Forex Blog

November 1, 2010

‘Shock and Awe to Shucks and Oh’ in two days

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , — admin @ 10:04 am

The market will talk this up as being the biggest week ever for all asset classes. Copious CBank meetings, mid-term elections and extremely influential data will provide the ingredients for volatility. The jewel in the crown will be the two day FOMC meeting, where the market expects helicopter Ben to announce further QE spending. The problem is that no one knows how much, and Ben, himself, was looking for some ideas last week when he supposedly sent out a survey to FI dealers seeking their opinions. Watching the price action in both FX and FI, one gets the feeling that the market is happily pricing in a large repurchasing program. Do not be surprised to see some of that bullish theory being pared back today.

The US$ is mixed in the O/N trading session. Currently it is higher against 9 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

On Friday, the US economy advanced at an annual pace of +2.0%, q/q, and came in bang on expectations. It marks the fifth consecutive quarter of expansion. However, some of the underlying details emphasize softer growth, like the larger inventory contribution, which analysts believe could provide downside risks for 4th Q GDP. The data in no shape or form should influence policy makers over the next couple of days. To them, they will be focusing mostly on fiscal policy uncertainty. Digging deeper, the mix of growth was weaker, with final domestic demand posting growth of +2.5%, down from +4.3% in the previous quarter. The biggest decliners were net exports (-2.0%) and residential fixed investment (-0.8%). Exports contributed +0.6% to overall growth, while imports took that and more away. It was mostly inventories that dominated the headline, adding +1.44% to the print and remains notably blow the +2.6 to +2.8% growth levels that we witnessed in the early phase of the US recovery. Finally, prices continued to move up, but registered their second straight quarter of decelerating growth (+0.8%). Bring on QE2.

The USD$ is lower against the EUR +0.30%, GBP +0.01% and higher against CHF -0.28% and JPY -0.05%. On Friday, the Canadian growth rate for Aug. came in as expected (+0.3%), with all the subcategories again putting in a solid performance for the month. Analysts note that the release will in no way influence Governor Carney at the BOC. Policy makers remain focused on the downside risks of the US economy. The Canadian economy continues to be shackled to its largest trading partner, the US, and the very reason why the BOC have prudently stepped to the sidelines. The loonie has been caught in a dollar debasing jet-stream for most of last week. Over the past month, the CAD has been one of the worst performers vs. the buck, despite all the negativity surrounding the greenback. Last week Governor Carney stood down on hiking rates as expected, citing a softer outlook for the Canadian economy. Futures prices have priced in a ‘no-hike’ for the next six-months despite policy makers continuing to see the risk to the inflation outlook as being balanced. The BOC said that the ‘more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending’. They did not go all out neutral on future rate hikes, but noted that certain factors stand in the way.

The AUD has held investor support for a third consecutive day on speculation that the region will maintain its interest-rate premium as the US and Japan debate further monetary-easing measures this week. Inflation data down-under last week disappointed hawkish speculators. Australian CPI rose +2.8% in the third quarter from a year earlier, after increasing at a +3.1% pace in the previous three month. The market was expecting a rate of around +2.9%. Futures traders have pared their bets from a +47% chance that the RBA would hike to a +16% chance this evening. It’s now expected that any rate increase ‘will be only gradual’. With such a benign rate outlook, the market was betting that the currency would ‘struggle in extending its gains far above parity’ in the medium term. However, the currency has gotten a boost from the price of commodities and the weaker dollar of late. With these variables remaining intact the market can expect another attempt at parity (0.9900).

Crude is higher in the O/N session ($81.95 +52c). Crude prices fell on Friday after a weaker than expected US consumer sentiment print, the ending of a French Port oil strike and the reluctance of the markets to make any major moves ahead of the FOMC meeting. Even with supplies growing, it’s the dollars direction that dominates the black-stuffs prices. Last week’s EIA report again blindsided the market to a certain extent, although the direction was not surprising the volume headline print was. The release was greater than five times analyst’s expectations. Crude climbed +5.01m barrels to +366.2m last week, the biggest increase in four-months. The market had only priced in a +1m barrel gain. Offsetting the reported surplus was the plunge in gas stocks, falling -4.39m barrels to +214.9m. Analysts were estimating an increase of +625k barrels. The net effect was a zero-sum report. Crude analysts note ‘this is currently a shoulder season for product demand ahead of the winter heating season’. Technically, we should see inventories gravitate towards their highs. The market remains wary that the underlying fundamentals have not changed. The ‘big’ dollars value continues to push prices about.

Gold again rallied, recording its third straight monthly gain, on speculation that Ben and his fellow policy makers will increase their debt purchase numbers, weakening the ‘mighty buck’ and boosting the commodity’s appeal as an alternative investment. Gold, month-to-date was up +3.1%, while the dollar index recorded a loss of -1.9%. There are two trains of thought dominating the market at the moment, some argue that a measured move this week may have a muted affect on the dollar, while others suggest that further easing would weaken the dollar irrespective of the size as investors chase higher yielding assets in other countries. The dollars negative correlation relationship remains intact with commodity prices. For most of this year investors have sought an alternative investment strategy to the historical reserve currency. Investors have been using the commodity as a proxy for a ‘third reservable currency’, pushing the metal to record new record highs. To date, gold has outperformed global equities and treasuries (+22.7%), prompting record investment in gold-backed exchange-traded products. The debasing issues of the dollar, coupled with the sustainable growth issues of the US economy have investors generally seeking protection in an asset with a ‘store of value’. Everyone is now focused on the FOMC meeting ($1,362 +$5.10).

The Nikkei closed at 9,154 down -48. The DAX index in Europe was at 6,665 up +64; the FTSE (UK) currently is 5,719 +45. The early call for the open of key US indices is higher. The US 10-eased 2bp on Friday (2.60%) and is little changed in the O/N session. Longer maturities were better bid after the Fed’s preferred inflation measure, core-GDP price gauge, increased less than forecasted (+0.8%) and adds to speculation that helicopter Ben will boost purchases of longer-term assets. Fundamentally, the US continues to experience softer-than-expected inflation data, and it’s this data that will trigger whether or not the Fed does QE. So, it’s back to speculating on the buy back numbers again.

October 21, 2010

EUR held hostage by dollar

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 9:46 am

We have witnessed a zero-sum game after five sessions of extreme volatility for the EUR. In effect it’s been a seven-cent swing for the currency since last Fridays high recorded after helicopter Ben’s remarks. Chancellor Merkel’s comment that the EUR is ‘shielded by rescue packages’ and the fact that she is bullish on German growth negated all the PBOC tightening monetary policy effect on Tuesday. That was surely a pre-G20 placation move on their part. The maddening currency swings have been driven by the lack of detail on the QE2 front. A Medley report yesterday seems to have appeased the market somewhat. It’s anticipated that the FOMC is ‘converging upon a decision to buy Treasuries of about $500b over the next three-to-six months with an open-ended commitment to buy more assets over the following year, depending on economic developments’. The dollar is expected to be subjected to further market pressures until after the FOMC meeting and the mid-term elections.

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

Forex heatmap

The market held its gains after waiting most of the day yesterday for the muted Beige book release. The Fed’s economic survey brought nothing new to the table, again stating that economic growth continues to be modest with a weak housing market and tame inflation. The surprising nugget was that the districts believe that consumers are ‘slowly regaining confidence’. Across all districts it’s more of the same. Consensus has us believing that there is nothing in the report to dissuade the Fed from their expected course of action. Earlier this month helicopter Ben stated that there was a case for additional stimulus because ‘inflation is too low and unemployment is too high’. Since his remark the market has been pricing in aggressive QE2 somewhat on the lines of the yesterday’s Medley report highlighted above.

The USD$ is lower against the EUR +0.41% and JPY +0.05% and higher against GBP -0.36% and CHF -0.09%. The commodity currencies are mixed this morning, CAD +0.15% and AUD -0.05%. Yesterday, Canadian wholesale trade shot by all market expectations. The headline (nominal) wholesale print climbed +1.2%, m/m, the biggest gain in nine-months. In volume terms, wholesale trade was up +0.9%. Digging deeper, all the sub-sectors, with exception for food, drink and tobacco, managed to report gains. It’s worth noting that the machinery and equipment segment was the key contributor to growth (+3.2%). This data took a back seat to the MPR report, which reiterated what the BOC told us earlier in the week regarding a softer outlook. However, the one bright spot may be the fact that while Carney downgraded the inflation projections, policy makers still see the risk to the inflation outlook as being balanced. On Tuesday the BOC kept rates on hold (+1%). Policy makers downgraded growth (+3% vs. +3.5%, 2010) and the inflation outlook (CPI and core inflation are now expected to converge to 2% at the end of 2012). There are a number of ‘factors’ in the way for another rate hike at present. The BOC said that the ‘more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending’. They did not go all out neutral on future rate hikes, but noted that certain factors stand in the way. A broadly softer dollar on QE2 pressures will prevent the loonie from losing too much ground, until at least after the FOMC meeting in Nov.

The AUD had a bumpy ride in the O/N session, finding it difficult to maintain traction, as reports out of China pressurized regional bourses and by default curb the demand for growth currencies. Reports show that China’s rate of GDP growth coupled with record inflation acceleration justifies a tighter monetary policy from the PBOC. The AUD fell against the greenback and the yen as Asian shares declined. This weeks RBA minutes showed that policy maker’s decision to keep interest rates unchanged this month had been ‘finely balanced’. On the other hand they did indicate that rates would have to ‘rise at some point’. From a fundamental perspective the minutes reinforced the argument that there could be another hike coming in Nov. or Dec. given that the RBA seems very comfortable with where the currency is currently. Month-to-date, the AUD has climbed +5.9% vs. the buck as data fueled bets that the RBA will raise interest rates before the year ends. Investors are better buyers on deeper pullbacks as the interest rate differential continues to be of appeal for alternative investments (0.9867).

Crude is lower in the O/N session ($82.20 -34c). Crude prices climbed as the dollar tumbled across the board yesterday, erasing most of the previous day’s losses, and on the weekly inventory report showing a smaller than forecasted gain in stockpiles. The EIA report rose +667k barrels last week, less than half what was expected. That being said, the market continues to focus on the dollar’s weakness and its inverse relationship with commodity prices. Investors anticipate the currency to struggle until after the FOMC meeting and the mid-term elections in Nov. Total crude stockpiles were expected to increase by +1.5m barrels. The market is also focusing on the drawdown at Cushing (the delivery point for New York futures). Supplies dropped -1.1m barrels to +34m, the biggest one-week drop in nine-months. Gas stockpiles rose by +1.2m barrels to +219.3m vs. a -1.3m drop. In contrast, distillate stocks (heating oil and diesel) fell by -2.2m to +170.1m barrels. Analysts had expected only a -600k barrel shortfall. The refining capacity utilization rose by +0.6% to +82.5%. Analysts expected a 0.1-percentage point increase. Despite all this, inventories for crude and refined products remain at unusually high levels. Crude analysts note ‘this is currently a shoulder season for product demand ahead of the winter heating season’. Technically, we should see inventories gravitate towards their highs. The market remains wary that the underlying fundamentals have not changed. It’s the dollars value that is pushing prices about.

What a difference a day makes. Gold rebounded from its biggest loss in three months as the dollar tumbled on QE2 rumors yesterday. Investors continue to seek an alternative investment strategy to the historical reserve currency. Interest rates play an important role to the commodities advance. Rising interest rates pressurize gold prices, just look at the markets reaction earlier in the week to China tightening their monetary policy. Year-to-date it has been a commodity in demand for alternative investment purposes. Last week, the market traded with a distrust of currencies and gold seemed to be the only solution as investors used it as a proxy for a ‘third reservable currency’, pushing the metal to record new record highs. With market confidence wavering in currency prices, and with cheap money, has made commodities look attractive on pull backs. To date, gold has outperformed global equities and treasuries (+22.3%), prompting record investment in gold-backed exchange-traded products. The debasing issues of the dollar, coupled with the sustainable growth issues of the US economy have had investors generally seeking protection in an asset with a ‘store of value’. With the Fed on the verge of implementing further QE programs ‘tend to be supportive of asset prices and is fueling concerns about the potential longer-term inflationary affect of such measures’. The opportunity costs of holding gold are low due to low interest rates ($1,345 +$1.50c).

The Nikkei closed at 9,376 down -5. The DAX index in Europe was at 6,547 up +23; the FTSE (UK) currently is 5,754 +25. The early call for the open of key US indices is higher. The US 10-year eased 1bp yesterday (2.48%) and is little changed in the O/N session. Longer dated securities prices remain close to home as several Fed officials express the need for more policy easing. They have also indicated that it’s going to take ‘quite something to derail a second round of QE’. The open ended question remains what form will QE2 take? It’s the unknown that is keeping yields within a tight range. They market is trying to anticipate how much the Fed will buy or even whether they will give an explicit target. Never ending rumors continue to provide support on pull backs.

October 12, 2010

EUR’s 11% gain really too much?

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 10:23 am

Since last Friday’s NFP release the market has had quite a bit to chew on. Over the weekend global leaders have failed to narrow their differences on currency values and have turned to the IMF ‘to calm frictions that are already sparking protectionism’. Historically, this is an institution that generally relies on powers of persuasion. Is this the method that Capital Markets can expect to rely on? It’s a fact that countries favor cheaper currencies to aid growth, just do not be so overt about it. Realistically, the negative dollar trade has become overcrowded and profit taking is inevitable. Perhaps QE2 fears for the buck are slightly overdone? Technical analysts will tell us that we should be expecting a dollar extension to a 1.36 handle. Perhaps this afternoons FOMC minutes will give us a surprise or two.

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a ‘volatile’ trading range.

Forex heatmap

Last week it was jobs, this week we get to witness key readings on inflation and retail spending down south. Market anticipates benign inflation to be confirmed again as softer price pressures are in no danger of rising any time soon. With CPI this Friday, market consensus is looking for a +0.2% print, while core (ex-food and energy) is seen at +0.1% after the flat reading the previous month. The Fed is scheduled to release this afternoon its Sept. 21st minutes. Back then it announced it was willing to do more to sustain the US economic recovery.

The USD$ is higher against the EUR -0.62%, GBP -0.33%, CHF -0.73% and lower against JPY +0.06%. The commodity currencies are weaker, CAD -0.35% and AUD -0.63%. The loonie has been under pressure since the headline release of its employment report on Friday (-6.6k vs. +10.2k). According to analysts, the details are more encouraging than the ‘headline drop’. Digging deeper, full-time jobs rose by +37.1k, while the destruction of -43.7k part-time jobs managed to keep the headline in the red. Optimists will tell you the conversion of part-time to full-time jobs is a mild positive, as it expands hours worked, and they tend to be better paying and more stable. In the big picture, the slowdown of the Canadian economy has surprised policy makers of late. Now that the labor market seems to be taking a pause, futures prices are looking for the same in the rate policy decision from the BOC next week. The demise of the greenback had the CAD threatening parity earlier last week as commodity prices provided a bullish backdrop for the currency. That being said, interest rate differentials is not the primary reason for wanting to own the currency. The ongoing threat of QE2 continues to gives all major currencies a leg up on the ‘historical reserve currency’. It seems that reason may be beginning to wear thin as the dollar strengthens against all its major trading partners.

The AUD fell for a second day amid speculation the currency’s advance last week to a record was overdone. A stronger employment report down under earlier this month happened to push the currency to new heights vs. the greenback. Australia’s employers added +49.5k workers and the unemployment rate held at +5.1% in Sept. Month-to-date, the AUD has climbed +8% vs. the buck as data fueled bets that the RBA will raise interest rates before the year ends. Futures traders now see a 42% chance that the RBA will increase its target rate next month, down from 66% last week. The dollar and commodity prices continue to pressurize growth currencies short term. Investors are better buyers on deeper pullbacks as the interest rate differential continues to be of appeal for alternative investments (0.9783).

Crude is lower in the O/N session ($81.05 -$1.16c). Oil prices continue to slide this morning, snapping a three-week record printing price rally, as the dollar strengths vs. the EUR, and curbing the appeal of commodities as an alternative investment ahead of OPEC meeting this week in Vienna. This move had nothing to do with inventories or demand. It is a plain vanilla dollar move. Last week’s inventory report was mixed, a little bearish for oil and bullish for the products, that said, the focus remains on pending QE strategies been implemented by different governments. Crude supplies climbed +3.09m barrels to +360.9m, leaving stockpiles +13% higher than the five-year average. Analysts had expected weekly inventories to rise by +413k barrels. In contrast, gas stockpiles fell -2.65m barrels to +219.9m. Supplies of distillate fuel (heating oil and diesel) slipped -1.12m barrels to +172.5m. Refiners reduced their operating rates by -2.7% to 83.1%. In fact, the drop in refinery runs has probably caused the drop in fuel supplies. Also of note was the drop in fuel consumption, falling -6.4% to +18.5m barrels a day (the biggest weekly decline in nearly seven years). Gas demand also fell -4.2% to +8.99m barrels a day. Until the report, higher inventory supplies had been the biggest inhibitor for a market advance over the past quarter. The market remains wary that the underlying fundamentals have not changed, but the dollar value continues to dictate the direction of commodity prices.

Despite everything, Gold is a commodity in demand close to record highs. The long holiday weekend has be unable to deter investors as the one directional trade has been in demand on fear that the ‘buck’ will remain under pressure in the short term. With market confidence wavering in currency prices, and with free money, it’s making commodities attractive on ‘deeper’ pull backs. Aiding the trade has been the collapse of the dollar vs. its major trading partners. Any time that governments are in the business of printing money then the commodity is bound to do well. Technically, the weakness of the dollar may have been overdone in the short term. The market is currently experiencing a pull back in prices, a dollar rally and paring of bear ‘positions’. To date, gold has outperformed global equities and treasuries (+24%), prompting record investment in gold-backed exchange-traded products. A concern about the strength of the dollar coupled with the sustainable growth issues of the US economy has had investors seeking protection in an asset with a ‘store of value’. With the Fed on the verge of implementing further QE programs ‘tend to be supportive of asset prices and is fueling concerns about the potential longer-term inflationary affect of such measures’. The opportunity costs of holding gold are low due to falling interest rates, by default, the market should expect better buying of the metal again ($1,343 -$10).

The Nikkei closed at 9,388 down -200. The DAX index in Europe was at 6,240 down -70; the FTSE (UK) currently is 5,602 -70. The early call for the open of key US indices is lower. The US 10-year eased 3bp since Friday (2.36%) and is little changed in the O/N session. The market has priced in aggressive ‘future’ buying by the Fed over the last few weeks and last Friday’s employment numbers may have put anticipated buying over the top as record yields continue to be printed. QE2 fundamentally will keep yields low, that being said the market may have dragged bond prices too high as the FOMC announcement could disappoint the FI market that has priced in aggressive new treasury purchases. After the long weekend let’s see what dealers make of the G20 spat.

October 8, 2010

Currency wars on hiatus as Jobs take center stage

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:07 am

What is the market focusing on in today’s NFP report? Is it the headline print? The private sector payroll number? Perhaps it’s the unemployment rate? Capital Markets is looking for a below consensus gain of +25k private sector payroll jobs, an increase in the unemployment rate to +9.7% with a flat headline print. This week’s softer ADP print certainly supports this forecast. It seems that the 10% unemployment rate is only a matter of time. It’s not just the employment report we have to deal with, the IMF, World Bank and G7 finance ministers meetings this weekend is expected to keep trading within a tighter range today. Next week the blame game can start for the currency war.

The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies in a ‘subdued ’ trading range ahead of the jobs report.

Forex heatmap

Unlike the disappointing private ADP report, US weekly jobless claims unexpectedly retreated yesterday (+445k vs. +455k), keeping intact the month long downward trend of initial jobless claims. By day’s end the report does not provide a material change to the job situation, however it provides optimism for better things. The headline was the strongest print attained in three months. Digging deeper, continuing claims fell by-48k to +4.462m. That is the lowest level reached in four months and the fourth consecutive retreating week. On the flip side, the number receiving extended (+1.01m) and emergency benefits (+4.1m) increased +99k and +157k respectively and happened to reverse some of the previous week’s declines. It’s worth noting that these are the biggest weekly gains in three months.

The USD$ is higher against the EUR -0.15%, GBP -0.15%, CHF -0.13% and lower vs. the JPY +0.08%. The commodity currencies are mixed, CAD +0.06% and AUD -0.69%. The loonie took it squarely between the eyes yesterday ahead of its own employment report this morning. By default the currency had been steadily appreciating vs. the dollar, but certainly not at the same pace as the other major currency pairs. Yesterday’s data did not help the currency’s cause in any shape or form. Canadian building permits plunged -9.2% in Aug., five times more than analysts expected and the most in ten months. The demise of the greenback had the CAD threatening parity earlier this week as the general economic strength of Canada coupled with the commodities that she possesses provided a bullish backdrop for the currency. Analysts believe there is a risk towards a stronger employment report this morning, which would provide further support for the market to own the CAD on USD rallies. For most of last month the market had begun questioning the ‘true’ strength of the Canadian Economy after the last few data releases came in much softer than expected. As of this week analysts are predicting slower inflation and a ‘more gradual pace of BOC lending rate increases than they did a month ago’. That been said, interest rate differentials is not the primary reason for wanting to own the currency. The ongoing threat of QE2 continues to gives all major currencies a leg up on the ‘historical reserve currency’. So eyes down and let see what happens on the job front.

The AUD is another growth interest sensitive currency threatening to print parity vs. the dollar. The Aussie is heading for its eight weekly gain, the longest winning streak in sixteen months. A stronger employment report down under managed to push the currency to new heights vs. the greenback earlier this week. Australia’s employers added +49.5k workers, and holding the unemployment rate steady at +5.1% in Sept. Month-to-date, the AUD has climbed +8% vs. the buck as the data fueled bets that the RBA will raise interest rates before the year ends. The currency has gained ground against all of its major trading partners as the ‘vix index’ of volatility softened, boosting investor appetite for assets tied to growth. ‘Clearly what happens in the Australian economy is now more dependent upon what happens in China’. Investors are better buyers on deeper pullbacks as the interest rate differential continues to be of appeal for alternative investments (0.9764).

Crude is a lower in the O/N session ($80.98 -69c). Oil slipped from its five-month high yesterday as the dollar gained some traction ahead of North American employment data. A greenback strengthening reduces the appeal of commodities as an alternative investment. Yesterday’s move had nothing to do with inventories or demand. It was a plain vanilla dollar move. This week’s inventory report was mixed, a little bearish for oil and bullish for the products, that said, the focus remains on pending QE strategies been implemented by different governments. Crude supplies climbed +3.09m barrels to +360.9m, leaving stockpiles +13% higher than the five-year average. Analysts had expected weekly inventories to rise by +413k barrels. In contrast, gas stockpiles fell -2.65m barrels to +219.9m. Supplies of distillate fuel (heating oil and diesel) slipped -1.12m barrels to +172.5m. Refiners reduced their operating rates by -2.7% to 83.1%. In fact, the drop in refinery runs has probably caused the drop in fuel supplies. Also of note was the drop in fuel consumption, falling -6.4% to +18.5m barrels a day (the biggest weekly decline in nearly seven years). Gas demand also fell -4.2% to +8.99m barrels a day. Until the report, higher inventory supplies had been the biggest inhibitor for a market advance over the past quarter. The market remains wary that the underlying fundamentals have not changed, but the dollar value continues to dictate the direction of commodity prices.

Despite everything, Gold is a commodity in demand even at record highs. That being said, the weight of the over crowded, one directional trade was due for a correction and yesterday was prime time ahead of this morning’s employment report. From a technical perspective, there was no support for gold at the record high prices. With market confidence wavering in currency prices and with free money it’s making the commodity very attractive on deeper pull backs. Aiding the trade has been the collapse of the dollar vs. its major trading partners. Any time that governments are in the business of printing money then the commodity is bound to do well. Gold has outperformed global equities and treasuries, prompting record investment in gold-backed exchange-traded products. Year-to-date, the yellow metal has managed to climb +22%. A concern about the strength of the dollar coupled with the sustainable growth issues of the US economy has investors seeking protection in an asset with a ‘store of value’. With the Fed on the verge of implementing further QE programs ‘tend to be supportive of asset prices and is fueling concerns about the potential longer-term inflationary affect of such measures’. The opportunity costs of holding gold are low due to falling interest rates, by default, the market should expect better buying of the metal on pull backs ($1,333 -$1.20c).

The Nikkei closed at 9,588 down -95. The DAX index in Europe was at 6,265 down -13; the FTSE (UK) currently is 5,643 -18. The early call for the open of key US indices is lower. The US 10-year eased 3bp yesterday (2.37%) and is little changed in the O/N session. Longer-term debt is the winner on the US curve, leading advances, as traders speculate that the Fed will increase their purchases of debt. Bernanke said earlier this week that the ‘first so-called quantitative-easing round has improved the economy and more purchases would ease financial conditions’. QE2 fundamentally will keep yields low. Yesterday’s weekly claims report provided little change to the curve. Let’s see what NFP brings us this morning.

October 7, 2010

Jobs play second fiddle to devaluation race

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , , , , — admin @ 10:25 am

There is a currency devaluation race whether we like it or not. The blame game has been rather muted up until now. That may change after the G7 finance ministers meeting tomorrow. The measures being taken to weaken currencies are distorting markets and trade and weighing on dealers nerves. The lead to devalue currencies and loosen monetary policy is been driven by export-led growth countries. That been said, the appreciating currencies cannot be happy either. How are they to partake in a currency devaluation race for the sake of national interest? Buy dollars and be accused of currency manipulation? Blame China more loudly? Do what Ben does, talk about implementing QE before it goes out of style. The ECB and BOE communiqué today should be rather interesting. No-one wants to be left behind. They have political agendas to follow after all.

The US$ is weaker in the O/N trading session. Currently it is lower against 15 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Is it a sign of things to come? Yesterday’s ADP report disappointed us with further job losses (-39k vs. +10k) and this despite a mild revision in Aug., where a -10k drop was revised to a +10k gain. The report has managed to reverse a trend that had been in place for the past seven months. After posting monthly gains north of +60k in Apr. and May, ADP has since been loosing steam. Obviously the bigger question is whether the trend has stamina. If so, expect it to start filtering into other reports. The negativity surrounding the report calls into question the strength of tomorrow’s private sector job growth in the NFP report. In reality, the ADP being used as a ‘yardstick’ for NFP remains weak, with an absolute error of +/-100k. Digging deeper, all the weakness in the private sector payroll employment was in the goods-producing sector (-45k), while the services sector added only +6k.Within the goods-producing sector, construction employment declined by -28k and the manufacturing employment fell by-17k (third successive monthly decline). Analysts note that at the composite level small and medium sized companies lost jobs (-14k). Larger corporations fared a tad better and shed-11k positions. On the services side, medium businesses lost-2k individuals, while small and larger entities added +6k and +2k positions.

The USD$ is lower against the EUR +0.25%, GBP +0.19%, CHF +0.29% and JPY +0.61%. The commodity currencies are stronger, CAD +0.05% and AUD +1.16%. Interest differential continue to support growth currencies like the loonie. The currency managed to print a new five month high yesterday vs. its largest trading partner amid speculation that other Cbanks will rely on QE while the BOC remains on hold. The demise of the dollar has the CAD threatening parity and beyond in the medium term. The general economic strength of Canada coupled with the commodities that she possesses provides a bullish backdrop for the currency. On a relative basis the currency has not appreciated as quickly as some of the other majors vs. the dollar ahead of this Friday’s North American employment reports. The currency has rallied just under +6% since its recent lows registered in the middle of Aug. With the markets in ‘risk-seeking mode’, oil straddling $83 and gold registering new record highs daily has put upward pressure on the loonie again. The economic highlight for the remainder of this week will be the jobs report on Friday. Analysts believe the risk is towards a stronger report, which would provide further support for the market to own the CAD on USD rallies. For most of last month the market had begun questioning the ‘true’ strength of the Canadian Economy after the last few data releases came in much softer than expected. As of this week analysts are predicting slower inflation and a ‘more gradual pace of BOC lending rate increases than they did a month ago’. That been said, interest rate differentials is not the primary reason for wanting to own the currency. The ongoing threat of QE2 continues to gives all major currencies a leg up on the ‘historical reserve currency’.

The AUD is another growth, interest sensitive currency on fire like the loonie vs. the dollar. There seems to be a race to parity for these commodity driven currencies. Last night on the back of a stronger employment report down under pushed the AUD to new heights vs. the greenback. Australia’s employers added +49.5k workers and the unemployment rate held at +5.1% in Sept. Month-to-date, the AUD has climbed +8% vs. the buck as data fueled bets that the RBA will raise interest rates before the year ends.
The currency has gained ground against all of its major trading partners as the ‘vix index’ of volatility softened, boosting investor appetite for assets tied to growth. ‘Clearly what happens in the Australian economy is now more dependent upon what happens in China’. Investors are better buyers on deeper pullbacks as the interest rate differential continues to be of appeal for alternative investments (0.9883).

Crude is a tad higher in the O/N session ($83.59 +36c). Oil has printed a five-month high this morning on speculation that steps by Cbanks to promote economic growth will boost the demand for the black-stuff. Also aiding prices is the dollar weakening across the board and boosting the appeal of commodities to investors. The weekly inventory report was mixed, a little bearish for oil and bullish for the products, that said, the focus remains on pending QE strategies been implemented by different governments. Crude supplies climbed +3.09m barrels to +360.9m, leaving stockpiles +13% higher than the five-year average. Analysts had expected weekly inventories to rise by +413k barrels. In contrast, gas stockpiles fell -2.65m barrels to +219.9m. Supplies of distillate fuel (heating oil and diesel) slipped -1.12m barrels to +172.5m. Refiners reduced their operating rates by -2.7% to 83.1%. In fact, the drop in refinery runs has probably caused the drop in fuel supplies. Also of note was the drop in fuel consumption, falling -6.4% to +18.5m barrels a day (the biggest weekly decline in nearly seven years). Gas demand also fell -4.2% to +8.99m barrels a day. Until the report, higher inventory supplies had been the biggest inhibitor for a market advance over the past quarter. The market remains wary that the underlying fundamentals have not changed, but the dollar value continues to support the commodity.

Despite everything, Gold is a commodity in demand even at record highs. Again this morning the yellow metal has recorded a 13th consecutive high on bets that government spending to boost economies will erode the appeal of currencies and increase the demand for metals as alternative asset. Wealthy private investors are even buying it by the ton. There is no confidence in currency prices and with free money it’s making the commodity very attractive. Aiding the crowded, one directional trade, has been the collapse of the dollar vs. its major trading partners. Any time that governments are in the business of printing money then the commodity is bound to do well. Gold has outperformed global equities and treasuries, prompting record investment in gold-backed exchange-traded products. Year-to-date, the yellow metal has managed to climb +22%. A concern about the strength of the dollar coupled with the sustainable growth issues of the US economy has investors seeking protection in an asset with a ‘store of value’. With the Fed on the verge of implementing further QE programs ‘tend to be supportive of asset prices and is fueling concerns about the potential longer-term inflationary affect of such measures’. The opportunity costs of holding gold are low due to falling interest rates, by default, the market should expect better buying of the metal on pull backs ($1,361 +$14).

The Nikkei closed at 9,684 down -6. The DAX index in Europe was at 6,281 down -8; the FTSE (UK) currently is 5,674 -7. The early call for the open of key US indices is lower. The US 10-year eased 7bp yesterday (2.39%) and is little changed in the O/N session. Longer-term debt is the winner on the US curve, leading advances, as traders speculate that the Fed will increase their purchases of debt. Bernanke said earlier this week that the ‘first so-called quantitative-easing round has improved the economy and more purchases would ease financial conditions’. QE2 fundamentally will keep yields low. Yesterday’s weak ADP employment report only added fuel to the fire, increasing speculation that the Fed will be buying more bonds than initially believed. The disappointing report is undermining confidence in the US’s economic recovery. The US yield curve has aggressively and stands at +198bp, remaining better bid on pull backs.

June 30, 2010

European Banks Borrow Less Than Expected

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 1:35 pm

The European Central Bank said today that it is making up to 131.9 billion euros ($161.5 billion) in loans available to European banks for the next three months. This is considerably less than expected and suggests that banks are in better financial shape than thought originally.

Banks tomorrow need to repay 442 billion euros in 12-month funds, the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis last year. Demand for the three-month cash today was a litmus test for the health of Europe’s banking system, economists said.

Demand was “surprisingly low and certainly a lot less than markets expected,” said Nick Kounis, chief European economist at Fortis Bank NV in Amsterdam. “It suggests that while there are certainly stresses in the system in some regions, it’s not as bad across the board as many people thought.”

Source: Bloomberg

June 22, 2010

Yen Gains as Fear Grow for European Banks

Filed under: OANDA News — Tags: , , , , , , , — admin @ 1:07 pm

The yen had its biggest single-day gain in over two weeks Monday, as investors fretted over the possibility that European banks could face a credit crunch and will struggle to raise funds. Japan’s currency advanced 0.9 percent to 111.22 per euro at 7:05 a.m. in New York, the biggest daily gain since June 7 based on closing prices. The yen was at 90.68 per dollar from 91.11 yesterday.

Source: Bloomberg News

December 31, 2009

Greece and other Economies Still Worry Eurozone

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 9:03 am

The countries that were some time ago, success stories of the Euro zone integration are now one of the biggest worries to the founding members as the economies of Portural, Ireland, Greece, Spain and Italy are facing serious challenges and are not able to keep up with France and Germany.

Day by day, fears are growing that Greece or another weak country may default on its sovereign debt obligations, forcing the richer countries in Europe to ride to the rescue or risk having one or more of its most vulnerable members leave the 16-nation euro zone.

Many European economists discount such a fracture as a remote possibility. But that doesn’t mean Europe has safely emerged from crisis.

CNBC

December 30, 2009

In December the dollar’s King

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 3:56 am

Currently there is little to write about as we approach the final two days in 2009. Traders and investors are happy to keep their powder dry until the ‘turn’. Last year on this day I penned this:

2008 is the Year never to be forgotten. It’s the year that brought global financial markets almost to its knees, the year that punished greed, leverage and irresponsible risk. A year that has managed to make some oligarchs much poorer and perhaps made us sit up and think about future society values a wee bit more. Brace yourselves for a historic 2009.

Again all we have to do is change the dates!

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a ‘subdued, yet illiquid’ trading range.

Forex heatmap

Finally, yesterday we got some US data to chew on. US Home Prices rose in Oct. for a fifth consecutive month, again adding support to the idea that at long last the housing market and economy are moving along the ‘path to economic’ recovery. The S&P/Case-Shiller HP index increased +0.4% (seasonally adjusted) vs. the previous +0.2% rise in Sept. Putting it another way, year-over-year, the index was down -7.3%, the smallest drop since Oct. 2007. This turnaround and somewhat stabilizing prices could be attributed to the tax credits for first-time buyers and mortgage rates close to record lows may inhibit the market from falling any further. With yearly prices been so low, we have witnessed sales jump +35% in the first 11-months. However, starting at such a low watermark, any strength can easily be impressive and distorting. On the flip side, shadow inventory, mounting foreclosures and a higher unemployment level could still very much impede future gains.

US consumer confidence advanced for a second straight month yesterday (52.9 vs. 49.5), as the pessimistic outlook about job losses seems to have waned slightly. Digging deeper, the consumer 6-month expectation actually increased to 75.6, the highest recorded level in two years. The ‘future’ gain outweighed the decline in the Present Situation Index, which happened to retreat from 21.2 to 18.8 this month (on top of its 26-year low). Somewhat disheartening, consumer expectations over wages declined. This may result in the further slowing to the spending pattern, even with government incentives. Remember, the consumer is the Fed’s go to variable. Uncertainty and pessimism about the US jobless rate exceeding +10% in the 1st H 2010 may force policy makers and retailers to maintain tax breaks and incentives to lure ‘constant’ buyers. The sub-category of ‘jobs are plentiful’ declined to +2.9% from +3.1%. While the individuals who said ‘jobs are hard to get’ actually fell +48.6% from +49.2%.

The USD$ is currently higher against the EUR -0.03%, GBP -0.12%, CHF -0.10% and JPY -0.09%. The commodity currencies are weaker this morning, CAD -0.39% and AUD -0.16%. The loonie ended yesterday little changed, despite appreciating temporarily to a new month’s high on the back of stronger commodity prices and some traders returning after the festive season. The currency continues to outperform 16 of its largest trading partners this month. Elevated commodity prices and robust equity indices have kept the loonie in ‘demand’ territory. Over the last two week’s especially, it has rallied higher on speculation that stronger domestic fundamentals warrant the BOC to hike rates sooner than anticipated. It’s not surprising that Governor Carneys policy of timing may be going step ‘n step with the Fed’s. Year-to-date the currency is up 16% and the Canadian futures market is starting to price in rate hikes sooner than next May. If one prefers being long the greenback, crossing it with ‘this’ commodity sensitive currency is not the ideal answer as analysts continue to favor buying the loonie longer term. Historically, the CAD performs well during the month of Dec. In the short term, be wary of speculators wanting to short the loonie after the fortnights tentatively over exaggerated gains. Better buying on pullbacks.

The AUD softened in the O/N session, trimming the biggest annual advance vs. the greenback in 6-years, as falling Asian equities has persuaded investors to shy away from higher yielding assets. Speculators have managed to snap a 5-day winning streak. Similar to most currency pairings, the markets lack direction because of liquidity constraints and low volume. The RBA believes its monetary policy is ‘now back in the normal range’ after lenders raised business and home-loan rates by more than the RBA themselves have increased (+3.75%) the overnight cash rate target. Traders have aggressively pared bets that the RBA was in a position to hike rates for a fourth consecutive time in Feb. Investors continue to look for better levels to sell despite elevated equity and commodity prices (0.8924).

Crude is higher in the O/N session ($79.01 up +14c). What has happened to crude over the past month? Prices have been rising even as the dollar climbs, they are rising even as interest rates are rising. There is no correlation and it can only suggest that the market is beginning to believe that global demand is rising. Forget the dollar. The demand ‘variable’ seems to be back on the table again. Crude remains better bid after Weather Derivates predicted that US demand will increase +6.7% this week due to the North American cold snap. The black stuff managed to rise for a fifth consecutive day yesterday, supported by last week’s surprisingly weak inventory report. Now that most Capital Markets are tentatively open, albeit with liquidity remaining an issue, the commodity will probably find stronger support on any pull backs until year end. Various surveys again expect inventories to be lower today. Crude inventories fell -4.84m barrels to +327.5m last week. This month alone we have witnessed inventories plummet -3.6%. Digging deeper, last weeks report was even more bullish for prices. Distillate fuel (heating oil and diesel) slipped -3.03m barrels to +161.3m, the biggest decline in 8-months. Gas stockpiles fell -883m barrels to +216.3m. It’s worth noting that this was the first drop in a month and a half. Imports of the black stuff fell -0.8% to +7.71m barrels a day and the lowest level in 15-months. The trend of demand and consumption continues to climb. Gas demand averaged +9.05m barrels a day, w/w, that’s +2% higher than a year ago, while consumption of distillate fuel averaged +3.99m barrels a day, +5.2% higher w/w. Year-to-date, oil has climbed +76%, the largest increase in a decade.

Gold retreated for the first time in three days yesterday on the back of a strengthening greenback persuading investors to shy away from investing in the commodity as a hedging alternative to a weakening USD. The buck has managed to appreciate +3.4% this month, of course the million dollar question remains, is this month’s dollar strength sustainable and will it be repeated at the beginning of the New Year? As per usual, investors will be guided by the inverse relationship of the ‘yellow metal’ to the reserve currencies price movements. Month-to-date, the commodity had depreciated just under 12% after printing a record high of $1,227.50 early in Dec. Year-to-date, it has appreciated +25%, the ninth consecutive yearly gain. Not unlike other asset classes, this month’s holiday swings have been somewhat overly exaggerated on liquidity constraints ($1,093).

The Nikkei closed at 10,546 down -91. The DAX index in Europe was at 5,970 down -41; the FTSE (UK) currently is 5,417 down -21. The early call for the open of key US indices is lower. The US 10-year bond eased 5bp yesterday (3.80%) and are little changed in the O/N session. The US 5-year auction came in at 2.665% vs. the pre-auction levels of 2.655%. The bid-to-cover ratio was weaker than expected at 2.59 vs. Nov.’s print of 2.81 and Oct.’s 3.63%. However, it did match the average of the previous four auctions. Indirect bids (Primary dealers, Cbanks etc.) accounted for 44% vs. the 60.5% print in Nov and the 54.8% demand in Oct. Disappointingly it was well below the four auction average of 54.2%. Softening the blow was direct bids climbing to 13% vs. Nov.’s handle of 2.9%. Overall it was a so-so auction as the market had feared the worst. Today we get to see the final of the $118b worth of product to be issued this week. We should expect 7-years ($32b) to provide further concessions. Technically, these yields do look attractive.

December 14, 2009

Exxon Turns to Natural Gas

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 8:17 am

Exxon Mobil Corp., the biggest U.S. oil company, agreed to buy XTO Energy Inc. for $31 billion in a bet that U.S. emissions restrictions will spur increased demand for natural gas.

Owners of Fort Worth, Texas-based XTO will get 0.7098 share of Exxon for each of their shares, the companies said today in a statement. The transaction, the largest energy acquisition since 2006 and Irving, Texas-based Exxon’s biggest takeover since the purchase of Mobil Corp. in 1999, values XTO at $51.69 a share, 25 percent higher than its last closing price.

“This says that corporate M&A is alive and well in the exploration and production sector,” said Curtis Trimble, an analyst at Natixis Bleichroeder Inc. in Houston. “It also says that Exxon isn’t shy about stepping up their exposure to the natural-gas market. Almost certainly, we will see some more follow-the-leader type transactions.”

« Newer Posts — Older Posts »

Powered by Efacilitators Hosting