Forex Blog

May 15, 2012

US Consumer Holding UP

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 7:52 am

US Retail Sales rose in April at the slowest pace of the year, showing unseasonably mild weather and pre-Easter shopping may have pulled consumers to stores the prior month.

The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. Economists projected an advance of 0.1 percent, according to the median forecast in a Bloomberg News survey.

Categories like building materials, clothing and department stores dropped in April as the weather-induced gains of the first three months of 2012, the warmest on record, faded. Weaker employment growth will probably also make it more difficult for households to match last quarter’s pace of spending, which was the fastest in more than a year.

“The consumer is holding up,” said Neil Dutta , an economist at Bank of America Corp. in New York who correctly forecast the sales gain. “The key thing here is to determine to what extent the weather had an effect, and it’s pretty clear if you look at the components there was some weather impact.”

The cost of living was little changed in April as fuel prices dropped, and manufacturing in the New York region expanded this month at a faster pace than projected, other reports showed.

Bloomberg

Germany Is Holding Up The Euro Zone Economy

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Germany helped the euro zone avoid its second recession in three years, as growth in the region’s largest economy offset contraction in other euro zone member countries.

German gross domestic product (GDP) rose 0.5 percent from the fourth quarter of 2011, when it fell 0.2 percent. Growth was mainly driven by net trade, as exports rose and domestic consumption increased, while investment declined.

In the meantime, according to a report published by the European Union’s statistics office, GDP in the 17-nation euro area stagnated in the latest quarter compared with the prior three months as a result of the continuing debt crisis.

Eight euro zone nations are already in a recession, commonly defined as two consecutive quarters of contraction. Italy’s economy shrank 0.8 percent in the quarter, while the Netherlands saw a decline of a 0.2 percent, and Portugal decreased by 0.1 percent. France, the region’s second-biggest economy, avoided contraction, recording zero growth in the first quarter.

In Eastern Europe, Hungary is heading towards a recession. The Hungarian economy contracted 1.3 percent from the previous three months after stagnating in the fourth quarter of 2011. Czech GDP shrank 1 percent, which indicates the third consecutive quarter of contraction, and Romania recorded the second quarter of decline with a 0.1 percent drop.

The economies of Greece, Italy, Spain, Portugal and the Netherlands are all projected to shrink in 2012, with Spain the only euro member seen remaining in contraction into 2013.

An escalation of the sovereign-debt crisis is the biggest risk to the euro zone outlook, according to the European Commission. The region’s GDP will probably drop 0.3 percent this year before increasing 1 percent in 2013.

Source: Bloomberg

Myopic EUR View Tops

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 4:31 am

Investors should remember not to ignore the current economic data despite the market’s obsession with events in Greece. We should be concerned with developments in the periphery countries, however, becoming stubbornly obsessed with negativity and EUR short positioning is sometimes not fruitful. These times that can end up being the most damaging to a portfolio. Being myopically obsessed can be expensive, right up there with lack of trading discipline.

The current relevant US data is likely to accentuate the slide in EUR. Today’s US manufacturing, retail sales and inflation data is expected by analysts to remain relatively “modest” and still provide proof that the US economy’s recovery “is slowly muddling” along. Obviously to many, coupling the releases to what’s really occurring in Europe should keep the “big” dollar looking attractive to most. Any upside surprises in the data will only prove to be more favorable for long dollar positioning, while the worse than expected data is likely to be shrugged off by the market. Is this to be a win-win situation? For the present, however, maybe record short positioning will have some influence on the one directional play.

German economic expectations have fallen somewhat aggressively this month after rising for five consecutive releases (10.8 vs. 23.4). It obviously reflects the shenanigans occurring in Greece and the French political results. Collectively, both situations seems to be raising doubts about the commitment from some European Governments to fight the periphery regions debt crisis. Even capital markets is beginning to hear the dissent amongst the ranks and a bit more vocalization from Central Bankers. Once dealers smell blood, they are like rabid animals. Just see what they are doing to the periphery yields. Breaking down the German releases, the market is content in using the forward looking ZEW component to reverse the German GDP gain (+0.5 vs. -0.2%) in the single unit this morning. It seems that investors remain content to sell “this” persistent jump in the EUR.

If the single unit cannot rise on good news, like this morning’s German GDP print, solid demand and despite the speculative short positioning that has been somewhat covered and reversed at these lower levels, then these “quick” spec longs must be a tad concerned with their current positioning. Ever since late last week the market has slowly been reversing their short EUR position hoping for a quick uptick. Price action again has been mostly one directional and that’s not higher.

may 15 positions

If US data decides to put a choke hold on the EUR later this morning, a run on the 1.2790-1.28 barriers does become a market option or target capable of squeezing some of the weaker spec longs out of their positions. The techie analysts see the 30-day upper and lower bolli-bands converging, which would suggest a “heightening in statistical volatility.” Price movement below 1.30 has lacked volatility, in fact it has been pedestrian in nature. The markets positioning is backed by tech analysts who still see the single currency wanting to trade higher, back to yesterdays top north of 1.29. However, Euro-zone bond spread widening would suggest that the EUR is far more comfortable trading lower for now!

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EUR: No Bounce, No Lift, Why own?

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May 14, 2012

Greek’s Attempts to Build a Coalition Go Into Deadlock

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The Greek President, Karolos Papoulias, has so far failed to secure agreement on a united government. The fears that the country is heading toward a possible exit from the euro area are rising.
The President called the four main parties, including the centre-right New Democracy and the Socialist Pasok, to try to form an emergency government. Greece’s biggest anti-bailout party, Syriza, declined to join the government yesterday, explaining that it would not back any coalition, which supported austerity. The moderate Democratic Left party said it will not join pro-bailout parties in a coalition without the more radical far left Syriza.

Both New Democracy and Pasok have so far been unable to form a new coalition. They both agreed to the required budget cuts in return for the last bailout, and as a result both parties suffered at the last week’s polls. Syriza, which came second, insists any new government must cancel austerity measures agreed in return for EU-IMF loans worth 130 billion euros.

Today’s meeting called by Papoulias will be with the leaders of two of the three biggest parties, and the head of the smaller Democratic Left party. If the President’s efforts fail, new elections will need to be called. The fear over holding new elections is that parties that oppose austerity measures required in the Greece’s bailout deal might do well again.

The European Financial Stability Facility confirmed that a 5.2 billion euro tranche will be released by the end of June, with 4.2 billion euros disbursed May 10. The remaining 1 billion euros will be released depending on Greece’s financing needs. Under the terms of the bailout, a new government will need to present an official plan on how it will save 11 billion euros next month.

Fitch Ratings said that if Greece would need another election, it would be doubtful that the Greek government could comply with the EU-IMF’s end-June deadline to propose further medium-term austerity measures. While Greece would probably be granted an extension to that deadline, any attempt to significantly renegotiate its program would be unacceptable to the so-called troika of the European Commission, IMF and European Central Bank. Greece will run out of cash by early July if the country’s creditors decided to withhold their next aid payment.

With no sign Europe’s leaders are prepared to renegotiate the deal, Greece could end up leaving the euro zone. Officials are already weighing up the fallout of a potential Greek withdrawal from the euro and how that would be managed.

EU finance ministers are due to meet in Brussels to discuss the Greek crisis later on today.

Source: Bloomberg

EUR: No Bounce, No Lift, Why Own?

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

This EUR move is consistent, persistent and now has those individuals who last week managed to get themselves long, second guessing. Investors remain nervous as last ditch Greek coalition talks over the weekend broke down. To some it’s rational, others irrational, however, whatever is said, in the big picture, investors are scurrying to the sidelines, selling riskier assets and beginning to hoard those record low yielding bonds and bunds.

Risk assets have gotten little support from China’s RRR cuts over the weekend. Instead, investors prefer to hone in on Greece’s inability to govern itself and to the poor showing by Merkel’s Christian Democratic party in regional elections yesterday. The electorate has clearly rejected her austerity policies, which raises doubts about her staying in power next year. The build in EUR pressure stems from the uncertainty over how much contagion Greece’s exit from the euro-zone would cause and how much damage it would do to the “cohesion of the euro system as a whole.” Various Central Bank comments that a Greek exit “can be managed and is not necessarily fatal or attractive” already indicates the risk of euro-zone fragmentation. This explicit rhetoric about a possible Greek withdrawal has investors fearful.

The PBoC lowered their RRR by-50bps to +20% over the weekend. This will allow authorities to release approximately +CNY500b of liquidity into the banking system and “help smooth liquidity imbalances.” Analysts are not ruling out any further cuts this year as China shift to supporting growth rather than boosting it. Guilty by association has the antipodean currencies currently struggling outright as weaker than expected Chinese data of late has added to this market unease.

The market will be watching any development at today’s Eurogroup meeting of euro-zone finance ministers. Public comments on Greece seem unlikely until they have formed a new government. However, France and Spain are expected to be on the agenda, as well as a broader economic outlook for the euro-zone. Analysts believe that any discussion of Spanish budget objectives will have the “risk markets reacting somewhat favorably to any indications of additional forbearance on budget targets.”  Spain is very much under the microscope. No one can pretend to know whether Spain is illiquid or insolvent without gauging the size of the “black hole” that is the country’s banking sector.

Euro data out this week will confirm the regions recessionary conditions of Q1. Growth is expected to contract significantly in Italy, Greece, and Portugal, and even Germany is likely to print small negative numbers. All of this should meet the markets criteria for a ‘technical recession.’ This will only reinforce investors expectations for ECB easing measures, which obviously will not be a EUR supporter. From a technical perspective, the 10 and 30-day moving averages are negatively aligned, reinforcing the overall bearishness of the market. Expect some analysts to shift three month EUR expectations further to the left. For the intraday investor will look to reestablish short EUR positions higher up and is eying 1.28 as the first support buying opportunity.

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May 11, 2012

Week in FX Europe May 6-11

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 10:42 am

Following the Greek and French elections last weekend, the mighty buck has found itself in firmer territory against the single unit and the crosses. Investors happen to appear more bullish on JPY and GBP and most bearish on the antipodean currencies. The overall market bearish view looks like supporting the traditional low-yielding safe heaven currencies. This is certainly being backed by the negative April surprises on Euro area growth data. The bears conundrum is why has the single unit held up so well in Q1 and so far in Q2? In truth, despite the sizable LTRO program, looking at the spread differentials they have not moved that significantly against the EUR. The market will obviously expect an easing bias from the ECB to address the weaking of the Euro macro economy to eventually provide that needed pressure to weigh on the currency.

Below are some other highlights of the week:


EUROPE

  • EU: Last weekend’s political news in Europe saw the market initiate a general weakening in risk-sensitive currencies.
  • EU: Sunday’s parliamentary elections in Greece have resulted in a fractured parliament with a strong anti-bailout element. The two main parties, PASOK and New Democracy, which have supported the bailout, obtained only one-third of the votes cast, and no single party gathered more than 20%.
  • EU: The results in Greece have clearly raised the level of uncertainty in Europe’s periphery.
  • FRF: Hollande, a socialist and anti-austerity believer, is France’s new President, beating Sarkozy in a run off.
  • GER: German factory orders rose +2.2% vs. a +0.5% consensus. Digging deeper, domestic orders recovered by +1.3%, m/m, in March after a +0.8% fall in February. Meanwhile, foreign orders posted a strong +3.0%, rise driven by non-euro orders, up +4.8%. However, orders from the euro-zone remained flat after a +3.3% fall in February.
  • CHF: Swiss inflation rose +0.1%, m/m, and -1.0%, y/y, in April after a +0.6% rise in March, a touch weaker than the consensus forecast for +0.2% jump. Higher prices for clothes and shoes (+3.0%) were the main inflationary contributors. Without any new deflationary shock, the market expects the SNB to keep the 1.20 floor unchanged over the near term.
  • GR: Coalition negotiations are ongoing in Greece. Market remains concerned about Greek aid disbursements. Is there momentum building for a Greek effort to exit the EMU?
  • GER: Germany’s industrial production was much stronger in March, gaining +2.8%, m/m, above consensus for +0.8%. February’s print was also revised higher to -0.3% from -1.3%. Analyst’s note that this would suggest that growth momentum has been somewhat stronger than previously thought.
  • UK: The RICS UK house-price index fell to -19 in April from a downwardly revised-11 in the previous month.
  • ESP: The Spanish government announced that they will require its banks to set aside between +EUR20b and +EUR40b in additional provisions as part as an effort to overhaul the country’s financial woes.
  • EU: Since the Greek election results, FX price action has reflected the general risk-off trend, with the big dollar remaining well supported across the board and euro-sensitive risk proxies such as ZAR, HUF, TRY and PLN one of the worst performers on the week.
  • Gr: The Greek anti-austerity rhetoric appears to be intensifying. This would suggest that the possibility of another general election taking place next month has got stronger, while the prospects of Greece ever exiting the EU just got that bit more likely.
  • PLN: The Polish central bank surprisingly raised their policy rate by +25bps to +4.75% this week. Policy makers delivered on its earlier more hawkish language despite weakening domestic data and worrying developments in the Euro-zone.
  • GBP: British retail sales posted their biggest fall in more than a year last month as BRC sales plummeted -3.3%, y/y, last month, following a +1.3% rise in the previous one. Seasonal weather is partially to blame for the poor showing.
  • EU: The Euro IP numbers were mostly better than expected. In France, manufacturing production rose +1.4%, m/m, better than the -0.2% estimate. In Italy, IP rose +0.5%, a better print than the +0.1% expected. Analysts tend to refer to these releases as “stale” data.
  • Gr: In Greece, the leader of the anti-bailout Syriza party surrendered his mandate, passing the mantle over to the PASOK party. Risks of a new election remain elevated as a coalition party formation seems unlikely.
  • SEK: Swedish industrial production rose only +0.4%, m/m, in March and failed to reverse the -5.1% drop in the previous month. Weaker Euro PMI’s suggest a difficult growth outlook. Coupled with moderating inflation has FI traders increasing the price for further Riksbank easing.
  • NOK: Norway’s inflation surprised much weaker than expected. The headline inflation fell to +0.3%, y/y, from +0.8% and has moved in line with the Norges Bank’s projections. The CBank kept rates on hold this week at +1.5%.
  • GBP: UK IP fell -0.3%, m/m. The weakness was driven by mining and energy sectors. Analysts note that the results are unlikely to cause revisions to Q1 GDP and should have little affect on BoE policy, which was left unchanged this week at +0.5%.
  • PHP: Exports fell -1.2%, y/y, in March, weaker than the consensus forecast for a +10.1% gain.
  • GR: Week is ending on news that leaders of Greek New Democracy and PASOK parties are seeking a coalition arrangement with minority pro-euro left wing party Democratic Left. However, the market is leaning towards a second round of elections being the most likely outcome, with negative implications for the EUR.
  • EU: The EU Commission’s new set of forecasts single out Spain with the largest slippage against deficit targets. Spanish budget deficit is expected to reach +6.4% of GDP this year and +6.3% next.
  • GBP: UK construction output fell -4.8% in Q1 and finally, the UK Nationwide consumer confidence index fell to 44 in April from 53.

Loonie Fly’s South Through Parity

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The US could only wish their had the same job jogonaut that Canada has. The land of Maples has managed to spew out a two month total of +140.5k jobs and this after Friday’s surprise print of +58.2k. That country with the loonie has now posted the strongest back-to-back gains in 31-years. Full time jobs managed to do most of the heavy lifting (+44k), allowing part-time to take a back seat (+14K). The unemployment rate rose by a tick to +7.3% because more people entered the labour force seeking work (+73k) than found it (+58k). Interestingly, the public sector jobs dropped by-19k while the private sector jobs climbed by +86k. All of this has resulted in the dollar loonie to fly south, again breaking through parity. With this Euro uncertainty, the commodity supported currency has rightly been underperforming.

Fridays surprise job print has certainly caught some dollar bulls flatfooted. Now, there should be very little holding the loonie back apart from the technicals. The hourly RSI is very low, with USD/CAD wading in oversold territory. Despite commodities favoring lower prices, any dollar rallies will be seen as good opportunity to own CAD. However, this currency will not fly too far from current levels until there is a market reason to either break dollar support below or Euro event risk requires more dollar acquisition. It back to a loonie contained range trade!

Below are some other highlights of the week:


Americas

  • CAD: Canadian building permits rose unexpectedly in March, rising +4.7% to +C$6.83b, driven by planned construction of government and office buildings. The market had been calling for a -1.8% decline. Residential permits fell -1.3% and suggest that the pace of home building may slow in coming months.
  • CAD: Canadian housing starts came in well ahead of expectations last month (+14% to +245k). It marks the fastest rate of home building in four-years.
  • USD: US wholesale inventories rose less than expected in March (+0.3% to +$480B) held back by the biggest drop in petroleum stocks (-5.9%-retracing the last two months decline) in two-years.
  • CAD: Canada’s trade surplus was less than expected in March (+C$351m from a downwardly revised +C$273m in February). The decline in shipment of crude drove overall exports down (-0.4%), only to be outpaced by the biggest decline in imports in 12-months (-0.6%).
  • USD: Initial US jobless claims fell-1k, beating expectations of +5k to sit at +367k, w/w. The total number of claims fell by-175k to +6.4m. Analyst’s note this leaves jobs growth somewhere between “escape velocity and stall speed.”
  • USD: The US trade deficit widened in March (-$51.83b, up +14.1%), with a “wave of Chinese goods and oil imports (+$238.6b) proving enough to overwhelm record high exports (+$186.7b). It is worth noting that the trade deficit with China continues to expand (+11.9% to +$21.7b).
  • USD: JP Morgan announced that is saddled with a $2b trading loss in Q1 and has hinted that more losses could be revealed in Q2. After four years little has changed!
  • CAD: Canada posted a second consecutive month of strong employment gains (+58.2). Full-time posted +43.9k, while part-time recorded +14.3k. The average hourly wage increased +2.3%, y/y. The participation rate also edged higher to +66.8% from +66.6% allowing the unemployment rate to tick up to +7.3%.
  • USD: US wholesale prices fell slightly (-0.2%) last month as energy costs declined pushing the measure of inflation to its lowest level in two and a half years. Ex-food and energy, it rose +0.2% and y/y, costs were up +2.7%. Worth noting that wholesale gas prices were down -1.7% month-over-month.

Currencies Pressured As Risk-Off Headlines Stand Out Across the Globe

Filed under: Forex News — Tags: , , , , , , , , — admin @ 7:30 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • JP Morgan losses seriously diminish credibility in banking sector
  • Political saga in Eurozone continues to shake investor confidence
  • China trade data disappoints and weighs on broader sentiment
  • China economic data disappoints and weighs further on risk correlated assets
  • Commodity bloc and emerging market FX exposed

The intense risk-off price action that we saw over the past several sessions looked like it might be poised for reprieve into North America on Thursday, before markets got wind of the disturbing JP Morgan news late in the day. The largest US bank announced a $2B trading loss resulting from some hedges gone bad. While the losses hardly mark a dent in the balance sheet of the banking giant, the news could create a more significant risk off reaction given how JP Morgan has made its stellar reputation throughout the crisis; one of being so far away from reckless trading errors resulting in losses of billions of dollars. Now that JP Morgan has come out with such a loss, it opens the door for similar losses from other major financial institutions and severely diminishes the credibility in the baking sector once again. Many investors are wondering if other banks shouldn’t now mark their trades to market so a clearer picture can be afforded on where things lie.

In our view, the global economy is still standing on shaky ground, and we are not at all surprised to see these developments. We have been arguing for some time that equity markets have been too well bid this year, and we continue to project additional weakness over the coming weeks. The JP Morgan news is certainly a welcome headline for the Eurozone, with the story taking some of the attention away from the political turmoil in Greece and the impact it is having on the broader economy. While the local government is trying to piece together a solution that will keep the existing framework and game plan intact, there is clearly a new regime opposed to the idea of austerity and a regime that will be resistant to the changes that were already in motion pre-election. The prospect of a Greece exit can not be ruled out, and more importantly, investors are concerned of the impact this might have on other countries like Italy and Spain. All in all, the North American continent has been shaken with bad news, Europe is still struggling with its own troubles, and things are now no better in the east.

The latest round of economic data out of China is quite discouraging in our opinion, and continues to highlight the ongoing slowdown that is materializing in this major economy that many had thought was immune to the global crisis. The softer than expected industrial production and retail sales prints only help to reaffirm our view that the Chinese cool down is reflective of the third phase of the global recession. The third phase which has officially kicked into gear should expose some of the highly correlated markets like the commodity bloc economies and emerging markets. As such, we continue to project underperformance in currencies like the Australian Dollar, New Zealand Dollar and Canadian Dollar going forward, against the lower yielding major currencies. Emerging market FX looks to be even more exposed, and currencies like the South African Rand, Mexican Peso and Turkish Lira could be at risk for major declines into the second half of 2012.

May 9, 2012

New Greek poll looms

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:02 am

Greece moved closer to a second snap election on Wednesday when the head of the biggest party launched a new attack on radical leftist Alexis Tsipras, saying his plans for a new government would push the country out of the euro zone.

New Democracy leader Antonis Samaras said in a televised statement that he hoped Tsipras would “come to his senses” before they met for coalition talks later on Wednesday.

Tsipras, riding a wave of public disgust with economic hardship in last Sunday’s election, has demanded that Samaras and socialist PASOK leader Evangelos Venizelos tear up their 130-billion euro bailout deal with the EU and IMF.

Samaras said this would be “a certain and immediate disaster”.

Tsipras, whose Left Coalition SYRIZA came second in the election, received a three-day mandate on Tuesday after Samaras gave up after only a few hours.

He was due to meet both Venizelos and Samaras later on Wednesday but there seems virtually no chance of agreement on a workable coalition to end Greece’s post-election limbo.

Reuters

May 8, 2012

Iran accepts Yuan for Oil

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 9:06 am

Iran is accepting yuan for some of the approximately $20 billion worth of crude the OPEC member supplies to its main client, China, annually, an Iranian diplomat said on Tuesday, as the two countries try to maintain trade ties despite Western sanctions.

U.S. sanctions against Iran have made paying for its crude with hard currency difficult for top oil customers including China and India, forcing them to look for alternatives.

The U.S. dollar and euros are the two main currencies used in the global oil trade.

But tougher Western measures aimed at pressuring Iran to halt its nuclear programme have forced importers of Iranian oil to pay in the Korean won and the Japanese yen.

The Financial Times on Monday reported that China for months has been transferring renminbi to Tehran through Russian banks to pay for Iranian crude. OPEC’s second largest oil producer was using the currency to spend on goods and services imported from China.

Reuters

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