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OctaFX.Com - Forex: Yen Rallies Post-BoJ - Strength Offers Opportunities to Sell

ASIA/EUROPE FOREX NEWS WRAP

I think I’m turning American, I really think so. That might be a slight alteration of what the song’s original lyrics are, but the Japanese are doubling down on fighting inflation by embracing ultra-dovish monetary policies up until recently only employed by the Federal Reserve. After two painstakingly long months of speculation, the Bank of Japan’s new stance is official: an aggressive +2.0% yearly inflation target to be reached “at the earliest possible time”; and a ¥13 trillion ($145 billion) per month in open-ended asset purchases beginning in 2014. While the Japanese Yen has reacted favorably to the news – a development we’ve been expecting to occur, as noted in this column for the past several weeks – we must consider the longer-term implications of the BoJ’s plan as to ascertain the validity of today’s Yen strength.

First and foremost, the market remains extremely short the Yen: the most recent CFTC’s COT report for the week ended January 15 shows that net non-commercial futures positions remain heavily skewed short, the shortest since July 2007 still. If investors needed a reason to take profits, now would be the time, with policy solidified. But beyond positioning, there is little reason to think that this is the Yen bottom (or AUDJPY, EURJPY, USDJPY, etc. topping). Although the BoJ’s asset purchase program doesn’t begin for another year, it is significantly more aggressive than the Fed’s program: $145B/month by the BoJ versus $85B/month by the Fed. Thus, the BoJ is doing its best impersonation of the Fed – by one-upping it.

But the BoJ and the Fed aren’t the only central banks actively trying to devalue their currency: the European Central Bank, the Bank of England, and the Swiss National Bank have all implemented policies similar to those of the BoJ and the Fed. If all of the major players are trying to devalue their currencies, we should thus expect other policies (like a 0.00% main rate) and new management at the BoJ (Governor Shirakawa’s term ends at the end of the quarter) to push the Yen down further.

Taking a look at European credit, peripheral yields are lower, helping lift the Euro on Tuesday. The Italian 2-year note yield has decreased to 1.416% (-2.3-bps) while the Spanish 2-year note yield has decreased to 2.492% (-3.8-bps). Similarly, the Italian 10-year note yield has decreased to 4.191% (-2.4-bps) while the Spanish 10-year note yield has increased to 5.111% (-2.5-bps); lower yields imply higher prices.

Jan 22, 2013

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OctaFX.Com - Eleven eurozone states to introduce Tobin tax

European Union finance ministers have cleared the way for 11 members of the eurozone to introduce a tax on trading aimed at raising billions in euros from the financial services industry and deterring speculation.

The countries planning to introduce the tax include the eurozone's top four economies, Germany, France, Italy and Spain. Austria, Estonia, Belgium, Greece, Portugal, Slovakia and Slovenia are also on board. The group of states decided to move ahead after attempts to adopt a trading tax at the EU and eurozone-wide level failed in 2011.

The United Kingdom, Europe's leading financial center, will not adopt the new levy and abstained during the vote, along with Luxembourg, the Czech Republic and Malta.

Many eurozone governments are desperate to identify new sources of revenue to plug holes in their budgets, made larger by the recession, without placing further burden on individuals. They also face popular pressure to ensure the banking industry pays a bigger share of the cost of dealing with the economic fallout of the financial crisis.

The tax could raise more than ?37 billion, and up to ?57 billion if applied across the EU as a whole. Such levies are often dubbed "Tobin taxes" after Nobel Prize winning economist James Tobin, who proposed taxing foreign exchange transactions in the 1970s to curb speculation.

But some nations are worried that the tax will drive investors away and act as a brake on economic growth. It also risks opening up new divisions in the EU just as the eurozone looks to cooperate more closely in fiscal, monetary and banking policy to build stronger foundations for the euro currency.

Officials at the European Commission will now come up with ways of implementing the tax, based on a 2011 proposal that called for a minimum levy of 0.1% on trading in all financial instruments, except derivatives which would incur a rate of 0.01%.

"Those who want to move ahead, and who appreciate the merits of working more closely on taxation at EU-level, can do so," said European tax commissioner Algirdas Semeta. "This is a highly significant and very welcome advance."

Semeta hailed the first adoption of a financial transaction tax at a regional level.

But it also marks the first time the EU has pushed ahead with a tax measure without the support of all its members. States can cooperate on legislation provided at least nine member states participate, the measure gains the support of a majority of states and others can join at a later date.

Jan 22, 2013

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OctaFX.Com - Forex Analysis: US Dollar Chart Setup Warns of Weakness Ahead

THE TAKEAWAY: US Dollar technical positioning is warning a turn lower may be ahead as prices reverse from resistance while the S&P 500 probes toward 1500.

US DOLLAR TECHNICAL ANALYSIS– Prices put in a bearish Evening Star candlestick pattern below resistance at the top of a rising channel set from mid-September, hinting a move lower is ahead. Near-term support is at 10066, the 38.2% Fibonacci retracement. A break below that initially exposes the 50% level at 10038. Channel resistance is now at 10152.

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Jan 23, 2013

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OctaFX.Com - Forex: Dollar, Risk Trends Steady Despite House Debt Approval

• Dollar, Risk Trends Steady Despite House Debt Approval
  
• Euro Shows Further Retreat from Crisis but EURUSD 1.3400 Top Remains
  
• British Pound: Drop in Jobless Claims, Cameron Referendum Elicit Little Trader Response
  
• Japanese Yen Advance Stalls at Critical Levels for Progress
  
• Canadian Dollar Unexpectedly Tumbles after Bank of Canada Cuts Growth Outlook
  
• Australian Dollar Sees Rate Forecast Ease after CPI, Chinese PMI Offers Little Volatility
  
• Gold Drops as House Delays Budget Crisis and Dollar Holds Steady
  

Dollar, Risk Trends Steady Despite House Debt Approval

The fundamental tide continues to grow, yet speculative trends refuse to be driven from their stubborn state of stasis. That is a burden for the US dollar which still plays a dominate role in the FX market as a safe haven and reserve currency. For the Dow Jones FXCM Dollar Index (ticker = USDollar), the detachment from the undercurrent of risk trends likely saved it from a serious extension of the reversal from six-month highs set at the end of last week. Instead, the Index closed virtually unchanged near 10,100. Across the majors, the lack of drive is less comforting for the greenback. EURUSD has turned to congestion at 11-month highs below 1.3400 and AUDUSD is stationed just below well-worn resistance at 1.0600 that defines 10-month highs. The market’s apathy will not last forever, and proximity to ‘risk on’ can encourage a bearish dollar trend.

Looking over the event risk that crossed the wires this past session, it is remarkable that capital markets and the dollar would refuse a significant swell. A few of the developments on the day played directly to the market’s primary fixations of the past weeks and months. At the top of the list was the US House of Representatives’ vote to temporarily extend the deficit ceiling out to May 19. According to a Bloomberg survey, the ongoing US budget clash is the top concern for the greatest number of market participants (36 percent). That explains the rally from both the S&P 500 and US dollar following the Fiscal Cliff deal on January 2. Yet, this bid to buy another three months was met with little relief or rally from either. There may have been too much time still left on the clock to spur a risk rally or perhaps the investors are waiting on the Senate and White House to approve the bill. While this removes another major hurdle for risk trends, the lack of influence on price suggests it may be largely priced in.

Yet, were we to think the market’s tepid response to a meaningful update on the deficit wrangling was a sign that bears were gaining a foothold, we would also witness a disregard of two events that would otherwise stoke risk and rally the dollar. Earlier in the US session, the IMF released its updates for worldgrowth forecasts. The downgrade for the global economy’s 2013 performance (3.5 from 3.6 percent) encompassed significant downgrades for the US, Eurozone, Japan and UK amongst others. Later on, the focus turned back to the earnings season as market leader Apple reported Q1 2013 earnings per share (EPS) that beat estimates. However, it was the revenue miss and weaker guidance for the following quarter that sent shares after hours tumbling the most since the peak of the financial crisis. Despite this, no dollar reaction.

Euro Shows Further Retreat from Crisis but EURUSD 1.3400 Top Remains

In the same Bloomberg survey mentioned above, the revival of the Eurozone crisis was the second greatest concern that investors foresaw (drawing 29 percent of votes). We have seen the reversal of ‘tail risk’ in the region leverage a considerable recovery for EURUSD since last July when the European Union (EU) and European Central Bank (ECB) vowed extraordinary steps to stabilize the region’s financial system. Nevertheless, we have seen some of the most at-risk members in the Eurozone show significant progress this week – yet another surprise for the market’s lack of reaction. Tuesday, Spain sold bonds to record demand; and this past session, Portugal reenteredthe market for the first time since being rescued to strong support as well. Meanwhile, the Bank of Spain took the occasion to downgrade 4Q GDP growth expectation to -0.6 percent as well as its 2013 forecast. The Eurozone economy is expected to suffer a recession through this year, and that fear can find more tangible grounding in the upcoming session when PMI figures are released. The monthly activity reads are timely proxies to GDP figures.

British Pound: Drop in Jobless Claims, Cameron Referendum Elicit Little Trader ResponseThe British pound faced its heaviest docket in months, and the event risk barely stirred the currency. Much of the calendar fodder was disarmed well before hand. Prime Minister David Cameron’s speech on the UK-EU referendum (‘In/Out’) was defused with the market working through expectations through the end of last week. The Bank of England (BoE) minutes is habitually lacking for influence, but BoE Governor King gave a heads up on the disappointing growth outlook earlier this week and the openness to further easing surprised no one. The only genuine surprise was the 12,100-filing drop in jobless claims that lowered unemployment levels to the lowest since June 2011. And yet, no serious pound gains.

Japanese Yen Advance Stalls at Critical Levels for Progress

To fulfill a serious reversal and call a dramatic end to the USDJPY’s remarkable 10-consecutive week rally, the yen may need a catalyst. Having move so far, so quickly; a correction seems a serious risk. That inclination to take profit or speculate on a pullback has yet to take hold, however. With the Bank of Japan’s plan to introduce a major stimulus push at the beginning of next year, this is another currency that is lacking for a critical driver. What is the best, potential driver from here? Risk trends. But we are all too familiar with the state of speculative trends right now.

Canadian Dollar Unexpectedly Tumbles after Bank of Canada Cuts Growth Outlook

Remarkably, the most market-moving currency for the day through an otherwise loaded docket was the Canadian dollar. A reflection of what genuine surprise can accomplish in the market, there was little expectation for the Bank of Canada’s (BoC) policy decision. Yet, a downgrade in growth forecasts and language that extended the time to the first rate hike leveraged a market-wide drop for the Canadian currency.

Australian Dollar Sees Rate Forecast Ease after CPI, Chinese PMI Offers Little Volatility

Following up on the modest miss on the 4Q CPI figure from yesterday, we find 12-month interest rate forecasts for the Reserve Bank of Australia (RBA) have deteriorated to the lowest level since the beginning of the year – perhaps reversal the build in hawkishness since October. Meanwhile, the Aussie dollar’s tame slide found no further encouragement from the Chinese manufacturing PMI beat from this morning.

Gold Drops as House Delays Budget Crisis and Dollar Holds Steady

Progress on the US debt ceiling concern could have throttled gold higher this past session if risk trends were engaged. If sentiment were sensitive to the ebb and flow of fundamentals, the greenback would likely have dropped after such a prominent risk was tamed. Subsequently, gold would have gained on the currency’s pain. Instead, the reduced pressure on currencies in general weighed the precious metal.

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Jan 24, 2013

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OctaFX.Com - FX Impact: Dollar Soft, But Not Vs. Yen

The dollar lost ground around the globe in the week leading up to Barack Obama’s second inauguration. As a result, U.S. investors in foreign countries saw significant gains in equity markets as foreign currencies rallied against the greenback.

The few notable exceptions this week were the South African rand, the Japanese yen and the Egyptian pound, which slid against the greenback amid a series of concerns and events.

The impact from currency doesn’t actually become real until positions are sold. That said, changes in various currency crosses are a crucial factor that investors in globalized markets must increasingly take into account, as our weekly Currency Impact Report that’s based on MSCI data makes clear.

Some of last week’s highlights include:

The yen was notable last week, continuing its downfall against the greenback. As the Bank of Japan continues its monetary easing efforts through a massive asset purchase program, the yen has tumbled week after week. In the past three month, the yen’s depreciation has brought a significant difference in Japanese equity returns between U.S. and local investors, with U.S. investors up 11.16 percent in the last three months, while local investors have seen returns of 26.13 percent in the same period. This has resulted in huge asset inflows into funds like the WisdomTree Japan Hedged Equity Fund (DXJ).

The South African rand also saw a significant pullback against the U.S. dollar this past week, as labor protests in mining and agriculture increased concerns that the commodity-rich nation might experience slower growth in exports. U.S. investors in South African equities saw returns of -2.77 percent in the past week, while local investors booked returns of 1.06 percent in the same period.

The euro saw significant gains in the past week, as well as the last three months, with U.S. investors in European equities coming ahead of local investors by an average of 2 to 3 percent. European Central Bank President Mario Draghi has suggested that the worst of the sovereign debt crisis has passed, with the ECB’s bond-purchase plan still untouched.

The Egyptian pound has been steadily losing ground against the greenback, as the Egyptian Central Bank held its third auction of the U.S. dollar in an effort to control its dwindling reserves. The pound saw significant depreciation after S'P lowered Egpyt’s credit rating to the same junk level as Greece and Pakistan. As a result, in the past three months, U.S investors in Egyptian equities have seen returns of -6.27 percent, while local investors have essentially seen flat returns in the same period.

Jan 24, 2013

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OctaFX.Com - Forex: Commodity Currencies Soft, Yen Reverses on Strong Chinese Data

ASIA/EUROPE FOREX NEWS WRAP

Risk appetite has been put on hold overnight, with the S&P 500 (fair value) trading up towards key resistance at 1492/97, the 161.8% Fibonacci extension off of the November and December lows. There were two major catalysts since US cash equity trading closed on Wednesday: disappointing earnings from Apple; and a stronger than expected Chinese manufacturing reading. While Apple is likely to hurt US equity markets today, the Chinese data has provoked a very interesting response in FX.

Usually when strong Chinese data comes out, there are three reactions: the Australian Dollar rallies; the New Zealand Dollar follows the Aussie, just not as great of a magnitude; and the Japanese Yen weakens. Yet neither the Australian Dollar nor the New Zealand Dollar are top performers today; in fact, they’re among the weakest. Rather, it is likely that the weak 4Q’12 inflation data we’ve seen out of both countries the past week are continuing to guide rate expectations; the strong Chinese HSBC Flash PMI Manufacturing for January did little to offset these concerns.

Despite the tepid reaction in the commodity currencies, the Japanese Yen is very much playing the part of a weak safe haven in light of the strong Chinese data. But Yen weakness was accentuated overnight by further manipulative commentary from Japanese governmental leaders, with Deputy Economic Minister Yasutoshi Nishimura saying that “the current [uSDJPY] level around 90 can be said to be a correction of the strong Yen, but it isn’t over.” Mr. Nishimura continued to say that an acceptable level for the USDJPY would be 100.00. My yearend forecast for USDJPY remains105.00 to 110.00.

Taking a look at European credit, peripheral yields are mostly lower, providing light support for the Euro again. The Italian 2-year note yield has decreased to 1.438% (-0.7-bps) while the Spanish 2-year note yield has decreased to 2.433% (-4.3-bps). Similarly, the Italian 10-year note yield has decreased to 4.165% (-1.8-bps) while the Spanish 10-year note yield has decreased to 4.998% (-4.1-bps); lower yields imply higher prices.

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Jan 24, 2013

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OctaFX.Com - Forex: Dollar - Either Greenback or EUR/USD Rally Must Surrender

Dollar: Either Greenback or EUR/USD Rally Must Surrender

Fundamental Forecast for US Dollar: Bullish

• House of Representatives passes extension on US debt ceiling
  
• US Federal Reserve’s balance sheet overtakes $3 trillion for the first time
  
• Weekly technical patterns show a serious test of resistance above for EURUSD
  

There was an unusual contrast this past week where the EURUSD advanced to its highest weekly close in 11 months at the same time that the Dow Jones FXCM Dollar Index (ticker = USDollar) ended the period at a 6-month high. A positive correlation between the world’s most liquid currency and most heavily traded pair is extraordinary. And, ‘extraordinary’ doesn’t last in the markets. Therefore, one of the critical questions facing FX traders is whether the dollar’s individual strength or the EURUSD’s striking rally will break first.

Before wading into time frame and catalysts for the inevitable reconciliation, we should first understand how the positive correlation between EURUSD and the USDollar Index developed and why it is usual. EURUSD is the most heavily traded currency pair in the Forex market and naturally the euro is the dollar’s primary counterpart. Therefore, its advance speaks to a serious depreciation of the greenback. However, the USDollar Index is an equally-weighted measure of EURUSD, GBPUSD, AUDUSD and USDJPY. The blend is partially meant to expose the dollar’s various roles (safe haven, funding currency, financial appeal, etc). So, between these two, we see that the dollar is itself strong, but the euro happens to be just strong enough to outpace the reserve when set side-by-side.

There are a few ways that this aberration is resolved. The most dramatic conciliation would be through a sudden shift in risk appetite trends. To this point, there seems to be rather solid evidence that investor optimism is humming. The benchmark S&P 500 US equity index advanced to a five-year high (by running an 8-day rally which itself is unseen since 2004) this past week. Meanwhile, the carry trade favorite yen crosses have surged to multi-year highs of their own. And all of this has occurred as volatility indexes (measures of ‘fear’) slid down to five-year lows of their own.

Yet, in that assessment of strength, there are a number of unusual counterpoints. While equities have moved to new highs, participation – measured by volume – this past week was the lowest (excluding holiday periods) in over a decade. Carry trade interest outside of the yen crosses (such as AUDUSD) has proven remarkably lax. And, the balance between market-based yields and risk speaks suggest investors have to take a speculative leap to put their capital to work. Partly, this contrast exists because the influence of standard ‘risk appetite’ has eased – allowing other factors (like competitive stimulus efforts) take over. Yet, should conviction return to the balance of greed and fear, those correlations will snap back into place.

We have a number of catalysts in the week ahead that we can look to for tangible influence over the dollar and broader investment trends. At the top of the list is the Federal Open Market Committee’s (FOMC) rate decision. The US central bank announced its plans for cumulative $85 billion-per-month purchases of Treasuries and mortgage backed securities (MBS) – cementing the US as the most pervasive and active stimulators in a market of easing. That said, we have heard from the group that the effort could be tapered or ended well before the end of the year. After the report of significantly LTRO repayments in the Eurozone (a reduction in stimulus), the market will be watching. More stimulus supports risk taking while simultaneously increasing the US money supply – a double blow for the dollar.

The Fed’s policy bearing carries further repercussion as the market becomes more fully mindful of competitive easing (also termed ‘Currency Wars’) even if officials say this is not the objective. If the Fed takes a status quo approach, we may have to defer to other catalysts. The 4Q US GDP figure will be a big ticket item. The IMF downgrade not only US growth forecasts this past week, but those for much of the developed world as well. A significant miss here could bring an otherwise conveniently, overlooked problem to the forefront. January nonfarm payrolls (NFPs) carry a similar weight. As one of the key targets for policy moving forward (the Fed is targeting a 6.5 percent jobless rate), employment data can carry stir stimulus and thereby risk expectations on a substantive surprise.

Jan 26, 2013

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OctaFX.Com - Euro, shares stall as investors turn cautious

LONDON (Reuters) - Rallies in European shares and the single currency stalled on Monday after strong gains last week as investors awaited confirmation that financial market conditions and the outlook for the euro area have improved.

Investor sentiment rose strongly on Friday after data showed European banks would repay more than expected of the emergency loans they borrowed from the European Central Bank (ECB) and that business sentiment in Germany was improving sharply.

A solid start to the corporate earnings season has also helped send many equity indexes to pre-financial crisis highs, with the Standard & Poor's 500 index closing last week at its highest level in over five years.

In the equity markets Europe's FTSEurofirst 300 index (.FTEU3) shed 0.1 percent in early trade to 1,173.87 points, leveling off near its highest level for almost two years, though traders said there was still strong underlying demand.

"All European benchmarks are at their 2012-2013 highs. Every time there's even a slight pull-back, the buying pressure comes in," Aurel BGC chartist Gerard Sagnier said.

The market's cautious mood on Monday also followed a weaker session in Asia, where falls in technology companies saw the MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> drop 0.4 percent.

The euro held near an 11-month high against the dollar $1.3440

Meanwhile, German government bond futures, a key gauge of investor sentiment, continued to ease, slipping a further 7 ticks to 142.40 (FGBLc1) on Monday, and gold is languishing near a two-week low as hopes for an economic recovery worldwide dampen the metal's appeal as a safe haven.

Investors are keenly awaiting the ECB's monthly data on bank lending to companies and consumers, due later, for confirmation that growth is returning to the economy. Italy will also provide a test of investor sentiment when it auctions almost 7 billion euros ($9.4 billion) of 2-year and 5-year bonds.

However, the main focus for investors this week will be on the U.S., where the Federal Reserve's Open Market Committee meets on Tuesday and Wednesday, and where the nonfarm payrolls report is due out on Friday.

Oil prices were being held in check by the events coming up in the U.S., with Brent crude unchanged at $113.28 a barrel, while U.S. crude rose 17 cents to $96.05 after seven straight weekly gains - the longest such streak since early 2009.

Jan 28, 2013

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OctaFX.Com - Forex Analysis: British Pound Sinks as Carney Hints at More Easing

The British Pound fell following comments from soon-to-be Bank of England Governor Mark Carney suggesting he will pursue further monetary easing.

Talking Points

• British Pound Sinks as Carney Hints at Further Easing Ahead
  
• US Durable Goods Orders Data May Disappoint Expectations
  
• Caterpillar Q4 Report Headlines Corporate Earnings
  

The British Pound broadly under-performed in overnight trade, down against its top counterparts. The sell-off followed comments from incoming Bank of England Governor Mark Carney, who is due to replace the current BOE chief Mervyn King in July. Carney said central banks have not “maxed out” the possibilities for further stimulus and may do more, stressing the need to achieve “escape velocity” as developed economies struggle to pick up pace in the aftermath of the Great Recession. The remarks hinted that Carney will pursue further accommodation when he takes the reins at Thread-needle Street.

A quiet economic calendar in European hours is likely to see Forex traders looking ahead to the US data docket for directional guidance. December’s Durable Goods Orders report is in focus, with economists forecasting a 2 percent month-on-month increase, yielding the largest increase in three months. US releases have increasingly fallen short of expectations since late December (according to data from Citigroup) however, warning of a vulnerability to downside surprises as the markets’ outlook is adjusted lower. Pending Home Sales and the Dallas Fed’s Manufacturing Activity Survey are also on tap, with softer outcomes penciled in for both.

On the corporate earnings front, cycle-sensitive Caterpillar Inc is due to report fourth-quarter results. Expectations suggest sales fell 2.3 percent compared with the third quarter while earnings declined from $2.260 to $1.703 per share. Traders are likely to be most concerned with the company’s guidance however as they continue to build the outlook for global growth against a backdrop of lingering uncertainty on the US fiscal policy front. Indeed, while forecasts from the IMF, the World Bank and private-sector economists (as polled by Bloomberg) argue for a modest pickup in 2013, a large dose of austerity from Washington DC may meaningfully change the landscape.

Jan 28, 2013

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Jan 29, 2013

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OctaFX.Com - Forex: Dollar Ready for Fed, GDP with EUR/USD at 1.3500

• Dollar Ready for Fed, GDP with EUR/USD at 1.3500
  
• Euro Eases Ahead of Spain 4Q GDP Despite EFSF Auction
  
• New Zealand Dollar: Poor Inflation Data to be Weighed by RBNZ
  
• British Pound Advance Comes on BoE Reports of Fading Currency Use
  
• Japanese Yen Crosses Climb as Stimulus Meets Risk Trends
  
• Australian Dollar Rebounds as Rate Expectations Jump
  
• Gold: Best Measure for Market’s Reaction to Fed Stimulus Call
  

Dollar Ready for Fed, GDP with EUR/USD at 1.3500

The Dow Jones FXCM Dollar Index (ticker = USDollar) finally backed off its run to six-month highs, the day before the 4Q US GDP and the Federal Reserve’s rate decision is due. Prior to Wednesday’s slide for the greenback, the currency managed to drive a four-day consecutive rally – matching the strongest run for the Index in three months. The pullback is appropriate in reverence to the considerable influence the upcoming event risk carries over, not only the US dollar, but the entire financial sector. Perhaps this round of event risk will be influential to remedy the fundamental divergence in the dollar’s gains against key counterparts (Japanese Yen, British pound and Australian Dollar) at the same the benchmark capital market’s conviction measures (the S&P 500 and other equity indexes) push higher. In other words: perhaps this is the catalyst that finally reinstates general risk appetite trends – whether supportive of or resistant to speculative sentiment.

Heading into the big ticket headline fodder, the first piece of event risk to hit the wires will be the advanced (first) reading of fourth quarter GDP. The consensus estimate for annualized growth measure is calling for a substantial cooling of the previous reading’s 3.1 percent pace of growth to a much more reserved 1.1 percent clip. That would mark the slowest measure of growth for the US since the first quarter of 2011. Yet, how market moving would an in-line reading prove? We have to assume that the economist forecast has been priced in by the market (especially after the IMF and World Bank downgraded their respective growth forecasts for the country). A substantial miss is likely necessary to spur risk aversion – which counterintuitively would generate demand for the safe haven dollar. More likely, a reading near the consensus will sideline the capital markets and benchmark currency as the focus (and hopes) turns to the Federal Open Market Committee’s (FOMC) rate decision.

In theory, relative growth should be a vital pricing mechanism for the value of a currency; but we find that is far from the case in practice nowadays. Relative stimulus has both the effects of guiding market-wide risk taking as well as creating an environment where currencies are (perhaps unintentionally) devalued by expansive policies. Amongst the major banks, the Federal Reserve is the most liberal (the BoJ won’t move until 2014) in its efforts – a reality that has no doubt contributed to EURUSD’s advance as the ECB withdrawals LTRO and is ignored by the USDJPY at multi-year highs. The $85-billion-per-month effort that the US central bank has adopted along with economic guidelines (6.5 percent jobless and 2.5 percent inflation rates) was put into place only last month. Therefore a material change in January is highly unlikely. That said, the market will be open to any nuanced change in language that spells an end (or reduction) to stimulus before the end of 2013.

Euro Eases Ahead of Spain 4Q GDP Despite EFSF Auction

All market participants will be tuned into the far-reaching implications of the United States’ GDP reading and FOMC rate decision. And, even if these two fundamental sparks come off without a distinctive shift in current expectations; they may nevertheless dampen the influence of key event risk on the Euro’s docket. Early in the European session (08:00 GMT), Spain’s preliminary (first) reading of 4Q GDP is due. This will be the first the major core and periphery Eurozone members to report its economic performance – and will thereby carry a lot of weight to further expectations. Beyond the ‘first plunge’ position, Spain remains one of the key threats to a steady Euro-area recovery through 2013 (along with Cyprus and Greece); so its health will be particularly important. In the meantime, it is worth noting that this past session; the EFSF rescue fund sold €5 billion in 5-year bonds at a rate of 1.25 percent. A large sale of longer-dated paper denotes confidence and funding.

Jan 30, 2013

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OctaFX.Com - Euro rises, shares gain as Europe's outlook brightens

LONDON (Reuters) - The euro hit a fresh 14-month high and European stocks gained on Friday after economic data raised hopes that the region's downturn has eased, but moves were limited as investors await a U.S. jobs report.

Euro zone factories had their best month in nearly a year during January although the currency bloc is likely to remain mired in recession for a few more months, the latest reading of Markit's Purchasing Managers' Index (PMI) showed.

"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the euro zone is on course to return to growth by mid-2013," said Chris Williamson, chief economist at data compiler Markit.

The euro hit a high of $1.3657 after the data came out, its highest level since November 2011. The common currency also hit a 33-month high against the yen, rising more than 1 percent to 125.96 yen.

The pan-European FTSEurofirst 300 index (.FTEU3) extended its recent gains by 0.4 percent to 1,169.14 points, near a 23-month high after solid rally since the start of the year. London's FTSE 100 (.FTSE), Paris's CAC-40 (.FCHI) and Frankfurt's DAX (.GDAXI) were up between 0.5 and 0.8 percent.

Earlier, China's official PMI for January eased to 50.4, missing market expectations for a rise and underscoring the fragility of the recovery from the economy's weakest year since 1999.

However, a separate private survey showed that growth in China's giant manufacturing sector hit a two-year high in January as domestic demand strengthened, underlining hopes the nation's economic recovery is slowly gaining momentum.

The Chinese data left MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> little changed

EURO STRENGTH

The euro has risen significantly in recent weeks as the outlook for the 17-nation currency bloc has improved, and also as investors respond to the sharply easier monetary policies of the U.S. Federal Reserve and Bank of Japan.

"The perception is that the ECB is being less supportive and is not providing as much liquidity as the other central banks are," said Andrew Milligan, head of Global Strategy at Standard Life Investments.

At the same time liquidity in the European money markets is being affected by quicker-than-expected repayments of crisis loans handed out by the ECB at the height of the bloc's crisis just over a year ago.

Banks have another two years to pay back the money if they want, but have taken the opportunity this week to return over a quarter of the 489 billion euros ($663.77 billion) they took in the first of the ECB's two "LTRO" handouts.

From now on they can pay back as little or as much of the remaining money as they want each week. After the fast start, analysts are awaiting Friday's details of next week's repayments for clues on whether the pace is likely to continue.

Money market rates (EUREON1Y=) have already risen by a quarter of a percentage point since the start the year - the equivalent of a standard ECB interest rate increase - and are likely climb by at least the same amount again if the money continues to drain rapidly from the system.

For Europe's struggling countries and the ECB this is not an ideal situation, effectively tightening monetary policy and creating unwanted stress just as economies are showing fragile signs of improvement.

JOBS EYED

Friday's U.S. nonfarm payrolls data due at 8:30 a.m. ET could be a another factor to drive the euro higher, as a strong report would knock the safe-haven dollar.

The dollar was trading at a 3-1/2 month low against a basket of currencies (.DXY) on Friday after falling 0.3 percent to 78.97 points.

Employers are expected to have added 160,000 new jobs to their payrolls in January, a marginal step up from December's 155,000 gain, according to a Reuters survey of economists. The unemployment rate is seen holding steady at 7.8 percent.

The U.S. economy unexpectedly contracted in the fourth quarter, its weakest performance since emerging from recession in 2009, and it grew just 2.2 percent in the whole of 2012.

The U.S. ISM factory survey, a national report on the state of American manufacturers, is also due at 10 a.m. ET.

Feb 01, 2013

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Feb 02, 2013

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Forex Flash: Central banks constitute major focus this week – Deutsche Bank

A major focus for the week will be on the ECB, BoE (Thursday) and RBA (Tuesday) meetings this week. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “The market is not expecting a change in policy from the ECB and BoE, although Draghi's post-ECB press conference will be closely watched in light of last week's softer bank lending survey.”

On the same day as the ECB and BoE meetings, governor-in-waiting Mark Carney will appear before the UK House of Commons Treasury Committee to be questioned by lawmakers ahead of his formal takeup of the BoE governorship. Carney's recent comments on revising the monetary policy framework will likely be a subject of questioning. With respect to the RBA, 20 out of 27 economists polled by Bloomberg (including DB) expect no change in the overnight cash rate.

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Feb 04, 2013

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Forex Flash: No reason for a AUD selloff on the RBA decision - Commerzbank

Commerzbank analysts consider the RBA statement to be relatively balanced: "It is becoming clear that the RBA will take a wait and see attitude as far as domestic demand is concerned before taking further steps. After all it left the key rate unchanged at 3.0% which corresponds to our expectations", wrote analyst Antje Praefcke, adding that the stamente pointed out that the global outlook has improved, a fact that other central banks have also referred to recently, and there are only moderate changed to the domestic economy part.

As growth is slightly below the trend (but past rate cuts are beginning to show some of the expected effects) and inflation remains low, it very much looks as if the RBA wasn’t done yet with its current rate cut cycle but as if it prefers to wait for further data releases before changing rates again. "Easier conditions would in turn make things easier for areas outside the mining sector to fill the gap left by the end of the investment boom in the mining sector", he wrote.

"The RBA is clearly hoping for a soft transition in a divided economy: slowly ending investment boom in the mining sector with a simultaneous recovery in other sectors (e.g. manufacturing sector and others) thanks to lower rates", continued the Commerzbank analyst, attentive to what is coming next, but with no reason to sell the AUD massively as a result of the rate decision. "We think 1.0350-80 should hold in AUD-USD", he concluded.

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Feb 05, 2013

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In a recent speech to the European Parliament, French President Francois Hollande urged the euro zone to set a mid-term target for the EUR exchange rate

In a recent speech to the European Parliament, French President Francois Hollande urged the euro zone to set a mid-term target for the EUR exchange rate and to forge a jobs policy to fight political disillusionment at reforms.

Hollande's calls ran into immediate opposition from German Economy minister Roesler who recommended that the focus should instead be on competitiveness rather than weakening the currency. Luxembourg Finance Minister Luc Frieden said the euro's level doesn't concern him at present and its strength follows the economic reality of the euro zone.

Staying in Europe, Fitch joined Moody's and S&P in assigning a negative outlook to Netherland's AAA rating. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “The outlook revision reflects Fitch's concerns over persistent banking system problems – as highlighted by the recent nationalization of SNS Reaal (the country's fourth largest banking group) - and public debt levels higher than those of top-rated peers.” Dutch 10yr yields closed 3bp higher on the day and were largely unmoved following Fitch's announcement.

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Feb 06, 2013

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Forex: GBP/USD soars as Carney testimony starts

GBP/USD has soared closed to a point as in coming BoE Governor Carney is delivering his testimony to the Treasury Select Committee this morning.

He has told the group that the bank must exit unconventional policy and protect the integrity of the Pound. He added that the bar to changing monetary policy framework must be very high and central banks should be flexible on targeting inflation. Further, he believes that the BoE must enhance forecasting. The market reaction has seen Cable soar on talk that an end to easing will be targeted and spot is now currently trading at 1.5731, just below the hourly 200 MA, having made a high at 1.5767. RSI has spiked high and climbed to 76.

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Feb 07, 2013

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[OctaFX_Farid]

Forex: GBP/USD holds up at 1.5700 after UK NIESR GDP

Incoming BoE Governor Carney brought the GBP/USD back above the 1.5700 psychological level after triggering a rally from 1.5650 to 1.5769 spike high with his testimony before the UK Parliament. Since then, the pair has been consolidating its position above 1.5700, even after the release of UK NIESR GDP estimate for January.

From an estimated -0.3% recession in December, the estimate of growth over the last 3 months in the UK has risen to 0.0% in January, according to NIESR.

Incoming BoE Governor Carney assured that he would not alter significantly the central bank's current monetary policy strategy but that he was in favor of introducing more stimulus for a period of time and communicating it in order to help manage market expectations. He also said that the central bank must exit unconventional policy.

The MPC decided to keep the key rate at 0.5% and the asset purchases at £375B, as expected by investors, in the meeting of February 7. “The £6.6 billion cash flow comprises the redemption payment on the gilt, as well as the cash flow resulting from the indemnity provided by HM Treasury to the Bank of England in order to cover any difference between the redemption payment and the original amount invested”, said the official statement.

“The GBP/USD currency pair continues consolidating near its minimums. I think today the pair may form any type of reversal pattern to start growing up and break the latest descending channel”, wrote Roboforex.com analyst Igor Sayadov.

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Feb 07, 2013

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Forex Flash: USD/JPY year-end target at 95.00 – Scotiabank

The Japanese yen seems to have found intraday support in the boundaries of 93.10 on Thursday, after the ECB has ignited a rally in the safe havens, dragging the cross from levels around 93.70

“The upward trend in USDJPY is too strong to fight and tied into equities. Technicals are not providing any warning signals that the trend is at risk. We hold a year-end USDJPY target of 95, but expect that it could temporarily range as high as 100 before drifting back”, assessed Camilla Sutton, Chief Currency Strategist at Scotiabank.

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Feb 07, 2013

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Forex Flash: What lies ahead of EUR/USD? – Commerzbank, BTMU and UBS

The shared currency has managed to put the ECB meeting in the rear window and is currently posting fresh highs in the proximities of 1.3420, buoyed by the likeliness of an agreement from the European Council on the 2014-2020 Budget.

Recalling the last break above the key area of 1.3485/1.3562, Karen Jones, Head of FICC Technical Analysis at Commerzbank commented, “We suspect that this was a false break higher, however key support remains the 1.3125 6 month uptrend and a close below here is required to negate the upmove completely.”

In addition, Derek Halpenny, researcher at BTMU, explains “We may finally get an EU budget deal later today with rumours of a deal based on the first real-term budget cut in EU history. That may help stabilise the single currency which is being undermined in part by some renewed liquidation of yen short positions”.

The bullish outlook on the cross remains intact, according to Strategists G.Yu and G.Berry at the Swiss UBS, arguing, “The strong support is at 1.3354. While this holds, the risk is for resumption of strength. Resistance is at 1.3578 ahead of 1.3711”.

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Feb 08, 2013

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[OctaFX_Farid]

Forex Flash: NOK/SEK could find downside pressure this week – Danske Bank

The pair is retracing earlier gains after posting fresh monthly highs in the proximities of 1.1660 ahead of the Riksbank monetary policy meeting due on February 13. Market consensus still remain pretty divided regarding a rate cut, as late improvement in Swedish data out of the retail sales and manufacturing and services PMI would add further pressure to the Nordic central bank.

“We remain hesitant and still believe that a cut in April is more plausible as the Swedish economy in line with the global economy seems to be stabilising. If we are correct that the Riksbank will keep rates unchanged, NOK/SEK should see some downside potential this week”, explained Senior Analyst C.Tuxen at Danske Bank.

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Feb 11, 2013

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[OctaFX_Farid]

Forex Flash: Energy dependence a reason to be a long term GBP/USD bear – Societe Generale

Kit Juckes, Global Head of Currency Strategy at Societe Generale feels that the UK´s energy dependence situation is a good reason for being a long term bear on GBP/USD.

However, Juckes sees more supporting factors on the horizon. Firstly, he notes concern expressed by the fed´s Professor Stein about asset bubbles. Fed hawkes are slowly building influence and a policy rethink may still be months away but will be inevitable in the long run. Secondly, he notes the trend in UK inflation which has been above the MPC´s target since 2009.

He writes, “UK inflation has been above US inflation since October 2008, and that has a bearing on the real exchange rate too. GBP/USD will track EUR/USD, so Euro resilience will support GBP/USD. The pound still looks undervalued on a fundamental basis relative to the Euro. But despite that, short GBP/USD seems a viable long term trade and a better tactical trade than shorting EUR/USD too early. It’s certainly a good way of expressing the shift in relative energy dependence.”

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Feb 11, 2013

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Forex: EUR/CHF retraces from highs, around 1.2330

The Swiss franc is trimming earlier gains vs. the single currency on Tuesday, pushing the pair from the boundaries of 1.2280 to the current levels around 1.2330, challenging overnight tops above 1.2340

After a G7 statement regarding the so-called ‘currency war’, Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment, argued, “On one level, this is a slap on the wrist to Japanese ministers talking about specific levels but it allows them to carry on with policies aimed at creating domestic inflation. You could argue the clear FX manipulators out there are the Swiss with the SNB’s Jordan saying today that the Swiss franc’s 1.20 cap against the euro is still in place, the franc will weaken further and they stand ready to take further measures”.

At the moment, the cross is posting marginal losses at 1.2332 or 0.02%.

Next support levels line up at 1.2255 (lows Feb.8/11) ahead of 1.2200 (psychological level) and then 1.2187 (low Jan.14).

On the upside, a break above 1.2356 (high Feb.12) would expose 1.2369 (high Feb.6) and then 1.2505 (high Feb.4).

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Feb 12, 2013

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Forex Flash: Credit, CAD, and AUD are all showing signs of valuation fatigue – Societe Generale

Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that data wise, there is little on offer this afternoon.

He comments that he will sit back and watch equities while waiting for the State of the Union address later this evening and he will be paying especial attention to how credit performs relative to the S&P Index. In particular he notes that Credit, AUD and CAD are all showing signs of valuation fatigue.

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Feb 12, 2013

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