Tag Archives: Foreign exchange market

No Hope For The Dollar?

A very ugly batch of data today from the US, particularly the new spike in jobless claims, will have the market cooking up fresh imaginings of QE to infinity. Here’s a fresh update from Saxo Bank.

“At some point, it becomes a very fearsome thing to contemplate a disorderly demise of the world’s reserve currency and what that could mean for the world’s markets.”

John J. Hardy


It’s a perfectly timed question, as the USD struggle to recover from a three-year low, and the US FED signals zero interest rate practically forever if necessary. So, what does Thursday’s data mean for risk appetite and for the USD – could it be slightly supportive in the near term, or is there simply no hope for the greenback?


“Remember in our look at the last couple of FOMC meetings, that the pattern we saw in both rates and in the USD. Those meetings produced a short additional weakening in an already weak USD, followed by a period of consolidation. So far, the pattern is holding,” FX strategist John J. Hardy writes in an update.

Adding: “This time around, Bernanke did all he could to make us all want to run out and buy survival supplies and alternative investments with every greenback we could scrounge up. The question is what percentage of the market has waited until this point to get short of the USD, considering the very stretched move we have seen up to this point. In the nearest term, in other words, there could be more risk of a two-way market developing as long as the market’s largest participants (central banks and others) don’t press the panic button.”

A Disorderly Demise of the Dollar?

But beyond the immediate term, we have to wonder, Saxo Bank concludes.

“As our Chief Economist pointed out in a column this morning, whether this latest performance from Bernanke and company raises the risk of a true USD crisis rather than just a USD slide. While this game of everything up versus the greenback has so far been a relatively risk benign development – at some point, it becomes a very fearsome thing to contemplate a disorderly demise of the world’s reserve currency and what that could mean for the world’s markets,” Hardy writes.

Odds and ends


It is increasingly clear from the stream of data from Japan that the economy took a very serious hit.

The overall household spending level for March was out overnight at -8.5% YoY and the Industrial Production figure for the month was down a stunning -15.3% MoM.

These data only include the effects of the first three weeks of the crisis.

“The market may be willing to give the country some leeway and wait for the May numbers to see how well things are bouncing back, but until then, the sheer magnitude of the fallout is frightening. Meanwhile, the push and pull of the bond rally (JPY supportive) and the worry over sovereign debt levels (JPY negative) is seeing plenty of churning in JPY crosses,” Saxo Bank notes.

Just More Trouble

New Zealand’s RBNZ threw the market a surprise in stating that it expected the cash rate level would be “appropriate for some time”, as it noted that the “outlook for the New Zealand economy remains very uncertain following February’s Christchurch earthquake”.

“The market wasn’t particularly well positioned for this and the NZD was weaker across the board – even against the US dollar relative to yesterday’s levels.”

NZD/USD:

This chart looking toppish for the moment with divergent momentum after the RBNZ looks to stay on hold longer than the market expected.

“The 80 level is also a psychological barrier for the market. But look how far we have come over the last several weeks – it would take quite some doing to reverse the trend. If 80 fails on the close today, we may have to shift the focus to support a bit further to the south,” John Hardy points out.

Very Ugly and Downright Awful

A significant bite was taken out of the pound’s rally against the USD overnight on the release of a very ugly GfK confidence survey, which showed a strong dip to -31, the lowest level since early 2009.

“The UK is in a very similar boat as the US – though the UK government at least taking a step in the direction of austerity while US politicians are divided on even inconsequential budget moves still seems to be giving sterling a premium. But eventually, a sovereign debt crisis theme could weigh as heavily on the pound as well,” Saxo Bank comments.

Today’s US jobless claims data was downright awful.

“We can always toss the GDP data out the window as yesterday’s news, but the weakness is still remarkable considering the massive support from the FED and from the Obama stimulus that provided a strong tailwind from the turn of the year. But the weekly initial jobless claims number has to make us all uncomfortable with the prospects for the US job market, as this week’s claims are the highest since January and now we have three 400k+ readings in a row,” Hardy writes.

Looking Ahead (Trying)

“As US long treasuries are rallying to new local highs (lows in yield) today in the wake of the weak US data, we have a 7-year US treasury auction that offers another test of demand for treasuries, which still appears rather robust at the moment (a phenomenon that continues to stick out like a sore thumb considering developments in other markets, perhaps reflecting the increasing signs of a weakening in the US economy, not to mention the background excuse of FED buying, though it’s important to remember that treasuries sold off consistently for a long time once QE2 became a reality).”

Yesterday’s 5-year auction saw results in line with recent averages despite the uncertainty of the FOMC proceedings that took place in the auction’s wake.

“Could a strong bond market and a weakening risk appetite today pummel some of the pro-risk JPY crosses? Also – is the ugly US data USD bearish because of an increased likelihood the market prices in of QE3+ or is it USD supportive for a little while considering how far we have already come and due to the potential for some risk aversion?” Hardy writes.

And perhaps the most valuable trading tips of today:

“Be careful out there – volatility potential is higher than ever. Don’t forget that tomorrow is the last trading day of the month and could therefore see strong end-of-the month fixing flows.”

John J. Hardy

John J. Hardy is Consulting FX Strategist for Saxo Bank.

John has developed a broad following from his popular and often quoted daily Forex Market Update column, received by Saxo Bank clients and partners, the press and sales traders.

Read also: Saxo FX Monthly April 2011.

Coming to a bank near you...

More photo comments

By the way, here’s Saxo’s latest update on equities:

“The first quarter earnings season continues in a strong way – with 224 S&P 500 companies having reported so far and 77% of these having surprised to the upside. Peter Garnry, Equity Strategist, Saxo Bank takes a look at some of the strong performers across a few sectors. He discusses the earnings from Amazon and UPS, which are both benefiting from more consumers buying products on line, plus European banks which are now well into their quarterly reporting but are struggling more than their U.S. counterparts. He also comments on automakers like Ford Motor which reported its best earnings since 1998 and a possible sales boost for U.S. and European car makers collectively due to the post earthquake production and supply struggles of their Japanese competitors. Volvo is also mentioned in terms of an emerging heavy vehcile replacement cycle.”

Vodpod videos no longer available.

Equity Update. Saxo Bank, posted with vodpod

3 Comments

Filed under International Econnomic Politics, National Economic Politics, Technology, Uncategorized

Forex Strategy In The Irish Aftermath

Here’s some tips on how to navigate in the foreign exchange market the coming week in the aftermath of the Irish bailout drama. Reports and analysis from Saxo Bank, DnB NOR Markets and others.

“EUR gapped higher as trading kicked off but then hovers in Asia; S&P cuts New Zealand’s outlook to negative.”

Andrew Timothy Robinson


“We started the week off slowly in Asia with only minor data to whet the appetite. The European session is also quiet with Swiss money supply the only release while the US session has the Chicago FED Index and a late euro zone consumer confidence to cope with,” Saxo Bank’s FX spesialist Andrew Robinson writes.

In weekend developments, Ireland bowed to EU pressure and requested a bailout package and its related conditions.

“Initial announcements suggest a bailout to the tune of €80-90 bln with a 4-year plan to reduce the budget deficit by 2015. The final rate is still being negotiated but will certainly be better rate than currently available in the markets,” Robinson at Saxo Bank ponts out.

Adding: “The response from G7 finance ministers was positive, saying “The coordinated action of European countries and the IMF reflects our shared resolve to act swiftly and decisively to mitigate emerging risks, maintain market stability, and safeguard the global recovery”.

The initial reaction saw the EUR open 40-50 ticks higher in Asia from the NY close though other risk pairs failed to catch the wave to the same degree.

Asia struggled to press on with the gains with a Tokyo holiday tomorrow curtailing trading interest.

In addition the US Thanksgiving holiday on Thursday tempered interest.

“The Thanksgiving holiday causes most of the data activity to be bunched into the first half of the week – but not today,” Andrew Robinson writes.

Andrew Robinson

“Midway through the session ratings agency S&P announced it was switching its outlook for New Zealand’s foreign currency rating, and those of 6 related agencies, back to negative. The agency said the outlook revision reflected its recognition of the risks stemming from New Zealand’s projected widening external imbalances in the context of the country’s weakened fiscal flexibility while the vulnerability to external shocks, arising from its open and relatively undiversified economy, also raised risks to the country’s economic recovery and credit quality.”

However, a range of factors ameliorates some of these risks, the agency added, including a high degree of foreign-currency-debt hedging and an actively traded currency.

“New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust. Despite this, NZD tumbled one big figure versus the dollar and was weaker on most crosses.”

Here’s a copy of Monday’s FX report by Saxo Bank.

Oversold Euro

From today’s Gartman Letter:

“Note then the chart of the EUR vs. the US dollar in hourly terms at the upper left this page. The fact that the EUR made its low last Tuesday at or near 1.3540 and that it has rallied all the way to 1.3750 is impressive, taking the EUR from having been rather egregiously over-sold to the point where it is not modestly overbought. We’ve noted again the 50-62% retracement region… the area we call “The Box” … of the bearish move against the EUR that took the EUR from 1.4250 to 1.3450. The market has some way yet to rally just to get to “The Box” and so we shall not be surprised to see it rally a bit more in the course of the next few days. However, our propensity shall be to sell that strength rather than buying weakness. We’ll wait, however, until the EUR rallies back to The Box before taking such action. We can and we will be patient,”

Here’s a copy of the full analysis.

THE WATCHLIST – UPCOMING SESSION:

  • Swiss M3 Money Supply (0800)
  • Denmark Consumer Confidence (0830)
  • HK CPI (0830)
  • US Chicago Fed Nat. Activity Index (1330)
  • EU Euro-zone Consumer Confidence (1500)
  • US Fed’s Kocherlakota to speak (1830)

(All Times GMT)

See also:

DnB NOR Markets, Weekly Update, Foreign Exchange Market. 11222010.

DnB NOR Markets. Weekly Update. Scandinavian Macro. 11222010.

Saxo Bank. Wake-up Call. 11222010.

Related by The Swapper:

.

Select Your Language:

English * Arabic * Chinese * Danish * French * German * Hebrew * Italian * Japanese * Norwegian * Portuguese * Russian * Spanish * Swedish * Turkish

Comments Off on Forex Strategy In The Irish Aftermath

Filed under International Econnomic Politics, National Economic Politics

The Fight Against Currency War

G20 pledges to avoid weakening currencies to boost exports and to let markets increasingly set foreign exchange values, after the weekend summit. The risk of a of currency war seems to have abated somewhat, and the USD is now at a 15-year low.

“The terms on currency policy are relatively vague and may be interpreted differently by each country. It remains to be seen whether actual practises will be changed.”

Camilla Viland


As expected, currencies were discussed at the G20 meeting over the weekend. The finance ministers of the group now pledges to avoid further weakening of currencies, to boost exports and to let markets increasingly set foreign exchange values. This could be interesting…

First of all; there was no decision on the US proposal for current account targets, and this debate will be continued at next months G20 meeting in Seoul.

And second; the terms on currency policy are relatively vague and may be interpreted differently by each country. It remains to be seen whether actual practises will be changed.

“However, it is very positive that they have come up with a joint statement on currencies,” analyst Camilla Viland at DnB NOR Markets writes in Monday’s Morning Report.

Previously this has been avoided in fear of alienating China, she points out.

USD At 15-Year Low

The USD weakened after the G20 meeting, as the risk of tensions in the currency market has abated, according to DnB NOR Markets.

Camilla Viland

“The dollar has, among others, weakened versus Asian currencies on the prospect nations in the region will refrain from intervening in foreign exchange markets,” Ms. Viland  writes.

Expectations of the Federal Reserve announcing another round of quantitative easing next week also helps in bringing the dollar down.

Another currency which has weakened over the weekend is the Swiss franc.

“The currency is normally seen as a safe haven in the currency market and the weakening may be a result of lower risk of a currency war,” the Norwegian analyst says.

 

Biggest Strauss Kahn Statement – Ever?

Dominique Strauss Kahn

The G20 financial leaders also decided that Europe will surrender two seats in the IMF’s executive board to emerging nations, like China, India and Brazil with the intent to give these countries more power.

IMF-chief Dominique Strauss Kahn said that this was the “biggest IMF reform ever.”

Yeah, right!

Mr. Strauss Kahn is about to get a reputation for distributing pompous – and not very well founded – statements.

See also: In The Brigh Minds Of IMF

 

German Economy Still Flying

The German IFO index rose from 106.8 in September to 107.6 in October.

German Economy Recover

This is the highest outcome since May 2007, and better than consensus’ estimate of 106.5 and the outcome signals solid growth for the locomotive of European economy.

However, it is worth noting that this month’s improvement was not only due to better current conditions, but also due to a rise in business expectations.

“The latest developments in the German economy have been positive. However, we do not expect this to last. Due to sluggish international growth and a strong euro, growth will abate going forward. Fiscal tightening will also weigh on German growth,” Camilla Viland at DnB NOR Markets writes.

And Now; The US Housing Market

From the US, figures for existing home sales in September will be released Monday.

The Pending home sales index, which is an indicator for actual home sales, has risen over the last two months.

Mr. Housing Market

And we may see a rise in existing home sales this month, too. (Consensus expects 4.3 million houses to have been sold in September, up from 4.1 million sales in August.)

“Such an outcome is positive. Nevertheless, the levels of monthly house sales are very low seen in a historical context,” Camilla Viland notes.

And yet to come; the impact of the foreclosure scandal…

Scandic Updates

Here in Scandinavia several important events are on the agenda this week.

In the Norwegian, Norges Bank‘s interest rate meeting and the release of a new monetary policy report, will probably get most attention.

“Both we and consensus expect the interest rate to be left on hold at this meeting,” Ms. Viland writes.

In fact, a survey by the financial news agency, TDN Finans, shows that out of 17 participating analysts, no one expects the Norwegian Central Bank to rise its key rate.

(But wouldn’t it be fun if governor Svein Gjedrem pulled one last stunt before he retires in December?)

Anyway – the central banks new interest rate path (a prediction of the key rate level going forward) will probably be the most interesting thing for Mr. Gjedrem & Co.

The interest path rate has been lowered a few times already this year, and the interest rate is currently set to be raised around New Year.

“Given the latest developments we do not see this as likely. Foreign swap rates have fallen markedly since the previous report was released in June and inflation has been lower than anticipated. This indicates that the interest rate path will be lowered,” DnB NOR Markets says.

Adding: “We expect that the new interest rate path will indicate that the next rate hike will not be until March or May 2011.”

Also the Swedish Riksbank meets this week, holding their monetary policy meeting on Tuesday.

“The Swedish economy has performed strongly lately and this is one reason why the Riksbank has raises rates by 50 bps since the bottom. The Riksbank has signalled that more is to come and both we and consensus expect them to raise the interest rate by 25 basis points, to 1.00%, at tomorrows meeting,” the Norwegian money market specialist says.

More from DnB NOR Markets:

OSE Share recommendations. 25 – 29 October 2010.

Weekly FX Update.

Select Your Language:

Arabic * Chinese * Danish * English * French * German * Hebrew * Italian * Japanese * Norwegian * Portuguese * Russian * Spanish * Swedish * Turkish

Comments Off on The Fight Against Currency War

Filed under International Econnomic Politics, National Economic Politics