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.