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Sunday, September 13, 2009
The biggest problem with Forex Trading is making a trade when you are not sure. Should you do it ? Should you do it now? Should you wait?
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New Zealand Dollar strength may very well be the currency’s own undoing
0 comments Posted by shuseel at 7:40 PMThe New Zealand dollar traded virtually lock-step with global financial risk appetite, dropping through early-week S&P 500 tumbles but finishing higher on the subsequent recovery. We had previously forecast that the infamous “September Effect” could lead to a sharp correction in major equity indices and similar pullbacks in the New Zealand Dollar, but the lack of follow-through in early-week declines suggests markets are unwilling to force major breakouts in key asset classes. We expect the New Zealand Dollar will continue to track moves in the S&P through the week ahead, but it will likewise be critical to watch for reactions to the upcoming Reserve Bank of New Zealand interest rate announcement.
The RBNZ is very widely expected to leave interest rates near lows of 2.50%, but the New Zealand Dollar could quite easily move on unexpected commentary following the decision. The recent Reserve Bank of Australia rate announcement quickly pushed the Australian Dollar lower as the RBA showed little indication it was likely to raise interest rates through the foreseeable future. We get the sense that the RBNZ could likewise dump cold water on rate hike speculation and force similar pullbacks in the yield-sensitive NZD. Though recent economic data shows that domestic activity is generally recovering, the RBNZ tends to place considerable weight on the New Zealand Dollar exchange rate in setting interest rates. Given that the NZ$ trades near 2009 highs, import prices will likely remain low while export industries may lose competitiveness in the global market.
New Zealand Dollar strength may very well be the currency’s own undoing, and it will be very important to watch any RBNZ references to the NZD exchange rate following the upcoming interest rate announcement. Otherwise, it remains critical to watch for any substantial shifts in financial market risk sentiment.
The RBNZ is very widely expected to leave interest rates near lows of 2.50%, but the New Zealand Dollar could quite easily move on unexpected commentary following the decision. The recent Reserve Bank of Australia rate announcement quickly pushed the Australian Dollar lower as the RBA showed little indication it was likely to raise interest rates through the foreseeable future. We get the sense that the RBNZ could likewise dump cold water on rate hike speculation and force similar pullbacks in the yield-sensitive NZD. Though recent economic data shows that domestic activity is generally recovering, the RBNZ tends to place considerable weight on the New Zealand Dollar exchange rate in setting interest rates. Given that the NZ$ trades near 2009 highs, import prices will likely remain low while export industries may lose competitiveness in the global market.
New Zealand Dollar strength may very well be the currency’s own undoing, and it will be very important to watch any RBNZ references to the NZD exchange rate following the upcoming interest rate announcement. Otherwise, it remains critical to watch for any substantial shifts in financial market risk sentiment.
Saturday, September 12, 2009
The US Dollar dropped like a stone on its way to fresh 2009 highs against nearly all major forex counterparts
0 comments Posted by shuseel at 8:34 PMThe US Dollar dropped like a stone on its way to fresh 2009 highs against nearly all major forex counterparts, breaking its long-standing trading range against the Euro in fairly dramatic fashion. The first full week of post-summer trading finally brought the sustained price moves we have long been waiting for. FX Trading volume increased notably through mid-week trade and fueled US Dollar losses, but fundamental “justification” for renewed US Dollar weakness was far less clear. According to FXCM execution desk data, open interest in the Euro/US Dollar jumped by as much as 20 percent before the week was through. A busy economic calendar in the week ahead suggests that the US Dollar may remain volatile, and it will be critical to see whether its recent downtrend may be sustained.
Demand for the safe-haven US Dollar dropped sharply on the week as the US S&P 500 and other major risk barometers reached fresh year-to-date peaks, and overall momentum favors USD losses. Indeed, forex options markets show that option traders are betting on further US Dollar weakness against almost all major counterparts. Yet those same options prices show short-term volatility expectations have dropped to their lowest levels in the past year. The fact that US Dollar weakness has not coincided with a general rise in forex volatility expectations suggests that currencies could return to sideways trading, but this will likewise depend on developments in financial market risk appetite. The 20-day correlation between the Euro/US Dollar and S&P 500 currently trades almost exactly at record-highs.
To that effect, traders should keep close tabs on S&P 500 reactions to the coming week of key US event risk. Highlights will likely include the historically market-moving Advance Retail Sales, Consumer Price Index, and Treasury International Capital System reports. Consensus forecasts call for a noteworthy pickup in domestic Retail Sales, but the expected surge is mostly a function of the highly-publicized “Cash for Clunkers” program that strongly boosted Auto Sales. Traders should instead watch for surprises out of the “Ex Autos and Gasoline” figure—predicted to gain a paltry 0.1 percent on the month. If numbers prove better than expected, the S&P will likely rally and the US Dollar may actually decline.
The following day’s Consumer Price Index numbers are less likely to force major US Dollar volatility, but traders should nonetheless keep an eye out for any especially large deviations from consensus expectations. The true fireworks may come on subsequent Treasury International Capital System (TICS) data. Analysts have long argued that massive US fiscal deficits could harm the US Dollar as the government floods markets with debt securities. Yet recent data shows that foreign demand for US Treasury bonds remains robust, and the US Dollar has thus far averted disaster. It remains important to watch for continued demand for Treasuries, and any disappointments could further fuel dollar losses.
Demand for the safe-haven US Dollar dropped sharply on the week as the US S&P 500 and other major risk barometers reached fresh year-to-date peaks, and overall momentum favors USD losses. Indeed, forex options markets show that option traders are betting on further US Dollar weakness against almost all major counterparts. Yet those same options prices show short-term volatility expectations have dropped to their lowest levels in the past year. The fact that US Dollar weakness has not coincided with a general rise in forex volatility expectations suggests that currencies could return to sideways trading, but this will likewise depend on developments in financial market risk appetite. The 20-day correlation between the Euro/US Dollar and S&P 500 currently trades almost exactly at record-highs.
To that effect, traders should keep close tabs on S&P 500 reactions to the coming week of key US event risk. Highlights will likely include the historically market-moving Advance Retail Sales, Consumer Price Index, and Treasury International Capital System reports. Consensus forecasts call for a noteworthy pickup in domestic Retail Sales, but the expected surge is mostly a function of the highly-publicized “Cash for Clunkers” program that strongly boosted Auto Sales. Traders should instead watch for surprises out of the “Ex Autos and Gasoline” figure—predicted to gain a paltry 0.1 percent on the month. If numbers prove better than expected, the S&P will likely rally and the US Dollar may actually decline.
The following day’s Consumer Price Index numbers are less likely to force major US Dollar volatility, but traders should nonetheless keep an eye out for any especially large deviations from consensus expectations. The true fireworks may come on subsequent Treasury International Capital System (TICS) data. Analysts have long argued that massive US fiscal deficits could harm the US Dollar as the government floods markets with debt securities. Yet recent data shows that foreign demand for US Treasury bonds remains robust, and the US Dollar has thus far averted disaster. It remains important to watch for continued demand for Treasuries, and any disappointments could further fuel dollar losses.
Reserve Bank of Australia keep an eye out for potentially market-moving of Australian Dollar
0 comments Posted by shuseel at 8:28 PMThe Australian Dollar survived a week of fairly disappointing economic data to finish near yearly highs against its downtrodden US namesake. Historically market-moving Retail Sales and Employment Change reports both proved sharply worse than expected, but the data releases only managed to slow down the Aussie’s rallies against the US Dollar. Of course, sharp rallies in key risky asset classes mitigated the effects of the disappointments; the US S&P 500 registered fresh 2009 highs on several different occasions. Whether or not risky asset classes can maintain their impressive trajectory remains the key question in our Australian Dollar outlook, but traders should likewise keep an eye out for potentially market-moving Reserve Bank of Australia rhetoric through early-week trade.
Previously buoyant RBA interest rate expectations led the yield-sensitive Australian Dollar higher against major forex counterparts, but a recent pullback in forecasts led to commensurate AUD weakness. At their peak, Overnight Index Swaps were pricing in an approximate 50 percent chance that the Reserve Bank would raise interest rates as soon as October. Yet official commentary following September’s rate announcement clearly stated that current interest rates were “appropriate” and instantly poured cold water on interest rate speculation.
Markets will get a closer look at the Reserve Bank’s reasoning behind their neutral stance on short-term rates, and it will be important to watch for shifts in rhetoric on inflation forecasts and future monetary policy tightening. Overnight Index Swaps still price in a marginal probability of a rate hike before the year is through. Any indication that the RBA has ruled out near-term rate hikes could easily hurt the Aussie, while hawkish rhetoric would have the opposite effect. Whatever the outcome, we could see some notable Australian Dollar moves on the minutes from the RBA’s September minutes.
Traders should otherwise keep an eye out for important shifts in risk sentiment. Recently impressive momentum gives us little reason to believe that the S&P 500 may reverse through near-term trade. Yet traders should be wary of trend exhaustion—and treat excessive AUDUSD strength with a sense of caution.
Previously buoyant RBA interest rate expectations led the yield-sensitive Australian Dollar higher against major forex counterparts, but a recent pullback in forecasts led to commensurate AUD weakness. At their peak, Overnight Index Swaps were pricing in an approximate 50 percent chance that the Reserve Bank would raise interest rates as soon as October. Yet official commentary following September’s rate announcement clearly stated that current interest rates were “appropriate” and instantly poured cold water on interest rate speculation.
Markets will get a closer look at the Reserve Bank’s reasoning behind their neutral stance on short-term rates, and it will be important to watch for shifts in rhetoric on inflation forecasts and future monetary policy tightening. Overnight Index Swaps still price in a marginal probability of a rate hike before the year is through. Any indication that the RBA has ruled out near-term rate hikes could easily hurt the Aussie, while hawkish rhetoric would have the opposite effect. Whatever the outcome, we could see some notable Australian Dollar moves on the minutes from the RBA’s September minutes.
Traders should otherwise keep an eye out for important shifts in risk sentiment. Recently impressive momentum gives us little reason to believe that the S&P 500 may reverse through near-term trade. Yet traders should be wary of trend exhaustion—and treat excessive AUDUSD strength with a sense of caution.
Tuesday, September 8, 2009
yen registered strong gains against its major counterparts after Japanese voters
0 comments Posted by shuseel at 6:39 PM
Monday in Asia, the yen registered strong gains against its major counterparts after Japanese voters handed the opposition Democratic Party of Japan a landslide victory over the long-ruling Liberal Democratic Party, spurring optimism the new government may stimulate the economy.The DPJ, led by 62-year-old Yukio Hatoyama, captured a record 308 of the 480 seats in the lower house of parliament. Prime Minister Taro Aso indicated he would resign as head of the Liberal Democratic Party, which lost almost two-thirds of its lawmakers in a complete reversal of the last election in 2005.
The DPJ has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and limiting the power of bureaucrats.
Japanese politics now enters a new phase. The LDP is no longer the largest party in parliament for the first time since its formation in 1955. Never before had an opposition party won the majority in the powerful lower house. The shakeup comes 16 years after the LDP briefly fell from power for the first time.
Investors are now waiting to see exactly what policies the new government will follow and how it will differ from the old. DPJ officials have said they would respect the independence of the Bank of Japan and are unlikely to intervene to weaken the yen, maintaining Japan's five-year absence from currency markets.
Japan's economy grew an annualized 3.7 percent in the three months ended June 30, the first growth in four quarters, after an 11.7 percent decline in the first quarter of the year.
To finance an economic aid package that would total 16.8 trillion yen in 2013, the DPJ says it will eliminate 9.1 trillion yen in unnecessary spending, tap special accounts managed by the nation's bureaucrats and abolish some tax deductions.
The yen's uptrend was also buoyed by better-than-expected Japan's industrial production and retail sales reports published this morning.
Japan's industrial output grew for a fifth month in July as global stimulus spending boosted export demand and manufacturers forecast the sector would gain momentum through the quarter.
The Ministry of Economy, Trade and Industry said that industrial production in Japan was up 1.9 percent in July, beating forecasts for a 1.4 percent increase. On an annual basis, output fell 22.9 percent compared to forecasts for a 23.1 percent contraction after the 23.5 percent decline in the previous month.
Another report showed that retail sales in Japan were down 2.5 percent on year in July, beating forecasts for a 3.5 percent decline after the revised 2.9 percent contraction in June. On a monthly basis, retail sales were up a seasonally adjusted 0.4 percent versus expectations for a 0.5 percent fall.
In addition, a survey of purchasing managers also showed manufacturing activity rose its strongest level in nearly three years. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 53.6 in August, the highest level since November 2006, from 50.4 in July.
The index also remained above the 50 threshold that separates contraction from expansion for the second month in a row.
A drop in most Asian stocks also supported the Japanese currency. Japan's 0.1% interest rate help speculators get funds with low borrowing costs and invest where returns are higher. Speculators profit due to the spread between both rates. Nevertheless, currency fluctuations can erase profits between the two rates.
A stronger yen also makes Japan-made goods less competitive overseas and deflates exporters' earnings abroad when converted back into the Japanese currency, hurting their profits and weighing on the export-dependent economy.
Japan's benchmark Nikkei 225 index is currently trading 14.14 points down or 0.13% at 10,548.28.
In other regional markets, South Korea's Kospi Composite was down 1%, and New Zealand's NZX-50 lost 0.43%.
The Shanghai Composite tumbled 5.4% on concerns over a fall in bank lending, which pushed Hong Kong's Hang Seng Index down 1.8%.
The yen gained more than 1% against the U.S. dollar from Friday's close of 93.65 to reach its highest level in almost 7-weeks in Asian deals on Monday. At present, the yen is trading at 92.56 per dollar. If the yen climbs further, it may find resistance around the 91.8 level.
After hitting an 8-week low of 97.8 on August 07, the yen advanced more than 5% against the dollar as the Japanese economy pulled out of its worst recession since World War II in the second quarter on government stimulus measures and strong exports.
During Asian trading on Monday, the yen soared to a 7-week high of 150.23 against the pound. This may be compared to last week's close of 152.41. On the upside, 147.2 is seen as the next target level for the Japanese currency.
The pound declined despite a report from the Hometrack showed today that house prices in U.K. rose for the first time in 25 months in August.
The average cost of a home in England and Wales rose 0.1 percent from July to 155,800 pounds, the London-based property research company said in an e-mailed statement. The increase, the first since July 2007, left house prices 6.7 percent lower than a year earlier, the smallest annual decline in a year.
The pound that jumped to a 9-month high of 163.13 against the yen on August 07 has slipped 8% since then as reports added to concern the U.K.'s worst recession since World War II may have further to run, reducing demand for the nation's assets.
Government reports showed last week that the U.K. economy contracted for a fifth consecutive quarter and business investment slumped by the most in 24 years even after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and decided to spend 175 billion pounds ($285 billion) to purchase bonds to stimulate the economy.
Britain's gross domestic product contracted 0.7 percent in the second quarter, the Office for National Statistics said on Friday, a day after it reported that business investment fell 10.4 percent from the first three months of the year.
The yen that closed last week's trading at 133.93 against the euro strengthened to a 12-day high of 132.20 in Asian deals on Monday. The next upside target for the Japanese currency is seen around the 127 level.
The yen jumped to a 4-week high of 132.2 against the euro on August 19. Although the yen lost 3% thereafter, it rebounded after touching a 10-day low of 136.11 on August 24.
Overall, the euro lost 1% against the yen last week despite encouraging economic reports from Europe.
Reports showed last week that Euro-zone industrial new orders recovered in June, German IFO business climate improved in August and the GfK consumer sentiment rose to a 15-month high in September. In addition, the Euro-zone economic sentiment climbed more than expected in August.
In Asian deals on Monday, the yen edged up to a 12-day high of 87.30 against the Swiss franc. On the upside, 86.9 is seen as the next target level for the Japanese currency. At last week's close, the franc-yen pair was quoted at 88.40.
The yen that tumbled to an 11-day low of 89.66 against the franc on August 24 has gained 3% since then.
Against the Canadian dollar, the yen climbed to a 12-day high of 84.51 in Asian deals on Monday. That was up 1.5% from last week's close of 85.83. If the yen advances further, it may likely target the 84.1 level.
Canadian Finance Minister Jim Flaherty, who warned earlier this month that steps could be taken to curb a sharp rise in the Canadian dollar, said yesterday he was pleased with the currency's recent stability.
Flaherty said he had been hearing complaints from businesses that volatility in the Canadian dollar was making it difficult for them at a time when the country was already struggling to revive its economy.
During Asian deals on Monday, the yen rose to a 10-day high of 63.11 against the New Zealand dollar and a 4-day high of 77.61 against the Aussie. The next upside target level for the yen is seen at 62.6 against the kiwi and 77.4 against the aussie. The kiwi-yen and the aussie-yen pairs were worth 64.11 and 78.86, respectively at Friday's close.
The dollars of Australia and New Zealand, which like Canada's tend to rise and fall with commodity prices.
Tumbling Asian stock markets, led by a 5.4 percent fall in China's benchmark, provided a negative cue for crude. Oil investors often look to stock markets as a barometer of sentiment about the economy.
U.S. crude for October delivery fell 33 cents to $72.41 a barrel by 12:02 am ET, erasing the previous session's gain of 25 cents. London Brent crude fell 45 cents to $72.34 a barrel.
The Italian and the Euro-zone preliminary CPI reports for August and the Italian June retail sales are expected in the upcoming European session.
From Canada, the second quarter GDP report is due at 8:30 am ET.
At 9:45 am ET, the Chicago PMI for August has been slated for release.
Investors are also cautious ahead of a busy week in terms of data and central bank meetings. The U.S. payrolls report on Friday is expected to show a drop of around 225,000, which is in line with the recent trend of continued improvement in the labor market.
Central banks that are scheduled to meet this week include the Reserve Bank of Australia and the European Central Bank, while the Group of 20 is due to meet in London on September 4 to 5.
Monday, September 7, 2009
Banks will have to have greater capital under new regulations backed by the Bank for International Settlements (BIS), which consists of the world’s central banks.A more in-depth set of measures will be unveiled by the end of 2009, and are intended to be implemented in such a way as to not damage the global economic recovery.
Amongst the measures are a global minimum standard for funding liquidity and a framework for countercyclical capital buffers, above and beyond the usual minimum requirements.
Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank, has stated the new regulations would see enhanced liquidity and capital, reduced leverage and should deliver a more resilient banking sector.
The financial crisis and ensuing recession has seen banking regulation come under a strong spotlight, and earlier this month Prime Minister Gordon Brown gave an interview to The Financial Times in which he supported the notion of bankers’ bonuses being clawed back should the firm fail to perform well.
The Prime Minister has also indicated he believes that bonuses should be given on the basis of longterm success.
Sunday, September 6, 2009
The yen rose to two – week highs on the news that
According to them, investors are heading for the yen when stocks go down. Indeed, the currency gained against the Euro, the US dollar, the Australian dollar and the South Korean Won as stocks on the MSCI World Index slumped.
Economists had expected the Japanese economy to grow by more than it actually did – GDP grew to an annualized 3.7 per cent while it had been hoped the number would be closer to 3.9 per cent.
The recovery for
They say that despite the second quarter results, consumer spending within
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