Forex Blog

May 31, 2011

Euro has found its Mojo for now

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:27 am

Is this false hope? Germany softening its stance on restructuring demand is helping the EUR. While the market focuses its attention on the Germans, its the Greek’s ability to do or not do that we should be honing in on.

No demand of an early rescheduling of Greek bonds is certainly good news, paving the way for the Euro-zone to put together another rescue package to aid Greece in meeting its repayment objections over the next few months. However, this does not mean that an eventual restructuring of their debt will not go ahead.

What if Athens fails to keep up its end of the bargain? The need will become more urgent. The EU requires all party support in Greece and continue to press for ‘vigorous international supervision’, in other words, a greater say in how Greece is run.

The reality is that the Euro-zone will spend the next few weeks putting together another aid package to stave off restructuring while internally the Greeks will continue to drag their feet on introducing structural changes, then we are back to square one!

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’ session.

Forex heatmap

The Kiwi is again leading the rally in risk-sensitive currencies now that European reports confirm that Germany is softening its stance on the Greek finance issue. The Yen bears can breath easier after Japan’s sovereign credit rating was put on review for downgrade by Moody’s, allowing the dollar to push north of 81 again to breath life into that trade.

The dollar is lower against the EUR +0.93%, GBP +0.19%, CHF +0.13% and higher against JPY -0.70%. The commodity currencies are mixed this morning, CAD +0.62% and AUD -0.01%.

Canadian GDP data disappointed yesterday (+3.9% versus +4.1%). It was not the headline but the meat of the data that was disturbing. Analysts noted the ‘heavy role played by inventory accumulation while several other key sectors like consumers and government were flat all serve to put a strong dent in the headline’. Consumer spending was flat and so was government spending such that neither sector contributed to growth.  Net trade was a drag, as import growth of +2.2% out stripped a +1.6% rise in exports. Growth was recorded in inventory investment, soaring to +$10.5b in the first quarter from +185m in the last quarter. With growth, inventories added +2.6% to the headline, business investment +2.1%, while consumer spending only added +0.1%.

The currency has underperformed on signs of slowing economic growth and reduced speculation that the BoC will resume increasing borrowing costs. The BoC is likely to maintain its neutral policy guidance at this morning’s rate meeting. The two main upside risks to inflation cited at the April meeting, commodity prices and strength in household spending, have both moderated recently. With the lagged effects of the CAD’s strengthening beginning to show up in the bank’s measure of financial conditions index, there is little reason for a more hawkish posture from Governor Carney. The currency will again be subjected to the pull of either risk or risk aversion trading strategies until we get to see NFP data this Friday (0.9715).

Australian data was on the weaker side of expectations earlier this morning, allowing the AUD to underperforming its closest trading partner the NZD. The current account deficit widened to AUD10.5b in the first quarter, driven by a -2.4% fall in net-exports. Analysts note that this reading points to a possible negative GDP print this evening. It has been clearly highlighted that that the fall in export volume in first quarter, especially of coal, was largely due to production disruptions from the Queensland’s floods. Other data showed that private sector credit was flat on the month, driven by still weak demand for personal and business credit, while building approvals fell -1.3%, m/m in April, following a downwardly revised +8.6% rise in March.

The market does not seem to down beaten by the data releases, especially after 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 (1.0679).

Crude is higher in the O/N session ($101.84 +1.25c). It’s not surprising to see commodities temporarily stall after the US growth numbers last week. However, some 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. Mind you, Friday’s NFP numbers will also be able to dictate the short term price direction.

Last week’s weekly crude 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. 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 ($1,540 +$2.40c).

The Nikkei closed at 9,93 up+189. The DAX index in Europe was at 7,297 up+136; the FTSE (UK) currently is 5,999 up+60. The early call for the open of key US indices is higher. The US 10-year backed up 3bp yesterday (3.09%) and is little changed in the O/N session.

The FI asset class has been able to push yields to a new yearly record low for this year, after a disappointing US GDP and weekly claims report last week encouraged investors to seek shelter in a safer asset class. 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. All of last week’s $99b US issue’s were strongly received, despite yields piggy backing yearly lows. Until the market begins to get some bad news on inflation, investors should remain bulled up!

May 27, 2011

Forex Week in Review May 22-27

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 9:59 am

The dollar has given up all of its hard earn gains and then some this week. Investors seem to be happy selling the ‘mighty buck’ on the back of weaker US data. The lack of a rally in US benchmark yields combined with ‘this’ weak dollar ‘implies a market presumption that the weak US recovery will lead the Fed to stay easy for longer’. China too has done its bit this week. It’s reported that they are expected to represent a ‘strong proportion’ of buyers of EFSF issuance in the June auctions. Supposedly this will fund the Portuguese bailout. Analysts note that the depth and liquidity of the sovereign AAA market in EUR is growing, adding to the EUR’s attraction as a reserve currency. Liquidity now becomes a premium as we head into the US memorial long weekend. Below are some of the highlights of the week:


EUROPE

  • At the beginning of the week peripheral markets reacted badly to the results of Spanish regional elections. The poor Socialists performance will weaken the national government further and increase the risk of early elections at a national level.
  • Euro area PMI’s moderated sharply, falling to 54.8 from 58 last month while the services composite was slightly more resilient, falling by 1 point in May. Driving this weakness, German PMI’s weakened to the lowest level since the beginning of this year. The levels are still consistent with robust growth in core-Europe
  • German Ifo survey headline was unchanged at 114.2 in May. The expectations component fell to 107.4 from 107.7 while the current conditions rose to 121.4 from 121.0. Data suggest manufacturing remains resilient in the core of the euro area.
  • Mid-week, the Greek opposition leader declared he rejects the new austerity plan, perhaps a ploy in getting EU to approve additional aid.
  • UK public sector net borrowing (ex-financial interventions) rallied to £10.0bn compared with £7.2bn in April 2010, on a combination of lower total receipts and large spending.
  • BoE’s Fisher gave a fairly dovish interview in ‘The Scotsman’. He is more concerned about the weakness of consumer spending than the strength of inflation and indicated that he would vote for a hike only if there was a pick-up in wage growth. A new dove at the MPC, and close to BoE Governor King.
  • Norwegian mainland GDP grew +0.6%, q/q in 1st Q after a +0.3% rise in 4th Q, weaker than the +0.8% consensus. Analysts consider this as a one-off rather than the beginning of a soft patch for the consumer. Net trade also subtracted from growth with exports down -0.5%, q/q and imports up +10.7%.
  • There were reports of a possible Greek referendum on austerity measures.
  • UK 1st Q GDP was unrevised at +0.5%, leaving GDP level essentially flat in the six-months to March. Both consumption and investment deteriorated further, with the only encouraging sign was strength in exports. Sector was benefiting from sterling depreciation.
  • Swiss KoF was surprisingly strong at 2.30, its highest level since mid-2006, and is consistent with GDP growth above +3%. SNB have underestimated the Swiss economy’s ability to cope with an overvalued CHF.

Americas

  • Sales of new homes in the US beat market expectations (+323k), despite trumping the March print by +7.3%, sales are still down-23% from last years April print of +420k.
  • Richmond Fed’s manufacturing and services index were bad this month. The manufacturing component fell to -6 from +10, while the service sector revenue index dropped from +28 to +9.
  • The market was prepared for a weak April US durable goods number, however a -3.6% was much worse than the perceived -2.2% decline. The broad based nature of the decline suggests the US manufacturing sector has lost significant momentum for the beginning of the 2nd Q.
  • 1st Q US GDP of +1.8% fell well short of an expected upward revision of +2.1%. The surprise was consumer spending being revised lower five ticks to +2.7% and a larger downward revision to real disposable income
  • Number of claims filing for US unemployment insurance disappointingly advanced last week, up +10k to +424k
  • Pending US sales of existing homes drop -12% as foreclosures hurt values.

ASIA

  • Singapore CPI inflation fell to +4.5%, y/y, in April from +5.0%, partly due to the housing and utilities rebates in last month and base effects.
  • RBNZ two year inflation expectations series rose to +3% in 2nd Q from +2.6% and the highest in three years. The Kiwi has also benefited from New Zealand’s dairy co-op announcing a further small increase in forecast payouts.
  • Apparently power shortages in China are increasing. It seems that state fixing of prices below generation costs have given rise to coal prices and is encouraging producers to cut production to avoid losses. Expect industrial production data to disappoint over the next few months.
  • Australia construction activity only rose +0.7%, q/q in the 1st Q. Market forecasted +1.4%. Rates market expectations for RBA rate hikes over the next 12-months fell 3bp to 21bp mid week.
  • FT reported that China is expected to represent a ‘strong proportion’ of buyers of EFSF issuance in the June auctions. Supposedly this will fund the Portuguese bailout. Analysts note that the depth and liquidity of the sovereign AAA market in EUR is growing, adding to the EUR’s attraction as a reserve currency.
  • NZ Herald reported that the China Investment Corporation may buy up to NZD6bn of New Zealand assets, including government bonds.
  • Australia private capital expenditure grew +3.4%, q/q in March,
  • Aussie Bureau of Statistics revised up its estimate for growth in capital spending over the next year to +31%. It would be one of the fastest private investment growth rates of any OECD or emerging market economy.

May 4, 2011

Euro Posturing Begins

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:15 am

Thank Medley, market rumors of a Euro-positive research report have dragged and supports a higher EUR ahead of tomorrows rate announcement. It’s believed that the group indicated that the ECB is comfortable with a stronger currency and is not too concerned with the ongoing periphery sovereign debt crisis. Nor is the rest of the market its seems. It’s unfazed by Portugal’s EFSF EUR87b program, despite being the third Euro-zone country to succumb to the sovereign debt crisis after Ireland and Greece.

The market is looking for some clear indication of when the next ECB hike is coming. Recent inflation data has markets betting that Trichet’s communique could indicate July, however, a signal for June would show more urgency, justifying Trichet’s hawkish credentials and even more positive for the EUR. Can policy makers be moving too fast?

The US$ is weaker in the O/N trading session. Currently, it is lower against 11 of the 16 most actively traded currencies in a ‘subdued’ session.

Forex heatmap

US factory orders climbed for a fifth consecutive month in March (+3%) yesterday. A broad based increase in orders as well as rising prices for food and oil were factors behind the bigger than expected gain. Manufacturing is helping to carry the economy from the depth of this recessions low in 2009. However, rising energy costs are a concern for factories and raising the challenges for companies to turn a profit. Digging deeper, durable goods orders rose by +2.9%, while ex-transportation also climbed +2.6%. The report showed that March Factory shipments rallied +2.7%, while unfilled orders (a sign of future demand) rose +0.8%.

The USD is lower against the EUR +0.27%, GBP +0.09%, CHF +0.03% and higher against JPY -0.10%. The commodity currencies are stronger this morning, CAD +0.03% and AUD +0.21%.

PM Harper got his majority and the loonie finally found some support, not so much on Canadian political or fundamental reasons, but on the back of a market that has sent investors into classic safe heavens. The loonie has been underperforming against most of its major trading partners, except outright against the dollar. Similar to most other major currencies, the currency managed to print a new three-year high last week, on speculation that the Fed will trail the BoC in raising interest rates.

This week’s general election is a CAD-positive result, with the probability that the loonie could revisit its multi-decade low (0.9059 in 2007) if the dollar negative sentiment persists over the next few months. Investors are looking to own the currency on any dollar rallies (0.9520).

The Aussie dollar had been trading under pressure outright after the PBoC said in a report yesterday that taming inflation is its highest priority. Earlier this week the RBA were not as hawkish as feared when it came to rates, but hawkish nonetheless. As expected, they left their rate policy on hold (+4.75%). Their statement was hawkish compared to the April release, but certainly caught the rate’s market on the back foot, who had pushed yields higher going into the meeting in the wake of higher than expected first quarter inflation.

Governor Stevens’s communiqué ran a balanced mix of downplaying first quarter inflation due to the floods, noting strength in the labor market and a pickup in corporate credit growth but weakness in household credit. Policy makers replaced the ‘stance of monetary policy remained appropriate,’ with ‘in future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation’, another nugget for possible rate hikes. Why add this warning now if you think it might only apply in 2012?
On AUD pull backs sovereign names continue to covet the currency. The market is now pricing in a +52% chance that the RBA will raise its benchmark rate to +5% by October, down from +62% earlier in the week.

Aussie yields are still the highest in the G10 and do look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on pullbacks for the time being (1.0880).

Crude is weaker in the O/N session ($110.84 -0.21c). If anything, the news of bin Laden’s death has only increased the volatility in the crude market. Initial reaction was dollar supportive and black-stuff negative, however, his death does not alter the facts that have pushed the buck to a three-year low against most of its major trading partners and does not end the geopolitical concerns in MENA. The market has been leaning on the black-stuff’s prices ahead of this morning’s inventory report as dealers anticipate another build up of stocks.

Last weeks EIA report had inventories rising +6.16m barrels to +363.1m, the biggest one-week advance since July 2010. Crude imports rose +1.21m barrels to +9.23m. In contrast, gas inventories fell for the tenth consecutive week, -2.51m barrels to +205.59m, compared with expectations for a -1.1m drawdown. It’s worth noting that gas inventors fell in spite of domestic demand falling by -1.6% last month on a year over year basis. Finally, distillates (heating oil and diesel) dropped -1.81m barrels to +146.53m. Refinery utilization rose +0.2% to 82.7%. In reality, it looks like refiners have got to convert more of the oil into gas in the coming weeks.

The IEA said it maintains its 2011 global oil demand growth forecast but noted that the high oil prices are beginning to dent demand growth. OPEC have stated that there is ‘no shortage of oil anywhere in the world’ even after supply curtailments in MENA. It’s all about the dollar’s inverse relationship with commodities. The market is back to the drawing board until we can break this volatile intraday range.

Gold prices have been dragged lower by the liquidating of silver position after the CME hiked initial margin requirements for the third time in over a week. Silver prices have been able to surge to 31-year high in recent months. Fundamentals are now supporting some sort of correction. The uncertain macro-economic and political environment will continue to attract investors to gold, as does the continuing weakening of the dollar on the back of US policy makers being slow to tighten their monetary policy.

Gold, as a non-yielding asset, has a higher opportunity cost when interest rates rise. The precious metal has become the currency of choice with the dollar underperforming against its G10 trading partners. Investors have been trimming some of their risk exposure on the back of terrorist reprisal fears.

The metals bull-run is far from over with speculators continuing to look to buy the commodity on dips. Any price pullbacks are viewed as favorable opportunity for investors to continue to diversify into safe-haven assets, as the combination of a weak dollar and higher US inflation expectations support demand for inflation hedges ($1,537 -$2.80c).

The Nikkei closed at 10,004 up+154. The DAX index in Europe was at 7,531 up+31; the FTSE (UK) currently is 6,070 down-12. The early call for the open of key US indices is lower. The US 10-year eased 2bp yesterday (3.26%) and is little changed in the O/N session.

Investors have pared riskier assets as they assess the potential affect of reprisals from bin Laden’s death. Also providing support this week is the Fed buying back product for their debt-buying program.

Yesterday, the Treasury announced that they have halved its original forecast for net issuance in the second quarter from $198b to $142b. They attributed the decline to higher receipts and lower outlays. It’s a necessity to slow its approach to the debt-ceiling. With the coupon issuance to raise nearly $360b, the decline in issuance will come from a further decline in the bill supply, which will obviously affect money market liquidity.      

February 16, 2011

King’s stalling has GBP stuttering

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:14 am

The BOE has sent a strong message this morning that it will not be hiking rates as rapidly as the market expects. King went as far as to say ‘that some people are getting ahead of themselves’. This has certainly caused some damage to the long sterling punters positions. In this morning inflation report, the BOE has raised its forecast for inflation for 2011 but said growth would also be slower, as ‘high commodity price squeezes, household incomes and governments budget cut’s start to bite’. They expect inflation to fall below target from late 2012. Technically, if rates stay unchanged, they suggest that inflation will be slightly above target two-years out. In translation, they will raise rates, not as quickly or as high as the market expects. Perhaps the BOE focus on longer term inflation target may reveal market worries of a double-dip?

The US$ is weaker the O/N trading session. Currently, it is lower against 11 of the 16 most actively traded currencies in a ‘subdued’ O/N session.

Forex heatmap

Yesterday’s US data was a market surprise as investors had been expecting better. Headline (+0.3% vs. +0.5%) and core-US retail sales (+0.3% +0.5%) continue to rise but disappointed the aggressive upbeat expectations. Analysts are questioning the price versus volume effects in calculating the market disappointment. There is talk about a downward revision to 4th Q GDP. The backward revisions certainly took some of the steam out of the January report. Both the headline and core were revised lower in December and it was just the core print adjusted for the November release. Digging deeper, of the 13 subcategories, 8 posted gains and 5 improved results over the prior month. The strongest performance was seen in gas stations (+1.4%-price effect), food (+1.3%) and non-store retailers. It’s worth noting that analysts are suspicious of the commodity sensitive categories, they are concerned that the retail sales in volume terms were weaker than the headline readings. The offset effect came from building materials (-2.9%), sporting goods (-1.3%) and food services (-0.7%). Unusually severe weather in many parts of the country is likely to have weighed on consumer spending and better results are expected in the quarter, helped by recent reduction in payroll taxes. The US consumer is the key to unlocking a full economic recovery. The consumer is still shopping despite high unemployment, questionable income growth and tight credit. That being said, the cost pressures from commodities will pose a challenge in the months ahead.

US import prices accelerated higher last month, doubling to +1.5%, higher than market expectations. This is the fourth consecutive month of price increases (4-month annualized rate more than +15%). These numbers will have the Fed being challenged on its price stability policy. Digging deeper, both fuel (+3.9%) and non-fuel imports (+0.8%) provided the largest increases. Not to be outdone, Export prices were up for the sixth consecutive month, rising by +1.2% and supported mostly by agriculture (+3.2%) and non-agriculture (+0.9%). Year-over-year, import prices are up +5.3%, while export prices are +6.8% higher. Obviously, export prices got a boost from the Fed’s QE2 stance.

Finally, manufacturing in the NY region grew at its fastest pace in eight-months yesterday (+11.92 to +15.43). Analysts note that with capacity utilization at historical lows, there remains plenty of room for manufacturing to aid consumer consumption in the economic recovery. Digging deeper, the main highlights saw the new-order index soften from +12.39 to +11.80, while current shipments plummeted from +25.39 to +11.31. The employment index was mixed, with current employment easing from +8.42 to +3.61 and the workweek index rising from +2.11 to +6.02. It’s worth noting that the Empire index has been relatively consistent over the past year. Analysts are optimistic that business will begin open their coffers and spend more of their cash hoards on capital goods.

The USD$ is lower against the EUR +0.37%, GBP +0.03, CHF +0.45% and JPY +0.16%. The commodity currencies are stronger this morning, CAD +0.33% and AUD +0.32%. With the lack of Canadian data yesterday, the loonie took its cue from the softer US retail sales data and eased a tad vs. its largest trading partner outright, but performed admirably on the crosses, managing to print a six-month high against JPY. The weaker sales print suggests that it will not be a straight arrow to economic growth. The loonie remains contained in a tight range outright, requiring some guidance from domestic data that starts with today’s leading indicator and manufacturing release and finishing this week with Canada’s inflation snapshot. Stronger fundamentals of late (trade surplus and employment) has helped to push the loonie higher against most of its major trading partners on speculation that Governor Carney will hike borrowing costs quicker than other Cbank. Swaps traders are pricing that the BOC will raise its target lending rate by +0.83% over the next 12-months, up from +0.60% a week ago. Parity, the new paradigm, is becoming well adjusted too by investors, consumers and manufactures. We can continue to expect CAD to outperform on the non-U.S. dollar crosses and outright, better sellers have appeared on dollar rallies (0.9863).

The AUD has strengthened from a two-week low in the O/N session vs. the greenback as Asian bourses gained, increasing demand for higher-yielding assets. The currency temporarily strengthened to a nine-month high vs. the JPY after Chinese inflation data saw CPI rising less than expected (4.9% vs. 5.3%) earlier this week. This has boosted the demand for higher-yielding assets. Also aiding the currency was the RBA minutes from this month’s meeting stating that a ‘slightly restrictive’ policy stance was appropriate as a resources boom boosts incomes. The minutes offered no new real news, but stated clearly that the medium-term outlook for the Australian economy remains robust. Analysts believe that Governor Stevens is waiting for the consumer to start consuming before looking to hike rates again. For the time being, policy is ‘appropriate’ in ‘restrictive’ territory, and is dependent on the consumer when rates will rise again. Last week, the market pricing for rate hikes over the next 12-months fell-4bp to +34bp. Analysts note that with futures dealers interpretation, combined with such a clear message from Stevens, still leaves the rates market vulnerable to the weaker data on lending and consumption over the next few months. With risk appetite on the up and Chinese CPI less than expected has investors wanting to acquire the carry trade again (1.0000).

Crude is little changed in the O/N session ($84.76 +0.44c). Oil prices fell yesterday, giving back some early Tuesday gains as the dollar briefly turned higher and equities slipped on mixed US economic data. Deeper pullbacks continue to be supported by the geopolitical variable. Concerns about the Middle East and production problems in the North Sea are boosting Brent relative to WTI. Lower-than-feared Chinese inflation tentatively supported oil prices earlier this week. Even the value of the Yuan lent a helping hand, especially after reaching a 17-year high vs. the dollar making it much cheaper for them to acquire ‘their’ coveted commodities. Last weeks EIA report revealed no surprises. Both crude and gas stocks happened to edge higher. Fundamentally there is far more oil in storage, more fuel capacity and more idle oil wells to limit a much stronger market rally. It is the fear of a sudden reduction in supply from the Middle-East that will support commodities longer term.

Gold futures have climbed to the highest level in a month as rising consumer prices is boosting the demand for the precious metal as a hedge against inflation. Despite the market not witnessing the same level of speculative fund and ETF participation that occurred throughout December, the commodity is receiving support from Chinese’s inflation, which accelerated the most in at least six years, and on UK consumer prices rising the most in more than two years. The commodity that every investor hated last month continues to find support on deeper pullbacks. This is because the Middle-East remains the unknown variable. The commodity is being used as a store of value. Has the commodity peaked or is it simply a short-term correction? The commodity is attracting technical buyers after rallying above its 20-day moving average. On deeper pullbacks, the metal should remain better bid on speculation that currency volatility will boost demand for a safe heaven investment once the Euro contagion fears raise its ugly head again over the coming weeks during the Euro-periphery refunding season ($1,376 +$2.60c)

The Nikkei closed at 10,808 up+61. The DAX index in Europe was at 7,419 up+19; the FTSE (UK) currently is 6,072 up+35. The early call for the open of key US indices is higher. The US 10-year eased 3bp yesterday (3.60%) and is little changed in the O/N session. The Fed completed the second of four-rounds of US securities purchases yesterday, again supporting the longer end of the yield curve. Treasuries seem to be trading in a vacuum as the market debates the merits of yesterday’s US economic releases. Investors are questioning the true strength of the softer US retail sales release and the Empire manufacturing pick up. The 2’s/10’s spread tightened (+273) as concerns eased that inflation in accelerating. Despite the data being somewhat bullish for the FI market, overall bearish sentiment is capping the price rally and keeping the market within a tight range.

February 14, 2011

EURO continues to Bleed

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 11:21 am

Despite global risk sentiment tentatively rising, the EUR continues to try to fend off the negatives and its losing ‘this’ battle. The bears are holding that winning grip. This morning, we have a litany of new reasons to want to sell the EUR on any rallies. The market continues to react to the Weber departure, a hawk, from the ECB race. In Irish politics, Fine Gael, Ireland’s opposition party and most likely next Government, want senior bond holders to take a haircut. This smells of default. There are rumors that WestLb negotiations are breaking down, that certainly will not help the European banking industry. The Euro-zone December industrial output disappointed this morning at -0.1%. With peripheral issues again appearing on the radar it’s going to be difficult for the EUR to maintain any traction short term especially as we approach Euro-zone refunding.

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

Forex heatmap

Friday’s US data certainly provided the excuse to want to own some dollars, despite the US Trade deficit widening. The dollar value of the deficit came in line with expectations, widening to -$40.6b in December. Digging deeper, the details were broadly stronger, with petroleum accounting for most of the widening. It accounted for three-quarters of the expansion. Exports continued to climb for the fourth consecutive month, up +1.8% and are at the highest level in 30-months. Imports were up +2.6%, the most since June. However, higher energy prices and volumes accounted for most of that rebound. The ‘real’ trade deficit widened to $46.023b, its widest level since September. It’s this figure that matters to GDP, and carries modest negative implications for the 4th-quarter. The widening was caused by higher petroleum import volumes, as the real ex-oil trade gap shrank by -8.5% to $31.218b, supported by a sharp +3.3% gain in non-petroleum export volumes, while non-petroleum import volumes remained virtually flat. The ‘real’ trade deficit in 4th-quarter narrowed by -8.8%, the biggest contraction since mid-2009.

Finally, US’s Prelim UoM Consumer Sentiment advanced to 75.1, an eight-month high on Friday. It’s probably a sign that falling US unemployment and rising equity prices may be comforting consumers. The consumer has been Bernanke go to variable and it seems that the tide may be turning in the Fed’s favor, only on the confidence meter at least. Now, it’s back to the spending drawing board.

The USD$ is higher against the EUR -0.69%, and lower against GBP +0.05%, CHF +0.05% and JPY +0.07%. The commodity currencies are stronger this morning, CAD +0.02% and AUD +0.02%. Canada unexpectedly posted its first trade surplus in 10-months in December on Friday, as energy and metals ‘powered the biggest jump in exports in almost three decades’. Exports jumped +9.7% to $37.8b, as energy shipments advanced +25% and industrial goods rose +7% to a record high. Imports rose +0.7% to $34.8b. The data happened to push the loonie higher against most of its major trading partners on speculation that Governor Carney will hike borrowing costs quicker than other Cbank. Swaps traders are pricing in that the BOC will raise its target lending rate by +0.83% over the next 12-months, up from +0.60% a week ago. The trade deficit was one of the last pieces of the puzzle for the BOC. Parity, the new paradigm, is becoming well adjusted too by investors, consumers and manufactures. With the Euro-peripheries back in the picture we may be back to less risk more safe heaven, until then, expect CAD to outperform on the non-U.S. dollar crosses. Against the dollar, better sellers have appeared on dollar rallies (0.9875).

In the O/N session, the AUD has advanced against most of its major counterparts after government data showed home loans climbed more than economists forecast (+2.1% vs. +1%). The demand for higher-yielding assets, like the AUD, was also boosted by gains by the Asian bourses. The markets is also expecting that the inflation report out of China tomorrow will be less than expected. Investors are happy to take on risk as futures traders continue to bet that the currency will advance vs. the dollar outright. Last week, the market pricing for rate hikes over the next 12-months fell-4bp to +34bp. Analysts note that with futures dealers interpretation, combined with such a clear message from Stevens, still leaves the rates market vulnerable to the weaker data on lending and consumption over the next few months. Investors do not expect the RBA to turn outright dovish, as dealers continue to price in rate hikes later this year. Last week, the AUD reacted negatively to a mixed domestic employment report and a Chinese rate hike, reasons that forced the liquidation of the weak long carry trades who had been influenced by the market pricing for RBA rate hikes. With risk appetite on the up and depending on China’s CPI release, carry trades will be slowly acquired again(1.0015).

Crude is lower in the O/N session ($85.25 -0.34c). The insurance premium is and has been priced out. The Egyptian military is promising a transition to democracy ‘soon’ and indicated that the country will honor its peace treaty with Israel now that Mubarak has ‘resigned’. The market has been concerned with the continued uncertainty about Egypt and fear that crude supplies from the Middle East may be disrupted. Analysts note that approximately +3.5% of global oil output moves through Egypt by way of the Suez Canal and the Suez-Mediterranean Pipeline. The value of the Yuan is also aiding commodity prices. After reaching a 17-year high vs. the dollar it is making it much cheaper for them to acquire ‘their’ coveted commodities. Last weeks EIA report revealed no surprises. Both crude and gas stocks happened to edge higher. Oil inventories increased by +1.9m barrels to +345.1m and analysts note that stocks remain above the upper limit of the average range for this time of year. It was a similar story with gas. Inventories moved up by +4.7m barrels after increasing by +6.2m in the prior week, and are above the upper limit of the average range. Crude imports averaged +8.9m bpd last week, down by-105k per day. Over the last four weeks imports have averaged +9.1m bpd, which were +783k barrels above the same four-week period last year. Distillate stocks rose +288k barrels to +164.3m, compared with projections for a +1.2m draw. Refinery utilization rose +0.2% to 84.7%. Fundamentally there is far more oil in storage, more fuel capacity and more idle oil wells to limit a much stronger market rally. It has been the fear of a reduction of supply that has weighed heavily on the commodities. Through $85, then $80 will be the markets new target.

Gold ended the week lower on Friday after Mubarak resigned and with the dollar strengthening. This took away some of the yellow metals safe-haven appeal. A stronger dollar is negative for the asset class, as it makes it more expensive to foreigners. The commodity that every investor hated last month has found strong support on last weeks pull back. Prices have climbed to a three-week high on demand for a hedge against rising consumer prices after China increased borrowing costs on expectations that their inflation has expanded at the fastest pace in two and half years. The commodity is being used as a store of value. Last year the commodity appreciated +30%. So far this year, natural physical buying has been less than modest with the commodity off to its worst start in 14-years. Has the commodity peaked or is it simply a short-term correction? The commodity is attracting technical buyers after rallying above its 20-day moving average. On deeper pullbacks, the metal should remain better bid on speculation that currency volatility will boost demand for a safe heaven investment once the Euro contagion fears raise its ugly head again over the coming weeks during the Euro-periphery refunding season ($1,358 -$1.70c)

The Nikkei closed at 10,725 up+119. The DAX index in Europe was at 7,399 up+28; the FTSE (UK) currently is 6,066 up+4. The early call for the open of key US indices is higher. Treasuries last week fell, with 10-year notes touching the highest yield in 10-months, as the US sold $72b of debt amid data showing that the economy is gathering steam.The US weekly claims fell to their lowest level in 30-months and with data this week to show that US January retail sales and housing starts growing will continue to provide outside pressure on prices. Investors look to economic reports for more confirmation of the global recovery with the bias towards higher rates. With some small clarity on the Egyptian crisis, bond prices will find it difficult to maintain its bid. These higher yields continue to support the dollar.

February 9, 2011

Investors Return to Yen-Based Carry Trade

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 2:07 pm

With Japan’s benchmark interest rate holding steady at 0.1 percent for over two years now, investors in Japan are turning to foreign investments in the search for better yields. Investors outside Japan are also entering into carry trades selling the yen in order to buy other, higher-yielding currencies.

“The prospect of any rate rise in Japan is so far away that at some point over the next year it will return as a funding currency,” noted Greg Gibbs, a currency strategist at RBS Australia in Sydney.

Source: Bloomberg

December 27, 2010

Japan agrees record 92.4t yen draft budget

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 11:10 am

The Japanese government has approved a record level of spending of 92.4 trillion yen ($1.1tn; £711bn) for the next financial year. The cabinet agreed the draft budget, which must still be approved by parliament before 31 March.

Japan’s economy has suffered from deflation, a high yen that hurts exports, weak domestic demand and poor consumer confidence. The budget is aimed at boosting the economy, but adds to public debt. And some analysts have said the programme was unlikely to offer a big economic boost.

Debt-servicing costs and social security spending making up about 55% of the budget. Aid for local authorities accounts for another 18.2% of the budget. The remainder of the spending is split among defence, public works projects, education and technology.

The Democratic Party-led administration has promised to keep new borrowing at 44.3tn, in line with this year’s level.

But Japan was forced to raise spending due to higher debt servicing costs. Japan’s public debt is expected to reach 891tn yen, or 184% GDP, by the end of March 2012, the highest among developed nations. The government said tax revenues would be about 40.9tn yen in the next fiscal year, with another 7.2tn raised by raiding special reserves. The government has already reined in spending programmes including handouts to fund childcare.

BBC news

December 13, 2010

OECD Says Eurozone Recovery “Muted”

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 1:55 pm

The Organization for Economic Co-operation and Development feels that the Eurozone countries will see an increase in the pace of recovery for the troubled region, but will likely remina “muted”. The OECD’s forecast calls for annual economic growth of 1.5 to 2 percent over the next two years.

Source: BBC News

July 16, 2010

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