FOREX TRADING

The dollar edged up higher against the major currencies in a largely listless trading session, holding steady around 1.1940 versus the euro and near 1.4480 against the British pound. The US equity indexes dipped into negative territory in afternoon trading, marginally extending Friday’s sharp sell-off – with the Nasdaq slumping by over 2% and the Dow Jones lower by more than 1.0%. Crude oil traded slightly lower, holding steady near $71.45 per barrel while spot gold improved by almost 2%, climbing to $1,243 per ounce.

The disappointing US jobs data and heightened uncertainty stemming from the Eurozone debt crisis continues to weigh on markets prompting renewed bouts of risk-aversion, resulting in the major indexes to grind lower while the greenback benefited from safe-haven flows. Tokyo’s Nikkei index sold-off sharply, plunging by 3.84% while the Shanghai composite index shed more than 1.6% to bring the year-to-date loss to 23.4%. Lingering questions over the sustainability of the global economic recovery and fears for a double dip recession will continue to drag on investor sentiment. (more…)

Risk aversion crept back into markets today, putting pressure on global bourses. Ongoing concerns regarding European sovereign debt and policy tightening in China weighed on risk appetite, boosting demand for safe haven assets like the greenback and the yen. The RBA increased Australia’s benchmark rate for the 6th time since October but hinted to a slow in the pace of monetary tightening, sparking a sell-off in the aussie. The greenback benefitted with the dollar index re-testing the April 28th high, at 82.71. Commodity prices were softer on dollar strength, with gold dipping to $1181 and crude oil falling back below $86 per-barrel.

Bail-Out Provides No Support

Euro pressure persisted amid lingering fears over Greece, as today marked the start of a 48 hour nationwide public sector strike in protest to the recent implementation of strict austerity measures. The single currency fell early in the London session, triggering our medium-term limit at 1.3130. The euro’s next target lies at the figure. Subsequent floors are eyed at the 100% Fibonacci extension taken from the April 26th and May 2nd highs at 1.3060, followed by 1.3020 and the 1.30 handle. Long-term targets extend as low as 1.2880. To the topside, resistance is seen at 1.32, backed by our risk limit at 1.3260, and the 1.33 figure. Upside potential gains momentum with a break above the monthly pivot at 1.3340, with additional ceilings eyed at 1.34 and 1.3450. (more…)

The dollar rallied across the board amid heightened risk aversion on a combination of the fallout from the SEC’s investigation into Goldman Sachs and fears that the Chinese government may implement additional measures to curtail its overheating economy. Asian stocks sold-off sharply to start the week with the Shanghai Composite index shedding 4.8% — its largest one-day drop since August 2009. Crude oil also tumbled, shedding more than 2.5% amid fears that a slowdown in the global economic recovery will temper demand.

The US data released today saw the leading economic indicators rise by 1.4% in March, versus an upwardly revised 0.4% a month earlier. The calendar for the coming week will provide additional gauges on the housing market, including the February home price index, March existing home sales and new home sales. Also due out this week will be producer prices and durable goods orders.

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• USD: Higher, SEC may expand probe of Wall Street, fresh Greek debt worries, leading indicators rise
• JPY: Mixed, safe haven demand sparked by the Goldman probe and Greek debt worries, tracking stocks
• EUR: Lower, Greece/German ten year bond spread at record high
• CHF: Lower, SNB intervention threat dampens safe haven demand, re-linking to risk sentiment
• GBP: Lower, UK election polls suggest a deadlocked Parliament
• CAD and AUD: AUD & CAD lower, Yuan revaluation may delay RBA rate hikes, commodities lower

Overview

The USD traded higher Monday supported by a spike in risk aversion as global equity markets decline in reaction to report that the SEC is widening its probe of Wall Street. Greek fiscal troubles continued to pressure the EUR as the Greek/German ten year bond spreads widened to a record 468bps. GBP traded lower in reaction to the latest election polls which point to a possible hung parliament as the UK’s third largest party, the Liberal Democrats surge in popularity. Commodity currencies weakened in reaction to a drop in commodity prices as crude drops below $81 a barrel and the price of gold falls by more than 1%. AUD was pressured by speculation that if China elects to revalue the Yuan the RBA may delay future rate hikes. CAD was pressured by report of smaller than expected investment inflows last month and weaker crude. JPY initially traded higher supported by safe haven demand sparked by the Goldman probe and Greek debt worries. JPY turned lower as stocks rise in reaction to strong US leading indicators. US economic data was positive with leading economic indicators rising above forecast. USD pared early gains after the leading indicators release as equity markets stabilize. There was limited reaction to report that the IMF plans to raise its global growth forecast to 4%. Focus turns to the BOC policy meeting Tuesday. Risk sentiment is the dominant driver of FX trade.

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A Big Risk Rebound – More To Come?

A big rebound in risk after the market started the week on back foot after a chaotic triple witching for US equities on Friday and a weak opening this week on the passage of the historic US health care bill. Today’s rally basically erased the risk aversion brought on by these developments and brought the market back approximately to its Thursday closing levels. EURUSD likewise recovered from a bout of weakness below 1.3500 after the Greek Deputy Prime Minister lashed out with aggressive language against the Euro and especially Germany, which he said was enjoying the destabilization brought on by Greece and profiting from the weak Euro and whose banks are speculating in Greek debt.

A Bloomberg article discusses the PBOC ‘s Zhou’s suggestion that US and China may engage in bilateral talks to address the pressing yuan issue since the political ‘noise’ isn’t helping the situation. Consensus is firming for some kind of revaluation of the yuan in coming months. It will most likely be the slow revaluation model that it employed consistently in 2005-08 and to the tune of about 5% per year, unless China experiences some kind of trouble. Others believe the odds for a step revaluation initially are high, including Goldman Sachs’ economicst Jim O’Neill. The kneejerk response to any move toward revaluation will likely be risk negative because it is an effective tightening on growth, and this market is enjoying a speculative bubble brought on by low interest rates and won’t like the news.. Now that the Obama administration is over its massive campaign to get healthcare passed, it can spend more political attention and time to the yuan issue. Any steps the Chinese take are likely to be cautious ones, so this may prove less of a market mover than many anticipate would be the case.

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Sterling Falls To A Nine Month Low As The Euro Zone’s Debt Worries Investors

The British pound fell to nine month low against the dollar as concerns over euro zone sovereign debt problems boosted the appeal of the greenback as a safe haven currency. Worries about debt problems in the euro zone have extended beyond Greece to Spain and Portugal, hitting riskier assets, with sterling falling in tandem with the euro against the greenback. Last week producer prices data showed further upward pressure on UK inflation, with British manufacturers raw material costs up more than expected last month and continuing to rise at their sharpest annual rate since October 2008. Traders said position adjustment ahead of the weekend accelerated selling of the pound, which has lost close to 2 percent against the dollar this week. The GBP/USD is currently trading at $1.5570 as of 7:14am, GMT, with a bullish trend.

The euro continued to fall this week against the dollar on speculation widening budget deficits in European nations such as Greece and Portugal will deter investors from buying the region’s assets. ‘As sovereign risks spread in the euro-zone, risk aversion will continue in the market,’ said Susumu Kato, chief economist in Tokyo at Credit Agricole Securities, a unit of France’s Credit Agricole SA. ‘Implications of the financial issues remain unclear, which has weighed heavily on the euro.’ (more…)

USD Higher, Jobless Claims Post an Unexpected Rise

• USD: Higher, jobless claims rise, productivity beats expectations, labor costs fall more than expected
• JPY: Higher, supported by a spike in risk aversion and EU debt troubles
• EUR: Lower, credit default spreads widen in Europe, German industrial orders drop, ECB on hold
• GBP: Lower, BOE to pause asset purchases, left open for future QE if economy deteriorates
• CAD and AUD: AUD & CAD lower, Australian retail sales decline, commodity prices slide

Overview

USD traded higher Thursday supported by EU sovereign debt risk, weaker equities and declining commodity prices. Credit default swaps widened to a record level in Portugal and continued to widen in Greece and Spain. It’s becoming more expensive to buy protection against debt defaults in Greece, Spain and Portugal. European sovereign debt risk is the main focus of FX trade. The ECB elected to hold monetary policy unchanged as expected and the BOE decided to pause its asset purchase program. In the press conference following the ECB meeting ECB President Trichet said the interest rate level remains appropriate, inflation outlook risks broadly balanced, and EU economy to grow at a moderate pace. Trichet also said that high debt puts burden on monetary policy and he thinks Greece is moving in the right direction on its deficit reduction plans.Trichet also warned that all EU countries must respect the EMU growth pact. The EMU growth pact includes restrictions on GDP debt ratio for countries that join the EUR traded to the day’s lows as Trichet discussed European fiscal imbalances. EU debt troubles may delay ECB exit plans. The BOE left the door open for future expansion of quantitative ease if economic conditions deteriorate. Commodity currencies traded lower pressured by a spike in risk aversion as global equity markets decline pressured by global debt worries. AUD weakened in reaction to report of weaker than expected Australian retail sales and a sharp rise in New Zealand’s unemployment rate. JPY traded  sharply higher supported by safe haven demand sparked by a spike in risk aversion. US economic data was mixed with jobless claims posting an unexpected rise. Unit labor costs declined more than expected and productivity came in stronger than expected. USD remained higher after the release of the jobless claims and productivity data. Factory orders were reported slightly higher than expected. Focus turns to Friday’s release of US January unemployment and nonfarm payrolls. USD headline unemployment is expected to post a 0.1% rise to 10.1% and nonfarm may turn slightly positive. (more…)

Dollar And Yen Fall As Optimism Returns

The dollar fell against most major currencies on Monday as positive global economic data induced investors to buy riskier assets. The ISM US manufacturing PMI showed US manufacturing activity expanded to the highest level since August 2004; personal income grew slightly more than expected; and personal spending increased for a third consecutive month. The S&P 500 rose 15.32 to 1,089.19. The yen fell as risk aversion eased. Sterling rose modestly on the strongest manufacturing PMI in 15 years and speculation the Bank of England will exit its quantitative easing program at Thursday’s policy meeting. Earlier the pound was pressured by opinion polls indicating neither of the big parties would win a majority in the upcoming election. The oversold Australian and Canadian dollars rose on higher commodity prices. The Reserve Bank of Australia is expected to raise its key interest rate by 25 basis points to 4.00%.

The EUR/USD rose for the first day in six as the Greek yield spread narrowed. EU Economy Commissioner Joaquin Almunia stated that EU executives believed Greece can fix its budget crisis but there are risks. If those risks materialize, the EU would demand new measures, such as new taxes and cutbacks. The EUR/USD is in a strong downtrend but oversold and bounced on the 1.38-area support today. There are resistances the 1.40 and 1.42 areas.

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