FOREX TRADING

Improvement Continues In The Euro Zone Ahead Of The Rate Decision

Following the release of buoyant manufacturing data released this week showing that PMI manufacturing for November final reading rose for the second month to 51.2 from 50.7 in October; today euro zone released its PMI services final reading for November coming in at 53.0 compared with October’s reading of 52.6. As a consequence, PMI composite climbed to 53.7 from 53.0 recorded a month earlier.

The reading was lifted by PMI in Germany and France, where it soared to 51.4 from 50.7 in Germany, while it inclined to 60.9 from 57.7 in France. In other European countries, PMI services in the U.K. slid to 56.6 from 56.9, but still close to the highest in 2 years.

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German Industrial Production Improves Ahead of GDP Data This Week

Today, Germany released another upbeat data after the buoyant news released recently; marking that the worst is over and the largest economy in the euro area will lead growth in the third quarter as it did in the second quarter.

The Euro Zone’s gigantic economy released its Industrial Production showing improvement in September coming in at 2.7%, higher than the revised 1.8% and median estimates of 1.0%. Also, on the year the reading inclined to -12.9% compared with the revised -16.5% and expectations of -14.4%.

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European Market Update

Risk aversion continues to simmer over health of global financial sector; UK Gov’t provides more aid to Lloyds, RBS; EU Commission sees more banking sector losses in region

ECONOMIC DATA

(IN) India Sept Trade balance: -$7.8B v -$8.4B prior

(SP) Spanish Oct Net Unemployment M/M: 98.9K v 80.4K prior

(NO) Norwegian Oct PMI: 45.8 v 49.0e

(SP) Spanish Oct Consumer Confidence: 69.2 v 70.3 prior

(UK) Oct PMI Construction: 46.2 v 47.2e

(EU) EU Commission releases forecasts: Euro-zone 2010 GDP 0.7% v +0.4% prior, Unemployment to hit 10.9% in 2011; Outlook For EU, Euro-Zone remain ‘Highly Uncertain’

(GE) German VDIK Oct New Car Registrations at 312K, +24% y/y; YTD registrations +26%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities: European equity markets have traded under pressure since before the open. Corporate earnings news out of BMW [BMW.GE], Commerzbank [CBK.GE], UBS [UBSN.SZ] (all of which were disappointing) and Swiss Re [RUKN.SZ] were all put on the side burner following updated Lloyds [LLOY.UK] and RBS [RBS.UK] APS updates. In a massive and highly detailed series of releases, Lloyds announced that it would avoid the Asset Protection Scheme, raise £21B in new capital and divest a series of assets. RBS announced that it would participate in the APS (at a lower level) and take a massive £25.5B cash injection from the UK along with wide asset sales. Financial names traded broadly lower (ex Lloyds) on this news and led the negative pressure on the EuroStoxx50. EU Commission forecasts at 4:45EST calling for further 2009/10 banking sector losses pushed markets to new lows. Trading volumes have been high with all major bourses trading above their moving averages. Leading lagers by sectors included financials, industrials and consumer names.

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European Market Update

China’s PBoC sees 2009 GDP exceeding the 8.0% target

ECONOMIC DATA

(GE) German Sept Real Wholesale M/M: -1.7%, Y/Y: -9.8%
(GE) German Retail Sales M/M: -0.5% v 1.0%e; Y/Y: -3.9% v -2.2%e

(UK) Nationwide Oct House Prices M/M: 0.4% v 0.6%e; Y/Y: 2.0% v 1.8%e; First annual increase in 19 months since Mar 2008

(FR) French Producer Prices M/M: -0.3% v -0.3%e; Y/Y: -8.1% v -8.1%e

(HU) Hungarian Sept Producer Prices M/M: 0.1% v -0.5% prior; Y/Y: 3.4% v 3.7%e
(HU) Hungarian Aug Final Trade Balance: €254.3M v €229.4M prior

(CZ) Czech Sept Prelim Industrial Output: -11.9% v -12.8%e

(SP) Spain Aug current account: -€3.2B v -€2B prior

(IT) Italian Sept PPI M/M: -0.3% v -0.3%e; Y/Y: -7.9% v -7.9%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: European markets looked set to ignore the sharp US (and to a lesser extent Asian) equity rally on the back of weak tech earnings out of Alcatel Lucent [ALU.FR]. Equities flirted with the unchanged before trending lower through the 4:00EST hour. Indian equity markets added further negative sentiment following misses from [BHARTI.IN], [SAIL.IN] and [RIL.IN] in yesterday’s session. Downside sentiment was shook off, led by out performance on the FTSE100 into 5:00EST. Earnings and commentary out of WPP [WPP.UK] regarding the ad market sent shares higher. Financials recovered from earlier losses with Lloyds [LLOY.UK] receiving two broker upgrades. Pharma earnings continued to beat with Sanofi-Aventis [SAN.FR] trading higher. Earnings out of Renault [RNO.FR], and Luxotica [LUX.IT] after the close yesterday, provided further equity lightness. Following a furious weak of earnings releases, equity markets have continued to trade on higher volume on the last trading day of October.

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European Market Update

India’s Central Bank begins exit from stimulus measures; Financial sector concerns continue to hamper equity sentiment

ECONOMIC DATA

(SZ) Swiss UBS Consumption Index: 0.632 v 0.623 prior

(FI) Finland Oct Business Confidence: -15 v -13e; Consumer confidence: 12.3 v 12.0e

(FR) France Oct Business Survey Overall Demand: -15v -41
(FR) France Oct Consumer Confidence Indicator: -35 v -35e

(TT) Taiwan Sept leading Indicator M/M: 1.7% v 1.9% prior; Coincident Indicator M/M: 1/7% v 0.6% prior

(SP) Spain Aug Mortgages on Houses Y/Y: -6.6% v -19.1% prior; Mortgages on Capital Loaned Y/Y: -14.9% v -26.2% prior

(TU) Turkey Aug Industrial Production M/M: -0.1% v 0.9% prior, Y/Y: -8.9% v -9.2% prior

(IT) Italian Oct Consumer Confidence 111.7 v 113.7e

(SW) Swedish Sept PPI M/M: -0.9% v -0.5%e; Y/Y: -1.6% v -1.5%e
(SW) Swedish Sept Household Lending Y/Y: 8.2% v 8.0% prior

(NV) Netherlands Oct Producer Confidence: -7.8 v -9.0e

(HK) Hong Kong Sept Trade Balance (HKD): -29.1B v -19.9Be

(EU) Euro-zone Sept M3 Y/Y: 1.8% v 2.2%e; 3-Month Average 2.5% v 2.5%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: European markets have traded erratically through the first 90 minutes of action. The pre-market session was dominated by corporate earnings highlighted by a smashing BP [BP.UK] that beat on all metrics and maintained its y/y quarterly dividend. BP’s earnings rallied the broader major integrated names. Other earnings included Bayer [BAYN.GE] that reiterated FY09 Rev guidance, but missed on some first call Q3 figures. Vestas [VWS.DC], BBVA [BBVA.SP] and Akzo Nobel [AKZO.NV] also reported figures broadly in line with targets. Earnings sentiment mixed with yesterday’s sharp equity sell off that initiated at 11:00EST. Following positive opening levels, markets have traded lower in linear fashion, moving through the unchanged mark before 5:00EST. Weight in markets has been heavily focused in financial names with ING [INGA.NV] under intense pressure for the second straight session, Commerzbank [CBK.GE] trading lower following rumors of revised guidance and RBS [RBS.UK] and Lloyds [LLOY.UK] moving lower due to capital raise, APS and the effects of the ING split up weighing the names.

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Consumer and producer price indexes out of the Switzerland and the Euro Zone, respectively, are both set to push deeper into negative territory, stoking fears that the onset of deflation will delay economic recovery across the Continent.

Key Overnight Developments

• New Zealand’s Wages See Smallest Gain in 9 Years in Q2
• RBA Leaves Rates at 3%, Cuts Language Hinting Future Easing

• Australian Retail Sales Unexpectedly Fell 1.4% in June (more…)

The US Dollar is set to go highly volatile today on the release of Advance GDP figures for the second quarter from the U.S. economy at 12:30 GMT. The forecasted results are -1.4%, significantly better than the first quarter results of -5.5%. The other matters that are expected to move the market today are the issue of the CPI Flash Estimate and the Unemployment Rate from the Euro-Zone. In order to earn some big profits today, open you positions in the USD, EUR, GBP, and JPY now, as Friday’s trading gets under way.

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The Euro may see selling pressure emerge in the coming session as the Euro Zone Consumer Price Index shows that inflation fell for the second consecutive month in July, stoking risks of deflation that could commit the currency bloc to a long-term period of economic stagnation.

Key Overnight Developments……. (more…)

The Euro may extend recent losses in European trading hours as Germany’s unemployment rate rises to 8.4% in July, the highest since November 2007, as the Euro Zone’s largest economy sheds 43,000 jobs. Euro Zone Economic Confidence is also on tap.

Key Overnight Developments

• Japan’s Industrial Production Grows Most Since 1953 in Q3
• Euro, British Pound Flat Ahead of the Opening Bell in Europe

Critical Levels

The Euro is effectively unchanged going into the European trading session having oscillated in a narrow 0.4% range around 1.4050 in overnight trading. Likewise, the British Pound fluctuated in a 0.4% band around 1.6380, yielding a flat result ahead of the opening bell in London.

Asia Session Highlights

Japanese Industrial Production grew at the weakest pace in three months in June, adding 2.4% from the previous month. In annual terms, the pace of decline moderated to -23.4%, the slowest rate of contraction since December of last year. On a quarterly basis, output gained 8.3% in the three months through June, the most since 1953. Much of the resurgence can be chalked up to companies replenishing inventories having sharply cut back on orders and production as the global economic crisis reached a boiling point in 2008. More of the same is likely in the coming months as restocking continues. In fact, minutes from the last meeting of the Bank of Japan revealed policymakers expect manufacturing and exports will continue to recover “mainly due to progress in adjustments in [inventories]”. That said, any sustainable rebound will have to come with growth in underlying demand, which is arguably destined to remain sluggish for some time. Indeed, the International Monetary Fund (IMF) said its latest world economic outlook that global trade volumes are likely to rebound just 1% having shed a whopping -12.2% in 2009.

Euro Session: What to Expect

Germany’s Unemployment Rate is set to rise to 8.4% in July, the highest since November 2007, as the Euro Zone’s largest economy sheds 43,000 jobs. Mounting layoffs will hinder Germany’s ability to mount a robust recovery from the current downturn, weighing on disposable incomes and discouraging consumption, the largest component of overall economic growth. Indeed, the IMF recently forecast that Germany as well as the Euro area as a whole will stand apart from other industrialized economies in seeing GDP continue to shrink in 2010. Further, the ailing labor market is likely to become a more visible drag on risk appetite as the government’s fiscal package is used up and firms run out of room to cut capacity and produce upside earnings surprises, yielding to sluggish revenue growth and driving stock valuations lower. This bodes ill for the Euro, particularly against the US Dollar, with interest rates likely to remain low and risky assets on the defensive.

Separately, Euro Zone Economic Confidence is expected to rise to 75.0 in July, marking the fourth consecutive month of improvement since the metric hit a record low in March. The reading is a composite of five sub-sector sentiment reports: Industrial Confidence (40%), Service Confidence (30%), Consumer Confidence (20%), Construction Confidence (5%), and the Retail Trade Confidence Indicator (5%). The metric may continue to gain for a bit longer as the combined impact of fiscal stimulus measures across the region and higher stock prices boost confidence, but seems likely to reverse course in the medium term as lackluster domestic and overseas demand creep back into the forefront.

Written by Ilya Spivak, Currency Analyst
Article Source – Euro May Extend Losses as German Jobless Rate Hits Highest in Nearly 2 Years (Euro Open)

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

The British Pound is likely to look past minutes from the July meeting of the Bank of England with traders unlikely to be treated to anything that has not already been priced into the exchange rate, leaving the currency to continue taking cues from risk sentiment. Germany’s IFO survey of business sentiment is also on tap.

Key Overnight Developments

• Australian Inflation Falls to the Lowest in a Decade
• Euro, British Pound Turn Lower in Asian Trading

Critical Levels

The Euro traded lower in the overnight session, losing as much as -0.4% against the US Dollar. The British Pound followed suit, testing as low as 1.6391 against the greenback.

Asia Session Highlights

Australia’s Consumer Price Index printed in line with expectations with the annual pace of inflation falling to 1.5% in the second quarter, the lowest in a decade. Continued downward pressure on consumer prices looks likely as tumbling wholesale costs filter into the final price of products. Australian Treasurer Wayne Swan said “inflation is expected to remain subdued over the near term as the effects of the global recession continue to impact on the domestic economy.” This bolsters the case for additional rate cuts from the Reserve Bank of Australia in the months ahead. Indeed, RBA Governor Glenn Stevens said as much even as the bank kept rates unchanged in July, noting that “the outlook for inflation allows some scope for further easing of monetary policy.”

Euro Session: What to Expect

Germany’s IFO Survey of business sentiment is expected to rise for the seventh consecutive month in July, pointing to continued improvement in firms’ 6-month economic outlook. Still, the reading is expected at 90.1, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a slower pace. Some recovery is to be expected as the government’s 82 billion euro fiscal boost filters into the broad economy, but the big question in Germany as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up. As it stands, the latest economic forecast from the International Monetary Fund (IMF) reveals that the Euro Zone will stand apart from other industrialized economies in seeing economic growth continue to contract in 2010, pointing to a comparatively slower return to higher interest rates that will keep the Euro on the defensive against most major currencies.

Minutes from the July meeting of the Bank of England are unlikely to prove particularly market-moving this time around, with traders unlikely to be treated to anything that has not already been priced into the exchange rate. The bank made no changes to benchmark interest rates or the quantitative easing program, saying they will “review the scale” of their unconventional easing measures in August as they release their quarterly inflation report. From here, next week’s GDP report is likely to be the key to the market’s expectations on the future direction of monetary policy. Initial cues are favorable: London-based think tank NIESR has reported the economy probably shrank just -0.4% in the second quarter, the slowest pace of decline in a year. Still, the British Chamber of Commerce has urged policymakers to expand their asset-buying scheme by 25 billion pounds, saying a recovery is “not guaranteed”, a sentiment that has been echoed by the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). On balance, British Pound price action is likely to continue taking its cues from risk appetite, with the sterling’s trade-weighted average value now 87.8% correlated with the MSCI World Stock Index.

Written by Ilya Spivak, Currency Analyst
Article Source – British Pound to Look Past Bank of England Minutes, Trade on Risk Sentiment (Euro Open)

Surprising the market yesterday was the release of the German ZEW Economic Sentiment report which showed confidence throughout the Euro-Zone’s largest economy had plunged throughout the previous month, highlighting that economic fundamentals have finally hit home the fact that recovery is not yet around the corner. This report, since identifying what was already known, had a muted impact on the value of the EUR as investors had likely already priced in the bad news from previous economic reports. Today’s economic figures will likely have a much stronger effect on the market now that confidence reports more closely resemble the market itself.

USD – USD Bullish on Goldman Sachs Earnings; Mixed from Retail Sales

The US Dollar completed yesterday’s trading session with mixed results versus the major currencies as U.S. data on retail sales and producer prices beat expectations, boosting hopes that the economy is on a slow path to recovery. By yesterday’s close, the USD had fallen against the GBP, pushing the oft-traded currency pair to 163.25. The greenback did see some bullishness as well as it gained 50 pips against the JPY and closed at 93.56.

Investment bank Goldman Sachs reported strong profits yesterday, but economic signals from the United States and Europe dimmed optimism that a global recovery may be on the horizon. In addition, U.S. retailers beat expectations with a 0.6% sales rise in June, boosted by a big jump in auto sales. But excluding both autos and gasoline, sales were down 0.2 % in a fourth consecutive monthly decline. The slight rise in risk appetite also boosted higher-yielding currencies at the expense of both the Yen and USD, which tend to see their biggest gains when investors grow anxious and buy them as safe havens.

USD trading will be interesting today as important economic data is expected to be released. From 12:30 GMT a series of economic indicators will begin to be released, starting with Core CPI figures, the Empire State Manufacturing Index, Industrial Production and Crude Oil Inventories. Surprisingly, almost all of these releases are expected to be higher than their previous figures, meaning the USD could show bullishness today. Traders are also advised to follow FOMC Meeting Minutes at 18:00 GMT. This meeting is very important as it is very likely to impact the Dollar’s volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar going into the rest of this week’s trading.

EUR – EUR Pressured by German Economic Sentiment Figures

The EUR finished yesterday’s trading session with mixed results versus the major currencies. The 16-nation currency extended gains versus the Japanese yen on Tuesday, to trade above $130.75 amid a broad sell-off in the yen. The EUR experienced similar behavior against the CHF as the pair rose from 151.40 to 152.10 by days end. The EUR did see bearishness as well as it lost around 60 pips against the GPB and closed at 0.8560.

Data showed German investors have turned more pessimistic than expected in July for the first time in nine months, a signal analysts say means the nation’s economy will not start growing until next year at least. Euro-Zone industrial production data also disappointed, growing only slightly in May after a bad release in April and remaining 17% lower than it was a year earlier.

Optimism about the German economy has grown in recent weeks, with data pointing to stabilization in the manufacturing sector and government officials saying gross domestic product (GDP) could be flat or slightly higher in the April-June period, breaking a string of four straight quarters of contraction. But the Mannheim-based ZEW economic think tank’s monthly index of economic sentiment fell yesterday to 39.5 from 44.8 in June, the first drop since October 2008, signifying that expectations for a speedy recovery have begun to fall.

JPY – Yen Losing Ground on All Fronts

The JPY saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell sharply against the Sterling Pound, pushing the oft-traded currency pair to 152.50. The Japanese yen experience similar behavior against the EUR and closed at 130.55.

The Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today. The rate is expected to remain unchanged, but traders should pay close attention to the BoJ Press Conference that will follow to look for expectations of Japan’s economic future. A bullish statement from the BoJ could lead some traders to believe that it is forecasting a rosier financial climate in Japan.

Crude Oil – Crude Oil Inventories to be Released Today

Crude Oil prices rose slightly yesterday in seesaw trading as concerns about consumer demand tempered an earlier rally on optimism reflected in a global equities rally. Oil prices have fallen by about $14 a barrel, or 19%, since June 30th after poor employment data from the U.S. and Europe raised doubts that the global economy was poised for a strong recovery this year.

Today, the release of crude oil inventory data is likely to help determine the market’s next direction for the black gold. Moreover, a release of a string of positive economic figures from the U.S could help its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.

Article Source – European Economic Sentiment Plunges, EUR Flattens