Euro/US Dollar Exchange Rate Forecast
European and US interest rate forecasts took a clear turn for the worse in recent months, but the difference between said rate forecasts continues to favor the US dollar. In fact, Credit Suisse Overnight Index Swaps show that interest rate traders expect the yield spread between the Euro and US dollar will contract by over 100 basis points in the coming twelve months. All else remaining equal, this will add downward pressure on the Euro/US dollar exchange rate.
US Dollar/Japanese Yen Exchange Rate Forecast
Japanese Yen interest rate expectations have remained relatively unchanged through the past several months of trading, and clear deterioration in US Federal Reserve rate forecasts means that markets predict that the USD-JPY yield differential will shrink by 4 basis points in the year ahead. Yet the Japanese Yen is far more likely to move on developments in global risky asset classes; if we see global equity markets continue to decline, the Japanese Yen will likely continue strengthening against the US Dollar.
British Pound/US Dollar Exchange Rate Forecast
Deterioration in UK economic conditions and a dovish central bank have forced continued declines in Bank of England rate expectations and likewise led to British Pound declines. Interest rate markets forecast that the British Pound - US Dollar interest rate differential will shrink by a substantial 128 basis points (1.28 percent) in the coming year of trading-nearly halving the GBP's interest rate advantage against the USD. If such market forecasts come to fruition, we could see the British Pound fall further against the US dollar.
US Dollar/Swiss Franc Exchange Rate Forecast
Dimmed outlook for Swiss economic growth has led interest rate traders to forecast a cumulative 10 basis points in SNB rate cuts through the year ahead-a clear shift from previous forecasts for rate hikes. A similarly forceful correction in US interest rate outlook leaves markets expecting almost-unchanged rates for the US dollar, but we nonetheless note that traders predict that US Dollar interest rates will gain 7 basis points against their Swiss counterparts. This leaves a very modestly bullish bias on the USDCHF-at least as far as interest rates are concerned.
US Dollar/Canadian Dollar Exchange Rate Forecast
Interest rate markets predict that the Bank of Canada will cut interest rates by more than the US Federal Reserve will in the coming year-dealing a blow to the Canadian dollar. Yet we see that the difference in rate expectations has actually narrowed substantially through recent trade, and rate forecasts are not nearly as ominous for the Canadian dollar as they once were. In terms of interest rate differentials, traders predict that the US-Canadian yield spread will narrow by 66 basis points-almost exactly half of previous forecasts for a 116 basis point change. Such forecasts give a modestly bullish bias to the USDCAD pair, but other factors may prove of more importance in setting the US Dollar/Canadian dollar exchange rate.
Australian Dollar/US Dollar Exchange Rate Forecast
The highly yield-sensitive Australian Dollar has fallen significantly through recent months of trading, as interest rate traders now forecast noticeably lower Australian interest rates through the year ahead. Current Credit Suisse interest rate quotes show expectations of 153 basis points in RBA cuts, while the US Federal Reserve is predicted to cut by a modest 3 basis points through the same period. Such rate changes would leave the Australian Dollar-US Dollar yield differential 1.50 percentage points lower, and the highly yield-sensitive AUDUSD pair may suffer as a result.
New Zealand Dollar/US Dollar Exchange Rate Forecast
New Zealand's interest rate outlook is quite similar to that of Australia, and the New Zealand dollar stands to lose a substantial portion of its interest rate advantage against the US dollar and other forex counterparts. Indeed, the NZD-USD yield differential is predicted to shrink by 1.60 percentage points in the coming year-that which would leave the highly yield-sensitive NZD at a clear disadvantage through the medium/long term. Outlook for the New Zealand dollar remains bearish from an interest rate perspective.
Written by Jamie Saettele, Senior Strategist and David Rodriguez, Quantitative Analyst
Article Source - Monthly Forecasts for US Dollar - June
dimanche 7 juin 2009
samedi 6 juin 2009
Forex Trading Weekly Forecast - 06.08.09
US Dollar: Bearish Sentiment Extreme Points to Further USD Gains
Fundamental Outlook for US Dollar: Bullish
- US Dollar rallies on positive Non Farm Payrolls data
- Forex Options markets showed considerable risk of US Dollar Bottom
- Watch for US Advance Retail Sales and Consumer Confidence in week ahead
The US Dollar finally showed signs of a noteworthy recovery and potential bottom against the Euro and other major currencies on a clearly eventful week of trading. Better-than-expected Non Farm Payrolls results and a relatively steady stream of positive economic surprises led many over-zealous analysts to declare that the economic crisis is over, but we believe such claims are very largely overblown. Non-Farm Payrolls fell significantly less than expected in May and at the slowest rate in eight months, but some perspective is clearly in order.
Since the official start of the recession in December, 2007, US unemployment ranks have risen by an astounding 7.0 million—by far the worst deterioration since the second World War. A marginal increase in the labor market participation rate likewise pushed the headline jobless rate to a quarter-century high of 9.4 percent, and a drop in Average Weekly Hours suggests that employers narrowly avoided layoffs by giving workers fewer hours. While the smaller-than-predicted jobs loss is encouraging, the economy is not quite out of the woods yet—not by a long shot. Yet economic stagnation hardly precludes a sustained and noteworthy US Dollar recovery through near-term FX trading.
The US economic calendar promises far fewer top-tier releases in the days ahead, but what it lacks in quantity it compensates with substance. Foreseeable highlights will come on historically market-moving Advance Retail Sales data, University of Michigan Consumer Confidence survey results, and international Trade Balance figures. NFP numbers showed that the US consumer lost fewer jobs than feared through the month of May, but the sizeable loss still bodes poorly for downtrodden household spending rates. Given the combination of massive wealth destruction and near-catastrophic jobs losses, the historically voracious US shopper cut back on Retail spending by a sizeable 9.4 percent through the 12 months ending in April. Median Bloomberg forecasts call for a 0.5 percent uptick in spending through May, but such predictions are mostly based on double-digit increases in gasoline prices and not a real recovery in aggregate demand. University of Michigan Consumer Confidence and Trade Balance forecasts are relatively sanguine, but they are less likely to force major US Dollar moves than the Advance Retail Sales report.
Far more significant, it will be critical to monitor FX trader sentiment and whether or not we truly hit a US Dollar bearish extreme. We recently argued that sizeable gains in US Dollar short positions seen through COT report were enough to bring a USD reversal. Yet we were probably a couple of weeks too early on that call, and this author’s trading account suffered accordingly. More recently we have seen similar extremes in Forex Options markets, and signs for a true US Dollar bottom have become increasingly difficult to ignore. As it stands, we would argue that the downtrodden US currency is likely to continue its late-week recovery against the Euro, British Pound, and other key currencies.
Euro May Fall Further If Data Signals Need for Additional ECB Action
Fundamental Outlook for Euro This Week: Bearish
- Euro Zone retail sales were slightly better than expected, suggesting economy may be stabilizing
- Euro Zone Q1 GDP was revised down to an annualized -4.8% from -4.6%
- ECB keeps rates at 1.00%, but leaves door open to further cuts
The euro ended the week down against the US dollar, but the bulk of the pair’s decline occurred on Friday following the release of better-than-expected US non-farm payroll results. Indeed, EUR/USD plunged about 200 points and closed below trendline and psychological support at 1.4000, suggesting that from a technical perspective, additional declines may be in store for the pair. There is also potential for EUR/USD declines from a fundamental perspective in light of the European Central Bank’s (ECB) recent meeting.
The ECB left rates unchanged at 1 percent, and ECB President Jean-Claude Trichet’s subsequent press conference initially offered some support for the euro, as he called current rates “appropriate” and said that recent data suggest that the Euro-zone recession may have bottomed during the previous two quarters. However, during the Q&A session, Trichet said that rates aren’t necessarily at their lowest level, suggesting there may be room for additional rate cuts. He also went on to say that the ECB will begin their 60 billion euro covered bond purchasing program in July, and will buy bonds directly in the primary and secondary markets. While the “credit easing” program is relatively small compared to those implemented in the UK and US, it is at least a start and creates potential for lower yields.
Looking ahead to next week, the Euro Zone’s economic calendar will look relatively light. Sentix Investor Confidence is anticipated to improve slightly to an 8-month high of -31 for the month of June from -34.3, as European equity markets have steadily climbed higher. Meanwhile, the German Trade Balance and Industrial Production readings for the month of April are likely to reflect the impact of weak export demand from the nation’s trading partners, as the trade surplus may narrow to 9.3B euros from 11.3B euro, while industrial output could shrink an annualized 20.5 percent. The final German CPI figures aren’t anticipated to reflect any revisions, but that would still leave the annualized rate of inflation at zero, signaling deflation potential. Finally, the ECB’s Monthly Report may not shed much more light on the ECB’s policy bias, but traders should still keep an eye out for surprising comments as they could easily shake up the euro upon release.
Yen the Default Counter Currency as Fundamentals Fail
Fundamental Outlook for Japanese Yen: Bearish
- Risk appetite stalls at multi-month highs as a dense wave of data passes
- Capital spending drops the most since records began in the first quarter
- How much momentum does Friday’s USDJPY posses? Read the weekly technical forecasts
It is no surprise that the Japanese yen has been on the short-side of so many trades over the past few months. Risk appetite has swept over the markets as optimists jump on the promise of ‘green shoots’ developing from the worst global recession in decades. However, what has been the yen’s part in this shift. It would be easy just to label the currency’s depreciation a sign of its carry currency role - though this would not be altogether correct. Through the financial crisis, capital flows naturally reversed course as large market participants unwound their extensive carry positions. Given enough time, however, this trend would naturally exhaust itself; and then the yen’s appreciation would depend on its role as a safe haven – a role never fit well. Prospects of a particularly severe recession and another decade of struggling with deflation certainly do not paint the picture of an ideal refuge from a financial storm. Now, with optimism picking up and investors able to exercise discretion in their investments; they can take a more critical analysis of the currency and its economy. The ultimate consensus on the standing of the yen from both a fundamental and sentiment perspective can be seen in the sharp sell off against the dollar (another safe haven currency) after a round of ‘better-than-expected’ US employment figures.
So, from the yen’s weakness against high-yielding and other similarly-predisposed safe haven currencies; we can deduce that the Japanese currency is met with headwinds should risk appetite rise or fall. However, as sentiment pushes to extremes, the yen will once again fall into safe haven role. This leaves us to speculate on how risk appetite will fair next week and what will be the intensity of the bias. That is the 64 thousand dollar question for a market that is so highly correlated. The standard barometers for sentiment (equity indexes, yield-heavy currency pairs, etc) have all stalled this past week. This pause was likely in observation of the heavy round of economic releases from interest rate decisions to GDP revisions to employment data. Looking ahead, there are many of these market-wide indicators. A potential dampener may be the G8 meeting in Italy scheduled for Friday and Saturday. The collective forecasts and plans of action could discourage wild shifts before the details of the gathering are released; and the event could spur the market itself given the right commentary.
In searching out the catalysts for and pace of market sentiment, we should not disregard the impact of native economic data on the battered Japanese yen. Just a short time ago, both the Cabinet Office and Bank of Japan released forecasts that called for the pace of the nation’s recession to ease going forward. This aligns itself to what other policy authorities have said and a few bright spots on the economic calendar; yet it is still a bold prediction. Skepticism will remain until objective data can confirm what the economy’s cheerleaders have professed. The most thorough measure of health next week will be the final reading of 1Q GDP, which will no doubt confirm the worst slump on record. The more timely indicators could bolster sentiment though. The trade balance, Eco Watchers survey, consumer confidence survey and leading indicators index are all expected to show measured improvements next week. This round of data will be good for minor adjustments on long-term trends; but don’t expect them to generate much in the way of volatility on their own.
British Pound at the Mercy of Risk Appetite as Fundamentals Crumble
Fundamental Outlook for British Pound: Bearish
- Bank of England keeps rates unchanged at 0.25% and quantitative easing bill at 125 billion pounds
- Consumer confidence, manufacturing activity and mortgage approvals hit their highest levels this year
- Is GBPUSD’s plunge a temporary reversal or trend revival? Get the technical read on price action.
Up until the second half of this past week, the British pound was enjoying a steady and aggressive rally against its US counterpart. However, a 22 percent rally in as few as three months with fundamentals like the United Kingdom’s is clearly a reason to be skeptical. The nearly 700-point drop over the final three days of the trading week is far from confirmation of a trend reversal; but it should be enough of a jolt to remind market participants that Europe’s largest economy is pacing the global recession and financial conditions are balanced on a knife’s edge. Looking ahead to next week, there is likely to be short-term volatility from scheduled economic releases and a close eye kept on the stability of the government’s upper echelons; but sterling traders’ real guide will be risk appetite.
How is it that the currency of an economy that is expected to suffer the worst economic contraction in the industrialized world, has ongoing troubles with credit and financial conditions, and is now seeing political turmoil has been able to produce such an impressive rally across the board? There is the argument that the currency was oversold and that the fundamental outlook for the UK has perhaps reached an equilibrium with its major counterparts. However, this is a fundamental consideration that would take considerable time to develop. The only way a currency as fundamentally depressed as the sterling would be able to appreciate so rapidly is through a sharp turn in global growth and financial condition forecasts. The appetite for capital appreciation is fulfilled through speculation that the currency was oversold. Fundamental forecasts improve as the aggressive steps policy officials took to revive the economy would help leverage the ensuing recovery. And, yield forecasts are massaged as the MPC would be expected to reign in their quantitative easing and immediately concentrate on inflation. Is it reasonable to project such an aggressive turn in sentiment and the particular influence it should have on the pound? We seen signs around the global that the pace of recession is letting up; but that is not the same thing as a return to positive growth. To maintain a rally an advance in risk appetite, we need irrefutable evidence of a near-term economic recovery. Otherwise, speculative capital is merely building a bubble that prevailing levels of risk and return cannot support
Closer to home, sterling traders will have to concern themselves with key data releases and politics. The latter subject has hit a fever pitch over the past few weeks. While the public has long held the government responsible for the economy’s current economic woes (or at least its severity), the tumult has not reached the level where resignation has been considered – until now. Local elections have shown an irrefutable lack of confidence in sitting members and Prime Minister Gordon Brown has been forced to shuffle his cabinet. However, market participants are concerned primarily with the major players in the economic crisis - the PM himself and Chancellor of the Exchequer - whose absence could derail the progress that has been made to this point. To gauge the market’s sensitivity to such a possibility, we merely need to see the sharp drop in the pound when rumor (which had to be officially dismissed by the government) that Brown would soon announce his resignation. As for data, the docket is thin but potent. Consumer spending will be measured through the BRC’s retail sales for May. Though expectations are low. For factory activity, the plunge in industrial production has eased significantly through first quarter; but we are still waiting on the first positive reading in 14 months. Housing price indicators and trade figures will round out the picture with indirect appraisals of credit availability and foreign demand.
Written by David Rodriguez, Terri Belkas, John Kicklighter, Ilya Spivak and David Song, Currency Analysts
Forex Trading Weekly Forecast - 06.08.09
Fundamental Outlook for US Dollar: Bullish
- US Dollar rallies on positive Non Farm Payrolls data
- Forex Options markets showed considerable risk of US Dollar Bottom
- Watch for US Advance Retail Sales and Consumer Confidence in week ahead
The US Dollar finally showed signs of a noteworthy recovery and potential bottom against the Euro and other major currencies on a clearly eventful week of trading. Better-than-expected Non Farm Payrolls results and a relatively steady stream of positive economic surprises led many over-zealous analysts to declare that the economic crisis is over, but we believe such claims are very largely overblown. Non-Farm Payrolls fell significantly less than expected in May and at the slowest rate in eight months, but some perspective is clearly in order.
Since the official start of the recession in December, 2007, US unemployment ranks have risen by an astounding 7.0 million—by far the worst deterioration since the second World War. A marginal increase in the labor market participation rate likewise pushed the headline jobless rate to a quarter-century high of 9.4 percent, and a drop in Average Weekly Hours suggests that employers narrowly avoided layoffs by giving workers fewer hours. While the smaller-than-predicted jobs loss is encouraging, the economy is not quite out of the woods yet—not by a long shot. Yet economic stagnation hardly precludes a sustained and noteworthy US Dollar recovery through near-term FX trading.
The US economic calendar promises far fewer top-tier releases in the days ahead, but what it lacks in quantity it compensates with substance. Foreseeable highlights will come on historically market-moving Advance Retail Sales data, University of Michigan Consumer Confidence survey results, and international Trade Balance figures. NFP numbers showed that the US consumer lost fewer jobs than feared through the month of May, but the sizeable loss still bodes poorly for downtrodden household spending rates. Given the combination of massive wealth destruction and near-catastrophic jobs losses, the historically voracious US shopper cut back on Retail spending by a sizeable 9.4 percent through the 12 months ending in April. Median Bloomberg forecasts call for a 0.5 percent uptick in spending through May, but such predictions are mostly based on double-digit increases in gasoline prices and not a real recovery in aggregate demand. University of Michigan Consumer Confidence and Trade Balance forecasts are relatively sanguine, but they are less likely to force major US Dollar moves than the Advance Retail Sales report.
Far more significant, it will be critical to monitor FX trader sentiment and whether or not we truly hit a US Dollar bearish extreme. We recently argued that sizeable gains in US Dollar short positions seen through COT report were enough to bring a USD reversal. Yet we were probably a couple of weeks too early on that call, and this author’s trading account suffered accordingly. More recently we have seen similar extremes in Forex Options markets, and signs for a true US Dollar bottom have become increasingly difficult to ignore. As it stands, we would argue that the downtrodden US currency is likely to continue its late-week recovery against the Euro, British Pound, and other key currencies.
Euro May Fall Further If Data Signals Need for Additional ECB Action
Fundamental Outlook for Euro This Week: Bearish
- Euro Zone retail sales were slightly better than expected, suggesting economy may be stabilizing
- Euro Zone Q1 GDP was revised down to an annualized -4.8% from -4.6%
- ECB keeps rates at 1.00%, but leaves door open to further cuts
The euro ended the week down against the US dollar, but the bulk of the pair’s decline occurred on Friday following the release of better-than-expected US non-farm payroll results. Indeed, EUR/USD plunged about 200 points and closed below trendline and psychological support at 1.4000, suggesting that from a technical perspective, additional declines may be in store for the pair. There is also potential for EUR/USD declines from a fundamental perspective in light of the European Central Bank’s (ECB) recent meeting.
The ECB left rates unchanged at 1 percent, and ECB President Jean-Claude Trichet’s subsequent press conference initially offered some support for the euro, as he called current rates “appropriate” and said that recent data suggest that the Euro-zone recession may have bottomed during the previous two quarters. However, during the Q&A session, Trichet said that rates aren’t necessarily at their lowest level, suggesting there may be room for additional rate cuts. He also went on to say that the ECB will begin their 60 billion euro covered bond purchasing program in July, and will buy bonds directly in the primary and secondary markets. While the “credit easing” program is relatively small compared to those implemented in the UK and US, it is at least a start and creates potential for lower yields.
Looking ahead to next week, the Euro Zone’s economic calendar will look relatively light. Sentix Investor Confidence is anticipated to improve slightly to an 8-month high of -31 for the month of June from -34.3, as European equity markets have steadily climbed higher. Meanwhile, the German Trade Balance and Industrial Production readings for the month of April are likely to reflect the impact of weak export demand from the nation’s trading partners, as the trade surplus may narrow to 9.3B euros from 11.3B euro, while industrial output could shrink an annualized 20.5 percent. The final German CPI figures aren’t anticipated to reflect any revisions, but that would still leave the annualized rate of inflation at zero, signaling deflation potential. Finally, the ECB’s Monthly Report may not shed much more light on the ECB’s policy bias, but traders should still keep an eye out for surprising comments as they could easily shake up the euro upon release.
Yen the Default Counter Currency as Fundamentals Fail
Fundamental Outlook for Japanese Yen: Bearish
- Risk appetite stalls at multi-month highs as a dense wave of data passes
- Capital spending drops the most since records began in the first quarter
- How much momentum does Friday’s USDJPY posses? Read the weekly technical forecasts
It is no surprise that the Japanese yen has been on the short-side of so many trades over the past few months. Risk appetite has swept over the markets as optimists jump on the promise of ‘green shoots’ developing from the worst global recession in decades. However, what has been the yen’s part in this shift. It would be easy just to label the currency’s depreciation a sign of its carry currency role - though this would not be altogether correct. Through the financial crisis, capital flows naturally reversed course as large market participants unwound their extensive carry positions. Given enough time, however, this trend would naturally exhaust itself; and then the yen’s appreciation would depend on its role as a safe haven – a role never fit well. Prospects of a particularly severe recession and another decade of struggling with deflation certainly do not paint the picture of an ideal refuge from a financial storm. Now, with optimism picking up and investors able to exercise discretion in their investments; they can take a more critical analysis of the currency and its economy. The ultimate consensus on the standing of the yen from both a fundamental and sentiment perspective can be seen in the sharp sell off against the dollar (another safe haven currency) after a round of ‘better-than-expected’ US employment figures.
So, from the yen’s weakness against high-yielding and other similarly-predisposed safe haven currencies; we can deduce that the Japanese currency is met with headwinds should risk appetite rise or fall. However, as sentiment pushes to extremes, the yen will once again fall into safe haven role. This leaves us to speculate on how risk appetite will fair next week and what will be the intensity of the bias. That is the 64 thousand dollar question for a market that is so highly correlated. The standard barometers for sentiment (equity indexes, yield-heavy currency pairs, etc) have all stalled this past week. This pause was likely in observation of the heavy round of economic releases from interest rate decisions to GDP revisions to employment data. Looking ahead, there are many of these market-wide indicators. A potential dampener may be the G8 meeting in Italy scheduled for Friday and Saturday. The collective forecasts and plans of action could discourage wild shifts before the details of the gathering are released; and the event could spur the market itself given the right commentary.
In searching out the catalysts for and pace of market sentiment, we should not disregard the impact of native economic data on the battered Japanese yen. Just a short time ago, both the Cabinet Office and Bank of Japan released forecasts that called for the pace of the nation’s recession to ease going forward. This aligns itself to what other policy authorities have said and a few bright spots on the economic calendar; yet it is still a bold prediction. Skepticism will remain until objective data can confirm what the economy’s cheerleaders have professed. The most thorough measure of health next week will be the final reading of 1Q GDP, which will no doubt confirm the worst slump on record. The more timely indicators could bolster sentiment though. The trade balance, Eco Watchers survey, consumer confidence survey and leading indicators index are all expected to show measured improvements next week. This round of data will be good for minor adjustments on long-term trends; but don’t expect them to generate much in the way of volatility on their own.
British Pound at the Mercy of Risk Appetite as Fundamentals Crumble
Fundamental Outlook for British Pound: Bearish
- Bank of England keeps rates unchanged at 0.25% and quantitative easing bill at 125 billion pounds
- Consumer confidence, manufacturing activity and mortgage approvals hit their highest levels this year
- Is GBPUSD’s plunge a temporary reversal or trend revival? Get the technical read on price action.
Up until the second half of this past week, the British pound was enjoying a steady and aggressive rally against its US counterpart. However, a 22 percent rally in as few as three months with fundamentals like the United Kingdom’s is clearly a reason to be skeptical. The nearly 700-point drop over the final three days of the trading week is far from confirmation of a trend reversal; but it should be enough of a jolt to remind market participants that Europe’s largest economy is pacing the global recession and financial conditions are balanced on a knife’s edge. Looking ahead to next week, there is likely to be short-term volatility from scheduled economic releases and a close eye kept on the stability of the government’s upper echelons; but sterling traders’ real guide will be risk appetite.
How is it that the currency of an economy that is expected to suffer the worst economic contraction in the industrialized world, has ongoing troubles with credit and financial conditions, and is now seeing political turmoil has been able to produce such an impressive rally across the board? There is the argument that the currency was oversold and that the fundamental outlook for the UK has perhaps reached an equilibrium with its major counterparts. However, this is a fundamental consideration that would take considerable time to develop. The only way a currency as fundamentally depressed as the sterling would be able to appreciate so rapidly is through a sharp turn in global growth and financial condition forecasts. The appetite for capital appreciation is fulfilled through speculation that the currency was oversold. Fundamental forecasts improve as the aggressive steps policy officials took to revive the economy would help leverage the ensuing recovery. And, yield forecasts are massaged as the MPC would be expected to reign in their quantitative easing and immediately concentrate on inflation. Is it reasonable to project such an aggressive turn in sentiment and the particular influence it should have on the pound? We seen signs around the global that the pace of recession is letting up; but that is not the same thing as a return to positive growth. To maintain a rally an advance in risk appetite, we need irrefutable evidence of a near-term economic recovery. Otherwise, speculative capital is merely building a bubble that prevailing levels of risk and return cannot support
Closer to home, sterling traders will have to concern themselves with key data releases and politics. The latter subject has hit a fever pitch over the past few weeks. While the public has long held the government responsible for the economy’s current economic woes (or at least its severity), the tumult has not reached the level where resignation has been considered – until now. Local elections have shown an irrefutable lack of confidence in sitting members and Prime Minister Gordon Brown has been forced to shuffle his cabinet. However, market participants are concerned primarily with the major players in the economic crisis - the PM himself and Chancellor of the Exchequer - whose absence could derail the progress that has been made to this point. To gauge the market’s sensitivity to such a possibility, we merely need to see the sharp drop in the pound when rumor (which had to be officially dismissed by the government) that Brown would soon announce his resignation. As for data, the docket is thin but potent. Consumer spending will be measured through the BRC’s retail sales for May. Though expectations are low. For factory activity, the plunge in industrial production has eased significantly through first quarter; but we are still waiting on the first positive reading in 14 months. Housing price indicators and trade figures will round out the picture with indirect appraisals of credit availability and foreign demand.
Written by David Rodriguez, Terri Belkas, John Kicklighter, Ilya Spivak and David Song, Currency Analysts
Forex Trading Weekly Forecast - 06.08.09
vendredi 5 juin 2009
U.S. Non-Farm Employment Change Data to Dominate USD Trading
Today's U.S. Non-Farm Employment Change data release is set to dominate the trading between the Dollar and its major currency pairs. A number of other factors are also likely to impact the forex market today, such as European Central Bank Chairman Jean-Claude Trichet's speech at 7:50 GMT, and the U.S. Unemployment Rate publication at 12.30 GMT. The results of today's data are likely to determine the USD's bullishness going into next week's trading.
USD - USD Awaits Today's Non Farm Employment and Unemployment Figures
The Dollar was down against the EUR Thursday after the European Central Bank's (ECB) decision to keep the main Interest Rate at 1.0%. The Dollar Index also slipped to 79.446 from 79.499 on Thursday.
Dampening demand for the Dollar in recent weeks has helped the U.S. stock market rise and global Oil prices jump to near $70 a barrel. Higher stocks have encouraged traders to take their positions out of the Dollar which is a major funding currency. Risk appetite among investors is improving which reduces demand for the Dollar. The USD is considered a safe-haven currency, a key to the currency's strength during the financial crisis.
The recent influx of positive economic news from the U.S, Europe and China reduced the desire for the safety of the greenback and pushed traders towards riskier, higher yielding currencies. The Dollar fell against the EUR., but rose against the Pound and JPY. The GBP/USD rate finished lower by nearly 140 pips at 1.6128.Against the EUR, the USD lost 30 pips to close at 1.4198.
Overall there was little volatility in the market yesterday, ahead of the much anticipated May Non-Farm Employment Change and Unemployment Rate reports to be released today at 12:30 GMT. Positive news may help reverse some of the Dollar's
recent losses.
EUR - EUR recovers on Trichet's speech
The EUR recovered from a one-week low against the USD Thursday. However, trading remained inside a narrow range, staying roughly within the $1.40-$1.43 range. The EUR/USD rate closed at $1.4198 from $1.4168 on Thursday. Additionally, the EUR/JPY finished trading at 137.39 Yen from 136.22 Yen. These results show the EUR recovered after a climb in U.S stocks and a relatively optimistic speech by the European Central Bank's (ECB) President Jean-Claude Trichet. He stated that he believes the region's economic performance will improve later this year.
The European Central Bank decided Thursday against cutting its main Interest Rate, maintaining it at 1.0%. Although low, this rate is still higher than the Federal Reserve's key rate, which is in a range between 0% and 0.25%. This means that yields on the EUR based assets remain more attractive than those denominated in the USD. The ECB's reluctance to ease monetary policy further gives way to further strengthening of the EUR.
Traders should pay close attention to the U.S Non-Farm Employment Change and U.S Unemployment Rate reports to be released today at 12:30 GMT, as well as the GBP PPI Input to be released at 8:30 GMT.
JPY - JPY Plummets as Safe-Haven Status Comes Under Threat
Japan's currency declined Thursday versus 15 of the 16 most traded currencies. The USD/JPY rate closed at 96.74 Yen per USD from 96.15 Yen yesterday, and at 137.29 Yen per EUR from 136.22 Yen on Thursday. The fundamentals in Japan are quite poor. Furthermore, the yields are extremely low and many Japanese investors are opting to buy higher yielding assets oversees while selling the Yen, therefore devaluing the Japanese currency further.
The release of the U.S Non-Farm Employment Change report today may put further downward pressure on the Yen, and it is likely to continue its losses against the USD and EUR. This is increasingly likely, as the expectation is that employers in the U.S. cut fewer jobs last month as the deterioration of the labor market slowed.
Crude Oil - Oil Rallies Towards the $70 Price Level
Crude Oil rose dramatically on Thursday, rising to a seven-month high. Crude Oil prices rose to $69.22 yesterday, an increase of more than $3 a barrel. Crude prices quickly recovered from Wednesday's steep losses and resumed the march toward $70 a barrel. The rally followed a forecast made by a Goldman Sachs analyst stating that “As the financial crisis eases, an energy shortage lies ahead”. The bank set a 12-month price target of $90 a barrel, up from $70.
Expectations of a quick economic recovery dominate long-term prospects for Oil trading. Oil prices recovered very quickly from a Department of Energy report showing a surprise increase in U.S. Crude Oil inventories on Wednesday. The release of the Unemployment Rate data today may put some strain on Oil prices as the rate is expected to rise. However, as optimism seems to be the leading force in the markets, rising equities and a weakening Dollar may prove to have a greater affect on Oil prices than the unemployment results.
Article Source - U.S. Non-Farm Employment Change Data to Dominate USD Trading
USD - USD Awaits Today's Non Farm Employment and Unemployment Figures
The Dollar was down against the EUR Thursday after the European Central Bank's (ECB) decision to keep the main Interest Rate at 1.0%. The Dollar Index also slipped to 79.446 from 79.499 on Thursday.
Dampening demand for the Dollar in recent weeks has helped the U.S. stock market rise and global Oil prices jump to near $70 a barrel. Higher stocks have encouraged traders to take their positions out of the Dollar which is a major funding currency. Risk appetite among investors is improving which reduces demand for the Dollar. The USD is considered a safe-haven currency, a key to the currency's strength during the financial crisis.
The recent influx of positive economic news from the U.S, Europe and China reduced the desire for the safety of the greenback and pushed traders towards riskier, higher yielding currencies. The Dollar fell against the EUR., but rose against the Pound and JPY. The GBP/USD rate finished lower by nearly 140 pips at 1.6128.Against the EUR, the USD lost 30 pips to close at 1.4198.
Overall there was little volatility in the market yesterday, ahead of the much anticipated May Non-Farm Employment Change and Unemployment Rate reports to be released today at 12:30 GMT. Positive news may help reverse some of the Dollar's
recent losses.
EUR - EUR recovers on Trichet's speech
The EUR recovered from a one-week low against the USD Thursday. However, trading remained inside a narrow range, staying roughly within the $1.40-$1.43 range. The EUR/USD rate closed at $1.4198 from $1.4168 on Thursday. Additionally, the EUR/JPY finished trading at 137.39 Yen from 136.22 Yen. These results show the EUR recovered after a climb in U.S stocks and a relatively optimistic speech by the European Central Bank's (ECB) President Jean-Claude Trichet. He stated that he believes the region's economic performance will improve later this year.
The European Central Bank decided Thursday against cutting its main Interest Rate, maintaining it at 1.0%. Although low, this rate is still higher than the Federal Reserve's key rate, which is in a range between 0% and 0.25%. This means that yields on the EUR based assets remain more attractive than those denominated in the USD. The ECB's reluctance to ease monetary policy further gives way to further strengthening of the EUR.
Traders should pay close attention to the U.S Non-Farm Employment Change and U.S Unemployment Rate reports to be released today at 12:30 GMT, as well as the GBP PPI Input to be released at 8:30 GMT.
JPY - JPY Plummets as Safe-Haven Status Comes Under Threat
Japan's currency declined Thursday versus 15 of the 16 most traded currencies. The USD/JPY rate closed at 96.74 Yen per USD from 96.15 Yen yesterday, and at 137.29 Yen per EUR from 136.22 Yen on Thursday. The fundamentals in Japan are quite poor. Furthermore, the yields are extremely low and many Japanese investors are opting to buy higher yielding assets oversees while selling the Yen, therefore devaluing the Japanese currency further.
The release of the U.S Non-Farm Employment Change report today may put further downward pressure on the Yen, and it is likely to continue its losses against the USD and EUR. This is increasingly likely, as the expectation is that employers in the U.S. cut fewer jobs last month as the deterioration of the labor market slowed.
Crude Oil - Oil Rallies Towards the $70 Price Level
Crude Oil rose dramatically on Thursday, rising to a seven-month high. Crude Oil prices rose to $69.22 yesterday, an increase of more than $3 a barrel. Crude prices quickly recovered from Wednesday's steep losses and resumed the march toward $70 a barrel. The rally followed a forecast made by a Goldman Sachs analyst stating that “As the financial crisis eases, an energy shortage lies ahead”. The bank set a 12-month price target of $90 a barrel, up from $70.
Expectations of a quick economic recovery dominate long-term prospects for Oil trading. Oil prices recovered very quickly from a Department of Energy report showing a surprise increase in U.S. Crude Oil inventories on Wednesday. The release of the Unemployment Rate data today may put some strain on Oil prices as the rate is expected to rise. However, as optimism seems to be the leading force in the markets, rising equities and a weakening Dollar may prove to have a greater affect on Oil prices than the unemployment results.
Article Source - U.S. Non-Farm Employment Change Data to Dominate USD Trading
Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open)
The forex market saw trading ranges narrow dramatically in the overnight session as traders looked ahead to the looming event risk of May’s US Non Farm Payrolls report to guide directional momentum. Switzerland’s Consumer Price Index and UK Producer Prices are on tap in European hours.
Key Overnight Developments
• Australia's Construction Sector Shrinks for Fifteenth Month in May
• Euro, British Pound Ranges Narrow Ahead of US NFP Report
Critical Levels
The Euro consolidated in a narrow range in overnight trading, oscillating around the 1.42 level. The British Pound followed suit, confined to a narrow band above the 1.61 level.
Asia Session Highlights
Australia’s AiG Construction PMI rose to 46.9 in May from 36.5 in April. The reading below the 50 “boom-bust” level reveals that the sector contracted for the fifteenth consecutive month, albeit at the slowest pace in over a year. Builders have seen demand begin to stabilize after the government tripled its grants to first-time home buyers to A$21,000. Perhaps most notably, the wages component of the metric expanded for the second consecutive month, rising from 50.6 to 55.0. Higher wages are supportive of consumption, the largest component of overall economic growth, offering a bit of hope that the private-sector demand will support the economy after the government’s boost is exhausted. Australian GDP unexpectedly expanded in the first quarter but details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead.
Euro Session: What to Expect
Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.
Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year.
On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere.
Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open)
Key Overnight Developments
• Australia's Construction Sector Shrinks for Fifteenth Month in May
• Euro, British Pound Ranges Narrow Ahead of US NFP Report
Critical Levels
The Euro consolidated in a narrow range in overnight trading, oscillating around the 1.42 level. The British Pound followed suit, confined to a narrow band above the 1.61 level.
Asia Session Highlights
Australia’s AiG Construction PMI rose to 46.9 in May from 36.5 in April. The reading below the 50 “boom-bust” level reveals that the sector contracted for the fifteenth consecutive month, albeit at the slowest pace in over a year. Builders have seen demand begin to stabilize after the government tripled its grants to first-time home buyers to A$21,000. Perhaps most notably, the wages component of the metric expanded for the second consecutive month, rising from 50.6 to 55.0. Higher wages are supportive of consumption, the largest component of overall economic growth, offering a bit of hope that the private-sector demand will support the economy after the government’s boost is exhausted. Australian GDP unexpectedly expanded in the first quarter but details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead.
Euro Session: What to Expect
Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.
Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year.
On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere.
Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open)
Carry Interest is Rising But a Lack of Risk Doesn't Translate Into Strong Fundamentals
• Carry Interest is Rising But a Lack of Risk Doesn’t Translate Into Strong Fundamentals
• Central Banks Keep Rates Unchanged Yet Policy Officials Cautious
• Growth is Emerging as the Underlying Driver of Market Sentiment
Event risk was torrential this past week with a round of central bank rate decisions that covered both the most hawkish and dovish extremes of the policy scale as well as a slew of headline growth indicators. Naturally, one would expect extreme volatility and the establishment of new trends from this mix of fundamental fodder; but instead, we have seen exactly the opposite. The presence of so much event risk has frozen risk trends as market participants wait to absorb the releases rather than trading against a potentially influential event or piece of data. Since this week started with growth numbers on Monday and will end with US NFPs on Friday; there has is a consistent damper on swells in risk appetite. This has been seen across all of the capital markets. The S&P 500 has stalled below 950 just after hitting a seven month high; gold’s advance has seized within $10 from once again testing $1000/oz; and the Carry Trade Index has pulled back after a brief incursion to highs not seen since before the height of the financial crisis last October. It is not a stretch at this point, that this is merely a break within a rather momentous bull trend. However, looking back further than just the past three to six months, there is reason to believe that this advance could also be a correction in a much larger trend. The Carry Index is still nearly 28 percent off its record highs. It is unlikely that we will see the level of sentiment that preceded the crisis for a long time.
It is hard to be skeptical in a bullish market – much harder than doubting a long-term decline. Investors are hard-wired to buy assets as they find their way into the market. However, there is a difference between an influx of capital into the market and the appreciation an asset enjoys when speculation supports its strength. Sidelined money is returning to a market space that has shrunk (reducing the opportunities for liquidity) and the pool itself has been severely diminished through the market collapse and global recession of the past few years. Eventually, the market will bear as much of the risk-seeking capital as participants are willing to invest (unless another crisis unexpectedly arises); and then fundamentals will to come back into view. The burden of risk has not completely dissipated. The grip of recession is still tight (even if there are signs its pace is slowing) and the eventual recovery will be fraught with difficulties. Upon the recovery, government’s will have to unwind their aid, which restrict credit and saddle the market with toxic debt that is currently being held on the central bank’s accounting books. Widening rates on US mortgages and TALF loans are already showing signs of strain. What’s more, a revival of investment will require attractive returns. With central banks maintaining interest rates near multi-decade lows and keeping open the option to further loosen policy and expand quantitative easing; it is clear that there is little hope to see a significant increase in yields anytime soon.
Written by John Kicklighter, Currency Strategist
Article Source - Carry Interest is Rising But a Lack of Risk Doesn't Translate Into Strong Fundamentals
• Central Banks Keep Rates Unchanged Yet Policy Officials Cautious
• Growth is Emerging as the Underlying Driver of Market Sentiment
Event risk was torrential this past week with a round of central bank rate decisions that covered both the most hawkish and dovish extremes of the policy scale as well as a slew of headline growth indicators. Naturally, one would expect extreme volatility and the establishment of new trends from this mix of fundamental fodder; but instead, we have seen exactly the opposite. The presence of so much event risk has frozen risk trends as market participants wait to absorb the releases rather than trading against a potentially influential event or piece of data. Since this week started with growth numbers on Monday and will end with US NFPs on Friday; there has is a consistent damper on swells in risk appetite. This has been seen across all of the capital markets. The S&P 500 has stalled below 950 just after hitting a seven month high; gold’s advance has seized within $10 from once again testing $1000/oz; and the Carry Trade Index has pulled back after a brief incursion to highs not seen since before the height of the financial crisis last October. It is not a stretch at this point, that this is merely a break within a rather momentous bull trend. However, looking back further than just the past three to six months, there is reason to believe that this advance could also be a correction in a much larger trend. The Carry Index is still nearly 28 percent off its record highs. It is unlikely that we will see the level of sentiment that preceded the crisis for a long time.
It is hard to be skeptical in a bullish market – much harder than doubting a long-term decline. Investors are hard-wired to buy assets as they find their way into the market. However, there is a difference between an influx of capital into the market and the appreciation an asset enjoys when speculation supports its strength. Sidelined money is returning to a market space that has shrunk (reducing the opportunities for liquidity) and the pool itself has been severely diminished through the market collapse and global recession of the past few years. Eventually, the market will bear as much of the risk-seeking capital as participants are willing to invest (unless another crisis unexpectedly arises); and then fundamentals will to come back into view. The burden of risk has not completely dissipated. The grip of recession is still tight (even if there are signs its pace is slowing) and the eventual recovery will be fraught with difficulties. Upon the recovery, government’s will have to unwind their aid, which restrict credit and saddle the market with toxic debt that is currently being held on the central bank’s accounting books. Widening rates on US mortgages and TALF loans are already showing signs of strain. What’s more, a revival of investment will require attractive returns. With central banks maintaining interest rates near multi-decade lows and keeping open the option to further loosen policy and expand quantitative easing; it is clear that there is little hope to see a significant increase in yields anytime soon.
Written by John Kicklighter, Currency Strategist
Article Source - Carry Interest is Rising But a Lack of Risk Doesn't Translate Into Strong Fundamentals
jeudi 4 juin 2009
NEW STRATEGY AND THE RESULT IS ...
On my last post, I was telling you about a new system. I decided to do forward testing. As usual all testing was done on a demo account. No live account was hurt during the testing period.
The result as you see is superb. There are actually 2 part of testing. The early trades are done on a shorter time frame, 5 minute to be exact. The later part of testing is done on a longer time frame, 1 hour.
I must say the system looks promising on the longer time frame. On the shorter time, I just dont have the time to monitor the trades.
As of now the system is running on my live account. At the moment on 4th June my account is up 40%. Hopefully everything goes well and I will have good profit by end of the month. Will keep you inform on the result later.
The result as you see is superb. There are actually 2 part of testing. The early trades are done on a shorter time frame, 5 minute to be exact. The later part of testing is done on a longer time frame, 1 hour.
I must say the system looks promising on the longer time frame. On the shorter time, I just dont have the time to monitor the trades.
As of now the system is running on my live account. At the moment on 4th June my account is up 40%. Hopefully everything goes well and I will have good profit by end of the month. Will keep you inform on the result later.
Tomorrow's U.S. Non-Farm Payrolls to Dictate USD Direction
The Dollar gained considerably ground in yesterday's trading, whilst the price of Crude Oil plummeted. The question today is can this pattern be extended into end-of-week trading? The answer to this question will be determined by a number of factors, such as the U.S. Unemployment Claims release at 13:30 GMT, U.S. Federal Reserve Chairman Ben Bernanke's speech at 12:45 GMT, and investors weighing in on the possible results of the U.S. Non-Farm Payrolls data release tomorrow.
USD - Fed Chairman Bernanke's Speech to Drive Dollar Volatility Today
The Dollar may rise for a second day versus the EUR on speculation of economic recovery after new data gave a mixed outlook for the services and manufacturing sectors of the U.S. economy. The USD advanced versus 10 of the 16 most-traded currencies yesterday after reports showed U.S. companies cut more jobs last month than economists forecast.
The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. Dollar remains the world's main reserve currency, economists said. The greenback had advanced earlier after news reports signaled major Asian central banks are prepared to keep buying U.S. Treasuries. The U.S Dollar rose significantly to $1.4168 per EUR, from $1.4307 yesterday. The U.S. currency may strengthen to as high as $1.4050 vs. the EUR today.
In his appearance on Wednesday before the House of Representatives Budget Committee, Federal Reserve Chairman Ben Bernanke said rising U.S. debt was contributing to a spike in longer-term Interest Rates and now was the time to start working on reining in deficits. Yet the Dollar's gains have been pretty moderate considering how much it has fallen recently. As Bernanke gave no clue as to whether the U.S. Federal Reserve would step up its purchases of government debt or mortgage-backed securities, this is likely to lead to high volatility for the Dollar in today's trading.
As for today, Ben Bernanke's speech about the state of the U.S. economy at 12:45 GMT is set to drive USD volatility. Additionally, the anticipated results of tomorrow's U.S. Non-Farm Payrolls are set to play a key role in the behavior of forex traders today.
EUR - ECB Interest Rate Decision in the Spotlight
The EUR rose to a 7 month high against the Japanese Yen on Wednesday. However, the EUR/JPY went bearish in late trading on Wednesday to close lower at 136.22 Yen per EUR. Against the U.S Dollar the EUR also weakened after Finland's Finance Minister said EU countries need bank stress tests to regain financial market trust and jolt them out of the worldwide recession.
The EUR slipped against the Dollar to the$1.4168 level yesterday, down from $1.4307, as currency traders shrugged off fresh economic data for the 16-nation Euro-Zone. The European currency declined after the European Union's Statistics Office reported Gross Domestic Product (GDP) in the Euro-Zone fell 2.5% in the 1st quarter. It was the largest economic contraction since the data was first compiled in 1995. The British Pound depreciated as much as 2% against the USD to $1.6263, the biggest intraday drop since March 9, when it tumbled 2.5%.
Meanwhile traders are braced for decisions on Interest Rates from the European Central Bank (ECB) and the Bank of England (BoE) today. The European Central Bank is expected to keep its target lending rate at 1% when it announces its decision at 11:45 GMT. The Bank of England is expected to keep its benchmark rate at 0.5% at its announcement at 11:00 GMT.
JPY - Yen Hits 7 Month Low vs. EUR
The Japanese Yen weakened against the EUR and the Dollar after Fitch Ratings reiterated its confidence in the U.S. and U.K.'s AAA ratings, damping demand for Japan's currency as a refuge from the global financial crisis. However, the JPY recovered in late trading to finish up by 60 pips vs. the EUR to close at 136.22. The JPY dropped to 96.15 per Dollar from 95.63.
Investors are now wondering if the JPY will continue to gain ground against the EUR and Pound in today's trading. It is important to take into account that this may only continue if the leading economies led by the U.S. publish predominantly positive economic data today. The result of this would help reduce demand for the safe-haven JPY. In the meantime traders are advised to open up their JPY trades ahead of the Euro-Zone and British Interest Rate decisions in the coming hours.
Crude Oil - Crude Tumbles 3% on U.S. Inventory Data
Crude Oil prices declined Wednesday by about 3.5%, to $66.15 a barrel, pulling back after government data showed an unexpected increase in inventories last week. The Energy Information Administration reported that U.S. commercial Crude Inventories for the week ending May 29 rose to 366 million barrels, up 2.9 million barrels. Crude Oil was also pushed lower by a bullish U.S Dollar.
Despite Wednesday's weakness, Oil prices have surged 60% over the last 3 months. Analysts state that Oil has surged in recent weeks on speculation and a weak Dollar, not on actual demand. This was apparently not enough to hold the recent bullish Oil prices, as yesterday's inventory report underscores this.
Article Source - Tomorrow's U.S. Non-Farm Payrolls to Dictate USD Direction
USD - Fed Chairman Bernanke's Speech to Drive Dollar Volatility Today
The Dollar may rise for a second day versus the EUR on speculation of economic recovery after new data gave a mixed outlook for the services and manufacturing sectors of the U.S. economy. The USD advanced versus 10 of the 16 most-traded currencies yesterday after reports showed U.S. companies cut more jobs last month than economists forecast.
The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. Dollar remains the world's main reserve currency, economists said. The greenback had advanced earlier after news reports signaled major Asian central banks are prepared to keep buying U.S. Treasuries. The U.S Dollar rose significantly to $1.4168 per EUR, from $1.4307 yesterday. The U.S. currency may strengthen to as high as $1.4050 vs. the EUR today.
In his appearance on Wednesday before the House of Representatives Budget Committee, Federal Reserve Chairman Ben Bernanke said rising U.S. debt was contributing to a spike in longer-term Interest Rates and now was the time to start working on reining in deficits. Yet the Dollar's gains have been pretty moderate considering how much it has fallen recently. As Bernanke gave no clue as to whether the U.S. Federal Reserve would step up its purchases of government debt or mortgage-backed securities, this is likely to lead to high volatility for the Dollar in today's trading.
As for today, Ben Bernanke's speech about the state of the U.S. economy at 12:45 GMT is set to drive USD volatility. Additionally, the anticipated results of tomorrow's U.S. Non-Farm Payrolls are set to play a key role in the behavior of forex traders today.
EUR - ECB Interest Rate Decision in the Spotlight
The EUR rose to a 7 month high against the Japanese Yen on Wednesday. However, the EUR/JPY went bearish in late trading on Wednesday to close lower at 136.22 Yen per EUR. Against the U.S Dollar the EUR also weakened after Finland's Finance Minister said EU countries need bank stress tests to regain financial market trust and jolt them out of the worldwide recession.
The EUR slipped against the Dollar to the$1.4168 level yesterday, down from $1.4307, as currency traders shrugged off fresh economic data for the 16-nation Euro-Zone. The European currency declined after the European Union's Statistics Office reported Gross Domestic Product (GDP) in the Euro-Zone fell 2.5% in the 1st quarter. It was the largest economic contraction since the data was first compiled in 1995. The British Pound depreciated as much as 2% against the USD to $1.6263, the biggest intraday drop since March 9, when it tumbled 2.5%.
Meanwhile traders are braced for decisions on Interest Rates from the European Central Bank (ECB) and the Bank of England (BoE) today. The European Central Bank is expected to keep its target lending rate at 1% when it announces its decision at 11:45 GMT. The Bank of England is expected to keep its benchmark rate at 0.5% at its announcement at 11:00 GMT.
JPY - Yen Hits 7 Month Low vs. EUR
The Japanese Yen weakened against the EUR and the Dollar after Fitch Ratings reiterated its confidence in the U.S. and U.K.'s AAA ratings, damping demand for Japan's currency as a refuge from the global financial crisis. However, the JPY recovered in late trading to finish up by 60 pips vs. the EUR to close at 136.22. The JPY dropped to 96.15 per Dollar from 95.63.
Investors are now wondering if the JPY will continue to gain ground against the EUR and Pound in today's trading. It is important to take into account that this may only continue if the leading economies led by the U.S. publish predominantly positive economic data today. The result of this would help reduce demand for the safe-haven JPY. In the meantime traders are advised to open up their JPY trades ahead of the Euro-Zone and British Interest Rate decisions in the coming hours.
Crude Oil - Crude Tumbles 3% on U.S. Inventory Data
Crude Oil prices declined Wednesday by about 3.5%, to $66.15 a barrel, pulling back after government data showed an unexpected increase in inventories last week. The Energy Information Administration reported that U.S. commercial Crude Inventories for the week ending May 29 rose to 366 million barrels, up 2.9 million barrels. Crude Oil was also pushed lower by a bullish U.S Dollar.
Despite Wednesday's weakness, Oil prices have surged 60% over the last 3 months. Analysts state that Oil has surged in recent weeks on speculation and a weak Dollar, not on actual demand. This was apparently not enough to hold the recent bullish Oil prices, as yesterday's inventory report underscores this.
Article Source - Tomorrow's U.S. Non-Farm Payrolls to Dictate USD Direction
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