Forex Blog

February 6, 2012

Market Outlook for February 6, 2012

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

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 6, 2012

Markets rallied on Friday after the release of much better than expected US employment data. The non-farm payrolls data showed an increase of 243,000 in January which was well over the median economist’s forecast of 140,000. Furthermore, the unemployment rate dropped to a three year low at 8.3%. Market analysts, who were extremely bearish at the beginning of the year are now making grand announcements such as ‘the stars are aligning’ to push markets higher. The contrarian in us is now extremely cautious and we expect the USD to make a comeback after losing ground last week as the better than expected data has seen the likelihood of further quantitative easing fall. The EURO has retraced lower during the European trading session to as low as 1.3030 after opening in Asia above 1.3115.

In more sobering news, the situation is coming to a head in Greece with the government there expected to respond to the troika and demands by its international creditors for increasingly severe austerity measures within the next couple of days. It has become apparent that Greece is finding it difficult to come to an agreement with its creditors. The IMF has said that a worsening debt crisis in Europe could cut China’s growth in half. In China, Chinese Lunar New Year sales grew at the slowest pace since the 2009 financial crisis and a full 3% lower than last year at 16%. There are increasing signs of slowing consumer spending in China which does not bode well for the increasing numbers of foreign retailers rushing into the Chinese market. The Australian dollar has eased off highs at 1.0796 on Friday to fall more than a cent to as low as 1.0685 today.

US equity markets rose to their fifth weekly gain last week after the release of the much better than expected US employment data. The Dow Jones is now trading at its highest levels since May 2008 as financial and technology companies gained more than 3%. The S&P 500 closed 1.45% higher at 1,344. Stocks in Asia were largely higher while the continuing Greek tragedy has seen European bourses trading down about 0.5%.

February 3, 2012

Land of the Rising Yen

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Japan’s Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing. He and his policy makers can breath a small ‘sigh-of-relief’ after NFP, the market decided to sell the JPY outright! How long is this going to last? These specific market moves are providing better levels to own the currency. Markets have taken the Ministers comments in their stride. Intervention is a rising risk for USD/JPY shorts if the pair falls towards that psychological 75 benchmark. It seems that exporter related sales will continue to cap any upside potential for the dollar. So, fears that the Greek Prime Minister may resign, the uncertainty that the Dutch Government may not want to write down loans to Greece will again make the yen more attractive.

Below are some other highlights of the week:


Asia

  • CNY: Chinese markets resumed trading following the week-long Lunar New Year holidays. Premier Wen said that the Chinese government will enhance the elasticity of the CNY exchange rate in both directions.
  • JPY: Japanese Finance Minister Azumi warned against a renewed rise in the yen and vowed to take firm steps against excess volatility and speculative moves in the FX market.
  • JPY: Japans December IP rebounded +4.0%, m/m, following the -2.7% fall in the previous month (the ‘flood’ knock effect-on from Thailand).
  • JPY: Yen remains sensitive to G10’s yield compression.
  • KWN: Korean IP growth fell to +2.8%, y/y in December from +5.8% in November. This is very much inline with soft export growth in December.
  • SGD: Singapore’s unemployment rate remained at +2% in Q4, despite weakness in IP and GDP growth for the same period. This suggests that the tightness in the labor market is partly structural.
  • CNY: China’s manufacturing PMI rose +0.2pt to 50.5 (higher than the consensus forecast of 49.6). Importantly, the PMI was much stronger than the seasonal pattern for a -0.7pt fall. New orders up +0.6pt to 50.4 while inventory fell -2.6pt to 48.0. Export orders fell -1.7pt to 46.9 while input prices rallied +2.9pt to 50.0. The data reduces the scope for monetary easing.
  • KWN: Korea’s CPI inflation fell to +3.4%, y/y, last month (foretasted for +3.6%). Core-inflation also slowed to +3.2%, y/y, from +3.6% in December. Digging deeper, exports fell -6.6% in January (first negative growth in three-years), providing a – $2.0b trade deficit. Note: Asian data may be distorted by the lunar New-Year celebrations.
  • IDR: Indonesia CPI inflation eased to +3.7% in January as expected. Core-inflation was broadly unchanged at +4.3%, y/y. The futures market expects their Central bank to ease monetary policy further, cutting rates -25bps to +5.75% next week (February 9). Export growth fell to +2.2% in December while import growth surged to +24.3%. The data has narrowed the trade surplus. Is their economy in the first stages of over heating?
  • TWD: Thai CPI inflation fell to +3.4%, in January (as expected). Futures market again expects the Bank of Thailand to cut policy rates by another -50bps to +2.5% by the end of Q2.
  • JPY: Comments from Japanese officials are finding it difficult to halt the yen gains. The perception that JPY is one of the most liquid currencies in the world is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that it’s only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.
  • CNY: China’s non-manufacturing PMI fell -3.1pts to 52.9 in January (less than expected). The HSBC Services PMI was unchanged at 52.5 for a third straight month in January.
  • JPY: Japan Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing.
  • INR: RBI’s Deputy Governor Gokarn said that the central bank may buy dollar rupee to inject INR liquidity.

NFP no license to apply risk

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:32 am

Analysts’ employment expectations were blown out of the water on Friday. NFP produced a stellar report, creating +243k new jobs, pushing the unemployment rate down two ticks to +8.3%. Risk has been quickly applied and added to in the markets. The loonie is a shining example of a growth currency outperforming, especially on the back of its own disappointing employment report. However, beware of the extremely bearish risk factors lurking in the background i.e Euro debt crisis, slowing global growth and Iran nuclear concerns, which remain largely ignored, before wagering it all on risk. It’s a good start to 2012 for the Obama administration, but not a trend just yet. The headline print has managed to produce some blood on the “street”, they had predicted a more bearish print.

Below are some other highlights of the week:


Americas

  • USD: This week we saw incomes pick up during December, +0.5%, however, individuals chose to increase savings instead of spending, showing a caution that will likely keep the US economy in slow growth mode throughout 2012. November spending was unrevised at +0.1%.
  • USD: Unexpected poor Case-Schiller Home Prices and an unexpected Chicago PMI managed to trigger some macro-money profit taking on the last day of the month. Case-Schilller November 20-city HPI fell -1.3%, m/m. The housing market remains sluggish despite lower prices and interest rates, an abundance of foreclosures and tighter mortgage requirements.
  • USD: Chicago PMI was 60.2 compared with a forecast of 62.2. The forward looking component, the new order index, dropped in January to 63.6 from 67.1.
  • USD: US January consumer confidence retreats to 61.1 from 64.8, giving back some of the huge gains witnessed over the past two-months. The fallback was concentrated in consumers views of the current economy. The present situation index (current economic indicators) dropped to 38.4 from a revised 46.5-“consumers are more upbeat about employment but less optimistic about business conditions and their incomes.”
  • CAD: The Canadian economy shrank for the first time in six-months, dragged down mostly by a decline in energy output (oil and gas fell -2.5%), down -0.1% to +CAD$1.27t in November. The BoC released forecasts from two-weeks ago was for GDP growth to slow to +2% in October through December from +3.5% in Q3.
  • USD: ADP reported that Private Sector Jobs with small businesses lead the hiring +95k. However, the December print was revised lower to +292k from +325k. Its a “slow and steady pace” that could bring down the unemployment rate, but not rapid enough to return payrolls to their pre-recession peaks anytime soon.
  • USD: January ISM rises near to expectations of 54.1, proof that growth picked up last month. Digging deeper, prices gained ground after contracting in December, and hiring grew at a slightly slower pace. Factories continue to be a consistent contributor to overall growth.
  • USD: The number of US workers filing new claims for unemployment benefits declined last week (-12k to +367k), continuing the mostly improving trend seen in nine-months. The four-week moving average decreased by -2k to +375,750, remaining below that psychological +400k benchmark that’s required to add jobs to the economy.
  • USD: In his House Budget Committee testimony this week, Bernanke has not changed his tune, again stating that the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term US budget deficit.
  • USD: Dallas Fed Fisher (nonvoter) reiterated his opposition to further QE. He said that QE3 is not needed and that it would complicate the eventual tightening policies.
  • CAD: Employers hired far fewer workers than expected in Jan (+2.6k vs. +23k) and the jobless rate rose unexpectedly to +7.6% from +7.5%. The data reflects an economy that’s slowing and is consistent with the BoC keeping rates unchanged. Despite creating +129k jobs last year-growth was in the first six-months. (Full-time jobs declined by -3.6k, part-time rose +5.9k, private and public sector increased by +39k while self-employed fell-37k).
  • USD:NFP produced a stellar report, sideswiping most analysts expectations. Payrolls increased by +243k, m/m, allowing the unemployment rate to ease two-ticks to +8.3%. The breakdown saw manufacturing gain +50k, services +162k and the Government eliminate-14k positions. The hourly income increased +0.2% while the number of hours worked remained unchanged at +34.5.

February 2, 2012

Market Outlook for February 2, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 6:42 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 2, 2012

Yesterday, manufacturing strength around the globe from prompted a rally in the markets as investor focus was diverted from the European debt focus. Manufacturing data in the US grew at the fastest rate in seven months while manufacturing in the United Kingdom rose to an eight month high. Gauges of manufacturing in China also improved and manufacturing in Europe contracted less than expected. Manufacturing in China showed a modest expansion beating market expectations of a contraction. The USD weakened across the board and Treasuries stopped a five day rise. with The EUR is trading at 1.3130 while the GBP is currently trading at 1.5830.

Further aiding the positive market sentiment is the expectation that the Greek private sector debt swap deal and the nation’s second financing deal will be completed in the next few days. However, the longer the negotiations drag on, the greater the likelihood of an extended fall in the Euro. The strongest performers  yesterday were the risk currencies. The Australian dollar has surged past 1.0700 while the Canadian dollar is once again trading above parity against the USD.

Equity markets powered ahead yesterday spurred by signs of manufacturing strength globally. The S&P 500 closed 0.9% higher at 1,394 with financial and commodity stocks leading the gains. Morgan Stanley rose more than 5% on news that it had won the lead manager role for the upcoming Facebook initial public offering. The appliance maker, Whirlpool, rose almost 20% as it projected higher than expected earnings. Asian stocks gained with the Hang Seng rising 2%. European stocks have lost earlier gains, falling from 6 month highs, as oil producers fell

February 1, 2012

Eurozone Debt Crisis Infographic

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 8:40 am

The recent downgrade to sovereign credit ratings for several of the Eurozone countries is just the latest challenge to befall the 17-member group of countries sharing the Euro. A total of nine countries were included in the downgrade and while none of the changes were overly surprising, the reclassification casts doubt on the likelihood that some of the weaker countries can remain viable.

With the reclassification, Germany, Finland, and the Netherlands are the only countries to retain triple-A rated status. When expanding to all of Europe, only two more countries – the UK and Switzerland – can claim top status, and the UK’s hold on triple-A is tenuous.

The following graphic compares the debt for most of the European economies together with their current credit rating. The 10-year bond yield is represented by the anchor dragging behind each economy – the bigger the anchor, the greater the drag on the economy.

At a Glance: European Debt and Credit Ratings

Sovereign income, debt, and credit by region

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Eurozone Debt Crisis Infographic

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 8:40 am

The recent downgrade to sovereign credit ratings for several of the Eurozone countries is just the latest challenge to befall the 17-member group of countries sharing the Euro. A total of nine countries were included in the downgrade and while none of the changes were overly surprising, the reclassification casts doubt on the likelihood that some of the weaker countries can remain viable.

With the reclassification, Germany, Finland, and the Netherlands are the only countries to retain triple-A rated status. When expanding to all of Europe, only two more countries – the UK and Switzerland – can claim top status, and the UK’s hold on triple-A is tenuous.

The following graphic compares the debt for most of the European economies together with their current credit rating. The 10-year bond yield is represented by the anchor dragging behind each economy – the bigger the anchor, the greater the drag on the economy.

At a Glance: European Debt and Credit Ratings

Sovereign income, debt, and credit by region

Created by OANDA

Get OANDA’s exclusive weekly Market Pulse FX

Email Address: Preferred Format:

US Price Manufacturing Index reported at 54.1

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 8:20 am

The US PMI headline came in at 54.1, less than the expected 54.5 but in line with the global manufacturing growth. Along with a growth of 1.5% in Construction spending it send a neutral message for forex traders as the numbers were close to the expected figures with no surprises to make a case for a stronger or weaker USD.

January 26, 2012

UK Prime Minister urges EU leaders to be bolder

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As part of the Davos World Economic Forum, UK Prime minister, David Cameron is urging his EU counterparts to follow Britain’s example. In his words: “In Britain we had to be bold”.

In a message to his European counterparts, Mr Cameron argued his government’s efforts to tackle its deficit had “earned credibility and got (the UK) ahead of the markets”, and eurozone leaders should now take similarly decisive action.

The eurozone crisis was “weighing down business confidence and investment” across Europe, he said, and EU leaders had to “to show the leadership our people are demanding”.

“Tinkering here and there and hoping we’ll drift to a solution simply won’t cut it any more,” he said.

via BBC

EUR Top is Where Now?

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 4:26 am

The market sure did not see this one coming from the Fed. An “unambiguous and aggressive” statement from US policy makers is certainly laying the groundworks for QE3. With unemployment elevated and inflation subdued, Helicopter Ben can certainly put this option back on the table. The Fed has set a long term inflation target of +2%, a level they expect to fall short of this year and next. Despite the US economy appearing to be picking up steam in manufacturing, housing and employment, the goto excuse for Central Bankers, Europe and its debt laden outliers, is allowing the Fed to prepare for a third round of large-scale asset purchases.

The Fed’s extended commitment to low dollar funding costs is broadly bearish for the USD and bullish for higher-yielding G10 and EM currencies. The risk addicts are getting what they want. CAD at parity, AUD at new yearly highs, Kiwi, Mexico and other growth currencies following suite. The dollars demise has “emerging” Cbankers intervening to stem the speed of domestic appreciation and other G10 just worried for now about their appreciation. The Fixed Income dealers are taking the middle of the US yield curve sharply lower as pricing for policy tightening gets pushed back further into the future.

With the market lapping up this risk, it is intensifying the EUR bear squeeze. For now, the short positions have some of the crosses working in their favor. USD/CHF sales continue to weigh on the cross, with EUR/CHF being sold to session lows in Europe. There has been rumors of SNB interest in the mid 1.20’s over the last couple of sessions as the cross gravitates towards that Central Bank floor barrier.

An 18-month ‘exceptionally’ low yield extension will obviously take some time to price in, a job certainly not made any easier by EUR record shorts, weak shorts and a plethora of new hopeful position taking, the type who are trying to find the ideal speculative EUR top ahead of the record periphery debt issues this quarter. At such lofty heights, how much more to the top if private lenders accept a lower Greek coupon deal?

US firmer data bodes well for risk. Analysts expect a strong headline print from US durable goods this morning (+2.5%, m/m on the headline), new home sales to have reached a new yearly high and jobless claims to have risen in line with consensus. No one can argue that a dovish Fed, coupled with strong data will help risk and trigger more weak EUR stops and option barriers. Wait until the world stops spinning and pick your levels!

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January 23, 2012

US Debt Prices on the Back Foot

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:32 am

Weekend discussions between Greece and its private lenders did not result in agreement as many had anticipated. At the same time, it has not been able to derail global equities entirely. It seems that investors have shunned the safety of US treasuries for a fourth straight session on hopes that a ‘Hail Mary’ deal by the Greek government is imminent.

With the beginning of the Chinese New Year holiday affecting market liquidity, some market moves have been slightly overextended. The US yield curve has steepened +3bps with 2/30’s moving out to +289bps, as longer dated securities lead the fall. Prices have also been pushed lower temporarily by German comments on the possibility of running the ESM and EFSF programs parallel. US 10’s are now trading on top of its first resistance point of +2.06%. The 10/30’s spread traded at +189bps, the widest point in six-weeks.

In this morning’s session, treasuries temporarily found a bid ahead of this week’s FOMC meet starting tomorrow and concluding on Wednesday. Policy makers are to introduce “major transparency” as an innovation process with individual FOMC members providing projections of the Fed Funds rates and each to explain the quantitative factors behind the projections.

Also putting pressure on prices will be the US treasury department coming to market this week to sell a total of +$99b in notes (2’s, 5’s and 7’s). First up will be tomorrows +$35b two-years, another +$35b of five-years are set for Wednesday, and finally, +$29b seven-year notes will take place on Thursday. Dealers expect this weeks issue’s to receive ‘extra’ concession, as China, a non-starter, will be celebrating New Year and providing little support. Now its back to ticker watching ahead of a Euro press conference scheduled for 20:30 GMT.

The Nikkei closed at 8,765 down -1. The DAX index in Europe was at 6,432 up +32; the FTSE (UK) closed at 5,782 up +54. US indices remained in negative territory with the Dow currently trading at 12,686 down -34.

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