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Forex - Latest Shirakawa Rhetoric Fails To Curb JPY Strength
Although EURUSD’s surging rally has failed to overcome the psychologically important 1.3500 level at the start of this week, the pair has actually managed to sustain last week’s gains extremely well – remarkably so given the recurring sovereign debt headlines that in times gone by would have pummeled the EUR down lower. We still feel uncomfortable assuming that the market’s appetite to price in US QE part deux will be able to fuel further EURUSD rallies at these higher levels should sovereign debt concerns persist (which we believe they will); just this morning ratings agency Moody’s downgraded another tranche of Anglo Irish bank’s debt, and it is likely that continued divergence in Eurozone bond yields will keep the stories bubbling over. Meanwhile the BoJ have been trying in vain to ...
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Forex - ACM: Why Now Is The Time To Start Selling EURJPY
The suspicious 80-pip spike in USDJPY overnight is widely being written up as another slug of BoJ intervention after the pair once again looked threatened by yet more USD weakness. Of course, all Japanese officials quizzed on the price action have declined to comment, but really, FX traders looking for the relevant implications to draw from the episode can learn everything they need to without officials needing to say anything – this intervention strategy is not going to work. An 80-pip spike in a notoriously volatile pair like USDJPY is quickly dismissed and forgotten; and it was plain to see the massive supply waiting for the pair above 85.00 levels was quickly exploited by bears looking to take advantage of these allegedly central-bank sponsored freebies. With such unrelenting ...
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Forex - BoE Continues To Dismiss Upside CPI Risks, Norges Bank Decisio
Last night’s FOMC meeting has sent FX markets lurching out of USD longs as the probability of further US quantitative easing was boosted considerably by an apparent shift in the central bank’s stance. Keeping in line with headline expectations, the Fed kept rates on hold at 0.25%, but the real killer for the USD was the adjusted language of the statement. Although growth forecasts were left unchanged, there were downgrades to the inflation assessment, and the former language that they “will employ its tools as necessary to promote economic recovery and price stability” was replaced by “prepared to provide additional accommodation if needed”. This combination of dovish alterations since August has been interpreted as the FOMC leaning toward further quantitative easing, and in turn US ...
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Forex - All Eyes on EU Auctions & FOMC
The Asian session this morning was notably quiet given yesterday’s US equity rally. We expected some excitement as the 1.5% gain on the S&P pushed the index above 1300 and that bulls would take that signal and go for it. Alas, this was not the case, the market once again demonstrated its confusion and/or uncertainty. Illustrating this point was the fact that Gold recently hit all time new highs for the 3rd session in a row. Gold continues to experience strong physical buying while the EU’s Ireland, Portugal & Spain CDS prices & sovereign bond yields continued to climb. The Forex Market otherwise seems to be caught in a weird limbo for September. Given the void in economic data we suspect that two key events will drive FX today.
First will be the Spain, Greece and Ireland’s debt auctions ...
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Forex - General Uncertainty & Impending FOMC Keeps FX In Check
A holiday in Japan has kept trading subdued at the start of this trading week. USD had been able to rally back on Friday, as EU sovereign risk concerns re-emerged. A local Irish newspaper reported that Ireland was “perilously close” to calling on the IMF for assistance. While the government was quick to refute the story by saying that the journalist misinterpreted a research report, even the suggestion of such an action had investors rushing into safe-havens Forex trades. In addition there were unconfirmed reports that the ECB had intervened in the Irish bond market (which was confirmed over the weekend although the size was very small). And on a similar note, Reuters, citing a German newspaper, stated that German banks would need to raise roughly €50bn in order to comply with new Basel ...
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Forex - Intervention Excitement Subsides
The talk around the camp fire continues to be yesterday’s Japanese forex intervention, and for good reason. First of all, it was very, very big with the Nikkei reporting that the BoJ sold more than ¥2trn which roughly equates to $23bn over the course of Asia, Europe and the US sessions. The enormous size required to move the USDJPY just 250 pips just illustrates the entrenched bearish sentiment and potentially highlights the fact that the central bank has a difficult & costly task ahead of it. Note, it’s still unclear if the operations have been “sterilized” and we won’t know until Friday’s BoJ current account report. In order to weaken the JPY, unsterilized intervention should have the most profound effect since in essence it is just “printing money” and artificially expanding the money ...
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Forex - Kan Wins... Watch for JPY Strength
FX markets were calm ahead of today’s Japanese DPJ leadership election, however once the results were posted the JPY-buying began. Without the threat of challenger Ozawa’s much publicized support for FX intervention and uncertainty over fiscal policies the JPY was free to trade higher. Given the knee-jerk reaction it seems that the market had been caught short on JPY trades. The elimination of the Ozawa fears means the yen will revert back to trading on risk appetite, US-Japan yield differentials and US economic data – so today’s US retail sales will be critical to USDJPY price action. A number inline with consensus or better should support the pair, however, a worse than expected release combined with a Japanese power structure (and potentially weakened party) not ready to intervene on ...
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Forex - Basel III and Chinese Data Supports Risk Appetite
Risk correlated trades were back in fashion at the start of the trading week, as a rash of risk positive news helped shift sentiment. First was the news that Hypo Real Estate will receive another EUR40bn in state guarantees, in order to avoid bankruptcy. This was followed by Basel III capital rules for banks being announced, requiring banks to nearly triple their capital ratios. Finally it was the Chinese economic data which printed higher than expected. However, we don’t view any of these events as a positive, except for that of the Chinese data. We suspect that traders will fade the news. In particular, it seems odd that while EC policy makers are demanding European banks to increase their reserve requirements, they are also asking to increase lending rates. These requirements seem ...
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Forex - Looking Forward to US Data
With the UK on a long weekend yesterday, Forex traders had a slight pause in what has been a frenzied month. Enjoy it while you can, because September is notorious for being a volatile month and especially in the equity markets. This summer will be remembered (or maybe not) for its schizophrenic trading and a failure to maintain any meaningful directions or themes.
This morning there is a noticeable lack of much-needed, fresh information to help give us some directions. In this void, we suspect FX to consolidate with the bias towards further selling of risk- correlated trades. The temporary excitement over Bernanke’s optimistic speech which pointed at existing conditions for a US recovery quickly dissipated and with it the short-lived risk rally. Forex trades continue to move back into ...
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