Forex Blog

September 19, 2014

September 9, 2014

Japan FinMin Issues Concern About Currency Volatility

Finance Minister Taro Aso expressed concern Tuesday about sharp currency moves as the U.S. dollar hit its highest level in nearly six years against the Japanese yen.

“A sharp rise in the foreign exchange rate means there is a high possibility that the rate will also fall steeply, so it is desirable that the rate moves moderately,” Aso said at a press conference.

Economic and fiscal policy minister Akira Amari also said at a separate news conference that rapid currency fluctuations are not beneficial for the global economy.

Their remarks came after the dollar topped 106 yen for the first time since October 2008 on Monday, amid growing speculation that the U.S. central bank may raise its interest rate sooner than expected while the Bank of Japan may implement additional monetary easing, widening the interest rate gap between the two nations.

The latest data have shown that the U.S. economy is on a recovery track, but Japan’s economy is stalling as the 3-percentage-point consumption tax hike to 8 percent from April 1 is dealing a heavy blow to domestic demand.

With fears intensifying about the negative impact of the second round of the two-stage tax hike to 10 percent scheduled in October 2015, Aso emphasized that Prime Minister Shinzo Abe’s government will prepare necessary measures to shore up Japan’s economy.

via Mainichi

US and Japan Talk Farm Tariffs Ahead of TPP

Japan and the United States resumed bilateral talks on Tuesday over Tokyo’s proposed exceptions to tariff elimination for key farm products under a Pacific free trade initiative, aiming to set the stage for Tokyo and Washington to secure a two-way agreement within the month.

The two-day working-level talks in Tokyo come after the Japanese minister in charge of Trans-Pacific Partnership negotiations said it is desirable for Tokyo and Washington to secure a bilateral deal by the end of September.

A deal between the two largest economies involved in the TPP negotiations is seen as vital to advancing the broader talks involving 12 nations. How much progress Tokyo and Washington make this month could determine whether the dozen nations involved in the negotiations can seal a broad deal by year-end as envisioned by U.S. President Barack Obama, trade observers said.

Hiroshi Oe, Japan’s deputy chief negotiator for the TPP, and Wendy Cutler, acting deputy U.S. trade representative, are heading the working-level negotiating teams. They are planning to meet again within this month.

Obama has placed the TPP, which would encompass 40 percent of global gross domestic product and a third of world trade, at the core of his “rebalance” to Asia, while for Japanese Prime Minister Shinzo Abe, it is a pillar of his growth strategy to shore up the country’s economy.

Though both Japan and the United States share the goal of striking a deal at an early date, they have struggled to settle huge disagreements over Japan’s calls for exempting five farm product categories — rice, wheat, beef and pork, sugar, and dairy — from tariff elimination, causing the overall negotiations to stall.

via Mainichi

August 19, 2014

Switzerland To Benefit From Russian Sanctions

Switzerland is facing a diplomatic dilemma over its decision not to go along with international sanctions against Russia, imposed by the European Union and the United States in response to the crisis in Ukraine.

Neutral, and not a member of the EU, Switzerland has chosen instead to ban the export of military equipment to both Russia and Ukraine, and says it intends to make sure financial sanctions imposed by the EU and the US cannot be broken in Switzerland.

The Swiss government says it is especially important to preserve neutrality amid the tensions between Russia and Ukraine, because Switzerland currently chairs the Organisation for Security and Co-operation in Europe (OSCE) and has offered its services as a peace negotiator between the two countries.

But some EU members have suggested the Swiss position is motivated more by self-interest, pointing to the fact that Switzerland did not adopt sanctions against apartheid South Africa – a move thought to have brought big financial gains to Swiss banks.

via BBC

July 23, 2014

EUR/USD Below 1.35 on Fed and ECB

The dollar advanced to the highest in eight months versus the euro as borrowing costs and monetary policies between the two economies diverge.

Australia’s dollar rose to the most since November against the shared currency after the central bank chief said he was content with monetary policy. Brazil’s real gained against all 16 major peers as swap rates dropped to an 11-month low. Russia’s ruble posted the biggest gain in almost a month. The annual increase in U.S. consumer prices was unchanged as the Federal Reserve weighs the pace of tightening monetary policy while the European Central Bank has offered unprecedented stimulus.

“The ECB policy supports a weaker currency, so therefore I would expect euro will continue this pace of moving lower,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “Toward year-end we should be settling in somewhere around $1.30, and a more aggressive forecast maybe even $1.28.”

Bloomberg

July 22, 2014

Mongolia and Japan Sign Free Trade Agreement

Japan and Mongolia will announce a free trade agreement between the two countries when their leaders meet later on Tuesday, Mongolian President Tsakhiagiin Elbegdorj said.

“We are in the stage of concluding” the trade liberalization deal, Elbegdorj said in a speech at a business forum in Tokyo in the morning.

Elbegdorj said that he and Prime Minister Shinzo Abe “will announce (the countries) reached a broad agreement,” expressing his hope that the accord will help accelerate trade and investment between the two Asian economies.

In their negotiations, which began in 2012, Japan has called on Mongolia to eliminate a 5 percent tariff on Japanese car imports, while Ulan Bator has asked Tokyo to remove or significantly reduce its 38.5 percent tariff on Mongolian beef.

The size of bilateral trade is relatively small, but Abe apparently aims to leverage closer economic ties to boost their political relations as Japan has partly relied on Mongolian assistance in negotiating with North Korea.

Mongolia has diplomatic ties with North Korea and has provided venues for contact between Japanese and North Korean officials to discuss North Korea’s abductions of Japanese in the 1970s and 1980s, an issue that has prevented the two countries from normalizing bilateral relations.

Japanese Government Cuts 2014 Economic Growth Forecast

The government on Tuesday cut its forecast for Japan’s economic growth in fiscal 2014 to 1.2 percent from 1.4 percent in real terms amid lingering fears that the April 1 consumption tax hike, the first in 17 years, may continue to weigh on domestic demand.

But the Cabinet Office said the nation’s nominal gross domestic product is predicted to grow 3.3 percent in the current fiscal year through March 2015, unchanged from the previous estimate last December, with the Bank of Japan’s drastic monetary easing helping push up prices.

If the projections are realized, the rate of GDP growth would top the real, or inflation-adjusted, rate for the first time in 17 years, suggesting the world’s third-largest economy is on the verge of escaping from nearly two decades of deflation.

The office said in a statement that it will keep an eye on the aftermath of the tax increase, but the country’s economy is expected to enter a “virtuous cycle” where a rise in consumption prompts companies to increase production, leading to wage growth, resulting in more consumption as the cycle repeats.

via SOURCE

July 10, 2014

U.S. Bonds Higher after Fed Minutes

Bonds edged up from session lows on Tuesday after the release of minutes from the last Federal Reserve meeting, which said the central bank has begun detailing how it plans to ease the U.S. economy out of its easy monetary policy period.

The minutes from the June 17-18 meeting indicate the Fed envisions using its overnight repurchase agreements in tandem with the interest it pays banks on excess reserves to set a ceiling and floor for its target interest rate.

Though no decisions have been announced, the discussion has become detailed enough for Fed officials to contemplate the proper spread between the two – mentioned in the minutes as 20 basis points.

CNBC

Gold Approaches $1330 after Fed Minutes

Spot gold extended earlier gains on Wednesday after the minutes of the Federal Reserve’s most recent policy meeting showed the central bank has begun detailing how it plans to ease the U.S. economy out of an era of loose monetary policy.

The minutes from the June 17-18 meeting indicate the Fed envisions using its overnight repurchase agreements in tandem with the interest it pays banks on excess reserves to set a ceiling and floor for its target interest rate.

Though no decisions have been announced, the discussion has become detailed enough for Fed officials to contemplate the proper spread between the two – mentioned in the minutes as 20 basis points.  After the announcement, spot gold rose 0.8 percent to $1,329 an ounce.  U.S. gold futures for August delivery settled $7.80 higher at $1,324.30 an ounce, logging its first daily gain in four sessions.

CNBC

June 26, 2014

Australia 200 – Looking for Another Run Off Support at 5400

Australia 200 for Thursday, June 26, 2014

The Australia 200 Index is currently doing its best to rally higher and push back towards the resistance and key level at 5500.   It has been relying upon support at the 5400 level yet again after falling sharply back in the last few days.   Over the last couple of weeks the Australian 200 Index has fallen and broken back down through the key 5500 level towards a four week low around 5400 before consolidating and rallying slightly higher. These two levels have firmly established themselves as significant and any substantial break to either side will most likely be a significant move and be closely monitored. It is quite likely many are sitting on the sidelines waiting for the break before committing as they continue to watch the index move between these two levels. A few weeks at the end of May, it moved back and forth between the two key levels of 5500 and 5550 before the recent fall.

Over the last couple of months the Australia 200 Index has formed an amazing attraction to the key 5500 level as it spent a considerable amount of time trading around it. A couple of weeks ago, the index fell away heavily back down to support around 5400 before returning to the key 5500 level just as quickly, as if gravity had pulled it back. Throughout the last couple of months it has been placing ongoing pressure on the resistance level at 5500 and a few weeks ago it was finally able to move through to a three week high before easing back again to this key level. Several weeks ago it slowly but surely eased away from its multi-year high achieved near 5560 however the following week it fell reasonably sharply and started looking towards the 5400 level which is near where it currently sits. In doing so it returned to back under the key 5500 level which has provided some reasonable resistance over the last few months.

For the bulk of the last few months, the Australia 200 Index has traded roughly between 5300 and 5500 therefore its return to back under 5500 was not surprising. The index has done well over the last couple of months to move steadily higher from support around 5300 up to beyond 5500, forming higher peaks and higher troughs along the way. The support level at 5300 may also be called upon should the index fall lower and will also likely play a role in providing some buffer from any decline. Since February, most of the trading activity has occured between 5400 and 5500 therefore the former level may also be called upon to prop up prices. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

The RBA probably won’t move interest rates after its policy meeting on Tuesday, but it could fire another shot in its war of words with the Australian dollar.  In October last year, the exchange rate headed back up towards 97 US cents after dipping below 90 in both July and August.  he central bank fired a warning shot, referring to it as “uncomfortably high”.   The phrase was repeated in November and December but as the currency fell below 90 US cents again – dipping below 88 in late January – it was dropped after the RBA’s first monetary policy meeting of 2014 in February.   “If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy,” the RBA said in minutes of the February meeting.   But it wasn’t sustained, leading the RBA to step up the rhetoric.   By the policy meeting earlier this month the Aussie had been supported above 92 US cents for over two months and was looking strong.   In the minutes of that meeting, the RBA again pointed accusingly to the exchange rate, which was “high by historical standards, particularly given the further decline in commodity prices over the past month”.   And it repeated the warning that the exchange rate’s recovery from its February lows mean less of a boost to growth.

(Daily chart below)

asx_20140626

Australia 200 June 26 at 01:55 GMT   5432   H: 5435   L: 5407

Australia 200 Technical

S3 S2 S1 R1 R2 R3
5400 5300 5000 5550

During the hours of the Asian trading session on Thursday, the Australia 200 Index is rallying back higher after threatening to break through the lower support level at 5400 in the last couple of days.  For most of this year the Australia 200 Index has moved well from the lower support level at 5000 up to the multi-year highs above 5500 in the last month or so.

Further levels in both directions:

• Below: 5400, 5300 and 5000.

• Above: 5550.

Economic Releases

  • 12:30 US Core PCE Price Index (May)
  • 12:30 US Initial Claims (21/06/2014)
  • 12:30 US Personal income (May)
  • 12:30 US Personal spending (May)
  • EU European Council Meeting (to 27th)
  • UK Financial Stability Report Published

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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