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Dollar Rally Likely To Stall Ahead Of US GDP Data

Thu, Jul 31 2008, 08:39 GMT
by Grace Cheng

A leading New York-based financial portal, is a must-read for traders and investors who want high-impact financial news, market information and opinions from the ground.

The US dollar’s rally against major currencies from Tuesday, as a result of better-than-forecast US consumer confidence, was carried over to Wednesday, albeit at a slower pace. EUR/USD dipped to another 1-month low of 1.5520 today while USD/CHF rose to a 6-week high of 1.0520 after the release of an unexpectedly positive jobs report from ADP which showed that private employers added 6000 jobs last month, versus an average forecast cut of 60,000 jobs.

This surprising outcome is leading many to think that maybe, just maybe, this Friday’s release of the government NFP report won’t be as bad as forecast. The estimate is for a cut of 75,000 jobs in July, following a decline of 62,000 in June. The dollar later gave up some of its gains when oil shot up $5 after US DOE oil inventories data showed crude inventories fell unexpectedly. Nymex crude oil closed at $126.77 after falling to $120.42 on Tuesday, the lowest level since May 6.

Another factor that could capped dollar’s gains for the moment has been a Fed announcement Wednesday that it will extend its emergency credit facilities, established in March, through January 30. Both the Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries will now be extended to non-banks “in light of continued fragile circumstances in financial markets”.

Such an action suggests that the financial firms are still having much difficulty and credit conditions remain very tight. Not a good sign for the US financial system as a whole, but then again, it could be seen by market players as a positive sign that the Fed is doing something concrete to help the markets. People only see what they want to see.

For now, EUR/USD has a cushion of support between 1.5480-1.5510. Further selling could pull the currency pair towards 1.5440-50. USD/CHF’s next challenge is to tackle 1.0540-50 before it can reach for 1.0600.

Watch out for Thursday’s release of US GDP estimate for the second quarter which is expected to increase 1.8%, up from 10% in the first quarter and 0.6% in the fourth quarter of 2007.

Economic Calendar For Thursday:

Australia retail sales 0130 GMT
Swiss CPI 0545 GMT
Eurozone CPI 0900 GMT
Canada GDP 1230 GMT
US GDP, core PCE 1230 GMT

Published on Thu, Jul 31 2008, 08:39 GMT

Near−Term Rally Of Dollar A Possibility As Fed's Plosser Voices Out Rate Hike Urgency

Wed, Jul 23 2008, 07:21 GMT
by Grace Cheng

GraceCheng.com

On Tuesday, the forex and stock markets were shaken not by corporate earnings results and not by any economic releases, but by a hawkish speech from Fed’s Plosser. The Philadelphia Fed President said there should be interest rate hikes “sooner rather than later” even if employment and financial conditions haven’t improved. This renewed signal to raise rates helped push the US dollar sharply against the Euro, Swiss franc, British pound, Japanese yen, Aussie and Kiwi, and could set the dollar on a near-term rally.

How quickly things change in the financial world; one minute, bets for a near-term rate hike are off the table, and the next, everyone’s anxious to place their bets for one again. It also reminds me of how drastically people change sides: one moment the government denies the implicit guarantee given to Freddie and Fannie, then suddenly they are clearly in trouble and Uncle Sam is there to save the day.

Anyway, back to Plosser’s comments, I think it is a good thing Plosser has the sense to highlight inflation risks and the foresight to consider voting for a rate hike soon, and not be sidetracked by how bad sharebuyers are doing. Inflation is a bigger evil than a downturn.

EUR/USD fell to the lowest since July 11, touching an intraday low of 1.5760. With Euro struggling to make more new highs in spite of largely disappointing earnings from US companies, we could expect Euro bulls to get out of the market. Next bear targets for EUR/USD are around 1.5720, 1.5690, 1.5660.

USD/CHF finally broke above 1.0250 to a session high of 1.0335, with 1.0350, 1.0390 the next topside objectives.

Stock Markets Charmed By Oil Decline

With the dollar up, crude oil prices in turn headed downward, dropping more than $3 to below $130 per barrel. At the same time, concerns about Tropical Storm Dolly subsided, aiding the slide of oil. US stocks initially went lower on Wachovia’s (WB: 16.79 +3.61 +27.39%) poor earnings results, but later went up as oil fell during the session.

The Dow Jones industrial average closed up more than 130 points. Even Wachovia shares later rose 27% to $16.79 - not bad for a bank that posted a $8.9 billion loss for the second quarter. Washington Mutual (WM: 5.82 +0.34 +6.20%), US’s largest savings and loan company, which released its earnings after the market close, announced a loss of $3.33 billion. CBOE’s VIX index (VIX-X.W: 23.05 0.00 0.00%) fell 8.1% to 21.18, the lowest level since June 25. It had initially gained as much as 4.5% at the beginning of trading.

How stock markets will react on Wednesday is anyone’s guess. But as for the forex markets, the US dollar seems to have the upper hand for now.

Economic Calendar For Wednesday:

Australia CPI 0130 GMT
Bank of England minutes 0830 GMT
Canada CPI 1100 GMT
Fed’s Beige Book 1800 GMT
Reserve Bank Of New Zealand rate decision 2100 GMT (rate expected to stay at 8.25%)

Published on Wed, Jul 23 2008, 07:21 GMT

Stay Profitable In These Volatile Market Conditions By Making Quick Trades

Mon, Jul 21 2008, 09:35 GMT
by Grace Cheng

GraceCheng.com

A crazy week in the markets has gone by again, and I must emphasize the “crazy”. Sentiment has swung from one panic end to another euphoric end, and even so, investors can’t maintain each state of emotion with much conviction or get others to feel the same way they do. Many of them are confused about what to think about the “rally” that we’ve seen in the stock markets this week and the “rally” of the US dollar in the forex markets.

Early in the week, stocks kept falling on the woes of Freddie Mac (FRE: 9.18 0.00 0.00%) and Fannie Mae (FNM: 13.40 0.00 0.00%), the two largest buyers of mortgage loans in the US, and in forex, the US dollar fell to a record low against the Euro on broad pessimism about the US economy. But later, when Bernanke said on Wednesday that Fannie and Freddie are not in danger of failure, everything reversed in the markets, as if the fundamentals had changed as well. As if Bernanke can cure the disease and not just the symptoms.

US corporate earnings came in mixed; Banking giant Citigroup (C: 19.35 0.00 0.00%) reported a quarterly loss of $2.5 billion in the second quarter after writing down $7.2 billion, and even though it is a huge loss, the loss per share is not as much as what the market had predicted. Merrill Lynch (MER: 30.91 0.00 0.00%) also posted a steep second quarter loss ($9 billion writedown). Tech companies Microsoft (MSFT: 25.86 0.00 0.00%) and Google (GOOG: 481.32 0.00 0.00%) posted profits that were less than what many had expected. The drop in profit experienced by Google was actually the steepest since it went public in 2004.

The upward move in stocks could also partly be the result of a short covering, since the SEC is now making a somewhat big deal of “naked short selling”, but has done a poor job in explaining to people what is allowed and what isn’t, and to whom. The SEC can join the ranks of the Fed, the Treasury etc, for they all seem to be lacking credibility, just when it is needed the most.

Dollar is chalking up a weekly gain against the Euro even though it hit a record low on Tuesday, and also against the Swiss franc and the Japanese yen. It however has weakened against the British pound. Much focus will be on oil prices; if they fall further next week, they would be dollar-supportive, but if not, we could see dollar weakness again.

In forex trading, the Euro’s bullish steam may have temporarily stalled against the dollar, but it has resumed against the Japanese yen. After EUR/JPY dropped more than 300 pips from its high of 169.70 in the earlier part of the week, it has now gone back up above 169.00. As for EUR/USD, it first has to break above 1.5910-20 if it intends to test 1.6000 again.

Friday’s German inflation data showed that German producer prices rose at its fastest pace since March 1982, increasing 6.7% year-on-year in June, surpassing the 6% posted in May, and was higher than expected.

To stay profitable in these uncertain times, make quick trades and remain skeptical. One day does not a market make.

Published on Mon, Jul 21 2008, 09:35 GMT

Bernanke's Bleak Outlook Could Pressure Dollar To Further Record Lows Against Euro

Wed, Jul 16 2008, 10:10 GMT
by Grace Cheng

GraceCheng.com

Indeed, Fed chief Bernanke’s testimony before the US Senate Banking Committee today has sparked off big moves in forex and stock markets, as I’ve warned yesterday. Unlike previous testimonies, Bernanke didn’t mince his words that much this time, saying that there are “significant downside risks to the outlook for growth” and “upside risks to the inflation outlook have intensified.” His much-anticipated speech came hot on the heels of the aid given by the US government and the Fed to Freddie Mac and Fannie Mae. Bernanke also said that “helping the financial markets return to more normal functioning will continue to be a top priority of the Federal Reserve.” He attributed the increased economic downside risks to “the possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets”.

Yes, it is a starkly gloomy picture of what is going on with the US, the world’s biggest economy. All in all, very bearish comments; one can sense that he has shifted from plainly reassuring the financial markets to giving a realistic overview of what could be tipping the US into recession.

Bernanke said that although the weak dollar has “contributed somewhat to the increase in oil prices”, the latter is mainly driven by basic supply and demand. When asked whether he is comfortable with the current weak dollar levels, he didn’t answer directly, but instead said that he expects the economy to strengthen next year and in doing so support a stronger USD ahead.

Will people buy that? When all we see is one financial failure after another? Can he truly expect that to happen in such a short period of time?

The Fed is not likely to raise interest rates higher this year in the midst of such a negative outlook. In fact, traders are now pricing in a 36% chance of the Fed raising rates in December, down from 60% initially.

US Retail Spending Down

US data released today was mixed but generally on the weaker end. US retail sales increased by 0.1% in June, far worse than the 0.5% increase expected by most. The numbers are disappointing because it means that there has been little positive effect spilled over into retail spending even though Americans were given tax rebate checks since late April. According to the Treasury Department, $91.83 billion in payments were given out between April 28 through July 11.

Shakeup In Forex Markets

We could see the beginning of another phase of fresh US dollar weakness in the forex markets. It may be better to sell into USD rallies and ride on the bearish USD momentum.USD/CHF fell to a near three-month low, breaking sharply below the triangle on the chart to an intraday low around 1.0010. If 1.0000 is broken, the currency pair may target 0.9960, 0.9930, and then towards 0.9890. Selling pressure may step in around 1.0100-20.

Euro will emerge the winner against the dollar, but it is still a question as to how high it can rally, given objections of a strong Euro by European ministers and a weaker-than-forecast ZEW survey. Even so, a high Euro can do some good in mitigating the effects of high oil prices in the Euro area. EUR/USD rose to a record high today, rallying to an intraday high of 1.6040. Nearest support is around 1.5840.

GBP/USD hit a near 4-month high today, rising more than 200 pips to 2.0155.

Economic Calendar For Wednesday:

German CPI 0600 GMT
Swiss retail sales 0715 GMT
UK claimant count 0830 GMT
Eurozone CPI 0900 GMT
US CPI 1230 GMT
US TICS 1300 GMT
US industrial production 1315 GMT
Bernanke Gives Semiannual Monetary Policy Testimony at House 1400 GMT
US FOMC minutes of Jun 24/25 meeting 1800 GMT

Published on Wed, Jul 16 2008, 10:10 GMT

US Dollar On The Defensive Ahead Of Bernanke's Testimony And Retail Sales Data

Tue, Jul 15 2008, 09:14 GMT
by Grace Cheng

GraceCheng.com

The US dollar had a good start when the forex market opened in Asia on Monday and into the European trading session, inspired by the US government’s plan reported Sunday evening to help the struggling mortgage giants Freddie Mac (FRE: 7.11 0.00 0.00%) and Fannie Mae (FNM: 9.73 0.00 0.00%). But as we move into the New York session, traders are taking their profits on dollar strength for fear that the US currency may not have sustained buying interest due to continued downside pressure on the US stock markets and focus on oil prices.

The US dollar will play defense this week, how could it not? The US subprime crisis is rearing its beastly head, and instead of talking about economic recovery, we are talking about an economic disaster that has to be averted or cushioned to some extent. George Soros is suggesting that there could be further weakness for the greenback.

EUR/USD dipped to an intraday low around 1.5840, but now is trading above 1.5900 again. If it can break successfully above 1.5980, it could retest 1.6020, its all-time high. Nearest support is around 1.5840. USD/CHF’s resistance lies around 1.0280 and support is around 1.0110.

Whether you trade currencies or stocks, you must not miss Fed chief Bernanke’s testimony before the Senate Banking Committee on Tuesday. If what he says is reassuring to stock investors, or if he explicitly mentions the weak US dollar exchange rate, the US dollar could get a respite. If not, dollar will play defensive. US stock performance this week will also be decided by Q2 earnings results from tech giants like IBM (IBM: 121.54 0.00 0.00%) and Microsoft (MSFT: 25.15 0.00 0.00%).

Today Freddie Mac initiated sale of $3 billion worth of bonds, and its treasurer said just a little while ago that today’s bond auction was “business as usual” with “very, very strong” foreign investment. According to the treasurer, Freddie has not seen a “crisis of confidence” when it comes to raising capital. Sure, bond sales may be business as usual and demand for their notes are supposedly higher than average, but I’m not sure if stockholders feel the same degree of confidence as bond buyers. These days, “reassuring” words mean very little.

As for Freddie and Fannie stocks, Goldman Sachs (GS: 158.67 0.00 0.00%) said Monday they may fall another 35%, estimating that Fannie Mae may drop to $7 from $18 and Freddie Mac to fall to $5 from $17. With regards to the government bailout plan of these publicly traded companies (Treasury’s Paulson is seeking Congress approval for unlimited authority for 18 months to buy as much stock of these companies as he deems necessary), veteran investor Jim Rogers said:

“I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae. So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation.”

I have to agree with him.

Economic Calendar For Tuesday:

Italian CPI 0800 GMT
UK CPI, retail price index 0830 GMT
German Zew 0900 GMT
US PPI, retail sales, Empire manufacturing 1230 GMT
Bank of Canada rate decision 1300 GMT (rate expected to stay at 3%)
Fed Bernanke gives semi-annual monetary policy testimony before Senate 1400 GMT

Published on Tue, Jul 15 2008, 09:14 GMT

The Freddie/Fannie Saga: Short Sellers Of Dollar And Financial Stocks Profit

Mon, Jul 14 2008, 13:47 GMT
by Grace Cheng

GraceCheng.com

Early this year there has been talk about how the US economy could experience a V or W or L shaped economic situation, and now it seems that the economy could indeed be heading towards further deterioration. Although this past week has been one bereft of much major economic releases from the US or Eurozone, traders and investors have been subjected to more negative news coming from the US financial sector.

On Friday, the US dollar fell sharply against the Euro, Swiss franc, British pound and the Japanese yen in the currency markets as crude oil futures reached another all-time high of $147.27 on worries that Israel may be preparing to attack Iran, and on concerns that Fannie Mae (FNM: 12.98 +2.73 +26.63%) and Freddie Mac (FRE: 9.39 +1.64 +21.16%) - the two biggest sources of financing of home loans in the US- are insolvent, owing more money than what their assets are worth, and are having problems with raising enough capital to stay afloat. If you don’t know these two catchy-sounding entities, it’s time you do as these listed companies (they are actually Government-Sponsored Entities or GSEs) own or guarantee almost of the $12 trillion worth of US home loans, owning $5 trillion of debt.

If Fannie and Freddie are finding it difficult or too expensive to borrow money, they won’t be able to buy mortgages from mortgage lenders, which are firms or banks who lend you, the consumer, money to purchase your house, and that in turn makes home loans more difficult to obtain for the people in the street. And if loans are hard to come by, the already anemic US housing market could sink into a coma - without much activity going on.

Panic about these two giants grew on Thursday after the New York Times said the Bush administration discussed the possibility of placing the companies into a conservatorship if their problems worsened. To cut it short, that could result in almost worthless stock for people who hold their shares. Former St Louis Fed’s Poole said on Friday that “it would produce a worldwide financial crisis of unspeakable magnitude if they were allowed to default.”

Fannie shares fell as much as 49% on Friday but ended the day 22% down. Freddie finished 3% lower. Expect a rollercoaster ride with these stocks. The Dow, S&P 500 and Nasdaq all ended the week lower again; the Dow briefly fell below the 11,000 level Friday for the first time in two years, but ended the day at 11,100.54.

Profit From Dollar Weakness

Fresh concerns about another eruption of financial crisis in the US are leading traders to short the US dollar in the forex markets against other currencies. Even a narrowed US trade deficit reported Friday did little to soothe the dollar’s pain. The US dollar’s fate doesn’t look well at all now, and bearish sentiment is likely to haunt the currency in the near-term. The Fed’s ability to raise interest rates by the end of the year is now being questioned seriously in the face of an already weak economy.

EUR/USD rose to a 11-week high of 1.5950, just 70 pips away from its record high of 1.0620 reached in April. The Euro also reached a record high against the yen at 169.65. USD/CHF fell to a low of 1.0135. Next bear targets around 1.0090, 1.0110. 1.0200-10 could attract more shorts.

Published on Mon, Jul 14 2008, 13:47 GMT

Dollar Slips On News of Iran's Missile Tests and Merrill's Potential Downgrade

Thu, Jul 10 2008, 09:31 GMT
by Grace Cheng

GraceCheng.com

There is simply no direction in the financial markets, especially the currency markets, in the absence of major US economic data releases. Major currency pairs such as EUR/USD, USD/CHF and USD/JPY have been moving more or less sideways since Monday with the US dollar on the stronger side, but today the US currency is looking a bit vulnerable as US stocks dip into the red after Tuesday’s “rally”, and on news that Iran has test fired long and medium range missiles, capable of reaching Israel. The world - and the US dollar - doesn’t really need a combination of Middle-East tensions and high oil prices to feel more skittish. Traders are still not willing to go long on the dollar as the latter is still haunted by the possibility of more turmoil in the US financial sector.

Today Fitch announced that it has placed its A+ rating of Merrill Lynch (MER: 29.74 0.00 0.00%) on Rating Watch Negative, and said it expects Merrill to have another loss in Q2 due to ongoing writedowns, mainly those associated with residential mortgage, bond insurance and ABS-CDO positions. Merrill Lynch is due to report its earnings next week.

Oil fell more than $5 on Tuesday, but has since edged higher to above $137 a barrel, not far from its record high of $145.85.

This week we are likely to see consolidative moves in the markets. EUR/USD is trapped between 1.5750 and 1.5650; USD/CHF’s nearest resistance is around 1.0370. As of last Tuesday, the number of net Euro long speculative contracts held by large speculators on the IMM rose to 27,683, the highest since April 8 this year. .

Economic Calendar For Thursday:

Australia unemployment rate 0130 GMT
Bank of England rate decision 1100 GMT (rate expected to stay at 5%)
US initial jobless claims 1230 GMT
Bernanke and Paulson testify on markets before House Committee 1400 GMT

Published on Thu, Jul 10 2008, 09:31 GMT

Could This Be The Start Of The Next Wave Of Dollar Strength?

Fri, Jul 4 2008, 12:44 GMT
by Grace Cheng

GraceCheng.com

Here are today’s market-moving numbers in a nutshell: the US non-farm payrolls showed a loss of 62,000 jobs and the unemployment stood at 5.5%, close to what the majority of the market had expected. And over in the Euro area, the European Central Bank has raised its main interest rate by 25 bp to 4.25%, as predictable as receiving a present on your birthday (from yourself that is).

Traders who had positioned themselves ahead of these releases to be long on the Euro and short on the US dollar were all wrong. In a press conference following the rate announcement, ECB chief Trichet did not give any timetable of further rate increases, unlike the previous time. Instead, he was ultra-dovish in his speech, saying that “today’s decision will contribute to achieving our objective”, which basically means “we think the current 4.25% is enough to contain high inflation in the Eurozone for now”.

Trichet’s use of words such as “no bias” or “pre-commitment” to more rate hikes basically swept all the bets off the table, right into the hands of Trichet, the dealer. Futures traders have already priced in a least two more rate hikes from the ECB later this year, so when they hear “no bias”, it’s like hearing a fire alarm to evacuate the crowded office building. Trichet is playing real smart: He has no desire to see the Euro currency going higher, like many other European policymakers. Even French Finance Minister Christine Lagarde said today that higher rates may hurt Europe’s competitiveness by pushing the Euro higher against the dollar. She is right.
The US dollar rose nearly 200 pips against the Euro following Trichet’s speech, and frankly, since the US NFP blew over like a drizzle, traders are very likely to get out of dollar short positions and establish new long ones. That could be the beginning of a next wave of dollar strength.

Economic Calendar for Friday:

US financial markets closed for Independence Day
Canada Ivey PMI 1400 GMT

Published on Fri, Jul 4 2008, 12:44 GMT

Iranian Threats Keep Oil Elevated; US Stocks and Dollar Slip

Wed, Jul 2 2008, 08:26 GMT
by Grace Cheng

GraceCheng.com

Oil continues to trade near elevated levels (above $143 as at the time of writing) on Iranian verbal threats, and the Dow Jones Industrial Average is down more than 130 points. Iranian Deputy Oil Minister was reported as saying Iran is ready to repel any attack, and said that an attack would disrupt oil exports and disrupt the entire oil industry in the Middle East. Middle-East tensions are at the forefront again. Meanwhile, OPEC president said that oil prices reflect war risk, and to keep oil prices down, the US needs to stabilise the US dollar.

For the dollar to be stabilized, that’s not an impossible task. Further dollar decline could be prevented if traders can see a commitment by the Fed to fight rising inflation, but alas, the Fed thinks that inflation is likely to moderate later this year.

US Manufacturing Improves

What a surprise to see a totally unexpected expansion in US manufacturing activity, that is according to the ISM report released Tuesday. The headline purchasing managers index went up to 50.2 in June (48.6 expected) from 49.6 in May, and since it is above the 50 mark, it indicates growth, not contraction, in the important manufacturing sector. Although this is the first growth in four months, it may not be a harbinger of more growth ahead.

Forex Trading

In the currency markets, major currencies have been trading sideways, without any strong push to break out of the recent trading range. The US dollar is slightly weaker against the Euro, Swiss franc, British pound and the Japanese yen; after all, there’s no incentive for dollar bulls to jump into the market before the Great Lottery of the Month (that is, the US NFP) is unleashed on Thursday. EUR/USD oscillates between 1.5720 and 1.5820. USD/CHF’s nearest support is around 1.0100-20, then 1.0080.

GBP/USD Hits 2.0000

The British pound rose to the highest level against the dollar in more than 2 months, reaching an intraday high around 2.0005, but is now trading below 1.9950. Any reasons for Sterling strength today? None actually, in fact, UK data released today was quite a turn-off, so traders could be having a more depressed view of the US dollar when it comes to Cable trading.

UK PMI manufacturing for June printed a low reading of 45.8, much worse than the 49.8 expected, and that was the lowest since 2001. As for the UK housing market, Nationwide reported today that UK house prices fell 0.9% month-on-month in June, slightly better than the 1% fall expected, and a slower pace of decline from May’s 2.5% decline.

Economic Calendar for Wednesday:

Australia retail sales 0130 GMT
Eurozone PPI 0900 GMT
US ADP employment change 1215 GMT
US factory orders 1400 GMT
Paulson speaks about capital markets, global economy 1500 GMT

Published on Wed, Jul 2 2008, 08:26 GMT

Where There Is Blood, There Are Also Opportunities To Be Had

Mon, Jun 30 2008, 13:24 GMT
by Grace Cheng

GraceCheng.com

This coming week will be a shortened trading week in the US due to the celebration of Independence Day on Friday. Quite a number of key economic releases and data will be packed into these 4 days, so there won’t be rest for traders at least till late Thursday. The currency market will turn its attention to the rate announcement by the European Central Bank on Thursday whereby the central bank is almost guaranteed to raise the main refinancing rate from the current 4% to 4.25%.

So far this expectation has served as a bouncy mattress for the Euro in forex trading last week, and could be positive for the currency going into the ECB policy meeting. Complacency is not a luxury that can be afforded to traders, so while Euro has got some bullish steam on its tail, keep a lookout for any break of important technical levels since much has already been factored into the EUR/USD exchange rate, and Euro bulls may take profits ahead of the meeting or after.

Eurozone’s fundamentals have deteriorated based on recent data, in particular the German IFO survey, and last week we saw that the French consumer confidence fell to a record low in June. If we get any indication from Trichet on Thursday that this rate hike is a solo one and not to be followed by more, that could weigh on the Euro and cause EUR/USD to retreat.

Don’t tie yourself to a single opinion.

It’s Time To Learn Shorting

If you have been trading the stock markets, you’d be glad for the upcoming long weekend. People who buy stocks for long-term investment have been cut deeply by the growing decline of US stocks (stocks in Europe and Asia too). More pain comes in when oil’s relentless surge doesn’t reverse.

Crude oil closed above $140/barrel ($140.21 to be exact) for the first time in history, and the Dow is now down 20.1% from its record intraday peak formed last October. The Dow is quite “officially” in a bear market now. Stock investors or traders might want to learn about shorting stocks or hop over to the currency markets (spot forex or forex options) if they want to stay profitable.

Think financial stocks are attractive buys as they fall? Only if you find blood on falling knives attractive. Investment banks stocks are hurt by downgrades by one another. Merrill Lynch (MER: 32.70 0.00 0.00%) is expected to write down $5.4 billion for its second quarter, due to recent credit downgrades of giant insurers MBIA (MBI: 4.17 0.00 0.00%) and Ambac (ABK: 1.61 0.00 0.00%).

For people who choose to see the positive, Nasdaq isn’t “officially” in the bear zone as it is so far down 19% from its 2007 high, not past the 20% mark. Same goes for S&P 500, which is down 18.3% from its record close in October.

Economic Calendar for Monday:

Italian PPI 0800 GMT
UK mortgage approvals 0830 GMT
Eurozone CPI estimate 0900 GMT
Canada GDP 1230 GMT
US Chicago PMI 1345 GMT
Japan Tankan survey 2350 GMT

Published on Mon, Jun 30 2008, 13:24 GMT

Fresh Shorting Of Dollar Amid Oil Jump And Slide In US Stocks

Fri, Jun 27 2008, 13:32 GMT
by Grace Cheng

GraceCheng.com

When oil jumps, you can expect the US stock markets to react badly and the US dollar to succumb to shorting pressure from traders. At one point on Thursday, crude oil futures leaped more than $4 to above $138 a barrel after a slight retreat yesterday. US data released today didn’t give any strong indication of which way the US economy is going to head towards, and in any case, inflation numbers remained higher than what the Fed would like to see. US gross domestic product gained 1%, at an annual rate in the first quarter, the Commerce Department said Thursday in its third and final estimate, up from its previous estimate of a 0.9% increase, and that was largely expected by the markets. This upward revision was aided by stronger gains in consumption and exports, and showed that the US was able to hang onto its rope in the first three months of the year.

That said, Q1 was over, long over, and we are in the last days of Q2. Looking ahead, Q3 may show slight improvement as a result of the tax stimulus checks handed out by the government, but come Q4, all may come tumbling down. So while it’s all nice to praise the US economy based on today’s “quite ok” GDP data, the economy is still “on the brink of a recession” - quoting Greenspan’s words.

Inflation And Jobless Claims

It was reported today that the price index for personal consumption expenditures excluding food and energy rose 2.3%, at an annual rate. A little uncomfortably high, but presumably not that of an urgent matter for the Fed since they said yesterday that inflation is expected to moderate later this year and in 2009.

Initial claims for jobless benefits were unchanged at 384,000, and the four-week average got pushed up to its highest since October 2005. Continuing claims lasting more than one week surged 82,000 to 3,139,000, the highest level in more than four years. This data suggests that it is more difficult for the unemployed to find work.

Forex Trading

The dollar is again down against the Euro, Swiss franc, British pound and the Japanese yen today as traders continue to pare expectations of a rate hike by the Fed anytime soon. USD/CHF fell to the lowest in nearly three weeks, reaching an intraday low of 1.0250. Downside targets are around 1.0200-10, then 1.0170. EUR/USD rose to 1.5750, and bull targets are 1.5760, 1.5800.

Economic Calendar for Friday:

French GDP 0650 GMT
Eurozone current account 0800 GMT
UK GDP 0830 GMT
Eurozone consumer confidence 0900 GMT
US PCE deflator, personal spending, PCE core 1230 GMT
US U of Mich confidence 1400 GMT

Published on Fri, Jun 27 2008, 13:32 GMT

Euro Advances As Forex Traders Price In Rate Hike Next Week

Thu, Jun 26 2008, 08:25 GMT
by Grace Cheng

GraceCheng.com

The US dollar fell against the Euro after the Fed held the main interest rate unchanged at 2%, ending a series of 7 consecutive cuts. What happened? Most market participants had expected the Fed to keep the rate unchanged anyway in Wednesday’s FOMC meeting. Initially the dollar traded higher but that subsided and traders began taking their profits on long dollar positions.

In the accompanying statement, the Fed said, “Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.” They also said that “uncertainty about the inflation outlook remains high”, given the “continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations.” All except Dallas Fed’s Fisher, voted for no change. Fisher preferred an increase in the rate at this meeting.

The Fed is very unlikely to embark on a rate tightening cycle so soon after cutting rates so aggressively as the economy still looks so fragile. An August rate hike has been thrown out the window by many traders last week, but people are already betting on a September rate raise. On the other hand, the ECB is widely expected to hike rates next week to fight the threat of high inflation, and that expectation should keep the Euro on the offensive.

Forex Trading

EUR/USD rose to 12-day high of 1.5687, and the Euro rallied to an all-time high around 169.20 against the Japanese yen. EUR/USD’s topside targets are 1.5700-10, 1.5740. EUR/JPY has more potential to rise further as it is more lucrative for traders to seek yield when buying EUR/JPY since interest rates in Japan don’t seem to be going anywhere.

The dollar could be under pressure in the meantime at least till the ECB rate decision next week, but from a medium-term perspective, more hawkish rhetoric from the Fed could stem the dollar’s decline. The Fed is walking a tightrope right now: If they hike rates, that could be worse for an economy that’s on the brink of a recession. If they cut rates, they risk a weaker dollar and possibly higher oil prices.

Trichet Says

ECB chief Trichet told European Parliament on Wednesday: “I didn’t say we would envisage a series of increases. I said we could decide to move our rates by a small amount in our next meeting in order to secure the solid anchoring of price expectations.”

Economic Calendar for Thursday:

Fed vice-chairman Kohn speaks at ECB conference 1130 GMT
US GDP, core PCE, personal consumption 1230 GMT
US existing home sales 1400 GMT
NZ trade balance, GDP 2245 GMT
Japan national CPI 2330 GMT
Japan retail sales 2350 GMT

Published on Thu, Jun 26 2008, 08:25 GMT

Dollar Down, But Not Out, On 16−Year Low US Consumer Sentiment

Wed, Jun 25 2008, 07:25 GMT
by Grace Cheng

GraceCheng.com

Record-breaking downbeat consumer confidence and housing data released today have depressed the US dollar in the currency markets, although the USD remains within recent range against the Euro, Swiss franc, British pound and the Japanese yen. US consumer confidence fell to 50.4 this month, worse than the forecast reading of 56.4, from a revised 58.1 in May (originally reported at 57.2). June’s reading was the lowest since 47.3 in February 1992, which means that US consumers haven’t been feeling this pessimistic in 16 years. Clearly, the slump in the housing market, coupled with record oil prices and weak jobs market are taking a huge toll on the average American. Before the credit crisis unfolded last summer, consumer confidence stood at 111.90 in July, and now the index has fallen by more than 50%. Only a record low of 12.3% of those surveyed are expecting their income to rise in the next few months.

The US dollar is also shaken by the biggest year-over-year drop of house prices in the US. According to the latest S&P/Case-Shiller housing data, home prices fell 15.3% in April , the biggest drop ever. The “good” thing? It came out better than the 16% expected. The only “bright-spot” of the data is that the 3-month annualized rate of decline, now at 22.08%, is slowing. Although it is still a big decline, it is the slowest 3-month pace of decline since December. The US housing sector is likely to experience further price declines as foreclosures, a result of mortgage defaults, add to the burgeoning supply of homes on the market. Watch out for US new home sales from the Commerce Department on Wednesday.

Greenspan Says

Former Fed chief Greenspan said today that financial instability may continue into 2009 and that “data suggests we are on the brink” of recession. He thinks that Fed action in March had reduced the odds of recession, but an economic recovery in the US “isn’t in the immediate outlook.” He expects very sluggish growth for the next 12 months, and thinks that oil will remain volatile.

Forex Trading

The US dollar has slipped modestly today, but still traders will be reluctant to short the dollar further before the Fed’s rate announcement Wednesday at 1815 GMT. EUR/USD is hovering around 1.5600, and today’s trading range is within yesterday’s. Its nearest support is around 1.5450, and resistance is 1.5650. USD/CHF hit a high of 1.0470, and resistance is around 1.0490-1.0500, then 1.0520.

Economic Calendar for Wednesday:

UK Nationwide house prices
German CPI
Italian retail sales 0800 GMT
US durable goods 1230 GMT
US new home sales 1400 GMT
US FOMC rate decision 1815 GMT (rate expected to stay at 2%)
NZ current account balance 2245 GMT

Published on Wed, Jun 25 2008, 07:25 GMT

Stock And Forex Markets To Eye US FOMC Meeting Next Week

Mon, Jun 23 2008, 12:11 GMT
by Grace Cheng

GraceCheng.com

Another week has passed, and the sentiment in the financial markets has changed again. In the forex markets, the US dollar fell against other currencies like the Euro, and in the US stock markets, the Dow and S&P 500 had another strong downward spiral Friday.

One of the events that’s got traders talking about and reacting to is next week’s US Federal Open Market Committee (FOMC) meeting. Poor US manufacturing data has led traders to scale back their expectations of a rate hike by the Fed soon, and for next week’s rate-setting meeting, investors are expecting the Fed to keep the benchmark rate at 2%, after seven reductions since September last year. There is now just an 8% chance the Fed will raise rates by 25 basis points on June 25, compared with 22% odds a week ago. The current yield is not particularly appetizing considering that the Euro’s yield is higher, and that the ECB has made its intention clear by signaling they are very likely to raise rates in July.

In forex trading, EUR/USD hit a high of 1.5650 Friday, an expected resistance level, before bouncing down to hover around 1.5600.

Did Stock Traders Freak Out On Freaky Friday?

Traders caused/experienced a mayhem in the stock markets Friday, selling stocks in almost all sectors including financials, transport and technology. The Dow plunged 220 points to close at 11842.12, and was down 4% for the week. It also just so happened that Friday was the Triple Witching day, when futures and options expire in the stock markets, so a lot of adjustment - aka noise - took place.

But then again, people are seeing many reasons to short stocks, whether large or small cap ones. There are the usual (unwelcoming) predictions of further bank writedowns, dividends being slashed etc around the corner, plus, two largest bond insurers MBIA (MBI: 5.59 0.00 0.00%) and Ambac (ABK: 2.05 0.00 0.00%) have got their credit ratings downgraded by Moody’s on Friday.

Hang on tight for the rollercoaster ride and keep your stops in place.

Published on Mon, Jun 23 2008, 12:11 GMT

Traders Alter Rate Expectations After Record Surge In UK Retail Sales

Fri, Jun 20 2008, 08:21 GMT
by Grace Cheng

GraceCheng.com

The wind direction has changed suddenly in the UK. After several disappointing UK economic data and higher than expected inflation numbers, most market players are caught by surprise by today’s release of UK retail sales which came out much better than even the most optimistic estimates. UK retail sales data surged 3.5% m/m and 8.1% y/y in May on increased food and clothing sales, eclipsing the -0.1% and 4.1% average forecasts. The 3.5% increase in UK sales was the most since the government survey began in 1986. In April, sales fell 0.3%. The year-over-year increase was the highest since 2002. These are enormous gains, and traders and economists are finding that hard to believe.

Whether May’s retail figures are a fluke or not, the bonds and currency markets are busy adjusting their outlook again. The British pound rocketed against other currencies today and two-year gilts had the biggest fall in four days after the sales report. The pound also got some support from BOE governor King’s speech made yesterday. He said, “The Monetary Policy Committee is prepared to take whatever action is needed to return inflation to the 2 percent target and to keep expectations of inflation in the medium term anchored to the target.”

Remember King had said in his letter to the Chancellor of the Exchequer Alistair Darling that the path of rates is uncertain? Well, his tone has changed a little, perhaps he realized he had been too dovish, and now wants to give the impression that he too can be an inflation fighter. Today, traders are again factoring in some chance of interest rate hikes by the BOE; even JP Morgan is now expecting an August rate increase.

Soft US Manufacturing Activity

The Federal Reserve Bank of Philadelphia reported Thursday that its June index of general business conditions, which covers factory activity within the bank’s district, fell to -17.1, from May’s -15.6 and April’s -24.9. This data came in softer than the -11 reading expected, and continues to indicate a contraction of manufacturing activity.

Forex Trading

The retreat of oil prices from above $138 to around $135 had given a slight boost to the US dollar, but dollar gains are capped by the soft Philly Fed manufacturing data. Consolidation is likely to take place into the weekend. EUR/USD rose to a high of 1.5585 before falling back below 1.5500. 1.5420-30 is the nearest support. USD/CHF’s nearest resistance levels are around 1.0490, 1.0520-30. GBP/USD rose to the highest in more than a week to 1.9725. Next bull targets are 1.9750, 1.9770-80, 1.9800.

Economic Calendar For Friday:

German PPI 0600 GMT
Swiss producer and import price 0715 GMT
Canada retail sales 1230 GMT

Published on Fri, Jun 20 2008, 08:21 GMT

RBS Predicts Global Market Crash: What's In It For Them?

Thu, Jun 19 2008, 09:48 GMT
by Grace Cheng

GraceCheng.com

According to the UK daily newspaper Telegraph, a research team from Royal Bank of Scotland is warning investors to get ready for a “full fledged crash in global stocks and credit markets over the next three months”, noting inflation will paralyze major central banks. They forecast a 300 point drop in the S&P by September to around 1050, with contagion spreading across global stock markets, and for the iTRAXX index (high grade corporate bonds) to widen to 130/150, the “Crossover index” (low grade corporate bonds) to widen to 650/700 on renewed investor panic. Their reasoning is that the temporary momentum from America’s fiscal boost may fizzle out by July on delayed impact from the oil spike.

Bob Janjuah, credit strategist at RBS, said, “A very nasty period is soon to be upon us - be prepared.”

He said, “The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets.” He also said in order for global inflation to be lower, we may need to see slower global growth.

Maybe RBS is short on S&P, and they want investors to go short as well, while screaming “The sky is falling”? That’s right, it’s a bit insane for a financial institution to make such sensational doomsday remarks. However coming from the guy who was known for his warnings last year about the credit crisis which proved to be accurate, it might be worth listening to what he’s saying.

And if RBS is warning investors about this market crash which would amount to one of the worst bear markets in the last 100 years, does it want normal retail stock investors to sell their portfolios and realize whatever losses they have sustained over the past year, thus pushing stocks even lower (if RBS is short, it would make sense!)? Given the volatile market conditions over the past few months, investors will have experienced a huge blow and cutting their losses now might be too little, too late.

Forex Trading

With no major economic releases or speeches on tap today, currencies have been moving sideways. The US dollar is up against the Euro, Swiss franc, British pound and Japanese yen. The British pound is a notable loser, falling for the second day against the dollar as minutes from the Bank of England June 5 policy meeting showed members decided an interest-rate hike wasn’t “urgently” needed to keep inflation under control. The minutes also revealed that David Blanchflower was the only policy member who wanted a rate change, voting for a cut to from 5% to 4.75%. Blanchflower might already have changed his mind about that after yesterday’s release of UK inflation data which showed inflation up 3.3%.

GBP/USD fell to a low of 1.9475 today, but traded above yesterday’s low. It has since moved back up above 1.9550. Shorting interest may crowd around 1.9600 and 1.9630. The pound is also weaker versus the Euro, trading near the lowest level in a week. If the BOE resists lifting interest rates higher to keep inflation expectations down, we could see more downside risks to the Pound.

Yesterday, BOE’s King wrote a letter to Chancellor of the Exchequer Alistair Darling, saying that the “path of bank rate that will be necessary to meet the 2 percent target is uncertain.”

Economic Calendar For Thursday:

Swiss National Bank rate decision (rate expected to stay at 2.75%) 0730 GMT
UK retail sales 0830 GMT
Canada CPI 1100 GMT
US initial jobless claims 1230 GMT
US Philly Fed 1400 GMT

Published on Thu, Jun 19 2008, 09:48 GMT

Intense Inflation Pressures: Fed And Bank Of England Have Their Hands Tied

Wed, Jun 18 2008, 07:38 GMT
by Grace Cheng

GraceCheng.com

US industrial production fell for the second consecutive month in May, falling 0.2%, following an unrevised 0.7% decline in April. This was worse than the 0.2% gain expected as utilities posted a sharp decline in output. Overall, industrial production is down 1.1% compared to a year ago. No one can deny that industrial output is contracting, but at least it hasn’t been a rapid drop.

Meanwhile, inflation data released today showed that US producer prices in May rose at their fastest rate in six months (1.4%), although core prices excluding food and energy, gained just 0.2%. Both figures are in line with expectations. Inflation is again becoming a threat to the US economy, which recently prompted anti-inflation rhetoric from Fed officials.

US Rate Hike Pushed Back From August To September?

The decline of the US dollar yesterday and today reflects that traders are scaling back their expectations of a rate hike by the Fed as early as August, on doubts that the Fed would indeed have room for that even as the economy is still under stress.

Interestingly, former St. Louis Federal Reserve President William Poole (he retired in March) said today on TV that “we should be moving sooner rather than later” with regards to the Fed raising interest rates. He said, “I don’t think you can interpret what’s happening with energy as a temporary shock.”

His words would have carried much more weight if he hadn’t just retired, but still, they could stem the dollar’s decline as traders readjust their expectations. JPMorgan Chase and Barclays are now forecasting a rate increase in September.

Euro: Not Much Bullish Steam Either

The latest ZEW survey put out another spark from the Euro. Sentiment among German financial analysts and institutional investors plunged to its lowest level in June since December 1992 on rising oil prices and a weakening growth outlook. The data signals that economic activity in Germany -Europe’s largest economy -is slowing down after a surprisingly strong first quarter.

UK Inflation Worsens

The carefully crafted words in a letter prompted the sharp fall of the British pound today, and the currency’s prospects look very dim again. May UK consumer price inflation jumped 3.3% on the year (3.2% expected). This is the second time that the CPI is above 3% ever since the Bank of England gained independence in 1997 for setting interest rates. Since the increase is well above the BOE’s 2% inflation target, BOE governor King had to write a letter to Chancellor of the Exchequer Alistair Darling to explain why inflation is so high. So King wrote that inflation “is likely to remain markedly above the target until well into 2009″ and that the “path of bank rate that will be necessary to meet the 2 percent target is uncertain.”

Uncertain? Is he ruling out interest rate hikes? Given that fundamentals in the UK are deteriorating, the BOE may find it impossible to raise rates to fight the increasing inflation. The British pound has nowhere to go but down down down.

Forex Trading

The US dollar is slightly weaker against the Euro, Swiss franc and Japanese yen, but is a strong performer versus the British pound due to heavy shorting pressure on the pound.

EUR/USD bulls only managed to push up the currency pair up to 1.5555, near where expected resistance of 1.5560-70 lies, before bouncing almost 100 pips down to a low of 1.5460. USD/CHF declined to 1.0375, around where the support zone lies and then bounced back up above 1.0450. GBP/USD fell 230 pips from a high of 1.9700, and is now trading around 1.9500.

Economic Calendar For Wednesday:

UK BOE minutes 0830 GMT
Swiss ZEW survey 0900 GMT
US MBA mortgage applications 1100 GMT
Canada leading indicators 1230 GMT

Published on Wed, Jun 18 2008, 07:38 GMT

Dollar has biggest weekly advance against Euro in three years

Mon, Jun 16 2008, 09:27 GMT
by Grace Cheng

GraceCheng.com

It was Friday the 13th yesterday, but the US currency wasn’t at all spooked. While the US stock markets closed the week almost flat (Dow up 0.8%; S&P 500 down 0.05%), the US dollar had a roaring good time in the currency markets. The US dollar just clinched the biggest weekly gain against the Euro since 2005 and the biggest weekly rise against the Japanese yen since December 2004.

You could say that Bernanke’s speech on Tuesday initiated the strong turnaround in USD sentiment; he said that US economic risks have diminished and he’s paying attention to the weak dollar. Increasingly over the past few months, a weaker dollar seems to be negatively correlated with oil prices although whether a causal relationship exists between these two is another issue altogether. Many, including the US Federal Reserve, are worried that the dollar’s weakness has come to a point whereby its benefits are being outweighed by the negative ramifications in the current economic situation. Dollar weakness ain’t that sexy anymore.

For traders who are counting on a July’s rate hike from the ECB to boost the Euro in a sustained way, they may have to look elsewhere, for Trichet and other ECB members have said last week the market shouldn’t be expecting a series of increases from them. July’s hike could be a one-time event.

Canada and France For Stronger Dollar

Finance minsters from the Group of Eight nations have gathered for the G8 meeting on Saturday. France’s finance minister Christine Lagarde said, “The strengthening of the dollar seems very satisfying to me.” Canada’s finance minister Jim Flaherty is also on the side favoring a strong US dollar. He said that strong US currency “can help on the inflationary side because of the difference it makes with a low US dollar in terms of oil prices.”

Could Greenspan’s Words Inspire More Gains In USD?

Former Fed chairman Greenspan said Friday via satellite today to a conference in Mexico City that the financial markets have shown a “pronounced turnaround”‘ since March when Bear Stearns was rescued from collapse. He also said “there is a reduced possibility of a large, intense recession”, and that the Fed will have to put “increasing pressure on the money supply and reserves” to combat inflation, and “as a result you will see interest rates rising”.

Forex Trading

Last week’s pip tally for the four major currency pairs:

EUR/USD - fall of 540 pips
USD/CHF - gain of 400 pips
USD/JPY - gain of 400 pips
GBP/USD - fall of 400 pips

EUR/USD’s nearest support is around 1.5280, and if the pair breaks successfully below that area, more bearishness could ensue. USD/CHF’s upside targets are possibly around 1.0560, 1.0590-1.0600. Nothing’s for certain in the markets, so keep on top of economic releases as always, and watch the charts.

Published on Mon, Jun 16 2008, 09:27 GMT

Dollar Looks Primed For Near−Term Rally On Rate Hike Speculation

Fri, Jun 13 2008, 11:43 GMT
by Grace Cheng

GraceCheng.com

The near to medium-term outlook of the US dollar in the currency markets is one of relative strength, particularly against the Euro, Swiss franc, British pound and Japanese yen. Ever since Bernanke indicated he has his eyes fixated on the weakening dollar last week, together with US Treasury Secretary Paulson and president Bush reiterating this week their commitment to a stronger dollar, the change in dollar sentiment has been quite dramatic, although it went a little shaky after ECB’s Trichet said a small rate increase is possible in July.

US retail sales report released today is USD-supportive as it showed that retail sales increased twice as much as forecast in May, climbing 1%, following a 0.4% gain in April that was previously reported as a decrease. This overall 1% gain is the most since November 2007 as American consumers spent their tax rebates at electronics and department stores, some of which offered promotions tied in with the tax rebates (Wal-Mart including). High gasoline prices at pump stations also contributed to the increase in sales, but excluding that, purchases rose 0.8%. Retail data from the previous two months were revised upward - a good sign as those accounted for sales prior to the stimulus package.

Even though this Tax Rebate Effect is only temporary, and is expected to plump up figures for the second and third quarter, it is nonetheless helpful to the notion of a still-seemingly-”resilient” US economy that is trying its best to hang on. Consumer spending makes up about 70% of US GDP, so money that gets spent is good for the overall economy. By the time the Tax Rebate Effect runs out probably in the last quarter, consumer spending could once again be dented by the lousy job market.

US import prices also released today rose in May for the third month in a row, again proving that inflationary pressures are rising in the US. Import prices jumped 2.3% (2.5% expected) in May after rising 2.4% in April. Year-over-year, prices are up a record 17.8%.

G8 Meeting

Don’t forget the G8 meeting is coming up this weekend in Osaka, Japan. Traders are likely to pare their USD short positions ahead of that as G8 finance ministers are likely to discuss recent currency moves although forex may not appear in the final statement.

ECB Says

Trichet and another ECB member Stark have said that the financial markets should not be expecting a series of increases as the ECB is not precommitted to that. ECB’s Lorenzo Bini Smaghi said today that policy makers “only sent indications for July, not beyond”.

Forex Trading

The US dollar gained strength today. EUR/USD fell 180 pips to a low of 1.5380, and bear targets lie around 1.5360, 1.5310, 1.5280. If EUR/USD breaks past support after support, it could move towards 1.5000 in the medium-term. USD/CHF went to a high of 1.0490, with upside targets around 1.0530, 1.0560, 1.0590-1.0600. GBP/USD fell 200 pips today to a one-month low of 1.9435, and Pound bears are likely to sell rallies into 1.9500.

The Australian dollar has had a sharp fall versus the US dollar today after the Aussie government reported that employers unexpectedly cut jobs last month. AUD/USD hit an intraday low of 0.9330, and 0.9290-09300 is nearest support, followed by 0.9270.

Friday:

Reserve Bank of Australia Governor Stevens speaks 0310 GMT
Bank of Japan monthly report 0600 GMT
German CPI 0600 GMT
US CPI 1230 GMT
US U of Mich consumer confidence 1400 GMT
Greenspan speaks in Mexico City 1600 GMT

Published on Fri, Jun 13 2008, 11:43 GMT

Wednesday's Trading: Currency Markets Take Cue From Sliding US Stocks

Thu, Jun 12 2008, 07:26 GMT
by Grace Cheng

GraceCheng.com

The currency market is taking its cue today from the performance of US stock markets in the absence of major US economic releases. The US dollar initially rose against the Euro, Swiss franc, British pound and Japanese yen but is now trading lower versus these currencies. European Central Bank’s Juergen Stark said Wednesday that markets understood the central bank’s signal to raise interest rates next month, but he poured water over the speculation of a series of interest rate increases. ECB’s Noyer is also sounding a little hawkish today, saying that while a July rate increase is possible, it is still not guaranteed, and also repeated what ECB president Trichet said last week, that the ECB is in a state of heightened alert.

Euro strength has waned off, and it’s possible the US dollar could consolidate ahead of this weekend’s Group of Eight meeting in Osaka, Japan, where G-8 finance ministers may or may not talk about currencies. USD bulls are not too keen to jump into the market today, seeing how US stocks are off to a weak start, falling under shorting pressure, and oil prices are still at elevated levels.

WaMu and Lehman Stocks Sliding Again

Stock investors aren’t welcoming the idea that Fed officials are sounding increasingly worried about inflation in the US as that would mean possible rate hikes which would put a dent into the already tough business environment. The Dow was down more than 150 points; Nasdaq and S&P 500 are also in the red.

Seattle-based Washington Mutual (WM: 6.06 -0.62 -9.28%), the largest US savings and loan company, is one of the biggest losers within the banking sector, falling a more than 13% at one point today. There are also rumors of a huge unexpected writedown by investment bank Goldman Sachs (GS: 162.40 -4.81 -2.88%) when it announces quarterly results next week, causing the S&P 500 financial sector to dip to a five-year low today.

Lehman Brothers (LEH: 23.75 -3.75 -13.64%) fell more than 5% today after the bank said it would lose $2.8 million in the second quarter and is raising $6 billion in capital. So far, Lehman has declined more than 23% in the last four sessions. Right now, shorting financial stocks just seems to be a better bet.

Thursday:

Australia unemployment rate 0130 GMT
Bank of Japan rate decision (rate expected to stay at 0.5%)
US retail sales, import price index, initial jobless claims 1230 GMT
US business inventories 1400 GMT
New Zealand retail sales 2245 GMT

Published on Thu, Jun 12 2008, 07:26 GMT

Will The US Intervene In The Currency Markets?

Wed, Jun 11 2008, 09:03 GMT
by Grace Cheng

GraceCheng.com

Yesterday I posted an article saying to watch out for Bernanke’s speech as that was likely to support the US dollar. Indeed, the dollar surged strongly against major currencies such as the Euro and Swiss franc after Bernanke unexpectedly revealed some optimism in his speech. He said the economic outlook has improved from a month ago and pledged that central bankers will fight any increase in inflation expectations. “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” he said.

Frankly, no one really expected him to say that about the current state of the US economy as he has always emphasized that there are great downside risks to the economy (he still does). The US dollar also has gotten a second round of renewed support from US Treasury Secretary Paulson who said yesterday and repeated today that he does not rule out currency intervention, saying that “I never like to say never”.

For so long, the financial markets haven’t been reminded about the topic of currency market intervention because nothing much about it was said by high-ranking policymakers. And now, Paulson’s assertions of “I never like to say never” are bringing more power to Bernanke and Bush’s words that they would like to see a strong dollar. Paulson also said that economic fundamentals are sound and “those long-term fundamentals are going to be reflected in our currency value”.

While I don’t see the Treasury intervening to buy up dollars, the collective intentions of Paulson, Bernanke and Bush are very clear: They would like to see a stronger dollar. There is now an increased likelihood of currency traders closing their short USD positions, and for the USD to appreciate higher in the near to medium-term.

More USD-Supportive Comments

Dallas Fed’s Fisher said inflation must be controlled, and he would rather risk weaker growth for some time if that helps keep inflation expectations under control. He said the Fed drew the rate cut line at 2% but he would have done it at a much higher level. He expects the US economy to be sluggish for a period. Retiring Fed’s Mishkin also talked about inflation risks, saying that inflation expectations are important for policy.

US Trade Gap Widens

The US trade deficit widened in April by 7.8% to $60.9 billion, more than the $60 billion gap predicted, making it the widest gap since March 2007. Imports rose to a record $216.4 billion as prices of imported petroleum surged ($96.81 a barrel) and the total amount of fuel bought rose to another record too. Exports also rose the most since February 2004, to a record $155.5 billion, due to demand for commercial aircraft, autos and agricultural machinery.

We could expect to see a further widening of the deficit in the coming months as oil prices rise even though exports continue to do very well. The weaker dollar is no longer as important a trump card for the US as its benefits are beginning to be outweighed by the inversely correlated rise in oil prices. No wonder Bernanke & Co are beginning to show signs of concern for the currency.

Forex Trading

EUR/USD fell nearly 200 pips to a low of 1.5460. Potential bear targets are 1.5430, 1.5400, 1.5360-70. USD/CHF’s nearest resistance is 1.0420-30 and Swiss bulls may target 1.0500 in the near-term. The British pound fell sharply against the US dollar today as the RICS report showed that house sales in the UK fell to a 30-year low in May. GBP/USD fell more than 200 pips to an intraday low of 1.9530, close to erasing the gains made from the past three days.

Wednesday:

UK trade balance, claimant count 0830 GMT
US MBA mortgage applications 1100 GMT
Canada new house price index 1230 GMT
Fed’s Kohn speaks on inflation 1530 GMT
US Fed’s Beige Book 1800 GMT

Published on Wed, Jun 11 2008, 09:03 GMT

Dollar Recovers After US Pending Home Sales Hit 6−Month High

Tue, Jun 10 2008, 10:23 GMT
by Grace Cheng

GraceCheng.com

The US dollar was initially weaker against the Euro and the Swiss franc Monday but by New York open, it erased much of its earlier declines on the stabilizing US stock markets (Dow went up by more than 100 pips intraday)and after the release of a better-than-expected report on US pending home sales in April. The National Association of Realtors’ index for pending sales of previously owned homes rose 6.3% to 88.2 from March, and this is the highest level in six months.

The surge in buying activity is mainly concentrated in zones which saw double-digit price declines. So whether people are buying homes for themselves or for investment, they are attracted to the lowered property prices and had already signed the contracts to purchase even though the transactions weren’t closed yet (hence pending). If mortgage rates continue to fall as they have recently, that might lead to more people qualifying for home loans and thus more buyers to absorb the pool of housing inventories.

Strong Dollar Mantra

US president Bush repeated Monday that the US commitment to a strong dollar. He said, “A strong dollar is in our nation’s interests. It is in the interests of the global economy. The long-term health and strong foundation of our economy will shine through and be reflected in currency values.”

These remarks were made before he left for Europe to attend the US-European Union summit in Slovenia. What’s interesting is that Bush usually issues statements regarding currencies when prompted, but in today’s case, he wasn’t prompted by the media. The US dollar is likely to be propped up prior to Fed chairman Bernanke’s speech on Tuesday at 0015 GMT where he could again reiterate that the dollar is on his mind.

Forex Trading

EUR/USD rose to a six-week high around 1.5845, but then retreated towards 1.5700. 1.5660 and 1.5630 are support levels for the currency pair. The improved USD sentiment in the US session also lifted USD/CHF from its intraday low of 1.0145 to 1.0280, and its nearest support is around 1.0120-30.

However the US dollar has not been able to rise against the British pound after a big rise in UK producer prices was reported earlier today, reigniting hopes that the Bank of England may have to raise rates in the coming months to fight inflation. GBP/USD rose from 1.9670 to a high of 1.9800.

Tuesday:

Fed’s Bernanke speaks on inflation 0015 GMT
UK industrial production 0830 GMT
Italy GDP 0900 GMT
Fed’s Fisher speaks on monetary policy 1200 GMT
US trade balance 1230 GMT
Bank of Canada rate decision 1300 GMT (rate expected to be cut from 3% to 2.75%)
UK NIESR GDP estimate 2301 GMT
Japan GDP 2350 GMT

Published on Tue, Jun 10 2008, 10:23 GMT

Prospects Look Dim For Canadian Dollar And British Pound

Thu, Jun 5 2008, 08:07 GMT
by Grace Cheng

GraceCheng.com

The US dollar is stronger today against currencies like the Canadian dollar, British pound and Japanese yen, but remains more or less unchanged versus the Euro, Swiss franc. Broadly speaking, sentiment is still supportive of a USD rebound. The ADP employment report released today showed that private sector jobs rose by 40,000 in the US in May, better than the 30,000 drop expected by most economists. In April, 13,000 jobs were added by the private sector, which was revised up from the previously reported 10,000. Although the ADP data isn’t very telling, it gives a glimpse of how the government’s monthly jobs report could turn out. With the US non-farmpayrolls to be released this Friday, you’d better mark that on your calendar as it is one of the most anticipated events every month. The median forecast is for non-farm payrolls to fall by 60,000 in May.

The greenback is also supported for the time being by what Fed chief Bernanke said yesterday. He said the Federal Reserve is aware of the inflationary impacts of the weaker US dollar - an unusual reference to the US currency when speaking of the economy and monetary policy - and also hinted the end of the rate cut cycle.

Woes in Britain

Cracks are showing in the UK. Nationwide, Britain’s fourth-biggest mortgage lender, said consumer confidence dropped in May to the lowest level in four years. And a private survey by CIPS showed growth in services contracted for the first time since March 2003, falling to a falling of 49.8, versus a forecast reading of 50.5. The British pound will be pressured on the downside from weakening economic data as well as from rising inflation, two big areas of concern for the Bank of England as it begins its two-day meeting to set borrowing costs.

Upcoming Interest Rate Announcements

Interest rate decisions will be announced by the Bank of England and the European Central Bank Thursday, and both are expected to keep rates on hold at 5% and 4% respectively. Britain’s 5% main lending rate is the highest among the Group of Seven nations. For instant data releases and news announcements, check out the live news feed at GraceCheng.com.

Forex Trading

EUR/USD has been trading in a tight range after hitting a session low of 1.5410 yesterday, and is now hovering around 1.5450. It is likely to stay in this range till the ECB rate decision Thursday. Possible downside targets are 1.5390, 1.5360. USD/CHF also traded sideways and is now around 1.0400. Topside targets are 1.0530, 1.0590-1.0610. GBP/USD fell slightly over 100 pips today, and if the USD continues to show strength, Cable may next test 1.9500-10.

The US dollar rose for the fifth day in a row against the Canadian dollar today as traders speculate that the Bank of Canada may be forced to cut interest rates next week as the Canadian economy posted an unexpected first-quarter contraction. USD/CAD is now trading above 1.0100.

Thursday:

Australia trade balance 0130 GMT
New Zealand rate decision (rate expected to stay at 8.25%)
German factory orders 1000 GMT
Bank of England rate decision (rate expected to stay at 5%) 1100 GMT
European Central Bank rate decision (rate expected to stay at 4%) 1145 GMT
US initial jobless claims 1230 GMT
Fed’s Plosser speaks on financial stability 1600 GMT

Published on Thu, Jun 5 2008, 08:07 GMT

Is Bernanke Hinting At A Stronger Dollar Trend To Cool Oil Prices?

Wed, Jun 4 2008, 13:28 GMT
by Grace Cheng

GraceCheng.com

Fed chief Bernanke’s words today are likely to support the US dollar in the short to medium-term. Speaking via satellite at an International Monetary Conference in Spain, Bernanke said that the Fed is “attentive to the implications of changes in the value of the dollar for inflation and inflation expectations”, since the dollar has lost much of its value against other major currencies like the Euro. It is very rare for Bernanke to talk specifically about the dollar, so his voicing out of the US currency has definitely got everyone’s attention. He acknowledged that the weakening dollar has had an effect on oil prices, and that much of the dollar’s fall is erasing its pre-2002 strength. The US dollar shot up sharply versus the Euro and Swiss franc, and is looking poised to attract bidding interest along the way.

Bernanke also mentioned that downside risks to the US economy will remain until there is clearer signs stabilization of house prices. He also said what many of us already know, which is the reluctance of Americans to spend, saying that consumers continue to face “significant headwinds” although consumer spending has thus far held up a bit better than expected. So if you want to help the economy, spend, but not overspend.

Another boost to the US dollar comes from Bernanke’s suggestion that the Fed will keep interest rates unchanged. He said, “For now, policy seems well positioned to promote moderate growth and price stability over time. We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.” He said the Fed will pay “close attention” to commodity prices that are driving up inflation.

Australia Leaves Rate Unchanged

The Australian dollar went higher against the US dollar to above 0.9600 but then gave up its gains after the Reserve Bank of Australia left interest rates unchanged today. Data released today showed the current account deficit for the March quarter rose to a record A$19.5 billion as bad weather in Queensland dampened the nation’s exports. One positive thing is that home-building approvals unexpectedly rose 7.8% in April for the first time in five months.

Forex Trading

EUR/USD has broken below the trendline established since February this year, and has hit an intraday low around 1.5435. Next bear target is possibly 1.5390-1.5400. USD/CHF has found support on its up trendline, and rallied to a session high of 1.0490. Topside targets are 1.0530, 1.0590-1.0610.

Wednesday:

Australia GDP 0130 GMT
ECB’s Trichet speaks 0730 GMT
Eurozone PMI services 0800 GMT
UK PMI services 0830 GMT
Eurozone retail sales 0900 GMT
US MBA mortgage applications 1100 GMT
US ADP employment change 1215 GMT
US ISM non-manufacturing 1400 GMT
Fed’s Bernanke speak on economic challenges 1845 GMT

Published on Wed, Jun 4 2008, 13:28 GMT

Panic In The Markets Drive Up The Japanese Yen Sharply

Tue, Jun 3 2008, 08:45 GMT
by Grace Cheng

GraceCheng.com

The risk aversion theme is back in the financial markets. Both the US dollar and the Euro are down against the Japanese yen as carry traders buy back yen to close their carry positions. What’s causing the run-to-safety switch in sentiment are renewed fears that the world hasn’t seen the end of the credit market turmoil, making investors nervous about holding positions whereby they had sold the yen to buy high-yielding currencies like the Euro. UK’s largest lender of buy-to-let mortgages, Bradford & Bingley, today announced a significant profit warning and also warned that the UK housing market is deteriorating. Over in the US, another CEO was kicked off from his position today. Wachovia, fourth-largest US bank, ousted CEO Kennedy Thompson after the board found him responsible for the losses that made up more than half its market value in the past year. The bank’s losses are linked to the subprime mortgage fallout in the US. Washington Mutual, one of the largest US subprime mortgage companies, also made investors jittery today when it announced that CEO Kerry Killinger will step down as chairman, following pressures from angry shareholders.

When there is crisis erupting, you are also certain to see a rally in the Japanese yen and the Swiss franc in the forex markets.

Weak Manufacturing In US, Eurozone

The US ISM reported today that its May manufacturing activity index came in at 49.6 versus April’s 48.6. The May reading is slightly better than the forcast of a reading of 48.5. This is the fourth straight month of contraction in manufacturing activity in the US.

Eurozone’s manufacturing sector isn’t doing so well either: its manufacturing sector purchasing managers index tumbled to the lowest level since August 2005. Despite calls by the International Monetary Fund (in a report Monday about the ECB) for the ECB to cut interest rates further ahead, ECB honcho Trichet reiterated today that the central bank will continue to focus on combating inflation in Europe. (By the way, the ECB just celebrated its 10th birthday today)

Forex Trading

Safe-haven flows are driving the forex markets today, with the Yen and Swiss franc being the biggest gainers across the board. EUR/JPY fell at least 200 pips to an intraday low around 162.20; USD/JPY fell slightly more than 100 pips to around 104.50 as of the time of writing. Other high-yield currencies like the Australian dollar, New Zealand dollar and the Canadian dollar, all fell versus the yen sharply today. Needless to say, the British pound is also a good candidate to short today because of the Bradford & Bingley news. GBP/USD fell 180 pips to around 1.9600; GBP/JPY plunged more than 300 pips to around 205.10 today. USD/CHF is holding steady, with nearest support around 1.0380.

Tuesday:

Australia rate decision (rate expected to stay at 7.25%) 0430 GMT
Swiss CPI 0545 GMT
UK PMI construction 0830 GMT
Eurozone GDP, PPI 0900 GMT
ECB’s Trichet, Fed’s Bernanke, BOJ’s Shirakawa speak in Spain 1300 GMT
US factory orders 1400 GMT
UK Nationwide consumer confidence 2301 GMT

Published on Tue, Jun 3 2008, 08:45 GMT

Fed's Tough Talk On Inflation Boosts Dollar In Thursday's Trading

Fri, May 30 2008, 10:06 GMT
by Grace Cheng

GraceCheng.com

This week has so far been a good one for the US dollar - the US currency rallied higher against other currencies like the Euro, Swiss franc, British pound and Japanese yen after the positive US GDP data that met expectations, following Wednesday’s better-than-expected durable goods orders. The government said today that US gross domestic product, a measure of goods and services produced, rose at a seasonally adjusted 0.9% annual rate in the first quarter, which was slightly higher than the first estimate of 0.6% growth in the first quarter. It’s a little irrelevant to still debate whether the US was “really” in a recession from January to March even though the GDP number shows borderline growth as we are already more than half into the second quarter. The biggest drag on the US economy is the fall in consumer spending, which makes up about 70% of GDP. A huge chunk of the overall GDP - about 1.17 percentage points - was cut by the 25.2% drop in residential fixed investment.

Higher Rates In US Soon?

The US dollar also got a boost from Dallas Fed’s Richard Fisher who hinted that the Fed might raise interest rates “sooner rather than later”. He said that if inflation and inflation expectations keep getting worse, that he would “expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario”.

Fisher, a voting member of the FOMC, is the only member to dissent three times from decisions to cut the Fed funds rate, prefering no change. Yesterday Minneapolis Fed’s Gary Stern said that inflation is too high and the Fed will need to consider the timing and magnitude of any reversal in interest rate cuts.

UK Home Prices Fall Again

Nationwide reported that UK house prices fell 2.5% month-on-month in May, worse than the 0.5% decline expected, and that is the largest monthly decline ever, since record-keeping began in January 1991. May’s drop in home prices was the 7th straight month of declines, which was the longest consecutive period of monthly falls since 1992.

Forex Trading

EUR/USD broke out below 1.5600 to reach an intraday low around 1.5520. Downside targets are possibly 1.5480-90, then 1.5430. USD/CHF rallied for the third day in a row and hit a high around 1.0480 and next topside targets are around 1.0530, 1.0570-90. GBP/USD fell further today to to 1.9670 on weak housing data from the UK.

Friday:

German retail sales 0600 GMT
Italy CPI, Eurozone CPI, Eurozone unemployment rate 0900 GMT
Canada GDP 1230 GMT
US PCE core, personal spending 1230 GMT
US Chicago PMI 1345 GMT
US U of Mich confidence 1400 GMT
Greenspan speaks on economy, markets 1545 GMT
Boston Fed’s speaks on economic outlook 1630 GMT

Published on Fri, May 30 2008, 10:06 GMT

Surprisingly Strong US Durable Goods Orders Thanks To Weak Dollar

Thu, May 29 2008, 13:21 GMT
by Grace Cheng

GraceCheng.com

The US dollar is stronger against major currencies Wednesday after a government report showed that US durable goods orders slipped by just 0.5%, less than the 1% drop expected by most economists. This small drop is pretty impressive actually, considering that if you exclude transportation goods from the equation, you get a 2.5% rise in durable goods (-0.5% expected), and that is the biggest increase since 3.7% in July last year. So while demand for civilian aircraft fell, there was a decent gain in business investment. This is a good sign for an economy that is on the brink of an official recession or may already be in one as it shows resilience amid weak economic conditions. And the US economy may have to thank the falling dollar. Why? Because a weaker dollar results in stronger overseas demand for capital goods manufactured in the US, and the more goods get exported, the better it is for the manufacturing sector.

Topside momentum in the US dollar in the currency markets may be limited by the rebound in oil prices today. Crude oil rose back up above $129/barrel Wednesday after hitting a record high of $135.09 last week.

Mortgage Applications

Mortgage Bankers Association showed that applications for US home mortgages fell for a second straight week as borrowing rates inched higher. The housing market is expected to stay soft for a while.

Buddha-Like Bernanke?

Dallas Fed’s Richard Fisher has got this to say about Fed chief Bernanke: “I am tempted to think of him as somewhat Buddha-like…He’s developed a serenity based on a growing understanding of the hardball ways the system actually works. You can see that it’s no longer an academic or theoretical exercise for him.”

As long as Bernanke and colleagues aren’t behind the curve now as they were before (which Fed’s Yellen admitted yesterday), Wall Streeters could use some serenity amidst the uncertainty.

Forex Trading

USD/CHF finally broke above resistance at 1.0350-60 to reach an intraday high around 1.0425 but then fell to 1.0355. Resistance lies around 1.0430-40. EUR/USD fell to an intraday low around 1.5610, and nearest base is around 1.5590-1.5600. If the pair falls below this level, it may aim towards 1.5550. GBP/USD fell to 1.9700, an expected support area, and then bounced more than 120 pips to a high around 1.9830. USD/JPY rose to a 2-week high around 105.30. Strong resistance is around 105.70.

Thursday:

Fed’s Fisher speaks on inflation 0100 GMT
Eurozone business climate, consumer confidence 0900 GMT
US GDP preliminary, core PCE, initial jobless claims 1230 GMT
Fed’s Bernanke speaks on Fed’s liquidity provision in Basel 1830 GMT
UK Gfk consumer confidence 2301 GMT
Japan national CPI 2330 GMT

Published on Thu, May 29 2008, 13:21 GMT

Dollar Reduces Gains After Soft Housing And Sentiment Data

Wed, May 28 2008, 07:49 GMT
by Grace Cheng

GraceCheng.com

An avalanche of economic data was released today from both the Eurozone and the US, and the US dollar has been stronger across the board. The greenback is up against the Euro, Swiss franc, British pound, Japanese yen, Canadian dollar and Australian dollar. Euro weakness was more pronounced during the European trading session after it was reported that French business confidence weakened sharply in May to its lowest level since December 2005. Business confidence in France weakened to 102 in May from 106 in April. UK data showed that CBI services sector confidence fell sharply in the last three months.

Dollar’s gain today could have been the result of a short squeeze. In the US trading session, USD strength gradually eased due to weaker-than-expected US new home sales and consumer confidence data.

Poor Housing Data To Shadow Glimmer Of Hope Or Vice Versa?

US new home sales rose in April, the first gain since October, but was less than expected as the previous month’s sales were revised downward by the Commerce Department. Sales of single-family homes rose 3.3% last month to a seasonally adjusted annual rate of 526,000 (533,000 expected). Of course, that’s some improvement from the revised 11% drop in March to an annual rate to 509,000 (was originally an 8.5% drop to 526,000). However, if you compare the figures to a year ago, that’s a drop of 42% - the biggest year-over-year fall in nearly 27 years. The superlatives don’t just end there: According to the S&P/Case-Shiller national home price index also released Tuesday, prices of US single-family homes in 20 metropolitan areas fell a record 14.1% in the first quarter from a year earlier, marking a pace five times faster than the last housing recession.

US Consumer Sentiment

That’s still not all for today. US confidence confidence fell more than forecast to 57.2 (60 expected), the lowest level since October 1992, from a revised 62.8 in April. 33.6% of consumers expect business conditions to worsen in next 6 months, up from 27.4% in April.

Forex Trading

EUR/USD rose to an intraday high around 1.5820, but then bounced all the way down to 1.5700, and 1.5670-1.5700 is the immediate zone of support. USD/CHF’s nearest support is around 1.0200, and nearest resistance around 1.0350-60. GBP/USD’s support lies around 1.9680-1.9700.

Wednesday:

German CPI - tentative timing
Eurozone current account 0800 GMT
US MBA mortgage applications 1100 GMT
US durable goods 1230 GMT
Japan retail trade 2350 GMT

Published on Wed, May 28 2008, 07:49 GMT

Dollar's Fall Could Be Limited As Fed Signals Rate Pause

Thu, May 22 2008, 15:08 GMT
by Grace Cheng

GraceCheng.com

The Fed has given us a bleak prognosis of the US economy as can be seen from the minutes of the FOMC meeting on April 29/30. Here are some downbeat forecasts: the Fed cut its forecast for economic growth to 0.3% - 1.2% in 2008, a far cry from its earlier projection of 1.3% - 2%. Not only that, Bernanke and colleagues expect the unemployment rate “to pick up further this year and to remain elevated in 2009″. According to the minutes, the decision to cut interest rates by 25 basis points was “a close call”, with some Fed officials noting that it wouldn’t be appropriate to cut interest rates further even if data suggested “that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook”. The text suggests that the Fed is definitely going to keep interest rates unchanged at its next meeting in June, especially since record oil prices are putting pressure on the inflation outlook. Futures on the Chicago Board of Trade show there is now a 90% chance the Fed will keep rates unchanged, compared to 88% Wednesday. What will this mean for the US dollar? With oil prices rising to new record highs almost every day, the US dollar is likely to stay suppressed, but the knowledge that the Fed is going to keep rates on hold could possibly limit the dollar’s fall, though not enough to halt it.

UK Retail Sales

UK retail sales fell for a second month in, April, dropping by 0.2%, less than the 0.5% drop expected. Compared to a year ago, sales increased 4.2%, which is a pretty strong gain amid falling property prices. Shoppers are buying more video games such as Grand Theft Auto IV and Wii Fit, causing sales in the “other stores” category to increase by 5.3% in the quarter through April, the most since the survey began in 1986.

Forex Trading

EUR/USD rose to a high of 1.5815, and its short-term bull target is possibly around 1.5850-60. USD/CHF did fall below 1.0275 to 1.0230, an expected bear target, but then bounced 80 pips from there to 1.0310. Nearest resistance is around 1.0390-1.0400. As long as USD/CHF stays above 1.0200-10, it is temporarily safe from more downside pressure. GBP/USD finally broke above a 2-month-old down trendline to surge above 1.9700 to a session high of 1.9850. In the short-term, 2.0000 could be its upside target once more.

Friday:

Swiss trade balance 0615 GMT
UK GDP 0830 GMT
Italy GDP 0900 GMT
US existing home sales 1400 GMT

Published on Thu, May 22 2008, 15:08 GMT

Is Euro Corrective Weakness Behind Us Already?

Thu, May 22 2008, 08:52 GMT
by Grace Cheng

GraceCheng.com

A stronger-than-expected German IFO business climate index lifted Euro to a three-week high against the US dollar Wednesday. The headline index came in at 103.5 in May from 102.4 in April, versus a 102 forecast. An indicator measuring expectations for future business rose to 97.3 from 96.7. IFO said today that “the downturn in the German economy will be rather moderate” and “we will see at least 2% growth this year”. German Economic minister Glos said today that the recent surge in German IFO business sentiment shows that growth risks have not increased despite the effects of a stronger Euro, higher oil prices and financial market instability. Indeed, Germany is faring far better than other European countries like Spain and Italy, and definitely much much better than the US. Volkswagen, Europe’s largest car manufacturer, said it boosted auto sales in China by 28% in the first four months of the year.

We are certain that the European Central Bank won’t be thinking of cutting interest rates, given the high consumer prices in the Eurozone and surprisingly decent economic data and sentiment. In any case, the ECB may even consider raising interest rates later this year if growth risks subside. On the other hand, there is still a small chance of the Fed cutting interest rates on June 25 although there is 88% odds that the Fed will keep its target rate for overnight lending between banks at 2% according to the Fed fund futures.

Forex Trading

EUR/USD broke above ceiling of 1.5700 and rallied more than 70 pips to an intraday high around 1.5775. The fact that EUR/USD has broken past several important technical levels suggests that Euro weakness could be over, so dip buying could be the best action to take. Short-term bull targets are possibly around 1.5800, 1.5830, 1.5860.

The US dollar also weakened against the Swiss franc, with USD/CHF falling to a low around 1.0275 and is hovering around 1.0300 currently. 1.0220-40 could be next bear target.

Meanwhile, the Australian dollar continues to make a new multi-year high against the US dollar, with AUD/USD rising to a high around 0.9655.

GBP/USD didn’t get enough bullish push to go above 1.9700 after minutes of the BOE’s May meeting revealed the MPC voted 8-1 in favor of leaving interest rates at 5%.

Wednesday:

US FOMC minutes 1800 GMT
Japan merchandise trade balance 2350 GMT
Thursday:
UK retail sales 0830 GMT
US house price index 1400 GMT
Bank of Japan minutes for Apr 8/9 meeting 2350 GMT

Published on Thu, May 22 2008, 08:52 GMT

Dollar Up As Leading Indicators Gain For Second Month

Mon, May 19 2008, 16:14 GMT
by Grace Cheng

GraceCheng.com

The US dollar is higher against currencies like the Euro, Swiss franc, British pound and the Japanese yen Monday. US Conference Board’s index of leading economic indicators rose by 0.1% in April to a reading of 102.0, matching the gain seen in March, and was in line with expectations. This private research group even said that even though the data certainly reflects a weak economy, it does not reflect one that’s in recession, and also noted that the small gains in the leading index for both March and April could be a signal that the economy may not weaken further. March’s gain was the first gain since September last year. A broad US economic recovery depends largely on the housing market, and if this sector doesn’t improve by the end of this year, it would continue to put a drag on growth. Billionaire investor Warren Buffett said today that the housing market “may get worse”.

Different Fates For Aussie and Kiwi Dollar

The Australian dollar reached a fresh 24-year high of 0.9570 against the US dollar Monday on rising demand for commodities such as gold. Gold, which is Australia’s third-most valuable export, gained 1.6% to $899.90 an ounce last week, boosting the coffers of gold exporters and the Aussie government. The New Zealand dollar didn’t share the good fortune of the Aussie though. Since two months ago, NZD/USD has been sliding steadily even as commodities have gone higher, on speculation that the New Zealand central bank may have to cut its main interest rates aggressively from its current 8.25% as NZ home sales fell to a 16-year low in April and employment fell the most since 1989.

ECB Says

European Central Bank’s chief Trichet said today that problems relating to the credit crunch are not yet over, and warned about the need to contain inflation. He said, “It is an ongoing, very significant market correction.” ECB’s Kranjec said that the ECB decision to keep interest rates unchanged at 4% was the correct one, and that data shows that European economic fundamentals are strong.

Forex Trading

USD/CHF fell to 1.0415, but then bounced almost 100 pips to 1.0510. As mentioned earlier, dollar strength could continue if USD/CHF can hold above 1.0390-1.0400, but if this support gives way, USD/CHF could target 1.0360, 1.0310.

EUR/USD went up to 1.5635, but remains capped by resistance around 1.5650. Its nearest support is around 1.5500-20. Tuesday’s release of the ZEW economic sentiment for May will be a potential market mover for the Euro. Before that happens, it is expected to trade in a narrow range.

The British pound went up to 1.9625 against the US dollar Monday, but later gave up its gains, falling below 1.9500 after the Bank of England said last week that a UK recession cannot be ruled out.

Published on Mon, May 19 2008, 16:14 GMT

Will Dollar Bulls Get Nervous Again?

Mon, May 19 2008, 10:43 GMT
by Grace Cheng

GraceCheng.com

The US dollar just had its biggest weekly fall against the Euro in a month on decades-low US consumer confidence and record prices of crude oil. On Friday, crude oil rose to an all-time high of $127.82 a barrel, after Goldman Sachs increased its forecast to an average of $141 a barrel for the second half of this year, up from $107, saying that demand from BRICs (Brazil, Russia, India and China) will overwhelm supply. The dollar also got an indirect hit when the head of the FDIC (Federal Deposit Insurance Corp) said that “there could be a second wave of the more traditional credit stress you see in an economic slowdown” as credit problems are spreading over to construction and development loans and consumer loans. The FDIC insures deposits at more than 8,000 US banks and maintains the stability and public confidence in the US’s financial system. Negative outlook of the US credit situation and economy could dampen the dollar’s recent bullish sentiment.

More Job Losses Than Reported?

The dollar could also be weighed down by chatter surrounding US payroll numbers. There is talk that the US government may have grossly miscalculated the number of job losses revealed in April non-farm payrolls, because if you were to add up the state payrolls for April, you will end up with 151,000 job losses, versus the 20,000 losses reported in the actual government report. This has led to speculation that April payroll numbers may be revised upward by a big amount. While some economists have rejected this rumor, traders were unwilling to hold so much long dollar positions over the weekend.

ECB Says

ECB governing council member Constancio said that while he sees no risks of a recession in Europe, Eurozone growth will slow in the second half of the year. He also said that “in global terms, inflation is rising”. ECB’s Liebscher said he sees no change in rates this year.

Forex Trading

The US dollar is not broadly weak in the currency market as it turned up against the Swiss franc and Japanese yen over the past week. US Treasury Secretary Henry Paulson repeated Friday that the strong dollar is in the country’s interest and that he expects the solid fundamentals of the US economy to be reflected in the greenback. There is a chance for the dollar to rebound against the Euro next week if USD/CHF can hold above 1.0390-1.0400, but if this support gives way, USD/CHF could target 1.0360, 1.0310.

Published on Mon, May 19 2008, 10:43 GMT

Dollar Sentiment Not Too Affected By Today's Data

Fri, May 16 2008, 09:48 GMT
by Grace Cheng

GraceCheng.com

The US dollar is slightly down against major currencies like the Euro, Swiss franc, British pound and the Japanese yen Thursday. To everyone’s surprise, all is not gloom in the Eurozone. France, which is Eurozone’s second largest economy, reported today that its gross domestic product grew 0.6% in the first quarter, double that in the previous quarter, and better than the 0.5% growth expected. Even though the high Euro is hurting exports to some degree, export growth is still robust despite economic uncertainty. As for US economic data Thursday, it has been a bit disappointing, but doesn’t change the picture of a slowdown in the US. US industrial production fell 0.7% in April, following a revised 0.2% climb in March (was 0.3% in March). This drop was worse than the 0.4% drop expected. Another weak manufacturing report came from the New York Fed survey which showed that the general business conditions index tumbled into the negative territory of -3.2 in May, compared to a positive 0.6 reading in April. Many had expected the reading to come in at 0.0, and not dipping into the contraction region. However, the Philadelphia Fed manufacturing index which was the last economic release out for the day, came out better than expected, though still signaling contraction, with the headline index at -15.6 compared with a previous -24.9 and expectations centered around -19.5.

Hammering Euro Down

International Monetary Fund Managing Director Dominique Strauss-Kahn said Thursday the Euro is carrying “a bigger share of the burden than it should have” in the current climate of foreign exchange volatility. He said foreign exchange rates were one of the “big imbalances of today’s world”. ECB’s president Trichet said Thursday that second quarter growth will be less flattering than first quarter. EuroGroup chairman Juncker repeated today trends in the US dollar (that is, the current dollar uptrend) are pointing in the right direction.

Forex Trading

Despite the overall slight negative tone of US data today, dollar losses have been very limited. Euro did not gain much versus the dollar; EUR/USD went up to 1.5560, met resistance there and then fell back below 1.5500. If it falls below 1.5450, it may target 1.5400. USD/CHF fell to a session low of 1.0480, and is still capped by 1.0600.

Friday:

Japan industrial production 0430 GMT
Swiss retail sales 0715 GMT
US housing starts 1230 GMT
U of Mich confidence 1400 GMT
Posted in Categories: Economy, Forex.

Published on Fri, May 16 2008, 09:48 GMT

Former Fed's Volcker Says Dollar Decline Can't ‘Get Out Of Hand'

Thu, May 15 2008, 10:03 GMT
by Grace Cheng

GraceCheng.com

Today’s release of US inflation data should ease some anxiety off the Fed officials as it showed that consumer prices are increasing at a mild pace. The consumer price index rose 0.2% in April, less than the 0.3% expected by the market, and following a 0.3% increase in March. Core prices excluding food and energy costs, gained 0.1%, compared with a 0.2% gain the prior month. Food prices, which make up about a fifth of the CPI, gained 0.9%, the most since January 1990. The sluggish US economic growth has no doubt reduced consumers’ appetite for lifestyle goods and services, thus easing inflationary pressures. Even though gasoline prices fell 2% in April, we are seeing a steady rise in gasoline prices this month. The AAA said that the average cost of regular gasoline reached an all-time-high of $3.73 this week. Not to mention that crude oil prices are also notching new record highs now and then; in fact, Nymex crude oil reached a record $126.98 a barrel yesterday, so consumers are bound to be hit by rising energy expenses this month. Former Fed Chairman Alan Greenspan said yesterday via satellite to a conference in Singapore that fuel prices will keep on increasing because there is too little investment by oil companies in production and infrastructure to cope with higher demand.

April’s tame inflation data should give more room for the Fed to cut interest rates should it feel the need to do so, however, remarks made by several Fed officials in the past few days showed that they are concerned about keeping inflation down. Yesterday, San Francisco Fed’s Janet Yellen said the Fed can’t be “complacent about inflation”, and that recent measures of consumers’ outlook for prices “highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility”.

Dollar Can’t Keep Falling

The US dollar uptrend still remains intact, and could get a boost from comments by former Fed chairman Volcker who said Wednesday in Washington that although some dollar depreciation was needed, he doesn’t want the slide to get out of hand, and if there is a loss of confidence in the dollar, “we’re in trouble”. He also said there may be more inflation than is reflected in the CPI data.

Forex Trading

EUR/USD declined to a low of 1.5395, the expected support area around 1.5400, and then bounced almost 100 pips back up to 1.5490. Its support base is still around 1.5370. USD/CHF rose to 1.0600 and then retreated from there as it contemplates the resistance around 1.0630, a high reached last Thursday. If it could break above that level successfully, next bull target is possibly 1.0700-10. GBP/USD fell again today to a session low of 1.9360, a near 3-month low.

Thursday:

German CPI 0600 GMT
France GDP 0645 GMT
US Empire manufacturing, initial jobless claims 1230 GMT
US TICs 1300 GMT
US industrial production 1315 GMT
US Philly Fed 1400 GMT
New Zealand PPI 2245 GMT
Japan GDP 2350 GMT

Published on Thu, May 15 2008, 10:03 GMT

European Ministers Happy With Dollar's Rally Against Euro

Wed, May 14 2008, 07:12 GMT
by Grace Cheng

GraceCheng.com

Using harsh words to make people do what you wish them to do doesn’t always work, and if it doesn’t, you could try to nudge in a positive way, saying that it would be nice if they do as you say. This gentler form of persuasion seems to be working right now, coming from Euro Group chairman and Luxembourg Finance Minister Jean-Claude Juncker, coinciding with the change in market sentiment towards the US dollar in the forex markets. He said that before, “financial markets didn’t correctly understand the message from the G7″ as traders kept shorting the dollar after the latest G7 meeting (at which the statement on currencies was slightly modified), but now, he has a positive impression that “more financial markets have a better understanding” and that he would “encourage them to stay on track”. His positively reinforcing statement is a strong indication that Europe’s finance ministers are pleased with the USD’s recent rebound versus the Euro, and that traders should continue to buy up dollars. ECB’s Trichet and others have been urging the markets for a long time, to no avail, to stop allowing Euro to bear the brunt of dollar’s weakness, but with the USD’s sentiment looking better for the time being, financial markets might just end up doing what Trichet, Juncker and others are desperately hoping for.

US Retail Sales

Tuesday’s economic data gave a boost to the US dollar. US retail sales fell by 0.2% in April, just as expected, but the drop was mainly because of falling demand for cars. Excluding cars, sales rose 0.5% in April, more than double expected. The report also showed that demand increased in many sectors, a sign that US consumers haven’t stopped shopping and the economy might not be that weak. Even March’s ex-auto sales were revised up to 0.4%, instead of the previously estimated 0.1% increase. Consumer spending is likely to rebound slightly in the third quarter as Americans spend a large portion of the $117 billion in tax-rebate checks being sent out now.

Another report Tuesday showed that US import prices gained 1.8% in April, led by rising fuel and metal costs. Prices excluding petroleum increased 1.1 percent on higher costs for capital goods, industrial supplies and auto parts.

Forex Trading

EUR/USD did break past 1.5530, rising 40 pips to expected resistance around 1.5570, but then bounced 140 pips from that ceiling as a result of heavy shorting interest. Its nearest support is around 1.5400, then 1.5370. USD/CHF has been trading in a narrow range, supported by 1.0400. The British pound fell against the US dollar again Tuesday, dipping to a near 3-month low around 1.9420 after UK retail sales showed the biggest year-on-year drop in three years in April, and the second consecutive monthly decline. Another report today showed that UK inflation rose at its sharpest pace in almost six years in April.

Wednesday:

Australia Westpac consumer confidence 0030 GMT
UK claimant count 0830 GMT
BOE quarterly inflation report 0930 GMT
US MBA mortgage applications 1100 GMT
US CPI 1230 GMT
New Zealand retail sales 2245 GMT

Published on Wed, May 14 2008, 07:12 GMT

Fed's Evans Says US Economy Should Improve Later This Year

Mon, May 12 2008, 15:43 GMT
by Grace Cheng

GraceCheng.com

Chicago Fed president Charles Evans, a non-voting member of the FOMC this year, said Monday that the Fed policy is accommodative, with the real funds rate zero or slightly negative. He said that economic growth risks are to the downside and inflation risks to the upside. He expects continued weak growth and tight credit in the near term, but said the US economy should improve somewhat in the second half of this year. He also noted that while the stimulus package may help American consumers, the fiscal package may not result in a big increase in retail sales. Since Evans isn’t a voting member this year, his remarks aren’t really moving the currency markets, but having said that, his remarks confirm what many traders are thinking, that although the Fed is leaving the door open to further rate cuts, it is unlikely to do so at the next meeting. With inflation risks spreading to consumer goods, the Fed may have to raise rates again in the not-so-distant future. The US dollar may continue its uptrend if it could survive this week’s avalanche of events, and if other Fed speakers give hints about a pause in the Fed easing cycle.

Kiwi Falls

The New Zealand dollar fell to the lowest in more than three months against the US dollar after a report showed consumer confidence dropped to a record low. A record 44% of 1,100 people surveyed in the two weeks ended May 4 said they thought it was a bad time for a major household item purchase, an increase from 40% in April. Just last week, New Zealand’s central bank Governor Alan Bollard said the outlook for the economy has worsened. NZD/USD fell to 0.7630, the lowest since January 24.

Forex Trading

The US dollar is having a mixed performance in the currency markets Monday. The greenback weakened against the Euro, British pound but up against the Swiss franc and Japanese yen. EUR/USD rose to a high around 1.5505, and still has to overcome resistance between 1.5510-30 before targeting 1.5570-80. USD/CHF’s nearest support is around 1.0380-1.0400, followed by 1.0350-60. GBP/USD dipped to an intraday low of 1.9440 but then bounced 180 pips to above 1.9600 from there after the release of a report showing that UK producer prices rose 7.5% on an annual rate (6.4% expected), and 1.4% monthly pace - both record high readings, giving rise to speculation the BOE may now slow down the pace of rate cuts.

Tuesday:

UK CPI, retail price 0830 GMT
US retail sales, import price 1230 GMT
US business inventories 1400 GMT
US ABC consumer confidence 2100 GMT
Japan trade balance 2350 GMT

Published on Mon, May 12 2008, 15:43 GMT

US Trade Deficit Shrinks: Good Or Bad?

Fri, May 9 2008, 16:09 GMT
by Grace Cheng

GraceCheng.com

Friday’s data showed that the US trade deficit unexpectedly narrowed in March, shrinking to $58.2 billion from $61.7 billion in February (initial estimate was $62.3 billion). This 5.7% decline was more than what most analysts had expected as they had predicted the gap would narrow to $61.3 billion. At first glance, this is good news for the US dollar as it shows that the deficit is narrowing and not ballooning. However, what caused the trade gap to narrow was not an increase in exports, but a sharp decrease in imports.

Imports into the US fell $6.1 billion to $206.7 billion, which was the biggest drop ever recorded. In terms of percentage, it was the biggest drop since December 2001. Not only was there lower demand for overseas products and goods, the weakening dollar also made those foreign goods more expensive to purchase. This big drop in imports only reinforces the overall view that American consumers are tightening their belts, choosing to spend their salary on basic necessities.

Import of autos, consumer goods, industrial supplies and capital goods all fell in March. US exports in March totaled $148.5 billion, the second highest amount ever recorded, but was a decline from February. Overseas buyers are finding US goods cheaper to buy due to their stronger domestic currencies relative to the weak dollar. While the narrowing trade gap may help the US dollar in the short-term due to less outflow of dollars, it doesn’t mean that the US economy wouldn’t slide into recession. Harvard University economist Martin Feldstein, who is also President of the National Bureau of Economic Research, said on Tuesday that the US economy is “sliding into a recession”.

Forex Trading

The US dollar has been trading with mixed results in the currency markets: it fell slightly against the Euro, Japanese yen and Swiss franc, but up versus the British pound. USD/CHF fell to an intraday low of 1.0390, while EUR/USD remains under 1.5500. USD/JPY fell to a 3-week low around 102.60.

Published on Fri, May 9 2008, 16:09 GMT

Jim Rogers Wants You To Buy US Dollars

Thu, May 8 2008, 14:41 GMT
by Grace Cheng

GraceCheng.com

Billionaire investor Jim Rogers said today that he is expecting a US dollar rally in the currency markets. The Singapore-based Rogers, who predicted correctly the current commodities boom, said at the launch of the Barclays Global Agriculture Delta Fund in Singapore today he expects a “nice rally” in the US dollar because many people including himself have been bearish on the dollar. He is also bullish on the Australian dollar, saying he does not have plans to sell the Aussie as “they have a great future”. He did say that ” the New Zealand and Australian dollar may get hurt if carry trades reverse”. Many people who called for a dollar rally at the start of this year were hurt when the dollar fell to a record low versus the Euro in late April. There is a good enough chance the dollar could now be bottoming in the short to medium-term against the Euro and Swiss franc, judging from the breaching of certain significant technical price levels and change of sentiment towards the dollar. Last month, Rogers said he was hoping the dollar rally would last a year, which would allow him to sell all of his dollars.

Now that Jim Rogers has spoken his thoughts, and if enough people follow his prediction, the dollar could indeed see the light, and he could get rid of dollars. So Rogers is bullish on the following: Commodities (since 1999), commodity currencies like the Aussie, Kiwi and Loonie, and the US dollar. If you recall, Warren Buffett said over the weekend that not even aliens would like to keep US dollars. Both Buffett and Rogers are on the same page in some way: they don’t really want to hold onto dollars in the long-term. In any case, many people including Rogers, Buffett and George Soros (who co-founded Quantum fund with Rogers in the 1970s) are saying the dollar is losing its status as the world’s reserve currency and a prime candidate replacement is the Euro. Rogers even said today the Chinese yuan could become one in 20 years’ time. Yet, it’s quite unnerving to think that China could hold so much power, considering China’s questionable political and human rights record at this point in time.

Keeping Interest Rates Unchanged

Both the Bank of England and the European Central Bank kept their rates unchanged today. ECB’s Trichet said that “inflation rates have risen significantly since autumn”. He added, “As we have said, inflation rates are expected to remain high for a rather protracted period of time before gradually declining again.” He said there is still a high level of uncertainty resulting from the turmoil, but “the economic fundamentals of the euro area are sound”.

Forex Trading

EUR/USD finally broke below 1.5340, falling 60 pips sharply to expected initial target around 1.5280, a 2-month low. As long as it stays above this level, we can expect some dollar weakness, but if this gives way, it may next target 1.5230, then 1.5200. EUR/USD’s strong bounce from support of 1.5280 meant that USD/CHF couldn’t break higher than 1.0630, causing Swissy to fall back toward 1.0500.

Friday:

Reserve Bank of Australia Quarterly Monetary Policy statement 0130 GMT
Canada unemployment 1100 GMT
US trade balance 1230 GMT

Published on Thu, May 8 2008, 14:41 GMT

Developments More Supportive Of Stronger Dollar

Thu, May 8 2008, 07:31 GMT
by Grace Cheng

GraceCheng.com

Today we are seeing signs that the US dollar could still resume its short-term recovery, leaving its so-far bottom behind by rising against the Euro, British pound, Swiss franc and Japanese yen. The USD sentiment boost came from weak Eurozone data and hawkish comments by Kansas City Fed President Thomas Hoenig. Hoenig, a non-voting member of the FOMC, said yesterday that “serious” inflation problems may lead the Fed to raise interest rates. He said, “There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it.” Although he doesn’t vote this year, his thoughts on this no doubt reflects that of dissenters like Dallas’s Fisher and Philadelphia’s Plosser, that there is a medium to long-term danger of letting rates go lower in an environment of rising food and energy prices. In fact, the short FOMC statement gave hints that the Fed may pause rate cuts for now, something which is a big support for the US dollar.

Crossing the Atlantic over to Eurozone, there are growing indications of a slowdown, lagging that of the US. Eurozone retail sales data released today showed a drop of 1.6% in March compared to a year ago, the biggest fall since the data collection started in 1995. Sales fell 0.4% from the previous month. Another government report showed that German manufacturing orders fell 5% in the year ended in March, compared with an 8.9% rise the prior month. The ECB is expected to keep its main refinancing rate unchanged at a six-year high of 4% Thursday, so watch out for that.

US Housing Market

According to the NAR, pending sales of previously owned homes fell 1% to 83 in March, not as bad as the 1.8% drop expected. NAR said that better access to affordable loans could aid in a more sustained recovery, and that they “continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half”.

Forex Trading

EUR/USD didn’t break above resistance around 1.5600-10, so USD bulls brought the pair down to an intraday low of 1.5380. Actions around 1.5340 must be watched, for if this breaks, downside targets are possibly 1.5280-1.5300, then 1.5230. The European Commission said Wednesday that the “overvalued” Euro is an increasing source of concern.

Yesterday USD/CHF fell to 1.0450, the expected base of support for the pair, and then bounced 140 pips from there to 1.0590. If it breaks successfully above 1.0610, it may aim towards 1.0650, 1.0700-30.

GBP/USD fell more than 200 pips today, breaking below crucial support around 1.9600, out of the triangle and sliding towards 1.9500. UK Nationwide’s index of sentiment fell to the lowest level since the survey began in May 2004.

Thursday:

Swiss unemployment 0545 GMT
Bank of England rate decision 1100 GMT (rate expected to stay at 5%)
ECB rate decision 1145 GMT (rate expected to stay at 4%)
Canada housing starts 1215 GMT
US initial jobless claims 1230 GMT
US wholesale inventories 1400 GMT
Greenspan speaks in New York 1630 GMT

Published on Thu, May 8 2008, 07:31 GMT

Dollar Gets Smacked By Fannie Mae

Wed, May 7 2008, 07:54 GMT
by Grace Cheng

GraceCheng.com

Just last week dollar’s rebound looked promising, but yet as we enter the second trading day of the week, dollar’s upside momentum is slipping away. The main catalyst of dollar’s decline today has been the bigger-than-expected loss by Fannie Mae, US’s biggest mortgage lending company, reigniting fears that we haven’t seen the worst of the financial market turmoil. The company reported a first-quarter net loss of $2.19 billion, or $2.57 a share, compared with a loss of 64 cents a share, and said it expected its credit losses to be significantly higher next year than in 2008. Fannie Mae also said it will need to raise $6 billion in capital. This kind of negative news, coming hot on the heels of not-so-bad GDP and not-so-terrible payrolls, is a jolt to overall market sentiment and confidence, and a reminder that more pain could be in store for the economy, something which Warren Buffett had said over the weekend.

Alien Talk

And speaking of Buffett, he has been hogging headlines lately with his Berkshire’s annual general meeting and numerous interviews. During the AGM, he even made fun of the US dollar, a currency which he said he has been shorting since 2002, saying even aliens won’t want to keep US dollars. He said, “If I landed from Mars today with a billion Martian dollars, or whatever they call them, went to the local bank near where my UFO landed, and they asked what would I like, I don’t think I’d put my money in the US dollar.” His outer-space remarks come at a time when a sustained dollar recovery seems to be a possibility, though a vulnerable one. For traders, their perspective is more short-term and opportunistic, unlike Buffett’s long-term view, so his comments may not have much of an influence, short-term wise, in the fickle currency markets.

Fisher the Hawk

Dallas Fed President Fisher, one of the two dissenters to last week’s rate cut, said a dramatic slowdown would be needed to justify more rate cuts, and that the Fed policy has already discounted significant “anemia” in the US economy. He sees risks on both sides of the economy.

Forex Trading

Today’s data has been helpful to the Euro: Eurozone producer prices rose 5.7% from a year ago, the most since August 2006, after gaining 5.4% in February. EUR/USD rose to a high of 1.5600. If it breaks successfully above 1.5610, it may target 1.5640, then 1.5680-1.5700. USD/CHF could slide towards 104.00, then 103.50-60. For now, the sour taste of Fannie Mae’s woes stays with the US dollar.

Wednesday:

UK industrial production 0830 GMT
Eurozone retail sales 0900 GMT
US MBA mortgage applications 1100 GMT
US pending home sales 1400 GMT
New Zealand employment 2245 GMT
UK NIESR GDP estimate 2301 GMT

Published on Wed, May 7 2008, 07:54 GMT

ECB's Trichet Warns About Global Inflation Risks

Mon, May 5 2008, 14:50 GMT
by Grace Cheng

GraceCheng.com

The currency market has been rather quiet on Monday due to the lack of major economic releases from the US or Eurozone. The US dollar mainly erased some of last Friday’s gains post-payrolls report which wasn’t as bad as many had predicted. Traders will be looking forward to Thursday when the Bank of England and the European Central Bank are scheduled to meet and announce their rate decision.

Trichet Sounds Alarm On Global Inflation

European Central Bank president Jean-Claude Trichet said at a G10 meeting in Switzerland on Monday that central banks must be alert to inflation risks worldwide. Trichet said that “inflation risks are significant” due to rising commodity prices, which he described as “a very important phenomenon on a global level”. As for the topic of the forex markets, Trichet said that G10 members did not discuss that at the meet as G7 countries have made their position clear. Trichet sounded optimistic about global economic growth, and said, “Thanks to remarkable, confirmed resilience of a great number of emerging economies we see ongoing growth.”

Forex Trading

EUR/USD has been trading a relatively narrow range of 80 pips early today, reaching a session high of 1.5500, more than a 100 pips above Friday’s precarious low of 1.5360. 1.5510-30 will be its nearest resistance. USD/CHF’s move has been even more subdued, moving between 1.0520-70. The US dollar rallied with greater energy versus the British pound, causing GBP/USD to move lower to 1.9660. However, the buck lost footing against the Australian dollar: AUD/USD rose from 0.9340 to 0.9440, ahead of a rate announcement by the Reserve Bank of Australia on Tuesday morning at 0430 GMT. Although most people are expecting the central bank to hold the rate steady at 7.25%, which is a 12-year high, they are hoping for a hawkish post-rate statement highlighting inflation concerns in Australia.

Tuesday:

Fed’s Bernanke speaks on mortgage foreclosures 0030 GMT
Australia trade balance 0130 GMT
Reserve Bank of Australia rate decision 0430 GMT (rate expected to stay at 7.25%)
Swiss CPI 0545 GMT
UK PMI services 0830 GMT
Eurozone PPI 0900 GMT
Canada Ivey PMI 1400 GMT
UK Nationwide consumer confidence 0001 GMT

Published on Mon, May 5 2008, 14:50 GMT

Has the Dollar's Bottom Formed?

Mon, May 5 2008, 09:34 GMT
by Grace Cheng

GraceCheng.com

Last week’s outstanding award should go to the US dollar, which not only had to brace itself for heavy-weight economic releases such as GDP, FOMC rate decision and US non-farm payrolls, the currency had triumphed versus other major currencies like the Euro, Swiss franc, British pound and the Japanese yen. Permanently pessimistic observers were kind of “unhappy” to see that the US economy did manage to expand in the first quarter of this year, growing by a paltry 0.6%, thinking that if it weren’t for the inclusion of inventories, the economy would have been in contraction, not growing at all. For the rest of us who think that inventories and government spending is good for the economy anyway, the US economy looks pretty resilient still, considering it has big enemies such as surging prices of food and fuel, housing market recession and the credit crunch. Here’s some more data from last week which supports that view: Friday’s labor data showed that the unemployment rate for April fell to 5% from 5.1% in March, and 20,000 jobs were lost, a much smaller loss than the 80,000 expected. And according to the ISM manufacturing report that was released on Thursday, although the headline index posted a mild contraction of 48.6 in April, the same as in March, its export index rose to 57.5 in April, an indication of expansion.

We won’t be stepping out to proclaim that the worst is over, though some big players may do so out of their own vested interest. Maybe the worst is yet to come. Or perhaps we are staring at soft landing in progress, and the recession turns out tame.

Lawmakers Seek Hearing On Dollar’s Decline

US Republican lawmakers are seeking congressional hearings on the dollar’s fall, wanting to know how the Fed rate cuts have caused the decline and pushed commodity prices higher. In a letter dated May 1 to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, the lawmakers said, “We cannot stand idly by while the dollar’s value continues to plummet, pushing up food and energy prices and lowering the American people’s standard of living.”

Forex Trading

USD/CHF rose to a 2-month high around 1.0610, and if it manages to break above, it may aim towards 1.0650, 1.0700-30. Its base of support is around 1.0440-50. EUR/USD’s immediate support lies around 1.5340, and if this gives way, it may target 1.5280-1.5300, then 1.5230. Otherwise USD may dip if EUR/USD stays above that base. GBP/USD has had a volatile week, but is generally heading downward, capped by its down trendline. According to UK mortgage lender HBOS, UK house prices had their first drop on an annual basis in more than 12 years in April.

Published on Mon, May 5 2008, 09:34 GMT

Will Better Than Forecast Payrolls Propel Dollar Into The Light?

Fri, May 2 2008, 14:56 GMT
by Grace Cheng

GraceCheng.com

This is the big mover of the day: Today’s US non-farm payrolls were unexpectedly much better than expected. US payrolls data for April showed a decline of 20,000 jobs after a revised 81,000 decline in March. Although this marks the fourth consecutive of job losses in the US, it was much better than the 80,000 job decline expected by the majority of the market. In another encouraging sign, the unemployment rate also surprised, falling to 5% in April from 5.1% in March, versus an expected 5.2%. Sectors that lost jobs include factories and the construction industry which are still feeling the effects of a housing market slump. A total of 107,000 jobs were lost in these two sectors last month. What helped stem the overall decline of jobs was the sharp gain in hiring in the service industries. Insurance firms, banks, restaurants and retailers hired 90,000 people last month, the biggest amount so far this year, after an increase of 7,000 in March. What is worth noting is the hiring by financial firms, a move not seen since July last year, and is in itself a positive sign of a possible improvement in Wall Street despite recent massive writedowns due to the credit crunch.

Forex Trading

In the currency markets, the effect of NFP was clearly evident on the charts as the US dollar shot up against major currencies. The Euro fell by more than 100 pips against the US dollar in the 10 minutes after the data release, falling from 1.5470 to a so-far low of 1.5360, its lowest point since March 24 when it went to a low of 1.5340. The dollar also rallied against the Swiss franc, chalking up a gain of more than 100 pips, and is now encroaching into the 1.0600 region. USD/JPY broke above 105.00 to a 2-month high, and is heading towards 106.00. In pre-weekend trading, gains are likely to be restrained.

Published on Fri, May 2 2008, 14:56 GMT

Strong Rise In US Consumer Spending Lifts Dollar

Fri, May 2 2008, 09:11 GMT
by Grace Cheng

GraceCheng.com

The broad performer of the day in the currency markets is the US dollar, which got a lift in sentiment from mostly better-than-forecast economic data and the Fed’s hint of a rate cut pause. First of all, US consumer spending rose 0.4% in March, twice market’s expectations. This is an encouraging sign even as personal income slowed down, gaining a seasonally adjusted rate of 0.3%. Secondly, ISM manufacturing data for April was better than expected, with the headline index at 48.6 vs a prior 48.6. Even though it is still occupying the contraction zone, it is better than the forecast of 48.1. Today’s PCE data shows that inflation has accelerated, which is another factor why the Fed should consider leaving rates on hold at the next FOMC meeting.

I should think that the spark to the tinder of USD’s rally today is mainly supplied by expectations that the Fed may stop pressing the “Rate Cut” button at the next meeting. Even though we are seeing Euro longs unwinding today, the sentiment isn’t yet cemented in the ground as we are still waiting for the Month’s Biggest Lottery to be played out on Friday, which is the US non-farm payrolls. Thursday’s release of Challenger layoffs showed that layoffs announcements were up 27% year-over-year in April, to a shocking 90,015, compared to March’s 53,579 firings. The April number is the highest since September 2006. NFP for April is expected to show a loss of 75-78,000 jobs, the fourth month of job losses, and the jobless rate is forecast to rise to 5.2% in April, the highest level in three years.

US Jobless Claims

US initial jobless claims for week ended April 26 rose 35,000 to 380,000 from revised 345,000 the week before. This reading was worse than the forecast of 20,000 rise. The 4-week moving average fell to 363,800 vs 370,000 last time.

Forex Trading

After yesterday’s knee-jerk decline of the US dollar after the Fed rate cut, USD bulls are taking the opportunity Thursday to bid the dollar higher. After several failed attempts at piercing through stubborn resistance around 1.0430, USD/CHF finally broke above that level by 60 pips to a high of 1.0500, the expected upside target. EUR/USD is down below 1.5460 and could be heading towards 1.5400-10 next.

Friday:

Australia retail sales 0130 GMT
Germany retail sales 0600 GMT
Eurozone PMI manufacturing 0800 GMT
UK PMI construction 0830 GMT
US non-farm payrolls, unemployment rate 1230 GMT
US factory orders 1400 GMT

Published on Fri, May 2 2008, 09:11 GMT

No Theoretical Recession For the US Economy − Yet

Wed, Apr 30 2008, 15:44 GMT
by Grace Cheng

GraceCheng.com

The US dollar is up slightly today versus the Euro and Japanese yen before the Fed is due to announce its rate decision. With the US non-farm payrolls due to be reported this Friday, market players were eager about the today’s private sector payrolls forecast, and USD bulls were heartened by the results. According to payrolls giant Automatic Data Processing, private sector jobs increased by 10,000 in April, which were much better than expectations of a 70,000 decline. Also supporting the buck today was the initial reading for US GDP data, which showed that the US economy expanded by 0.6% in the first quarter, in line with market consensus, and also matching the previous quarter’s growth. Hey, as long as it was an expansion on paper, albeit a tiny one, investors have reason to think maybe the US economy may not collapse as many feared. After all, the economy did grow, and data shows it was still not in a recession - theoretically speaking - yet, with yet being the emphasis. While businesses reduced their spending on software and equipment, they increased their stock of supplies, with a good amount heading for export, thus boosting growth. Government spending also added to the GDP. Although the US government may say they support a strong US dollar, they won’t deny the advantage of a weak dollar in helping export of US goods and services.

Other US Data
The Chicago PMI showed a reading of 48.3 in April, a slight improvement from 48.2 in March, and a six-year low of 44.5 in February. Although the reading showed that business activity in Chicago was in the contraction territory for the third month, it was still better compared with March and February. Meanwhile, US core prices, excluding food and energy, rose at a rate of 2.2% in the first quarter, down from the 2.5% rate in the fourth quarter.

Eyes On Fed
The Fed is expected to announce a 25 bp rate cut today from 2.25% to 2% in order to stimulate the US economy that is in the middle of a slowdown, but what’s more important than the move will be the statement. Traders are betting that the Fed will keep the rate unchanged after that so as to combat rising inflation pressures.

Forex Trading
Range trading is the theme in the currency markets today as traders await the FOMC rate decision. EUR/USD went slightly lower today to a low of 1.5515 before bouncing 65 pips up from that expected support zone between 1.5480-1.5510. Should this be violated, bear targets are possibly 1.5460, 1.5400-10. USD/CHF went up to test the resistance around 1.0430, but faced heavy shorting pressure and proceeded to bounce 60 pips downward. Next bull targets around 1.0460 then 1.0500. GBP/USD fell to 1.9620, but then rebounded back up to 1.9800.

Thursday:

UK PMI manufacturing 0830 GMT
US PCE deflator, personal spending 1230 GMT
US ISM manufacturing 1400 GMT

Published on Wed, Apr 30 2008, 15:44 GMT

Fed Rate Decision Shields Dollar From Horrid Housing Data

Wed, Apr 30 2008, 15:28 GMT
by Grace Cheng

GraceCheng.com

According to the Standard & Poor’s/Case-Shiller home price index released today, US home prices in 20 cities fell by 12.7% in February compared to a year ago. This decline was worse than the 12% drop expected by many, and steeper than the 10.7% drop posted in January. Record annual declines were seen in 17 of the 20 metro areas. Las Vegas and Miami have the worst declines: Home prices dropped 23% in Las Vegas and 22% in Miami. The only area with a gain was Charlotte which registered a 1.5% increase, defying the overall housing sentiment. February marked the sixth consecutive decline in all the 20 metro areas. The housing situation in the US is unlikely to get better anytime soon, as declining property prices spark off a vicious cycle of less buying interest, more defaults on loan payments, increasing number of foreclosures and eventually more price declines. Incidentally, RealtyTrac reported today that the number of homes going into foreclosures increased 112% in Q1 to 649,917 this year compared to last year. That’s more the double the foreclosure rate in 2007. Americans, unhappy with the erosion of their property prices, are feeling more pessimistic about their spending ability, and this is reflected in today’s release of the Conference Board’s consumer confidence index which fell to 62.3 in April from a prior 65.9 (revised from 64.5). This was slightly better than the 61.5 reading expected. The present situation index dropped to 80.7 from 90.6, while the expectations index rose to 50.1 from 49.4.

Fed Starts Meeting

Bernanke et al are beginning their two-day meeting today, the most probable outcome of which is likely to be a 25 basis points rate cut from 2.25% to 2%. Most traders are sitting on their hands, preferring to let the event pass over before commiting to more positions in the market.

Forex Trading

EUR/USD is lower today, dipping to a low of 1.5540 before bouncing up again to 1.5600, in line with expectations of support around 1.5530-50. Another possible support netting is around 1.5480-1.5510. USD/CHF went up to a high of 1.0400, and has yet to overcome resistance around 1.0430, followed by 1.0460 then 1.0500. GBP/USD fell 200 pips today, sliding towards 1.9700 on weak UK data showing consumer lending slowing to its lowest level in nearly six year and mortgage approvals falling to a record low.

Wednesday:

Eurozone CPI estimate, unemployment rate 0900 GMT
US MBA mortgage applications 1100 GMT
US ADP employment 1215 GMT
Canada GDP 1230 GMT
US GDP, core PCE 1230 GMT
Chicago PMI 1345 GMT
FOMC rate decision 1815 GMT (rate expected to be cut to 2% from 2.25%)

Published on Wed, Apr 30 2008, 15:28 GMT

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