Fed to the rescue:
The Federal Reserve’s extraordinary intervention to underwrite JP Morgan’s $2 per share takeover of Bear Stearns saved Wall Street from a mauling Monday, as stock markets elsewhere across the globe sold off on news of the collapse of one of Wall Street’s premier financial institutions. Stock markets have rebounded in a major way Tuesday as investors are confident the Fed will slash the Fed Funds rate this evening, by 100 basis points. Anything less could prove to be a disappointment and might lead to a sharp sell-off of stocks. Inflation control and the dollar have taken a back seat as the Fed puts all its focus and basis points into salvaging a failing economy. There has been heightened speculation of possible intervention in the FX markets to curb the dollar’s sharp demise but so far there has been little in the way of concern voiced from the ECB and the Fed or US Administration, which might suggest any intervention is imminent. The dollar plummeted to record lows across the board Monday with the euro hitting 1.59, the Swiss franc appreciating above parity and the yen hitting a 13 year high. Those holding dollars or dollar denominated assets will likely be forced to watch their investments whittle away further before any coordinated action takes place.
EUR/USD
With no peak yet confirmed and the euro striking fresh highs almost every day, in view of today’s downside risks to the dollar, there is little reason to believe the tide is about to turn just yet. All the technical indicators point to the pair being massively overbought and a significant dollar correction is overdue, but sentiment is the overriding factor right now and traders are running scared of the US dollar and rallies by the US currency are not allowed to gain any momentum and generally lead to sharp retaliation attacks on the other side. The euro has gained 9 cents in the 3 weeks, since it first breached the lifetime high set in November last and it is currently on the sharpest incline rally in the currency’s history. The fundamentals don’t offer any comfort for the dollar and with interest rate differentials set to widen to 2% today, after the Fed’s latest policy decision, a rise to 1.60 looks unstoppable, unless there is some sort of orchestrated intervention by Central Banks. With volatility levels at extreme levels, 1.60 could be struck today or tomorrow. Traders need to be on the lookout for a possible sharp correction lower, which could occur at any time, especially if there is some signal from the Fed that the cycle of rate cuts is at an end. Short stops are unlikely to work today as volatility levels are liable to increase dramatically around the time of the Fed’s rate announcement at 18:15 GMT. US producer prices rose by the fastest level in over a year in February, while housing starts declined by more than expected last month, underlining the fact the housing sector crisis has still to hit a bottom. Strategy: Stay out of market Tuesday and await sell down correction opportunity.
GBP
Cable bounced back nicely today as UK inflation in February printed at 2.5%, up from 2.2% in January. This has pared back expectations for aggressive rate cuts from the Bank of England and has helped sterling make long overdue gains against the euro, Swiss franc and yen, as well as the dollar. The Bank of England was forced on Monday to inject extra liquidity into the system as the global credit crisis threatened to destabilise the British financial system. The UK economy’s reliance on Financial Institutions coupled with a growing housing crisis is likely to limit any bounce in sterling, although a return of risk tolerance and corrections in the yen and Swiss franc will tend to benefit the pound in the short-term. Cable could retest the year’s high at 2.0395 later today or tomorrow, if the dollar comes under pressure after the Fed rate announcement. It is best to wait until the aftermath of today’s Fed before entering sterling shorts again. Strategy: wait!
JPY
The yen has been in retreat mode for the past 24 hours as market fear is replaced by risk-taking in the build-up to this evening’s fed rate decision. The dollar is trading 2.5 yen above the 13-year record set Monday at 95.78. The dollar could go higher if risk tolerance levels intensify, although a 1% cut in US interest rates would see the rate differential dwindle to a mere 1.5% and greatly reduce the yield benefit of being long on USD/JPY. The yen has faltered badly against the euro and all the high yielders Tuesday as the carry trade stages something of a comeback. The yen’s immediate fate depends on market reaction to tonight’s fed rate announcement and how stock markets fare Wednesday, once the initial impact has passed. Yen selling on a positional basis is dangerous because of the ongoing stresses in financial markets, although there may well be value in being short on the yen against the Aussie and Kiwi dollars over the next 24 hours.
CAD
The loonie has remained in the 0.98 to 1.00 range again thus far this week, although the greenback did penetrate the parity line briefly Monday. The loonie was undermined by a fall in commodity prices Monday and a general rise in risk aversion which hampered all of the commodity currencies. Today saw the release of February’s inflation report and although the core rate crept up to 1.5%, the headline rate fell to 1.8% from 2.2% and the numbers will permit the Bank of Canada to continue with its easing policy when it meets next month. The loonie has a distinctly firmer tone Tuesday as traders anticipate a widening in the interest rate gap between Canada and the US by as much as 100 basis points this evening. We could see a return to 0.98, although any surprise injection of broader support for the dollar could see the greenback rise to above parity. The loonie has capitulated against the euro in the past 2 weeks but should be able to correct somewhat if today’s Fed action helps to calm financial markets. It is dangerous to enter the market this evening as stops will give way too easily and the wise action would be to do nothing until tomorrow.
Bob B - Mar 18
Thứ Ba, 18 tháng 3, 2008
Thứ Tư, 12 tháng 3, 2008
Bob's Currency Focus
EUR/USD
The dollar has capitulated against the euro again Wednesday as skeptism grows about the impact of the Fed’s liquidity plan announced Tuesday and following reports the United Arab Emirates wishes to remove its peg from the US dollar. The dollar’s decline has hit an alarming pace with the single currency now having appreciated by 7 full cents in the past 2 weeks. Economic data out of Europe has mostly exceeded expectations over this time and has given added confidence to those that believe in the decoupled theory, helping to push the euro higher. January’s Industrial Production numbers printed higher than forecast and this was the catalyst for today’s dramatic early move which saw the euro rise to 1.5450 almost instantly. The pair rose to 1.5510 during the American session and currently trades around this level. The dollar appears incapable of sustaining any kind of correction and we may have to wait until after the Fed meeting next Tuesday, before we see any stabilisation. It appears there is no upper limit for the euro but the single currency’s gains have been so rapid that the pace of its appreciation goes well beyind the underlying fundamentals and a sharp reversal could happen at any time. The dollar must keep the euro below 1.55 if yet a new distress phase for the embattled greenback is to be prevented. It is difficult to know where a dollar rally might come from, given the extreme nature of the negative sentiment that has crippled the currency. It is pointless buying the dollar on a positional basis right now, until there is firm evidence of a top being in place. Strategy: Buy euro on dips towards 1.53, placing a stop loss below 1.5280. Upside limit targets are 1.54, 1.5450 and 1.55.
GBP
Cable rallied on the coattails of the euro Wenesday as broad dollar weakness enabled sterling to hit a fresh 2008 high of 2.0240. This came on a day when the UK Chancellor downgraded the economy’s growth forecast in his budget speech to Parliament. Sterling is likley to maintain a firmer tone against the greenback in the lead up to next week’s Fed, although there may be dips back to the 2 dollar mark. There are no data releases out of the UK through to the end of the week and sterling’s direction will be dictated by the dollar. A sharp decline in global stocks will also tend to undermine the UK currency. There is no value in selling sterling against the euro at the present price and indeed the EUR/GBP pairing could fall to 0.76, if we get some broad-based profit-taking in the euro. I do not favour selling cable until markets settle, if indeed they do, after next week’s Fed meeting.
JPY
The yen bounced back today against the dollar after having taken a hammering Tuesday. The Japanese currency is back trading clost to 102, up over 1% on the day. Today’s appreciation comes thanks to dollar weakness Wenesday, which extends across the board, even though global stocks rallied for a second consecutive day. On the homefront, Japanese quarter 4 GDP surprised forecasters, when the revised number printed at 0.9%, unchanged from the preliminary release. Most economists had expected a revision downwards. With the US currency unable to offer any resistance at present, it is now only a matter of time before the USD/JPY pairing trades below Y100. This could happen within the next week. It is dangerous to buy the yen at present values against the dollar and traders are advised to wait for rallies to at least 103.50 before shorting the pair. The yen offers definite value against the overbought euro, especially on prices approaching Y160.
CAD
The loonie has had an eventful day, virtually unchanged against the greenback, but sharply lower against the euro, sterling and the yen. The prospect of lower interest rates and contagion from the US economy are beginning to weigh on the loonie with support from elevated commodity prices unable to push the Canadian currency higher Wednesday. USD/CAD has traded within a 0.9839 to 0.9982 price range this week and neither side has managed to carve out an advantage. Greenback supporters are unlikely to weigh in heavily ahead of next week’s Fed, so the loonie should be able to counter most upside rallies. Any significant rise in risk aversion would also make the loonie vulnerable and could see it fall below parity again. There is no value in buying EUR/CAD unless the pair dips towards 1.51. I would be inclined to wait until after the Fed next week before going long on USD/CAD again.
Bob B - Mar 12
The dollar has capitulated against the euro again Wednesday as skeptism grows about the impact of the Fed’s liquidity plan announced Tuesday and following reports the United Arab Emirates wishes to remove its peg from the US dollar. The dollar’s decline has hit an alarming pace with the single currency now having appreciated by 7 full cents in the past 2 weeks. Economic data out of Europe has mostly exceeded expectations over this time and has given added confidence to those that believe in the decoupled theory, helping to push the euro higher. January’s Industrial Production numbers printed higher than forecast and this was the catalyst for today’s dramatic early move which saw the euro rise to 1.5450 almost instantly. The pair rose to 1.5510 during the American session and currently trades around this level. The dollar appears incapable of sustaining any kind of correction and we may have to wait until after the Fed meeting next Tuesday, before we see any stabilisation. It appears there is no upper limit for the euro but the single currency’s gains have been so rapid that the pace of its appreciation goes well beyind the underlying fundamentals and a sharp reversal could happen at any time. The dollar must keep the euro below 1.55 if yet a new distress phase for the embattled greenback is to be prevented. It is difficult to know where a dollar rally might come from, given the extreme nature of the negative sentiment that has crippled the currency. It is pointless buying the dollar on a positional basis right now, until there is firm evidence of a top being in place. Strategy: Buy euro on dips towards 1.53, placing a stop loss below 1.5280. Upside limit targets are 1.54, 1.5450 and 1.55.
GBP
Cable rallied on the coattails of the euro Wenesday as broad dollar weakness enabled sterling to hit a fresh 2008 high of 2.0240. This came on a day when the UK Chancellor downgraded the economy’s growth forecast in his budget speech to Parliament. Sterling is likley to maintain a firmer tone against the greenback in the lead up to next week’s Fed, although there may be dips back to the 2 dollar mark. There are no data releases out of the UK through to the end of the week and sterling’s direction will be dictated by the dollar. A sharp decline in global stocks will also tend to undermine the UK currency. There is no value in selling sterling against the euro at the present price and indeed the EUR/GBP pairing could fall to 0.76, if we get some broad-based profit-taking in the euro. I do not favour selling cable until markets settle, if indeed they do, after next week’s Fed meeting.
JPY
The yen bounced back today against the dollar after having taken a hammering Tuesday. The Japanese currency is back trading clost to 102, up over 1% on the day. Today’s appreciation comes thanks to dollar weakness Wenesday, which extends across the board, even though global stocks rallied for a second consecutive day. On the homefront, Japanese quarter 4 GDP surprised forecasters, when the revised number printed at 0.9%, unchanged from the preliminary release. Most economists had expected a revision downwards. With the US currency unable to offer any resistance at present, it is now only a matter of time before the USD/JPY pairing trades below Y100. This could happen within the next week. It is dangerous to buy the yen at present values against the dollar and traders are advised to wait for rallies to at least 103.50 before shorting the pair. The yen offers definite value against the overbought euro, especially on prices approaching Y160.
CAD
The loonie has had an eventful day, virtually unchanged against the greenback, but sharply lower against the euro, sterling and the yen. The prospect of lower interest rates and contagion from the US economy are beginning to weigh on the loonie with support from elevated commodity prices unable to push the Canadian currency higher Wednesday. USD/CAD has traded within a 0.9839 to 0.9982 price range this week and neither side has managed to carve out an advantage. Greenback supporters are unlikely to weigh in heavily ahead of next week’s Fed, so the loonie should be able to counter most upside rallies. Any significant rise in risk aversion would also make the loonie vulnerable and could see it fall below parity again. There is no value in buying EUR/CAD unless the pair dips towards 1.51. I would be inclined to wait until after the Fed next week before going long on USD/CAD again.
Bob B - Mar 12
Thứ Tư, 5 tháng 3, 2008
Bob's Currency Focus 18:00 GMT
EUR/USD
The dollar is now proving a drag on US equities with major investment funds pumping their money into commodities instead of into stocks. Crude oil is up $4 Wednesday, copper is up 4% and gold is up $25 to a record price above $990. The weak dollar is not only causing higher inflation but it is now causing major financial market volatility with investors running scared of the beleaguered currency. The US dollar index hit a record low for the seventh consecutive session today. The euro hit a lifetime high for the 6th day out of seven, spiking sharply to hit 1.53. The euro had traded as low as 1.5145 earlier this morning. The euro’s spike coincided with comments issued by the President of OPEC who blamed high oil prices on a ‘mismanaged’ US economy. The comment could be taken as a direct criticism of Fed Chief Ben Bernanke, whose aggressive policy of interest rate cuts and dollar intransigence has led to cheaper money flooding into commodity classes, thus creating an asset bubble in both hard and soft commodities. US data was mixed Wednesday with the ISM non-manufacturing report printing better than expected, though the sector remains in contraction, while the ADP employment report estimates the private sector shed a net 23,000 jobs in February. The services PMI for the euro area had earlier printed exactly in line with forecast (52.3) while retail sales figures for January at 0.4% were also bang in line with estimate. Thursday and Friday are crucial days for the euro/usd pair with the ECB rate announcement tomorrow and February’s non-farm payroll number in the US on Friday. Given the sharp appreciation in the euro over the past week, the ECB will be under pressure to soften its policy tone and at least give some hint of a possible rate cut in the coming months. If the hawks get their way, another inflation-biased statement could be enough to send the euro to 1.54. Tomorrow’s meeting could prove to be one of the most important ever for the Committee. Rates are certain to remain unchanged, so eyes and ears will be firmly fixed on ECB President Jean Claude Trichet when he delivers his policy statement at 13:30 GMT. The dollar could benefit from a correction ahead of the meeting, if a bout of profit-taking sets in, with some traders looking to get out of the way ahead of the main event. The euro has found very strong support in the 1.5140 to 1.5160 range and this forms an immediate line of support. If an upward bias is maintained ahead of Thursday’s ECB statement (i.e. price remains above 1.5250) it could prove ominous for the dollar.
GBP
It has been an eventful day for cable with the pair hitting a low of 1.9720 this morning before rebounding by almost 2.5 cents. Sterling is currently trading comfortably above the 1.99 price area. If cable can hold its position above 1.99 into the Bank of England rate announcement tomorrow, we could see a break above the 2.00 line for the first time this year, if the Bank do what is expected and stand pat on interest rates this month. The non-manufacturing sector expanded by more than expected in February and when today’s PMI is looked at together with Monday’s manufacturing PMI, it suggests the industrial sector is proving to be resilient in the face of a major credit crisis and a slowing housing sector. Sterling could potentially earn a relief rally after tomorrow, which may benefit it more against the euro than against the dollar, depending on what happens with the ECB. I remain bearish on sterling in the medium to longer term but see no value in selling the currency against the euro or Swiss franc at present price levels. If selling down cable a stop should be placed just above the 2 dollar line because a break above this level could trigger a sharper rally to the upside.
JPY
The only currency which has fared worse than the US dollar today is the Japanese yen, at the time of print. Appetite has risen for riskier high-yielding currencies as stock markets stage a recovery. The yen, being the preferred funding currency of the carry trade, has been the principal loser. The US dollar has returned to Y104, while the euro has sailed over Y159 Wednesday, recording its single biggest day’s gain against the yen in six weeks. If the stock market rally carries over to the Asian session, the yen will retreat further, particularly against the commodity currencies. Markets remain volatile however so any sudden shift in direction could see the yen recover sharply. The best value trade on the yen right now is a sell of EUR/JPY as a rise in risk aversion in the coming days is likely to see a significant decline in that pair. Strategy: Sell EUR/JPY on prices above Y159 with limit targets of Y158, Y157.50 and Y157.10.
CAD
The loonie has gained against every other major currency today as the commodity currency shakes off the Bank of Canada 50 basis point rate cut with arrogant ease. The loonie has shown itself to be largely immune to interest rate decisions in recent months and it is the only major currency that has not been adversely affected by whatever the Bank of Canada might throw at it. Broad dollar weakness and rising commodity prices has seen the loonie push the dollar back to 0.9860 Wednesday, over one cent below the price the greenback reached on Tuesday. As long as this disconnect persists between commodity prices and a slowing global economy, the loonie looks destined to be well supported. The Bank of Canada did clearly state further easing was on the way, something which may limit the extent to which the loonie can appreciate. However a weak close below 0.9850 today could see recent lows revisited later in the week, especially if Friday’s employment data from both the US and Canada proves more positive for Canada. I am bearish on the loonie but just don’t like the market at present, with unpredictable erratic moves commonplace. For that reason I am inclined to hold off coming into the market for now, at least until after this week’s major risk events. Any dips below 1.50 on EUR/CAD offer good buy value for those waiting to pounce on an opportunity. Strategy: Wait until market USD/CAD settles and a sense of normality returns.
Bob B - Mar 5
The dollar is now proving a drag on US equities with major investment funds pumping their money into commodities instead of into stocks. Crude oil is up $4 Wednesday, copper is up 4% and gold is up $25 to a record price above $990. The weak dollar is not only causing higher inflation but it is now causing major financial market volatility with investors running scared of the beleaguered currency. The US dollar index hit a record low for the seventh consecutive session today. The euro hit a lifetime high for the 6th day out of seven, spiking sharply to hit 1.53. The euro had traded as low as 1.5145 earlier this morning. The euro’s spike coincided with comments issued by the President of OPEC who blamed high oil prices on a ‘mismanaged’ US economy. The comment could be taken as a direct criticism of Fed Chief Ben Bernanke, whose aggressive policy of interest rate cuts and dollar intransigence has led to cheaper money flooding into commodity classes, thus creating an asset bubble in both hard and soft commodities. US data was mixed Wednesday with the ISM non-manufacturing report printing better than expected, though the sector remains in contraction, while the ADP employment report estimates the private sector shed a net 23,000 jobs in February. The services PMI for the euro area had earlier printed exactly in line with forecast (52.3) while retail sales figures for January at 0.4% were also bang in line with estimate. Thursday and Friday are crucial days for the euro/usd pair with the ECB rate announcement tomorrow and February’s non-farm payroll number in the US on Friday. Given the sharp appreciation in the euro over the past week, the ECB will be under pressure to soften its policy tone and at least give some hint of a possible rate cut in the coming months. If the hawks get their way, another inflation-biased statement could be enough to send the euro to 1.54. Tomorrow’s meeting could prove to be one of the most important ever for the Committee. Rates are certain to remain unchanged, so eyes and ears will be firmly fixed on ECB President Jean Claude Trichet when he delivers his policy statement at 13:30 GMT. The dollar could benefit from a correction ahead of the meeting, if a bout of profit-taking sets in, with some traders looking to get out of the way ahead of the main event. The euro has found very strong support in the 1.5140 to 1.5160 range and this forms an immediate line of support. If an upward bias is maintained ahead of Thursday’s ECB statement (i.e. price remains above 1.5250) it could prove ominous for the dollar.
GBP
It has been an eventful day for cable with the pair hitting a low of 1.9720 this morning before rebounding by almost 2.5 cents. Sterling is currently trading comfortably above the 1.99 price area. If cable can hold its position above 1.99 into the Bank of England rate announcement tomorrow, we could see a break above the 2.00 line for the first time this year, if the Bank do what is expected and stand pat on interest rates this month. The non-manufacturing sector expanded by more than expected in February and when today’s PMI is looked at together with Monday’s manufacturing PMI, it suggests the industrial sector is proving to be resilient in the face of a major credit crisis and a slowing housing sector. Sterling could potentially earn a relief rally after tomorrow, which may benefit it more against the euro than against the dollar, depending on what happens with the ECB. I remain bearish on sterling in the medium to longer term but see no value in selling the currency against the euro or Swiss franc at present price levels. If selling down cable a stop should be placed just above the 2 dollar line because a break above this level could trigger a sharper rally to the upside.
JPY
The only currency which has fared worse than the US dollar today is the Japanese yen, at the time of print. Appetite has risen for riskier high-yielding currencies as stock markets stage a recovery. The yen, being the preferred funding currency of the carry trade, has been the principal loser. The US dollar has returned to Y104, while the euro has sailed over Y159 Wednesday, recording its single biggest day’s gain against the yen in six weeks. If the stock market rally carries over to the Asian session, the yen will retreat further, particularly against the commodity currencies. Markets remain volatile however so any sudden shift in direction could see the yen recover sharply. The best value trade on the yen right now is a sell of EUR/JPY as a rise in risk aversion in the coming days is likely to see a significant decline in that pair. Strategy: Sell EUR/JPY on prices above Y159 with limit targets of Y158, Y157.50 and Y157.10.
CAD
The loonie has gained against every other major currency today as the commodity currency shakes off the Bank of Canada 50 basis point rate cut with arrogant ease. The loonie has shown itself to be largely immune to interest rate decisions in recent months and it is the only major currency that has not been adversely affected by whatever the Bank of Canada might throw at it. Broad dollar weakness and rising commodity prices has seen the loonie push the dollar back to 0.9860 Wednesday, over one cent below the price the greenback reached on Tuesday. As long as this disconnect persists between commodity prices and a slowing global economy, the loonie looks destined to be well supported. The Bank of Canada did clearly state further easing was on the way, something which may limit the extent to which the loonie can appreciate. However a weak close below 0.9850 today could see recent lows revisited later in the week, especially if Friday’s employment data from both the US and Canada proves more positive for Canada. I am bearish on the loonie but just don’t like the market at present, with unpredictable erratic moves commonplace. For that reason I am inclined to hold off coming into the market for now, at least until after this week’s major risk events. Any dips below 1.50 on EUR/CAD offer good buy value for those waiting to pounce on an opportunity. Strategy: Wait until market USD/CAD settles and a sense of normality returns.
Bob B - Mar 5
Thứ Hai, 3 tháng 3, 2008
Bob's Currency Focus - 21:30
EUR/USD
A new day and yet another set of record lows for the US dollar and US dollar index. Sound familiar? On Monday the greenback fell to a lifetime low against the Swiss franc, a lifetime low of 1.5275 against the euro and a 3-year low against the yen. In fact if the current momentum continues, the Swiss franc looks destined to reach parity against the dollar within a few weeks, while the US currency looks set to decline to 100Y. Heightened risk aversion failed to spark support for the dollar and when the ISM manufacturing report for February reported a second contraction in 3 months, the dollar plunged, before recouping most of the losses when a sympathetic bout of profit-taking set in. With markets pricing in a minimum 50 basis points rate cut from the Fed on March 14 and the ECB expected to stand pat again this week, investors can see little reason to buy the dollar. It now seems to be a question of how low the dollar will be allowed to go, as opposed to how low it can go. The weak dollar is fuelling commodity prices which are rising to farcical levels and making inflation the number one issue for most major Central Banks. With the Fed prepared to cut rates regardless of inflation concerns, investors feel justified in pouring more funds into commodities. Indeed ECB Chief Jean Claude Trichet stated today that the US needs to adopt a strong dollar policy – is he perhaps intimating the US Administration and the Fed is engaged in a weak dollar policy? For now it appears the only means of saving the dollar from further embarrassment would have to come from the ECB, possibly through the unlikely event that Trichet will signal a future rate cut from the ECB when he addresses the media this Thursday, after the Committee’s latest rate announcement.
We must wait for EUR/USD to hit a peak under which a new trading range will emerge. The euro could rise to 1.54 this week, if the ECB retains its hawkish tone and if we see more negative data from the US in the way of Wednesday’s ISM Services Report and Friday’s Payroll Report. It is still dangerous to buy at present levels for fear of a sharp reversal and positional traders may want to start looking at EUR/USD as medium term sell down value. Any rallies above 1.5250 are likely to attract strong selling pressure prior to the services PMIs on Wednesday. The first line of euro support is seen at 1.5160. Strategy: Sell on prices above 1.5250 with immediate downside price targets of 1.52 and 1.5170.
GBP
Sterling is virtually unchanged Monday, despite the CIPS Manufacturing PMI for February (at 51.3) printing higher than expected. The Bank of England may be expected to keep interest rates on hold when they meet this Thursday, but judging on how sterling is struggling against every major currency except for the dollar, markets believe the Bank of England is well behind the curve. If sterling is to stabilise, it must break the 2.00 dollar mark on cable because the pound is falling well behind its European rivals, each of which are recording new lifetime highs against the dollar on nearly a daily basis. In saying that, there is no value in selling sterling against the euro or the Swiss franc because the appreciation in these currencies looks overdone for now. Cable still offers the best value for sterling bears, while price remains below the 2 dollar line. Strategy: Sell GBP/USD on prices above 1.9920 with limit prices of 1.9820, 1.9780, 1.9740 and 1.9680. Place a stop loss above 1.9770 or 2.00.
JPY
The dollar fell to below Y103 today for the first time in 3 years and an imminent retreat to Y100 now looks on the cards sooner rather than later, particularly as risk concerns continue to dominate markets. Data out of the US Monday did little to perk up the mood, although the dollar has come off the low of Y102.60 hit during the European session. The euro also dropped to below Y156, before recovering to Y157. While concerns over the global economy and further narrowing in interest rate differentials will benefit the yen, any reprieve in global stock markets could trigger a sharp yen sell-off in the short-term, given the extent of recent gains. There is definite short-term value in buying the dollar against the yen on prices below Y103, even if there is the risk of further losses in the coming days. There is potential for the yen to extend its gains against the euro, over the medium term. It is notable that there have been few complaints from Japanese officials over the appreciation in the currency, so direct market intervention is unlikely for now.
CAD
Canada’s economy appears to be moving in the same direction as the US economy. Quarter 4 GDP stumbled to a miserable 0.2%, while the annualised growth rate at 0.8% was almost as bad as the 0.6% recorded in the US. To make matters worse, the year ended with a 0.7% contraction in growth, much worse than the -0.2% forecast. The stage looks set for a 0.5% rate cut by the Bank of Canada Tuesday and anything less at this stage will be taken as a sign of weakness and uncertainty on the part of Mr Carney, presiding over his first monetary policy decision since taking over a Governor on Feb 1st. Commodity prices are keeping the loonie inflated in value at present and speculators seem determined to bet on the commodity currency regardless of what disconnects there may be with the economy. Speculative long positions on the loonie grew by a net 17.3K last week on Chicago’s Mercantile Exchange, the highest this year. The Bank of Canada needs to be unflinching in the decision and statement it issues tomorrow. USD/CAD should rally to above parity in the event of a 50 basis points cut. Traders are advised to be ultra-cautious when trading the loonie because erratic and unpredictable movements, usually favouring the loonie, are regular occurrences of late. I prefer to buy USD/CAD and target 1.0050 in the event of a 50 basis points cut Tuesday.
Bob B - Mar 3
A new day and yet another set of record lows for the US dollar and US dollar index. Sound familiar? On Monday the greenback fell to a lifetime low against the Swiss franc, a lifetime low of 1.5275 against the euro and a 3-year low against the yen. In fact if the current momentum continues, the Swiss franc looks destined to reach parity against the dollar within a few weeks, while the US currency looks set to decline to 100Y. Heightened risk aversion failed to spark support for the dollar and when the ISM manufacturing report for February reported a second contraction in 3 months, the dollar plunged, before recouping most of the losses when a sympathetic bout of profit-taking set in. With markets pricing in a minimum 50 basis points rate cut from the Fed on March 14 and the ECB expected to stand pat again this week, investors can see little reason to buy the dollar. It now seems to be a question of how low the dollar will be allowed to go, as opposed to how low it can go. The weak dollar is fuelling commodity prices which are rising to farcical levels and making inflation the number one issue for most major Central Banks. With the Fed prepared to cut rates regardless of inflation concerns, investors feel justified in pouring more funds into commodities. Indeed ECB Chief Jean Claude Trichet stated today that the US needs to adopt a strong dollar policy – is he perhaps intimating the US Administration and the Fed is engaged in a weak dollar policy? For now it appears the only means of saving the dollar from further embarrassment would have to come from the ECB, possibly through the unlikely event that Trichet will signal a future rate cut from the ECB when he addresses the media this Thursday, after the Committee’s latest rate announcement.
We must wait for EUR/USD to hit a peak under which a new trading range will emerge. The euro could rise to 1.54 this week, if the ECB retains its hawkish tone and if we see more negative data from the US in the way of Wednesday’s ISM Services Report and Friday’s Payroll Report. It is still dangerous to buy at present levels for fear of a sharp reversal and positional traders may want to start looking at EUR/USD as medium term sell down value. Any rallies above 1.5250 are likely to attract strong selling pressure prior to the services PMIs on Wednesday. The first line of euro support is seen at 1.5160. Strategy: Sell on prices above 1.5250 with immediate downside price targets of 1.52 and 1.5170.
GBP
Sterling is virtually unchanged Monday, despite the CIPS Manufacturing PMI for February (at 51.3) printing higher than expected. The Bank of England may be expected to keep interest rates on hold when they meet this Thursday, but judging on how sterling is struggling against every major currency except for the dollar, markets believe the Bank of England is well behind the curve. If sterling is to stabilise, it must break the 2.00 dollar mark on cable because the pound is falling well behind its European rivals, each of which are recording new lifetime highs against the dollar on nearly a daily basis. In saying that, there is no value in selling sterling against the euro or the Swiss franc because the appreciation in these currencies looks overdone for now. Cable still offers the best value for sterling bears, while price remains below the 2 dollar line. Strategy: Sell GBP/USD on prices above 1.9920 with limit prices of 1.9820, 1.9780, 1.9740 and 1.9680. Place a stop loss above 1.9770 or 2.00.
JPY
The dollar fell to below Y103 today for the first time in 3 years and an imminent retreat to Y100 now looks on the cards sooner rather than later, particularly as risk concerns continue to dominate markets. Data out of the US Monday did little to perk up the mood, although the dollar has come off the low of Y102.60 hit during the European session. The euro also dropped to below Y156, before recovering to Y157. While concerns over the global economy and further narrowing in interest rate differentials will benefit the yen, any reprieve in global stock markets could trigger a sharp yen sell-off in the short-term, given the extent of recent gains. There is definite short-term value in buying the dollar against the yen on prices below Y103, even if there is the risk of further losses in the coming days. There is potential for the yen to extend its gains against the euro, over the medium term. It is notable that there have been few complaints from Japanese officials over the appreciation in the currency, so direct market intervention is unlikely for now.
CAD
Canada’s economy appears to be moving in the same direction as the US economy. Quarter 4 GDP stumbled to a miserable 0.2%, while the annualised growth rate at 0.8% was almost as bad as the 0.6% recorded in the US. To make matters worse, the year ended with a 0.7% contraction in growth, much worse than the -0.2% forecast. The stage looks set for a 0.5% rate cut by the Bank of Canada Tuesday and anything less at this stage will be taken as a sign of weakness and uncertainty on the part of Mr Carney, presiding over his first monetary policy decision since taking over a Governor on Feb 1st. Commodity prices are keeping the loonie inflated in value at present and speculators seem determined to bet on the commodity currency regardless of what disconnects there may be with the economy. Speculative long positions on the loonie grew by a net 17.3K last week on Chicago’s Mercantile Exchange, the highest this year. The Bank of Canada needs to be unflinching in the decision and statement it issues tomorrow. USD/CAD should rally to above parity in the event of a 50 basis points cut. Traders are advised to be ultra-cautious when trading the loonie because erratic and unpredictable movements, usually favouring the loonie, are regular occurrences of late. I prefer to buy USD/CAD and target 1.0050 in the event of a 50 basis points cut Tuesday.
Bob B - Mar 3
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