In recent days we have seen oil hit $102 a barrel or 100% higher than what it traded at this time last year, gold hit a record $964 an ounce Wednesday and copper rose to $387 a pound, up close to 30% this year alone. At the same time the US dollar index has hit a record low of 74.30, down almost 11% from the same time last year. One might legitimately ask why oil is twice the price it was last year if the world is gripped by an economic slowdown and why are copper prices shooting through the roof when new home sales in the US are at a 2-decade low? The US economy grew a paltry 0.6% year-on-year in quarter 4 and is probably close to negative growth this quarter, yet US headline inflation is running at 4.3% and yesterday US producer prices recorded their highest year-on-year increase since 1981. Normally if the economy slows, prices cool and inflation should soften. So what’s so different now?
1) Investors believe the global economy is sufficiently decoupled from the US economy that economic growth can prosper in Europe, Asia and the emerging economies, even in the face of a US recession. Investors have poured masses of speculative funds into hard and soft commodities which sent the prices of base metals, energy and food soaring over recent months, fuelling inflation.
2) The US Federal Reserve is largely acting in isolation in its aggressive attempts to ease credit tightening and stimulate economic growth. The resultant shift in interest rate differentials between the US and in particular Europe has seen the dollar plummet, meaning the cost of US imports has surged, pushing US domestic inflation higher.
3) Monetary policy easing (cutting interest rates) has the effect of stoking inflation and it is noticeable that the sharp run-up in commodity prices over the past 6 months has coincided with a new cycle of monetary easing on the part of the Fed.
4) There is no evidence yet of dampening demand in the US for oil or for food commodities despite the sharp increase in prices. The market seems determined to push prices to breaking point limit. The relationship between supply and demand has little bearing in establishing an equilibrium price in today’s commodity market. In the short to medium term, commodity prices are being driven by speculative interests.
What’s next?
1) Stagflation. The US is currently in a period of zero growth and increasing prices. The most worrying aspect is that this stagflation is widening - inflation continues to rise and growth stagnates. It could be the second half of this year before the US can breathe again. A ‘decoupled’ global economy would make it more difficult for the US economy to recover, because this would keep commodity prices elevated and make it more difficult for the Fed to cut interest rates further. In a decoupled scenario, were the Fed to ignore price stability and continue to cut rates, it could tip the economy over a more precarious edge.
2) The euro. US inflation is being driven by a weak dollar and unless the greenback stabilises or strengthens against the euro, this situation is likely to get worse. The ECB’s view of the world is different to that of the Fed and the ECB is against cutting interest rates in the current environment. As long as the euro is appreciating against the dollar, investors will feel justified in pouring more speculative funds into commodities, thus pushing up the dollar price of oil, copper, corn etc. and forcing higher inflation, particularly in the US. We are close to the point where direct market intervention on the part of Central Banks to prop up the dollar is close to being on the agenda. The level of dollar depreciation seen in recent days is not sustainable in the longer run and while the sell-off continues, the disproportionate rise in commodity prices is compounding the inflation risks in every major economy, not just the US.
3) The flu. The decoupling theory may not hold true and it may well be the case that the US is simply at the front-end of a severe global-wide economic slowdown. There is plenty of soft data emanating from Europe, the UK and Japan to back up this theory. The US has sneezed and while officials elsewhere have been slow to react, it is only a matter of time before we see a sharper deterioration in the health of other major economies. This will cause a serious rethink and lead to a cooling in commodity prices, which will ease US inflation. In this situation look for a strong bounce in the dollar.
Ted B - Feb 27
Thứ Tư, 27 tháng 2, 2008
Thứ Ba, 26 tháng 2, 2008
Bob's Currency Focus - 19:00 GMT
EUR/USD
The dollar tanked across the board Tuesday and the euro is now within reach of the lifetime high at 1.4966. The pair currently trades above the key 1.49 line. So what has changed to bring about this situation? The euro got a boost from Germany’s Ifo business survey for February which surprised to the upside and suggests the German economy at least remains resilient in the face of a US slowdown. Stock markets appear to have grown immune to bad news and are ready to rally on any hint of a positive. This increase in risk tolerance is resonating through currency markets with the dollar being targeted because of its negative rate outlook, versus the euro in particular. A rate cut by the ECB is off the agenda for the foreseeable future, following today’s Ifo report. US data again disappoints with consumer confidence hitting a 5-year low in February, producer prices increasing by twice the forecast in January and house prices falling by the most in 2 decades in December according to the most recent Case Shiller report. The euro looks poised to once again take on 1.4966 and attempt to vault the 1.50 price handle. Its chance may come on Wednesday, if Fed Chief Bernanke, in his testimony to the House Monetary Policy Panel, signals further aggressive rate cuts may be on the way. There is no value in buying the euro at present prices, given it is at a price level from where it had failed to progress on 3 previous occasions. Dollar sentiment is so negative right now it is difficult to see where a downside rally is going to come from. It will most likely take a rise in risk aversion and a downturn in stock prices to trigger it. Strategy: Sell down on prices close to 1.4930, but place a stop loss above 1.4966. Hold other short positions, in anticipation of a reversal.
GBP
Cable has advanced to 1.9850 as the pound seized on broad-based dollar weakness to push the pair close to the year’s highs, which are around 1.9957. UK economic data printed weak though it got lost in a cloud of dollar gloom. Total Business Investment in Quarter 4 was a negative 0.5%, against a 0.9% gain in quarter 3. The CBI Retail survey for February posts a sharp decline in confidence by retailers and signals there are difficult months ahead for the retail trade. Cable’s ability to reach 1.9957 may be dependent on the euro hitting 1.50 against the dollar. If the euro prevails it will spark a fresh bout of dollar-selling which will benefit the pound and should see cable return to the 2 dollar mark. I remain bearish on sterling but prefer to see the current dollar sell-spree pass before getting too involved in the market. Cable has now rallied 5 cents from last week’s low and it is difficult to see it going much higher on fundamental grounds. Comments today from the Bank of England’s Rachel Lomax were generally supportive of sterling – she intimated the Bank’s hands may be tied because of rising inflation. However if data continues to disappoint, markets will price in expectations of further rate cuts. The rise in risk tolerance is protecting sterling against the euro, as traders pour money into the higher-yielding pound and EUR/GBP should be able to slide to 0.75 in the short-term, so long as the interest in carry trades persist. Cable should be able to hold below 1.9957 bar another dollar collapse and a sell down on prices near this price would seem to offer the best value. Other short positions should be held in anticipation of resumption to the downside. Strategy: Sell cable on prices close to 1.9957 with downside price targets of 1.9730, 1.9670, 1.9605, 1.9550 and 1.95.
JPY
The yen has held up remarkably well Tuesday as currency markets have been dictated by dollar weakness rather than preference for riskier assets. The yen has gained over 70 pips against the dollar and has held its own against the euro, though the single currency is again trading above the key Y160 price line. The only major currencies the yen has lost ground against today are sterling and the Canadian dollar. Stocks have now rallied strongly over most of the past week and may be due a reality check, i.e. correct downwards, something which would benefit the yen. Wednesday will be an important day for the immediate direction for the yen, because if stock markets react negatively to Ben Bernanke’s semi-annual testimony on monetary policy, the yen will be the principal benefactor. It is not worth selling the yen ahead of tomorrow’s speech, particularly as a capitulation by the dollar against the euro (to 1.50) will also trigger a sharp pullback in USD/JPY. I recommend avoiding the yen for the present, because we are at a critical juncture across currency markets and the yen’s direction will very much depend on the immediate fate of the dollar.
CAD
Every USD/CAD bull on earth is wondering what has hit them in the past 36 hours. It was not outlandish to have expected a rise to 1.03 this week as we look ahead to an expected rate cut from the Bank of Canada next Tuesday. Instead we have seen as sharp a reversal as the market has ever witnessed with the loonie soaring by 3% and 3 cents in under 2 days. We cannot put it down to US dollar weakness because the loonie has also surged by over 2% against every other major currency, including the other commodity currencies. There was no economic data out of Canada and the Bank of Canada members due to speak today had not even uttered a word before USD/CAD had collapsed to 0.9850. Would day traders really buy the loonie in such volumes in the absence of data and days before an expected rate cut? No! It is a very curious market move and borders on the ridiculous. We have witnessed similar moves in the recent past of course, something which makes shorting the loonie an occupational hazard. Liquidity involving the loonie poses very serious questions at times like this and logic is very much out the window. A return to over $100 oil prices will help justify a strong loonie, but the currency is trading well above its real value. Wait for a bottom in USD/CAD to form before entering the market again. There may be an attempt to take out the December low at 0.9855. Strategy: Wait!
Bob B - Feb 26
The dollar tanked across the board Tuesday and the euro is now within reach of the lifetime high at 1.4966. The pair currently trades above the key 1.49 line. So what has changed to bring about this situation? The euro got a boost from Germany’s Ifo business survey for February which surprised to the upside and suggests the German economy at least remains resilient in the face of a US slowdown. Stock markets appear to have grown immune to bad news and are ready to rally on any hint of a positive. This increase in risk tolerance is resonating through currency markets with the dollar being targeted because of its negative rate outlook, versus the euro in particular. A rate cut by the ECB is off the agenda for the foreseeable future, following today’s Ifo report. US data again disappoints with consumer confidence hitting a 5-year low in February, producer prices increasing by twice the forecast in January and house prices falling by the most in 2 decades in December according to the most recent Case Shiller report. The euro looks poised to once again take on 1.4966 and attempt to vault the 1.50 price handle. Its chance may come on Wednesday, if Fed Chief Bernanke, in his testimony to the House Monetary Policy Panel, signals further aggressive rate cuts may be on the way. There is no value in buying the euro at present prices, given it is at a price level from where it had failed to progress on 3 previous occasions. Dollar sentiment is so negative right now it is difficult to see where a downside rally is going to come from. It will most likely take a rise in risk aversion and a downturn in stock prices to trigger it. Strategy: Sell down on prices close to 1.4930, but place a stop loss above 1.4966. Hold other short positions, in anticipation of a reversal.
GBP
Cable has advanced to 1.9850 as the pound seized on broad-based dollar weakness to push the pair close to the year’s highs, which are around 1.9957. UK economic data printed weak though it got lost in a cloud of dollar gloom. Total Business Investment in Quarter 4 was a negative 0.5%, against a 0.9% gain in quarter 3. The CBI Retail survey for February posts a sharp decline in confidence by retailers and signals there are difficult months ahead for the retail trade. Cable’s ability to reach 1.9957 may be dependent on the euro hitting 1.50 against the dollar. If the euro prevails it will spark a fresh bout of dollar-selling which will benefit the pound and should see cable return to the 2 dollar mark. I remain bearish on sterling but prefer to see the current dollar sell-spree pass before getting too involved in the market. Cable has now rallied 5 cents from last week’s low and it is difficult to see it going much higher on fundamental grounds. Comments today from the Bank of England’s Rachel Lomax were generally supportive of sterling – she intimated the Bank’s hands may be tied because of rising inflation. However if data continues to disappoint, markets will price in expectations of further rate cuts. The rise in risk tolerance is protecting sterling against the euro, as traders pour money into the higher-yielding pound and EUR/GBP should be able to slide to 0.75 in the short-term, so long as the interest in carry trades persist. Cable should be able to hold below 1.9957 bar another dollar collapse and a sell down on prices near this price would seem to offer the best value. Other short positions should be held in anticipation of resumption to the downside. Strategy: Sell cable on prices close to 1.9957 with downside price targets of 1.9730, 1.9670, 1.9605, 1.9550 and 1.95.
JPY
The yen has held up remarkably well Tuesday as currency markets have been dictated by dollar weakness rather than preference for riskier assets. The yen has gained over 70 pips against the dollar and has held its own against the euro, though the single currency is again trading above the key Y160 price line. The only major currencies the yen has lost ground against today are sterling and the Canadian dollar. Stocks have now rallied strongly over most of the past week and may be due a reality check, i.e. correct downwards, something which would benefit the yen. Wednesday will be an important day for the immediate direction for the yen, because if stock markets react negatively to Ben Bernanke’s semi-annual testimony on monetary policy, the yen will be the principal benefactor. It is not worth selling the yen ahead of tomorrow’s speech, particularly as a capitulation by the dollar against the euro (to 1.50) will also trigger a sharp pullback in USD/JPY. I recommend avoiding the yen for the present, because we are at a critical juncture across currency markets and the yen’s direction will very much depend on the immediate fate of the dollar.
CAD
Every USD/CAD bull on earth is wondering what has hit them in the past 36 hours. It was not outlandish to have expected a rise to 1.03 this week as we look ahead to an expected rate cut from the Bank of Canada next Tuesday. Instead we have seen as sharp a reversal as the market has ever witnessed with the loonie soaring by 3% and 3 cents in under 2 days. We cannot put it down to US dollar weakness because the loonie has also surged by over 2% against every other major currency, including the other commodity currencies. There was no economic data out of Canada and the Bank of Canada members due to speak today had not even uttered a word before USD/CAD had collapsed to 0.9850. Would day traders really buy the loonie in such volumes in the absence of data and days before an expected rate cut? No! It is a very curious market move and borders on the ridiculous. We have witnessed similar moves in the recent past of course, something which makes shorting the loonie an occupational hazard. Liquidity involving the loonie poses very serious questions at times like this and logic is very much out the window. A return to over $100 oil prices will help justify a strong loonie, but the currency is trading well above its real value. Wait for a bottom in USD/CAD to form before entering the market again. There may be an attempt to take out the December low at 0.9855. Strategy: Wait!
Bob B - Feb 26
Thứ Hai, 25 tháng 2, 2008
Bob's Currency Focus - 18:00 GMT
EUR/USD
The pair continues to trade within a narrow range Monday as the market is uncertain about price direction. There is a reluctance to push the euro towards the lifetime highs in the absence of major economic data or Central Bank policy updates, while by the same token the dollar is failing to attract any meaningful support and the negative sentiment that dogged the currency from the middle of last week still remains. We will need to see a break out of the current 1.4760 to 1.4860 price range to get an idea of where the pair may be headed through the remainder of this week. There are several speeches from Fed officials this week, including the Fed Chief’s semi-annual testimony in front of the Monetary Policy Committee on Wednesday. This will need to be monitored closely. US January existing home sales came in slightly higher than expected, 4.89 million Vs a forecast 4.80 million, and it has raised some hopes the housing crisis may be near a bottom. Stocks rallied in the immediate period following the news. A sustained rally in stocks this week will tend to support the euro in the short-term, as traders focus on interest rate differentials and yield. Germany’s February Ifo Business Survey is a risk for the euro Tuesday, but only if the index falls well below expectations. I still do not see any value in buying the euro at present levels and believe there is good value in selling down on prices close to 1.4850. Strategy: Sell on prices near 1.4850 with limit targets of 1.4780, 1.4755, 1.4730, 1.47 and 1.4660.
GBP
Cable has held firm Monday, the pound holding onto the 3 cent gain it made since last Wednesday. 1.97 is proving difficult to break and unless we see broader deterioration in the dollar over the next few days, the pound will struggle from here. Direction this week will be determined by sentiment towards the US currency and the pound will find it difficult to attract strong support, with traders having one eye on the Bank of England meeting next week. There are no genuine market-moving economic releases in the UK this week, although any decline in house prices from the Nationwide survey or a fall-off in the Gfk consumer confidence index, both released later in the week, will undermine the UK currency. There is definite value in selling cable down on prices above 1.97, with a distinct chance of a quick return to 1.95 over the coming days, especially if risk aversion levels are elevated. Meanwhile a poor Ifo survey result from Germany Tuesday could plunge EUR/GBP back below 0.75. Strategy: Sell cable on prices around 1.97 with downside price targets of 1.9605, 1.9555, 1.95 and 1.9460.
JPY
The yen sold off sharply from the moment markets opened Sunday night with risk-taking and the carry trade back in vogue, thanks to Wall Street’s strong reversal to the upside late Friday. The euro has gone above Y160 Monday, while the dollar briefly returned to above Y108, having gone as low as 106.70 Friday evening. There is a high degree of complacency creeping back into the market, with traders determined to back currencies on the basis of yield, but traders need to be alert to a sudden shift in risk, which could trigger a sharp rally for the yen, particularly against the euro. The euro does not offer any value at Y160, even if it manages to consolidate above this in the short-term. The dollar is very well supported below Y107 and offers a good buy opportunity on prices below this level. Strategy: Buy USD/CAD on dips to 106.80 with upside price targets of 107.50, 108 and 108.30.
CAD
If anyone truly knows the reason for the loonie’s monumental rally today, against every other currency, then you might share your insight with us please. It is totally inexplicable from a logical perspective. There was no economic data out of Canada and commodity prices are generally softer today. There must have been a single movement of funds somewhere to explain today’s move, because based on the recent trend and on economic events, both recent and future, the loonie should be in retreat this week. The Bank of Canada is expected to cut rates when it meets next week on Mar 4. There is no domestic data of influence ahead of Friday, when the Qtr 4 current account balance is released. The best way to look at today’s downside move in USD/CAD is that it represents a buy opportunity. It is difficult to see the loonie staying on the right side of parity against the greenback with a rate cut imminent within the next week. There are two speakers from the Bank of Canada tomorrow testifying on the impact of the Canadian dollar on the Canadian economy and this represents immediate downside risk for the loonie. Strategy: Buy USD/CAD on dips to 0.9960 with upside price targets of 1.0050, 1.0120, 1.0170, 1.0190 and 1.0250.
Bob B - Feb 25
The pair continues to trade within a narrow range Monday as the market is uncertain about price direction. There is a reluctance to push the euro towards the lifetime highs in the absence of major economic data or Central Bank policy updates, while by the same token the dollar is failing to attract any meaningful support and the negative sentiment that dogged the currency from the middle of last week still remains. We will need to see a break out of the current 1.4760 to 1.4860 price range to get an idea of where the pair may be headed through the remainder of this week. There are several speeches from Fed officials this week, including the Fed Chief’s semi-annual testimony in front of the Monetary Policy Committee on Wednesday. This will need to be monitored closely. US January existing home sales came in slightly higher than expected, 4.89 million Vs a forecast 4.80 million, and it has raised some hopes the housing crisis may be near a bottom. Stocks rallied in the immediate period following the news. A sustained rally in stocks this week will tend to support the euro in the short-term, as traders focus on interest rate differentials and yield. Germany’s February Ifo Business Survey is a risk for the euro Tuesday, but only if the index falls well below expectations. I still do not see any value in buying the euro at present levels and believe there is good value in selling down on prices close to 1.4850. Strategy: Sell on prices near 1.4850 with limit targets of 1.4780, 1.4755, 1.4730, 1.47 and 1.4660.
GBP
Cable has held firm Monday, the pound holding onto the 3 cent gain it made since last Wednesday. 1.97 is proving difficult to break and unless we see broader deterioration in the dollar over the next few days, the pound will struggle from here. Direction this week will be determined by sentiment towards the US currency and the pound will find it difficult to attract strong support, with traders having one eye on the Bank of England meeting next week. There are no genuine market-moving economic releases in the UK this week, although any decline in house prices from the Nationwide survey or a fall-off in the Gfk consumer confidence index, both released later in the week, will undermine the UK currency. There is definite value in selling cable down on prices above 1.97, with a distinct chance of a quick return to 1.95 over the coming days, especially if risk aversion levels are elevated. Meanwhile a poor Ifo survey result from Germany Tuesday could plunge EUR/GBP back below 0.75. Strategy: Sell cable on prices around 1.97 with downside price targets of 1.9605, 1.9555, 1.95 and 1.9460.
JPY
The yen sold off sharply from the moment markets opened Sunday night with risk-taking and the carry trade back in vogue, thanks to Wall Street’s strong reversal to the upside late Friday. The euro has gone above Y160 Monday, while the dollar briefly returned to above Y108, having gone as low as 106.70 Friday evening. There is a high degree of complacency creeping back into the market, with traders determined to back currencies on the basis of yield, but traders need to be alert to a sudden shift in risk, which could trigger a sharp rally for the yen, particularly against the euro. The euro does not offer any value at Y160, even if it manages to consolidate above this in the short-term. The dollar is very well supported below Y107 and offers a good buy opportunity on prices below this level. Strategy: Buy USD/CAD on dips to 106.80 with upside price targets of 107.50, 108 and 108.30.
CAD
If anyone truly knows the reason for the loonie’s monumental rally today, against every other currency, then you might share your insight with us please. It is totally inexplicable from a logical perspective. There was no economic data out of Canada and commodity prices are generally softer today. There must have been a single movement of funds somewhere to explain today’s move, because based on the recent trend and on economic events, both recent and future, the loonie should be in retreat this week. The Bank of Canada is expected to cut rates when it meets next week on Mar 4. There is no domestic data of influence ahead of Friday, when the Qtr 4 current account balance is released. The best way to look at today’s downside move in USD/CAD is that it represents a buy opportunity. It is difficult to see the loonie staying on the right side of parity against the greenback with a rate cut imminent within the next week. There are two speakers from the Bank of Canada tomorrow testifying on the impact of the Canadian dollar on the Canadian economy and this represents immediate downside risk for the loonie. Strategy: Buy USD/CAD on dips to 0.9960 with upside price targets of 1.0050, 1.0120, 1.0170, 1.0190 and 1.0250.
Bob B - Feb 25
Thứ Năm, 21 tháng 2, 2008
Bob's Currency Focus - 17:30 GMT
EUR/USD
Another shocking set of economic reports from the US Thursday has seen the dollar on the defensive and pushed the pair above the 1.48 price handle. The Philly Fed business index for February printed at -24 against a forecast -10 and it suggests next week’s ISM national manufacturing index could contract, i.e. return a reading of less than 50. Gold hit a new milestone of $950 today and with oil trading at $100 it signals major funds are being stockpiled on traditional dollar hedges. If the dollar continues to depreciate, inflation is going to become more of a problem in the US and stagflation will grow to more extreme levels. The Fed (from the minutes released yesterday) is interpreted as having gone soft on inflation and the FOMC is expected to continue to cut interest rates, even against a backdrop of rising inflation. The euro is now just 1.5 cents away from the lifetime high but it is difficult to see the single currency having a chance in taking out 1.50 in the absence of major data releases or key monetary policy announcements. There are no further data releases in the US this week. But the euro has a risk event of its own Friday, when the preliminary PMI readings for the area’s manufacturing and services sectors are released. If either reading comes in below 50 (contracts), the immediate theme will shift from US interest rates to euro growth and the euro will likely encounter heavy selling pressure. The euro looks inflated in value at any price above 1.48 as it is and it offers a live sell-down opportunity - the euro’s invincibility is much less now than it was when the currency previously occupied these lofty heights. Strategy: Sell EUR/USD on prices above 1.4820 with downside limit prices of 1.4750, 1.4710, 1.4670 and 1.4620.
GBP
Sterling earned a stay of execution thanks to a firm retail sales reading for January – sales rose 0.8% on the month against the 0.2% forecast. When one looks into the detail, the headline number was less impressive as shoppers were enticed into buying through aggressive discount campaigns operated by retailers. Nonetheless the report does suggest the Bank of England may not cut rates at their March meeting, although there are still some key economic releases between now and the next meeting in a fortnight’s time. Sterling has risen 2 cents against the dollar today, but only made a modest 0.25 pence gain against the euro. If the dollar’s demise continues though, the pound has plenty more scope to the upside against the greenback than the euro has, something which might benefit the UK currency against the euro in the coming days. But risk aversion looks to be on the rise this evening on the US session and cable will struggle to make it much past 1.9650 in this environment. I remain bearish on sterling and prefer to sell down cable on prices close to 1.9650 with limit prices of 1.9550, 1.95, 1.9440 and 1.9380.
JPY
I said yesterday the Philly Index was the last major event risk for USD/JPY this week. The Index printed much worse than expected and has again raised fears the US economy may be in recession. The sharp dollar sell-off has seen the dollar retreat 100 points from the high of Y108.31 recorded this morning. The yen needs a sustained sell-off on Wall Street this evening if it is to hold or even extend these gains. The Japanese currency is virtually unchanged against the euro today while it is down 0.4% to the pound. The best value continues to be on offer against the euro which is trading just above Y159. It is difficult to see the euro sailing past Y160 in a recessionary environment and after a few weeks in recovery mode, we could soon see reversal to the downtrend for this pair. Strategy: Sell EUR/JPY on prices close to Y160, with limit price targets of 158.80, 158, 157.50, 156.80 and 155.50.
CAD
A second successive day of gains for the loonie against the greenback, although trading has been choppy and directionless, so the pair could yet settle anywhere before the close later today. There was no data out in Canada but US data printed negative and the loonie benefited from a broad dollar sell-off. The loonie was also aided by a further rise in commodity prices with extreme price levels being breached on a number of the metals Thursday - Canada is one of the world’s largest exporters of both precious and industrial metals. If the loonie can manage to hold the greenback below 1.01 to the close, a strong retail sales report Friday could give the loonie a final opportunity to retake the parity line ahead of the Bank of Canada meeting on March 4. It is unlikely the loonie will attract significant buying support the closer we get to that key interest rate decision. The loonie should also have earned muscle today from the transfer of this month’s oil contract funds, i.e. conversion of $US oil revenues for Canadian oil companies into Canadian dollars. The risk for the loonie remains very much to the downside over the next 10 days, with sharp moves likely if Canadian economic data prints weak. Overall there is the prospect of a USD/CAD rally to at least 102.20 within the next few days. Strategy: Buy USD/CAD on dips to 1.0080 with upside price limits of 1.0135, 1.0170, 1.0195, 1.0215 and 1.0245. Warning: an upside surprise in Friday’s retails sales numbers will spark a loonie rally.
Bob B - Feb 21
Another shocking set of economic reports from the US Thursday has seen the dollar on the defensive and pushed the pair above the 1.48 price handle. The Philly Fed business index for February printed at -24 against a forecast -10 and it suggests next week’s ISM national manufacturing index could contract, i.e. return a reading of less than 50. Gold hit a new milestone of $950 today and with oil trading at $100 it signals major funds are being stockpiled on traditional dollar hedges. If the dollar continues to depreciate, inflation is going to become more of a problem in the US and stagflation will grow to more extreme levels. The Fed (from the minutes released yesterday) is interpreted as having gone soft on inflation and the FOMC is expected to continue to cut interest rates, even against a backdrop of rising inflation. The euro is now just 1.5 cents away from the lifetime high but it is difficult to see the single currency having a chance in taking out 1.50 in the absence of major data releases or key monetary policy announcements. There are no further data releases in the US this week. But the euro has a risk event of its own Friday, when the preliminary PMI readings for the area’s manufacturing and services sectors are released. If either reading comes in below 50 (contracts), the immediate theme will shift from US interest rates to euro growth and the euro will likely encounter heavy selling pressure. The euro looks inflated in value at any price above 1.48 as it is and it offers a live sell-down opportunity - the euro’s invincibility is much less now than it was when the currency previously occupied these lofty heights. Strategy: Sell EUR/USD on prices above 1.4820 with downside limit prices of 1.4750, 1.4710, 1.4670 and 1.4620.
GBP
Sterling earned a stay of execution thanks to a firm retail sales reading for January – sales rose 0.8% on the month against the 0.2% forecast. When one looks into the detail, the headline number was less impressive as shoppers were enticed into buying through aggressive discount campaigns operated by retailers. Nonetheless the report does suggest the Bank of England may not cut rates at their March meeting, although there are still some key economic releases between now and the next meeting in a fortnight’s time. Sterling has risen 2 cents against the dollar today, but only made a modest 0.25 pence gain against the euro. If the dollar’s demise continues though, the pound has plenty more scope to the upside against the greenback than the euro has, something which might benefit the UK currency against the euro in the coming days. But risk aversion looks to be on the rise this evening on the US session and cable will struggle to make it much past 1.9650 in this environment. I remain bearish on sterling and prefer to sell down cable on prices close to 1.9650 with limit prices of 1.9550, 1.95, 1.9440 and 1.9380.
JPY
I said yesterday the Philly Index was the last major event risk for USD/JPY this week. The Index printed much worse than expected and has again raised fears the US economy may be in recession. The sharp dollar sell-off has seen the dollar retreat 100 points from the high of Y108.31 recorded this morning. The yen needs a sustained sell-off on Wall Street this evening if it is to hold or even extend these gains. The Japanese currency is virtually unchanged against the euro today while it is down 0.4% to the pound. The best value continues to be on offer against the euro which is trading just above Y159. It is difficult to see the euro sailing past Y160 in a recessionary environment and after a few weeks in recovery mode, we could soon see reversal to the downtrend for this pair. Strategy: Sell EUR/JPY on prices close to Y160, with limit price targets of 158.80, 158, 157.50, 156.80 and 155.50.
CAD
A second successive day of gains for the loonie against the greenback, although trading has been choppy and directionless, so the pair could yet settle anywhere before the close later today. There was no data out in Canada but US data printed negative and the loonie benefited from a broad dollar sell-off. The loonie was also aided by a further rise in commodity prices with extreme price levels being breached on a number of the metals Thursday - Canada is one of the world’s largest exporters of both precious and industrial metals. If the loonie can manage to hold the greenback below 1.01 to the close, a strong retail sales report Friday could give the loonie a final opportunity to retake the parity line ahead of the Bank of Canada meeting on March 4. It is unlikely the loonie will attract significant buying support the closer we get to that key interest rate decision. The loonie should also have earned muscle today from the transfer of this month’s oil contract funds, i.e. conversion of $US oil revenues for Canadian oil companies into Canadian dollars. The risk for the loonie remains very much to the downside over the next 10 days, with sharp moves likely if Canadian economic data prints weak. Overall there is the prospect of a USD/CAD rally to at least 102.20 within the next few days. Strategy: Buy USD/CAD on dips to 1.0080 with upside price limits of 1.0135, 1.0170, 1.0195, 1.0215 and 1.0245. Warning: an upside surprise in Friday’s retails sales numbers will spark a loonie rally.
Bob B - Feb 21
Thứ Tư, 20 tháng 2, 2008
Bob's Currency Focus - 23:50 GMT
EUR/USD
The dollar started Wednesday strongly and had pushed the euro back by a full cent before a spectacular reversal during the US session. The pair closed the day at 1.4720, virtually the same price at which it started early this morning. As global stocks declined in Asia and Europe, the dollar attracted safe haven funds and pushed the euro back to 1.4616, after economic data revealed US inflation rose by more than expected in January. The annualised core rate now stands at 2.5%, well above the Fed’s comfort zone. Oil prices rose to an incredible $101 a barrel this evening raising further inflation concerns. However the Fed minutes of the January 30/31 meeting, released today, portrayed a dovish Committee, one more concerned about sluggish growth than spiralling inflation. Indeed the minutes signalled further interest rate cuts are on the way. It is unlikely the Fed would have sounded so soft on price concerns were the Committee in possession of today’s inflation figures, or looking at $101 oil, but markets seized the minutes to force a dollar sell-off. The irony is Wednesday’s data will restrict the extent to which the Fed can cut rates and should prove dollar positive in the medium term. US Housing Starts and Building Permits for January, also released today, were in line with forecast and didn’t have a market impact. The euro offers little immediate value above 1.4750 and it will come under selling pressure on prices around this level. The euro’s counter-rally today was more of a knee-jerk reaction to the day’s events and I would not be surprised to see the single currency forced back to 1.46 again tomorrow, especially if risk aversion returns. Strategy: Sell EUR/USD on prices close to 1.4750 with limit prices of 1.4680, 1.4640, 1.4620, 1.4590 and 1.4550.
GBP
Sterling plunged again Wednesday, cable coming perilously close to the year’s nadir of 1.9337, hit in early January. Cable hit 1.9362 before it then recovered to 1.9420 by the close. The Bank of England minutes showed all 9 members of the MPC voted for a rate cut 2 weeks ago, but perennial dove Mr Blanchflower wanted a 50 basis point cut. The Bank did cut rates by 25 basis points at that February 7 meeting. The pound needs a strong retail sales figure Thursday to earn a much needed bounce. Although I remain bearish on the currency, I see little value in selling it down at current prices. A strong retail sales figure could trigger a cable rally up to 1.96, while it could help the pound push the euro back below the 75 pence mark. The BRC retail sales figure last week points to a possible upside surprise tomorrow, but if retail sales disappoint, then cable could flirt with the year’s low. Wait for a better price on cable before re-entering the market. Strategy: Sell cable on prices close to 1.9650 with limit prices of 1.95, 1.9430 and 1.9380.
JPY
A late surge on Wall Street was bad news for the yen, which retreated sharply as carry trades returned en masse late in the session. The euro hit a high of Y159.27 its highest level since Jan 30. The dollar returned to Y108.35, having traded as low as 107.48 in the morning. Complacency has crept into the market and the yen is vulnerable to a near term retreat to Y110 against the dollar and Y160 against the euro. Direction is going to be determined exclusively by risk aversion and Thursday’s Philly Fed Index in the US could prove to be the last major risk event of the week for USD/JPY. I see better value in the yen against the euro, particularly on prices close to Y160. Strategy Sell EUR/JPY on prices near Y160 with limit prices of Y158.50, Y157.50, Y156.80 and Y155.70.
CAD
The loonie had a very volatile day, being up, then down then up again at the finish. The greenback had rocketed to a one-month high of 1.0196 before $101 oil sparked a loonie rally that saw the pair close the day at 1.0125. USD/CAD has however turned bullish in the short-term and the pair is being bought on dips and it is difficult to see this trend change unless Friday’s Retail Sales figures for Canada print better than expected. The Bank of Canada will be cutting rates on March 4 and the only question now is by how much, 25 or 50 basis points. Loonie shorts will stack up in the run up to this meeting and a close above 1.02 this week will pave the way for a crack of the year’s high before the Central Bank meeting. The Leading indicators for January printed at +0.2%, above the 0.1% expected and against a flat reading in December. Also boosting the loonie today was a report which revealed a positive capital inflow into Canadian securities in December. 1.02 and 1.0250 look vulnerable to further upside pressure from USD/CAD bulls and dips close to 1.01 are likely to attract plenty of buying support. A strong rally on stock markets over the next 24 hours will be the loonie’s best form of defence Thursday. Strategy: Buy USD/CAD on dips to 1.01 with upside price targets of 1.0170, 1.0190, 1.0215 and 1.0245.
Bob B - Feb 21
The dollar started Wednesday strongly and had pushed the euro back by a full cent before a spectacular reversal during the US session. The pair closed the day at 1.4720, virtually the same price at which it started early this morning. As global stocks declined in Asia and Europe, the dollar attracted safe haven funds and pushed the euro back to 1.4616, after economic data revealed US inflation rose by more than expected in January. The annualised core rate now stands at 2.5%, well above the Fed’s comfort zone. Oil prices rose to an incredible $101 a barrel this evening raising further inflation concerns. However the Fed minutes of the January 30/31 meeting, released today, portrayed a dovish Committee, one more concerned about sluggish growth than spiralling inflation. Indeed the minutes signalled further interest rate cuts are on the way. It is unlikely the Fed would have sounded so soft on price concerns were the Committee in possession of today’s inflation figures, or looking at $101 oil, but markets seized the minutes to force a dollar sell-off. The irony is Wednesday’s data will restrict the extent to which the Fed can cut rates and should prove dollar positive in the medium term. US Housing Starts and Building Permits for January, also released today, were in line with forecast and didn’t have a market impact. The euro offers little immediate value above 1.4750 and it will come under selling pressure on prices around this level. The euro’s counter-rally today was more of a knee-jerk reaction to the day’s events and I would not be surprised to see the single currency forced back to 1.46 again tomorrow, especially if risk aversion returns. Strategy: Sell EUR/USD on prices close to 1.4750 with limit prices of 1.4680, 1.4640, 1.4620, 1.4590 and 1.4550.
GBP
Sterling plunged again Wednesday, cable coming perilously close to the year’s nadir of 1.9337, hit in early January. Cable hit 1.9362 before it then recovered to 1.9420 by the close. The Bank of England minutes showed all 9 members of the MPC voted for a rate cut 2 weeks ago, but perennial dove Mr Blanchflower wanted a 50 basis point cut. The Bank did cut rates by 25 basis points at that February 7 meeting. The pound needs a strong retail sales figure Thursday to earn a much needed bounce. Although I remain bearish on the currency, I see little value in selling it down at current prices. A strong retail sales figure could trigger a cable rally up to 1.96, while it could help the pound push the euro back below the 75 pence mark. The BRC retail sales figure last week points to a possible upside surprise tomorrow, but if retail sales disappoint, then cable could flirt with the year’s low. Wait for a better price on cable before re-entering the market. Strategy: Sell cable on prices close to 1.9650 with limit prices of 1.95, 1.9430 and 1.9380.
JPY
A late surge on Wall Street was bad news for the yen, which retreated sharply as carry trades returned en masse late in the session. The euro hit a high of Y159.27 its highest level since Jan 30. The dollar returned to Y108.35, having traded as low as 107.48 in the morning. Complacency has crept into the market and the yen is vulnerable to a near term retreat to Y110 against the dollar and Y160 against the euro. Direction is going to be determined exclusively by risk aversion and Thursday’s Philly Fed Index in the US could prove to be the last major risk event of the week for USD/JPY. I see better value in the yen against the euro, particularly on prices close to Y160. Strategy Sell EUR/JPY on prices near Y160 with limit prices of Y158.50, Y157.50, Y156.80 and Y155.70.
CAD
The loonie had a very volatile day, being up, then down then up again at the finish. The greenback had rocketed to a one-month high of 1.0196 before $101 oil sparked a loonie rally that saw the pair close the day at 1.0125. USD/CAD has however turned bullish in the short-term and the pair is being bought on dips and it is difficult to see this trend change unless Friday’s Retail Sales figures for Canada print better than expected. The Bank of Canada will be cutting rates on March 4 and the only question now is by how much, 25 or 50 basis points. Loonie shorts will stack up in the run up to this meeting and a close above 1.02 this week will pave the way for a crack of the year’s high before the Central Bank meeting. The Leading indicators for January printed at +0.2%, above the 0.1% expected and against a flat reading in December. Also boosting the loonie today was a report which revealed a positive capital inflow into Canadian securities in December. 1.02 and 1.0250 look vulnerable to further upside pressure from USD/CAD bulls and dips close to 1.01 are likely to attract plenty of buying support. A strong rally on stock markets over the next 24 hours will be the loonie’s best form of defence Thursday. Strategy: Buy USD/CAD on dips to 1.01 with upside price targets of 1.0170, 1.0190, 1.0215 and 1.0245.
Bob B - Feb 21
Thứ Ba, 19 tháng 2, 2008
Bob's Currency Focus - 17:30 GMT
EUR/USD
US markets returned after the long weekend and whereas we have seen an initial burst of optimism on US equity markets, on currency markets the dollar has fallen sharply against the euro. The euro was boosted by remarks from the latest bulletin out of the Bank of France which seemed to criticise the Fed for being too aggressive in its monetary policy and suggests policy easing on the part of the ECB is some way off. No data to move markets Tuesday and we must wait for Wednesday’s US consumer prices and housing data releases to get some direction. Oil prices are back near $100 a barrel and gold is trading close to $930 an ounce, primarily because of a weakening dollar. Some of the high-yielding currencies have hit extremes today and traders should be on alert for a potential major sell-off of commodities and high-yielding currencies, given current inflated prices. Such a sell-off will benefit the dollar. The euro will run into immediate resistance above 1.4770 and the pair does not offer any bid value at current prices. Wednesday also sees the release of the preliminary PMI readings for the euro area’s manufacturing and services sectors. Any contraction in either reading (index <50) could trigger a sharp sell off of the single currency and we could see a quick return to 1.46. I’m inclined to sell the euro on prices around 1.4750 as it is difficult to see the euro making a run on 1.50 in the absence of Central Bank meetings or any change in the underlying fundamentals. Strategy: Sell EUR/USD on prices around 1.4750 with limit prices of 1.47, 1.4660, 1.4640, 1.46 and 1.4580. Place a stop loss above 1.4825.
GBP
Sterling has had another bad day Tuesday, even if it has held its own against the dollar. The story about Northern Rock and its nationalisation by the British Government has set a very negative tone for the pound, which has seen it capitulate by 2% against the euro over the past 36 hours. Sterling has failed to benefit from a renewed bout of interest in high-yielding currencies with traders choosing to opt for the Australian and New Zealand dollars, ahead of sterling. Although I retain my bearish stance with respect to sterling, I do believe the sell-off against the euro is overdone in the short term and can see the pound pushing the euro back towards the 0.7550 price mark in the coming days. We have to wait until Thursday and January’s retail sales figures before getting any genuine market-moving data for the UK currency. There is also no value in selling down cable at current prices and I prefer to see a bounce back to over 1.96 before re-entering cable shorts. Strategy: Wait and then sell down cable at prices around 1.9650 with downside price targets of 1.9550 and 1.95.
JPY
The yen has made moderate gains Tuesday against the dollar, while still trading close to the recent low at 159 against the euro. With markets closed in the US Monday, traders went on an equity buying spree and the resultant surge in risk tolerance brought with it a new wave of carry trades, with the low-yielding yen the major loser. There has been a determined effort to push global stock markets higher in the past week, so backing the yen in this climate is dangerous. However some of the yen carry trades are approaching critical milestone points (Y160 on EUR/JPY and 100 on AUD/JPY) and these levels may act to serve a warning to the market that the recent build-up in carry trades is too aggressive and is not sustainable. Given the weight of the build-up, a sudden shift in risk aversion would see the yen strengthen sharply, particularly against the euro and the Australian dollar. A disappointing set of economic releases in the US Wednesday, particularly with respect to housing, could trigger such a move. I do not see the euro offering value above Y160 in an era of economic uncertainty so there is value in selling down EUR/JPY on any rallies close to this level, even if it means the positions have to be held for more than a few days. Strategy: Sell EUR/JPY on prices close to Y160 with downside price targets of Y158, Y157.20, Y156.50 and Y155.50.
CAD
The loonie has dropped below the lows recorded last Friday and the USD/CAD pair is currently trading near 1.0150. Bank of Canada’s Governor Carney failed to excite markets with his speech on globalisation Monday, with no clues emanating on how low the Bank of Canada may go on interest rates at its next policy meeting on March 4. On the other hand Tuesday’s economic data out of Canada indicates the Bank of Canada could possibly cut by 50 basis points in a fortnight’s time with inflation prices slowing again in January. The core inflation rate now stands at just 1.4% while the headline rate has slowed to 2.2% from 2.4% in December. Wholesale Sales came off by 2.9% in December against expectations for a 0.1% gain and this signals the Canadian economy ground to a halt in the final quarter of 2007. The loonie’s fall Tuesday has been cushioned by a rise in commodity prices but a poor set of domestic retail sales numbers later this week would put added pressure on the currency and set up the prospect of a near-term rise to 1.0250 for USD/CAD. The greenback has at least established itself back above parity and appears to have regained the advantage. Any dips to 1.0050 should attract strong buying interest. The loonie has probably been oversold against the euro and the AUD since Friday and it has the potential for a limited correction against these two currencies. Strategy: Buy USD/CAD on any dips to around 1.0050 with upside price targets of 1.0140, 1.0175, 1.0220 and 1.0250.
Bob B - Feb 19
US markets returned after the long weekend and whereas we have seen an initial burst of optimism on US equity markets, on currency markets the dollar has fallen sharply against the euro. The euro was boosted by remarks from the latest bulletin out of the Bank of France which seemed to criticise the Fed for being too aggressive in its monetary policy and suggests policy easing on the part of the ECB is some way off. No data to move markets Tuesday and we must wait for Wednesday’s US consumer prices and housing data releases to get some direction. Oil prices are back near $100 a barrel and gold is trading close to $930 an ounce, primarily because of a weakening dollar. Some of the high-yielding currencies have hit extremes today and traders should be on alert for a potential major sell-off of commodities and high-yielding currencies, given current inflated prices. Such a sell-off will benefit the dollar. The euro will run into immediate resistance above 1.4770 and the pair does not offer any bid value at current prices. Wednesday also sees the release of the preliminary PMI readings for the euro area’s manufacturing and services sectors. Any contraction in either reading (index <50) could trigger a sharp sell off of the single currency and we could see a quick return to 1.46. I’m inclined to sell the euro on prices around 1.4750 as it is difficult to see the euro making a run on 1.50 in the absence of Central Bank meetings or any change in the underlying fundamentals. Strategy: Sell EUR/USD on prices around 1.4750 with limit prices of 1.47, 1.4660, 1.4640, 1.46 and 1.4580. Place a stop loss above 1.4825.
GBP
Sterling has had another bad day Tuesday, even if it has held its own against the dollar. The story about Northern Rock and its nationalisation by the British Government has set a very negative tone for the pound, which has seen it capitulate by 2% against the euro over the past 36 hours. Sterling has failed to benefit from a renewed bout of interest in high-yielding currencies with traders choosing to opt for the Australian and New Zealand dollars, ahead of sterling. Although I retain my bearish stance with respect to sterling, I do believe the sell-off against the euro is overdone in the short term and can see the pound pushing the euro back towards the 0.7550 price mark in the coming days. We have to wait until Thursday and January’s retail sales figures before getting any genuine market-moving data for the UK currency. There is also no value in selling down cable at current prices and I prefer to see a bounce back to over 1.96 before re-entering cable shorts. Strategy: Wait and then sell down cable at prices around 1.9650 with downside price targets of 1.9550 and 1.95.
JPY
The yen has made moderate gains Tuesday against the dollar, while still trading close to the recent low at 159 against the euro. With markets closed in the US Monday, traders went on an equity buying spree and the resultant surge in risk tolerance brought with it a new wave of carry trades, with the low-yielding yen the major loser. There has been a determined effort to push global stock markets higher in the past week, so backing the yen in this climate is dangerous. However some of the yen carry trades are approaching critical milestone points (Y160 on EUR/JPY and 100 on AUD/JPY) and these levels may act to serve a warning to the market that the recent build-up in carry trades is too aggressive and is not sustainable. Given the weight of the build-up, a sudden shift in risk aversion would see the yen strengthen sharply, particularly against the euro and the Australian dollar. A disappointing set of economic releases in the US Wednesday, particularly with respect to housing, could trigger such a move. I do not see the euro offering value above Y160 in an era of economic uncertainty so there is value in selling down EUR/JPY on any rallies close to this level, even if it means the positions have to be held for more than a few days. Strategy: Sell EUR/JPY on prices close to Y160 with downside price targets of Y158, Y157.20, Y156.50 and Y155.50.
CAD
The loonie has dropped below the lows recorded last Friday and the USD/CAD pair is currently trading near 1.0150. Bank of Canada’s Governor Carney failed to excite markets with his speech on globalisation Monday, with no clues emanating on how low the Bank of Canada may go on interest rates at its next policy meeting on March 4. On the other hand Tuesday’s economic data out of Canada indicates the Bank of Canada could possibly cut by 50 basis points in a fortnight’s time with inflation prices slowing again in January. The core inflation rate now stands at just 1.4% while the headline rate has slowed to 2.2% from 2.4% in December. Wholesale Sales came off by 2.9% in December against expectations for a 0.1% gain and this signals the Canadian economy ground to a halt in the final quarter of 2007. The loonie’s fall Tuesday has been cushioned by a rise in commodity prices but a poor set of domestic retail sales numbers later this week would put added pressure on the currency and set up the prospect of a near-term rise to 1.0250 for USD/CAD. The greenback has at least established itself back above parity and appears to have regained the advantage. Any dips to 1.0050 should attract strong buying interest. The loonie has probably been oversold against the euro and the AUD since Friday and it has the potential for a limited correction against these two currencies. Strategy: Buy USD/CAD on any dips to around 1.0050 with upside price targets of 1.0140, 1.0175, 1.0220 and 1.0250.
Bob B - Feb 19
Thứ Năm, 14 tháng 2, 2008
Bob's Currency Focus - 17:30 GMT
EUR/USD
Ben Bernanke, in a prepared statement to the Senate Thursday, indicated economic outlook for the US economy has further deteriorated. The Fed stands ready to cut rates even further to boost faltering growth the Fed Chairman hinted, contending inflation will moderate through this year, although risks remain, as evidenced by the run-up in oil prices in late 2007. There is nothing new in Bernanke’s statement but it reaffirms market expectations for another 50 basis points rate cut in March. This has helped undermine the dollar. In fact the greenback has struggled all day against all majors, with the exception of the yen, and the euro rallied to 1.4640 just before December’s US trade data was released earlier in the day. The US trade deficit narrowed by more than expected while last week’s jobless number printed moderately better than expected. The revival for equities this week and the subsequent rise in risk tolerance put the dollar under pressure again, as traders revert to the old habit of using rate outlook to determine price direction. Quarter 4 GDP in the euro area halved to 0.4% from the 0.8% pace set in Quarter 3. The annualised growth rate came in at 2.3%, just above the forecast 2.2%. There are no market-moving data releases through Friday and the dollar will be guided by underlying sentiment and risk aversion levels. Sentiment appears to have turned against the US currency again with better than expected quarter 4 GDP reports from Japan and Europe reigniting the decoupling theory. If stock markets retain the upbeat momentum, the euro could force a challenge of resistance in the 1.4660 price region. A push through this level could see the euro trading back above 1.47 within the next 24 hours. It may take a sharp sell-off on Wall Street Thursday to see the pair reverse course and move back towards 1.4540. There may be some value in selling down on prices close to 1.4660, using a tight stop above this level, but right now momentum does favour the euro.
GBP
No domestic data was released in the UK Thursday and the pound has continued its ascent against the dollar, thanks to in no small part to Mervyn King’s intervention Wednesday, when the Bank of England Governor poured cold water on expectations for an aggressive policy from the Bank of England. Cable rose to 1.9730 this afternoon, up 4.5 cents from the level it sank to immediately after the Bank of England announced a 25 basis points cut in interest rates last Thursday. Regardless of what Mervyn King may say, it does not alter the implied weakness of recent data and the perception the Bank of England is well behind the curve. Mervyn King’s twinkle-toe approach is a striking contrast to the size 14 boot approach donned by Fed Chief Ben Bernanke. Considering headline inflation in the US is running 2% higher than that in the UK and both economies have uncertain futures in 2008, it is unlikely both approaches are correct. We shall find out who deserves the kudos in due course. Cable could push to 1.98 in the short term, if the dollar remains weak across the board, but the pound will attract decent selling pressure on prices above 1.9730. I am bearish on cable above this level, even if there is a chance the pair might go higher in trying to carve out a near-term peak. The pound may be able to temporarily force the euro back below 0.74 with the prospect of a move to 0.7350 next week. If risk concerns begin to haunt markets again, the pound will tend to lose out more than the euro, given the strength of recent gains. Strategy: Sell cable on prices above 1.9720 with target prices of 1.9660, 1.9620, 1.9580, 1.9550 and 1.9510.
JPY
The yen struggled early Thursday with the positive momentum seen in equity markets Wednesday spilling over into Asia overnight, prompting investors to pile on carry trades at the expense of the low-yielding Japanese currency. The currency has since battled back to just below 108 against the dollar when the Industrial Averages on Wall Street slipped into the red. The yen is moderately weaker against all other majors today and the euro is back trading above Y158. Quarter 4 GDP in Japan surprised everyone when printing at 0.9% against a forecast of 0.3% and the annualised rate came in at 3.7% against the forecast 1.7%. It’s something of a mystery how economists came to get the forecast so badly wrong but the Government played down the data’s significance this morning, focusing instead on growth concerns for 2008. Don’t be surprised to see the GDP numbers revised downwards next month. The GDP data did not boost the yen as the currency has of late become largely immune to domestic economic data and instead the currency went into reverse gear as traders used the unit to fund carry trades. The market has clearly turned against the yen for now but if we see another sustained period of equity sell-offs, the currency will quickly be back into vogue. For now, the tendency will be to sell the yen off rallies, and the market will want to push the dollar to Y110 in the near-term, probably also leading the euro to return to Y160. There is risk in selling the yen at current prices because of ongoing market volatility and it may be wiser to wait for dips towards Y106.50, if price does go there. Strategy: Wait!
CAD
No matter what way you look at this latest Trade Report it is deeply worrying and points to more aggressive action being required from the Government and the Bank of Canada, if the country is to have any chance of being competitive in a slowing global economy. The total value of Canada’s exports declined by 3.1% in December, but in pure volume terms exports actually fell by 6.5%. The only major sector to record a gain in exports was the energy sector and that was thanks entirely to price inflation. In pure volume terms natural gas and crude petroleum exports were flat. At $2.4 billion, December’s surplus is the lowest since November 1998, while the trade surplus for 2007 as a whole was the lowest since 1999. In constant dollar terms Canada’s exports to the US fell 1.3% in December over November, while exports to its major trade partner were down 10.8% from December 2006. The US accounts for 80% of all of Canada’s exports. Imports rose in December by 0.7% but because import prices rose 3.4%, import volumes actually fell by 2.7%. Today’s report indicates there is a significant disconnect between Canada’s recent employment report and production outlook. I have always maintained labour is a lagging indicator and what today’s report signals is that Canada could be facing major job losses in the months ahead, if the slowing trend for the country’s export volumes persists. Canada’s exports to economic blocks outside the US also fell significantly in December, so the US slowdown can’t be put forward as the reason for the decline. The Canadian dollar which rocketed by 17% in value in 2007 is the principal reason. The loonie refused however to lay down after today’s report as traders continued to prefer using rising commodity prices as the driver for the currency’s value. With oil back up at $94.50 a barrel, the loonie is attracted widespread support. Having briefly touched above parity, USD/CAD has then declined back to 0.9937 as the pair retained its bearish tone. The euro rose briefly to 1.46 against the loonie this morning but the single currency too was forced to retreat to 1.4550, even on foot of that very weak Trade Report. I prefer to steer clear of USD/CAD for now but do like the euro for value on prices below 1.45. Strategy: Buy EUR/CAD on prices around 1.45 with upside price limits of 1.4580, 1.46, 1.4630, 1.4670 and 1.47. If holding longer-term USD/CAD long positions, the stop loss should be held below 0.9750.
Bob B - Feb 14
Ben Bernanke, in a prepared statement to the Senate Thursday, indicated economic outlook for the US economy has further deteriorated. The Fed stands ready to cut rates even further to boost faltering growth the Fed Chairman hinted, contending inflation will moderate through this year, although risks remain, as evidenced by the run-up in oil prices in late 2007. There is nothing new in Bernanke’s statement but it reaffirms market expectations for another 50 basis points rate cut in March. This has helped undermine the dollar. In fact the greenback has struggled all day against all majors, with the exception of the yen, and the euro rallied to 1.4640 just before December’s US trade data was released earlier in the day. The US trade deficit narrowed by more than expected while last week’s jobless number printed moderately better than expected. The revival for equities this week and the subsequent rise in risk tolerance put the dollar under pressure again, as traders revert to the old habit of using rate outlook to determine price direction. Quarter 4 GDP in the euro area halved to 0.4% from the 0.8% pace set in Quarter 3. The annualised growth rate came in at 2.3%, just above the forecast 2.2%. There are no market-moving data releases through Friday and the dollar will be guided by underlying sentiment and risk aversion levels. Sentiment appears to have turned against the US currency again with better than expected quarter 4 GDP reports from Japan and Europe reigniting the decoupling theory. If stock markets retain the upbeat momentum, the euro could force a challenge of resistance in the 1.4660 price region. A push through this level could see the euro trading back above 1.47 within the next 24 hours. It may take a sharp sell-off on Wall Street Thursday to see the pair reverse course and move back towards 1.4540. There may be some value in selling down on prices close to 1.4660, using a tight stop above this level, but right now momentum does favour the euro.
GBP
No domestic data was released in the UK Thursday and the pound has continued its ascent against the dollar, thanks to in no small part to Mervyn King’s intervention Wednesday, when the Bank of England Governor poured cold water on expectations for an aggressive policy from the Bank of England. Cable rose to 1.9730 this afternoon, up 4.5 cents from the level it sank to immediately after the Bank of England announced a 25 basis points cut in interest rates last Thursday. Regardless of what Mervyn King may say, it does not alter the implied weakness of recent data and the perception the Bank of England is well behind the curve. Mervyn King’s twinkle-toe approach is a striking contrast to the size 14 boot approach donned by Fed Chief Ben Bernanke. Considering headline inflation in the US is running 2% higher than that in the UK and both economies have uncertain futures in 2008, it is unlikely both approaches are correct. We shall find out who deserves the kudos in due course. Cable could push to 1.98 in the short term, if the dollar remains weak across the board, but the pound will attract decent selling pressure on prices above 1.9730. I am bearish on cable above this level, even if there is a chance the pair might go higher in trying to carve out a near-term peak. The pound may be able to temporarily force the euro back below 0.74 with the prospect of a move to 0.7350 next week. If risk concerns begin to haunt markets again, the pound will tend to lose out more than the euro, given the strength of recent gains. Strategy: Sell cable on prices above 1.9720 with target prices of 1.9660, 1.9620, 1.9580, 1.9550 and 1.9510.
JPY
The yen struggled early Thursday with the positive momentum seen in equity markets Wednesday spilling over into Asia overnight, prompting investors to pile on carry trades at the expense of the low-yielding Japanese currency. The currency has since battled back to just below 108 against the dollar when the Industrial Averages on Wall Street slipped into the red. The yen is moderately weaker against all other majors today and the euro is back trading above Y158. Quarter 4 GDP in Japan surprised everyone when printing at 0.9% against a forecast of 0.3% and the annualised rate came in at 3.7% against the forecast 1.7%. It’s something of a mystery how economists came to get the forecast so badly wrong but the Government played down the data’s significance this morning, focusing instead on growth concerns for 2008. Don’t be surprised to see the GDP numbers revised downwards next month. The GDP data did not boost the yen as the currency has of late become largely immune to domestic economic data and instead the currency went into reverse gear as traders used the unit to fund carry trades. The market has clearly turned against the yen for now but if we see another sustained period of equity sell-offs, the currency will quickly be back into vogue. For now, the tendency will be to sell the yen off rallies, and the market will want to push the dollar to Y110 in the near-term, probably also leading the euro to return to Y160. There is risk in selling the yen at current prices because of ongoing market volatility and it may be wiser to wait for dips towards Y106.50, if price does go there. Strategy: Wait!
CAD
No matter what way you look at this latest Trade Report it is deeply worrying and points to more aggressive action being required from the Government and the Bank of Canada, if the country is to have any chance of being competitive in a slowing global economy. The total value of Canada’s exports declined by 3.1% in December, but in pure volume terms exports actually fell by 6.5%. The only major sector to record a gain in exports was the energy sector and that was thanks entirely to price inflation. In pure volume terms natural gas and crude petroleum exports were flat. At $2.4 billion, December’s surplus is the lowest since November 1998, while the trade surplus for 2007 as a whole was the lowest since 1999. In constant dollar terms Canada’s exports to the US fell 1.3% in December over November, while exports to its major trade partner were down 10.8% from December 2006. The US accounts for 80% of all of Canada’s exports. Imports rose in December by 0.7% but because import prices rose 3.4%, import volumes actually fell by 2.7%. Today’s report indicates there is a significant disconnect between Canada’s recent employment report and production outlook. I have always maintained labour is a lagging indicator and what today’s report signals is that Canada could be facing major job losses in the months ahead, if the slowing trend for the country’s export volumes persists. Canada’s exports to economic blocks outside the US also fell significantly in December, so the US slowdown can’t be put forward as the reason for the decline. The Canadian dollar which rocketed by 17% in value in 2007 is the principal reason. The loonie refused however to lay down after today’s report as traders continued to prefer using rising commodity prices as the driver for the currency’s value. With oil back up at $94.50 a barrel, the loonie is attracted widespread support. Having briefly touched above parity, USD/CAD has then declined back to 0.9937 as the pair retained its bearish tone. The euro rose briefly to 1.46 against the loonie this morning but the single currency too was forced to retreat to 1.4550, even on foot of that very weak Trade Report. I prefer to steer clear of USD/CAD for now but do like the euro for value on prices below 1.45. Strategy: Buy EUR/CAD on prices around 1.45 with upside price limits of 1.4580, 1.46, 1.4630, 1.4670 and 1.47. If holding longer-term USD/CAD long positions, the stop loss should be held below 0.9750.
Bob B - Feb 14
Thứ Tư, 13 tháng 2, 2008
Bob's Currency Focus - 17:30 GMT
EUR/USD
US retail sales caught markets off guard Wednesday when the data surprised to the upside. January’s number was expected to print at -0.4%, but instead showed an increase of +0.3%. Stock markets jumped on the news and the momentum was sufficient to take the dollar to above Y108 against the yen, a very important confidence barrier for greenback. The dollar has gained only modestly against the euro with the EUR/USD pairing spending most of the day trapped within a 1.4540 to 1.46 price range. The retail sales results don’t necessarily point to a consumer or economy that is engulfed in a recession and considering the manufacturing sector also expanded in January, albeit it modestly (following contraction in December), one must question whether the Fed has acted too aggressively when slashing interest rates by 125 basis points in an 8 day period, especially at a time when inflation was on the rise. Next week’s consumer price inflation data is going to be crucial in determining whether or not the Fed is realistically in a position to cuts rates aggressively again when it meets in March. A bad retail sales number today would probably have had the dollar perform better as it would have seen risk aversion rise and safe haven funds flow back into the dollar. Eurozone Industrial Production declined again in December, falling by 0.2%. Markets expected a rise of 0.6%. The euro economy is clearly slowing and quarter 4 GDP numbers for the Eurozone, released Thursday, is an important confidence gauge for the single currency. If growth slowed significantly more than expected in the final quarter of 2007, the ECB will come under renewed pressure to ease rates and the euro will face more downside risk. Meanwhile a stronger than expected GDP number will boost the euro. The market expects a 0.4% increase in GDP on the quarter and a 2.2% annualised rate. We are now within a 1.4480 to 1.4620 trading range and unless euro area GDP surprises to the upside tomorrow, it is difficult to see a break immediately coming on the upside. Strategy: Sell down on prices close to 1.46 with target prices of 1.4545, 1.4520, 1.4485 and 1.4445.
GBP
Governor King’s renowned caution was written all over the Bank of England Inflation Report released Wednesday morning. The report recognises the downside risks to growth but highlights heightened inflation concerns and suggests markets are pricing in more cuts than the Bank is currently willing to cede. The Report goes so far as to say further easing to the tune of 75 basis points this year could fuel greater inflation problems in 2 years time. Sterling has benefited from the ‘hawkish’ report and economic data released earlier was forgotten, including a report which revealed a slowing in wage inflation in January and the latest RICS house survey which reported the worst slowdown in the UK property market in the past 15 years. The jobless number fell by 10,000 in January, better than expected, and this at least signals there is still positive life in the economy. The pound has gained against most currencies today, appreciating 0.85% against the yen and 0.15% against the euro, while up a more marginal 0.1% against the dollar. There are no further data releases out of the UK this week, but sterling should benefit from any sustained rally on global stock markets, because of its high-yielding status. Cable looks to offer little value above 1.9650 and in fact the pair failed to breach this level earlier today. I remain bearish on the currency and see the best value coming through selling cable on prices approaching 1.97. Strategy: sell cable on prices close to 1.97 with downside price targets of 1.9605, 1.9550, 1.95 and 1.9445.
JPY
The US retail sales data was good news for Japanese exporters but bad news for the yen. As soon as the data was released the dollar shot to above that pivotal 108 line and has traded above there ever since. A close above this mark this evening will be significant and may indicate the pair has finally broken out of the recent trading range and we could see a move to Y110 over the next week. I would not buy the yen against any currency right now unless it can firmly push the US dollar back below 107.80. Both Japan’s current account and trade balance in December narrowed from the same month a year ago, while the country’s consumer confidence index fell even further in January, all suggesting the economy continues to deteriorate. Tonight sees the release of quarter 4 GDP, which is forecast to print at an annualised 1.7%, but don’t be surprised to see it print lower. Also don’t be surprised if the GDP number has no impact on the direction of the yen, regardless of how it prints. Today’s retail sales data from the US could calm stock markets over the coming days, trigger a rise in risk tolerance and lead to a deeper retreat for the yen. Buying USD/JPY with a tight stop loss below Y108 (ideally below 107.80) is the logical trade I can see right now, as we have broken out of the recent range. But given the recent volatility in the market, it is a brave trade. Strategy: wait!
CAD
Most of the commodity currencies have come under pressure in recent days with the high-yielding Aussie and Kiwi dollars performing particularly poorly Wednesday. It is unusual to see these currencies retreat when stock markets have been rallying, but concerns over global growth and weakening commodity prices have begun to weigh. The loonie has again bucked the trend and it has appreciated Wednesday against all other major currencies, gaining 1.2% against the Aussie dollar and 0.9% against the yen. Its gains against the euro (+0.22%) and against the greenback (+0.13%) were more modest. The greenback appears unable to establish itself back above the parity line and USD/CAD is being sold down on every single upside rally above the parity line. One would expect support for the loonie to erode the further into the month we get, i.e. the nearer we are to another interest rate cut from the Bank of Canada on March 4. The pair for the moment retains its bearish tone, although the downside is also struggling to make any great headway and it may take a significant data release, or major statement from the Bank of Canada, to break the logjam. Thursday sees the release of December’s trade data and this will be a key barometer for Canadian exports. If the trade surplus expands and exports are shown to have risen, it would temporary dispel theories of a strong loonie seriously damaging the country’s exporters and this should propel the loonie higher. A downside surprise on the export figure would have the opposite impact. I prefer not to trade USD/CAD until I see a clear breakout of the current range. The euro definitely offers value against the loonie on prices below 1.45, essentially as the rate differential outlook strongly favours the euro. Strategy: Buy EUR/CAD on dips towards 1.4450 with upside price targets of 1.4570, 1.46, 1.4650 and 1.47. Retain your USD/CAD longer run positions with a stop loss below 0.9750.
Bob B - Feb 13
US retail sales caught markets off guard Wednesday when the data surprised to the upside. January’s number was expected to print at -0.4%, but instead showed an increase of +0.3%. Stock markets jumped on the news and the momentum was sufficient to take the dollar to above Y108 against the yen, a very important confidence barrier for greenback. The dollar has gained only modestly against the euro with the EUR/USD pairing spending most of the day trapped within a 1.4540 to 1.46 price range. The retail sales results don’t necessarily point to a consumer or economy that is engulfed in a recession and considering the manufacturing sector also expanded in January, albeit it modestly (following contraction in December), one must question whether the Fed has acted too aggressively when slashing interest rates by 125 basis points in an 8 day period, especially at a time when inflation was on the rise. Next week’s consumer price inflation data is going to be crucial in determining whether or not the Fed is realistically in a position to cuts rates aggressively again when it meets in March. A bad retail sales number today would probably have had the dollar perform better as it would have seen risk aversion rise and safe haven funds flow back into the dollar. Eurozone Industrial Production declined again in December, falling by 0.2%. Markets expected a rise of 0.6%. The euro economy is clearly slowing and quarter 4 GDP numbers for the Eurozone, released Thursday, is an important confidence gauge for the single currency. If growth slowed significantly more than expected in the final quarter of 2007, the ECB will come under renewed pressure to ease rates and the euro will face more downside risk. Meanwhile a stronger than expected GDP number will boost the euro. The market expects a 0.4% increase in GDP on the quarter and a 2.2% annualised rate. We are now within a 1.4480 to 1.4620 trading range and unless euro area GDP surprises to the upside tomorrow, it is difficult to see a break immediately coming on the upside. Strategy: Sell down on prices close to 1.46 with target prices of 1.4545, 1.4520, 1.4485 and 1.4445.
GBP
Governor King’s renowned caution was written all over the Bank of England Inflation Report released Wednesday morning. The report recognises the downside risks to growth but highlights heightened inflation concerns and suggests markets are pricing in more cuts than the Bank is currently willing to cede. The Report goes so far as to say further easing to the tune of 75 basis points this year could fuel greater inflation problems in 2 years time. Sterling has benefited from the ‘hawkish’ report and economic data released earlier was forgotten, including a report which revealed a slowing in wage inflation in January and the latest RICS house survey which reported the worst slowdown in the UK property market in the past 15 years. The jobless number fell by 10,000 in January, better than expected, and this at least signals there is still positive life in the economy. The pound has gained against most currencies today, appreciating 0.85% against the yen and 0.15% against the euro, while up a more marginal 0.1% against the dollar. There are no further data releases out of the UK this week, but sterling should benefit from any sustained rally on global stock markets, because of its high-yielding status. Cable looks to offer little value above 1.9650 and in fact the pair failed to breach this level earlier today. I remain bearish on the currency and see the best value coming through selling cable on prices approaching 1.97. Strategy: sell cable on prices close to 1.97 with downside price targets of 1.9605, 1.9550, 1.95 and 1.9445.
JPY
The US retail sales data was good news for Japanese exporters but bad news for the yen. As soon as the data was released the dollar shot to above that pivotal 108 line and has traded above there ever since. A close above this mark this evening will be significant and may indicate the pair has finally broken out of the recent trading range and we could see a move to Y110 over the next week. I would not buy the yen against any currency right now unless it can firmly push the US dollar back below 107.80. Both Japan’s current account and trade balance in December narrowed from the same month a year ago, while the country’s consumer confidence index fell even further in January, all suggesting the economy continues to deteriorate. Tonight sees the release of quarter 4 GDP, which is forecast to print at an annualised 1.7%, but don’t be surprised to see it print lower. Also don’t be surprised if the GDP number has no impact on the direction of the yen, regardless of how it prints. Today’s retail sales data from the US could calm stock markets over the coming days, trigger a rise in risk tolerance and lead to a deeper retreat for the yen. Buying USD/JPY with a tight stop loss below Y108 (ideally below 107.80) is the logical trade I can see right now, as we have broken out of the recent range. But given the recent volatility in the market, it is a brave trade. Strategy: wait!
CAD
Most of the commodity currencies have come under pressure in recent days with the high-yielding Aussie and Kiwi dollars performing particularly poorly Wednesday. It is unusual to see these currencies retreat when stock markets have been rallying, but concerns over global growth and weakening commodity prices have begun to weigh. The loonie has again bucked the trend and it has appreciated Wednesday against all other major currencies, gaining 1.2% against the Aussie dollar and 0.9% against the yen. Its gains against the euro (+0.22%) and against the greenback (+0.13%) were more modest. The greenback appears unable to establish itself back above the parity line and USD/CAD is being sold down on every single upside rally above the parity line. One would expect support for the loonie to erode the further into the month we get, i.e. the nearer we are to another interest rate cut from the Bank of Canada on March 4. The pair for the moment retains its bearish tone, although the downside is also struggling to make any great headway and it may take a significant data release, or major statement from the Bank of Canada, to break the logjam. Thursday sees the release of December’s trade data and this will be a key barometer for Canadian exports. If the trade surplus expands and exports are shown to have risen, it would temporary dispel theories of a strong loonie seriously damaging the country’s exporters and this should propel the loonie higher. A downside surprise on the export figure would have the opposite impact. I prefer not to trade USD/CAD until I see a clear breakout of the current range. The euro definitely offers value against the loonie on prices below 1.45, essentially as the rate differential outlook strongly favours the euro. Strategy: Buy EUR/CAD on dips towards 1.4450 with upside price targets of 1.4570, 1.46, 1.4650 and 1.47. Retain your USD/CAD longer run positions with a stop loss below 0.9750.
Bob B - Feb 13
Thứ Ba, 12 tháng 2, 2008
Bob's Currency Focus - 17:30 GMT
EUR/USD
The dollar was been sold off sharply Tuesday as news of a bail out offering for the much maligned bond insurers in the US from Warren Buffet gave sentiment a seismic lift and encouraged traders to move back into the higher-yielding currencies, mostly at the expense of the dollar and the yen. It is a rather ominous sign for greenback supporters when traders offload the currency as soon as stock markets show any inclination to rally. It is still too early to say whether the dollar has turned a corner or not, because all of the currency’s recent gains have been made during a period of extreme market turbulence and volatility. Data may also be softening out of the eurozone but the euro still has a wide band of supporters and it didn’t take the currency very long today to notch up a gain of almost a cent. A close this evening above the previous stalling point at 1.4580 would be significant and could lead to an extension of the recovery rally tomorrow, to the next level of resistance at 1.4660. There was no data of importance out in the US Tuesday but in the euro area, Germany’s ZEW expectations survey printed moderately better than forecast, though still near record low levels, while the current conditions index fell rather spectacularly this month, highlighting the degree of negative sentiment that persists within the financial business community in Germany. The euro did not react to the ZEW report and with the dollar in sell-off mode, EUR/USD is up 0.9 cents on the day, trading at 1.4590. However a late retreat of the major industrial averages on Wall Street tonight could potentially see a quick return to 1.45 for the pair. Wednesday sees a major risk event with January’s retail sales data in the US out at 13:30 GMT. The consumer is the backbone of the US economy and any sharp fall-off in the retail sales numbers will reignite concerns about a US recession, yet probably result in gains for the dollar. It is better to be out of the market at the time of Wednesday’s release and to reassess after the data is known. I still favour the euro on dips towards 1.4440, but see little prospect of the pair rallying beyond 1.4650 in the short run. It is best to sell down from prices close to 1.4660. Strategy: Sell on prices close to 1.4660 with downside price targets of 1.4585, 1.4530, 1.45 and 1.4460.
GBP
February’s consumer price inflation data was lower than expected and a rather muted headline rate of 2.2% (against a forecast of 2.3%) is not going to cause too many headaches for the Bank of England. The odds have increased for a further rate cut from the MPC when the Committee meets again in March. Sterling has got a lift from other quarters today which has helped propel cable to a 1.5 cent gain this afternoon. UK retail sales bounced back in January according to the latest survey from the British Retail Consortium – same store sales are reported as having increased by 2.6% on the year, up from a paltry 0.3% in December. Separately, a rise in risk tolerance levels has led to a demand for higher yielding currencies Tuesday and sterling has been one of the principal benefactors - the British currency has gained 1.2% on the yen. Cable could rise to 1.9650 but is likely to come under fresh selling pressure around this level, given the economic uncertainty and the prospect of further rate cuts to come from the Bank of England. If stock markets sustain their rally for another couple of days, the pound should benefit against the euro and we could see EUR/GBP dip to below 0.74. I remain bearish on sterling and favour selling cable on prices close to 1.97 with downside price targets of 1.9550, 1.95, 1.9460, 1.9420 and 1.9390.
JPY
It is hardly a surprise to see the yen plummet on a day when the principal European stock indices closed up over 3% each. The Japanese currency has lost huge ground against the euro (200 pips) and the pound, while ceding 0.55% to the dollar. If Wall Street maintains most of its gains to the close this evening, the critical Y108 price level for USD/JPY could come under threat. If the dollar manages to penetrate resistance at this line, the pair could rapidly climb towards 109 by tomorrow. The fundamentals have not changed though and the fact Tuesday’s momentous rally on stock markets has come on the back of what is principally a vacuum (no new data) lends one to be suspicious and to be very cautious. A poor US retail sales number Wednesday would be sufficient to trigger a massive reversal and turn market mood on its head yet again. Tonight’s current account and trade data out of Japan will not have any market impact and the yen’s fortunes will continue to conversely mirror those of stock markets. If long on USD/JPY and Wall Street closes on a high, I would be inclined to ride out the position until tomorrow morning, as the sentiment should carry through to Asia and put further selling pressure on the yen. Look to exit in the morning. It is difficult to see the euro warranting any gains above the Y157 price level and a downside surprise in European GDP figures Wednesday could put the single currency under pressure. I would be inclined to sell down EUR/JPY on prices near 158, especially ahead of the US retail sales number on Wednesday, which constitutes a sizeable risk event for the entire currency market. Strategy: Sell USD/JPY on prices approaching Y108, with downside price targets of 107, 106.70, 106.40 and 1.0620. Place a stop loss tight above Y108. Sell EUR/JPY on prices close to Y158 with downside price targets of Y156.50, Y156, Y155.50 and Y155.
CAD
The loonie has made steady progress today, gaining over 0.5% against the dollar and over 1% against the yen and is mostly unchanged against the euro. Concerns about future rate cuts from the Bank of Canada were temporarily forgotten as traders poured into riskier assets and commodity currencies after stock markets soared. There was no domestic data out Tuesday and the loonie’s fortunes for the remainder of this week will be shaped by global risk aversion levels, Wednesday’s US retail sales numbers and Thursday’s trade data. The greenback tried but failed to take USD/CAD above 1.0050 this morning and the pair plunged to 0.9940 before settling just above this price mark. If the loonie breaks below 0.9920 and manages to close below this level it will prove to be very important for the short-term direction of the pair, with an obvious next target being the 0.9870 price hit following the Fed’s last 50 basis point rate cut. But the loonie is significantly overvalued at present, given there may be a further 100 basis points in rate cuts from the Bank of Canada in the offing over the coming months, but as of now few are looking that far ahead and while commodity prices remain elevated the loonie is attracting support. I maintain my considerable bearish bias on the loonie but am waiting for the right shift in market tone before coming back in to sell the currency. For now I recommend sitting on the sidelines. Strategy: wait! If holding longer term longs on USD/CAD, maintain the stop loss below 0.9750.
Bob B - Feb 12
The dollar was been sold off sharply Tuesday as news of a bail out offering for the much maligned bond insurers in the US from Warren Buffet gave sentiment a seismic lift and encouraged traders to move back into the higher-yielding currencies, mostly at the expense of the dollar and the yen. It is a rather ominous sign for greenback supporters when traders offload the currency as soon as stock markets show any inclination to rally. It is still too early to say whether the dollar has turned a corner or not, because all of the currency’s recent gains have been made during a period of extreme market turbulence and volatility. Data may also be softening out of the eurozone but the euro still has a wide band of supporters and it didn’t take the currency very long today to notch up a gain of almost a cent. A close this evening above the previous stalling point at 1.4580 would be significant and could lead to an extension of the recovery rally tomorrow, to the next level of resistance at 1.4660. There was no data of importance out in the US Tuesday but in the euro area, Germany’s ZEW expectations survey printed moderately better than forecast, though still near record low levels, while the current conditions index fell rather spectacularly this month, highlighting the degree of negative sentiment that persists within the financial business community in Germany. The euro did not react to the ZEW report and with the dollar in sell-off mode, EUR/USD is up 0.9 cents on the day, trading at 1.4590. However a late retreat of the major industrial averages on Wall Street tonight could potentially see a quick return to 1.45 for the pair. Wednesday sees a major risk event with January’s retail sales data in the US out at 13:30 GMT. The consumer is the backbone of the US economy and any sharp fall-off in the retail sales numbers will reignite concerns about a US recession, yet probably result in gains for the dollar. It is better to be out of the market at the time of Wednesday’s release and to reassess after the data is known. I still favour the euro on dips towards 1.4440, but see little prospect of the pair rallying beyond 1.4650 in the short run. It is best to sell down from prices close to 1.4660. Strategy: Sell on prices close to 1.4660 with downside price targets of 1.4585, 1.4530, 1.45 and 1.4460.
GBP
February’s consumer price inflation data was lower than expected and a rather muted headline rate of 2.2% (against a forecast of 2.3%) is not going to cause too many headaches for the Bank of England. The odds have increased for a further rate cut from the MPC when the Committee meets again in March. Sterling has got a lift from other quarters today which has helped propel cable to a 1.5 cent gain this afternoon. UK retail sales bounced back in January according to the latest survey from the British Retail Consortium – same store sales are reported as having increased by 2.6% on the year, up from a paltry 0.3% in December. Separately, a rise in risk tolerance levels has led to a demand for higher yielding currencies Tuesday and sterling has been one of the principal benefactors - the British currency has gained 1.2% on the yen. Cable could rise to 1.9650 but is likely to come under fresh selling pressure around this level, given the economic uncertainty and the prospect of further rate cuts to come from the Bank of England. If stock markets sustain their rally for another couple of days, the pound should benefit against the euro and we could see EUR/GBP dip to below 0.74. I remain bearish on sterling and favour selling cable on prices close to 1.97 with downside price targets of 1.9550, 1.95, 1.9460, 1.9420 and 1.9390.
JPY
It is hardly a surprise to see the yen plummet on a day when the principal European stock indices closed up over 3% each. The Japanese currency has lost huge ground against the euro (200 pips) and the pound, while ceding 0.55% to the dollar. If Wall Street maintains most of its gains to the close this evening, the critical Y108 price level for USD/JPY could come under threat. If the dollar manages to penetrate resistance at this line, the pair could rapidly climb towards 109 by tomorrow. The fundamentals have not changed though and the fact Tuesday’s momentous rally on stock markets has come on the back of what is principally a vacuum (no new data) lends one to be suspicious and to be very cautious. A poor US retail sales number Wednesday would be sufficient to trigger a massive reversal and turn market mood on its head yet again. Tonight’s current account and trade data out of Japan will not have any market impact and the yen’s fortunes will continue to conversely mirror those of stock markets. If long on USD/JPY and Wall Street closes on a high, I would be inclined to ride out the position until tomorrow morning, as the sentiment should carry through to Asia and put further selling pressure on the yen. Look to exit in the morning. It is difficult to see the euro warranting any gains above the Y157 price level and a downside surprise in European GDP figures Wednesday could put the single currency under pressure. I would be inclined to sell down EUR/JPY on prices near 158, especially ahead of the US retail sales number on Wednesday, which constitutes a sizeable risk event for the entire currency market. Strategy: Sell USD/JPY on prices approaching Y108, with downside price targets of 107, 106.70, 106.40 and 1.0620. Place a stop loss tight above Y108. Sell EUR/JPY on prices close to Y158 with downside price targets of Y156.50, Y156, Y155.50 and Y155.
CAD
The loonie has made steady progress today, gaining over 0.5% against the dollar and over 1% against the yen and is mostly unchanged against the euro. Concerns about future rate cuts from the Bank of Canada were temporarily forgotten as traders poured into riskier assets and commodity currencies after stock markets soared. There was no domestic data out Tuesday and the loonie’s fortunes for the remainder of this week will be shaped by global risk aversion levels, Wednesday’s US retail sales numbers and Thursday’s trade data. The greenback tried but failed to take USD/CAD above 1.0050 this morning and the pair plunged to 0.9940 before settling just above this price mark. If the loonie breaks below 0.9920 and manages to close below this level it will prove to be very important for the short-term direction of the pair, with an obvious next target being the 0.9870 price hit following the Fed’s last 50 basis point rate cut. But the loonie is significantly overvalued at present, given there may be a further 100 basis points in rate cuts from the Bank of Canada in the offing over the coming months, but as of now few are looking that far ahead and while commodity prices remain elevated the loonie is attracting support. I maintain my considerable bearish bias on the loonie but am waiting for the right shift in market tone before coming back in to sell the currency. For now I recommend sitting on the sidelines. Strategy: wait! If holding longer term longs on USD/CAD, maintain the stop loss below 0.9750.
Bob B - Feb 12
Thứ Hai, 11 tháng 2, 2008
Bob's Currency Focus - 17:00 GMT
EUR/USD
Monday has been a rather quiet day with no economic data to influence direction one way or the other. French Industrial Production for December printed better than expected whereas the Italian number printed much worse than expectations, but neither release had much of a market impact. The G7 meeting at the weekend fuelled concerns about the outlook for the global economy, while comments from ECB President Jean Claude Trichet, where he appeared to scoff notions of any imminent rate cut in the euro area, helped boost the euro when markets reopened on Sunday night. The euro had pushed to as high as 1.4577 in the early morning, but thin Asian trading conditions had exaggerated the move and the pair had returned back to Friday’s trading price around 1.45 by the time the US market opened. Last week’s gains by the US currency were earned against a backdrop of heightened risk aversion with US stock markets having their worst week in years, so a return to market stability will pose a question for the dollar’s resilience and determine whether last week was indeed a trend reversal or merely a blip in the longer run uptrend. The major risk event of the week is the US Retail Sales out on Wednesday, but between now and then I prefer to buy the euro on dips, so long as 1.4440 does not give way. We have now found resistance at the 1.4580 price level and this must be broken to enable the euro retrace back to 1.4650. Strategy: buy on dips towards 1.4460 with upside price limits of 1.4520, 1.4570, 1.46 and 1.4650. Stop loss should be placed beneath 1.4440.
GBP
UK Producer Prices soared in January with core output prices rising by 1.1% in the month, signalling elevated inflation risks. This could suggest a major upside surprise is in store for us in Tuesday’s consumer price data release. Producer Input prices rose a massive 2.6% on the month in January, thanks largely to inflated energy costs. House prices slowed in December according to the latest monthly survey from the DCLG, but at a pace lower than that forecast. Cable briefly rose to above 1.95 following the inflation report, but retreated back towards 1.9480. Cable could rise to over 1.96 Tuesday if January’s consumer prices come in higher than expectations. Sterling has also made gains today against euro – EUR/GBP retreated to below 0.7450 having risen to above 0.75 at one point. I remain bearish on sterling because of the considerable downside risks to the economy but am seeking a better entry price before selling cable. A spike after tomorrow’s inflation data could offer some sell down value. Strategy: Sell cable on prices in the region of 1.9650 to 1.97 with limit prices of 1.9530, 1.9480, 1.9450 and 1.9390.
JPY
Markets in Japan were closed overnight owing to a national holiday. The currency has made gains Monday, primarily against the dollar and the euro, because of renewed risk concerns and another downturn in the performance of global stock markets. The dollar fell to as low as Y106.34, 100 points below Friday’s close, before recovering to Y107.70. The euro has done worse, currently trading around Y154.70, almost 1.4Y down on the day. USD/JPY has been stuck between 106 and 108 for the past week to 10 days and it currently offers the best value range trade of all the major pairs. My preference has been to continue to sell down on prices close to 108, but there is equal value on buying the pair on prices near 106, because despite feverish levels of risk aversion, the yen has failed to establish itself below the 106 price level against the dollar. Japanese markets return tonight and December’s trade and current account data is due for release. The data is unlikely to have any major market impact as the currency’s movements remain dictated by global risk aversion levels. Of more importance will be Wednesday’s GDP data which prints just a day before the Bank of Japan is due to deliberate on its latest round of monetary policy. Strategy: Sell USD/JPY on prices around 107.80, with stop loss above 108.10. Buy USD/JPY on prices close to 106 with Stop loss below 105.85. Limit prices 70 and 100 pips away from market entry should be good.
CAD
Growth in new house prices slowed to a marginal 0.1% in December, well below the 0.3% to 0.4% rise expected by economists. December is often a peculiar month for the housing sector so we shouldn’t place too much significance to this release. Of more importance to the loonie were remarks emanating from Finance Minister Jim Flaherty and new Bank of Canada Governor Carney over the weekend, both of whom expressed some concerns over the value of the loonie and the widening interest rate gap between the US and Canada. Carney, in his first address since he took over the Governorship, indicated his support for cutting interest rates to help stoke growth in an environment where a slowing US economy is placing demand constraints on Canada’s exports. The major question is whether Carney will be aggressive in his approach or run with a more gradual easing policy, i.e. following the 0.25% rate cuts in December and January with similar size moves in March and April. Friday’s strong employment report has pared back expectations for an aggressive policy approach, yet the loonie should struggle to attract meaningful support as this month evolves, with positional traders in particular not wanting to get caught out on the wrong side of a monetary policy move. But as long as metal and oil prices continue to trade near record levels, the loonie is unlikely to sell off significantly in the short run. 0.9920 is a critical support level for the greenback to hold in the coming days while a rally to above 1.0137 is required to establish a return to an upside trend. Wednesday’s retail sales data out of the US will be as important for the loonie as it will be for the greenback as any sharp pullback in US consumer spending will signal weakened demand for Canada’s exports and should hurt the loonie more than the US dollar. I remain bearish on the loonie but am not prepared to sell it in the short run, until we see greater evidence of some erosion in confidence in the currency. Strategy: Wait!
Bob B - Feb 11
Monday has been a rather quiet day with no economic data to influence direction one way or the other. French Industrial Production for December printed better than expected whereas the Italian number printed much worse than expectations, but neither release had much of a market impact. The G7 meeting at the weekend fuelled concerns about the outlook for the global economy, while comments from ECB President Jean Claude Trichet, where he appeared to scoff notions of any imminent rate cut in the euro area, helped boost the euro when markets reopened on Sunday night. The euro had pushed to as high as 1.4577 in the early morning, but thin Asian trading conditions had exaggerated the move and the pair had returned back to Friday’s trading price around 1.45 by the time the US market opened. Last week’s gains by the US currency were earned against a backdrop of heightened risk aversion with US stock markets having their worst week in years, so a return to market stability will pose a question for the dollar’s resilience and determine whether last week was indeed a trend reversal or merely a blip in the longer run uptrend. The major risk event of the week is the US Retail Sales out on Wednesday, but between now and then I prefer to buy the euro on dips, so long as 1.4440 does not give way. We have now found resistance at the 1.4580 price level and this must be broken to enable the euro retrace back to 1.4650. Strategy: buy on dips towards 1.4460 with upside price limits of 1.4520, 1.4570, 1.46 and 1.4650. Stop loss should be placed beneath 1.4440.
GBP
UK Producer Prices soared in January with core output prices rising by 1.1% in the month, signalling elevated inflation risks. This could suggest a major upside surprise is in store for us in Tuesday’s consumer price data release. Producer Input prices rose a massive 2.6% on the month in January, thanks largely to inflated energy costs. House prices slowed in December according to the latest monthly survey from the DCLG, but at a pace lower than that forecast. Cable briefly rose to above 1.95 following the inflation report, but retreated back towards 1.9480. Cable could rise to over 1.96 Tuesday if January’s consumer prices come in higher than expectations. Sterling has also made gains today against euro – EUR/GBP retreated to below 0.7450 having risen to above 0.75 at one point. I remain bearish on sterling because of the considerable downside risks to the economy but am seeking a better entry price before selling cable. A spike after tomorrow’s inflation data could offer some sell down value. Strategy: Sell cable on prices in the region of 1.9650 to 1.97 with limit prices of 1.9530, 1.9480, 1.9450 and 1.9390.
JPY
Markets in Japan were closed overnight owing to a national holiday. The currency has made gains Monday, primarily against the dollar and the euro, because of renewed risk concerns and another downturn in the performance of global stock markets. The dollar fell to as low as Y106.34, 100 points below Friday’s close, before recovering to Y107.70. The euro has done worse, currently trading around Y154.70, almost 1.4Y down on the day. USD/JPY has been stuck between 106 and 108 for the past week to 10 days and it currently offers the best value range trade of all the major pairs. My preference has been to continue to sell down on prices close to 108, but there is equal value on buying the pair on prices near 106, because despite feverish levels of risk aversion, the yen has failed to establish itself below the 106 price level against the dollar. Japanese markets return tonight and December’s trade and current account data is due for release. The data is unlikely to have any major market impact as the currency’s movements remain dictated by global risk aversion levels. Of more importance will be Wednesday’s GDP data which prints just a day before the Bank of Japan is due to deliberate on its latest round of monetary policy. Strategy: Sell USD/JPY on prices around 107.80, with stop loss above 108.10. Buy USD/JPY on prices close to 106 with Stop loss below 105.85. Limit prices 70 and 100 pips away from market entry should be good.
CAD
Growth in new house prices slowed to a marginal 0.1% in December, well below the 0.3% to 0.4% rise expected by economists. December is often a peculiar month for the housing sector so we shouldn’t place too much significance to this release. Of more importance to the loonie were remarks emanating from Finance Minister Jim Flaherty and new Bank of Canada Governor Carney over the weekend, both of whom expressed some concerns over the value of the loonie and the widening interest rate gap between the US and Canada. Carney, in his first address since he took over the Governorship, indicated his support for cutting interest rates to help stoke growth in an environment where a slowing US economy is placing demand constraints on Canada’s exports. The major question is whether Carney will be aggressive in his approach or run with a more gradual easing policy, i.e. following the 0.25% rate cuts in December and January with similar size moves in March and April. Friday’s strong employment report has pared back expectations for an aggressive policy approach, yet the loonie should struggle to attract meaningful support as this month evolves, with positional traders in particular not wanting to get caught out on the wrong side of a monetary policy move. But as long as metal and oil prices continue to trade near record levels, the loonie is unlikely to sell off significantly in the short run. 0.9920 is a critical support level for the greenback to hold in the coming days while a rally to above 1.0137 is required to establish a return to an upside trend. Wednesday’s retail sales data out of the US will be as important for the loonie as it will be for the greenback as any sharp pullback in US consumer spending will signal weakened demand for Canada’s exports and should hurt the loonie more than the US dollar. I remain bearish on the loonie but am not prepared to sell it in the short run, until we see greater evidence of some erosion in confidence in the currency. Strategy: Wait!
Bob B - Feb 11
Thứ Sáu, 8 tháng 2, 2008
Bob's Currency Focus - 16:00 GMT
EUR/USD
There were unconvincing attempts to push the euro higher Friday as the currency tried to retrace some from one of its worst weeks ever against the greenback. The single currency is down 3.5 cents this week and down over 4.5 cents from the heights it reached last Friday. The euro’s weakness was essentially a self-inflicted blow from the ECB Thursday, when the Banks’ President Jean Claude Trichet signalled monetary policy had moved to a more neutral stance. The ECB is unlikely to cut rates before the summer and the intense sell-off we have witnessed is an over-reaction. The euro must recover to 1.46 quickly otherwise the dollar looks destined to test the December low of 1.4310 by early next week. The dollar’s new-found strength will be severely tested once stock markets settle and risk aversion subsides. The upside for the euro looks limited however and it may be a long time before it gets another opportunity to reach the magical 1.50 price handle. A more restrictive trading range looks the most likely outcome over the next few weeks, with any significant upside rallies being met by increasing selling pressure. Of course with markets still in turmoil because of growing concerns over the global economy, major spikes in risk aversion will most likely favour to dollar, although the US currency currently offers little yield appeal. The most profitable way forward for the next week will be to sell the pair on failed upside rallies. Strategy: sell EUR/USD on prices close to 1.4660, with downside price targets of 1.4590, 1.4535, 1.45 and 1.4460. If the euro fails to re-establish itself above 1.4520, then this form an initial a resistance level and if it holds, the pair will probably push down towards 1.4310.
GBP
Sterling also attempted something of a comeback Friday having been battered in the past week. Cable did rise to above 1.95 briefly but has since declined to 1.9450. Interest rates were cut to 5.25% Thursday but with the yield on sterling still one of the best on offer, a return to normality on stock markets will tend to boost the UK currency. With the ECB changing their policy stance this week the pound should be able to retrace further against the euro and could send the euro back to 0.7350 next week. UK economic data, apart from employment, is growing softer and the medium and longer term outlook for sterling remains uncertain at best. January’s consumer price inflation data is released Tuesday next and markets will be studying it closely to establish whether the Bank of England will be in a position to cut rates again at its March meeting. I remain bearish on sterling but would prefer to see a bounce in cable to the 1.9650 price region before entering the market with a sell order. The euro offers no value against sterling at present. Strategy: Sell cable on rallies towards the 1.9650 price region with downside price targets of 1.9550, 1.95, 1.9450 and 1.9390.
JPY
The yen has retreated modestly Friday against both the greenback and the euro and it could yet move sharply lower if stocks rally sharply on Wall Street this evening. Risk tolerance levels have risen since the major spikes in risk aversion seen on the first 3 days of this week and the market tendency over the past 2 days has been to sell the yen, particularly against the high yielding currencies, on any lulls in market volatility. The next major data indicator that may severely influence markets is next Wednesday retail sales release in the US. If stock markets settle between now and then, there is the prospect of a push towards 110 on USD/JPY. If trading short on USD/JPY, your stop should be tight above Y108 because if this key level gives way, there will be an avalanche of bids in an attempt to take the pair significantly higher. Strategy: Preference is to remain short on USD/JPY while price holds below 108. If 108 gives way, stay out of market. Sell on rallies towards 107.80 with downside price targets of 107.20, 106.80, 106.50, 106.20. The pair remains range-bound between 106 and 108 and it is worth buying on prices close to 106.
CAD
The loonie has had another monumental day, thanks to a much better than expected employment report. Quick, cruel, incisive rallies are now a trademark of the Canadian dollar and it has become the most dangerous currency to short against prior to major domestic economic releases. In fact the loonie was setting up for a good employment number for a few days as it essentially had lost no ground to the US dollar since last Wednesday, while other major currencies floundered. It has rallied every moment there has been a lull in market volatility this week, a clear signal the currency remained bullish. The 46,400 jobs gained in January printed way higher than the 8,000 expected and the unemployment rate also fell to a 33 year low. While the news is very good, it is important to note employment is a lagging indicator and the risks to the outlook for the Canadian economy from a US recession are unchanged. What today’s report may do is to dissuade the Bank of Canada from cutting rates aggressively and for the moment it looks like a 25 basis points cut in March is what the Bank may give, rather than the 50 basis points which was previously expected. Friday’s appreciation in the loonie is overdone, with the currency already having gained 1.2% against the euro and 1.3% against the dollar today. Regular upbeat employment reports out of the euro area, the UK and Australia don’t ever generate anything like the sharp type of rally for those local currencies that we are constantly seeing for the loonie. Housing starts in January also printed much higher than expected Friday, 21% up on December’s figure. Warren Buffet’s claim yesterday that his company ‘owned the Canadian dollar’ and made several hundred million dollars from it is a worrying revelation and explains to some degree the startling level of appreciation seen in the loonie in recent times, a level of appreciation that cannot be explained by the underlying fundamentals. However I remain bearish on the loonie’s outlook in the medium term as it is ludicrous to believe the Canadian economy walks scot-free from a US recession. The loonie is the most over-valued currency of all 16 most actively traded currencies. The risks for the loonie over the next week though are probably again to the upside and there will be an attempt to take out 0.9920 on USD/CAD and revisit the 0.9870 low hit in the aftermath of the Fed’s 50 basis points cut last week. We could even see a retreat back to 0.9750. The loonie is also trading 5 cents higher than it was last week against the euro and that pair is massively oversold. The euro could however be ultimately pushed below 1.43, if the loonie makes further inroads against the greenback. Strategy: Wait in the short-run. If holding positional USD/CAD trades, the stop loss needs to be below 0.9750.
Have a good weekend!
Bob B - Feb 8
There were unconvincing attempts to push the euro higher Friday as the currency tried to retrace some from one of its worst weeks ever against the greenback. The single currency is down 3.5 cents this week and down over 4.5 cents from the heights it reached last Friday. The euro’s weakness was essentially a self-inflicted blow from the ECB Thursday, when the Banks’ President Jean Claude Trichet signalled monetary policy had moved to a more neutral stance. The ECB is unlikely to cut rates before the summer and the intense sell-off we have witnessed is an over-reaction. The euro must recover to 1.46 quickly otherwise the dollar looks destined to test the December low of 1.4310 by early next week. The dollar’s new-found strength will be severely tested once stock markets settle and risk aversion subsides. The upside for the euro looks limited however and it may be a long time before it gets another opportunity to reach the magical 1.50 price handle. A more restrictive trading range looks the most likely outcome over the next few weeks, with any significant upside rallies being met by increasing selling pressure. Of course with markets still in turmoil because of growing concerns over the global economy, major spikes in risk aversion will most likely favour to dollar, although the US currency currently offers little yield appeal. The most profitable way forward for the next week will be to sell the pair on failed upside rallies. Strategy: sell EUR/USD on prices close to 1.4660, with downside price targets of 1.4590, 1.4535, 1.45 and 1.4460. If the euro fails to re-establish itself above 1.4520, then this form an initial a resistance level and if it holds, the pair will probably push down towards 1.4310.
GBP
Sterling also attempted something of a comeback Friday having been battered in the past week. Cable did rise to above 1.95 briefly but has since declined to 1.9450. Interest rates were cut to 5.25% Thursday but with the yield on sterling still one of the best on offer, a return to normality on stock markets will tend to boost the UK currency. With the ECB changing their policy stance this week the pound should be able to retrace further against the euro and could send the euro back to 0.7350 next week. UK economic data, apart from employment, is growing softer and the medium and longer term outlook for sterling remains uncertain at best. January’s consumer price inflation data is released Tuesday next and markets will be studying it closely to establish whether the Bank of England will be in a position to cut rates again at its March meeting. I remain bearish on sterling but would prefer to see a bounce in cable to the 1.9650 price region before entering the market with a sell order. The euro offers no value against sterling at present. Strategy: Sell cable on rallies towards the 1.9650 price region with downside price targets of 1.9550, 1.95, 1.9450 and 1.9390.
JPY
The yen has retreated modestly Friday against both the greenback and the euro and it could yet move sharply lower if stocks rally sharply on Wall Street this evening. Risk tolerance levels have risen since the major spikes in risk aversion seen on the first 3 days of this week and the market tendency over the past 2 days has been to sell the yen, particularly against the high yielding currencies, on any lulls in market volatility. The next major data indicator that may severely influence markets is next Wednesday retail sales release in the US. If stock markets settle between now and then, there is the prospect of a push towards 110 on USD/JPY. If trading short on USD/JPY, your stop should be tight above Y108 because if this key level gives way, there will be an avalanche of bids in an attempt to take the pair significantly higher. Strategy: Preference is to remain short on USD/JPY while price holds below 108. If 108 gives way, stay out of market. Sell on rallies towards 107.80 with downside price targets of 107.20, 106.80, 106.50, 106.20. The pair remains range-bound between 106 and 108 and it is worth buying on prices close to 106.
CAD
The loonie has had another monumental day, thanks to a much better than expected employment report. Quick, cruel, incisive rallies are now a trademark of the Canadian dollar and it has become the most dangerous currency to short against prior to major domestic economic releases. In fact the loonie was setting up for a good employment number for a few days as it essentially had lost no ground to the US dollar since last Wednesday, while other major currencies floundered. It has rallied every moment there has been a lull in market volatility this week, a clear signal the currency remained bullish. The 46,400 jobs gained in January printed way higher than the 8,000 expected and the unemployment rate also fell to a 33 year low. While the news is very good, it is important to note employment is a lagging indicator and the risks to the outlook for the Canadian economy from a US recession are unchanged. What today’s report may do is to dissuade the Bank of Canada from cutting rates aggressively and for the moment it looks like a 25 basis points cut in March is what the Bank may give, rather than the 50 basis points which was previously expected. Friday’s appreciation in the loonie is overdone, with the currency already having gained 1.2% against the euro and 1.3% against the dollar today. Regular upbeat employment reports out of the euro area, the UK and Australia don’t ever generate anything like the sharp type of rally for those local currencies that we are constantly seeing for the loonie. Housing starts in January also printed much higher than expected Friday, 21% up on December’s figure. Warren Buffet’s claim yesterday that his company ‘owned the Canadian dollar’ and made several hundred million dollars from it is a worrying revelation and explains to some degree the startling level of appreciation seen in the loonie in recent times, a level of appreciation that cannot be explained by the underlying fundamentals. However I remain bearish on the loonie’s outlook in the medium term as it is ludicrous to believe the Canadian economy walks scot-free from a US recession. The loonie is the most over-valued currency of all 16 most actively traded currencies. The risks for the loonie over the next week though are probably again to the upside and there will be an attempt to take out 0.9920 on USD/CAD and revisit the 0.9870 low hit in the aftermath of the Fed’s 50 basis points cut last week. We could even see a retreat back to 0.9750. The loonie is also trading 5 cents higher than it was last week against the euro and that pair is massively oversold. The euro could however be ultimately pushed below 1.43, if the loonie makes further inroads against the greenback. Strategy: Wait in the short-run. If holding positional USD/CAD trades, the stop loss needs to be below 0.9750.
Have a good weekend!
Bob B - Feb 8
Thứ Năm, 7 tháng 2, 2008
Bob's Currency Focus - 18:30 GMT
EUR/USD
We have had an incredibly volatile session Thursday as stock markets in Europe plunge and the ECB moves to a more neutral stance, thus sending the euro into freefall. ECB President Jean Claude Trichet said council members neither argued for a rate cut, nor for a rate rise. This is a significant change from the last meeting, where some members were calling for a rate hike. The decision out of today was the same, but the shift in tone suggests the ECB may be positioning itself to cut rates at some future date. The euro has been trounced by every other major currency today with the exception of sterling, as the pound also went into reverse after th Bank of England cut rates in the UK and gave a downbeat assessment of the economy. Markets are in a confused state however because despite the plunge in stock markets, the high-yielding Aussie and New Zealand dollars have surged and the yen has depreciated against the US dollar. The dollar has forced the euro back to below 1.45, gaining almost 1% on the day. US economic data again disappointed with last week’s jobless claims number coming in higher than expected, while December’s pending home sales number fell 1.5%, against a forecast decline of 0.5%. German factory orders decreased 1.7% in December, but this was slightly better than forecast. The euro needs to recover quickly back towards 1.46, otherwise the dollar looks set to push the pair back to the 1.4310 low seen last December. The dollar’s advance this week is hardly deserved on the evidence of recessionary data out of the US, but with the yen remaining more or less static in value this week, the dollar has suddenly become the preferred ‘safe haven’ currency. The euro’s best chance of an impulsive rally later Thursday is if we see a recovery in US stocks on Wall Street. It is dangerous to enter the market today given current levels of volatility, but having declined by 500 pips since last Friday’s peak, the euro may offer some short-term value on Friday, once the current dollar rally bottoms out. Strategy: Wait!
GBP
The Bank of England cut rates by 25 basis points as expected, but, rather more surprisingly, the MPC issued a detailed statement, highlighting downside risks for both the domestic and global economies, as well as raising concerns about the medium-term outlook for inflation. Sterling originally gained a bounce after the announcement was made, as a rate cut had already been fully priced in, but then the pound collapsed as the Bank’s bleak assessment was taken rather indifferently by stock markets and accelerating a sell-off in European stocks. Earlier this morning a report out of the UK revealed manufacturing output declined 0.2% in December. Industrial Production also fell, by a more marginal 0.1%. The UK economy is clearly struggling at present and the Bank of England’s actions, although a help, may not be enough to avert a more serious economic downturn. Cable fell to below 1.94, down 2 cents on the day, while sterling is unchanged against the euro, the other major currency to be pummeled today. We have done pretty well from cable in the past week, since we initially recommended selling down from 1.9920. However, while still bearish on the currency, there is little value at present prices, so the best advice is to wait for a bounce in the pair to back over 1.96. Sterling should be able to push the euro back to 0.74 in the short-term, with the single currency coming under broader selling pressure. Strategy: Sell cable on rallies towards 1.9650 with price limits of 1.9540, 1.95, 1.9440 and 1.9395.
Yen
There has been a bizarre turn of events Thursday with the yen depreciating significantly against the US dollar, even when major European Stock markets were closing out their trading sessions down an average 2%. Traders have been loading carry trade positions all day on AUD/JPY and NZD/JPY, ever since the Bank of England announced a rate cut at 12:00GMT. Investors risk nerve has held thus far, helped in no small part by a modest bounce in US equities this afternoon. The Kiwi dollar is currently up 1.7% against the yen, with the Aussie dollar up 1.4%, while the greenback is up 1% against the Japanese currency on the day. The yen is virtually unchanged against the euro. The dollar does not offer any value against the yen on prices close to 108 while risk is a major issue, so this remains a good entry point for selling down. We have seen the pair spend the week sparring in the 106 to 108 price region and the two currencies should remain within this trading range until we see risk aversion levels cool somewhat. Strategy: Sell USD/JPY on prices near 107.80 with downside price limits of 106.80, 106.50 and 106.20. Place a stop loss above 108.10.
CAD
The loonie has made significant gains against the euro, pound and the yen, but it was forced to give up modest ground against the greenback. There was no domestic data out today and markets await Friday’s key employment report for January which is key to discovering whether the Canadian economy is managing stay afloat at a time when the US tinkers with recession. Today’s warning on growth risks out of Europe is not good news for the outlook of the loonie, a currency that is dependent on the wider economic growth story. In the past week we have seen the South African rand and the Norwegian Krone come under intense selling pressure, but thus far the other major commodity currencies of the loonie and the Aussie and Kiwi dollars have been spared the rod. All three of these currencies are likely to come under increasing threat in the near term, especially while volatility and risk aversion levels remain high. All three currencies are defying the underlying fundamentals which point to an at best ‘uncertain’ outlook for the global economy. The loonie today is trading 2% higher against the euro than it was this day last week. If Friday’s employment report prints another negative number, the loonie will be hammered and the greenback should rise back towards the 1.0350 by the middle of next week. However, a better than expected number and a steady unemployment rate could see the loonie push the greenback down sharply to test that critical 0.9920 support point. Strategy: wait for Friday’s employment report as this is the key to determining confidence for moving in one direction or the other. Hold onto those positional USD/CAD longs.
Bob B - Feb 7
We have had an incredibly volatile session Thursday as stock markets in Europe plunge and the ECB moves to a more neutral stance, thus sending the euro into freefall. ECB President Jean Claude Trichet said council members neither argued for a rate cut, nor for a rate rise. This is a significant change from the last meeting, where some members were calling for a rate hike. The decision out of today was the same, but the shift in tone suggests the ECB may be positioning itself to cut rates at some future date. The euro has been trounced by every other major currency today with the exception of sterling, as the pound also went into reverse after th Bank of England cut rates in the UK and gave a downbeat assessment of the economy. Markets are in a confused state however because despite the plunge in stock markets, the high-yielding Aussie and New Zealand dollars have surged and the yen has depreciated against the US dollar. The dollar has forced the euro back to below 1.45, gaining almost 1% on the day. US economic data again disappointed with last week’s jobless claims number coming in higher than expected, while December’s pending home sales number fell 1.5%, against a forecast decline of 0.5%. German factory orders decreased 1.7% in December, but this was slightly better than forecast. The euro needs to recover quickly back towards 1.46, otherwise the dollar looks set to push the pair back to the 1.4310 low seen last December. The dollar’s advance this week is hardly deserved on the evidence of recessionary data out of the US, but with the yen remaining more or less static in value this week, the dollar has suddenly become the preferred ‘safe haven’ currency. The euro’s best chance of an impulsive rally later Thursday is if we see a recovery in US stocks on Wall Street. It is dangerous to enter the market today given current levels of volatility, but having declined by 500 pips since last Friday’s peak, the euro may offer some short-term value on Friday, once the current dollar rally bottoms out. Strategy: Wait!
GBP
The Bank of England cut rates by 25 basis points as expected, but, rather more surprisingly, the MPC issued a detailed statement, highlighting downside risks for both the domestic and global economies, as well as raising concerns about the medium-term outlook for inflation. Sterling originally gained a bounce after the announcement was made, as a rate cut had already been fully priced in, but then the pound collapsed as the Bank’s bleak assessment was taken rather indifferently by stock markets and accelerating a sell-off in European stocks. Earlier this morning a report out of the UK revealed manufacturing output declined 0.2% in December. Industrial Production also fell, by a more marginal 0.1%. The UK economy is clearly struggling at present and the Bank of England’s actions, although a help, may not be enough to avert a more serious economic downturn. Cable fell to below 1.94, down 2 cents on the day, while sterling is unchanged against the euro, the other major currency to be pummeled today. We have done pretty well from cable in the past week, since we initially recommended selling down from 1.9920. However, while still bearish on the currency, there is little value at present prices, so the best advice is to wait for a bounce in the pair to back over 1.96. Sterling should be able to push the euro back to 0.74 in the short-term, with the single currency coming under broader selling pressure. Strategy: Sell cable on rallies towards 1.9650 with price limits of 1.9540, 1.95, 1.9440 and 1.9395.
Yen
There has been a bizarre turn of events Thursday with the yen depreciating significantly against the US dollar, even when major European Stock markets were closing out their trading sessions down an average 2%. Traders have been loading carry trade positions all day on AUD/JPY and NZD/JPY, ever since the Bank of England announced a rate cut at 12:00GMT. Investors risk nerve has held thus far, helped in no small part by a modest bounce in US equities this afternoon. The Kiwi dollar is currently up 1.7% against the yen, with the Aussie dollar up 1.4%, while the greenback is up 1% against the Japanese currency on the day. The yen is virtually unchanged against the euro. The dollar does not offer any value against the yen on prices close to 108 while risk is a major issue, so this remains a good entry point for selling down. We have seen the pair spend the week sparring in the 106 to 108 price region and the two currencies should remain within this trading range until we see risk aversion levels cool somewhat. Strategy: Sell USD/JPY on prices near 107.80 with downside price limits of 106.80, 106.50 and 106.20. Place a stop loss above 108.10.
CAD
The loonie has made significant gains against the euro, pound and the yen, but it was forced to give up modest ground against the greenback. There was no domestic data out today and markets await Friday’s key employment report for January which is key to discovering whether the Canadian economy is managing stay afloat at a time when the US tinkers with recession. Today’s warning on growth risks out of Europe is not good news for the outlook of the loonie, a currency that is dependent on the wider economic growth story. In the past week we have seen the South African rand and the Norwegian Krone come under intense selling pressure, but thus far the other major commodity currencies of the loonie and the Aussie and Kiwi dollars have been spared the rod. All three of these currencies are likely to come under increasing threat in the near term, especially while volatility and risk aversion levels remain high. All three currencies are defying the underlying fundamentals which point to an at best ‘uncertain’ outlook for the global economy. The loonie today is trading 2% higher against the euro than it was this day last week. If Friday’s employment report prints another negative number, the loonie will be hammered and the greenback should rise back towards the 1.0350 by the middle of next week. However, a better than expected number and a steady unemployment rate could see the loonie push the greenback down sharply to test that critical 0.9920 support point. Strategy: wait for Friday’s employment report as this is the key to determining confidence for moving in one direction or the other. Hold onto those positional USD/CAD longs.
Bob B - Feb 7
Thứ Tư, 6 tháng 2, 2008
Bob's Currency Focus - 18:00 GMT
EUR/USD
It is more a case of as you were for this pair Wednesday with traders reluctant to push price too far in one direction or the other ahead of a key ECB rate setting meeting Thursday. The euro has managed to rally to 1.4670 from a low of 1.4592 during the European session, but has since fallen back to 1.4630, around where the pair closed last evening. US productivity slowed sharply in quarter 4 although it did print higher than expected while unit labour costs for the quarter came in lower than forecast, something which will dampen immediate inflation concerns and make it easier for the Fed to cut rates further. US stock markets have rallied this afternoon and we have seen a modest return in risk appetite. It will be difficult for markets to simply erase the memory of Wednesday’s ISM survey (reporting the first contraction in the services sector for 4 years), and any immediate rebound in stocks is likely to attract fresh selling pressure. The euro will bounce back on Thursday if the ECB retains its hawkish bias. The President of the ECB delivers the Central Bank’s policy statement at 13:30 GMT. The Bank is certain to keep rates on hold and we could see the single currency drift ahead of Jean Claude Trichet’s statement, with many euro long positions coming off the table for fear of some softening in tone from the ECB. I however will not be surprised if the ECB maintains its fim inflation bias, particularly given inflation rose to 3.2% in January. Remember most members of the council are confirmed hawks. If the ECB retains its tough stance, the euro could quickly take off and we could be back above 1.48 by Friday. If they do surprise and prepare markets for a possible future rate cut, the euro will undergo a significant sell-off. We need to wait for the actual outcome Thursday before entering the market but if we do get the same hawkish stance, the euro should be bought with upside price limits of 1.4660, 1.4720, 1.4760 and 1.4810.
GBP
Sterling held steady Wednesday as markets believed the currency sold off sufficiently ahead of the Bank of England rate announcement tomorrow. On the domestic data side, consumer confidence plunged further in January according to the latest Nationwide Survey while the British Retail Consortium reports shop prices rose marginally in January to an annualised 1.2% rate, against a 1.0% rate in December. Cable has traded around the 1.96 price level all day but there is a good chance of a dip to 1.95 before the MPC delivers its policy decision at 12:00 GMT Thursday. Markets now expect a 25 basis points cut, but if the Bank surprises and delivers an aggressive 50 basis points, sterling will fall sharply and cable could revisit the year’s low at 1.9337 later Thursday. If the Bank does not cut tomorrow, any bounce we may immediately see in sterling will prove to be short-lived, as markets will become more firmly entrenched in the opinion the Bank is well behind the curve. Rallies to 1.97 between now and tomorrow morning are worth selling down with limit prices of 1.9550 and 1.95 being realistic targets. After an initial spike downwards, expect sterling to bounce in the aftermath of a 25 basis points cut. The fate of sterling against the euro will very much depend on the ECB Thursday, moreover the Bank of England. A more dovish sounding ECB could see sterling appreciate sharply against the euro (if the bank of England delivers a 25 basis points cut), with the chance of a euro retreat to 0.7350 by Friday, whereas a hawkish ECB should see the single currency move back towards 0.7550. I remain bearish on sterling in the medium term, but the best short-term opportunities may have already passed. Strategy: Sell cable on any rallies towards 1.97 with limits prices of 1.9550 and 1.95. Aim to exit trade before the Bank of England announcement.
Yen
The yen has held most of its gains from Tuesday with carry traders reluctant to move to the Japanese unit as a funding currency following the volatile trading session witnessed Tuesday. In domestic news, Japan’s leading indicators rose to a reading of 40.0 in December, up from a lowly 18.2 in November, meaning that although economic outlook is seen in a more optimistic light than the previous month the pace of growth will remain stagnant (denoted by the index coming in below the 50.0 boom or bust line). The yen could sell off late tonight against the dollar and the euro if Wall Street rallies strongly to the close, but any losses incurred by the yen should be limited because of the broader negative sentiment that still abounds. The Aussie and New Zealand dollars have held most of their gains from last week against the yen despite the sharp dip in market sentiment this week, but another night of misery for stocks should trigger a significant bout of selling on AUD/JPY and NZD/JPY. Strategy: Sell USD/JPY on any rallies above 107.70 with target prices of 106.80, 106.50 and 106.20. Place a stop loss above 108.10. Do not trade EUR/JPY ahead of Thursday’s ECB meeting.
CAD
The loonie declined this morning but came back strongly this afternoon to be the best performer of all the major currencies on the day, gaining 0.4% against both the euro and the greenback and 0.6% against the yen. The modest bounce in equities was sufficient to drive the loonie up, although the currency was aided by a better than expected IVEY PMI survey for January which suggested business activity in Canada expanded following a month of contraction in December. The IVEY survey is renowned as a hopelessly inaccurate guide for gauging economic performance, but in the current climate all good news is worth taking and also it won’t have been lost on traders that the Canadian dollar fell by over 1% when news of a contraction in the IVEY index was reported last month. Building Permits in December rose 0.4% against a forecast decline of 0.5%, but this data had little market impact. The next key release for the loonie is this Friday’s employment report and the outcome may well determine the direction of USD/CAD for the remainder of the month. A further rise in risk aversion later today or tomorrow should see the loonie retreat and key resistance in the 1.0120 price range could come under threat. Otherwise we may see the loonie send the dollar back below parity and quickly descend upon that critical 0.9920 price level, where price has stalled 3 times in the past week. I am still bearish on the loonie but am not inclined to enter the market until the greenback firmly establishes itself back above the parity line. Anyone currently long on EUR/CAD in a short-term context should aim to exit their positions ahead of the ECB policy statement at 13:30 Thursday, as this is a high risk event, which could go the wrong way.
Bob B - Feb 6
It is more a case of as you were for this pair Wednesday with traders reluctant to push price too far in one direction or the other ahead of a key ECB rate setting meeting Thursday. The euro has managed to rally to 1.4670 from a low of 1.4592 during the European session, but has since fallen back to 1.4630, around where the pair closed last evening. US productivity slowed sharply in quarter 4 although it did print higher than expected while unit labour costs for the quarter came in lower than forecast, something which will dampen immediate inflation concerns and make it easier for the Fed to cut rates further. US stock markets have rallied this afternoon and we have seen a modest return in risk appetite. It will be difficult for markets to simply erase the memory of Wednesday’s ISM survey (reporting the first contraction in the services sector for 4 years), and any immediate rebound in stocks is likely to attract fresh selling pressure. The euro will bounce back on Thursday if the ECB retains its hawkish bias. The President of the ECB delivers the Central Bank’s policy statement at 13:30 GMT. The Bank is certain to keep rates on hold and we could see the single currency drift ahead of Jean Claude Trichet’s statement, with many euro long positions coming off the table for fear of some softening in tone from the ECB. I however will not be surprised if the ECB maintains its fim inflation bias, particularly given inflation rose to 3.2% in January. Remember most members of the council are confirmed hawks. If the ECB retains its tough stance, the euro could quickly take off and we could be back above 1.48 by Friday. If they do surprise and prepare markets for a possible future rate cut, the euro will undergo a significant sell-off. We need to wait for the actual outcome Thursday before entering the market but if we do get the same hawkish stance, the euro should be bought with upside price limits of 1.4660, 1.4720, 1.4760 and 1.4810.
GBP
Sterling held steady Wednesday as markets believed the currency sold off sufficiently ahead of the Bank of England rate announcement tomorrow. On the domestic data side, consumer confidence plunged further in January according to the latest Nationwide Survey while the British Retail Consortium reports shop prices rose marginally in January to an annualised 1.2% rate, against a 1.0% rate in December. Cable has traded around the 1.96 price level all day but there is a good chance of a dip to 1.95 before the MPC delivers its policy decision at 12:00 GMT Thursday. Markets now expect a 25 basis points cut, but if the Bank surprises and delivers an aggressive 50 basis points, sterling will fall sharply and cable could revisit the year’s low at 1.9337 later Thursday. If the Bank does not cut tomorrow, any bounce we may immediately see in sterling will prove to be short-lived, as markets will become more firmly entrenched in the opinion the Bank is well behind the curve. Rallies to 1.97 between now and tomorrow morning are worth selling down with limit prices of 1.9550 and 1.95 being realistic targets. After an initial spike downwards, expect sterling to bounce in the aftermath of a 25 basis points cut. The fate of sterling against the euro will very much depend on the ECB Thursday, moreover the Bank of England. A more dovish sounding ECB could see sterling appreciate sharply against the euro (if the bank of England delivers a 25 basis points cut), with the chance of a euro retreat to 0.7350 by Friday, whereas a hawkish ECB should see the single currency move back towards 0.7550. I remain bearish on sterling in the medium term, but the best short-term opportunities may have already passed. Strategy: Sell cable on any rallies towards 1.97 with limits prices of 1.9550 and 1.95. Aim to exit trade before the Bank of England announcement.
Yen
The yen has held most of its gains from Tuesday with carry traders reluctant to move to the Japanese unit as a funding currency following the volatile trading session witnessed Tuesday. In domestic news, Japan’s leading indicators rose to a reading of 40.0 in December, up from a lowly 18.2 in November, meaning that although economic outlook is seen in a more optimistic light than the previous month the pace of growth will remain stagnant (denoted by the index coming in below the 50.0 boom or bust line). The yen could sell off late tonight against the dollar and the euro if Wall Street rallies strongly to the close, but any losses incurred by the yen should be limited because of the broader negative sentiment that still abounds. The Aussie and New Zealand dollars have held most of their gains from last week against the yen despite the sharp dip in market sentiment this week, but another night of misery for stocks should trigger a significant bout of selling on AUD/JPY and NZD/JPY. Strategy: Sell USD/JPY on any rallies above 107.70 with target prices of 106.80, 106.50 and 106.20. Place a stop loss above 108.10. Do not trade EUR/JPY ahead of Thursday’s ECB meeting.
CAD
The loonie declined this morning but came back strongly this afternoon to be the best performer of all the major currencies on the day, gaining 0.4% against both the euro and the greenback and 0.6% against the yen. The modest bounce in equities was sufficient to drive the loonie up, although the currency was aided by a better than expected IVEY PMI survey for January which suggested business activity in Canada expanded following a month of contraction in December. The IVEY survey is renowned as a hopelessly inaccurate guide for gauging economic performance, but in the current climate all good news is worth taking and also it won’t have been lost on traders that the Canadian dollar fell by over 1% when news of a contraction in the IVEY index was reported last month. Building Permits in December rose 0.4% against a forecast decline of 0.5%, but this data had little market impact. The next key release for the loonie is this Friday’s employment report and the outcome may well determine the direction of USD/CAD for the remainder of the month. A further rise in risk aversion later today or tomorrow should see the loonie retreat and key resistance in the 1.0120 price range could come under threat. Otherwise we may see the loonie send the dollar back below parity and quickly descend upon that critical 0.9920 price level, where price has stalled 3 times in the past week. I am still bearish on the loonie but am not inclined to enter the market until the greenback firmly establishes itself back above the parity line. Anyone currently long on EUR/CAD in a short-term context should aim to exit their positions ahead of the ECB policy statement at 13:30 Thursday, as this is a high risk event, which could go the wrong way.
Bob B - Feb 6
Thứ Ba, 5 tháng 2, 2008
Bob's Currency Focus - 17:00 GMT
EUR/USD
The euro went sharply into reverse gear Tuesday when economic data for the 15-member nation currency area printed much weaker than expected. The services PMI for January fell to 50.6 from 53.1 in December while Retail Sales printed -2.0% on the year against a downwardly revised -1.2% in November. Pressure will now be on the ECB to soften their stance this Thursday and while the prospects of a rate cut are non-existent, markets will be looking to the ECB to balance growth risks with inflation concerns and leave open the opportunity of a rate cut some time later this year. Risk aversion rocketed this afternoon after an ISM report revealed that the US services sector contracted in January, the first contraction in the index since March 2003. The PMI nosedived to 44.6 from a revised reading of 54.4 for December. A reading under 50 signals contraction in the industry. Stock markets have plummeted Tuesday, particularly in Europe with some of the major indices down between 3% and 4%. The euro has fallen to as low as 1.4628 having opened at 1.4821 and it is on track to record one of its worst single day performances ever against the dollar. Volatility is high and whiplash like moves is making intraday trading very dangerous. There may now be an attempt to push the euro down towards 1.45 in the next few days but today’s dollar rally is overdone and a sizeable retracement is possible, particularly with many traders expecting the ECB to maintain its cautious stance this Thursday. It is not worth venturing into the market until we see some sort of order return. Strategy: Wait!
GBP
Cable fell Tuesday, the pound ceding ground to a broad dollar-based rally. The CIPS services PMI for January printed slightly higher than expected and led to important support for sterling against the euro and the single currency was pushed back to below 74.5 pence. Sterling will struggle to gain protracted support ahead of Thursday’s Bank of England meeting, and while sterling could decline to 1.95 at least, the pound should at least be able to fend off any major advance by the euro. The recommended trade is to sell cable on rallies back above 1.9750, although with stock markets in sharp decline today, sterling may find it difficult to launch a major recovery. Strategy: sell cable at prices above 1.9750 with limit prices of 1.9650, 1.96 and 1.9550.
YEN
Despite fear gripping stock markets today, the yen has been unable to make any major progress and is hovering around the Y107 price level against the dollar. The dollar did advance to 107.76 earlier this morning after the Reserve Bank of Australia’s rate hike announcement led to a bout of yen selling, to fund carry trades. There was no economic data out of Japan overnight and the currency’s movement for the remainder of this week will be determined by risk tolerance levels, influenced by the performance of global stock markets. We move into the Asian session tonight on the back of significant share price losses and it would be foolhardy to sell the yen against any currency just now. The dollar does not offer any value at prices close to 108 and I would again sell down on any rallies approaching this mark. Strategy: sell USD/JPY on prices between 107.60 and 107.90 with limit prices of 106.80, 106.50, 106.10 and 105.75. Place a Stop Loss just above 108.10.
CAD
The loonie has come off sharply today against the greenback but the Canadian currency has performed better than most other commodity currencies and it has in fact made further gains against the euro. There was no domestic data released in Canada and the loonie has moved with the risk flow, but the greenback has failed to hit the highs of 1.0085 that we saw last week and unless we have a close near to or above this level, we could again see a sharp reversal down towards 0.9920, something that has been a feature of the USD/CAD pairing over the past week. Oil prices have fallen by $1.50 Tuesday and gold is down sharply, but other base metal prices are only down marginally and this is helping to afford the loonie some element of protection. The loonie does have some key data releases in the next 3 days, starting with Wednesday’s IVEY PMI. If the IVEY PMI prints under 50 for the second consecutive month, it will put paid to the decoupling theory and hint that Canada may also have entered a recession, along with the US. Friday’s payroll data should give some further clues. Given that surprises in domestic data may print to the downside, particularly for the employment numbers, and the fact concerns over global growth are on the rise, it is dangerous to back the loonie this week. The fundamentals are stacking higher against the loonie this week and the currency’s impressive 2-week rally may be coming to an end. Strategy: Buy USD/CAD on dips towards 0.9920 with upside price targets of 1.0010, 1.0030, 1.0070, 1.0115 and 1.0170. Our target for our positional trades remains 1.05. If you are holding EUR/CAD long positions, exit at 1.48, given renewed risks for the euro.
Bob B - Feb 5
The euro went sharply into reverse gear Tuesday when economic data for the 15-member nation currency area printed much weaker than expected. The services PMI for January fell to 50.6 from 53.1 in December while Retail Sales printed -2.0% on the year against a downwardly revised -1.2% in November. Pressure will now be on the ECB to soften their stance this Thursday and while the prospects of a rate cut are non-existent, markets will be looking to the ECB to balance growth risks with inflation concerns and leave open the opportunity of a rate cut some time later this year. Risk aversion rocketed this afternoon after an ISM report revealed that the US services sector contracted in January, the first contraction in the index since March 2003. The PMI nosedived to 44.6 from a revised reading of 54.4 for December. A reading under 50 signals contraction in the industry. Stock markets have plummeted Tuesday, particularly in Europe with some of the major indices down between 3% and 4%. The euro has fallen to as low as 1.4628 having opened at 1.4821 and it is on track to record one of its worst single day performances ever against the dollar. Volatility is high and whiplash like moves is making intraday trading very dangerous. There may now be an attempt to push the euro down towards 1.45 in the next few days but today’s dollar rally is overdone and a sizeable retracement is possible, particularly with many traders expecting the ECB to maintain its cautious stance this Thursday. It is not worth venturing into the market until we see some sort of order return. Strategy: Wait!
GBP
Cable fell Tuesday, the pound ceding ground to a broad dollar-based rally. The CIPS services PMI for January printed slightly higher than expected and led to important support for sterling against the euro and the single currency was pushed back to below 74.5 pence. Sterling will struggle to gain protracted support ahead of Thursday’s Bank of England meeting, and while sterling could decline to 1.95 at least, the pound should at least be able to fend off any major advance by the euro. The recommended trade is to sell cable on rallies back above 1.9750, although with stock markets in sharp decline today, sterling may find it difficult to launch a major recovery. Strategy: sell cable at prices above 1.9750 with limit prices of 1.9650, 1.96 and 1.9550.
YEN
Despite fear gripping stock markets today, the yen has been unable to make any major progress and is hovering around the Y107 price level against the dollar. The dollar did advance to 107.76 earlier this morning after the Reserve Bank of Australia’s rate hike announcement led to a bout of yen selling, to fund carry trades. There was no economic data out of Japan overnight and the currency’s movement for the remainder of this week will be determined by risk tolerance levels, influenced by the performance of global stock markets. We move into the Asian session tonight on the back of significant share price losses and it would be foolhardy to sell the yen against any currency just now. The dollar does not offer any value at prices close to 108 and I would again sell down on any rallies approaching this mark. Strategy: sell USD/JPY on prices between 107.60 and 107.90 with limit prices of 106.80, 106.50, 106.10 and 105.75. Place a Stop Loss just above 108.10.
CAD
The loonie has come off sharply today against the greenback but the Canadian currency has performed better than most other commodity currencies and it has in fact made further gains against the euro. There was no domestic data released in Canada and the loonie has moved with the risk flow, but the greenback has failed to hit the highs of 1.0085 that we saw last week and unless we have a close near to or above this level, we could again see a sharp reversal down towards 0.9920, something that has been a feature of the USD/CAD pairing over the past week. Oil prices have fallen by $1.50 Tuesday and gold is down sharply, but other base metal prices are only down marginally and this is helping to afford the loonie some element of protection. The loonie does have some key data releases in the next 3 days, starting with Wednesday’s IVEY PMI. If the IVEY PMI prints under 50 for the second consecutive month, it will put paid to the decoupling theory and hint that Canada may also have entered a recession, along with the US. Friday’s payroll data should give some further clues. Given that surprises in domestic data may print to the downside, particularly for the employment numbers, and the fact concerns over global growth are on the rise, it is dangerous to back the loonie this week. The fundamentals are stacking higher against the loonie this week and the currency’s impressive 2-week rally may be coming to an end. Strategy: Buy USD/CAD on dips towards 0.9920 with upside price targets of 1.0010, 1.0030, 1.0070, 1.0115 and 1.0170. Our target for our positional trades remains 1.05. If you are holding EUR/CAD long positions, exit at 1.48, given renewed risks for the euro.
Bob B - Feb 5
Thứ Hai, 4 tháng 2, 2008
Bob's Currency Focus 15:30 GMT
EUR/USD
The pair is lacking direction Monday on a day when economic data is scarce and a sense of normality has returned to equity markets. The euro did race towards 1.4850 earlier this morning but was unable to stay there and has struggled to make an impression since, although the single currency is still modestly ahead on the day with the dollar broadly weaker against all currencies. Eurozone producer prices for December printed in line with expectations but with consumer prices last week rising to a 9 year-high at 3.2%, the ECB is unlikely to soften its stance when it meets this Thursday and the euro should remain well bid in the run-up to that meeting. The euro’s failure to break above 1.4966 Friday and its subsequent sharp retreat, following release of the first negative employment figure out of the US in 4 years, could indicate the euro has limited scope for further appreciation, but traders should be wary of selling the euro ahead of this week’s policy statement from the ECB. The ECB is on a different road to the Fed and if it chooses to deliver another strongly worded statement about inflation risks this week, the euro could benefit significantly. Over the next 24 hours the pair should remain within a 1.4770 to 1.4870 price range, unless there is a significant shift in risk aversion and stock markets decline sharply, something that would tend to benefit the dollar. Strategy: Buy euro on dips towards 1.4770 with upside price targets of 1.4830, 1.4850 and 1.4880.
GBP
Sterling rebounded Monday, recouping almost 50% of the losses it incurred last Friday against both the dollar and the euro. The currency will come under pressure though as the week unfolds with the Bank of England widely expected to cut interest rates by a quarter of a percentage point when the Monetary Policy Committee (MPC) makes its latest policy announcement this coming Thursday. Expansion in the construction sector slowed to its slowest pace in 2 years in January, further evidence of a deteriorating economy. The pound will be hurt of there is a sell off in global stocks and given the wider downside risks for the currency because of expectations of an interest rate cut, we could see the pound fall back to 1.95 by Thursday. Cable offers good sell-down value on levels approaching 1.9850 and traders should not be frightened to hold their short positions right up until after the Bank of England decision. There is an outside chance of a 50 basis points cut from the MPC, but I wouldn’t count on it because this particular Committee has been slow to act in a meaningful way. Strategy: Sell cable on prices between 1.9770 and 1.9850 with downside price targets of 1.9650, 1.9570 and 1.9510.
Yen
The yen has been forced to retreat for most of Monday with the appetite for carry trades on the increase, ahead of an expected rate hike from the Reserve Bank of Australia tonight. The Japanese currency has held remarkably firm against the dollar in the past week even though stock markets rallied by over 5%. This is because the yield spread between the two currencies narrowed to 2.5% following the Fed’s additional 50 basis points rate cut announced last Wednesday, making the dollar a less attractive bet for carry traders. This is a week mostly devoid of meaningful data both in Japan and the US and USD/JPY direction this week will track the performance of equities. Expect the pair to trade within a 106 to 108 price range for the week unless risk aversion levels rocket upwards. The euro has a chance to reach Y160 over the coming days, particularly if the ECB deliver a hawkish statement next Thursday. There is little value on the yen at current prices, given the risks of a sudden change in risk aversion, so traders are best advised to wait until prices move to the peripherals of existing trading bands. Strategy: Sell USD/JPY on advances towards 108 with limit prices of 107, 106.50 and 106.25.
CAD
The loonie rallied strongly Friday against all major currencies, particularly the euro, pound and the dollar. This happened despite a fall of nearly $3 in the price of oil and a recessionary employment number out of the US. One would normally expect a decline in US employment to hurt the loonie - it will have a detrimental effect on Canada’s exports. But the loonie is largely trading contrary to the underlying fundamentals thanks to speculative funds that continue to see most commodity currencies as sure bets. The greenback did launch an offensive Monday, rising back above parity, but the rally was all too brief and again lacked conviction and the loonie was quickly able above to recover. USD/CAD maintains a short-term bearish tone and I prefer to avoid the pair until we have a sustained break above the parity line. The key data for the loonie this week will be Wednesday’s IVEY PMI and Friday’s January Employment Report. The euro fell very sharply against the loonie last Friday and after a rally Monday which saw the pair rise 130 pips, the pair is down 100 pips from the highs to 1.4736. The euro does in my view offer value on prices below 1.47. Strategy: buy EUR/CAD on prices between 1.4650 and 1.47 with price limits of 1.4790, 1.4830 and 1.49. Use a stop loss. Hold tose positional USD/CAD longs with S/L below 0.9750.
Bob B - Feb 4
The pair is lacking direction Monday on a day when economic data is scarce and a sense of normality has returned to equity markets. The euro did race towards 1.4850 earlier this morning but was unable to stay there and has struggled to make an impression since, although the single currency is still modestly ahead on the day with the dollar broadly weaker against all currencies. Eurozone producer prices for December printed in line with expectations but with consumer prices last week rising to a 9 year-high at 3.2%, the ECB is unlikely to soften its stance when it meets this Thursday and the euro should remain well bid in the run-up to that meeting. The euro’s failure to break above 1.4966 Friday and its subsequent sharp retreat, following release of the first negative employment figure out of the US in 4 years, could indicate the euro has limited scope for further appreciation, but traders should be wary of selling the euro ahead of this week’s policy statement from the ECB. The ECB is on a different road to the Fed and if it chooses to deliver another strongly worded statement about inflation risks this week, the euro could benefit significantly. Over the next 24 hours the pair should remain within a 1.4770 to 1.4870 price range, unless there is a significant shift in risk aversion and stock markets decline sharply, something that would tend to benefit the dollar. Strategy: Buy euro on dips towards 1.4770 with upside price targets of 1.4830, 1.4850 and 1.4880.
GBP
Sterling rebounded Monday, recouping almost 50% of the losses it incurred last Friday against both the dollar and the euro. The currency will come under pressure though as the week unfolds with the Bank of England widely expected to cut interest rates by a quarter of a percentage point when the Monetary Policy Committee (MPC) makes its latest policy announcement this coming Thursday. Expansion in the construction sector slowed to its slowest pace in 2 years in January, further evidence of a deteriorating economy. The pound will be hurt of there is a sell off in global stocks and given the wider downside risks for the currency because of expectations of an interest rate cut, we could see the pound fall back to 1.95 by Thursday. Cable offers good sell-down value on levels approaching 1.9850 and traders should not be frightened to hold their short positions right up until after the Bank of England decision. There is an outside chance of a 50 basis points cut from the MPC, but I wouldn’t count on it because this particular Committee has been slow to act in a meaningful way. Strategy: Sell cable on prices between 1.9770 and 1.9850 with downside price targets of 1.9650, 1.9570 and 1.9510.
Yen
The yen has been forced to retreat for most of Monday with the appetite for carry trades on the increase, ahead of an expected rate hike from the Reserve Bank of Australia tonight. The Japanese currency has held remarkably firm against the dollar in the past week even though stock markets rallied by over 5%. This is because the yield spread between the two currencies narrowed to 2.5% following the Fed’s additional 50 basis points rate cut announced last Wednesday, making the dollar a less attractive bet for carry traders. This is a week mostly devoid of meaningful data both in Japan and the US and USD/JPY direction this week will track the performance of equities. Expect the pair to trade within a 106 to 108 price range for the week unless risk aversion levels rocket upwards. The euro has a chance to reach Y160 over the coming days, particularly if the ECB deliver a hawkish statement next Thursday. There is little value on the yen at current prices, given the risks of a sudden change in risk aversion, so traders are best advised to wait until prices move to the peripherals of existing trading bands. Strategy: Sell USD/JPY on advances towards 108 with limit prices of 107, 106.50 and 106.25.
CAD
The loonie rallied strongly Friday against all major currencies, particularly the euro, pound and the dollar. This happened despite a fall of nearly $3 in the price of oil and a recessionary employment number out of the US. One would normally expect a decline in US employment to hurt the loonie - it will have a detrimental effect on Canada’s exports. But the loonie is largely trading contrary to the underlying fundamentals thanks to speculative funds that continue to see most commodity currencies as sure bets. The greenback did launch an offensive Monday, rising back above parity, but the rally was all too brief and again lacked conviction and the loonie was quickly able above to recover. USD/CAD maintains a short-term bearish tone and I prefer to avoid the pair until we have a sustained break above the parity line. The key data for the loonie this week will be Wednesday’s IVEY PMI and Friday’s January Employment Report. The euro fell very sharply against the loonie last Friday and after a rally Monday which saw the pair rise 130 pips, the pair is down 100 pips from the highs to 1.4736. The euro does in my view offer value on prices below 1.47. Strategy: buy EUR/CAD on prices between 1.4650 and 1.47 with price limits of 1.4790, 1.4830 and 1.49. Use a stop loss. Hold tose positional USD/CAD longs with S/L below 0.9750.
Bob B - Feb 4
Thứ Sáu, 1 tháng 2, 2008
Bob's Currency Focus - 18:00 GMT
It has been a volatile day of trading, the dollar fending off an attack on the lifetime high by the euro, sterling sinking without trace and commodity currencies rallying like the world was entering a new boom period. The US dollar’s failure to hold onto any gains for anything more than a fraction of an hour is a very worrying sign and the greenback is only advancing during bouts of high risk aversion (meaning rallies are effectively the result of a close-out of dollar short positions). This has been a most difficult week for the US currency with lots of high risk events, most of which printed poorly and undermined the currency. Friday’s data was mixed but offered little cheer with the Labor Departments monthly employment report revealing the economy lost 17,000 jobs in January, the first decline in employment for 4 years. There was better news when the ISM manufacturing index printed at 50.5, indicating expansion in the sector in January, following contraction in December. Ironically enough it was the ISM report which sent the dollar tumbling once again, as it helped lift stocks and risk tolerance, leading to a scramble to sell the greenback against the ‘risky currencies’ Aussie, Kiwi and Canadian dollars. Stocks had earlier opened on a high note, thanks to a timely news story reporting Microsoft had made a bid for Yahoo. The non-farm data however is a signal all is not well in the economy and this news will carry through as a hangover into next week, regardless of how the session ends today.
EUR/USD
The euro shot to 1.4945 immediately after the Labor Department reported contraction in the US jobs total in January. Resistance around the lifetime high held firm however and the euro came crashing down to briefly dip below 1.48, before recovering to 1.4840. The dollar struggled against most other currencies this afternoon so today’s reversal is a false move and is the result of profit-taking. As long as the euro remains above 1.48, the lifetime high at 1.4966 will remain within reach. The lifetime barrier needs to be breached soon if 1.50 is ever to be hit. Next week could be the single currency’s final chance, with the ECB scheduled for Thursday. If the ECB maintain their hawkish stance, then the euro could be pushed over the line. January’s manufacturing PMI for the euro area printed better than expected Friday, but the more important services PMI will be watched closely when it is released Tuesday. As long as the euro remains above 1.4770, there is value in keeping faith in the upside trend, but with a 3-peak top formation in place, caution is required. Strategy: buy euro on dips back towards 1.4770 with upside price limits of 1.4850, 1.4880, 1.4915, 1.4945 and 1.4980. If buying the euro at current levels, tight stops must be employed.
GBP
Cable took a pounding Friday, coming off a high of 1.9935 to sink back to 1.9650. Hopefully you took my advice yesterday and if you did, you should have done very well. The CIPS manufacturing index, reported at 50.6, fell to near 2.5 year low signalling a an accelerating slowdown in the UK economy. For next week’s Bank of England it is not now so much a case of will they cut rate, but by how much? The prospect of a 0.50% reduction is now very real, but we must remember this particular MPC is dominated by hawks and has been slow to act in the past. Sterling’s sell-off against the euro has been overdone, but it is a high risk strategy to buy the pound against anything ahead of next Thursday’s meeting. I retain my bearish bias on cable, but hope to see something of a bounce before entering the market again. Strategy: Sell cable on prices above 1.98 with limit prices of 1.9650, 1.96, 1.9540 and 1.9480.
Yen
The yen was spared most of the frantic price action we saw Friday with the Japanese currency largely unchanged against the dollar and up moderately against the euro on the session. Risk tolerance has held despite a negative employment report from the US and the yen has sold off against the high-yielders and commodity currencies. There was no domestic data overnight and the yen has simply moved with the markets’ reaction to US data. Yesterday we called for a sell down of the EUR/YEN, if price near 159 and if the non-farm number from the US was negative. You should probably exit this trade now, with price currently at 157.50, in case Wall Street rallies to the close this evening and you get caught by a market moving in the opposite direction. The dollar is going to struggle to get back to Y107 because those holding short dollar positions will not be in a rush to run to the exits just yet. We recommend staying away from trading the yen until we see how Asian markets respond on Sunday to today’s events.
CAD
The loonie and the dollar are having a rare tussle for supremacy around the parity line and the loonie has certainly had the better of it in the past 3 days and the pair is now back below 0.9950. The is pair giving off a strong bearish tone, which is probably owing to the renewed appetite for the commodity currencies which has persisted since the Fed’s emergency rate cut last week. There are some key risk events for the loonie next week, most notably Friday’s employment report, but before that we will get the IVEY business PMI on Wednesday, which recorded a contraction a month ago. The loonie also battered the euro today, sending the single currency toppling from a high of 1.4940 to a low a short while ago of 1.4730. The loonie remains in my estimation the most over-valued currency by far but certain forces are determined to keep it elevated. If the pair closes below 0.9920 this evening, the loonie will attempt to test the 0.9870 low hit on Wednesday and if this gives, a return to 0.9760 looks to be on the cards. Although bearish on the loonie, I’m reluctant to buy the greenback against it until we have established a firm break back above the parity line. The euro certainly offers value on prices around 1.47 against the loonie, particularly leading into what should be another hawkish ECB statement next Thursday.
Have a great weekend!
Bob B
EUR/USD
The euro shot to 1.4945 immediately after the Labor Department reported contraction in the US jobs total in January. Resistance around the lifetime high held firm however and the euro came crashing down to briefly dip below 1.48, before recovering to 1.4840. The dollar struggled against most other currencies this afternoon so today’s reversal is a false move and is the result of profit-taking. As long as the euro remains above 1.48, the lifetime high at 1.4966 will remain within reach. The lifetime barrier needs to be breached soon if 1.50 is ever to be hit. Next week could be the single currency’s final chance, with the ECB scheduled for Thursday. If the ECB maintain their hawkish stance, then the euro could be pushed over the line. January’s manufacturing PMI for the euro area printed better than expected Friday, but the more important services PMI will be watched closely when it is released Tuesday. As long as the euro remains above 1.4770, there is value in keeping faith in the upside trend, but with a 3-peak top formation in place, caution is required. Strategy: buy euro on dips back towards 1.4770 with upside price limits of 1.4850, 1.4880, 1.4915, 1.4945 and 1.4980. If buying the euro at current levels, tight stops must be employed.
GBP
Cable took a pounding Friday, coming off a high of 1.9935 to sink back to 1.9650. Hopefully you took my advice yesterday and if you did, you should have done very well. The CIPS manufacturing index, reported at 50.6, fell to near 2.5 year low signalling a an accelerating slowdown in the UK economy. For next week’s Bank of England it is not now so much a case of will they cut rate, but by how much? The prospect of a 0.50% reduction is now very real, but we must remember this particular MPC is dominated by hawks and has been slow to act in the past. Sterling’s sell-off against the euro has been overdone, but it is a high risk strategy to buy the pound against anything ahead of next Thursday’s meeting. I retain my bearish bias on cable, but hope to see something of a bounce before entering the market again. Strategy: Sell cable on prices above 1.98 with limit prices of 1.9650, 1.96, 1.9540 and 1.9480.
Yen
The yen was spared most of the frantic price action we saw Friday with the Japanese currency largely unchanged against the dollar and up moderately against the euro on the session. Risk tolerance has held despite a negative employment report from the US and the yen has sold off against the high-yielders and commodity currencies. There was no domestic data overnight and the yen has simply moved with the markets’ reaction to US data. Yesterday we called for a sell down of the EUR/YEN, if price near 159 and if the non-farm number from the US was negative. You should probably exit this trade now, with price currently at 157.50, in case Wall Street rallies to the close this evening and you get caught by a market moving in the opposite direction. The dollar is going to struggle to get back to Y107 because those holding short dollar positions will not be in a rush to run to the exits just yet. We recommend staying away from trading the yen until we see how Asian markets respond on Sunday to today’s events.
CAD
The loonie and the dollar are having a rare tussle for supremacy around the parity line and the loonie has certainly had the better of it in the past 3 days and the pair is now back below 0.9950. The is pair giving off a strong bearish tone, which is probably owing to the renewed appetite for the commodity currencies which has persisted since the Fed’s emergency rate cut last week. There are some key risk events for the loonie next week, most notably Friday’s employment report, but before that we will get the IVEY business PMI on Wednesday, which recorded a contraction a month ago. The loonie also battered the euro today, sending the single currency toppling from a high of 1.4940 to a low a short while ago of 1.4730. The loonie remains in my estimation the most over-valued currency by far but certain forces are determined to keep it elevated. If the pair closes below 0.9920 this evening, the loonie will attempt to test the 0.9870 low hit on Wednesday and if this gives, a return to 0.9760 looks to be on the cards. Although bearish on the loonie, I’m reluctant to buy the greenback against it until we have established a firm break back above the parity line. The euro certainly offers value on prices around 1.47 against the loonie, particularly leading into what should be another hawkish ECB statement next Thursday.
Have a great weekend!
Bob B
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