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February 3, 2012

Land of the Rising Yen

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 10:33 am

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

Below are some other highlights of the week:


Asia

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

February 1, 2012

Central Bankers Weaken Their Currencies, Boost Gold

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , , , — admin @ 12:34 pm

By Sam Mattera
Benzinga Guest Writer

Since the turn of the year, nearly every asset class has been on a tremendous bull run.

Precious metals in particular have benefited, as gold and silver have rallied back from their recent lows. Gone are calls for a “gold bubble”. Gold has risen in price throughout January and now sits near $1745 per ounce. Silver has gained as well, and is currently approaching $34 per ounce.

The precious metals may have been getting a boost from the actions of central bankers, who continue to make the yellow metal a seemingly great alternative currency.

Last week, in the Federal Reserve’s statement, the Federal Open Market Committee promised to extend low rates through 2014, and possibly into 2015. In August the Fed had promised to keep rates low until at least mid-2013. Now, the FOMC has extended that promise for at least an additional year.

In August, that rate pledge drew three dissenting votes from regional Fed presidents. However, as the FOMC’s membership shifts from year-to-year, those members no longer have a say in the FOMC’s decision.

Philadelphia Fed’s Charles Plosser —who dissented in August but now no longer has a vote—spoke on Wednesday and derided the move. He attacked it from a bullish perspective, continuing to state his long-standing opposition: that the economy is improving and low rates will not be appropriate for much longer. In that case, to prevent runaway inflation, the Fed would have to hike rates prior to their promised date.

While keeping rates low may contribute to economic growth in the short term, the move has begun to draw fire from some commentators and money managers.

In his monthly letter, Bill Gross—the world’s largest bond fund manager—attacked the move, stating that it could actually have a negative effect.

Ultimately, if the Fed keeps interest rates low, it could spur inflation as investors pile out of a weakening dollar in favor of precious metals. Under this scenario, investors may anticipate the US dollar index to fall while the price of gold may rally.

Still, as other central bankers continue to ease, the dollar index may not give much ground. The US dollar index is a measure of the dollar’s value against other fiat currencies.

Bank of England officials have mentioned undertaking further quantitative easing, while the European Central Bank continues to step into the European bond market from time to time. The Bank of Japan may attempt to weaken its yen once again, in the face of slumping Japanese manufacturing.

The US dollar index dropped 0.5% during early trading on Wednesday, as the EUR/USD pair moved up over 0.64%.

5 Day Losing Streak for Yen

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 6:45 am

USD/JPY continued its five-day losing streak in early London time as it tests the 76.00 big figure.  At the time of writing USD/JPY is 76.05 which is today’s low so far.  We hear there are stop losses (large) below this figure but margin traders are holding the support line at the moment in the hope of grabbing a bargain.  Since the US announced last week that it would keep interest rates near zero at least until late 2014, long term traders are slowly pricing in this factor by selling dollars across the board including selling dollars and buying the yen.  Specifically for today, Japanese exporters and model funds were doing most of the selling.  Again 75.76 wasn’t tested yesterday but the chances are extremely high today, then 75.55 (Oct low).  Watch out for the 75.35 post war low and also watch out for BOJ intervention – real or rumoured.  If that happens expect to see 77.12 in a hurry otherwise the trend is strongly bearish.

January 24, 2012

EUR on Supplements?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 4:23 am

Still no Greek deal, but optimism remains that debt laden Euro-zone members will avoid a messy default. However, worries over Portugal needing fresh help has managed to temper some of this outright enthusiasm. FX price action has lacked some of that “depth” as Asia has been mostly on hiatus for a second day because of the Chinese New Year. Even the US 2-year bond auction this afternoon will require a concession due to the lack of influential participation.

The Euro group finance ministers meeting ended without any apparent progress towards a deal on private sector participation. Its been reported that the regional finance ministers have rejected the bondholders “maximum” offer and have asked negotiators to consider a coupon below +4%. The deadlines are coming and going and it’s becoming more realistic to expect these round table discussions to drag well on into next month. Apparently, not all has been in vain, ministers supposedly have reached a deal on the ESM treaty, allowing the fund to make loans without “necessarily achieving unanimous government approval.”

With the PSI negotiations ongoing, investors will now have to worry about the background noise as well. Its understood that even with a successful conclusion to the discussions, the actual degree of private sector uptake remains unclear. How can the current bout of market optimism be allowed to sustain such enthusiasm? Many of the weaker shorts have been exposed to the ‘yo-yo’ price action witnessed over the last day. Presently, and until told different, techies eye support for the single currency on dips (sub-1.30) for the moment, believing a break above 1.3073 and we have a ‘new game in town.’

Already this morning, the single currency has again been dragged into positive territory after the Euro-zone PMI releases. The headline rise above the key 50-mark has helped steady spot above the 1.30 size expiries. The composite index has been dragged higher by the better than expected service PMI data, with manufacturing high but failing to break the 50’s. For how long though?

It was no surprise last night that the BoJ cut growth forecasts, while maintaining the policy rate and leaving the QE program unchanged. Policy makers have revised down the country’s growth outlook for 2011 (from +0.3%, y/y, to -0.4%) and 2012 (from +2.2%,y/y to +2.0%) attributing the slowdown in the overseas economy and the retroactive revision of GDP stats. Meanwhile, their inflation metrics remain unchanged, believing that the global financial markets, US balance sheet adjustments and price stability in the emerging economy, all represent risks to Japanese growth. What about the yen? It’s a currency that is likely to “benefit from policy convergence and risk aversion.”

Traders will now be shifting some of their attention span to focus on the two-day FOMC meeting. The Fed may signal that it will keep its easy monetary policy for longer than previously announced. Any indication of this and market will digest it as being dollar negative. If helicopter Ben happens to move that way, the dollar carry trade should become more active.

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January 20, 2012

Market Outlook for January 20, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:44 am
Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 20, 2012

Market Outlook for January 20, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:44 am
Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 20, 2012

December 30, 2011

Forex Market Outlook 12/30/11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 6:47 am

Let’s just get it over with!  That’s what the markets are thinking when looking back at 2011.  The S&P 500 stock index is finishing the year essentially flat, posting neither significant gains nor losses.  If you are a stock market investor, perhaps you are just thankful to get out with your account in tact.  But with Treasury yields near all-time lows, and traditional bank accounts not paying interest, what’s a person to do?

Well those of you reading this are probably already aware of the tremendous opportunities available in the forex market as an alternative to “traditional” investments.  2011 has been a tough year indeed and based on today’s information, next year doesn’t look to be much better.

The obvious overhang in the markets is the Euro debt crisis and the impact of a likely recession in the Euro zone and how it will affect the global economy and global banking system.  Meanwhile, European banks are still very nervous so they are parking their cash at the ECB for fear about counter-party risk.

The Italian bond auctions were not well received, though yields were lower.  There is an obvious penchant toward shorter-term maturities as there way too much risk to take a long-term view.  So this saga may continue to play out not just in Italy but in the other debt-laden countries as well.  This means we could see very choppy markets going forward, even if things appear to be getting better.

While there is not a lot of news today, the economic data in the US continues to show improvement, marked by the pending home sales figures yesterday that came in much higher than expected.  Markets rebounded yesterday from the prior day’s sell-off, and this morning’s US open look to be positive.

Overnight, Japanese PMI figures came in at 50.2 vs. last month’s 49.1 which means that expansion is taking place.  ‘50’ is the magic number for expansion vs. contraction.  In China, Manufacturing PMI came in at 48.7 which was better than last month’s 47.7 which shows that contraction is slowing.

These figures helped push both the Aussie and Kiwi higher as did yesterday’s market rise, and the Aussie has traded back to pre-Wednesday levels.  Yet the Euro and Pound are still lower, though the former is faring worse than the latter.

The Pound’s strength vs. the Euro is interesting considering that home prices in the UK fell for the first time in 4 months last night showing signs of economic contraction.  What was interesting to note is that Wednesday’s sell-off was actually lead by the Pound and not the Euro, despite the fact that it was concerns from the Euro zone that caused the risk aversion.  The thought behind that move was that UK bank exposure to the European debt was great and they do not have a seat at the table and would have to bail themselves out if a problem occurred.

The last thing the market is looking at is the release of the balance sheet from the Swiss National bank that will show their potential ability to continue to weaken the franc vs. the Euro as risk continues to emanate due to the debt crisis.  If there is weakness in the balance sheet, then traders may try to challenge the SNB intervention.

But that’s really it for 2011.  There is no scheduled data due out in the US today so today is likely to be a slow day.  Then again, I said that on Wednesday.

Happy New Year to all and I wish you good trading in 2012!

December 16, 2011

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!

December 15, 2011

Eurozone Worries Crushing Japanese Confidence

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , — admin @ 1:31 pm

By Sam Mattera
Benzinga Guest Writer

On Thursday, in a survey released by the Bank of Japan, confidence among Japanese manufacturers fell more than anticipated.

Analysts had forecast a reading of negative 2, while the actual figure was negative 4. The reading may be seen as fairly significant, as Japan’s economy remains dependent upon its manufacturing and exporting sector.

Japan’s Nikkei dropped over 1.60% in Thursday’s trading, as Japanese investors may have become concerned over the future prospects of Japan’s economy.

Investors in the US appeared to brush Japan’s struggles aside early Thursday morning, as futures rallied into the open. Surprising positive data coming in from Europe and a seemingly improving jobs picture in the US may have set a positive mood among US equity investors on Thursday.

In the Japanese survey, businesses cited uncertainty due to the Eurozone situation, a strong yen, and supply chain issues due to flooding in Thailand.
The first two issues that the businesses have may be largely interrelated – Japan’s yen may have strengthened because of issues in the Eurozone.

A strong yen may cut into the confidence of Japanese exporters, as it would make the price of Japanese goods more expensive to foreign consumers, and therefore may hurt demand.

The Bank of Japan has intervened a few times this year in an effort to drive down the value of the yen.

Following the tsunami disaster in March, the Japanese yen rose sharply. Insurance companies may have been forced to dump assets to raise cash, leading to a sharp increase.

Back then, central banks around the world worked in tandem to drive down the value of the yen. Yet, the yen rapidly bounced back in the following months as the situation in Europe deteriorated.

Then, the Bank of Japan intervened again—this time unilaterally—in October. Other central banks, perhaps worried about the value of their own currencies, did not offer support.

If Eurozone issues continue to worsen, the yen may stay strong. However, if the Eurozone situation improves, funds may shift out of the yen back to the euro, weakening the yen and improving the environment for Japan’s manufacturers.

Where to sell the EUR again?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 4:40 am

Even with Euro risk sentiment remaining on the back foot, the Euro periphery bond deals are getting done, but at a price. Now that there are more sales coming down the pipe, more concessions will be expected. The market was not that impressed with Italy yesterday, however, she came and delivered. It’s her 2012 issues we should be more worried about. Already this morning, Spanish bond yields managed to hold steady before the country’s final debt sale of this year; while with no sign of the debt crisis easing, Bunds remained supported by investors seeking safer liquid assets ahead of year-end.

Spain auctioned +EUR3.5b bonds of varying maturities (2016, 2020 and 2021), in the last Euro-zone debt auction before the holidays. As expected, dealers happened to cheapen each issue before taking down the supply. Concession was not as forgiving as Italy’s because Spain’s ability to fund itself are “less acute than those surrounding Italy which faces redemption and coupon payments of around +EUR100b between January and April.” Spain has no major redemptions for another seven-months.

Thus far, no fundamental data this morning has been able to break this tight EUR price action. The market has had the privilege of digesting both Euro-zone employment and inflation. The number of people employed in the region fell in Q3 (-0.1% to +146.9m), while the annual rate of inflation was unchanged, and well above the ECB’s target last month. CPI rose +0.1% from October, m/m, and +3% in November, y/y, leaving the annual rate of inflation in line with expectations. Even with inflation above the ECB’s target level of +2% the market can expect Draghi to continue to ease policy in the coming months amid market concerns that the Euro region has/is entering a recession.

The SNB and BoJ have a tough battle ahead. Both Central banks have tried to think outside the box on how to dissuade investors from hoarding their respective currencies during times of economic stress. Historically, their currencies have been an investors safe haven choice, along with the dollar. It was not a surprise to see the SNB reconfirm the EUR/CHF floor at 1.20 this morning, even as it warned of a “highly uncertain international economic outlook,” stating that a “further escalation of the European sovereign debt crisis cannot be ruled out.” Swiss policy makers are ready to take action if growth outlook worsens and deflation risk rises. Hildebrand expects the CHF to weaken over time and growth slowing to +0.5% next year. The BoJ tankan report shows business sentiment among large manufacturers falling to-4, worse than the expected-2. The effects of a high yen and a slowdown in overseas economies continues to weigh on Japanese sentiment. This is the first dip from the index into negative territory since the earthquake. For both economies a stronger domestic currency is crippling business; their reluctance to weaken for safe haven reasons requires more of a firm central bank hand.

Despite the EUR falling to new overnight lows, the price action did not have the legs to cement a drop towards 1.29. Let’s see if the European sessions failure in the 1.30’s has generated new macro-sales orders on top.

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