Forex Blog

April 11, 2014

UK Chancellor Says Economy Has Proven IMF Wrong

George Osborne will on Friday round on detractors who said Britain’s economy could not grow amid austerity and set out a vision for strong growth with healthy public finances.
Attending the spring meetings of the International Monetary Fund, the chancellor will round on the fund and other critics who he will say “have been proved wrong” by Britain’s strong recovery over the past year.

Mr Osborne’s speech signals a shift from his cautious approach regarding the recovery to one that seeks to gain political advantage from the surprising strength of the upswing as the UK’s general election approaches.
The chancellor is gambling that voters will reward the Conservatives for correctly predicting a recovery would start rather than using the better economic news as an excuse to vote for a slower path of deficit reduction offered by Labour and the Liberal Democrats.

via CNBC

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April 4, 2014

Bank of England Warns Funds Industry About Risks

The world’s $87 trillion asset management industry is getting riskier and echoes some of the “too big to fail” risks already being addressed at banks, Bank of England director of financial stability Andy Haldane said on Friday.

In a speech likely to leave the funds sector bristling, Haldane said some recent trends in activities raise the question whether funds can also be “too big to fail”, meaning they need curbs to avoid a failure wreaking havoc in markets and requiring a potential bailout by taxpayers.

The sector is already lobbying intensively against draft plans by the Financial Stability Board, the regulatory arm of the Group of 20 economies (G20) to designate funds over $100 billion as systemically important and therefore subject to as-yet undetermined extra supervisory requirements.

Haldane said assets in the fund management sector are currently estimated at about $87 trillion globally and could rise to $400 trillion by 2050 as populations expand and get older and richer.

In Britain, the sector has grown from under 50 percent to over 200 percent of gross domestic product since 1980.

via CNBC

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Ex ECB Member Forecasts Action Soon

Lorenzo Bini Smaghi, an ex-member of the ECB executive board, forecast easing was coming, and said the delay was due to attempts by Draghi to build unanimity for action among the Governing Council’s 24 members.

“I think he is gaining time for the argument to be won within the council,” Bini Smaghi told CNBC on Friday, from the Ambrosetti Forum in Italy.

“The ECB is a bit different as a central bank; it needs to create a consensus, because a move by the ECB with a consensus is more credible than a move with a divided council. I think he needs the decision to mature within the Governing Council.”

Despite the inaction, Draghi emphasized in his news conference on Thursday that the ECB could act swiftly to instigate “unconventional” policy measures if necessary. He also flagged that both quantitative easing and negative deposit rates had been discussed at this week’s meeting.

Bini Smaghi predicted that easing would materialize in “a couple of months”.

“I think he is preparing the markets to understand that action will take place,” Bini Smaghi said.

via CNBC

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April 3, 2014

UK Service Sector Drops in March Still In Expansion Mode

Britain’s dominant services sector expanded steadily in March, pointing to solid economic growth in the first quarter, even though the rate of expansion was the slowest since last June and hiring eased, a survey showed on Thursday.

The Markit/CIPS services purchasing managers’ index (PMI) edged down to 57.6 in March from 58.2 in February, below economists’ consensus forecast in a Reuters poll for a reading of 58.1.

Still, the index remains far above the 50 mark denoting growth and pointed to robust growth in services, which account for more than three-quarters of Britain’s economy and include major banks to high street restaurants.

Growth in new business and optimism also eased. On the heels of an unexpected slip in British manufacturing growth in March, the data suggests last year’s surprisingly rapid rebound could be losing some momentum.

via CNBC

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March 31, 2014

UK Housing Market Bubble Fears Rise

Fears that Britain’s housing market is headed for bubble territory were stoked on Monday by fresh evidence that demand is far outstripping supply.

As the market heats up, buyers desperate to secure a property are paying the highest proportion of asking prices seen for a decade, according to a report from property researchers Hometrack. In London, buyers are paying more than 99% of asking prices against a backdrop of soaring demand from foreign investors and local house hunters.

The figures come alongside a warning that the south of England faces a shortfall of at least 160,000 homes by 2018. An analysis of building projects by upmarket estate agent Savills finds that local planning authorities are “simply not planning enough new homes to meet the growing housing need.”

The reports follow assurances from the Bank of England that it is poised to take steps to slow down Britain’s housing market if the pickup in prices and mortgage demand signals a new property bubble.

Hometrack said house prices rose 0.6% in March, a slight slowdown from 0.7% growth in February, on lower growth in London and the south-east. But it said the fundamentals suggested more house price growth ahead as demand grew 6.6% in March – which it measures by new buyers registering with agents – and supply rose 1.9%, based on new listings.

Richard Donnell, director of research at Hometrack, stressed that not all areas were seeing surging demand with the north, north-west, Yorkshire and Humberside and east Midlands seeing price growth of less than 2%. He also rebuffed suggestions from some critics that the government’s Help to Buy scheme was pushing up prices.

via The Guardian

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USD/JPY – Dollar Breaks 103 As Japanese Manufacturing Numbers Slide

USD/JPY keeps on rolling, as it barreled past the 103 line in Monday trading. The yen has now coughed up about 150 pips in less than a week. In economic news, Japanese Preliminary Industrial Production tumbled, dropping to an eight-month low. We’ll get a look at the important Tanken indexes later on Monday. In the US, today’s sole data release is Chicago PMI. As well, Federal Reserve chair Janet Yellen will speak at an event in Chicago.

Japanese releases kicked off the week with a whimper. On Sunday, Manufacturing PMI lost ground, falling to 53.9 points. Preliminary Industrial Production dropped by 2.3% last month, an eight-month low. This surprised the markets, which had expected a strong gain of 3.6%. Housing Starts didn’t look much better, with a gain of just 1.0%, its worst showing since August 2012.

US Unemployment Claims continued to impress last week. The key indicator dropped to 311 thousand, its lowest level in over three months. The estimate was 326 thousand, marking the fourth straight week that the reading has come in below the forecast. The news was not as good from Pending Home Sales, with a reading of -0.8%. This disappointed the markets, which had expected a small gain of 0.1%. Earlier in the week, New Home Sales also lost ground in February, and concern is bound to increase about the health of the US housing industry. Final GDP posted a gain of 2.6% in Q4, just shy of the estimate of 2.7%. This was lower than the Q3 gain, but is indicative of a growing economy.

Ukraine’s economy is in shambles as a result of the four-month political crisis which led to the ouster of the government and the Russian annexation of the Crimean region. Prime Minister Arseniy Yatsenyuk acknowledged that the country is on the edge of bankruptcy, and GDP could drop by as much as 3% this year. However, help is on the way. The IMF is set to sign a two-year loan of up to $18 billion, and the EU has offered a package of EUR 11 billion. Ukraine has already received two bailouts from the IMF since 2008, and will have to implement budget cuts and other measures in order to receive the new package from the IMF.

 

USD/JPY for Monday, March 31, 2014

Forex Rate Graph 21/1/13

USD/JPY March 31 at 14:50 GMT

USD/JPY 103.34 H: 103.43 L: 102.79

 

USD/JPY Technical

S3 S2 S1 R1 R2 R3
101.19 102.53 103.30 104.17 105.70 106.85

 

  • USD/JPY continues to move higher. The pair has touched a high of 103.42 early in the North American session.
  • 104.17 is the next resistance line. This is followed by 105.70, which has not been tested since October 2008.
  • On the downside, 103.3o is under strong pressure. The next support line is 102.53.
  • Current range: 103.30 to 104.17

 

Further levels in both directions:

  • Below: 103.30, 102.53, 101.19, 100.00 and 99.57
  • Above: 104.17, 105.70, 106.85 and 107.80.

 

OANDA’s Open Positions Ratio

USD/JPY ratio is showing gains in short positions on Monday, continuing the trend we saw last week. This is not consistent with the pair’s movement, as the dollar rally continues. Long positions make up a majority of the open positions in the ratio, indicating trader bias towards the dollar continuing to move higher.

USD/JPY has pushed into 103 territory, and the yen remains under pressure in the North American session.

 

USD/JPY Fundamentals

  • 5:00 Japanese Housing Starts. Estimate 5.2%. Actual 1.0%.
  • 13:45 US Chicago PMI. Estimate 59.2 points.
  • 13:55 US Federal Reserve Chair Janet Yellen Speaks.
  • 23:50 Japanese Tankan Manufacturing Index. Estimate 19 points.
  • 23:50 Japanese Tankan Non-Manufacturing Index. Estimate 24 points.

*Key releases are highlighted in bold

*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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IMF Critical of Western Banking Regulations

Western governments have put in place banking regulations that could be “mutually destructive”, and undermine efforts to prevent bust banks from costing taxpayers billions of pounds, according to a report by the International Monetary Fund.

Policymakers representing the world’s biggest financial centres have failed to make the banking sector stand on its own two feet by ending implicit subsidies and co-ordinating rescue plans when multinational banks go bust, the Washington-based lender of last resort said.

In a hard-hitting report, it accused policymakers of falling short in their efforts to protect taxpayers from banks that are still too big to fail.

The IMF praised efforts to make banks more secure, particularly by forcing them to hold more capital and rules that restrict them from making risky loans.

A week before vital meetings of G20 ministers in Washington, it said efforts such as the Dodd-Frank Act and the Vickers report in the UK limited the scope for banks to embark on reckless lending and need a taxpayers’ bailout in the event of them going bust.

But in its Global Financial Stability Report, the IMF said the impact of a bank crash would be still be severe and could destabilise the international financial system.

It said: “In areas such as the implementation of resolution frameworks or structural reforms, countries have adopted policies without much co-ordination. These solo initiatives, even though individually justifiable, could add unnecessary complexity to the regulation and consolidated supervision of large cross-border institutions and encourage new forms of regulatory arbitrage.

via The Guardian

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March 20, 2014

UK Budget Cuts Won’t Help It Regain AAA Rating

If George Osborne wanted to win back the UK’s across-the-board AAA credit rating, this was a budget that failed. The UK is going to take a long time to win back that particular trophy from the three ratings bodies now that so much of our deficit reduction is predicated on further swingeing cuts in public-sector spending. The two credit-ratings agencies that still give Britain the top accolade could join Standard & Poor’s and force us to join France and Italy on lower rungs of the credit ladder.

George Osborne has proved a deft handler of budget cuts in the past couple of years. Reductions in disability benefits and housing benefit have either been phased out or hit groups who lack political clout. Since the 2011 riots, social unrest has been limited.

Whitehall has learned to dodge head-on fights. Osborne also learned that his first two years of severe cuts and tax rises were politically and economically illiterate.

As Jonathan Portes, head of the National Institute of Economic & Social Research thinktank, said: “Osborne tried accelerated fiscal reduction and saw that it didn’t work. In fact, it made things worse. And though he said he was still implementing it, behind the scenes he was taking his foot off the accelerator.”

According to Portes, the change of tack is why we now have growth and a feelgood factor that could prove to be sustainable for the rest of the decade.

via The Guardian

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Drop in UK Exports A Warning To Sustained Growth

A sharp drop in export orders reported by the CBI highlights the challenge facing George Osborne, as he seeks to improve Britain’s recent poor trade record.

The latest snapshot of manufacturing from the employers’ organisation showed that while order books for industry are still growing, companies are relying on strong domestic demand.

But with a rising pound making UK goods more expensive overseas, the latest CBI monthly industrial trends survey found that 18% of firms reported export order books above normal for the time of year while 27% said they were below normal.

The rounded balance of -10 percentage points in February compares with -1 point in January, and is feeding through into lower production in factories.

More than a third of firms (36%) said output rose over the past three months against 21% recording a fall. The CBI said that while growth remained strong it was the slowest in five months and a further easing is expected over the next quarter.

Anna Leach, the CBI’s head of economic analysis, said: “The picture in the manufacturing sector remains positive. Overall, demand continues to rise and output growth is robust.

“Growth in exports is crucial to rebalancing the economy and ensuring a sustainable recovery. Over the last few surveys, manufacturing export orders have underperformed relative to overall orders as the UK’s domestic recovery has caught hold more quickly than some of our key trading partners – most particularly, the eurozone.

via The Guardian

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March 7, 2014

UK Fiscal Deficit May Force Austerity Measures

The problem with recoveries after a deep recession is a lot of the good news peters out rather quickly. The easy gains are made early on and then you are left assessing the irreparable damage that was done by the downturn.

And that is the nub of the FT report: grim reading for chancellor George Osborne as he puts the finishing touches to his 19 March budget.

According the FT’s analysis of models by the Office for Budget Responsibility, austerity may have to last a year longer than expected because the government will not be able to rely on economic recovery to eliminate part of the deficit. The FT’s economics editor, Chris Giles, has identified the new black hole by focusing on the difference between the actual deficit (the gap between government expenditure and income such as taxes), which is on course to be around £111bn in 2013-14, and the cyclically adjusted deficit (the gap that is left when the peaks and troughs of the economic cycle are taken out of the equation), due to be £85bn this financial year. Osborne had assumed he would need to target the lower figure.

As Giles says, the gap lays bare the consequences of Britain’s falling productivity. It is a pessimistic outlook for those facing more spending cuts and for governments now having to contemplate tax rises to plug the gap. But the pessimism is entirely warranted if the OBR’s own analysis of productivity is to be believed.

via The Guardian

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