EUR/USD
Wall Street has opened sharply higher Friday as investors are buoyed from comments made by Fed Chairman Ben Bernanke overnight, signalling further monetary policy easing was on the way. Anyone who watched the broadcast may have been struck by the uncomfortable posture and lack of conviction emanating from the Fed Chief. Bernanke reiterated verbatim some of the phrases and observations made by Vice President Koln two days earlier, to give the impression the FOMC were at one on where monetary policy needs to go - at least Messrs Bernanke and Koln are at one. Based on some of the other speeches we heard from members of the FOMC this week, it is now apparent there is very clear division within the FOMC on whether rates need to be cut again so soon. Bernanke might be undermining the role of the Fed by allowing monetary policy be dictated by financial markets, meaning the Fed is merely playing a supporting role. With headline inflation currently running at 3.6%, the Fed is playing a very dangerous game indeed, particularly as up to now the US Fed is the only major Central Bank to have altered monetary policy to alleviate stresses in financial markets. The funny thing is the dollar has held up remarkably well Friday considering the events that have just passed in recent days. Add to this the fact Euro-zone inflation rose to a 6 year high in November (3.0%), virtually ruling out any hope of easing on the part of the ECB in the foreseeable future. Today is the end of the month and a closure of dollar short positions is seeing the dollar appreciate across the board, which may come as a surprise to many. The euro has got a bounce late on Friday over recent weeks, but it is seriously on the back foot right now as the dollar breaks below 1.47, though there may be a rebound later in the day. There does appear to be some correction of the dollar, but as to whether that will be carried through to next week remains to be seen. We could potentially see a decline to 1.4660 today and to as low as 1.45 next week, although a new month dawns on Monday and the greenback may once again find itself on the defensive. Strategy: Stay out until Monday, until we see where the current attempted correction closes.
GBP
Another bad day for cable which has drifted to around 2.0550, though crucially the first line of support at 2.0520 remains intact. UK Consumer Confidence hit a 4 year low in November according to the latest survey released today by the Gfk group and next week’s Bank of England meeting makes for an interesting time. The odds against a rate cut next week are still of the order of around 60%, but with the Fed forced into action and no sign of a let-up in the liquidity tightening, the MPC may be pressed into action sooner than some of Committee members would like. Sterling is facing into an uncertain week and the likelihood is the currency will face tentative trading ahead of Thursday’s key rate decision, and sterling may struggle to attract much buying support. The dollar has shown some muscle this week and cable offers the best value for a sell-off of the pound, with any rallies close to 2.07 likely to attract strong selling interest early next week. The pound could find itself pushed right back to 2.0246 over the course of next week. A broader sell-off of the euro could see sterling push the single currency back to around 0.71, but in view of the risks ahead, I would not like to make any sterling bids, at least not ahead of next Thursday. The pound also risks sharp retreats against both the Swiss franc and the yen, if risk aversion re-emerges in global stock markets. Strategy: Sell down cable on prices close to or above 2.07, with target prices of 2.0550 and 2.0460.
Yen
The Japanese yen has been the principal victim of the Fed’s comments on monetary policy this week. The Japanese currency at one stage today was down almost 4 cents from its high earlier in the week against the dollar. The prospect of further monetary easing in the US has led to an increase in risk appetite and a lack of demand for the low yielding yen. There is much complacency in the current move though as in essence what we are seeing is markets rallying on the back of what is economic uncertainty and bad news. The underlying fundamentals are exactly as they were this time last week, or if anything they are worse as economic data published this week point to an accelerating slowdown in the global economy. The Fed is prepared to let stocks dictate near-term policy however and stocks this week are rallying exclusively because of the Fed’s verbal intervention and acquiescence. Memories are notoriously short in equity markets and by next week markets will run out of reason to extend the current rally and we could see another sharp reversal lower. This will benefit the yen. The US currency offers no value above the 111-112 price range and it will take but a single day’s sell-off on Wall Street to see the yen appreciate back to around 109. It is best to wait until there is a rise in risk aversion evident before coming in to buy the yen. Look out for any potential late sell-off on Wall Street tonight. The yen is also down 0.6% against the euro Friday with the pair currently hovering around the 163 price level. There may also be value on selling down this pair at levels close to Y164 next week, when uncertainty returns to the market.
CAD
The loonie has finally ceded the parity line with the dollar Friday, two and a half months after breaching it for the first time in 30 years. Loonies followers tried bravely to defend the psychologically important levels for the past 3 days, but today the weight of a broader dollar move saw resistance at the 1:1 level give way. The dollar failed to manifest a clean follow-through and the pair has sparred around the parity line for most of the afternoon. It will be a surprise however if the greenback does not pull away above the line ahead of Tuesday’s Bank of Canada rate decision. While today’s quarter 3 GDP number at an annualised 2.9% rate came in much higher than anticipated, this is essentially of historical consequence particularly as the most recent economic data has pointed to an accelerating slowdown. After Ben Bernanke signalled the Fed would likely move to cut US rates again in December, this might be the cue for the Bank of Canada to act next week. Canada faces a similar economic dimemna to the US, but it has the added complication of a recent lack of competitiveness because of the strength of the loonie and a cooling global demand for the countries commodities, which constitute over 50% of the country’s exports. Inflation is also more benign in Canada than in the US and it could prove to be a grave mistake if the Bank of Canada flounder and don’t act to allow the economy more breathing space in the immediate term. A 0.25% cut on Tuesday seems likely and with markets still unsure as to whether the Bank will act or not, the loonie will struggle to gain bid support in the run-up to the announcement at 14:00 GMT Tuesday. USD/CAD could be destined to rise to between 1.02 and 1.03 by Wednesday, if the Bank of Canada delivers the necessary. Any retreat back to levels close to 0.99 between now and Monday will offer a good buying opportunity. It is too risky to buy the loonie against any currency before the Bank of Canada rate decision. Strategy: Buy USD/CAD on any dips in price between 0.9920 and 0.9950. Target price is 1.0020, followed by 1.01, 1.02 and 1.0250. Long run position is to go short on the loonie and wait for price to hit 1.05.
Bob B
Have a good weekend!
Thứ Sáu, 30 tháng 11, 2007
Thứ Năm, 29 tháng 11, 2007
Bob's Currency Focus 18:00 GMT
EUR/USD
The euro took a bit of a battering this morning for the second consecutive day, dropping a full cent to 1.4723, before rebounding back to the current price of 1.4770. It is encouraging for the dollar to be able to bounce back so quickly following the intervention of the Fed’s Koln Wednesday evening, who sparked the biggest rally on Wall Street for 4 years by suggesting the Fed would cut rates (effectively) to bail out financial markets. While the dollar sank in late trading Wednesday, it has since recovered and is trading higher against most currencies. US data was mixed Thursday, with quarter 3 GDP revised upwards to a staggering 4.9% annual rate (not bad for an economy said to be on the brink of a recession), jobless claims rose unexpectedly by 23K last week, while New Home Sales again disappointed, reported at a lowly 723K rate in October, against a forecast of 740k. German unemployment fell by a greater than expected 53K in October and the jobless rate in the euro-zone’s largest economy now stands at 8.6%, down from 8.7% a month earlier. Other euro area data today was mixed. Having established a break below 1.4780, there is potential for the dollar to push the euro back to 1.4660 on Friday, but it needs to close below 1.4780 this evening for the pair to retain a bearish bias. Fed Chairman Ben Bernanke speaks later this evening in Charlotte (00:00 GMT) and if he gives any hint about Fed intentions for the December meeting, it will have a major market impact. Bernanke is more tactful however and it would be some surprise were he to be blatant and commit the sort of faux-pas we got from his Vice President Wednesday. Strategy: Sell rallies above 1.4820 with target of 1.4730, moving to 1.4660, once 1.4610 gives way. Stop loss at 1.4860. Beware Bernanke Speech!
GBP
Sterling rocketed late Wednesday making significant gains against almost every currency. There didn’t appear to be any reason, other than that jolt higher yielding currencies experienced following a speech from the Fed’s Koln. Sterling has been on the back foot against the dollar and the euro for most of Thursday, although sterling is merely trading around the levels it was at on Tuesday. The latest housing survey from Nationwide reveal UK house prices fell 0.8% in November while the number of mortgage approvals reported by the Bank of England for October were 88K, down from 100K in September. Ongoing softness in the housing sector and credit stresses in financial markets add up to increased pressure on the Bank of England to cut rates sooner rather than later. MPC voting member Blanchflower (a well known dove) called for an early reduction in interest rates Thursday, while Governor King said inflation and growth risks were finely balanced when he testified in front of the Parliament Treasury Committee this morning. The Bank of England deliver their December policy statement on Thursday next and given the underlying risks for sterling, if rates are to be cut, it is likely we may start to see a greater liquidation of sterling long positions over the next week. Cable would appear to offer the best value in chipping away at the pound, but until the dollar can deliver the pair below a price of 2.0520, the best value in selling down the pair is to come in at prices over 2.07. Last night’s exaggerated rally to over 2.08 offered a huge temptation to cable bears, many of which seized the opportunity, as evidenced by the sharp decline seen Thursday. Cable could well end the week around 2.05, if the dollar sustains its broader market rally. Sterling does have the potential to appreciate back to levels around 0.7120 against the euro, but only because there are many more euro longs than sterling longs in the market and a dollar assault could hurt the euro more than the pound. Friday sees the releases of the Gfk consumer confidence index for November, but it should not have too much market impact. Be confident because you may need wide stops with current volatility. The theme will remain the same – sterling will be sold on any significant rallies. Beware the Bernanke speech tonight in case he says something that might damage the dollar and thus our immediate cable prospects. Strategy: sell cable on prices above or close to 2.07, with target of 2.06 and 2.0550. A strong close for the dollar against the pound this evening could mean we see 2.05 Friday.
to be continued....
The euro took a bit of a battering this morning for the second consecutive day, dropping a full cent to 1.4723, before rebounding back to the current price of 1.4770. It is encouraging for the dollar to be able to bounce back so quickly following the intervention of the Fed’s Koln Wednesday evening, who sparked the biggest rally on Wall Street for 4 years by suggesting the Fed would cut rates (effectively) to bail out financial markets. While the dollar sank in late trading Wednesday, it has since recovered and is trading higher against most currencies. US data was mixed Thursday, with quarter 3 GDP revised upwards to a staggering 4.9% annual rate (not bad for an economy said to be on the brink of a recession), jobless claims rose unexpectedly by 23K last week, while New Home Sales again disappointed, reported at a lowly 723K rate in October, against a forecast of 740k. German unemployment fell by a greater than expected 53K in October and the jobless rate in the euro-zone’s largest economy now stands at 8.6%, down from 8.7% a month earlier. Other euro area data today was mixed. Having established a break below 1.4780, there is potential for the dollar to push the euro back to 1.4660 on Friday, but it needs to close below 1.4780 this evening for the pair to retain a bearish bias. Fed Chairman Ben Bernanke speaks later this evening in Charlotte (00:00 GMT) and if he gives any hint about Fed intentions for the December meeting, it will have a major market impact. Bernanke is more tactful however and it would be some surprise were he to be blatant and commit the sort of faux-pas we got from his Vice President Wednesday. Strategy: Sell rallies above 1.4820 with target of 1.4730, moving to 1.4660, once 1.4610 gives way. Stop loss at 1.4860. Beware Bernanke Speech!
GBP
Sterling rocketed late Wednesday making significant gains against almost every currency. There didn’t appear to be any reason, other than that jolt higher yielding currencies experienced following a speech from the Fed’s Koln. Sterling has been on the back foot against the dollar and the euro for most of Thursday, although sterling is merely trading around the levels it was at on Tuesday. The latest housing survey from Nationwide reveal UK house prices fell 0.8% in November while the number of mortgage approvals reported by the Bank of England for October were 88K, down from 100K in September. Ongoing softness in the housing sector and credit stresses in financial markets add up to increased pressure on the Bank of England to cut rates sooner rather than later. MPC voting member Blanchflower (a well known dove) called for an early reduction in interest rates Thursday, while Governor King said inflation and growth risks were finely balanced when he testified in front of the Parliament Treasury Committee this morning. The Bank of England deliver their December policy statement on Thursday next and given the underlying risks for sterling, if rates are to be cut, it is likely we may start to see a greater liquidation of sterling long positions over the next week. Cable would appear to offer the best value in chipping away at the pound, but until the dollar can deliver the pair below a price of 2.0520, the best value in selling down the pair is to come in at prices over 2.07. Last night’s exaggerated rally to over 2.08 offered a huge temptation to cable bears, many of which seized the opportunity, as evidenced by the sharp decline seen Thursday. Cable could well end the week around 2.05, if the dollar sustains its broader market rally. Sterling does have the potential to appreciate back to levels around 0.7120 against the euro, but only because there are many more euro longs than sterling longs in the market and a dollar assault could hurt the euro more than the pound. Friday sees the releases of the Gfk consumer confidence index for November, but it should not have too much market impact. Be confident because you may need wide stops with current volatility. The theme will remain the same – sterling will be sold on any significant rallies. Beware the Bernanke speech tonight in case he says something that might damage the dollar and thus our immediate cable prospects. Strategy: sell cable on prices above or close to 2.07, with target of 2.06 and 2.0550. A strong close for the dollar against the pound this evening could mean we see 2.05 Friday.
to be continued....
Thứ Tư, 28 tháng 11, 2007
Bob's Currency Focus - 00:20 GMT
EUR/USD
The Vice Chairman of the Fed delivered what will go down as one of the most controversial speeches ever by an FOMC member, when his speech Wednesday in New York single handily pushed Wall Street to its biggest single day gain in 4 years and leading to the largest 2-day stock rally in 5 years. It also sent the dollar into sharp retreat on a day when the currency had just earlier been experiencing a rare period of strength. I do not have the time or space to go through the detail of just what Koln said, but the implicit message taken by financial markets was that the Fed would cut rates and cut them aggressively, if needed, to bail out financial markets. In fact Koln’s speech is riddled with contradictions and his direct market intervention at a time when markets are going through what is a long overdue and ‘reality check’ correction, is nothing short of scandalous. There is a little footnote at the bottom of Koln’s speech ‘These are my views and are not necessarily those of my colleagues on the Federal Open Market Committee’ but this afterthought was either not seen, or it was selectively ignored, by the many armies of frantic marketers that set out on a panic spate of stock buying and dollar selling. What is the point in the FOMC meeting behind closed doors to deliver monetary policy if there is a member of that committee out there getting markets to price in his policy prerogatives before the FOMC has even discussed the issues? Koln believes monetary policy must be ‘nimble’ and designed to placate financial markets.
Koln threw markets on their head Wednesday and EUR/USD was exceptionally volatile and traded in a wide range of 1.4712 to 1.4858, giving up more than a cent late in the day as traders quickly off-loaded dollars as the rate outlook began to rain on the greenback. The odd thing is that markets had already priced in a 0.25% cut in December from the Fed but markets began to see many more cuts over the horizon thanks to that speech in New York. Fed Chairman Ben Bernanke speaks Thursday and what he says will be highly significant. If he backs the remarks made by Koln and delivers the same sentiment, then the dollar will fall further. US GDP revisions for Quarter 3 are expected to show growth in the quarter grew by 4.8%, against the 3.9% reported last month. That is one hell of a growth level for an economy apparently on the brink, but such is the nature of current market sentiment, the data is unlikely to boost the dollar and instead the currency’s direction will be determined by Ben Bernanke’s comments and to a lesser extent by the New Home Sales data at 15:00GMT. We have German and French unemployment data out Thursday also but these are unlikely to impact the market very much unless they surprise very sharply on the downside. We could have another voltiale day of trading Thursday, but with so much rate cut talk about in the US, it is difficult to see how the greenback s going to make much progress. Strategy: We could see some corrective move downwards tonight as markets may be seen as having delivered an exaggerated response to the Koln speech. I would still be inclined to buy the euro though on any dips towards 1.4750, with an initial target price of 1.4860. It is highly possible we might see another run above 1.49 tomorrow, if the euro holds up tonight and the negative rate sentiment against the dollar carries through to Thursday’s European session.
To be continued..
The Vice Chairman of the Fed delivered what will go down as one of the most controversial speeches ever by an FOMC member, when his speech Wednesday in New York single handily pushed Wall Street to its biggest single day gain in 4 years and leading to the largest 2-day stock rally in 5 years. It also sent the dollar into sharp retreat on a day when the currency had just earlier been experiencing a rare period of strength. I do not have the time or space to go through the detail of just what Koln said, but the implicit message taken by financial markets was that the Fed would cut rates and cut them aggressively, if needed, to bail out financial markets. In fact Koln’s speech is riddled with contradictions and his direct market intervention at a time when markets are going through what is a long overdue and ‘reality check’ correction, is nothing short of scandalous. There is a little footnote at the bottom of Koln’s speech ‘These are my views and are not necessarily those of my colleagues on the Federal Open Market Committee’ but this afterthought was either not seen, or it was selectively ignored, by the many armies of frantic marketers that set out on a panic spate of stock buying and dollar selling. What is the point in the FOMC meeting behind closed doors to deliver monetary policy if there is a member of that committee out there getting markets to price in his policy prerogatives before the FOMC has even discussed the issues? Koln believes monetary policy must be ‘nimble’ and designed to placate financial markets.
Koln threw markets on their head Wednesday and EUR/USD was exceptionally volatile and traded in a wide range of 1.4712 to 1.4858, giving up more than a cent late in the day as traders quickly off-loaded dollars as the rate outlook began to rain on the greenback. The odd thing is that markets had already priced in a 0.25% cut in December from the Fed but markets began to see many more cuts over the horizon thanks to that speech in New York. Fed Chairman Ben Bernanke speaks Thursday and what he says will be highly significant. If he backs the remarks made by Koln and delivers the same sentiment, then the dollar will fall further. US GDP revisions for Quarter 3 are expected to show growth in the quarter grew by 4.8%, against the 3.9% reported last month. That is one hell of a growth level for an economy apparently on the brink, but such is the nature of current market sentiment, the data is unlikely to boost the dollar and instead the currency’s direction will be determined by Ben Bernanke’s comments and to a lesser extent by the New Home Sales data at 15:00GMT. We have German and French unemployment data out Thursday also but these are unlikely to impact the market very much unless they surprise very sharply on the downside. We could have another voltiale day of trading Thursday, but with so much rate cut talk about in the US, it is difficult to see how the greenback s going to make much progress. Strategy: We could see some corrective move downwards tonight as markets may be seen as having delivered an exaggerated response to the Koln speech. I would still be inclined to buy the euro though on any dips towards 1.4750, with an initial target price of 1.4860. It is highly possible we might see another run above 1.49 tomorrow, if the euro holds up tonight and the negative rate sentiment against the dollar carries through to Thursday’s European session.
To be continued..
Thứ Ba, 27 tháng 11, 2007
Bob's away on Forex-related business and is strapped for time, so the next currency focus article will appear on Wednesday evening.
Meanwhile, Bob likes the Aussie dollar tonight, expecting it to rise against the greenback, euro and sterling currencies. Get out before mid-morning as stock markets could give back today's gains later tomorrow, which would not be good for the Aussie. AUD/USD is safest trade - target 0.8845, S/L from 0.8735.
Bob's words
Meanwhile, Bob likes the Aussie dollar tonight, expecting it to rise against the greenback, euro and sterling currencies. Get out before mid-morning as stock markets could give back today's gains later tomorrow, which would not be good for the Aussie. AUD/USD is safest trade - target 0.8845, S/L from 0.8735.
Bob's words
Thứ Hai, 26 tháng 11, 2007
Bob's Currency Focus - 18:00 GMT
EUR/USD
A more stable day on currency markets Monday with the upsurge in liquidity removing most of the volatility we saw last Friday. The euro looks as if it wants to appreciate some more but some elements of the market are unsure and the upside was limited to 1.4885 so far today. The pair is little changed on the day and the lack of direction is not helped by the dearth of economic data. European stock markets closed lower, but US markets are flat as we speak, yet any sharp move to the downside on the Dow this evening could spell trouble for the dollar by rekindling demands for a December Fed rate cut. There is a key indicator for the euro out Tuesday in the German Ifo Business survey and it is important this key sentiment index does not disappoint greatly, to ensure the euro maintains current levels of confidence as the market seeks to challenge the 1.50 price mark this week. If the Ifo index is good we could test 1.50 later Tuesday or Wednesday, particularly with major risk indicators (consumer confidence Tue and existing home sales Wed) due out in the US over the next 2 days. For now it is a case of sitting it out and playing it safe, but as long as 1.4785 holds in the coming days, the momentum will remain bullish. If the euro again has a premature run at 1.50 (against a backdrop of any further weak euro data) we could witness another sharp retreat, one which this time might potentially bring us right back to 1.4660. Because of the very high ratio of longs in the market there remains the danger of a strong correction at any time and bidders should start to employ tighter stops. Watch the data Tuesday and listen for any Central Bank speak. Strategy: short-term buy on dips below 1.4830, using 1.48 or 1.4780 as a stop loss with targets of 1.4880 and 1.4920. Wait for opportunity to sell down the pair around 1.4940, if the euro rallies above 1.49 but fails to break above 1.4970.
GBP
This is a data light week for sterling, with nothing of any note released up to Thursday. The key question on everyone’s minds thus far is effectively ‘will they or won’t they?,’ essentially asking if the Bank of England will cut rates next week or if they will decide to wait until early 2008. Sterling is riding high again Monday, thanks primarily to a renewed interest in carry trades and the pound has risen against both the dollar and the euro today. Cable looks dangerously high to me on levels above 2.07, for a currency that might be hit with a rate cut in a little over a week’s time. Hometrack reported early Monday morning that UK house prices slowed to an annual rate of 3.6% in November, with prices actually declining by a marginal 0.2% on the month. I’m not sure who is buying sterling at present, but it is unlikely to be anyone with a longer run view, so it is dangerous to be buying cable at elevated levels, even if the dollar’s is nobody’s friend right now. I still like to sell down cable on prices around 2.07 or above, with targets of 2.06 and 2.0550. Sterling will continue to attract strong selling pressure on any runaway rallies, because there are still many wise old traders that can read between those carry lines. I still do fancy sterling though to manage to pull the euro back to 0.7150 at least, simply because the EUR/GBP pair remains overbought and the euro may have some questions to answer of its own/. Strategy: Sell cable on prices above 2.07, with target prices of 2.06 and 2.0550. Stay away from EUR/GBP but do sell the pound against the Aussie dollar when risk aversion levels fall and stock markets are rallying.
JPY
The yen struggled overnight when Asian stocks took off but has come back into its own again this afternoon with European and American stocks faltering and credits woes on the rise. A bad close on Wall Street could trigger a very bad night for Asian stock markets and possibly pave the way for new peaks for the yen. USD/JPY is now just above the 108 price mark and the pair might return to the 2.5 year low at 107.56 (set on Friday) by tomorrow morning, if Wall Street closes poorly. There are no major data releases to impact the yen tonight, but any market moves in financial markets that raise the prospect of a Fed rate cut in December will see the Japanese currency advance. The currency offers little value though at present levels, particularly since it could correct sharply the other way at any time, if risk aversion levels suddenly were to fall. My preference is to wait on opportunities to sell the yen, especially against the euro, which would seem to have more upside potential against the currency than the dollar. Strategy: Stay clear until risk aversion levels fall (stock markets rebound) then buy EUR/JPY with initial target prices of 162.00 and 163.00.
CAD
No data to influence direction Monday and USD/CAD has remained stuck in its now fairly lucrative 0.98 to 0.99 band. The loonie is still protected by high oil and gold prices, with Nymex crude once again hitting $99 a barrel earlier today before retreating to just below $98. Oil prices are however masking the underlying problems for the loonie and with quarter 3 GDP expected to print at a lowly 2.3% later this week (against 3.4% in quarter 2 and 3.95 in quarter 1), doubts about the outlook for the Canadian economy will begin to intensify in the build-up to next week’s Bank of Canada rate decision. It will be a surprise to me if more and more Canadian bulls don’t exit the market ahead of the Bank of Canada and all the risks for the loonie right now look to be to the downside. I continue to prefer buying the US dollar against the loonie on dips and indeed this has proven to have been the most profitable trading strategy across any of the major pairs in the past week. Strategy: short-term: Buy USD/CAD on dips to below or around 0.98 (stop at 0.9760) with target prices of 0.9880, 0.99 and 0.9930. Longer-run: Buy USD/CAD on prices below 0.98 with stop at 0.95 and target price of 1.02 to 1.05 (move stop to 1.0 when parity level convincingly broken).
Bob B - Nov 26
A more stable day on currency markets Monday with the upsurge in liquidity removing most of the volatility we saw last Friday. The euro looks as if it wants to appreciate some more but some elements of the market are unsure and the upside was limited to 1.4885 so far today. The pair is little changed on the day and the lack of direction is not helped by the dearth of economic data. European stock markets closed lower, but US markets are flat as we speak, yet any sharp move to the downside on the Dow this evening could spell trouble for the dollar by rekindling demands for a December Fed rate cut. There is a key indicator for the euro out Tuesday in the German Ifo Business survey and it is important this key sentiment index does not disappoint greatly, to ensure the euro maintains current levels of confidence as the market seeks to challenge the 1.50 price mark this week. If the Ifo index is good we could test 1.50 later Tuesday or Wednesday, particularly with major risk indicators (consumer confidence Tue and existing home sales Wed) due out in the US over the next 2 days. For now it is a case of sitting it out and playing it safe, but as long as 1.4785 holds in the coming days, the momentum will remain bullish. If the euro again has a premature run at 1.50 (against a backdrop of any further weak euro data) we could witness another sharp retreat, one which this time might potentially bring us right back to 1.4660. Because of the very high ratio of longs in the market there remains the danger of a strong correction at any time and bidders should start to employ tighter stops. Watch the data Tuesday and listen for any Central Bank speak. Strategy: short-term buy on dips below 1.4830, using 1.48 or 1.4780 as a stop loss with targets of 1.4880 and 1.4920. Wait for opportunity to sell down the pair around 1.4940, if the euro rallies above 1.49 but fails to break above 1.4970.
GBP
This is a data light week for sterling, with nothing of any note released up to Thursday. The key question on everyone’s minds thus far is effectively ‘will they or won’t they?,’ essentially asking if the Bank of England will cut rates next week or if they will decide to wait until early 2008. Sterling is riding high again Monday, thanks primarily to a renewed interest in carry trades and the pound has risen against both the dollar and the euro today. Cable looks dangerously high to me on levels above 2.07, for a currency that might be hit with a rate cut in a little over a week’s time. Hometrack reported early Monday morning that UK house prices slowed to an annual rate of 3.6% in November, with prices actually declining by a marginal 0.2% on the month. I’m not sure who is buying sterling at present, but it is unlikely to be anyone with a longer run view, so it is dangerous to be buying cable at elevated levels, even if the dollar’s is nobody’s friend right now. I still like to sell down cable on prices around 2.07 or above, with targets of 2.06 and 2.0550. Sterling will continue to attract strong selling pressure on any runaway rallies, because there are still many wise old traders that can read between those carry lines. I still do fancy sterling though to manage to pull the euro back to 0.7150 at least, simply because the EUR/GBP pair remains overbought and the euro may have some questions to answer of its own/. Strategy: Sell cable on prices above 2.07, with target prices of 2.06 and 2.0550. Stay away from EUR/GBP but do sell the pound against the Aussie dollar when risk aversion levels fall and stock markets are rallying.
JPY
The yen struggled overnight when Asian stocks took off but has come back into its own again this afternoon with European and American stocks faltering and credits woes on the rise. A bad close on Wall Street could trigger a very bad night for Asian stock markets and possibly pave the way for new peaks for the yen. USD/JPY is now just above the 108 price mark and the pair might return to the 2.5 year low at 107.56 (set on Friday) by tomorrow morning, if Wall Street closes poorly. There are no major data releases to impact the yen tonight, but any market moves in financial markets that raise the prospect of a Fed rate cut in December will see the Japanese currency advance. The currency offers little value though at present levels, particularly since it could correct sharply the other way at any time, if risk aversion levels suddenly were to fall. My preference is to wait on opportunities to sell the yen, especially against the euro, which would seem to have more upside potential against the currency than the dollar. Strategy: Stay clear until risk aversion levels fall (stock markets rebound) then buy EUR/JPY with initial target prices of 162.00 and 163.00.
CAD
No data to influence direction Monday and USD/CAD has remained stuck in its now fairly lucrative 0.98 to 0.99 band. The loonie is still protected by high oil and gold prices, with Nymex crude once again hitting $99 a barrel earlier today before retreating to just below $98. Oil prices are however masking the underlying problems for the loonie and with quarter 3 GDP expected to print at a lowly 2.3% later this week (against 3.4% in quarter 2 and 3.95 in quarter 1), doubts about the outlook for the Canadian economy will begin to intensify in the build-up to next week’s Bank of Canada rate decision. It will be a surprise to me if more and more Canadian bulls don’t exit the market ahead of the Bank of Canada and all the risks for the loonie right now look to be to the downside. I continue to prefer buying the US dollar against the loonie on dips and indeed this has proven to have been the most profitable trading strategy across any of the major pairs in the past week. Strategy: short-term: Buy USD/CAD on dips to below or around 0.98 (stop at 0.9760) with target prices of 0.9880, 0.99 and 0.9930. Longer-run: Buy USD/CAD on prices below 0.98 with stop at 0.95 and target price of 1.02 to 1.05 (move stop to 1.0 when parity level convincingly broken).
Bob B - Nov 26
Market Watch: Bank of Canada
Will interest rates be cut on December 4?
The Bank of Canada meets on December 3rd and 4th next week to deliberate and to deliver the Central Bank’s latest monetary policy decision (Tuesday the 4th). This is arguably the most important policy decision in 18 months as much has changed since the Bank last met in early October. Inflation has slowed, with the Bank’s preferred core rate falling to 1.8% in October, the slowest rate of inflation since June 2006. The headline rate also slowed, to 2.4% from 2.5% in September. Inflation is now lower in Canada than in the US and with the Fed in an easing cycle, the Bank of Canada is expected to follow suit, albeit in a less aggressive manner than the Fed. The key question is whether the Bank of Canada will move to cut rates now or wait until early 2008. Recent economic data may well make the decision somewhat less painful for the Bank and it will be something of a surprise to me if rates are not cut next week.
Underlying fundamental data points to some deterioration in the Canadian economy: retail sales in quarter 3 recorded the first quarterly decline since the final quarter in 2003; exports have dropped significantly over recent months, particularly for durable goods and in September the economy’s trade balance narrowed to its lowest level in 4 years; manufacturing shipments are falling consistently with outlook bleak as new orders are falling at a sharpened rate; GDP for quarter 3, reported later this week, is expected to print at an annualised 2.3% rate, down substantially from the 3.4% rate recorded in quarter 2 and the 3.9% reported for quarter 1. On top of this we have a scenario where the neighbouring US economy is slowing and is expected to slow further, hardly good news for the export-oriented Canadian economy, where 80% of all exports go to the US. To round it off we have the Canadian dollar still trading 20% higher on the year against its US counterpart, which is taking a huge slice off corporate profits and rendering many Canadian manufacturers and exporters uncompetitive or redundant. The global economy too is showing distinct signs of weakness and the idea that a commodity-rich Canada can flourish while the country’s major trading partners sink is far-fetched.
The time is nigh for the Bank of Canada and it is pointless them using the record tight labour market in Canada to adopt a wait and see approach. Labour is a lagging indicator, but jobs will be shed very quickly when things turn nasty, and the undercurrents already suggest the screw is turning. By acting now the Bank of Canada will demonstrate they are thinking proactively, while a cut should also mean some further correction in the value of the loonie and at least allow Canadian producers compete at a fairer exchange level on international markets. Governor David Dodge has complained that Canada has had to carry too much of the burden of a weakened US dollar, but the way to right this wrong is to help drive the Canadian currency to a more realistic value level. While currency valuation is not the policy imperative of the Bank of Canada, currency manipulation on the part of the speculators that have placed Canada’s economy at risk should be.
In any event, aside from the risks posed by a strong Canadian dollar, recent domestic data in Canada points to an economy which is slowing, an inflation rate which is slowing and increasing external risk from growing uncertainty in the US and global economies. Why wait? Forecast: Bank of Canada to cut the key interest rate from 4.5% to 4.25% on December 4.
Ted B - Nov 26
The Bank of Canada meets on December 3rd and 4th next week to deliberate and to deliver the Central Bank’s latest monetary policy decision (Tuesday the 4th). This is arguably the most important policy decision in 18 months as much has changed since the Bank last met in early October. Inflation has slowed, with the Bank’s preferred core rate falling to 1.8% in October, the slowest rate of inflation since June 2006. The headline rate also slowed, to 2.4% from 2.5% in September. Inflation is now lower in Canada than in the US and with the Fed in an easing cycle, the Bank of Canada is expected to follow suit, albeit in a less aggressive manner than the Fed. The key question is whether the Bank of Canada will move to cut rates now or wait until early 2008. Recent economic data may well make the decision somewhat less painful for the Bank and it will be something of a surprise to me if rates are not cut next week.
Underlying fundamental data points to some deterioration in the Canadian economy: retail sales in quarter 3 recorded the first quarterly decline since the final quarter in 2003; exports have dropped significantly over recent months, particularly for durable goods and in September the economy’s trade balance narrowed to its lowest level in 4 years; manufacturing shipments are falling consistently with outlook bleak as new orders are falling at a sharpened rate; GDP for quarter 3, reported later this week, is expected to print at an annualised 2.3% rate, down substantially from the 3.4% rate recorded in quarter 2 and the 3.9% reported for quarter 1. On top of this we have a scenario where the neighbouring US economy is slowing and is expected to slow further, hardly good news for the export-oriented Canadian economy, where 80% of all exports go to the US. To round it off we have the Canadian dollar still trading 20% higher on the year against its US counterpart, which is taking a huge slice off corporate profits and rendering many Canadian manufacturers and exporters uncompetitive or redundant. The global economy too is showing distinct signs of weakness and the idea that a commodity-rich Canada can flourish while the country’s major trading partners sink is far-fetched.
The time is nigh for the Bank of Canada and it is pointless them using the record tight labour market in Canada to adopt a wait and see approach. Labour is a lagging indicator, but jobs will be shed very quickly when things turn nasty, and the undercurrents already suggest the screw is turning. By acting now the Bank of Canada will demonstrate they are thinking proactively, while a cut should also mean some further correction in the value of the loonie and at least allow Canadian producers compete at a fairer exchange level on international markets. Governor David Dodge has complained that Canada has had to carry too much of the burden of a weakened US dollar, but the way to right this wrong is to help drive the Canadian currency to a more realistic value level. While currency valuation is not the policy imperative of the Bank of Canada, currency manipulation on the part of the speculators that have placed Canada’s economy at risk should be.
In any event, aside from the risks posed by a strong Canadian dollar, recent domestic data in Canada points to an economy which is slowing, an inflation rate which is slowing and increasing external risk from growing uncertainty in the US and global economies. Why wait? Forecast: Bank of Canada to cut the key interest rate from 4.5% to 4.25% on December 4.
Ted B - Nov 26
Chủ Nhật, 25 tháng 11, 2007
EUR/USD Outlook for week
EUR/USD open price Nov 25 - 1.4868. Last week +1.77 cents.
Bob
Friday produced some volatile market action when liquidity levels were low and the euro soared to 1.4966 before being pegged back during the European session. The very fact the market was able to move to such a high at all demonstrates there remains little resistance to the euro’s current ascendancy and Central Bank intervention appears to be some way off. The downward trend in US stock markets and softer economic data has futures markets now pricing in a 90% chance of a further Fed rate cut in December. With the ECB continuing their hawkish tone against an outlook of further US rate cutes, there appears little prospect of any near-term trend reversal in EUR/USD. Although the single currency retreated sharply Friday, it still rounded off the week with a 1.75 cent gain. The euro may be pushed up close to the 1.50 line again Monday or Tuesday and if it breaks through this key price level, it could rise rapidly to 1.51 or 1.52. There are a number of key economic releases over the course of this week, the most important being US new home sales, existing home sales, consumer confidence and personal income and expenditure. On the euro side, only a sharp pullback in November's German Ifo index might undermine the single currency, while a higher inflation figure for November (published next Friday) should keep hawkish rhetoric flying from ECB officials and boost the euro. There are several speeches from US Fed members and these will need to be monitored closely. Fed officials two weeks ago hinted at no further rate cut this year, but given the negative sentiment that has seen US stocks plunge in the plast week, any softening in tone from Fed addresses this week will be read as a probable December rate cut and severely damage the dollar. Upside targets this week are 1.4850, 1.4880, 1.4920, 1.4950, 1.4970, 1.50 and 1.51. Euro support is seen at 1.4780, 1.4750, 1.47, 1.4660, 1.4570 and 1.45.
Ted
Global stock markets had a turbulent time last week but recovered Thursday and Friday while the US was on holiday. Global stock prices now reflect broader concerns about the global economy, so this is no longer exclusively about a US slowdown and bank write-downs because of subprime mortgages. EUR/USD has failed to price in any of this new reality and last week we saw the euro almost reach 1.50 against the dollar, 16 cents up from its rate in the middle of August. There is a very significant dislocation in currency markets and the euro’s price is now greatly inflated. I have no doubt the market will now wish to take out 1.50 simply because price is so close to this level, but what happens thereafter will be very interesting. A 1.50 exchange rate with a less favourable outlook for the euro economy in 2008 is going to spark quite an element of acrimonious debate within the euro community, the charge likely to be led by French President Mr Sarkozy. The ECB will be under more pressure than ever on the currency issue when they meet in early December and they may be forced to soften their stance, particularly if financial markets continue to experience the same levels of stress as in the past fortnight. We could potentially be on the cusp of a turn in the euro and at the very minimum a significant downside correction is due. The dollar must hold the 1.50 price line for now and at least get some euro supporters to believe a top has been formed in the pair. This could trigger a sell-off and a decline to 1.45. US GDP may be revised upwards by as much as 1% this week, meaning despite all the doom and gloom, the US economy will have grown by twice the annual rate of the euro economy over Quarter 3. Maintain a close watch on ECB and Fed officials this week for clues as to the next policy moves by the respective Central Banks. Any upside surprise in October’s existing home sales data from the US may also boost the dollar. Downside price onjectives this week are 1.4785, 1.4740, 1.47, 1.4650, 1.4570 and 1.4510. Resistance comes in at 1.4870, 1.49, 1.4970 and 1.50. Bears need to hold the key resistance lines early in the week, if the downside is to prevail over the next 5 days.
Bob B and Ted B - Nov 25
Bob
Friday produced some volatile market action when liquidity levels were low and the euro soared to 1.4966 before being pegged back during the European session. The very fact the market was able to move to such a high at all demonstrates there remains little resistance to the euro’s current ascendancy and Central Bank intervention appears to be some way off. The downward trend in US stock markets and softer economic data has futures markets now pricing in a 90% chance of a further Fed rate cut in December. With the ECB continuing their hawkish tone against an outlook of further US rate cutes, there appears little prospect of any near-term trend reversal in EUR/USD. Although the single currency retreated sharply Friday, it still rounded off the week with a 1.75 cent gain. The euro may be pushed up close to the 1.50 line again Monday or Tuesday and if it breaks through this key price level, it could rise rapidly to 1.51 or 1.52. There are a number of key economic releases over the course of this week, the most important being US new home sales, existing home sales, consumer confidence and personal income and expenditure. On the euro side, only a sharp pullback in November's German Ifo index might undermine the single currency, while a higher inflation figure for November (published next Friday) should keep hawkish rhetoric flying from ECB officials and boost the euro. There are several speeches from US Fed members and these will need to be monitored closely. Fed officials two weeks ago hinted at no further rate cut this year, but given the negative sentiment that has seen US stocks plunge in the plast week, any softening in tone from Fed addresses this week will be read as a probable December rate cut and severely damage the dollar. Upside targets this week are 1.4850, 1.4880, 1.4920, 1.4950, 1.4970, 1.50 and 1.51. Euro support is seen at 1.4780, 1.4750, 1.47, 1.4660, 1.4570 and 1.45.
Ted
Global stock markets had a turbulent time last week but recovered Thursday and Friday while the US was on holiday. Global stock prices now reflect broader concerns about the global economy, so this is no longer exclusively about a US slowdown and bank write-downs because of subprime mortgages. EUR/USD has failed to price in any of this new reality and last week we saw the euro almost reach 1.50 against the dollar, 16 cents up from its rate in the middle of August. There is a very significant dislocation in currency markets and the euro’s price is now greatly inflated. I have no doubt the market will now wish to take out 1.50 simply because price is so close to this level, but what happens thereafter will be very interesting. A 1.50 exchange rate with a less favourable outlook for the euro economy in 2008 is going to spark quite an element of acrimonious debate within the euro community, the charge likely to be led by French President Mr Sarkozy. The ECB will be under more pressure than ever on the currency issue when they meet in early December and they may be forced to soften their stance, particularly if financial markets continue to experience the same levels of stress as in the past fortnight. We could potentially be on the cusp of a turn in the euro and at the very minimum a significant downside correction is due. The dollar must hold the 1.50 price line for now and at least get some euro supporters to believe a top has been formed in the pair. This could trigger a sell-off and a decline to 1.45. US GDP may be revised upwards by as much as 1% this week, meaning despite all the doom and gloom, the US economy will have grown by twice the annual rate of the euro economy over Quarter 3. Maintain a close watch on ECB and Fed officials this week for clues as to the next policy moves by the respective Central Banks. Any upside surprise in October’s existing home sales data from the US may also boost the dollar. Downside price onjectives this week are 1.4785, 1.4740, 1.47, 1.4650, 1.4570 and 1.4510. Resistance comes in at 1.4870, 1.49, 1.4970 and 1.50. Bears need to hold the key resistance lines early in the week, if the downside is to prevail over the next 5 days.
Bob B and Ted B - Nov 25
Thứ Sáu, 23 tháng 11, 2007
Bob's Currency Focus - 16:00 GMT
EUR/USD
Traders took advantage of thin trading conditions early Friday morning to push the euro to 1.4966, just short of the psychologically important 1.50 price level. It is a case of history repeating itself as it was on this same week one year ago that the euro made a surprise attack to take out the 1.30 price level, while US traders were sitting down to their Thanksgiving dinner. I called it yesterday, warning there may be a sharp correction downwards upon a successful/failed attempt to breach 1.50, and the euro has now fallen back to trade just around the 1.48 price handle. Data from the euro area this morning was poor, pointing to a further slowdown in the euro economy and highlighting the that economic softness is not restricted solely to the US. French consumer spending fell sharply in October, while industrial activity across the wider euro area slowed in November, based on preliminary PMI readings released Friday. There were also strong comments from ECB President Jean Claude Trichet this morning, again emphasising brutal moves in currency markets were unwelcome. Many may interpret this to mean the ECB might intervene, if the euro continues to appreciate at the current pace. 1.50 being a step too far today's market, soft euro-zone data and fear of Central Bank intervention combine to trigger a bout of profit-taking and we will need to wait until Monday when markets return to normal, to establish whether immediate direction is in fact up or down. If the dollar can close Friday below 1.4780, there is a chance we could see a broader retreat earlier next week, certainly back to 1.4660. At current prices and in such a thin market it is not worth getting involved. The time to have been in the market was this morning, to sell down the euro when it reached its inflated peak. It must be noted the euro has closed strongly most Fridays of late, and if the single currency does hold support at 1.4780, it could rally nearer to 1.4850 before the close today. Strategy: Stay out until markets normalise on Monday.
GBP
Sterling jumped on the dollar-thrashing wagon early Friday, when only a fraction of the normal market was up and running, and cable reached an improbable price of 2.0766. The move was proven to be premature however and the pair crashed back to below 2.06 soon after the European market was up and running. UK Quarter 3 GDP was revised downwards to 0.7%, from the preliminary 0.8% reported last month, but what was more significant to markets today was the mortgage lending figures released by the British Bankers Association this morning. The report from the BBA showed the number of mortgage approvals fell to 44.1K in October, from 52.6K in September. The slowdown in the housing sector and ongoing credit stresses in financial markets mean the Bank of England will possibly move to cut interest rates when they meet in a fortnight’s time, rather than wait until the new year. Expect sterling to come under increasing pressure next week, once markets return to full capacity and traders have had time to digest the significance of this week’s events. Even factoring in the negatives, sterling may be able to pull the euro back to 0.7150 early next week, as the euro remains grossly overbought against the UK currency. Cable continues to offer a good sell down opportunity and I would again sell the pair on any price close to 2.07, with price targets of 2.06 and 2.0550. I would not be surprised to see cable drop to 2.0250 next week, given the increasing probability of a December rate cut and the fact a December rate cut by the Fed (by no means guaranteed to happen) is effectively fully priced into the dollar. Strategy: Sell cable on prices close to 2.07 for limit of 2.06 and 2.0550. Sell down sterling against the Aussie dollar while stock markets are rallying.
Yen
The Japanese currency surprised this morning, making significant inroads across the board, despite a recovery in global stocks Thursday and Friday and with markets being closed in Japan Friday for a holiday. This is the first day in quite some time when the yen has rallied while stock markets were on the up. It may be an indication of just how deep the current strain of market fear runs, as the Aussie and Kiwi dollars have remained primarily on the defensive, with the carry trade also away for the Thanksgiving break. A new 2.5 year low was printed this morning for USD/JPY at 107.56, and the pivotal 2005 low of 106.47 is now within reach and could be hit next week, if risk aversion levels remain high. The yen made an even more significant move against the euro today, the single currency dropping below Y160. There is the possibility of a correction back towards Y158 early next week, if the broader flight to safety across markets continues. We must however recognise the number of yen shorts in the marketplace has been falling significantly of late and the pace of the Japanese currency’s should now begin to slow. The yen will also be forced to retreat next week if expectations for a Fed rate cut in December grow and it restores stability to US financial markets. Strategy: Stay away from yen until markets normalise (Monday).
CAD
The loonie has been stuck in a 0.98 to 0.99 range for yet another day on Friday, although the advantage looks to be with the dollar as the USD/CAD pair is continuously being bought on dips. Parity is near upon us again and I expect it to be hit within the next week, although elevated oil and gold prices will arm the loonie with some short-term resistance. It seems unlikely the Bank of Canada will wait until the first quarter of 2008 before cutting interest rates, particularly given the benign inflation data released this week. The sharp fall in base metal prices will raise doubts about global economic growth and this too will tend to undermine the loonie. The loonie looks to me to be the most vulnerable of all the major currencies right now, given its proximity to and dependence upon a US economy entering a downturn. The euro remains overbought against the Canadian currency, but now is not the time to be buying the loonie against any currency in my view, given the underlying risks. USD/CAD potentially offers the best opportunity of all the major currency pairs at the moment. Strategy - Short-term is to buy USD/CAD on dips to below or around 0.98 with targets of 0.9880 and 0.9920. Positional: buy USD/CAD at best available price (preferably below or at least close to 0.98) with stop at 0.95 and price target of 1.05 (moving stop to above 1.0 when parity convincingly broken).
Bob B - Nov 23
Traders took advantage of thin trading conditions early Friday morning to push the euro to 1.4966, just short of the psychologically important 1.50 price level. It is a case of history repeating itself as it was on this same week one year ago that the euro made a surprise attack to take out the 1.30 price level, while US traders were sitting down to their Thanksgiving dinner. I called it yesterday, warning there may be a sharp correction downwards upon a successful/failed attempt to breach 1.50, and the euro has now fallen back to trade just around the 1.48 price handle. Data from the euro area this morning was poor, pointing to a further slowdown in the euro economy and highlighting the that economic softness is not restricted solely to the US. French consumer spending fell sharply in October, while industrial activity across the wider euro area slowed in November, based on preliminary PMI readings released Friday. There were also strong comments from ECB President Jean Claude Trichet this morning, again emphasising brutal moves in currency markets were unwelcome. Many may interpret this to mean the ECB might intervene, if the euro continues to appreciate at the current pace. 1.50 being a step too far today's market, soft euro-zone data and fear of Central Bank intervention combine to trigger a bout of profit-taking and we will need to wait until Monday when markets return to normal, to establish whether immediate direction is in fact up or down. If the dollar can close Friday below 1.4780, there is a chance we could see a broader retreat earlier next week, certainly back to 1.4660. At current prices and in such a thin market it is not worth getting involved. The time to have been in the market was this morning, to sell down the euro when it reached its inflated peak. It must be noted the euro has closed strongly most Fridays of late, and if the single currency does hold support at 1.4780, it could rally nearer to 1.4850 before the close today. Strategy: Stay out until markets normalise on Monday.
GBP
Sterling jumped on the dollar-thrashing wagon early Friday, when only a fraction of the normal market was up and running, and cable reached an improbable price of 2.0766. The move was proven to be premature however and the pair crashed back to below 2.06 soon after the European market was up and running. UK Quarter 3 GDP was revised downwards to 0.7%, from the preliminary 0.8% reported last month, but what was more significant to markets today was the mortgage lending figures released by the British Bankers Association this morning. The report from the BBA showed the number of mortgage approvals fell to 44.1K in October, from 52.6K in September. The slowdown in the housing sector and ongoing credit stresses in financial markets mean the Bank of England will possibly move to cut interest rates when they meet in a fortnight’s time, rather than wait until the new year. Expect sterling to come under increasing pressure next week, once markets return to full capacity and traders have had time to digest the significance of this week’s events. Even factoring in the negatives, sterling may be able to pull the euro back to 0.7150 early next week, as the euro remains grossly overbought against the UK currency. Cable continues to offer a good sell down opportunity and I would again sell the pair on any price close to 2.07, with price targets of 2.06 and 2.0550. I would not be surprised to see cable drop to 2.0250 next week, given the increasing probability of a December rate cut and the fact a December rate cut by the Fed (by no means guaranteed to happen) is effectively fully priced into the dollar. Strategy: Sell cable on prices close to 2.07 for limit of 2.06 and 2.0550. Sell down sterling against the Aussie dollar while stock markets are rallying.
Yen
The Japanese currency surprised this morning, making significant inroads across the board, despite a recovery in global stocks Thursday and Friday and with markets being closed in Japan Friday for a holiday. This is the first day in quite some time when the yen has rallied while stock markets were on the up. It may be an indication of just how deep the current strain of market fear runs, as the Aussie and Kiwi dollars have remained primarily on the defensive, with the carry trade also away for the Thanksgiving break. A new 2.5 year low was printed this morning for USD/JPY at 107.56, and the pivotal 2005 low of 106.47 is now within reach and could be hit next week, if risk aversion levels remain high. The yen made an even more significant move against the euro today, the single currency dropping below Y160. There is the possibility of a correction back towards Y158 early next week, if the broader flight to safety across markets continues. We must however recognise the number of yen shorts in the marketplace has been falling significantly of late and the pace of the Japanese currency’s should now begin to slow. The yen will also be forced to retreat next week if expectations for a Fed rate cut in December grow and it restores stability to US financial markets. Strategy: Stay away from yen until markets normalise (Monday).
CAD
The loonie has been stuck in a 0.98 to 0.99 range for yet another day on Friday, although the advantage looks to be with the dollar as the USD/CAD pair is continuously being bought on dips. Parity is near upon us again and I expect it to be hit within the next week, although elevated oil and gold prices will arm the loonie with some short-term resistance. It seems unlikely the Bank of Canada will wait until the first quarter of 2008 before cutting interest rates, particularly given the benign inflation data released this week. The sharp fall in base metal prices will raise doubts about global economic growth and this too will tend to undermine the loonie. The loonie looks to me to be the most vulnerable of all the major currencies right now, given its proximity to and dependence upon a US economy entering a downturn. The euro remains overbought against the Canadian currency, but now is not the time to be buying the loonie against any currency in my view, given the underlying risks. USD/CAD potentially offers the best opportunity of all the major currency pairs at the moment. Strategy - Short-term is to buy USD/CAD on dips to below or around 0.98 with targets of 0.9880 and 0.9920. Positional: buy USD/CAD at best available price (preferably below or at least close to 0.98) with stop at 0.95 and price target of 1.05 (moving stop to above 1.0 when parity convincingly broken).
Bob B - Nov 23
Thứ Năm, 22 tháng 11, 2007
Bob's Currency Focus - 17:00 GMT
EUR/USD
Little activity on the currency market today with US markets closed and markets elsewhere taking a breather. Volatility has been surprisingly low, considering the negative sentiment that carried over from Wall Street Wednesday and the extreme overbought levels of this pair. Equity markets have settled across Europe Thursday, although risk aversion levels have not disappeared, as evidenced by the reluctance of traders to re-enter the carry trade. Industrial orders in the euro area fell by a significant 1.6% in September with the annual rate slowing to 2.0% from 5.2% in August. Economists had forecast a 0.5% drop on the month and an annualised growth rate of 6.7%. The adjusted current account for the euro area also narrowed much more than expected in September, to €0.6B from €4.5B a month earlier. Currency markets remain immune to less than positive news from the euro area and today’s disappointing data had no market impact on the teflon euro. The single currency had rallied to a new lifetime high of 1.4872 overnight and with the pair currently in and around 1.4850 and not having dipped below 1.4820 all day, it will be a surprise if there is not a run on the 1.49 line (at least - remember what happened on this week last year?) before tomorrow. The main reason why the euro won’t reach 1.50 this week might be upside exhaustion, with far too many euro long positions in the market. Friday’s flash PMI data for the euro-zone could potentially put a fly in the ointment however, particularly if any of the indices report a contraction. The indices are due out at 09:00 GMT - see link to calendar at end of page. There is little value in buying the euro at current prices and I prefer to wait for a correction, before entering at a more attractive bid price, but I might sell once the euro has made a run (failed or otherwise) on the 1.50 price mark. Strategy: Sit and wait. But sell if there is a contracting PMI reported for the euro area Friday.
GBP
Cable has held up remarkably when one considers the chances of a December rate cut are increasing all the time. Sterling is being protected by dollar weakness and the general market preference currently being given to the major European currencies. Cable may rise higher if the euro makes a run on the 1.50 price level, but any significant rallies are likely to attract selling interest and in this regard sterling is very vulnerable. Total Business Investment in quarter 3 disappointed, coming in flat against the previous quarter and if Friday’s BBA mortgage lending figures report soft, sterling may come under more immediate pressure. The euro is clearly overbought against sterling, but it may not retreat until there is a broader euro sell-off which should come when the current rally against the US dollar stalls. Strategy: Sell any cable rallies close to 2.07, with targets of 2.06 and 2.0550. Sell down sterling against the Aussie dollar while risk aversion levels are falling.
JPY
The yen has held its own Thursday even though the Japanese Nikkei and European Stock markets rallied, so the move towards 106.50 will have to wait. The yen not being sold off thus far today has more to do with the lack of liquidity than anything else, so if Asian stocks rally tonight, the yen should retreat. There may be some reluctance on the part of carry traders to enter the fray after the thrashing they have taken in recent days and with trading conditions running thin we could witness lots of volatility across the yen carry trade pairs until Friday’s close. The dollar should be able to push the yen back above the Y109 mark tonight with the chance of a return to Y110 tomorrow, if risk aversions levels fall. The euro has been trading around the Y161 mark for most of the day, but it could return to Y162.50 over the next 24 hours. The Japanese currency is unlikely to be able to make much headway while US markets are closed, but traders thinking of selling the currency need to keep a close eye on stock markets and need to allow for increased volatility because of the thin trading conditions. Strategy: Stay away from yen until market conditions normalise (wait until next Monday).
CAD
The loonie has traded in a 0.9789 to 0.9880 range with the US dollar all day, which is a good performance considering the loonie is coming off the back of some very negative reports for the currency in the past 2 days. It now seems certain the Bank of Canada will be cutting rates soon, to try to avoid any serious deterioration in the economy and the first cut could come in December. This is very negative for the loonie and while the euro has made very significant gains in recent days, the loonie still looks well priced against the US dollar, when one looks at the level of bad news already priced into the US currency. There is no data between now and the end of the week and while elevated oil and gold prices are temporary offering some currency support, the broader weakness seen in base metal prices will tend to undermine the outlook for the Canadian economy and it is difficult to see how the loonie cannot weaken further from here. Strategy: Buy USD/CAD on dips below 0.98, with targets of 0.9880 and 0.9920. A longer run position is to buy USD/CAD and hold the position with a longer run target of 1.05+, against a stop at 0.95. I'm now a loonie bear :-) and bullish USD/CAD.
Bob B
Little activity on the currency market today with US markets closed and markets elsewhere taking a breather. Volatility has been surprisingly low, considering the negative sentiment that carried over from Wall Street Wednesday and the extreme overbought levels of this pair. Equity markets have settled across Europe Thursday, although risk aversion levels have not disappeared, as evidenced by the reluctance of traders to re-enter the carry trade. Industrial orders in the euro area fell by a significant 1.6% in September with the annual rate slowing to 2.0% from 5.2% in August. Economists had forecast a 0.5% drop on the month and an annualised growth rate of 6.7%. The adjusted current account for the euro area also narrowed much more than expected in September, to €0.6B from €4.5B a month earlier. Currency markets remain immune to less than positive news from the euro area and today’s disappointing data had no market impact on the teflon euro. The single currency had rallied to a new lifetime high of 1.4872 overnight and with the pair currently in and around 1.4850 and not having dipped below 1.4820 all day, it will be a surprise if there is not a run on the 1.49 line (at least - remember what happened on this week last year?) before tomorrow. The main reason why the euro won’t reach 1.50 this week might be upside exhaustion, with far too many euro long positions in the market. Friday’s flash PMI data for the euro-zone could potentially put a fly in the ointment however, particularly if any of the indices report a contraction. The indices are due out at 09:00 GMT - see link to calendar at end of page. There is little value in buying the euro at current prices and I prefer to wait for a correction, before entering at a more attractive bid price, but I might sell once the euro has made a run (failed or otherwise) on the 1.50 price mark. Strategy: Sit and wait. But sell if there is a contracting PMI reported for the euro area Friday.
GBP
Cable has held up remarkably when one considers the chances of a December rate cut are increasing all the time. Sterling is being protected by dollar weakness and the general market preference currently being given to the major European currencies. Cable may rise higher if the euro makes a run on the 1.50 price level, but any significant rallies are likely to attract selling interest and in this regard sterling is very vulnerable. Total Business Investment in quarter 3 disappointed, coming in flat against the previous quarter and if Friday’s BBA mortgage lending figures report soft, sterling may come under more immediate pressure. The euro is clearly overbought against sterling, but it may not retreat until there is a broader euro sell-off which should come when the current rally against the US dollar stalls. Strategy: Sell any cable rallies close to 2.07, with targets of 2.06 and 2.0550. Sell down sterling against the Aussie dollar while risk aversion levels are falling.
JPY
The yen has held its own Thursday even though the Japanese Nikkei and European Stock markets rallied, so the move towards 106.50 will have to wait. The yen not being sold off thus far today has more to do with the lack of liquidity than anything else, so if Asian stocks rally tonight, the yen should retreat. There may be some reluctance on the part of carry traders to enter the fray after the thrashing they have taken in recent days and with trading conditions running thin we could witness lots of volatility across the yen carry trade pairs until Friday’s close. The dollar should be able to push the yen back above the Y109 mark tonight with the chance of a return to Y110 tomorrow, if risk aversions levels fall. The euro has been trading around the Y161 mark for most of the day, but it could return to Y162.50 over the next 24 hours. The Japanese currency is unlikely to be able to make much headway while US markets are closed, but traders thinking of selling the currency need to keep a close eye on stock markets and need to allow for increased volatility because of the thin trading conditions. Strategy: Stay away from yen until market conditions normalise (wait until next Monday).
CAD
The loonie has traded in a 0.9789 to 0.9880 range with the US dollar all day, which is a good performance considering the loonie is coming off the back of some very negative reports for the currency in the past 2 days. It now seems certain the Bank of Canada will be cutting rates soon, to try to avoid any serious deterioration in the economy and the first cut could come in December. This is very negative for the loonie and while the euro has made very significant gains in recent days, the loonie still looks well priced against the US dollar, when one looks at the level of bad news already priced into the US currency. There is no data between now and the end of the week and while elevated oil and gold prices are temporary offering some currency support, the broader weakness seen in base metal prices will tend to undermine the outlook for the Canadian economy and it is difficult to see how the loonie cannot weaken further from here. Strategy: Buy USD/CAD on dips below 0.98, with targets of 0.9880 and 0.9920. A longer run position is to buy USD/CAD and hold the position with a longer run target of 1.05+, against a stop at 0.95. I'm now a loonie bear :-) and bullish USD/CAD.
Bob B
Thứ Tư, 21 tháng 11, 2007
Bob's Currency Focus - 17:00 GMT
EUR/USD
The dizzy heights the euro is scaling right now are scary. 1.7 cents against the dollar in a single day - Tuesday, when the currency was already trading close to its lifetime peak, is extreme to say the least. Markets are trading on the assumption the Fed is going to cut rates by its December meeting, regardless of what else happens, and they may indeed be right. The minutes of the October meeting, released Tuesday, pointed to it being a ‘close call’ on whether rates to cut or not at that time. Most Fed members that have spoken in the past week attempted to play down expectations for a further cut in December, but with economic data weakening further and Wall Street in sharp decline, the Fed may be pressurised into giving markets what they want. The Fed’s task would be made easier were other Central Banks to shift their policy positions before the Fed is forced to act again, otherwise the dollar is going take it on the chin again, oil prices will continue to hover around $100 a barrel and imported inflation into the US will grow. So far the ECB has shown little in the way of sympathy for the Fed or the dollar, with ECB members preoccupied with inflation talk in the euro area and are standing over their hawkish views. The euro is going to hit 1.50, possibly this week and it is difficult to see its ascent being halted in the current climate, unless there is a major shift in policy by the ECB, or intervention of some kind. It is highly significant that the euro is appreciating against the dollar at a time when global risk aversion levels are at a peak and while large funds are being transferred from equities into US bonds. Outside of the US it is clear that the euro, even at its current inflated price, is seen as a safer haven than the dollar. With US markets closed tomorrow and only operating at low capacity Friday, the dollar could come under further sustained attack, unless there is a major sell-off of the euro this evening or tomorrow morning. I expect to see the market try to reach 1.50 this week, whether it is warranted or not and even though it would translate into an ultra-extreme gain for a single week. Nobody seems prepared to stop it. Volatility levels are such and fear is so strong that further sharp moves are more probable than possible this week. It is difficult for traders to justify buying the euro at current prices, certainly not on a positional basis, because there is the danger of a sharp downturn at any time. I would be inclined to wait and see if the euro can take the pair higher (to 1.50) before entering the market at all and then sell down for a correction. Strategy: Stay out until successful or failed attempt to take out 1.50 and then sell down for a correction).
GBP
The Bank of England voted by a majority of 7-2 to maintain interest rates at 5.75% in November. The split decision increases expectations for a near-term rate cut from the bank’s Monetary Policy Committee and it could come as soon as December, particularly if the current credit stresses in financial markets persists. Cable had risen to a high of 2.0682 overnight, but fell to a low of 2.052 soon after the Bank of England’s minutes were released Wednesday. Negative sentiment against the dollar continues to protect sterling although the UK currency did fall to a new 4.5 year low against the euro, which is now trading just above 0.72 pence. Sterling did retreat sharply against the yen as the carry trade unwind continued, but the pound has risen significantly against all the commodity currencies today. With rate expectations now working against sterling, the currency remains vulnerable to a sharp sell-off, but it may take a broader US dollar recovery to trigger any major decline in cable, while EUR/GBP is overbought. Sterling will strengthen against the yen and the Swiss franc and weaken against the Aussie and New Zealand dollars if stock markets recover. It is dangerous to buy the pound right now and any further cable moves towards 2.07 offers a sell opportunity. Strategy: Sell cable on prices close to 2.07, with target of 2.0550.
JPY
The yen hit a 2.5 year high against the US dollar Wednesday and has traded strongly for all of the European and US trading sessions – the USD/JPY pair hit a new low of 1.0825 this morning. If risk aversion persists to the end of the week, the yen could push the dollar back towards the May 2005 low at 106.47, with the aid of further carry trade unwinding. US markets are closed Thursday and if global stock markets stabilise, the yen will be forced to retreat back above Y110 against the dollar. Japan’s October’s trade balance was in line with expectations, 66% up on the same month one year ago, but market direction for the yen is currently dictated by risk aversion and fear, not data. The yen gained 1% against the euro today and at Y161.16 this remains the pair that offers the best yen value under current market conditions, but only to sell it at prices above Y163. If stock markets stabilise late Wednesday and into Thursday, the yen will be sold off, as elements of the carry trades return and the yen should be avoided, other than to sell it.
CAD
September’s retails sales numbers surprised to the downside, falling by 0.2% from August. Retail Sales for the quarter (Qtr 3) declined for the first time since 2003 and this coupled with Tuesday’s soft inflation numbers open the door for a possible bank of Canada rate cut as soon as December. The shine continues to come off the loonie and on Wednesday the US dollar hit a 7 week high against the Canadian currency, reaching 0.9923. The trend has definitely turned and USD/CAD should now be bought on dips and we may reach parity this week. If the pair returns to parity while risk tolerance levels remain low, then the US dollar could move significantly through the other side. The Canadian dollar is oversold against the euro, but there is little value in trying to buy the loonie right now, given the shift in the currency’s outlook. Strategy: Buy USD/CAD on dips below 0.98 with a price target of 0.9850. Also, place advance orders to buy USD/CAD at 1.0000 and hold on positional basis.
Bob B - Nov 21
The dizzy heights the euro is scaling right now are scary. 1.7 cents against the dollar in a single day - Tuesday, when the currency was already trading close to its lifetime peak, is extreme to say the least. Markets are trading on the assumption the Fed is going to cut rates by its December meeting, regardless of what else happens, and they may indeed be right. The minutes of the October meeting, released Tuesday, pointed to it being a ‘close call’ on whether rates to cut or not at that time. Most Fed members that have spoken in the past week attempted to play down expectations for a further cut in December, but with economic data weakening further and Wall Street in sharp decline, the Fed may be pressurised into giving markets what they want. The Fed’s task would be made easier were other Central Banks to shift their policy positions before the Fed is forced to act again, otherwise the dollar is going take it on the chin again, oil prices will continue to hover around $100 a barrel and imported inflation into the US will grow. So far the ECB has shown little in the way of sympathy for the Fed or the dollar, with ECB members preoccupied with inflation talk in the euro area and are standing over their hawkish views. The euro is going to hit 1.50, possibly this week and it is difficult to see its ascent being halted in the current climate, unless there is a major shift in policy by the ECB, or intervention of some kind. It is highly significant that the euro is appreciating against the dollar at a time when global risk aversion levels are at a peak and while large funds are being transferred from equities into US bonds. Outside of the US it is clear that the euro, even at its current inflated price, is seen as a safer haven than the dollar. With US markets closed tomorrow and only operating at low capacity Friday, the dollar could come under further sustained attack, unless there is a major sell-off of the euro this evening or tomorrow morning. I expect to see the market try to reach 1.50 this week, whether it is warranted or not and even though it would translate into an ultra-extreme gain for a single week. Nobody seems prepared to stop it. Volatility levels are such and fear is so strong that further sharp moves are more probable than possible this week. It is difficult for traders to justify buying the euro at current prices, certainly not on a positional basis, because there is the danger of a sharp downturn at any time. I would be inclined to wait and see if the euro can take the pair higher (to 1.50) before entering the market at all and then sell down for a correction. Strategy: Stay out until successful or failed attempt to take out 1.50 and then sell down for a correction).
GBP
The Bank of England voted by a majority of 7-2 to maintain interest rates at 5.75% in November. The split decision increases expectations for a near-term rate cut from the bank’s Monetary Policy Committee and it could come as soon as December, particularly if the current credit stresses in financial markets persists. Cable had risen to a high of 2.0682 overnight, but fell to a low of 2.052 soon after the Bank of England’s minutes were released Wednesday. Negative sentiment against the dollar continues to protect sterling although the UK currency did fall to a new 4.5 year low against the euro, which is now trading just above 0.72 pence. Sterling did retreat sharply against the yen as the carry trade unwind continued, but the pound has risen significantly against all the commodity currencies today. With rate expectations now working against sterling, the currency remains vulnerable to a sharp sell-off, but it may take a broader US dollar recovery to trigger any major decline in cable, while EUR/GBP is overbought. Sterling will strengthen against the yen and the Swiss franc and weaken against the Aussie and New Zealand dollars if stock markets recover. It is dangerous to buy the pound right now and any further cable moves towards 2.07 offers a sell opportunity. Strategy: Sell cable on prices close to 2.07, with target of 2.0550.
JPY
The yen hit a 2.5 year high against the US dollar Wednesday and has traded strongly for all of the European and US trading sessions – the USD/JPY pair hit a new low of 1.0825 this morning. If risk aversion persists to the end of the week, the yen could push the dollar back towards the May 2005 low at 106.47, with the aid of further carry trade unwinding. US markets are closed Thursday and if global stock markets stabilise, the yen will be forced to retreat back above Y110 against the dollar. Japan’s October’s trade balance was in line with expectations, 66% up on the same month one year ago, but market direction for the yen is currently dictated by risk aversion and fear, not data. The yen gained 1% against the euro today and at Y161.16 this remains the pair that offers the best yen value under current market conditions, but only to sell it at prices above Y163. If stock markets stabilise late Wednesday and into Thursday, the yen will be sold off, as elements of the carry trades return and the yen should be avoided, other than to sell it.
CAD
September’s retails sales numbers surprised to the downside, falling by 0.2% from August. Retail Sales for the quarter (Qtr 3) declined for the first time since 2003 and this coupled with Tuesday’s soft inflation numbers open the door for a possible bank of Canada rate cut as soon as December. The shine continues to come off the loonie and on Wednesday the US dollar hit a 7 week high against the Canadian currency, reaching 0.9923. The trend has definitely turned and USD/CAD should now be bought on dips and we may reach parity this week. If the pair returns to parity while risk tolerance levels remain low, then the US dollar could move significantly through the other side. The Canadian dollar is oversold against the euro, but there is little value in trying to buy the loonie right now, given the shift in the currency’s outlook. Strategy: Buy USD/CAD on dips below 0.98 with a price target of 0.9850. Also, place advance orders to buy USD/CAD at 1.0000 and hold on positional basis.
Bob B - Nov 21
Thứ Ba, 20 tháng 11, 2007
Bob's Currency Focus - 13:00 GMT
EUR/USD
Many traders were caught off-guard by the swiftness and brutality of this morning’s dollar slide. It also caught me by surprise, although I had noticed how the euro had refused to lie down over the past week and was essentially lurking, ready to take the EUR/USD pair to a new peak, should the opportunity arise. I had warned previously that this is a dangerous week for trading and we may see a number of sharp, erratic moves as trading volume thins, owing to the big holiday in the US later in the week. The euro rose 1.3 cents this morning to hit a new all-time high of 1.4796. The markets now sense 1.50 is inevitable, regardless of the fundamentals and traders could use the thin trading conditions this week to push the advantage home. There is growing complacency though and traders refuse to recognize the significance of falling stock markets outside of the US and the softer data ebbing out of the euro area. This is not solely a US problem and the idea we are going to witness a booming euro economy into 2008 against a recession-hit US is far-fetched to the extreme. The euro is effectively the most over-valued currency right now and it is trading beyond its worth, but markets still refuse to sell it off or allow it to correct. The currency has now risen 14 cents against the dollar since the middle of August without a meaningful correction and that is unprecedented for this pair. The dollar has again been undermined by underperforming US stock markets, which has brought the usual suspects demanding a further Fed rate cut. There was even a rumour across Asian markets during the night the Fed were about to announce an emergency rate cut today. The view that Ben Bernanke will single handedly save the economic world by continuously cutting US interest rates is madness, but this seems to be the view which prevails right now and which is dictating market direction. I am worried the euro has gone too far, at least in the short-term, but trading is going to be so unpredictable this week, I also cannot say it will not go higher. The Fed’s minutes this evening will be critical, to possibly lower expectations for a December rate cut, while a more upbeat assessment/forecast for the US economy in 2008 should help give both stock markets and the dollar a bounce at the same time. I won’t be surprised to see the euro back below 1.47 by the end of the day, but it could also go the other way. Look out for the housing data at 13:30 GMT, a major surprise either direction in the report could trigger further moves.
GBP
Sterling rebounded spectacularly Tuesday, thanks to heightened negativity towards the US dollar. The pound jumped to 2.0650 against the dollar a short while ago, up over 1.6 cents on the day. How much this move has to do with thin trading conditions we don’t know, but the fundamentals for the pound have not changed. The outlook into next year is for rate cuts from the Bank of England. There is growing speculation of a further easing move by the Fed in December, which has triggered today’s move against the dollar. Sterling has tagged onto the coattails of the euro this morning and has benefited from the move away from the dollar into European currencies. It is hard to see how markets can justify pushing cable much higher from here, but this is a week when markets won’t behave how we expect, with volume lower because of the extended US Thanksgiving holiday (many traders have closed their positions for the week). A break above 2.0775 could potentially lead to rally back up to 2.08 tomorrow. There is the danger of a very sharp retreat once again though, particularly if there is any significant sell-off of the euro against the dollar. It is dangerous to buy cable at current levels, because of the prospect of a sharp decline. I prefer to sell down, but will wait for a temporary peak to form. We may see a correction later today, after the Fed minutes are released. Today’s CBI Industrial Trends Survey for November surprised to the upside but this is not generally a market mover. Of more significance was the Bank of England’s money supply data released earlier Tuesday, which revealed a narrowing in the annual rate from 12.8% to 11.8%. This erodes an obstacle the Bank may have towards cutting interest rates in the near future. Cable should be capped around 2.07 today, while the pound will continue to struggle against the euro. Don’t be surprised to see a sharp cable retreat this evening.
JPY
The yen and the reasons for its recent rally were largely ignored Tuesday as the market focused on selling off the US dollar and buying into European currencies. The Japanese currency has lost out all around, but it has particularly lost out to the euro, the pound and the Swiss franc. Stock markets are rallying today, so with risk tolerance levels higher, the yen is again being used as the preferred funding currency. Much could happen yet later today, particularly if US stock markets reverse course later in the session. The key risk event for the yen is the Fed minutes (released at 19:00 GMT), which, if they disappoint stock markets, could lead to a weaker close on Wall Street and see the yen strengthen into the overnight session. The euro is back up to Y163 and this pair may offer the best value in any sell down, but only if risk aversion levels rise. If risk tolerance remains on the up, the yen could be pushed back to over Y111 by the dollar by late this evening, if Wall Street does manage to rally through to the close.
CAD
The biggest nail yet in the loonie’s recent demise came Tuesday when October’s consumer price inflation data was much softer than expected. In fact both headline and core inflation fell by 0.3% and 0.2% respectively in the month, against expectations for a rise of 0.2% for the headline rate and 0.1% for the core rate. The annual core rate of 1.8% is at the lowest for 16 months and this gives the Bank of Canada ample scope to cut interest rates in December, if they prefer to move sooner rather than later. Inflation in Canada is now much more benign than that in the US and with the Fed in an easing cycle, the Bank of Canada is now armed to follow suit. Broader US dollar weakness has largely masked the impact on the loonie Vs the dollar since the dat came out 3 hours ago, but the Canadian currency has fallen by 0.75% against the euro today. USD/CAD now looks destined for parity, possibly even this week and a soft retail sales report Wednesday will only accelerate this move. USD/CAD should be bought on any dips near to 0.97. The loonie should be able to correct somewhat against the euro and the Japanese yen as these cross pairs are excessively overbought, but the best strategy is to wait for opportunities to sell the loonie against the US dollar and not to buy it all. We shall take another look tomorrow after September’s retail sales data is published.
To be continued...
Many traders were caught off-guard by the swiftness and brutality of this morning’s dollar slide. It also caught me by surprise, although I had noticed how the euro had refused to lie down over the past week and was essentially lurking, ready to take the EUR/USD pair to a new peak, should the opportunity arise. I had warned previously that this is a dangerous week for trading and we may see a number of sharp, erratic moves as trading volume thins, owing to the big holiday in the US later in the week. The euro rose 1.3 cents this morning to hit a new all-time high of 1.4796. The markets now sense 1.50 is inevitable, regardless of the fundamentals and traders could use the thin trading conditions this week to push the advantage home. There is growing complacency though and traders refuse to recognize the significance of falling stock markets outside of the US and the softer data ebbing out of the euro area. This is not solely a US problem and the idea we are going to witness a booming euro economy into 2008 against a recession-hit US is far-fetched to the extreme. The euro is effectively the most over-valued currency right now and it is trading beyond its worth, but markets still refuse to sell it off or allow it to correct. The currency has now risen 14 cents against the dollar since the middle of August without a meaningful correction and that is unprecedented for this pair. The dollar has again been undermined by underperforming US stock markets, which has brought the usual suspects demanding a further Fed rate cut. There was even a rumour across Asian markets during the night the Fed were about to announce an emergency rate cut today. The view that Ben Bernanke will single handedly save the economic world by continuously cutting US interest rates is madness, but this seems to be the view which prevails right now and which is dictating market direction. I am worried the euro has gone too far, at least in the short-term, but trading is going to be so unpredictable this week, I also cannot say it will not go higher. The Fed’s minutes this evening will be critical, to possibly lower expectations for a December rate cut, while a more upbeat assessment/forecast for the US economy in 2008 should help give both stock markets and the dollar a bounce at the same time. I won’t be surprised to see the euro back below 1.47 by the end of the day, but it could also go the other way. Look out for the housing data at 13:30 GMT, a major surprise either direction in the report could trigger further moves.
GBP
Sterling rebounded spectacularly Tuesday, thanks to heightened negativity towards the US dollar. The pound jumped to 2.0650 against the dollar a short while ago, up over 1.6 cents on the day. How much this move has to do with thin trading conditions we don’t know, but the fundamentals for the pound have not changed. The outlook into next year is for rate cuts from the Bank of England. There is growing speculation of a further easing move by the Fed in December, which has triggered today’s move against the dollar. Sterling has tagged onto the coattails of the euro this morning and has benefited from the move away from the dollar into European currencies. It is hard to see how markets can justify pushing cable much higher from here, but this is a week when markets won’t behave how we expect, with volume lower because of the extended US Thanksgiving holiday (many traders have closed their positions for the week). A break above 2.0775 could potentially lead to rally back up to 2.08 tomorrow. There is the danger of a very sharp retreat once again though, particularly if there is any significant sell-off of the euro against the dollar. It is dangerous to buy cable at current levels, because of the prospect of a sharp decline. I prefer to sell down, but will wait for a temporary peak to form. We may see a correction later today, after the Fed minutes are released. Today’s CBI Industrial Trends Survey for November surprised to the upside but this is not generally a market mover. Of more significance was the Bank of England’s money supply data released earlier Tuesday, which revealed a narrowing in the annual rate from 12.8% to 11.8%. This erodes an obstacle the Bank may have towards cutting interest rates in the near future. Cable should be capped around 2.07 today, while the pound will continue to struggle against the euro. Don’t be surprised to see a sharp cable retreat this evening.
JPY
The yen and the reasons for its recent rally were largely ignored Tuesday as the market focused on selling off the US dollar and buying into European currencies. The Japanese currency has lost out all around, but it has particularly lost out to the euro, the pound and the Swiss franc. Stock markets are rallying today, so with risk tolerance levels higher, the yen is again being used as the preferred funding currency. Much could happen yet later today, particularly if US stock markets reverse course later in the session. The key risk event for the yen is the Fed minutes (released at 19:00 GMT), which, if they disappoint stock markets, could lead to a weaker close on Wall Street and see the yen strengthen into the overnight session. The euro is back up to Y163 and this pair may offer the best value in any sell down, but only if risk aversion levels rise. If risk tolerance remains on the up, the yen could be pushed back to over Y111 by the dollar by late this evening, if Wall Street does manage to rally through to the close.
CAD
The biggest nail yet in the loonie’s recent demise came Tuesday when October’s consumer price inflation data was much softer than expected. In fact both headline and core inflation fell by 0.3% and 0.2% respectively in the month, against expectations for a rise of 0.2% for the headline rate and 0.1% for the core rate. The annual core rate of 1.8% is at the lowest for 16 months and this gives the Bank of Canada ample scope to cut interest rates in December, if they prefer to move sooner rather than later. Inflation in Canada is now much more benign than that in the US and with the Fed in an easing cycle, the Bank of Canada is now armed to follow suit. Broader US dollar weakness has largely masked the impact on the loonie Vs the dollar since the dat came out 3 hours ago, but the Canadian currency has fallen by 0.75% against the euro today. USD/CAD now looks destined for parity, possibly even this week and a soft retail sales report Wednesday will only accelerate this move. USD/CAD should be bought on any dips near to 0.97. The loonie should be able to correct somewhat against the euro and the Japanese yen as these cross pairs are excessively overbought, but the best strategy is to wait for opportunities to sell the loonie against the US dollar and not to buy it all. We shall take another look tomorrow after September’s retail sales data is published.
To be continued...
Thứ Hai, 19 tháng 11, 2007
Bob's Currency Focus - 13:00 GMT
EUR/USD
This week may be quite volatile with exaggerated moves coming in either direction, owing to thin trading conditions because of the forthcoming US Thanksgiving holiday on Thursday/Friday. If US housing data on Tuesday is much worse than expected, then a rise in negative sentiment towards the dollar could see it come under serious threat Thursday and Friday, when the US market players are sitting down to their annual turkey feast. On the same week last year the dollar came under a sharp and sustained attack when US markets were closed and the greenback subsequently found itself on a major defensive right up until the Christmas break. We could possibly see a move in the opposite direction this week as most open positions are dollar short and it won’t take much of an erosion of these positions in thin trading to send EUR/USD sharply downwards. It is a week for caution and the technicals will have a very big part to play in determining direction. Later today we will see the release of the National Association of Home Builders report for November and anything short of a poor index reading will be a surprise. Expect to see EUR/USD range trade between 1.46 and 1.47 and traders could again use any bounce in US stock markets as an excuse to drive the euro higher. Weekend comments, or the lack of them, on current dollar weakness, from the G20 group of nations has offered the US currency no respite. Meanwhile comments from OPEC that the oil exporting body is to investigate the possibility of using a currency denominator alternative to the dollar for pricing the world’s most important commodity, has undermined the dollar. Continue to buy on dips and while there is the possibility of the pair rising above 1.47 Monday, we should see quite an element of fluctuation as trading becomes choppy, so don’t stay in too long.
GBP
Sterling showed some resilience late Friday when bouncing back against the dollar and closing strongly against the euro going into the weekend. The underlying fundamentals still suggest the UK currency will come under pressure and any upside rallies are likely to attract selling pressure, particularly against the dollar, where the pound still looks elevated in price. Only negative sentiment against the dollar will prevent cable drifting lower this week and having gone as low as 2.0354 Friday it will be a surprise if the next key level of support at 2.0246 is not severely tested this week. The UK currency is oversold against the euro and it should manage to limit its losses against the single currency in the short-term and this pair looks more likely to trade between 0.7120 and 0.7180. U.K. house prices grew at their weakest annual rate for 17 months in November and are unlikely to increase at all next year, U.K. online estate agent Rightmove said Monday. Rightmove's November survey showed house prices were 0.7% lower on the month and 7.9% higher on the year, the weakest annual rise since a 6.4% increase was recorded in June 2006. This comes on the back of a series of soft indicators in the past week and October’s lending data will be studied closely when it is released early Tuesday. The possibility of the Bank of England moving earlier than expected in cutting rates cannot be ruled out and further soft data will fuel speculation about a possible hike in December. Wednesday’s minutes of the November MPC meeting will give a clearer picture as to how the balance of opinion currently sits within the Bank of England. Cable will be boosted by any bounce in stock markets Monday but there is the risk of a sharp decline back below 2.04, if risk appetite levels diminish further. It is dangerous to buy sterling at present prices, given the very real risk of a sharp move downwards, so the preferred strategy is to sell against the dollar on prices above 2.0550.
JPY
The yen is back in vogue Monday with stock markets tumbling around the world and risk tolerance on the decline. The Japanese currency has pushed the dollar back 1 yen thus far today and the pair currently trade at 110.15. It looks inevitable we will see another assault below the 110 line and if the dollar fails to hold the year’s low for the pair at 109.12, then any follow-through below this level could trigger a new wave of panic selling on the carry trade and see high yielding currencies like the Aussie and New Zealand dollar, as well as cable, retreat very sharply across the board. Trading volumes are likely to remain thin over the entire week and price moves could be very much exaggerated, so traders need to be on their guard. The yen still looks to offer the best value against the euro, but only on prices above 163. We could yet see a move below Y160 this week, particularly if the yen breaks below the key 109.12 price against the dollar. National department store sales fell for the second consecutive month in Japan in October. There is nothing in the Japanese calendar this week that is going to have much influence. Markets will continue to be driven by sentiment and yen traders need to take their cue from stock market performance. If the Dow plummets lower Monday, then look for the yen to probe to at least 109.50 against the dollar, with the potential for a further downside move overnight. A recovery on Wall Street later today will send the yen backwards temporarily, with the US dollar likely to push the pair back towards 111.20.
CAD
The loonie came under pressure Monday, the currency being sold off heavily as yet another bout of risk aversion gripped financial markets. Economic data released Monday was mixed with Wholesale Sales posting a 1.1% rise in September while foreigners sold a net CAD5.21 Billion in Canadian securities in the same month. The latter figure is important as it signals foreigners did not see Canadian denominated assets as good value on the month the loonie reached parity with the US dollar for the first time since 1976. It also follows a similar $3.82 Billion sell-off in August. The loonie is down 0.7% against the greenback and 0.6% against the euro Monday (16:30GMT). Oil prices have come off their highs earlier and are now moderately down for the day and with metals prices also in decline, the commodity currencies in general are exposed. The greenback could rise to the highs we saw last week around 0.9886 later Monday, but any recovery in stocks later this evening could trigger a sharp correction back to at least 0.9740. There are two key releases out for the loonie over the next 2 days – CPI on Tuesday and Retail Sales Wednesday and positioning prior to the actual releases will be as important as any price movement after the releases, with evidence growing in the past week that sentiment is beginning to move against the Canadian currency. The preferred position is to buy the greenback on any dips close to 0.97. The Canadian Dollar should be able to correct back to 1.42 against the euro, once markets stabilise.
This week may be quite volatile with exaggerated moves coming in either direction, owing to thin trading conditions because of the forthcoming US Thanksgiving holiday on Thursday/Friday. If US housing data on Tuesday is much worse than expected, then a rise in negative sentiment towards the dollar could see it come under serious threat Thursday and Friday, when the US market players are sitting down to their annual turkey feast. On the same week last year the dollar came under a sharp and sustained attack when US markets were closed and the greenback subsequently found itself on a major defensive right up until the Christmas break. We could possibly see a move in the opposite direction this week as most open positions are dollar short and it won’t take much of an erosion of these positions in thin trading to send EUR/USD sharply downwards. It is a week for caution and the technicals will have a very big part to play in determining direction. Later today we will see the release of the National Association of Home Builders report for November and anything short of a poor index reading will be a surprise. Expect to see EUR/USD range trade between 1.46 and 1.47 and traders could again use any bounce in US stock markets as an excuse to drive the euro higher. Weekend comments, or the lack of them, on current dollar weakness, from the G20 group of nations has offered the US currency no respite. Meanwhile comments from OPEC that the oil exporting body is to investigate the possibility of using a currency denominator alternative to the dollar for pricing the world’s most important commodity, has undermined the dollar. Continue to buy on dips and while there is the possibility of the pair rising above 1.47 Monday, we should see quite an element of fluctuation as trading becomes choppy, so don’t stay in too long.
GBP
Sterling showed some resilience late Friday when bouncing back against the dollar and closing strongly against the euro going into the weekend. The underlying fundamentals still suggest the UK currency will come under pressure and any upside rallies are likely to attract selling pressure, particularly against the dollar, where the pound still looks elevated in price. Only negative sentiment against the dollar will prevent cable drifting lower this week and having gone as low as 2.0354 Friday it will be a surprise if the next key level of support at 2.0246 is not severely tested this week. The UK currency is oversold against the euro and it should manage to limit its losses against the single currency in the short-term and this pair looks more likely to trade between 0.7120 and 0.7180. U.K. house prices grew at their weakest annual rate for 17 months in November and are unlikely to increase at all next year, U.K. online estate agent Rightmove said Monday. Rightmove's November survey showed house prices were 0.7% lower on the month and 7.9% higher on the year, the weakest annual rise since a 6.4% increase was recorded in June 2006. This comes on the back of a series of soft indicators in the past week and October’s lending data will be studied closely when it is released early Tuesday. The possibility of the Bank of England moving earlier than expected in cutting rates cannot be ruled out and further soft data will fuel speculation about a possible hike in December. Wednesday’s minutes of the November MPC meeting will give a clearer picture as to how the balance of opinion currently sits within the Bank of England. Cable will be boosted by any bounce in stock markets Monday but there is the risk of a sharp decline back below 2.04, if risk appetite levels diminish further. It is dangerous to buy sterling at present prices, given the very real risk of a sharp move downwards, so the preferred strategy is to sell against the dollar on prices above 2.0550.
JPY
The yen is back in vogue Monday with stock markets tumbling around the world and risk tolerance on the decline. The Japanese currency has pushed the dollar back 1 yen thus far today and the pair currently trade at 110.15. It looks inevitable we will see another assault below the 110 line and if the dollar fails to hold the year’s low for the pair at 109.12, then any follow-through below this level could trigger a new wave of panic selling on the carry trade and see high yielding currencies like the Aussie and New Zealand dollar, as well as cable, retreat very sharply across the board. Trading volumes are likely to remain thin over the entire week and price moves could be very much exaggerated, so traders need to be on their guard. The yen still looks to offer the best value against the euro, but only on prices above 163. We could yet see a move below Y160 this week, particularly if the yen breaks below the key 109.12 price against the dollar. National department store sales fell for the second consecutive month in Japan in October. There is nothing in the Japanese calendar this week that is going to have much influence. Markets will continue to be driven by sentiment and yen traders need to take their cue from stock market performance. If the Dow plummets lower Monday, then look for the yen to probe to at least 109.50 against the dollar, with the potential for a further downside move overnight. A recovery on Wall Street later today will send the yen backwards temporarily, with the US dollar likely to push the pair back towards 111.20.
CAD
The loonie came under pressure Monday, the currency being sold off heavily as yet another bout of risk aversion gripped financial markets. Economic data released Monday was mixed with Wholesale Sales posting a 1.1% rise in September while foreigners sold a net CAD5.21 Billion in Canadian securities in the same month. The latter figure is important as it signals foreigners did not see Canadian denominated assets as good value on the month the loonie reached parity with the US dollar for the first time since 1976. It also follows a similar $3.82 Billion sell-off in August. The loonie is down 0.7% against the greenback and 0.6% against the euro Monday (16:30GMT). Oil prices have come off their highs earlier and are now moderately down for the day and with metals prices also in decline, the commodity currencies in general are exposed. The greenback could rise to the highs we saw last week around 0.9886 later Monday, but any recovery in stocks later this evening could trigger a sharp correction back to at least 0.9740. There are two key releases out for the loonie over the next 2 days – CPI on Tuesday and Retail Sales Wednesday and positioning prior to the actual releases will be as important as any price movement after the releases, with evidence growing in the past week that sentiment is beginning to move against the Canadian currency. The preferred position is to buy the greenback on any dips close to 0.97. The Canadian Dollar should be able to correct back to 1.42 against the euro, once markets stabilise.
Thứ Sáu, 16 tháng 11, 2007
Bob's Currency Focus - 19:30 GMT
EUR/USD
The pattern Friday has been another day of movement in both directions, with neither side managing to make a decisive move, although the euro has a firmer tone this afternoon. It is noticeable that the dollar only manages a rally against the euro when stock markets are in trouble and once the Dow pendulum swings into the green the dollar retreats and the euro mounts a counter-attack. This in essence means all other things being equal, the upside trend is as strong as ever. The euro is also gaining at the expense of other currencies with traders moving away from the pound and the commodity currencies for the safer bet of the Teflon euro. The single currency has yet to make any meaningful correction after 2.5 months of rapid gains, so traders need to be cautious as a sharp correction is a very real danger. The euro-zone’s trade balance held up well in September despite the strong currency, with a surplus of €3.1B reported for the month. Friday saw the release of data which highlighted further weakness in the US economy as Industrial Production in October fell by 0.5%, the biggest drop since March, while the Treasury Department reported a second successive month of negative inflows of foreign capital funds (TICS) in September (-$14.7B). US equity markets however are currently up with bargain hunters buying up stocks this afternoon. Stock markets have been very volatile this week and don’t be surprised if the final hour of trading tonight sees a further sell-off that puts the US indices back into the red. Don’t expect the G20 meeting this weekend to deliver any major statement on current dollar weakness, as the US Administration continues to express no concern right now for its declining currency, preferring instead to focus on the weakness of China’s reminbi. The euro is overbought and remains over-valued at price levels close to 1.47 and I prefer to sell down close to this mark.
GBP
Sterling staged a mini-comeback this afternoon with cable coming off a low of 2.0354 to once again trade above the 2.05 mark. But any significant sterling rallies are likely to attract strong selling pressure as the currency remains hindered by the Bank of England’s report on Wednesday, when markets were told of an impending economic slowdown and a series of rate cuts over the next year. Cable could easily hit 2.0250 early next week, which is the next key line of support for the pair. All of the bad news from the US is already priced into the dollar, while sterling still has some way to go, so I see the pair trending down from here to the end of the year. However sterling has certainly being oversold against the euro and a correction in the EUR/GBP pair would offer some short-term protection to the pound. A slowdown in the UK economy is likely to be accompanied by a parallel slowdown in the euro economy, but markets have yet to factor this in, because of the ongoing hawkish stance of the ECB and its President Jean Claude Trichet. EUR/GBP should be able to correct back to at least 0.71 next week from the 4.5 year high hit today, but it may well take a broader euro sell-off to get it there.
JPY
The yen pushed the dollar back below the 110Y line briefly this morning but was unable to hold below this key level and since then it has retreated to 110.60 as US stock markets moved into positive territory. Poor US data Friday failed to hurt the dollar against the yen, although the greenback did retreat against every other major currency, primarily owing to a temporary rise in risk tolerance levels. Continued market volatility is going to keep the yen as a major player and we could see new highs being reached for the currency next week, if uncertainty about the global economy and the credit pinch afflicting financial markets persists. Any statement from the G20 over the weekend expressing concern over the US dollar could trigger support and result in a sizeable correction in USD/JPY Sunday night. It is more likely though the yen’s fate will be dictated by risk tolerance levels and the currency is well-positioned to make further gains next week. The best value pair for buying the yen at the moment is EUR/JPY, particularly to sell the pair on failed rallies around Y164. There is a strong possibility of Y158 being hit later next week, if stocks continue to under-perform.
CAD
The loonie has had a good day Friday thus far, the greenback being pushed down to 0.97 cents after the Canadian currency virtually collapsed Thursday, when shedding two and a half cents against its US counterpart. The tide certainly appears to have turned for the world’s strongest currency in 2007, with a number of factors having turned against it: softer domestic economic data; a downturn in metal prices; a slowing US economy and verbal intervention by Government and Bank of Canada officials. The recent correction was probably overdone in the short-term and today saw the loonie gain some much needed respite, assisted by resurgent oil prices. The currency looks vulnerable to selling pressure at the moment and with the greenback having gone as high at 0.9886 Thursday, markets will now want to retest the parity line once more and that may happen in the next week, if risk aversion levels remain high and if commodity currencies continue to struggle. There was no domestic data out of Canada today and the next series of releases for the currency are key ones – the consumer price index for October on Tuesday and September’s Retail Sales figures next Wednesday. Over the past six months the loonie has usually strengthened ahead of key data releases, in anticipation of firm data, so next week will be a true litmus test of current market sentiment towards the currency and a major sell-off ahead of the CPI data Tuesday will not augur well for the currency’s outlook. The loonie’s sharp slide against the euro was at least halted today, with the pair retreating to 1.4280, having shot to 1.4458 overnight.
Bob B - Nov 16
PS: Have a good weekend!
The pattern Friday has been another day of movement in both directions, with neither side managing to make a decisive move, although the euro has a firmer tone this afternoon. It is noticeable that the dollar only manages a rally against the euro when stock markets are in trouble and once the Dow pendulum swings into the green the dollar retreats and the euro mounts a counter-attack. This in essence means all other things being equal, the upside trend is as strong as ever. The euro is also gaining at the expense of other currencies with traders moving away from the pound and the commodity currencies for the safer bet of the Teflon euro. The single currency has yet to make any meaningful correction after 2.5 months of rapid gains, so traders need to be cautious as a sharp correction is a very real danger. The euro-zone’s trade balance held up well in September despite the strong currency, with a surplus of €3.1B reported for the month. Friday saw the release of data which highlighted further weakness in the US economy as Industrial Production in October fell by 0.5%, the biggest drop since March, while the Treasury Department reported a second successive month of negative inflows of foreign capital funds (TICS) in September (-$14.7B). US equity markets however are currently up with bargain hunters buying up stocks this afternoon. Stock markets have been very volatile this week and don’t be surprised if the final hour of trading tonight sees a further sell-off that puts the US indices back into the red. Don’t expect the G20 meeting this weekend to deliver any major statement on current dollar weakness, as the US Administration continues to express no concern right now for its declining currency, preferring instead to focus on the weakness of China’s reminbi. The euro is overbought and remains over-valued at price levels close to 1.47 and I prefer to sell down close to this mark.
GBP
Sterling staged a mini-comeback this afternoon with cable coming off a low of 2.0354 to once again trade above the 2.05 mark. But any significant sterling rallies are likely to attract strong selling pressure as the currency remains hindered by the Bank of England’s report on Wednesday, when markets were told of an impending economic slowdown and a series of rate cuts over the next year. Cable could easily hit 2.0250 early next week, which is the next key line of support for the pair. All of the bad news from the US is already priced into the dollar, while sterling still has some way to go, so I see the pair trending down from here to the end of the year. However sterling has certainly being oversold against the euro and a correction in the EUR/GBP pair would offer some short-term protection to the pound. A slowdown in the UK economy is likely to be accompanied by a parallel slowdown in the euro economy, but markets have yet to factor this in, because of the ongoing hawkish stance of the ECB and its President Jean Claude Trichet. EUR/GBP should be able to correct back to at least 0.71 next week from the 4.5 year high hit today, but it may well take a broader euro sell-off to get it there.
JPY
The yen pushed the dollar back below the 110Y line briefly this morning but was unable to hold below this key level and since then it has retreated to 110.60 as US stock markets moved into positive territory. Poor US data Friday failed to hurt the dollar against the yen, although the greenback did retreat against every other major currency, primarily owing to a temporary rise in risk tolerance levels. Continued market volatility is going to keep the yen as a major player and we could see new highs being reached for the currency next week, if uncertainty about the global economy and the credit pinch afflicting financial markets persists. Any statement from the G20 over the weekend expressing concern over the US dollar could trigger support and result in a sizeable correction in USD/JPY Sunday night. It is more likely though the yen’s fate will be dictated by risk tolerance levels and the currency is well-positioned to make further gains next week. The best value pair for buying the yen at the moment is EUR/JPY, particularly to sell the pair on failed rallies around Y164. There is a strong possibility of Y158 being hit later next week, if stocks continue to under-perform.
CAD
The loonie has had a good day Friday thus far, the greenback being pushed down to 0.97 cents after the Canadian currency virtually collapsed Thursday, when shedding two and a half cents against its US counterpart. The tide certainly appears to have turned for the world’s strongest currency in 2007, with a number of factors having turned against it: softer domestic economic data; a downturn in metal prices; a slowing US economy and verbal intervention by Government and Bank of Canada officials. The recent correction was probably overdone in the short-term and today saw the loonie gain some much needed respite, assisted by resurgent oil prices. The currency looks vulnerable to selling pressure at the moment and with the greenback having gone as high at 0.9886 Thursday, markets will now want to retest the parity line once more and that may happen in the next week, if risk aversion levels remain high and if commodity currencies continue to struggle. There was no domestic data out of Canada today and the next series of releases for the currency are key ones – the consumer price index for October on Tuesday and September’s Retail Sales figures next Wednesday. Over the past six months the loonie has usually strengthened ahead of key data releases, in anticipation of firm data, so next week will be a true litmus test of current market sentiment towards the currency and a major sell-off ahead of the CPI data Tuesday will not augur well for the currency’s outlook. The loonie’s sharp slide against the euro was at least halted today, with the pair retreating to 1.4280, having shot to 1.4458 overnight.
Bob B - Nov 16
PS: Have a good weekend!
Thứ Năm, 15 tháng 11, 2007
Bob's Currency Focus 15:00 GMT
EUR/USD
We have seen a sell-off Thursday as the recent bout of risk aversion sent the dollar broadly higher across the board. US core consumer price inflation ticked up 0.2% in October and the annual rate has risen to 2.2% from 2.1% in September. Headline inflation rose to 3.5% and the firm numbers are likely to keep the Fed on their guard and dampen expectations of near-term rate cuts. The euro was buoyed by Wednesday’s 3rd quarter GDP rise of 0.7%, but the euro economy is expected to slowdown in quarter 4 and in any event the single currency has more than priced in all the good news to date. The euro will remain strong however as long as negative sentiment towards the US dollar persists, although with corrections seen across most other currencies in the past 3 days, it will not be a surprise to see the dollar test the 1.45 level again before the week is done. If stock markets continue their decline into Friday, then this will generally support the dollar, as investors exit higher risk assets in favour of US dollar denominated bonds. The euro needs to hold the 1.46 line today, if it is to avoid a sharp retreat. Friday sees the release of the TICS number for September (Treasury International Capital Flows) and this figure is keenly awaited, given last month we saw the worst figure on record – a $163 billion outflow. That number was glossed over at the time because the data was for the month of August, when financial markets were in total turmoil. However, another significantly negative number Friday would suggest foreign investors are turning their back on US denominated assets and could spark a sharp dollar sell-off. We should remain in a 1.45 to 1.47 price range for the next two days, with most of the activity in the middle section of the range.
GBP
3 of the last 4 days has seen sharp sterling sell-offs of over 2.5 cents against the dollar. Yesterday’s reversal is the most serious in terms of the currency’s immediate outlook, because it follows a Bank of England report that stated the Bank would need to cut interest rates a couple of times in 2008 to keep the economy on track. While many analysts were predicting as much, the fact the statement came directly from the horse’s mouth (Governor King) caused market panic and traders couldn’t sell the pound fast enough. Sterling’s decline against the euro is probably overdone, with the euro hitting a 4-year high Wednesday and going higher again Thursday (0.7166) and a short-term correction might protect the UK currency into next week. The outlook for the pound is not great though and it now appears to be a question of not if’ but ‘when’ cable falls below the key 2 dollar mark. A fall below this number could lead to a sharper decline and cable may well end the year closer to 1.90 than the current 2.05. October’s retail sales numbers were soft, but this comes after 2 months of stellar gains and the marginal 0.1% decline was in line with expectations. Sterling looks to be the currency to sell-off on rallies at present and with cable having broken below the 2.0520 support level Wednesday night, it offers a good sell-down opportunities on rallies that bring it close to 2.06. Sterling will struggle to make incisive inroads into the euro's gains from the past two days, unless the euro undergoes an overdue correction across the board, but it should be able to avoid further losses. There is the potential for cable to test the 2.0246 support before close tomorrow, if the dollar attracts broader support going into the weekend.
Yen
The Yen has appreciated again Thursday, thanks to a major rise in risk aversions levels after a 2 day break. The dollar has weakened to 110.70 this afternoon and if stock markets close weakly later today, the pair may once again test support below the 110 mark. We could potentially see a whiplash-style move in the next 24 hours to try and take out the 109.12 low hit on Monday, if volatility levels remain high. But a recovery in stocks will probably see the pair close this evening nearer to 111.50. The euro had hit Y164 Wednesday but then fell back to Y161.40 this morning. This pair will continue to fluctuate up and down until some stability returns to the market, but there could be a sharp drive below the 160 price level, if things turn nasty in the next two days. The current markets stresses are probably going to be with us in the short-term and the best way to trade the yen is to buy it on dips, with the EUR/JPY offering more value, because there is greater scope to the downside.
CAD
It is official – the loonie has turned. I’m saying it here today and am prepared to pin my colours to the mast. Early last week we saw the greenback slide to a record low of 0.9056 Canadian cents, while earlier today the pair reached 0.9785. That is a whopping 7.3 cent rise in just over a week. While the recent market turmoil has seen a broad sell-off of the commodity currencies and high yielders, no currency has done worse than the loonie, even though oil prices remain elevated. USD/CAD is now being bought on dips and not vice versa, a classic sign that the trend is changing. Last week’s trade data was rather damning in terms of exposing the adverse impact a strong loonie has on the country’s export sector. Yesterday we learned the economy probably only grew by 0.1% in October (Leading Indicators report), much lower than the 0.3% forecast and down from 0.4% in September. Today it was reported that manufacturing shipments in September fell 0.9%, while new orders received in that month were down 2.5%, which follows a sharp 5% decline the previous month. The manufacturing sector is beginning to hurt, and hurt hard, a point not lost on the Bank of Canada’s Jenkins on Wednesday. Jenkins was the latest official to warn about the economic dangers of a rampant loonie. We may well find ourselves the other side of parity before the month is out and that in itself may spark a sharper depreciation in the loonie. 0.95 looks to have formed as a solid support base and any declines to this level, offer good opportunities for buying the US dollar. 0.96 held earlier this morning and it will be interesting to see if this too holds to the end of the week. The euro has probably overdone it against the loonie this week and I’d look for a correction back towards 1.40, before contemplating coming in on this pair again.
PS: Add your vote to the loonie poll at top of page on right side.
Bob B - Nov 15
We have seen a sell-off Thursday as the recent bout of risk aversion sent the dollar broadly higher across the board. US core consumer price inflation ticked up 0.2% in October and the annual rate has risen to 2.2% from 2.1% in September. Headline inflation rose to 3.5% and the firm numbers are likely to keep the Fed on their guard and dampen expectations of near-term rate cuts. The euro was buoyed by Wednesday’s 3rd quarter GDP rise of 0.7%, but the euro economy is expected to slowdown in quarter 4 and in any event the single currency has more than priced in all the good news to date. The euro will remain strong however as long as negative sentiment towards the US dollar persists, although with corrections seen across most other currencies in the past 3 days, it will not be a surprise to see the dollar test the 1.45 level again before the week is done. If stock markets continue their decline into Friday, then this will generally support the dollar, as investors exit higher risk assets in favour of US dollar denominated bonds. The euro needs to hold the 1.46 line today, if it is to avoid a sharp retreat. Friday sees the release of the TICS number for September (Treasury International Capital Flows) and this figure is keenly awaited, given last month we saw the worst figure on record – a $163 billion outflow. That number was glossed over at the time because the data was for the month of August, when financial markets were in total turmoil. However, another significantly negative number Friday would suggest foreign investors are turning their back on US denominated assets and could spark a sharp dollar sell-off. We should remain in a 1.45 to 1.47 price range for the next two days, with most of the activity in the middle section of the range.
GBP
3 of the last 4 days has seen sharp sterling sell-offs of over 2.5 cents against the dollar. Yesterday’s reversal is the most serious in terms of the currency’s immediate outlook, because it follows a Bank of England report that stated the Bank would need to cut interest rates a couple of times in 2008 to keep the economy on track. While many analysts were predicting as much, the fact the statement came directly from the horse’s mouth (Governor King) caused market panic and traders couldn’t sell the pound fast enough. Sterling’s decline against the euro is probably overdone, with the euro hitting a 4-year high Wednesday and going higher again Thursday (0.7166) and a short-term correction might protect the UK currency into next week. The outlook for the pound is not great though and it now appears to be a question of not if’ but ‘when’ cable falls below the key 2 dollar mark. A fall below this number could lead to a sharper decline and cable may well end the year closer to 1.90 than the current 2.05. October’s retail sales numbers were soft, but this comes after 2 months of stellar gains and the marginal 0.1% decline was in line with expectations. Sterling looks to be the currency to sell-off on rallies at present and with cable having broken below the 2.0520 support level Wednesday night, it offers a good sell-down opportunities on rallies that bring it close to 2.06. Sterling will struggle to make incisive inroads into the euro's gains from the past two days, unless the euro undergoes an overdue correction across the board, but it should be able to avoid further losses. There is the potential for cable to test the 2.0246 support before close tomorrow, if the dollar attracts broader support going into the weekend.
Yen
The Yen has appreciated again Thursday, thanks to a major rise in risk aversions levels after a 2 day break. The dollar has weakened to 110.70 this afternoon and if stock markets close weakly later today, the pair may once again test support below the 110 mark. We could potentially see a whiplash-style move in the next 24 hours to try and take out the 109.12 low hit on Monday, if volatility levels remain high. But a recovery in stocks will probably see the pair close this evening nearer to 111.50. The euro had hit Y164 Wednesday but then fell back to Y161.40 this morning. This pair will continue to fluctuate up and down until some stability returns to the market, but there could be a sharp drive below the 160 price level, if things turn nasty in the next two days. The current markets stresses are probably going to be with us in the short-term and the best way to trade the yen is to buy it on dips, with the EUR/JPY offering more value, because there is greater scope to the downside.
CAD
It is official – the loonie has turned. I’m saying it here today and am prepared to pin my colours to the mast. Early last week we saw the greenback slide to a record low of 0.9056 Canadian cents, while earlier today the pair reached 0.9785. That is a whopping 7.3 cent rise in just over a week. While the recent market turmoil has seen a broad sell-off of the commodity currencies and high yielders, no currency has done worse than the loonie, even though oil prices remain elevated. USD/CAD is now being bought on dips and not vice versa, a classic sign that the trend is changing. Last week’s trade data was rather damning in terms of exposing the adverse impact a strong loonie has on the country’s export sector. Yesterday we learned the economy probably only grew by 0.1% in October (Leading Indicators report), much lower than the 0.3% forecast and down from 0.4% in September. Today it was reported that manufacturing shipments in September fell 0.9%, while new orders received in that month were down 2.5%, which follows a sharp 5% decline the previous month. The manufacturing sector is beginning to hurt, and hurt hard, a point not lost on the Bank of Canada’s Jenkins on Wednesday. Jenkins was the latest official to warn about the economic dangers of a rampant loonie. We may well find ourselves the other side of parity before the month is out and that in itself may spark a sharper depreciation in the loonie. 0.95 looks to have formed as a solid support base and any declines to this level, offer good opportunities for buying the US dollar. 0.96 held earlier this morning and it will be interesting to see if this too holds to the end of the week. The euro has probably overdone it against the loonie this week and I’d look for a correction back towards 1.40, before contemplating coming in on this pair again.
PS: Add your vote to the loonie poll at top of page on right side.
Bob B - Nov 15
Thứ Ba, 13 tháng 11, 2007
Bob's Currency Focus - 17:30 GMT
EUR/USD
The euro got a bounce today after losing a cent and a half to the greenback Monday during a thin trading session, owing to a holiday in the US. Price came back 230 pips from Friday’s record high by Monday’s close, but this move has more to do with profit-taking than any change in trend direction. As we speak, the pair is trading around the 1.46 price level as the euro’s advance is currently coming under selling pressure above this price level. Sentiment among German analysts and institutional investors notably deteriorated in November on fears of a considerable economic downturn in the U.S., a surging euro and soaring oil prices, an important survey from the Center for European Economic Research showed Tuesday. The think tank's economic expectations hit the lowest level since February 1993, dropping to -32.5 points in November, after an unexpectedly unchanged reading of -18.1 points in October. Euro zone industrial production fell by 0.7% from August, when a 0.2% rise was expected adding further to the argument the euro economy is slowing. The weight of negative sentiment against the US dollar however is such that it will take a sizeable shift in confidence to see the euro become the least favoured of this pair. The euro is probably over-valued, but the dollar is still not seen as a viable alternative. On Wednesday we have quarter 3 GDP for the euro zone released and October’s Retail sales in the US. A 0.6% GDP number for quarter 3 is expected in Europe and unless the actual number varies much from this figure, the market impact may prove to be minimal. The US Retail Sales numbers however are pivotal to confidence in the US economy and a poor number will raise expectations of further Fed rate cuts and undermine the dollar. A 0.2% rise in US sales is forecast, but if the number is negative, then expect to see a sharp dollar sell-off. The pair should trade in or around the 1.46 level for the rest of Tuesday and there is the possibility of a rally towards 1.4650 in the morning, unless stock markets fall sharply overnight. The euro may struggle to advance much past 1.4650 unless there is evidence of further deterioration in the US economy. The preferred strategy is still to buy the euro on dips, but volatility levels may rise Wednesday afternoon when the US data is out.
GBP
Sterling has rebounded Tuesday, having fallen spectacularly over the previous 2 sessions, when it came off over 6 cents from the 26 year high of 2.1160 set last Friday. A spike in risk aversion and general uncertainty about the future of the UK economy triggered a mass sell-off, although to be honest how cable managed to advance to 2.11 on the back of soft UK data last week remains a mystery. Sterling simply moved with the flow and got tripped up when serious questions needed to be asked. Today’s lift was sparked by Tuesday’s report that the annual inflation rate in the UK rose to 2.1% in October, from 1.8% in September. The rise was primarily driven by increased oil and food costs, but as inflation is now above the Bank of England’s 2% threshold for the first time in 4 months, it might delay any prospect of a near-term rate cut, lending sterling much needed support. However other data released Tuesday show UK house prices continue to fall. The RICS house price index reported that in October a 22.2% majority of chartered real estate agents reported house prices were lower than in the previous month. In September the equivalent reading was at -14.6%. The slowdown in the UK’s housing sector should curb aggressive sterling buying and spark selling rallies should it advance too far. The euro rose to a high of almost 0.7080 Monday and unless sterling can push the single currency back below 0.70 in the coming days, then the uptrend for euro may have resumed. It will be difficult for cable to reach 2.10 quickly again one would think, but as long as the pair remains above 2.0520, sterling should attract buying support on dips. A strong set of employment numbers Wednesday would boost sterling, although the crux will probably come on Thursday, when the retail sales numbers are out. With the euro remaining overbought, sterling does have the chance to push the single currency back below 0.70 in the next two days, if UK data is firm.
JPY - (23:00 GMT)
The yen was forced into retreat this evening as Wall Street posted its second biggest single day gains in history. Critically the Japanese currency had earlier failed to reach the highs of Monday and the 18 month low for USD/JPY – 108.93, recorded in May 2006, remains intact. Moving into the Asian session, the dollar is trading at Y111 and may temporarily move towards 112 ahead of Wednesday’s key retails sales data in the US. There is likely to be a major yen sale by carry traders during Asian and European trading, given today’s rally in stocks, and the yen is not a currency to buy tonight. Of course the situation could change dramatically Wednesday, if today’s Dow rally proves to be a false dawn and negative sentiment again takes a grip of markets. The euro has also risen to Y162 today and may rise to Y163 by tomorrow morning. Expect the yen to come under pressure on all the crosses tonight, notably against sterling, the Aussie and the New Zealand dollars. This morning’s decision by the Bank of Japan to keep rates on hold at 0.5% surprised nobody and markets don’t expect a hike before next March, despite a better than expected print on 3rd quarter GDP (2.6% annualised) reported Tuesday.
CAD
The loonie suffered its worst day in 30 years Monday when shedding 3 cents against the US dollar. On Tuesday the loonie rebounded somewhat, gaining 1.2% against the dollar but declining further against the euro, the pound and the Australian dollar. The Canadian currency was hampered by a rise in risk aversion Monday as well as a hangover from Friday’s poor trade data. A sharp fall in oil prices Tuesday kept would-be loonie supporters at bay and if commodity prices continue to come under pressure this week we could see the longs/short ratio reduce further, paving the way for a possible trend reversal, or at the very least a prolonged period of stabilisation on USD/CAD. Wednesday is dominated by US economic data and in particular retail sales. Expect USD/CAD to trade within a 0.95 to 0.97 trading range for the coming days and my preference is to buy or sell at the extremes of this range, particularly as risks for major reversals in equity markets persist, while confidence in the loonie remains relatively firm in the short-term.
Bob B - Nov 13
The euro got a bounce today after losing a cent and a half to the greenback Monday during a thin trading session, owing to a holiday in the US. Price came back 230 pips from Friday’s record high by Monday’s close, but this move has more to do with profit-taking than any change in trend direction. As we speak, the pair is trading around the 1.46 price level as the euro’s advance is currently coming under selling pressure above this price level. Sentiment among German analysts and institutional investors notably deteriorated in November on fears of a considerable economic downturn in the U.S., a surging euro and soaring oil prices, an important survey from the Center for European Economic Research showed Tuesday. The think tank's economic expectations hit the lowest level since February 1993, dropping to -32.5 points in November, after an unexpectedly unchanged reading of -18.1 points in October. Euro zone industrial production fell by 0.7% from August, when a 0.2% rise was expected adding further to the argument the euro economy is slowing. The weight of negative sentiment against the US dollar however is such that it will take a sizeable shift in confidence to see the euro become the least favoured of this pair. The euro is probably over-valued, but the dollar is still not seen as a viable alternative. On Wednesday we have quarter 3 GDP for the euro zone released and October’s Retail sales in the US. A 0.6% GDP number for quarter 3 is expected in Europe and unless the actual number varies much from this figure, the market impact may prove to be minimal. The US Retail Sales numbers however are pivotal to confidence in the US economy and a poor number will raise expectations of further Fed rate cuts and undermine the dollar. A 0.2% rise in US sales is forecast, but if the number is negative, then expect to see a sharp dollar sell-off. The pair should trade in or around the 1.46 level for the rest of Tuesday and there is the possibility of a rally towards 1.4650 in the morning, unless stock markets fall sharply overnight. The euro may struggle to advance much past 1.4650 unless there is evidence of further deterioration in the US economy. The preferred strategy is still to buy the euro on dips, but volatility levels may rise Wednesday afternoon when the US data is out.
GBP
Sterling has rebounded Tuesday, having fallen spectacularly over the previous 2 sessions, when it came off over 6 cents from the 26 year high of 2.1160 set last Friday. A spike in risk aversion and general uncertainty about the future of the UK economy triggered a mass sell-off, although to be honest how cable managed to advance to 2.11 on the back of soft UK data last week remains a mystery. Sterling simply moved with the flow and got tripped up when serious questions needed to be asked. Today’s lift was sparked by Tuesday’s report that the annual inflation rate in the UK rose to 2.1% in October, from 1.8% in September. The rise was primarily driven by increased oil and food costs, but as inflation is now above the Bank of England’s 2% threshold for the first time in 4 months, it might delay any prospect of a near-term rate cut, lending sterling much needed support. However other data released Tuesday show UK house prices continue to fall. The RICS house price index reported that in October a 22.2% majority of chartered real estate agents reported house prices were lower than in the previous month. In September the equivalent reading was at -14.6%. The slowdown in the UK’s housing sector should curb aggressive sterling buying and spark selling rallies should it advance too far. The euro rose to a high of almost 0.7080 Monday and unless sterling can push the single currency back below 0.70 in the coming days, then the uptrend for euro may have resumed. It will be difficult for cable to reach 2.10 quickly again one would think, but as long as the pair remains above 2.0520, sterling should attract buying support on dips. A strong set of employment numbers Wednesday would boost sterling, although the crux will probably come on Thursday, when the retail sales numbers are out. With the euro remaining overbought, sterling does have the chance to push the single currency back below 0.70 in the next two days, if UK data is firm.
JPY - (23:00 GMT)
The yen was forced into retreat this evening as Wall Street posted its second biggest single day gains in history. Critically the Japanese currency had earlier failed to reach the highs of Monday and the 18 month low for USD/JPY – 108.93, recorded in May 2006, remains intact. Moving into the Asian session, the dollar is trading at Y111 and may temporarily move towards 112 ahead of Wednesday’s key retails sales data in the US. There is likely to be a major yen sale by carry traders during Asian and European trading, given today’s rally in stocks, and the yen is not a currency to buy tonight. Of course the situation could change dramatically Wednesday, if today’s Dow rally proves to be a false dawn and negative sentiment again takes a grip of markets. The euro has also risen to Y162 today and may rise to Y163 by tomorrow morning. Expect the yen to come under pressure on all the crosses tonight, notably against sterling, the Aussie and the New Zealand dollars. This morning’s decision by the Bank of Japan to keep rates on hold at 0.5% surprised nobody and markets don’t expect a hike before next March, despite a better than expected print on 3rd quarter GDP (2.6% annualised) reported Tuesday.
CAD
The loonie suffered its worst day in 30 years Monday when shedding 3 cents against the US dollar. On Tuesday the loonie rebounded somewhat, gaining 1.2% against the dollar but declining further against the euro, the pound and the Australian dollar. The Canadian currency was hampered by a rise in risk aversion Monday as well as a hangover from Friday’s poor trade data. A sharp fall in oil prices Tuesday kept would-be loonie supporters at bay and if commodity prices continue to come under pressure this week we could see the longs/short ratio reduce further, paving the way for a possible trend reversal, or at the very least a prolonged period of stabilisation on USD/CAD. Wednesday is dominated by US economic data and in particular retail sales. Expect USD/CAD to trade within a 0.95 to 0.97 trading range for the coming days and my preference is to buy or sell at the extremes of this range, particularly as risks for major reversals in equity markets persist, while confidence in the loonie remains relatively firm in the short-term.
Bob B - Nov 13
Thứ Hai, 12 tháng 11, 2007
Bob and Ted's Outlook for Week
Bob
The dollar came back from a battering last week to close on a slightly more positive note, coming off a record low Friday (1.4751) to end the week at 1.4677. It was a quiet week for economic data and September’s improvement in the US trade balance was not sufficient to spark any meaningful recovery. We saw a marked decline in equity markets last week and with risk aversion on the rise, this coming week could prove very volatile. The ECB kept rates on hold last Thursday and its President Jean Claude Trichet remained hawkish in his policy assessment, placing somewhat more emphasis on the upside risks to price stability than on the downside risks to economic growth. Markets have been unimpressed by the prospect of the Fed remaining on hold through to the end of the year and futures markets are now beginning to price in a further rate cut for the US in December. In this context the medium term outlook very much favours the euro with 1.50 a very realistic target by early December. We could see a correction however in the short-term with rises in risk aversion prompting a yen appreciation that might see a sizeable liquidation of the EUR/JPY carry, sending the euro temporarily weaker against the greenback. We also have a number of major releases this week, most notably Germany’s ZEW survey Tuesday, euro quarter 3 GDP Wednesday, US Retail Sales Wednesday and US Consumer Price Inflation Thursday. If US Retail sales are weak it should fuel speculation of a further rate cut and this will damage the dollar. Euro zone GDP is expected to be strong and the biggest downside risk to the euro is heightened market volatility which may offer short-term dollar protection. Wait for the early week correction to settle before entering long on the euro. Support should be strong at 1.45 and below this at 1.4406. Upside price targets are 1.46, 1.4650, 1.4680, 1.4710, 1.4740 and 1.48. Key support levels are at 1.4406, 1.4440, 1.45 and 1.4570.
Ted
The dollar made significant gains against all currencies except the yen, swiss franc and euro on Friday. With equity markets in a downward spiral, more funds will flow into the US bonds in the early part of the week, which could see the dollar appreciate strongly against all currencies except the yen. The current air of gloom is being led by major write-downs by financial institutions because of the ongoing subprime debacle, rather than any wider deterioration in the US economy. The credit crisis is not restricted to the US and the dollar has rather unfairly borne the brunt of the currency market reaction to date. Any assumption the Fed is simply going to keep cutting interest rates to bail out Wall Street is misguided and with key inflation numbers being released in the US this week, this data may well dispel any notion that the Fed has a lot of flexibility to work with. A robust set of US inflation numbers next Thursday for October (the month oil prices went through the sky) could see inflation become a major problem once again, which in turn will be dollar positive. A firm set of US retail sales numbers on Wednesday will also be a major boost to markets in general. The euro has largely been living a charmed life in recent weeks as traders have pushed it higher and higher, choosing to ignore the soft data from the euro area over the past month. Germany’s ZEW index on Tuesday will be an important measure of current business sentiment surrounding the value of the single currency. There is plenty of room to the downside this week, with technical indicators all showing the pair excessively overbought, and downside targets are 1.4630, 1.46, 1.4550, 1.4530, 1.45, 1.4450, 1.4410, 1.4350 and 1.43. The lifetime high at 1.4751 should hold, with support coming in below this at 1.4720 and 1.4690.
Bob B / Ted B - Nov 12
The dollar came back from a battering last week to close on a slightly more positive note, coming off a record low Friday (1.4751) to end the week at 1.4677. It was a quiet week for economic data and September’s improvement in the US trade balance was not sufficient to spark any meaningful recovery. We saw a marked decline in equity markets last week and with risk aversion on the rise, this coming week could prove very volatile. The ECB kept rates on hold last Thursday and its President Jean Claude Trichet remained hawkish in his policy assessment, placing somewhat more emphasis on the upside risks to price stability than on the downside risks to economic growth. Markets have been unimpressed by the prospect of the Fed remaining on hold through to the end of the year and futures markets are now beginning to price in a further rate cut for the US in December. In this context the medium term outlook very much favours the euro with 1.50 a very realistic target by early December. We could see a correction however in the short-term with rises in risk aversion prompting a yen appreciation that might see a sizeable liquidation of the EUR/JPY carry, sending the euro temporarily weaker against the greenback. We also have a number of major releases this week, most notably Germany’s ZEW survey Tuesday, euro quarter 3 GDP Wednesday, US Retail Sales Wednesday and US Consumer Price Inflation Thursday. If US Retail sales are weak it should fuel speculation of a further rate cut and this will damage the dollar. Euro zone GDP is expected to be strong and the biggest downside risk to the euro is heightened market volatility which may offer short-term dollar protection. Wait for the early week correction to settle before entering long on the euro. Support should be strong at 1.45 and below this at 1.4406. Upside price targets are 1.46, 1.4650, 1.4680, 1.4710, 1.4740 and 1.48. Key support levels are at 1.4406, 1.4440, 1.45 and 1.4570.
Ted
The dollar made significant gains against all currencies except the yen, swiss franc and euro on Friday. With equity markets in a downward spiral, more funds will flow into the US bonds in the early part of the week, which could see the dollar appreciate strongly against all currencies except the yen. The current air of gloom is being led by major write-downs by financial institutions because of the ongoing subprime debacle, rather than any wider deterioration in the US economy. The credit crisis is not restricted to the US and the dollar has rather unfairly borne the brunt of the currency market reaction to date. Any assumption the Fed is simply going to keep cutting interest rates to bail out Wall Street is misguided and with key inflation numbers being released in the US this week, this data may well dispel any notion that the Fed has a lot of flexibility to work with. A robust set of US inflation numbers next Thursday for October (the month oil prices went through the sky) could see inflation become a major problem once again, which in turn will be dollar positive. A firm set of US retail sales numbers on Wednesday will also be a major boost to markets in general. The euro has largely been living a charmed life in recent weeks as traders have pushed it higher and higher, choosing to ignore the soft data from the euro area over the past month. Germany’s ZEW index on Tuesday will be an important measure of current business sentiment surrounding the value of the single currency. There is plenty of room to the downside this week, with technical indicators all showing the pair excessively overbought, and downside targets are 1.4630, 1.46, 1.4550, 1.4530, 1.45, 1.4450, 1.4410, 1.4350 and 1.43. The lifetime high at 1.4751 should hold, with support coming in below this at 1.4720 and 1.4690.
Bob B / Ted B - Nov 12
Thứ Năm, 8 tháng 11, 2007
Bob's Currency Focus - 18:45 GMT
EUR/USD
Messrs Bernanke and Trichet took centre stage Thursday - Bernanke giving his semi-annual testimony on the economy to the government Finance Committee, while Trichet was issuing a statement on ECB monetary policy soon after the MPC announced the key interest rate for the euro area was to remain at 4.0%. Bernanke testified he expects growth in the US to soften into the middle of next year, with a pick up in the latter part of 2008. He did not give any indications either way as to the future direction of interest rates. Trichet on the other hand again emphasised the upside risks to price stability over the medium term in the euro area, saying the MPC were ready to act in a firm and timely manner to keep prices under control. Although Trichet did state that on balance risks to growth were to the downside, the ECB nonetheless expects the euro area economy to grow in and around its potential rate in 2008, thus meaning the ECB retains a tightening bias. The euro jumped back up to 1.47 on the strength of a hawkish sounding Trichet but has failed to break above this level, primarily because stock markets remain in turmoil and the movement of funds into US bonds is somewhat protecting the dollar. However as neither Bernanke or Trichet failed to make any direct reference to the strong euro/weak dollar in their prepared statements this is an indication neither Central Bank is particularly worried about the current exchange rate. 1.50 now looks on the cards sooner rather than later, as many would-be dollar market entrants would have been put off by the ECB’s stance today while most of those extreme euro long positions may hold out for a better price. The market continues to show little appetite for a proper correction and any dip towards 1.46 is likely to attract fresh buying. On Friday, we have September’s Trade deficit number out of the US, but this is unlikely to have much market impact, unless it produces a major surprise. A more sustained period of stock market pressure could see the dollar make some gains, but unless it is extreme, it is unlikely to lead to any major sell-off of EUR/USD, given the outlook for interest rate differentials.
GBP
The Bank of England kept interest rates on hold Thursday and said nothing in the statement release, so we have been left guessing as to whether there was any notable shift in the stance of Committee members, until the minutes are released in a fortnight’s time. Sterling got a bounce after the announcement as the stay on rates offers the currency some short-term relief. Cable ran up to 211.16 today and is currently trading just below this level, up 1.1 cents on the day. While clearly overvalued giving the softening outlook for UK growth and UK interest rates, the extreme level of negative dollar sentiment continues to protect the pound. Sterling even managed to push the euro back to 0.6950 today but will find it difficult to make gains beyond this level. The Conference Board reported Thursday that the leading indicator for the UK economy fell 0.1% in September, the third consecutive decline in the index. While the leading indicator is not a market-moving index, the result does nonetheless validate other recent reports on economic activity which signal the UK economy is cooling. Sterling has got a temporary stay of execution from the Bank of England and there is the potential for cable to rise further if sentiment against the dollar intensifies further. There is no value though at the current price as there is a very real danger of a sharp correction downwards. Expect EUR/GBP to creep back up towards 0.70 Friday.
YEN
The yen has continued to perform strongly Wednesday as stock markets again came under pressure. The dollar is trading at two month lows of 112.28 and is not far off the year’s lows which are in the sub 112 price region. If the yen should appreciate and pushes the dollar below the pivotal Y110 price level in the coming days, it could have a major knock-on impact for the entire currency market, with the carry trade and EUR/JPY likely to come under enormous pressure. Japan’s Economy Watchers index, a survey of barbers, shopkeepers and others who deal directly with consumers, declined for a seventh month to 41.5 from 42.9 in September, the Cabinet Office said today in Tokyo, indicating merchants are the most pessimistic they've been in four years, signaling slumping wages and a weakening job market may have convinced consumers to scale back spending.. A number less than 50 means pessimists outnumber optimists. Despite this gloomy assessment, the immediate outlook for the yen depends on the performance of equity markets, although any gains the currency does make will probably be given back very quickly when markets stabilize, as long as the USD does not fall below the boom or burst 110 price mark. AUD/JPY and NZD/JPY should retreat overnight if Wall Street closes down sharply.
CAD
Are we beginning to see the first glimpses of a chink in the armory of the loonie. We have now seen two rapid declines in the currency in successive days and sharpness of the moves suggest there is a sudden willingness to take on the loonie bulls, the first such move we have seen against the loonie since the global credit crisis issue first broke back in August. Canada’s Prime Minister Stephen Harper was the latest senior figure to suggest the loonie’s rapid rise was out of step with the underlying fundamentals and suggested a period of ‘reflection’ was required and that the issue was one for the Bank of Canada and not the Government. The loonie plummeted Wednesday evening, with the greenback rising to 0.94. The pair is currently trading just below this level following another highly volatile day of trading. If we are witnessing a turn in the loonie, or at least an attempt at a temporary correction, we could see the greenback rise swiftly to 0.95. The smart longer-play money should go on EUR/CAD. Today’s housing starts numbers out of Canada were broadly in line with expectations. Friday’s Trade Balance for September is key for the loonie, because the first creeks in the Canadian economy will probably be seen in its export volumes. A dramatic decline in exports or a major narrowing of the trade surplus could send another wave of Canadian dollar long positions to the exits.
Bob B - Nov 8
Messrs Bernanke and Trichet took centre stage Thursday - Bernanke giving his semi-annual testimony on the economy to the government Finance Committee, while Trichet was issuing a statement on ECB monetary policy soon after the MPC announced the key interest rate for the euro area was to remain at 4.0%. Bernanke testified he expects growth in the US to soften into the middle of next year, with a pick up in the latter part of 2008. He did not give any indications either way as to the future direction of interest rates. Trichet on the other hand again emphasised the upside risks to price stability over the medium term in the euro area, saying the MPC were ready to act in a firm and timely manner to keep prices under control. Although Trichet did state that on balance risks to growth were to the downside, the ECB nonetheless expects the euro area economy to grow in and around its potential rate in 2008, thus meaning the ECB retains a tightening bias. The euro jumped back up to 1.47 on the strength of a hawkish sounding Trichet but has failed to break above this level, primarily because stock markets remain in turmoil and the movement of funds into US bonds is somewhat protecting the dollar. However as neither Bernanke or Trichet failed to make any direct reference to the strong euro/weak dollar in their prepared statements this is an indication neither Central Bank is particularly worried about the current exchange rate. 1.50 now looks on the cards sooner rather than later, as many would-be dollar market entrants would have been put off by the ECB’s stance today while most of those extreme euro long positions may hold out for a better price. The market continues to show little appetite for a proper correction and any dip towards 1.46 is likely to attract fresh buying. On Friday, we have September’s Trade deficit number out of the US, but this is unlikely to have much market impact, unless it produces a major surprise. A more sustained period of stock market pressure could see the dollar make some gains, but unless it is extreme, it is unlikely to lead to any major sell-off of EUR/USD, given the outlook for interest rate differentials.
GBP
The Bank of England kept interest rates on hold Thursday and said nothing in the statement release, so we have been left guessing as to whether there was any notable shift in the stance of Committee members, until the minutes are released in a fortnight’s time. Sterling got a bounce after the announcement as the stay on rates offers the currency some short-term relief. Cable ran up to 211.16 today and is currently trading just below this level, up 1.1 cents on the day. While clearly overvalued giving the softening outlook for UK growth and UK interest rates, the extreme level of negative dollar sentiment continues to protect the pound. Sterling even managed to push the euro back to 0.6950 today but will find it difficult to make gains beyond this level. The Conference Board reported Thursday that the leading indicator for the UK economy fell 0.1% in September, the third consecutive decline in the index. While the leading indicator is not a market-moving index, the result does nonetheless validate other recent reports on economic activity which signal the UK economy is cooling. Sterling has got a temporary stay of execution from the Bank of England and there is the potential for cable to rise further if sentiment against the dollar intensifies further. There is no value though at the current price as there is a very real danger of a sharp correction downwards. Expect EUR/GBP to creep back up towards 0.70 Friday.
YEN
The yen has continued to perform strongly Wednesday as stock markets again came under pressure. The dollar is trading at two month lows of 112.28 and is not far off the year’s lows which are in the sub 112 price region. If the yen should appreciate and pushes the dollar below the pivotal Y110 price level in the coming days, it could have a major knock-on impact for the entire currency market, with the carry trade and EUR/JPY likely to come under enormous pressure. Japan’s Economy Watchers index, a survey of barbers, shopkeepers and others who deal directly with consumers, declined for a seventh month to 41.5 from 42.9 in September, the Cabinet Office said today in Tokyo, indicating merchants are the most pessimistic they've been in four years, signaling slumping wages and a weakening job market may have convinced consumers to scale back spending.. A number less than 50 means pessimists outnumber optimists. Despite this gloomy assessment, the immediate outlook for the yen depends on the performance of equity markets, although any gains the currency does make will probably be given back very quickly when markets stabilize, as long as the USD does not fall below the boom or burst 110 price mark. AUD/JPY and NZD/JPY should retreat overnight if Wall Street closes down sharply.
CAD
Are we beginning to see the first glimpses of a chink in the armory of the loonie. We have now seen two rapid declines in the currency in successive days and sharpness of the moves suggest there is a sudden willingness to take on the loonie bulls, the first such move we have seen against the loonie since the global credit crisis issue first broke back in August. Canada’s Prime Minister Stephen Harper was the latest senior figure to suggest the loonie’s rapid rise was out of step with the underlying fundamentals and suggested a period of ‘reflection’ was required and that the issue was one for the Bank of Canada and not the Government. The loonie plummeted Wednesday evening, with the greenback rising to 0.94. The pair is currently trading just below this level following another highly volatile day of trading. If we are witnessing a turn in the loonie, or at least an attempt at a temporary correction, we could see the greenback rise swiftly to 0.95. The smart longer-play money should go on EUR/CAD. Today’s housing starts numbers out of Canada were broadly in line with expectations. Friday’s Trade Balance for September is key for the loonie, because the first creeks in the Canadian economy will probably be seen in its export volumes. A dramatic decline in exports or a major narrowing of the trade surplus could send another wave of Canadian dollar long positions to the exits.
Bob B - Nov 8
Thứ Tư, 7 tháng 11, 2007
Bob's Currency Focus - 20:00 GMT
EUR/USD
Better late than never I guess. What a wild ride we have seen today. Negative dollar sentiment reached extremes Wednesday and the greenback plummeted across the board while oil and gold rose to record high prices. The issue which apparently drove a fresh wave of panic buying during the Asian Statement was a report that the Chinese had stated their intentions to diversify their reserves away from the US dollar. This story does the rounds every few months and to be quite frank there is nothing new in it and it cannot be taken at face value. The knee-jerk reaction we have seen today is an indication of the fear and volatility gripping currency markets and is a clear indication that the dollar’s decline is no longer orderly, but rather it is panic-driven and disorderly. The market needs a dollar correction in the short-term to instil confidence, even if the longer run trend remains down. Today’s sharp move against the US currency is hardly justified but at the same it is difficult to find a compelling reason to buy the dollar with current sentiment and in any event what’s the point in positioning oneself against a trend that has barely looked back in over two and a half months. With 1.4729 having already been hit, the next major price to the upside is 1.48 and after that 1.50 will seem inevitable. A correction downwards is required before the end of this week if 1.50 is not to be breached within the next 2 weeks. All eyes will be on ECB President Jean Claude Trichet Thursday and while it is certain rates will remain unchanged, the accompanying statement delivered by Trichet will have a major impact on how currency markets play out over the rest of this month. If the ECB maintains its tightening bias and lean towards higher rates to control inflation, then we could see the euro rocket and 1.48 could be hit tomorrow evening. The ECB is under pressure to slow the euro’s appreciation and with fears of a significant slowdown in prospect for the euro area, the ECB may feel obliged to issue a balanced statement, pointing out increased downside risks for growth while maintaining its concerns over the upside risks to inflation. A neutral or dovish statement could diffuse currency markets and lead to a period of stability. This should trigger a euro retreat temporarily, possibly back to at least 1.45. With so many uncertain factors at play, it is dangerous to be trading under current conditions and traders should employ stop losses at all times.
GBP
Sterling has had another good day, thanks almost exclusively to dollar weakness and partly owing to the preference markets have shown for sterling over the other high yielders when risk aversion levels are on the rise. The market took cable to a fresh 26 year high earlier this morning, the pair hitting a very lofty 2.1071 and the pound remains well bid at 20:00GMT - at 2.1025, up a whopping 1.5 cents on the day. The pound also stabilised against the euro, the pair coming off a low of 0.70 to settle at 0.6968, marginally lower on the day. The Bank of England delivers its latest policy announcement Thursday and although there is an outside chance of a rate cut, the smart money is on no change. The Bank of England is not expected to issue a detailed statement so the market impact of tomorrow’s rate announcement will be minimal, unless there is a rate cut. Dollar sentiment aside, sterling looks totally overpriced at 2.10, when once considers the underlying fundamentals and the risks to the UK economy and a decline back towards 2.05 over the next week is likely. A broader dollar correction Thursday, should it happen, could see cable tumble two or three hundred points. Be wary around 12:00 GMT just in case the Bank of England does deliver a surprise rate cut. EUR/GBP could return to 0.6950, but the pound will find it difficult to appreciate much beyond this level.
YEN
The yen has been the strongest currency of the day, thanks to a major spike upwards in risk aversion that has triggered a flow of funds out of riskier assets into low yielding currencies like the yen and Swiss franc. The dollar is currently trading at its low of the day at 112.75 and coming off the back of another volatile trading session on Wall Street, a decline to 110 over the next 2 days is now a strong possibility. The euro has also declined sharply, falling to Y165, down 200 points on the day. The Euro could potentially return to Y162 in the next two days if volatility levels remain high. Expect a rollercoaster ride during the Asian session tonight as Asian markets react to a 350 point loss on the Dow Industrial average in New York. We should see major declines in AUD/JPY and NZD/JPY overnight.
CAD
The loonie rolled on like a juggernaut late Tuesday and early Wednesday, gaining a full 2 cents against the beleaguered dollar, the pair hitting an almost unbelievable low of 0.9059 this morning, 3 cents higher than where it was on Monday and almost 5 cents below where it was at early last Friday. We then saw quite a dramatic pullback this afternoon, the dollar reclaiming over 2 cents and the pair currently trade at US0.9285. The loonie is acting as a proxy for oil at the moment and is attracting major speculative interest as crude approaches $100 a barrel. Crude declined to below $96 today when US inventories for last week came in better than expected. As to whether todays’s retreat by the loonie is related to the retreat in oil we don’t know, but we must be at the point where most loonie backers must know the currency is now grossly overvalued and several of the existing positions were pulled today as traders saw an opportunity to get out at the best possible price. We need to witness a pullback to 0.95 before we can honestly say there is a genuine correction underway. The loonie ceded a massive 1.6% to the euro today and the pair is now back trading at the level it started the week at – 1.3590. There was no data released in Canada today while Thursday sees the release of October’s housing starts and September’s new home price index. The loonie however may again follow the fortunes of oil prices and should $100 a barrel be hit, then expect another loonie surge. Continued stock market volatility could force oil prices lower and in this scenario, the loonie might again correct lower.
Bob B - Nov 7
Better late than never I guess. What a wild ride we have seen today. Negative dollar sentiment reached extremes Wednesday and the greenback plummeted across the board while oil and gold rose to record high prices. The issue which apparently drove a fresh wave of panic buying during the Asian Statement was a report that the Chinese had stated their intentions to diversify their reserves away from the US dollar. This story does the rounds every few months and to be quite frank there is nothing new in it and it cannot be taken at face value. The knee-jerk reaction we have seen today is an indication of the fear and volatility gripping currency markets and is a clear indication that the dollar’s decline is no longer orderly, but rather it is panic-driven and disorderly. The market needs a dollar correction in the short-term to instil confidence, even if the longer run trend remains down. Today’s sharp move against the US currency is hardly justified but at the same it is difficult to find a compelling reason to buy the dollar with current sentiment and in any event what’s the point in positioning oneself against a trend that has barely looked back in over two and a half months. With 1.4729 having already been hit, the next major price to the upside is 1.48 and after that 1.50 will seem inevitable. A correction downwards is required before the end of this week if 1.50 is not to be breached within the next 2 weeks. All eyes will be on ECB President Jean Claude Trichet Thursday and while it is certain rates will remain unchanged, the accompanying statement delivered by Trichet will have a major impact on how currency markets play out over the rest of this month. If the ECB maintains its tightening bias and lean towards higher rates to control inflation, then we could see the euro rocket and 1.48 could be hit tomorrow evening. The ECB is under pressure to slow the euro’s appreciation and with fears of a significant slowdown in prospect for the euro area, the ECB may feel obliged to issue a balanced statement, pointing out increased downside risks for growth while maintaining its concerns over the upside risks to inflation. A neutral or dovish statement could diffuse currency markets and lead to a period of stability. This should trigger a euro retreat temporarily, possibly back to at least 1.45. With so many uncertain factors at play, it is dangerous to be trading under current conditions and traders should employ stop losses at all times.
GBP
Sterling has had another good day, thanks almost exclusively to dollar weakness and partly owing to the preference markets have shown for sterling over the other high yielders when risk aversion levels are on the rise. The market took cable to a fresh 26 year high earlier this morning, the pair hitting a very lofty 2.1071 and the pound remains well bid at 20:00GMT - at 2.1025, up a whopping 1.5 cents on the day. The pound also stabilised against the euro, the pair coming off a low of 0.70 to settle at 0.6968, marginally lower on the day. The Bank of England delivers its latest policy announcement Thursday and although there is an outside chance of a rate cut, the smart money is on no change. The Bank of England is not expected to issue a detailed statement so the market impact of tomorrow’s rate announcement will be minimal, unless there is a rate cut. Dollar sentiment aside, sterling looks totally overpriced at 2.10, when once considers the underlying fundamentals and the risks to the UK economy and a decline back towards 2.05 over the next week is likely. A broader dollar correction Thursday, should it happen, could see cable tumble two or three hundred points. Be wary around 12:00 GMT just in case the Bank of England does deliver a surprise rate cut. EUR/GBP could return to 0.6950, but the pound will find it difficult to appreciate much beyond this level.
YEN
The yen has been the strongest currency of the day, thanks to a major spike upwards in risk aversion that has triggered a flow of funds out of riskier assets into low yielding currencies like the yen and Swiss franc. The dollar is currently trading at its low of the day at 112.75 and coming off the back of another volatile trading session on Wall Street, a decline to 110 over the next 2 days is now a strong possibility. The euro has also declined sharply, falling to Y165, down 200 points on the day. The Euro could potentially return to Y162 in the next two days if volatility levels remain high. Expect a rollercoaster ride during the Asian session tonight as Asian markets react to a 350 point loss on the Dow Industrial average in New York. We should see major declines in AUD/JPY and NZD/JPY overnight.
CAD
The loonie rolled on like a juggernaut late Tuesday and early Wednesday, gaining a full 2 cents against the beleaguered dollar, the pair hitting an almost unbelievable low of 0.9059 this morning, 3 cents higher than where it was on Monday and almost 5 cents below where it was at early last Friday. We then saw quite a dramatic pullback this afternoon, the dollar reclaiming over 2 cents and the pair currently trade at US0.9285. The loonie is acting as a proxy for oil at the moment and is attracting major speculative interest as crude approaches $100 a barrel. Crude declined to below $96 today when US inventories for last week came in better than expected. As to whether todays’s retreat by the loonie is related to the retreat in oil we don’t know, but we must be at the point where most loonie backers must know the currency is now grossly overvalued and several of the existing positions were pulled today as traders saw an opportunity to get out at the best possible price. We need to witness a pullback to 0.95 before we can honestly say there is a genuine correction underway. The loonie ceded a massive 1.6% to the euro today and the pair is now back trading at the level it started the week at – 1.3590. There was no data released in Canada today while Thursday sees the release of October’s housing starts and September’s new home price index. The loonie however may again follow the fortunes of oil prices and should $100 a barrel be hit, then expect another loonie surge. Continued stock market volatility could force oil prices lower and in this scenario, the loonie might again correct lower.
Bob B - Nov 7
Thứ Ba, 6 tháng 11, 2007
Bob's Currency Focus - 15:00 GMT
EUR/USD
I’m a bit surprised that the euro managed to break above 1.4550 so easily Tuesday as I thought the pair might remain contained for a day or two ahead of the ECB on Thursday. Monday’s better than expected ISM services index reading in the US went the same way as last Friday’s nonfarm payroll report – it was ignored, and the prevailing negative sentiment against the US currency continues to dictate direction. Monday saw only temporary respite for the US currency and the euro took control of the pair again Tuesday and is already up a whopping 90 pips on the day, as of 15:00 GMT. The greenback is now being plagued by fears the credit crisis will spill even deeper over into the wider economy and that the Fed will be forced to cut interest rates further. The ECB is expected to maintain a hawkish bias this Thursday and the single currency appears to be the unit every trader wishes to be on. Central Bank intervention cannot be ruled out in the coming weeks, given the worrying nature of the dollar’s demise and the fact oil and gold prices are spiralling out of control, but EUR/USD may need to hit 1.50 before any direct intervention (Central Bank buying of dollars) is likely. So while there remains the risk a major correction downwards, the smart money is still to buy the euro on dips. We may be lucky to see any dip back to 1.44 ahead of the ECB, so anyone looking to enter the market over the next 3 days may be forced to come in at elevated prices. There is always the danger the ECB could surprise everyone and take a softer tone on the rate outlook, preferring to talk up the downside risks to growth over inflation. This is a move that in itself might diffuse currency markets and lead to a major rebalance of EUR/USD. The trading range for the pair has picked up a tier since yesterday and the range for the next 24 hours is likely to be 1.4440 to 1.4580. Sellers are tipped to come into the market at levels above 1.4550 and not look for more than 50 pips, given volatility levels.
GBP
Cable shook off Monday’s reversal to rebound somewhat on Tuesday, hitting a high of 2.0902 early this afternoon, over a cent higher than yesterday’s close. Retail Sales numbers from the BRC released today reveal a pretty severe slowdown in same store sales in October (down to 1% year on year) while total retail sales also slowed (to 3% from 4.95 in September). Although the UK think tank group NEISR estimate GDP for the 3 months to the end of October steady at 0.7% - the same as September, one cannot get away from the fact that UK economic data is beginning to soften. Cable is merely riding the dollar negative wave at present, but there is the real risk of a major reversal in this pair, once a broader dollar correction is underway. One cannot justify buying sterling at levels close to 2.09, so even in the short-term prices in this vicinity offer good sell-down value. The weaker than expected data over the past week may give some traders the jitters ahead of the Bank of England rate announcement on Thursday. While a rate cut still looks unlikely, the fact a surprise rate cut is even remotely possible means several sterling traders may run for the exits ahead of Thursday’s MPC decision and cable could fall to at least 2.07 before then. It is dangerous to buy cable against the backdrop of weak UK data, even if negative dollar sentiment remains extreme in the short-term. The euro, as I forecast yesterday, is beginning to creep back up to the 0.70 mark against the pound, hitting 0.6980 today. I expect this trend to continue and we could see 0.7020 threatened by Thursday evening. Sterling has weakened significantly against the Swiss franc over the past 2 days and may weaken further if market volatility continues. The pound did however manage to recover to 238 against the yen as a recovery in stock markets Tuesday meant the yen fared even worse against all the majors than the dollar.
Yen
The yen suffered this morning as a bounce in European equities saw the currency ditched in favour of higher yielding currencies. The yen fared particularly badly against the euro which hit a high of Y167.05 this morning, having come off a low of Y164.95 Monday. Volatility has however returned to US stock markets Tuesday and the dollar has fallen to 114.34 against Japanese currency, having traded above 114.70 earlier this morning. If the Dow plunges later today, the yen may finally break below the key 114 price mark against the dollar and we could see a spike down to 113.30. A broader sell off of the carry trade could see the yen appreciate back to 166 and possibly 165.50 against the euro. Traders need to be wary of a rebound in stock markets, as this coupled with a rate hike from the Reserve Bank of Australia tonight, could send the yen spiralling downwards, particularly against the Aussie and New Zealand dollars. On the economic data front, Japan’s leading indicator came in at 0.0 in September, signalling growth prospects for the next 6 months are seen as non-existent, which hardy cements confidence in the underlying fundamentals for the yen.
CAD
We have witnessed yet another 50 year low for USD/CAD Tuesday as the pair tumbled below 0.93 to temporarily bottom out at 0.9234. The pair is now trading at 0.9253, 0.86% lower than Monday’s record low close. There is absolutely no support for the dollar against the loonie in the market and how low the pair might yet go is anyone’s guess. This analyst is convinced that intervention of some variety is becoming more and more likely with each day because it is blatantly clear the extent of the loonie’s appreciation has more to do with the underlying force of currency speculation than the underlying economic fundamentals. We have covered the oil conundrum previously and that is primarily a red herring for trying to justify appreciation in the CAD. The Bank of Canada is not scheduled to meet again until December 4th, but can the Bank afford to wait that long? The IVEY Purchasing Managers Index (measures activity for Canada’s industrial sector) for October came in above expectations Tuesday, but the IVEY is a narrow survey and is often discounted. In other data released, building permits unexpectedly fell 1.7% in September (2% gain forecast). The loonie has appreciated 3.75% against the dollar since the beginning of last week and by 12.4% in the past 8 weeks. That means the loonie is currently appreciating at an average rate of 0.33% per day, across a two month period. That is unprecedented and unsustainable, but my advice is not to back against it until we see it bottom out. The Speculative interest in the loonie should not be underestimated and it remains dangerous to trade against it. The Euro dipped to 1.3436 against loonie today and rebounded to go back over 1.35, only to fall again to the current price of 1.3457. The euro should maintain a firm bid in the build up to Thursday’s ECB, when a hawkish bias is expected to be iterated by the ECB President, but stops should be employed at all times on EUR/CAD, given the aggressive nature of the loonie’s recent moves.
Bob B
I’m a bit surprised that the euro managed to break above 1.4550 so easily Tuesday as I thought the pair might remain contained for a day or two ahead of the ECB on Thursday. Monday’s better than expected ISM services index reading in the US went the same way as last Friday’s nonfarm payroll report – it was ignored, and the prevailing negative sentiment against the US currency continues to dictate direction. Monday saw only temporary respite for the US currency and the euro took control of the pair again Tuesday and is already up a whopping 90 pips on the day, as of 15:00 GMT. The greenback is now being plagued by fears the credit crisis will spill even deeper over into the wider economy and that the Fed will be forced to cut interest rates further. The ECB is expected to maintain a hawkish bias this Thursday and the single currency appears to be the unit every trader wishes to be on. Central Bank intervention cannot be ruled out in the coming weeks, given the worrying nature of the dollar’s demise and the fact oil and gold prices are spiralling out of control, but EUR/USD may need to hit 1.50 before any direct intervention (Central Bank buying of dollars) is likely. So while there remains the risk a major correction downwards, the smart money is still to buy the euro on dips. We may be lucky to see any dip back to 1.44 ahead of the ECB, so anyone looking to enter the market over the next 3 days may be forced to come in at elevated prices. There is always the danger the ECB could surprise everyone and take a softer tone on the rate outlook, preferring to talk up the downside risks to growth over inflation. This is a move that in itself might diffuse currency markets and lead to a major rebalance of EUR/USD. The trading range for the pair has picked up a tier since yesterday and the range for the next 24 hours is likely to be 1.4440 to 1.4580. Sellers are tipped to come into the market at levels above 1.4550 and not look for more than 50 pips, given volatility levels.
GBP
Cable shook off Monday’s reversal to rebound somewhat on Tuesday, hitting a high of 2.0902 early this afternoon, over a cent higher than yesterday’s close. Retail Sales numbers from the BRC released today reveal a pretty severe slowdown in same store sales in October (down to 1% year on year) while total retail sales also slowed (to 3% from 4.95 in September). Although the UK think tank group NEISR estimate GDP for the 3 months to the end of October steady at 0.7% - the same as September, one cannot get away from the fact that UK economic data is beginning to soften. Cable is merely riding the dollar negative wave at present, but there is the real risk of a major reversal in this pair, once a broader dollar correction is underway. One cannot justify buying sterling at levels close to 2.09, so even in the short-term prices in this vicinity offer good sell-down value. The weaker than expected data over the past week may give some traders the jitters ahead of the Bank of England rate announcement on Thursday. While a rate cut still looks unlikely, the fact a surprise rate cut is even remotely possible means several sterling traders may run for the exits ahead of Thursday’s MPC decision and cable could fall to at least 2.07 before then. It is dangerous to buy cable against the backdrop of weak UK data, even if negative dollar sentiment remains extreme in the short-term. The euro, as I forecast yesterday, is beginning to creep back up to the 0.70 mark against the pound, hitting 0.6980 today. I expect this trend to continue and we could see 0.7020 threatened by Thursday evening. Sterling has weakened significantly against the Swiss franc over the past 2 days and may weaken further if market volatility continues. The pound did however manage to recover to 238 against the yen as a recovery in stock markets Tuesday meant the yen fared even worse against all the majors than the dollar.
Yen
The yen suffered this morning as a bounce in European equities saw the currency ditched in favour of higher yielding currencies. The yen fared particularly badly against the euro which hit a high of Y167.05 this morning, having come off a low of Y164.95 Monday. Volatility has however returned to US stock markets Tuesday and the dollar has fallen to 114.34 against Japanese currency, having traded above 114.70 earlier this morning. If the Dow plunges later today, the yen may finally break below the key 114 price mark against the dollar and we could see a spike down to 113.30. A broader sell off of the carry trade could see the yen appreciate back to 166 and possibly 165.50 against the euro. Traders need to be wary of a rebound in stock markets, as this coupled with a rate hike from the Reserve Bank of Australia tonight, could send the yen spiralling downwards, particularly against the Aussie and New Zealand dollars. On the economic data front, Japan’s leading indicator came in at 0.0 in September, signalling growth prospects for the next 6 months are seen as non-existent, which hardy cements confidence in the underlying fundamentals for the yen.
CAD
We have witnessed yet another 50 year low for USD/CAD Tuesday as the pair tumbled below 0.93 to temporarily bottom out at 0.9234. The pair is now trading at 0.9253, 0.86% lower than Monday’s record low close. There is absolutely no support for the dollar against the loonie in the market and how low the pair might yet go is anyone’s guess. This analyst is convinced that intervention of some variety is becoming more and more likely with each day because it is blatantly clear the extent of the loonie’s appreciation has more to do with the underlying force of currency speculation than the underlying economic fundamentals. We have covered the oil conundrum previously and that is primarily a red herring for trying to justify appreciation in the CAD. The Bank of Canada is not scheduled to meet again until December 4th, but can the Bank afford to wait that long? The IVEY Purchasing Managers Index (measures activity for Canada’s industrial sector) for October came in above expectations Tuesday, but the IVEY is a narrow survey and is often discounted. In other data released, building permits unexpectedly fell 1.7% in September (2% gain forecast). The loonie has appreciated 3.75% against the dollar since the beginning of last week and by 12.4% in the past 8 weeks. That means the loonie is currently appreciating at an average rate of 0.33% per day, across a two month period. That is unprecedented and unsustainable, but my advice is not to back against it until we see it bottom out. The Speculative interest in the loonie should not be underestimated and it remains dangerous to trade against it. The Euro dipped to 1.3436 against loonie today and rebounded to go back over 1.35, only to fall again to the current price of 1.3457. The euro should maintain a firm bid in the build up to Thursday’s ECB, when a hawkish bias is expected to be iterated by the ECB President, but stops should be employed at all times on EUR/CAD, given the aggressive nature of the loonie’s recent moves.
Bob B
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