FOREX TRADING

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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Sunrise Market Commentary

• Global bonds rally, as equities crumble
  Friday, bonds digested very well a series of stronger eco data and rallied when equities crumbled later in the US session. An important week ahead for bonds as they are at crucial levels. Key US eco data, the ECB meeting, the Greek saga and vulnerable equities will spice trading.
• Good news is good for the dollar; bad news is still negative for the euro
  EUR/USD continued its slide on Friday. A strong Q4 US GDP figure (and subsequent stock market gains) supported the dollar positive sentiment. Later in the session, the correction on the equity markets showed that bad news was still negative for the euro as well. While the EUR/USD downtrend remains firmly in place, the decline in EUR/GBP is slowing

The Sunrise Headlines

• On Friday, US Equities ignored the better than expected US fourth quarter GDP figures and ended the session 1% lower led by technology shares and materials. This morning, Asian shares start the new month in negative territory.
• China sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew, but the pace of expansion slowed according to the official PMI survey.
• US President Barack Obama will propose today a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down about $700 billion, or 4% of GDP by 2013.
• The Bank of Japan may need to do more on the monetary policy front to stop deflation, Japan’s Finance Minister Naoto Kan said this morning in the Nikkei daily.
• Australian house prices rose at their fastest pace in six years last quarter as historically low mortgage rates and tax breaks stoked demand in a tight market. This week, the Australian central bank is forecasted hike rates from 3.75% to 4.00%.
• Crude oil prices ($72.76) dropped for a fourth consecutive session on Friday, threatening to break down trough key support levels. Commodities in general are under pressure with the CRB dropping through major support.
• Today, the eco calendar contains euro zone and UK manufacturing PMI, the US manufacturing ISM and personal income and spending data (more…)

Highlights

• Risk is off the cliff and the unwind has just begun
• 4Q earnings better, not good enough
• US GDP in perspective
• Fundamentals still bearish for oil
• Cable, the path of least resistance
• Key data and events to watch next week

Risk is off the cliff and the unwind has just begun

Last week we expressed caution that the risk sell-off that has characterized the month of January was at a tipping point. That point has been broken to the downside and we are now expecting a further unwinding of long risk positions, which should see stocks, commodities and the JPY-crosses (EUR/JPY, AUD/JPY, etc) extend recent declines more aggressively. The USD is likely to be the primary beneficiary of a further risk sell-off, gaining ground on both better US data and on safe haven appeal as risk aversion increases.

The fundamental backdrop remains the same as over the past few weeks–China enacting measures to slow its economy, undermining global growth outlooks; reduced expectations over the strength of the global rebound; and heightened credit/fiscal concerns in Europe (Greece-more below), the UK, and elsewhere–but we think long-risk positioning is now likely to exert a stronger influence. Long positions in gold, oil and other commodities continue to dominate, and we have seen only small reductions in the face of recent weakness, suggesting the exodus is yet to come. Numerous stock market analysts are pointing to January as a bearish reversal month after a nine-month uptrend, and we would note that the S&P 500 closed just barely below its daily Ichimoku cloud at 1074.82. Gold prices managed to hang on above the weekly Kijun line at 1078.45, but the daily picture looks more ominous, with a downside crossover of the Tenkan below the Kijun with price below the cloud, constituting a strong sell signal. We prefer to sell bounces in the commodity space, rather than chasing this move lower.

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The USD and the JPY were the strong performers this week. The Greenback is breaking out of its recent consolidation mode. Risk aversion kept the Japanese Yen strong as the preferred safe haven currency. Commodity currencies are subdued, coming off December strength as gold made record highs. The risk aversion also pressured pairs such as the Loonie(CAD) and Aussie(AUD).

EUR/USD: Continuation After Consolidation

Daily and 4H: The EUR/USD is showing bearish strength. It looks like the 1.40 area is after all providing some short-term support as anticipated.

In the daily, you can see a swing projection to the 1.37/38 area. This is the short/intermediate term projection.

In the near/short-term. The market is rallying. This is an expected correction rally, so the strength should be inferior to that of the declining candlesticks.

Then there might be topping action around 1.4250 early next week. A hold there as resistnace would further confirm the bearish outlook to 1.37.

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Ended the last year, Israel has softly amassed one of the world’s largest repositories of foreign exchange reserves. On the average, the Central Bank of Israel has bought $100 million worth of Dollars day-to-day since July 2008, bringing its total reserves to $52 Billion. The Bank’s goals are twofold: to sterilize the inflow of speculative money pouring into Israel in order to mitigate inflation, and to stem the appreciation of the Shekel.

Towards this latter, the Bank received a hike by the credit crisis, which caused an outbreak of risk aversion and sent investors rushing to shift funds into so-called safe haven countries/currencies. As a result, the Israeli stock market tanked, and the Shekel plummeted 30% in a matter of months. (more…)

The U.S Dollar rose against most other major currencies Tuesday, as comments by Ben Bernanke eased concerns that policy-makers won’t act decisively to head off inflation spawned by efforts to counter the credit crisis. The Federal Reserve Board chairman’s testimony was favorable for the USD, as his assessment on the U.S. economy revived the greenback’s safe-haven appeal.

USD – Dollar Rises on Increased Risk Aversion

The U.S. Dollar rebounded while U.S. stocks retreated yesterday after initial gains were overshadowed by cautious outlooks on the economy from corporate executives and Federal Reserve Board Chairman Ben Bernanke. As a result, the USD finished yesterday trading session 100 pips higher against the GBP at the1.6410 level. The greenback also saw bullishness against the EUR and closed at 1.4175.

U.S. government debt prices rose sharply on Bernanke’s comments that an easy money policy would likely be needed for an extended period. Moreover, risk appetite had increased in the past few days after stronger-than-expected U.S. corporate earnings. The latest to report higher-than-expected quarterly results was manufacturer and Dow component Caterpillar Inc. yesterday.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories report at 14:30 GMT. Traders will be paying close attention to today’s announcement as it has the potential to boost the USD in the short-term. Traders are also advised to follow Federal Reserve Board Chairman Ben Bernanke’s testimony at around 14:00 GMT. This testimony 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 USD going into the rest of the week’s trading.

EUR – EUR and GBP Erase Gaines on all Fronts

The EUR weakened against most of its major currency rivals yesterday on concerns CIT Group Inc. may file for bankruptcy, renewing demand for a refuge. By yesterday’s close, the EUR fell against the JPY, pushing the oft-traded currency pair to 133.17. The EUR experienced similar behavior against the CHF and closed at 1.5160.

The British Pound also fell against the U.S Dollar as a report showed the U.K budget deficit climbed in June to the highest per month since records began in 1993, fueling concern the government will struggle to find buyers for its assets. The drop pushed the GBP down from near the highest level this month against the Dollar. The budget shortfall rose to 13 billion Pounds from 7.5 billion a year earlier. Gilts reversed earlier declines after Federal Reserve Board Chairman Ben S. Bernanke told Congress that policy makers will keep Interest Rates “exceptionally low.”

Today, there is plenty of economic news coming from the Euro-Zone that will determine the GBP and EUR levels by the end of today’s trading. From the Euro-Zone, there are the European Industrial New Orders, and French Consumer Spending figures. From Britain, the most important news will be the MPC Meeting Minutes and CBI Industrial Order Expectations figures. All these news events will be important in helping set the strength of the GBP and EUR in this week’s trading.

JPY – Yen Strengthens on Bernanke Testimony

Japan’s currency rose against most of its major counterparts after Bernanke mentioned that at some point the Fed “will need to tighten monetary policy” to counter the emergence of an inflationary problem. The Yen also advanced from near a 2 week low against the U.S dollar on speculation Japanese exporters bought the currency after its 1.8% decline last week.

Traders today have very little fundamental news emanating from Japan as the only indicator being released is the trade balance report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the USD and the GBP appear to be clutching the reins of today’s market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.

Crude Oil – Oil Stabilizes after Steady Appreciation

Crude Oil slid down slightly, to just above $65 a barrel, on Wednesday, after data showing an unexpected rise in U.S. crude stocks underscored worries about persistently weak demand from the world’s top oil user. The U.S. crude oil stockpiles rose unexpectedly last week as domestic refining activity slumped, the American Petroleum Institute (API) said on Tuesday. However, firm equity markets and a weak Dollar could lend some support to Oil, analysts say.

Crude prices climbed 8.7% for the past week as investors bought futures on expectations of higher fuel demand. Optimism that the worst of the global recession is over followed gains in U.S. leading economic indicators and as financial service companies said earnings climbed.

Article Source – Greenback Rebounds from 6-Week Low