Forex Blog

March 23, 2012

China’s Fix Influence Cannot Last

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 10:53 am

China using the CNY fix and rumors of an imminent RRR cut has many investors wondering about changing their risk profile, specifically after a week that saw both equities and fixed-income holding and FX dance to another tune after weaker global growth data. This week’s weaker than expected PMIs from Europe and China likely require markets to at least maintain tail risk pricing. Are we entering a scenario where US tries to go it alone as being the sole “meaningful source of accelerating global growth”? This is certainly a task that is sure to expose the US economy’s vulnerability. Next week’s parade of Fed speakers, Fed manufacturing surveys and the Chicago PMI offers potential to support the USD G7 pairs.

Below are some other highlights of the week:


Asia

  • CNY: The Chinese government started the week fixing USDCNY lower and has managed to reverse much of the ‘fix’ spike seen since early March. While their statistics bureau reported new home prices falling in 27 of 70 cities last month, year over year. The market has not yet decided if the Chinese economy is set for a hard or soft landing.
  • NZD: The Westpac NZ Consumer Confidence index rose slightly to 102.4 in Q1 from 101.3 in Q4 last year and remains atop of a historically weak level. In contrast, the performance of the services index rose last month to its highest level in three-months, putting it at the second highest level in two-years.
  • KRW: Korea department store sales rose +2.9%, y/y, in February after falling -4.1% in January. However, discount store sales slipped -6.4% vs. a rise of +2.7%, y/y in January.
  • CNY: China has increased fuel prices for the second time in two-months, amid rising global crude prices and put Shanghai and Hong Kong equities on the back foot.
  • AUD: RBA minutes reiterated that there was “ample scope to ease” although rates remain appropriate for now. The minutes again suggest that the economy remains in balance with strength in the mining sector offsetting weaknesses elsewhere. Should downside risks relating to Europe and a slowdown in East Asia growth materialize, the RBA Board has room to ease. The market is pricing in a -50bp ease out the curve and is more ammo for the AUD to underperform outright.
  • AUD: Aussie Conference Board Leading Economic Index increased +1.1% in January to 126.1 following a revised -0.3% decrease in December.
  • JPY: The All Industry Activity Index fell a more-than-expected -1.0%, m/m, in January, more than the consensus forecast for a -0.7% and partially unwinds the +1.6% gain in December.
  • AUD: The Aussie Westpac Leading Index rose +0.6%, m/m, in January following a revised +0.7% increase in the previous month.
  • AUD: The Department of education and workplace relations skilled vacancies fell by -0.2% in February, compared with a revised -0.1% decline in January.
  • NZD: The Kiwi current account deficit narrowed to –N$2.7b in Q4 from –N$4.7b in Q3. Worth noting that credit card spending rose for the third-consecutive month in February by +0.5%, m/m. This has pushed year-on-year growth to +4% from +3.1% in January.
  • THB: The BoT left its policy rate unchanged at +3% this week. Analysts still expect further growth and core-inflation disappointments to push the BoT to cut rates again in Q2.
  • CNY: The HSBC flash China PMI fell -1.5pts to 48.1 in March, much larger than the usual -0.5pts seasonal adjustment. The weak PMI print will increase concerns over China’s slowing and have investors questioning if it will be a hard or soft landing for the economy. China seems to be cutting some regional banks reserves to boost credit lines. Will the PBoC be next?
  • JPY: The data surprise award for this week goes to Japan who managed to print a positive trade surplus of +JPY32.9b in February, much better than the consensus forecast for a-JPY120b deficit. Exports fell -2.7%, y/y, while imports rose a more-than-estimated +9.2%. The market will expect the yen to be back on the BoJ radar as demand for risk adverse trading strategies and natural domestic year end demand will have the currency again out performing some of its other trading partners.
  • NZD: NZ GDP grew +0.3%, q/q, in Q4, half the pace of the RBNZ’s estimates. The details showed that exports rallied +2.8% (the highest quarterly growth rate in nearly three-years), and private consumption and residential buildings were up +0.8% and +4.1% respectively. FI expects the RBNZ to remain on hold for the remainder of the year.
  • SGD: Singapore’s CPI inflation fell to +4.6%, y/y, in February from +4.8% on the prior month and lower than the consensus forecast for a rise to +4.9%. Digging deeper, most of the decline in CPI was due to lower transport costs.

March 22, 2012

EUR to Rollover?

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:37 am

Just like our cup of java, we have got our jolt. A mixed bag of global overnight data finally has this currency market on the move. This morning, we are getting our wake up call to global growth risk concerns. Touted by many, recent economic outlook was supposed to be on the up. In the post LTRO2 world, risk markets and bond yields were indicating that the ‘tail-risk’ was trying to be priced out, not that we are capable of negating risk, but severely reducing it. This scenario has taken a step backwards as a Chinese flash PMI’s again indicate that the downside risks to global growth remain. Much worse German and French manufacturing PMI’s is allowing the relatively safe haven USD to benefit from a decline in risk appetite.

Asia-Pacific currencies are suffering in response to a weaker Chinese PMI print. The HSBC flash China PMI fell -1.5pts to 48.1 in March, and noted by many as being much larger than the usual -0.5 point seasonal fall. The weak PMI print is likely to increase concerns over China’s slowing and has many focusing on what type of landing to expect from them, hard or soft? Regional risk currencies, specifically with economies with the largest trading ties, like the Aussie, are now trading back to their old January levels outright. There are even reports that China is beginning to cut regional bank reserve requirements to boost credit. The market will surely begin factoring in further easing by the PBoC. It’s not the whole story for the Kiwi. That currency is underperforming after a weaker than expected Q4 GDP that should encourage rates to remain on hold.

The positive surprise award for overnight activity goes to Japan who managed to print a positive trade surplus of +JPY32.9b in February, much better than the consensus forecast for a-JPY120b deficit. Exports fell -2.7%, y/y, while imports rose a more-than-estimated +9.2%. Expect the yen to be back on the BoJ radar as demand for risk averse trading strategies and natural domestic year end demand will have the currency again out performing most of its larger trading partners.

Is the Euro-zone walking towards a fiscal austerity based recession? This morning’s flash PMI (the service sector is holding up a tad better) and the fact that Europe’s backbone, Germanys own manufacturing activity slumped back into contraction in March, is weighing heavily on investor sentiment, both for the EUR’s value and regional risk appetite. Expect Spain and Portugal to be thrust to fore of ‘this’ crisis again now that Greece is no longer, temporarily at least, providing the same sort of volatility.

Technically, long trades remain in play with Russian money supposedly supporting the EUR outright at 1.3150 for now. Analysts will tell you that the graphs are overbought, recent bid action on EUR dips this week support this. However, in North America, if not before, may see dealers rolling over on this trade to the downside supporting the longer term EUR bears who continue to focus on a stronger dollar by year end like PIMCO.

Forex heatmap

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Greek Debt Woes Far From Solved

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March 21, 2012

EUR Bias Remains The Same

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

It’s difficult to get excited by helicopter Ben two days in a row, however, here we are and its seems we have to try. Yesterday, he followed through with only his history lecture, urging us to keep the lessons from the Great Depression to evaluate recent Fed actions and no QE. Today, in a market that screams of “we have been here before,” we hope for our own market sanity that that he will say something to break this trading monotony. The hottest thing in the market yesterday was the new iPad, so either Ben “goes for it” or we could be in for another long day.

The EUR is leading the G10 rally against the dollar despite Asian equities being mixed in the overnight session. The single currency has managed to strengthen on the back of the Greek Prime Minister winning parliamentary approval for their second and most likely not their last international bailout. The currency is here, knocking on its monthly outright highs, because its cheap according to many. In January, it traded at its seven-year lows on a trade weighted basis. As expected and rightly, many of us took the opportunity of the ECB’s LTRO operation to use the currency to buy the antipodean ‘carry’ trade. However, Chinese growth concerns has many questioning this risk-correlated trading strategy. This EUR short squeeze is trying to gather momentum as these risk currencies, with strong trading ties to China come under pressure.

The outlier ahead of the North American open is GBP. It’s trading under pressure outright after the BoE minutes release showed that members had voted 7-2 against QE, it’s the two that has Sterling choking early. There was little surprise with the white wash, 9-0, on the no rate hike.

Crude has stopped the bleeding and rallied after yesterday’s -2.3% decline, its largest loss in three-months, and giving some of the commodity currencies a reason to do something. The loonie is again straddling its weekly high with little danger of any significant run ahead of retail sales and CPI later in the week. The currency is again running into some technical resistance at these levels. The dollar bids will remain on these pullbacks until the CAD can break this tedious contained range. Following yesterday’s strong US housing starts for last month, a firm existing home sales reading later this morning should provide some support for the ‘mighty buck,’ limiting the loonie progress and tempering the EUR advance or at least until the market can digest Ben!

Forex heatmap

Other Links:
US Housing Starts Strong

March 20, 2012

Australian Dollar’s Glow is Fading; Expect Undepeformance Going Forward

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:48 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Aussie continues to show signs of underperformance
  • RBA Minutes fairly positive but currency still offered
  • Lower China equities factor into the price action
  • Downbeat comments from BHP contribute to additional declines
  • Fed speak later in the day should factor into price action
  • US equities still look vulnerable at current levels

The Australian Dollar has been one of the most interesting currencies to watch over the past few sessions, with the risk correlated, higher yielding market unable to extend gains despite a healthy appetite for risk. We think the price action is actually quite telling and could be warning of a near-term pullback in risk sentiment given how well this currency has served as a proxy for risk in recent years. Despite a fairly positive RBA Minutes overnight, the currency is once again showing relative underperformance, with the market likely weighed down by a disappointing performance in Chinese equities.

Also adding to weakness in the Australian Dollar have been some downbeat comments from the world’s biggest miner, with BHP warning that iron ore demand from China will likely flatten out . We still contend that a third phase of the global recession is now starting to materialize in China, and this will weigh heavily on Australia, other commodity bloc economies and emerging markets going forward. We therefore recommend keeping a close eye on cross rates like EUR/AUD, which has been beaten down in recent years and could be on the verge of a major structural shift and bullish reversal. Look for a push back above 1.2620 to confirm this outlook and likely accelerate gains back above 1.3000.

Moving on, the economic calendar on Tuesday is rather busy, but most of the attention will probably be placed on Fed speak later in the day when Fed Chair Bernanke and Fed Kocherlakota offer added insights into the future direction of monetary policy. US equity markets are also worth watching and we continue to contend that these markets are well overdone at current levels and subject to a significant bearish reversal. Look for a break and close below Monday’s lows to confirm our bias.

March 19, 2012

Risk Correlated Assets Could See Major Reversal Over Coming Days

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 7:34 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Euro well supported ahead of key level, takes pressure off downside
  • Equities still looking overdone to us; there are risks for pullback
  • Pimco on wires with risk negative comments relating to Eurozone
  • Australian Dollar at risk and showing notable divergence from equities
  • Yen and Franc also worth watching over the coming days

The Euro has managed to find some decent support for now by 1.3000 and ahead of key levels at 1.2975, with the market once again bid up on the back of some risk positive themes. Global equities remain in demand and the healthy risk appetite has opened the door for renewed interest in risk correlated FX markets. However, we continue to remain highly skeptical with the performance in equity markets and are on the lookout for a sizable pullback. It is the view of this desk that the retracement in equity markets from the 2007 highs to 2009 lows is now well overdone and not reflective of fundamentals. US equity markets have retraced some 85% of this move, and given the global economy is still attempting to recover from a major recession, we feel that an 85% retracement is perhaps a little too optimistic at this point.

Pimco’s Mohamed El-Arian has been quoted in the UK Telegraph as saying that he expects a “second Greece” in Portugal, and that the country will soon need a second bailout with the original Eur78B package falling short. Although the story has not been getting market moving attention to this point, we share Mr. El-Arian’s sentiment and believe that the ongoing troubles in the Eurozone and additional threat of a major slowdown in China should act as a catalyst for a near-term liquidation of risk correlated assets.

Of the major currencies, we see the higher yielding Australian Dollar as the most at risk in the current market environment given the currency’s risk correlation and exposure to China. Data out of Australia has also been showing signs of weakness and any materialization of broader risk off themes could ultimately start to weigh heavily on the currency. We have also noticed a breakdown in the correlation between the Australian Dollar and US equities in recent days which could foreshadow a more prominent structural shift to risk off trade ahead. Currency markets have a way of leading and if the Australian Dollar has not been confirming recent equity strength, this could be offering a warning sign of a bearish reversal in US and global equities.

Moving on, the Yen is also worth watching this week with the currency the most stretched of the major currencies and potentially at risk for a reversal. The Yen has been very well offered over the past few weeks and the acceleration of declines has resulted in some highly technically oversold readings. Fundamentally, any shift here and appreciation in the Yen going forward would also lend further support to our broader outlook for risk off trade, with the Yen traditionally correlating to risk and being well bid in safe haven market environments. While we see this correlation breaking down a bit over the medium-term and longer-term and ultimately project additional Yen weakness ahead, over the short-term, we see room for some strength in the Yen. Finally, we will also be monitoring the price action in EURCHF with the market very well supported by the highly publicized 1.2000 SNB floor and recently showing signs of a bullish breakout.

March 12, 2012

China Trade Data Acts As Catalyst for Early Week Risk Off Price Action

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:28 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • China trade deficit widens on much softer exports
  • Third phase of global crisis to impact China, commodity and emerging FX
  • Aussie most exposed and already showing signs of weakness
  • Yen continues to show signs of major top and structural shift
  • Investors start to focus on key event risk in form of FOMC rate decision

A wider trade deficit and disturbingly weak export numbers from China over the weekend have done a good job of weighing on sentiment into Monday, with currencies coming under some added pressure against the US Dollar. We have been warning for some time of a third phase of the global recession which should originate in China and spread to the commodity correlated economies and other emerging markets. Many of these economies have managed to outperform throughout the crisis thus far, with investors seeing these regions as attractive alternatives to a very troubled US and European economy.

However, we have always had a hard time digesting the safe haven flows into these traditionally risk correlated markets, and we finally think that things are catching up and we could soon see an aggressive liquidation of investment in these regions as the global recession enters its final phase. As far as the more major currencies are concerned, we are projecting underperformance in currencies like the Australian Dollar, New Zealand Dollar and Canadian Dollar going forward, and even see these currencies suffering against a recently beaten down Euro currency. Australian should be the most exposed given the wider yield differential and with recent economic data out of the country also disappointing (see latest employment and GDP results), we are getting added confirmation for a bearish outlook on the commodity currency.

Elsewhere, another major shift in the FX markets is underway with the Yen, as the currency continues to show evidence of a major structural shift which points to a significant top and material weakness going forward. The most compelling evidence for this structural shift comes from the weekly USD/JPY chart which shows the market closing back above the Ichimoku cloud for the first time since the summer of 2007. While short-term studies are looking a little stretched and could warn of some pullbacks, we expect any pullbacks to now be very well supported above 78.00 in favor of fresh upside into the 85.00-90.00 area over the coming months. As a reminder, the nice thing about shorting the Yen is that is doesn’t cost anything to hold the position on a daily basis.

Looking ahead, the key event risk for the week will come in the form of the FOMC rate decision. The central bank meeting will take on added significance with US economic data showing more consistent signs of recovery and increasing speculation that the Fed may need to reconsider their ultra accommodative stance. While we do not expect the Fed to reverse policy just yet, Mr. Bernanke and company could look to firm things up just a bit by removing the keeping rates ultra low through 2014 language. Should the Fed move in this direction, then we could see added pressure on US equities as market participants become less comfortable with the idea of higher interest rates. We would also see a stronger US Dollar on a narrowing of yield differentials.

March 9, 2012

Week in FX Europe Mar 4-9

Filed under: OANDA News — Tags: , , , , , , , — admin @ 11:40 am

The Greece debt swap agreement was reached as 95.7 percent of private bondholders accepted or had clauses enacted to accept the deal. This will mean Greece has reduced their outstanding obligations by 132billion euros and the first step to securing another round of Eurozone rescue funds.

This record sovereign restructuring deal has brought praise from the E.U. top finance ministers and government representatives, but has also drawn harsh criticism from private bondholders like Bill Gross who said the swap had diminished the sanctity of bondholder’s contracts.

The ISDA will have to rule on the fate of the less than 5 percent of outstanding bonds that did not agree to the swap. A credit event can be a likely scenario, but with limited payouts after the historic swap.

The EUR benefited from the agreement, but traders are still pricing the possibility of a Greek default as elections approach and the parties who pushed for the deal have been falling behind in the polls.

Below are some other highlights of the week:


EUROPE

  • EU: Risk sentiment started on the back foot after China revised growth prediction lower for 2012. China sets modest 2012 GDP growth target of 7.5%.
  • EUR: EU services PMI was revised lower to 48.8 from the initial 49.4 estimate, falling from a 50.4 print last month. Weak prints came from Spain and Italy, at 41.9 and 44.1 respectively. Core-economies managed to sustain readings above 50. Germany again being the outlier, its PMI was revised a tad higher to 52.8 from 52.6. Meanwhile, the Irish PMI recovered strongly to 53.3 from 48.3.
  • GBP: UK services PMI fell to 53.8 from 56.0 in January, below consensus for 55. The data is consistent with modest growth and some recovery from the weak Q4. These numbers would suggest that they are not weak enough to justify a further extension in QE.
  • EU: Market weakness remains the dominant theme as Chinese authorities are now looking for a considerably softer growth outlook, and the upcoming deadline for the Greek debt swap.
  • EU: Interest rate differentials continue to move against the single currency, following last week’s liquidity injection via the LTRO.
  • EU: Euro-zone GDP contracted -0.3%, q/q, in Q3. Investment was particularly weak, dropping -0.7%, while household consumption and exports fell -0.4%.
  • EU: Analysts note that price action suggests markets are “continuing to attach a high degree of credibility to the official firewall which has been built around Greece in recent months.” In the weeks ahead, rate differentials should begin to weigh on the currency.
  • EUR: German factory orders surprised soft, falling -2.7% in February well below expectations for a +0.6% gain. Weakness was driven by foreign orders, while domestic orders remain in recovery mode.
  • NOK: Norway’s manufacturing production picked up +1.1%, m/m, in January, above the consensus for +0.4% gain. Norway’s PMI releases were strong for January and February, suggesting a rebound in growth in Q1 is likely.
  • NOK: Norges Bank indicated this week its intention to reduce the weighting of European equities and bonds in the investments of the Global Pension Fund. This could be negative for the EUR.
  • EU: The EU wants to see “clear commitments and clarification from Hungary before aid talks can start”. The EU granted Hungary one month to respond to its requests. The EU has said it would take further action on Hungary’s excessive deficit.
  • PLN: Poland’s central bank left its policy rate unchanged this week. Rhetoric from MPC members welcome zloty’s strength, as it helps to contain inflation.
  • GER: German IP surprised strong, with a +1.6%, m/m, gain, above consents for +1.1%. December production was also revised a touch higher. This is setting a strong tone for Q1.
  • CHF: Swiss headline CPI increased +0.3%, m/m, in February, but annual inflation remained in deflationary territory of -0.9%, y/y. The inflation outrun is broadly in line with the consensus forecasts and the SNB’s inflation trajectory.
  • CHF: The SNB reported a consolidated profit of +CHF13.5b for 2011, following a loss of -CHF19.2b the previous year. In 2011, foreign currency positions contributed +CHF7.7b to this profit. The SNB also confirmed that it spent around +CHF17.8b in 2011 for FX intervention.
  • Central Banks: The ECB (+1%) and BoE (+0.5%) kept their rate policy on hold this week. While still basking in the glow of the strong uptake to its most recent LTRO program, the ECB meeting made no any major announcements. With the BoE set to complete its latest +GBP50b in asset purchases in May, recent rhetoric from MPC members indicate that they judge the current policy as appropriate.

Japan gets its Wish of Weak Yen

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:38 am

After the tsunami that struck Japan and sent the currency to its strongest level in months government and exporters were in agreement a weaker Yen was a desired outcome. Now that it has come to pass it is not seen a blessing as that same tsunami that strengthened the Yen also crippled the countries Nuclear power production.

The Yen is now weaker but as the price of Oil, a natural substitute of nuclear energy, is on the rise (and denominated in U.S. Dollars) Japan once a trade superavit juggernaut is on the back foot as the positive impact of exports is overshadowed by the amplified negative impact of imports.

China continues its breakneck pace, albeit it has slowed down in the last month in part due to seasonal trends, but still continues to post positive figures. Industrial output grew 11.4 percent when compared to 2011. The forecasts were not met (12.4%) which has raised some concerns. Inflation was down following the Lunar New Year celebrations that impacted food prices in January (10.5 percent) compared to February (6.2 percent).

Below are some other highlights of the week:


Asia

  • CNY: China’s PM Wen Jiabao announced a moderate set of 2012 targets at the annual National People’s Congress last weekend. GDP growth is expected to slow to +7.5%, y/y, from +9.2%, y/y, in 2011. Inflation and M2 growth are expected to slow to +4%, y/y, and +14% respectively.
  • AUD: Down-under, Aussie job adverts rose a solid +3.3% last month, after an upwardly revised Jan print. Other releases showed that company profits were weak at -6.5%, q/q, in Q4, while wages and salaries rose +0.8%, q/q, in Q4 while inventories bounced back.
  • PBoC: Policy makers said that they would expand the trial of cross-border trade settlements in CNY. The number of firms who can use the CNY for trade purposes has been increased from the expanded +67k to all firms across the country. This is part of the government’s policy to expand the use of their currency in trade and eventually investments.
  • KRW: Korea’s gross FX reserves rose +$4.5b to +$315.8b in February.
  • TWN: Taiwan’s CPI inflation fell to +0.25%, y/y, in February from +2.4% in the previous month. This is due to a sharp decline in food, clothing and housing prices after the Chinese New-Year holidays in January.
  • AUD: The RBA kept its policy rate unchanged at +4.25% mid-week. The futures market is pricing and expecting policy holders to keep rates on hold for two more months. This would suggest that the AUD will have trouble finding momentum.
  • AUD: The balance of payments data showed that foreign holdings of AUD government debt reached a new high in Q4. Foreigners bought about AUD 20bn of government debt and now hold about 84% of the government securities outstanding. Aussies high carry and triple ‘A’ rating remain strong positives, but given the high level of foreign ownership, further increases should be less pronounced and a pullback becomes more likely. Stabilization in Europe could also decrease the demand for AUD debt.
  • PHP: Inflation has eased further. CPI inflation fell to +2.7%, y/y, in February, more than the consensus forecast for a decline to +3.3% from +3.9% in January. This would suggest the BSP remain dovish with ‘no’ easing bias.
  • AUD: Aussie GDP rose +0.4%, q/q in Q4, less than the consensus forecast of +0.8%. Growth in Q3 was also revised -0.2% lower to a still robust +0.8%. It’s also worth noting that the terms of trade recorded a sharp -4.7% decline over the quarter.
  • AUD: Deputy RBA Governor Lowe said that “it’s difficult to make a strong case that the exchange rate is fundamentally misaligned,” and “that makes the hurdle for intervention quite high.”
  • MYR: Malaysia’s exports grew at the slowest pace in 15-months in January, up +0.4%, y/y, from +6.1% in December. Imports rose +3.3%, y/y, from +10.4% previously, while the trade surplus widened to +MYR8.75b from +MYR8.31b in December.
  • JPY: Japan’s current account balance posted a record deficit of ¥437b in January, worse than the consensus forecast for a ¥320b deficit. The yen continues to remain vulnerable to intervention and periods of carry trade rebuilding.
  • AUD: Aussie employment fell (-15.4k vs. +5k) but was offset by rebound in hours worked. The loss was driven entirely by a fall in part-time employment as full-time employment was flat on the month. The unemployment rate rose slightly but remained in the +5.0-5.2% range and analysts note that the rebound in hours worked more than offset the retracement in part-time employment.
  • NZD: RBNZ kept rates on hold at +2.5%, but sounded cautious over the currency strength. Policy makers signalled that they remained comfortable with the current policy setting and acknowledged recent improvement in global sentiment and signs of domestic recovery.
  • NZD: The RBNZ’s inflation projection and 90-day interest rate path were revised lower, with inflation now expected to fall to +1.7% in Q4 and the short term interest rate expectation lowered to 3%. GDP growth for 2012 was revised higher to +3.3% from +3% previously.
  • KRW: The BoK kept its policy rate on hold at +3.25%, as widely expected. Governor Kim sounded less dovish than before and highlighted that Korea’s exports are showing steady expansion and that the economy is unlikely to contract in Q1. Policy makers seem happy with gradual won appreciation.

AMERICAS Week in FX

EUROPE Week in FX

Strong US Employment could Signal Recovery

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 11:38 am

The Department of Labor published the NFP report that showed a 227,000 increase in jobs in February and an upward revision to the already positive January figures 284,000 jobs. As employment remains one of the biggest issues in the U.S. prior this year’s election this is good news for the incumbent Barrack Obama.

The unemployment rate held steady at 8.3 percent as the labour force participation grew as well. The biggest gains where in education and health services, while construction and government lost jobs.

Below are some other highlights of the week:


Americas

  • USD: US Economy adds 227,000 jobs in February with the release of the NFP report
  • USD: ISM non-manufacturing recorded an uptick of +0.5 points to 57.3 in its headline index last month, beating expectations that it would revert to 56.1 after having risen +3.8 points in January. The print remains shy of the 59 peak of a year ago. Digging deeper, business activity and new orders rose, while the employment index retracted modestly.
  • CAD: Ivey Purchases Managers index was at 66.5 on a seasonally adjusted basis in Canada from January. Digging deeper, the employment index was 58.8 while inventories was at 54.9, both higher prints than the previous month.
  • USD: According to ADP private sector jobs increased +216k this month and in line with expectations. January was revised higher to +173k from +170k. ADP also announced revisions to 2011 job numbers to reflect new seasonal factors and “regressional estimates to put the data closer to the labour series.”
  • CAD: Monthly building permits plummeted in January (-12.3%), deepest decline in eight-months. The plunge took out the previous months +10.5% gain.
  • USD: US weekly claims rose by +8k to +362k,. It was the third consecutive rise in the series. Even with the largest rise, new claims continue to hover around its four year lows. The figures are consistent with “continued healing in the labour markets.”
  • BoC: Governor Carney kept rates on hold at +1%. The “hawkish’ communiqué highlights ‘tentative signs of stabilization in European bank funding and sovereign debt markets’ and improved conditions in global financial markets. The Bank sees US expansion proceeding at a modest pace and growth in China moderating to a still-high rate, as expected. The BoC says recent developments “suggest that the outlook for the Canadian economy is marginally improved.”
  • USD: The big dollar and JPY trade on the back foot as markets anticipate a successful conclusion to the Greek PSI. Reports so far have pointed to a participation rate upwards of +60%, which should allow the swap to move forward with the triggering of collective action clauses and CDS. All will be revealed later this morning.

March 8, 2012

Volatility Expected to Pick Up on Thursday with Major Event Risk

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 8:05 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • More consolidation likely ahead of central bank event risk
  • Greek PSI deadline also very much in focus
  • Investors fear that CAC could be triggered
  • US NFPs should not be forgotten
  • Aussie holding up despite soft employment

Markets have been mostly locked in some choppy consolidation following Tuesday’s sharp risk sell-off and things could continue in this manner at least until the latter half of the day where a number of major events could finally break the range trade and open a good deal of renewed volatility. The Bank of England, European Central Bank and Bank of Canada are all set to decide on rates and although none of the central banks are expected to change policy (0.5%, 1.0% and 1.0% respectively), market participants will be looking for any signs of added dovishness given the ongoing stresses in the global economy. Perhaps more importantly however, will be the Greek PSI deadline at 20:00GMT. Many now fear that the collective action clauses (CAC) could be triggered, which would force bondholders to agree to haircuts. With the participation rate only at 58%, well short of the 75% required, all eyes are fixated on ISDA to see if they deem this to be a credit event.

Overall, our technical studies are warning of additional risk off sentiment in the markets going forward, with global equities starting to show signs of rolling over and higher yielding currencies also confirming a bit. At this point it is still too early to make any aggressive calls, and we will wait to see how the markets respond today for added clarity. Things will continue to be interesting into Friday, with the monthly US NFPs due out and also likely to generate a good deal of volatility. Signs of improvement in the US economy have been forcing the Fed to perhaps be thinking a little less dovish than many had hoped, and a strong number tomorrow could actually force additional risk off trade on fear that the Fed will look to reverse policy sooner than later.

Elsewhere, Australian employment data came out a good deal weaker than expected, which already follows a more dovish RBA and softer GDP this week. The Australian Dollar has still managed to hold up surprisingly well in the face of all this, and much of the bid tone continues to be driven off yield differentials and external factors. Still, we can not ignore the underlying fundamentals on the local front and continue to project relative underperformance in the currency going forward. Perhaps a more significant pullback in highly correlated global equities markets or more bad news out of China will be the catalyst to trigger the anticipated weakness in the commodity currency.

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