Forex Blog

March 6, 2012

Where is the EUR demand?

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 4:19 am

Everything is fine in the world if you are holding mostly “bear” dominated positions. With global equities seeing red for the third-consecutive day, its longest losing stretch in two-months and market rumors rife, has investors again coveting the risk reserve governing Yen.

This is a currency only a few trading sessions ago gave serious thought on extending an assault at 82 outright, a rate the BoJ would have been happy with, is now falling towards the rhetoric levels of concern by Governor Shirakawa of last week. Recent data from the US and Europe signaling slowing economic growth is hastening the currency return to lofty heights.

Market participants hearing and believing vague gossip, since being denied, about Greece extending its deadline for participation in PSI from this week to next has only fueled the speed of dominance by this safer-haven currency. Selling EUR/JPY outright this morning has triggered some stop-losses while the structure of the market has changed to bearish talk despite solid bids below. The fact that the markets continue debating the possibility of a Greek credit event should be able to maintain the underlying pressure on the single currency for some time further.

Long/Short March 6th

Euro data released this morning certainly is not currency friendly despite the numbers being in line with analysts forecasts. The second release of Q4 GDP from the Euro-zone has seen a confirmation of the -0.3% decline that was indicated in the first estimate. The data shows the same divergence as has been seen in the PMI data of late, emphasizing the weakness in the peripheral countries. Negative Euro-zone growth is likely this year and while the PMI’s have stopped the bleeding in the core, the same cannot be said for the peripheral countries where downside risks dominate.

Event risk is not being monopolized by the Greeks, its also high for AUD this week who have GDP and labor reports due for release, while in China, inflation, IP and retail sales will be published. Any weakness outright or by association and this currency will ease further. Despite the RBA leaving rates unchanged last night and regurgitating their February’s statement, the currency has been trading on the back foot with investors remaining weary of other regional fallout’s. It seems the market is not currently wearing the rose tinted glasses of the RBA. When risk takes a beating, so do the commodity and interest rate sensitive currencies. Can North America stop this mornings bleeding?

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EUR Bloodied by China

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February 29, 2012

Eurepean Central Bank LTRO Results in Choppy Intraday Trade

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 8:19 am

By Joel Kruger, Technical Strategist for DailyFX.com

February 27, 2012

Fast Money Sells EURs

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:28 am

In this market, one should not put too much faith on a deal being signed, sealed and enjoyed by investors, despite knowing that anything is possible, look at Berlusconi! G20 came and went this past weekend. There were no surprises, no magic potions, and no magic plans concocted for Europe. Member finance ministers told the Euro-zone that it would need to strengthen further its permanent and temporary EFSF/ESM firewall programs before any of the members can commit to expand funding for the IMF for use in Europe. Greek event risk obviously dominates their reasoning.

Greece still needs to pass 38 demands by the troika by Wednesday and there is that little problem of a bond swap uptake. The haircut for private bondholders requires +66% of volunteers. Will they be found when they get only +26-cents in the dollar? These reasons alone has the EUR bear baffled why the single currency has managed to recover just shy of 1.35 in the aftermath of a questionable Greek deal and no G20 support. However, it seems in the late Euro shift this morning, price action may be turning over with the market beginning to experience some negative EUR movement. Is the market finally waking up and realizing that the primary event this week can be EUR negative?

The ECB will conduct its second 3-year Long Term Repo Operation (LTRO) on Wednesday, the same day as the last of the troika demands. So far, the market consensus is for an allocation holding around +EU470b. Market thinking has a sub-EU200b uptake to ‘generate a significant hit to risk sentiment and peripheral sovereign debt.’ In contrast, a result above +EU500b would likely result in a near-term strong risk rally and reinforce recent gains in risk sensitive currencies. That is fine in theory, but, how long is the risk rally to survive?

However, with a large allocation uptake, the single currency potentially has more to lose. Obviously, a larger number will create that initial knee jerk euphoric move, however, once investors realizes that this excess liquidity is likely to depress Euro front-end rates further, should keep the EUR vulnerable outright and against the crosses. Again, this is where FX traders require their FI hats. Also, one will have to question why Euro-banks are so enthusiastic for funding? What about the link between banks and the sovereigns?

It seems that fast money again is looking to trigger the weak EUR long stops below 1.34 ahead of the North American Open. Earlier it was Easter Europe and the Middle-East who happened to lean on the single currency. The eventual German approval for the Greek package should support the currency, but how long can ‘one’ bear the burden of sole support?

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Yen Tumbles as Importers sell JPY

February 21, 2012

Where to now EUR?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 9:39 am

Long/short rations is an excellent indicator for overall market sentiment. The bar chart below indicates that +58% (updated every 15-mins) of the market is/or has been bearish the EUR and there lies the danger after this early morning Greek deal announcement.

The potential risk of a Greek default is subsiding after EU Policy makers agreed a bailout for the country. Investors will be more than willing to ‘load up’ again on risky assets. However, the speculative market remains very short of the EUR and as recently as last week, Macro Hedge Funds were again accumulating EUR short positions for a break lower outright. Obviously, after this morning’s early agreement, this looks less likely now that the Greek deal has brought a couple of months’ worth of stability to the Euro-zone debt markets. Improved sentiment along with stronger than expected US data could see the pair challenge a new year high print.

Open Position Ratios provided by OANDA

Thus far, the market has “brought the rumor sold the fact”. EUR has rallied +0.8% in the O/N session on reports that the Euro-group has agreed on a new financing package for Greece, but has dropped from its high of 1.3293. Most of the other G10 currencies have managed to pair some of their original gains. The Market will now wait to see what North America wants to do.

The Euro-group have agreed to +EUR130b Greek rescue package. The key details include:

  • The new package is expected to bring Greece’s debt to GDP ratio down to +120.5% in 2020.
  • The haircut for PSI will be raised to +53.5% or more from +50%. The agreement would pave the way for the PSI offer to begin today or tomorrow
  • Prospective profits and accrued interest on ECB ownership of Greek bonds will be used as an official contribution to reduction of Greek debt, albeit with this action taken by individual euro area governments after an ECB distribution of these.
  • Greece is to pass a constitutional amendment giving debt service payments priority over other budgetary expenditure

The direction of the EUR likely depends on the shift to the PSI process and the likely need for non-voluntary participation and the strength of this participation. As you can see from our Order Positions, the market for some time has been trading under water, continually selling upticks, obviously trying to improve their off-side average.

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With the Greek deal only being inked earlier this morning, the market has very little opportunity to change sentiment. To date, market sentiment has been rather negative towards a constructive Greek deal. Position graphs have the investors selling into a ‘positive’ outcome all the way up from 1.29 to current levels (1.3236). However, with the lack of a sell off on an inked deal, the bears will begin to question how long they can afford to finance these short EUR positions. Market positing has bears on the verge of closing out this short EUR chased/lemming trades. From the Open Order Graphs there are very little intraday order sentiments being expressed. Investors are willing to closing watch market moves and deal with exit accordingly, ‘heart over mind’!

Now that a deal is done, market can expect larger ranges and greater volatility. Until now, investors and dealers had been hoping for more market movement to solidify investment strategies, lack of market movement can be attributed to the lack of market convictions. With the EUR pricing getting away from the dominant positioned bears, the market can expect further losses short term and a EUR currency threatening to trade at year highs before a market reprieve. This should back volatility and larger ranges!

• Euro off highs but supported in aftermath of Greek deal to avoid local default.
• EU’s Barosso believes that the Greek deal closes door on uncontrolled default-market seems to be questioning this.
• European yields have fallen a tad but the market remains weary

Market price action during the North American Open indicates that the Greek debt agreement, intended to avoid a disorderly default, seems to have been priced into the market last week. Continuing worries about the fragility of the bailout package is again allowing investors to move towards the safe haven of the ‘dollar.’ With Global factors continuing to trump domestic data, lack of confidence and risk taking, will find it tough going for the market to print new highs, and pressurize the weaker shorts. The market again lack conviction on open while digesting the immediate outcome.

Investors will now be looking hard at the PSI (Private Sector Involvement) and the non-voluntarily participation rate for direction. It would seem that the market will be content to continually sell EUR rallies until otherwise convinced not to do so!

February 17, 2012

USD Liquidity an Issue

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 11:02 am

US data has done a stellar job this week. Above expectation prints have helped to sustain the EUR and other risk related currencies as the market heads towards the showdown in Brussels on Monday. Initial jobless claims last week beat expectations, falling to the lowest level in four years, meanwhile Philly Fed for this month came in stronger than expected, as did January housing starts. The data seems to be putting the final squeeze on the weaker EUR shorts, determined for the single currency to end the week on a high. Will the elevated pricing remain there on Monday during US presidents Day? Obviously liquidity is going to be a major concern on this US national holiday, no matter what the outcome is in Brussels. It’s setting up to be an interesting opening session in Australasia!

Below are some other highlights of the week:


Americas

  • NA: It was another light week on the North American data front as we head into next weeks shortened trading week.
  • CAD: Auto sales fell-3% following a-1% drop in the previous month.
  • USD: Retail sales disappointed at +0.4% vs. +0.7% expected. However, non-autos beat expectations with a +0.7% rise allowing risk off trades to be considered.
  • USD: NY Fed index rallied to 19.53 this month from 13.48. The sub-indexes were mixed, but almost all of them remained in expansion territory, which suggests that the factory sector is doing well in the middle month of Q1.
  • USD: China sold US treasuries in December (-$32b), cutting its net holdings for the third consecutive month, but remains the largest foreign holder of US debt (+$1.1t). The net long-term TICS data showed buying of +$17.9b in December, after purchases of +$61.3b the previous month.
  • USD: According to the EIA, US commercial crude oil inventories fell by -0.2m barrels to +339.1m last week.
  • FOMC: Januarys minutes indicated that a few members said the Fed may soon have to consider more asset purchases, while others believed that the economic outlook would have to deteriorate first.
  • CAD: Manufacturing sales growth in December was lower than expected, up +0.6% to +$49.94b, the fifth gain in five months. The market was looking for a +2% increase. The headline data suggests that GDP expanded in December after two disappointing consecutive months.
  • USD: Housing starts rallied last month, +1.95% vs. -1.9%, but not enough to convince the market that this sector is ready to recover from the worst downturn in history. Building permits, future construction, rose +0.7% to an annual rate of +676k vs. +1.3% expectation.
  • USD: US PPI rose a seasonally adjusted +0.1% for finished goods in January. The core was up +0.4%, the largest increase in seven-months.
  • USD: US weekly claims fell last week, -13k to +348k, to the lowest level in four years. This is the third consecutive weekly drop. The more accurate four-week moving average declined -1.75k to +362.2k.
  • USD: The Philly Fed Manufacturing Index rallied to 10.2 this month from 7.3 in January. Both prices and new orders both rose, while the labor picture was mixed. Manufactures remain optimistic about the future.
  • CAD: Canada’s composite leading index increased +0.7% in January, completing the seventh consecutive increase. The advances were concentrated in manufacturing, housing and services employment, and was offset by declines in durable goods sales and equity prices
  • CAD: Canadian Consumer prices rose more than expected in January (+0.4% vs. -0.6%), led by higher gas and food costs. Core-prices (+0.2%, m/m) are again back over +2% (+2.1%, y/y), after a short spell below the inflation target (+1.9%).

Bailout in Brussels to help the BoJ

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 11:01 am

The BoJ became the latest G8 central bank to ease policy this week. Governor Shirakawa and his policy makers announced a +Y10t increase in their asset-purchases and at the same time, formalized their inflation objective (an approach to fighting deflation). They intend to buy JGB’s with the new funds. The market risk is that the MoF follows this move with more aggressive intervention, normally this would be associated with the BOJ’s new policy stance. However, the MoF should be breathing a tad easier on the back of stronger US data which has the JPY under pressure outright, and on the crosses.

Taking into account the new BoJ emphasis on inflation, combined with the improvement in global equities this year, and the continued deterioration in Japanese trade dynamics, has many analysts revising higher their medium and long term dollar targets. If Monday’s ‘bailout in Brussels’ transpires, North American Yen Bears should be enjoying President’s Day that bit more!

Below are some other highlights of the week:


Asia

  • JPY: Finance Minister Azumi and Prime Minister Noda stress that Japan does not target specific levels of dollar yen. The comments follow references to specific levels by Azumi in parliamentary testimony.
  • JPY: Japanese GDP shrank an annualized -2.3% in Q4 after a revised +7% expansion in Q3. This was weaker than the -1.3% consensus. Analysts are optimistic for growth for Q1given the improved outlook for the US economy and the rebound in domestic production after the Thai floods.
  • CNY: It’s believed that China’s policymakers have told its banks to roll over loans to local governments. This reduces the risk of a hard landing in China, with banks extending maturities for local governments to avoid a wave of defaults.
  • AUD: Australia reported the number of home loans rose more than expected, +2.3%, m/m in December, up from +1.8% in November. This is the highest rise in seven months. The value of loans rose +2% while the number of loans for investment lending rose +7.5%.
  • JPY: The BoJ unexpectedly announced a +JPY10t expansion in its asset-purchase program to +JPY65t.They intend to buy JGBs with the new funds and have also made more formal its medium-term CPI goal of inflation below +2%, centered on +1% (an aggressive approach to fighting deflation, further reducing the scope for USDJPY downside). The overnight lending rate was maintained at 0-0.1%.
  • NZD: Kiwi REINZ house price index fell -1.4% last month following a -0.1% fall in December. On a year-on-year basis, house prices rose +4.3% and price levels appeared to have stabilized post the 2010 fall. Transaction volume also rose +25%, y/y. The futures market expects the RBNZ to keep rates on hold for the remainder of the year; recent Kiwi appreciation has also reduced the need for normalization.
  • INR: Indian inflation was lower than expected. WPI inflation fell to +6.6%, y/y, in January from +7.5% in December. It’s the lowest level in three-years and strengthens expectations for further RBI rate cuts. This would increase support of foreign inflows into Indian equities, and demand for the currency.
  • CNY: China again has pledged her support for the beleaguered European union and plans to invest in Europe’s bailout funds. PBoC governor Zhou said that the share of EUR in China’s reserves has not fallen and that China wants the single currency to play a larger role as a reserve currency. However, Chinese policy makers are waiting for the appropriate time to invest and that time is when European officials can produce innovative instruments with better return profiles.
  • AUD: Down-under, Westpac consumer confidence index rose +4.2%, m/m, this month to 101.1, the second straight increase after a +2.4% rise in January. New motor vehicles sales advanced +1.3%, m/m in January, the largest increase in five-months.
  • NZD: Kiwi retail sales volumes grew more than expected in Q4, rising by +2.2%, q/q (sa), after a revised +2.4% increase in Q3.
  • SGD: Singapore’s headline retail sales rose +4.2%, y/y in December, much weaker than the consensus forecast of +5.2%. This was due to a weakness in car sales, ex-auto retail sales grew much stronger than expected at +8.1%, y/y, from +6.4% in November.
  • SGD: South Korea’s import prices rose +7.9%, y/y in January, accelerating from a +7.1% gain in December. Export prices increased +4.6%.
  • AUD: Aussie employment report came in well above the consensus forecast, rising an impressive +46.3k last month. The participation rate rose to 65.3 from 65.2 and the unemployment rate fell to +5.1% from +5.2%. The stronger headline and better unemployment rate should keep the RBA on the sideline next month.
  • NZD: Kiwi Business PMI and consumer confidence both fell in January to 50.5 and 113.3 respectively. Analysts believe weaker domestic growth momentum should keep Governor Bollard and his policy member’s happy with current policy settings.
  • SGD: Singapore’s final Q4 GDP revised up to -2.5%, q/q, from the -4.9% advance earlier estimated. Analysts expect the MAS to maintain the SGD NEER on its current gradual appreciation path.
  • CNY: CNY: In the PBoC’s Q4 monetary policy report, members mentioned inflation risk while expressing concern over growth. Are they managing market expectations for monetary easing?

February 15, 2012

Impact that German GDP has had on EUR during the last quarter

Filed under: Forex News — Tags: , , , , , , , , — admin @ 8:15 am
Period  Data Released  Estimate  Actual Pips Change

(1 Hour post event )

 Pips Change

(End of Day post event)
 3Q 2011  11/15/2011 7:00 GMT  0.5%  0.5%  +12  -62

3Q P 2011 German Gross Domestic Product

Economic activity in Germany increased 0.5% in the third quarter after expanding 0.3% during the three-months through June as households and businesses increased their rate of consumption. As the fundamental outlook for the euro-area improves, the European Central Bank may see scope to normalize monetary policy further, and the Governing Council may continue to strike a hawkish tone for monetary policy as the rise in growth heightens the prospects for inflation. Although the GDP report came out in line with market expectations, the initial reaction to the release was short-lived, and the EUR/USD continued to lose ground throughout the North American trade as the exchange rate settled at 1.3538 at the end of the day.

January 31, 2012

Record Eurozone Unemployment Pits North Against South

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

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

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

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

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

Unemployment to Increase in Some Eurozone Countries

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

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

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

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

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January 26, 2012

Market Outlook for January 26, 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 8:36 am

Recap of the Latest Global News

After the U.S. Dollar sold off across the board late in North American trading yesterday, it appeared that some relief was on the horizon, with the Greenback clawing back in early Asian trading on Thursday. This was merely a short-term correction, and by the time European markets opened up, the higher yielding currencies continued to surge.

Ahead of yesterday, the U.S. Dollar was primed for a strong year; after the ill-advised policy decision, one that does little more than buy time for banks to shore up their balance sheets, the U.S. Dollar is poised to be one of the worst performing majors in 2012. The implications of the Fed’s decision go beyond this year, however. Now, with low rates indicated for the next two years, the groundwork for the American Lost Decade – no different than Japan’s – has been laid.

Of interest has been the price action displayed by gold, which has surged through the $1700 per ounce mark and maintained its gains ahead of trading in New York. To me, this is a clear indication that market participants are worried about the U.S. Dollar losing its value substantially over the next few months. The key to watch would be the short-end of the U.S. Treasury yield curve: if these rates turn negative, the demand for precious metals will pick up.

January 16, 2012

Debt Downgrade Jeopardizes Eurozone Recovery

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 12:23 pm

Friday’s sovereign credit rating downgrade by Standard & Poor’s brings a new sense of urgency to the European debt crisis. The move also shines a spotlight on the region’s abysmal adherence to the Eurozone’s fiscal management rules as leaders prepare for yet another European summit on the debt crisis slated for January 30th.

Greek officials will actually get a head start on the summit as they are schedule to meet on January 18th following a series of unsuccessful discussions last week to reach an agreement with the country’s largest creditors. Last fall it appeared that a deal had been arranged that would see Greece’s largest creditors receive 50 percent of the face value on Greek debt. This arrangement was expected to reduce Greece’s deficit to 120 percent of GDP by the end of the next decade, but the deal now appears to be in question. Talks between the banks and the Greek government are scheduled to resume on January 18th.

Failure to come to terms on the debt discount places the release of the next tranche of emergency funding to Greece at risk. Greece has more than 14 billion euros ($17.8 billion) in debt due to mature over the next two months and if unable to meet the obligation, Greece would have no option but to enter into a full and uncontrolled default. Few expect it to come to this, however, as a calamitous default of this nature would spread debt contagion throughout much of the Eurozone at a rate beyond the region’s capacity to maintain.

Europe’s Largest Economies Suffer Credit Downgrade

In actual fact, few were surprised when Standard & Poor’s slashed credit ratings for a total of nine Eurozone countries late last Friday. Of the region’s top five economies, France and Austria both lost their coveted triple-A ratings leaving only Germany at the top tier. Italy and Spain were further downgraded to below investment grade status.

Citing deteriorating economic prospects and the anemic attempts so far to meet austerity targets and reduce deficits, S&P also placed the countries on a “negative” credit outlook leaving the door open to additional downgrades.

Following the official notice of the demotion, European officials rushed to minimize the impact of the historic downgrade. German Chancellor Angela Merkel said she believed the credit action would prove to be positive as it would urge member states to agree to a “financial compact” to help salvage the union and the euro.

Markets were less optimistic and the first full day of trading following the downgrade was mixed. European stocks were up slightly near the end of the day, while markets were off by the mid-way point in the North American trading day. Still, the real test is expected to come tomorrow when Spain will attempt to raise about 6 billion euros ($7.6 billion) in short and mid-term bonds, with another 4 billion euros ($7.6 billion) in long bonds.

“The rating downgrade is definitely going to create headwind for the Spanish bond auction,” Christian Lenk, analyst at DZ Bank, told the Financial Times Deutschland. He said he didn’t believe that the country could “repeat last Thursday’s auction result,” in which it was able to sell twice as many bonds as envisaged at lower interest rates than before.

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