Forex Blog

January 25, 2012

Market Outlook for January 25, 2012

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:59 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 25, 2012

Investor optimism was dented yesterday after European finance ministers failed to agree on the Greek debt swap deal and called for a greater contribution from debt holders. Finance ministers are pushing bondholders for greater debt relief by asking them to accept lower interest returns in the proposed debt swap deal. The stalling of negotiations has fuelled concerns that Greece will fail to make a bond payment due in late March. The EUR fell from a high of 1.3065 during the Asian session yesterday to as low as 1.2948 in early European trade today.

In more sobering news, the IMF has cut global growth forecasts and warned that the “epicentre of the danger is Europe but the rest of the word is increasingly affected.” It cut global growth for 2012 from a September forecast of 4 percent to 3.3 percent and predicted a recession in Europe. The IMF called for an increase in the eurozone’s rescue fund and a more active role from the ECB to address the crisis. In a dire warning, the IMF warned of a 1930′s style worldwide depression unless more countries play their part and identified a possible global financing need of over $1 trillion in the next few years. Inflation in the UK for December fell to its lowest level in 6 months at an annual rate of 4.2% and the economy contracted in the fourth quarter which saw the GBP fall to as low as 1.5528.

Yesterday, US equities fell after advancing for five consecutive sessions as negotiations stalled in the proposed Greek debt swap deal. Furthermore, the IMF warned that there was potential for “political paralysis” in the United States that could lead to an unwinding of stimulus spending. Asian markets there were opened today closed higher while European shares are down about 1% mid session, falling for the second day, as Ericsson and Novartis missed earnings estimates.

Commodities News

January 17, 2012

Compass Directions Tuesday, 17 January 2012

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 6:58 am

After downgrading nine European nations including France on January 13, Standard and Poor’s announced that it will also cut the rating of the European Financial Stability Facility from AAA to AA+. The news offset a relatively successful French bond auction which saw yields fall on one year notes fall from 0.454% at a January 9 auction to 0.406%. It appears that most investors had already priced in a cut in ratings for France and the reaction of investors in the first trading session after the release of the mass downgrades was rather muted. Germany is now the only eurozone nation with a stable AAA rating. The EUR has failed to moved much from 18 month lows and opens the Asia morning trading at 1.2660.

The focus this week for European leaders will be to address the mounting criticism of their handling of the debt crisis by delivering new fiscal rules and work out a solution for Greece as the rescue plan for that nation flounders. The discussions surrounding Greece and the reduction of the debt burden re-main a strong focus and will be an important tests in the eyes of international investors. Pimco’s Bill Gross has already stated that a Greek default is very likely. There was speculation last night that the ECB acted to buy Italian and Spanish bonds. In other currencies, the GBP is trading at…while the Australian dollar continues to hold up well at 1.0300.

With the Martin Luther King holiday in the United States, investors were focussed largely on Europe and it was somewhat of a surprise to see a very muted reaction to the S&P downgrade of a number of eurozone nations including France. Although US markets were closed, S&P futures did record a modest rise as the market awaits results from Wells Fargo, Citigroup and Microsoft this week. In Europe, after initial weakness, the bourses there have closed higher with the DAX gaining 1.25% to 6,220 while the FTSE rose 0.37% to 5,657. Carnival, the world’s largest cruise ship operator, fell 14%, after one of its ships struck rocks and capsized off the coast of Italy.

Commodities futures were largely closed fro trade due to the US holiday. WTI crude rose 1% to above $99.60 as the war of words escalated over the Irani-an situation. Precious metals are higher with gold gaining 0.8% to $1,644 while silver is trading just below $30 up 1.43%. Soft commodities were largely closed for trade while copper gained 1.07%. Today, we have the release of the high impact Chinese GDP data amongst a series of other releases including retail sales and industrial production. Overnight, we have UK and European CPI, a speech by BOE Governor King and the Canadian Rate Statement. The Chinese data will have a strong impact on the markets this week if they show a marked slowdown in the world’s second biggest economy as we expect.

GOLD moved higher in offshore trade as sentiment picked up, especially in the Euro region with bond yields falling in France after a successful bond auction. The USD steadied which assisted a rise in precious metals prices but all in all it was a quiet night with the US off on holidays. Gold finished offshore trade stronger by 0.80% at $1,643. A very quiet night for precious metals last night as most of the big moves come out of the US and the liquidity just wasn’t their as we had a US holiday. Prices remained well bid throughout the session and are definitely looking prone to further gains. Support down at $1,625 was never in doubt and this level remains short-term support and below here key support is now located at $1,600/05. So depending on the timeframe depend son where stops should be placed. Longer-term holders should consider stops under $1,580 for now. A move looks set to test $1,662 and if we get through here then we should continue to grind back towards $1,700. China data key today so any weakness after this data should be an opportunity to get long.

AUD/USD was one of the best performing currencies during the last 24 hours as the better than expected Australian Home Loans data started the ball rolling and with a lack of liquidity around the markets due to the US long weekend the price managed to get back above 1.0300 and posting a 1.0335 top during the US afternoon.  This bounce hasn’t surprised us and yet again we are seeing it as another opportunity to re-enter a short term sell position. The price has already moved back to 1.0306 to close out the US session with the ratings agency S&P taking any positive spin out of the markets with a downgrade to the EFSF Bailout Fund from AAA to AA+.  There is a lack of Australian data, however, with the Chinese GDP release today expect some movement for the AUD. The AUD looks to be on the knifes edge of something and this could be the tipping point. An    improvement in Chineawill see the bulls take AUD above the pivot 1.0370 whilst a lower number will give the bears what they have been waiting for, more Doom and Gloom with parity around the corner.

December 12, 2011

ECB Not Printing Could Be Best Option for Eurozone

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , — admin @ 12:08 pm

By Paul Quintaro
Benzinga Staff Writer

US equity markets traded lower on Monday morning, as the US dollar index rallied roughly 1%. Commodities across the board showed weakness—gold dropped below $1670.

The US dollar index is a measure of the dollar against a basket of other currencies. Perhaps contributing the most to the index’s gain was the dollar’s move against the euro.

The EUR/USD pair dropped over 1.10% on Monday morning, as investors may have become concerned over the fate of the currency given ongoing stresses in Europe. Speculation is high that one of the major ratings agencies will take action in regards to the sovereign credit ratings of Eurozone nations.

France’s Prime Minister Nicolas Sarkozy may have pre-empted a downgrade on France, stating on Monday that while a downgrade would be a setback, it would not be “insurmountable.”

Monday’s action in the EUR/USD pair, while demonstrating the market’s disbelief in the euro situation, may actually act as a positive influence.

After all, the problem in the Eurozone is one of debt: countries have largely spent beyond their means and are now finding it difficult to raise money in the bond market so as to continue their rate of expenditure.

If the euro becomes weaker, it makes the debts of these troubled nations less burdensome.

It may also boost exports. Germany’s economy is the strongest in the Eurozone and is largely dependent upon exports. If the euro weakens, Germany’s exports may become more attractive to foreign consumers as the German-made goods appear cheaper.

A weaker euro does not merely help Germany, however. Other troubled Eurozone nations—like Italy—also do a fair bit of exporting. Greece, meanwhile, is largely dependent upon tourism, and a weaker currency makes the country more attractive to tourists who get more “bang for their buck.”

Thus, while many market participants have called for the ECB to print in an effort to stem the crisis, ultimately not printing may be a more effective solution.

Those calling for the ECB to print may be viewing the situation through the wrong perspective: that of the United States. In the US, the Federal Reserve’s recent policies of quantitative easing have led to weakness in the dollar.

But that relationship may not carry over in Europe. It might seem like a paradox, but printing euros could actually make the crisis worse by strengthening the currency.

Of course, if interest rates continue to rise for indebted Eurozone nations, it may not matter. Even with a weaker currency, the PIIGS may find it difficult to continue to finance their governments while having to borrow at such a tremendous interest rate.

Thus, the ECB and Eurozone politicians will continue to walk a tightrope going forward. They must keep interest rates down while also depressing the value of the euro. Printing money may not be the solution.

Risk Aversion absorbing US Debt Supply

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:39 am

Even with $78b of US product (notes, bonds and inflation-linked debt) coming down the pipeline this week, treasuries remain in demand. The heavy issuance’s in the remainder of the year (+$177b of varying duration-bills, notes and bonds) normally would make it easier for dealers to take advantage of both supply and price, however, developments in Europe has investors wading towards the sidelines and requiring more product for surety reasons.

It was not a market surprise that the mention of a rating agency had US yields under pressure today. Bond prices rose after Moody’s said it will review ratings for all EU countries, citing a failure to produce “decisive” measures to end the region’s debt crisis at “the” summit last week. The US 2/30’s yield curve flattened -7bp to +282bp as Italian (+43bp to +6.79%-highest since Dec 1) and Spanish (+32bp to +6.07%-also highest since Dec 1) sovereign bonds led price declines among higher-yielding European sovereign debt. Even Germany managed to dip their oar into the ECB debate by questioning the duration of the central banks role. The Bundesbank president stated that the “onus is on governments rather than the ECB to resolve the crisis with financial backing”.

With the lack of decisiveness out of Europe has led to treasuries remaining better bid on pull backs. The continuing uncertainty will keep safe-haven Treasuries from selling off much even as the market absorbs the supply. Fitch has echoed a lot of what Moody’s warned about earlier, citing that the latest EU agreement is “not big enough to stem the region’s debt crisis”. They are predicting a “significant economic downturn” in the short term.

Today, US treasury auctioned off +$32b in three-year notes. The note sale booked the highest bid-to-cover ration (3.62 vs. 3.29) in 18-years. Indirect buyers took down +39.1% of the sale, on par with +40% average over the past four-auctions. Direct buyers picked up +7% of the offering, below the +12.4% recent average. With volumes drying up near year-end and participation at December auctions normally lighter, market attention will now shift towards tomorrow’s +$21b 10-year offering and Wednesdays +$13b long bond.

Tomorrow, we also get the FOMC rate announcement, before that it’s US retail sales. Will an underperforming sales surprise print open up the QE3 debate again?

The Nikkei closed at 8,653 up +117. The DAX index in Europe was at 5,785 down -201; the FTSE (UK) closed at 5,427 down -101. US indices remained in negative territory with the Dow currently trading at 11,970 down -213.

    July 26, 2011

    Lagarde calls for US debt resolution

    Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 6:42 am

    IMF chief Christine Lagarde today urged the United States to quickly resolve a political stalemate over raising the debt ceiling, warning that failure to reach an agreement would have serious consequences for the world economy.

    “The clock is ticking and clearly the issue needs to be resolved immediately,” she told the Council on Foreign Relations according to a text of her remarks.

    Ms Lagarde, who has been in the job for less than a month, called on the United States to develop a credible fiscal adjustment plan but cautioned against being too hasty.

    “The United States could face another jobless recovery. That is why we’ve advised against fiscal consolidation that is unduly hasty – even as we stress the importance of getting a fiscal consolidation plan agreed soon,” she said.

    Her warning on the dangers of not raising the $14.3 trillion debt ceiling by August 2nd came as the dollar fell across the board after US president Barack Obama gave no sign of a breakthrough in deadlocked talks in a televised speech late last night.

    The US faces a technical default on some of its government bonds outstanding unless it raises the debt limit.

    Irish Times

    July 15, 2011

    EU Bank Stress Tests to Show 15 Banks Need Cash

    Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 6:58 am

    The results of the so-called stress tests designed to identify European banks in need of recapitalization will be released later today. The expectation is that up to fifteen financial institutions will be identified as under-funded and in jeopardy.

    The International Monetary Fund has warned Europe it is taking too long to rebuild its banking system and has lagged the repair work done in the United States since the financial crisis, while the threat of the Greek debt crisis spreading to bigger countries such as Spain and Italy has rattled investors and dragged European bank shares to a two-year low.

    Source: Reuters

    S&P Issues Warning to US

    Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 6:49 am

    Standard & Poor’s followed up yesterday’s warning from Moody’s Investors Services with a warning of its own saying that it could also downgrade the US’s debt rating if a new debt ceiling is not soon agreed upon. S&P said there was a “one-in-two” chance that it may downgrade the current AAA rating.

    Source: BBC News

    June 17, 2011

    IMF Cuts U.S. Growth Outlook

    Filed under: OANDA News — Tags: , , , , , , , — admin @ 7:51 am

    The International Monetary Fund (IMF) today cut its U.S. growth forecast from 2.8 percent for the year, to just 2.5 percent. For 2012, the IMF now says the economy will expand by only 2.7 percent compared to an earlier projection of 2.9 percent.

    Citing debt as a major concern, the IMF said that like the debt-stricken countries in Europe, the U.S. was “playing with fire”. Jose Vinals, Director of the IMF’s monetary and capital markets department noted “We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis.”

    “If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” Vinals said.

    Source: Reuters

    Germany, France Call for Greek Bail-Out

    Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 7:42 am

    Angela Merkel and Nicolas Sarkozy today issued a clear statement in favor of providing emergency funding to debt-stricken Greece. Just a few days ago it appeared that German and French officials were contradicting each other on whether or not investors should be forced to suffer losses. The latest move however, sends a clear signal to the markets that the Eurozone’s two largest economies do not intend to see investors taking a loss.

    Source: BBC News

    May 17, 2011

    Looming Crisis Over U.S. Debt Ceiling

    Filed under: OANDA News — Tags: , , , , , , , — admin @ 8:02 am

    It may be too much for most people to fully comprehend the size of the government’s $14.3 trillion debt, so let’s put this in terms each of us can understand – yesterday the United States maxed out all its credit cards.

    By law, the government is restricted to a debt ceiling of $14.294 trillion. This limit came into play on Monday and means the government is effectively prevented from selling bonds and taking on any further debt. The Treasury Department released a somber statement noting that by raiding the nation’s pension funds it could manage to meet the nation’s debt obligations until mid-summer, but unless new funds are available by then, the Treasury would have no choice but to default on some of the country’s debt obligations.

    Mandatory Spending vrs. Discretionary

    The U.S. debt has become a ferocious beast with an insatiable appetite. In 2010, mandatory spending grew nearly 15 percent over the previous year and totaled $2.17 trillion. At the top of the list was Social Security at a shade under $700 billion with Medicare / Medicaid following at $453 billion and $290 billion respectively. It is also noteworthy that interest on the national debt – also a mandatory expenditure – cost American taxpayers $164 billion for the year.

    Discretionary spending for 2010 was also up significantly gaining almost 14 percent over the previous year to $1.38 trillion. Defense spending as you might imagine, was the number one expenditure on the discretionary side accounting for $663.7 billion. By comparison, the remaining discretionary totals are minuscule with the number two category – the Department of Energy – accounting for “only” $26.3 billion.

    Here is the problem facing lawmakers. Mandatory spending is just that – mandatory. In other words, the government has few options to find savings in these areas. With respect to discretionary spending, other than the big-ticket defense spending, the remaining expenditures are – relatively speaking – insignificant. Locating a spare trillion or so in this category will require significant cutbacks across many different departments and would take months to complete; the government has at best, a few weeks.

    So why not simply raise the lending limit? Well, this would be the obvious solution but the typical back-room shenanigans are in full-bloom in Washington right now and it is unclear when this approval may come. Both sides are using the debate to positions themselves as the better steward of the nation’s finances and should this partisan back-and-forth continue past the Treasury’s warning date, some form of default is unavoidable. Treasury officials are already quietly considering the worst case scenario and are identifying areas where a default would create the least damage.

    If it comes to that extreme, it seems unlikely that the government would risk sacrificing its credit rating by defaulting on its interest payments. The resulting collapse in investor confidence would force yields much higher on subsequent bond offerings and this would have grave consequences on America’s ability to raise funds in the future. After all, the U.S. will be forced to rely on deficit financing for the foreseeable future so this option is a non-starter.

    It is also hard to imagine that the government will take the route of slashing healthcare or dismantling other social programs. This would be a tough sell with the 2012 election campaign about to kick-off in earnest but the political posturing does serve to set up the debate between the two camps – the Democrats who favor minimal spending cuts with increased taxes, and the Republicans who demand dramatic spending cuts as the cost for garnering their support for raising the credit limit.

    So far, it appears that both sides are more concerned with scoring political points at each other’s expense rather than tackling what could quickly become a crisis issue. Despite the looming election, both sides would be well-advised to ease up on the politics until the financing question is settled for the short term at least.

    A good start would be to remove the specter of a default by approving an increase in the borrowing limits ASAP. Once markets are reassured that a default is not going to happen, then lawmakers can address the larger question of spending and taxes.

    Oh, and here is something else to keep in mind – just because the limit has been increased on your credit card, it doesn’t mean to have to spend it.

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