by Korman Tam
The dollar sold off sharply at the start of the week, plunging from 1.3349 to 1.3702 against the euro – its lowest level in two months and falling just shy of the 1.54-handle versus the sterling. US economic data released earlier in the session were largely in line with consensus estimates. The December NY Fed manufacturing survey was slightly better than expected at -25.76 from -25.43 a month earlier. Industrial production posted a 0.6% decline in November, compared with a 1.3% increase a month earlier and capacity utilization was unchanged at 75.4%. Meanwhile, the NAHB housing market index for December held steady at 9.
The FOMC kicks off its two-day monetary policy meeting and will announce the results on Tuesday at 2:15 PM. We look for the Fed to cut its benchmark lending by 75-basis points to 0.25%. The key highlight will be the accompanying Fed policy statement, in which it is likely to acknowledge the current recessionary landscape. Moreover, markets will look for guidance on whether interest rates may be lowered to zero. The greenback could benefit if the Fed signals a reluctance to ease its benchmark lending rate to zero.
Tuesday, December 16, 2008
Monday, December 15, 2008
Ahead of the week - Key Technical levels
EURUSD – This pair broke its 6 weeks trading range to the upside, and has now clearly closed above that range.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
Saturday, December 13, 2008
USD Plunges on Data
by Korman Tam
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
Friday, December 12, 2008
Dollar Declines to Six-Week Low on Reduced Demand for Funding
Dec. 11 (Bloomberg) -- The dollar fell to a six-week low against the euro and yen as the cost of borrowing in the U.S. currency tumbled, indicating less demand for year-end funding.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
Thursday, December 11, 2008
Euro to a 6-week high against dollar
The EURUSD is back to trade above the important psychological level 1.3.
This is a clear breach of its long range trading since October 21.
The pair is now on its way to test the resistance at 1.3290. This level is the final boundary of the current trading rage.
Two main reasons for the Euro’s strength against the dollar.
First, European Central Bank Executive Board member Juergen Stark said late on Wednesday the bank did not have a lot of room for maneuver on rates after its cut last week. This came as a sign the ECB might restrict its cutting rate policy in the future - creating some demand for the European currency.
The second reason is technical, since the pair has reached a bottom on October 27 (1.2301) after a very sharp drop, the market is still lacking an appropriate correction for this move.
An appropriate correction at this stage (if indeed will take place) should be at least 1.3500.
As a note to my past post named EURUSD long term technical overview - this pair needs to confirm its strength by first closing the week above 1.3, only then a long could be considered, since there is still a high risk the pair will be soon back inside its recent range.
This is a clear breach of its long range trading since October 21.
The pair is now on its way to test the resistance at 1.3290. This level is the final boundary of the current trading rage.
Two main reasons for the Euro’s strength against the dollar.
First, European Central Bank Executive Board member Juergen Stark said late on Wednesday the bank did not have a lot of room for maneuver on rates after its cut last week. This came as a sign the ECB might restrict its cutting rate policy in the future - creating some demand for the European currency.
The second reason is technical, since the pair has reached a bottom on October 27 (1.2301) after a very sharp drop, the market is still lacking an appropriate correction for this move.
An appropriate correction at this stage (if indeed will take place) should be at least 1.3500.
As a note to my past post named EURUSD long term technical overview - this pair needs to confirm its strength by first closing the week above 1.3, only then a long could be considered, since there is still a high risk the pair will be soon back inside its recent range.
Wednesday, December 10, 2008
Canada cutes rates by 0.75%
The Central Bank of Canada cut the interest rate on the Canadian dollar by 0.75% to a 50-year low
(from 2.25% to 1.5%). The bank acted more aggressively than anticipated, most of the market participants
where expecting a 0.5% cut.
This is just another aggressive action in a recent chain of aggressive actions by central banks (the ECB and the BOE last week). All in hope a strong stand could put an end to the global economic deterioration.
The Forex market reacted to the news as expected, and any good fundamental trader could have enjoyed selling the Canadian dollar today.
The USDCAD was up from 1.2580 to 1.2740 as the news came out at 14:00 GMT. If you are still trading long on this pair, pay close attention to the daily resistance area at 1.2980.
EURCAD as also gaining after the news, moving from 1.6200 to 1.6370.
CADJPY was maybe the safest sell today in light of the recent global strength of the Yen. This pair headed down to 72.5 after the interest cut.
If it continues to drop in the coming days, we should pay attention to the major support level around 70.8.
UK industrial output falls sharply
By Norma Cohen
Published: December 9 2008 10:27 | Last updated: December 9 2008 11:56
Fresh concerns about the speed of the downturn in the UK economy were raised on Tuesday after figures showed industrial output fell at its fastest rate for nearly six years.
Industrial output fell by 1.8 per cent in the three months to the end of October compared with the previous three months, with manufacturing registering a 1.4 per cent drop between September and October.
Howard Archer, economist at IHS Global Insight, said the data suggested that the contraction in gross domestic product could be particularly severe in the fourth quarter of 2008.
“Given the recent stream of bad news on the UK economy, it is hard to be shocked by a data release, but the October industrial producer data manage this feat,” Mr Archer said. “Even allowing for the fact that the industrial sector only accounts for 18 per cent of the total economy, this increases the likelihood that there will be an extremely sharp contraction in GDP in the fourth quarter.”
Mr Archer said that revisions to earlier industrial production data made it likely that the 0.5 per cent contraction already reported for third-quarter GDP would be revised upward to a 0.6 per cent drop in national income.
Separate figures from the Office for National Statistics showed the UK’s trade deficit widened in October. Recent interest rate cuts failed to boost exports, and the deficit in goods and services widened by £3.5bn in the most recent month’s data.
The trade deficit in goods with other European Union states widened in October to a provisionally estimated £37.8bn from £7.4bn in September. Total exports of goods fell by 3.5 per cent to £21.2bn and total imports of goods fell by a more modest 1 per cent to £38.9bn, providing further evidence that UK consumer spending is slowing.
The figures add to a recent run of poor data. The latest report from the British Retail Consortium showed a total drop in sales of 0.4 per cent in November compared with October, providing further evidence that the historic rate cuts from the Bank of England have yet to reach the high street.
The back-to-back fall marked the first time that sales had fallen in consecutive months since the group first began compiling its index in January 1994.
Separately, the Royal Institution of Chartered Surveyors said the average number of housing transactions hit a record low in November.
Estate agents sold just 10.6 properties each on average last month – the lowest in the series’ 30-year history – down from 10.9 in October, which agents largely attributed to the increasing caution with which lenders were dispensing mortgages.
The raft of weak data weighed on the pound, which has fallen 18 per cent against the currencies of Britain’s main trading partners so far this year.
The pound sank 1.1 per cent to an intraday low of $1.4738 against the dollar, heading towards last week’s 6½ year low of $1.4467.
Against the yen, the pound dropped 0.9 per cent to Y137.03, while losing 0.5 per cent against the euro at £0.8725.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the pound] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long-term decline.”
The weakness in the industrial output figures was widespread with not one manufacturing category recording a significant increase in the three-month period to the end of October.
The most significant falls were a 4.6 per cent drop in the transport equipment industries – a category which includes the UK’s hard-pressed autos sector – as well as a 3.4 per cent decline in the paper, printing and publishing sectors and a 2.6 per cent drop in basic metals and metal products.
In the mining and quarrying sector, output in the three months to October fell by 0.7 per cent and stood 6.6 per cent below the level of the same period in 2007. Between September and October, mining and quarrying output dropped by 7.3 per cent with falls in oil and gas production due to unscheduled maintenance work.
Among market sectors, output of consumer durable goods fell by 3.6 per cent in the three months through to the end of October and was 8.1 per cent below that in the same period of 2007.
Consumer non-durable goods production showed a more modest decline on 0.7 per cent for the three months through October and stood 1.7 below the levels of 2007 for the same three-month period.
Copyright The Financial Times Limited 2008
Published: December 9 2008 10:27 | Last updated: December 9 2008 11:56
Fresh concerns about the speed of the downturn in the UK economy were raised on Tuesday after figures showed industrial output fell at its fastest rate for nearly six years.
Industrial output fell by 1.8 per cent in the three months to the end of October compared with the previous three months, with manufacturing registering a 1.4 per cent drop between September and October.
Howard Archer, economist at IHS Global Insight, said the data suggested that the contraction in gross domestic product could be particularly severe in the fourth quarter of 2008.
“Given the recent stream of bad news on the UK economy, it is hard to be shocked by a data release, but the October industrial producer data manage this feat,” Mr Archer said. “Even allowing for the fact that the industrial sector only accounts for 18 per cent of the total economy, this increases the likelihood that there will be an extremely sharp contraction in GDP in the fourth quarter.”
Mr Archer said that revisions to earlier industrial production data made it likely that the 0.5 per cent contraction already reported for third-quarter GDP would be revised upward to a 0.6 per cent drop in national income.
Separate figures from the Office for National Statistics showed the UK’s trade deficit widened in October. Recent interest rate cuts failed to boost exports, and the deficit in goods and services widened by £3.5bn in the most recent month’s data.
The trade deficit in goods with other European Union states widened in October to a provisionally estimated £37.8bn from £7.4bn in September. Total exports of goods fell by 3.5 per cent to £21.2bn and total imports of goods fell by a more modest 1 per cent to £38.9bn, providing further evidence that UK consumer spending is slowing.
The figures add to a recent run of poor data. The latest report from the British Retail Consortium showed a total drop in sales of 0.4 per cent in November compared with October, providing further evidence that the historic rate cuts from the Bank of England have yet to reach the high street.
The back-to-back fall marked the first time that sales had fallen in consecutive months since the group first began compiling its index in January 1994.
Separately, the Royal Institution of Chartered Surveyors said the average number of housing transactions hit a record low in November.
Estate agents sold just 10.6 properties each on average last month – the lowest in the series’ 30-year history – down from 10.9 in October, which agents largely attributed to the increasing caution with which lenders were dispensing mortgages.
The raft of weak data weighed on the pound, which has fallen 18 per cent against the currencies of Britain’s main trading partners so far this year.
The pound sank 1.1 per cent to an intraday low of $1.4738 against the dollar, heading towards last week’s 6½ year low of $1.4467.
Against the yen, the pound dropped 0.9 per cent to Y137.03, while losing 0.5 per cent against the euro at £0.8725.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the pound] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long-term decline.”
The weakness in the industrial output figures was widespread with not one manufacturing category recording a significant increase in the three-month period to the end of October.
The most significant falls were a 4.6 per cent drop in the transport equipment industries – a category which includes the UK’s hard-pressed autos sector – as well as a 3.4 per cent decline in the paper, printing and publishing sectors and a 2.6 per cent drop in basic metals and metal products.
In the mining and quarrying sector, output in the three months to October fell by 0.7 per cent and stood 6.6 per cent below the level of the same period in 2007. Between September and October, mining and quarrying output dropped by 7.3 per cent with falls in oil and gas production due to unscheduled maintenance work.
Among market sectors, output of consumer durable goods fell by 3.6 per cent in the three months through to the end of October and was 8.1 per cent below that in the same period of 2007.
Consumer non-durable goods production showed a more modest decline on 0.7 per cent for the three months through October and stood 1.7 below the levels of 2007 for the same three-month period.
Copyright The Financial Times Limited 2008
Tuesday, December 9, 2008
Sterling punished as UK recession deepens
By Esther Bintliff
Published: December 9 2008 11:50 | Last updated: December 9 2008 15:10
Sterling slumped against the dollar and the yen on Tuesday, punished by a fresh onslaught of grim economic data that further exposed the depth and severity of the UK recession.
October industrial output data revealed that UK production dived by a far worse-than-expected 1.7 per cent month-on-month, increasing the likelihood of further interest rate cuts in January. Disappointing retail figures intensified the general gloom, with total retail sales declining year-on-year in November for a second consecutive month.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the currency] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long term decline.”
Against the yen, the pound dropped 1.7 per cent to Y136, while sliding 0.4 per cent against the euro at £0.8727.
But the euro was also under pressure following the previous session’s gains, falling 0.8 per cent against the dollar at $1.2847, despite an unexpected improvement in German investor confidence.
Germany’s ZEW institute said its “economic sentiment” indicator rose by 9.5 points to minus 46.1 in December, from minus 53.5 in November. But the index was still far below its historical average of 27.1 points.
Jennifer McKeown, at Capital Economics said: “December’s surprise increase in German ZEW investor sentiment brings very limited comfort. The fact that the index is still deeply in negative territory shows that many more investors expect the economy to deteriorate further over the next six months than think that conditions will improve, which is saying something given the weak starting point.”
The Canadian dollar extended early losses against its US counterpart, after the Bank of Canada surprised the markets by slashing interest rates to a 50-year low of 1.5 per cent. The central bank’s rate cut of 75 basis points beat the consensus forecast for a 50bp reduction and was accompanied by a bearish statement announcing that the Canadian economy had entered recession. Following the news, the loonie tumbled 1.7 per cent against the US dollar to C$1.2730, from C$1.2640 just before.
Overall, the slight easing of risk aversion in currency markets seen in the previous session was all but reversed, with investors retreating to the relative safe-havens of the US dollar and the Japanese yen. The dollar strengthened against most major currencies except for the yen, against which it slipped 0.4 per cent to Y92.50.
Against the euro, the yen added 1.2 per cent to Y118.78, while climbing 2.3 per cent against the high-yielding Australian dollar to Y60.29 and 1.7 per cent against the New Zealand dollar to Y49.97.
Copyright The Financial Times Limited 2008
Published: December 9 2008 11:50 | Last updated: December 9 2008 15:10
Sterling slumped against the dollar and the yen on Tuesday, punished by a fresh onslaught of grim economic data that further exposed the depth and severity of the UK recession.
October industrial output data revealed that UK production dived by a far worse-than-expected 1.7 per cent month-on-month, increasing the likelihood of further interest rate cuts in January. Disappointing retail figures intensified the general gloom, with total retail sales declining year-on-year in November for a second consecutive month.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the currency] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long term decline.”
Against the yen, the pound dropped 1.7 per cent to Y136, while sliding 0.4 per cent against the euro at £0.8727.
But the euro was also under pressure following the previous session’s gains, falling 0.8 per cent against the dollar at $1.2847, despite an unexpected improvement in German investor confidence.
Germany’s ZEW institute said its “economic sentiment” indicator rose by 9.5 points to minus 46.1 in December, from minus 53.5 in November. But the index was still far below its historical average of 27.1 points.
Jennifer McKeown, at Capital Economics said: “December’s surprise increase in German ZEW investor sentiment brings very limited comfort. The fact that the index is still deeply in negative territory shows that many more investors expect the economy to deteriorate further over the next six months than think that conditions will improve, which is saying something given the weak starting point.”
The Canadian dollar extended early losses against its US counterpart, after the Bank of Canada surprised the markets by slashing interest rates to a 50-year low of 1.5 per cent. The central bank’s rate cut of 75 basis points beat the consensus forecast for a 50bp reduction and was accompanied by a bearish statement announcing that the Canadian economy had entered recession. Following the news, the loonie tumbled 1.7 per cent against the US dollar to C$1.2730, from C$1.2640 just before.
Overall, the slight easing of risk aversion in currency markets seen in the previous session was all but reversed, with investors retreating to the relative safe-havens of the US dollar and the Japanese yen. The dollar strengthened against most major currencies except for the yen, against which it slipped 0.4 per cent to Y92.50.
Against the euro, the yen added 1.2 per cent to Y118.78, while climbing 2.3 per cent against the high-yielding Australian dollar to Y60.29 and 1.7 per cent against the New Zealand dollar to Y49.97.
Copyright The Financial Times Limited 2008
EUR/USD Long Term Technical Overview
EURUSD- currently is trading in a range since October 21.
Global recession, panic and fears have pushed this pair from 1.6 to 1.23 in 14 weeks. A 3700 pips move straight down.
However the market is refusing to push it further or allow EURUSD to give us an appropriate correction to the upside so far. Instead we are lucked in a range for the last 6 week, starching mainly from 1.2400 to 1.3
Interestingly, this is the exact same price range the EURUSD was trading in during 2006.
In that year the EURUSD was lucked in between 1.2450 to 1.2970 from May until November. When it finally broke the range on November 24 with some heavy volume, it didn’t bother to look back before reaching the top of 1.6036 in 2008, and there and then completing a major uptrend.
Of course this took almost a year and a half to achieve (75 weeks to be exact).
When we look at the big picture- : First, EUR/USD traded the current range already back in 2006, then the market broke this range, advanced to top at 1.6036 in 75 weeks time, then a major economic crisis drops the price back to the same trading range in 14 weeks, 5 times faster than it took the pair to climb to the top.
If history repeats it self, as technical analysis assumes, when the market will clearly break the range this time, it should lead us a long way in the direction of the break.
When I say a clear break, I mean at least one large weekly candle closing clearly above or below the current price range.
If the break will take place to the up side, it might quickly lead us up to 1.3350 and maybe even as far as 1.3650.
If it will break the range to the down side, we might get to meet 1.1890 – a major support level which proved itself worthy in 2004, 2005 and in 2006.
I’ll come back and update you on this when EUR/USD will start making some serious progress.
Global recession, panic and fears have pushed this pair from 1.6 to 1.23 in 14 weeks. A 3700 pips move straight down.
However the market is refusing to push it further or allow EURUSD to give us an appropriate correction to the upside so far. Instead we are lucked in a range for the last 6 week, starching mainly from 1.2400 to 1.3
Interestingly, this is the exact same price range the EURUSD was trading in during 2006.
In that year the EURUSD was lucked in between 1.2450 to 1.2970 from May until November. When it finally broke the range on November 24 with some heavy volume, it didn’t bother to look back before reaching the top of 1.6036 in 2008, and there and then completing a major uptrend.
Of course this took almost a year and a half to achieve (75 weeks to be exact).
When we look at the big picture- : First, EUR/USD traded the current range already back in 2006, then the market broke this range, advanced to top at 1.6036 in 75 weeks time, then a major economic crisis drops the price back to the same trading range in 14 weeks, 5 times faster than it took the pair to climb to the top.
If history repeats it self, as technical analysis assumes, when the market will clearly break the range this time, it should lead us a long way in the direction of the break.
When I say a clear break, I mean at least one large weekly candle closing clearly above or below the current price range.
If the break will take place to the up side, it might quickly lead us up to 1.3350 and maybe even as far as 1.3650.
If it will break the range to the down side, we might get to meet 1.1890 – a major support level which proved itself worthy in 2004, 2005 and in 2006.
I’ll come back and update you on this when EUR/USD will start making some serious progress.
Sunday, December 7, 2008
Japanese Yen Threatened by Year-End Capital Flows
Written by Ilya Spivak, Currency Analyst
Fundamental Outlook for Japanese Yen: Bearish
- USD/JPY, Dow Jones Correlation Near 20-Year High
- Japanese Vehicle Sales Lowest Since at Least 1980
- Yen to Retrace Recent Gains against the Euro
The Japanese Yen could reverse recent gains next week as seasonal capital flows create the perception of a boost to risk appetite. Last week, we suggested that stock markets may rise in December as traders prepare for the end of calendar year.Investors often intentionally close some positions at a loss in December to offset the capital gains tax burden. This then pushes shares higher through January as positions are re-established (a phenomenon called the “January effect”). Considering the massive drop in share prices this year, the only traders with any meaningful gains to be taxed were positioned short. Closing out some of this exposure will mean buying back shorted stock and thereby pushing markets higher. Considering the Yen remains 96% inversely correlated with the Dow Jones Industrial Average and 95% inversely correlated with the broader MSCI World Stock Index, the currency will suffer loses should this materialize. Initial signs that stocks are being buoyed by seasonal factors have slowly started to emerge: shares closed Friday’s New York session with a gain of 3% despite news that the economy lost 533k jobs in November, the worst reading in 34 years, sending the Yen lower against nearly every other major currency.
While the economic calendar features several prominent releases, these are unlikely to usurp the dominance of stock performance in setting the Yen’s trajectory. The Current Account surplus is expected to continue to narrow in October as an expensive currency and dwindling global demand punish exporters. The Eco Watchers survey is likely to see merchant sentiment continue to make new lows as acute deterioration in employment crushes consumers’ willingness to spend. October’s Leading Index and November’s Corporate Goods Prices metrics are also unlikely to cause much volatility as their decline is merely a reflection of a recession in the world’s second-largest economy that has long been priced into the markets. To that effect, the final revision of third-quarter GDP figures are likely to have less impact still.
Fundamental Outlook for Japanese Yen: Bearish
- USD/JPY, Dow Jones Correlation Near 20-Year High
- Japanese Vehicle Sales Lowest Since at Least 1980
- Yen to Retrace Recent Gains against the Euro
The Japanese Yen could reverse recent gains next week as seasonal capital flows create the perception of a boost to risk appetite. Last week, we suggested that stock markets may rise in December as traders prepare for the end of calendar year.Investors often intentionally close some positions at a loss in December to offset the capital gains tax burden. This then pushes shares higher through January as positions are re-established (a phenomenon called the “January effect”). Considering the massive drop in share prices this year, the only traders with any meaningful gains to be taxed were positioned short. Closing out some of this exposure will mean buying back shorted stock and thereby pushing markets higher. Considering the Yen remains 96% inversely correlated with the Dow Jones Industrial Average and 95% inversely correlated with the broader MSCI World Stock Index, the currency will suffer loses should this materialize. Initial signs that stocks are being buoyed by seasonal factors have slowly started to emerge: shares closed Friday’s New York session with a gain of 3% despite news that the economy lost 533k jobs in November, the worst reading in 34 years, sending the Yen lower against nearly every other major currency.
While the economic calendar features several prominent releases, these are unlikely to usurp the dominance of stock performance in setting the Yen’s trajectory. The Current Account surplus is expected to continue to narrow in October as an expensive currency and dwindling global demand punish exporters. The Eco Watchers survey is likely to see merchant sentiment continue to make new lows as acute deterioration in employment crushes consumers’ willingness to spend. October’s Leading Index and November’s Corporate Goods Prices metrics are also unlikely to cause much volatility as their decline is merely a reflection of a recession in the world’s second-largest economy that has long been priced into the markets. To that effect, the final revision of third-quarter GDP figures are likely to have less impact still.
US Recession Deepening, How Long Can Dollar Strength Hold Up?
Written by John Kicklighter, Currency Strategist
Fundamental Outlook for US Dollar: Bullish
- US marks the biggest drop in payrolls since 1974
- NBER confirms the domestic economy has been in a recession since December 2007
- Record lows for manufacturing and service sector activity last month point to a deepening recession
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar
Fundamental Outlook for US Dollar: Bullish
- US marks the biggest drop in payrolls since 1974
- NBER confirms the domestic economy has been in a recession since December 2007
- Record lows for manufacturing and service sector activity last month point to a deepening recession
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar
Gates wants action on ‘today’s wars’
By Demetri Sevastopulo
Published: December 5 2008 17:43 | Last updated: December 5 2008 17:43
Robert Gates, the US defence secretary, wants the Pentagon to put more emphasis on preparing for counter-insurgency and stability operations rather than its traditional preoccupation with large wars and expensive weapons systems.
In an essay to be published in the Foreign Affairs journal, Mr Gates, who will remain as defence secretary in the Obama administration, said the Pentagon cannot afford to be “preoccupied” with preparing for conventional and strategic conflicts.
In a sign that he may pay more attention to acquisitions in the Obama administration than he has done under George W. Bush, Mr Gates warned that the Pentagon needed to focus more on the kinds of capabilities and equipment needed for the counter-insurgency operations and local conflicts facing the US today.
“Support for conventional modernisation programmes is deeply embedded in the defence department’s budget, in its bureaucracy, in the defence industry and in Congress,” wrote Mr Gates. “My fundamental concern is that there is not commensurate institutional support, including in the Pentagon, for the capabilities needed to win today’s wars and some of their likely successors.”
Mr Gates has been unusual, for a defence secretary, in arguing that Congress should give the state department more money to help boost US soft power round the world.
Critics of the imbalance between the defence budget and relatively paltry funding for the state department, often point out that the Pentagon has more people in military bands than the US has diplomats.
Mr Gates said in the article: “Where possible . . .kinetic operations should be subordinated to measures aimed at promoting better governance, economic programmes that spur development and efforts to address the grievances among the discontented, from whom the terrorists recruit”.
Mr Gates added that while the US was “unlikely to repeat another Iraq or Afghanistan . . . forced regime change followed by nation-building under fire”, it would face similar challenges and needed to place more emphasis on building the capabilities of partner governments and their military forces.
The US military has undergone a shift towards counter-insurgency since the September 11 attacks.
However, Mr Gates has sometimes expressed frustration at the insistence by some senior officers on procuring big-ticket weapons, particularly the air force’s preoccupation with F-22 fighter jets, justified on the basis of future conflicts.
While Mr Gates acknowledged that the US needed to ensure its military dominance over countries such as Russia and China, he said it was necessary to “keep some perspective”.
“As much as the US Navy has shrunk since the end of the cold war . . . its battle fleet is still larger than the next 13 navies combined and 11 of those 13 navies are US allies or partners,” said Mr Gates.
Mr Gates added that while Moscow was building its armed forces, it was not aiming for the kind of world dominance the US and the USSR battled over during the cold war.
“Before the US begins rearming for another Cold War, it must remember that what is driving Russia is a desire to exorcise past humiliation and dominate its ‘near abroad’ – not an ideologically driven campaign to dominate the globe.”
He conceded that the constraints on the US meant its military would be “hard-pressed” to fight another major conventional ground war “on short notice”.
“But as I have asked before, where on earth would we do that?” he asked.
Mr Gates stressed that his own focus on improving counter-insurgency operations was not aimed at lessening the importance of preparing for conventional wars. He pointed out that the Pentagon and defence industrial complex already lobbied hard to ensure the Pentagon had convention capabilities, but said advocates of counter-insurgency operations had traditionally not had a strong supporter.
“Apart from the Special Forces community and some dissident colonels, however, for decades there has been no strong, deeply rooted constituency inside the Pentagon or elsewhere for institutionalizing the capabilities necessary to wage asymmetric or irregular conflict -- and to quickly meet the ever-changing needs of forces engaged in these conflicts.”
Copyright The Financial Times Limited 2008
Published: December 5 2008 17:43 | Last updated: December 5 2008 17:43
Robert Gates, the US defence secretary, wants the Pentagon to put more emphasis on preparing for counter-insurgency and stability operations rather than its traditional preoccupation with large wars and expensive weapons systems.
In an essay to be published in the Foreign Affairs journal, Mr Gates, who will remain as defence secretary in the Obama administration, said the Pentagon cannot afford to be “preoccupied” with preparing for conventional and strategic conflicts.
In a sign that he may pay more attention to acquisitions in the Obama administration than he has done under George W. Bush, Mr Gates warned that the Pentagon needed to focus more on the kinds of capabilities and equipment needed for the counter-insurgency operations and local conflicts facing the US today.
“Support for conventional modernisation programmes is deeply embedded in the defence department’s budget, in its bureaucracy, in the defence industry and in Congress,” wrote Mr Gates. “My fundamental concern is that there is not commensurate institutional support, including in the Pentagon, for the capabilities needed to win today’s wars and some of their likely successors.”
Mr Gates has been unusual, for a defence secretary, in arguing that Congress should give the state department more money to help boost US soft power round the world.
Critics of the imbalance between the defence budget and relatively paltry funding for the state department, often point out that the Pentagon has more people in military bands than the US has diplomats.
Mr Gates said in the article: “Where possible . . .kinetic operations should be subordinated to measures aimed at promoting better governance, economic programmes that spur development and efforts to address the grievances among the discontented, from whom the terrorists recruit”.
Mr Gates added that while the US was “unlikely to repeat another Iraq or Afghanistan . . . forced regime change followed by nation-building under fire”, it would face similar challenges and needed to place more emphasis on building the capabilities of partner governments and their military forces.
The US military has undergone a shift towards counter-insurgency since the September 11 attacks.
However, Mr Gates has sometimes expressed frustration at the insistence by some senior officers on procuring big-ticket weapons, particularly the air force’s preoccupation with F-22 fighter jets, justified on the basis of future conflicts.
While Mr Gates acknowledged that the US needed to ensure its military dominance over countries such as Russia and China, he said it was necessary to “keep some perspective”.
“As much as the US Navy has shrunk since the end of the cold war . . . its battle fleet is still larger than the next 13 navies combined and 11 of those 13 navies are US allies or partners,” said Mr Gates.
Mr Gates added that while Moscow was building its armed forces, it was not aiming for the kind of world dominance the US and the USSR battled over during the cold war.
“Before the US begins rearming for another Cold War, it must remember that what is driving Russia is a desire to exorcise past humiliation and dominate its ‘near abroad’ – not an ideologically driven campaign to dominate the globe.”
He conceded that the constraints on the US meant its military would be “hard-pressed” to fight another major conventional ground war “on short notice”.
“But as I have asked before, where on earth would we do that?” he asked.
Mr Gates stressed that his own focus on improving counter-insurgency operations was not aimed at lessening the importance of preparing for conventional wars. He pointed out that the Pentagon and defence industrial complex already lobbied hard to ensure the Pentagon had convention capabilities, but said advocates of counter-insurgency operations had traditionally not had a strong supporter.
“Apart from the Special Forces community and some dissident colonels, however, for decades there has been no strong, deeply rooted constituency inside the Pentagon or elsewhere for institutionalizing the capabilities necessary to wage asymmetric or irregular conflict -- and to quickly meet the ever-changing needs of forces engaged in these conflicts.”
Copyright The Financial Times Limited 2008
German manufacturing orders collapse
BERLIN, Dec 5 - German manufacturing orders plunged in October after a record decline the previous month, pointing to a deepening recession in Europe’s biggest economy.
Orders fell 6.1 per cent in October, led by a sharp downturn in demand from Germany’s euro zone trading partners, preliminary economy ministry data showed on Friday. Economists had forecast a rise of 0.4 per cent in a Reuters poll.
Compounding the bad news, which helped to send the euro to a session low against the dollar, was a downwards revision to the September result to show a decline of 8.3 per cent.
”German industry seems to be drowning in the financial crisis,” said Carsten Brzeski, an economist at ING Financial Markets. ”What started off as a relatively normal correction from very high levels has developed into serious collapse.”
Domestic orders fell 6.1 per cent, with foreign orders down 6.2 per cent, led by a drop in demand from the euro area.
”Industrial production will decline further in coming months due to the persistent weakness in orders,” the ministry said.
German business sentiment is near its lowest level in 16 years, and a survey of manufacturing firms showed the outlook for new orders got worse in November.
Further highlighting the economy’s woes, premium carmaker BMW said global sales plunged by a quarter in November as even wealthy consumers cut their spending.
A survey by the Ifo economic think tank showed a growing number of German firms are finding banks’ lending conditions restrictive, particularly larger ones.
The German economy is already in recession and fears are mounting the country could be facing its biggest economic downturn next year since the second world war.
Deutsche Bank chief economist Norbert Walter told a newspaper that German gross domestic product could contract by up to 4 percent in 2009.
This would be four times as bad as its previous worst one-year performance since West Germany’s creation in 1949.
The ministry data showed orders for capital goods fell 8.2 per cent in October, with those for intermediate goods down 4.5 per cent. Consumer goods orders fell by 1.6 percent.
Central Banks slash rates aggressively
The European Central Bank, the Bank of England, the Bank of Sweden and the Bank Of New Zealand have all aggressively slashed their borrowing cost, as an attempt to support the global economy
The ECB has slashed interest rates by 0.75% today ,more than the 0.5% which was expected by most market participants.
However, the EURUSD did not react as expected, and is actually maintaining strength during the first hours of the New-York session.
The Bank of England has slashed rates by 1% on the pound ( from 3%) , as a result the sterling sank to a new low of 1.4467 against the Dollar this morning, However this pair has also recovered losses since then, and is now well above 1.4600.
Maybe the reaction of the market to the events today can be regarded as a sign that all these rate cuts where already priced in the market prior to the their actual release. This would explain why the EURUSD is trading around 1.27 up from 1.2550 this morning despite the fact the ECB’s 0.75%. cut.
If this is truly the case, the Euro might be able to keep it’s head above the water for the time being.
The ECB has slashed interest rates by 0.75% today ,more than the 0.5% which was expected by most market participants.
However, the EURUSD did not react as expected, and is actually maintaining strength during the first hours of the New-York session.
The Bank of England has slashed rates by 1% on the pound ( from 3%) , as a result the sterling sank to a new low of 1.4467 against the Dollar this morning, However this pair has also recovered losses since then, and is now well above 1.4600.
Maybe the reaction of the market to the events today can be regarded as a sign that all these rate cuts where already priced in the market prior to the their actual release. This would explain why the EURUSD is trading around 1.27 up from 1.2550 this morning despite the fact the ECB’s 0.75%. cut.
If this is truly the case, the Euro might be able to keep it’s head above the water for the time being.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate
Fri, Dec 5 2008, 12:55 GMT
by Wachovia Research Team
Wachovia
Traders' reluctance to take large positions ahead of a major US employment report resulted in the dollar remaining relatively unchanged yesterday against a basket of major currencies. The euro strengthened against the US dollar as investors bought the currency following the European Central Bank's (ECB) rate cut. Investors praised the ECB for its proactive efforts to avoid a deep recession in the Euro Zone. The British pound, however, did not strengthen like the euro, even though the Bank of England cut rates to their lowest level since 1951. The pound ended the day marginally lower as investors remained concerned about the health of the British economy. Lower oil, metal, and other commodity prices weighed heavily on the Canadian dollar yesterday, causing it to depreciate materially.
Most currencies are largely unchanged overnight and this morning as traders await US economic data. The euro and New Zealand dollar are down slightly from yesterday's close, while the pound and Australian dollar remain at the same levels. Meanwhile, the Canadian dollar continued to depreciate after poor economic data showed that Canadian employment fell the most since 1982.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate.
Download Full Daily Market Report
by Wachovia Research Team
Wachovia
Traders' reluctance to take large positions ahead of a major US employment report resulted in the dollar remaining relatively unchanged yesterday against a basket of major currencies. The euro strengthened against the US dollar as investors bought the currency following the European Central Bank's (ECB) rate cut. Investors praised the ECB for its proactive efforts to avoid a deep recession in the Euro Zone. The British pound, however, did not strengthen like the euro, even though the Bank of England cut rates to their lowest level since 1951. The pound ended the day marginally lower as investors remained concerned about the health of the British economy. Lower oil, metal, and other commodity prices weighed heavily on the Canadian dollar yesterday, causing it to depreciate materially.
Most currencies are largely unchanged overnight and this morning as traders await US economic data. The euro and New Zealand dollar are down slightly from yesterday's close, while the pound and Australian dollar remain at the same levels. Meanwhile, the Canadian dollar continued to depreciate after poor economic data showed that Canadian employment fell the most since 1982.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate.
Friday Note: Let's talk about US deflation
Fri, Dec 5 2008, 15:39 GMT
by HVB Group Global Markets Research
HVB Group
● Concern. The US recession has only just been officially confirmed, but the next poltergeist is already stalking media & markets – deflation! Investors’ inflation expectations have, at any rate, plummeted, and are currently hovering around the zero line (cf. chart below).
● Facts. Our analysis reveals, however, that the fundamentals do not (yet) support the deflation fear. For that to happen, the US recession would have to be deeper than we are projecting, and the unemployment rate would have to rise to more than 9% (pages 4-6).
● Counter-measures. That is exactly what economic policy is attempting to prevent with all the means at its disposal. The hundreds of billions in fiscal programs are unprecedented in the post-war era, and the Fed has already lowered its target rate a whopping 425 basis points. The week after next, it will ease another 50 basis points. We even won't exclude a zero target rate soon.
● Fed. Moreover, the central bank has already begun to combine its traditional monetary policy with quantitative measures – i.e. even before it has depleted its interest rate ammunition (pages 7-8). The objective here is to avoid Japanese conditions. The Fed has, in a matter of weeks, already pumped more liquidity into the system than Japan did in three years. Nevertheless, US deflation risks continue to rise.
● Further topics:
Weekly Comment: Actions speak louder than words (page 2).
EMU: Worst recession since 1992/93 (page 9).
Data outlook: European industry sinks ever deeper into recession; US retail sales continue to plummet (page 11).
Market outlook: Govies and USD to remain in demand (page 18).
Download full Friday Notes with charts
by HVB Group Global Markets Research
HVB Group
● Concern. The US recession has only just been officially confirmed, but the next poltergeist is already stalking media & markets – deflation! Investors’ inflation expectations have, at any rate, plummeted, and are currently hovering around the zero line (cf. chart below).
● Facts. Our analysis reveals, however, that the fundamentals do not (yet) support the deflation fear. For that to happen, the US recession would have to be deeper than we are projecting, and the unemployment rate would have to rise to more than 9% (pages 4-6).
● Counter-measures. That is exactly what economic policy is attempting to prevent with all the means at its disposal. The hundreds of billions in fiscal programs are unprecedented in the post-war era, and the Fed has already lowered its target rate a whopping 425 basis points. The week after next, it will ease another 50 basis points. We even won't exclude a zero target rate soon.
● Fed. Moreover, the central bank has already begun to combine its traditional monetary policy with quantitative measures – i.e. even before it has depleted its interest rate ammunition (pages 7-8). The objective here is to avoid Japanese conditions. The Fed has, in a matter of weeks, already pumped more liquidity into the system than Japan did in three years. Nevertheless, US deflation risks continue to rise.
● Further topics:
Weekly Comment: Actions speak louder than words (page 2).
EMU: Worst recession since 1992/93 (page 9).
Data outlook: European industry sinks ever deeper into recession; US retail sales continue to plummet (page 11).
Market outlook: Govies and USD to remain in demand (page 18).
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