Forex Blog

August 16, 2010

Risk Aversion full steam ahead without the Yen

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 10:17 am

Traders are getting that stale taste in their mouth again. Investor aversion to risk and low liquidity has increased demand especially for the CHF this morning. With weaker global bourses and general investor uncertainty there is always a rising demand for ‘perceived safety’ and their trading strategies. This scenario will lead to a flatter yield curve, the SNB and BOJ being challenged and a ‘yellow metal’ in demand. EU data this morning showed that July’s CPI inflation numbers confirmed that the annual rate climbed to a twenty-month high (+1.7%), but with the core still very low (+1.0). This is unlikely to give the ECB cause for concern. The market continues to fear BOJ intervention to stop the JPY rising. At the moment they practice verbal intervention, however, there is a perceived risk that they will enter the forex market to sell the JPY or announce further monetary easing. Verbal seems to be the best bang for their buck at the moment.

The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Friday’s numbers are consistent with a ‘sluggish’ US consumer. The Fed has relied heavily on the consumer to drag us out of recession and onto growth. Bernanke’s statement last week again has the market questioning the ‘strengths’ of the US economy. The released data showed that US retail sales rose less than forecasted (+0.4% VS. +0.5%) followed by a consumer confidence print remaining near its 8-month low (69.6 vs. 69.4). This is strong proof that the economic slowdown should extend into the second half of this year. Approximately +70% of the total US economy is made up of consumer spending and is ‘unlikely to pick up in the absence of a recovery in the labor market’ any time soon. US policy makers last week have made their ‘first attempt to shore up a recovery’. An economy that is ‘more modest’ than earlier anticipated. Are we in danger of slipping back into recession?

The USD$ is lower against the EUR +0.34%, CHF +1.00% and JPY +0.29% and higher against GBP -0.15%. The commodity currencies are mixed this morning, CAD +0.28% and AUD -0.14%. Owning CAD by proxy or on the cross looks like a good bet. Being long CAD outright is not paying as the world coverts dollars in times of risk aversion. The intraday liquidity is squeezing the weaker long CAD positions out of a tight trading range. To own it on the cross would be less volatile and a ‘safer-heaven’ investment with its stronger fundamentals working for it. Canadian fundamentals are not immune to its southern neighbor, who is the countries largest trading partner. Frequently, when the US comes under pressure, the loonie is dragged along because of its proximity. With Bernanke stating that the pace of economic recovery is more likely to be modest, it would be foolish not to expect that the bi-lateral trade numbers would not be affected. Last month, governor Carney predicted that trade would ‘shave -1.6% from Canada’s growth this year’. Investors are implementing risk aversion trading strategies as equities and commodities retreat on the back of capital markets questioning the strength of sustainable global growth. The markets reaction to Bernanke’s announcement earlier this week, futures traders are pricing in a +20% chance of a Governor Carney +25bp hike next month before heading to the sidelines for the remainder of this year at least. Watch the crosses. It will be a good indicator for the loonie buyers running out of ammo!

No currency is immune to this ‘questionable growth’ environment. The AUD continues to hover near this months low ahead of the RBA minutes this evening where traders speculate that policy makers will indicate an extended rate pause next go around. On a technical level, the AUD pull back last week looks like the beginning of a correction. Chartists are eyeing a push towards 0.86c. Risk aversion will likely force the bull’s hand this week, capping rallies, as equities find it difficult to maintain traction at the moment. Last week, the AUD underperformed because of weaker fundamentals. Last month’s employment growth (+23k and +5.3% unemployment rate) disappointed and signs that the global economic recovery is slowing also damped demand for higher-yielding assets. In reality with the outlook for both the US and Chinese economies becoming uncertain, growth-sensitive currencies like the AUD, CAD and KIWI, are unlikely to draw strong buying interest from speculators (0.8916). Follow the Asian bourses for guidance.

Crude is higher in the O/N session ($75.61 up +22c). Crude prices softened on Friday extending its weekly loss on the back of a bearish EIA report last Wed., and on data showing that economic growth in both China and the US is slowing. Investors all week have been questioning the natural strength of global demand for the ‘black-stuff’. The weekly supply report showed that US inventories of gas and distillates (heating oil and diesel) again climbed last week (+400k vs. a flat expectation, while crude stock fell -3m barrels vs. a loss of -1.9m. Distillate stocks rose by +3.5m to +173.1m barrels (the highest weekly inventory level in 27-years). The demand for oil products also fell, as gas demand hit a 2-month low, while demand for distillates is at the lowest level in 10-months. The report re-confirms the IEA conclusion earlier this month that ‘oil demand could take a substantial hit should economic growth continue to falter’. It’s no wonder that the market continues to pressurize commodity prices. Technical analysts believe that $75 a barrel remains a sticky level to penetrate. The recent macro-data flow indicates that the US activity has slowed down and the market should expect further price pull back as the ‘one directional upward move’ may be overdone. US fundamentals continue to show a market that is still overstocked, particularly on the product side. Speculators remain better sellers on up-ticks in the short term. An overdue bounce must be in the cards?

Gold prices fell from a 6-week high on Friday as the dollar’s rally temporarily snapped demand for the metal as an alternative investment. All week investors have coveted the metal as a safer heaven investment. A rising dollar was paying no heed to the historical no’ correlation relationship between the two asset classes. Technically, precious metal prices may have got ahead of themselves and the market saw fit to book some profits. Bigger picture, investors continue to require safer assets at the expense of equities and other commodities. This morning the commodity is once again in demand. Year-to-date the metal has risen +11%. With treasury yields expected to remain low for sometime and with the Fed announcement last week of their intentions to buy bonds could promote a quickening inflation rate, which would promote pushing commodity prices higher. For most of this year, we have witnessed a gold rally on the back of a weaker EUR ($1,224 +$8). Now that the dollar has entered the technical ‘bull’ trading range as a safer heaven investment, will the EUR’s weakness support higher ‘yellow metal’ prices for much longer?

The Nikkei closed at 9,196 down -57. The DAX index in Europe was at 6,090 down -20; the FTSE (UK) currently is 5,250 down -25. The early call for the open of key US indices is lower. The US 10-year eased 7bp on Friday (2.66%) and is little changed in the O/N session. The 2’s/10 spread continue to flatten (+214), despite all the supply that has been coming down the pipe. On the whole, last weeks US auctions were well received and with softer US fundamental data coupled with the Fed’s intention to resume buying US government debt to bolster a faltering economic recovery will provide further support for a flattening curve bias. The market will be content in owning longer dated product on deeper pull backs.

March 31, 2010

EUR head-fake to unnerve weak dollar longs

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:18 am

For awhile yesterday, it seemed that ‘riga-mortis’ had hit set in as Capital Markets sat patiently for the first wrong move in their opinion to occur. It’s not a finely balanced market. Investors have piled into the one directional long dollar trade and that includes growth currency dollars. Let’s be fair, the markets have not felt confident, especially after how the ‘freshly printed Greek bonds’ trade in the secondary market. Thus far, this has caused both EUR/JPY and EUR/USD to fail at an attempt to the topside. However, today could unnerve these ‘weaker’ long dollar positions. Because of the strong performances by the indexes, managers will require to hedge more dollars today. Month-end models suggest that there will be a lot of dollars needed to be sold around the ‘fixes’. Technically, this could be the ‘week’s purge that we have been expecting before NFP on Friday. Otherwise we will be back to twiddling our thumbs.

The US$ is mixed in the O/N trading session. Currently it is lower against 11 of the 16 most actively traded currencies in a ‘subdued’ trading range.

Forex heatmap

Yesterday was full of surprises. Firstly, US house prices posted an unexpected gain in Jan. (-0.7% vs. -3.1%, y/y). Capital market had expected another decline, but house prices have now recorded their seventh consecutive monthly gain (+0.32%, m/m-seasonally adjusted). Since the lows recorded 12-months ago, prices have advanced +3.57%. Certainly positive signs, however, some analysts believe that prices will again come under renewed pressure following the expiry of the first-time home buyer’s tax credit next month. Other factors are also expected to pressurize prices for the remainder of the year and next. Fixed income is pointing to higher borrowing costs and the release of ‘shadow’ inventories in reaction to the current advancement in prices will no doubt hurt sellers. The S&P/Case-Shiller index shows disconnect to other monthly house price indicators. This can be attributed to the seasonal adjustment element playing a larger role. The non-seasonally adjust print would show a decline of -0.39%. In the other sub-categories, there were no surprises.

Secondly, US consumer confidence climbed this month (+52.5 vs. +46.4), as consumers perceived the employment situation is about to improve. The trend is moving in the right direction. However, we are still a long’s way from the decade average, which is roughly 40pts higher. This morning we get to peek at some private employment reports. Will the market consume the data as a strong indicator for Friday’s NFP? A percentage will certainly do, while many will be able to explain away, either good or bad, the headline print.

This morning, German unemployment numbers provided the market a healthy surprise and ‘hope of a modest consumer revival’. But there remains a risk of renewed job cuts to come. The fall of -31k was the sharpest pullback in 12-months, managing to push the unemployment rate down unexpectedly to +8.0% vs. +8.1%. Even healthier, last month’s data was revised to show that unemployment was little changed, rather than rising as previously estimated. The important sub-category of hiring intentions points to a ‘continued improvement to come’.

The USD$ is lower against the EUR +0.15%, GBP +0.19%, CHF +0.15 % and higher against JPY -0.52%. The commodity currencies are mixed this morning, CAD +0.24% and AUD -0.30%. Yesterday, we witnessed some pipeline inflationary pressures in Canadian industrial product prices last month. Despite the headline print being flat m/m, core-prices advanced +0.2%. Not to be out done, the raw materials price index also advanced +0.4% in Feb. (the fourth monthly gain in five-months). Much of the reasoning for industrial prices can be attributed to the loonies’ depreciation vs. the dollar in Feb. over Jan. While raw materials can be explained by the rising costs of fuels. The market can expect the CAD to reverse this month’s print, as the currency to date has appreciated north of +3%. This week we have seen the ‘one directional oversaturated’ CAD trade weeding out some of the ‘weaker domestic longs’. Even with all the other global ‘noise’ the currency is outperforming many of its G7 members. The loonie remains a good news story with strong fundamentals. To date the USD rallies have been shallow and are met with strong resistance. The trend remains your friend.

There was a slight turn up for the books in the O/N session. The AUD fell for the first day in three after retail sales (-1.4% vs. +0.3%) and home-building approvals (-3.3% vs. -2.1%) unexpectedly declined last month, easing pressure on the RBA to raise rates next week (+4.0%). It seems that the Cbank is getting the job done as the interest-rate increases are cooling domestic demand. Many bets were taken that Governor Stevens would again tighten as stronger fundamentals added to speculation that they needed to increase borrowing costs. Policy maker’s rhetoric had provided further market support. They reiterated that the benchmark borrowing costs need to climb toward ‘normal levels’ to contain inflation. On the face of it, last night numbers were woeful for position relying on further tightening soon. The market should expect the AUD to remain under pressure, especially after the currency outperforming in the last week in anticipation of ‘this’ hike (0.9162).

Crude is little changed in the O/N session ($82.82 up +40c). Why upset the ‘applecart’ before the reports? Crude price have not strayed too far, as investors wait for this morning weekly inventory report. The market again expects a build up in crude and a drawdown in gas supplies, but, by how much? That’s the key to get this market moving. Investors are trying to decide if we are witnessing a tightening market with a stronger job situation that will lead to an improving global economy. If that’s the scenario then the ‘bears’ may have to bite the bullet. After ending last week ‘down and out’, oil prices have advanced. This week, thus far, we have seen the Euro-zone economic sentiment increasing and the US consumer spending rising, factors that are trying to dissuade the bears from their course of action, especially after last week’s EIA report showing a bigger than forecasted increase in inventories. Crude stocks increased four-fold, rising +7.25m barrels. On the flip side, gas stocks fell -2.72m vs. an estimated drop of only -1.5m barrels. Not to be outdone, distillate fuel (heating oil and diesel) declined -2.42m barrels to +145.7m. Technically the market remains somewhat optimistic, while fundamentally, weak demand has us not so. Hence, this is the reason why we are confined to a ‘tight trading range’.

Despite gold prices remaining contained in a tight trading range, albeit somewhat volatile, a strong greenback has curbed demand for the metal as an alternative asset. The intraday trading has certainly caused some traders to suffer from price ‘whiplash’. The yellow metal was driven lower as Greece’s 7-year notes fell during the first day of trading on concern that the country will struggle to contain its deficit. Analysts believe that from a macro perspective ‘the underlying problems of the heavily indebted euro-zone economies are overshadowing everything at the moment’ and have investors both gun shy and trigger happy when coming to execution. Fundamentally, it’s been expected that the ‘yellow metal’ would find stronger traction as investors seek an alternative to an ‘on going weakening’ of the EUR and low interest rates. However, the market is seeing little evidence of that demand appearing just yet. There remains strong support at $1,075-80 level. What about the IMF? Will they require selling gold to finance a Greek bailout? The commodities highs are getting lower and suggest that further weakness is warranted in the short term. The dollar’s direction remains the strongest indicator to wanting the metal or not ($1,109).

The Nikkei closed at 11,089 down -7. The DAX index in Europe was at 6,157 up +15; the FTSE (UK) currently is 5,694 up +22. The early call for the open of key US indices is lower. The US 10-year backed up eased 1bp yesterday (3.86%) and is little changed in the O/N session. Treasury prices stayed close to home despite reports showing that house prices unexpectedly rose in Jan. and consumer confidence increased this month more than forecasted. Losses were somewhat curtailed as equities found it difficult to maintain any traction. Technically and fundamentally, supply and the realization that there are more issues to come are starting to continuously weigh on Treasuries. With an expectation of a strong NFP print this Friday could reduce further the relative demand of government debt.

March 29, 2010

Look East for Dollar direction.

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:19 am

Greece forced the EU’s hand and they folded. Like a Cbank, lender of ‘last resort’, they are there. The Greeks get to issue their bond knowing that their backs are covered, somewhat. Now, we will get to see how warm the water is. They will be using the EU promise of an emergency fund as a ‘psychological crutch’ for the market. A confidence trick which S&P’s decided that it’s rating of Greek government debt would remain unaffected, despite a deal. Throughout all of this fiasco, a European confidence index of executive and consumer sentiment rose to 97.7, the highest print in almost two-years. Record long dollar positions have caused heightened volatility, specifically in illiquid times zones. Do not be surprised to see this continue, as the one directional lemming trade has become so ‘over-crowded’. This change of positioning, the upcoming Easter holidays and the US employment report this Friday (expectations are for a strong non-farm payroll number plus a Greek problem ‘solved’) are likely to trigger a ‘nervous’ consolidation. Expect further S/L squeezes that we witnessed on the Asian open to remain a strong possibility.

The US$ is mixed in the O/N trading session. Currently it is lower against 10 of the 16 most actively traded currencies in a ‘volatile and illiquid’ trading range.

Forex heatmap

The final US GDP print was revised lower on Friday and at the same time prices continue their upward trend. Prices are accelerating, with both headline and core-PCE revised higher once again, supporting other price reports that ‘pipeline pressure are beginning to mount’. Real-GDP growth was revised down from the previous estimate of +5.9% to +5.6%, mainly reflecting downward adjustments to residential construction and consumption. Real-PCE is now growing at an annual rate of +1.6% vs. the previous estimate of +1.7% and the original report in Jan. of a +2.0% rise. Real-final sales are now reported to have grown +1.7% and real final sales to domestic purchasers to have risen +1.4%, as expected and both down from the previous estimates. With the magnitude and composition of the revisions largely as expected, the data is expected to have no obvious implications for 1st Q growth, which analysts expect to see slowing to a +2-3%. Finally, the quarterly PCE price indexes were revised higher, with the all-items index now up +2.5% and the core measure up +1.8%, vs. gains of +2.3% and +1.6% in Feb.

The USD$ is lower against the EUR +0.13%, GBP +0.37% and higher against CHF -0.06 % and JPY -0.40%. The commodity currencies are stronger this morning, CAD +0.26% and AUD +0.87%. Last week the loonie happened to record its first weekly loss in a month. Perhaps, this is good news for the ‘longer’ term bulls. All week, we expected the one directional, oversaturated CAD trade to give up some ground. A healthy purge to relieve the weaker CAD long’s of their positions. This came in the form of the EUR finally finding some traction vs. the greenback on the back of the German-French, EU endorsed solution for Greece. Despite the loonie conceding its largest loss in over a month vs. its southern partner on Friday and an extension in the O/N session, the currency continues to outperform many of the G7 currencies. Governor Carney again has reiterated that rates will remain on hold through June. The loonie is hanging in tough, two weeks ago it was piggy-backing parity. The CAD continues to remain a good news story with stronger fundamentals. To date the USD rallies have been shallow and are met with strong resistance. Look east to Europe for direction and preferably buy CAD on dollar rallies.

The AUD found some positive momentum in the O/N session, first time in four-days, before the anticipated ‘stronger’ retail sales report on Wed. Stronger fundamentals is adding to speculation that the RBA will increase borrowing costs again next month after Governor Stevens’ comments yesterday. Futures traders are pricing in a 50% chance of a 25bp rate increase (4.00%) when the RBA next meet on April 6th to contain inflation. The RBA rhetoric is providing the support, reiterating that the benchmark borrowing costs need to climb toward ‘normal levels’ to contain inflation. The policy member’s comments reinforce the fact that the Australian ‘is in a strong position economically and there continues to be inflationary price movements’. Continue to expect better buying on deeper pull backs (0.9133).

Crude is higher in the O/N session ($80.63 up +17c). Crude prices on Friday did not stray far from home. The commodity prices remain questionable after last week’s EIA report showing a bigger than forecasted increase in inventories. The EUR has clawed its way higher on ‘the’ EU Greek deficit solution. However, crude is managing to maintain its price fragility. As we all know, a strong dollar curbs investor’s enthusiasm to own commodities. Last week, crude stocks increased four-fold, rising +7.25m barrels. The market was only expecting an increase of +1.65m barrels. Compounding the net effect, imports of the ‘black-stuff’ gained +12% to +9.4m barrels, the highest print in 6-months. On the flip side, gas stocks fell -2.72m vs. an estimated drop of only -1.5m barrels. Not to be outdone, distillate fuel (heating oil and diesel) declined -2.42m barrels to +145.7m. A decrease of -985k barrels was forecasted. The four-week US demand average was +19.36m barrels a day, up +3.6% y/y, while gas consumption averaged +8.95m barrels, up +1.2%. Finally, refineries are operating at +81.1% of capacity, up +0.6% w/w. On the face of it, there is plenty of spare capacity available for when demand picks up. There is heightening concerns for sustainable global growth, especially with Europe remaining under the microscope. Technically the market is somewhat optimistic, while fundamentally, weak demand has us not so. A strong greenback remains the commodities biggest opponent. Capital markets anticipate another build of inventories this week which should provide some further resistance to prices.

Gold prices remain contained in a tight trading range, albeit somewhat volatile. The dollar continues to cause havoc with gold technical’s and fundamentals. The surging buck, or weaker EUR, until Friday, has curbed demand for the ‘yellow metal’ as an alternative investment vehicle. On macro term, ‘the underlying problems of the heavily indebted euro zone economies are overshadowing everything at the moment and weighing heavily on the single currency’. Fundamentally it’s expected that the commodity will find some traction as investors seek an alternative to an ‘on going weakening’ of the EUR and low interest rates. However, the market is seeing little evidence of that demand appearing just yet. What about the IMF? Will they require selling gold to finance a Greek bailout? The commodities highs are getting lower and suggest that further weakness is warranted in the short term. The dollar’s direction remains the strongest indicator to wanting the metal or not ($1,111).

The Nikkei closed at 10,986 down -10. The DAX index in Europe was at 6,157 up +38; the FTSE (UK) currently is 5,722 up +20. The early call for the open of key US indices is higher. The US 10-year backed up 1bp on Friday (3.87%) and is little changed in the O/N session. Treasury prices had a rough go of it last week with supply managing to push yields to a record three month high. A lower than average demand for $118b’ worth of product raised concern that investor interest is declining as the US deficit climbs to a record. Are we in the midst of a failed US auction? Is China quietly protesting their displeasure at foreign involvement in their ‘own’ valuing of the currency? Technically and fundamentally, supply and the realization that there are more issues to come are starting to continuously weigh on Treasuries. The US marketable debt has risen to a record $7.4t, as the Obama administration borrows to sustain the US economic expansion.

December 10, 2009

Darling’s Poison Pill. NY’s Poison Apple?

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 4:06 am

It was not long ago when we witnessed the masses taking to the streets of London to air their negative views on Bankers actions. Their lobbying has worked. Bankers will have to swallow Darling’s ‘poison pill’, a once off 50% levy on UK banker’s bonuses. This will be the death of the ‘City’s’ dominance, once the financial center of the World. Now we go back State side-to the Big Apple. Imagine if Congress was to implement a similar idea. Certainly we would have to redefine ‘capitalism’ as we know it!

The US$ is stronger in the O/N trading session. Currently it is higher against 11 of the 16 most actively traded currencies in a ‘subdued, yet illiquid’ trading range.

Forex heatmap

When trading gets to this side of the Atlantic we seem to be stuck in an apathetic range. To us, unlike other centers, it feels we are slap back in the middle of the holiday trading. Perhaps this morning’s plethora of data will give us something to do and think about. Earlier, SNB’s Roth at their monetary meeting stated that they will stop the purchasing of corporate bonds, an indication of an commencing an exit strategy. As expected they kept their 3-month libor target at 0.25%, and stated that they will ‘act decisively to prevent any excessive appreciation’ in the CHF. The SNB is a law onto its own when defending the domestic currency. The way it should be done! Roth said that the CHF has stayed ‘stable’ vs. the EUR since they began intervening and believes that their monetary policy since Mar. ‘has been effective’. The RBNZ who kept their rates on hold at +2.50% yesterday said it will raise the benchmark rate sooner than it previously indicated as a stronger housing market leads the economy out of recession. Their timing seems to be very much in line with the BOC earlier in the week. Governor Bollard said the economy has ‘moved out of recession, buoyed by demand for housing and rising commodity prices’. The fundamentals for New Zealand, Australia and Canada are rather similar, yet Cbank rhetoric is somewhat different!

The USD$ is currently higher against the EUR -0.07%, CHF -0.04%, JPY -0.38% and lower against GBP +0.16%. The commodity currencies are mixed this morning, CAD -0.09% and AUD +0.72%. The BOC‘s Governor Carney did what was expected of him and keeps O/N rates on hold at +0.25% this week. Global growth uncertainties have favored the dollar and questioned the strength of growth currencies. Despite commodities, for a third consecutive day, taking it on the chin, the loonie actually found some traction in a tight trading range as dealers believed the currency was initially over sold on BOC Carney’s dovish communiqué. This morning we have Canadian trade balance numbers. The market anticipates a less negative deficit print. Overall, the currency will be dictated by the dollar and commodities direction as we wind up this calendar year. Expect liquidity to become a concern across the board as we close in on the holiday season. Investors continue to be a comfortable buyer of the greenback on pull backs.

The AUD gained for a second consecutive day after a government report showed employers added more than 6-times the number of jobs forecasted by the street (+31.2k vs. +5k). This is a similar scenario to Canada’s experience. They also managed to push down the unemployment rate 1-tick to +5.7%. With unemployment peaking, it validates the RBA‘s tightening cycle. Currently, commodity values are the one problem to potentially curb AUD advancement (0.9163). Investors continue to want to buy on pull backs. Do not be surprised to see the currency achieve parity by the 1st Q 2010.

Crude is higher in the O/N session ($70.68 up +1c). Crude oil fell to a new 2-month low yesterday. The weekly EIA report showed that inventories climbed as refiners boosted their operations and imports fell. Oil inventories declined -3.82m barrels to +336.1m million last week vs. the market expectations of a gain of +600k barrels. On the flip side, gas stocks climbed more than forecasted and supplies of distillate fuel (heating oil and diesel) advanced for the first time in a month. Technically the report was a zero-sum game. Gas inventories rose +2.25m barrels to +216.3m vs. an expected increase of +1.6m, while distillate fuel increased +1.62m barrels to +167.3m. Refineries operated at 81.1% of capacity, up +1.4% points from last week and now at the highest level in 2-months. Two reason contribute to this, firstly, refiners anticipate greater future demand and secondly, the need to reduce stock before the end of the year because of tax consideration. Overall a modestly bearish report that has dealers testing the $70 support level. Fundamentals continue to promote demand destruction. Various OPEC members have been rather vocal of late ahead of their meeting at the end of the month. They believe that prices are in ‘the right range and there is no need to reduce inventories’. Expect the USD’s direction to dictate price action medium term. Support levels continue to look vulnerable!

Gold expressing its inverse relationship continues to track the USD’s movement. Over the last five trading sessions the ‘yellow metal’ has managed to fall close to a $107 drop from last week’s highs. The recent record rally required a healthy ‘lemming purge’ which we are witnessing this week. The commodity’s prices have experienced wild gyrations of $20-$40 price swings over the past few trading sessions and remains exposed to further selling pressure if the USD continues to find traction. Sellers beware, despite the ‘mother in-law’ and anyone who can, does own this ‘hot’ commodity, these pull backs remain strong buying opportunities as it’s ‘the international currency’ ($1,127).

The Nikkei closed at 9,862 down -141. The DAX index in Europe was at 5,679 up +31; the FTSE (UK) currently is 5,224 up +20. The early call for the open of key US indices is higher. The US 10-year bond backed up 5bp yesterday (3.45%) and are little changed in the O/N session. The second of this week’s $74b auctions, the 10-year, was a slight disappointment compared to Tuesday’s 3-year issue. The notes drew a yield of 3.448%, compared with the average forecast of 3.421% and the bid-to-cover ratio was 2.62, compared with an average of 2.63 at the past 10-auctions. Are investors beginning to have their fill of US debt? Two possible reasons for the lack of interest, duration extending and secondly, the possibility of higher future rates. Finally, the most interesting stat from the auction was that indirect bidders (Cbanks) was only 34.9%, the average has been close to 40%!

November 26, 2009

Dollar gets a get out of jail card, temporarily at least

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

Holidays are supposed to be boring for markets. However, last night was a different matter. It seems that the forex markets execution of an extraordinary large stop-loss provided the traders with the jitters. The EUR and CHF cross related currencies saw the SNB intervening and buying USD’s. Their actions in the short term could be rather productive. Technically they have caught the market exposed as its less liquid during Thanksgiving. Most of these currency moves that will take place over the holiday season will seem irrational. Liquidity and lack of it, will create a difficult volatile trading environment where both the technical’s and fundamental’s take a back seat!

The US$ is stronger in the O/N trading session. Currently it is higher against 15 of the 16 most actively traded currencies in another ‘whippy and illiquid’ trading range.

Forex heatmap

Yesterday’s US unemployment claims is on an ‘improving trend’. The number of claimants filing last week fell to its’ lowest level in over a year (+466k vs. +501k) as the US economy tentatively improves and persuades or encourages companies to lay off fewer workers. A tourniquet has been applied to the bleeding so it seems! Let next weeks NFP be the judge of that. Digging deeper, one notices that the number of people receiving unemployment insurance dropped, a similar scenario with those receiving extended payments. Looking at the less volatile component, the 4-week moving average of initial claims happened to also soften from the previous week to +496.5k from +513k. Another sub-component continuing claims declined by -190k to 5.423m vs. market expectations of 5.57m. However, it’s worth noting that continuing claims does not include the number of individuals receiving extended benefits. The number of individuals who have used up their traditional benefits and moved along to extended benefits actually fell by -18.2k to +4.18m, w/w.

It was a surprise, but not that surprising to see that the sales data for US new homes beat market expectations yesterday (+430k vs. +408k, w/w). Buyers continued to take advantage of Obama’s tax credit before it expires next year. With sales advancing +6.2%, it managed to print the highest level in over a year. Technically, rising demand shows that Obama’s incentive for first-time buyers (expanded to include current owners) maybe helping to drag housing out of its worst slump in 50-years. On the flip side, house prices should remain depressed as the constructive industry’s inventory levels continue to compete with record foreclosure numbers that is being fuelled by unemployment. Foreclosure filings surpassed the +300k mark for the eighth straight month in Oct.!

Other early morning data yesterday revealed that personal spending actually increased last month (+0.7%), more than forecasted, however Sept. was revised down a tick to -0.6%. Orders for durable goods unexpectedly declined -0.6% on lower demand for defense equipment, interestingly the previous months was also revised higher to +0.2%. Finally, the US Michigan Consumer sentiment index fell to 67.4 vs. 70.6 last month (second consecutive monthly fall) as the fear of further job losses encourages less consumer spending as we head into this ‘extraordinarily’ long holiday period, which seems to be getting longer as retailers try to squeeze ever last ‘hoarding dollar’. With the unemployment rate having broke that psychological +10% barrier in the US, the consumer who account for 70% of the economy, will limit their contribution to growth in the short term.

The USD$ is currently higher against the EUR -0.46%, GBP -1.08%, CHF -0.52% and JPY +0.50%. The commodity currencies are weaker this morning, CAD -0.79% and AUD -1.46%. The loonie remains in a tight trading range despite touching new weekly highs yesterday after the CBR (Russia) indicated that they would be adding the CAD to their required reserves and by default liquidating some of the USD exposure. The Russian Cbank wants to increase its ‘gold holdings and promote regional currencies in trade and finance to reduce risks posed by the US dollar’s dominance’. Rumors of other Cbanks like India again expressing their willingness to add more gold will only provide a stronger bid to growth currencies on any dollar rallies in the medium term. Technically, the loonie is lacking clear direction in amongst the tight 3c trading range. Currently, within this range, intraday traders are been squeezed daily out of the core positions, whether it’s commodity prices pushing the loonie or risk aversion. Dealers continue to be better buyers of the CAD on USD rallies as the buck’s bear trend remains well established. Governor Carney at the BOC has got to be worried. If the loonie appreciates too strong, too quickly, one should expect policy makers to make a concerted effort to at least slow the process down.

The AUD had its largest loss in over a month in last night’s session, as investors gravitated towards the JPY on speculation that global policy makers will allow further USD weakness. Risk aversion trading strategies are dominating the currency market at the moment. The AUD also came under pressure after a report showed that business investment unexpectedly declined last quarter (-3.9% vs. +1.1%). Earlier this month, the RBA minutes implied that three straight lending rate increases may not be on the cards had futures traders unwinding some of their bets that Governor Stevens would tighten monetary policy again in two-weeks. He said that the pace of further rate increases ‘remained an open question’. That question now seems to have been answered by his deputy, as once again futures traders lay their bets. The currency remains well supported by commodity prices and expects dealers to be strong buyers on much ‘deeper’ pullbacks (0.9177).

Crude is lower in the O/N session ($76.92 down -104c). Crude oil advanced yesterday as the greenback once again weakened against most of its major trading partners on signs of a global economic recovery. Stronger US fundamentals yesterday boosted the investment appeal of commodities. Last week’s EIA report was close to being bang-on. Crude stocks rose less than expected as imports gained. Inventories advanced by +1m barrels to +337.8m vs. market expectation of a +1.2m gain. On the face of it, the build up was consistent with Tuesday’s API report, where inventories advanced +3.3m barrels as imports also rose. Analysts said that daily imports added +371k barrels a day as imports and the Gulf of Mexico output rebounded from the disruptions caused by ‘Ida’. Gas inventories advanced +1m barrels to +210.1m, w/w, vs. market expectations of only +300k. Distillates stocks (those that include heating oil and diesel) declined by -500k vs. expectations of -100k. Refinery utilization managed to advance +0.9% to 80.3% of capacity, vs. analyst forecasts of only +0.3%. Repeatedly over the last few weeks the $80 handle remains a stubborn resistance point, again the market attempted and again it has failed. However, demand destruction does not warrant elevated prices, perhaps the $80 a barrels will be the top for the remainder of this year. OPEC is expected to remain on hold in a couple of weeks because of their concerns about tipping global economies back into contraction. Another tight range to endure so it seems!

There is nothing like a bullish rumor to add spice to the record price saga that the ‘yellow metal’ has been experiencing. It’s no surprise to witness gold jump to another record high in the O/N session as the greenback once again faltered on the rumor that India may want to add once again bullion to their reserves. Year-to-data, the yellow metal has gained +36% as investors and central banks increased their holdings of the commodity to preserve wealth. Expect the bulls to continue to dominate all of the action and remain strong buyers on ‘any’ pull backs even if the USD finds support from risk aversion trading strategies ($1,184).

The Nikkei closed at 9,383 down -59. The DAX index in Europe was at 5,691 down -111; the FTSE (UK) currently is 5,267 down -97. The early call for the open of key US indices is lower. The US 10-year bond eased 5bp yesterday (3.27%) and are little changed in the O/N session. Yesterday’s $32b 7-year auction (the last of this week’s issues totally $118b) was once again well received. The bid-to-cover ratio was to 2.76 vs. the average of 2.53. Despite record low yields, all three auctions surpassed market expectation of demand as indirect bidders, usually Cbanks, took close to 60% of the entire product. Overall the market remains better bid, despite more positive fundamental data out of the US as the ‘seasonal’s’ are calling for a flattening rally ahead of ‘month end index extension’ next week. It’s too painful to be the contrarian in this environment!

November 17, 2009

Bernanke’s reality is fighting deflation not supporting dollar.

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 3:32 am

It’s not what they say, it’s what they do. Bernanke’s slight of hand comments on a stronger dollar were just that. Don’t look at the hand they want you to see! Helicopter Ben believes that bank lending practices and unemployment ‘headwinds’ could possibly restrain the pace of the US economic recovery. The twin evils warrant the continuation of low borrowing costs for a ‘long period of time’. The Fed is ‘attentive’ to changes in the dollar’s value and ‘will help ensure that the dollar is strong’. Do you not think that the word ‘strong’ is now becoming too subjective? His comments on the currency yesterday are the exact same made in a speech a year ago. In reality, he is preoccupied fighting deflation and rates at zero will ‘never’ support any currency!

The US$ is stronger in the O/N trading session. Currently it is higher against 11 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Yesterday’s US retail sales headline was stronger than expected (+1.4% vs. +0.9%). Unfortunately much of that upside surprise was offset by a hefty downward revision to the Sept. headline (-2.3% vs. -1.5%). Technically, it’s all post ‘cash-for-clunker’ noise from the auto component. Digging deeper, the net 2-month effect on total sales is weaker than expected, similar to core-sales (ex-autos) which also showed a downward revision to the previous month. The weak gain in core-sales (+0.2%) is ‘masking greater weakness in some of the key sub-components’. Building materials fell for the 5th straight month (the strongest pace of decline yet recorded -2.4%, m/m), while sales of big ticket items like furniture and electronics also fell. Core-sales managed to keep its head above water by higher sales of clothing, food and drink spending. As we enter the holiday period, will the consumer continue to loosen the purse strings despite certain government incentives programs ending? In reality, the consumer spending accounts for +70% of the US economy and psychologically everything hinges on the US employment situation (-10.2% unemployment rate).

The Empire Manufacturing Index for this month was also somewhat disappointing despite the index showing continued expansion in activity and the 6-month outlook reaching a 5-year high (+57.0). The headline index slid 11 ticks to 23.5 vs. market expectations of 29.9. The details suggest moderation. New-orders and shipments both expanded for the 5th consecutive month, but, at a slower pace than last month. The spread between New-Orders and Inventories (+33.8) narrowed but remained a favorable signal for future output growth. Other signals of sustained recovery were the second straight positive reading for employment and the third straight above-zero print for the workweek. Despite solid readings on demand, selling prices declined for the 12th consecutive month. Looking ahead, respondents remain optimistic about continued expansion by showing a strong vote of confidence in the 6-month outlook. What will it be like when the unemployment rate reaches +13%?

The USD$ is currently higher against the EUR -0.18% and CHF -0.28% and lower against GBP +0.12% and JPY +0.31%. The commodity currencies are weaker this morning, CAD -0.53% and AUD -0.77%. Yesterday’s Canadian Manufacturing sales grew less than expected in Sept. (+1.4% vs. +1.7%), but a stronger positive than the decline print experienced in Aug. (-1.8%). Similar to the US situation, much of the growth was distorted by higher auto-sales (+13.7%), while core-sales (ex-autos) actually fell (-0.4%). It’s worth noting that in total, 14 of 21 sub-sectors posted a gain in sales during the month (+53.1% of total sales). Offsetting the gains was a decline in aerospace products, with production falling -28.6% in Sept. A healthy sign was that inventories fell for an 8th consecutive month (-1.9%, m/m). Combine this with the gain in sales has led to a large decline in the inventories-to-sales ratio (1.44). Expect next month’s ratio to be somewhat reversed as autos accounted for all of the growth in Sept. The commodity driven loonie continues to outperform its southern neighbor, as does most of the other major currencies. With the G20 and APEC pledging to keep the status quo on monetary stimulus is supporting global equities and commodities and by default higher yielding currencies for now at least. Governor Carney will be tested, or perhaps it’s more accurate to say that Capital markets want to test the Governor. Carney has insisted that they will use a combination of currency intervention, credit and quantitative easing options to influence the loonies’ value. Policy maker’s consensus has us believing that a strong currency is detrimental to Canada’s economic growth.

Within sight of the 15-month highs was too lofty a perch for the AUD last night. It managed to pare some of this week’s gains after the RBA minutes implied that three straight lending rate increases may not be on the cards. After appreciating close to +4% vs. the buck this month, futures traders hastily unwound some bets that Governor Stevens would tighten monetary policy again in two-weeks. He said that the pace of further rate increases ‘remained an open question’. However, bigger picture, the currency is well supported by commodity prices and expects dealers to remain better buyers on ‘deeper’ pullbacks (0.9288).

Crude is lower in the O/N session ($78.50 down -40c). Yesterday we witnessed crude prices advancing the most in nearly 3-weeks as the dollars strength remains questionable despite Bernanke’s slight of hand endorsement. Robust global equities are a boost to confidence that the global economy and energy demand may recover. Is it sustainable or are markets just retracing some of the ‘too far too fast’ loss from last week? Even after advancing +3.2% during yesterday’s session, crude remains entrenched in a tight trading range. Last week’s EIA report was bearish for prices. Initially, prices fell after the surprisingly larger than expected gain in inventory levels, as refinery operating rates dropped to their lowest level in 12-months. Crude stocks rose +1.76m barrels to +337.7m vs. an expected market gain of only +1m barrels. With refiners not able to drawn down excess inventories is strong evidence that demand destructions does remain. Refineries operated at +79.9% of capacity, down -0.7% w/w, vs. an expected gain of +0.2%. It’s worth noting that imports actually increased by +6.5% to + 8.66m barrels. Not to be out done gas inventories also managed to advance by an aggressive +2.5m barrels. Due to softer fundamentals this month, technically the market has once again aggressively got ahead of itself. To date over the past 2-months the market has been wishy-washy within a $7 range with very little follow through above the $80 a barrel level. All this despite the IEA earlier this week declaring that global oil demand will grow in the 4th Q for the first time in over a year. Both OPEC and the EIA expectations are a tad weaker!

It’s all about insurance. The market continues to push the yellow metal to new lofty heights as investors purchase the commodity as an alternative to the sickly dollar. With interest rates to stay low for a considerable period of time, there is no incentive for speculators to covet the greenback and by default gold is now the ‘currency’ of choice. Expect the Bulls to continue to dominate all of the action and remain strong buyers on ‘any’ pull backs ($1,133).

The Nikkei closed at 9,729 down -62. The DAX index in Europe was at 5,794 down -11; the FTSE (UK) currently is 5,367 down -16. The early call for the open of key US indices is lower. The US 10-year bonds eased 5bp yesterday (3.35%) and are little changed in the O/N session. The longer end of the US yield curve remains better bid for two reasons, firstly, the Fed will remain on hold and keep rates low for a considerable length of time (US retail sales yesterday also disappointed) and secondly, there is a natural demand for US product. Analysts believe that ‘seasonal’s’ are calling for a flattening rally from here (357 spread 2’s -30’s). In reality, the market will not want to be a contrarian ahead of ‘month end index extension’.

Powered by Efacilitators Hosting