11:59 GMT.

If you want to comment on the Hungarian forint’s recent action or have any questions regarding this currency, please, feel free to reply below.

Krona at Two-Year Record on Outlook for Monetary Tightening

The Swedish krona rose today to the highest level in two years versus the US dollar on the speculation that the central bank would perform its monetary tightening plans and as the economic data was favorable.

The Riksbank said it would increase the benchmark repo rate more than 2 percentage points over the next two years to about 3 percent. The reports showed that the manufacturing expanded for the 16th straight month, while the consumer and business confidence was at its highest level in the decade.

USD/SEK wend down from 6.7360 to 6.7095 as of 10:24 GMT today, following the drop to 6.6746, the lowest level since September 2008.

If you want to comment on the Swedish krona’s recent action or have any questions regarding this currency, please, feel free to reply below.

Earlier News About the Swedish Krona:
» Swedish Krona Down on Eurozone Optimism (2010-03-03)
» Krona Hits Record High on Swedish Interest Rate Outlook (2010-02-12)
» Swedish Krona Gains on Greece's Budget Deficit (2010-01-16)
» Swedish Krona Down on U.S. Optimism (2009-12-16)
» Swedish Krona Posts Biggest Fall in 2 Weeks (2009-11-18)


This entry was posted on Friday, October 1st, 2010 at 12:24 pm and is filed under Swedish Krona. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Aussie Drops from Two-Year Record, Remains Strong

The Australian dollar fell today, after reaching the highest level in two years against the US dollar, as the report showed that the new home approvals declined in August, causing the speculation that the central bank wouldn’t raise the interest rates next week.

The Australian Bureau of Statistics reported today that the number of the new building approvals dropped 4.7 percent in August, compared with 0.1 percent increase in the month before. The experts expected no change. It’ll take some time to determine where Australia’s economy are heading, but the economists say that Australia’s currency is doing very well and there is not much downward momentum.

The swaps dropped to 52 percent the chance that the Reserve Bank of Australia will increase its borrowing costs at the next meeting of its policy makers on October 5th. The analysts say in case of the rates hike the Aussie may head to parity with the US currency.

AUD/USD dropped from 0.9694 down to 0.9636 as of 18:12 GMT today after it touched 0.9732, the highest level since July 2008. EUR/AUD went up from 1.4052 to 1.4118, following the decline to 1.4022.

If you want to comment on the Australian and the New Zealand dollars’ recent action or have any questions regarding this currency, please, feel free to reply below.