Forex Blog

October 18, 2011

EURO Doom Mongering Persists

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:32 am

There is no backing down from ‘this’ persistent EUR decline. The market risk premium that was aggressively applied last week feels in danger of giving it all up and then some. Sentiment remains vulnerable allowing event risk to dominate on a disappointing of potential ‘under delivery’ at the Brussels Summit this weekend.

Overnight brought a host of further stress indicators to the fore. What’s bad for China is bad for Europe. Data revealed that Chinese growth figures fell short of expectations coupled with some disappointing earning from Euroland is again boosting market volatility. With Germany trying to manage market expectations, Moody’s is offering to do the same by putting France on a three-month notice. They have indicated that ‘pressure from debt metrics’ could leave the country with a negative credit outlook, even a downgrade, and this only months ahead of important elections.

Also getting traction this morning is Nouriel Roubini believing, pragmatically so, that the Eurozone requires the dollar to fall below $1 for a EU crisis solution and that the ECB needs to slash rates. None of these are new ideas, it’s perhaps the sensitivity of timing in such an important week for the vulnerable asset classes.

It goes to show how much rhetoric affects sentiment, as the weekend approaches expect this rhetoric to intensify.

Forex heatmap

US data continues to send out mixed signals. Yesterday’s US September industrial production advanced +0.2%, bang on market expectations, despite the net revisions being marginally negative at -0.1%. August was revised down from +0.2% to unchanged, while July was revised higher by +0.2% to +1.1%. The negative print came from June retreating -0.1%. Analysts use this to explain why capacity utilization fell short of consensus at +77.5% by -0.1%. Digging deeper, there was “moderate” underlying growth in the manufacturing sector (+0.4% and ex-autos +0.3%). Thus far, manufacturing growth has shown three consecutive increases and has produced an annualized growth rate of +4.3% in Q3. Overall, IP with a +0.2% rise managed only half the pace of manufacturing due to the weather sensitive utilities sector falling by -1.8%. Mining maintains a firm trend with a monthly rise of +0.8%. Investors seem more concerned about the lack of confidence than about market fundamentals. They are beginning to worry themselves into another recession.

Empire State Manufacturing Index contracted this month (-8.5) at a faster pace than forecasted (-3.9), reflecting a lack of confidence in the recovery, even as measures of orders and sales improved.

The dollar is higher against the EUR -0.48%, GBP -0.24%, CHF -0.42% and lower against JPY +0.10%. The commodity currencies are weaker this morning, CAD -0.18% and AUD -0.26%.

After printing its highest price in three weeks, the loonie did an about turn, inline with investor panic liquidation, as comments from German officials that there’s no quick fix for Europe’s sovereign debt crisis eroded appetite for higher-yielding assets. With commodities prices ambushed, the dollar on an uptick, no fundamental data yesterday would help the CAD. Risk-off sentiment is back, and as equity markets sell off, the safer haven big dollar looks attractive. Despite the CAD appreciating +2.8% outright this month and beating its commodity peers (AUD and BRL), on speculation that the US able to avoid another recession, the CAD is expected to retest its recent lows being the US’s largest trading partner.

The CAD, like any risk or interest rate sensitive currency, remains vulnerable to following the broader trends, especially what is transpiring in Europe on the verbal front. The market is a good buyer of dollars on dips after strong corporate interest ahead of parity kept the line at the beginning of the week (1.0253).

The market got the RBA minutes and the final verdict seems to be neutral. The minutes mirrored the tone of their policy statement and failed to give any additional information. Digging deeper, the key sentence “an improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand, should that prove necessary”, could end up being a possible teaser, as a weaker third quarter inflation report released next week would/could trigger a cut, however, EU holds the key, as the RBA is not expected to be pro-active ahead of the G20 meeting at which Europe is due to reveal its comprehensive policy package.

The currency has backed off somewhat from its earlier highs on the belief that this rally has come ‘too far too fast’. It’s only natural to take some profit off the table in a one directional trade ahead of some key releases. Risk aversion and weaker commodity prices continues to put this growth and interest rate sensitive currency under pressure.

Aussie domestic data remains robust, and coupled with Chinese inflation being well contained, provide compelling ingredients to own this growth currency. However, investors need to understand that the RBA is still being heavily dependent on how the crisis in Europe affects global growth over the next month. At current levels and similar to other growth and commodity sensitive currencies, the market’s bias prefers to be better sellers of the AUD on these rallies, until the panic flows have abated (1.0136).

Crude is lower in the O/N session ($85.78 down-$0.56c). Oil prices slipped from its highest level in a month yesterday after Germany said EU leaders would not provide a complete fix to the region’s debt crisis by week’s end, damping hopes for a quick rescue plan. Disappointing Empire Manufacturing Index data did not help commodity prices either. Certainly not helping the black-stuffs cause was the Japanese government downgrading its assessment of their economy for the first time in five months, as the strengthening yen and slowing global growth weighed on the prospects for an export-driven recovery. This morning’s data revealed that China’s growth is slowing, and anything that bad for China is bad for commodity prices.

Last week’s EIA report was somewhat neutral for prices. It showed crude stocks rallying +1.34m barrels to +337.6m. The market had been expecting a +300k average build. Crude imports rose +386k barrels per day to +9.05m. On the flip side, gas stocks fell by -4.13m to +209.6m, more than market projections for a-100k barrel fall. Average gasoline demand in the last four-week’s fell by -0.7%, y/y. Distillates (heating oil and diesel), fell by -2.93m barrels to +154m, compared with an average forecast for a-600k barrel draw. Refinery Utilization fell by -3.5% to +84.2% of capacity. Finally, stockpiles at the Cushing rose +532k barrels to +30.6m barrels.

Are we back to a market traveling “too far too fast”? Weaker growth predicted by the IMF, which points to lower oil demand, will have dealers thinking of shorting the market again. Expect investors to run into technical selling on some of these steeper rallies.

The bulls and the bears continue to ‘duke it out’ over gold. Price appreciation, is it risk aversion or risk appreciation? Is it a store of value, a hedge against inflation? Eventually the yellow metal is expected to climb as the European debt crisis spurs safe haven demand. Now that the market is beginning to believe that EU leaders will not be able to apply the quick solution, it can only promote instability and fear again. Last week, the market over extended that risk premium bull pricing, this week we can expect to see some of that reversed. Momentum should again return to the metal’s side despite the dollar uptick.

After last months rout, investors remain very cautious about this trade. The metal rose +2.5% last week for a second weekly gain. Demand for ‘physical’ gold is again expected to support the market. Under normal conditions, the Indian festival season helps drive buying from the world’s biggest gold consumer. Retail gold demand traditionally gains pace from August.

The yellow metal has moved in line with other commodities and assets seen as higher risk, like equities, in recent weeks, despite moving in an inverse relationship with them earlier in the year as buyers sought the metal as a haven from risk. In fundamental terms, gold is trying to find a balance ‘between the two opposing forces’, a risk investment or a safe haven ($1,695 up+$12.20c).

The Nikkei closed at 8,741 down-137. The DAX index in Europe was at 5,826 down-33; the FTSE (UK) currently is 5,380 down-56. The early call for the open of key US indices is lower. The US 10-year eased-15bp yesterday (2.14%) and another-3bp in the O/N session.

Treasuries have rallied from their seven week high yields, as concerns that Europe may take longer to contain its sovereign debt turmoil boosted demand for the safest assets. In technical terms, the ‘stability’ road map plan being implemented now rather than later was aggressively over priced and the market, rightly so, is giving back some of that extra premium. The German Finance Minister stated that “dreams” of an imminent resolution to the crisis are not likely to be fulfilled this weekend in Brussels. This has dealers willing to flatten the US yield curve even further.

Currently, the market remains susceptible to Euro rhetoric, and any negativity towards a Euro solution will have investors wanting to bank more of last weeks risk profit before losing it entirely.

April 1, 2011

Forex week in review: March 24-April 1

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 5:37 pm

The month-end, quarter-end ‘fix mess’ is now over. Welcome to the beginning of the ‘carry’ month. Carry is king in April. Non-farm payrolls did not bring forth ‘that’ surprise. The dollar has suffered whiplash this week on the back of Fed member jousting rhetoric. Minneapolis Fed President Kocherlakota’s comment that a hike of 75bp was possible in 2011 was negated by Friday’s dovish comments from New York’s Fed President Dudley, a close friend of Ben’s.

Ireland passing the stress tests and being downgraded, like Portugal, has done little to stem the EUR’s rise. The stress test result and Portugal’s successful bond auction seem to further limit the prospects for a near-term systemic shock that could derail Trichet’s plan to hike rates next week. The market has priced this in and all we need now is for the ECB to deliver. A new ECB rate hiking cycle will usher in a new phase of general dollar weakness versus the European currencies.

EUROPE

  • EU summit fails to deliver specifics on EFSF enhancement. Made progress in defining a new post-2013 support regime for peripheral borrowers. No decisions made on support for Portugal or interest rate relief for Ireland.
  • Chancellor Merkel’s coalition suffered heavy losses in regional voting and the CDU lost control of Baden-Wuerttemberg for the first time in 50 years. No implications in terms of the government’s ability to pass legislation on European issues.
  • UK GDP was revised a touch higher (-0.5%), but M4 growth was weak (-0.5%).
  • Italian business confidence rose to a new cycle high, echoing the message from French confidence last week. Data continue to fully support an ECB tightening at next week’s meeting.
  • Swiss KOF comes in stronger than expected, rising to 2.24 in March. The print matched the high from July, before CHF strength induced a moderation in the survey.
  • SNB Vice-Chairman Jordan’s commented that monetary conditions are currently appropriate and suggested that the SNB would only hike rates if the franc weakened first.
  • UK CBI rose to 15 in March. The expected April retail sales volume is at +18. UK index of services reversed the weather induced drop in December, rising +1.3%, m/m in January.
  • Euro zone consumer confidence came in line at -10.6 for March. Economic and services sentiment came slightly below consensus expectations, while industrial confidence held at high levels.
  • The BoE credit conditions survey reported a fall in demand for mortgages in Q1 and noted concerns from banks on the impact of an interest rate rise on defaults.
  • The Euro-region area CPI surprised, strong at +2.6%, y/y, in March.
  • German unemployment rate fell to +7.1% in March, the lowest level since 1991.
  • Portugal reported a +8.6% of GDP budget deficit for 2010 (target +7.0%), and revised up the 2009 deficit to 10% from 9.3%. Portuguese spreads have widened.
  • Irish bank ‘pass’ stress tests, coupled with a successful auction of EUR1.6bn in Portugal bonds would seem to further limit the prospects for a near-term systemic shock that could derail Trichet’s plan to hike rates next week.
  • Manufacturing PMI’s retreated in March in all core Euro-zone economies, French (55.4), Italy (56.2) and Germany (60.9). Importantly, the levels of the surveys remain very high and consistent with strong growth, which should keep ECB’s tightening plans in place.
  • UK manufacturing PMI disappointed (57.1). Weakness was driven by a sharp drop in orders from 62 to 54.9, suggesting PMI could remain soft for the months ahead. This supports the dovish camp on the MPC

Americas

  • St. Louis Fed’s Bullard says FOMC should consider curtailing QE2. Normalization may start before crises end.
  • The US housing market recession is not over yet. January’s reading for the 20-city S&P/Case-Shiller HPI (-3.1%, y/y) points to further softening in house prices before the housing sector reaches a bottom.
  • US consumer confidence fell shy of expectations this month (63.4 versus 64.9), on the back of less confidence in the ‘future’ whereas confidence in the ‘present’ circumstances picked up.
  • ADP print (+201k) inline with consensus.
  • The last major regional purchasing manager’s index, Chicago PMI, eased slightly to 70.6% in March from 71.2%.The prices paid component climbed to 83.4% from 81.2%, while new orders edged slightly lower to 74.5% from 75.9%. However, the employment index remains supportive 65.6% versus 59.8%.
  • Canadian GDP was a decent print (+0.5). Analysts note that temporary factors that boosted manufacturing distorted the headline. Market can expect the effects to be reversed in the February release.
  • NFP beat market consensus (+216k), raising expectations of a tighter monetary policy due to a stronger economy. Unemployment rate fell to +8.8% and last months release was revised higher by +2k.
  • Marginal slippage in March ISM index to 61.2 vs. 61.4. Pressure coming from new orders, while prices paid continues to rally.
  • Dovish comments from New York Fed Dudley has forced the market from pricing too much tightening.

ASIA

  • New Zealand reported a February trade surplus of NZD194mn, below the NZD270mn consensus forecast. Exports rose +17%, y/y, import growth of +23%, y/y was boosted by an aircraft purchase.
  • Japan reported strong retail sales (+0.8%) and unemployment data (+4.6%) for February. The data are pre-disaster and have been generally ignored by the market given the uncertainties that lie ahead.
  • PBOC has taken a softer tone on monetary policy in its latest statement. The reference to inflation and assessment of monetary conditions has both turned less aggressive. Market believes they are signaling a ‘pause’ in monetary tightening for 1-2 months.
  • Japan’s Ministry of Finance reported that intervention in March totaled Y693bn, or about $8bn. Most if not all of this was likely conducted on March 18
  • Australia retail sales growth rose +0.5%, m/m, however building approvals were down +7.4%, most likely flood related.
  • China’s headline PMI rose to 53.4 from 52.2 in February. The forward-looking new orders index rose only +0.9pp to 55.2, versus an average +4.9pp in the past five years, and the PMI new export orders index rose +1.6pp to 52.5.
  • Japan’s Tankan Manufacturing Index came in line with expectations and rose 6-points.

WEEK AHEAD

  • This week is dominated by Central Bank announcements, starting down-under with the RBA followed by BoJ, BoE and finishing with the ECB.
  • Bernanke gets some air time at the beginning of the week, ahead of the FOMC meeting minutes on Tuesday.
  • Canada gives us Ivey PMI and Building permits and employment changes
  • Australia will also focus on employment and the US its weekly claims

March 4, 2011

Week in Review-March 4th

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , , — admin @ 5:33 pm

The EUR continues to outperform the dollar as investors interpret the ECB’s view to oil price shocks as inflationary events requiring a tighter monetary policy, in contrast to the Fed and the BOE, who are focusing on the deflationary impact. Trichet has followed in the hawkish footsteps of his coworkers and plied the EUR with enough ammo to dominate the non-inflationary Bernanke effect. The ECB will take the fight to inflation, maybe as early as next month. With the Libyan situation showing little signs of improvement and with the sovereigns continuing to weigh on the dollar, safe heaven trading strategies are the only option in this current environment. Below, we have some of the highlights of the week.


EUROPE

  • Fine Gael wins Irish election and is in coalition talks with Labour. Victory will give them a clear mandate to try to renegotiate its EU/IMF bailout package.

  • Euro area January CPI was revised down to + 2.3%, y/y from flash estimate. Core-CPI was also a tenth below consensus. Market continues to see elevated risks of a hawkish shift from the ECB.

  • Euro manufacturing PMI’s continued to surprise to the upside, with particular strength in Ireland and Italy, driven by the forward looking components. Greece remained the weak spot amongst the periphery. Euro area was left unchanged at 59.

  • Swiss PMI and 4th Q GDP showed surprised strength. GDP grew +0.9%, q/q, while the PMI bounced to 63.5 (highest level in six-months). Strong external demand from Germany and Asia is pulling the economy along despite CHF overvaluation. No hawkish rhetoric is expected at this months SNB meeting.

  • UK PMI was flat last month, 61.5. New orders moderated, but employment hit a fresh high of 61.7 from 59. The 2011 releases show a solid recovery in the UK manufacturing sector in 1st Q and supports the hawkish camp at the MPC. King continues to send distinctly dovish signals that ‘raising rates to make a gesture is self defeating’. Market is pricing a hike in May.

  • UK services PMI fell to 52.6 from 54.5, m/m. Analysts view the softness as more of a technical reversion to trend after the weather-induced volatility in December and January.

  • Euro-zone registered strong increases in services (56.8) and composite PMI’s (58.2) for February, but below the preliminary estimates. Strong services gains were driven by France and Italy. The peripheries saw substantial gains in Ireland and Spain. Services PMI’s coupled with the firm manufacturing PMI’s point to robust growth in the Euro region.

Americas

  • US consumers are hoarding their stimulus. Consumer spending disappointed with a +0.2% gain. Offsetting this disappointment is income jumping +1%, more than double the expected pace.

  • Strong proof for the US housing markets weakness was pending home sales falling for a second consecutive month in January (-2.8% to 88.9). Even the revisions went deeper, with December falling into negative territory (-3.2%) from its original positive print (+2%).

  • February’s Chicago PMI print of 71.2 was the highest reading in 23-years, led by a surge in production to 78.2 from 73.7. This release is hot on the heels from the January ISM manufacturing index, and the Empire and Philly Fed surveys for February and providing more proof that manufacturing is picking up in the 1st Q, in part on a need to build inventories.

  • Surprisingly strong Canadian 4th Q GDP of +3.3% vs. +3% expected and an upward revision to the 3rd Q print to +1.8% from +1% pushed the loonie to new three years high outright.

  • US January ISM numbers expanded at its fastest pace in seven-years (61.4 vs. 60.8), as factories added workers and pumped up production, continuing the momentum for their expansion.

  • US construction spending fell for a second-consecutive month in January (-0.7% vs. -1.6%). Builders have had trouble getting finance and even with the tighter credit conditions, demand for credit in some places remains weak.

  • Bernanke will not be tightening monetary policy until he is more confident that US recovery can stand on its own. ‘Once we see the economy is in a self sustaining recovery and employment is beginning to improve and labor markets are improving and inflation is stable and approaching +2% or so….at that point we will begin withdrawing’. That being said, he is aware of the risk that the Fed will act too slowly and allow inflation to get controlled.

  • The BoC held rates steady at +1%. Governor Carney expressed his concern about the strength of the loonie ‘the export sector continues to face considerable challenges from the effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance’. The new reality is a Canadian dollar at or close to parity as the economy adjusts to this paradigm.

  • ADP Private Payrolls rose +217k last month, up from a revised +189k.

  • Fed’s Beige Book suggests that overall ‘economic activity continued to expand at a modest to moderate pace in January and early February’ and that price pressures are increasing. All the districts recorded ‘solid’ growth in manufacturing and retail sales increased in all districts.

  • US weekly claims fell by -20k to +368k, the lowest level in nearly two-years. The less volatile four-week-moving-average now stands at +388k.

  • US ISM non-manufacturing was not much of a surprise, coming in at 59.7 last month, just above market expectations. However, it’s the strongest reading since August 2005. The headline print is proof that the service growth appears to be finally entering a ‘self-sustaining’ pattern.

  • US job market rebounded last month, unemployment rate fell to 8.9%, lowest level in two-years. NFP rose +192k as private sector added +222k new jobs. The January number was revised to show an increase of +63k from a previous estimate of +36k. The Fed still expects unemployment to range from +7.5% to +8% at the end of 2012 as the economy only slowly regains the 8.75m jobs lost.

  • US January factory orders reported a strong +3.1% increase. The mixed data (strong non-durables and weak durables) remains consistent with strength in the above manufacturing surveys.

  • Canadian Ivey PMY continues to express extreme volatility rising to 69.3 last month from 41.4 in January. The correlation between PMI and total remains weak. Market perhaps should be looking at a six-month average.

ASIA

  • NZD Confidence rose to 34.5 last month – a seven-month high – from 29.5 in January.

  • Japan industrial output rose a weaker-than-expected +2.4%, m/m (+4% expected). Retail sales (seasonally adjusted) rose +4.1%, m/m, vs. +2.7%. Manufacturing PMI rose for the fourth-consecutive month to 52.9 in February, with the new orders and export orders again rising significantly. JPY remains very much a play on the US rate outlook and risk aversion trading strategies.

  • Chinese PMI data provided little excitement and little new information. Headline was in line with expectations at 52.2 in January. Analysts are calling for growth moderation and do not expect a change in monetary policy from Beijing any time soon.

  • Dovish comments from New Zealand’s PM Key this week. He said that a RBNZ rate cut priced in by markets for March was in line with his expectations given the economic impact of the recent Christchurch earthquake. Market is pricing a 25bp RBNZ cut on the 10th March.

  • Australian 4th Q GDP was weaker than expected +2.7%, y/y vs. +2.8%. The data still point to higher policy rates and AUD appreciation medium term. Analysts continue to anticipate a strong positive uplift this quarter despite severe flooding and cyclones. The RBA noted that mildly restrictive rates are appropriate. Do not expect them to get too far ahead of the RBNZ.

  • Australia reported a -15.9%, m/m, fall in building approvals in January. Market continues to look beyond January data severely impacted by the floods.

  • China’s non-manufacturing PMI fell to 44.1 last month from 56.4 and inline with seasonal patterns. The PBoC hiking 1-year lending, deposit rates +25bp and reserve requirement +50bp in February has also weighed on consumer sentiment.

WEEK AHEAD

  • Down-under will provide us with the job situation in Australia and a Kiwi rate announcement. RBNZ is expected to ease
  • Canada has housing and building permits, ending the week with trade and employment
  • Inflation indicators come from the Swiss and Chinese.
  • BoE will keep us on our toes mid-week with their MPC rate statement
  • US give us Trade, claims, and will end the week with retail sales data

February 18, 2011

Week in Review-Feb 18th

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , , , , — admin @ 5:16 pm

Risk-sensitive currencies are surviving despite a China reserve requirement ratio hike and confirmation from Egyptian authorities that Iran had formally requested permission to transit the Suez Canal. ECB board member Bini Smaghi comments that the Central Bank will have to watch inflation closely has the ‘bullish hawks’ squeezing the weak EUR bears positions. Investors, in these thin markets are again adding some geopolitical and G20 risk premium to their portfolios. The most logical reason for not wanting the dollar, despite the US inflation components edging higher this week, is the belief that an ambivalent Fed is falling behind the curve. The lack of confidence in the US administration’s ability to deal with its issues has investors questioning owning the reserve currency. Below, we have some of the highlights of the week.


EUROPE

  • Euro-zone Industrial production fell -0.1%, m/m, in Dec. after rising a revised +1.4% in November. The market was seeking a flat reading. IP was flat in Germany and up +3.8% in Portugal, but weaker in Spain (-0.8%) and Ireland (-1.7%). Analysts believe the weather suppressed production in Germany. However, the softness in Spanish and Irish numbers again promotes further EUR negative sentiment.

  • The Euro-group finance ministers met to discuss peripheral financing issues and again did not agree on specific measures. The principal innovation from the meeting was agreement of the size of a future (post-2013) backup facility at EUR 500bn, supplemented by an IMF contribution. No specifics on the mechanics or financing of this facility or clarification on measures to enhance the pre-2013 EFSF. These details will need to wait until March summits, creating risk for peripheral sentiment.

  • News of complications in the restructuring plans of German’s West Lb again heightened Europe’s financial sector concerns.

  • Euro flash GDP came in weaker than expected, rising just +0.3%, q/q vs. a +0.4% consensus. National releases so far across Europe showed a still weak recovery in the periphery, as Portuguese GDP contracted in 4th Q, while the Greek economy showed little sign of improvement. In core Europe, German and French GDP growth was softer in the 4th Q due to adverse weather. However, y/y, German GDP still grew a robust 4%.

  • The ZEW survey in Germany showed strength in the current economic assessment but weaker than expected forward sentiment in February. Next week’s Ifo will give the market a clearer picture of German momentum into March.

  • UK January inflation was +4.0%, y/y, softer than market fears of +4.3%. However, Governor King’s letter to Chancellor Osborne explaining the inflation overshoot of target contained two surprisingly hawkish twists. Inflation will be ‘as likely to be above the target as below it two to three years ahead’ based on market assumptions for the Bank Rate to rise. King also noted that the split in the committee and said that ‘every member of the Committee is determined to act to adjust policy in order to bring the (inflation) risks into balance’. Market is trying to price in a rate hike by May or if not sooner. The inflation report is making it difficult.

  • Surprisingly in the inflation report, BOE pushed its GDP trajectory a bit lower, kept the central projection for inflation in two years’ time under the 2% target, assuming market rates at just 2%, and also assuming that the Bank Rate remains unchanged. This would suggest that King would need to see a significant tightening in the UK labor market and signs of labor regaining pricing power over wages before turning ‘hawkish’.

  • UK Jobless claims unexpectedly climbed +2.4k last month vs. an expected -3k decline. Growth in average weekly earnings also slowed to +1.8% in Dec. from +2.1% previously.

  • UK CBI export orders rose to the highest level since July 1995. The CBI headline improved to -8 in February from -16 last month. The forward looking output expectations component strengthened to 23, the third consecutive monthly gain. This should point to another strong PMI release in February, as our economist noted, and supports the notion that the benefits from a weak GBP are starting to kick in.

  • UK retail sales rebounded sharply last month and although Dec. saw a big downward revision. UK core sales advanced +1.6%, m/m (the biggest in a year), however, Dec. sales was revised lower from -0.3% to -1%, m/m. In nominal terms, sales are up +5.3%, y/y (highest rate since May 2008). This will support the hawks on the MPC.

  • Chancellor Merkel nominated her economic advisor Jens Weidmann for President of the German Bundesbank

  • ECB board member Bini Smaghi said that the Central Bank will have to watch inflation closely to keep rising costs in check. The market has interpreted the comments to signal that the ECB is again looking towards a possible interest rate hike to combat inflation in the coming months.

  • Today and tomorrow will see France hosts the finance ministers and heads of the central banks of the G20 bloc. The ministers will follow up on the pledges made by the leaders at in Seoul in November, particularly regarding exchange rates. The market can expect a communiqué on Saturday. The meeting will discuss global imbalances. There may be agreement on the need for better monitoring of current-account deficits and surpluses.

Americas

  • 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 Jan report. Both the headline and core were revised lower in December and it was just the core print adjusted for the November release.

  • 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. 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.

  • Manufacturing in the NY region grew at its fastest pace in eight-months (+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. 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 FOMC minutes did not sway from recent market opinion. The improved economic views were not enough to change the outlook very much. Near term growth, unemployment and prices all improved, but this strength does not seem to be carried through to the longer term view. We have witnessed the split on the speakers circuit of late, however, consensus does not need to change policy just yet. Some members felt that ‘if more data showed stronger evidence of recovery it could justify changing the pace and size of current asset purchases’.

  • US Jan. housing starts advanced +14.6% to +596k. The aggressive rise easily offset the softer permits surprise of -10.4% declines to +562k. Analysts note that even with the abnormal weather variable and regulatory changes, the print looks ‘consistent with a moderate underlying improvement’. Noting that mortgage rates continue to tick higher, the overall picture though somewhat upbeat will definitely not be leading US economic recovery any time soon.

  • US producer prices advanced for a seventh consecutive month in January (+0.8%). It’s not surprising to see that most of the support came from energy prices (+1.8%). The stronger than expected core-PPI reading (+0.5% vs. +0.2%), coupled with stronger data of late, is expected to eventually put pressure on the Fed’s doves to abandon any plans of further monetary accommodation, like QE3. The market is beginning to expect the debate over monetary policy to ‘return to more normal lines’ in the second half of this year.

  • US industrial production disappointed, declining -0.1% vs. a market expected rise of +0.5%. The surprise is palatable because of December’s upward revision from +0.4% to +1.2%.

  • Canadian December manufacturing data recorded a big miss (+0.4% vs. +2.3%), however the impact was eased by the modest positive prints on capital inflow (+9.63b) and leading indicator data (+0.3%).

  • US inflation (headline CPI +0.4%) is still being bullied by gas prices. Strip transportation (+0.23%) and the gas component out of the report, and we have inflation going nowhere in the US economy (core-CPI +0.2%). It’s not generalized inflation, but, price shock being expressed mostly by commodities.

  • The US jobless claims headline (+410k) happened to give back some of the previous week’s gains. Initial jobless claims increased by +25k. Apart from last week’s +385k print, it is the second lowest level seen this year. The less volatile four-week moving average moved a touch higher to +417.8k and remains supportive of a firmer NFP report for this month.

  • The Philly Fed print blew everyone out of the water (35.9 vs. 19.3). This is strong proof that ISM may not have peaked. The strength can be attributed to a surge in shipments and higher prices. The gain in shipments is on the back of a solid quarter of new-orders.

  • Canadian Wholesale trade (+0.8%) is expected to add to December’s GDP print, while housing starts, hours worked and manufacturing sales will act as a drag. It is the fifth-consecutive month of gains and came with a significant price effect.

  • Canadian inflation disappointed the medium term hawks. In non-seasonally adjusted m/m terms, headline CPI advanced +0.3%, while core remained flat. In a seasonally adjusted m/m terms, headline CPI was up a more modest +0.2%, and +0.1% at the core level. The absence of inflation pressures combined with a mixed growth picture should keep the BoC on hold until late this year.

ASIA

  • Japanese GDP contracted only -0.3% in the 4th Q vs. market expectations of -0.5%. This was largely due to 3rd Q revision to +0.8% from +1.1%, q/q. With yields so low, the JPY will remain vulnerable as other G10 countries begin to tighten.

  • Value of loans in Australian managed to advance +2.5% in Dec. Home loans increased +2.1%, m/m, doubling the +1.0% forecasted. Investment lending was up +3.0%, offsetting the revised -2.0% contraction in Nov.

  • Chinese Jan. trade surplus was +$6.5b (smallest surplus in nine-months). The 12-month rolling surplus fell back to $177b from $185b in Dec. The narrowing surplus was due to record high imports of $144b, up +51.4%, y/y. Exports were up +38%, y/y, to $151b. Strong proof that Chinese demand remains solid.

  • The recalibration of the Chinese inflation release (+4.9% vs. +5.3%) is having only a modest affect on risk and Asian currencies. The lower than expected, but elevated print is proof that rising food, housing inflation, will keep headline inflation elevated and require Chinese policy tightening to be front-loaded. This is obviously a risk to domestic growth, handcuffing the PBOC in being more hawkish on their exchange rate policy.

  • RBA minutes stated 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.

  • The NZ PMI rose +0.6% to +53.7 in Jan. Input prices rose +0.9%, q/q, while output prices only rose +0.2%, with producers not passing on costs in full. The ANZ consumer confidence fell -9% to 108.1 in Feb.

  • China raised reserve requirements by 50bp, accelerating its pace of tightening (+19.5%). The markets appear to be getting more comfortable with the notion that the PBOC can achieve a soft landing without disrupting global markets.

WEEK AHEAD

  • In Europe, German Ifo Business Climate starts the week with UK data dominating, giving us Net Borrowing, MPC meeting minutes and revised GDP. Not to be left behind, the Swiss has the KOF Economic barometer next Friday
  • Main focus for Canada will be Retail sales. In the US, Consumer Confidence, Homes Sales, core-Durable goods, weekly claims and ending with Prelim GDP
  • Down-under, Kiwi inflation starts their week. RBA’s Gov. Stevens delivers a speech ‘Australia and the Resources Boom’ mid-week. Markets will also get a peek at AUD private Capital Expenditure

February 17, 2011

EUR Bulls don’t’ be Fooled

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:08 am

These tight trading ranges has no one chasing their tail. The lack of new directional reasons has taken some of the punch out of the forex market. Bring back volatility, it’s always easier to justify a trading direction excuse. For the moment, investors can expect further window dressing to occur ahead of the G20, like lower dollar yuan fixes by the Chinese, at least they are working on ‘their’ global perception. This morning’s focus will be on US CPI and Philly Fed. It will not be a surprise to see energy prices pushing the headline inflation up, however, the core is not expected to deviate. The Philly print should get a boost from the recent improvement in Empire manufacturing. Expect jobless claims to be weather effected, again distorting claims negatively. The first market move will be the wrong move. Strong US data requires owning those currencies tied to US growth. Look to north and south of its borders. Fed speakers will hog the headlines today and we should be anticipating the same old message.

The US$ is weaker the O/N trading session. Currently, it is lower against 13 of the 16 most actively traded currencies in a ‘subdued’ O/N session.

Forex heatmap

Yesterday’s data has led to further optimism about the pace of the US recovery. January housing starts rise of +14.6% to +596k easily trumped market expectations of +540k. The aggressive rise offset the softer permits surprise of -10.4% declines to +562k. Analysts note that even with the abnormal weather variable and regulatory changes, the print looks ‘consistent with a moderate underlying improvement’. Digging deeper, the rise in starts came fully in multiples (+80%). Single starts fell-1%, to their lowest level in two-years. It’s worth noting that other regional surveys continue to look weak (NAHB) and with mortgage rates continuing to tick higher, the overall housing picture though somewhat upbeat will definitely not be leading US economic recovery any time soon.

Are we seeing inflation yet? US producer prices advanced for a seventh consecutive month in January (+0.8%). It’s not surprising to see that most of the support came from energy prices (+1.8%). Logically, we can conclude that some of the rise in costs is being passed onto the consumer as CPI began its rise hand in hand with PPI last year. We should expect an increase in prices from the consumer’s point of view in this morning data. The stronger than expected core-PPI reading (+0.5% vs. +0.2%), coupled with stronger data of late, is expected to eventually pressure the Fed’s doves to abandon any plans of further monetary accommodation, like QE3 for instance. The market is beginning to expect the debate over monetary policy to ‘return to more normal lines’ in the second half of this year. This line of thinking is being supported by various manufacturing surveys showing considerable concerns about rising input prices.

US industrial production disappointed yesterday, declining -0.1% vs. a market expected rise of +0.5%. However, the surprise is palatable when we take into account December’s upward revision from +0.4% to +1.2%. The main negative in the details was the -1.6% drop in utilities. This weather sensitive category fell in a month of cold weather following a +4.1% surge in December that was also cold. Maybe it was the actual temperature that was behind this huge swing?

The FOMC minutes did not sway from recent market opinion. The improved economic views were not enough to change the outlook very much. Near term growth, unemployment and prices all improved, but this strength does not seem to be carried through to the longer term view. We have witnessed the split on the speakers circuit of late, however, consensus does not need to change policy just yet. Some members felt that ‘if more data showed stronger evidence of recovery it could justify changing the pace and size of current asset purchases’.

The USD$ is lower against the EUR +0.02%, GBP +0.24, CHF +0.28% and JPY +0.16%. The commodity currencies are stronger this morning, CAD +0.24% and AUD +0.05%. The loonie has shrugged off a big downward miss on the December manufacturing data (+0.4% vs. +2.3%) yesterday. Analysts note that the impact was eased somewhat by the modest positive prints on capital inflow (+9.63b) and leading indicator data (+0.3%). The lack of a negative reaction indicates that the currency is been drive by various global themes. Healthier risk appetite, stronger commodity prices, the North American phenomena are all contributing to investors wanting to acquire the CAD on dollar rallies. Stronger domestic fundamentals (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 (0.9850).

The AUD has strengthened to a nine month high vs. JPY with investors betting that the AUD will maintain its yield advantage amid global growth. RBA member comments is also giving the currency a leg up. Philip Lowe stated that ‘global commodity prices are likely to remain elevated for an extended period and tighter monetary policy in the region may be needed’. 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 (1.0038).

Crude is little changed in the O/N session ($84.62 -0.37c). Crude prices are gathering support from various corners of the globe. Fear that supply disruption is on the horizon in the Middle-East continues to provide support on pullbacks. Yesterday’s EIA report showed a smaller than expected increase in weekly stocks. Inventories rose +900k barrels vs. a market expectation of a rise of +2.8m. Gas fared no better, inventories increased by +200m barrels. Analysts had been expecting an increase of +1.7m. The supplies of distillates (heating oil and diesel) happened to decrease by -3.1m barrels vs. an expected decline of -1.1m. On the face of it, the report was bearish. 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. 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 yellow metal is being used as a store of value. Has the commodity peaked or is it simply a short-term correction? Gold continues to attract 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 ($1,379 +$4.20c)

The Nikkei closed at 10,836 up+28. The DAX index in Europe was at 7,415 up+1; the FTSE (UK) currently is 6,082 down-3. The early call for the open of key US indices is higher. The US 10-year backed up 1bp yesterday (3.61%) and is little changed in the O/N session. Treasuries seem to be trading in a vacuum as the market debates the merits of US fundamental data this week and the spread of geopolitical concerns in the Middle-East. Market should expect yields to edge higher on FED optimism that the US recovery is on a ‘firmer footing’.

February 4, 2011

EUR bulls see Red-More blood after NFP?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 10:55 am

Analysts did not change their expectations after ADP, weekly claims or ISM-non manufacturing employment indexes. Consensus remains around +140k. If the headline prints piggyback expectations what happens? Will it be dollar bullish? Will we have to give up some of yesterdays over exuberance in wanting the dollar on the back of Trichet’s ‘broadly balanced’ statement? The headline print could be further complicated by the weather, with dealers likely to blame the heavy snow mid-January if we fall short of expectations. A weak number could stall the USD’s late week rally, however, expect dealers to look beyond that and question the fundamental premise that the US recovery is on strong footing heading into the first quarter. The first move tends to be the wrong move. An expected or a weaker print, the EUR will trade higher, after that, there is the geopolitical weekend risk premium to be priced in and that will require some dollar buying. Week-over-week we have not come very far, we just witnessed a lot of noise.

The US$ is stronger the O/N trading session. Currently, it is higher against 12 of the 16 most actively traded currencies in a ‘subdued’ O/N session ahead of payroll numbers.

Forex heatmap

Trichet got the ball rolling by putting the bears onside and back into the black. He said that ‘inflation pressures driven largely by soaring commodity prices do not yet pose a threat to price stability over the medium-term’. The Euro-zone inflation accelerated to +2.4% in January (above policy maker’s target of +2%). In his communiqué he indicated that inflation could climb further and would be above +2% for most of the year on the back of commodities. The huge EUR sell off was supported by his comments that rates were appropriate and his non-hawkish tone.

The dollar received support from all directions yesterday. The US service sector continues to accelerate, unexpectedly picking up last month (59.4 vs. 57.1). January marks the fifth consecutive month of accelerating activity and the highest index in six-years. It’s worth noting that the services sector accounts for two-thirds of the economy, a third of exports and 80% of all private-sector jobs. Most of the subcomponents posted gains, including new-orders, backlog of orders, current ‘production’ and employment. Digging deeper, most of the headline gain was driven by acceleration in new-orders (64.9 vs. 61.4). Prices continue to gather pace, with the price index jumping to 72.1 from a 69.5 (strongest reading in three-years). The composite manufacturing and non-manufacturing ISM picked up in January, adding+2.3pts to 59.6.  US momentum continues.

There is no denying it, US jobless claims remain volatile. Weekly claims retreated by-42k to +415k, reversing nearly 80% of the previous week’s gain. Analysts note that the steady descent of the less volatile 4-week moving average has been disrupted in three of the past four weeks, putting it at the highest level in three-months. Digging deeper, both the continuing claims (-84k to +3.925m)) and emergency benefits (-130k to +3.653m) experienced declines, a gain of +62k to +898k in the extended benefits category provided some offset. Remember, continuing claims data lags behind initial claims by one week.

Finally, the last of the winning treble, US factory orders also beat expectations in upward revisions (+1.3% from +0.7%) and growth in December (+0.2%). The positives were led by nondurable orders putting in a strong month (+2.3%) and the factory orders report recorded a modest decline of -2.3% in durable-goods compared to the durable orders data last week showing -2.5%. Transportation weighed on the headline just as it did in the durables report. Ex-transportation, new orders were up +1.7%.  The biggest supporter was industrial machinery orders (+27.9%). It seems that businesses must be feeling good.  


The USD$ is higher against the EUR -0.02%, GBP -0.05%, CHF -0.18% and lower against JPY +0.02%. The commodity currencies are stronger this morning, CAD +0.09% and AUD +0.32%. The loonie shuffled to the side lines against the dollar, quietly waiting for this morning’s employment reports and IVY PMI. Yesterday, the CAD outperformed on the crosses after Trichet’s ‘broadly balanced’ statement had the EUR in a tailspin and risk aversion supported the dollar on further Egyptian chaos. Anything that indicates that US growth is strong, like yesterdays services data, tends to positive for the Canadian growth outlook and that’s because of the country’s proximity and close trading ties with its largest neighbor. Earlier this week Finance Minister Flaherty indicated that Canada will have a ‘challenge’ with jobless numbers. Canadian employment numbers are out this morning. The market expects the Canadian economy to add another +15k jobs after December’s stellar +34k release. Concerns about the over valued Canadian dollar, according to Governor Carney, waning government capital spending, a cooling housing market, and moderating retail sales will eventually combine to limit overall GDP growth this year. These are all stellar reasons for BOC to be concerned, as a ‘persistent strength in the currency is a threat to economic expansion’. With strong risk appetite in vogue, the loonie has cautious buyers on dollar rallies as we all wait for NFP (0.9891).

The AUD again gathered strength overnight, despite the Chinese New Year holiday, in response to a surprisingly hawkish Statement of Monetary Policy from the RBA. The RBA tweaked this years forecasts, but, crucially, left its medium-term forecasts for inflation and GDP unchanged at rates that point to further policy tightening over the next year. Policy makers are ‘looking through the near-term flood affect, focusing on continued tightening in the labour market and the investment surge. Pricing for the RBA over the next year rose another +5bps to +37bps adding to strong gains yesterday. Some geopolitical reduced risk sentiment has pared the AUD advance. It’s difficult to sell AUD on the back of the statement as it removes any chance whatsoever of a rate cut. The market looks for better levels to own the currency as investors look towards the ‘carry trade’ (1.0180).

Crude is higher in the O/N session ($90.73 +15c). Oil retreated as a stronger dollar curbed the investment appeal of dollar-denominated commodities. Crude’s inability to break through key technical resistance above also provided pressure. Trichet’s ‘broadly balanced’ views had the EUR bulls seeing red. The market has been worrying about the surety of supplies from the Middle-East. In fact, supplies so far have not been disrupted. Investors should realize that the Suez, even it were blocked for a some time, would only disrupt transportation routes and have little affect on overall supply. However, geopolitical risk premium will be continued to be priced in on pullbacks, its only natural human nature. Last weeks EIA report revealed another build up in inventory. Crude stocks grew by +2.6m barrels to +343.2m barrels, which are +4.3% above year-ago levels. The market had expected oil stocks to grow by +3m barrels. Gas was the big surprise, growing by +6.2m barrels, or +2.7%, to +236.2m barrels. That was +3.6% above year-ago levels. The four-week gas demand was +0.6% higher than last year, averaging nearly +8.7m barrels a day. Refineries ran at +84.5% of total capacity, a rise of +2.7%. Finally, distillate inventories (diesel and heating oil) fell by -1.6m barrels to +164.1m. Despite OPEC believing that supply and demand is ‘in balance’, the unknown factor, Egypt will continue to provide support somehow for prices. The country is a significant oil producer and a rapidly growing natural-gas producer with approximately +6% of global daily oil production running through the region. However, fundamentally there is far more oil in storage, more fuel capacity and more idle oil wells to limit a much stronger market rally. It’s fear that generally exaggerates the price.

Gold finally found that geopolitical risk premium support yesterday, with prices jumping to a two-week high as the mounting conflict in Egypt boosted demand for the metal as a haven. The commodity has been on the back foot this month on lackluster physical buying as the commodities appeal deteriorated and on hedge fund liquidation triggering vulnerable support levels. Before tensions in the Middle East, investors had been shying away from the commodity and sought ‘price appreciation’ in equities. Fundamentally, the bulls are trapped in this month’s price action with the trend turning against them. Natural physical buying has been less than modest with the commodity off to its worst start in 14-years. Has the gold peaked or is simply a short-term correction? With the Euro-zone being able to sell their bonds, there’s less of a flight to quality. However, the Middle-East scenario is attempting to break that train of thought as investors seek some shelter ($1,349 -$3.60).

The Nikkei closed at 10,543 up+112. The DAX index in Europe was at 7,217 up+24; the FTSE (UK) currently is 6,014 up+31. The early call for the open of key US indices is higher. The US 10-year backed up 5bp yesterday (3.53%) and is little changed in the O/N session. The US curve has shifted slightly higher, pushing 10-year yields to the highest level in two-months, as yesterday’s data showed further strength in services industries. The sector covers +80% of the US economy. The market is waiting for this mornings NFP report for some support. Do we buy or don’t we? There is an appetite to own FI on pullbacks as unrest in Egypt ‘is the sort of event risk that is difficult to hedge and there will always be a percentage who will require some weekend geopolitical insurance. Investors continue to demand compensation for the prospect of accelerating inflation and on speculation the US may struggle to fund its deficit. Higher yields benefit the dollar but will upset Bernanke.

December 21, 2010

O (No!) Canada!

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 2:43 pm

This morning, Canadian CPI figures came in less than expected prompting further selling in the Loonie.  The headline figure came in at 2% vs. an expectation of 2.3%, both of which were lower than the last reading.  With slowing inflation taking place, it should keep the BOC on hold with rate hikes for a while.

Meanwhile, the British pound is under pressure this morning as UK net borrowing rose to a record high, coming in at 22.8 billion pounds vs. an expectation of around 16.8 billion.  This does not bode well for the UK heading into next year, and tomorrow’s minutes from the BOE rate policy meeting are likely to confirm.  Austerity measures set to kick in may be starting on shakier ground than expected.

In the EU, Spain’s borrowing costs increased as investors are beginning to balk at the prospect of a Spanish debt crisis.  Portugal’s credit rating is also under review as sluggish growth is problematic.  However, reports are that China may have come to the rescue as they claim to have taken “concrete action” to help limit the debt crises.

Minutes from the RBA rate policy meeting show that they have judged current rate policy as “mildly restrictive” which could keep inflation in check as household demand lessens.

Japan kept rates unchanged overnight at .1% and left their commitment to purchase assets and the size of that plan unchanged.

So this morning is setting up to be driven by the fundamentals with mild risk appetite to start the day, though there is still considerable risk in the market from the Korean shenanigans and the weather that has rocked Europe and impacted commerce.

In the forex market:

Aussie (AUD):   The Aussie is higher and back near parity with USD as the minutes from the rate policy meeting showed a strong economy that has a mildly restrictive monetary policy, with rates at 4.75%.  With global economic risk still heightened, reduced demand should keep inflation subdued.  (Click chart to enlarge)

audusd1221.JPG

Kiwi (NZD):   The Kiwi is also higher this morning ahead of tomorrow afternoon’s GDP report.  GDP for the quarter is expected to have slipped to .1%, after the earthquake that rocked NZ slowed housing and manufacturing growth.  Nevertheless, should inflation pick up early in 2011, then we could see the RBNZ move on rates.

Loonie (CAD):  The Loonie is lower across the board as CPI data showed slowing inflation figures.  However, retail sales figures came in better than expected so moderate growth going forward should keep the BOC on the sidelines unless commodity inflation picks up due to a weak US dollar.  (Click chart to enlarge)

usdcad1221.JPG

Euro (EUR):  The Euro is higher despite rising borrowing costs in Spain as perhaps the “Chinese backstop” is giving investors more confidence.  German consumers were less confident than expected, as the potential for further credit downgrades (Portugal) is high.

Pound (GBP):  The Pound shares the booby prize with the Loonie this morning as much larger than expected borrowing has spooked the market.  With austerity measures set to begin in January, increased debt burdens contribute to the mess, though this may be a case of “get it while you can”.  Tomorrow’s minutes from the rate policy meeting should show no change in sentiment, as the BOE has gone “all in” on the thesis that austerity will reduce demand and hence inflation.  Time will tell.

Dollar (USD):   The Dollar is mostly lower this morning as risk appetite has increased with stocks and commodities higher to start the morning.  There’s no real data due for the US today, but tomorrow will bring the personal consumption data, as well as existing home sales.

Yen (JPY):   The yen is mixed this morning, showing strength against the N. American currencies but weakness against its Pac Rim counterparts.  The fact that the BOJ did not expand asset purchases to weaken the Yen has provided it with strength, though that sentiment could change if tonight’s exports figure comes in lower than expected.

While things are seemingly slowing down headed into the Christmas holiday, there is still a ton of action in the forex market.

Give yourself a gift this holiday season and learn how to trade the forex market!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here!  Don’t miss out on the world’s fastest growing market!

none

EURO-three strikes your out

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 11:12 am

With Moody’s promoting contagion fears by constantly credit threatening, has the EUR eyeing new-lows. It will be easily achieved in this illiquid, disinterested market, that’s focused on the weather channel. The chances of receiving Euro-periphery clarity before year-end looks unlikely. We probably would get better odds that the SNB would step into the currency markets, exploiting thin end-of-year liquidity to halt the currency’s rise than anything of meaning to support the EUR. Investors continue to flock to own the CHF due to the lack of progress in periphery issues. With spreads widening, liquidity remaining thin, will promote some irrational unexplained market movements. Try not to over think, the game plan remains the same.

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’ O/N session.

Forex heatmap

The EUR has too many strikes against her not to trade lower. Continued worries in the Euro-zone that the regions leaders still are not doing enough to prevent contagion fears has led to the recent strength in the CHF and the dollar. At the Euro summit last week, leaders agreed to form a permanent sovereign debt resolution mechanism after 2013, but failed to expand the current bailout fund. Another waste of Euro time and resources as personal agendas continue to cloud a solution.

The USD$ is lower against the EUR +0.18%, CHF +0.52%, JPY +0.05% and higher against GBP -0.15%. The commodity currencies are stronger this morning, CAD +0.03% and AUD +0.20%. The loonie continues to modestly underperform against its major trading partners despite the stronger fundamentals out of the US. It weakened for a third consecutive day yesterday as commodity and equity prices fluctuated, Canadian wholesale prices disappointed and ahead of perceived weaker CPI data this morning. Canadian policy makers remain weary of Europe’s funding challenges, US growth risks and with benign domestic Canadian inflation worries will not pressurize the BOC to tighten monetary policy any time soon. This month the loonie has gained +0.5% outright vs. its largest trading partner. The currency has only witnessed modest strength compared to other growth sensitive currencies as Governor Carney highlights the dangers of a persistently strong domestic currency. The loonie continues to struggle within striking distance of parity because of the strong corporate interest to own dollars there. Better dollar buying remains on dips.

‘Monetary policy was judged to be mildly restrictive’ according to the RBA minutes last night, the reason Governor Stevens left rates unchanged two week’s ago (+4.75%). Household ‘restraint, if it continued, would provide some scope for investment to rise without causing aggregate demand to grow too quickly and inflationary pressures to build’ according to policy makers. Members ‘observed that the restraint being shown by households, and the pickup in the saving rate, would help reduce the medium-term risk from household balance sheets after a long period when debt ratios had risen, and would help to make room for the expected increase in investment’. The AUD got a lift from Chinese remarks stating that they had taken steps to help the European Union with its debt problems, supporting demand for higher-yielding assets. A higher risk appetite is spurring a shift of money to the Aussie and other commodity sensitive currencies, temporarily at least. The currency has been trading under pressure outright as US Treasury yields climb, narrowing the yield advantage of assets down-under. Year-to-date, the currency has climbed +9.7% (second biggest winner after JPY), on prospects for commodity-driven economic growth and the yield advantage of the nation’s debt compared with other developed markets. Investors remain better buyers on dips, planning an assault on parity again (0.9951).

Crude is higher in the O/N session ($89.66 +29c). Oil is trading close to a two-year high as cold weather boosts demand for heating fuels in Europe and North America. Investors continue to speculate the US economic recovery will accelerate next year, again boosting fuel demand. Last week’s EIA report showed that stocks plunged -9.85m barrels to +346m vs. an expected decrease of -2.5m barrels. Also aiding prices was imports falling-15% to +7.69m barrels, the lowest level in two years, and refineries operating at +88% of capacity, the most in three months. It’s worth noting that inventories along the Gulf Coast (where 50% of US refiners are located) fell -9.02m to +173.4m as the region levies taxes on year end supplies. The large draw down is mostly due to end of year inventory management at refineries. Coupled with OPEC announcement to maintain their production quotas and the PBOC refraining from tightening monetary policy is supporting the market, probably to the year end at least. OPEC believes that supply and demand are ‘in balance,’ and expect demand growth will slow as the global economy struggles to recover, amid ample supplies. Technically, expect the market to meet resistance again at the $90 high printed earlier this month.

Gold prices continue to fluctuate as the EUR slumps vs. the dollar amid mounting Euro-zone debt concerns. Investors have also been booking year end profits following a +25% rally this year, temporarily eroding demand for the precious metal as an alternative asset. The stronger US data of late points to a recovering economy with a low inflation rate. However, thus far, the commodity remains supported on deeper pull backs by the persistent concern over Euro debt levels. Even though the one direction trade feels overdone, investors continue to hold gold as a hedge against a currency debasement and long-term inflation. The Euro-zone backdrop is trying to put a floor on metal prices on demand for a haven. The commodity is poised to record its 10th consecutive annual gain ($1,388.90 +$2.80c). Technical analysts believe that gold will outshine other precious metal in 2011 and peak somewhere above $1,600 in 2012.

The Nikkei closed at 10,370 up +154. The DAX index in Europe was at 7,058 up+39; the FTSE (UK) currently is 5,932 up+41. The early call for the open of key US indices is higher. The US 10-year backed up 2bp yesterday (3.34%) and is little changed in the O/N session. Treasuries erased yesterday’s early morning gains after US equities recovered from the lows of the day, diminishing the refuge appeal of government debt. Previously, the demand for government safety increased on the back of South Korean military drills and on the Fed’s buyback schedule. Liquidity remains a premium as we enter the holiday stretch. The 2/10’s spread has widened to 278bp. The market seems cautious about anything good for bonds ‘coming out of the tax-cut extension’. With the US economy continuing to improve and the fear of deflation gradually disappearing will eventually push yields higher.

March 8, 2010

Greek debacle on hold, EUR and ‘risk’ in vogue

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 3:52 am

After Friday’s pleasant US employment surprise and a market starting to discount Greece with its European support is pushing ‘risk’ back in vogue. Regulators are look at implementing restrictions for speculation in CDS’s and preventing a ‘run’ on a country. It’s an interesting situation in Europe, you have a vocal Sarkozy stating that Europe is there for Greece, while Chancellor Merkel refuses to give the ‘green light’ on financial aid to the country, not that they have asked for any just yet. This storm is far from over. On the other side of the world, the governor of the PBOC ‘hinted’ this weekend that China could abandon the unofficial dollar peg, which he said was a ‘special policy designed to weather the financial crisis’. Why could we not all have a ‘magic currency’?

The US$ is weaker in the O/N trading session. Currently it is lower against 14 of the 16 most actively traded currencies in a ‘subdued’ trading range.

Forex heatmap

The US employment report was a pleasant surprise Friday, stronger than consensus (-36k vs. -75k). Is the better than expected outcome reflecting stronger fundamentals or a smaller than assumed weather impact? It is most likely a wee bit of both. Without the weather variable, we may have been looking at a positive number. It’s nice to see that the unemployment rate was unchanged (+9.7%) for a second consecutive month. Digging deeper, the average weekly hours for all workers fell just -0.1-hour to 33.8, while the average factory workweek fell -0.4-hours. Average hourly earnings for all workers edged up a smaller than expected +0.1% and the y/y held steady at +1.9%. There was a substantial increase in the number of workers employed part-time reversing much of the Jan. decline. Worth noting that the manufacturing sector managed to post a second positive print, the government sector again pared positions. Much has been written on the report, but Mar. numbers could bring in a positive print.

The USD$ is weaker against the EUR +0.27%, GBP +0.38%, CHF +0.28% and JPY +0.18%. The commodity currencies are also stronger this morning, CAD +0.13% and AUD +0.55%. The loonie managed to appreciate to its highest level in 2-months and capped a winning week after a stronger than expected NFP report. North American ‘growth’ is always bullish for this commodity driven currency. This Friday we get to see the Canadian employment report. Last week, the BOC did what was expected of them, by keeping rates on hold. It seems that they are potentially ‘behind the curve’. Their following communiqué was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The BOC said that ‘inflation and economic output have been higher than policy makers expected’. But, also repeated to stand pat through June unless the ‘current inflation outlook shifts’. Governor Carneys rhetoric justifies the bull’s positions and has certainly caught some technical positions flatfooted. The trend remains your friend. expect better buying of the currency on USD rallies in the medium term.

The AUD rose to its strongest print in four weeks as demand for higher yielding assets increased after the Euro-zone signaled their support for Greece. It seems that risk is back on and in vogue ahead of the Australian employment report later this week. Last week the RBA hiked rates by +25bp to +4%. Governor Stevens said ‘rates should be closer to average’, which policy makers have indicated may be 75bp higher than the current +4%. He also went on to say that the decision ‘indicated the economic figures outweighed concerns about global sovereign debt risks, which helped convince the RBA to stand pat last month’. The currency has advanced +42% vs. the USD in the past year, making it the best performer among the most-traded currencies. Analysts believe that the ‘the biggest jobs boom in more than 3-years and a surge in business confidence suggest Australia’s economy is already growing at or close to trend, after escaping recession during the global crisis’. Reading between the lines, we should expect the RBA to hike with a ‘gradual approach’. Now that risk is back on, expect better buying on pull backs (0.9114).

Crude is higher in the O/N session ($82.18 up +68c). The bulls are back in town. Crude surged higher on Friday after the surprisingly stronger than expected US employment report. Optimism that fuel demand will climb in the world’s biggest energy consuming country pushed the black-stuff higher. At one particular point after the NFP release the commodity managed to surge +2.3% higher, teasing technical analysts into justify their graphs pointing towards a $90 print. The market will want to witness a few elevated closes before buying into their theory, especially ahead of the OPEC meeting on Mar. 17th. Already the Saudi Arabia’s King Abdullah has targeted $75 as a fair price for consumers and producers. Last week’s EIA report showed that refinery utilization rates are at their highest since Oct., a sign that gave the bulls the green light to keep the commodity’s prices somewhat elevated. Utilization rates increased +0.7% to +81.9% last week. The headline print for crude climbed +4.03m barrel (more than three-time’s estimates). The market is now expecting the higher utilization rate to quickly ‘mop up excess supplies’. The total US fuel demand averaged over the month was +19.3m barrels (+3% y/y). Digging deeper, other fuel stockpiles came in close to expectations, with gas up +800k barrels and distillate inventories (heating oil and diesel), down -800k. It seems that this market may be supported ‘on air’ rather than the fundamentals. Technical traders love this. With momentum and an investor attitude that the economic situation will not get much worse, will support commodities on pull back. Now we return our attention back to Greece and the EU fallout.

The ‘yellow metal’ ended higher on the week and rallied again on Friday, on concerns that Greece and its sovereign debt woes boosted the buying of the metal as a hedge against currency volatility. By day’s end, with the dollar paring some of its EUR gains also provided some commodity based support. In Feb. the commodity managed to print its first monthly gain since Nov. European sovereign debt issues and a ballooning UK deficit with the potential of ‘hung’ parliament after the next general election has had investors seeking some sort of portfolio surety. Bears should be wary of Cbanks wanting to add the commodity to their reserves ($1,140).

The Nikkei closed at 10,585 up +216. The DAX index in Europe was at 5,874 down -3; the FTSE (UK) currently is 5,595 down -4. The early call for the open of key US indices is lower. The US 10-year backed up 8bp on Friday (3.68%) and is little changed in the O/N session. Treasury prices plummeted lower after the jobless report. Traders see the Fed’s exit path shortening after the surprising release that basically confirms that the US has side-stepped a depression. Also it seems that the ECB faith in Greece has given dealers an excuse to liquidate more of their positions to allow them to take down supply this week (3’s $30b, 10’s $21b and 30-years $13b).

March 1, 2010

Greece will test the EURO even with a rescue package

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 3:59 am

There are rumors that the EU is working towards a package to help Greece avoid ‘the contagion’ spreading out to the rest of the European Union and the EUR. Germany and France are considering a plan, with a bail out costing in excess of 30 billion EUR’s. The plan would involve the sale of Greek bonds to French and German organizations. What is not clear is the timing. What about the EUR? It could be a positive until a ‘solution’ to the problem is found. Or on the other hand, it could do a lot of damage for the currency. What ever happens, the EUR is being severely tested. There is only one question, will it survive?

The US$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Most of the trading on Friday was month-end rebalancing, pushed around mostly by screen watching as liquidity was low, partially due to the weather. US GDP have investors with their fingers once again on the ‘risk on button’, growth and higher yielding currencies are beginning to perform. This is a big week for numbers ending in Fridays NFP data which could be another eye opener. Capital markets will most definitely be taking directions from the EU as the budget deficits lay in their court.

The USD$ is currently is higher against the EUR -0.14%, GBP -0.24%, CHF -0.18% and higher against JPY -0.48%. The commodity currencies are stronger this morning, CAD +0.22% and AUD +0.10%. The loonie is a growth sensitive currency and Friday’s data managed to push the ‘risk on’ again button for investors. Month-end rebalancing with CAD dollar demand also provided support for the currency that continues to trade in a well defined range. The currency ended up rallying +1.8% in Feb. as oil, one of its largest export commodities, rallied +7%. On Friday, fundamental data showed that the Canadian current account deficit was narrowing (-9.8b vs. -13.8b), a small enough reason to buy the domestic currency, temporarily at least, as the market had expected a greater narrowing. The loonie remains contained in its tight 4c trading range. A renewed demand for the USD for surety reason will threaten the range and possible open up an assault, technically at least, on this year’s currency low. Until the market sees some positive assurance on European sovereignty debt woes, sub-consciously, the dollar feels a safer bet. Expect better USD buying on pull backs.

Will they or won’t that? They have surprised all of the last time out, the RBA. In the O/N session, the AUD has managed to advance against 14 of its 16 closest trading partners ahead of tonight’s anticipated rate hike by the RBA to 4.00%. Last month was the first monthly gain against the USD since Nov. after reports showed that lending rose in Jan. and business investment rebounded in the 4th Q. The currency was understandably under pressure as Greek concerns reversed investor risk appetite. Governor Stevens and his policy makers have been rather vocal about this rate announcement. They said that further ‘increases to the benchmark interest rate are likely if the economy improves’ (3.75%). It’s difficult to bet against the currency. According to the RBA, ‘the economic situation is stronger than expected and it is natural for monetary tightening’ to take place currency. The currency declines have been tempered by Governor Stevens’ remarks that the Australia’s benchmark rate was below normal. He said borrowing costs for ‘businesses and households were still about 50 and 100 basis points below average’. The rhetoric looks like its giving the green light to Capital Markets to expect another hike. Let’s see what this evening brings us (0.8976).

Crude is higher in the O/N session ($80.42 up +76c). Oil rallied on Friday, just under +2%, as the preliminary US GDP report gained by the most in 6-years (+5.9%), beating all expectations. With month end portfolio rebalancing requirements and a market starving for liquidity, the black-stuff managed to make an assault on the $80 psychological resistance level. Is this sustainable? All depends on the dollar and investor’s appetite for risk. Are they convinced that fundamentals are turning the corner? With the dollar threatening to advance even further for surety reasons, the black stuff may come under renewed pressure. Last weeks EIA inventory report, on the face of it, was not that bullish for commodity sensitive currencies. A rise in imports managed to push the stockpiles higher while at the same time the US’s distillate inventories print fell. Also surprising was that gas managed to retreat too. Crude stocks increased by +3m barrels to reach a total +337.5m, w/w. The EIA supplies were forecasted to increase by +1.9m barrels. Digging deeper, imports of the black-stuff has continued its recent upward trend, rising +536k barrels, w/w. In contrast, distillate stocks (heating oil and diesel) declined by -600k barrels to +152.7m. It’s worth noting that refineries were running at +81.2% of capacity, up +1.4% vs. an expected ‘no change’. Risk aversion trading strategies and employment fears should continue to price out any speculative element. For market direction, we are now depending on equities and investors ‘on’ again ‘off’ again risk appetite.

The ‘yellow metal’ ended last week on a high note, pushing prices higher to print the first monthly gain since Nov. Weaker US data tried on a number of occasions last week to push the commodity lower, to test the monthly support lows. However, gold advanced on speculation that concern over Greece’s debt will increase demand for bullion as an alternative to holding currency. For most of last month, a stronger greenback had curbed the demand for commodities, but it’s the big picture concerns about deepening EU deficits becoming contagious that is supporting the yellow metal on ‘much deeper’ pull backs. Various think tanks believe that with the sovereign-debt problems, in the end, gold will be the only hard asset speculators will want, the ‘ultimate currency’ ($1,121).

The Nikkei closed at 10,172 up +46. The DAX index in Europe was at 5,674 up +76; the FTSE (UK) currently is 5,386 up +32. The early call for the open of key US indices is higher. The US 10-year eased another 2bp on Friday (3.63) and is little changed in the O/N session. The ‘dovish’ Fed comments last week have managed to push the US yield curve lower. Treasuries advanced as weaker than expected economic data and the threat of credit-rating downgrades for Greece encouraged the demand for the safety of US government debt. The theme again is ‘flight to quality’, no matter how much government debt needs to be issued. European uncertainty has been increasing the risk aversion trading appetites. Look for better buying on pull backs, even if the product looks expensive on the curve.

Older Posts »

Powered by Efacilitators Hosting