Forex Blog

February 6, 2012

Greek Public and Private sector plan strikes

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 7:51 am

The Greek political leaders are under significant pressure to reach an agreement on needed cutbacks on Monday to comply with demands from the European Union and International Monetary Fund to secure a second bailout worth €130 billion ($171 billion).

After a meeting on Sunday, Mr. Papademos said that the political leaders agreed on some of the basic points of the international lenders’ demands, including spending cuts equal to 1.5% of gross domestic product in 2012 and reduction of supplemental pension benefits to Greek workers. The most difficult terms, where the government hasn’t yet reached agreement, are wage cuts, labour reforms and a plan to recapitalize Greece’s banks.

Prime Minister Lucas Papademos faces a strong internal opposition to the terms requested by the European Commission, IMF and European Central Bank—also known as the troika. Greek government officials say the reduction in wages being sought by the troika will only deepen the country’s recession and widen its budget deficit, because it will reduce both tax revenues and contributions to its teetering pension funds.

Unions representing both Greece’s public sector and private industry have scheduled a nationwide strike for Tuesday in protest against painful reforms.

Wall Street Journal

February 3, 2012

Greece Close to Debt Deal

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 7:09 am

Greek Prime Minister Lucas Papademos said Greece was close to coming to terms on a deal with Eurozone authorities and its bond holders that would reduce the weight of the country’s debt and still provide access to credit as the government struggles to contain its deficit. In order to avoid default, Greece is attempting to reduce its overall debt load to 120 percent of GDP compared to the current 162 percent.

The rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans likely to exceed the 130 billion euros ($171 billion) now on the table.

Source: Bloomberg

January 31, 2012

Record Eurozone Unemployment Pits North Against South

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 1:26 pm

The December unemployment rate for the 17-member countries comprising the Eurozone rose to the highest level since the Euro was introduced in 1999. For the month of December, the rate for the entire region rose to 10.4 percent after the November result was similarly revised upwards one tenth of a percent from the originally-reported 10.3 percent.

A total of 16.5 million people across the Eurozone are now out of work. This is an increase of three quarters of a million in the past year alone. But the pain is not being felt equally amongst all Eurozone nations.

Greece and Spain recorded the greatest increase in unemployment over the past year. At 22.9 percent, Spain had the highest unemployment rate for the entire area with Greece not far behind at just over 19 percent. Portugal watched helplessly as its unemployment rate continued to climb reaching 13.6 percent in December.

Comparing the results of these southern countries with the northern jurisdictions reveals the gap between the north and the south. In Germany, for instance, December’s unemployment rate actually fell more than expected to 6.7 percent – the lowest since German was reunited. Meanwhile, Austria and the Netherlands continued to record the lowest Eurozone unemployment at just 4.1 and 4.9 percent respectively.

Unemployment to Increase in Some Eurozone Countries

Looking ahead to the coming year and beyond, there is every likelihood that the situation will actually worsen. As even the most casual observer knows, the Greek government is presently under intense pressure to implement the infamous “austerity” measures to address the country’s widening deficit.

The massive spending cuts targeted to meet the goal of ultimately eliminating the deficit will require Greek authorities to eradicate a significant number of government jobs. Other countries including Spain, Portugal, and even Italy will be forced – to some degree at least – to follow the same agenda in order to get a handle on overall spending.

Widespread job losses will not be restricted to just the government, however; the private sector too will be forced to reduce costs as companies struggle with falling sales. In the face of the continued uncertainty and growing fears of recession, companies will postpone or even cancel all but the most essential new projects, delaying new hiring accordingly.

Again, it will be the southern countries that will feel the effects of this most keenly.

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January 11, 2012

Forex Market Outlook 1/11/12

Filed under: Forex News — Tags: , , , , , , , — admin @ 7:00 am

Welcome to forex trading—2012 style!  As you can see, the markets in general are trading with big volatility.  One day we’re up big, the next day we’re down big.  Sometimes it seems like the market is spinning its wheels, yet there is plenty room to make money.

Today the markets are lower to start the morning in the same fashion that yesterday we were higher.  But what really has changed overnight?  Not a whole heck of a lot.  In fact, I think today’s early selling could be a bit pre-mature as perhaps the markets are still in 2011 volatility mode, which then becomes a self-fulfilling prophesy and actually creates additional volatility going forward.

This morning’s headlines about further concern over the Euro debt crisis while valid are also a bit of a market cop-out as the underlying risk from that situation is always going to be the major risk factor in the market until that day (if it ever comes) that it is resolved.

Earlier this morning, Germany’s Federal Statistics Office came out with their forecast that German growth has likely declined from the 3rd quarter to the 4th quarter and that the growth has slowed to 3% from 3.7%.  Overall growth in the EU has likely slowed from .2% to .1%, which is going to put them perilously close to the textbook definition of inflation.  However when it comes to economic slowdowns, it doesn’t really matter what the definition is as confidence has probably already eroded by that point.  In other words, people start feeling that things are getting worse far before the condition they are feeling is officially diagnosed as “recession”.

In the meantime, bond auctions are coming up for Spain and Italy yet yields today have moved lower.  The usual “play” is that yields usually rise prior to these auctions so that investors will see better returns so this may be a step in the right direction for the issuers.  This however did not keep the calls from Fitch ratings agency for the ECB to buy more sovereign debt as they have been somewhat loathe to do.

Tomorrow’s rate policy decision could surprise as there is no expectation for change but the accompanying statement could foreshadow possible moves by the ECB to increase those bond purchases.  With everyone forecasting an EU recession, this could be a time to get out in front of the problem.  Let’s face it; while the ECB has been staunch against fighting inflation, they may need a lower-valued Euro to compete in a declining global economy.

Later today the US Fed will release its “beige book” economic report, which will show their opinion of the US economy.  Unfortunately for the Fed, their forecasts have been way off in the past and unfortunately they cannot stipulate that the government repairs the fiscal side of the economic ledger.   I expect them to be overly optimistic so as not to spook the markets but I take this report with a grain of salt.  Should they actually decide to be a little more honest in their assessment, then this could be a market-moving event.

Trade balance (deficit) figures in the UK came in higher than expected and the Shop Price Index came in slightly lower than last month.  This could be important, as the BOE rate policy decision tomorrow may be ready to become more accommodative.  While they are not likely to change policy tomorrow, the release of the minutes from the meeting will be in 2 weeks which could show that intention.

Tomorrow will also bring CPI data from China and Germany, which could be telling if inflation stays low.  This could open the door more accommodative policy from around the globe.

At the end of the day, the Euro debt crisis is not going away any time soon so the sooner markets come to accept this, the better.  US corporate stock earnings are still coming in largely positive so the global economy can still move forward, it just the balance of who leads and who follows that changes.

And there’s no better way to pick those winners and losers than through the forex market!

January 6, 2012

Cross Border Dollars Temporarily Diverge

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 9:47 am

The ‘big’ dollar remains the go to currency. The market seems to be shifting away from wanting to own it solely as a risk aversion strategy, to one where the buck is being used as an investment currency while the EUR trades as the funding vehicle. Whatever the reason the currency has garnered further support after a stronger than anticipated payroll print. The dollars neighbor and largest trading partner, Canada, has lost some of its shine after its own job report saw the unemployment rate tick to an eight-month high (+7.5%). Friday was not the day to want to own this ‘growth proxy’ currency outright. The crosses have been working in its favor to at least stem its cross-border slide. Next weeks refunding requirements by Italy and Spain again will dictate all dollars direction.

Below are some other highlights of the week:


Americas

  • US: ISM index rose to 53.9 in December (6 month high) from 52.7 the month prior (historical average about 51). Orders, production and employment were all up, a good sign that the US economy accelerated last quarter. Analysts note that “the data isn’t signaling a dramatic change in the hard data, which has consistently outperformed the indicators for some time”.
  • USD: The FOMC minutes did not have a major impact on markets. The key new news was that the Fed will now publish Fed funds forecasts on a quarterly basis when it provides other economic projections (next round due after the January 24-25 meeting). Officials would provide forecasts for the first hike. However, with rates expected to remain near zero until the middle of 2013 is not much of a market concern.
  • USD: Construction spending rose +1.2% in November after a -0.2% decline the month prior.
  • USD: US factory orders grew for the first time in 3-months increasing by +1.8% in November from previous months to +$459.18b. Non-defense aircraft orders were up +73.9%; ex-transport orders up +0.3%; orders for non-defense capital goods ex-aircraft down -1.2%.
  • USD: ADP saw an outsized jump in the employment report of +325k gain, far exceeding the median estimates of +178k. Historically, the print has technical issues and in the past has overshot the government by a wide margin.
  • USD: Last week was the eight time in nine weeks that initial claims came in below the psychological +400k print. Claims fell by -15k to a seasonally adjusted +372k (a strong positive sign for an economic turnaround).
  • CAD: Canadian producer prices (+0.2%) and the cost of raw materials (+3.8%) advanced in November ahead of market expectations, largely the result of higher fuel bills. A weak loonie also played a role in pushing industrial prices upwards.
  • CAD: Purchasing activity expanded from November. The IVEY PMI was at 63.5 on a seasonally adjusted basis in December.
  • USD: Crude supplies rose +2.21m barrels last week to +329.7m
  • CAD: Canadian employment showed a stronger headline print (+17.5k) than consensus (+15k) in December. The unemployment rate ticked to an eight-month high of +7.5% (full-time -25.5k, part-time +43.1k). Average hourly wages +2.2%, y/y, but hours worked took a hit which is not good for GDP.
  • USD: US payrolls beat all expectations, printing +200k job gains versus expectations of +155k. Even better, unemployment rate fell -0.2% to +8.5% and stronger than Novembers retreat because +176k became employed while only -50k stopped looking. In the revisions; November lost -20k, while October gained +12k, accumulating in a net loss of -8k for the two months. “Some of the strength in this report should be discounted because of an seasonal quirk in the courier category of payrolls (Fed-ex, UPS, etc). Jobs in this sector jumped 42,000 in December, repeating a pattern seen in 2009 and 2010 (see attached figure). We should see a payback in next month’s report.

Market Primed for Upside NFP Risk?

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 4:03 am

Big picture, the markets are torn between the recent run of better than expected US data which has raised expectations for the payrolls number this morning, and worries about the euro-zone debt and health of European banks (UniCredit and Deutche etc).

So far this week the dollar has been the big winner. Yesterday, it managed to get a boost from both sets of US employment data and push the EUR down-1% intraday. Until recently, signs of economic growth would be dollar negative; however, Euro at 16-month lows on refinancing concerns has the currency better bid. Glum headlines from the Euro-zone include Italy’s stubbornly high 10-year bond yield (+7%), weak German data and mixed debt auctions results from France and Europe’s bailout fund. Investors are growing nervous over the sheer amount of debt that needs to be refinanced in the first quarter (+262b). It’s not just the sovereign debt, but bank debt, corporate debt and various derivatives that are coming due. Where is the money going to come from?

No analyst seems to have changed their forecast for today’s payroll number. Yesterday’s outsized ADP print (+325k) historically has technical issues and in the past has overshot the government number by a large margin. The median guess remains close to +155k. If anything, the market is primed for upside risk. Analysts note that other labor market indicators, most notably the sub-50 reading on the non-manufacturing ISM employment component, are not consistent with the very strong ADP result. This time last year ADP recorded a +184k forecast miss regarding the first-reported payroll release. Risk sentiment again seems numb over the past two sessions, unable to capitalize on the strong data yesterday. The market is afraid of Europe’s debilitating reach. I guess if we miss NFP consensus those growth proxy currencies will feel the brunt of this markets ‘pain.’

The lethargic nature of this market is evident when the euro-zone releases ‘not such good’ data and the currency has no interest. All the bets are on North America, at least for the first hour after the payroll print. The not so hot data saw euro-zone retail sales fall -0.8% on the month and -2.5% on the year in November, well below the -0.2%, m/m, and -0.8%, y/y, expectations. Unemployment in the zone held steady at +10.3%. Perhaps its time to admit that the EUR is more attractive as a funding currency, while the dollar is being viewed as an investment currency?

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January 3, 2012

The Eurozone PR Battle Continues

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 2:12 pm

When it comes to Greece and the Eurozone, it is difficult sometimes to tell just who is playing whom. The latest example of the delicate dance within the Eurozone was on display today following the release of a carefully-worded communiqué issued by a Greek government spokesperson. In this memo, the government announced that should Greece not receive the latest bailout pledge as negotiated late last year, it may have no other choice but to exit the Eurozone.

Obviously, this message had more than a hint of a threat about it. However, the intended audience for the message was not the Eurozone lawmakers – it was meant for the people of Greece themselves.

As part of the emergency funding agreement, Greece is required to implement massive spending cuts and new taxes to close the deficit gap in exchange for emergency funding. As can be imagined, these measures are not being welcomed with open arms by a population accustomed to easily-accessed public pensions and other government-funded largesse.

Germany too is dealing with its own PR nightmare. As the de facto “leader” of the Eurozone thanks to its leading economy, Germany is also a principal contributor to the massive bail-out packages. Naturally, there is a growing resentment amongst German taxpayers who feel they are being forced to pay the bills of sovereign countries that financed their lifestyle thanks to the generosity of others.

Reinforcing the thought that German politicians are ready to play “hard ball” with Greece sends a subtle message to the German taxpayer cum voter, that their interests are being protected.

Meanwhile, the Greek government continues to face a rebellious population locked in what it feels to be a life and death struggle to maintain spending on social programs. Today, it was the turn of the nation’s doctors and pharmacists to go on strike and demonstrate against planned spending cuts.

In light of this opposition, the government maintains that failing to meet the conditions attached to the rescue plan is, in reality, a vote to secede from the Eurozone. This is clearly an attempt to convince the public to accept the conditions and vote in favor of the government’s planned spending cuts.

While there is certainly a battle going on to save the Eurozone, the real fight is the one to influence public perception.

December 16, 2011

Week in FX Europe Dec 11-16

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 10:31 am

Last week’s Euro summit is not sitting well with the market. From the first trading session this week, investors were given the green light to push this currency down to an 11-month low. Rating Agencies continue applying pressure in the background, threatening to downgrade one or all of the Euro-zone members. The absence of the ECB as the “lender of last resort” is hurting risk appetite. Because we are in December, it’s difficult for many participants to strap on massive risk positions in a low-liquidity and volatile environment. This month and year may be winding down, but the heat on the Euro-zone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside.

Below are some other highlights of the week:


EUROPE

  • EUR: Moody’s reiterates that it would review the ratings of all European sovereigns in Q1, joining S&P in noting rising vulnerability without taking the formal step of placing the ratings on review.
  • Moody’s: Placed eight Spanish banks on review for possible downgrade, citing domestic economic weakness and an ailing commercial real estate market. These reasons are only ever going to become more dominant with the threat of the Euro-zone dipping into recession come the New Year.
  • EUR: It was not a surprise to see that the EU summit and ECB meeting last week has left the euro very vulnerable.
  • ECB: They delivered a set of measures aimed at improving banking sector liquidity, and made progress on moving towards a more perfect “fiscal union”. It is suggested that the measures will stop short of ensuring market access for the larger peripheral sovereigns at sustainable rates.
  • ECB: They also rejected the notion that fiscal agreement would pave the way for more aggressive bond purchases. This week’s absence has been duly noted, allowing bond yields to push higher without any obvious aggressive ECB response.
  • ITL: On Monday Italy successfully auctioned 1-year bills, with a +5.95% yield and 1.92 bid-to-cover ratio.
  • EU: German ZEW survey surprised positively (-53.8 vs. -55.2), but remains at very depressed levels.
  • EU: The EFSF saw strong demand at its 3-month bill auction, and Spain successfully sold 12 and 18-month bills. Market should not be concerned because of the shortness of maturity.
  • UK: Inflation slowed to +4.8%, y/y, in November from +5.0%, and in line with expectations. Core-inflation moderated to +3.2%, y/y, from +3.4% and a touch below the consensus forecast for +3.3%. With monthly gains in core prices remaining firm will pose a risk to further easing by the BoE. However, given weak growth the market is leaning towards an expansion of QE in February.
  • SEK: Inflation printed +2.8%, y/y, a tad above expectations of +2.7%, but moderating from +2.9% in October. Core-inflation remained stable at +1.1%, y/y, again a tad above the consensus for +1.0%. With core-inflation printing below the Riksbank forecast for two consecutive months supportive market expectation of a cut at the next meeting.
  • SGD: Their employment outlook weakened sharply for Q1 2012. Net employment expectations fell to +16% from +31% in Q4. However, this is still consistent with an increase in employment, albeit at a slower pace, and is in line the government’s outlook for only 1-3% GDP growth in 2012.
  • EU: In mid-week, Germany sold +4.18b 2-year notes and paid the lowest yield (+0.25%) for 2-year product since the inception of the EUR. The bid-to-cover was 1.4 versus a four auction average of 1.1. The Italians on the other hand, in contrast, paid a Euro era record yield of +6.47% to sell +EUR3b five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the region’s debt crisis. The country has done little to ally fears over its ability to continue to raise funds at sustainable levels. It’s estimated that they need +EUR220b’s worth of bonds next year.
  • EU: The Euro-zone factory output data disappointed, falling on the month (-0.1%) and registering its weakest annual gain in nearly two-years. Production rose +1.3%, y/y, the weakest increase in two-years and well below street estimates of +2.1%. Weakness in the Euros manufacturing base reinforces the regions concerns on the health of their economy.
  • UK: Labor market data came in slightly better than expected. While the ILO unemployment rate is stable at +8.3% in October, the jobless claims increased by +3k only. These numbers point to somewhat better job market conditions and a more resilient economy than other indicators would suggest. However, capital markets expect an expansion of the QE program in February.
  • EU: Spain sold +€6b of 5’s and 10-year debt, well-above the +€3.5b indicative maximum on offer. This was the second oversubscribed auction of Spanish paper this week.
  • EUR: Euro area PMI surveys surprised to the upside, despite expectations for a further drop. The manufacturing PMI rose to 46.9 from 46.4, the first increase in eight-months. Services PMI increased to 48.3 from 47.5. However, with the financial distress and resulting tight credit conditions should limit any further rebounds. Analysts continue to suggest further easing from the ECB will be necessary.
  • EU: Euro-zone inflation came in an unrevised +3.0%, y/y, last month. Core-inflation was stable at +1.6%. In its monthly bulletin, the ECB again highlighted substantial downside risks to the economic outlook. Projections now show inflation dropping below +2% next year and to +1.5% in 2013. This is certainly inline with more rate cuts.
  • GBP: UK retail sales ex- fuel fell -0.7%, m/m, in November, worse than the -0.4% forecasted. Coupled with positive revisions to previous months, the annual growth rate is +0.5%, y/y, above the consensus for +0.3%.
  • CHF: The SNB left EUR/CHF floor at 1.20. Their statement was a carbon copy to the September statement. Inflation forecasts were revised lower. The 2012 inflation forecast was left unchanged at -0.3% while the 2013 inflation forecast was marginally revised by -0.1% to -0.4%. Hilderbrand projects GDP Growth to be at +0.5%, y/y, next year. They are attributing the negative growth risks to “their country’s close relations with the euro area; Switzerland’s economic prospects are highly dependent on how the crisis develops”.
  • IMF Lagarde: Crisis escalating and requires assistance from countries outside the EU.
  • HUF: The currency is underperforming on the news that the IMF mission chief cut short a visit to Hungary due to disagreements on central bank law and on pension funds.

Forex Market Outlook 12/16/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 6:49 am

Is the US economy improving enough to offset the global negativity emanating from the Euro debt crisis?  Apparently the markets think so as risk assets traded higher yesterday and that follow-through has carried over to this morning.  Yesterday’s better than expected data here in the US showed that things may be improving despite the global economic malaise that has heightened risk in the marketplace.  Also, there is some decent news out of the EU as well that is contributing to the sense of relief we are seeing this morning.

The big news here in the US yesterday came from the initial jobless claims report that came in at 366K, which is the lowest we have seen in some time.  In addition, there was also some positive news on the manufacturing front, as the Empire manufacturing index and the Philly Fed came in much better than expected, with the former posting a reading of 9.53 vs. an expected 3, and the latter posting a reading of 10.3 vs. an expected 5.  This is a step in the right direction but could also be an indication of activity taking place to stock up inventories for next year.

While these are both positive developments, we need to see that this is the start of a new trend and not a one-time phenomenon.  Yet as problems in the EU persist and the possibility of a slowdown in China is looming, the global economy needs the US to recover quickly.

This sentiment was not lost overnight, as Asian equities and the commodity currencies traded higher with the Japanese yen and US dollar trading lower.  The idea is that if the US recovers, it will be god for demand for Asian exports.  The Aussie, for example, is trading back over parity vs. USD.

Even though there was little economic data in the overnight session, there are some positive developments coming from the EU.  In Germany, a motion to get rid of the ESM was defeated in Parliament paving the way for the use of that fund as per the agreements that have been made so far.  In Italy, new PM Monti has passed a confidence vote over the austerity measures and budget cuts Italy is making in order to reduce deficits and comply with EU mandates.

Yields in the EU are falling as bonds are rallying ahead of the implementation of the ECB 3-year loan proviso, which is to begin next week.  This will help provide European banks with added liquidity to prevent shortages, and has increased the demand for short-term sovereign debt to use as collateral.

There is also some Fed speak today with various Fed officials set to make comments about the various situations.  One take away comes from Fed governor Dudley, who said that the Fed would not be using monetary to combat the potential fall out from further problems in the EU, but they would stand by at the ready to increase liquidity if need be.  One example of this was the move to reduce swap lines recently.

The only real news of the morning here in the US is the release of CPI data.  The headline figure came in unchanged vs. an expectation of a gain of .1%, leaving the YoY number at 3.5% as expected.  The core number, ex food and energy, increased .2% vs. an expected .1%, pushing the YoY number to a slightly higher 2.2% vs. the expected 2.1%.

While these numbers are largely in line with expectations, the slight tick up in core CPI is consistent with my discussion yesterday about biflation.  Higher costs for items that are necessities strain the average consumer, vs. the more discretionary items.  So the government can say whatever they want about inflation, but it is easy to see through the smoke and mirrors as you leave the grocery store or pull out of the gas station.

Regardless, the markets appear to be in risk-taking mode with global stocks and commodities holding on to gains this morning.  Whether or not this will continue ahead of the weekend remains to be seen but my guess is that we may be able to coast into the end of the year without incident.

If there is going to be any hope of a Santa Claus rally, it needs to start now!

November 25, 2011

Week in FX: Europe Nov. 20-25

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 11:55 am

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