Forex Blog

May 4, 2012

Week in FX Europe April 29-May 4

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 10:55 am

The ECB stuck to its preceding template and ‘no’ concessions were made despite the more dire regional PMI’s. The language and copy remained very much unchanged from the previous press statement repeating the phrase that the economic outlook continues to be subject to downside risks. The only reference to the mixed data was that instead of stating “that survey indicators had broadly stabilized at low levels,” rhetoric that was heard last month, this time policy makers stated that latest survey indicators highlight “prevailing uncertainty.”

Lower rates are a distinct possibility, but for now, the ‘doves’ are disappointed. However, the downside risk to growth rhetoric keeps the rate cut window firmly open in the short term. This week’s weaker PMIs need to be supported by ‘a consistent batch of hard data’ heading deeper underwater for something to budge. Draghi is already leaning on next month for more data for policy maker’s assessment. The market expects weaker economic releases coupled with market volatility over the peripheries to force the ECB to cut the policy rate sooner rather than later. Short term, the growth outlook is fundamentally only going one way and that is not up!

Below are some other highlights of the week:


EUROPE

  • EU: Trading started the week thinned by market holidays and is ending in similar fashion.
  • EU: Euro-zone area M3 rallied +0.6%, m/m, in March for a +7.6% annualized rise in Q1, up from -3.2% in Q4. This would suggest that the LTRO operations have succeeded in stabilizing broader money supply. Digging deeper, the bank lending component remains weak, with loans easing off a tad. However, deposit data is beginning to show signs of stabilization in the periphery other than in Portugal. All said and done, the market continues to anticipate “further easing in the months ahead to support growth in the peripheral economies.”
  • ESP: It’s not a surprise to see that Spain’s Q1 GDP being reported down -0.3%, q/q. Confirming two consecutive quarters of contraction, the country is now in a technical recession, just like the UK.
  • SNB: Reported its reserve breakdown and the eye openers was the GBP increase. It rose from a Q4 +4.2% level to Q1’s +8.5%. The SNB stated that it is “simply moving back to pre-intervention allocations.”
  • NOK: The Norges Bank (Central Bank of Norway) reported that it will buy +NOK350m of FX per day for the government pension fund (same as last quarter). Analysts note that this level of FX buying is moderate relative to the past few years and should only represent a modest drag on the domestic currency.
  • GBP: UK manufacturing PMI came in weaker than expected, dropping to 50.5 from 51.9 and reversed the Q1 improvement.
  • TRY: S&P revised its outlook on Turkey to stable from positive, mostly on the back of “less-buoyant external demand and worsening terms of trade.”
  • EUR: A weak European PMI continues to weigh on sentiment and the single currency. EU PMI was revised lower to 45.9 from 46.0 last month. The once mighty core looks weak, with manufacturing PMIs at 46.2 and 46.9 in Germany and France respectively. The periphery fared even worse, with a 4 point drop in Italy and poor readings in Spain, Greece and Ireland. Overall perception would suggest “a very difficult growth outlook.”
  • CHF: Swiss PMI fell sharply to 46.9 from 51.1 previously. “Growth risk is likely to intensify deflationary pressure,” and keep the SNB’s commitment to the 1.20 floor intact.
  • CE3: No region tied to mainland Euro has been left unaffected. The CE3’s fell in line with the EZ data.
  • UK: Money data was slightly stronger than expected. Mortgage approvals increased +49.9k, above consensus for +48.0k. Meanwhile, the BoE data showed that foreigners were net sellers of gilts in March (£1.7b vs. sales of £4.7b in February). Expect ongoing Euro regional stress to continue to provide a demand for Gilts.
  • EU: Spain issued 3 and 5-year bonds this week in a reasonably successful auction, with the +EUR2.52b sale slightly exceeding the target range. France also saw good demand for their product, selling +EUR7.4b in long-term debt, also at the top of the targeted range.
  • GBP: UK ‘services’ PMI surprised lower than expected, falling to 53.3 from 55.3 and below consensus for 54.1. While still in expansion territory, the print is probably not low enough to sway the MPC in favor of more QE.
  • ECB: Did the weak PMI’s convince the need for an easing bias? Not entirely. Policy makers stuck to their guns, giving no concessions and left the language very much unchanged from the previous press statement. By not discussing a rate cut helped push front-end yields higher. Many expect weaker data coupled with market volatility over Spain will force the ECB to cut the policy rate sooner rather than later. Short term, the growth outlook is fundamentally only going one way and that down!
  • Peripheries: Spanish and Italian services sector contracted further last month and is causing “anxiety about the state of the Euro-zones economy.”
  • ESP: The final PMI reading confirms that the Spanish services sector has managed to contract for the tenth-straight month. The decline comes hot on the heels on data earlier this week confirming that the country has technically reentered a recession in Q1.
  • ITL: The Italians are no better, their services PMI index fell to its lowest level in three-years. Both economies are suffering from a ‘marked cyclical slowdown’ and it is only natural to believe that tighter fiscal conditions add further pressure on domestic demand. This will eventually translate into further deterioration in Q2.
  • FRF: The EUR bears are backing a Holland win in the French second round this Sunday, resulting in investor concerns about the ability of Euro-zone officials implementing the agreed upon fiscal measures having an impact on a timely basis.
  • NOK: Norway dumps Irish and Portuguese Bonds from its Government Pension Fund Global.

NFP has Investors Range Trading

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 10:55 am

Friday’s US payroll release has given helicopter Ben the ideal “wait and see” release and plays right into policy maker’s current way of thinking. Despite a net +115k jobs being created last month, the final print has still managed to undershoot the streets expectations by -53k. Chairman Bernanke has been very open and rather vocal with the market on how the US recovery has been painfully slow. Perhaps we should not be surprised with the outcome? Even the March and February upward revisions by a combined +53k, providing a zero sum game for the past three-months, has not stopped risk aversion trading strategies currently being implemented. The release neither raises nor lowers the bar for QE3. If anything, until there is more proof of an economic substance, expect investors to endure further range trading in the short run.

Below are some other highlights of the week:


Americas

  • CAD: February’s GDP headline print dropped an unhealthy -0.2%, m/m, after a +0.1% advance in January. The release leaves the Canadian economy tracking well below Governor Carney’s quarter release of +2.5%. Growth for the Q1 will likely come in at +2% or less, even if there is a rebound in March. This will be viewed as a potential U-turn in renewed interest rate hike thinking that came about after the market got itself all bulled up after the hawkish comments from Carney last week. The Canadian economy has some ways to go to adhere to the BoC recent forecasts.
  • USD: Regional factory surveys suggest an April slowdown. However, it seems that National ISM reports are trumping them. ISM Manufacturing PMI rallied to 54.8 last month (53) and was able to drag other sub-components, like production and employment, higher.
  • USD: During the midweek, the US data was not so hot. ADP release of its estimates for US private sector payrolls growth for April came in at +119k positions created, well below expectations of a +175k print.
  • USD: Another sign of uneven US recovery this week was new bookings for factory goods falling -1.5% in March as expected (largest fall in three years).
  • USD: Economic activity in the non-manufacturing sector grew in April for the 28th consecutive month. The non-manufacturing ISM registered +53.5% in April, -2.5% points lower than the +56% March print.
  • USD: The highly anticipated NFP report did not disappoint the market, it gave us volatility and that is something that forex asset class requires after five weeks of complacency. However, the underlying data is disappointing. April’s weaker +115k NFP print adds worries to the US outlook. Analysts were looking for a +175k print. The unemployment rate falling to +8.1% provided some good optics; however, the mathematics for the fall is not good reading. There were +522k counted out of the US work force last month-How is this good? Over the last year there were +2.74m pushed or left out of the workforce while +975k went into it.
  • CAD: A weaker than expected Ivey PMI release (52.7 vs. 61.0 expectation) is finally capable of pressurizing the loonie outright. Obviously the week ending in full risk-off mode after NFP is helping its northern neighbor’s currency to test some key support levels as the big dollar heads towards parity.

April 27, 2012

Week in FX Europe April 22-27

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:13 am

Investors will continue to view this as a EUR relief rally without teeth unless resistance is firmly broken or the slew of weak PMI’s right themselves. The markets current low level of risk appetite is partially due to the lack of a core market trend. The availability of limited carry amongst G10 currencies is not providing enough compensation to want to embrace it. Even Central Banks absence of market hand holding is dissuading investors from strapping on more of it. Do not forget the data, regionally it has softened, and despite a good US earnings season, the lack of market volatility indicates many investors have been sidelined. Asia on the other hand has less of an “homogenous” economic cycle and analysts believe this reason alone will lead to the growing divergence of currency performance in their favor. However, until the lack of market conviction attitude changes, the market is in danger of just plodding along similar to the last couple of weeks.

Below are some other highlights of the week:


EUROPE

  • The Euro-zone again was the catalyst of risk off price action beginning the week, as weaker than expected data, combined with political uncertainty and ECB resistance to additional stimulus caused risky assets to sell off aggressively. The EUR growth proxy currencies, like the HUF and PLN, bore the brunt of market pressure.
  • EU: Euro-zone flash PMI data moved sharply below 50 this month. Manufacturing PMI fell to 46.0 from 47.7, below consensus for 48.1. Individual countries like Germany and France provided no market relief. The German PMI was down to 46.3 from 48.4, while French PMI rose to 47.3 from 46.7 in March, but remained still well below 50. EZ services PMI fell to 47.9 from 49.2 with the lack of support again coming from Germany and specifically France. EZ PMI will eventually rub off on CE3 and the Skandis.
  • EU: ECB continues to resist IMF and US treasury call for additional monetary stimulus. Euro policy makers have argued that that the ECB has done enough by cutting interest rates and issuing more long-term bank loans. “None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least”.
  • FRF: Mr. Hollande won the 1st round of French presidential elections, taking +28.6% of the vote to Mr. Sarkozy’s +27.1%. The two candidates will go head to head in a second-round of voting on May 6. The market fear is that if Hollande is elected, he will call for the renegotiation of the European treaty on fiscal discipline. Optics tells us that France to date has been a major player in devising a solution to the Euro debt crisis, so any signs of instability and we have the makings of an event risk excuse. In the Netherlands, with the budget talks collapsing should put the countries triple-A credit rate at risk.
  • EU: Results from last weekend’s G20/IMF and World Bank meet saw the G20 pledged $430b to boost the IMF funds. The US declined to contribute while Canada proposed making it harder for Europe to tap aid.
  • CZK: The Czech government dissolved itself over the weekend and it is unclear whether it can gain majority support in a new coalition with a smaller split away party. The currency is encounter further pressure in the short term
  • EUR: Mid-week, decent Dutch (1.9b 2’s), Spanish (1.93b Bills) and Italian (2.5b Bond) auctions results temporarily trumped growth and political instability worries. Obviously the most significant issue was the Dutch as it was taken down just after a divided political weekend.
  • HUF: Hungarian CBank kept benchmark rate on hold at +7%. An IMF/EU deal is likely to allow cuts to the o/n rate. HUF has been a better performer this week on confirmation that agreement with the EU will allow aid talks to move forward.
  • GBP: UK GDP contracted -0.2%, q/q in Q1, putting the UK in a “technical” recession. The weakness came primarily in erratic industries and ex-these industries, GDP grew +0.1%, still a weak pace. The BoE has expected a weak print and has vocal in highlighting that leading indicators have been picking up. A percentage of the market expects the BoE to see through this print and is unlikely to head towards more QE.
  • EU: The ECB bank lending survey revealed that demand for credit has continued to fall sharply (equates to contracting activity data in Q1) and that there has been a significant decline in the net tightening of banks’ credit standards. However, banks believe that demand for future credit coupled with easing credit standards should be supportive of a ‘modest’ recovery in H2. Obviously all of this relies on the performances of the peripheries.
  • EUR: EU business confidence data showed further deterioration. Industrial sentiment fell to -9 from -7.1 (a new 13-month low). Consumer confidence held up better, but the data should support ECB easing expectations, and leaves the European periphery currencies like the Krona (+1.63%) and Zloty (4.5%) vulnerable.
  • ESP: Spain’s sovereign credit rating was cut two notches to BBB+ by S&P this week. They cited concern that the nation “will have to provide further fiscal support to the banking sector as the economy contracts.” The market already had this priced in.
  • ITL: Italy came to the market on Friday. After a Spanish downgrade, Italian benchmark yields climbed to +5.84%, 60bp above a comparable bond sale in March. Persistent high yields will only add to markets’ concerns about the debt of weaker EZ countries. Despite this, the Italians did sell +5.95b euros bonds, near the top of a planned issue range of between +3.75b and +6.25b euros. The EUR took the sale in its stride.
  • CHF: Swiss KOF survey headline improved to 0.4 from 0.09 and was the highest reading in five-months. However, they levels remain consistent with poor quarterly growth.
  • SNB: The CBank President Jordan indicated that the SNB has no intention of introducing negative interest rates. Analysts note that this goes some ways in supporting market expectations that the EURCHF floor could be raised if data begins to disappoint again.
  • Skandis: Norway reported strong March retail sales, up +2.4%, m/m, after a +1.1% rise in February. Swedish retail sales were also better than expected, but their exports were weak. Of the two currencies, SEK is perhaps more vulnerable to a Euro area growth fears.

NFP to shape the QE Outlook

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:13 am

The FED remains prepared to do more as needed to make sure the US recovery continues. The consensus view of the FOMC meet this week represents a highly accommodative policy stance. With Treasury’s, equities and gold ending the week higher and the dollar stumbling, are we setting the scene for QE3? If Ben’s apparent “conditions” become realized, an extension of Operation Twist or outright QE3 will surely have to be implemented. A disappointing weekly claim print this week has inspired some of the QE3 enthusiastic rhetoric. An uninspiring NFP release next week will be the key to shaping the quantitative outlook. Imagine what the asset class landscape is going to look like if there is no QE3 announcement at the June FOMC meet!

Below are some other highlights of the week:


Americas

  • Risk and commodity sensitive currencies started on the back foot on Monday morning on Euro-zone renewed concerns and weaker global data. Even surprising wholesale Canadian data was unable to save the initial selling of the interest sensitive currency. Sales rose +1.6% in February, more than reversing the previous months decline. Sales got a boost from motors and their parts, +2.7%. The report certainly warrants some optimism about the months GDP report.
  • CAD: The loonie came under pressure after a disappointing retail sales print of -0.2%. The February release was the first decline in 11-months. The market had expected a growth print of +0.1%. The important sales volume measure happened to drop by an even sharper -0.6%, suggesting a drag on the months GDP, to be released this coming Monday. Last week the BoC was forecasting a +2.5% annualized growth for Q1. Things may not be as hot as Carney believes!
  • USD: US home prices continue to fall year-to-date, pushing the S&P’s/Case-Schiller home price index down to new post crisis lows. The February 20-city index was down -0.8% from the previous month. House prices are back to late 2002 levels.
  • USD: The US consumer turned slightly more pessimistic this month (69.5 vs. 69.2) as rising gas and weaker job growth continued to pressurize confidence levels.
  • USD: The US housing market continues its long struggle with sales of new homes slipping in March while the February print was revised higher. Sales in March decreased -7.1% to +328k. The February print was revised higher by +7.3% to +353k, initial sales were reported at +313k. Year-over-year, March sales were better off by +7.5%. Despite historical mortgage rates and falling prices, an uncertain job market continues to keep buyers on the sidelines.
  • USD: March Durable goods orders significantly missed expectations with the headline down -4.2%, ex-transport down -1.1% and non-defense capital goods ex-air down -8%. Even the revisions were negative with the February growth revised to +1.9% from +2.4%. March was the fastest headline decline in two-years. Analysts note that that there are worrying signs for the manufacturing sector which has contributed significant payroll gains for the last quarter.
  • FOMC: The FOMC reaffirmed its conditional commitment to near-zero overnight rates through at least late 2014. Like a good Cbanker should do in his situation, Ben played down the more hawkish elements of the statement and interest rate expectations.
  • FOMC: They held to the very same policy announcement it issued in March, continuing the existing term extension and rollover into mortgage backed and agency debt, with nothing specific about whether it will extend the “twist” operation when completed, other than the usual pledge to keep reviewing its security holdings.
  • FOMC: Their statement points to another “strong policy consensus.” Upgraded assessments of growth and unemployment for 2012 did not extend to the “full forecast horizon.” Ben hinted that the threat to financial stability from Europe’s crisis and the risk of a domestic fiscal policy mistake “may have prompted slight downward revisions to growth forecasts beyond this year.” That said, projections see the pace of recovery gradually improving to an above-trend pace.
  • USD: The market is unlikely to rebuild a Fed policy tightening bias without US data finding some stronger traction. Without this, the dollar cannot depend on a yield-drive play medium term. Investors will have to rely on an ECB and BoJ easing bias policy to support the ‘buck.’ “The marginal shift forward in member expectations for policy tightening was offset by Bernanke’s message that the Fed will do more if needed to support recovery.”
  • USD: Weekly jobless claims fell -1k to +388k last week. A plus to the market was that there were no seasonality bumps to contend with. However, claims have remained above the +385k print for three consecutive weeks, something that has not occurred in six-months. This would suggest a level consistent with slow hiring. Last week’s 4-week moving average increased by +6.25k to +381,750. Analysts are projecting a payroll print of +175k next week.
  • USD: The NAR showed improvement for the US housing market. The number of home buyers who signed contracts to purchase previously owned homes grew last month to the highest level in 2-years. The seasonally adjusted index for pending sales increased +4.1% on a monthly basis to 101.4.
  • BoC: Carney said the Canada will continue to attract foreign Capital and urged that care on how funds are used. Demand for domestic bonds has caused lower mortgage interest rates resulting in increasing concerns at the level of household debt.
  • USD: Q1 GDP came in below expectations, up +2.2% vs. +2.5%, while final sales were up a “mediocre” +1.6%. The mighty buck initial reaction was to trade under par relative to its larger trading partners.
  • USD: Labor department stats showed that employment cost index rose +0.4% in Q1, down from +0.5% advance during Q4.
  • USD: US consumers apparently feel better about the economy, with Friday’s UoM sentiment index rising to 76.4 end of April, from 75.7 at the beginning of this month. One year inflation expectation slipped to +3.2% from +3.4%, which is surely to keep Ben happy.

BoJ Provides No Favors

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 11:13 am

The BoJ has disappointed the market expectations for aggressive easing. Despite announcing a +JPY10t increase in its JGB purchase program, an offsetting reduction in the target for fixed-rate loans to banks, saw a net increase in the APP in line with expectations. More importantly, Governor Shirakawa did not stop there; he and fellow policy makers have indicated that the new current measures should be sufficient to meet the inflation objective of +1%. It is this rhetoric that has diminished somewhat market expectations that Japanese policy makers had embarked on a series of APP increases and large-scale QE action. Are the BoJ taking the foot off the gas too soon? Already stating that they have no intention of increasing stimulus each month, coupled with the absence of US yields moving higher, will probably equate to a rather limited USDJPY strong play.

Below are some other highlights of the week:


Asia

  • CNY: Chinese HSBC Flash PMI rose slightly to 49.1 this month from 48.3 in March, but was still below the 50 mark for expansion. Are we seeing the trough for growth in China being made?
  • EU: Results from last weekend’s G20/IMF and World Bank meet saw the G20 pledged $430b to boost the IMF funds. The US declined to contribute while Canada proposed making it harder for Europe to tap aid.
  • SGD: Singapore CPI inflation accelerated to +5.2%, y/y, in March from +4.6%, y/y, in February, mostly on the back of higher transport prices. The market is betting that this should keep the MAS on its tightening stance.
  • AUD: Aussie PPI unexpectedly fell -0.3%, q/q in Q1, decelerating from a +0.3% rise in Q4 2011.
  • AUD: The Aussie rates market has raised its pricing for RBA rate cuts by +7bp to +32bp for next week’s meeting after the country’s inflation data. Australia’s headline CPI rose +0.1%, q/q, in Q1 after a flat Q4, much weaker than the consensus forecast for +0.6%. The core or underlying inflation came in well below the +0.6%, q/q, consensus at +0.35%.
  • JPY: Japan’s corporate service price index fell -0.3%, y/y, last month following a -0.6% decline in February.
  • NZD: The Kiwi’s posted a small monthly migration gain of +130 (sa) in March, after a revised net loss of 300 in February.
  • INR: S&P shifted the outlook on India’s BBB- ratings to ‘negative.’ In plain language, the country could drop out of investment grade. S&P focused on India’s widening current account deficit and Governments difficulties in implementing policy measures.
  • KRW: Korea’s consumer confidence rose to its highest level in 12-months to 104 this month from 101 in March.
  • NZD: The RBNZ kept the policy rate unchanged this week, but signaled a dovish shift in response to the NZD strength. Previously Bollard stated that sustained currency strength “reduced the need for future increases in the OCR”. This week their stance has become a tad firmer, stating that “should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings”. Is this opening the possibility for even cutting rates should the Kiwi strength continue?
  • AUD: Aussie Conference Board Leading Index was unchanged in February, following a revised +1% increase in the previous month.
  • KRW: Korea’s GDP rose +2.8%, y/y in Q1, below the consensus forecast for +3.0% print. Analysts note that net exports were down about -5%, q/q, in Q1 suggesting external demand is lagging.
  • JPY: The BoJ has disappointed the market for aggressive easing. While the central bank announced a +JPY10t increase in its JGB purchase program, there was an offsetting –JPY5t reduction in the target for fixed-rate loans to banks. As such, the net increase in the APP just +Y5t, in line with expectations.
  • JPY: Japan IP rose less than forecasted in March, gaining +1%, m/m, after a +1.6% decline in February. Core-CPI rose +0.5%, y/y in March, following a +0.3% increase in February.
  • JPY: Retail sales climbed +10.3%, y/y, in March after a revised +3.4% increase in February, while household spending rose +3.4% accelerating from a +2.3% from the previous month.
  • JPY: Japanese jobless rate was +4.5% last month, unchanged from February.
  • CNY: China’s industrial profits rose +4.5%, y/y, in March, rebounding from the first January-February decline in three-years.
  • KRW: Korea’s current account surplus rose to +$3b in March from +$0.5b in February, supported by a recovery in the goods trade balance.

April 26, 2012

It’s noise for all EURO B’s

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 4:35 am

Psychologically, it’s a disappointment to see the EUR open up virtually unchanged. So far this morning the market has done a good job taking out the weaker shorts just below the April 4 high. Despite the daily charts up-ticking, the market and hourly’s indicate that price levels are stalling in overbought territory. Nothing fundamentally has changed in the past 24-hours. Big-picture politics even remains the same. However, the intraday techies seem to be favoring buying dips with tight stops. Knocking out these looping or loopy orders, depending on what type of ‘B’ your are, a bull or bear, usually is easy fodder for dealers. For now, all we are hearing is ‘noise’ within a contained trading range.

Ben did his darnedest yesterday to curb any ‘irrational exuberance’ about the US economy. As was obvious, the FOMC reaffirmed its conditional commitment to near-zero overnight rates through at least late 2014. Like a good Cbanker should do in his situation, Ben played down the more hawkish elements of the statement and interest rate expectations. Individuals looking for a break below 1.30 EUR and above 85 Yen still have work to do. Some individuals will be looking for a BoJ helping hand this evening.

In its statement, the FOMC held to the very same policy announcement it issued in March, continuing the existing term extension and rollover into mortgage backed and agency debt, with nothing specific about whether it will extend the “twist” operation when completed, other  than the usual pledge to keep reviewing its security holdings. The release of economic projections revealed a slight drift forward in the timing of committee expectations for rate hikes, with two more members calling for a 2014 tightening. However, the number of members looking for a hike sooner remained unchanged at six.

Despite some officials moving forward the appropriate timing of the first rate hike, risks and uncertainties to the downside and the 9-1 vote (Lacker’s usual dissent), points to another “strong policy consensus.” Upgraded assessments of growth and unemployment for 2012 did not extend to the “full forecast horizon.” Ben hinted that the threat to financial stability from Europe’s crisis and the risk of a domestic fiscal policy mistake “may have prompted slight downward revisions to growth forecasts beyond this year.” That said, projections see the pace of recovery gradually improving to an above-trend pace.

The market is unlikely to rebuild a Fed policy tightening bias without US data finding some stronger traction. Without this, the dollar cannot depend on a yield-drive play medium term. Investors will have to rely on an ECB and BoJ easing bias policy to support the “buck.”

On the wires, it’s expected that the BoJ is likely to ease monetary policy tonight by increasing asset buying by between +5 and +10t Yen to the existing +65t Yen program. Currently, Yen outright is trading as if the BoJ is going to fail to deliver. It seems that the currency pair is hell bent on printing the 50% retracement of the 76.03-84.19 up-leg (Ichimoku cloud base). This move will clean out most order books and should allow the BoJ to get a “bang for its buck” when they do ease!

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April 25, 2012

Specs to Squeeze EUR ahead of FOMC

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

There must be some truth in ‘an apple a day keeps the doctor away.’ Well the EUR bulls would like to believe that. After hours trading yesterday saw Apple earnings release give the risk market some freedom to roam higher. Roam is too strong, probably feel its way higher, but remain in this well defined EUR range ahead of the FOMC release. Trader stops and Mideast buying has been able to lift the ‘single’ currency to these o/n session highs. The bear continues to rely on EU supranational and government names to sell into this rally where significant EZ/Bund tightening spreads support these gains. Today’s focus will be on the FOMC projections.

Will the Fed policy team allow the EUR to get too far ahead of itself? The earlier rate release will see no change of the O/N funds rate. It’s the updated economic and funds rate projections along with helicopter Ben’s press conference that is going to create all the trading fuss. The FOMC statement language is expected to remain largely the same. Maybe a tweak where they might mention the recent moderation in labor market improvement and renewed strains in global financial markets. It’s the ‘official projections’ that are capable of offering potential ‘hawkish’ surprises. The whisper is that maybe one or two of the FOMC officials, in the hawkish minority camp, might have brought forward their call for the first Fed rate hike. The 2014 guidance is not irrevocable, but expected to remain.

Rational distribution of expectations is likely to shift towards an earlier hike. A new theme that appears to be coming to the fore amongst G10 members. In this scenario, the US fixed income class would see shorter term yields creep high, a bias for the dollar against the EUR and probably more so against the JPY ahead of this Friday’s BOJ policy announcement. Quick spec money is likely to prefer a lower dollar ahead of the FOMC statement and Ben’s conference. The market remains short EUR’s and if Ben talks the US economy down, the following short squeeze will have the weaker EUR shorts positions taken out of the game. The techs see the market bias within the three-month range remaining bearish. Investors continue to sell upticks looking for a short-term run into the 1.30’s. Everyone knows that this market is oversold, however, someone has yet to provide a compelling reason to change current market strategies.

UK data this morning confirms that the British economy has officially slid back into recession in Q1. GDP shrank -0.2% in the first three months, complementing the -0.3% fall in Q4. Cable never stood a chance, unlike Gilts which are in demand this morning. This will certainly put Finance Minster Osborne austerity drive in the firing line. Critics believe that his aggressive tax hikes and spending cuts can only simply strangle growth. The BoE was already signaling that the UK was probably in a recession. To date, they have been promoting that the economy is healthier than data suggests. The market knows that there is room for revisions to the numbers given that they are early estimates. However, will they be large enough to make the double dip go away? The BoE may not be able to look through the numbers and may have to respond with QE.

Will a change of guard be about faith in the EUR project? The Dutch freedom party believes that the September election would be a referendum about sovereignty and Europe. Sarkozy is certainly under pressure and possible to be ditched by France in favor of Hollande, who has irked Merkel, and who herself faces the electorate next year. With the Irish referendum and the Greek going to polls around the corner, collectively these elections will be seen as a vote on the EUR project.

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EUR Relief Rally without Teeth

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April 24, 2012

EUR Relief Rally without Teeth

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:23 am

Today brings forth some modest bounces in all asset classes. It can so, only because of the depth of shellacking they have experienced of late. All just in time and ahead of reports on American consumer confidence and home sales later this morning. Market sentiment has been turning on a dime and will be continued to be dictated to by euro-zone news, economic data points and US corporate earnings. That said, the EUR traded within a whisker of breaking through most individuals psychological barrier again yesterday (1.31). The result for not doing so is a market again determined to flush out ‘stale’ shorts ahead of the two-day FOMC meet starting today.

Last week saw the beginning of policy signals and tone from various G10 members beginning to change. With hawkish or more accurately ‘less dovish’ policy tones from the BoE, BoC and Swedish Riksbank has fixed income traders reducing expectations for further easing. It was only a few month ago that all Central Bankers were waving the same flag, now we have policy divergence. FX traders have only just got their heads around Euro-periphery yields, now they will have to widen that scope.

Regarding the Fed, they remain a nonstarter in the rate change, but have a lot to say. Bernanke’s press conferences tomorrow will be heavily scrutinized for any QE3 rhetoric. Does the US retail sales print last week finally put a nail into Q3’s coffin? Policy makers will update their set of projections on GDP, inflation and employment. The hawkish minority will have likely moved forward their call for the first Fed rate hike and investors are looking for signals.

The EUR FX market seems to be unsure whether the euro-zone requires more ‘austerity as opposed to economic stimulation.’ It is being put forth that the lack of market volatility could be considered as a ‘stalemate’ between the two sets of thoughts. For sure, these tight consolidated ranges to do not provide much alternative thought. All the noise and action continues to be carried on “around” the current EUR trading range as consolidation persists intraday within the recent range.

The market bias remains the same, with investors willing to set shorts on any market rallies while prices remain below last summers trend line of 1.3350. The prospect of a multiyear low ECB rates and the recent expansion of their balance sheet through the 3-year LTRO program is likely to keep front rates under pressure, tightening the EUR/G10 spread in favor of other currencies with the dollar being the dominant choice. Immediate dollar strength will be relying on continuing improved data flow and the ECB and BoJ expanding their balance sheets.

Decent Dutch (1.9b 2’s), Spanish (1.93b Bills) and Italian (2.5b Bond) auctions results today have temporarily trumped growth and political instability worries. Obviously the most significant issue was the Dutch as it was taken down just after a divided political weekend. Investors will continue to view this as a EUR relief rally without teeth unless resistance is firmly broken or the slew of weak PMI’s right themselves.

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April 20, 2012

Is China doing its Part?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 11:07 am

This week, China widened the Yuan’s trading band outright to +1% above or below the central parity rate (the PBoC fix before trading). Previously they had been using +0.5%. Against the EUR, GBP and JPY, the float is up to +/-3%. Optically, it is another step in the liberalization of the CNY exchange rate towards full convertibility. Fundamentally, it will take some of the pressure off China on allowing more CNY appreciation. It is supposed to be a well-timed political move that proves that reformists are in charge and continue to push forward key financial reforms. Currency flexibility can only be positive for “equities by making it easier for policy makers to balance growth and inflation.” Analysts expect the pace of CNY appreciation is going to be dictated by the USDCNY fix. So far this year, the fix has lagged behind the 5% down trend in 2011.

Below are some other highlights of the week:


ASIA

  • NZD: A plethora of Kiwi data showed that the REINZ house sales in March recorded the best monthly increase in nearly five-years, rising +25.3%, y/y, after a +37%, y/y, increase in February. Other releases showed that the performance of services index fell -1.9 points last month to a seasonally adjusted figure of 53.9. Digging deeper, food prices were down -1%, m/m, in March, following a +0.6% rise in February.
  • KRW: Korea’s import prices rose +3.5%, y/y, in March, decelerating from a +5.2% rise in February while export prices remained unchanged, compared with a +2.1%, y/y, gain in February.
  • INR: Wholesale Price Index inflation fell slightly to +6.9% in March from +7% in February. More importantly, core-inflation dropped further to +4.7%, y/y, from the high of +8.2% in November last year and +5.8% in February. Will they RBoI cut repo?
  • AUD: The RBA’s minutes were in line with this week’s policy statement, signaling an easing move in May conditioned on moderating inflation outlook. Policy members judged that domestic growth has slowed since the RBA last eased policy in late 2011 and “a case could be made for further easing” once the Board has the opportunity to review comprehensive inflation data next week. The market is pricing in a -25bp cut in May. Expect the AUD to remain vulnerable heading into the meeting.
  • SGD: Singapore non-oil exports unexpectedly fell -4.3%, y/y, in March, down from the +30% rise in February and much weaker than the consensus forecast for +7%. The weakness is largely due to unspecified “non-electronic products” with electronic exports up +2.8% and the usually volatile pharmaceuticals output stable at +43%.
  • CNY: China’s SAFE (State Administration of FX) announced this week freedom in banks’ foreign exchange trading. Onshore Chinese banks will now be allowed to sell dollars short from this week on. This is basically an n extension of last weekend’s dollar yuan band widening announcement and is a “step in the right direction towards a more market-oriented FX regime.” Is the PBoC trying to prevent CNY TWI appreciation given the strong USD environment?
  • IMF: Boosted their economic growth forecast to +3.5% from 3.3% for this year.
  • JPY: The Nikkei reported that the BoJ is considering upward revisions to its CPI forecasts for 2012 and 2013 at its bi-annual update in late April. Already this week, BoJ Deputy Governor Nishimura said that the CBank “would implement additional easing if necessary”. Fear of more easing measures to be implemented at the 27 April meeting is trying to keep the yen in check. Any dollar traction remains contingent on higher US front-end yields.
  • NZD: ANZ consumer confidence rose to a three-month high this month at 114, up from 110.2, m/m. The markets does not expect the RBNZ to normalize rates this year given the elevated level of the Kiwi, especially as its neighbor and largest trading partner, Australia, looks set to ease rates in the coming months.
  • AUD: The Westpac Leading Index advanced +0.2%, m/m, in February following a revised +0.7% rise in January.
  • JPY: Japan’s adjusted trade deficit rose to -JPY621b in March from -JPY321b and much worse that the -JPY446b forecast. Despite export growth improving to +5.9%, y/y, from -2.7% in February, imports remained strong, up +10.5% last month. The market continues to focus on the prospect of easing at the next meet on April 27th. Logically, this should keep JPY heavy in the near term.
  • NZD: Kiwi CPI rose +0.5%, q/q, in Q1 and in line with expectations. However, y/y, inflation is subdued at +1.6%, down from +1.8%, y/y, in Q4 and well below the +2% mid-point of RBNZ’s inflation target band.
  • BRL: Brazil’s Copom (CBank of Brazil) cut the Selic (overnight) rate to +9% (just shy of an all-time low) in line with expectations.
  • CNY: Press reports that China may increase liquidity via reverse repo operations and reserve requirement ratio (RRR) cuts. FI traders expect the PBoC to conduct another two RRR cuts this year.
  • AUD: The Aussie export price index plunged -7%, q/q, in Q1 after a +1.5% decline in Q4. Import prices also slipped -1.2% in Q1, compared with a +2.5% rise in Q4.
  • MYR: Malaysia’s inflation fell to +2.1%, y/y, in March from +2.2% in February and the high of +3.4% in Q3 last year. Analysts believe that the BNM (CBank) is expected to keep rates on hold this year given the strength in domestic demand and rebounds in exports.
  • G20, IMF and World Bank meet in Washington this weekend.

EUR Rallies ‘Cause it Can

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:33 am

The pattern remains the same in the overnight session, another contained EUR trading range. However, if a currency is unwilling to head south, then there is a threat that it will want to trade at higher prices. This will certainly be testing the stamina of the weaker bear positions. Blinkered focus this week has been on Spanish refunding needs. A successful auction came and passed and still Italian and Spanish government prices continue to fall this morning. It seems they have failed to inspire renewed confidence in peripheral markets.

German Bunds yields are printing record low yields for a second consecutive day as investors maintain their appetite for safe haven assets. Spain is toying again with that psychological +6% yield, while French yields continue to build ahead of the first round of the country’s Presidential race this weekend. Uncertainty created by the first round of voting could push that country’s spreads even wider. The market remains concerned, and rightly so, about Spanish banks and their non-performing loans. The firepower, albeit waning, of the ECB’s LTRO doe not seem to be fooling anyone.

The single unit continues to test overall market patience. The currency has rallied this morning on the back of a stronger German ifo release. In a contained range, the definition of a rally seems to be as little as ten points, where is the volatility? German business confidence has again unexpectedly increased for a sixth straight month, with companies encouraged by signs that the Euro-zone’s largest economy is rebounding from the bloc’s slowdown. The index rose to 109.9 as manufactures regarded economic outlook “significantly more positive.”

This week the EUR has weathered softer US data, higher peripheral yields, the IMF spinning Spanish outlook and local “ring fencing” to little effect and not so positive rhetoric from ECB’s Praet with his comments on how many years its will take the region to overcome this crisis. However, expect option market rhetoric to try to apply some pressure on the unit as large expiries come due at 1.30 and 1.31 later this morning along with a 1.2950 barrier rolloff. The technicals have not changed so much, demand remains on dips, with the 21-day MA remaining in focus (1.2992). Selling failure remains an objective, there are offers front running Middle east interest ahead of the figure and with some stops just above. With market momentum remaining slow, the safe bet is for another consolidated daily range.

The significant surprise this morning was UK sales data. Last months print came in at a very strong +1.8% gain, ex-food and energy the headline revealed a firm +1.5% print. This certainly has given Sterling the upper hand against most of its trading partners. Bigger picture, if the BoE minutes this week were unable to convince you that QE is now likely for an extended pause, then this morning’s print will help persuade the market that UK policy makers are very much in a “holding pattern” on QE. Next week the Fed is up, and with the softer data of late, QE will be a question posed to Bernanke and company. For the BoE, no further evidence of downside risk to growth and with risks to inflation now appearing, there is no need for them to pull a QE trigger just yet. Now, with Bernanke and employment, it is very much another matter!

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