Forex Blog

February 5, 2014

Gold at $1255 as Equities Rally

Gold settled lower on Tuesday after posting a 1 percent rally in the previous session, as steadier U.S. equities and a stronger dollar prompted investors to unwind some of their safety bets in bullion.

A resumption in wage talks between South Africa’s top platinum producers and their miners eased supply worries in platinum, briefly sending the metal to its lowest level this year.

On Monday, gold rallied after disappointing manufacturing data from the United States and China pummeled Wall Street, while jitters about emerging markets bolstered an investor flight to safety.

CNBC

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January 27, 2014

Will The Fed Tug Harder On The Safety Blanket?

Emerging markets are getting no reprieve, as investors merrily sell off any cabbage that is not Group of 10 currencies. A mixture of local and regional economic strains, weaker Chinese data, and a U.S. Federal Reserve that insists it needs to “reel in some of their monetary stimulus” is convincing investors to contemplate pulling back from making riskier bets in various asset classes. Following the financial crisis, many of the emerging market players attracted vast capital inflows, which led to strong regional growth that stoked inflation, and large current account deficits. Once the flow of capital slowed, the emerging currencies started to slide (like the INR last September). That pushed inflation higher, and in turn, forced central banks to tighten monetary policies – an action that eventually restricts growth.

Currencies like the Argentinian peso (ARS), Brazilian real (BRL), the South African rand (ZAR), and the Turkish lira (TRY) are some of the hardest hit thus far. Investors have taken cash from emerging Asian stock and bond funds for the eighth consecutive week (January 22) for a total of $1.4-billion left funds– that’s more than twice the $671-million of the previous week. Emerging market currencies have always been vulnerable to such action. Only now as the Fed continues to trim its bond-buying fat are the flames increasingly licking away at the advantage emerging markets enjoyed in recent years to G-10 minted money.

Turkish Central Bank Applies the Brakes

Of all emerging market currencies taking a beating, the Turkish lira has been pounded the most. The TRY managed to print new record lows against the dollar before the Turkish central bank finally decided to step up to the plate and announce earlier today that it will hold an extraordinary meeting tomorrow to evaluate the currency’s slide. This has managed to temporarily stop the lira bleed (2.3100). The upside to all this market noise is that there is finally some market volatility, which equals opportunity, something that the foreign exchange (forex) class has been dearly missing over the past 18-months.

The question on every forex trader’s lips may well be, “will this volatility continue?” Opinion seems to be split over whether it will or not. However, with more investors beginning to deeply loath anything that is not G-10, it should support capital markets in this rout. The last Asian currency clobbering began late last summer, and it never really left us. Investors were clearly egged on by the Fed’s tapering rhetoric, and by the International Monetary Fund’s (IMF) adjusted growth forecast for emerging economies. However, there are many regional contributors to this emerging currency flush-out including China’s shadow banking system, the wayward politics playing out in Turkey and Argentina, and the labor strikes in South Africa, to name but a few.

Markets Cautious Ahead of Fed Meeting

Investor attraction toward U.S. assets currently remains on hold. The existing global woe is failing to send cash into U.S. equities with any form of abandonment just yet. With the Fed taking its first tapering baby steps last month, it seems to be convincing many that the honeymoon period of easy money that financed most of these investments is coming to an end. Interest rates that will remain “lower for longer” may be a global central bank battle cry, but it may be a fleeting notion now that the Fed is changing tack. When central bankers outside the U.S. become concerned about the Fed’s next move, it’s a strong hint that trouble is afoot. It’s rather telling that the Bank of Japan, the European Central Bank, the Bank of England, and the IMF have all recently voiced concerns about the Fed’s reduction of stimulus.

To be fair, the current emerging market meltdown is not solely because of the Fed. U.S. policymakers advise on only domestic economic considerations — they are not there to please the rest of the world. Chairman Ben Bernanke and company are expected to trim the Fed’s stimulus program during this week’s Federal Open Market Committee meeting – the last one Bernanke will preside over. Last December, the Fed reduced its monthly bond-buying program by $10-billion to $65-billion. The looming end of quantitative easing has convinced investors to rethink the relative attractiveness of higher yielding emerging assets. It should also prompt investors who need to adjust their portfolios to:

1. Be aware of whether or not China can smoothly deleverage its financial sector
2. Remain vigilant to sentiment changing toward the Fed’s first interest rate hike

The most vulnerable economies will be in emerging markets with current account deficits and dwindling forex reserves. Add a political crisis for good measure and little wonder Turkey leads the emerging market pack at the moment.

Forex heatmap

Other links:
Contagion, contagion, contagion!

The post Will The Fed Tug Harder On The Safety Blanket? appeared first on MarketPulse.

GBP/USD – Sharp Gains As US Housing Data Slips

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:37 pm

The British pound has shot higher to begin the new week. GBP/USD has gained about 100 points on Monday, as the pair trades in the high-1.65 range in the North American session. In economic news, US New Home Sales took a tumble, and the pound took full advantage. There are no British releases on Monday.

The health of the US housing sector continues to concern the markets, as New Home Sales dropped sharply in December to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday.

The UK Unemployment Rate dropped to 7.1% in December, down from 7.4% a month earlier. The strong reading was welcomed by the markets, as the BOE has previously stated that the 7.0% unemployment level was a threshold at which it would consider raising interest rates, which currently are at 0.50%. However, the market excitement is likely premature, as the BOE has recently noted that the 7.0% threshold would by no means trigger a rate increase. Last week’s BOE minutes noted that the 7.0% level would likely be reached earlier than anticipated, but this did not mean that the BOE would immediately respond with a rate hike. Nonetheless, the pound shot after the unemployment rate release, and there’s little doubt that the Bank is under increased pressure to raise interest rates.

USD/CAD – Steady As US Housing Data Dips

The struggling Canadian dollar has steadied as we begin the new trading week. In Monday’s North American session, USD/CAD is trading in the mid-1.10 range. It’s a quiet start to the week, with just two releases. Today’s key event is US New Home Sales which dropped to a three-month low, well below the estimate. US Flash Services PMI met expectations. There are no Canadian releases scheduled until Friday.

The Canadian dollar continues to trade at three-year lows against the US currency. The loonie slipped over 100 points last week, as USD/CAD came close to the 1.12 level. As expected, the Bank of Canada kept the benchmark interest rate pegged at 1.0% late last week. However, the Canadian dollar took a hit as the markets reacted negatively to the BOC’s policy statement, in which the Bank noted that it was increasingly concerned about persistently low inflation. The loonie lost over one cent after the BOC release, despite solid Canadian retail sales numbers late last week. 

The health of the US housing sector continues to concern the markets, as New Home Sales dropped sharply in December to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday.

November 19, 2013

Domesitc Funds Leaving China In Flight For Safety

More than a dozen Chinese developers gathered for breakfast at a Los Angeles hotel one Sunday earlier this month before taking off for meetings with property brokers, attorneys and potential business partners.

The visitors, none of whom have invested in U.S. real estate development before, would then catch an evening flight to San Jose, California, and meet with more property executives there and in nearby San Francisco. In all, they would stop in six cities over 14 days, including New York and Washington.

“We like the stable and mature investment market in the U.S. relative to the Chinese market,” Jianrong Qian, chairman of Shanghai-based Chiway Holding Group Co., said through an interpreter before heading off to eat with the rest of his group at the InterContinental hotel in Century City. “We were encouraged by the pace of the recovery here in the U.S. after the financial crisis. It shows the resilience of this market.”

Bloomberg

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

The post Domesitc Funds Leaving China In Flight For Safety appeared first on MarketPulse.

September 11, 2013

Taper ‘Lite’ Has EUR Bulls Wanting To Rock

Capital markets are back focusing on yields, especially US yields and 10-years at that, especially as the benchmark issue backs ups towards +2.97% and just ahead of the psychological +3% level. With President Obama asking Congress to delay a vote authorizing the use of military force, while his administration pursues a proposal that would have Syria surrender its chemical arms, is a market green light to apply ‘new’ risk again. So, watching yields is the next most appropriate deed, ahead of a market where the US Treasury will auction +$21b 10-year notes in the first reopening of the +2.5% August 2023 issue later today. Currently, investors and dealers are expecting a moderate post-meeting sell-off, with the corporate sector leading the way ahead of the FOMC meet announcement next week.

There are still many obstacles ahead that potentially could derail Obama’s plan; even logistics remain highly problematic and could scuttle any success. There appears however to have been a “clear ratcheting down of tension in the Middle East, especially in Syria” despite the Obama’s administration expressing skepticism that a deal could be reached. Current price action is indicating that many traders are willing to sit the remainder of this week out ahead of the highly anticipated FOMC meeting next week.

Especially after last weeks NFP “punts” having gone awry and with the safety trades being unwound on the suggestion of a diplomatic outcome to Syria, has convinced many investors to sit this ruckus out. Range trading is being touted for most FX pairs with any risk on strategies being considered reason enough to short the JPY and CHF again. Analysts note that if there is a risk of position adjustment, it is most likely opposite to the strategies that became popular after last weeks payroll data.

Most market positions currently taken have a “close to market average and lower volatility.” Hence, the reason why option traders continue to tout that the dollars left hand side being the most vulnerable with noted reachable stop-losses. Presently, with many option traders positioned for CHF and JPY position falls, would suggest that any pre-FOMC “down moves are probably limited.

With such little economic data being released, any announcements seem excuse enough for the most idle to get involved. This mornings fall in the UK jobless rate to +7.7% from +7.8% m/m initially brought some significant market attention. Gilts performed accordingly on better date – yields managed to back up, but those losses seemed to have been quickly recouped despite UK product still underperforming bunds on the day. The fall in the unemployment rate, which Governor Carney said needs to fall to +7% before the BoE would consider raising rates, has not altered current market expectations of the timing of the next rate hike. The UK futures market continues to price in a +80% November 2014 UK rate hike.

Even with encouraging data on the growth front – recent Chinese reports revealing a more stabilized economy – Emerging Markets trades remain somewhat under pressure; at least until US Treasury yields can better steady themselves. Investors remain anxious about a further rise in global yields and the effects of continued capital outflow from the region to have any significant pro-emerging market trades on and ahead of next weeks FOMC rate decision.

Pro-EUR traders will continue to pick away at the single currency’s topside, more so now that Obama has taken a step back from his initial aggressive stance. Keeping Monday’s low (1.3222) intact puts the EUR bulls in control and with little market opposition, mostly because of the lack of fundamental data, opens up key resistance around 1.3300-10. Muddying the dollars water is the fact that many are now considering that next weeks FOMC meet will turn into a “taper lite” event. For so long the FX market has been driven by the growing conviction that the FOMC would start cutting its asset purchases from +$85b a month this month. The evidence is showing that despite an exodus from emerging market currencies, the dollars own gains have been modest (+2.6% TWB on the year). Is the market preparing for a “liter” event?

Forex heatmap

Other Links:
EUR Run Squeezes Shorts – Will FOMC Inflate Dollar?

Dean Popplewell, Director of Currency Analysis and Research @ OANDA MarketPulseFX

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

August 19, 2013

GBP/USD – Maintains the Two Month High above 1.56

GBP/USD for Monday, August 19, 2013

The GBP/USD reversed well to finish out last week to surge higher through the resistance level at 1.56 to a new two month high around 1.5650.   It moved back to the 1.5450 level, after having spent the last week or so moving higher and breaking through the resistance level at 1.54 pushing towards further resistance near 1.56. The resistance level at 1.54 was proving to be quite solid, and once it broke through the pound surged higher to a new seven week high near 1.56 in a solid 48 hour period run. In the week leading up to this the pound had recovered strongly and returned to the previous resistance level at 1.54 after the week earlier undoing some of its good work and falling away sharply from the resistance level at 1.54 back down to around 1.5150 and a two week low. A few weeks ago the 1.54 resistance level stood firm and the pound fell away heavily, however the 1.51 support level proved decisive and helped the pound rally strongly.

Earlier in July after having done very little for about a week, the GBP/USD started to move and surge higher and move through the 1.52 and 1.53 levels to the one month high above 1.54. Prior to the move higher, it moved very little as it found solid support at 1.51 and traded within a narrow range above this level. It established a trading range in between 1.51 and 1.52 after it took a breather from its excitement just prior when it experienced a strong surge higher moving back to within reach of the 1.52 level from below 1.49, all in 24 hours. About a month ago it did well to climb off the canvas and move back above 1.49 and towards 1.50 again before seeing the pound reverse and head back down below 1.49 to reach a new multi-year low near 1.48. It experienced sharp falls moving from 1.53 down to the key long term level of 1.50 and then through 1.49. That movement saw it resume its already well established medium term down trend from the second half of June and move it to a four month low.

Throughout the first half of June, it enjoyed its best run in a long time as it surged from 1.50 to 1.57 in just a few weeks. Its multiple key levels during its movement up towards 1.57 have appeared to have little impact during its decline in the month afterwards. With its recent surge higher it has nearly regained all of its losses from June and July when it fell strongly from 1.5750 down to below 1.49. Throughout the month of May the pound fell strongly and return almost all of its gains from the few weeks before that. In early March the pound moved to new lows around 1.4830 from a starting point near 1.64 at the beginning of the year.

The pound strengthened to an eight-week high against the dollar last week after U.K. retail sales increased in July more than analysts forecast, adding to evidence Britain’s economy is gathering pace.   Sterling advanced for a fifth day against the euro, the longest run of gains since April, as the improving data spurred bets the Bank of England will need to raise interest rates to restrain inflation. U.K. government bonds fell, pushing 10-year yields to the highest since August 2011, as demand for the safety of fixed-income assets waned. Britain’s borrowing costs rose as the Debt Management Office sold 2.25 billion pounds ($3.5 billion) of 20-year gilts.

(Daily chart / 4 hourly chart below)

GBPUSD Technical Analysis Daily Chart.
GBPUSD Technical Analysis Candlestick 4 Hour Chart.
GBP/USD August 19 at 01:00 GMT   1.5627   H: 1.5633   L: 1.5618

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5500 1.5450 1.5100 1.5650

Evidence of Japan Growth Constraints

Japan’s exports grew at a slower-than-forecast pace while imports swelled in July, highlighting limits on the economy’s growth that could fuel opposition to a planned sales-tax increase.

Exports rose 12.2 percent from a year earlier, the Ministry of Finance said in Tokyo today, compared with the 12.8 percent median estimate of 23 economists surveyed by Bloomberg News. Imports climbed 19.6 percent, leaving a trade deficit of 1.024 trillion yen ($10.5 billion). The seasonally adjusted deficit expanded from June to 944.0 billion yen.

Prime Minister Shinzo Abe is set to decide in the next month whether to raise the sales tax to 8 percent in April from 5 percent now and will listen to opinions of a panel of experts to consider the impact on the economy. Increasing the tax would risk choking off a recovery helped by stronger exports, just as Japan shows signs of emerging from 15 years of deflation.

Bloomberg

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

August 16, 2013

GBP/USD Surges to 1.5650 as Retail Sales Rise

The pound strengthened to an eight-week high against the dollar after U.K. retail sales increased in July more than analysts forecast, adding to evidence Britain’s economy is gathering pace.

Sterling advanced for a fifth day against the euro, the longest run of gains since April, as the improving data spurred bets the Bank of England will need to raise interest rates to restrain inflation. U.K. government bonds fell, pushing 10-year yields to the highest since August 2011, as demand for the safety of fixed-income assets waned. Britain’s borrowing costs rose as the Debt Management Office sold 2.25 billion pounds ($3.5 billion) of 20-year gilts.

“It’s consistent with all the data that has come out recently,” said Adam Cole, head of Group-of-10 foreign-exchange strategy at Royal Bank of Canada in London. “We are generally bullish on sterling.”

Bloomberg

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

June 17, 2013

USD/JPY – Dollar Moving Higher as Markets Eye FOMC Statement

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

After being on the wrong end of the stick last week, the US dollar is fighting back, and has posted gains against the yen. USD/JPY is testing the 95 line on Monday. US data continues to be mixed. On Friday, PPI rose nicely, but UoM Consumer Sentiment failed to meet expectations.  On the weekend, Tertiary Industry Activity improved to 0.0%, but missed the estimate of 0.2%. In the US, it’s a very quiet day for releases. Today’s highlight is the Empire Manufacturing Index. The markets are anticipating a turnaround from a weak reading in May with an estimate of 0.4 points. There are no Japanese releases on Monday.

The BOJ released the minutes from its most recent policy meeting, and the central bank was optimistic in tone, noting that the economy has improved. On the topic of deflation, several members said that it may be difficult to reach the target of 2% annual inflation, as deflation has proven a stubborn enemy. Meanwhile, the recent volatility on the Nikkei has bolstered the yen. The Japanese stock market has lost 20% of its value since late May, making it a bear market. Japanese equities have slumped as the BOJ has failed to address the volatility in the bond market. The yen has thus risen sharply as nervous investors have dumped their stocks and flock to the safety of the Japanese currency. This gave a big boost to the yen which gained about 400 points last week.

Taking a look at the US, the highlight of the week could be the US Federal Reserve, which will release a statement on Wednesday. What the Fed might do with QE has become a hot issue for the markets and there is growing speculation that the Fed could tighten QE in the near future. Currently the Fed purchases $85 billion in assets every month. The Fed has said that it won’t make a move until the US economy improves, so every strong US release seems to result in more speculation that the Fed will press the trigger. A tightening of QE is dollar positive, so any action or even hints from the Fed in this regard could boost the dollar.

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