FOREX TRADING

USD Higher, Consumer Confidence Tanks

• USD: Higher, house prices fall less than expected, consumer confidence falls sharply, stocks decline
• JPY: Higher, supported by spike in risk aversion and gains in cross trade
• EUR: Lower, IFO unexpectedly declines, German growth may have contracted in Q1, Greek bank downgrade
• GBP: Lower, weak mortgage approvals, BOE’s King says QE may be expanded
• CAD and AUD: AUD & CAD lower, crude oil prices drop, hawkish comments from the RBA deputy governor

Overview

The USD traded higher Tuesday in reaction to weaker economic data from Europe and a sharp drop in US consumer confidence. The EUR was pressured by report of an unexpected drop in German IFO and ongoing concern about the outlook for sovereign debt risk in Greece. EUR was also pressured by report that Fitch has downgraded Greek banks. GBP was pressured by report of weaker than expected UK mortgage lending and comments from a number of BOE officials which suggest that the BOE may have to expand quantitative ease if the UK economic outlook weakens. There was active trade in the EUR/CHF cross with the CHF trading near two week low versus the EUR pressured by rumors of SNB intervention. Commodity currencies traded lower in reaction to a sharp drop in the price of crude and weaker equity market trade. AUD downside was limited by hawkish comments from the RBA deputy governor that strong AUD is helping contain inflation. US economic data was mixed with the Case Shiller home price index coming in near market expectation and consumer confidence posted a sharp decline. USD and JPY rallied to the day’s highs after the release of the weak US consumer confidence supported by weaker equity market trade and a spike in risk aversion. Focus turns to Fed Chairman Bernanke’s testimony before Congress Wednesday and the release of US home sales. The trade expects Bernanke to downplay the risk of an imminent tightening by the Fed. Late Monday the Fed’s Yellen said the US economy still needs low interest rates. New home sales are expected to post a modest gain. (more…)

Soros Questions the Euros Survival & Bernanke’s Testimony in Focus

Forex News and Events:

Issues surrounding Greece are still the key driver of FX pricing and given the outlook, it will keep the EUR under pressure. This weekend, the German magazine “Spiegel” suggested that a eur25bn bailout was being negotiated, which gave the single currency and risk correlated trades a slight boost, but optimism was quickly grounded when the German Finance Minister denied the rumour. But more eye-opening was a very lucid piece in the FT by G. Soros. Soros states that the EUR “construction is patently flawed” and that “The crash of 2008 revealed the flaw in its construction, when members had to rescue their banking systems independently. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart.” While the arguments outlined in this article are well understood by most market professionals, this piece will clearly bring the EUR situation mainstream. While the EURUSD was able to regain most of its lost ground after the knee jerk selloff prompted by the Fed decision to hike the discount rate (Friday), we believe as participants begin to view the current problem as less of a funding issue and more of a structural problem, the EUR will continue to be sold heavily on rallies. In the near term, the issue of funding cost will be highly debated and scrutinized. (more…)

USD Pares Gains as Consumer Confidence Rises

• USD: Higher, spike in risk aversion as China’s tightens monetary policy, consumer confidence rises
• JPY: Higher, China to hike reserve ratios on two major banks, BOJ policy unchanged, cuts deflation forecast
• EUR: Lower, above forecast German IFO fails to boost demand
• GBP: Lower, UK GDP disappoints, UK crawls out of recession, Pimco’s Gross says avoid UK debt
• CAD and AUD: AUD & CAD lower, China’s reserve ratio hike discourages demand for high yield currencies

Overview

USD traded higher Tuesday supported by a spike in risk aversion as equity markets decline in reaction to report that China hiked reserve ratios on some of its banks. Tightening of monetary policy in China generates concern about the global recovery. GBP was pressured by a report of weaker than expected UK Q4 GDP.EUR traded lower despite report that German IFO came in above forecast. GBP and EUR were pressured by selling in cross trade to the JPY with JPY supported by safe haven flows as equity markets decline. JPY traded higher despite S&P lowering of Japans bond outlook to negative from stable. S&P placed Japan on negative watch due to concern about Japan’s rising debt load and lack of flexibility to deal with reducing the debt. Commodity currencies traded lower tracking the spike in risk aversion and weaker commodities with crude oil prices falling below $74 a barrel. There was limited reaction to report that Fed officials are considering adopting a new benchmark interest rate to replace the one used for the last two decades (Fed funds). According to a Bloomberg report Fed officials are considering interest on reserves as the new benchmark rate. Today’s US economic data was mixed with case Shiller home price index down and consumer confidence rising. USD came off its high after the consumer confidence report. Focus turns to Wednesday’s FOMC meeting and President Obama’s State of the Union address. (more…)

• USD: Mixed, pares looses as consumer confidence rises more than expected
• JPY: Lower, US/Japan 10 year bond yield spread at widest level in two years
• EUR: Lower, downside limited by gains in cross trade to JPY and GBP and improving risk appetite
• GBP: Lower, concern about UK debt and election uncertainty
• CAD and AUD: AUD higher & CAD mixed, improving growth outlook, cooper prices at new highs for 2009

Overview

USD opened lower Tuesday pressured by improving risk appetite as global equities rally to their highest level for the year. As markets reopened from Christmas holiday in the UK and Australia, GBP continued to underperform pressured by concern about UK debt and AUD rallied more than 1% supported by surge in copper prices to a new high for 2009. USD consolidated recent gains versus the JPY as the US/Japan 10 year bond yield spread rose to its widest level in two years. There was limited reaction to report that Japan’s Finance Minister Fujii has been hospitalized. (more…)

Confidence Drop as Americans Still Fear the Outlook for the Labor Market!

Consumer confidence retreated in September according to the U.S. Conference Board, as conditions are still challenging amid rising unemployment and tightened credit conditions, though the economy has been showing signs of improvement recently, yet consumers are yet to feel a drastic change over the outlook of the economy.

Consumer confidence dropped in September to 53.1 from the prior revised estimate of 54.5 and below median estimates, as the present situation index dropped to 22.7 from 25.4, while the expectations index dropped slightly to 73.3 from 73.8, whereas people saying business conditions were bad rose to 46.3 from 44.6. (more…)

Forex Markets sentiments are boosted by another round of solid data from US. Conference Board consumer confidence rose sharply to 54.1 in Aug, just below May’s high of 54.8. S&P Case-Shiller home price index for 20 cities dropped -15.4% yoy in June, much better than anticipation of -16.4% and was the best reading since April 2008. The data provides some other positive signal that the housing markets in the US are stabilizing. US stocks extends recent rally with DOW breaking through 9600 level to as high as 9620 til now. Crude oil also followed stocks and touches 75 level. US Dollar and Japanese Yen, on the other hand, are sharply lower versus other major currencies. (more…)

The rally in global stock markets has led to a sell-off of the safe haven currencies and pushed investors to higher riskier assets as many see the global recession coming to an end. The encouraging global economic data has also been helping push Crude Oil to the $69 price level.

USD – USD Depreciates, Consumer Confidence Growing

The steady improvement to risk appetite over the previous week has helped push the EUR/USD above 1.4200 at the start of this week’s trading. While the greenback has been trading relatively flat versus the other major currencies, it is nonetheless accelerating towards intense volatility at the start of this week. The rally in global stock markets has helped convince investors to pull away from the safety of the dollar in exchange for riskier assets. In the forex market, this means a diversification towards the EUR, CAD and even AUD.

A sudden surge in the Asian stock markets at the end of last week has helped reduce demand for safe-havens like the USD and JPY, but their attraction has remained steady enough to prevent vast drops in value. Confidence may be climbing the world over, but investors may not yet be brave enough to jump whole heartedly back into riskier investments. A demand for safe-havens remains despite the boost in optimism.

Looking ahead this week, we’ll complete another part of the picture for the US housing market with the New Home Sales report expected later today at 14:00 GMT. A more intricate look into American optimism will be delivered on Tuesday with the CB Consumer Confidence report, and week’s end will provide traders with a look into the first portion of this year’s second quarter GDP, which tends to have the most impact of the 3 reports released on this figure. These reports will no doubt put the USD at center-stage for the duration of the trading week and investors would be unwise to skip over this week’s news events surrounding the US economy.

EUR – EUR Strengthens as GBP Sinks; Risk Appetite Climbing

The spectacular results from last week’s PMI and German Ifo Business Climate report helped push the EUR higher against most of its currency pairs. However, the British Pound suffered heavy losses at the end of last week’s trading due to worse-than-forecasted GDP results. Climbing back above the 1.42 level against the USD, and even spiking upwards of 0.8650 against the Pound Sterling, the EUR’s gains were unmatched last week.

Precisely opposed to the value of the EUR, as pertaining to risk appetite, the Euro-Zone currency indeed strengthened due to the perception that its regional economy is stabilizing. This belief has helped stoke the notion that recovery is on the way by the end of this year. The subsequent return to riskier assets helps devalue safe-havens such as the Dollar, while pushing more diverse currencies, such as the EUR, higher against the other currencies.

No doubt the devaluation of the Pound also led to a boost in the value of the EUR by the sheer weight of regional competition. As the wave of risk appetite took hold last week, the GBP may not have offered investors the necessary level of security, which also helped boost the gains made by the EUR.

While economic releases from the Euro-Zone led the market last week, and also helped revive demand for the EUR, this week’s trading will see no such thing. The EUR is surprisingly absent from this week’s calendar as the US economy takes the wheel. If US data can encourage the recent return to risk appetite, then the EUR’s rally may continue this week.

JPY – JPY Anticipating European Market Opening

The recent rise in risk appetite has helped the mild return of the Yen-denominated carry trade. With the JPY climbing modestly against most pairs, the gains seem to be muted as investors weigh the JPY as a safe-haven or carry-trade, and the balancing act has led to a series of consolidation trends in the JPY crosses.

It appears the Japanese Yen has leveled-off versus almost all of the major currencies in anticipation of a rather large impending movement. If the rally in Asian stocks continues from last week, investors may see the JPY lose value as the carry-trade returns with full force. For the time being, it appears as if traders the opening of the European markets to weigh in on positions placed at the end of last week. If expectations are correct, forex market participants could see a sharp drop in the value of the Yen in today’s early trading hours.

Crude Oil – Oil Reaching $70 as Market Optimism Surges

As the US Dollar has declined over the last few trading days, the value of a barrel of Crude Oil has been appreciating. The steady climb back towards $70 a barrel has helped boost the GDP of many oil-producing Arab countries. The downside is the ever-present and growing connection between Middle Eastern economic growth and fluctuations in the price of oil, which has wrought havoc on these countries over the past few months despite efforts to diversify investment and industry.

Market optimism has helped return many investors away from the USD and into riskier assets. This helps boost the demand for commodities as a method of portfolio diversification. While the current price range of Crude Oil may not be justified by recent supply and demand levels, it nevertheless reflects the value derived by speculation of future growth. The surge in market optimism helps bring about the purchase of Crude Oil as investors anticipate industry growth world-wide. If this week’s news events continue to boost this optimism, Crude Oil may easily climb above $70 in the days ahead.

Article Source – Dollar Falls as Investors Turn to Riskier Assets