Sunday, May 11, 2008
Massive Bank Losses And Write Downs Drag Risk Appetite And Carry Lower
The high end of the yield curve has taken a significant hit over the past week; and carry trades have suffered the consequences. The DailyFX Carry Trade Index sunk $298 dollars since last Friday after failing to over take a descending trendline that has been directing the basket since risk appetite was tripped up by the subprime meltdown last summer. In turn, a breakdown in USDJPY and other yen crosses has weighed on risk reversals, which show a greater demand for puts. However, during this reversal, the outlook for a BoJ hike over the coming year has eased and volatility cooled, suggesting this will be a more orderly (and perhaps short-lived) carry unwind.
US Dollar Consolidates As Oil Tops $126
The US dollar was mixed as raging oil prices above $126/bbl pressed on investors, but led the Canadian dollar to pick up the biggest gains. The Australian and New Zealand dollar however, depreciated the most against the US dollar, sparked by a rise in risk aversion. On the other side of the spectrum, the low yielding Swiss franc and Yen continued to climb against the greenback as the pairs traded at 1.041 and 102.9, respectively. Mixed sentiment for the European currencies sway the British pound to inch lower to 1.952, while the Euro picked up to trade in the 1.548 range.
On the economic front, the Canadian Net Change in Employment index held up for the fourth consecutive month as it rose to 19.2K from 14.6K, with the International Merchandise Trade index adding to the mix as the surplus widened to C$5.5M from C$4.8M due to a surge in energy exports. Looking at the US, the trade deficit narrowed to $-58.2B from $-62.3B as imports declined to a six year low, but did not help the US dollar as exports dipped for the first time is seven years.
The stock markets landed in troubled waters as AIG posted a $7.8B loss, with Citigroup heightening bearish sentiment as they plan to sell $500B in assets. As a result, the DJIA fell 120.90 points to 12,745.88 points, with 24 of the 30 components declining. The broader S&P500 dipped 9.40 points to hold off at 1,388.28 points, with 208 stocks falling to a new 52 week low.
Increased volatility in the stock markets has improved the appeal of US Treasuries, and spurred demands for long-term bonds as the financial markets continue to face downside risks. As a result, the benchmark 10-Year yield fell to 3.775 percent from 3.782, while the 2-Year yield rose to 2.247 percent from 2.227 percent.
Looking ahead, we expect limited event risk for the US dollar on Monday as the Monthly Budget Statement is the only scheduled release for the US, but expect to see increased volatility in the British pound as the Producer Price Index and the Trade report is due out for release at 8:30 GMT.
On the economic front, the Canadian Net Change in Employment index held up for the fourth consecutive month as it rose to 19.2K from 14.6K, with the International Merchandise Trade index adding to the mix as the surplus widened to C$5.5M from C$4.8M due to a surge in energy exports. Looking at the US, the trade deficit narrowed to $-58.2B from $-62.3B as imports declined to a six year low, but did not help the US dollar as exports dipped for the first time is seven years.
The stock markets landed in troubled waters as AIG posted a $7.8B loss, with Citigroup heightening bearish sentiment as they plan to sell $500B in assets. As a result, the DJIA fell 120.90 points to 12,745.88 points, with 24 of the 30 components declining. The broader S&P500 dipped 9.40 points to hold off at 1,388.28 points, with 208 stocks falling to a new 52 week low.
Increased volatility in the stock markets has improved the appeal of US Treasuries, and spurred demands for long-term bonds as the financial markets continue to face downside risks. As a result, the benchmark 10-Year yield fell to 3.775 percent from 3.782, while the 2-Year yield rose to 2.247 percent from 2.227 percent.
Looking ahead, we expect limited event risk for the US dollar on Monday as the Monthly Budget Statement is the only scheduled release for the US, but expect to see increased volatility in the British pound as the Producer Price Index and the Trade report is due out for release at 8:30 GMT.
Japanese Yen Pairs Primed for Volatility, JPY May Gain Further
Implied volatility is one of the most tried and true methods for objectively measuring expected volatility in the spot market. Derived from currency options with different maturities, implied volatilities are used to help predict potential movements in the spot market and is one of the most popular strategies of systems traders and other professional hedge funds.
At its most fundamental, the basic and intuitive interpretation of this implied data is often the most telling for traders. Taken alone, a steady rise in the longer-term implied volatility (the red line) is indicative of a strengthening trend; while inversely, a decline often reveals that a period of range or consolidation in spot is ahead or already in place. Additionally, the histogram or spread between the shorter and longer-term implied volatilities (the blue colored bars) tells a different perspective. As the histogram rises, volatility is expected to pick up faster in the near future relative to the longer-term range. Ultimately, this increases the probability of a breakout scenario in the underlying currency.
At its most fundamental, the basic and intuitive interpretation of this implied data is often the most telling for traders. Taken alone, a steady rise in the longer-term implied volatility (the red line) is indicative of a strengthening trend; while inversely, a decline often reveals that a period of range or consolidation in spot is ahead or already in place. Additionally, the histogram or spread between the shorter and longer-term implied volatilities (the blue colored bars) tells a different perspective. As the histogram rises, volatility is expected to pick up faster in the near future relative to the longer-term range. Ultimately, this increases the probability of a breakout scenario in the underlying currency.
Forex Video - USD/CAD Tumbles, How Will Inflation and GDP Numbers Impact Currencies Next Week?
Written by Terri Belkas and John Kicklighter, Currency Analysts
· Canadian employment data beats expectations, leads to Loonie rally.
· Heavy event risk looms next week - which indicators do you need to watch?
Stories to watch on DailyFX
· Heavy event risk looms next week - will Tuesday's US Retail Sales report be surprisingly strong?
· USD/CAD fell on Friday, but is the Canadian dollar ready to fall across the board?
· Canadian employment data beats expectations, leads to Loonie rally.
· Heavy event risk looms next week - which indicators do you need to watch?
Stories to watch on DailyFX
· Heavy event risk looms next week - will Tuesday's US Retail Sales report be surprisingly strong?
· USD/CAD fell on Friday, but is the Canadian dollar ready to fall across the board?
US Dollar: US Retail Sales Could Get A Surprise Boost on Tuesday - Why?
Advance Retail Sales are expected to fall back 0.2 percent after showing a surprising 0.2 percent gain during the month prior, but given the current economic scenario, this figure could prove to be even more disappointing when announced at 8:30 EDT.
What Are The Markets Facing?
Advance Retail Sales are expected to fall back 0.2 percent after showing a surprising 0.2 percent gain during the month prior, but given the current economic scenario, this figure could prove to be even more disappointing when announced at 8:30 EDT. Indeed, consumer confidence is rapidly deteriorating and energy prices continue to skyrocket. During the month of April, the University of Michigan consumer confidence survey plunged to a 26-year low of 62.6 while the Conference Board’s measure dipped down to a 5-year low of 62.3 on a gloomy combination of jittery financial markets, a collapsing housing sector, and oil rocketing to record highs. There is little doubt that retailers are contending with difficult circumstances as they are forced to offer the biggest discounts possible in order to draw customers, which will negatively impact profit margins. However, there is potential for the Advance Retail Sales index to actually show a positive increase as the result of prices, namely, sales at fuel stations. Indeed, this index is not adjusted for inflation and average gas prices rose above $3.50/gallon during the month and have only continued to rise.
Bonds – 10-Year Treasury Note Futures
A daily chart of Treasuries highlights the break above trendline resistance and the subsequent advance toward resistance at the confluence of the 100 SMA and 38.2 percent fib at 116-20. While we are likely to see a test of this resistance level on Monday, Tuesday’s release of US Advance Retail Sales provides significant event risk for the contract. Indeed, retail sales are forecasted to slump, which could support the case for additional Treasury gains. On the other hand, if rocketing gas prices lead the headline retail sales index to deceptively rise, the contract could pull back toward support near 115.
What Are The Markets Facing?
Advance Retail Sales are expected to fall back 0.2 percent after showing a surprising 0.2 percent gain during the month prior, but given the current economic scenario, this figure could prove to be even more disappointing when announced at 8:30 EDT. Indeed, consumer confidence is rapidly deteriorating and energy prices continue to skyrocket. During the month of April, the University of Michigan consumer confidence survey plunged to a 26-year low of 62.6 while the Conference Board’s measure dipped down to a 5-year low of 62.3 on a gloomy combination of jittery financial markets, a collapsing housing sector, and oil rocketing to record highs. There is little doubt that retailers are contending with difficult circumstances as they are forced to offer the biggest discounts possible in order to draw customers, which will negatively impact profit margins. However, there is potential for the Advance Retail Sales index to actually show a positive increase as the result of prices, namely, sales at fuel stations. Indeed, this index is not adjusted for inflation and average gas prices rose above $3.50/gallon during the month and have only continued to rise.
Bonds – 10-Year Treasury Note Futures
A daily chart of Treasuries highlights the break above trendline resistance and the subsequent advance toward resistance at the confluence of the 100 SMA and 38.2 percent fib at 116-20. While we are likely to see a test of this resistance level on Monday, Tuesday’s release of US Advance Retail Sales provides significant event risk for the contract. Indeed, retail sales are forecasted to slump, which could support the case for additional Treasury gains. On the other hand, if rocketing gas prices lead the headline retail sales index to deceptively rise, the contract could pull back toward support near 115.
Tuesday, May 6, 2008
Yen Crosses: Corrections Continue but Larger Trend Still Down
The choppy decline since the October high at 91.42 may be a series of 1st and 2nd waves. Under this count, the NZDJPY needs to remain below 88.11 for a C wave decline that will eventually come under 74.25 to remain on track. An alternate count treats the entire drop from 91.42 is an ending diagonal (similar to the EURJPY). Under this alternate, a wave 2 correction is underway towards fibo resistance in the 84/85.80 area. A rally through 88.11 would make this the preferred count. In both cases, lower prices are expected. The outcome would be delayed under the alternate count.
CHFJPY Range Bound Following Break in Bullish Trend
Trading Tip – A common cliché among traders holds that “the trend is your friend.” When applied to range trading through periods of consolidation in an otherwise trending market, this means only entering a trade in the direction of the trend. In particular, we will opt not to buy CHFJPY even though the pair is trading close to the bottom of the range because the direction of the recent breakout was to the downside. We would rather miss out on a trade and lose nothing than get long counter-trend if CHFJPY simply sinks lower from here without oscillating to the 50% Fib.
Note – Today’s market environment is not conducive to a range-bound approach with most pairs trending. Finding a range trading opportunity often means relying on exotic crosses and thereby contending with higher volatility levels. Conservative traders that are intent on following a range-bound approach should be mindful of this when evaluating these trade ideas.
Event Risk for Switzerland and Japan
Switzerland – With Consumer Price Index figures out of the way, the Swiss calendar has become substantially lighter for the rest of the week. The only remaining item on the docket is Thursday’s jobs report. Expectations are for the rate to remain at a consistent 2.5%. Traders will be wary of this ticking higher as the Euro zone exports the effects of the US malaise to the mountain nation.
Japan –Friday’s release of the preliminary estimate of the Leading Economic Index for March is the only substantial release from Japan this week. Expectations are for a sharp decline as the Japanese economy suffers high oil prices and the loss of vigor in the US export market.
Note – Today’s market environment is not conducive to a range-bound approach with most pairs trending. Finding a range trading opportunity often means relying on exotic crosses and thereby contending with higher volatility levels. Conservative traders that are intent on following a range-bound approach should be mindful of this when evaluating these trade ideas.
Event Risk for Switzerland and Japan
Switzerland – With Consumer Price Index figures out of the way, the Swiss calendar has become substantially lighter for the rest of the week. The only remaining item on the docket is Thursday’s jobs report. Expectations are for the rate to remain at a consistent 2.5%. Traders will be wary of this ticking higher as the Euro zone exports the effects of the US malaise to the mountain nation.
Japan –Friday’s release of the preliminary estimate of the Leading Economic Index for March is the only substantial release from Japan this week. Expectations are for a sharp decline as the Japanese economy suffers high oil prices and the loss of vigor in the US export market.
Dollar Trades Lower As Risk Aversion Recants Bullish Outlook
Dollar Trades Lower As Risk Aversion Recants Bullish Outlook
Despite a quiet economic calendar, the US dollar was on the retreat Tuesday against most of its major counterparts. For those majors that weren’t caught up in cross fundamental currents, the greenback selloff was partly a carry through on the single currency’s ongoing reversal of last week’s strong rally. There was also a more active component to the decline in the form of a general souring in risk appetite – but more specifically, American risk. Ben Bernanke and his fellow Federal Reserve policy makers have made a remarkable effort to head off a recession and stabilize the broad financial markets with a cumulative 325 basis points of rate cuts and unusual means for injecting liquidity into the frozen credit markets. In fact, after last week’s quarter point cut from the FOMC, the market is pricing in an 86 percent chance that the Fed Funds rate will be left unchanged at 2.00 percent. However, recent data has offered little reason to suspect financial conditions are improving nor that the economy would avoid a contraction in the second quarter. Today, an article on Bloomberg News quoting a study from Jupiter eSources LLC revealed bankruptcy filings among businesses rose 49 percent in the year through April – the most in a year. With individual filings included, the rise over the same period measured 31 percent. This highlights an often overlooked concern: that the Fed’s efforts haven’t been passed through to the consumer – a necessity if growth is to recover. Looking ahead to tomorrow fundamental activity picks up modestly with March pending home sales and credit spending. Both indicators have little market moving precedence.
Despite a quiet economic calendar, the US dollar was on the retreat Tuesday against most of its major counterparts. For those majors that weren’t caught up in cross fundamental currents, the greenback selloff was partly a carry through on the single currency’s ongoing reversal of last week’s strong rally. There was also a more active component to the decline in the form of a general souring in risk appetite – but more specifically, American risk. Ben Bernanke and his fellow Federal Reserve policy makers have made a remarkable effort to head off a recession and stabilize the broad financial markets with a cumulative 325 basis points of rate cuts and unusual means for injecting liquidity into the frozen credit markets. In fact, after last week’s quarter point cut from the FOMC, the market is pricing in an 86 percent chance that the Fed Funds rate will be left unchanged at 2.00 percent. However, recent data has offered little reason to suspect financial conditions are improving nor that the economy would avoid a contraction in the second quarter. Today, an article on Bloomberg News quoting a study from Jupiter eSources LLC revealed bankruptcy filings among businesses rose 49 percent in the year through April – the most in a year. With individual filings included, the rise over the same period measured 31 percent. This highlights an often overlooked concern: that the Fed’s efforts haven’t been passed through to the consumer – a necessity if growth is to recover. Looking ahead to tomorrow fundamental activity picks up modestly with March pending home sales and credit spending. Both indicators have little market moving precedence.
Saturday, May 3, 2008
Japanese Yen May Continue Falling on Low Market Volatility
Implied volatility is one of the most tried and true methods for objectively measuring expected volatility in the spot market. Derived from currency options with different maturities, implied volatilities are used to help predict potential movements in the spot market and is one of the most popular strategies of systems traders and other professional hedge funds.
At its most fundamental, the basic and intuitive interpretation of this implied data is often the most telling for traders. Taken alone, a steady rise in the longer-term implied volatility (the red line) is indicative of a strengthening trend; while inversely, a decline often reveals that a period of range or consolidation in spot is ahead or already in place. Additionally, the histogram or spread between the shorter and longer-term implied volatilities (the blue colored bars) tells a different perspective. As the histogram rises, volatility is expected to pick up faster in the near future relative to the longer-term range. Ultimately, this increases the probability of a breakout scenario in the underlying currency.
EURUSD
Implied volatilities on EURUSD options have fallen significantly off of their multi-month peaks, as a general recovery in risk appetite and a slowdown in price moves have lowered options premiums on aggregate. Such developments suggest that the extreme price moves we have grown accustomed to as of late will die down through short-term trading—especially as the shorter-dated implieds are trading 55 basis points below their longer-term counterparts. What this tells us is that markets are expecting volatility to be lower in the coming week than in the month as a whole.
At its most fundamental, the basic and intuitive interpretation of this implied data is often the most telling for traders. Taken alone, a steady rise in the longer-term implied volatility (the red line) is indicative of a strengthening trend; while inversely, a decline often reveals that a period of range or consolidation in spot is ahead or already in place. Additionally, the histogram or spread between the shorter and longer-term implied volatilities (the blue colored bars) tells a different perspective. As the histogram rises, volatility is expected to pick up faster in the near future relative to the longer-term range. Ultimately, this increases the probability of a breakout scenario in the underlying currency.
EURUSD
Implied volatilities on EURUSD options have fallen significantly off of their multi-month peaks, as a general recovery in risk appetite and a slowdown in price moves have lowered options premiums on aggregate. Such developments suggest that the extreme price moves we have grown accustomed to as of late will die down through short-term trading—especially as the shorter-dated implieds are trading 55 basis points below their longer-term counterparts. What this tells us is that markets are expecting volatility to be lower in the coming week than in the month as a whole.
Carry Trade On The Rise As Volatility Cools, Rate Differentials Improve
Through there is growing concern as to how long high yielding currencies like the New Zealand and Australian dollars can keep their rates at record highs, interest in the carry trade has still improved over the past week. The DailyFX Carry Trade Index rose $296 since last week with help from a modest cooling in currency market volatility and a general improvement in the outlook for the yen crosses.
• Carry Trade On The Rise As Volatility Cools, Rate Differentials Improve
• Fed And BoE Boost Risk Appetite By Widening Their Collateral Nets
• Caution Still In Place As Market Questions High Yielders Buoyancy
Through there is growing concern as to how long high yielding currencies like the New Zealand and Australian dollars can keep their rates at record highs, interest in the carry trade has still improved over the past week. The DailyFX Carry Trade Index rose $296 since last week with help from a modest cooling in currency market volatility and a general improvement in the outlook for the yen crosses.
There has been a tangible rebound in risk appetite over the past few weeks; and the carry trade has been one of the primary benefactors. Considering the thawing in credit markets recently, it seems that the cooperative effort by global central banks to revive liquidity is paying off. In fact, even with conditions improving, the Bank of England and Federal Reserve have upped their efforts to put financial markets on an even keel once and for all. Both the Monetary Policy Committee the Fed announced it they were widening their definitions of acceptable collateral for access their respective liquidity injections. These efforts must be potent indeed considering volatility has cooled and the carry basket has rallied over the past few weeks despite headlines of further writedowns from big banks and warnings from the BoE that falling UK commercial property values may trigger considerable defaults and another wave of massive losses for banks. And, while conditions seem to be improving for the carry trade, the mood is still one of caution. While pairs like USDJPY, USDJPY and GBPJPY have put in for a tentative trend change, the higher-end of the yield curve is actually starting to fall as traders expect the central banks with high benchmark rates will eventually be forced to ease like the Fed, BoE and BoC.
• Carry Trade On The Rise As Volatility Cools, Rate Differentials Improve
• Fed And BoE Boost Risk Appetite By Widening Their Collateral Nets
• Caution Still In Place As Market Questions High Yielders Buoyancy
Through there is growing concern as to how long high yielding currencies like the New Zealand and Australian dollars can keep their rates at record highs, interest in the carry trade has still improved over the past week. The DailyFX Carry Trade Index rose $296 since last week with help from a modest cooling in currency market volatility and a general improvement in the outlook for the yen crosses.
There has been a tangible rebound in risk appetite over the past few weeks; and the carry trade has been one of the primary benefactors. Considering the thawing in credit markets recently, it seems that the cooperative effort by global central banks to revive liquidity is paying off. In fact, even with conditions improving, the Bank of England and Federal Reserve have upped their efforts to put financial markets on an even keel once and for all. Both the Monetary Policy Committee the Fed announced it they were widening their definitions of acceptable collateral for access their respective liquidity injections. These efforts must be potent indeed considering volatility has cooled and the carry basket has rallied over the past few weeks despite headlines of further writedowns from big banks and warnings from the BoE that falling UK commercial property values may trigger considerable defaults and another wave of massive losses for banks. And, while conditions seem to be improving for the carry trade, the mood is still one of caution. While pairs like USDJPY, USDJPY and GBPJPY have put in for a tentative trend change, the higher-end of the yield curve is actually starting to fall as traders expect the central banks with high benchmark rates will eventually be forced to ease like the Fed, BoE and BoC.
Friday, May 2, 2008
Euro Inches Higher As Markets Await Payrolls
Traders squared up their positions ahead of US Non Farm payroll data due to be released at 12:30 GMT today and EURUSD climbed back towards the 1.5500 figure after a day of battering yesterday that saw the unit lose nearly 200 points against the greenback. The buck has been strengthening all week on the assumption that the US economy may not be nearly as weak as analysts had previously thought, but today’s NFP report could prove to be the moment of truth that resolves the argument of whether the US is in the midst of a serious recession or simply in a slowdown.
Our pre NFP analysis Will Non-Farm Payrolls Recover provides inconclusive evidence with 6 leading indicators pointing to further deterioration in the labor market while 3 hint at improvement. The NFPs are notoriously difficult to predict for a host of reasons including the birth/death model which makes monthly adjustments to the number as well as the possibility that public sector hiring may have increased in April and therefore mitigated some of the negative effects of the recent spate of private sectors layoff announcements.
Our best guess is that the number today will likely print better than –100k loss and we base that assumption mainly on the improvement in the four week jobless claims average. Nevertheless, the possibility of a surprise either way appears to be quite strong today and the post news reaction may be typically volatile. Therefore as always we prefer to stand down ahead of the number.
In other economic news Australian Retail Sales printed better than forecast rising 0.5% vs. 0.3% expected indicating that the economy Down Under continues to grow at a healthy pace. If the bulls are indeed correct that the worst of the credit crunch crisis is behind us and global economy will continue to expand at 3% pace or better, Australia becomes the strongest beneficiary of such an outcome piggybacking on China’s voracious growth.
While RBA may have ended its rate hike cycle for now, it is unlikely to begin easing if economic conditions in Australia maintain their current levels. If RBA stands still, the Aussie with its 7.25% yield will remain a magnet for global investment flows and AUDUSD could hit parity if global risk environment remains benign.
Our pre NFP analysis Will Non-Farm Payrolls Recover provides inconclusive evidence with 6 leading indicators pointing to further deterioration in the labor market while 3 hint at improvement. The NFPs are notoriously difficult to predict for a host of reasons including the birth/death model which makes monthly adjustments to the number as well as the possibility that public sector hiring may have increased in April and therefore mitigated some of the negative effects of the recent spate of private sectors layoff announcements.
Our best guess is that the number today will likely print better than –100k loss and we base that assumption mainly on the improvement in the four week jobless claims average. Nevertheless, the possibility of a surprise either way appears to be quite strong today and the post news reaction may be typically volatile. Therefore as always we prefer to stand down ahead of the number.
In other economic news Australian Retail Sales printed better than forecast rising 0.5% vs. 0.3% expected indicating that the economy Down Under continues to grow at a healthy pace. If the bulls are indeed correct that the worst of the credit crunch crisis is behind us and global economy will continue to expand at 3% pace or better, Australia becomes the strongest beneficiary of such an outcome piggybacking on China’s voracious growth.
While RBA may have ended its rate hike cycle for now, it is unlikely to begin easing if economic conditions in Australia maintain their current levels. If RBA stands still, the Aussie with its 7.25% yield will remain a magnet for global investment flows and AUDUSD could hit parity if global risk environment remains benign.
German Retail Sales Fall, Is The Euro Bull Run Over?
Fundamental Headlines
• AUDUSD – Australian retail sales rose 0.5% in February from -0.1% the month prior. Food sales jumped 1.7% from 0.3% in February, on the back of record prices. A robust labor market and wage growth have enabled Australians to absorb the price appreciation. Inflation continues to rise and remains a concern for the RBA, but a global slowdown is expected to keep the MPC from raising rates at next weeks policy meeting. For more news and resources, visit our Australian Dollar Currency Room.
• EURUSD – German retail sales unexpectedly declined for a second month in March, as rising energy and food costs curbed consumer spending. Seasonally adjusted sales fell 0.1% after a 0.7% decline in February. The German labor market remains strong and consumer confidence is up, but if inflation doesn’t abate, shoppers may continue to tighten their wallets. Discuss the topic and your trade ideas in the EUR/USD Forum.
• GBPUSD – The U.K. construction PMI index fell to 46.1 in April from 47.0 the month prior. The sector has started to shrink weighed by the housing slump and tight credit markets. The BoE recently infused £50 billion in liquidity into the market in an attempt to loosen lending standards and promote housing demand. Discuss the topic and your trade ideas in the GBP/USD Forum.
• AUDUSD – Australian retail sales rose 0.5% in February from -0.1% the month prior. Food sales jumped 1.7% from 0.3% in February, on the back of record prices. A robust labor market and wage growth have enabled Australians to absorb the price appreciation. Inflation continues to rise and remains a concern for the RBA, but a global slowdown is expected to keep the MPC from raising rates at next weeks policy meeting. For more news and resources, visit our Australian Dollar Currency Room.
• EURUSD – German retail sales unexpectedly declined for a second month in March, as rising energy and food costs curbed consumer spending. Seasonally adjusted sales fell 0.1% after a 0.7% decline in February. The German labor market remains strong and consumer confidence is up, but if inflation doesn’t abate, shoppers may continue to tighten their wallets. Discuss the topic and your trade ideas in the EUR/USD Forum.
• GBPUSD – The U.K. construction PMI index fell to 46.1 in April from 47.0 the month prior. The sector has started to shrink weighed by the housing slump and tight credit markets. The BoE recently infused £50 billion in liquidity into the market in an attempt to loosen lending standards and promote housing demand. Discuss the topic and your trade ideas in the GBP/USD Forum.
Euro Decline Still Has More to Go
The EURUSD has fallen nearly 600 pips (to the low) from its 1.6018 top. So, is it possible that the pair is entering one of the strongest (and maybe the strongest) portions of its decline since the top? In a word; yes. As long as price remains below 1.5643, the short term structure is bearish and support does not begin until 1.5230.
Thursday, May 1, 2008
FOMC Cuts, Outlook Unclear
The dollar was mixed following the FOMC’s announcement to cut rates by 25-basis points to 2.0%. The Fed reiterated that economic activity remains weak, while “household and business spending has been subdued and labor markets have softened further”. The Fed expects lingering tight credit conditions and the “deepening housing contraction” to weigh on growth over the coming quarters. Nonetheless, the statement did not give a clear indication of whether the Fed would continue easing policy over the coming months. The FOMC said that uncertainty about the inflation outlook remains high, but does expect it to moderate in the coming quarters. While it was unclear from the policy statement, we anticipate the Fed will leave interest rates unchanged for the remainder of the year.
Economic data from the US earlier in the session was better than expected, with the advanced reading of Q1 GDP unchanged at 0.6% -- beating out calls for a drop to 0.2%. The Q1 core PCE prices declined to 2.2% from 2.5%, while GDP sales posted a 0.2% drop versus a 2.4% increase in the previous quarter. The April ADP private sector payrolls number also reported better than forecast, posting a 10k increase, compared with estimates for a 60k decline and improving slightly from 8k in March. The April Chicago PMI survey improved from March, rising to 48.3 from 48.2.
Economic data from the US earlier in the session was better than expected, with the advanced reading of Q1 GDP unchanged at 0.6% -- beating out calls for a drop to 0.2%. The Q1 core PCE prices declined to 2.2% from 2.5%, while GDP sales posted a 0.2% drop versus a 2.4% increase in the previous quarter. The April ADP private sector payrolls number also reported better than forecast, posting a 10k increase, compared with estimates for a 60k decline and improving slightly from 8k in March. The April Chicago PMI survey improved from March, rising to 48.3 from 48.2.
Dollar Mixed Ahead of Fed
The greenback was mixed in the Tuesday session, advancing versus the euro while relinquishing gains against the sterling and the yen. The economic calendar saw the release of the April consumer confidence survey, which declined to 62.3, albeit less than expected, from 64.5 from March.
The major currency pairs will likely trade within range ahead of the FOMC policy decision tomorrow afternoon. We expect the Fed to ease policy by 25-basis points to 2.0% while maintaining a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week’s rate cut given the aggressive easing that has already materialized.
The major currency pairs will likely trade within range ahead of the FOMC policy decision tomorrow afternoon. We expect the Fed to ease policy by 25-basis points to 2.0% while maintaining a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week’s rate cut given the aggressive easing that has already materialized.
USD Edges Higher Ahead of Key Week
The week ahead offers a barrage of economic news for currency traders to digest, with the key highlights coming from the US. Markets will focus closely on the FOMC monetary policy decision on Wednesday afternoon. We expect the Fed to ease policy by 25-basis points to 2.0%, and maintain a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week¡¯s rate cut given the aggressive easing that has already materialized.
In addition to the highly anticipated US jobs report on Friday, the calendar also consists of April consumer confidence, US Q1 advanced GDP, PCE, Chicago PMI, March consumption, personal income, durable goods orders, and factory orders. The April unemployment rate is expected to hold steady at 5.2%, while non-farm payrolls are not expected to improve, posting another 80k loss of jobs. The Q1 advanced reading for GDP is seen slowing to 0.2% from 0.6% previously, the PCE index is expected to ease to 3.7% from 3.9% in the previous quarter.
The greenback rallied to its highest levels in two-weeks against the yen at 104.79 and euro at 1.5590. While it remains to be seen whether the recent dollar rebound will be sustainable, Eurozone officials have become more outspoken about their unease over the euro¡¯s strength. ECB President Trichet said ¡°there have been at times sharp fluctuations between major currencies¡± and expressed concern about the ¡°possible implications on economic and financial stability¡±.
In addition to the highly anticipated US jobs report on Friday, the calendar also consists of April consumer confidence, US Q1 advanced GDP, PCE, Chicago PMI, March consumption, personal income, durable goods orders, and factory orders. The April unemployment rate is expected to hold steady at 5.2%, while non-farm payrolls are not expected to improve, posting another 80k loss of jobs. The Q1 advanced reading for GDP is seen slowing to 0.2% from 0.6% previously, the PCE index is expected to ease to 3.7% from 3.9% in the previous quarter.
The greenback rallied to its highest levels in two-weeks against the yen at 104.79 and euro at 1.5590. While it remains to be seen whether the recent dollar rebound will be sustainable, Eurozone officials have become more outspoken about their unease over the euro¡¯s strength. ECB President Trichet said ¡°there have been at times sharp fluctuations between major currencies¡± and expressed concern about the ¡°possible implications on economic and financial stability¡±.
USD Extends Rebound
The economic reports released in the Thursday session were initially dollar positive, with the greenback bouncing to 1.57 against the euro and rising to 104 versus the yen. Although the headline reading for durable goods orders was slightly weaker than expected at -0.3%, versus calls for a flat reading, it still marked an improvement from the -1.1% drop in February. The excluding transports durable goods orders posted a sharp improvement from the prior month, increasing by 1.5% in March, compared with a 2.4% decline. Weekly jobless claims also improved, falling to 342k down from 372k a week earlier. However, March new home sales posted a larger than expected drop, plunging by 8.5% to 526k units, versus 590k units in February.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
Tuesday, April 29, 2008
Forex News: Eurozone,Swiss and U.K. Consumer Spending Softening.
Fundamental Headlines
• NZDUSD – The New Zealand Statistics office reported an unexpected trade balance deficit in March of –NZ$50 million versus a anticipated surplus of NZ$395 million. On an annual basis the trade gap increased to -4.3 billion in the year to March versus -4.42 billion in the year to February. The RBNZ may need to cut rates by year’s end as record interest rates are cooling the economy faster than expected. For more news and resources, visit our New Zealand Dollar Currency Room.
• USDCHF – The Swiss consumption gauge fell to 2.29 in March from 2.32 the month prior, as rising inflation weighed on consumers. A nine percent decline in car sales led to the index falling from an eight month high in February. Swiss inflation has accelerated to its fastest pace in 14 years has begun to diminish consumers purchasing power. For more news and resources, visit our Swiss Franc Currency Room.
• GBPUSD – The U.K. Distributive trades report printed at -26 over eight times lower than the -3 that was expected as retailers see sales slowing. The number demonstrated the affect that the deteriorating housing market is having on consumer confidence and consumption. The housing sector continued to falter with mortgagees reaching a nearly nine year low of 64,000. Despite inflation concerns the BoE may have to consider lowering rate to soften the landing of the economy. Discuss the topic and your trade ideas in the GBP/USD Forum.
• Deutsche Bank Swings To Loss On Write-Downs, Trading Loss (link) – Wall Street Journal
• Fed’s Bailout Is Questioned By Ex-Staffer (link) – Wall Street Journal
• Fed Looks To Extend Debate On Liquidity (link) – Financial Times
• European Retail Sales Slumped in April, PMI Shows (link) – Bloomberg
• U.K. Loan Approvals Reach Lowest Since at Least 1999 (link) – Bloomberg
• NZDUSD – The New Zealand Statistics office reported an unexpected trade balance deficit in March of –NZ$50 million versus a anticipated surplus of NZ$395 million. On an annual basis the trade gap increased to -4.3 billion in the year to March versus -4.42 billion in the year to February. The RBNZ may need to cut rates by year’s end as record interest rates are cooling the economy faster than expected. For more news and resources, visit our New Zealand Dollar Currency Room.
• USDCHF – The Swiss consumption gauge fell to 2.29 in March from 2.32 the month prior, as rising inflation weighed on consumers. A nine percent decline in car sales led to the index falling from an eight month high in February. Swiss inflation has accelerated to its fastest pace in 14 years has begun to diminish consumers purchasing power. For more news and resources, visit our Swiss Franc Currency Room.
• GBPUSD – The U.K. Distributive trades report printed at -26 over eight times lower than the -3 that was expected as retailers see sales slowing. The number demonstrated the affect that the deteriorating housing market is having on consumer confidence and consumption. The housing sector continued to falter with mortgagees reaching a nearly nine year low of 64,000. Despite inflation concerns the BoE may have to consider lowering rate to soften the landing of the economy. Discuss the topic and your trade ideas in the GBP/USD Forum.
• Deutsche Bank Swings To Loss On Write-Downs, Trading Loss (link) – Wall Street Journal
• Fed’s Bailout Is Questioned By Ex-Staffer (link) – Wall Street Journal
• Fed Looks To Extend Debate On Liquidity (link) – Financial Times
• European Retail Sales Slumped in April, PMI Shows (link) – Bloomberg
• U.K. Loan Approvals Reach Lowest Since at Least 1999 (link) – Bloomberg
U.K. Housing And Retail Data Weigh on Pound, Will The BoE Cut Again?
Talking Points
• Japanese Yen: Japanese Holiday
• New Zealand Dollar: Deficit Unexpectedly Widened
• Swiss Franc: Consumption Fell On Lower Car Sales
• Euro: Declining Retail Sales Weighs on Euro
• Pound: Housing Market Continues To Deteriorate
• US Dollar: Consumer Confidence and Housing Data on Tap
The U.K. CBI distributive trades report crossed the wires at -26, sending the pound over 50 points lower. The reading was over eight times lower than the -3 that was expected. The pound was weighed lower throughout the overnight session as U.K. mortgagee approvals fell to 64,000-the lowest level in at least nine years. The tight credit markets remain an obstacle for borrowers and will continue to suppress house prices going forward. Central Bank Governor Mervyn King said today that the “ratio of house prices to earnings will fall” when speaking to the U.K treasury select committee. He would go on to say that although retail sales have been “surprisingly strong” consumer spending will fall, possibly quite sharply. The MPC leader would also reiterate the committee focus on keeping inflation near their target, but if consumer consumption continues to falter, another rate cut may be needed to cushion the fall of the economy.
The Euro fell to as low as 1.5539 during the overnight session, despite light trading due to a Japanese holiday, on a four year low in retail sales. The Eurozone retail PMI index fell to a seasonally adjusted 41.8 in April from 48.2 the month prior, as rising food and energy costs saw consumer’s buy 40% less food and drinks. Rising inflation has kept the ECB frozen in its tracks as its mandate is to maintain price stability. The central bank has continued to maintain its hawkish stance, despite mounting evidence that the regions economy is starting to realize the affects of the U.S. slowdown and the credit crisis. As long as the current interest rate differential is expected to hold between Europe and the U.S., the Eur/Usd will find support and prevent any significant reversal from the dollar.
The New Zealand Dollar came under heavy selling pressure when its annual trade deficit widened NZ$50 million in March, against expectations of a surplus of NZ$395. The shortfall was a result of an eight month low in exports, bringing the 12 months ended March 31 total deficit to NZ$4.42 billion. New Zealand exporters saw a decline in demand from China, shipping nearly 40 million less goods. The Kiwi fell as low as 0.7762 before consolidating around 0.7780. Economic growth is expected to slow to its lowest levels in over ten years, as record interest rates have dulled growth faster than officials had hoped.
U.S. consumer confidence and the S&P/ Case Schiller home price index will serve as the appetizer for tomorrow’s Fed Rate decision. The two indicators will give investors insight into the most troubling areas of the economy. Expectations are that the housing industry will continue to deteriorate and in turn drag consumer confidence with it. Until the housing sector establishes a bottom, the downside risks to the U.S. economy will remain, which will continue to weigh on the dollar. However, a rebound in these numbers combined with the expectation that the central bank will signal a pause to their current easing cycle may have Dollar bulls looking to test support at 1.54.
Is The Euro Headed Below 1.500? Join us in EURUSD Forum
• Japanese Yen: Japanese Holiday
• New Zealand Dollar: Deficit Unexpectedly Widened
• Swiss Franc: Consumption Fell On Lower Car Sales
• Euro: Declining Retail Sales Weighs on Euro
• Pound: Housing Market Continues To Deteriorate
• US Dollar: Consumer Confidence and Housing Data on Tap
The U.K. CBI distributive trades report crossed the wires at -26, sending the pound over 50 points lower. The reading was over eight times lower than the -3 that was expected. The pound was weighed lower throughout the overnight session as U.K. mortgagee approvals fell to 64,000-the lowest level in at least nine years. The tight credit markets remain an obstacle for borrowers and will continue to suppress house prices going forward. Central Bank Governor Mervyn King said today that the “ratio of house prices to earnings will fall” when speaking to the U.K treasury select committee. He would go on to say that although retail sales have been “surprisingly strong” consumer spending will fall, possibly quite sharply. The MPC leader would also reiterate the committee focus on keeping inflation near their target, but if consumer consumption continues to falter, another rate cut may be needed to cushion the fall of the economy.
The Euro fell to as low as 1.5539 during the overnight session, despite light trading due to a Japanese holiday, on a four year low in retail sales. The Eurozone retail PMI index fell to a seasonally adjusted 41.8 in April from 48.2 the month prior, as rising food and energy costs saw consumer’s buy 40% less food and drinks. Rising inflation has kept the ECB frozen in its tracks as its mandate is to maintain price stability. The central bank has continued to maintain its hawkish stance, despite mounting evidence that the regions economy is starting to realize the affects of the U.S. slowdown and the credit crisis. As long as the current interest rate differential is expected to hold between Europe and the U.S., the Eur/Usd will find support and prevent any significant reversal from the dollar.
The New Zealand Dollar came under heavy selling pressure when its annual trade deficit widened NZ$50 million in March, against expectations of a surplus of NZ$395. The shortfall was a result of an eight month low in exports, bringing the 12 months ended March 31 total deficit to NZ$4.42 billion. New Zealand exporters saw a decline in demand from China, shipping nearly 40 million less goods. The Kiwi fell as low as 0.7762 before consolidating around 0.7780. Economic growth is expected to slow to its lowest levels in over ten years, as record interest rates have dulled growth faster than officials had hoped.
U.S. consumer confidence and the S&P/ Case Schiller home price index will serve as the appetizer for tomorrow’s Fed Rate decision. The two indicators will give investors insight into the most troubling areas of the economy. Expectations are that the housing industry will continue to deteriorate and in turn drag consumer confidence with it. Until the housing sector establishes a bottom, the downside risks to the U.S. economy will remain, which will continue to weigh on the dollar. However, a rebound in these numbers combined with the expectation that the central bank will signal a pause to their current easing cycle may have Dollar bulls looking to test support at 1.54.
Is The Euro Headed Below 1.500? Join us in EURUSD Forum
Dollar Strength To Continue Against Major Currencies
As we expected, a light US calendar saw technical levels be the guiding principle behind EURUSD price action last week. Our target of 1.60 was hit mid-week, followed soon after by a sharp breakdown past trend line support. As we had speculated here on numerous occasions, the run to 1.60 owed more to momentum than underlying fundamental outlook. Having touched the psychological level being aimed at, Euro bulls gave up.
Fibonacci Forum.
EUR/USD
Strategy: Bearish below 1.5800, Targeting 1.5343
As we expected, a light US calendar saw technical levels be the guiding principle behind EURUSD price action last week. Our target of 1.60 was hit mid-week, followed soon after by a sharp breakdown past trend line support. As we had speculated here on numerous occasions, the run to 1.60 owed more to momentum than underlying fundamental outlook. Having touched the psychological level being aimed at, Euro bulls gave up. The decline looks to be supported at 1.5560, the 23.6% Fibonacci retracement of the 02/08–03/17 rally. We see a retracement to just below 1.58 in the near term as current losses are consolidated, followed by a decline to the 38.2% retracement at 1.5343.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Strategy: Bullish against 1.9787, Targeting 2.0092
Last week we opted to remain flat on GBPUSD as the pair oscillated between the 23.6% and 50% Fibonacci retracements of the 03/14-04/15 decline in search of a direction. Following the most recent test of the downward sloping trend line resistance-turned-support established at the 03/14 high, GBPUSD has pushed higher to close above the 38.2% Fib level at 1.9903. The daily chart suggests symmetry between the most recent test of the 50% Fib and psychological resistance level at 2.00 and the one on 04/04. A continuation of this symmetry would take the current rally to the 61.8% Fib at 2.0092.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
USD/JPY
Strategy: Bullish against 103.70, Targeting 105.19
Last wee we advocated being long USDJPY above 102.90, the 38.2% Fibonacci retracement of the 12/27/07-03/17 decline. This proved wise, as the pair rallied to surpass the 104.00 level. We now notice an upward-sloping trend line connecting recent lows that has guided price action since the bottom above 95.00. This trend line would suggest a retracement to 103.70 followed by continued upside. As we have noted for several weeks now, we see USDJPY test the 50% Fibonacci retracement at 105.19.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
USD/CHF
Strategy: Bullish against 1.0201, Targeting 1.0547
Last week, USDCHF broke out higher of its range between the 23.6% and 38.2% Fibonacci retracements of the 02/14-03/17 decline. The move was catalyzed by the broad US dollar rally following the Euro’s rejection at 1.60. The rally has neatly topped out at the 50% Fibonacci retracement at 1.0375. This will likely prove to be a retracement point, seeing the pair ease back to find support at 1.0201 before resuming higher towards the 61.8% Fib at 1.0547.
For more resources on the USDCHF, please visit the DailyFX Swiss Franc Currency Room.
USD/CAD
Strategy: Bullish against 1.0039, Targeting 1.0250
Last week we saw significant support established at the intersection of the 50% Fibonacci retracement of the 01/22-02/28 decline and an upward sloping trend line established in November of last year. We looked for the pair to rally, and so it has. USDCAD has rallied past the 61.8% Fib at 1.0120 and has stabilized there. Our view here remains unchanged from last week. We see the pair continue to rise for a test of the long-term range top at 1.0250.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
AUD/USD
Strategy: Bullish against 0.9287, Targeting 0.9500
Last week opened with AUDUSD breaking past 0.9400. We remain with our bullish bias, looking for the pair to reach 0.9500. Similarly to the EURUSD, this trade saw AUDUSD hit our target and break down soon after as 0.9500 became a double top. The down move was contained at 0.9287, the 61.8% Fibonacci retracement of the 02/28-03/20 decline. We maintain that as long as AUDUSD remains above trend line support, the up-trend is intact. That said, current positioning does not offer particularly favorable risk-reward parameters. The pair is currently stalled below psychological resistance at 0.9400. We will look for a retracement back to Fib support at 0.9287 for a long position targeting a return to test 0.9500.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
NZD/USD
Strategy: Bearish against 0.7850, Targeting 0.7700
Our analysis missed the mark on NZDUSD last week. We had been looking at a long-term supporting trend line established in August and reinforced by the 38.2% Fibonacci retracement of the 01/22-02/27 rally at 0.7896. NZDUSD price action negated this assessment as the pair decisively crashed through the trend line and the 50% Fib. This amounts to a trend change, with our bias shifting to bearish and eyeing a decline to the 61.8% Fib at 0.7700.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
Fibonacci Forum.
EUR/USD
Strategy: Bearish below 1.5800, Targeting 1.5343
As we expected, a light US calendar saw technical levels be the guiding principle behind EURUSD price action last week. Our target of 1.60 was hit mid-week, followed soon after by a sharp breakdown past trend line support. As we had speculated here on numerous occasions, the run to 1.60 owed more to momentum than underlying fundamental outlook. Having touched the psychological level being aimed at, Euro bulls gave up. The decline looks to be supported at 1.5560, the 23.6% Fibonacci retracement of the 02/08–03/17 rally. We see a retracement to just below 1.58 in the near term as current losses are consolidated, followed by a decline to the 38.2% retracement at 1.5343.
For more resources on the EURUSD, please visit the DailyFX Euro Currency Room.
GBP/USD
Strategy: Bullish against 1.9787, Targeting 2.0092
Last week we opted to remain flat on GBPUSD as the pair oscillated between the 23.6% and 50% Fibonacci retracements of the 03/14-04/15 decline in search of a direction. Following the most recent test of the downward sloping trend line resistance-turned-support established at the 03/14 high, GBPUSD has pushed higher to close above the 38.2% Fib level at 1.9903. The daily chart suggests symmetry between the most recent test of the 50% Fib and psychological resistance level at 2.00 and the one on 04/04. A continuation of this symmetry would take the current rally to the 61.8% Fib at 2.0092.
For more resources on the GBPUSD, please visit the DailyFX British Pound Currency Room.
USD/JPY
Strategy: Bullish against 103.70, Targeting 105.19
Last wee we advocated being long USDJPY above 102.90, the 38.2% Fibonacci retracement of the 12/27/07-03/17 decline. This proved wise, as the pair rallied to surpass the 104.00 level. We now notice an upward-sloping trend line connecting recent lows that has guided price action since the bottom above 95.00. This trend line would suggest a retracement to 103.70 followed by continued upside. As we have noted for several weeks now, we see USDJPY test the 50% Fibonacci retracement at 105.19.
For more resources on the USDJPY, please visit the DailyFX Japanese Yen Currency Room.
USD/CHF
Strategy: Bullish against 1.0201, Targeting 1.0547
Last week, USDCHF broke out higher of its range between the 23.6% and 38.2% Fibonacci retracements of the 02/14-03/17 decline. The move was catalyzed by the broad US dollar rally following the Euro’s rejection at 1.60. The rally has neatly topped out at the 50% Fibonacci retracement at 1.0375. This will likely prove to be a retracement point, seeing the pair ease back to find support at 1.0201 before resuming higher towards the 61.8% Fib at 1.0547.
For more resources on the USDCHF, please visit the DailyFX Swiss Franc Currency Room.
USD/CAD
Strategy: Bullish against 1.0039, Targeting 1.0250
Last week we saw significant support established at the intersection of the 50% Fibonacci retracement of the 01/22-02/28 decline and an upward sloping trend line established in November of last year. We looked for the pair to rally, and so it has. USDCAD has rallied past the 61.8% Fib at 1.0120 and has stabilized there. Our view here remains unchanged from last week. We see the pair continue to rise for a test of the long-term range top at 1.0250.
For more resources on the USDCAD, please visit the DailyFX Canadian Dollar Currency Room.
AUD/USD
Strategy: Bullish against 0.9287, Targeting 0.9500
Last week opened with AUDUSD breaking past 0.9400. We remain with our bullish bias, looking for the pair to reach 0.9500. Similarly to the EURUSD, this trade saw AUDUSD hit our target and break down soon after as 0.9500 became a double top. The down move was contained at 0.9287, the 61.8% Fibonacci retracement of the 02/28-03/20 decline. We maintain that as long as AUDUSD remains above trend line support, the up-trend is intact. That said, current positioning does not offer particularly favorable risk-reward parameters. The pair is currently stalled below psychological resistance at 0.9400. We will look for a retracement back to Fib support at 0.9287 for a long position targeting a return to test 0.9500.
For more resources on the AUDUSD, please visit the DailyFX Australian Dollar Currency Room.
NZD/USD
Strategy: Bearish against 0.7850, Targeting 0.7700
Our analysis missed the mark on NZDUSD last week. We had been looking at a long-term supporting trend line established in August and reinforced by the 38.2% Fibonacci retracement of the 01/22-02/27 rally at 0.7896. NZDUSD price action negated this assessment as the pair decisively crashed through the trend line and the 50% Fib. This amounts to a trend change, with our bias shifting to bearish and eyeing a decline to the 61.8% Fib at 0.7700.
For more resources on the NZDUSD, please visit the DailyFX New Zealand Dollar Currency Room.
Monday, April 28, 2008
Aussie Spikes on Inflation
The greenback recovered against the euro following recent sessions at record lows near the 1.60-level, but plunged to a fresh 24-year low versus the Australian dollar at 0.9540. Amid a dearth of US economic reports, traders focused on global central banks’ policy outlooks.
The US economic calendar picks up in the Thursday session with the release of March durable goods orders, weekly jobless claims and March new home sales. The headline durable goods orders report is seen flat in March, versus a 1.1% drop in February. The ex-transports durable goods orders are expected to improve to 0.4%, reversing the 2.4% decline a month earlier. Weekly jobless claims are largely unchanged, up slightly to 375k from 372k in the prior week. Meanwhile, March new home sales are expected to slip to 580k, versus 590k from February.
The euro eased off its all-time highs above the 1.60-level following comments from Luxemburg Finance Minister Juncker, who expressed unease about the euro’s strength and its potential to be detrimental to Eurozone growth. However, Germany’s Economy Minister Glos offered a contrasting view, saying “Germany’s economy is coping well so far” and was not hurt by the strengthening euro.
The US economic calendar picks up in the Thursday session with the release of March durable goods orders, weekly jobless claims and March new home sales. The headline durable goods orders report is seen flat in March, versus a 1.1% drop in February. The ex-transports durable goods orders are expected to improve to 0.4%, reversing the 2.4% decline a month earlier. Weekly jobless claims are largely unchanged, up slightly to 375k from 372k in the prior week. Meanwhile, March new home sales are expected to slip to 580k, versus 590k from February.
The euro eased off its all-time highs above the 1.60-level following comments from Luxemburg Finance Minister Juncker, who expressed unease about the euro’s strength and its potential to be detrimental to Eurozone growth. However, Germany’s Economy Minister Glos offered a contrasting view, saying “Germany’s economy is coping well so far” and was not hurt by the strengthening euro.
USD Extends Rebound
The economic reports released in the Thursday session were initially dollar positive, with the greenback bouncing to 1.57 against the euro and rising to 104 versus the yen. Although the headline reading for durable goods orders was slightly weaker than expected at -0.3%, versus calls for a flat reading, it still marked an improvement from the -1.1% drop in February. The excluding transports durable goods orders posted a sharp improvement from the prior month, increasing by 1.5% in March, compared with a 2.4% decline. Weekly jobless claims also improved, falling to 342k down from 372k a week earlier. However, March new home sales posted a larger than expected drop, plunging by 8.5% to 526k units, versus 590k units in February.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
Friday, April 25, 2008
USD Extends Rebound
The economic reports released in the Thursday session were initially dollar positive, with the greenback bouncing to 1.57 against the euro and rising to 104 versus the yen. Although the headline reading for durable goods orders was slightly weaker than expected at -0.3%, versus calls for a flat reading, it still marked an improvement from the -1.1% drop in February. The excluding transports durable goods orders posted a sharp improvement from the prior month, increasing by 1.5% in March, compared with a 2.4% decline. Weekly jobless claims also improved, falling to 342k down from 372k a week earlier. However, March new home sales posted a larger than expected drop, plunging by 8.5% to 526k units, versus 590k units in February.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
Aussie Spikes on Inflation
The greenback recovered against the euro following recent sessions at record lows near the 1.60-level, but plunged to a fresh 24-year low versus the Australian dollar at 0.9540. Amid a dearth of US economic reports, traders focused on global central banks’ policy outlooks.
The US economic calendar picks up in the Thursday session with the release of March durable goods orders, weekly jobless claims and March new home sales. The headline durable goods orders report is seen flat in March, versus a 1.1% drop in February. The ex-transports durable goods orders are expected to improve to 0.4%, reversing the 2.4% decline a month earlier. Weekly jobless claims are largely unchanged, up slightly to 375k from 372k in the prior week. Meanwhile, March new home sales are expected to slip to 580k, versus 590k from February.
The euro eased off its all-time highs above the 1.60-level following comments from Luxemburg Finance Minister Juncker, who expressed unease about the euro’s strength and its potential to be detrimental to Eurozone growth. However, Germany’s Economy Minister Glos offered a contrasting view, saying “Germany’s economy is coping well so far” and was not hurt by the strengthening euro.
The US economic calendar picks up in the Thursday session with the release of March durable goods orders, weekly jobless claims and March new home sales. The headline durable goods orders report is seen flat in March, versus a 1.1% drop in February. The ex-transports durable goods orders are expected to improve to 0.4%, reversing the 2.4% decline a month earlier. Weekly jobless claims are largely unchanged, up slightly to 375k from 372k in the prior week. Meanwhile, March new home sales are expected to slip to 580k, versus 590k from February.
The euro eased off its all-time highs above the 1.60-level following comments from Luxemburg Finance Minister Juncker, who expressed unease about the euro’s strength and its potential to be detrimental to Eurozone growth. However, Germany’s Economy Minister Glos offered a contrasting view, saying “Germany’s economy is coping well so far” and was not hurt by the strengthening euro.
Euro Climbs on Hawkish ECB
The greenback came under renewed selling against the euro, falling to 1.5946, just shy of its all-time lows at 1.5978. Amid a dearth of economic data at the start of the week, markets focused on comments from central bank officials. Hawkish commentary from ECB officials highlighted the differences in policy stances between the ECB, the FOMC and BoE, with the Eurozone economy exhibiting greater resilience to the global economic downturn.
The economic calendar picks up on Tuesday, with the Bank of Canada scheduled to announce its policy decision at 9:00 AM and is seen cutting interest rates by 50-basis points to 3%. Meanwhile, US reports slated for release will see March existing home sales and the April Richmond Fed survey. Existing home sales in March are expected to decline to 4.92 million units, down from February at 5.03 million units.
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Euro Buoyed on Hawkish Comments
A barrage of ECB officials reiterated the Bank’s tightening bias in policy, with the comments echoing a similar tone on inflation. ECB Bank President Trichet said that anchoring inflation expectations was the governing council’s top priority. He added that future risks to banks mainly relate to adverse credit cycle developments and disorderly unwinding of global imbalances. The ECB’s Weber said that Eurozone inflation was well about the Bank’s tolerance threshold and will assess in the coming weeks whether current interest rates are still appropriate. He said the ECB would actively and decisively combat risk of widespread second-round effects and that decisive action on price stability is seen as the best contribution to helping growth. Further, he added there are strong upward risks to prices in the medium-term. Meanwhile, Governing Council member Noyer said that inflation needed to be brought down as soon as possible and Papademos added that there should be no doubt of the Bank’s primary objective.
The economic calendar picks up on Tuesday, with the Bank of Canada scheduled to announce its policy decision at 9:00 AM and is seen cutting interest rates by 50-basis points to 3%. Meanwhile, US reports slated for release will see March existing home sales and the April Richmond Fed survey. Existing home sales in March are expected to decline to 4.92 million units, down from February at 5.03 million units.
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Euro Buoyed on Hawkish Comments
A barrage of ECB officials reiterated the Bank’s tightening bias in policy, with the comments echoing a similar tone on inflation. ECB Bank President Trichet said that anchoring inflation expectations was the governing council’s top priority. He added that future risks to banks mainly relate to adverse credit cycle developments and disorderly unwinding of global imbalances. The ECB’s Weber said that Eurozone inflation was well about the Bank’s tolerance threshold and will assess in the coming weeks whether current interest rates are still appropriate. He said the ECB would actively and decisively combat risk of widespread second-round effects and that decisive action on price stability is seen as the best contribution to helping growth. Further, he added there are strong upward risks to prices in the medium-term. Meanwhile, Governing Council member Noyer said that inflation needed to be brought down as soon as possible and Papademos added that there should be no doubt of the Bank’s primary objective.
Euro Rallies Shy of $1.60
The dollar struggled against the euro, falling to a new all-time low just shy of the psychologically key 1.60-level at 1.5982. Despite jawboning from a Eurozone official, the greenback came under renewed pressure following the release of a sharply weaker than expected Philadelphia Fed manufacturing index.
The reports from the US largely reaffirmed the gloomy outlook looming over the economy. Weekly jobless claims edged higher to 372k, versus 357k the prior week. The March leading indicators index reversed a 0.3% decline in February, improving to 0.1%. The key highlight though, was a disappointing Philadelphia Fed manufacturing survey, which deteriorated by more than anticipated at minus 24.9 versus calls for an improvement to minus 15 from minus 17.4 in February – its lowest level since February 2001. The employment index also worsened, falling to minus 11.1 from minus 4.7, levels not seen since 2003.
Fed speakers offered a gloomy assessment of the economy, with San Francisco Fed President Yellen said the outlook was unusually uncertain and “growth has slowed to a crawl at best”. Further, Yellen said she could not rule out the possibility of a recession. Philadelphia Fed President Plosser echoed a similar sentiment, saying that while the economy may not be in recession, it certainly “feels pretty bad”. Meanwhile, Fed Governor Mishkin said that the FOMC still has room to lower the Fed Funds rate as needed.
The reports from the US largely reaffirmed the gloomy outlook looming over the economy. Weekly jobless claims edged higher to 372k, versus 357k the prior week. The March leading indicators index reversed a 0.3% decline in February, improving to 0.1%. The key highlight though, was a disappointing Philadelphia Fed manufacturing survey, which deteriorated by more than anticipated at minus 24.9 versus calls for an improvement to minus 15 from minus 17.4 in February – its lowest level since February 2001. The employment index also worsened, falling to minus 11.1 from minus 4.7, levels not seen since 2003.
Fed speakers offered a gloomy assessment of the economy, with San Francisco Fed President Yellen said the outlook was unusually uncertain and “growth has slowed to a crawl at best”. Further, Yellen said she could not rule out the possibility of a recession. Philadelphia Fed President Plosser echoed a similar sentiment, saying that while the economy may not be in recession, it certainly “feels pretty bad”. Meanwhile, Fed Governor Mishkin said that the FOMC still has room to lower the Fed Funds rate as needed.
Monday, April 21, 2008
Oil prices too high, production sufficient - IEA UPDATE
ROME (Thomson Financial) - Oil prices at their current level are too high for everyone, the head of the International Energy Agency (IEA), Nobuo Tanaka, said on Monday. At the same time, output from oil producing countries is sufficient, Tanaka added.
"The IEA's view is that the prices are too high for everybody, especially for developing countries," Tanaka told journalists on the sidelines of the International Energy Forum here.
At the same time, "the current level of production is enough and sufficient," he added.
No single factor was to blame for the surge in oil prices and there is no short term solution to bring down the record level, Tanaka said.
"Lots of elements are behind it," he said.
"Of course, fundamentals are a key element. But it's not only that. There are other elements, such as the weaker dollar, speculation, weather, etc. All these elements are behind the current price rise. There's no single element we can identify."
The IEA recently estimated that world oil demand would slow by an average 300,000 barrels per day this year, largely as a result of the economic slowdown in the U.S.
Indeed, demand from industrialised countries overall was slowing. However, in "other parts of the world, notably China, India, the Middle East, there is no evidence of such a slowdown," Tanaka said.
If oil-producing countries were to maintain their current level of production, inventories would be replenished "and that will lead to better-balanced fundamentals, assuming there are no unforeseen geopolitical events, leakages, accidents, hazardous weather or port strikes," Tanaka said.
"We don't know if the inventory build-up will continue. We think the current level of production is enough and sufficient. Having said that, producer countries can also send a message to the market" on the investment issue, Tanaka suggested.
"Spare capacity is very low. Increased capacity would be very helpful," he said.
jan.harvey@thomsonreuters.com
as/am
"The IEA's view is that the prices are too high for everybody, especially for developing countries," Tanaka told journalists on the sidelines of the International Energy Forum here.
At the same time, "the current level of production is enough and sufficient," he added.
No single factor was to blame for the surge in oil prices and there is no short term solution to bring down the record level, Tanaka said.
"Lots of elements are behind it," he said.
"Of course, fundamentals are a key element. But it's not only that. There are other elements, such as the weaker dollar, speculation, weather, etc. All these elements are behind the current price rise. There's no single element we can identify."
The IEA recently estimated that world oil demand would slow by an average 300,000 barrels per day this year, largely as a result of the economic slowdown in the U.S.
Indeed, demand from industrialised countries overall was slowing. However, in "other parts of the world, notably China, India, the Middle East, there is no evidence of such a slowdown," Tanaka said.
If oil-producing countries were to maintain their current level of production, inventories would be replenished "and that will lead to better-balanced fundamentals, assuming there are no unforeseen geopolitical events, leakages, accidents, hazardous weather or port strikes," Tanaka said.
"We don't know if the inventory build-up will continue. We think the current level of production is enough and sufficient. Having said that, producer countries can also send a message to the market" on the investment issue, Tanaka suggested.
"Spare capacity is very low. Increased capacity would be very helpful," he said.
jan.harvey@thomsonreuters.com
as/am
Forex - Pound stays on back foot amid focus on beleaguered UK banking system
LONDON (Thomson Financial) - The Bank of England's 50 billion pound lifeline for the UK banking system failed to bring the pound much help with at least as much attention falling on the Royal Bank of Scotland's expected rights issue.
Both factors bring to the fore the dire state of circumstances facing the financial system in the UK and as such led to falls for the pound. To some extent, today's plans announced by the Bank of England had been anticipated. Just to what degree it is hard to tell but going by the reaction on currency markets, there was little by way of surprise.
Peter Stoneham at IFR Markets said some sections of the market are worried about the effectiveness of the BoE initiative.
Additionally, the pound rose last week in anticipation of today's announcement and Monday may will mark "profit taking on the confirmation," Stoneham said.
"It remains to be seen if the 50 billion proves to be enough given that the mortgage market is far greater in size. The injection could clear up the infection but a strong inoculation is what is really needed," he added.
Analysts at UBS also said the pound tumbled on market disappointment with the plan.
"It is probably too early to judge whether the BoE plan will be a success. It is clear, however, that the UK central bank is trying to avoid the Fed's mistakes at its first TSLF auction," they added.
They added that high costs and barriers will likely make sure only those with genuine funding issues will have access to the facility and maintained their bearish stance on the pound.
Some believe the BoE will have to up its offer up to 100 billion pounds before there is any significant impact on the wider economy.
The reaction on the interbank market where banks lend to each other was also muted with the LIBOR rates at key maturities all staying hardly changed from last week and well above the current 5.00 percent benchmark BoE rate.
Separately, attention also fell on Royal Bank of Scotland Group PLC's plans for a rights issue. RBS, the UK's second-biggest bank, said in a brief statement that it was considering a rights issue, adding that it would make a further announcement "in due course."
Reports put the rights issue at up to 12 billion pounds, in order for the bank to replenish its capital reserves which have been depleted by write-downs related to the credit crunch and its acquisition of parts of Dutch rival ABN Amro last year.
Elsewhere, the euro was boosted by hawkish rhetoric from the European Central Bank, which continued to express caution over inflation.
ECB governing council member Erkki Liikanen said "inflation risks are real" in an interview with the Wall Street Journal.
"Our prime mandate is price stability. And history shows that if you fail there, it's a long negative impact on growth and it's very hard to get back," he said, suggesting the ECB will not cut interest rates for the time being.
For the dollar, corporate earnings data was crucial. To this end, Bank of America Corp's 77 percent drop in profits in the first quarter, weighed on the dollar.
London 13.35 BST London 0845 BST
U.S. dollar
yen 103.37 down from 103.72
Swiss franc 1.008 down from 1.0160
Euro
U.S. dollar 1.5915 up from 1.5833
yen 164.53 up from 164.23
Swiss franc 1.6062 up from 1.6087
pound 0.8009 up from 0.7944
Pound
U.S. dollar 1.9868 down from 1.9928
yen 205.39 down from 206.74
Swiss franc 2.0049 down from 2.0243
Australian dollar
U.S. dollar 0.9434 up from 0.9414
pound 0.4747 up from 0.4724
yen 97.54 down from 97.60
sivakumar.sithraputhran@thomsonreuters.com
ss/rfw
Both factors bring to the fore the dire state of circumstances facing the financial system in the UK and as such led to falls for the pound. To some extent, today's plans announced by the Bank of England had been anticipated. Just to what degree it is hard to tell but going by the reaction on currency markets, there was little by way of surprise.
Peter Stoneham at IFR Markets said some sections of the market are worried about the effectiveness of the BoE initiative.
Additionally, the pound rose last week in anticipation of today's announcement and Monday may will mark "profit taking on the confirmation," Stoneham said.
"It remains to be seen if the 50 billion proves to be enough given that the mortgage market is far greater in size. The injection could clear up the infection but a strong inoculation is what is really needed," he added.
Analysts at UBS also said the pound tumbled on market disappointment with the plan.
"It is probably too early to judge whether the BoE plan will be a success. It is clear, however, that the UK central bank is trying to avoid the Fed's mistakes at its first TSLF auction," they added.
They added that high costs and barriers will likely make sure only those with genuine funding issues will have access to the facility and maintained their bearish stance on the pound.
Some believe the BoE will have to up its offer up to 100 billion pounds before there is any significant impact on the wider economy.
The reaction on the interbank market where banks lend to each other was also muted with the LIBOR rates at key maturities all staying hardly changed from last week and well above the current 5.00 percent benchmark BoE rate.
Separately, attention also fell on Royal Bank of Scotland Group PLC's plans for a rights issue. RBS, the UK's second-biggest bank, said in a brief statement that it was considering a rights issue, adding that it would make a further announcement "in due course."
Reports put the rights issue at up to 12 billion pounds, in order for the bank to replenish its capital reserves which have been depleted by write-downs related to the credit crunch and its acquisition of parts of Dutch rival ABN Amro last year.
Elsewhere, the euro was boosted by hawkish rhetoric from the European Central Bank, which continued to express caution over inflation.
ECB governing council member Erkki Liikanen said "inflation risks are real" in an interview with the Wall Street Journal.
"Our prime mandate is price stability. And history shows that if you fail there, it's a long negative impact on growth and it's very hard to get back," he said, suggesting the ECB will not cut interest rates for the time being.
For the dollar, corporate earnings data was crucial. To this end, Bank of America Corp's 77 percent drop in profits in the first quarter, weighed on the dollar.
London 13.35 BST London 0845 BST
U.S. dollar
yen 103.37 down from 103.72
Swiss franc 1.008 down from 1.0160
Euro
U.S. dollar 1.5915 up from 1.5833
yen 164.53 up from 164.23
Swiss franc 1.6062 up from 1.6087
pound 0.8009 up from 0.7944
Pound
U.S. dollar 1.9868 down from 1.9928
yen 205.39 down from 206.74
Swiss franc 2.0049 down from 2.0243
Australian dollar
U.S. dollar 0.9434 up from 0.9414
pound 0.4747 up from 0.4724
yen 97.54 down from 97.60
sivakumar.sithraputhran@thomsonreuters.com
ss/rfw
Sunday, April 20, 2008
UPDATE:UK's Darling:BOE To Announce Help For Mortgage Market Monday
UPDATE:UK's Darling:BOE To Announce Help For Mortgage Market Monday
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 06:09 ET (10:09 GMT)
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 06:09 ET (10:09 GMT)
2nd UPDATE: UK Darling: BOE To Announce Help For Mortgage Market
2nd UPDATE: UK Darling: BOE To Announce Help For Mortgage Market
(Adds more from Darling, details.)
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
It is expected that Royal Bank of Scotland PLC (RBS) will announce a rights issue in the coming days in a bid to raise billions of pounds.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
Meanwhile, Darling deflected calls for the government to reverse its abolition of the 10 pence in the pound tax rate for low income workers. The measure was announced in the budget of Darling's predecessor - now Prime Minister Gordon Brown - in 2007 but took effect this year.
There is said to be strong opposition to the plans among the governing Labour party's lawmakers and a number of them have spoken out on the issue.
Darling said he will return to the issue of poverty in future budgets, but "what I can't do is rewrite the budget."
"It isn't possible as you go into a financial year to unravel the whole thing and attempt to rewrite it," he said. "What I can say though is I intend in future budgets to return to this subject."
Despite opposition within his party, Darling said he was confident the finance bill will be approved when it goes before lawmakers next week.
Darling also spoke about rising food and energy prices, saying this was a "serious concern in economies the world over."
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 06:46 ET (10:46 GMT)
(Adds more from Darling, details.)
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
It is expected that Royal Bank of Scotland PLC (RBS) will announce a rights issue in the coming days in a bid to raise billions of pounds.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
Meanwhile, Darling deflected calls for the government to reverse its abolition of the 10 pence in the pound tax rate for low income workers. The measure was announced in the budget of Darling's predecessor - now Prime Minister Gordon Brown - in 2007 but took effect this year.
There is said to be strong opposition to the plans among the governing Labour party's lawmakers and a number of them have spoken out on the issue.
Darling said he will return to the issue of poverty in future budgets, but "what I can't do is rewrite the budget."
"It isn't possible as you go into a financial year to unravel the whole thing and attempt to rewrite it," he said. "What I can say though is I intend in future budgets to return to this subject."
Despite opposition within his party, Darling said he was confident the finance bill will be approved when it goes before lawmakers next week.
Darling also spoke about rising food and energy prices, saying this was a "serious concern in economies the world over."
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 06:46 ET (10:46 GMT)
3rd UPDATE: UK Darling: BOE To Announce Help For Mortgage Market
3rd UPDATE: UK Darling: BOE To Announce Help For Mortgage Market
(Adds more from Darling, details on loans.)
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said the Bank of England loans will be secured against mortgage products. It has been reported the Bank would give highly liquid U.K. government bonds to the banks, which they could then sell on to raise cash.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
It is expected that Royal Bank of Scotland PLC (RBS) will announce a rights issue in the coming days in a bid to raise billions of pounds.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
Meanwhile, Darling deflected calls for the government to reverse its abolition of the 10 pence in the pound tax rate for low income workers. The measure was announced in the budget of Darling's predecessor - now Prime Minister Gordon Brown - in 2007 but took effect this year.
There is said to be strong opposition to the plans among the governing Labour party's lawmakers and a number of them have spoken out on the issue.
Darling said he will return to the issue of poverty in future budgets, but "what I can't do is rewrite the budget."
"It isn't possible as you go into a financial year to unravel the whole thing and attempt to rewrite it," he said. "What I can say though is I intend in future budgets to return to this subject."
Despite opposition within his party, Darling said he was confident the finance bill will be approved when it goes before lawmakers next week.
Darling also spoke about rising food and energy prices, saying this was a "serious concern in economies the world over."
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 07:24 ET (11:24 GMT)
(Adds more from Darling, details on loans.)
LONDON -(Dow Jones)- The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the Exchequer Alistair Darling said Sunday.
"The Bank of England will be making an announcement tomorrow in which what it will do is effectively lend banks money to unfreeze the (mortgage market) situation we've got at the moment," Darling said in a television interview on the British Broadcasting Corporation.
The global credit crunch has raised the cost of borrowing in wholesale markets and has seen demand for mortgage-backed securities plummet. That has cut many lenders off from the so-called securitization process which sees banks package mortgages and resell them to investors. As a result, banks have been withdrawing thousands of their more attractive mortgage products and, in many cases, raising the costs of the mortgage.
"What we're doing is trying to unbung that situation so that the bank will be making money available to the British banking system, it will be lending the money so it's got to be repaid, and they'll take security in return for it," he said.
Darling said the Bank of England loans will be secured against mortgage products. It has been reported the Bank would give highly liquid U.K. government bonds to the banks, which they could then sell on to raise cash.
Darling said he will make a statement in the House of Commons on this much-anticipated move Monday afternoon. He didn't give details of the size of the loan to banks, which analysts have said could be anywhere between GBP35 billion and GBP60 billion.
He also didn't specify a term for the loan. It is thought that the Bank of England will lend banks the money for one to three years.
There was no immediate comment from the Bank of England.
The Chancellor said this was an "essential step" in trying to normalize both the financial mortgage markets.
"The idea...is that it will open up the market and it will begin the process of opening up the mortgage market which of course will help house owners...if that doesn't happen, then I think there is every chance that the situation will get worse."
There's been growing evidence in recent weeks troubles in the mortgage market are feeding through to the housing market. Earlier this month, leading lender HBOS PLC (HBOS.LN) said house prices fell 2.5% in March, the biggest decline in 15.5 years. This week's survey by the Royal Institute of Chartered Surveyors showed the gloomiest outlook on house prices in 30 years.
While Darling acknowledged the government cannot tell banks what to do, he said there were steps he would like to see the banks take in return for the help. These include faster disclosure on the extent of their losses and exposure to risky credit products and showing how they are going to rebuild capital and raise money from shareholders.
"I think you will see much, much more of that," Darling said.
It is expected that Royal Bank of Scotland PLC (RBS) will announce a rights issue in the coming days in a bid to raise billions of pounds.
Darling also said he hoped with authorities acting to ease the strains in the mortgage market, the banks will start passing on rate cuts from the Bank of England.
"We are doing our bit and I would like to see the banks pass on the benefits of the three interest rate cuts we've had over the last few months," he said. The Bank of England has cut rates three times since December, taking the benchmark rate from 5.75% to 5.00%.
Meanwhile, Darling deflected calls for the government to reverse its abolition of the 10 pence in the pound tax rate for low income workers. The measure was announced in the budget of Darling's predecessor - now Prime Minister Gordon Brown - in 2007 but took effect this year.
There is said to be strong opposition to the plans among the governing Labour party's lawmakers and a number of them have spoken out on the issue.
Darling said he will return to the issue of poverty in future budgets, but "what I can't do is rewrite the budget."
"It isn't possible as you go into a financial year to unravel the whole thing and attempt to rewrite it," he said. "What I can say though is I intend in future budgets to return to this subject."
Despite opposition within his party, Darling said he was confident the finance bill will be approved when it goes before lawmakers next week.
Darling also spoke about rising food and energy prices, saying this was a "serious concern in economies the world over."
-By Laurence Norman, Dow Jones Newswires; 44 (0)207-842-9270; laurence.norman@dowjones.com
(END) Dow Jones Newswires
April 20, 2008 07:24 ET (11:24 GMT)
Dollar Rose on PPI
The dollor rose after both US PPI and empire manufacturing index came in better than expected.
Thursday, April 17, 2008
Forex News: Flat Exports Leads To European Trade Surplus
Fundamental Headlines
• USDJPY – The Japanese trade ministry revised earlier industrial production figures for February to an increase of 1.6% from a decline of 1.2%. Metals and robotics had sharp increases, and molds and dies rebounded, which may be a sign of increased future business. The positive numbers have tempered expectations of a recession for the country and reduced calls for a rate cut by the BoJ. For more news and resources, visit our Japanese Yen Currency Room.
• USDCHF – Swiss retail sales more than doubled expectations of a 1.6%, with a 3.3% jump in February. It was the 21st straight month of gains and the highest since September 2007. However, the majority of the gain was in food and beverage sales, which have been the beneficiary of record prices. Despite, economists predictions that sales will increase 1.9% on the year, there remains the fear that rising food prices will force consumers to sacrifice purchases of discretionary items going forward. For more news and resources, visit our Swiss Franc Currency Room.
• EURUSD – The European trade balance recorded a surplus for the first time in three months, as declining imports offset flat exports. The strong Euro, which set another all time high of 1.5981 today, has weighed on exports. The volatility in the currency market, led to European officials expressing concerns at the G-7 meetings, and raising the possibility of future intervention from the ECB. Discuss the topic and your trade ideas in the EUR/USD Forum.
• Banks Thanked For News Short Of Disastrous (link) – Wall Street Journal
• Sallie Mae Sounds The Alarm (link) – Wall Street Journal
• Banks Face Closer Scrutiny (link) – Financial Times
• Money Market Rates May Rise on Threat of Libor Ban (link) – Bloomberg
• BOE Says Banks Bid For 50 Billion Pounds, Most In Three Months (link) – Bloomberg
• USDJPY – The Japanese trade ministry revised earlier industrial production figures for February to an increase of 1.6% from a decline of 1.2%. Metals and robotics had sharp increases, and molds and dies rebounded, which may be a sign of increased future business. The positive numbers have tempered expectations of a recession for the country and reduced calls for a rate cut by the BoJ. For more news and resources, visit our Japanese Yen Currency Room.
• USDCHF – Swiss retail sales more than doubled expectations of a 1.6%, with a 3.3% jump in February. It was the 21st straight month of gains and the highest since September 2007. However, the majority of the gain was in food and beverage sales, which have been the beneficiary of record prices. Despite, economists predictions that sales will increase 1.9% on the year, there remains the fear that rising food prices will force consumers to sacrifice purchases of discretionary items going forward. For more news and resources, visit our Swiss Franc Currency Room.
• EURUSD – The European trade balance recorded a surplus for the first time in three months, as declining imports offset flat exports. The strong Euro, which set another all time high of 1.5981 today, has weighed on exports. The volatility in the currency market, led to European officials expressing concerns at the G-7 meetings, and raising the possibility of future intervention from the ECB. Discuss the topic and your trade ideas in the EUR/USD Forum.
• Banks Thanked For News Short Of Disastrous (link) – Wall Street Journal
• Sallie Mae Sounds The Alarm (link) – Wall Street Journal
• Banks Face Closer Scrutiny (link) – Financial Times
• Money Market Rates May Rise on Threat of Libor Ban (link) – Bloomberg
• BOE Says Banks Bid For 50 Billion Pounds, Most In Three Months (link) – Bloomberg
Euro Flirts With 1.60 - Will This Barrier Fall?
Talking Points
• Japanese Yen: falls as equities carry over the rally from North America
• Euro: Trade Balance better than forecast
• Pound: Mortgage intervention may be in place
• US Dollar: Philly Fed and LEI on tap
Since yesterday euro bulls have tried to make a run at the 1.60 four separate times but have been repelled each time with the defense of option barriers at that level remaining in tact. Still it may just be a matter of time before this seminal level falls taking out the many stops likely placed there.
The economic backdrop from the EZ continues to be supportive with tonight’s Trade Balance data showing a surprising surplus of 2.1 Billion euros versus expectations of -2.1 billion deficit. The fact that the region’s producers are able to export demonstrates that despite record high exchange rates the EZ economy has not yet been materially impacted to downside. Tonight’s news should allow the ECB to maintain its hawkish posture for the time being and may provide just enough momentum to finally tip the price over that key level.
The pound also saw a boost today, after a Reuters report suggested that UK authorities mortgage intervention plan could be announced as early as next week alleviating some of the risk concerns that plagued the unit recently. Cable rose to within a few points of the 1.9800 level in mid-morning London trade as the result of the news. Sterling continues to suffer from perception that UK rates are inevitably headed lower, however, given yesterday’s relatively string employment data, the pace of rate cuts may be less aggressive than some pound shorts assumed, providing some near term support for the currency.
Finally, today’s North American trade will focus on US LEI and Philly Fed numbers both of which are expected to improve. The greenback was aided by better than expected Industrial Production data yesterday which indicated that the lower dollar may finally be helping US manufacturers and if Philly Fed confirms this pattern, euro shorts may be able to hold off the rush to 1.60 for a while longer. The one fly in the ointment to this scenario would be worse than expected weekly jobless claims, which would once again raise the possibly of a larger than expected 50bp cut from the Fed.
• Japanese Yen: falls as equities carry over the rally from North America
• Euro: Trade Balance better than forecast
• Pound: Mortgage intervention may be in place
• US Dollar: Philly Fed and LEI on tap
Since yesterday euro bulls have tried to make a run at the 1.60 four separate times but have been repelled each time with the defense of option barriers at that level remaining in tact. Still it may just be a matter of time before this seminal level falls taking out the many stops likely placed there.
The economic backdrop from the EZ continues to be supportive with tonight’s Trade Balance data showing a surprising surplus of 2.1 Billion euros versus expectations of -2.1 billion deficit. The fact that the region’s producers are able to export demonstrates that despite record high exchange rates the EZ economy has not yet been materially impacted to downside. Tonight’s news should allow the ECB to maintain its hawkish posture for the time being and may provide just enough momentum to finally tip the price over that key level.
The pound also saw a boost today, after a Reuters report suggested that UK authorities mortgage intervention plan could be announced as early as next week alleviating some of the risk concerns that plagued the unit recently. Cable rose to within a few points of the 1.9800 level in mid-morning London trade as the result of the news. Sterling continues to suffer from perception that UK rates are inevitably headed lower, however, given yesterday’s relatively string employment data, the pace of rate cuts may be less aggressive than some pound shorts assumed, providing some near term support for the currency.
Finally, today’s North American trade will focus on US LEI and Philly Fed numbers both of which are expected to improve. The greenback was aided by better than expected Industrial Production data yesterday which indicated that the lower dollar may finally be helping US manufacturers and if Philly Fed confirms this pattern, euro shorts may be able to hold off the rush to 1.60 for a while longer. The one fly in the ointment to this scenario would be worse than expected weekly jobless claims, which would once again raise the possibly of a larger than expected 50bp cut from the Fed.
Hedge Trade Will Protect Long Term AUDUSD Yield Seekers
The upward trajectory in the Australian Dollar has been guided by a trend line established in August of last year. The pair is driven higher by a widening yield differential between the two countries, with the RBA moving to contain inflation with record-high borrowing costs at 7.25% all the while the US Fed pushes on with rate cuts. The Australian economy has begun to slow under weight of hefty monetary tightening, but there are no signs that the RBA will pursue easing in the near term. This suggests the growth in yield spread between the two currencies is set to continue.
Having put in a top at 0.9500, AUDUSD tested there again shortly thereafter with a weaker, shallower run upward. A second rejection prompted a decline in price action to the trend line support level. From there, the pair’s ascent has been more measured, easing gently upward and working through various levels of intermediate resistance. Yesterday’s strong up move was stopped along a downward sloping resistance line formed by recent highs. We see AUDUSD retrace lower from here before the next up leg materializes.
Hedging Strategy
Currency Pair: AUDUSD
Long Term Bias: Bullish
Long Term Position: Holding Long (from 04/01 trend line test)
Short Term Bias: Bearish
Short Term Position: Short below 0.9380, Target 0.9140, Stop-Loss at 0.9480
Traders looking to protect their existing long AUDUSD position or enter long at a favorable price may consider a hedge short AUDUSD below 0.9380 with a target near trend line support at 0.9140. Once the profit target is hit, we expect the bullish trend to resume. We will maintain a stop-loss on our hedge position should AUDUSD break out to the upside prior to the limit being hit. We will set the stop-loss near 0.9480.
Having put in a top at 0.9500, AUDUSD tested there again shortly thereafter with a weaker, shallower run upward. A second rejection prompted a decline in price action to the trend line support level. From there, the pair’s ascent has been more measured, easing gently upward and working through various levels of intermediate resistance. Yesterday’s strong up move was stopped along a downward sloping resistance line formed by recent highs. We see AUDUSD retrace lower from here before the next up leg materializes.
Hedging Strategy
Currency Pair: AUDUSD
Long Term Bias: Bullish
Long Term Position: Holding Long (from 04/01 trend line test)
Short Term Bias: Bearish
Short Term Position: Short below 0.9380, Target 0.9140, Stop-Loss at 0.9480
Traders looking to protect their existing long AUDUSD position or enter long at a favorable price may consider a hedge short AUDUSD below 0.9380 with a target near trend line support at 0.9140. Once the profit target is hit, we expect the bullish trend to resume. We will maintain a stop-loss on our hedge position should AUDUSD break out to the upside prior to the limit being hit. We will set the stop-loss near 0.9480.
Tuesday, April 15, 2008
USD Stabilizes from G7 Declines
The dollar slumped against the majors, falling to 1.5884 versus the euro and declining closer to the 100-level against the yen. The catalyst for the latest move lower was comments from the G7 Finance Ministers meeting over the weekend.
The communiqué from the G7 Finance Ministers meeting marked a shift in its language concerning foreign exchange. The G7 expressed concern and apprehension to the “sharp movements in major currencies” and “their possible implications for economic and financial stability”. Although the G7 said it would “monitor exchange markets closely and cooperate as appropriate”, there was no evidence of intervention being discussed at the meeting.
US economic data released earlier in the session helped the greenback recover slightly, offsetting some of the gloomy sentiment from Friday’s disappointing University of Michigan consumer sentiment – which had tumbled to its lowest since 1982. Persistent fears that the economy is already in recession have raised concerns that the US consumer will scale back expenditures, thereby exacerbating the downturn. March retail sales improved by 0.2%, reversing the 0.6% decline in February. The excluding-autos reading rose by 0.1%, versus a 0.2% decline a month earlier. Business inventories were inline with expectations at 0.6%, down from 0.8% in February.
The communiqué from the G7 Finance Ministers meeting marked a shift in its language concerning foreign exchange. The G7 expressed concern and apprehension to the “sharp movements in major currencies” and “their possible implications for economic and financial stability”. Although the G7 said it would “monitor exchange markets closely and cooperate as appropriate”, there was no evidence of intervention being discussed at the meeting.
US economic data released earlier in the session helped the greenback recover slightly, offsetting some of the gloomy sentiment from Friday’s disappointing University of Michigan consumer sentiment – which had tumbled to its lowest since 1982. Persistent fears that the economy is already in recession have raised concerns that the US consumer will scale back expenditures, thereby exacerbating the downturn. March retail sales improved by 0.2%, reversing the 0.6% decline in February. The excluding-autos reading rose by 0.1%, versus a 0.2% decline a month earlier. Business inventories were inline with expectations at 0.6%, down from 0.8% in February.
Ahead of the Bell: New York Fed survey
WASHINGTON (AP) - An April survey of manufacturing executives in New York state is expected to show that the region's industrial economy recovered from a record low set in March.
Wall Street economists expect the New York Federal Reserve Bank's Empire State index to register negative 16, up from negative 22.2 in March, according to Thomson/IFR.
March's reading broke a previous record low of negative 19.6, set in November 2001.
The survey, to be released Tuesday at 8:30 a.m. EDT, is based on questionnaires sent to 200 manufacturing executives in the state. A figure below zero indicates the state's manufacturing sector is contracting, while a number above zero indicates growth.
A reading of negative 16 would be the third consecutive survey to show decline.
Still, other figures in the March survey weren't as bad as the main survey number, known as the business conditions index, said Drew Matus, senior economist at Lehman Brothers, in a note to clients. Indices of new orders and employment showed improvement in March, making it likely that April's figure will improve, Matus wrote.
The New York Fed's survey is the first of several monthly regional indices that the markets monitor for early reads on economic activity. The Philadelphia Fed is scheduled to release its index Thursday, while a Chicago purchasing manager's index is scheduled for April 30.
Wall Street economists expect the New York Federal Reserve Bank's Empire State index to register negative 16, up from negative 22.2 in March, according to Thomson/IFR.
March's reading broke a previous record low of negative 19.6, set in November 2001.
The survey, to be released Tuesday at 8:30 a.m. EDT, is based on questionnaires sent to 200 manufacturing executives in the state. A figure below zero indicates the state's manufacturing sector is contracting, while a number above zero indicates growth.
A reading of negative 16 would be the third consecutive survey to show decline.
Still, other figures in the March survey weren't as bad as the main survey number, known as the business conditions index, said Drew Matus, senior economist at Lehman Brothers, in a note to clients. Indices of new orders and employment showed improvement in March, making it likely that April's figure will improve, Matus wrote.
The New York Fed's survey is the first of several monthly regional indices that the markets monitor for early reads on economic activity. The Philadelphia Fed is scheduled to release its index Thursday, while a Chicago purchasing manager's index is scheduled for April 30.
Monday, April 14, 2008
UK interbank lending rates edge higher despite BoE rate cut
LONDON (Thomson Financial) - The rates at which banks lend to each other in the United Kingdom edged higher across all maturities despite a quarter-point interest rate cut by the Bank of England (BoE) on Thursday.
The key three-month Libor rate edged higher to 5.9300 percent from 5.9275 percent on Friday, suggesting the central bank's lower target rate has done little to encourage more interbank lending.
The overnight contract, generally the most closely aligned to the BoE's 5.00 percent benchmark rate, also rose slightly to 5.10 percent from 5.09 percent, while the one-month rate increased to 5.53 percent from 5.52 percent.
The key three-month Libor rate edged higher to 5.9300 percent from 5.9275 percent on Friday, suggesting the central bank's lower target rate has done little to encourage more interbank lending.
The overnight contract, generally the most closely aligned to the BoE's 5.00 percent benchmark rate, also rose slightly to 5.10 percent from 5.09 percent, while the one-month rate increased to 5.53 percent from 5.52 percent.
Forex - Czech crown settles close to old record after surprise overnight jump
PRAGUE (Thomson Financial) - The Czech crown stabilised in midday trade at levels around 24.85 to the euro, close to its old record, after it soared to a new all time high to the euro in illiquid overnight trade.
The crown briefly jumped 7.9 percent to 23.00 to the euro late on Sunday, Reuters reported, catching the market by surprise.
One dealer said the crown had strengthened past 24.80 to the euro, compared to a previous record of 24.83 reached in early March, and triggered stop losses amid illiquid trading, and the problem spiraled after a trade for 23.500 was registered.
"Technically, we reached some levels that were a (long term) target," the dealer said.
"I would not be surprised to see the crown trade weaker now."
Driven by a strong economy and exports, and a shrinking negative interest rate differential with the euro zone, the crown has been the world's best performing currency against the euro over the past year, gaining almost 12 percent to the euro year on year.
The crown briefly jumped 7.9 percent to 23.00 to the euro late on Sunday, Reuters reported, catching the market by surprise.
One dealer said the crown had strengthened past 24.80 to the euro, compared to a previous record of 24.83 reached in early March, and triggered stop losses amid illiquid trading, and the problem spiraled after a trade for 23.500 was registered.
"Technically, we reached some levels that were a (long term) target," the dealer said.
"I would not be surprised to see the crown trade weaker now."
Driven by a strong economy and exports, and a shrinking negative interest rate differential with the euro zone, the crown has been the world's best performing currency against the euro over the past year, gaining almost 12 percent to the euro year on year.
Sunday, April 13, 2008
FOREX.com's Market Outlook for Upcoming G7 Meeting
As is usually the case, much adieu will be made of this upcoming G-7 meeting in Tokyo especially at a time when it seems that just about everyone in all parts of the world are clinging to every economic news event as if their life depends on it. Simply put, this is what happens when ordinary people worry about losing their homes and that is precisely what the subprime crisis has done.
In years past, the rhetoric (both pre and post meeting) has predominantly focused on two major issues: (1) inevitable USD weakness (due to the gaping Trade Deficit) and (2) gradual CNY and JPY strength (most of this talk came from US and European exporters to level the playing field). We happen to think that this year's focus may be vastly different than in years past, and are on the lookout for some big market movements, most notably in the currency markets.
Where to begin? Let's start right here in the United States.
When it comes to the dramatic plight of the USD these past 5 years, you don't hear much complaining from either US officials or your average "man in the street". The weakening USD has gotten plenty of attention from the international media and the local business networks but, two key factors have quieted the western front: (1) most US companies have benefited from the swooning buck and (2) 90% of US travel remains domestic.
What about our European counterparts?
The exploding EUR/USD and EUR/JPY exchange rates have driven the European exporting sector (i.e Daimler, BMW) up the proverbial wall. But given the ECB's (European Central Bank) reluctance to ease interest rates (even in the subprime environment) as well as the repatriation aspect of the subprime fallout, the EUR/USD still seems poised to take out the key psychological 1.50 barrier no matter how much their exporting community bellyaches.
Finally, what about the pseudo members of the G7: China, Russia, and the Middle East? These countries own several trillion USDs worth of US assets and debt (especially China and ME) and historically have benefited greatly from their investment. But that was before the housing and credit bubbles burst. Now, US creditors need not only contend with a USD that has depreciated close to 40% in the past few years (and currently sits right near its all time lows) but also with some stinky real estate and bond investments that must look anemic at best in the current environment. Not good.
What do we expect will happen?
We believe this G7 meeting could get the ball rolling for a USD comeback. There are a multitude of fundamental reasons to support a stronger dollar including - recoupling, repatriation and a new US President in 2008. We speculate that these foreign creditors of the US must be up in arms with their "double whammy" predicament and therefore will implore US officials to do something about the weak USD. Keep in mind, the subprime crisis is still very much in its infantile stages and the actual losses may take years to figure out so there isn't much anyone can do about the sinking US housing and equity markets. But the USD problem can be fixed. Or, at least the forces that can actually "try" to do something about it instead of continuing their pattern of benign neglect.
Are we suggesting a coordinated intervention? Not yet (maybe if EUR/USD hits 1.60). But we do expect the "jawboning" to sway in the favor of the USD instead of against it - which would bring about a significant change in 2008. As a final note, keep in mind that in years past the USD traded down as the DJIA went up, but this year the reverse has occurred. If the G7 expresses concern of the USD weakness, we may be in for a significant reversal - as much as 20-25% is not out of the question.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
In years past, the rhetoric (both pre and post meeting) has predominantly focused on two major issues: (1) inevitable USD weakness (due to the gaping Trade Deficit) and (2) gradual CNY and JPY strength (most of this talk came from US and European exporters to level the playing field). We happen to think that this year's focus may be vastly different than in years past, and are on the lookout for some big market movements, most notably in the currency markets.
Where to begin? Let's start right here in the United States.
When it comes to the dramatic plight of the USD these past 5 years, you don't hear much complaining from either US officials or your average "man in the street". The weakening USD has gotten plenty of attention from the international media and the local business networks but, two key factors have quieted the western front: (1) most US companies have benefited from the swooning buck and (2) 90% of US travel remains domestic.
What about our European counterparts?
The exploding EUR/USD and EUR/JPY exchange rates have driven the European exporting sector (i.e Daimler, BMW) up the proverbial wall. But given the ECB's (European Central Bank) reluctance to ease interest rates (even in the subprime environment) as well as the repatriation aspect of the subprime fallout, the EUR/USD still seems poised to take out the key psychological 1.50 barrier no matter how much their exporting community bellyaches.
Finally, what about the pseudo members of the G7: China, Russia, and the Middle East? These countries own several trillion USDs worth of US assets and debt (especially China and ME) and historically have benefited greatly from their investment. But that was before the housing and credit bubbles burst. Now, US creditors need not only contend with a USD that has depreciated close to 40% in the past few years (and currently sits right near its all time lows) but also with some stinky real estate and bond investments that must look anemic at best in the current environment. Not good.
What do we expect will happen?
We believe this G7 meeting could get the ball rolling for a USD comeback. There are a multitude of fundamental reasons to support a stronger dollar including - recoupling, repatriation and a new US President in 2008. We speculate that these foreign creditors of the US must be up in arms with their "double whammy" predicament and therefore will implore US officials to do something about the weak USD. Keep in mind, the subprime crisis is still very much in its infantile stages and the actual losses may take years to figure out so there isn't much anyone can do about the sinking US housing and equity markets. But the USD problem can be fixed. Or, at least the forces that can actually "try" to do something about it instead of continuing their pattern of benign neglect.
Are we suggesting a coordinated intervention? Not yet (maybe if EUR/USD hits 1.60). But we do expect the "jawboning" to sway in the favor of the USD instead of against it - which would bring about a significant change in 2008. As a final note, keep in mind that in years past the USD traded down as the DJIA went up, but this year the reverse has occurred. If the G7 expresses concern of the USD weakness, we may be in for a significant reversal - as much as 20-25% is not out of the question.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
RESEARCH NOTE: G7 Preview - Status quo, or has the USD become too weak?
Tomorrow (Friday Apr. 11) at 1400 NY time, the finance ministers and central bank heads of the G7 nations (US, UK, Canada, Japan, Germany, France and Italy) will convene in a regular quarterly meeting that will overlap with the spring meetings of the International Monetary Fund (IMF) and World Bank over the weekend. US Treasury Sec. Paulson is scheduled to deliver a press briefing later Friday at 1845 NY time on the outcome of the G7 talks. The following is our outlook for the results of the G7 meeting and the likely impact on Forex market developments:
Going into the G7 meeting, FX markets are not expecting major changes to the currency section of the official communique. But it would not be a normal G7 meeting if there were not speculation of shifts affecting currencies. As to the timing of the release of the communique itself, based on past experience, a draft version of the final communique is likely to be in circulation before the G7 talks actually convene, perhaps as early as the NY opening or sooner. Such drafts have frequently proven to be the final version.
The primary basis for expecting no significant changes to the G7 statement on currencies is the absence of any public shift by US officials over the plight of the USD. That said, USD weakness is clearly an issue for other members of the G7, but without US agreement, there is likely no consensus to adjust the language. The other basis for expecting no changes to the currency statement is that the G7 is most concerned with stabilizing global financial market confidence and addressing liquidity issues to prevent an even larger impact on the global economy. Stirring up the currency pot at this juncture might produce heightened FX volatility, aggravating financial market stability in the short-term. Should the G7 maintain the prior language on currencies, I expect markets to return to prior existing themes, namely 1) selling USD, and other 'slowing' currencies like GBP and CAD, on deteriorating economic outlooks and 2) risk aversion/seeking trades (selling JPY-crosses/buying JPY-crosses) as stock markets undulate.
The speculation that the G7 may 'tweak' its FX statement stems from the extreme weakness of the USD and the potential for a catastrophic collapse in USD assets and a 'run on the USD.' If there has been a behind-the-scenes shift by US officials, the G7 language on currencies could be altered to express such displeasure. While there is no way of knowing exactly what form the language change might take, the more specific they are about the USD, or any currency for that matter, the greater the perceived market impact. An explicit reference might look like "Recent exchange rate movements have been excessive in light of long-term fundamentals, particularly in the value of the USD." A more oblique indication of G7 displeasure might be confined to strengthening the language in the "Excess volatility and disorderly movements in exchange rates are undesirable for economic growth" sentence. If they do alter such language, the G7 is implicitly referring to USD weakness, even if they do not mention a currency specifically. This sensitivity to potential shifts supporting the USD is partly responsible for the sharp rebound in the USD on Thursday-in general traders do not want to go into the G7 excessively short USD due to the risks of a shift in the G7 statement.
Should the G7 alter its language to indicate USD weakness has become excessive or otherwise undesirable, I would look for a substantial recovery in the USD on the order of 3-5% initially. Such a USD rebound would likely embolden risk appetites, so I would also look for gains in USD/JPY to outpace declines in EUR/USD, leading to overall higher JPY-crosses in the process. But make no mistake, if the G7 addresses USD weakness, I believe the impact will be substantial.
The other change that may be made would involve toning down, or removing completely, the explicit mention of China as needing to allow faster appreciation of its currency, in recognition of recent Yuan gains.
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Going into the G7 meeting, FX markets are not expecting major changes to the currency section of the official communique. But it would not be a normal G7 meeting if there were not speculation of shifts affecting currencies. As to the timing of the release of the communique itself, based on past experience, a draft version of the final communique is likely to be in circulation before the G7 talks actually convene, perhaps as early as the NY opening or sooner. Such drafts have frequently proven to be the final version.
The primary basis for expecting no significant changes to the G7 statement on currencies is the absence of any public shift by US officials over the plight of the USD. That said, USD weakness is clearly an issue for other members of the G7, but without US agreement, there is likely no consensus to adjust the language. The other basis for expecting no changes to the currency statement is that the G7 is most concerned with stabilizing global financial market confidence and addressing liquidity issues to prevent an even larger impact on the global economy. Stirring up the currency pot at this juncture might produce heightened FX volatility, aggravating financial market stability in the short-term. Should the G7 maintain the prior language on currencies, I expect markets to return to prior existing themes, namely 1) selling USD, and other 'slowing' currencies like GBP and CAD, on deteriorating economic outlooks and 2) risk aversion/seeking trades (selling JPY-crosses/buying JPY-crosses) as stock markets undulate.
The speculation that the G7 may 'tweak' its FX statement stems from the extreme weakness of the USD and the potential for a catastrophic collapse in USD assets and a 'run on the USD.' If there has been a behind-the-scenes shift by US officials, the G7 language on currencies could be altered to express such displeasure. While there is no way of knowing exactly what form the language change might take, the more specific they are about the USD, or any currency for that matter, the greater the perceived market impact. An explicit reference might look like "Recent exchange rate movements have been excessive in light of long-term fundamentals, particularly in the value of the USD." A more oblique indication of G7 displeasure might be confined to strengthening the language in the "Excess volatility and disorderly movements in exchange rates are undesirable for economic growth" sentence. If they do alter such language, the G7 is implicitly referring to USD weakness, even if they do not mention a currency specifically. This sensitivity to potential shifts supporting the USD is partly responsible for the sharp rebound in the USD on Thursday-in general traders do not want to go into the G7 excessively short USD due to the risks of a shift in the G7 statement.
Should the G7 alter its language to indicate USD weakness has become excessive or otherwise undesirable, I would look for a substantial recovery in the USD on the order of 3-5% initially. Such a USD rebound would likely embolden risk appetites, so I would also look for gains in USD/JPY to outpace declines in EUR/USD, leading to overall higher JPY-crosses in the process. But make no mistake, if the G7 addresses USD weakness, I believe the impact will be substantial.
The other change that may be made would involve toning down, or removing completely, the explicit mention of China as needing to allow faster appreciation of its currency, in recognition of recent Yuan gains.
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Saturday, April 12, 2008
Weighed Ahead of ECB, BoE
The greenback was weaker across the board on Wednesday, falling to 1.5863 against the euro and 1.9790 versus the sterling. Commodities and energy rebounded with spot gold firming to $933 per ounce and crude oil rallying to a new high above $111 per barrel at $111.83.
The dollar continues to trade lower amid heightened expectations that the FOMC will cut by 50-basis points at the end of the month to 1.75%. Interest rate differentials will largely dictate currency movements in the coming session, with policy announcements by the ECB and BoE due out early Thursday.
The dollar continues to trade lower amid heightened expectations that the FOMC will cut by 50-basis points at the end of the month to 1.75%. Interest rate differentials will largely dictate currency movements in the coming session, with policy announcements by the ECB and BoE due out early Thursday.
Dollar Rebounds Amid BoE Cut
The dollar recovered against the euro and sterling following central bank policy announcements from both the Bank of England and European Central Bank in the morning. The US economic reports released today saw the February trade deficit expand to $62.32 billion, up from $58.20 billion and worst than expectations for the deficit to shrink to $57.5 billion. Meanwhile, weekly jobless claims improved to 357k, down from 407k a week earlier.
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GBP Mixed on BoE Cut
The Bank of England, as expected, cut rates by 25-basis points to 5.0% when it announced its decision earlier in the session. In the accompanying statement, the BoE acknowledged that credit conditions have tightened and the availability of credit have deteriorated. It said that despite the declines in the sterling providing support for net exports, “the prospects for output growth abroad have deteriorated”. The Bank stated that “in the UK, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year.” The BoE expects this moderation to temper inflationary pressures in the medium term.
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GBP Mixed on BoE Cut
The Bank of England, as expected, cut rates by 25-basis points to 5.0% when it announced its decision earlier in the session. In the accompanying statement, the BoE acknowledged that credit conditions have tightened and the availability of credit have deteriorated. It said that despite the declines in the sterling providing support for net exports, “the prospects for output growth abroad have deteriorated”. The Bank stated that “in the UK, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year.” The BoE expects this moderation to temper inflationary pressures in the medium term.
Friday, April 11, 2008
Markets Set For A Quiet Move Into G7 Weekend
Wakeup Call: Markets Set For A Quiet Move Into G7 Weekend
G7 meeting starting today. All talk and no action as usual? They are usually not able to coordinate anything, but a call for 'greater flexibility'.
Overnight News Bullets- SW Ind. Prod. MoM/YoY (Feb) out at 0.3%/1.9% vs. 0.4%/3.3% expected.
- SW Ind. Orders MoM/YoY (Feb) out at -3.5%/1.6% vs. -8.4%/-0.7% prior.
- SW AMV Unemployment Rate (Mar) out at 3.2% as expected.
- NO PPI MoM/YoY (Mar) out at 0.4%/18.5% vs. 1.8%/20.1% expected.
- NO CPI MoM/YoY (Mar) out at 0.1%/3.2% vs. 0.3%/3.5% expected.
- NO CPI Underlying MoM/YoY (Mar) out at 0.6%/2.1% as expected.
- UK Total Trade Balance (Feb) out at -£4439 vs. -£4200 expected.
- UK BoE Rate Announcement out at 5.00% (-25 bps) as expected.
- E-Z ECB Rate Announcement out at 4.00% (unchanged) as expected.
- US Trade Balance (Feb) out at -$62.3B vs. -$57.5B expected.
- US Initial Jobless Claims out at 357K vs. 383K expected.
- US Contiuing Claims out at 2940K vs. 2935K expected.
- US EIA Natural Gas Storage Change out at -14 vs. -15 expected.
- US ICSC Chain Store Sales YoY (Mar) out at -0.5% vs. 0.9% expected.
- US Monthly Budget Statement (Mar) out at -$48.1B vs. -$70B expected.
- JN Domestic CGPI MoM/YoY (Mar) out at 0.5%/3.9% vs. 0.3%/3.5% expected.
- FX: USD got rejected at new lows. EURUSD at a crossroads. USDJPY likely testing 102.95.
- EQ: European session moderately lower. US higher, especially Tech Stocks. Nikkei up by 2.69%.
- FI: Edging lower, especially JGB's. STIR Futures expectations: 42% chance of 50 bps. cut at the 30th of April.
- FUT: Gold & Silver following the stronger USD, closing lower and losing additionally overnight. Crude May contract testing highs y'day at $112.20, but unable to go higher. Now below $110.
G7 Talks In Focus
Measures to ease the credit crunch at the weekend G7 meetings would help strengthen risk appetite early next week.
The G7 meetings will be watched closely on Friday and over the weekend given the potential for a significant impact on market trends. Two key themes are likely to be under discussion over the next few days. The most important element will be discussions on the global credit crunch and risks to the financial system.
G7 member countries will look at proposals to help ease global credit difficulties by relaxing collateral conditions in order to boost market liquidity. Any increase in confidence that the authorities can improve credit conditions would tend to boost risk appetite. This in turn would also tend to weaken the yen.
Comments surrounding exchange rates will also be watched very closely and there are likely to be important discussions between Euro-zone and US officials. A more robust stance in support of the dollar would underpin the currency. In contrast, any evidence of serious policy disagreements would risk further selling pressure on the US currency early next week
Investica
http://www.investica.co.uk
Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.
Thursday, April 10, 2008
Dollar and Sterling edged lower ahead of ECB and BoE and this weekend G7 meetings.
The Dollar edged lower versus the Euro on Tuesday as Minutes of the last Federal Reserve meeting showed policy makers felt that a prolonged and severe economic downturn can't be ruled out. It remained steady against the Yen and a basket of currencies on growing views the economic downturn in the United States could spill over to other countries and prompt their central banks to cut interest rates.
Those concerns appeared to be backed by data showing a sharp drop in British home prices, raising the chances the Bank of England will cut interest rates by 50bp on next Thursday. Analysts said traders bought Euro aggressively in the absence of major economic data from both the United States and the Euro-zone, and ahead of central bank meetings on Thursday, also helped put a cap on any dollar drop. Traders also await Friday's meeting of Group of Seven finance ministers and central bankers, where a broad range of proposals aimed at restoring confidence in the battered banking system will likely be discussed.
Latest months aggressive monetary easing by the Fed in a try to support the economy following a severe downturn in the housing sector tilted the yield appeal in the Euro's favor and has been the main driver behind the Dollar's sell-off. Since mid-September, the Fed has lowered its benchmark overnight lending rate by 3% to 2.25%. The European Central Bank has kept its refinancing rate at 4%.
Yesterday, EurUsd was unchanged at 1.5696 after hitting 1.5799 intraday high. UsdJpy was up 0.19% at 102.73. UsdChf went up 0.24% at 1.0158. GbpUsd dropped 1.08% to 1.9670, the biggest dropped since March 19th. Sterling was the biggest loser of the major currencies on Tuesday. EurGbp jumped to a record high of 0.7990 before scaling back to 0.7979 +1.03%.
Members of Fed's policy-setting committee worried at their most recent meeting that the housing and financial market stress could trigger a nasty slide in the economy, even as inflation pushed higher. Analyst said the minutes are relatively dovish on interest rates and bearish on the US economy.
Halifax, Britain's biggest mortgage lender, said UK house prices fell 2.5% in March, the biggest drop since September 1992, and much steeper than the market's forecast of a 0.4% decline.
Those concerns appeared to be backed by data showing a sharp drop in British home prices, raising the chances the Bank of England will cut interest rates by 50bp on next Thursday. Analysts said traders bought Euro aggressively in the absence of major economic data from both the United States and the Euro-zone, and ahead of central bank meetings on Thursday, also helped put a cap on any dollar drop. Traders also await Friday's meeting of Group of Seven finance ministers and central bankers, where a broad range of proposals aimed at restoring confidence in the battered banking system will likely be discussed.
Latest months aggressive monetary easing by the Fed in a try to support the economy following a severe downturn in the housing sector tilted the yield appeal in the Euro's favor and has been the main driver behind the Dollar's sell-off. Since mid-September, the Fed has lowered its benchmark overnight lending rate by 3% to 2.25%. The European Central Bank has kept its refinancing rate at 4%.
Yesterday, EurUsd was unchanged at 1.5696 after hitting 1.5799 intraday high. UsdJpy was up 0.19% at 102.73. UsdChf went up 0.24% at 1.0158. GbpUsd dropped 1.08% to 1.9670, the biggest dropped since March 19th. Sterling was the biggest loser of the major currencies on Tuesday. EurGbp jumped to a record high of 0.7990 before scaling back to 0.7979 +1.03%.
Members of Fed's policy-setting committee worried at their most recent meeting that the housing and financial market stress could trigger a nasty slide in the economy, even as inflation pushed higher. Analyst said the minutes are relatively dovish on interest rates and bearish on the US economy.
Halifax, Britain's biggest mortgage lender, said UK house prices fell 2.5% in March, the biggest drop since September 1992, and much steeper than the market's forecast of a 0.4% decline.
Forex and Dow Jones recommended levels for 09-Apr-08
Today’s support: -1.0125, 1.0103 and 1.0057(main), where correction could happen. Break would give 1.1039, where a correction may happen. Then 1.1.022. If a strong impulse, we would see 0.9976. Continuation will give 0.9956 and 0.9928.
Today’s resistance: - 1.0154. 1.0172 and 1.0188 (main), where a delay and correction may happen. Break would give 1.0219, where also could be a correction. Then 1.0233. If a strong impulse, we would see 1.0252. Continuation will give 1.0266 and 1.0281.
GBP/USD
Today’s support: - 1.9642 and 1.9617(main), where correction may happen. Break would present 1.9595, where a correction may also be. Then 1.9577. If a strong impulse, we would see 1.9560. Continuation will give 1.9543.
Today’s resistance: - 1.9710, 1.9733 and 1.9756(main). Break would give 1.9772, where a correction may be. Then 1.9789. Break of the latter would give 1.9808. If a strong impulse, we would see 1.9827. Continuation will bring 1.9845 and 1.9864.
DOW JONES INDEX
Today’s support: - 12 573.28, 12 551.13, 12 526.88 ? 12 504.37(main), where a delay and correction may happen. Break of the latter will give 12 476.25, where correction also can be. Then 12 454.45. Be there a strong impulse, we would see 12 431.30. Continuation will bring 12 414.37 and 12 403.12.
Today’s resistance: - 12 692.78, 12 729.36 ? 12 757.50(main), where a a delay and correction may happen.Break would bring 12 782.11, where a correction may happen.Then 12 801.10, where a delay and correction could also be. Be there a strong impulse, we’d see 12 830.63. Continuation would bring 12 859.45 and 12 870.00.
Today’s resistance: - 1.0154. 1.0172 and 1.0188 (main), where a delay and correction may happen. Break would give 1.0219, where also could be a correction. Then 1.0233. If a strong impulse, we would see 1.0252. Continuation will give 1.0266 and 1.0281.
GBP/USD
Today’s support: - 1.9642 and 1.9617(main), where correction may happen. Break would present 1.9595, where a correction may also be. Then 1.9577. If a strong impulse, we would see 1.9560. Continuation will give 1.9543.
Today’s resistance: - 1.9710, 1.9733 and 1.9756(main). Break would give 1.9772, where a correction may be. Then 1.9789. Break of the latter would give 1.9808. If a strong impulse, we would see 1.9827. Continuation will bring 1.9845 and 1.9864.
DOW JONES INDEX
Today’s support: - 12 573.28, 12 551.13, 12 526.88 ? 12 504.37(main), where a delay and correction may happen. Break of the latter will give 12 476.25, where correction also can be. Then 12 454.45. Be there a strong impulse, we would see 12 431.30. Continuation will bring 12 414.37 and 12 403.12.
Today’s resistance: - 12 692.78, 12 729.36 ? 12 757.50(main), where a a delay and correction may happen.Break would bring 12 782.11, where a correction may happen.Then 12 801.10, where a delay and correction could also be. Be there a strong impulse, we’d see 12 830.63. Continuation would bring 12 859.45 and 12 870.00.
Wednesday, April 9, 2008
Forex - Czech crown weakens on news govt approves deal to curb currency growth
PRAGUE (Thomson Financial) - The Czech crown weakened in midday trade after news the government had approved a finance ministry and central deal meant to curb the currency's gains.
At 12 noon, the crown was 0.3 percent weaker against the euro at 25.1, gaining some after losing as much as 0.5 percent in earlier trade.
The ministry and central bank's deal includes freezing all privatisation income and not converting it into the Czech currency, as well as not converting European Union subsidies, however final details will be known later today.
"The deal has been approved," a central bank spokeswoman said, adding that final details will be released at an afternoon press conference from the finance ministry.
The measures are expected to keep major fund flows outside the market without effecting the exchange rate and demand for the crown.
Portugal 2007 revised trade deficit widens to 19.47 bln eur vs 18.59 bln - INE
LISBON (Thomson Financial) - Portugal's revised global trade deficit widened to 19.47 billion euros in the 12 months to December from 18.59 billion euros a year earlier, as an 8.8 percent rise in exports failed to offset a 7.4 percent rise in imports, the INE statistics institute said.
In a statement, INE said it has revised the figures it published last month, which showed the trade deficit widening to 19.3 billion euros, due to updated and corrected data supplied by companies regarding their international trade activities.
Tuesday, April 8, 2008
Forex News: Pound Falters on Home Prices, Greenspan Says U.S. Prices to Stabilize.
Fundamental Headlines
• AUDUSD – Confidence amongst Australian companies fell for the third straight month to -4 from -2 in February, due to high interest rates and a slowing global economy. RBA Governor Stevens has recently confirm that the central bank’s tightening policy for the time being has come to an end, as they are lowering growth forecasts for the economy and inflation. Speculation is increasing that as growth slows, future rate cuts may be in store. For more news and resources, visit our Australian Dollar Currency Room.
• USDJPY – The Eco Watchers Survey showed that confidence among merchants rose to a four month high of 36.9. Expectations are that confidence will start to wane now that companies have started to cut back on hiring as a U.S. slowdown weighs on demand. The BoJ is expected to keep rates unchanged tomorrow, but recent comments from Deputy Governor Shirakawa that the bank is willing to take “flexible action”, has increased speculation that there may be a rate cut in the near-term future.. For more news and resources, visit our Japanese Yen Currency Room.
• GBPUSD – U.K house prices fell by 2.5%, the lowest since 1992. Average prices in March fell to 191,566 pounds as demand has fallen on tight lending standards. Banks have been reluctant to pass on recent rate cuts by the BoE to borrowers. The central bank is expected to again cut rates by as much as 50 points at there next meeting, as downside risks remain. Discuss the topic and your trade ideas in the GBP/USD Forum.
• Detroit Sets Bold Goal: Exporting U.S. Cars (link) – Wall Street Journal
• Alcoa Net Falls Amid U.S. Slowdown (link) – Wall Street Journal
• Vetting of Overseas Investors Stepped Up (link) – Financial Times
• Greenspan Says U.S. Home Prices May Stabilize in 2008 (link) – Bloomberg
• Rice Jumps To Record On Philippine Imports, Exporter Sale Curbs (link) – Bloomberg
• AUDUSD – Confidence amongst Australian companies fell for the third straight month to -4 from -2 in February, due to high interest rates and a slowing global economy. RBA Governor Stevens has recently confirm that the central bank’s tightening policy for the time being has come to an end, as they are lowering growth forecasts for the economy and inflation. Speculation is increasing that as growth slows, future rate cuts may be in store. For more news and resources, visit our Australian Dollar Currency Room.
• USDJPY – The Eco Watchers Survey showed that confidence among merchants rose to a four month high of 36.9. Expectations are that confidence will start to wane now that companies have started to cut back on hiring as a U.S. slowdown weighs on demand. The BoJ is expected to keep rates unchanged tomorrow, but recent comments from Deputy Governor Shirakawa that the bank is willing to take “flexible action”, has increased speculation that there may be a rate cut in the near-term future.. For more news and resources, visit our Japanese Yen Currency Room.
• GBPUSD – U.K house prices fell by 2.5%, the lowest since 1992. Average prices in March fell to 191,566 pounds as demand has fallen on tight lending standards. Banks have been reluctant to pass on recent rate cuts by the BoE to borrowers. The central bank is expected to again cut rates by as much as 50 points at there next meeting, as downside risks remain. Discuss the topic and your trade ideas in the GBP/USD Forum.
• Detroit Sets Bold Goal: Exporting U.S. Cars (link) – Wall Street Journal
• Alcoa Net Falls Amid U.S. Slowdown (link) – Wall Street Journal
• Vetting of Overseas Investors Stepped Up (link) – Financial Times
• Greenspan Says U.S. Home Prices May Stabilize in 2008 (link) – Bloomberg
• Rice Jumps To Record On Philippine Imports, Exporter Sale Curbs (link) – Bloomberg
British Pound Accelerates Lower: Decline Should Continue
A triangle may be unfolding in the EURUSD. If so, then price would come lower in wave E towards 1.5575. The GBPUSD decline has accelerated, which is expected to continue. The USDJPY is still expected to test 103.75/104.00 before forming a top.
Near term, both legs of the down-up sequence from 1.5904 are not clear impulses. This makes it likely that a larger correction is underway; either a triangle or a flat. It is possible that waves A through D of a triangle are complete and that wave E is underway towards 1.5600 or just below. E waves of triangles are usually sharp and have a tendency to penetrate the lower triangle line. The triangle line crosses through 1.5593 tomorrow. It does remain possible that a larger correction is underway.
Visit our recently updated Euro Currency Room for specific resources geared towards this currency.
Monday, April 7, 2008
Top Currency Trading Ideas
If our EURUSD bearish count is correct, then the pair needs to accelerate lower this week. The USDJPY is likely to form another significant top this week or next and Cable should accelerate lower as well.
Candlesticks Point to Divergence in the Majors
Following the passing of last week’s dollar event risk, the majors present conflicting scenarios on further price action. While the Euro and Australian Dollar bullish trends remains intact, the Greenback looks decidedly strong against the Sterling and leaning to be so against the Yen. USD/CAD and NZD/USD lack strong directional conviction, as it seems each pair is determined to set out its own path going forward.
Candlestick forum.
EUR/USD
Dollar tries to build momentum, but bullish trend still intact
The beginning of last week saw EURUSD price action has consolidated in a tight 130-pip range. The up-trend had not been violated, so we advocated continuing to buy the pair, adding a cautionary note that the lack of a strong signal meant we will keep a close eye on price action and cut losses quickly. Our hesitation was warranted – EURUSD responded sharply to the marginally better ISM Manufacturing report, dropping out of the range to hit our stop for a loss of 100 pips.
Friday’s NFP report disappointed hopeful dollar bulls, showing losses 30k greater than expected and revising the previous month’s result to the downside. EURUSD has once again found itself at the familiar trend line stretching from 02/07. With last week’s event risk behind us, we continue to hold the view that EURUSD is poised to test the 1.6000 mark. A Hammer at the trend line confirmed by a bullish candle seen last week adds credence to the up-side bias.
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