Forex Blog

February 1, 2012

Central Bankers Weaken Their Currencies, Boost Gold

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , — admin @ 12:34 pm

By Sam Mattera
Benzinga Guest Writer

Since the turn of the year, nearly every asset class has been on a tremendous bull run.

Precious metals in particular have benefited, as gold and silver have rallied back from their recent lows. Gone are calls for a “gold bubble”. Gold has risen in price throughout January and now sits near $1745 per ounce. Silver has gained as well, and is currently approaching $34 per ounce.

The precious metals may have been getting a boost from the actions of central bankers, who continue to make the yellow metal a seemingly great alternative currency.

Last week, in the Federal Reserve’s statement, the Federal Open Market Committee promised to extend low rates through 2014, and possibly into 2015. In August the Fed had promised to keep rates low until at least mid-2013. Now, the FOMC has extended that promise for at least an additional year.

In August, that rate pledge drew three dissenting votes from regional Fed presidents. However, as the FOMC’s membership shifts from year-to-year, those members no longer have a say in the FOMC’s decision.

Philadelphia Fed’s Charles Plosser —who dissented in August but now no longer has a vote—spoke on Wednesday and derided the move. He attacked it from a bullish perspective, continuing to state his long-standing opposition: that the economy is improving and low rates will not be appropriate for much longer. In that case, to prevent runaway inflation, the Fed would have to hike rates prior to their promised date.

While keeping rates low may contribute to economic growth in the short term, the move has begun to draw fire from some commentators and money managers.

In his monthly letter, Bill Gross—the world’s largest bond fund manager—attacked the move, stating that it could actually have a negative effect.

Ultimately, if the Fed keeps interest rates low, it could spur inflation as investors pile out of a weakening dollar in favor of precious metals. Under this scenario, investors may anticipate the US dollar index to fall while the price of gold may rally.

Still, as other central bankers continue to ease, the dollar index may not give much ground. The US dollar index is a measure of the dollar’s value against other fiat currencies.

Bank of England officials have mentioned undertaking further quantitative easing, while the European Central Bank continues to step into the European bond market from time to time. The Bank of Japan may attempt to weaken its yen once again, in the face of slumping Japanese manufacturing.

The US dollar index dropped 0.5% during early trading on Wednesday, as the EUR/USD pair moved up over 0.64%.

January 18, 2012

Market Outlook for January 18, 2012

Filed under: Forex News — Tags: , , , , , , , , — admin @ 8:09 am

Recap of the Latest Global News

The markets continued to be buoyed by speculation that an easing of monetary policy in the world’s second largest economy, China, is becoming increasingly likely. Furthermore, strong data releases yesterday from both sides of the Atlantic and a fall in peripheral European bond yields aided the general risk-on environment. The German ZEW investor confidence index rose the most on record from minus 53.8 in December to minus 21.6 in its second straight rise. The EUR has surged to above 1.2840 after trading as low as 1.2734 during the Asian session after the IMF proposed a boost to its lending resources by $1 trillion.

The markets remain positive despite the World Bank cutting its global growth forecast by the most in three years. It forecasted that global growth would slow to 2.5% in 2012, down from an estimate of 3.6% in June. It predicted that the euro area may contract by as much as 0.3%. Germany has also cut its 2012 economic growth forecasts.

Pimco’s Bill Gross has weighed into the debate surrounding the role of credit rating agencies in the global financial system by saying that although some may argue that downgrades may not matter, that they may trigger a wave of selling by investors who are required to hold only the highest quality securities in their portfolios as a matter of regulation. In the UK, the GBP fell yesterday as inflation slowed to 4.2% from 4.8% in November and investors speculated that the Bank of England may introduce more quantitative easing before rising on the back of a surging EUR.

Asian equities rose in response to better than expected data releases on both sides of the Atlantic with the MSCI Asia Pacific rising 0.3%. The Nikkei rose 1% while the Hang Seng gained 0.3%. European bourses are higher by about 1% mid session as the EUR rallies on optimism surrounding Greece and a proposed increase in IMF lending resources.

Commodities News

Commodity prices rose on the back of a series of good data releases across China, Europe and the US yesterday. WTI Crude continues to gain rising 0.6% to $101.30 on a push by France to fast track sanctions against Iran. Precious metals consolidated with gold steady at $1,657 while silver gained 0.5% to $30.30. Soft commodities had a mixed session while copper gained 0.5% during the Asian trading session.

GOLD

GOLD continued to grind higher in offshore trade as rising equities and a weakening USD left only one way fro commodities to move on the night. China data yesterday triggered the gains seen last night and once we saw improved German sentiment and better than forecast manufacturing data in the US we continued to gain. We did see some profit taking late in the session as US equities paired some of the earlier gains after Citigroup reported weak earnings which pushed the USD higher. Gold finished US trade stronger by 1.50% at $1,655. Gold is not only a safe haven but is a highly demand related commodity and improving conditions globally coupled with the potential for easing in China should see prices rise further. USD weakness will only add to upside pressure but if we were to see the Euro post some gains then gold could be back at $1,800 before we know it. We have now managed to consolidate above support/resistance at $1,642 and should now grin towards $1,700. The next hurdle is resistance at $1,667 and above here $1,777 and then it is a free run to $1,700. On the downside, any losses from here should be limited by support down at $1,625 and closer in at $1,635.

FX News

EUR/USD

A proposal by the IMF to increase its lending resources by $1 trillion and renewed optimism surrounding Greece has seen the EUR surge above 1.2840 in European trade after finding support at 1.2730 in Asian trade.  Stop losses were triggered on the break of 1.2800 but resistance at 1.2850 held firm.  The general downtrend remains intact and we expect a test of 1.2750 during the New York Session.  Expect a trading range of 1.2720 to 1.2830.

GBP/USD
In the UK, a weaker than expected CPI figure and increased speculation about further quantitative easing by the BOE has seen the currency remain heavy in the past few trading sessions. The opportunity exists for a short EURGBP trade at levels above 0.8330 looking for a retracement back to 0.8280 in the coming sessions. We expect the EUR to resume its accelerated decline against the GBP. In the GBP, the main resistance remains at 1.5590 while support is strong at 1.5270. Overall the trend remains bearish and we expect a range of 1.5290 to 1.5390 in the New York session.
USD/JPY
USD/JPY remains the range traders’ currency of choice as it stays within a 76.50 to 77.00 range with no signs to show that it will break out of this range. However, the expectations that the BoJ will intervene have consistently failed to quell JPY strength and we expect that a clean break of 76.50 will lead to a rapid decline to record lows as USD bulls rush for cover. For the New York session expect more of the same range. Sell on a break of 76.45.
AUD/USD

AUD/USD was almost the best performing currency on the globe during the last 24 hours as the positive climb started with the better than expected Chinese GDP data and the relationship to commodities and the talk of continued building in China propping up the Australian Dollar because of the need for our resources. The break above 1.0400 was a surprise.  However, after the better Chinese data we got the expected move above the 1.0370 pivot but we have to say 1.0450 was a little over extended.  Speculators were noted sellers towards the highs and have already proven that the markets remain unconvinced about the future direction. The gains were quickly given up with the price ending the US session back below 1.0370. Westpac Consumer sentiment and New Motor Vehicle Sales are due during the local morning and motor vehicles sales expected to improve we could see incorrect positioning. Car manufacturers have been heavily discounting so to pick the result looks harder than picking the winner in the races.

Compass Global Markets

November 13, 2011

November 5, 2011

Trading Week Outlook: Nov. 7 – Nov. 11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 11:26 am

Nov. 5, 2011 (Allthingsforex.com) – Although much lighter on pivotal economic data, the trading week ahead will not be any less intriguing as headlines from the Euro-zone debt crisis continue to dictate the market’s direction and traders prepare for the next act of the Greek drama, while keeping an eye on the political situation in Italy.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Mon., Nov. 7, 3:15 am, ET.

The Swiss inflation gauge is forecast to increase by 0.3% m/m in October, same as the 0.3% m/m reading in September, while the yearly CPI measure remains near zero, at 0.5% y/y. With the euro breaking lower towards its recently established “floor” against the Swiss franc, the Swiss National Bank might need to refresh the market’s memory of its promise to do whatever it takes to defend the EUR/CHF 1.20 exchange rate level. Moreover, the SNB could even be prompted to raise the floor up to 1.30, especially if the “massively overvalued” franc and the risk of deflation continue to loom over the economy.

2.    EUR- Euro-zone Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Mon., Nov. 7, 5:00 am, ET.

In case the market decides to start paying attention to economic data rather than the headlines from Greece and other EU debt-ridden nations, the weakness in the Euro-zone economy is expected to continue with retail sales forecast to decline for another month by 0.2% m/m from the 0.3% m/m drop in the previous month.

3.    GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Nov. 8, 4:30 am, ET.

With the Manufacturing PMI dipping below 50 into contraction territory, the U.K. industrial production is forecast to register an anemic increase by 0.1% m/m in September, compared with 0.2% m/m in August.

4.    CNY- China CPI- Consumer Price Index, the main measure of inflation, Tues., Nov. 8, 10:00 pm, ET.

Inflationary pressures in China are forecast to stage a larger decline to 5.4% y/y from 6.1% y/y in the previous month. Lower inflation could ease some of the concerns that the Chinese central bank may have lost its grip on inflation and could reduce the odds of more rate hikes by the PBOC. A decision by the Chinese central bank to refrain from raising the benchmark rate further could give the Chinese and the Australian economies a boost, and could lend support to the Australian dollar.

5.    NZD- Reserve Bank of New Zealand Financial Stability Report on economic conditions, inflation and future monetary policy, Wed., Nov. 9, 4:00 pm, ET.

At its latest monetary policy meeting, the Reserve Bank of New Zealand surprised the markets with its hawkish stance on inflation and the potential for rate hikes in the near future. The bank would probably echo the same sentiment in its financial stability report, which could help the New Zealand dollar attract some bids.

6.    AUD- Australia Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Wed., Nov. 9, 8:30 pm, ET.

The Australian labor market is expected to cool off with slower job creation of up to 10,000 new jobs added in October, compared with the 20,400 jobs in September, while the unemployment rate rises to 5.3% from 5.2% in the previous month. If coupled with more risk aversion, a weak jobs report could become a significant risk event for the Aussie dollar.

7.    GBP- Bank of England Interest Rate Announcement, Thurs., Nov. 10, 7:00 am, ET.

When it comes to the Bank of England’s future monetary policy, the unknown is not whether the bank will change the benchmark rate from its record low 0.5% level, but rather if there will be an expansion or a reduction in the bank’s quantitative easing operations. Policy makers recently decided to expand the Asset Purchase Program beyond the 200 billon-pounds ceiling by another 75 billion pounds, however the latest minutes report stated that “depending on developments in the euro area and financial markets, the size of the stimulus could be adjusted in either direction”. Although it still may be a bit of a long shot, if EU leaders succeed to put out the fire from the debt crisis and the U.K. economy strengthens, the size of the Asset Purchase Program could be reduced, and it would not be surprising to see the GBP benefiting from such scenario.

8.    USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Nov. 10, 8:30 am, ET.

Breaching below the 400K mark to 397K, first-time applications for unemployment benefits are forecast to inch higher to 402K, still above 375K- the number estimated by economists to signal significant decline in unemployment.

9.    GBP- U.K. PPI- Producer Price Index, the main measure of wholesale inflation and a leading indicator of consumer price inflation, Fri., Nov. 11, 4:30 am, ET.

Despite of the recent rise in the CPI to 5.2% y/y, producer prices in the U.K. are expected to register a slight pullback with the core PPI forecast to reach 3.7% y/y in October from 3.8% y/y in September.

10.    USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Nov. 11, 9:55 am, ET.

The preliminary consumer sentiment index estimate for November is forecast to bring another month of improvement with a reading of 61.1, compared with 60.9 in October. Should the upcoming U.S. economic reports manage to keep up with the October trend, more optimistic undertones in the U.S. economic data throughout the month of November would help rule out concerns of a double dip and could reduce QE3 odds ahead of the Fed’s next meeting on December 13.       

October 18, 2011

Bank of England Struggles With Slow Growth, Rising Inflation

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 2:55 pm

The Bank of England and Governor Mervyn King face a desperate dilemma – allow the economy to continue its downward path, or attempt to boost growth through further quantitative easing. The catch of course is that with the promise of more “easy” money, comes a greater risk of pushing inflation – which is already a top-level concern – even higher.

For the month of September, inflation as measured by the Consumer Price index (CPI)surpassed all earlier projections jumping to a three-year high of 5.2 percent. Sharp increases in gas and electricity were mostly responsible for the hike but the cost of most household goods also rose as noted with a 5.6 percent hike in the Retail Price Index (RPI).

The Bank of England is tasked with implementing policy to maintain inflation as near as possible to 2 percent annual growth. If inflation deviates from this target by more than 1 percent in either direction, Governor King must send a letter to the Chancellor of the Exchequer to explain why the target was missed. The Governor has written many of these letters of late and will be writing yet another following September’s results.

For Britain’s beleaguered consumers, it must feel as though the walls are closing in. In addition to surging inflation, unemployment is at a 17-year high of 8.1 percent. It is hardly surprising then that consumer spending is down 0.9 percent year-over-year and this is particularly distressing as consumer spending accounts for two-thirds of Britain’s economic activity. Until consumer spending returns to more typical levels, recovery in the larger economy is out of the question.

In fact, officials are already preparing the public for another expected uptick in inflation in October as energy rates are scheduled to increase yet again. After this next round of price hikes, however, energy costs are expected to hold steady until later in the new year. For a population suffering through more than two years of elevated inflation, any promise that the rate of increase in the cost of living must be seen as a form of relief. A pause in inflation may also provide the Bank of England with a window of opportunity to engage in further quantitative easing.

Minutes from the September meeting of the Monetary Policy Committee indicate that the MPC members are lining up in favor of adding another £75 billion ($118.4 billion) to the £200 billion ($315.7) already committed to the easing program. This has increased speculation that the Bank will inject more money into the economy by expanding its program of purchasing gilts directly from financial institutions thereby making more money available for lending.

October 6, 2011

BoE increases size of APP

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 7:18 am

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.

The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.

In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.

Bank Of England

Forex Market Outlook 10/06/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:11 am

So far the news of the morning is that the Bank of England increased the size of its asset purchase program by 75 billion, pushing the total bond buying to 275 billion.  While they kept interest rates unchanged, this sent the Pound plummeting lower 200 pips.  The Central Bank cited severe strains in the funding market and maintained that inflation would undershoot the 2% inflation target in the medium term.

I suppose it would be more helpful if they identified what the medium term is, as inflation has stubbornly remained above 4% much to their chagrin.  So I’m not certain how they think it will subside, and it appears as though they are content to let their citizens suffer through higher prices.

The ECB rate decision also came out and produced no change to official ECB rate policy, so now the market is waiting on the ECB press conference where Jean-Claude Trichet will speak for the last time as head of the ECB.  The markets are hoping that he will offer some sort of hope that EU leaders are nearing a solution for the debt crisis.  The ECB needs to go into “cheerleader mode” between now and when a solution is actually offered, but most think the perpetuation of “can-kicking” will continue.  There is a meeting of EU leaders and a G-20 meeting on tap in the next few weeks.

Other than those two major events, the negative economic data from these two regions had little effect as UK home prices fell more than expected and German factory orders showed a decline vs. an expected no-change.

Initial jobless claims here in the US came in slightly better than expected, but still over 400K.  While it is a good thing that it is not moving in the wrong direction, it is certainly not getting significantly better. 

Tomorrow’s Non-Farm Payrolls report will give us a better idea of where the economy is headed but I think more importantly it will let us know when or if Bernanke will be adding more monetary easing to the economy.

Between now and then, the Bank of Japan will have its rate decision in the overnight session and while they are not expected to change policy, don’t be surprised if they try to jaw-bone the Yen lower as it is above 10-year highs vs. Euro and Pound.

So far Trichet hasn’t said anything to disrupt the markets any further today, and the Dollar strength that we saw earlier on the Pound and Euro sell-off is abating, which is helping equity markets move higher.

There is going to have to a point where the “risk on, risk off” trade decouples and the correlations break down as US dollar strength should not be an automatic sell in risk assets, especially if that strength occurs because of individual currency weakness.

Today’s action reminds us that these correlations are still in effect and the fact that the BOE wants to encourage inflation through a weakening of the Pound should have little effect on US stocks.  Yet the markets have become so entrenched in the risk trade that it has a hard time differentiating between event risk and individual currency risk.

The market is never wrong; however in this case it is.  While we know about the global economic slowdown, stock valuations right now are very compelling, especially those with high dividend yields.  While the Euro debt crisis poses a major threat to global economic stability, an event like the BOE increasing quantitative easing should not.

Yet markets have this “all or nothing” mentality where a rising tide lifts all ships or the baby gets thrown out with the bathwater.  How’s that for coming market metaphors?

But seriously, we may see some further market selling as the US session unfolds, but I believe that it is not warranted (unless Trichet says something dumb) as tomorrow’s NFP is likely to increase the chances that Bernanke will act.

Market Sentiment: EUR/USD 84% Long | USD/JPY 82% Long | USD/CAD 35% Long|GBP/USD 60% Long – see more – http://bit.ly/ciHF0z

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , , , — admin @ 7:11 am

Final Details Expected on Eurozone Debt Relief Plan

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Bits and pieces of a coordinated debt relief plan have started to become public with more detail expected as part of a European Central Bank press conference scheduled for later today. According to European Commission President Jose Manuel Barroso, the plans include measures to “recapitalize banks and get rid of toxic assets they may have”.

On Wednesday, German Chancellor Angela Merkel said she was in favour of a co-ordinated recapitalisation of European banks if that was deemed necessary.

Source: BBC News

October 3, 2011

Pound (GBP) To Rebound?

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 8:16 am

The British pound (GBP) has been down with just about every other currency not named the US dollar of late, though it looks like it is poised for a rebound.  There is a lot of data due out this week for the UK, including the Bank of England interest rate policy decision on Thursday. 

Th emarket expectati0n at this point is that the BOE will not lower interest rates but that they may increse the size of their bond purchases.  This form of quantitative easing could help support the weakening economy without adding significantly to the infaltionary picture.  So I think a lot of this sentiment is already baked in to current prices.

But what happens if the data improves ahead of the BOE of rate policy meeting?   Well it looks that may be occurring already, as this morning home prices while lower did no fall as last month.  In addition, PMI figures came in better than expected at 51.1 vs. an expected 48.5.

The big new however will be on Wednesday, when GDP figures are due out.  Should they come in better than expected, then the BOE may not change anything, which could cause the Pound to rise.  If this is the case, then 1.575 is the target.  Short-term support support is at the daily S2 pivot at 1,546.

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