India | Forex Blog

December 28, 2011

Forex Market Outlook 12/28/11

Filed under: Forex News — Tags: a-also-showed, india, japan, news, price, switzerland, top stories, world — admin @ 6:55 am

End of the year trade is in full effect and lower volumes than normal has not increased volatility very much as can sometimes happen. This has provided some low risk opportunities as prices have vacillated back and forth between the tight ranges.

There is not a lot of news in the global economy today, particularly from an economic data release perspective. In fact, most of the news expected for today’s US session has already been released with the exception of mortgage applications which are due out later this morning but unlikely to have a material effect on the markets.

One of the more interesting stories in the global markets is that the price of oil has been rising and is back over $100/barrel. This is due to some potential unrest coming out of Iran, who is using this opportunity to make some noise by threatening the international supply of oil. This situation is more bark than bite at the moment, but you never know how quickly these things can escalate. In any event, higher oil prices have been supportive of a stronger Canadian dollar. For those unaware, the Canadian dollar is positively correlated to the price of oil.

The economic data released today came from Japan and was basically negative across the board. Household spending, retail trade figures, and industrial production figures all came in lower than expected. CPI data also showed that deflation is going to continue, but the unemployment rate remained steady at 4.5%.

So the economic data in Japan is not good and much of the blame is going to be blamed on a stronger Yen. This has prompted Japan to seek bi-lateral deals for their currency reserves with the likes of China and India thereby effectively making funds available for trade. While this story hasn’t received a lot of press, it is important as it removes the US dollar as an intermediary and is a blow to the Dollar as the world’s reserve currency status. If more countries seek bilateral currency agreements then the use of the US dollar becomes less important. For all of the talk about currency manipulation, most of the world outside of the US believes that the US Fed is the biggest currency manipulator around the globe. It is no surprise that the US admonished Japan today for their direct currency interventions to stem Yen gains over the past year. This could be a story that plays out over the course of the 2012, so stay tuned and read between the lines of this one!

This caused Asian markets to sell off overnight and the Yen to strengthen, though year-end complacency means that the moves were very minor.

Markets reversed course however once the European session began as the debt auction in Italy went off much better than expected. 6-month bills were auctioned at rates roughly half of what they were paying just last month. This is a huge step in the right direction and means that funding costs are significantly lower. Longer-term debt will be issued tomorrow and if borrowing costs resemble what happened today, then this bodes well for risk appetite heading into the New Year. Some are saying that this has occurred because of the ECB loans given a few weeks ago that have essentially allowed the banks to set up carry trades for sovereign debt. This will increase demand and allow yields to drop which is what the indebted nations need right now.

In Switzerland, the KOF leading indicators index came in lower than expected, posting a gain of .01 vs. an expectation of .23. This cause the franc to strengthen a bit, but again, holiday trading is means these are non-factors.

In the US, mortgage applications will be due out later but will not be a factor either. Short-term traders should continue to trade the ranges, and longer-term traders should be thinking about what they would like to be in for the New Year.

The economic data is starting to look better, including retail sales figures due to the holidays so if Europe can get the debt crisis under control and if US politics can provide some sensible solutions, then 2012 could be a very god year for risk assets.

Cheap money due to US Fed policy could make its way to both stocks and commodities and while that would normally be inflationary, the inflation could be masked by lower home prices and wages due to elevated unemployment.

So there is a lot to think about for the New Year but by coming up with a plan of action, you could put yourself ahead of the game!

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November 2, 2011

What’s the FED to do?

Filed under: OANDA News — Tags: a-more-neutral, aud, black, cad, chinese, commodity, eur, government, india, jpy, price, week — admin @ 4:17 am

It seems that any scrap of market confidence is met with a low blow from the extreme. Papandreou’s Government has blindsided the financial markets by calling a referendum on a supposedly agreed upon financial plan. The risk is that rejection by a referendum would spark a disorderly default and call into doubt Greece’s membership of the Euro.

Investors left October where a combination of better-than-expected US and Chinese data, rising hope of easing by several major central banks, and developments emerging from European authorities, helped to lifted risk appetite from a deep ‘panic’ region. One press conference too many and Papandreou is giving the market a license to sell the regions currency on rallies.

Today investors will get more guidance from the Fed. Collectively, analysts seem to agree that policy makers are moving towards making future policy decisions more contingent on the progress towards its inflation and employment objectives and may signal accordingly in today’s policy statement. It seems to be agreed that its a tad early for authorities to let QE3 or even the notion of a new round of asset buying out of their tool bag. The buck should lose ground on the mention of it. A betting individual is leaning towards an unchanged statement, one that should again pressurize risk positions, benefitting the “dollar”.

The FOMC statement will be released at 16:30 GMT (12:30 EDT)

It’s difficult to believe that US data was reported during the market carnage yesterday. To a certain extent it was ignored as the rest of the world was preoccupied with the “Greek Tragedy”. Policy maker’s frantic phone calls and a Greek government that won’t back down took most of the shine off yesterday’s reporting.

The ISM manufacturing index dropped from 51.6 to 50.8 last month. It’s the second lowest reading since it last indicated contraction two years ago. Digging deeper, the decline was concentrated in the inventories index. The new order index happened to reenter expansionary territory (52.4 vs. 49.6) for the first time in a quarter. However, the inventories index plummeted to 46.7 from 52 (the lowest reading in thirteen-months). In the prices paid component, the index saw a large jump, falling 15 points to 41 (another “first negative reading in seven months).

The dollar is lower against the EUR +0.64%, GBP +0.43%, CHF +0.49% and JPY +0.37%. The commodity currencies are stronger this morning, CAD +0.59% and the AUD +0.59%.

The CAD was not going to disappoint the dollar bulls this time. The loonie had been out performing similar growth sensitive currencies in the previous session. However, the Greek’s surprise referendum decision quickly ended the CAD stellar action. Papandreou’s surprise announcement provided the reason for a shift out of riskier assets. The euphoria that was built up on the back of the agreement to restructure the EFSF began to unwind and is pushed the currency to test short term resistance points. The greenback has risen against all of its most-traded counterparts this week on demand for a ‘refuge in the world’s main reserve currency from European fiscal turmoil’.

Earlier, the Canadian Finance Minister stated that the BoC’s mandate will remain unchanged as the government prepared its five-year renewal of Governor Carney’s inflation target. The CAD, like other growth sensitive currencies, is trading under pressure as concerns that European leaders will struggle to rein in the region’s debt crisis, has eroded risk appetite. Last month, the currency rallied +5.4% outright, however, the BoJ’s intervening actions this week will be able to rock the currency’s recent climb some more.

With global sentiment again turning negative, coupled with the stress in the CDS market, will continue to pressure the long CAD positions and apply a firm cap on the four week loonie rally. Carney’s comments last week were very transparent. He is concerned about sustainable growth and the market will have to be cautious in trying to push the currency higher at speed. Corporate buyers remain below as dealers focus on the risk reward of owning the loonie at these levels (1.0172)

In the O/N session down-under, building approvals fell -13.6%, m/m, in September, the first decline in three months. The weakness in the Australian housing market supports the RBA’s move to ease policy to neutral. Early in the week the RBA cut rates (-25bp to +4.50%) and has moved to a more neutral policy stance. In Governor Stevens communiqué, the RBA concluded that a more neutral monetary policy stance would be appropriate to maintain growth now that inflation is likely to stay within its 2-3% target over the next two years. The RBA noted that while financial conditions have eased, overall conditions remain tighter than normal and the AUD is still at historically high levels.

The market is now estimating and pricing a neutral policy rate at around +4.0-4.5% and that the RBA is likely to cut by another-25bp in Q1 of next year. Futures dealers have priced in a market easing of about-88bp in total along the curve throughout this cycle. Currently that looks a tad rich, but hindsight is another matter. These cuts are likely to constrain and cap the Aussie. However, on the flip-side, better than expected data out of the US coupled with resilient growth from the Chinese economy will be supporting antipodean currencies. In this current environment, the market remains a better seller of the currency on rallies (1.0381).

Crude is higher in the O/N session ($92.81 up+0.62c). Oil prices are not immune to this commodity clean out. The very idea of Papandreou holding a referendum coupled with weaker growth data out of China is bound to affect the demand for the black-stuff. Futures intraday dropped as much as -4.3% yesterday after Greece decided to call a vote on its five-day-old ‘supposedly’ agreed upon Euro plan. Confidence and demand are the variables that support crude and so far this week both variables have again been called into question.

Last week’s EIA report showed that crude stockpiles rose +4.74m barrels to +337.6m vs. an expected build of +1.3m. Oil imports rose +1.45m barrels per day to +9.34m. On the flip side, gasoline stocks fell -1.35m barrels to +204.9m, slightly smaller than the -1.6m expected drawdown. The average gasoline demand in the last four-weeks fell -0.7% from a year ago. Distillates, which include heating oil and diesel, happened to fall -4.28m barrels to +145.4m. Analysts had been expecting a +1.9m barrel draw. The refinery utilization rate increased +1.7% points to +84.8% of capacity.

Japan intervened for the third time this year and pledged to keep selling the yen. Finance Minister Azumi said the move was carried out to combat ‘one-sided speculative moves that don’t reflect the economic fundamentals of our economy’. In the short term this is good enough reason for oil prices to remain capped. Market continues to sell the technical rallies.

Gold buckled under the pressure from the dollar yesterday after Greece blindsided the financial markets by calling a referendum on a supposedly agreed upon financial plan. In an illiquid market, and after Japan intervened earlier in the week to weaken its currency, has sent the greenback higher and other risk assets plummeting. The MoF and BoJ actions have just extended the recent “phase of consolidation” from last week’s short-covering surge that lifted the price to its highest level in more than a month. In relative terms, the commodity has traded rather tamely since Septembers purge mainly for margin cash requirements.

Despite the dollar being one of the major beneficiaries due to growth and global uncertainty, investor’s interest in the yellow metal has continued to pick up this week, as reflected by the inflows of metal into ETF’s according to analysts. In the O/N session the yellow metal has been capable of clawing some of this weeks losses.

Investors have been using the commodity as a safe-haven alternative to equities or FX. Individuals seem to want to insulate themselves from steeper price falls. The bullion is in its eleventh-year of a bull market and is up +19% this year.

Bigger picture, the commodity has also found support on concern that US monetary policy aimed at shoring up growth will eventually spur inflation. The FOMC statement is released later this afternoon. With global sentiment in the fragile category, gold remains the go to “safer-haven” prospect. If we include the demand for ‘physical’ gold from India, then both of these reasons should provide the strongest tangible support to want to own some on these pullbacks ($1,733 up+$22.80).

The Nikkei closed at 8,640 down-195. The DAX index in Europe was at 5,910 up+76; the FTSE (UK) currently is 5,451 up+30. The early call for the open of key US indices is higher. The US 10-year eased-13bp yesterday (+2.07%) and is little changed in the O/N session.

Treasuries again have rallied, extending the longest winning streak in two-years, as renewed concern Greece will default and the European rescue plan will unravel boosted demand for a safer asset class. It is the third consecutive day for the FI asset class to rally, shaving close to-42bp off the benchmark 10-year. Greek Prime Minister Papandreou has called for a referendum and a parliamentary confidence vote. He is risking pushing the country into default if rejected by voters.

The debt market has found further support from global equities plummeting over the last two sessions on growth worries from China. Later today, the market gets to hear from the FOMC and policy makers’ stance on perhaps QE3. With the Euro euphoria not being a solution and the possibility of contagion potentially appearing on the horizon will have product better bid on pullbacks. With reported US domestic data underwhelming has investors wishing to err on the side of caution.

Earlier this week, dealers have been front running the theory that with Japan intervening, because of an overvalued domestic currency, will be expected to translate into official buying in the Treasury market.

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November 1, 2011

Euphoria is Dead EURO is Buried

Filed under: OANDA News — Tags: aud, chf, chinese, employment, eur, government, governor, india, japan, year — admin @ 4:28 am

It’s getting confusing, what “big figure” is the market trading on now? The euphoria following last weeks EU plan has quickly faded and then some, underlying that event risks to the EUR remain high. Greece is quickly becoming the “New” Argentina of the North, a country after a few general elections early in the last decade, aid packages and debt restructuring decided to abandon its peg to the dollar. Papandreou is hoping to seek the populous opinion on his austerity measures early in the New Year.

Low European growth, mixed with a little speculation that the ECB will ease sooner rather than later will not be driving the EUR bus any time soon. The recent Greek developments will only weaken further the commitment of Greek officials to implement more fiscal austerity measures going forward. Everything so far remains contingent on the implementation of further reforms in Greece. The Euro house of cards just got its biggest push.

This is very much an event risk week with liquidity constraints. Yesterday’s early trading was dominated by the BoJ’s actions and global bourse’s paring some of last week’s misplaced Euro euphoria. By day’s end, Papandreou hugged the headlines by calling a national referendum. In the US, the Chicago regional PMI gave no one any reasons for concern or to alter any forecasts for today’s national ISM factory index. The headline index fell two points to 58.4 (lowest reading since May), but the ISM-weighted index fell by just one point to 59.4. The decline in the weighted offset some but not all the earlier strength in the regional Fed surveys. In translation, the US economy expanded at a slower pace last month, while at the same time revealing low inflation and an improvement in the employment sector. This month marked the twenty-fifth consecutive month that the business barometer showed expansion. At least it’s something positive to hug onto!

After Papandreou and certainly causing much of the damage in the O/N session, was China’s underperforming PMI. It fell -0.8 to 50.4 in October, much weaker than the consensus forecast for a rise to 51.8. Digging deeper, new orders were down to 50.5 from 51.3 in September and new export orders dropped to 48.6 from 50.9 in October. The PMI suggests the Chinese economy is still slowing, although analysts note that the PMI’s correlation with IP growth has been rather weak. The market is beginning to predict that the PBoC may be required to ease policy and that the government may introduce some new fiscal stimulus by year-end.

The dollar is higher against the EUR -1.00%, GBP -0.65%, CHF -1.32% and lower against JPY +0.08%. The commodity currencies are weaker this morning, CAD -0.97% and the AUD -1.58%.

The loonie is still caught in the crossfire’s of international proceedings and will be very much at the mercy of the outcome of this week’s events. The CAD, like other growth sensitive currencies, is trading under pressure as concerns that European leaders will struggle to rein in the region’s debt crisis has eroded risk appetite. Last month, the currency rallied +5.4% outright, however, the BoJ’s intervening actions will be able to rock the currency’s recent climb some more.

With global sentiment again turning negative, coupled with the stress in the European banking system, will eventually pressurize the long CAD positions and apply a firm cap on the four week rally. The loonie briefly pared losses intraday yesterday after Canada reported that the economy expanded in August for a third straight month (+0.3% vs. +0.4%). The loonie remains vulnerable to what happens in the US. Carney’s comments last week are very transparent. He is concerned about sustainable growth and the market will have to be cautious in trying to push the currency higher at speed. Corporate buyers remain below as dealers focus on the risk reward of owning the loonie at these levels (1.0094)

It’s not a shocker that the RBA cut rates (-25bp to +4.50%) and has moved to a more neutral policy stance. In Governor Stevens following communiqué, the RBA concluded that a more neutral monetary policy stance would be appropriate to maintain growth now that inflation is likely to stay within its 2-3% target over the next two years. The RBA noted that while financial conditions have eased, overall conditions remain tighter than normal and the AUD is still at historically high levels.

Crude is lower in the O/N session ($91.45 down-1.74c). Oil prices dropped as the dollar climbs and global bourses fall, paring the biggest monthly gain in more than two-years. When the BoJ intervened and bid up the dollar happened to make commodities, priced in dollars, less attractive. Equities on the other hand worry that European leaders will struggle to raise funds to contain the region’s debt crisis. Both these asset classes have been the primary driver behind the commodity whipped lashed trading ranges.

Gold prices eased yesterday, but not at the same pace of its commodity cousins. In an illiquid market, after Japan intervened to weaken its currency, has sent the greenback higher and other risk assets plummeting. The MoF and BoJ actions have just extended the recent “phase of consolidation” from last week’s short-covering surge that lifted the price to its highest level in more than a month. In relative terms, the commodity has traded rather tamely since Septembers purge mainly for margin cash requirements.

Initially last week, a deal by the Euro leaders to tackle the euro zone debt crisis and a positive reading on US growth, happened to encourage investors to delve back into riskier assets and to boost their bullion holdings. Investors have also been using the commodity as a safe-haven alternative to equities or FX. A percentage seems to want to insulate themselves from steeper price falls. The bullion is in its eleventh-year of a bull market and is up +19% this year.

Bigger picture, the commodity has also found support on concern that US monetary policy aimed at shoring up growth will eventually spur inflation. The FOMC two day meeting begins later today. With global sentiment in the fragile category, gold remains the go to safer haven prospect. If we include the demand for ‘physical’ gold from India, then both of these reasons should provide the strongest tangible support to want to own some on these pullbacks ($1,712 down-$12.80).

The Nikkei closed at 8,835 down-153. The DAX index in Europe was at 5,903 down-237; the FTSE (UK) currently is 5,409 down-135. The early call for the open of key US indices is lower. The US 10-year eased-22bp yesterday (+2.20%) and is little changed in the O/N session.

On the penultimate day, before rounding out one of the better months this year, treasury prices climbed, pushing longer dated security yields down the most in almost a month, as the BoJ intervened by selling yen to stem its rally and periphery bonds falling on concern that Europe will be unable to curb its sovereign debt crisis.

Dealers are front running the theory that with Japan intervening, because of an overvalued domestic currency, will be expected to translate into official buying in the Treasury market. Since the close of business last week, the middle of the curve has given up nearly-31bps. The market is concerned that contagion remains a question in Europe, requiring a demand for safer-assets. This week is also a heavy laden event risk week with investors wishing to err on the side of caution.

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October 28, 2011

Does the Dollar have Mojo?

Filed under: OANDA News — Tags: cad, chf, chinese, consumer, dollar, india, investment, morning, week, yellow — admin @ 4:30 am

G10 currencies are trading in a well contained range after yesterday’s miraculous recovery amongst risk assets. The selling of the greenback does not seem to be trading in an overextended scenario in either position or price action. Most would have predicted that the dollar should have already come too the fore this morning, citing an “over zealous market” since the Euro agreement of their comprehensive package.

Investors continually look at global bourses for direction, they have been the key drivers behind the dollars move. Manufacturing data in the US and China showing signs of improvement can only push equities higher and dollar lower. Next week is another busy week with rate announcement from the ECB and Fed and of course reports on the all important job situation. However, with these markets turning on a dime is leaving little room for reflection.

The market breathed a little easier after US data yesterday. US Q3 GDP estimate reported a +2.5% annualized increase, stronger than the preceding three quarters and thankfully a significant improvement on the first half of this year. It seems that the consumer has come out to play. They have reduced their savings to boost purchases while at the same time companies stepping up their investment in equipment and software. The only negative in the breakdown being a sharp slowing down in inventory growth. Final sales (GDP less inventories) rose by a solid +3.6%, proof that there is strong demand. However, the biggest drop in incomes in two-years (-1.7%), along with declines in home prices and consumer confidence, certainly casts doubt on whether the increase in spending can be sustained. Obama team needs to get “the jobs machine going” and get the housing market moving in the right direction otherwise the US economy remains in a low-to-moderate growth mode and vulnerable to setbacks. In that scenario, the Fed and its Q3 most surely come to the fore.

Core (+2.1%) and headline PCE (+2.4%), inline with expectations, suggests that the underlying inflationary momentum is as how the Fed likes it. They next meet next week. Digging deeper, consumer spending (+70% of GDP) rallied +2.4% with the increase mostly spent on durables (+4.1% in autos). Fixed investment was up a staggering +13.7%, corporations are finally beginning to loosen their purse strings. The only negative was inventories, where growth slowed to a crawl, falling -1.1%. The reason why? It was weather for farmers, restraints in Japanese imports, and perhaps an unexpected improvement in demand. The weakness in disposable income should remain the biggest outlier as we head towards 2012.

Better than expected claims chipped in yesterday and helped to improve investor’s intraday mood. New weekly claims fell ever so slightly last week (-2k to +402k), yet remain elevated and above that psychological +400k print. The more reliable indicator, the four-week moving average edged higher +1.75k to +405k. Despite spending more on fixed investment in the Q3, companies are unwilling to hire en masse. Even Obama’s jobs bill is having trouble, it has met resistance from opposition in congress whom oppose new spending. Now his administration is trying to get it through by piecemeal. The number of continuing claims (one week lag) was +3.645m, down -96k w/w. Have previous claimants got a job or have they just run out of benefits? Next week we get NFP.

The dollar is higher against the EUR -0.03% and CHF -0.26% and lower against GBP +0.11% and JPY +0.11%. The commodity currencies are mixed this morning, CAD +0.03% and the AUD -0.39%.

The loonie certainly went partly along for the ride outright, however, on the crosses it has performed poorly. There are good corporate bids near the dollar lows despite “risk on” in other asset classes. The loonie has been well underpinned by improved risk appetite after Europe finally put together a comprehensive package which is lacking detail, it’s seen as a sign of good faith. The CAD outright seems to be trading as a pricing vehicle for the beleaguer CAD/JPY and EUR crosses. It’s all about fair value.

Governor Carney this week certainly has given the market ‘food for thought’. The BoC has quashed expectations of interest rate hikes and downgraded its growth forecasts, citing Europe’s debt crisis and weakness in the country’s top trading partner south of its own border. The MPR reported that the annualized pace of expansion will average +1.8% in the four quarters through June, compared with a previous estimate of +2.8%. The bank cut its projection for global growth next year by-0.9%, and it said the recovery will be slower than usual as consumers, governments and businesses reduce debt.

It seems that dealers are moving further out the curve and are beginning to slowly price in rate hike in the latter half of next year when inflation indicators begin to move toward the Banks+2% inflation benchmark. Carney is also predicting that the Canadian economy grew +2% in Q3 and will grow at +0.8% rate in Q4.

Where does this put the loonie? Well, it does not put it in the same risk and growth category as the Aussie or Kiwi. The loonie remains vulnerable to what happens in the US. Carney’s comments are transparent, they are concerned about sustainable growth and the market will have to be cautious in trying to push the currency higher at speed. Corporate buyers remain below as dealers focus on the risk reward of owning the loonie at these levels (0.9902)

The antipodeans lead the pack this week. With the RBNZ keeping rates on hold and given the positive EU summit outcome, is providing the basis for a more meaningful recovery in global risk appetite in the near term, supporting the Kiwi and Aussie. In the O/N session, the AUD has fallen from its highest level in almost two months against the greenback as traders speculate that the currency’s biggest advance in more than a year was too rapid.

Even the fear that Australian domestic data showing that underlying inflation slowed last quarter, to its weakest pace in 14-years (+0.3% vs. +0.6%), which would allow the RBA to cut the developed world’s highest borrowing costs next week, is finally being appreciated by investors. Despite futures traders pricing in a-25bp cut, the AUD will remain at the mercy of global developments and progress in the Euro-zone debt aid package. The currency depreciated almost-10% last quarter on the back of weaker employment growth and global risks increasing.

How long will Euros euphoria have investors demanding the AUD? US growth numbers this morning will of course hold considerable weighting on that answer. The market is a better seller of the currency on rallies (1.0674).

Crude is lower in the O/N session ($93.21 down-0.73c). Oil prices got the green light to march higher after Euro policy makers agreed on measures to tame a sovereign debt crisis that threatened to slow economic growth. Being the world’s most dominant consumer of crude, the US economy growing at an annual rate of +2.5% last quarter is also supporting prices and this despite elevated weekly inventories.

The rise in stocks is in marked contrast to recent price rallies. Brent’s premium over WTI has again widened. Expect investors to continue to run into technical selling on rallies as they wait for a clearer idea of what the ECB and Fed will want to do next week.

Gold prices steadied yesterday after a deal by the Euro leaders to tackle the euro zone debt crisis and a positive reading on US growth encouraged investors to delve back into riskier assets and to boost their bullion holdings. Investors have an appetite and desire for a safe-haven alternative to equities or FX. They seem to want to insulate themselves from steeper price falls. The disappointing US consumer confidence print earlier in the week provided the impetus for metal to rally as the data showed consumers were at their gloomiest in 2-1/2 years. The bullion is in its eleventh-year of a bull market and is up +21% this year.

The commodity has also found support (store-of-value) on concern that US monetary policy aimed at shoring up growth will eventually spur inflation. Over the past two-weeks, commodities have followed the moves in riskier assets, with the precious metal’s safe-haven appeal diminishing a tad after the price purge swings in the past quarter. Stronger Chinese growth is also providing a source for support. Last week, the yellow metal rallied the most in a week, as a drop in the dollar boosted investor demand.

With global sentiment in the fragile category, gold remains the go to safer haven prospect. If we include the demand for ‘physical’ gold from India, then both of these reasons should provide the strongest tangible support to want to own some on pullbacks ($1,737 down-$10).

The Nikkei closed at 9,050 up+124. The DAX index in Europe was at 6,411 up+74; the FTSE (UK) currently is 5,736 up+22. The early call for the open of key US indices is higher. The US 10-year backed up +16bp yesterday (+2.40%) and is little changed in the O/N session.

The market has reacted positively to the Euro leader’s comprehensive debt package, despite it lacking full disclosure. Benchmark yields have been able to rally to two-month highs. The market realizes that there is much cash remaining on the side lines and a great deal of it could be put to work if investors could be convinced that the European situation will not spiral into disarray. The market also made it easier to “push about” the last of this week’s Treasury supply, yesterday’s $29b seven-year notes. The dealing desks have also reduced their short-dated holdings ahead of selling from the Fed as a part of it’s +$400b “Operation Twist” program.

The $29b 7-year auction was horrible compared to the 2’s and 5’s earlier in the week.
They were sold at a yield of +1.791%, much higher than the +1.759% yield before the sale. The bid-to-cover was 2.59, a two and a half year low compared to the four–sale average of 2.75. Indirect buyers bought +33.9% of the offering compared to +41.3%. “Dealers still own these puppies”.

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June 1, 2011

Australian Economy Declines 1.2%

Filed under: OANDA News — Tags: a-have-combined, bbc, contracted, economy-the, first, had-predicted, india, news, percent-on-the, setback, the-setback — admin @ 7:22 am

Hampered by flooding, an increase in taxes, and weaker demand for Australia’s exports in China and India have combined to hand the economy the greatest three-month loss since 1991. For the first three months of the year, the Australian economy contracted by 1.2 percent and while significant, it was better than many had predicted.

Despite the setback, Australian dollar gained 0.6 percent on the US dollar shortly after the news was released.

Source: BBC News

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Time to load up on the EURO again

Filed under: OANDA News — Tags: commodity, contracted, eur, europe, greece, had-predicted, india, jpy, local, present, setback — admin @ 4:13 am

The EUR has held despite this weeks theatrics. Greek restructuring is apparently off the table, for now at least. In translation, the ‘strong advice and preference of the ECB has prevailed’ over Euro politicians grandstanding. There are even some tentative signs in Greece that a compromise is attainable between the government and opposition. However, this does not mean there will be no restructuring later on.

Politicians and policy makers seem to be deluding themselves, systemic risk is real and may eventually be uncontrollable. For now, rather than painting over, they prefer whitewashing the problem.

In the short term, the dollar is expected to suffer from low yields and a dovish Fed, just see how the front end of the US curve is performing. In the background we have the debt ceiling fiasco, yesterday, the House of Representatives voted down measures to raise the debt ceiling. This will be the main reason why the market will keep rates so depressed. The immediate concern will be this Friday’s NFP release. Analysts have already revised down their expectations and expect a weak monthly print, more evidence of slower growth out of the US.

The US$ is weaker in the O/N trading session. Currently, it is lower against 12 of the 16 most actively traded currencies in an ‘orderly’ session.

Disappointing US data yesterday has done little to support being a dollar bull. May’s Conference Board consumer confidence index surprised and fell to 60.8 from 66 in April. The details show that the present situation index, with a modest decline to 39.3 from 40.2 is consistent with its Michigan CSI counterpart, but, the expectation index plummeted to 75.2 from the prior month’s print of 83.2 contrasts with the improved data from soul sister index. Digging deeper its one year inflation expectations edged higher to +6.6% from +6.3%. Of note, the present situation shows a rise in the proportion seeing jobs as being plentiful (+5.6% from +5.1%). This is outweighed by a larger number seeing jobs as been hard to get (+43.9% versus +42.4%). This could be a heads up for Friday’s employment number.

Chicago PMI fell to a one and a half year low yesterday (56.6 versus 67.7) and ‘reinforces April’s picture of decelerating economic growth’. It’s proof that the economy is slowing down due in part to increases in energy and commodity prices and provides more ammunition for the Fed to maintain its low interest policy for an ‘extended’ period.

The dollar is lower against the EUR +0.07%, CHF +0.66% and JPY +0.17% and higher against GBP -0.28%. The commodity currencies are mixed this morning, CAD -0.07% and AUD +0.51%.

Apart from the BoC watch yesterday, data showed that Canadian businesses have been curtailing the price pass through effect. Industrial prices continue to exhibit cooling, easing to +0.5%, m/m, from +0.8% in the prior month. It seems that the pass through of higher commodities through finished goods prices is diminishing. If it were not for the loonies rise during the month, industrial prices would have climbed +1%. The biggest gains were registered in energy products. In contrast, the RPMI price overshot market expectations, picking up +6.8% in April. The increase was evident in mineral fuels and crude prices, excluding mineral fuels, the RMPI advanced +0.6%, m/m.

As expected the BoC kept their key interest rate unchanged yesterday (+1%) and said they will raise it ‘eventually’ as the economy recovers. Governor Carney stated that ‘if the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn’. Of course the appropriate Central Bank disclaimers were applied, ‘such reduction would need to be carefully considered’. Policy makers indicated that the recovery is ‘proceeding largely as expected’ and that any rate increases would be ‘consistent with achieving the +2% inflation target’.

The market has interpreted Carney’s communiqué as being more hawkish than expected, particularly the language shift in the ending policy guidance. They have inserted the new word ‘some’ rate hikes. Inflation will move towards the BoC +2% targets by the middle of next year despite the growth of the current CPI exceed +3% ‘in the short term’, which has been driven by temporary factors such as higher taxes and food and energy costs.

The currency got a temporary lift from the BoC statement. However, the currency is again being subjected to the pull of either risk or risk aversion trading strategies until we get to see NFP data this Friday (0.9690).

The AUD was one of the leaders of the broad rally versus the dollar O/N, despite recording the worst slide in its GDP headline in twenty-years. The details were strong. Australian GDP fell -1.2%, q/q in first quarter, less than consensus for obvious flooding reasons. However, other details like the household savings rate jumped from +9.7% to +11.5% and income growth was very strong with compensation of employees up +3%, q/q, even strong was the terms of trade rising another +5.8%, q/q. Analyst’s expect the savings rate to begin moderating and consumption growth to begin rising later this year as the labor market tightens further, increasing household confidence. In theory this should put pressure on inflation and have the RBA on the back foot to hike rates further by year end.

The RBA had signaled recently in the Statement of Monetary Policy that an anticipated fall in the first quarter growth is likely to be temporary and forecasts a strong rebound to +4.25% in the fourth quarter. Traders have reduced some of their bets on the amount of interest-rate increases by the RBA over the next 12-months to 22 basis points from 25 last week.

Providing support for the currency is the belief that the local dollar is also gaining stature as a global reserve currency, similar in nature to that of the CAD. Aussie yields are still the highest in the G10 and always look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on these much deeper pullbacks for the time being (1.0730).

Crude is lower in the O/N session ($102.42 -0.25c). Oil finally found some traction yesterday and trimmed some of its biggest monthly drop in a year, on signals that the EU will approve further aid for Greece, supporting the EUR against the dollar. Big picture, investors expect the commodity to be supported on these pull backs as speculation that fuel demand will increase with the start of the US summer driving season.

Last week’s EIA report showed that supplies rose +616k barrels to +370.9m. Stockpiles were forecast to decrease by -1.5m barrels. A gentle surprise was gas inventories rising +3.79m barrels to +209.7m, above forecasts for a +300k build. The EIA data showed that gas demand fell over the last month by -2.1%, on average, versus the same period of last year. Distillate stocks fell -2.04m barrels to +141.1m barrels, well below projections for a +100k build. Refinery utilization rose +3.1% to 86.3%, much more than the +0.5% increase investors had expected.

Technically, the report could be seen as overall bullish because of the distillate number. However, the oil demand-supply situation is relaxed, and there’s no danger of any shortage. In theory, lower global interest rates should help the commodity which competes with yield-bearing assets for investors’ cash.

Gold prices are holding steady, supported by the ongoing debt crisis in the euro-zone boosting demand for the metal as an alternative asset. The weaker dollar sentiment is also creating a positive metal sentiment. Short term immediate pressure can be seen coming from the Shanghai bourse, which plans to temporarily increase margins on commodity futures to dampen a surge in volumes. Apart from that, investors continue to buy bullion to protect themselves against economic and currency uncertainties.

Strong buying recommendations from Goldman and Morgan Stanley have also been good enough reason to drag the commodity up from last week’s lows. The yellow metal is being used as a store-of-value and trades like a currency.

The metals bull-run is far from over with speculators continuing to look to buy gold on deeper pullbacks. Interestingly, the sale of gold coins this month remains on track for the best month in a year amid the worst commodities rout in three-years, which would suggest that bullion’s longest ‘bull market’ still has room to run ($1,531 -$5.40c).

The Nikkei closed at 9,719 up+26. The DAX index in Europe was at 7,279 down-14; the FTSE (UK) currently is 5,978 down-11. The early call for the open of key US indices is lower. The US 10-year eased 2bp yesterday (3.06%) and is little changed in the O/N session.

The FI asset class has been able to push yields to a new yearly record lows for this year, as softer home prices, reduced consumer confidence and a weaker industrial reading added to concerns that the US economy is slowing. It seems that global investors have turned increasingly bullish on US paper, as weakening economic data points to sluggish growth, tepid inflation and the likelihood monetary tightening is still a long way off. Until the market begins to get some bad news on inflation, investors should remain bulled up!

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March 24, 2011

China to Become World’s Largest Economy by 2030

Filed under: OANDA News — Tags: and-investment, aud, bbc, cad, chf, forex round up, freight-routes, india, limbo-on-the, mantle, previous, shrank, such-as-china — admin @ 1:17 pm

PricewaterhouseCoopers (PwC) predicts that by 2030, China will “surge past the US” to assume the mantle of the world’s largest economy. China surpassed Japan last year to take the number two spot on the list of largest economies with international trade worth $2.21 trillion (£1.36tn), compared with the $2.66tn (£1.64tn) for the US.

According to the report by PwC, the coming years will see global trade undergo “fundamental change” as emerging economies such as China and India begin to “dominate the top sea and air freight routes”.

Source: BBC News

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March 9, 2011

Canadian Dollar at 3-Year High

Filed under: OANDA News — Tags: a-are-going, a-boost-from, cad, china, dollar-gained, forex round up, getting-more, head-currency, india, market, simple-solution, such-as-india, toronto — admin @ 2:14 pm

The Canadian dollar gained 0.4 percent to 96.78 U.S. cents to the US dollar at 8:12 am in Toronto from $97.14 at yesterday’s close. The “loonie” as the Canadian dollar is known, is receiving a boost from rising commodity prices and in particular, surging crude oil prices.

“The Canadian dollar has the benefit of having the commodities the world wants, not just crude and gold but aluminum that are used for expanding societies such as India and China,” said Firas Askari, head currency trader in Toronto at Bank of Montreal. “Equities are up across the board. It looks like things in Libya are going to be protracted without a simple solution and the market is getting more comfortable with that.”

Source: Bloomberg

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November 2, 2010

Throw The Bums Out!

Filed under: Forex News — Tags: a-general-sigh, a-news-flash, aussie, australia, bernanke, india, markets, ship — admin @ 1:37 pm

Today is Election Day in the US which is expected to dramatically change the political landscape here in the US. While I normally try to avoid politics entirely, the impact that our current government has had on the shape of the economy has actually made things worse and today’s election may reflect that disappointment.

The two major issues are increased government spending and unfriendly business policies that have left the US with high unemployment and a stagnating economy. Enter Bernanke and the Fed. While today’s election is important, I think it takes a backseat to tomorrow’s FOMC meeting where Bernanke is going to set in motion QE2, the size of which is uncertain.

Because the people are calling for reduced fiscal policy, Bernanke believes that he can counteract that sentiment by increasing monetary policy. I think this is likely to not have the intended effect he is looking for, and will actually further contribute to economic malaise. The idea that he can “inflate the debt away” by printing money is misguided, as inflation will creep its way into the economy in the form of higher food and energy costs. These are things that are NEEDS in this country and not WANTS; so with an official unemployment rate (let’s not even get into the subject of REAL unemployment) as high as it is this is bound to cause a lot of pain for a lot of people.

This sentiment is not lost in Australia, where the RBA unexpectedly raised interest rates last night to 4.75%. While conventional wisdom was that further easing in the US would cause Dollar weakness and thus Aussie strength, the RBA is actually ahead of the curve realizing that not only is a stronger Aussie inevitable, but QE2 will actually cause a bigger inflation problem in Australia than it will in the US! In addition, interest rates were raised in India as well.

Right now, all of the “hot money” is already flowing to commodities and emerging market countries as yield seekers invest in places where there seems to be the potential for economic growth. With current US economic policy as it is, unfortunately the US is not that place.

So this morning is setting up as a classic risk-taking day, with Dollar weakness driving stocks and commodities higher, as well the “risk” currencies.

In the forex market:

Aussie (AUD): The Aussie is higher on the RBA rate hike, as the anticipated inflation from QE2 is seen as detrimental to the Australian economy. Because the Chinese economy has not slowed down and commodity prices are higher, the RBA is hoping to get out in front of the inflation exported from the US. The Aussie is now above parity with USD. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is higher on Dollar weakness and riding Australia’s coattails.

Loonie (CAD): The Loonie is higher on Dollar weakness and higher oil prices which are now trading at $84. Canadian employment reports are due out on Friday.

Euro (EUR): The Euro is higher as well trading on anti-Dollar sentiment as well as the fact that PMI figures came in higher than expected. The Euro is trading above 1.40 vs. USD and looks poised to make a run higher. (Click charts to enlarge)

Pound (GBP): The Pound is mostly lower as PMI figures came in lower than reduced expectations, yet it is still holding on vs. USD. The Pound had advanced from the June lows more than the Euro so perhaps a little Pound weakness is in order to help the UK navigate through the waters of austerity.

Dollar (USD): What more can be said about the Dollar? A lot of the rhetoric is that we need lower interest rates to encourage spending to re-flate the economy to return to economic bubble levels. Here’s a news flash: we may never get back to those levels despite bankrupting ourselves in the process. Yet the contrarian in me says that this Dollar-weakness trade is just too easy, so there must be a scenario under which the Dollar can strengthen, right?

Yen (JPY): The Yen is weaker across the board on risk-taking and general Dollar weakness.

So is there a scenario which would strengthen the Dollar? At this point, because of the build-up to this announcement, the Fed has to take some sort of action that is significant. Otherwise, their credibility would be completely shot. There was ample opportunity to talk down the threat of QE2 in the same manner that it was talked up, yet that opportunity wasn’t taken. So it’s possible that QE2 is already baked in to price and that tomorrow will be a “sell the news” kind of day.

While the market would be disappointed if QE2 was smaller than expected, there would be a general sigh of relief. In this regard, I can’t see the markets selling off too much. Let’s face it, the ship is already sailing whether Bernanke launched it or not. Whether he decides to step on the gas is another question.

When I think of human nature, I’m not sure I would want to go down in history as the guy who piloted the ship into the iceberg. After all, everyone remembers the captain, but no one remembers the navigator. So when things seem too easy, sometimes they are. While I have no specific reasoning and am grasping at technical straws to support my gut feeling, I come up empty.

But sometimes you have to listen to your gut.

Tomorrow is going to be the type of day where both great fortunes are made and lost. Be cautious in your trading and investing, as volatility could be the likes of which you’ve never seen.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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Dollar debasing jet-stream

Filed under: OANDA News — Tags: aud, black, cad, chf, dean's fx, headline, india, market, reserve-bank, saudi-arabia, strength, underlying, usd — admin @ 9:38 am

Softer income and spending data in the US yesterday raises questions about how healthy the important shopping season will be. Will the pending QE2 announcement provide the Midas touch? It’s been well documented that the problem with this ‘policy’ is that it does not add net assets to the private sector. This is the primary misconception regarding QE. The expansion of the monetary base is not ‘net new money in your pockets’. By day’s end, it will not help finance new spending or corporate investment, it will not create jobs and it will not increase aggregate demand. So, what’s the point? Someone is betting on a sustained psychological change. That is all the US government really has to offer at this moment as we encroach on 10% unemployment.

The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in a ‘volatile’ trading range.

Forex heatmap

US data was mixed yesterday and should have little bearing on the Fed’s pending announcement tomorrow. Analysts concede that pressure on personal income also highlights the pressure on the Fed to boost the economy. US consumer spending remained soft in Sept (-0.1% vs. +0.2%) and was split between the role of higher prices and a higher volume of spending. Even adjusting for inflation the headline was a miserable +0.085, m/m. It’s noted that the US consumer remains ‘dependent upon government transfers for income growth’, and even with that there are question on how healthy the important holiday shopping season will be. Digging deeper into the spending subcategories, the real-gain was driven by higher durables spending (+0.8%), with services spending (+0.056%) playing a secondary role, and nondurables spending fell -0.18%. One of the go to inflation indicators for the Fed, the headline price deflator for total spending, came in as expected (+1.4%), while core-inflation happened to print a mildly weaker than expected flat release (+0.0% vs. +0.1%). Even more disconcerting to see was the total personal income had fallen to -0.1% (first time in eighteen-months). Wage and salary disbursements came in flat, marking the second consecutive month of decelerating growth. The other components for personal income were eclectic, proprietor’s income was up +0.5%, rental income increased by +1.2%, but personal income receipts on assets was down -0.3%. The price-adjusted personal income ex-current transfer receipts has remained unchanged for three months, pushing the personal savings rate to +5.3% from +5.6% in Aug. In reality, US personal incomes are flat-lining, forcing individuals to use their savings to finance purchases. This is not the ideal way to prop up incomes.

Not to be left behind by China’s strong manufacturing numbers this week, the US’s manufacturing expanded at its fastest pace in five months yesterday (56.9 vs. 54.2). The details were surprisingly strong with the ISM’s new orders climbing to 58.9 from 51.1, while the production index jumped to 62.7 from 56.5. Again, it seems that US manufacturing is outstripping other facets of the US economy. The employment gauge rose to 57.7 from 56.5, and the index of export orders increased to 60.5 from 54.5. The inventory index fell to 53.9 from 55.6 in Sept., while the print of customer stockpiles rose to 44 from 42.5. Now we can make our way back to further Fed speculating.

The USD$ is lower against the EUR +0.58%, GBP +0.23%, CHF +0.64% and higher against the JPY -0.15%. The loonie received support from all the four corners of the globe yesterday. Stronger manufacturing numbers in both China and the US favor commodity prices, which usually affects growth sensitive currencies like the CAD. With US income and spending on the soft side, suggest fresh ammunition for the FOMC to vote for substantial QE2 tomorrow. Last week, the Canadian growth rate for Aug. came in as expected (+0.3%), with all the subcategories again putting in a solid performance. Canadian policy makers remain focused on the downside risks of the US economy, as the Canadian economy continues to be shackled to its largest trading partner, and the very reason why the BOC have prudently stepped to the sidelines. The loonie has been caught in ‘the dollar debasing jet-stream’. Last week Governor Carney stood down on hiking rates as expected, citing a softer outlook for the Canadian economy. Futures prices have priced in a ‘no-hike’ for the next six-months despite policy makers continuing to see the risk to the inflation outlook as being balanced. The BOC said that the ‘more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending’. They did not go all out neutral on future rate hikes, but noted that certain factors stand in the way. Canadian data highlights this week see the Oct. Ivey PMI on Thursday and the employment release on Friday. Now it’s back to the waiting game.

Both Australia and India seem to be getting ahead of the curve and have hiked rates unexpectedly O/N just as Japan and the US consider additional monetary stimulus, which could increase the risk of an influx of capital into both Asian-Pacific countries that might ‘exacerbate inflation’. The Australian rates market was not able to price in a hike after the weaker than expected CPI-inflation data for 3rd Q, and was completely flatfooted by the RBA’s decision to hike rates +25bp to 4.75%. The AUD rallied to just short of parity and 3-year rates jumped +10bp. This was the first hike since May. The following communique emphasized both the strength of the domestic economy and signs of recovery in its main trading partner, China. Specifically, the RBA pointed to a combination of higher wages, on the back of strong terms of trade gains, strong employment and improving credit growth in an economy with already limited spare capacity. Governor Stevens take is that this will keep domestic demand potent medium-term and that inflation likely to rise in coming years. Importantly, the RBA said ‘this outlook, which is largely unchanged from the Bank’s earlier forecasts, assumes some tightening in monetary policy’. Analysts now expect the strength of the commodity sector will keep spare capacity tight and the RBA to continue hiking in 2011. They are done for this year. All of this is a good enough excuse for the currency to trade aggressively at a premium vs. the dollar in the medium term (1.0000).
Crude is higher in the O/N session ($83.24 +29c).

Crude prices have rallied this week as speculators increased their bets of higher prices after stronger manufacturing data in China, adding to signs that economic growth is withstanding cooling efforts by the government. The market is betting that a quantitative easing announcement will support that recovery, weaken the dollar again and support commodities. The danger is that speculators may be getting ahead of themselves. Even with supplies growing it’s the dollars direction that dominates the black-stuffs prices. Last week’s EIA report again blindsided the market to a certain extent, although the direction was not surprising the volume headline print was. The release was greater than five times analyst’s expectations. Crude climbed +5.01m barrels to +366.2m last week, the biggest increase in four-months. The market had only priced in a +1m barrel gain. Offsetting the reported surplus was the plunge in gas stocks, falling -4.39m barrels to +214.9m. Analysts were estimating an increase of +625k barrels. The net effect was a zero-sum report. Crude analysts note ‘this is currently a shoulder season for product demand ahead of the winter heating season’. Technically, we should see inventories gravitate towards their highs. The market remains wary that the underlying fundamentals have not changed. The ‘big’ dollars value continues to push prices about.

A positive move for the dollar was bound to affect the yellow metal. Year-to-date, there has been a strong correlation between the two asset classes. With the greenback rebounded yesterday eroded the appeal of the metal as an alternative investment. It’s the depth of the pull back that will test the underlying strength of the commodity. In this morning session with buck under pressure, gold shines. Last month, the commodity rose +3.7%, printing a new record high of $1,388.10 an ounce, as the dollar fell -2.2%. QE2 chatter dominates the market and there are two trains of thought, some argue that a measured move this week may have a muted affect on the dollar, while others suggest that further easing would weaken the dollar irrespective of the size as investors chase higher yielding assets in other countries. For most of this year speculators have sought an alternative investment strategy to the historical reserve currency. The market has been using the commodity as a proxy for a ‘third reservable currency’, the reason for the record highs. The debasing fears of the dollar, coupled with the sustainable growth issues of the US economy have had investors seeking protection in an asset with a ‘store of value’. It’s now up to the Fed to provide direction ($1,356 +$6.10).

The Nikkei closed at 9,159 +5. The DAX index in Europe was at 6,606 up +1; the FTSE (UK) currently is 5,713 +19. The early call for the open of key US indices is higher. The US 10-backed up 2bp yesterday (2.62%) and is little changed in the O/N session. Treasury prices got a boost in the early session yesterday after one of the Fed’s preferred inflation indicators, the core-price deflator, was unchanged at +1.2%, y/y. The FI asset class happened to pare some of these gains after the PMI expanded faster than forecasted last month, damping speculation that helicopter Ben will step up deep debt purchases to boost the economy. With the US economy showing signs of stability, the market should expect further position adjustments ahead of the Fed’s announcement tomorrow as the masses speculate on the buy back numbers.

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