The market has aggressively been playing the risk reward trade at these levels by selling CHF aggressively and waiting for the imminent announcement. The threat of a deep recession in the problem Euro-zone is only making this trade more difficult to stomach. The region has yet to feel the true impact of the implemented austerity measures to reduce their budget deficits. Euro banks tightening their lending policies to both corporate and private interest over the last three months is putting a tighter noose around mainland Europe. The ECB’s increased liquidity policy is not working.

All of this is pointing towards the Euro sentiment plummeting again-CHF and JPY positive. The Franc’s outright performance against the dollar is not exactly helping the SNB. Bernanke’s dovish tone has driven the yield spreads between the US and Swiss even lower and made the CHF more attractive. It seems that all the cross bounces are giving investors better opportunities to own the currency or pare their offside positions outright. Intervention again is the risk, however, the rumored $20+ “yards” of stop-loss orders below the cap figure should be cleaned out if the SNB wants to teach the market an expensive lesson.

Below are some other highlights of the week:

EUROPE

• EU: The dollar opened the week much stronger against EM and G10 currencies. The risk selloff started during the Asia session, as markets re-opened after the Lunar New Year holiday.
• EU: Italy issues +€7.5b in 2016-2022 bonds ahead of their largest redemption for 2012 (February 1st +EUR25b). The auctions were well received, however, post interest saw the ECB buying product.
• EU: Portugeuse 5-year product manages to record the highest yields for the post-Euro era of +22.69%, fueled by the turn of events in Greece. The market perception seems to accept a Greek default as a given.
• EU Summit: A leaked German proposal for Greece to cede control over its budget in return for financial aid “casted an uncertain outlook on PSI negotiations.” Market continue to question “the soundness of the recent risk rally.”
• WSJ reported that a Greek PSI deal ‘may’ be concluded this week. This of course is subject to Greece securing a new financing program from the IMF and EU.
• EU: Mixed European confidence surveys contributed to softening risk appetite at the beginning of the week. Services confidence improved while industrial confidence failed to pick up from the recent lows.
• EU: Unemployment in the Euro-zone hits a record high +10.4%.
• EU Leaders: They have agreed to accelerate the set up of a full time +Eur500b rescue fund (EMS and EFSF) and backed a deficit control treaty. Initially response saw European sovereign markets responding well to the summit outcome, with Italian 10-year yields reversing about half of the previous sessions rise.
• EU: The brief Euro-summit has been viewed as a success relative to modest expectations, allowing the market to eliminate some event risk for the euro system.
• GRE: Greece PSI remains elusive and is continuing to generate market anxiety.
• CHF: The SNB’s December balance sheet report confirms that policy makers used FX swaps to add CHF liquidity during the course of December last year (+CHF 20b).
• CHF: The SNB’s balance sheet also revealed small changes to the FX reserve breakdown by currencies (EUR’s share from +54.8% in Q3 to +52.1% in Q4-in favor of dollars and GBP). At current levels, risk reward favors long EUR/CHF.
• UK: The market is looking for QE expansion next week in the UK, mostly on the back of money growth remaining very weak. M4 ex-OFC contracted -0.7%, m/m. Net consumer credit declined -£0.4b, while mortgage approvals at 52.9k disappointed vs. the consensus for 54k.
• NOK: Norway’s credit rose +6.7%, y/y, above the consensus forecast for +6.5%. Retails sales growth remains solid in annual terms at +2.6%, y/y. The futures market expects the Norges bank to remain resilient as data support call for rates “on hold” at the next meeting.
• NOK: The Norges Bank will purchase foreign exchange equivalent to +NOK350m per day for the Government Pension Fund Global in February. This amount is not large compared to the historical average.
• EU: Stronger PMI’s in Europe and China allowed risk sensitive deals to pressure the dollar and yen mid-week.
• EU: The Euro-zone PMI was revised a tad higher from the initial estimate to 48.8. Digging deeper, the German PMI was also revised higher, while the Italian PMI at 46.8 printed well above the consensus forecast of 45.3. Spain’s was not to be left behind, its PMI rose to 45.1 from 43.7. The data suggests that the business climate is at least stabilizing in the region, including in the systemically critical periphery countries.
• Scandinavia, UK and CE3 PMI’s increased strongly. In the UK perhaps further QE becomes questionable? Swedish and Norwegian prints swung back above 50 (expansion).
• CHF: In contrast, Swiss PMI decreased sharply to 47.3. They also managed to report a weak retail sale (annual growth rate dropped to +0.6% from +1.8%).
• EU: Consistent rumors that a Greek PSI deal has been struck (with a 72% NPV haircut) has pushed investors to strap on more risk. What about the collective action clauses?
• EU: There are reports that the PSI deal is being held up by differences between Germany and the IMF. When the “collective actions clauses” are being enforced we will get to hear more from the disgruntled creditors. The various posturing by interested parties is in danger of making this the worlds longest ‘expected’ announcement.
• EU: EU Juncker says that Greek PSI talk are ultra-difficult. The lack of tangible progress in the talks seems to be taking a toll on currencies geared to Europe – CE3, Scandis, ZAR, and TRY.
• CNY: Premier Wen has indicated that China is still researching how to participate in the EFSF and ESM program. China supports European effort to stabilize Euro and it may increase their participation via the rescue funds to help resolve the European debt crisis.
• CHF: Bernanke’s dovish tone has driven the USD/CHF yield spreads even lower and is making the CHF more attractive. These cross bounces are giving investors better opportunities to own the currency or pare their offside positions outright. Intervention again is the risk.
• EU: Spain and France managed to issue bonds, at the front end and in the belly of the curve, to strong investor demand.
• GBP: UK construction PMI fell to 51.4 in January from 53.2 (below consensus for 52.5). Manufacturing and services surveys will carry a larger weight for the next BoE meeting (February 9). Analysts are looking for an expansion in the QE program next week based on weak hard data in Q4 and very soft money growth.
• EU: The Euro area services PMI was revised fractionally lower from the flash estimate, it now reads 50.4 vs. 50.5.
• EU: Greek PSI talks continue, with markets increasingly ignoring statements suggesting progress is being made. Latest reports indicate a deal could be submitted to the EU and IMF over the weekend, and approved at a Eurogroup meeting next Monday.
• GBP: The UK Services PMI rose to 56.0 in January from 54.0 in December, the strongest level since March 2011.Next week we get to see if extra QE is to be applied. Unchanged BoE policy or a signal to an end of QE would clearly be positive for GBP as a EUR alternative.
• EU: Euro-zone retail sales fell for a second month in December, down -0.4% m/m and -1.6% y/y. Retail sales is again strong proof that the EUR’s 17-nations are threatening to return to recession, if they are not already there. In the 27-member European Union, sales rose +0.3%; largely due to a +0.4% rise in the UK and a +0.7% uptick in Poland.

]]> http://forexbl.com/2012/02/03/week-in-fx-jan-29-feb-3/feed/ http://forexbl.com/2012/02/03/land-of-the-rising-yen/ http://forexbl.com/2012/02/03/land-of-the-rising-yen/#comments Fri, 03 Feb 2012 16:33:10 +0000 admin http://forexbl.com/2012/02/03/land-of-the-rising-yen/ Japan’s Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing. He and his policy makers can breath a small ‘sigh-of-relief’ after NFP, the market decided to sell the JPY outright! How long is this going to last? These specific market moves are providing better levels to own the currency. Markets have taken the Ministers comments in their stride. Intervention is a rising risk for USD/JPY shorts if the pair falls towards that psychological 75 benchmark. It seems that exporter related sales will continue to cap any upside potential for the dollar. So, fears that the Greek Prime Minister may resign, the uncertainty that the Dutch Government may not want to write down loans to Greece will again make the yen more attractive.

Below are some other highlights of the week:

Asia

• CNY: Chinese markets resumed trading following the week-long Lunar New Year holidays. Premier Wen said that the Chinese government will enhance the elasticity of the CNY exchange rate in both directions.
• JPY: Japanese Finance Minister Azumi warned against a renewed rise in the yen and vowed to take firm steps against excess volatility and speculative moves in the FX market.
• JPY: Japans December IP rebounded +4.0%, m/m, following the -2.7% fall in the previous month (the ‘flood’ knock effect-on from Thailand).
• JPY: Yen remains sensitive to G10’s yield compression.
• KWN: Korean IP growth fell to +2.8%, y/y in December from +5.8% in November. This is very much inline with soft export growth in December.
• SGD: Singapore’s unemployment rate remained at +2% in Q4, despite weakness in IP and GDP growth for the same period. This suggests that the tightness in the labor market is partly structural.
• CNY: China’s manufacturing PMI rose +0.2pt to 50.5 (higher than the consensus forecast of 49.6). Importantly, the PMI was much stronger than the seasonal pattern for a -0.7pt fall. New orders up +0.6pt to 50.4 while inventory fell -2.6pt to 48.0. Export orders fell -1.7pt to 46.9 while input prices rallied +2.9pt to 50.0. The data reduces the scope for monetary easing.
• KWN: Korea’s CPI inflation fell to +3.4%, y/y, last month (foretasted for +3.6%). Core-inflation also slowed to +3.2%, y/y, from +3.6% in December. Digging deeper, exports fell -6.6% in January (first negative growth in three-years), providing a – $2.0b trade deficit. Note: Asian data may be distorted by the lunar New-Year celebrations.
• IDR: Indonesia CPI inflation eased to +3.7% in January as expected. Core-inflation was broadly unchanged at +4.3%, y/y. The futures market expects their Central bank to ease monetary policy further, cutting rates -25bps to +5.75% next week (February 9). Export growth fell to +2.2% in December while import growth surged to +24.3%. The data has narrowed the trade surplus. Is their economy in the first stages of over heating?
• TWD: Thai CPI inflation fell to +3.4%, in January (as expected). Futures market again expects the Bank of Thailand to cut policy rates by another -50bps to +2.5% by the end of Q2.
• JPY: Comments from Japanese officials are finding it difficult to halt the yen gains. The perception that JPY is one of the most liquid currencies in the world is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that it’s only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.
• CNY: China’s non-manufacturing PMI fell -3.1pts to 52.9 in January (less than expected). The HSBC Services PMI was unchanged at 52.5 for a third straight month in January.
• JPY: Japan Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing.
• INR: RBI’s Deputy Governor Gokarn said that the central bank may buy dollar rupee to inject INR liquidity.

]]> http://forexbl.com/2012/02/03/land-of-the-rising-yen/feed/ http://forexbl.com/2012/01/27/week-in-fx-europe-jan-22-27/ http://forexbl.com/2012/01/27/week-in-fx-europe-jan-22-27/#comments Fri, 27 Jan 2012 17:50:45 +0000 admin http://forexbl.com/2012/01/27/week-in-fx-europe-jan-22-27/ Plans for the Greek Private Sector Involvement remain a source of considerable uncertainty for peripheral markets, and the inconclusive result of negotiations over the past few days will leave the EUR and risk complex vulnerable to a large correction. However, the EU economic and monetary commissioner has indicated that authorities are very close to concluding their talks, either later today or over the weekend. Will the market add to the risk trades that have been applied since the Fed, earlier this week, increased its “free money” term length by 18-months? So far it’s been too tempting for the market to refuse and risk is being added accordingly.

The mixed signals from the Euro-zone debt market means investors need to tread with caution. Thus far, ECB liquidity has boosted demand for Spanish and Italian debt. The same cannot be said for Portugal. Peripheral bond yields have resumed their collapse this week, with Italian 10-year yields down -18bp to +5.84%, a long way from that +7% imploding benchmark. Portugal remains the outlier, with yields still under upward pressure. Perhaps if China invested in Europe we would not care so much?

Below are some other highlights of the week:

EUROPE

• EUR: Greek talks were expected to show something of substance last weekend. Not unexpected, this week began with Greece failing to yield agreement on the public sector involvement. Negotiators have been squabbling over the coupon that restructured bonds will carry.
• EUR: The single currency opened lower in the Chinese New Year and despite all the negatives, soared through last weeks highs allowing the techies to start talking about outside weekly reversals as the currency remains elevated.
• EUR: Analysts expect that even a successful conclusion to discussions would still leave the actual degree of private sector uptake unclear. EUR bears are still looking for that top, as default risks will not fully ‘abate’.
• FRF: French January business confidence surprised weak, falling to 91 from 94. The market had been expecting a small uptick, especially after the German IFO and EU PMI prints.
• EU: Portuguese debt worries have resurfaced to add to Greek default concerns.
• EU: Finance Ministers reject Greek debt swap offer, coupon demands too high.
• S&P’s Chambers: Greece ‘In all likelihood’ is down to a selected default. However, this default is not expected to destroy the credibility of EMU.
• EU: Euro-zone flash PMI’s came in firmer than expected with the composite back above 50 after four-months in contraction territory. This suggests that the region ‘should avoid a collapse in output’ and another quarter in the GDP ‘red’. Manufacturing PMI rose to 48.7 from 46.9 and services PMI rose to 50.5 from 49.0.
• GER: Their numbers were strong with manufacturing PMI at 50.9 and services PMI at 54.5. Big picture, data should help the Scandis and CE3 currencies.
• ESP: Spain saw strong demand at its bill auction. Spanish Treasury sold +EUR2.51b of 3-and 6-month bills. The bid-to-cover was high in both issues.
• EU: With Greek PSI negotiations inconclusive, the IMF is pushing for the ECB’s to take a haircut along with PSI as a means of distributing losses back to governments. However, the ECB and German coalition remains opposed to taking a loss on ECB holdings. Expect the heavy peripheral issuance schedule to remain a key factor in keeping the bulls on their toes.
• GER: German ifo surprised higher with the expectations component at 100.9, above the consensus for 99 and up from 98.6 previously (the third consecutive rise) and suggests a GDP growth rate of +0.5% q/q.
• GBP: UK GDP contracted more than expected in Q4, down -0.2%, q/q, vs. -0.1%. The weakness was driven mainly by soft industrial production in October and November and poor services at the start of the quarter.
• GBP: BoE minuets deferred the decision on more QE until next month, as expected. The assessment on the economy was somewhat less pessimistic as members judged the most serious downside risks have abated. However, others understood that the “risks of undershooting the target meant an expansion of the QE program is likely to be required”.
• FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
• HUF: Hungary sold HUF +48b worth of bonds (+13b more than expected). This would suggest that market perception of HUF risk has improved. PM Orban has softened his stance on recent legislation and indicated that he is willing to adjust their policies in order to win financial backing from the EU and IMF.
• SEK: Manufacturing confidence surprised soft, falling to -14 vs. -11. Analysts believe that weak growth and the recent sharp moderation in core-inflation allows for a rate cut by the Riksbank at the next meeting.
• EU: Peripheral bond yields have resumed their collapse, with Italian 10-year yields down -18bp to +5.84% (Friday Morning). However, Portugal remains the outlier with yields still under upward pressure.
• EU: On Friday, Rehn indicated that PSI talks are very close to conclusion, either today or over the weekend.
• EU: Euro area M3 growth has slowed significantly to +1.6%, y/y, from +2.0%.
• CHF: Swiss KoF leading indicator dropped to -0.17 this month from +0.01 in December (ninth consecutive monthly decline and the first negative reading in two years). However, the release is at odds with the recent upward surprise in the PMI back above 50.
• Fitch: Downgrades Belgium, Italy and Spain.
• PLN: Poland recorded above consensus 2011 GDP growth of +4.3%, y/y.
  Should continue to attract foreign capital and support the PLN.

]]> http://forexbl.com/2012/01/27/week-in-fx-europe-jan-22-27/feed/ http://forexbl.com/2012/01/27/us-gdp-hidden-surprise-supports-qe/ http://forexbl.com/2012/01/27/us-gdp-hidden-surprise-supports-qe/#comments Fri, 27 Jan 2012 17:50:23 +0000 admin http://forexbl.com/2012/01/27/us-gdp-hidden-surprise-supports-qe/ “Key” surprises have ended up being the theme of this week. The Fed has extended the term of free money by 18-months and the door is now ajar for further QE. It’s the “when” that many appear to disagree with. It seems unlikely to be applied until after operation twist ends in June. QE2 and the ‘twist’ arrived after extensive debates and many months of weak data. In the medium term, both equities and commodities should continue to benefit from the idea that the Fed has better than even odds of performing additional QE.

US GDP, despite growing at a solid +2.8% in Q4, provided its surprise in the details. The mix of growth suggests weakness this quarter and beyond. The bulk of last quarter’s growth came from the inventory sector (+2% of the top-line). Real GDP ex-inventories were a poor +0.8%, the weakest pace in a year.

Below are some other highlights of the week:

AMERICAS

• CAD: Retail Sales rose a tad more than expected in November (+0.3% vs. +0.2%). However, it was the smallest of four consecutive monthly gains, on increased sales of gas and clothing. Sales rose to +$38.7b slowing from a revised +0.9% increase in October. Sales volume at +0.5% was also the fourth straight increase.
• USD: Obama’s campaign begins. In the State of the Union address he called for the creation of a trade enforcement division to investigate unfair trade practices, an end to tax deductions related to US company closures of facilities in the US for relocation abroad. He also announced plans to provide financing for US firms competing with overseas firms receiving state financing.
• USD: December Pending Home Sales (-3.5% to 96.6) fell from its 19-month high print the prior month. The results were +5.6% above the December 2010 point.
• USD: Weekly crude inventory report increased by +3.6m barrels last week to +334.8m barrels.
• FOMC: The Fed surprised markets mid-week by extending its contingent commitment to low policy rates through 2014 (an extension of 18-months). In their transparency approach, the FOMC central projections showed only 6 of 17 committee members anticipate no easing before 2015.
• USD: December durable goods orders firm with a +3% increase and a +2.1% ex-transport print. This supports recent manufacturing survey’s that the sector is regaining some momentum.
• USD: As expected, seasonally adjusted initial unemployment benefit claims contracted upwards last week to +377k, up +21k w/w. The less volatile four-week average stands at +377.5k. Continuing claims now at +3.55m is more consistent with a +8.6% unemployment rate.
• USD: December new home sales unexpectedly fell -2.2% to +307k, well below consensus estimates of +320k. It’s disappointing data on the back of other recent housing indicators having been positive. The data suggests that the market cannot be confident of a strong and sustained boost to GDP despite lower mortgage rates.
• USD: First reading of the US Q4 GDP did not live up to hype. Economists expected +3% and they got +2.8%, however, still a notable improvement from the +1.8% in Q3 print.
• USD: The belief that more jobs are to be had pushed the UoM consumer sentiment higher to 75 from 74. Sentiment has been expanding for five-months; stronger payrolls lead to stronger sentiment.
• USD: UoM inflation expectations edged higher to +3.3% at the end of January from +2.7% earlier in the month.

]]> http://forexbl.com/2012/01/27/us-gdp-hidden-surprise-supports-qe/feed/ http://forexbl.com/2012/01/23/us-debt-prices-on-the-back-foot/ http://forexbl.com/2012/01/23/us-debt-prices-on-the-back-foot/#comments Mon, 23 Jan 2012 17:32:31 +0000 admin http://forexbl.com/2012/01/23/us-debt-prices-on-the-back-foot/ Weekend discussions between Greece and its private lenders did not result in agreement as many had anticipated. At the same time, it has not been able to derail global equities entirely. It seems that investors have shunned the safety of US treasuries for a fourth straight session on hopes that a ‘Hail Mary’ deal by the Greek government is imminent.

With the beginning of the Chinese New Year holiday affecting market liquidity, some market moves have been slightly overextended. The US yield curve has steepened +3bps with 2/30’s moving out to +289bps, as longer dated securities lead the fall. Prices have also been pushed lower temporarily by German comments on the possibility of running the ESM and EFSF programs parallel. US 10’s are now trading on top of its first resistance point of +2.06%. The 10/30’s spread traded at +189bps, the widest point in six-weeks.

In this morning’s session, treasuries temporarily found a bid ahead of this week’s FOMC meet starting tomorrow and concluding on Wednesday. Policy makers are to introduce “major transparency” as an innovation process with individual FOMC members providing projections of the Fed Funds rates and each to explain the quantitative factors behind the projections.

Also putting pressure on prices will be the US treasury department coming to market this week to sell a total of +$99b in notes (2’s, 5’s and 7’s). First up will be tomorrows +$35b two-years, another +$35b of five-years are set for Wednesday, and finally, +$29b seven-year notes will take place on Thursday. Dealers expect this weeks issue’s to receive ‘extra’ concession, as China, a non-starter, will be celebrating New Year and providing little support. Now its back to ticker watching ahead of a Euro press conference scheduled for 20:30 GMT.

]]> http://forexbl.com/2012/01/23/us-debt-prices-on-the-back-foot/feed/ http://forexbl.com/2012/01/16/compass-directions-monday-16-january-2012/ http://forexbl.com/2012/01/16/compass-directions-monday-16-january-2012/#comments Mon, 16 Jan 2012 13:11:29 +0000 admin http://forexbl.com/2012/01/16/compass-directions-monday-16-january-2012/ Standard and Poor’s has cut France’s AAA credit rating and the credit rating of eight other eurozone nations. S&P’s Managing Director of European Sovereign ratings has said that European leaders are divided and are falling behind in their response to the debt crisis. Austria also lost its AAA rating while Italy, Portugal, Spain and Cyprus had their ratings cut by two notches. The cut in credit ratings may reduce the ability of the bailout fund to raise capital to finance aid and exacerbate the region’s troubles. The EUR fell to its lowest levels since August 2010 at 1.2624 today and, not surprisingly, is the worst performing currency so far this year. The common currency is still well above its average of 1.2050 since its inception and clearly has much more room to fall. Pimco’s Bill Gross hasn’t helped with the sentiment in Europe by saying that a default in Greece is imminent.

The elephant in the room, China, may also cause dismay in the markets this week as GDP may rise at its slowest pace since the second quarter of 2009 amid increasing signs that that the world’s second largest economy is slowing with exports rising the least in two years and inflation easing to a 15 month low. Furthermore, the International Monetary Fund is due to release its revised global projections this week which are expected to show zero growth in Europe and a significant reduction in the fund’s most recent estimate of 4% for the global growth in 2012. The Australian dollar opens the week down recovering the 1.03 level in Europe after trading as low as 1.0250 during the Asian session.

Asian equity markets recorded a poor start to the week as the move by S&P to strip France of its top credit rating weighed on investor sentiment. The Nikkei fell 1.43% to 8,378 while the Hang Seng lost 1% to close at 19,012. However, the underlying trend in US corporate earnings remains good as the US Citigroup Economic Surprise Index, a measure of how much reports exceed or miss economists experts rose to a 10 month high this month. Today, the US is on holiday. Early in Europe, the markets are relatively flat as the markets await the results of the latest bond auction in France where it will look to raise as much as EUR 8.7 billion. Tomorrow, the EFSF will look to raise EUR 1.5 billion.

Commodity prices recovered from the falls experienced last week. WTI crude prices rose by more than 0.7% to $99.40 as Iran said that a blockade of crude supplies through the Strait of Hormuz would cause a shock to the markets that “no country” could handle. This followed warnings from Iran’s OPEC Governor that any embargo of Iranian oil would be a “dangerous political game. Precious metals rose with gold gaining 1% to $1,646 while silver finished 1.4% higher at $29.92. Soft commodities were mostly closed for trading while copper gained 1%.

AUD/USD performed extremely well for the last 4 weeks since finding its support level at 0.9860 on Dec 15. However given Friday’s ratings downgrade of the Eurozone nations, the Aussie may use this as an excuse to retrace back towards 1.0230 in the very short term (50% retracement from 1.1079 to 0.9386).  Immediate resistance is seen at 1.0380 with short term stops above this level.  If this happens and momentum continues we may see 1.0432 as a good opportunity to go short.  Until Tuesday’s key GDP out of China, AUD/USD may range trade between 1.0348 and 1.0230.  In the meantime note the symmetrical triangular formation taking place – breakout trades may be fruitful with tight stop losses.

As noted above EUR/USD has an average rate of 1.2050 since its inception so Euro may still have a few more hundred pips on the downside to go supported by negative fundamentals and that’s not hard to find.  Our view is to sell on rallies with tight stops above the resistance trend line.  For the immediate future R1 and R2 is seen at 1.2680 and 1.2720 respectively.  For the strong hearted, support may be seen at 1.2586 (21 Aug 2010) to form a double-bottom but you may have to bite the bullet with that trade.  With the US market celebrating Martin Luther King Jr’s birthday and as the market awaits for more reasons to sell the Euro we may see the range for the US time zone to be 1.2580 – 1.2680.

GBP/USD has been declining consecutively for the last 4 weeks and one wonders where it will stop, at least for the short term. If last week is anything to go by this could be at 1.5230.  Again with the US session not in play due to the holiday GBP/USD may take a breather today to range trade between 1.5230 – 1.5330.  On an hourly chart Cable seems to claw back well after initial sell off which suggests that players are not giving up on the Pound as yet.  However on the daily chart, it seems more prudent to sell on rallies…just like its neighbour.

USD/JPY looks solid at 76.60 due to intervention threats by Japan and the top side limited by events of the world.  Perhaps opportunity could be gain by going with the flow and trading like a beginner.  Until new information is known and if we must trade this pair, look at support at 76.50-76.60 and resistance at 77.20.  Perhaps like many patient traders staying on the sideline may be a good idea for this pair for the moment and look for break outs on the downside instead (even with the threat of intervention).

Below are some other highlights of the week:

EUROPE

• EUR: Merkel and Sarkozy turned up the pressure on Greece and institutional creditors; warning that a loan backed by EU and IMF is on hold until Greece enacts budget reforms and concludes talks over reducing its debt load.
• GER: sold +EUR3.9b t-bills at a negative yield (-0.122%) for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region. Investors are prepared to pay when lending in exchange for the assurance of getting their capital returned.
• EUR: Mainland data continues to under perform. German November, IP was down -0.6%, m/m, below the -0.5% consensus following weak orders data last week.
• CHF: Retail Sales rose +1.8%, y/y, in November, well above the consensus forecast for +0.2%. Including the stronger PMI print last week points to “a somewhat less negative growth affect from the stronger currency.” Lack of a deflationary shock will have policymakers keeping the 1.2 floor in place awhile longer yet.
• CZK: Czech inflation fell slightly to +2.4%, y/y, from +2.5%, below the consensus for a stable reading. The market expects this to “tame the recently more concerned language from the central bank”.
• FRF: French manufacturing production for November unexpectedly posed a +1.3%, m/m, gain. The October release was also revised higher, to +0.2% from flat. The BoF business sentiment indicator rose to 96 from 95-better data may suggest that the “fears of recession across the region are not materializing.”
• Fitch rating agency has indicated that a French downgraded is unlikely this year.
• EUR: Reports indicate that progress is being made towards a private sector participation agreement.
• SEK: IP dropped -1.9%, m/m/ in November, much worse than the -0.8% expected. The annual growth rate stands at +0.2%, y/y, down from +4.5%. Digging deeper, orders were less encouraging, down -4.8% on the month following a -2.3% drop in October. The manufacturing intensive Swedish economy is becoming more affected by growth concerns in core Europe, making the SEK more vulnerable.
• NOK: CPI surprised weak at +0.2%, y/y, down from +1.2% in November and below the consensus expectations for +0.5%. Electricity prices were the main downward driver. Analysts note that the inflation reading is much weaker than forecasted by the Norges Bank and would suggest another rate cut.
• EU: Parliament group objects to a new draft of euro fiscal treaty; it needs more democratic controls and should do more to promote growth.
• EU Said to Weigh Iran Oil Embargo Exemptions for Member States.
• ITL: The Social Democrat Party Calls For an exit From EUR and EU.
• FRF: Rumor denied by French Treasury that the country was to be downgraded within a tight time range.
• FITCH: Rating agency calls for ECB to step up SMP program and increase its sovereign debt purchases in order to prevent a ‘cataclysmic’ collapse of the currency.
• GER: Germany auctioned +EUR4b of five-year debt on Wednesday. The new 2/2017’s OBL auction received solid bidding. A total of +EUR9b bids were received, well above the average of +EUR6.8b at the last three-issues, resulting in a cover of 2.84 times.
• GBP: UK trade deficit widened to -£8.6b in November. With the negative trade balance remaining disappointingly wide suggests a slog to rebalance the UK economy.
• EUR: German GDP grew +3%, y/y, in 2011, implying a small GDP contraction of -0.1, y/y, in the fourth quarter. Germany is not the European “Atlas”!
• EUR: Strong demand at auction for Spanish bonds and Italian bills. The Spanish treasury successfully auctioned +EUR9.98b of government bonds, double the amount it had planned. Italy sold 1-year bills at +2.735%, vs. +5.952% on December 12. In total, Italy successfully sold +EUR12b T-bills, meeting its target, and at the same time seeing its borrowing costs plunge in the country’s first debt sale of the year.
• ECB: After keeping rates on hold, Draghi expressed his satisfaction that the auctions support the view that the provision of 3-year liquidity via LTRO’s is improving the financing backdrop for the peripheral sovereigns. With no indication of a rate change gave the single currency a boost.
• ECB Press conference: Monetary policy to remain accommodative with policy makers ready to act.
• ECB: Substantial downside risks to economic outlook persists.
• ECB: Price developments to remain in line with price stability mandate.
• ECB: Euro austerity measures are weighing on the output of the region.
• ECB: Aim is to anchor inflation at or close to +2% over the medium term-it’s required to make its contribution to economic growth and job creation in the region. December inflation was at +2.8%.
• BoE: they kept rates on hold at +0.5% and kept its target for its asset purchase program at +GBP275m.
• EUR: Significant risks remain ahead with the Greek PSI talks and the completion of the haircut by months end.
• EUR: Regional data continue to come in better than feared. The Euro-zones November IP fell -0.1%, m/m. It was better than the -0.3% forecasted. However, negative revisions to the October reading leave growth momentum poor.
• ITL: Their IP grew +0.3%, m/m beating all expectations of -0.5%.
• GBP: UK data continue to point to a weak 4Q GDP number. Their IP surprised weak in November, falling -0.7%, below the consensus forecast for -0.1%, m/m. However, manufacturing production happened to be less disappointing, falling -0.2%, m/m.
• SEK: Inflation decreased to +2.3%, y/y, in December from +2.8%. The core-inflation registered a substantial fall to +0.5% from +1.1% and it is now at its lowest levels in nearly seven-years. Low inflation and weak growth point to a risk of a more dovish Riksbank.
• ITL: Italian bond auction disappointed after their strong Bill issue. 3-year product saw a relatively poor bid-to-cover ratio of 1.2 times, while the 6-year came in at 1.6. Demand was greater for a smaller +4.25% coupon issue and a total of +EUR4.75b were allotted across all auctions.
• S&P Rating: Several euro zone countries could face imminent downgrade by S&P as early as today
• EU: Euro-zone posted an unexpected trade surplus surprise. The market had been forecasting a deficit of-EUR1b; however, the region registered a surplus of +EUR1b. A surge in exports helped the Euro-zone post this major surplus.
• EU:IIF Says Greece Talks ‘Paused’ After No ‘Constructive’ Response

]]> http://forexbl.com/2012/01/13/week-in-fx-europe-jan-8-13/feed/ http://forexbl.com/2012/01/11/german-debt-well-received-no-effect-on-eur/ http://forexbl.com/2012/01/11/german-debt-well-received-no-effect-on-eur/#comments Wed, 11 Jan 2012 10:20:38 +0000 admin http://forexbl.com/2012/01/11/german-debt-well-received-no-effect-on-eur/ European currency markets are range bound with investors weighing up decent European data and mixed economic news, along with the prospect of key, market moving developments tomorrow including sovereign issues by Italy and Spain and an ECB rate announcement. The EUR is being held captive by market offers in the early 1.28’s and bids in the 1.2730’s. So far January is in danger of recording the slowest opening period for currency volatility for a New Year on record!

Germany auctioned +EUR4b of five-year debt earlier this morning while Spain and Italy will offer as much as +EUR17b in the remainder of the week. The new 2/2017’s OBL auction received solid bidding. A total of +EUR9b bids were received, well above the average of +EUR6.8b at the last three-issues. The resulting cover of 2.84 times is thus about twice the average an is the strongest in eight years. It’s no wonder we saw negative German bill yields earlier in the week! It seems that the market does not believe in an ECB rate move Thursday after last months launching of various new policy measures. The central bank is expected to stay on hold until March with no new announcements on ECB bond buying. Draghi and company are only expected to launch QE when there are “clear signs of deflation risk.”

Germany’s economy grew in line with expectations last year, as robust domestic consumption and exports offset the “affect of the Euro-zones ongoing debt crisis.” Despite finishing out the last quarter with a weak close, contracting a supposedly -0.25%, the Euro-zone’s largest economy grew +3% in price adjusted terms in 2011, following growth of +3.7% in 2010 and a -5.1% contraction in 2009. Germany is no “Atlas,” the Euro-zone remains in danger of heading into a mild recession.

In North America, the markets will shift their focus to the details of the Fed Beige Book and on speeches by Atlanta Fed President Lockhart (voter) and Philadelphia Fed President Plosser. So far this week Fed speakers, Williams and Pianalto, have given the impression that further QE operations are possible if US data turns softer again and that there is little inclination to even consider tightening among the committee despite the recent improvement in data. Lack of movement this week has been a tough pill to swallow, however, investors remain in the game.

Other Links:
Bunds and Treasury Yields Narrow

For further proof of this, look no further than the fact that another record was set for banks leaving money on deposit with the ECB, which is a sign of fear.  Another measure of this fear is that German short-term debt no has a negative interest rate.  In other words, there is so much demand for German paper that people are willing to pay to lend them money, and not receive interest.  This last happened here in the US back in 2008 during our banking crisis so the similarities are telling.

Enter Merkozy to the rescue!  Today’s meeting between the French and German leaders is intended to hammer out the details of the fiscal rules that they agreed to last month and what further actions need to be taken in order to save the Euro.  Among these topics are the potential to increase the size of the bailout facility and how big of a haircut Greek bondholders may be required to take.  This could exceed the 50% losses that have already been discussed.

Meanwhile, the ECB is going to have their interest rate decision on Thursday and the speculation that Monti may try to emulate Bernanke’s maneuvers is starting to pick up, as there is some thought that further monetary accommodation could be necessary to stave off a liquidity crisis.  This doesn’t seem likely at this point and perhaps they will wait until the news out of the Merkozy meeting which they claim is going well at this point.

There is not a lot of news coming out of the US this week on the data front, but we are going into stock earnings season, which could have an effect on the US dollar if the correlations remain in tact.  But recently, it seems as though the correlations have been breaking down a bit so the impact could be lessened.

The Japanese markets were closed overnight for a holiday, and in the Euro zone German trade balance figures came in much better than expected on stronger exports, though industrial production figures came in worse than expected.  Later this week we will get the German Real GDP growth report on Wednesday, followed by CPI data and the rate policy decision on Thursday.

The Bank of England will also be releasing their rate policy but are not expected to have made a change.  Recall that the ECB decision also comes with an accompanying statement, whereas the BOE decision does not.

In Switzerland, the unemployment rate ticked slightly higher than expected to 3.3% from an expected 3.2% and retail sales figures came in better than expected showing a gain of 1.8% vs. the expectation of a .2% gain.  This comes in the midst of a minor scandal involving the currency trading prowess of the SNB honcho Hildebrand’s wife, which is reminiscent of Hillary Clinton’s commodities trading activity.  While this is likely much ado about nothing, there could be changes coming at the SNB.

Lastly, the Fed has the “dog and pony” show this week with a lot of Fed speak from various officials in different venues essentially trying to allay fears but you never know when one wrong statement can send the markets spinning.

And of course let’s not forget the noise coming out of Iran and the potential oil supply disruptions that they threaten but likely won’t act on.  Should the scene over there escalate then we could see oil spike higher.

So the markets are flat to slightly higher this morning, with US dollar weakness and the Euro bouncing off of lows that saw the Euro trade a 1.26 handle vs. USD.  If the Merkozy meeting produces positive results than this could quell the markets for a bit as the focus shifts to corporate earnings and the potential good economic story taking place here in the US.  So it may be risk-on again until the weekend where investors may want to lighten the load.

]]> http://forexbl.com/2012/01/09/forex-market-outlook-1912/feed/ http://forexbl.com/2012/01/06/yen-and-aussie-have-their-own-battle/ http://forexbl.com/2012/01/06/yen-and-aussie-have-their-own-battle/#comments Fri, 06 Jan 2012 15:45:55 +0000 admin http://forexbl.com/2012/01/06/yen-and-aussie-have-their-own-battle/ Finance Minister Azumi says Japan is closely watching the EUR’s decline versus the Yen. Currently, the market is seeing more Yen intervention dangers if the declines accelerate much further. Today’s move is putting pressure on the BoJ/MoF to try and curb their currency strength. The market should not expect the recent US criticism of Japanese intervention policy to influence any of Japan’s decisions. A stone throw away and we have the AUD starting to look like “more” than just a commodity currency. Its strong performance against the EUR indicates that Aussie can be seen as a key alternative as more investors shy away from EUR looking for yield and growth alternatives.

Below are some other highlights of the week:

Asia

• CNY: Manufacturing PMI rose +1.3pts to 50.3 last month. Analysts believe this as a “relatively weak print given mildly supportive seasonal patterns in December”. Manufacturers tend to push production higher ahead of their Chinese New Year long holidays. Data does not seem to be easing the anxiety about a hard landing. On the flip side, non-manufacturing PMI rebounded to 56 in December from 49.7 in November; and suggests that the services sector is holding up relatively well.
• SGD: Advanced estimate for Singapore’s Q4 GDP showed a +4.9%, q/q. An annualized fall, largely in line with the consensus forecast. However, the government revised down Q3 growth to +1.5%, q/q.
• INR: The finance ministry announced an easing of restrictions on qualified foreign investor (QFI) direct investment in Indian equities. QFI’s will be allowed to invest directly in the equity market in two weeks time.
• THB: Thai inflation for December came in at +3.5%, y/y, well below market expectations for +4.0%. The market believes that the Thai Central Bank intervened this week.
• AUD: Aussie trade surplus fell to AUD1.4b in November, weaker than the AUD1.7b consensus. Both import and export momentum has slowed. The October trade balance was revised lower to AUD1.4bn from AUD1.6bn. Their largest trading partner, China saw imports from Australia on a three-month/three-month basis slow from the October peak of +28% to +9% in November (Analysts think it could be due to a lagged effect).
• PHP: The country’s inflation eased more than expected, supporting the case for a rate cut. The inflation rate slowed to an 11-month low in December of +4.2%, much below the +4.7%.Market expects the central bank to cut its policy rate by -25bps in Q1.

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