Forex Blog

February 3, 2012

Land of the Rising Yen

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:33 am

Japan’s Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing. He and his policy makers can breath a small ‘sigh-of-relief’ after NFP, the market decided to sell the JPY outright! How long is this going to last? These specific market moves are providing better levels to own the currency. Markets have taken the Ministers comments in their stride. Intervention is a rising risk for USD/JPY shorts if the pair falls towards that psychological 75 benchmark. It seems that exporter related sales will continue to cap any upside potential for the dollar. So, fears that the Greek Prime Minister may resign, the uncertainty that the Dutch Government may not want to write down loans to Greece will again make the yen more attractive.

Below are some other highlights of the week:


Asia

  • CNY: Chinese markets resumed trading following the week-long Lunar New Year holidays. Premier Wen said that the Chinese government will enhance the elasticity of the CNY exchange rate in both directions.
  • JPY: Japanese Finance Minister Azumi warned against a renewed rise in the yen and vowed to take firm steps against excess volatility and speculative moves in the FX market.
  • JPY: Japans December IP rebounded +4.0%, m/m, following the -2.7% fall in the previous month (the ‘flood’ knock effect-on from Thailand).
  • JPY: Yen remains sensitive to G10’s yield compression.
  • KWN: Korean IP growth fell to +2.8%, y/y in December from +5.8% in November. This is very much inline with soft export growth in December.
  • SGD: Singapore’s unemployment rate remained at +2% in Q4, despite weakness in IP and GDP growth for the same period. This suggests that the tightness in the labor market is partly structural.
  • CNY: China’s manufacturing PMI rose +0.2pt to 50.5 (higher than the consensus forecast of 49.6). Importantly, the PMI was much stronger than the seasonal pattern for a -0.7pt fall. New orders up +0.6pt to 50.4 while inventory fell -2.6pt to 48.0. Export orders fell -1.7pt to 46.9 while input prices rallied +2.9pt to 50.0. The data reduces the scope for monetary easing.
  • KWN: Korea’s CPI inflation fell to +3.4%, y/y, last month (foretasted for +3.6%). Core-inflation also slowed to +3.2%, y/y, from +3.6% in December. Digging deeper, exports fell -6.6% in January (first negative growth in three-years), providing a – $2.0b trade deficit. Note: Asian data may be distorted by the lunar New-Year celebrations.
  • IDR: Indonesia CPI inflation eased to +3.7% in January as expected. Core-inflation was broadly unchanged at +4.3%, y/y. The futures market expects their Central bank to ease monetary policy further, cutting rates -25bps to +5.75% next week (February 9). Export growth fell to +2.2% in December while import growth surged to +24.3%. The data has narrowed the trade surplus. Is their economy in the first stages of over heating?
  • TWD: Thai CPI inflation fell to +3.4%, in January (as expected). Futures market again expects the Bank of Thailand to cut policy rates by another -50bps to +2.5% by the end of Q2.
  • JPY: Comments from Japanese officials are finding it difficult to halt the yen gains. The perception that JPY is one of the most liquid currencies in the world is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that it’s only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.
  • CNY: China’s non-manufacturing PMI fell -3.1pts to 52.9 in January (less than expected). The HSBC Services PMI was unchanged at 52.5 for a third straight month in January.
  • JPY: Japan Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing.
  • INR: RBI’s Deputy Governor Gokarn said that the central bank may buy dollar rupee to inject INR liquidity.

NFP no license to apply risk

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:32 am

Analysts’ employment expectations were blown out of the water on Friday. NFP produced a stellar report, creating +243k new jobs, pushing the unemployment rate down two ticks to +8.3%. Risk has been quickly applied and added to in the markets. The loonie is a shining example of a growth currency outperforming, especially on the back of its own disappointing employment report. However, beware of the extremely bearish risk factors lurking in the background i.e Euro debt crisis, slowing global growth and Iran nuclear concerns, which remain largely ignored, before wagering it all on risk. It’s a good start to 2012 for the Obama administration, but not a trend just yet. The headline print has managed to produce some blood on the “street”, they had predicted a more bearish print.

Below are some other highlights of the week:


Americas

  • USD: This week we saw incomes pick up during December, +0.5%, however, individuals chose to increase savings instead of spending, showing a caution that will likely keep the US economy in slow growth mode throughout 2012. November spending was unrevised at +0.1%.
  • USD: Unexpected poor Case-Schiller Home Prices and an unexpected Chicago PMI managed to trigger some macro-money profit taking on the last day of the month. Case-Schilller November 20-city HPI fell -1.3%, m/m. The housing market remains sluggish despite lower prices and interest rates, an abundance of foreclosures and tighter mortgage requirements.
  • USD: Chicago PMI was 60.2 compared with a forecast of 62.2. The forward looking component, the new order index, dropped in January to 63.6 from 67.1.
  • USD: US January consumer confidence retreats to 61.1 from 64.8, giving back some of the huge gains witnessed over the past two-months. The fallback was concentrated in consumers views of the current economy. The present situation index (current economic indicators) dropped to 38.4 from a revised 46.5-“consumers are more upbeat about employment but less optimistic about business conditions and their incomes.”
  • CAD: The Canadian economy shrank for the first time in six-months, dragged down mostly by a decline in energy output (oil and gas fell -2.5%), down -0.1% to +CAD$1.27t in November. The BoC released forecasts from two-weeks ago was for GDP growth to slow to +2% in October through December from +3.5% in Q3.
  • USD: ADP reported that Private Sector Jobs with small businesses lead the hiring +95k. However, the December print was revised lower to +292k from +325k. Its a “slow and steady pace” that could bring down the unemployment rate, but not rapid enough to return payrolls to their pre-recession peaks anytime soon.
  • USD: January ISM rises near to expectations of 54.1, proof that growth picked up last month. Digging deeper, prices gained ground after contracting in December, and hiring grew at a slightly slower pace. Factories continue to be a consistent contributor to overall growth.
  • USD: The number of US workers filing new claims for unemployment benefits declined last week (-12k to +367k), continuing the mostly improving trend seen in nine-months. The four-week moving average decreased by -2k to +375,750, remaining below that psychological +400k benchmark that’s required to add jobs to the economy.
  • USD: In his House Budget Committee testimony this week, Bernanke has not changed his tune, again stating that the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term US budget deficit.
  • USD: Dallas Fed Fisher (nonvoter) reiterated his opposition to further QE. He said that QE3 is not needed and that it would complicate the eventual tightening policies.
  • CAD: Employers hired far fewer workers than expected in Jan (+2.6k vs. +23k) and the jobless rate rose unexpectedly to +7.6% from +7.5%. The data reflects an economy that’s slowing and is consistent with the BoC keeping rates unchanged. Despite creating +129k jobs last year-growth was in the first six-months. (Full-time jobs declined by -3.6k, part-time rose +5.9k, private and public sector increased by +39k while self-employed fell-37k).
  • USD:NFP produced a stellar report, sideswiping most analysts expectations. Payrolls increased by +243k, m/m, allowing the unemployment rate to ease two-ticks to +8.3%. The breakdown saw manufacturing gain +50k, services +162k and the Government eliminate-14k positions. The hourly income increased +0.2% while the number of hours worked remained unchanged at +34.5.

U.S. Dollar Reversal Underway, Euro Eyes 23.6% Fib

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 8:24 am

Talking Points

  •     U.S. Dollar: Index Threatens Downward Trending Channel, Labor Force Continues To Shrink
  •     Euro: Carves Out Lower Top, Greece Seeks Another EUR 15B
  •     British Pound: Upward Trend Gives Out, BoE To Conduct More QE

U.S. Dollar: Index Threatens Downward Trending Channel, Labor Force Continues To Shrink

The greenback extended the advance from the previous day, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to a high of 9,751, and the short-term reversal should gather pace in the coming days as the index threatens the downward trending channel carried over from the previous month. Indeed, employment in the world’s largest economy increased another 243K in January, and the rise in hiring may lead the Fed to soften its dovish tone for monetary policy as the recovery gradually gathers pace.

However, we saw the jobless rate fall back to 8.3% from 8.5% as discouraged workers continued to leave the labor force, and Fed Chairman Ben Bernanke may keep the door open to expand the balance sheet further in an effort to encourage a stronger recovery. In turn, we expect the FOMC to maintain a wait-and-see approach throughout the first-half of the year, but there’s little in the way of seeing another round of quantitative easing as the risk of a double-dip recession subsides. As the USDOLLAR appears to be finding near-term support around the 38.2% Fibonacci retracement at 9,710, this could be a key reversal for the greenback, and the bullish momentum underlining the dollar looks poised to gather pace in the week ahead as the relative strength index bounces back from a low of 30.

Euro: Maintains Narrow Range, All Eyes On ECB Rate Decision

The Euro pared the advance to 1.3205 to maintain the range from earlier this week, and the single currency is likely to face additional headwinds in the following week as the fundamental outlook turns increasingly bleak. Although the European Central Bank is widely expected to keep the benchmark interest rate at 1.00%, we are likely to see President Mario Draghi maintain a dovish tone at the press conference following the rate decision, and the central bank head may take additional steps beyond the three-year loan facility scheduled for the end of the month as the heightening risk for contagion continues to pose a threat to the world financial system. In turn, we are looking for a close below the 10-Day SMA (1.3115) to provide conviction for a short EUR/USD trade, and the exchange rate looks poised to fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2630-50 as the pair appears to be carving a lower top in February.

British Pound: Upward Trend Gives Out, BoE To Conduct More QE

The British Pound broke out of the upward trending channel from the previous month, with the GBP/USD slipping to a low of 1.5749, and we expect the sterling to face additional headwinds in the following week as market participants see the Bank of England expanding its asset purchase program by another GBP 50B next week. As the GBP/USD fails to make another run at the 200-Day SMA (1.5956), with the RSI falling back from a high of 66, the technical outlook point to a short-term reversal in the exchange rate, but we may see the pound-dollar hold steady ahead of the BoE rate decision as the pair continues to find support around the 38.2% Fib from the 2009 low to high around 1.5730-50.

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David’s e-mail distribution list, send an e-mail with subject line “Distribution List” to dsong@dailyfx.com.

Greece Close to Debt Deal

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 7:09 am

Greek Prime Minister Lucas Papademos said Greece was close to coming to terms on a deal with Eurozone authorities and its bond holders that would reduce the weight of the country’s debt and still provide access to credit as the government struggles to contain its deficit. In order to avoid default, Greece is attempting to reduce its overall debt load to 120 percent of GDP compared to the current 162 percent.

The rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans likely to exceed the 130 billion euros ($171 billion) now on the table.

Source: Bloomberg

US Unemployment Falls to 8.3%

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

Friday’s Non-Farm Payroll indicates that 243,000 jobs were added in January marking the greatest single-month gain since last April. The influx helped lower the national unemployment rate to 8.3 percent from 8.5 percent the month before.

The U.S. economy grew at a 2.8 percent annual rate in the final three months of 2011, quickening from 1.8 percent in the third quarter. However, the rebuilding of stocks by businesses accounted for two-thirds of the rise, setting the economy up for a slower growth pace this quarter.

Source: Reuters

February 2, 2012

China to Play the Eurozone’s White Knight?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 2:27 pm

Since the early days of the Eurozone debt crisis, insiders have identified China and its $3.2 trillion in foreign reserves as a potential contributor to a Eurozone bailout fund. Today, Premier Wen Jiabao gave markets reason to believe this may yet be the case when Wen suggested that China is considering the options for how it may contribute to keeping the Eurozone together.

The original European Financial Stability Fund (EFSF) is scheduled to be superseded by the European Stability Mechanism (ESM) later this year. The ESM is expected to provide 500 billion euros ($656 billion) to the establishment of a bailout fund. Wen did not confirm whether China would contribute to the ESM directly, but this does seem to be the most logical way China could help support the region.

China Desires a Stable Euro and Eurozone

It is in China’s interest to help stabilize the Eurozone. It is estimated that up to one quarter – or roughly 620 billion euros – of China’s foreign exchange is held in euros. Shielding this investment from further decline is obviously of vital importance to China.

However, China also wants to see prosperity return to the region as quickly as possible to protect its export interests. The wider European Union is China’s largest export market with 282 billion euros worth of goods exported in 2010. Sales for 2011 continued to increase but at a slower pace and there is a growing worry that sales could soon start to decline.

German Chancellor Angela Merkel arrived in China today to kick off a three-day visit aimed largely at reassuring China that European leaders have a handle on the debt crisis.

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Despite “Signs of Improvement” Bernanke Holds Near-Zero Rate Pledge

Filed under: OANDA News — Tags: , , , , , , , — admin @ 11:40 am

Speaking before the House Budget Committee in Washington today, Federal Reserve Chairman Ben Bernanke said that the U.S. economy appeared to be gaining in strength.

“Fortunately, over the past few months, indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke testified. “The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.”

Despite the more positive tone, Bernanke reaffirmed a continuance of the Fed’s near-zero interest rate policy. Last month, the Fed extended its pledge to hold the line on interest rates for an additional year, stating that rates would likely remain at the record low cap of 0.25 percent until late 2014.

To offset fears that low lending rates could lead to inflation, Bernanke told the Committee that the Federal Open Market Committee (FOMC) still considered 2 percent growth to be the ideal target. Given the current conditions, the FOMC expects inflation to remain “subdued”.

U.S. Consumer Confidence Falls Sharply in January

Bernanke’s testimony comes less than a week after the release of the January Consumer Confidence Index. The January result was a sharp decline in confidence, falling to 61.1 percent from 64.8 percent after two consecutive months of significant gains. The downturn in the index suggests consumers are increasingly worried that rising costs will take a greater bite out of household budgets.

There is hope that confidence will rise should the employment outlook continue to improve. For the final quarter of 2011, unemployment fell by half a percent to 8.5 percent and momentum appears to be gathering steam with claims for unemployment benefits falling more than expected for the week ending January 21st.

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EURO’s Volatility

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

EUR/USD started the day in London paring gains made yesterday after better manufacturing data eased worries about global growth.  The market was quite subdued until Chinese Premier Wen suggested the possibility of more involvement in the developments of the EFSF and the ESM as well as positive comments regarding the shared currency and the euro zone.  This caused the euro to jump 50pips to 1.3198 before drifting back to where it started which was around 1.3130’ish.  It just goes to show the volatility and sentiment of the market hungry for a clear direction.  In the meantime it is quite entrenched within the range of 1.3020 1.3230.  What may determine a breakout of this range will come from surprising data out of the US or solid news about the Greece deal.  The best and only trading strategy may be to play within this range with stops on the breakout.

Market Outlook for February 2, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 6:42 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 2, 2012

Yesterday, manufacturing strength around the globe from prompted a rally in the markets as investor focus was diverted from the European debt focus. Manufacturing data in the US grew at the fastest rate in seven months while manufacturing in the United Kingdom rose to an eight month high. Gauges of manufacturing in China also improved and manufacturing in Europe contracted less than expected. Manufacturing in China showed a modest expansion beating market expectations of a contraction. The USD weakened across the board and Treasuries stopped a five day rise. with The EUR is trading at 1.3130 while the GBP is currently trading at 1.5830.

Further aiding the positive market sentiment is the expectation that the Greek private sector debt swap deal and the nation’s second financing deal will be completed in the next few days. However, the longer the negotiations drag on, the greater the likelihood of an extended fall in the Euro. The strongest performers  yesterday were the risk currencies. The Australian dollar has surged past 1.0700 while the Canadian dollar is once again trading above parity against the USD.

Equity markets powered ahead yesterday spurred by signs of manufacturing strength globally. The S&P 500 closed 0.9% higher at 1,394 with financial and commodity stocks leading the gains. Morgan Stanley rose more than 5% on news that it had won the lead manager role for the upcoming Facebook initial public offering. The appliance maker, Whirlpool, rose almost 20% as it projected higher than expected earnings. Asian stocks gained with the Hang Seng rising 2%. European stocks have lost earlier gains, falling from 6 month highs, as oil producers fell

EUR at NFPs Mercy?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:38 am

The biggest fear this morning was not a rumor that China may ease their RRR or the imminent possibility of Cbank intervention in yen, nope, it was Deutche banks forex outage (it seems to have come with their profit outage)! The worlds largest currency player experienced a brief disconnect on ‘Autobahn’ forcing them to experience the old ways and provide voice broking for a full 10-minutes. This certainly highlight the importance of this institutions presence in the FX game or are investors that bored with the same recycled reasons for market movements this week? The closer we get to NFP market positioning will get more interesting.

There are reports now that the PSI deal is being held up by differences between Germany and the IMF. We can assume when the collective actions clauses are being enforced we will get to hear more from the disgruntled creditors. The various posturing by interested parties is in danger of making this the worlds longest ‘expected’ announcement! For now, little news is keeping trading ranges intact.

The overnight rumor of a RRR cut from the PBoC is nothing new, and its something that the market will have to live with until its done. The prospect of a cut was raised ahead of the Lunar New Year, however, data since supported the prospect of monetary easing. Analysts now feel that a rate cut is unlikely for a few months, but manipulating the reserve ratios is a strong alternative. With global growth under immense pressure, a reserve move gives us a shiny ‘Red Knight.’ Perception is everything. However, in this risk on environment their gesture could becomes diluted.

On the other hand, the BoJ presence is much more pressing. Comments from Japanese officials overnight will unlikely halt the yen gains anytime soon. JPY is one of the most liquid currencies in the world and is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that its only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.

This mornings decline in the Euro-zones December Producer Prices (-0.2%, m/m and up +4.3% on the year) will be welcome news for the ECB. Along with positive market sentiment is helping to push Euro periphery yields much lower and aid them in their refunding requirements. Spain this morning was the latest winning candidate, its yields are being pushed to a new yearly ‘floor.’ With risk, offers in the higher 1.31’s are expected to weigh on the EUR’s rebound and keep the market focused on support ahead of 1.31 directly.

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