Forex Blog

May 21, 2012

Wen Growth Pledge Spurs Speculation of China Stimulus

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 1:28 am

Chinese Premier Wen Jiabao’s pledge to focus more on bolstering growth spurred speculation the government will step up efforts to combat a slowdown in the world’s second-largest economy.

Wen called for “putting stabilizing growth in a more important position” and didn’t mention concern about inflation in remarks published yesterday by the official Xinhua News Agency. China may announce stimulus actions in the near term, according to a front-page commentary today in the China Securities Journal, which is published by Xinhua.

The shift in language suggests authorities are “seriously concerned about growth” and “ready to introduce further measures,” Bank of America Corp. said in a research note today. The government on May 12 cut banks’ required reserves for the third time in six months following data that showed trade, industrial production and lending were below forecasts in April.

“The April data has been a wake-up call for China,” said Alaistair Chan, a Sydney-based economist at Moody’s Analytics. “There will probably be some stimulus measures through monetary policy, more bank lending and infrastructure projects being brought forward.”

China has allowed the yuan to weaken against the dollar this year after it strengthened 4.7 percent in 2011. The currency rose 0.06 percent today, the most in a month, to 6.3243 at 11:56 a.m. in Shanghai, following a decline of about 0.5 percent in 2012 through May 18. The MSCI Asia Pacific Index of stocks rose 0.5 percent at 12:56 p.m. in Tokyo.

The Xinhua report on Wen’s weekend visit to Wuhan, the capital of Hubei province, was reposted yesterday on the government’s website, attributing the information to the State Council’s general office.

Bloomberg

May 18, 2012

Friday’s Session Kicks Off in Apocalyptic Fashion; Where is the Bottom?

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:24 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Panic, fear and uncertainty take hold of markets
  • Euro looking to establish below 2012 lows from January
  • Yen starts to find renewed bids on flight to safety status
  • Eurozone political turmoil fuels intensified risk off trade
  • Rating agency downgrades and Greek political developments weigh

The risk liquidation continues into Friday, and markets to this point have shown no real interest in any form of a bounce. The US Dollar and Yen have been the prime beneficiaries on their flight to safety status, while the Swiss Franc is still not participating given the aggressive SNB intervention measures. We wonder how much it is costing the SNB to keep the EUR/CHF cross propped above 1.2000, especially in these intense risk-off markets. At this point, the Euro should accelerate to test the yearly lows from January by 1.2625, although any additional declines from there would be hard to comprehend in light of the severely oversold daily technical studies.

Elsewhere, US equities are now testing some key support levels, while gold has finally found some bids ahead of $1500. It certainly isn’t common to see so many analysts bearish on the Euro and risk in general. We have seen even the most aggressive Euro bulls retract their positions, and these include some larger banks, hedge funds and even central banks.

Moving on, Moody’s downgrade of 16 Spanish banks, along with Spanish yields rising back above 6% has not helped matters, while comments from Greek SYRIZA leader Tsipras that his party will not join the any pro-bailout coalition only weighs further on risk sentiment. European leadership needs to step up and offer a solution; otherwise, we could see additional risk liquidation over the coming hours. It is more than likely that the burden will fall on the European Central Bank, and the introduction of a Eurobond or additional bond buying could offer some relief. Other tools at the ECB’s disposal include the LTRO and the ability to cut rates, both of which would also likely be viewed as a risk positive. One thing is for sure, the G8 Summit kicks off today and we should expect nothing from this front in terms of any helpful solutions.

Greek Contagion Pushes Markets into Red for Year

Filed under: OANDA News — Tags: , , , , , , , — admin @ 7:05 am

World shares slid and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece’s future in the euro zone and lacklustre U.S. data bolstered safe-haven assets.

World stocks, as measured by the MSCI index, dropped 0.7 percent and are now below where they began the year, having relinquished all the first-quarter gains fuelled by the European Central Bank’s injection of more than a trillion euros of three-year money.

That rally is now a distant memory as an ugly week for stock markets looked likely to end even uglier.

Across the board, riskier assets from commodities such as oil and currencies like the euro and the Australian dollar were all heading for big weekly losses.

While U.S. stock futures pointed to a modestly higher open on Wall Street, following a sharp drop on Thursday, the FTSEurofirst 300 of leading European shares slid 0.6 percent to 975.71 by 1130 GMT, falling for a fifth day running and taking its weekly loss so far to nearly 5 percent.

Facebook will make its Wall Street debut after the world’s No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at just 0.028 percent.

Investors were spooked by a ratings downgrade of 16 Spanish banks by Moody’s Investors Service – although the move had been expected – and an unexpected contraction in U.S. regional factory activity reported on Thursday.

Reuters

EUR’s to be Recycled

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

The third largest IPO in corporate history, the largest in tech, is about to make a few specs very wealthy today. Frantic Facebook Friday’s enthusiasm does not seem to be spilling over to disrupt the dower mood of FX. The 50% of Americans who believe that Facebook is a fad, will not be allowed to gatecrash today’s party. The EUR bull thought they caught a break with yesterday’s dismal US data potentially opening the Q3 flood gates. That euphoric feeling has been short lived, flames finally doused by rabid credit agency action in the overnight session. Currently, there are no noticeable peripheral spread narrowing to support this equity led risk rally.

Moody’s has been kept busy in the overnight session, downgrading 16 Spanish banks by one to three notches, with ten of the institutions left on negative outlook. Without going into too much detail, the downgrades reflect each bank’s operating conditions, rapid asset quality deterioration (long too many holiday homes on their books), funding concerns and finally, each entities creditworthiness of the Spanish sovereign. This final point is probably the most significant, analysts note that it affects the ability of the government to support banks. Moody’s is currently Euro country hopping, and this will not be the last of the European banks to be downgraded in this cycle.They have eleven more EU member announcements to handle before the end of next month. Not to be left in the cold, Fitch cut Greek long-term sovereign rating to CCC from B-, bringing its rating in line with S&P’s.

The Greek radicals under Tsipras believe they still have the hammer over the rest of the Europe, presuming that fellow members will not roll the dice and cut off funding to his country. His party believes a financial collapse in Greece would drag his compatriots down as well. Obviously quoting Hollande visions, Europe must consider more growth oriented policies for his homeland. Coming back to the “EUR” reality, there is no alternative for Greece, she must stick to the deal that has been agreed. Other Euro policy makers concur that this is the country’s only rational option. It’s no wonder that contingency plans are being drawn up in case Greece were to exit the Euro-zone. Their woes reinforce the dollar bull views that the single currency will struggle to make it back above 1.30 even if the polls start to signal a greater chance of a pro-EMU composition of the Greek parliament. Any Greek coalitions will still have to face a difficult negotiation on a modified austerity plan. The thought of an ECB easing, to promote growth, does not strengthen the currency either!

may 18 pos

The position ratios continue to show that the market has been quietly gathering EUR’s ahead of this years low print of 1.2624. The EUR bears are happy to pare some of their ‘one directional’ trade positions to at least recycle said funds. There are a few significant strikes occurring today. The larger sizes will only increase short term spot gravitation of certain levels (specifically, 1.27 and 1.2725). Single currency supply is expected to be on hand as the market approaches 1.2750. The longer term focus still remains fixated on breaching the psychological 1.26 barrier below. It will not be unusual for the markets to see the EUR rally intraday, cutting some of the record short positions ahead of this weekends G8 meetings. It’s always prudent to play the percentages in case of event risk. Obviously counteracting this will be the possibility of fresh Euro negative news occurring during the weekend from any embattled member. The trend remains your friend and having cash to recycle also feels good!

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May 17, 2012

European Central Bank and European Leadership Need to Step Up Now

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:14 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Eurozone leadership needs to step up now
  • Impact of Greek exit would be catastrophic
  • Currencies oversold and still in need of some corrective action

We have now reached a point where a serious emergence of leadership in the Eurozone is needed. While some would argue that a Greece exit would be best, as it would rid the rest of the Eurozone from having to deal with the Greek financial crisis, we contend that a Greek exit would be catastrophic, as it would only open the door for exits by other ailing economies within the Eurozone. It is true that in the grand scheme, Greece is a rather small threat to the broader economy, but if investors started to expect such exits from other countries as a result, this would truly be an unwelcome development which would significantly undermine the Euro’s prospects.

As such, we feel that the proper response, in the interests of stability, is for Eurozone leadership to act fast and make the necessary commitment to ensure that they will be there through the worst of times, despite the costs associated with such a commitment. It is easy to stay loyal and show commitment when it is not needed, but it is in times of crisis when one is really tested to step up and back up convictions. Now is the time for European leadership to step up and swallow whatever necessary to keep the local and global economy from slipping deeper into the abyss. One of the major critiques of the Eurozone is the ability for so many different countries to stand together under one economic umbrella. Clearly this is now being tested, and the only way to respond, is through a unified commitment at whatever the cost.

May 16, 2012

Euro At Risk for Retracement to Yearly Lows But Beware of Oversold Studies

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

By Joel Kruger, Technical Strategist for DailyFX.com

  • Ongoing turmoil in Greece pressures markets lower
  • Fear of contagion to larger EX economies weighing
  • Technical studies are however stretched
  • Investors looking to retest Euro 2012 lows
  • Looking for technical bounce before trend continuation

The latest bout of intensified selling in the Euro has been attributed to the ongoing political turmoil in the Eurozone.Currencies in general have followed suit, and are under pressure against the buck. With no clear resolution in sight for Greece, and new elections on the horizon, many now fear the worst and the possibility of a Greek exit is looking more realistic with every passing day. However, while the possibility is increasing and panic and uncertainty are running high on threat of contagion to larger Eurozone economies. We still do not see the markets at risk for a material sell-off from current levels before a technical correction.

We contend that the latest bout of risk-off trade has been driven more by technical selling, resulting from a daily close below 1.3000 in the Euro several days back, which now has traders setting sights set on a retest of the 2012 lows from January at 1.2625. However, given how severely overextended markets are at present, there should soon be some relief, at least for a little while, before risk liquidation continues. We often find that the middle of the week brings a reversal during periods of intense volatility, and we suspect that the US Dollar may find a top today before selling off into the remainder of this week and the next. Looking ahead, there is a good deal of economic data on tap, although we suspect attention will be focused to the FOMC Minutes due out later in the day.

May 15, 2012

Greece: Default or Yield Choice

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 7:57 am

Greece, which hasn’t had a government for more than a week and whose 10-year debt yields more than 27 percent, decides today whether to pay 436 million euros ($562 million) to bondholders who shunned last month’s debt swap.

A floating-rate note sold a decade ago by Europe’s most- indebted nation matures today. Repaying the security would disadvantage investors who took losses in the bond exchange and voters facing spending cuts. Reneging on the obligation also would constitute a default, triggering derivatives contracts and clauses requiring the settlement of other unswapped bonds. Meantime, the country has no government to make the choice.

“The political vacuum means it’s very difficult for the interim government to take what are essentially political decisions about burden-sharing,” said Myles Bradshaw at Pacific Investment Management Co. in London, manager of the world’s biggest fixed-income fund. “It would be very difficult for Greece to pay bondholders and then turn around and say they’re cutting pensions to pay the bonds.”

Reuters reported today that the bond will be paid, citing an official it didn’t name. Talks between Greece’s main parties following the May 6 elections failed to reach agreement on forming a coalition, paving the way for a second election next month. It’s possible no government will be in place until at least July. The Syriza party led by 37 year-old Alexis Tsipras, who favors defaulting and an end to economic austerity, placed second in the elections with 16.8 percent of votes. The group is ahead in current polls.

Bloomberg

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

Euro Attempting to Recover on Technical Bounce and Solid Data

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:32 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Risk correlated assets finally finding some support
  • Moves classified as corrective consolidation at this point
  • Solid Eurozone data and positive news out of Greece help to inspire bids
  • Technical studies also warn of additional Euro gains before resumption of downtrend
  • German GDP strong, French and Eurozone weaker
  • German ZEW survey mixed
  • UK trade deficit weighs on pound
  • Portuguese GDP better than expected, but still problematic

Some intense liquidation in currencies, commodities and equities over the past several sessions looks like it might finally be ready for a welcome consolidation as market participants seek to buy back into risk at potentially attractive levels. While our core bias still favors additional risk liquidation into any corrective rallies, there is still a good deal of potential bounce before a resumption of risk off trade. So far on Tuesday, economic data out of the Eurozone has been well received overall, with solid German growth data, better than expected Eurozone GDP and an above consensus current situation to the German ZEW, all helping to prop. Meanwhile, auction results out of the region have been well received and investors have also found comfort with the added gift of a Greek promise to repay the Eur430M bond.

Relative performance versus the USD Tuesday (as of 10:35GMT)

AUD +0.40%

CHF +0.28%

EUR +0.27%

CAD +0.24%

NZD -0.03%

JPY -0.09%

GBP -0.27%

Technically, it is worth noting that EUR/USD are in need of an unwinding from oversold readings on the daily chart, and with the price stalling by a key 78.6% fib retrace off of the yearly low-highs (1.2810), we could be very close to seeing some form of a multi-session corrective bounce. Look for a break back above 1.2910 to confirm. But for the time being, the US Dollar is king, and market participants are likely to continue to look to buy the Greenback across the board on its lure of safety and a prospective narrowing in yield differentials as the US emerges first from the global crisis. Elsewhere, the Pound has been a relative underperformer on Tuesday, with the trade deficit numbers out of the UK weighing on the currency. Looking ahead, the US economic calendar is stacked and the data (see below) could very well influence the direction in the markets for the remainder of the day.

Germany Is Holding Up The Euro Zone Economy

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 5:13 am

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

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