Forex Blog

January 31, 2012

Canadian Dollar Loses Steam on Weaker U.S. Outlook

Filed under: OANDA News — Tags: , , , , , , , — admin @ 3:33 pm

After recently touching a 90-day high against its U.S. counterpart, the Canadian dollar’s advance appears to have stalled. The pause coincided with news that for the first time since last May, Canada’s economy shrank as Statistics Canada reported that the economy contracted by 0.1 percent for the month of November.

While manufacturing and several other sectors managed a gain for the month, a drop in oil and gas production more than offset the gains. November’s decline in GDP comes on the heels of a very weak gain in October making it all the more likely that the final quarter of the year will fall well below Statistics Canada projections.

Nevertheless, Statistics Canada, even after factoring in the slowing fourth quarter, still expects GDP to have expanded by 2 percent for the year.

The loonie, as the Canadian dollar is nicknamed, had earlier benefited from signs that Greece and its creditors were close to working out a deal to swap maturing debt with new debt offered at a significant discount to the bond holders. However, with confidence fading that a deal was as close as originally thought, optimism quickly waned.

After breaking through to parity last week, the loonie lost ground on Tuesday falling to C$1.0034 per U.S. dollar Tuesday afternoon. The retracement can also be linked to the latest U.S. consumer confidence update which shows a significant decline in January. The consumer confidence index fell from 65 in December to just 61 in January – a value of 90 is regarded as a healthy consumer confidence rating.

Should the weaker sentiment translate into lower U.S. consumer spending, the impact will have an immediate and negative impact on Canadian exporters who count on U.S. consumers buying 75 percent of all Canadian exports.

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Record Eurozone Unemployment Pits North Against South

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 1:26 pm

The December unemployment rate for the 17-member countries comprising the Eurozone rose to the highest level since the Euro was introduced in 1999. For the month of December, the rate for the entire region rose to 10.4 percent after the November result was similarly revised upwards one tenth of a percent from the originally-reported 10.3 percent.

A total of 16.5 million people across the Eurozone are now out of work. This is an increase of three quarters of a million in the past year alone. But the pain is not being felt equally amongst all Eurozone nations.

Greece and Spain recorded the greatest increase in unemployment over the past year. At 22.9 percent, Spain had the highest unemployment rate for the entire area with Greece not far behind at just over 19 percent. Portugal watched helplessly as its unemployment rate continued to climb reaching 13.6 percent in December.

Comparing the results of these southern countries with the northern jurisdictions reveals the gap between the north and the south. In Germany, for instance, December’s unemployment rate actually fell more than expected to 6.7 percent – the lowest since German was reunited. Meanwhile, Austria and the Netherlands continued to record the lowest Eurozone unemployment at just 4.1 and 4.9 percent respectively.

Unemployment to Increase in Some Eurozone Countries

Looking ahead to the coming year and beyond, there is every likelihood that the situation will actually worsen. As even the most casual observer knows, the Greek government is presently under intense pressure to implement the infamous “austerity” measures to address the country’s widening deficit.

The massive spending cuts targeted to meet the goal of ultimately eliminating the deficit will require Greek authorities to eradicate a significant number of government jobs. Other countries including Spain, Portugal, and even Italy will be forced – to some degree at least – to follow the same agenda in order to get a handle on overall spending.

Widespread job losses will not be restricted to just the government, however; the private sector too will be forced to reduce costs as companies struggle with falling sales. In the face of the continued uncertainty and growing fears of recession, companies will postpone or even cancel all but the most essential new projects, delaying new hiring accordingly.

Again, it will be the southern countries that will feel the effects of this most keenly.

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Euro Unemployment Hits Record 10.4%

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 7:17 am

Unemployment in the Eurozone region rose to a record 10.4 percent in December of last year. Spain was the hardest hit of the 17 countries at 22.9 percent unemployment while Austria has the lowest unemployment rate of 4.1 percent.

Guillaume Menuet, economist at Citigroup, said he expected the number of people out of work to increase throughout 2012.

“If you think about the direction of employment expectations that you see across various business surveys, the outlook for employment doesn’t look particularly enticing, simply because the uncertainty is very high. In many cases you find firms continuing to delay investment projects. For those that are still making profits, hiring is being frozen, and for those which are under pressure to hit results or losing money, job losses are becoming the only solution that they have,” he said.

Source: BBC News

Market Frustration

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:02 am

The Brussels Summit ended yesterday with no favourable resolution for the Greek saga leaving the market showing its frustration on the EUR/USD driving it down to 1.3075.  Apparently German Chancellor Angela Merkel shared the same frustration with the Greek government’s failure to carry out its economic reform.  Euro found its base at 1.3135 during early Asian session and the theme today for Asia was sell dollar.  However moving towards the London session we may see EUR/USD take on a different theme in the form of volatility.  With a whole battery of macro data expected today from the Euro zone, it may be touch and go.  We have German retail sales (MoM); French Consumer Spending (MoM); German Unemployment Change; Italian Unemployment Rate; Eurozone Unemployment Rate.  In New York expect Chicago PMI and more importantly US Conference Board Consumer Confidence.  Euro support is seen at 1.3120 but the psychological level of 1.3000 is possible if all the ‘bad’ stars align.  Top side try for 1.3230.

Market Outlook for January 31, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 6:59 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 31, 2012

Chancellor Merkel indicated yesterday that there may be a delay in finalisation of a debt deal for Greece by saying “we won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks.” Fundamental cracks are appearing between Greece, where opposition is growing to German led calls for increased oversight and veto powers for Greek budget decisions, and other European leaders. European leaders want to be able to enforce budget decisions on the Greeks while the nation see such moves as an attack on their sovereignty.

President Nicolas Sarkozy of France said yesterday that “Europe is no longer at the edge of the cliff.” The question has to be ‘what has changed since Europe was at the edge of the cliff?” We fear not much. Certainly markets have been less volatile in response to news developments in the new year. However, even as European leaders work towards rules that are designed to bring about greater fiscal union and budgetary control, member states such as Greece want to play by their own rules. The talk is becoming increasingly tough with the the economic spokesman for Merkel’s Christian Democratic Union saying, “The free lunch is over: no external controls, no money.” European history shows that the continent is least united when nations try to exert their influence on each other. Attempts to “unify” the continent have always led to conflagration.

Yet markets have been once again been gripped by europhoria surrounding EU summits and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets have rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. The EUR has rallied above 1.3200 after having traded closer to 1.3100 in early Asian trade.

Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation’s second rescue package, S&P 500 futures are signalling a rise in trade today.

EUR Short Covering Just Started?

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:39 am

The EUR 1.32 handle was to be in the distant past. One Euro summit later, in tandem with month-end requirements, and we have a trading environment wishing to finally throw some volume about and a ‘lost’ currency finding some of its mojo again. The dollar seems to have suffered the opposite fate over the last trading session, under-performing against its peers in response to the relatively constructive outcome from yesterday’s flash EU summit in Brussels (the sixteenth in two years). It seems to be in the post summit, with reluctance, that the bears have been covering some of their longer term short EUR positions. The explanation that the Greek situation may be getting better is an explanation to fit the price action or is it the US, IMF and the Euro-zone working to combine the ESM and EFSF into a superfund with +EUR1.5t the reason?

Investors have tentatively welcomed the EU leaders agreement on a higher fiscal pact to be signed off next month, and a bailout mechanism that will come into effect in July. However, a black cloud still exists over proceedings. Portugal’s 10-year government yield (+16.29%) remains elevated and there is still no agreement between Greece and the private sector. The market is again concerned that the Portuguese will require another Greek style bailout if their government is unable to access the capital markets for ‘route one’ funding requirement. The country’s yields have ballooned since credit rating agencies lowered their ratings to below sub-investment grade earlier this month. Just like the other members of the peripheries, investors remain skeptical that the PSI in the Euro-zone sovereignty will only be applied to Greece.

However, in this moment, the summit is being viewed as a success relative to modest expectations. Belief like this has eliminated some of the event risk for the Euro-system. The bears will argue that the various asset classes have priced in a successful outcome already given the rallies across the board over the past week. With the Greek PSI agreement remaining elusive, this again can create enough market anxiety, reminding us that yesterday’s EUR level lows are only but a few trades away. The uncertainty over the extent of actual participation in the debt swap has the market again wanting to fade rallies in the EUR, especially as we approach the employment reports. Fear that other Euro financing stress issues, coupled with the regions deteriorating growth dynamics, may again urge monetary authorities to apply further easing.

Besides Greece, the market is beginning to focus on US employment data later this week and on the dynamics of BoJ and SNB own unique currency situations. Both authorities are on the verge of intervention. The Fed’s decision to extend its contingent commitment to low rates into late 2014 reinforces the markets bullish view on the yen. The EUR/CHF itself is only a touch above the official floor as investors risk aversion appetite comes into question with so much Euro sovereign uncertainty. In the big picture, 1.3250 remains the key resistance zone, but sustaining a break into the 1.32 must first be cemented.

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January 30, 2012

And Now, Portugal

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , — admin @ 11:18 am

By Sam Mattera
Benzinga Guest Writer

On Monday, the yield on the 5-year Portuguese note spiked. The yield hit a record for the post-euro era of 22.69%.

The trade may have been fueled by the turn of events in Greece, as the general perception of the market may be to accept Greece’s default as a given.

Last year, markets appeared frightened by the prospect of a Greek default, but various commentators have begun to talk down the event. Perhaps most interesting was JP Morgan Chase’s CEO Jamie Dimon characterizing the net effect of a Greek default on US financials as being practically nothing.

Greece’s overall debt is a relatively paltry sum when seen from a global perspective. Still, the turn of events in Portugal may have given credence to what market bears have been warning of: a contagion effect.

There had been plans for a deal to allow Greece to take a “voluntary” haircut of 50%.

Yet, some creditors resisted the deal (perhaps hoping to use credit default swaps to profit—these instruments wouldn’t payout in the event of the default being voluntary) and there was talk that Greece would need to increase the haircut further to better get the growth rate of its debt under control.

The EUR/USD currency pair traded lower early on Monday, as did US equity markets, with the Dow Jones opening down nearly 100 points.

Bloomberg reported that some traders had seen the European Central Bank stepping in to purchase Portuguese paper. This would follow previous trends, where the ECB was said to have purchased Italian and Spanish debt when the yields on these instruments rose rapidly.

The ECB has denied in the past that it will undertake the role of actively “monetizing” the debt of troubled Eurozone nations.

With further European meetings set to take place in coming weeks, the EUR/USD could continue to be an active currency pair.

If a Greek bankruptcy does come to pass, it could send the euro trading far lower against the US dollar. As Portugal’s yields rally, market participants may begin to believe in the danger of a contagion effect.

Of course, the ECB could alleviate the market if it undertakes aggressive actions of its own. Additional bond purchases or another LTRO may have a powerful, confidence-boosting effect.

USD/JPY looking familiar

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 6:59 am

After reaching 78.27 last week on concerns over Japan’s first monthly deficit in nearly 30 years and a decline in growth outlook, USD/JPY started this week in familiar territory again 76.60 – 76.80.  Other than Japan’s Jobless rate tomorrow, there isn’t much news to trade with.  Perhaps of more interest is the EUR/JPY movement where Japanese officials have recently hinted concerns over its rapid decline against the JPY.  We think the market may test ‘BOJ water’ this week with sub 76.00 and we dare say 75.00 to see if there is any ‘intervention bites’ around.  For the rest of Monday market may range 76.54 – 77.12.

Market Outlook for January 30, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 6:55 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 30, 2012

The announcement by the Federal Reserve that it plans to keep interest rates low through till at at least 2014 counterbalanced some weaker than expected economic growth figures last week to keep investor sentiment more optimistic. Furthermore, developments over the weekend suggest that a debt swap deal between Greece and its private creditors is nearing as bondholders appear to have accepted calls by European finance ministers to accept lower interest rates. An undisclosed source cited by Bloomberg has said that creditors are willing to accept an average coupon of as low as 3.6% on new 30 year bonds. The EUR peaked at above 1.3235 in trade on Friday.

However, all is not well in Greece. The IMF’s Christine Lagarde has said, “We’re not terribly positive about what has been done (in Greece)”. There are still fundamental differences of opinion between Greece and other members of the Eurozone over how to manage Greek budget decisions. European policy makers and, in particular, the Germans are calling for the creation of a commission with the power to veto budget decisions by Greece. However, the Greeks have rejected such a plan as they see it as being contrary to national sovereignty. As trading resumed in Asia today it was all one way traffic as markets stumbled on speculation that European leaders meeting today will face difficulties in their efforts to resolve the ongoing debt crisis. The EUR has retreated to as low as 1.3110 while the Australian dollar has lost more than a cent to 1.0550 as the USD surges.

Equity markets rose for the fourth consecutive week last week after the announcement by the Fed which was seen as indicative of an another imminent round of quantitative easing. However, the week has not started so well with Asian stocks closing lower as European leaders meet for another summit. The MSCI Asia Pacific lost 0.8%. In Europe, signs of Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair has seen European bourses trade down almost one percent.

Spain Appears Headed for “Double-Dip” Recession

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 6:53 am

Spain’s economy contracted by 0.3 per cent during the fourth quarter, according to official figures released Wednesday, edging the country closer to a new recession as it deals with huge levels of unemployment and painful austerity cuts. The figure announced by the National Statistics Institute broke a run of seven quarters without economic contraction. The institute said GDP fell 0.3 per cent during the quarter compared with a year earlier. For all of 2011, it increased 0.7 per cent.

The economy is expected to slide further through March, placing Spain back in its second recession in less than three years. A technical recession is defined as two consecutive quarters of contraction.

Source: The Canadian Press

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