The yen advanced against high-yielding currencies, recovering after yesterday¡¯s sharp slide, as several bad news related to credit market raised risk aversion.
An Australia hedge fund, Basis Yield Alpha Fund, collapsed today because of US home loan defaults. New Zealand-based Five Star Consumer Finance Ltd. also filed bankruptcy today. Those negative news added to worries over the subprime and credit market. Large amounts of hedge funds suffered huge losses from securities backed by US home loans.
The Australian dollar fell from 95.70 to as low as 93.67 versus the yen. The dollar was trading in high 115 versus the yen during the US trading session today.
Thursday, August 30, 2007
FX Steadies Ahead of Data
At 2:00 AM UK August Nationwide House Prices (exp 0.5%, prev 0.1%)
At 4:00 AM Germany August Unemployment Rate (exp 8.9%, prev 9.0%)
Germany August Unemployment Change (-30.0k, prev –45.0k)
At 4:30 AM UK July Consumer Credit (exp 875 mln stg, prev 874 mln stg)
At 8:30 AM Canada July PPI m/m (exp –0.5%, prev –1.3%)
Canada Q2 Current Account Balance (exp C$8.5 bln, prev C$6.49 bln)
US Weekly Jobless Claims (exp 322.0k, prev 322.0k)
US Q2 GDP preliminary (exp 4.0%, prev 3.4%)
US Q2 PCE (exp 4.3%, prev 4.3%)
US Q2 core PCE (exp 1.4%, prev 1.4%)
Sharp swings in the currency market corresponded with the rebound in US equity bourses, with the yen bearing the brunt of the losses against the majors. The Japanese unit relinquished all of its previous session’s gains to stand unchanged from two trading days prior, hovering around 234 against the sterling and just beneath 159 versus the euro. Although the liquidity injections by global central banks have tempered the panic rampant in markets in recent weeks, the credit markets are still not out of the woods yet and we can expect periods of heightened volatility and risk aversion in the coming weeks.
The session ahead will see several key G7 data releases including UK August nationwide house prices, Germany August jobs report, UK July consumer credit, Canada Q2 current account balance, Canada July PPI, US weekly jobless claims and US Q2 GDP. The preliminary reading for second quarter growth in the US is expected to rise to 4.0%, versus 3.4% from the previous quarter, pointing towards robust economic activity that could sway the Fed to stand pat at its September meeting. Also to be closely watched will be the Q2 PCE, with the headline seen remaining unchanged at 4.3% and the core PCE reading steady at 1.4%.
At 4:00 AM Germany August Unemployment Rate (exp 8.9%, prev 9.0%)
Germany August Unemployment Change (-30.0k, prev –45.0k)
At 4:30 AM UK July Consumer Credit (exp 875 mln stg, prev 874 mln stg)
At 8:30 AM Canada July PPI m/m (exp –0.5%, prev –1.3%)
Canada Q2 Current Account Balance (exp C$8.5 bln, prev C$6.49 bln)
US Weekly Jobless Claims (exp 322.0k, prev 322.0k)
US Q2 GDP preliminary (exp 4.0%, prev 3.4%)
US Q2 PCE (exp 4.3%, prev 4.3%)
US Q2 core PCE (exp 1.4%, prev 1.4%)
Sharp swings in the currency market corresponded with the rebound in US equity bourses, with the yen bearing the brunt of the losses against the majors. The Japanese unit relinquished all of its previous session’s gains to stand unchanged from two trading days prior, hovering around 234 against the sterling and just beneath 159 versus the euro. Although the liquidity injections by global central banks have tempered the panic rampant in markets in recent weeks, the credit markets are still not out of the woods yet and we can expect periods of heightened volatility and risk aversion in the coming weeks.
The session ahead will see several key G7 data releases including UK August nationwide house prices, Germany August jobs report, UK July consumer credit, Canada Q2 current account balance, Canada July PPI, US weekly jobless claims and US Q2 GDP. The preliminary reading for second quarter growth in the US is expected to rise to 4.0%, versus 3.4% from the previous quarter, pointing towards robust economic activity that could sway the Fed to stand pat at its September meeting. Also to be closely watched will be the Q2 PCE, with the headline seen remaining unchanged at 4.3% and the core PCE reading steady at 1.4%.
Yen Pared Gains on US Equities Surge
The yen pared its earlier gains against high-yielding currencies as risks aversions calmed down when US stock market rallied today.
US stocks rebounded sharply on Wednesday with the S&P 500 and Nasdaq up more than 2%. As a result, the yen slid broadly as investors resume carry trades. Also, the dollar lost its lust as a safe-haven when risk aversion declined. The dollar rose from below 114 to test the 116 handle versus the yen, while the sterling rallied sharply from low 227 to as high as 234.10.
Besides, carry trades in which the yen is borrowed as a funding currency are not likely to disappear as the Bank of Japan is widely expected to keep its interest rates unchanged at current low level in the medium term.
US stocks rebounded sharply on Wednesday with the S&P 500 and Nasdaq up more than 2%. As a result, the yen slid broadly as investors resume carry trades. Also, the dollar lost its lust as a safe-haven when risk aversion declined. The dollar rose from below 114 to test the 116 handle versus the yen, while the sterling rallied sharply from low 227 to as high as 234.10.
Besides, carry trades in which the yen is borrowed as a funding currency are not likely to disappear as the Bank of Japan is widely expected to keep its interest rates unchanged at current low level in the medium term.
Yen Rose on Subprime Concern
The yen today rallied against high-yielding currencies as several bad news raised concern over the US economy, prompting investors to trim carry trades.
Weakening US housing market keeps investors nervous about investment in risky assets. A US report today showed inventory of unsold pre-owned US homes reached a 16-year peak in July. Also US home prices in the second quarter experienced the biggest decline in more than 20 years.
Barclays PLC denied a report in the Financial Times that it had hundreds of millions of dollars of exposure to failed debt funds.
Weakening US housing market keeps investors nervous about investment in risky assets. A US report today showed inventory of unsold pre-owned US homes reached a 16-year peak in July. Also US home prices in the second quarter experienced the biggest decline in more than 20 years.
Barclays PLC denied a report in the Financial Times that it had hundreds of millions of dollars of exposure to failed debt funds.
Tuesday, August 28, 2007
JPY Firms
At 4:00 AM Eurozone July M3 Money Supply (exp 11.0%, prev 10.9%)
Germany August Ifo Expectations (exp 100.3, prev 101.8)
Germany August Ifo Current Conditions (exp 110.7, prev 111.3)
Germany August Ifo Index (exp 105.4, prev 106.4)
At 10:00 AM US August Consumer Confidence (exp 104.0, prev 112.6)
The week kicked off to a slow start with the major currency pairs largely confined to ranges in the New York session as traders await several key G7 economic reports. The main focus however, will be Fed Chairman Bernanke’s speech at the annual economic symposium in Jackson Hole, Wyoming.
Bernanke’s speech, which is expected to discuss housing and monetary policy, will be closely scrutinized for the Chairman’s assessment of the current housing market slump, tightening liquidity conditions, and the prospect for a cut in the Federal funds rate at the September 18th meeting. With recent data revealing an accelerated decline in the housing market, particularly with the inventory of unsold homes climbing to its highest level in 15-years, it will be interesting to see if Bernanke acknowledges the slowdown in the economy as a result of housing to be a greater risk than inflationary pressure.
Germany August Ifo Expectations (exp 100.3, prev 101.8)
Germany August Ifo Current Conditions (exp 110.7, prev 111.3)
Germany August Ifo Index (exp 105.4, prev 106.4)
At 10:00 AM US August Consumer Confidence (exp 104.0, prev 112.6)
The week kicked off to a slow start with the major currency pairs largely confined to ranges in the New York session as traders await several key G7 economic reports. The main focus however, will be Fed Chairman Bernanke’s speech at the annual economic symposium in Jackson Hole, Wyoming.
Bernanke’s speech, which is expected to discuss housing and monetary policy, will be closely scrutinized for the Chairman’s assessment of the current housing market slump, tightening liquidity conditions, and the prospect for a cut in the Federal funds rate at the September 18th meeting. With recent data revealing an accelerated decline in the housing market, particularly with the inventory of unsold homes climbing to its highest level in 15-years, it will be interesting to see if Bernanke acknowledges the slowdown in the economy as a result of housing to be a greater risk than inflationary pressure.
FX Quiet, Carry Trades Pick Up Slowly
Major currency pairs were trading quietly on Monday as UK financial market was closed for summer bank holiday.
The dollar remained weak against the euro and sterling after a weaker-than-expected US housing report, adding to the worries over the nation’s housing sector. The existing home sales declined 0.2% to an annual rate of 5.75 million units in July, the slowest pace in two years.
The euro drifted in a narrow range between 1.3640 and 1.3680 versus the dollar, while the sterling approached 2.02 against the dollar.
The dollar remained weak against the euro and sterling after a weaker-than-expected US housing report, adding to the worries over the nation’s housing sector. The existing home sales declined 0.2% to an annual rate of 5.75 million units in July, the slowest pace in two years.
The euro drifted in a narrow range between 1.3640 and 1.3680 versus the dollar, while the sterling approached 2.02 against the dollar.
Sunday, August 26, 2007
Dollar and Yen Sold off as Financial Markets Stabilized
Both the greenback and yen retreated sharply lower last week as global financial markets stabilized from the fear of credit crunch and rebounded strongly. One of the most interesting development was indeed Friday's much better than expected new home sales data from the US which suggested some stabilization in the housing markets and that the subprime problem might not be as bad as what people thought. Stock markets surged higher, prompting investors to switch their positions from low yield currencies and back to riskier assets, i.e. back to carry trades. And the net result was, higher yield currencies surged further on due to strong rebound in respective yen crosses and such strength sent them higher against the greenback too. In other words, this time, the dollar weakened because of strength in US data! The coming week will start with another piece of housing data, the Existing Home Sales from US and it will be interested to see if the pattern repeats.
On the technical side, EUR/USD's break of 1.3642 resistance indicates that the fall from 1.3851 was indeed corrective in nature. That is, price actions from there is merely a correction, or part of a consolidation to the larger up trend. More importantly, this serves as an early alert that dollar's rebound in the past few weeks could indeed be corrective in nature too and further short term weakness could be seen in the greenback against European majors as well as commodity currencies.
Economic calendar in the US was light last week. Main feature was Durable Goods Orders and New Home Sales on Friday and both blew away expectations completely. US durable goods orders rose a much larger than expected 5.9% in July. Orders for June were revised up to 1.9%. Ex-transport orders rose 3.7%, also much higher than expectation of 0.6%. However, the data was for the month just before the turmoil in the financial markets. Whether such strong trend will continue to the rest of Q3 remains to be seen. New home sales rose 2.8% in Jul, reaching 870k annualized units. Meanwhile, Jun's data was also revised upward to 846k. Even though it shows some sign of stabilizing in the housing market, given tightness in the credit markets, further improvement is still uncertain.
Fed continued to inject funds into US money markets after prior Friday's surprise discount rate cuts. There were increased speculation that Fed will cut the Fund Rate in the upcoming Sep 18 meeting. Following a closed door meeting with Fed Bernanke and Treasury Paulson, Senate banking committee chairman Dodd, said that Fed would use all tools that were available to calm markets. However, there was no obvious hints of a rate cut in the near future.
ECB decided to "conduct a supplementary liquidity- providing longer-term refinancing operation" and said it would lend 40b Euros to banks for three months to support normalization of money markets. Regarding monetary policy, however, the statement said that the "the position of the governing council of the ECB on its monetary policy stance was expressed by its president". In other words, that's an indication that ECB will hike in Sep as Trichet has indicated in last meeting using the magical word "vigilance".
Germany's ZEW indicator for economic sentiment plummeted into negative region of -6.9 in Aug, even much worse than expectation of -1.0. Both Manufacturing and Services PMI in Eurozone eased a bit in Aug but remained firmly above 50. Jul Current account, on the other hand, posted an upside surprise by turning into 5.9b surplus instead of expected -2.0B deficit.
The BoJ left rates unchanged at 0.50% as widely expected. The decision was made by a 8-1 vote with Mizuno as the sole dissenter voting for a hike. In the monthly report, economic assessment was left unchanged. BoJ noted that Japan is showing moderate growth and expect core CPI to continue to rise and move back into positive region. However, BoJ also noted that public investment is sluggish and private demand was flat. Also, BoJ noted recent market turbulence and the effect on stock markets, interest rates as well as the yen. BoJ Governor Fukui also warned that "Distortions and the misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy."
Canadian CPI inflation was basically inline with expectation with headline CPI staying at 2.2% yoy and core CPI moderated to 2.3%. Meanwhile, retail sales disappointed by dropping more than expected by -0.9% in Jun with ex-auto sales dropped by 0.3%. The data suggest that BoC is in no urgency to raise rates again in Sep and will likely to be on hold first, depending on the development in global financial markets.
On the technical side, EUR/USD's break of 1.3642 resistance indicates that the fall from 1.3851 was indeed corrective in nature. That is, price actions from there is merely a correction, or part of a consolidation to the larger up trend. More importantly, this serves as an early alert that dollar's rebound in the past few weeks could indeed be corrective in nature too and further short term weakness could be seen in the greenback against European majors as well as commodity currencies.
Economic calendar in the US was light last week. Main feature was Durable Goods Orders and New Home Sales on Friday and both blew away expectations completely. US durable goods orders rose a much larger than expected 5.9% in July. Orders for June were revised up to 1.9%. Ex-transport orders rose 3.7%, also much higher than expectation of 0.6%. However, the data was for the month just before the turmoil in the financial markets. Whether such strong trend will continue to the rest of Q3 remains to be seen. New home sales rose 2.8% in Jul, reaching 870k annualized units. Meanwhile, Jun's data was also revised upward to 846k. Even though it shows some sign of stabilizing in the housing market, given tightness in the credit markets, further improvement is still uncertain.
Fed continued to inject funds into US money markets after prior Friday's surprise discount rate cuts. There were increased speculation that Fed will cut the Fund Rate in the upcoming Sep 18 meeting. Following a closed door meeting with Fed Bernanke and Treasury Paulson, Senate banking committee chairman Dodd, said that Fed would use all tools that were available to calm markets. However, there was no obvious hints of a rate cut in the near future.
ECB decided to "conduct a supplementary liquidity- providing longer-term refinancing operation" and said it would lend 40b Euros to banks for three months to support normalization of money markets. Regarding monetary policy, however, the statement said that the "the position of the governing council of the ECB on its monetary policy stance was expressed by its president". In other words, that's an indication that ECB will hike in Sep as Trichet has indicated in last meeting using the magical word "vigilance".
Germany's ZEW indicator for economic sentiment plummeted into negative region of -6.9 in Aug, even much worse than expectation of -1.0. Both Manufacturing and Services PMI in Eurozone eased a bit in Aug but remained firmly above 50. Jul Current account, on the other hand, posted an upside surprise by turning into 5.9b surplus instead of expected -2.0B deficit.
The BoJ left rates unchanged at 0.50% as widely expected. The decision was made by a 8-1 vote with Mizuno as the sole dissenter voting for a hike. In the monthly report, economic assessment was left unchanged. BoJ noted that Japan is showing moderate growth and expect core CPI to continue to rise and move back into positive region. However, BoJ also noted that public investment is sluggish and private demand was flat. Also, BoJ noted recent market turbulence and the effect on stock markets, interest rates as well as the yen. BoJ Governor Fukui also warned that "Distortions and the misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy."
Canadian CPI inflation was basically inline with expectation with headline CPI staying at 2.2% yoy and core CPI moderated to 2.3%. Meanwhile, retail sales disappointed by dropping more than expected by -0.9% in Jun with ex-auto sales dropped by 0.3%. The data suggest that BoC is in no urgency to raise rates again in Sep and will likely to be on hold first, depending on the development in global financial markets.
Saturday, August 25, 2007
Dollar Drops As Carry Trades Resume
The dollar continued to weaken against the euro and sterling on expectations that the Fed may cut its benchmark rates by at least 25 basis points on September meeting. The euro hovers above the 1.36 level and approached 1.3680 versus the dollar, while the sterling climbed to as high as 2.0140 against the dollar.
Two stronger-than-expected US economic reports had little impact on the market. Durable goods orders rose 5.9% in July, well above the estimate of 1.0% and a previous reading of 1.3%. US new home sales unexpectedly rose from 834k to 870k, beating the forecast of 820k.
However, a single report did little to the market perception of the nation’s housing market. The CEO of Countrywide, America’s biggest home loan lender, said yesterday that weak housing sector may lead to economic recession.
Two stronger-than-expected US economic reports had little impact on the market. Durable goods orders rose 5.9% in July, well above the estimate of 1.0% and a previous reading of 1.3%. US new home sales unexpectedly rose from 834k to 870k, beating the forecast of 820k.
However, a single report did little to the market perception of the nation’s housing market. The CEO of Countrywide, America’s biggest home loan lender, said yesterday that weak housing sector may lead to economic recession.
Yen Slumped after BOJ Left Rates Unchanged
The yen slumped after the Bank of Japan held its interest rates unchanged as expected at current low level of 0.5%. The dollar rallied to break resistance at 117 versus the yen, while the sterling approached 235 against the yen from below 230.
The post-meeting statement from the Bank of Japan showed an unchanged assessment of the economy, saying that the economic growth would expand moderately. The hawkish comments helped to alleviate the nervousness of recent global financial market turmoil.
Besides, the European Central Bank injected 40 billion euros to the banking system via a three-month money market operation to ease worries over credit market.
The post-meeting statement from the Bank of Japan showed an unchanged assessment of the economy, saying that the economic growth would expand moderately. The hawkish comments helped to alleviate the nervousness of recent global financial market turmoil.
Besides, the European Central Bank injected 40 billion euros to the banking system via a three-month money market operation to ease worries over credit market.
Thursday, August 23, 2007
Yen Falls Sharply, Awaits BoJ
At 2:00 AM Germany Q2 GDP q/q (exp 0.3%, prev 0.3%)
Germany Q2 GDP y/y (exp 2.5%, prev 2.5%)
BoJ August Report
At 8:30 AM US Weekly Jobless Claims (exp 320k, prev 322k)
The yen came under pressure across the board as global equities rebounded, with Tokyo’s Nikkei average opening 2% higher at the start of trading. The recent liquidity injections from global central banks have, for the time being, quelled market fears and stabilized financial volatility. While it may be premature to determine whether traders are jumping back into the carry trades, it is apparent that some of the heightened risk aversion may be starting to subside. The yen traded near 116 against the dollar and 231.56 versus the sterling.
The dollar slipped against the euro and pound, falling to 1.3557 and 1.9964, respectively. We anticipate range trading from the greenback as traders discern the impact of the subprime crisis on the economy as a whole and determine when the FOMC will ease its federal funds rate. We do not expect a rate cut from the Fed in September; instead we look for a 25-bp cut by October.
Germany Q2 GDP y/y (exp 2.5%, prev 2.5%)
BoJ August Report
At 8:30 AM US Weekly Jobless Claims (exp 320k, prev 322k)
The yen came under pressure across the board as global equities rebounded, with Tokyo’s Nikkei average opening 2% higher at the start of trading. The recent liquidity injections from global central banks have, for the time being, quelled market fears and stabilized financial volatility. While it may be premature to determine whether traders are jumping back into the carry trades, it is apparent that some of the heightened risk aversion may be starting to subside. The yen traded near 116 against the dollar and 231.56 versus the sterling.
The dollar slipped against the euro and pound, falling to 1.3557 and 1.9964, respectively. We anticipate range trading from the greenback as traders discern the impact of the subprime crisis on the economy as a whole and determine when the FOMC will ease its federal funds rate. We do not expect a rate cut from the Fed in September; instead we look for a 25-bp cut by October.
Yen Fell as Risk Appetite Returns
The yen fell broadly as global financial market calmed down and investors resumed risk appetite. As carry trade positions are rebuild, the yen weakened against high-yielding currencies. The dollar climbed from 114 to test 115.50 versus the yen. The sterling rallied sharply to near 230 against the yen, while the euro approached the 156 level.
The Bank of Japan is widely expected to hold its interest rates unchanged at current low level of 0.5% on its policy meeting this week. This will raise investors’ interests in carry trades.
The European Central Bank planned to inject 40 billion euros to the banking system to facilitate liquidity needs, easing worries over credit market.
The Bank of Japan is widely expected to hold its interest rates unchanged at current low level of 0.5% on its policy meeting this week. This will raise investors’ interests in carry trades.
The European Central Bank planned to inject 40 billion euros to the banking system to facilitate liquidity needs, easing worries over credit market.
Choppy Trading Lingers in FX
At 4:00 AM Eurozone June Current Account Balance (exp –2.0 bln euros, prev –8.6 bln euros)
At 5:00A M Eurozone June Industrial Orders m/m (exp 2.0%, prev 1.7%)
Eurozone June Industrial Orders y/y (exp 12.4%, prev 9.1%)
Markets remain on edge amid continued uncertainty stemming from burgeoning fears of a global credit crunch -- leaving traders to ponder the outlook for the US economy. Early in the Tokyo session, the sterling came under pressure against the dollar and yen as rumors of a UK insurer holding substantial subprime positions began circulating the trading desks, pushing the pound to 153.40 versus the yen and toward the 1.98-level against the greenback. We expect further volatility in the coming months as a result of possibly more revelations of subprime holdings deteriorating balance sheets, requiring either substantial write-offs or even bailouts.
Senate Banking Committee Chairman Dodd met with Fed Chairman Bernanke and Treasury Secretary Paulson, saying that Bernanke vowed to use “all tools available” to stabilize volatility in the financial markets. Paulson expressed that he has the utmost confidence in how Bernanke is handling the current credit crunch. Nevertheless, Dodd stressed that the Fed was an independent agency and should not be pressured into cutting rates.
At 5:00A M Eurozone June Industrial Orders m/m (exp 2.0%, prev 1.7%)
Eurozone June Industrial Orders y/y (exp 12.4%, prev 9.1%)
Markets remain on edge amid continued uncertainty stemming from burgeoning fears of a global credit crunch -- leaving traders to ponder the outlook for the US economy. Early in the Tokyo session, the sterling came under pressure against the dollar and yen as rumors of a UK insurer holding substantial subprime positions began circulating the trading desks, pushing the pound to 153.40 versus the yen and toward the 1.98-level against the greenback. We expect further volatility in the coming months as a result of possibly more revelations of subprime holdings deteriorating balance sheets, requiring either substantial write-offs or even bailouts.
Senate Banking Committee Chairman Dodd met with Fed Chairman Bernanke and Treasury Secretary Paulson, saying that Bernanke vowed to use “all tools available” to stabilize volatility in the financial markets. Paulson expressed that he has the utmost confidence in how Bernanke is handling the current credit crunch. Nevertheless, Dodd stressed that the Fed was an independent agency and should not be pressured into cutting rates.
Tuesday, August 21, 2007
Yen Pared Gains as US Equities Rebounded
The yen pared its gains from last week as US equities rebounded, encouraging investors to resume carry trades.
The Federal Reserve surprisingly lowered its window rates to 5.75% last Friday, raising speculations that the Fed may cut interest rates this year. US interest rate futures pricing indicated traders see a 60 percent chance that the Fed will cut interest rates by 50 basis points to 4.75% on September 18 meeting. The Fed¡¯s action calmed nervous investors down and boosted US stock market.
The yen weakened against high-yielding currencies today as carry trade positions were rebuilt. The euro climbed from above 153 to test the 156 level against the yen, while the sterling strengthened from 225 to as high as 229.58 versus the yen. The dollar also gained nearly 200 pips to 115.50.
The Federal Reserve surprisingly lowered its window rates to 5.75% last Friday, raising speculations that the Fed may cut interest rates this year. US interest rate futures pricing indicated traders see a 60 percent chance that the Fed will cut interest rates by 50 basis points to 4.75% on September 18 meeting. The Fed¡¯s action calmed nervous investors down and boosted US stock market.
The yen weakened against high-yielding currencies today as carry trade positions were rebuilt. The euro climbed from above 153 to test the 156 level against the yen, while the sterling strengthened from 225 to as high as 229.58 versus the yen. The dollar also gained nearly 200 pips to 115.50.
Yen Choppiness Resumes
At 4:30 AM UK July PS net borrowing (exp –6.1 bln sterling, prev 7.443 bln sterling)
UK July PSNCR m/m (exp –11.0 bln sterling, prev 10.339 bln sterling)
At 10:00 AM US July Leading Indicators (exp 0.4%, prev –0.3%)
The foreign exchange market remained volatile in early Tokyo trading, with the yen pairs leading the movement amid lingering risk aversion. Although last week’s 50-basis point cut in the Fed’s discount rate tempered growing fears of a credit crunch and its impact on the economy, traders will remain cautious as it remains uncertain whether the FOMC will cut the Fed fund rate next month. The major currencies rebounded against the yen on Friday and continue to hover around those ranges, with dollar/yen near 114.20 and euro/dollar steady just beneath the 1.35-level.
The week ahead is light on key economic data, but some highlights include the Bank of Japan’s monetary policy decision, Japan’s trade balance, Germany’s ZEW survey, Germany’s GDP, UK GDP and US durable goods orders. However, the currency market will likely take its cues from the credit and equity markets.
UK July PSNCR m/m (exp –11.0 bln sterling, prev 10.339 bln sterling)
At 10:00 AM US July Leading Indicators (exp 0.4%, prev –0.3%)
The foreign exchange market remained volatile in early Tokyo trading, with the yen pairs leading the movement amid lingering risk aversion. Although last week’s 50-basis point cut in the Fed’s discount rate tempered growing fears of a credit crunch and its impact on the economy, traders will remain cautious as it remains uncertain whether the FOMC will cut the Fed fund rate next month. The major currencies rebounded against the yen on Friday and continue to hover around those ranges, with dollar/yen near 114.20 and euro/dollar steady just beneath the 1.35-level.
The week ahead is light on key economic data, but some highlights include the Bank of Japan’s monetary policy decision, Japan’s trade balance, Germany’s ZEW survey, Germany’s GDP, UK GDP and US durable goods orders. However, the currency market will likely take its cues from the credit and equity markets.
Sunday, August 19, 2007
Markets to Consolidate This Week after Fed's Discount Rate Cut
Fed's 50 bps discount rate cut on Friday stabilized the markets which was in massive carry trade unwinding as the subprime mortgage crisis spread through global credit markets. But still, the ultimate carry trade pair, NZDJPY tumbled near to 10% while AUD/JPY also dropped close to 9%. High yielding currencies and European majors except the Swissy, were hammered much lower too before late Friday's recovery. Important technical levels were taken out in most pairs that signaled at least a medium term reversal. However, as a short term top/bottom should be in place after Fed stepped in, and with a rather light calendar, more consolidation could be seen this week before extending the reversed trend.
The greenback did ride on carry trade unwinding and surged against most currencies except the yen on flight-to-safety flows. Fed's unexpected discount rate cut from 6.25% to 5.75% has stabilized the financial markets and triggered some retreat in the greenback too. To be clear, the discount rate is the rate that the Fed charges to lend money directly to banks and other lending institutions. Meanwhile, the commonly talked about Fed Funds Rate is that the rate that banks ay to borrow from the marketplace. In addition to lower the rates, the Fed also allow terms of financing to extend to 30 days. Most importantly, in the statement, the Fed acknowledged that "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward". Downside risks to growth have "increased appreciably". Altogether, even though the act did stabilized the markets and suggest that Fed is openings door to turning bias to neutral and even pathing the way to a Fed Fund rate cut, it is taken as a confirmation of the acknowledgement of the seriousness of the subprime problem. In other words, more bad news could still come in the near future and markets will continue to be vulnerable to them. The discount rate cut, and even a Fed Fund rate cut could halt the current liquidation of riskier assets but the trend will likely continue.
One thing to note is that the Swiss Franc is relatively less affected by the massive carry trade unwinding due to its low yield status. Even though it ended lower against the dollar, the Swissy did rose against both Euro and Sterling. The late buying in Swissy is perhaps an indication that more carry trade unwinding with Swissy is around the corner.
Economic data played a secondary role last week. Though, housing data from the US did showed further deterioration in the housing markets. Housing starts in US dropped much fore than expected to an annual rate of 1.381m in Jul, from 1.47m. Building permits also dropped to a 10 year low of 1.373m. From the data, in addition to NAHB Housing Market Index which fell to a 20+ record low, there is no signal of bottoming of the housing market yet. Consumer inflation data from US were inline with expectation with headline CPI moderated to 2.4% yoy, core CPI staying at 2.2%. PPI was mixed with headline number accelerated to 4.0% while core PPI moderated to 2.3%.
However, Trade deficit surprised the market by dropping to -$58.1b. Capital flow remained near to record at and dropped slightly to 120.9b only, partly reflecting flight-to-safety flows. Retail sales rebounded by rising 0.3% mom with ex-autos rising 0.4%. Regional Fed survey were mixed with NY state index at 25.1 while Philly Fed index dropped to 0.
Data from Eurozone saw Q2 GDP rose 0.3% qoq, 2.5% yoy, down from prior 0.7%, 3.1%. Jul HICP confirmed to be -0.2% mom, 1.8% yoy. There were speculations that with below target inflation and risk of subprime problems' spread over to Europe, ECB could call off it's expected Sept rate hike.
In addition to carry trade unwinding, Sterling was also hammered after UK CPI eased to 1.9% in July, down from 2.4% June, and being lowest in 15 months. Most importantly, the inflation rate was below BoE's target rate of 2.0%. The quarterly inflation report released earlier this month forecasted another hike to 6% is needed to bring inflation back to 2%. However, this week's CPI report is putting much doubt to this forecasts. Also, BoE Minutes revealed MPC elected to hold its benchmark interest rate at 5.75% in August unanimously by 9-0 vote, inline with consensus. One of the main focus in the minutes was indeed that that most members had 'no firm view' on the need for further rate hike. From the employment report, unemployment held steady at 5.4% for the second month in a row in June. However, earnings growth continues to report a slowdown and moderated from 3.5% to 3.3%. Markets were paring bets on another hike in near term.
Japan's Q2 GDP rose 0.1% Q/Q only with annualized rate at 0.5%. GDP deflator remains weak and dropped -0.3% yoy. There is also speculation that BoJ will further delay another rate hike due to current turmoil in the financial markets.
Commodity currencies remains under tremendous pressure last week. In addition, Kiwi will further sold off after June retail sales dropped unexpectedly dropped -0.4%.
The greenback did ride on carry trade unwinding and surged against most currencies except the yen on flight-to-safety flows. Fed's unexpected discount rate cut from 6.25% to 5.75% has stabilized the financial markets and triggered some retreat in the greenback too. To be clear, the discount rate is the rate that the Fed charges to lend money directly to banks and other lending institutions. Meanwhile, the commonly talked about Fed Funds Rate is that the rate that banks ay to borrow from the marketplace. In addition to lower the rates, the Fed also allow terms of financing to extend to 30 days. Most importantly, in the statement, the Fed acknowledged that "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward". Downside risks to growth have "increased appreciably". Altogether, even though the act did stabilized the markets and suggest that Fed is openings door to turning bias to neutral and even pathing the way to a Fed Fund rate cut, it is taken as a confirmation of the acknowledgement of the seriousness of the subprime problem. In other words, more bad news could still come in the near future and markets will continue to be vulnerable to them. The discount rate cut, and even a Fed Fund rate cut could halt the current liquidation of riskier assets but the trend will likely continue.
One thing to note is that the Swiss Franc is relatively less affected by the massive carry trade unwinding due to its low yield status. Even though it ended lower against the dollar, the Swissy did rose against both Euro and Sterling. The late buying in Swissy is perhaps an indication that more carry trade unwinding with Swissy is around the corner.
Economic data played a secondary role last week. Though, housing data from the US did showed further deterioration in the housing markets. Housing starts in US dropped much fore than expected to an annual rate of 1.381m in Jul, from 1.47m. Building permits also dropped to a 10 year low of 1.373m. From the data, in addition to NAHB Housing Market Index which fell to a 20+ record low, there is no signal of bottoming of the housing market yet. Consumer inflation data from US were inline with expectation with headline CPI moderated to 2.4% yoy, core CPI staying at 2.2%. PPI was mixed with headline number accelerated to 4.0% while core PPI moderated to 2.3%.
However, Trade deficit surprised the market by dropping to -$58.1b. Capital flow remained near to record at and dropped slightly to 120.9b only, partly reflecting flight-to-safety flows. Retail sales rebounded by rising 0.3% mom with ex-autos rising 0.4%. Regional Fed survey were mixed with NY state index at 25.1 while Philly Fed index dropped to 0.
Data from Eurozone saw Q2 GDP rose 0.3% qoq, 2.5% yoy, down from prior 0.7%, 3.1%. Jul HICP confirmed to be -0.2% mom, 1.8% yoy. There were speculations that with below target inflation and risk of subprime problems' spread over to Europe, ECB could call off it's expected Sept rate hike.
In addition to carry trade unwinding, Sterling was also hammered after UK CPI eased to 1.9% in July, down from 2.4% June, and being lowest in 15 months. Most importantly, the inflation rate was below BoE's target rate of 2.0%. The quarterly inflation report released earlier this month forecasted another hike to 6% is needed to bring inflation back to 2%. However, this week's CPI report is putting much doubt to this forecasts. Also, BoE Minutes revealed MPC elected to hold its benchmark interest rate at 5.75% in August unanimously by 9-0 vote, inline with consensus. One of the main focus in the minutes was indeed that that most members had 'no firm view' on the need for further rate hike. From the employment report, unemployment held steady at 5.4% for the second month in a row in June. However, earnings growth continues to report a slowdown and moderated from 3.5% to 3.3%. Markets were paring bets on another hike in near term.
Japan's Q2 GDP rose 0.1% Q/Q only with annualized rate at 0.5%. GDP deflator remains weak and dropped -0.3% yoy. There is also speculation that BoJ will further delay another rate hike due to current turmoil in the financial markets.
Commodity currencies remains under tremendous pressure last week. In addition, Kiwi will further sold off after June retail sales dropped unexpectedly dropped -0.4%.
Saturday, August 18, 2007
Dollar Fell after Fed Cut Discount Rate
The dollar fell after the Federal Reserve cut the discount rate by 50 percent to 5.75 percent and said that downside risks are on the rise. The euro rose as high as 1.3550 versus the dollar, while the sterling pared its earlier loss and climbed back to above 1.98 level against the dollar.
The Fed said in the statement that it is ¡°prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.¡± The dollar rallied after the Fed cut window rates to increase liquidity in the market. The Dow Jones Industrial Average opened 300 points higher under the stimulus of the Fed¡¯s action.
Stocks pared half of its earlier gains as investors took a cautious stance and took profits before a US consumer sentiment report. The University of Michigan consumer sentiment fell from 90.4 in 83.3 in August, below the estimate of 88. The dollar edged down slightly after the below-the-expectation data.
The Fed said in the statement that it is ¡°prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.¡± The dollar rallied after the Fed cut window rates to increase liquidity in the market. The Dow Jones Industrial Average opened 300 points higher under the stimulus of the Fed¡¯s action.
Stocks pared half of its earlier gains as investors took a cautious stance and took profits before a US consumer sentiment report. The University of Michigan consumer sentiment fell from 90.4 in 83.3 in August, below the estimate of 88. The dollar edged down slightly after the below-the-expectation data.
Friday, August 17, 2007
Yen Soars Most in 9 Years
The yen had its biggest one-day gain against the dollar since 1998 as investors rushed out of carry trades amid credit market panic.
Global stocks tumbled today on fears of a funding crisis. The Dow Jones Industrial Averages were down more than 340 points in intraday trading, but rebounded at closing with a loss of just 13. The Fed injected 517 billion to banking system to ease liquidity needs. Short yen carry trades positions were unwounded as investors avoid risky investment in today¡¯s financial market turmoil.
As a result, high-yielding currencies, such as the Australian dollar, New Zealand dollar, and sterling, suffered steep losses. The Australian dollar fell from 0.82 to near 0.78 in intraday trading, the biggest drop in 21 years.
Global stocks tumbled today on fears of a funding crisis. The Dow Jones Industrial Averages were down more than 340 points in intraday trading, but rebounded at closing with a loss of just 13. The Fed injected 517 billion to banking system to ease liquidity needs. Short yen carry trades positions were unwounded as investors avoid risky investment in today¡¯s financial market turmoil.
As a result, high-yielding currencies, such as the Australian dollar, New Zealand dollar, and sterling, suffered steep losses. The Australian dollar fell from 0.82 to near 0.78 in intraday trading, the biggest drop in 21 years.
Volatility Props USD, JPY
At 2:00 AM Germany July HICP m/m (exp 0.5%, prev 0.1%)
Germany July HICP y/y (exp 2.0%, prev 2.0%)
Germany July CPI m/m (exp 0.4%, prev 0.1%)
Germany July CPI y/y (exp 1.9%, prev 1.8%)
At 4:30 AM UK July Retail Sales m/m (exp 0.2%, prev 0.2%)
UK July Retail Sales y/y (exp 3.4%, prev 3.4%)
At 5:00 AM Eurozone July HICP m/m (exp –0.2%, prev 0.1%)
Eurozone July HICP y/y (exp 1.8%, prev 1.9%)
At 8:30 AM US Weekly Jobless Claims (exp 313.0k, prev 316.0k)
US July Housing Starts (exp 1.405 mln units, prev 1.467 mln units)
US July Building Permits (exp 1.40 mln units, prev 1.413 mln units)
At 12:00 PMAugust Philadelphia Fed Survey (exp 9.0, prev 9.2)
With heightened risk aversion driving markets, the dollar and yen continue to benefit, while the British pound and euro remain laggards. US equities took another hit with the Dow losing over 167-pts on Wednesday as burgeoning fears of spillover from the subprime debacle linger. The increased cautiousness will likely prop the yen higher across the board as heavy unwinding of the carry trades persist.
US data due out today include weekly jobless claims, July housing starts, July building permits and the August Philadelphia Fed survey. Weekly jobless claims are seen slipping slightly to 313k, down from the previous week at 316k. Housing starts and building permits are both forecasted to reflect continued deterioration in the housing market, falling to 1.405 mln units and 1.40 mln units, respectively. Lastly, the August Philadelphia Fed survey is expected to slip to 9.0, down from 9.2 in July.
Germany July HICP y/y (exp 2.0%, prev 2.0%)
Germany July CPI m/m (exp 0.4%, prev 0.1%)
Germany July CPI y/y (exp 1.9%, prev 1.8%)
At 4:30 AM UK July Retail Sales m/m (exp 0.2%, prev 0.2%)
UK July Retail Sales y/y (exp 3.4%, prev 3.4%)
At 5:00 AM Eurozone July HICP m/m (exp –0.2%, prev 0.1%)
Eurozone July HICP y/y (exp 1.8%, prev 1.9%)
At 8:30 AM US Weekly Jobless Claims (exp 313.0k, prev 316.0k)
US July Housing Starts (exp 1.405 mln units, prev 1.467 mln units)
US July Building Permits (exp 1.40 mln units, prev 1.413 mln units)
At 12:00 PMAugust Philadelphia Fed Survey (exp 9.0, prev 9.2)
With heightened risk aversion driving markets, the dollar and yen continue to benefit, while the British pound and euro remain laggards. US equities took another hit with the Dow losing over 167-pts on Wednesday as burgeoning fears of spillover from the subprime debacle linger. The increased cautiousness will likely prop the yen higher across the board as heavy unwinding of the carry trades persist.
US data due out today include weekly jobless claims, July housing starts, July building permits and the August Philadelphia Fed survey. Weekly jobless claims are seen slipping slightly to 313k, down from the previous week at 316k. Housing starts and building permits are both forecasted to reflect continued deterioration in the housing market, falling to 1.405 mln units and 1.40 mln units, respectively. Lastly, the August Philadelphia Fed survey is expected to slip to 9.0, down from 9.2 in July.
Greenback Rose on Heightened Risk Aversion
The unwinding of carry trades continues to dominate the foreign exchange market. The greenback strengthened as investment capitals flow back to safe haven amid the heightened risk aversion. The euro fell another 100 pips today to as low as 1.3450 versus the dollar.
The market shrugged off economic data as all the eyes were on risk aversion. US CPI rose 0.1% in July, leading to a year-on-year rate down from 2.7% to 2.4% as expected. Excluding food and energy, core CPI rose 0.2% as expected. New York Fed manufacturing survey fell slightly from 26.46 to 25.06 in August, above the estimate of 18.5. US Treasury reported net foreign purchases of long-term securities for June were 120.9 billion, double the forecast of 65 billion. US industrial production increased 0.6% in July, beating the estimate of 0.3% and a reading of 0.5% in the earlier month. US capacity utilization was barely changed at 81.9% in July. The National Association of Home Builders/Wells Fargo sentiment index declined from 24 to 22 in August, the lowest since September 2001.
EURUSD will face interim resistance at 1.3480, followed by 1.35 and 1.3530. Additional ceilings will emerge at 1.3550, backed by 1.3570. Support starts at 1.3450, backed by 1.34, 1.3380 and 1.3350. Subsequent floors are eyed at 1.33.
The market shrugged off economic data as all the eyes were on risk aversion. US CPI rose 0.1% in July, leading to a year-on-year rate down from 2.7% to 2.4% as expected. Excluding food and energy, core CPI rose 0.2% as expected. New York Fed manufacturing survey fell slightly from 26.46 to 25.06 in August, above the estimate of 18.5. US Treasury reported net foreign purchases of long-term securities for June were 120.9 billion, double the forecast of 65 billion. US industrial production increased 0.6% in July, beating the estimate of 0.3% and a reading of 0.5% in the earlier month. US capacity utilization was barely changed at 81.9% in July. The National Association of Home Builders/Wells Fargo sentiment index declined from 24 to 22 in August, the lowest since September 2001.
EURUSD will face interim resistance at 1.3480, followed by 1.35 and 1.3530. Additional ceilings will emerge at 1.3550, backed by 1.3570. Support starts at 1.3450, backed by 1.34, 1.3380 and 1.3350. Subsequent floors are eyed at 1.33.
Risk Aversion Lingers in FX
At 4:30 AM UK August MPC Meeting Minutes (exp 9-0, prev 3-6)
UK June Claimant Count (exp –10.0k, prev –13.8k)
UK June Unemployment Rate (exp 5.4%, prev 5.4%)
At 8:30 AM Canada June Manufacturing Shipments (exp –0.2%, prev –0.1%)
August NY Fed Manufacturing Survey (exp 18.5, prev 26.46)
US July core CPI m/m (exp 0.2%, prev 0.2%)
US July core CPI y/y (exp 2.2%, prev 2.2%)
US July CPI y/y (exp 2.4%, prev 2.7%)
At 9:00 AM US June TICS (exp $65.0 bln, prev $126.1 bln)
At 9:15 AM US July Industrial Production (exp 0.3%, prev 0.5%)
US July Capacity Utilization (exp 81.8%, prev 81.7%)
At 1:00 PM US August NAHB (exp 23.0, prev 24.0)
The dollar continues to firm against the euro and sterling, but drifts further versus the yen. A barrage of US economic data is slated for release in the coming session, including key gauges of inflation and manufacturing. The July core CPI figures are seen unchanged from their prior readings at 0.2% m/m and 2.2% y/y. The annualized headline figure however, is estimated to fall to 2.4% for July, down from 2.7% in the previous year.
The August New York Fed manufacturing survey is forecasted to fall to 18.5, down from 26.46 from July, while industrial production in July is seen slowing to 0.3% versus 0.5% a month earlier. Capacity utilization is expected to edge up slightly to 81.8% from 81.7%. Meanwhile, consensus estimates for the June TICS data is seen sharply lower at $65.0 billion, versus $126.1 billion from May.
UK June Claimant Count (exp –10.0k, prev –13.8k)
UK June Unemployment Rate (exp 5.4%, prev 5.4%)
At 8:30 AM Canada June Manufacturing Shipments (exp –0.2%, prev –0.1%)
August NY Fed Manufacturing Survey (exp 18.5, prev 26.46)
US July core CPI m/m (exp 0.2%, prev 0.2%)
US July core CPI y/y (exp 2.2%, prev 2.2%)
US July CPI y/y (exp 2.4%, prev 2.7%)
At 9:00 AM US June TICS (exp $65.0 bln, prev $126.1 bln)
At 9:15 AM US July Industrial Production (exp 0.3%, prev 0.5%)
US July Capacity Utilization (exp 81.8%, prev 81.7%)
At 1:00 PM US August NAHB (exp 23.0, prev 24.0)
The dollar continues to firm against the euro and sterling, but drifts further versus the yen. A barrage of US economic data is slated for release in the coming session, including key gauges of inflation and manufacturing. The July core CPI figures are seen unchanged from their prior readings at 0.2% m/m and 2.2% y/y. The annualized headline figure however, is estimated to fall to 2.4% for July, down from 2.7% in the previous year.
The August New York Fed manufacturing survey is forecasted to fall to 18.5, down from 26.46 from July, while industrial production in July is seen slowing to 0.3% versus 0.5% a month earlier. Capacity utilization is expected to edge up slightly to 81.8% from 81.7%. Meanwhile, consensus estimates for the June TICS data is seen sharply lower at $65.0 billion, versus $126.1 billion from May.
Wednesday, August 15, 2007
Dollar Extended Rally
The dollar extended its rally versus the euro and sterling on concern over European banks¡¯ exposure to US subprime problems. The euro fell off the 1.36 handle versus the dollar and reached as low as 1.3537. The sterling slumped against the dollar and broke through 2 for the first time in six weeks.
The sterling weakened sharply as two UK government reports showed an expected decline in inflation, dampening expectations for another rate hike by the year-end. UK consumer prices index fell from 2.4% to an annual rate of 1.9% in July, below the Bank of England¡¯s target rate of 2% for the first time since March 2006 and worse than the estimate of 2.3%. Another inflation gauge, retail price index, fell to 3.8% in July, also below the forecast of 4.3% and a reading of 4.4% in the previous month.
The euro was hit by soft GDP reports from euro zone and Germany. Euro zone economic growth slowed from an annual rate of 3.1% to 2.5% in the second quarter, below the forecast of 2.7%. Germany GDP also fell to 2.5% in the second quarter, down from a 3.3% growth rate in the prior quarter.
The sterling weakened sharply as two UK government reports showed an expected decline in inflation, dampening expectations for another rate hike by the year-end. UK consumer prices index fell from 2.4% to an annual rate of 1.9% in July, below the Bank of England¡¯s target rate of 2% for the first time since March 2006 and worse than the estimate of 2.3%. Another inflation gauge, retail price index, fell to 3.8% in July, also below the forecast of 4.3% and a reading of 4.4% in the previous month.
The euro was hit by soft GDP reports from euro zone and Germany. Euro zone economic growth slowed from an annual rate of 3.1% to 2.5% in the second quarter, below the forecast of 2.7%. Germany GDP also fell to 2.5% in the second quarter, down from a 3.3% growth rate in the prior quarter.
Tuesday, August 14, 2007
Data Barrage to Drive FX
At 2:00 AM Germany Q2 GDP q/q (exp 0.4%, prev 0.5%)
Germany Q2 GDP y/y (exp 2.7%, prev 3.3%)
At 4:30 AM UK July CPI m/m (exp –0.2%, prev 0.2%)
UK July CPI y/y (exp 2.3%, prev 2.4%)
UK July RPI m/m (exp –0.1%, prev 0.5%)
UK July RPI y/y (exp 4.3%, prev 4.4%)
UK July RPI-x m/m (exp –0.1%, prev 0.4%)
UK July RPI-x y/y (exp 3.2%, prev 3.3%)
At 5:00 AM Eurozone June Industrial Production m/m (exp –0.1%, 0.9%)
Eurozone June Industrial Production y/y (exp 2.3%, prev 2.5%)
Eurozone Q2 GDP q/q (exp 0.6%, prev 0.7%)
Eurozone Q2 GDP y/y (exp 2.7%, prev 3.1%)
At 8:30 AM Canada June Trade Surplus (C$5.6bln, prev C$5.76bln)
US Trade Deficit (exp $61.0 bln, prev $60.04 bln)
US July PPI m/m (exp 0.2%, prev –0.2%)
US July PPI-x m/m (exp 0.2%, prev 0.3%)
The dollar is mixed heading into the Tuesday session, trading higher against the euro and sterling, but losing ground to the yen amid heightened risk aversion. Central banks’ injection of liquidity has for the time being calmed market fears of a global credit crunch, helping to stabilize equity and money markets.
US economic data for release today will see July PPI and June trade deficit. The headline PPI figure is estimated to reverse the 0.2% decline from June, rising by 0.2%. The core PPI reading is forecasted to drift slightly to 0.2%, down from 0.3% in the prior month. Meanwhile, the June trade deficit is estimated to edge higher to $61.0 billion, compared with a deficit of $60.04 billion a month prior.
Germany Q2 GDP y/y (exp 2.7%, prev 3.3%)
At 4:30 AM UK July CPI m/m (exp –0.2%, prev 0.2%)
UK July CPI y/y (exp 2.3%, prev 2.4%)
UK July RPI m/m (exp –0.1%, prev 0.5%)
UK July RPI y/y (exp 4.3%, prev 4.4%)
UK July RPI-x m/m (exp –0.1%, prev 0.4%)
UK July RPI-x y/y (exp 3.2%, prev 3.3%)
At 5:00 AM Eurozone June Industrial Production m/m (exp –0.1%, 0.9%)
Eurozone June Industrial Production y/y (exp 2.3%, prev 2.5%)
Eurozone Q2 GDP q/q (exp 0.6%, prev 0.7%)
Eurozone Q2 GDP y/y (exp 2.7%, prev 3.1%)
At 8:30 AM Canada June Trade Surplus (C$5.6bln, prev C$5.76bln)
US Trade Deficit (exp $61.0 bln, prev $60.04 bln)
US July PPI m/m (exp 0.2%, prev –0.2%)
US July PPI-x m/m (exp 0.2%, prev 0.3%)
The dollar is mixed heading into the Tuesday session, trading higher against the euro and sterling, but losing ground to the yen amid heightened risk aversion. Central banks’ injection of liquidity has for the time being calmed market fears of a global credit crunch, helping to stabilize equity and money markets.
US economic data for release today will see July PPI and June trade deficit. The headline PPI figure is estimated to reverse the 0.2% decline from June, rising by 0.2%. The core PPI reading is forecasted to drift slightly to 0.2%, down from 0.3% in the prior month. Meanwhile, the June trade deficit is estimated to edge higher to $61.0 billion, compared with a deficit of $60.04 billion a month prior.
Dollar Firm on Retail Sales
The main theme of the foreign exchange market on Monday is still the unwinding of carry trades amid subprime woes.
The euro weakened further against the dollar and yen after the European Central Bank lent money to banks for a third day. The ECB injected 47.67 billion euros into the region’s banking system today to ease credit concern. The euro failed to break through the 1.37 handle and slid back to test 1.36 versus the dollar. The single currency remained in the low range just above the key psychological level at 160 against the yen.
It is still not clear how deep the subprime crisis is going to spread. As a safe-haven currency, the greenback is favored in rising risk aversion. Also, the yen gained versus high-yielding currencies, such as the euro, sterling, and aussie, as those short yen positions are squeezed.
The euro weakened further against the dollar and yen after the European Central Bank lent money to banks for a third day. The ECB injected 47.67 billion euros into the region’s banking system today to ease credit concern. The euro failed to break through the 1.37 handle and slid back to test 1.36 versus the dollar. The single currency remained in the low range just above the key psychological level at 160 against the yen.
It is still not clear how deep the subprime crisis is going to spread. As a safe-haven currency, the greenback is favored in rising risk aversion. Also, the yen gained versus high-yielding currencies, such as the euro, sterling, and aussie, as those short yen positions are squeezed.
Monday, August 13, 2007
FX Treads Cautiously
At 4:30 AM UK July core PPI m/m (exp 0.2%, prev 0.2%)
UK July core PPI y/y (exp 2.2%, prev 2.1%)
At 8:30 AM US July Retail Sales (exp 0.2%, prev –0.9%)
US July Retail Sales x-autos (exp 0.4%, prev –0.4%)
At 10:00 AM US June Business Inventories (exp 0.4%, prev 0.5%)
The currency market kicks off the week on a quiet tone, with the major pairs confined to a narrow range in early Tokyo trading. Global central banks stepped in last week to calm fears of an imminent credit crunch, thereby alleviating some of the volatility experienced by the markets. The heightened risk aversion has continued to benefit the yen as trader wariness has prompted heavy unwinding in the carry trades. The inverse relationship between equities and the yen is expected to remain and will likely keep the Japanese currency locked in choppy, volatile trading against the majors as traders closely monitor developments in the money markets.
The coming week will also see several key reports from the US including July retail sales, business inventories, PPI, trade balance, CPI, NY Fed manufacturing survey, TICS, capacity utilization, industrial production, housing starts, Philadelphia Fed survey, and the University of Michigan sentiment survey. Traders will closely scrutinize the US inflation reports for any hints of easing pressure that would enable the Fed to cut rates over the coming months. Further, it is possible that the Fed will again inject money into the economy as well as engage in a currency swap with the ECB to alleviate European banks’ demands to meet short-term loan obligations. Markets will likely become less volatile this week in the event that either action will materialize.
UK July core PPI y/y (exp 2.2%, prev 2.1%)
At 8:30 AM US July Retail Sales (exp 0.2%, prev –0.9%)
US July Retail Sales x-autos (exp 0.4%, prev –0.4%)
At 10:00 AM US June Business Inventories (exp 0.4%, prev 0.5%)
The currency market kicks off the week on a quiet tone, with the major pairs confined to a narrow range in early Tokyo trading. Global central banks stepped in last week to calm fears of an imminent credit crunch, thereby alleviating some of the volatility experienced by the markets. The heightened risk aversion has continued to benefit the yen as trader wariness has prompted heavy unwinding in the carry trades. The inverse relationship between equities and the yen is expected to remain and will likely keep the Japanese currency locked in choppy, volatile trading against the majors as traders closely monitor developments in the money markets.
The coming week will also see several key reports from the US including July retail sales, business inventories, PPI, trade balance, CPI, NY Fed manufacturing survey, TICS, capacity utilization, industrial production, housing starts, Philadelphia Fed survey, and the University of Michigan sentiment survey. Traders will closely scrutinize the US inflation reports for any hints of easing pressure that would enable the Fed to cut rates over the coming months. Further, it is possible that the Fed will again inject money into the economy as well as engage in a currency swap with the ECB to alleviate European banks’ demands to meet short-term loan obligations. Markets will likely become less volatile this week in the event that either action will materialize.
Sunday, August 12, 2007
More Volatility with a Busy Calendar and Subprime Credit Fears
Much volatility was experienced in the forex markets last week as all attention were turned to the turbulence in credit markets. News that BNP Paribas suspended redemption from three funds that are exposed to US subprime markets triggered concern that investors would seek redemptions from other funds, which could in term dry up the markets. LIBOR rates spiked higher in the middle of the week and that in turn, triggered injection of cash from central banks around the world, including Fed, ECB, BoJ, BoC and RBA. But the fear in the makets continued, with stocks stumbling and carry trade unwinding massively. The markets only stabilized on Friday after the Fed added another $38b and pledged more fund will be injected "as necessary" to calm the markets. Looking ahead, news about the credit markets and subprime problem will continue to take the center stage. Economic calendar is jam-packed this week, which could trigger further volatility in the markets. But impact from data could be temporary as they continue to play a secondary role in moving the markets.
Higher yield currencies were most hit by massive carry trade unwinding last week, in particular Aussie and Kiwi, which also weakened sharply against dollar. The greenback benefited such carry trade unwinding and indeed rose against other majors and even closed higher against the yen on late Friday recovery.
FOMC rate decision was the main event from US last week. Fed kept rates unchanged at 5.25% as widely expected. Tightening bias was, to some's surprise, maintained in the accompanying statement as "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," even though downside risks to growth have increased. Regarding inflation, Fed members still think that the sustainable moderation in inflation pressure is not "convincingly demonstrated" yet. Regarding growth, Fed still expects "the economy seems likely to continue to expand at a moderate pace over the coming quarters", but added that it will be "supported by solid growth in employment and incomes and a robust global economy."After all, the statement ruled out the possibility of a Sep cut and didn't hint on any rate cut this year yet. However, the Fed seems left the door for moving to a more neutral stance. The upcoming employment and incomes data will become evenly more closely watched and market moving and that could be trigger for bias shift.
Another major events of last week was the BoE quarterly inflation report which confirmed market's expectation that one more rate hike is needed to bring CPI inflation back to 2% target in 09. Sterling was also boosted temporarily by hawkish comments from BoE Governor King who said that the starting point of UK economic growth is stronger than the latest ONS numbers and that inflation expectations have not fallen back yet. Housing market also remains strong.
RBA raised Australian interest rates to a decade-high of 6.5% to curb persistent core inflationary pressures as widely expected. However, reaction to the news was muted as this was already widely expected. Also, markets are speculating that RBA will be on hold at 6.5% for the remainder of the year. Kiwi and CAD was boosted temporarily by lower than expected unemployment rate but just like others, both were pressured again as carry trade unwinding returned to be the focus.
Higher yield currencies were most hit by massive carry trade unwinding last week, in particular Aussie and Kiwi, which also weakened sharply against dollar. The greenback benefited such carry trade unwinding and indeed rose against other majors and even closed higher against the yen on late Friday recovery.
FOMC rate decision was the main event from US last week. Fed kept rates unchanged at 5.25% as widely expected. Tightening bias was, to some's surprise, maintained in the accompanying statement as "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," even though downside risks to growth have increased. Regarding inflation, Fed members still think that the sustainable moderation in inflation pressure is not "convincingly demonstrated" yet. Regarding growth, Fed still expects "the economy seems likely to continue to expand at a moderate pace over the coming quarters", but added that it will be "supported by solid growth in employment and incomes and a robust global economy."After all, the statement ruled out the possibility of a Sep cut and didn't hint on any rate cut this year yet. However, the Fed seems left the door for moving to a more neutral stance. The upcoming employment and incomes data will become evenly more closely watched and market moving and that could be trigger for bias shift.
Another major events of last week was the BoE quarterly inflation report which confirmed market's expectation that one more rate hike is needed to bring CPI inflation back to 2% target in 09. Sterling was also boosted temporarily by hawkish comments from BoE Governor King who said that the starting point of UK economic growth is stronger than the latest ONS numbers and that inflation expectations have not fallen back yet. Housing market also remains strong.
RBA raised Australian interest rates to a decade-high of 6.5% to curb persistent core inflationary pressures as widely expected. However, reaction to the news was muted as this was already widely expected. Also, markets are speculating that RBA will be on hold at 6.5% for the remainder of the year. Kiwi and CAD was boosted temporarily by lower than expected unemployment rate but just like others, both were pressured again as carry trade unwinding returned to be the focus.
Saturday, August 11, 2007
Volatility Forces Central Banks` Hands
The currency market experienced large swings in the morning amid sharp volatility prompted by heightened risk aversion to fears of a widespread credit crunch. The yen continued to benefit from such wariness, rallying across the board to 117.24 against the dollar and 160 versus the euro. Those gains were short-lived as the Fed announced that it would intervene by injecting funds “to facilitate the orderly function of financial markets”. The Fed’s decision follows similar liquidity injections from the ECB, initiated yesterday and several Asian central banks including the Bank of Japan.
The Fed intervened three times today, amounting to nearly $38 billion in fund injections -- its largest since September 14, 2001, and said it would provide reserves as necessary. The Fed’s move momentarily quelled fears of a credit crunch as markets stemmed earlier losses and the yen reversed its gains against the majors. Currency traders will continue to focus on developments with the subprime debacle and exhibit greater wariness to carry trade volatility.
The dollar rallied against the euro, sterling and Aussie in the Friday session, with carry trade unwinding benefiting the greenback. Although the outlook for the dollar remains bearish in light of US fundamentals, the market continues to be dictated by credit concerns and will likely trade under choppy volatile conditions over the coming weeks.
The Fed intervened three times today, amounting to nearly $38 billion in fund injections -- its largest since September 14, 2001, and said it would provide reserves as necessary. The Fed’s move momentarily quelled fears of a credit crunch as markets stemmed earlier losses and the yen reversed its gains against the majors. Currency traders will continue to focus on developments with the subprime debacle and exhibit greater wariness to carry trade volatility.
The dollar rallied against the euro, sterling and Aussie in the Friday session, with carry trade unwinding benefiting the greenback. Although the outlook for the dollar remains bearish in light of US fundamentals, the market continues to be dictated by credit concerns and will likely trade under choppy volatile conditions over the coming weeks.
Friday, August 10, 2007
USD/JPY
USD/JPY's fall from 119.80 extends further to as low as 117.20 today, inches above prior low of 117.15. At this point, further decline is expected to follow as long as 118.87 resistance holds. Break of 117.15 low will confirm recent sharp decline from 124.13 has resumed for 114.41/115.13 support zone. Above 118.22 will turn intraday outlook neutral and indicates that price actions from 117.15 is developing into further consolidation with another test of 119.81/89 cluster resistance (100% projection of 117.15 to 119.07 from 117.97 at 119.89 and 38.2% retracement of 124.13 to 117.15 at 119.81) before completion.
In the bigger picture, break of 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) has also had medium term rising trend line (108.99 to 155.13, now at 118.39) taken out. Sustained trading below these levels argues that whole rise from 108.99 has completed. In such case, much deeper decline should then be seen to long term rising trend line support (now at 115.70) and then further to next important support zone of 114.41 and 115.13 (61.8% retracement of 108.99 to 124.13 at 114.77).
Sustained break of 114.41/115.13 support zone will strongly suggest that the whole multi year up trend from 101.65 is already completed and much stronger and sustainable rally in the Japanese yen should then be seen in medium term. However, note that strong rebound above 114.41/115.13 support zone or a break above 122.40 will save the case that long term up trend from 101.65 is still in force for another test of 124.13 high at least before completion.
In the bigger picture, break of 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) has also had medium term rising trend line (108.99 to 155.13, now at 118.39) taken out. Sustained trading below these levels argues that whole rise from 108.99 has completed. In such case, much deeper decline should then be seen to long term rising trend line support (now at 115.70) and then further to next important support zone of 114.41 and 115.13 (61.8% retracement of 108.99 to 124.13 at 114.77).
Sustained break of 114.41/115.13 support zone will strongly suggest that the whole multi year up trend from 101.65 is already completed and much stronger and sustainable rally in the Japanese yen should then be seen in medium term. However, note that strong rebound above 114.41/115.13 support zone or a break above 122.40 will save the case that long term up trend from 101.65 is still in force for another test of 124.13 high at least before completion.
GBP/USD
Cable edges further lower to 2.2154, breaking marginally below 2.0156 low but lacks follow through selling so far. As this point, further downside is still in favor as long as 2.0242 resistance holds. As discussed before, cable's correction from 2.0652 is still in progress and is expected to further test 2.0086/2.0206 support zone before completion. However as we'd expect such consolidation to be contained by this support zone, focus will be on reversal signal as the current fall proceeds.
Above 2.0242 will turn intraday outlook neutral first and probably bring strong recovery. But still, break of 2.0462 cluster resistance (61.8% retracement of 2.0652 to 2.0156 at 2.0463) is needed to confirm correction from 2.0652 has completed and bring retest of key medium term resistance of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677. Otherwise, further downside is still in favor.
In the bigger picture, regardless of the internal structure, the whole rally from 1.7047 represents resumption of the long term up trend from 1.3680 and has almost met it's initial target of 2.0677 already. Even though a short term top is in place at 2.0652 the whole set of rally from 1.7047 should still be in good shape as long as 1.9621 support remains intact. Consolidation from 2.0652 should be relatively brief in medium term and further upside is still expected. Sustained trading above 2.0677 will target 2.1 psychological resistance first.
However, break of medium term rising trend line (now at 1.9916) will warn that the medium term rally has already topped out at 2.0652 after failing the 2.0677 target. Further break of 1.9621 support will encourage much deeper correction could be seen to 1.9183 support first and with prospect of further decline to long term rising trend line support (now at 1.8327).
Above 2.0242 will turn intraday outlook neutral first and probably bring strong recovery. But still, break of 2.0462 cluster resistance (61.8% retracement of 2.0652 to 2.0156 at 2.0463) is needed to confirm correction from 2.0652 has completed and bring retest of key medium term resistance of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677. Otherwise, further downside is still in favor.
In the bigger picture, regardless of the internal structure, the whole rally from 1.7047 represents resumption of the long term up trend from 1.3680 and has almost met it's initial target of 2.0677 already. Even though a short term top is in place at 2.0652 the whole set of rally from 1.7047 should still be in good shape as long as 1.9621 support remains intact. Consolidation from 2.0652 should be relatively brief in medium term and further upside is still expected. Sustained trading above 2.0677 will target 2.1 psychological resistance first.
However, break of medium term rising trend line (now at 1.9916) will warn that the medium term rally has already topped out at 2.0652 after failing the 2.0677 target. Further break of 1.9621 support will encourage much deeper correction could be seen to 1.9183 support first and with prospect of further decline to long term rising trend line support (now at 1.8327).
EUR/USD
EUR/USD edges further lower to 1.3643 today but stabilizes as no follow through selling is seen yet. Though, intraday bias will remain on the downside as long as 1.3713 minor resistance holds. Further decline is still in favor. As discussed before, EUR/USD should still be bounded in consolidation that started at 1.3851 and hence, another test of 1.3567/3658 support zone is expected to be seen before completing such consolidation. However, downside is also expected to be contained there.
Above 1.3713 minor resistance resistance will turn intraday outlook neutral and probably bring stronger recovery. But firm break of 1.3839 resistance is needed to confirm rise from 1.3262 has resumed. Otherwise, choppy sideway trading is still in progress.
In the bigger picture, firstly, the momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought and the rise from 1.3262 could be part of another set of medium term rally instead of the last advance of a 5 wave rally from 1.2483 that we originally thought.
Focus remains on 1.3822/3851 resistance (100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822). Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, break of 1.3481 will warn that 1.3851 could indeed be an important medium term top. 1.3262 low will be back into focus and break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.
Above 1.3713 minor resistance resistance will turn intraday outlook neutral and probably bring stronger recovery. But firm break of 1.3839 resistance is needed to confirm rise from 1.3262 has resumed. Otherwise, choppy sideway trading is still in progress.
In the bigger picture, firstly, the momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought and the rise from 1.3262 could be part of another set of medium term rally instead of the last advance of a 5 wave rally from 1.2483 that we originally thought.
Focus remains on 1.3822/3851 resistance (100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822). Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, break of 1.3481 will warn that 1.3851 could indeed be an important medium term top. 1.3262 low will be back into focus and break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.
Yen Crosses Could Stabilize But Short Term Risk Remains on Downside
Euro and Sterling stabilize a bit against dollar today as the greenback is dragged further down by selling in USD/JPY. Though, the high yielding commodities are still the biggest victims of the current carry trade unwinding. Fed fund rate surged to as high as 6%, well above Fed's target rate of 5.25% earlier today and triggered the Fed to add another $19 b in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash. On the other hand, ECB also loaned another 61.05b euros into the banking system. Sentiments in the markets remains fragile as US stocks are set to open lower, following yesterday's sharp sell off and today's fall in Asian and European markets.
However, note the deeply oversold yen crosses are showing signs of stabilizing in intraday terms as US session approaches. We could see some sideway trading and recovery in yen crosses in the US sessions, provided that the stock markets also stabilize after initial fall. But still, the short term outlook in yen remains bullish, and any recovery in the yen crosses will be treated as 'recovery' only, and more downside is still expected to come next week.
On the data front, canadian unemployment rate dropped to new 33 year low of 6.0% in Jul. The U.S. Import Price Index increased 1.5% in July, following a revised 0.9% rise in June and was led by an increase in petroleum prices. Export prices rose 0.2% in July, after increasing by 0.3% in the previous month. To be released later today, Fed budget report is expected to show that the budget deficit narrowed slightly to -32.5b in Jul.
However, note the deeply oversold yen crosses are showing signs of stabilizing in intraday terms as US session approaches. We could see some sideway trading and recovery in yen crosses in the US sessions, provided that the stock markets also stabilize after initial fall. But still, the short term outlook in yen remains bullish, and any recovery in the yen crosses will be treated as 'recovery' only, and more downside is still expected to come next week.
On the data front, canadian unemployment rate dropped to new 33 year low of 6.0% in Jul. The U.S. Import Price Index increased 1.5% in July, following a revised 0.9% rise in June and was led by an increase in petroleum prices. Export prices rose 0.2% in July, after increasing by 0.3% in the previous month. To be released later today, Fed budget report is expected to show that the budget deficit narrowed slightly to -32.5b in Jul.
Yen Rallied after BNP Froze Funds
The yen rose sharply BNP Paribas, France’s biggest bank, froze three investment funds worth 1.6 billion euros, raising concern the US subprime mortgage sector woes is spreading worldwide. The ECB today injected 94.8 billion euros into the region’s banking market to meet the sudden liquidity demand. The US subprime worries prompted investors to unwind carry trades, driving the yen higher against high-yielding currencies.
The euro slumped from 165 to 161.55 versus the yen, while the sterling slid from 244 to test the 239 level. The yen strengthened from 119.75 to as low as 118.20 versus the dollar.
As a safe haven currency, the dollar also benefited from anti-risk trades. The euro fell off the 1.38 handle and was supported by the 1.3650 level versus the dollar. The sterling dipped from 2.04 to as low as 2.0212.
The euro slumped from 165 to 161.55 versus the yen, while the sterling slid from 244 to test the 239 level. The yen strengthened from 119.75 to as low as 118.20 versus the dollar.
As a safe haven currency, the dollar also benefited from anti-risk trades. The euro fell off the 1.38 handle and was supported by the 1.3650 level versus the dollar. The sterling dipped from 2.04 to as low as 2.0212.
Thursday, August 9, 2007
Rate Sentiment Drives FX
The dollar was mixed in the Wednesday session amid a dearth of fresh US economic news, climbing higher against the yen but falling sharply versus the sterling. The data release was limited to June wholesale inventories, which was slightly higher than expected at 0.5%, unchanged from the previous month. Interest rate expectations continue to play a key role in the FX market, with the Aussie and sterling regaining its footing on hawkish sentiment from both respective central banks.
Sterling Shines
The sterling rallied sharply against the dollar and yen overnight, climbing just shy of the 2.04-level and slightly above 244, respectively. The strength was predominantly triggered the Bank of England’s Quarterly Inflation Report, which revealed expectations for CPI inflation to be slightly above the 2% target in two years with market rates, and clearly above target based on constant rates. The BoE said that risks to inflation remained skewed to the upside but with growth now forecasted to be softer over the next two years.
Sterling Shines
The sterling rallied sharply against the dollar and yen overnight, climbing just shy of the 2.04-level and slightly above 244, respectively. The strength was predominantly triggered the Bank of England’s Quarterly Inflation Report, which revealed expectations for CPI inflation to be slightly above the 2% target in two years with market rates, and clearly above target based on constant rates. The BoE said that risks to inflation remained skewed to the upside but with growth now forecasted to be softer over the next two years.
Wednesday, August 8, 2007
Dollar Slipped after FOMC
The Fed kept interest rates at 5.25% unchanged as widely expected. The Fed acknowledged tightening credit conditions and slowing economy, but maintained its bias against inflationary pressure for fear that inflation may not moderate as expected. The dollar fell slightly against the euro and sterling after the post-meeting statement.
The euro will face resistance at 1.3750, followed by 1.3780 and 1.38. Additional gains will target 1.3830 and 1.3850. Meanwhile, on the downside the pair will encounter support at 1.3720 followed by 1.37 and 1.3680. Subsequent floors will emerge at 1.3650, backed by 1.3620 and 1.36.
The euro will face resistance at 1.3750, followed by 1.3780 and 1.38. Additional gains will target 1.3830 and 1.3850. Meanwhile, on the downside the pair will encounter support at 1.3720 followed by 1.37 and 1.3680. Subsequent floors will emerge at 1.3650, backed by 1.3620 and 1.36.
Markets Await FOMC
The dollar recovered its earlier losses against the sterling and euro by the US afternoon to hover around 2.03 and 1.38, respectively. In overnight trading, the greenback slipped toward record lows versus the euro at 1.3838 but pared its losses heading into Tuesday’s FOMC policy announcement. With the exception of the Fed rate decision tomorrow, the US economic calendar this week is light thus shifting the focus to the accompanying FOMC statement.
The Fed is largely anticipated to leave policy unchanged at 5.25% when it announces its decision tomorrow at 2:15 PM. The key point of focus will be the accompanying statement from the FOMC, in which we expect minor changes to acknowledge further slowdown in the housing market stemming from the continued unfolding of the subprime debacle. However, we believe any reference to the subprime market will assure markets that the issue will likely remain contained and have limited impact on global financial markets. We expect the Fed will maintain its bias against inflationary pressure, adding that it sees inflation moderating over time.
The trade-weighted dollar index remains under pressure, hovering around the psychologically key 80-level. It briefly fell below it last Friday following the weaker than expected non-farm payrolls number. We expect the greenback to trade on weak footing against the euro and sterling as fears of a credit crunch linger on traders’ psyches. It will be important to closely monitor performance of US equities, treasuries and oil this week given the dearth of US reports.
The Fed is largely anticipated to leave policy unchanged at 5.25% when it announces its decision tomorrow at 2:15 PM. The key point of focus will be the accompanying statement from the FOMC, in which we expect minor changes to acknowledge further slowdown in the housing market stemming from the continued unfolding of the subprime debacle. However, we believe any reference to the subprime market will assure markets that the issue will likely remain contained and have limited impact on global financial markets. We expect the Fed will maintain its bias against inflationary pressure, adding that it sees inflation moderating over time.
The trade-weighted dollar index remains under pressure, hovering around the psychologically key 80-level. It briefly fell below it last Friday following the weaker than expected non-farm payrolls number. We expect the greenback to trade on weak footing against the euro and sterling as fears of a credit crunch linger on traders’ psyches. It will be important to closely monitor performance of US equities, treasuries and oil this week given the dearth of US reports.
Friday, August 3, 2007
Dollar Slid after Payrolls
The dollar slid broadly after US Labor Department July employment report showed new added jobs were less than expected, squeezing out the possibility of a rate hike by the Fed this year and raising speculation of a rate cut.
US non-farm payrolls came out at 92k, far below the estimate of 130k and a reading of 132k in the previous month. Unemployment rate increased from 4.5% to 4.6% in July. The labor market, one of the few fundamentals that always support the dollar in the past, turned from robust to modest, adding to the bearish sentiment on the dollar.
Besides, US non-manufacturing ISM fell from 60.7 to 55.8 in July, below the estimate of 59. The dollar extended its loss against the euro, sterling and yen.
US non-farm payrolls came out at 92k, far below the estimate of 130k and a reading of 132k in the previous month. Unemployment rate increased from 4.5% to 4.6% in July. The labor market, one of the few fundamentals that always support the dollar in the past, turned from robust to modest, adding to the bearish sentiment on the dollar.
Besides, US non-manufacturing ISM fell from 60.7 to 55.8 in July, below the estimate of 59. The dollar extended its loss against the euro, sterling and yen.
Dollar Down Slightly, Awaits US Payrolls
The dollar fell slightly against the euro and sterling as traders adjusted positions to wait for tomorrow’s US non-farm payrolls report, which will be a major market mover. The euro climbed 50 pips to test 1.37 level against the dollar, and the sterling rose from 2.0300 to as high as 2.0377 versus the dollar.
The euro and sterling was little changed after the European Central Bank and the Bank of England left interest rates on hold as expected at 4.00% and 5.75% respectively. ECB President Trichet said at the post-meeting press conference that “strong vigilance” is needed to contain inflation, signaling a possible rate hike in September.
The dollar was flat after Today’s data as traders keep cautious before Friday morning’s key job report. US jobless claims for the week ended on July 28 came out at 307k, in line with the expectation of 310k. Factory orders rose 0.6% in June, reversing a 0.5% decline in the earlier month but below the estimate of 1.0%. Durable goods orders came out at 1.3%, slightly below the forecast and the previous reading of 1.4%.
The euro and sterling was little changed after the European Central Bank and the Bank of England left interest rates on hold as expected at 4.00% and 5.75% respectively. ECB President Trichet said at the post-meeting press conference that “strong vigilance” is needed to contain inflation, signaling a possible rate hike in September.
The dollar was flat after Today’s data as traders keep cautious before Friday morning’s key job report. US jobless claims for the week ended on July 28 came out at 307k, in line with the expectation of 310k. Factory orders rose 0.6% in June, reversing a 0.5% decline in the earlier month but below the estimate of 1.0%. Durable goods orders came out at 1.3%, slightly below the forecast and the previous reading of 1.4%.
Thursday, August 2, 2007
Central Bank Decisions Eyed
At 5:00 AM Eurozone June PPI m/m (exp 0.3%, prev 0.3%)
Eurozone June PPI y/y (exp 2.3%, prev 2.3%)
At 7:00 AM BoE Monetary Policy Decision (exp 5.75%, prev 5.75%)
At 7:45 AM ECB Monetary Policy Decision (exp 4.0%, prev 4.0%)
At 8:30 AM ECB President Trichet Press Conference
US Weekly Jobless Claims (exp 310k, prev 301k)
At 10:00 AM US June Durable Goods Orders (exp 1.4%, prev 1.4%)
US June Factory Orders (exp 1.0%, prev –0.5%)
The major currencies are little changed heading into Thursday, with the dollar and yen maintaining their buoyant tone. US equities rebounded late in the session, briefly sending the yen lower toward the 119-level against the dollar and 163 versus the euro. Currencies will continue to be dictated by moves in the global equity bourses as fears of the subprime debacle fester in the background – prompting heightened risk aversion among traders.
In addition to closely monitoring equity performance, markets will look ahead to US weekly jobless claims, June durable goods orders and factory orders. Weekly jobless claims are seen creeping higher to 310k, up from 301k in the prior week. Durable goods orders, typically a volatile number, is seen unchanged in June at 1.4%, while factory orders are expected to reverse last month’s 0.5% decline, rising by 1.0% in June.
Eurozone June PPI y/y (exp 2.3%, prev 2.3%)
At 7:00 AM BoE Monetary Policy Decision (exp 5.75%, prev 5.75%)
At 7:45 AM ECB Monetary Policy Decision (exp 4.0%, prev 4.0%)
At 8:30 AM ECB President Trichet Press Conference
US Weekly Jobless Claims (exp 310k, prev 301k)
At 10:00 AM US June Durable Goods Orders (exp 1.4%, prev 1.4%)
US June Factory Orders (exp 1.0%, prev –0.5%)
The major currencies are little changed heading into Thursday, with the dollar and yen maintaining their buoyant tone. US equities rebounded late in the session, briefly sending the yen lower toward the 119-level against the dollar and 163 versus the euro. Currencies will continue to be dictated by moves in the global equity bourses as fears of the subprime debacle fester in the background – prompting heightened risk aversion among traders.
In addition to closely monitoring equity performance, markets will look ahead to US weekly jobless claims, June durable goods orders and factory orders. Weekly jobless claims are seen creeping higher to 310k, up from 301k in the prior week. Durable goods orders, typically a volatile number, is seen unchanged in June at 1.4%, while factory orders are expected to reverse last month’s 0.5% decline, rising by 1.0% in June.
USD Drifted Higher, Moving with Equities
The dollar still moves with the volatile stock market today as risk aversion drives the direction of carry trades, which dominates the currency market since last week. The dollar drifted slightly higher against the euro and yen.
In early US session, the dollar fell modestly after US ADP report showed only 48,000 jobs were added in private sector in July, far below the forecast of 100,000 and a 150,000 reading in the previous month. The euro tested the 1.37 handle against the dollar and dipped back to around 1.3670 later. There is no direct relationship between this private sector employment report and the non-farm payrolls. The market will focus on the key job report from US Labor Department this Friday for more clues on the broad labor market.
Besides, the other two US data did little to the market. US pending home sales rose 0.5% in June, beating the estimate of a 0.6% decline and a –3.5% reading in the previous month. However, it is the fact that the nation’s housing market is facing serious credit problems and a major downturn. A single second-tier housing report is not sufficient to change the evaluation of US housing market. US manufacturing ISM came out at 53.8, below the expectation of 55.5 and 56 in the earlier month.
In early US session, the dollar fell modestly after US ADP report showed only 48,000 jobs were added in private sector in July, far below the forecast of 100,000 and a 150,000 reading in the previous month. The euro tested the 1.37 handle against the dollar and dipped back to around 1.3670 later. There is no direct relationship between this private sector employment report and the non-farm payrolls. The market will focus on the key job report from US Labor Department this Friday for more clues on the broad labor market.
Besides, the other two US data did little to the market. US pending home sales rose 0.5% in June, beating the estimate of a 0.6% decline and a –3.5% reading in the previous month. However, it is the fact that the nation’s housing market is facing serious credit problems and a major downturn. A single second-tier housing report is not sufficient to change the evaluation of US housing market. US manufacturing ISM came out at 53.8, below the expectation of 55.5 and 56 in the earlier month.
Yen Buoyed, Traders Await Data
At 3:55 AM Germany July Manufacturing PMI (exp 56.8, prev 57.3)
At 4:00 AM Eurozone July Manufacturing PMI (exp 54.8, prev 55.6)
At 4:30 AM UK July Manufacturing CIPS/PMI (exp 54.0, prev 54.3)
At 8:15 AM US July ADP Employment (exp 100.0k, prev 150.0k)
At 10:00 AM US June Pending Home Sales (exp –0.6%, prev –3.5%)
US July Manufacturing ISM (exp 55.5, prev 56.0)
Heightened risk aversion continues to dictate the direction in the major currency pairs, with the yen reaping the benefits from safe haven flows as speculators scale back their carry trades. Meanwhile, the dollar also remains buoyed against the majors heading into the Wednesday session, hovering around 1.3660 versus the euro and 2.0282 against the sterling.
Economic data from the US continues to be patchy at best, with housing leading the declines, while the labor market and consumer confidence remain firm. The key highlight will be Friday’s July jobs report. Traders will look at the July ADP employment report as a proxy to this week’s non-farm payrolls data. The ADP private sector payrolls reading is seen dropping to 100k, down considerably from June at 150k jobs created. June pending home sales are forecasted to decline by 0.6%, which marks an improvement from the 3.5% drop in May. Lastly, the July manufacturing ISM reading is expected to fall to 55.5, versus 56.0 from June.
At 4:00 AM Eurozone July Manufacturing PMI (exp 54.8, prev 55.6)
At 4:30 AM UK July Manufacturing CIPS/PMI (exp 54.0, prev 54.3)
At 8:15 AM US July ADP Employment (exp 100.0k, prev 150.0k)
At 10:00 AM US June Pending Home Sales (exp –0.6%, prev –3.5%)
US July Manufacturing ISM (exp 55.5, prev 56.0)
Heightened risk aversion continues to dictate the direction in the major currency pairs, with the yen reaping the benefits from safe haven flows as speculators scale back their carry trades. Meanwhile, the dollar also remains buoyed against the majors heading into the Wednesday session, hovering around 1.3660 versus the euro and 2.0282 against the sterling.
Economic data from the US continues to be patchy at best, with housing leading the declines, while the labor market and consumer confidence remain firm. The key highlight will be Friday’s July jobs report. Traders will look at the July ADP employment report as a proxy to this week’s non-farm payrolls data. The ADP private sector payrolls reading is seen dropping to 100k, down considerably from June at 150k jobs created. June pending home sales are forecasted to decline by 0.6%, which marks an improvement from the 3.5% drop in May. Lastly, the July manufacturing ISM reading is expected to fall to 55.5, versus 56.0 from June.
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