Thursday, December 24, 2009
Euro, British Pound Little Changed on Uneventful Day of Trading
Empty economic calendars for most of Western Europe made for relatively uneventful trading for the Euro and British Pound. Yet regional equity indices finished the day at fresh 2009 highs as financial market risk appetite remained buoyant heading into year-end. Traders will have to wait for next week’s potentially market-moving Euro Zone Consumer Price Index data to force major moves in EUR pairs. In the meantime, most should remain cautious of thin forex market liquidity that is likely to last into the new year.
Japanese Yen Big Loser on Bank of Japan’s Intervention Treat
The Japanese Yen was the biggest loser following news that Bank of Japan members were ready to take action following impressive Yen appreciation. Traders pushed the Japanese Yen to extremes not seen in over a decade, prompting the Bank of Japan to hold an emergency meeting with not-so-subtle implications that it regarded Japanese Yen strength. Given deflationary headwinds and a strong dependence on export industries, Japanese officials are clearly opposed to excessive currency appreciation and Bank of Japan Minutes showed that “many” members agreed “the bank would maintain its stance of responding promptly to changes in the market situation.” The fairly clear threat of intervention kept the USDJPY above the 85.00 mark, and we suspect that similarly direct BoJ rhetoric may keep the USDJPY from dropping too far below 90 through the foreseeable future.
US Dollar Pulls Back on Half-Day of Trading
The US Dollar finished the day lower against the Euro and other key forex counterparts as recently impressive US Dollar appreciation gave way to a noteworthy short-term pullback. Consistent with our recent calls for a near-term correction on exceedingly one-sided forex sentiment, the Greenback gave back ground through relatively illiquid holiday trading. The US economic calendar provided some early-morning support and slowed earlier losses. US Durable Goods orders showed healthy growth in business capital expenditures for the month of November, while Initial Jobless Claims data showed that fresh unemployment insurance claims fell to their lowest levels in 15 months.
Combined with last month’s impressive US Non-farm Payrolls results, we are beginning to see more concrete signs of turnaround in the domestic labor market. Suffice it to say, December’s NFP results could have a fairly substantial effect on US fundamental forecasts. In the shorter-term, traders should be wary of very limited liquidity and manage position risk accordingly. Though markets seldom post big moves through the holidays, thin liquidity can make for exaggerated price action on scant volume.
Combined with last month’s impressive US Non-farm Payrolls results, we are beginning to see more concrete signs of turnaround in the domestic labor market. Suffice it to say, December’s NFP results could have a fairly substantial effect on US fundamental forecasts. In the shorter-term, traders should be wary of very limited liquidity and manage position risk accordingly. Though markets seldom post big moves through the holidays, thin liquidity can make for exaggerated price action on scant volume.
Saturday, December 19, 2009
US Dollar: Will Thin Liquidity Leverage or Thwart The Dollar's Rally?
The dollar rallied against all of the majors this past week. In fact, on a trade weighted basis, the greenback has rallied for nearly three weeks and climbed over five percent trough-to-peak. More importantly, putting this strength into perspective, the advance has tentatively called for a meaningful trend reversal in the reserve currencies favor. This is a long-overdue reversal considering its initial decline developed through most of 2009. However, this rally will carry the qualifier “tentative” until after the abnormal trading conditions of the year-end period pass and the underlying investor sentiment finally collapses under its own weight. We are heading into a highly reactive and malleable period the markets; and nascent trends can be quickly snuffed out or heartily amplified given the right combination of conditions. Which combination should we expect of the greenback?
The most impressionable and vague dynamic for the currency market over the next few weeks is general trading conditions. Most of the Western world will shut down for the Christmas holiday; but liquidity will drop off well before the actual markets close and will remain depressed until after the turn of the year. History has shown us instances where similar situations have stabilized markets and dampened volatility; but there have also been cases when the leveraged influence of speculators has amplified price action and setoff meaningful breakouts. Though we cannot truly tell which level of activity is in store for the markets next week, the abundance of potential energy and a busy economic docket warrants caution. Considering the aggressive move the dollar has made over the past three weeks, the currency is working with considerable momentum. Extending or retracing this move would merely be a factor of speculative interest (which there will be no shortage of through the end of the year).
There are a few prominent drivers that should be monitored. Interest rate speculation has been a major contributor to the dollar’s strength so far; and the consensus forecast for a hike in June is closing in. This also ties directly into the currency’s standing on the risk spectrum. The benchmark US market rate (the three-month Libor) is still edging towards record lows; but its pace has slowed. This factor has certainly contributed to the dollar’s malaise as investors have moved from diversifying safe haven assets to using the currency to fund the reemergent carry trade. However, a long-term assessment of financing tells us that US rates will rise eventually (and more likely soon). And, though the Japanese Libor is trading at a premium now; the government’s fight against deflation means the cost of financing in the Land of the Rising Sun will be far cheaper over the long-term. Finally, the most prolific threat to volatility is underlying risk trends. While the appreciation in a number of asset classes can be attributed to risk appetite; in reality, sentiment has been in a holding pattern for the past few months. A clear break from the Dow (above 10,500 or below 10,250) would likely command a significant reaction from the dollar.
And, while there are major fundamental themes in the background, it is important to remain conscious of scheduled event risk. The economic docket is littered with notable releases that can leverage volatility during the thin liquidity conditions. Top event risk though the period is the personal spending and income data for its updates on consumers – the critical component of growth. Other notables include: new and existing home sales; durable goods; and the Chicago Fed’s National Activity Index. We may be in for a crazy week.
The most impressionable and vague dynamic for the currency market over the next few weeks is general trading conditions. Most of the Western world will shut down for the Christmas holiday; but liquidity will drop off well before the actual markets close and will remain depressed until after the turn of the year. History has shown us instances where similar situations have stabilized markets and dampened volatility; but there have also been cases when the leveraged influence of speculators has amplified price action and setoff meaningful breakouts. Though we cannot truly tell which level of activity is in store for the markets next week, the abundance of potential energy and a busy economic docket warrants caution. Considering the aggressive move the dollar has made over the past three weeks, the currency is working with considerable momentum. Extending or retracing this move would merely be a factor of speculative interest (which there will be no shortage of through the end of the year).
There are a few prominent drivers that should be monitored. Interest rate speculation has been a major contributor to the dollar’s strength so far; and the consensus forecast for a hike in June is closing in. This also ties directly into the currency’s standing on the risk spectrum. The benchmark US market rate (the three-month Libor) is still edging towards record lows; but its pace has slowed. This factor has certainly contributed to the dollar’s malaise as investors have moved from diversifying safe haven assets to using the currency to fund the reemergent carry trade. However, a long-term assessment of financing tells us that US rates will rise eventually (and more likely soon). And, though the Japanese Libor is trading at a premium now; the government’s fight against deflation means the cost of financing in the Land of the Rising Sun will be far cheaper over the long-term. Finally, the most prolific threat to volatility is underlying risk trends. While the appreciation in a number of asset classes can be attributed to risk appetite; in reality, sentiment has been in a holding pattern for the past few months. A clear break from the Dow (above 10,500 or below 10,250) would likely command a significant reaction from the dollar.
And, while there are major fundamental themes in the background, it is important to remain conscious of scheduled event risk. The economic docket is littered with notable releases that can leverage volatility during the thin liquidity conditions. Top event risk though the period is the personal spending and income data for its updates on consumers – the critical component of growth. Other notables include: new and existing home sales; durable goods; and the Chicago Fed’s National Activity Index. We may be in for a crazy week.
Tuesday, December 15, 2009
US Dollar Making Progress on a True, Bullish Reversal
There is a trend developing. The US dollar has produced notable rallies at the end of each of the past four weeks. The past two advances are the most notable. Both have come on the back of exceedingly strong economic data – the drive on the 5th was the product of strong NFPs and a drop in the unemployment rate; while the rally on the 12th would come through the merits of a strengthening consumer on sentiment and spending. This would seem a straightforward reaction to data, right? Actually, this would contradict the normal pace that the market has carved for the greenback for the past nine months where strong economic data has bolstered risk appetite and directly weighed on the dollar as a safe haven currency. So, what does this mean? Is the dollar’s role in the risk appetite backdrop changing? Is sentiment actually weaker than just the US data would suggest? Both are likely true. With the dollar looking for strength through various market conditions, the currency may be developing a meaningful bullish trend. However, playing on the well-established, fundamental roles that have been in control for over a year; a collapse in broad investor sentiment is still the most accessible catalyst for a true dollar bull trend.
As has been the case for the full year, the primary fundamental concern for the US dollar going forward is the general bearing and force of risk appetite. From this, there are two concerns. As always, identifying and measuring the influence of potential catalysts is of primary importance; but now, we also have to gauge the currency’s relationship to risk appetite itself. In the past few weeks, while the dollar’s advance has been somewhat choppy and more prominent in certain pairs (EURUSD being the most remarkable example); it has come on strong local data and developed despite stability in other key risk-sensitive markets. This is a natural development considering markets held to congestion for nearly two months now at the top of an unprecedented rally; and the dollar has carried the brunt of the burden in funding this drive. Beyond just a general dissolution of correlations, though; there are fundamental reasons for the dollar to move up the yield spectrum. The United State’s economic recovery is among the strongest in the industrialized world, the Federal Reserve is actively reducing its stimulus and the financial stability in the US markets is comparable (if not more established) to its global counterparts. All that being said, a collapse in risk appetite that balances speculative interests through profit taking is still the most capable driver for the dollar. Not only would capital return to the safety of US Treasuries and money market funds; but it would be drawn out of emerging markets and other risky areas and put into the more liquid but yield-bearing instruments in the US.
For the more definable sense of risk in this coming week’s economic docket; there is plenty of data to feed the more established fundamentals trends. For interest rate forecasts, the market is targeting the Fed’s first hike around the middle of the year – in line with Governor Bernanke’s time frame. However, such projections are not set in stone by policy makers and traders know this. The FOMC rate decision on Wednesday will offer an update on how close a hike may be. Also, interesting in this event will be any mention of more measured changes to policy like the slow withdrawal of stimulus. Realistically, stimulus and interest rates can be adjusted separately. If financial aid is maintained and rates raised, it could support the economy, help dampen any inflation that may pop up and revive the dollar. Other noteworthy indicators on deck included the CPI stats, industrial production, housing starts and the vote to lift the deficit limit.
Read more: DailyFX - US Dollar Making Progress on a True, Bullish Reversal http://www.dailyfx.com/forex/fundamental/forecast/weekly/usd/2009-12-12-0327-US_Dollar_Making_Progress_on.html#ixzz0ZiwQEJNp
As has been the case for the full year, the primary fundamental concern for the US dollar going forward is the general bearing and force of risk appetite. From this, there are two concerns. As always, identifying and measuring the influence of potential catalysts is of primary importance; but now, we also have to gauge the currency’s relationship to risk appetite itself. In the past few weeks, while the dollar’s advance has been somewhat choppy and more prominent in certain pairs (EURUSD being the most remarkable example); it has come on strong local data and developed despite stability in other key risk-sensitive markets. This is a natural development considering markets held to congestion for nearly two months now at the top of an unprecedented rally; and the dollar has carried the brunt of the burden in funding this drive. Beyond just a general dissolution of correlations, though; there are fundamental reasons for the dollar to move up the yield spectrum. The United State’s economic recovery is among the strongest in the industrialized world, the Federal Reserve is actively reducing its stimulus and the financial stability in the US markets is comparable (if not more established) to its global counterparts. All that being said, a collapse in risk appetite that balances speculative interests through profit taking is still the most capable driver for the dollar. Not only would capital return to the safety of US Treasuries and money market funds; but it would be drawn out of emerging markets and other risky areas and put into the more liquid but yield-bearing instruments in the US.
For the more definable sense of risk in this coming week’s economic docket; there is plenty of data to feed the more established fundamentals trends. For interest rate forecasts, the market is targeting the Fed’s first hike around the middle of the year – in line with Governor Bernanke’s time frame. However, such projections are not set in stone by policy makers and traders know this. The FOMC rate decision on Wednesday will offer an update on how close a hike may be. Also, interesting in this event will be any mention of more measured changes to policy like the slow withdrawal of stimulus. Realistically, stimulus and interest rates can be adjusted separately. If financial aid is maintained and rates raised, it could support the economy, help dampen any inflation that may pop up and revive the dollar. Other noteworthy indicators on deck included the CPI stats, industrial production, housing starts and the vote to lift the deficit limit.
Read more: DailyFX - US Dollar Making Progress on a True, Bullish Reversal http://www.dailyfx.com/forex/fundamental/forecast/weekly/usd/2009-12-12-0327-US_Dollar_Making_Progress_on.html#ixzz0ZiwQEJNp
Thursday, December 3, 2009
Greenback Edges Higher
The dollar recovered slightly at the start of the week, pushing the euro below the 1.50-level. Markets remain jittery as traders return to their desks following the Thanksgiving holiday and continue to closely scrutinize the potential fallout from Dubai. The Asian equity bourses rebounded overnight while the US indexes drifted lower, with the Dow Jones and S&P 500 slipping by 0.3% in the early afternoon session.
The economic reports released this morning included the New York ISM survey and the November Chicago PMI index. The NY ISM manufacturing survey improved to 384.4 in November compared with 377.9 in October. Meanwhile, the Chicago PMI report surprised to the upside, jumping to a 15-month high and sharply beating consensus estimates for a decline to 53.7, instead climbing to 56.1 in November from 54.2 a month earlier. The PMI employment component edged up to 41.9 from 38.3 while the new orders index improved to 62.8 compared with 61.4 in the previous month.
The week ahead will see several key data releases from the US, consisting of November manufacturing ISM, pending home sales, ADP private sector payrolls, Q3 productivity, and the November jobs data. The unemployment rate is expected to remain unchanged at a 26-year high at 10.2% while non-farm payrolls are seen improving to a reading of 140k jobs lost versus 190k jobs lost from October.
The economic reports released this morning included the New York ISM survey and the November Chicago PMI index. The NY ISM manufacturing survey improved to 384.4 in November compared with 377.9 in October. Meanwhile, the Chicago PMI report surprised to the upside, jumping to a 15-month high and sharply beating consensus estimates for a decline to 53.7, instead climbing to 56.1 in November from 54.2 a month earlier. The PMI employment component edged up to 41.9 from 38.3 while the new orders index improved to 62.8 compared with 61.4 in the previous month.
The week ahead will see several key data releases from the US, consisting of November manufacturing ISM, pending home sales, ADP private sector payrolls, Q3 productivity, and the November jobs data. The unemployment rate is expected to remain unchanged at a 26-year high at 10.2% while non-farm payrolls are seen improving to a reading of 140k jobs lost versus 190k jobs lost from October.
Greenback Slides on Shift to Risk
Markets stabilized further in the Tuesday session with the dollar sliding against the majors, while global equity bourses rallied and spot gold surged to a new record high above the $1,200 per ounce level. Tokyo’s Nikkei index climbed by over 2.4% on Tuesday while Germany’s DAX index rallied by nearly 2.7% and the Dow Jones improved by more than 1.5% by afternoon trading.
Philadelphia Fed President Plosser delivered an optimistic assessment on the economy earlier, expressing his confidence that the economy is in a sustainable recovery and expects GDP growth around 3% over the next two years. He suggested it may become appropriate to tighten interest rates before unemployment has dropped to acceptable levels with the need for extraordinary Fed liquidity to continue to dissipate in the coming months. Plosser added that withdrawing liquidity in a timely way is the key to keeping inflation expectations stable. He does not anticipate very strong growth in consumer spending in the coming quarters but believes the long decline in housing activity to have bottomed. Plosser also expressed a neutral outlook on price stability in the near-term, saying risks for both inflation and deflation to be mostly benign.
The economic reports that were released today included November manufacturing ISM and pending home sales for October. The November manufacturing ISM report fell by more than estimated to 53.6 compared with calls for a decline to 55.0 from 55.7 in October. The prices paid component fell to 55.0 from 65.0 in the previous month. Meanwhile, the pending home sales report sharply beat out forecasts for a decline of 0.8%, instead improving by 3.7% in October versus a downwardly revised 6.0% reading in September.
Philadelphia Fed President Plosser delivered an optimistic assessment on the economy earlier, expressing his confidence that the economy is in a sustainable recovery and expects GDP growth around 3% over the next two years. He suggested it may become appropriate to tighten interest rates before unemployment has dropped to acceptable levels with the need for extraordinary Fed liquidity to continue to dissipate in the coming months. Plosser added that withdrawing liquidity in a timely way is the key to keeping inflation expectations stable. He does not anticipate very strong growth in consumer spending in the coming quarters but believes the long decline in housing activity to have bottomed. Plosser also expressed a neutral outlook on price stability in the near-term, saying risks for both inflation and deflation to be mostly benign.
The economic reports that were released today included November manufacturing ISM and pending home sales for October. The November manufacturing ISM report fell by more than estimated to 53.6 compared with calls for a decline to 55.0 from 55.7 in October. The prices paid component fell to 55.0 from 65.0 in the previous month. Meanwhile, the pending home sales report sharply beat out forecasts for a decline of 0.8%, instead improving by 3.7% in October versus a downwardly revised 6.0% reading in September.
ECB Unchanged, Markets Eye Jobs
The dollar is slightly lower against the majors in the Thursday session, drifting past the 1.51-handle versus the euro and around 0.93 against the Australian dollar. Weekly jobless claims, released earlier today was slightly better than expected, drifting lower to 457k from 466k a week earlier and besting estimates for an increase to 480k. The November non-manufacturing ISM report was worst than forecast, falling beneath the key 50-level to 48.7 and missing calls for an improvement to 51.5 from 50.6 in October. Meanwhile, Q3 productivity slipped to 8.1% from the preliminary reading of 9.5%.
Markets will focus on Friday’s US jobs data, due out at 8:30 AM. The November unemployment rate is seen holding steady at its 26-year high at 10.2% while the non-farm payrolls report is expected to improve a loss of 130k jobs from 190k jobs shed in the previous month.
Markets will focus on Friday’s US jobs data, due out at 8:30 AM. The November unemployment rate is seen holding steady at its 26-year high at 10.2% while the non-farm payrolls report is expected to improve a loss of 130k jobs from 190k jobs shed in the previous month.
Wednesday, December 2, 2009
When are News Releases uh Released?
The list below displays the when the most important economic dataare realesed for each of the countries. Make sure you know them or go broke.
Which Pairs Should I Trade?
Here is the list of top currencies and countries in whis you should focus on for news trading:
Now there are plenty morecurrencies available to trade, but this list is based on the size of each country's economy, frequecy of news realeases and the trading liquidity of their currency.
Now there are plenty morecurrencies available to trade, but this list is based on the size of each country's economy, frequecy of news realeases and the trading liquidity of their currency.
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