Forex Blog

April 15, 2014

Gold Drops After US Economy Expected To Improve

Gold fell from a three-week high in New York on speculation that signs of an improving U.S. economy will curb demand for a haven. Palladium declined from the highest price since August 2011.

The Bloomberg Dollar Spot Index advanced for a third day before data that may show a manufacturing gauge rose for a second month and after a report yesterday showed retail sales increased more in March than economists forecast. Palladium futures slipped as much as 2.4 percent today, after climbing the previous five sessions.

Gold gained yesterday as tension in Ukraine sparked concern that more sanctions will curb raw-material supplies from Russia, the largest palladium producer. Last year, gold futures slid 13 percent in the two sessions through April 15, the biggest two-day slump in three decades and marking bullion’s entry into a bear market. The commodity has rebounded 8.5 percent this year.

The metal has been “pressured by very strong retail sales data from the U.S.,” Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., wrote in a report. “We expect the upside to be checked by weak physical demand from China and evidence that the U.S. economic recovery is gaining momentum. At the same time, we believe the downside to be protected by lingering worries that the Ukrainian situation could spiral out of hand.”

Gold for June delivery fell 1.7 percent to $1,304.80 an ounce by 7:50 a.m. on the Comex in New York. It lost as much as 1.9 percent, the biggest intraday drop since March 24, after reaching a three-week high of $1,331.40 yesterday. Futures volume was 40 percent above the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Bullion for immediate delivery declined 1.8 percent to $1,304.42 in London, according to Bloomberg generic pricing.

via Bloomberg

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April 11, 2014

UK Construction Shrinks in February Weather Blamed

Output in the construction industry fell sharply in February as extreme weather halted work on building sites, official figures have shown.

Output fell by 2.8% – £270m – compared with a month earlier, the Office for National Statistics (ONS) said.

But in the three months to the end of February, construction output grew 0.3% compared with the previous quarter.

Despite signs of improvement, the construction industry remains 13.2% below its pre recession peak.

The ONS said the heavy rain and flooding that marked the wettest winter on record had caused delays in building work.

It added that repairs of flood damage had not yet filtered through to its data.

The fall in February’s construction output was the biggest monthly decline since November 2013 and dragged the annual growth figure lower.

The ONS said construction output increased 2.8% in the year to February, compared with a 5.7% increase in January.

Output measures the amount charged by construction companies to customers for the work they do.

via BBC

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Chinese Importers Default On Soy Imports Due To Lack Of Funds

Chinese importers have defaulted on at least 500,000 tons of U.S. and Brazilian soybean cargoes worth around $300 million, the biggest in a decade, as buyers struggle to get credit amid losses in processing beans.

Three companies in the eastern province of Shandong had defaulted on payments for shipments as they were unable to open letters of credit with banks, trade sources said on Thursday.

A string of defaults on loans, bonds and shadow banking products in recent weeks has highlighted rising credit risks in China, partly fueled by signs the economy is slowing.

CNBC

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April 8, 2014

UK Manufacturing Grows 1 Percent in January

UK manufacturing output grew by 1% in February from January, the Office for National Statistics (ONS) has said.

The rise – driven by pharmaceuticals, transport equipment, food, beverages and tobacco, – was the biggest since September, and ahead of forecasts.

The year-on-year figure saw output 3.8% higher than in the same month of 2013.

Industrial output, which includes power generation and North Sea oil production as well as manufacturing, climbed 0.9% on the month.

The figure bounced back after a weak January, when bad weather hampered North Sea oil and gas output.

Compared with a year previously, industrial output was up 2.7%.

The ONS also said that in the quarter to the end of February – generally considered a better guide to recent trends – manufacturing and industrial production were both up 0.8% on the previous three months.

via BBC

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April 7, 2014

Hedge Funds Losing On Gold Bets

Hedge funds and other speculators misjudged gold prices for a second time in three weeks.

Just after the investors sold bullion holdings for a second consecutive week, a disappointing U.S. jobs report sparked the biggest rally in prices since mid-March. Their funds fared better in the five preceding weeks, correctly adjusting wagers 80 percent of the time.

Investors who were anticipating gold’s 2014 rebound would fizzle had reason to be confident at the start of last week. As U.S. equities surged to a record, bullion slid to a seven-week low on April 1 as fewer traders saw the appeal of the haven asset. Three days later, the payrolls data drove shares lower and bullion prices 1.5 percent higher to $1,303.50 an ounce, the biggest gain since March 12.

Bloomberg

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April 1, 2014

Commodities Biggest Winner In Q1 Versus All Traditional Asset Classes

A year after Citigroup Inc. declared the decade-long run of commodity gains over, wacky weather, dead piglets and Vladimir Putin have gotten in the way.

While Citigroup rang “death bells” in April 2013 for the synchronized super cycle fueled by economic growth in China, extreme weather and supply squeezes led to surprise rallies in 2014′s first three months. Coffee hit a two-year high, cattle and hogs rose to records and nickel had its best quarter since 2010. Gold rebounded from the worst rout in 32 years after Putin’s incursion into Ukraine’s Crimea region set off the biggest standoff between Russia and the U.S. since the Cold War.

Commodities are “still a powerful hedge,” Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $115 billion, said in a telephone interview. “Things happen that we don’t anticipate, whether it’s an invasion in Ukraine or twice as much snow in the middle of America as we normally get. Our clients benefit from having a little exposure to protect against the unanticipated.”

Commodities topped returns for stocks, bonds and currencies, the first quarterly outperformance against all asset classes since 2012. New York-based Citigroup and Goldman Sachs Group Inc. say the rally won’t last as supply surpluses start to emerge in everything from sugar to zinc. Investors who poured $1.55 billion into gold funds this year pulled a net $66 million from all raw materials, including base metals and energy, EPFR Global data show.

Bloomberg

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March 28, 2014

Week in FX Americas – USD Retreats After European Deflation Fears Subside

Two of the biggest drivers of USD strength were weakened this Friday. The concerns from the market regarding the Chinese economic slowdown were dispelled somewhat after the Prime Minister issued words of assurance. European deflation fears were reduced after Germany, the biggest economy in the EU, posted a slower decline.

The USD retreated across the board with commodity production nation’s currencies the biggest winners on the China news. There have been some analysts who warn market participants not to price the Chinese stimulus before more details emerge. China has been on the record as ready to step in, but they haven’t outlined how or what size the intervention could take.

German Inflation Calms Deflation Fears
German inflation was 0.9 percent, well below the ECB target, but only lost 0.01 since the 1 percent reading in February. The somewhat positive inflation reading gives the ECB some breathing room in next week’s meeting. Deflation could force the central bank to introduce new stimulus measures which will devalue the EUR. The fact that the need for those measures is not as urgent boosted the currency versus the USD.

Contracting Fed Member Statements
Not helping the dollar were various statements from Fed members that were not optimistic about rate hikes until after mid 2015. Federal Reserve chair mentioned in her post FOMC meeting last week that rates could be higher six months after the end of the QE program’s tapering. At the current pace of $10 billion a month the end could come as soon as this fall. Leaving spring of 2015 as the soonest the Fed would be ready to raise interest rates. Chicago Fed president said this week that he does not see rates going up until 3 months later.

Mexican Peso Outperforms on Unexpected Trade Surplus
Overall USD weakness helped the MXN touch a two month high after it was reported that the nation had an unexpected trade surplus in February. The forecast called for a $200 million deficit. The market reacted to a strong $976 million surplus . The Mexican peso has been a consistent performer even in the current emerging market averse environment. Fiscal and energy reforms have increased the credibility of the current government as the economy benefits from a US recovery shielding the currency from the bigger impacts. Volatility for the currency has decreased as more reforms are expected that will help the country achieve its growth targets.

  • Gold Finds Support Around $1,289
  • Oil Rises Due To Low Inventories and Ukraine Fall Out
  • US Consumer Spending and Income Rise in February
  • CAD Drops After Positive US Data is Released
  • Dovish BoC and Less Dovish Fed Bring CAD Down
  • US Fed’s Evans Doubts Rate Hike Could Happen Before Mid 2015
  • US Consumers Spending Rises in February
  • New Technologies Could Offset Russian Gas Supply Shortage
  • USD/MXN Lowest In 2 Months On Trade Surplus Surprise
  • US Treasuries Seeing Highest Direct Investors Demand On Record
  • Fed To Release Approved US Bank Shareholder Payouts
  • Fed’s Bullard Says Unemployment Rate Could Fall Below 6 Percent
  • US Durable Goods Rise in February
  • SF Fed Paper States Central Bank Will Not Have Big Losses on Higher Rates
  • Fed’s Plosser Surprised by Market Reaction to FOMC Statement
  • US House Prices Rise in January
  • Economists Survey Says US Growth Could Break 3 Percent By End of Year

WEEK AHEAD

* EUR Euro-Zone Consumer Price Index Estimate
* CAD Gross Domestic Product
* AUD Reserve Bank of Australia Rate Decision
* EUR German Unemployment
* USD ISM Manufacturing
* EUR European Central Bank Rate Decision
* USD ISM Non-Manufacturing Composite
* CAD Net Change in Employment
* CAD Unemployment Rate
* USD Change in Non-farm Payrolls

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March 19, 2014

Yellen’s First FOMC Does Away With Employment Gauge Boosts USD

The Federal Reserve statement after its Federal Open Market Committee has moved away from using the 6.5% unemployment rate gauge to start hiking rates to a more qualitative range of data. This move was highly expected by the market after former chair Bernanke had questioned the reliance on a single indicator for monetary policy. Janet Yellen was quick to remove the pressure of acting on an indicator that did not offer a complete view of employment.

The unemployment rate takes into account all the people who are still looking for jobs, so if they stop looking they are taken out of the equation. This has the potential to show a stronger employment recovery in theory that what is actually happening in the streets.

To avoid triggering a rate hike that could cut short the slow economic recovery the Fed has pledged low interest rates for longer. The tapering will continue at the $10 billion dollar pace set by her predecessor Bernanke. The size of the stimulus now stands at $55 billion of assets and bond purchases.

The USD was boosted across the board versus major pairs. It broke the 1.39 barrier as Yellen’s actions were expected but her rhetoric pointed to a possible rate hike next fall.

The USD/JPY moved above the 101 level after the Fed chair started her first press conference. Yellen said that the weather was a factor impairing growth, but it’s not the only factor. The strong USD is postiive news for the Bank of Japan that has been pressured to increase its stimulus program if the currency remained at the 101 level. Prime Minister Abe’s plant to increase inflation by employing a 3 point strategy relies heavily on the Bank of Japan.

The USD/CAD went above 1.1250 after the FOMC release and chair Yellen’s comments to the press. A new Finance Minister was appointed earlier today. Joe Oliver replaces Jim Flaherty after the later stepped down from public service. Oliver’s first approach with the press will not receive much impact as it was sharing airtime with Janet Yellen’s first press event as chair of the Fed. Oliver said that he wants a Canadian balanced budget by 2015 and toed the conservative party line.

The Pound went below 1.65 on the FOMC’s statement. This week has been heavy with central bank activity. The minutes in Australia kickstarted a week where the FOMC is so far the biggest mover. The Bank of England shook things up internally. Appointing two new deputies in a move designed to distance the Old Lady from the sins of the past. It is no surprise that PMC Fisher was the biggest loser as he oversaw some of the people involved in the FX probe.

A positive day for the Federal Reserve on Janet Yellen’s first FOMC was not without controversy. The Federal Reserve Bank of Minneapolis Narayana Kocherlakota voted against the change in forward guidance. He says that the new guidance fosters uncertainty. Part of the hawkish minority Kocherlakota will continue to dissent on monetary policy as Yellen extends a more dovish messaging.

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March 14, 2014

Oil Rises As OPEC Increases Supply

West Texas Intermediate crude rose for a second day as the International Energy Agency boosted its demand forecast and on concern that tension in Ukraine will disrupt world energy supplies. Brent climbed above $108.

WTI trimmed the biggest weekly decline in two months. The IEA increased its forecast for 2014 global consumption by 95,000 barrels a day, citing economic growth. The U.S. and the European Union are threatening sanctions against Russia if it doesn’t back down from annexing Crimea, which is holding a referendum this weekend on whether to join Russia.

“The IEA report certainly helps the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It makes people more comfortable about demand. People are worried about the situation in Crimea.”

WTI for April delivery gained 30 cents, or 0.3 percent, to $98.50 a barrel at 12:10 p.m. on the New York Mercantile Exchange. The volume of all futures traded was about 3.8 percent below the 100-day average. Prices are down 4 percent this week.

via Bloomberg

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March 13, 2014

U.S. Foreclosure Filings Continue to Fall

The number of U.S. properties with foreclosure filings fell 27% in February from a year earlier to a more than seven-year low, according to market researcher RealtyTrac.

There were 112,498 U.S. properties with default notices, scheduled auctions and bank repossessions in February, a 10% decrease from the prior month, RealtyTrac reported Thursday.

“Cold weather and a short month certainly contributed to a seasonal drop in foreclosure activity in February, but the reality is that new activity is no longer the biggest threat to the housing market when it comes to foreclosures,” said Daren Blomquist, RealtyTrac vice president.

WSJ

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