08/02/2009 – USD back to the brink, again

July 31, 2009

* USD back to the brink, again
* US economy showing signs of a pulse
* BoE MPC–market speculates on the future of QE
* ECB meeting– ‘Enhanced Credit Support’ the focus
* Key data and events to watch next week

A volatile week brought July to a close and the USD finished out on the low-side of ranges that have dominated currency markets for the last two months. We are reluctant to make too much of Friday’s USD decline as it was likely heavily influenced by month-end portfolio hedging flows against a backdrop of reduced summertime liquidity. (As stocks in the US have risen in July, foreign asset managers need to sell more USD to hedge against higher US portfolio valuations.) After months of range-bound trading, FX markets are certainly overdue for a directional break-out. The overriding dynamic remains risk sentiment, and risky assets (stock, commodities, and JPY-crosses) rebounded sharply in tandem with USD declines, potentially setting the stage for a USD breakdown/extended gains in the JPY-crosses. However, we would note that the most of the USD lows for the year remain intact (AUD/USD high is the exception), as do the highs in the JPY-crosses, despite new highs in most stock indexes. Last week we cautioned that currencies were not confirming the risk embrace seen elsewhere, and while we maintain that view, we also have to reckon with a range breakout at some point….   Full text »

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Forex Trading Forecast: U.S. Dollar to Head Lower

July 31, 2009

Greenback down in currency trading

The U.S. dollar was barely moved one way or the other by recent unemployment data. This is hardly surprising, since the news most people have been waiting for is the GDP report from Quarter 2.

After the report was released, the numbers showed that the U.S. economy shrank by 1% in the second quarter of 2009. While that still shows that the economy has been shrinking, the fact remains that the shrinkage is much lower than expected. And that is what is likely to affect the forex trading forecast for the U.S. dollar.

The indications are that the U.S. economy is slowly moving out of its recession. The latest news rekindles optimism that the economy will be out of the recession by the end of the year so that it can focus on economic recovery. As this happens, sterling and euro are expected to gain the upper hand as the greenback is no longer needed as a safe haven in currency trading.

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U.S. Economy Contracts 1% in Quarter 2

July 31, 2009

Economic shrinkage is less than expected

The U.S. economy contracted by 1% in Quarter 2 of 2009. However, this is a smaller contraction than expected. Analysts had expected more shrinkage in the economy, reports the Financial Times:

Wall Street analysts were expecting a contraction of 1.5 per cent, but the downward revision from the original previous quarter estimate of a 5.5 per cent drop dampened optimism. …

Even though it’s negative, we’re not seeing the horrendous numbers we saw earlier in the year or in early 2008,” said Brian Bethune, an economist at IHS Global Insight.

The news has stoked some optimism. Even though the stock market opened lower, it has since moved into positive territory, heading higher as the news sinks in. The U.S. dollar, on the other hand, is moving lower.

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July 31, 2009

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London Session – July 31, 2009 6:09 AM

July 31, 2009

 
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Asia Session – July 31, 2009 1:51 AM

July 31, 2009

The US Dollar ended the week in Asia on a down note as traders looked to take advantage of the perception that a full blown global recovery was underway. Stocks extended gains earlier in the US due to a slide in the number of unemployment claims as well as a solid run of earnings reports and these gains carried over once again to Asian equities. A show of strength in recently battered Chinese markets helped push traders into the direction of riskier assets and the yen and dollar suffered for it. The EUR/USD only moved in one direction today, and that was up. The single European currency began the session at lows near 1.4064 and eventually made its way to over 1.4135 as a high. EUR/JPY made a solid 50 pip push higher today as well which ended near 134.80. Other yen crosses followed the path higher including the AUD/JPY, NZD/JPY and to a lesser degree GBP/JPY. USD/JPY showed some yen strength as the pair drifted lower to 95.25 lows, although only a 20 pip move for the day. Full text »

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New York Session – July 30, 2009 4:21 PM

July 30, 2009

Risk was decidedly back on in NY trading as more upbeat data, a healthy Treasury note auction and better earnings reports provided more than enough impetus. US initial jobless claims were a touch higher than estimates but the fact that they remained below 600K in a week where the market was braced for a large statistical pop was “less bad” news. The 7-year Treasury auction was a healthy one and the bid/cover came in at 2.63 vs a three-auction average 2.45 while indirect bidders (foreign central banks) took 63% of the offering vs a recent 44% trend. Participants paid -3bps through the market rate, suggesting little upside pressure on yields for now. All in, it is good medium-term news for the USD after the sloppy 2- and 5-year auctions earlier this week. Risk also liked it though and this kept the US dollar better offered for the most part. Full text »

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London Session – July 30, 2009 6:11 AM

July 30, 2009

Equity markets have pushed higher again sapping enthusiasm for the USD and the JPY.   The first boost to the risk trade came as yesterday’s concerns that Chinese Bank may restrict lending were offset by comments from the PBOC which specified adherence to a “moderately loose” monetary policy.   A positive spate of earnings reports subsequently underpinned the better tone of equities.  That said, increased scepticism is being voiced in the market over the ability of the stock markets to continue its strong upward trend.  Cost cutting has enabled the better than expected performance of the corporate sector in Q2, this underpinning the continuing trend of rising unemployment.  Until there is clear evidence of a pickup in final demand revenues of the corporate sector are set to remain constrained.   Continued caution on the outlook for economic recovery in the G7 is consistent with the decent underlying demand for the USD and the JPY and the inability of the majors to break out of recent ranges.  EUR/USD has edged higher from last night’s close in tune with the better tone of stock markets though it has been unable to reclaim 1.4100, EUR/JPY is also modestly higher  but still below 134.00.  Sterling has received a boost on the better than expected Nationwide House price index which increased 1.3% m/m in Jul. Full text »

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Asia Session – July 30, 2009 1:35 AM

July 30, 2009

Risk appetite got a boost by China today in Asia, helping to pull the Dollar off of recent highs, but a late session reversal ahead of important German data has left markets mostly close to unchanged for the day. China has been watching its stocks slide on fears that Chinese banks might restrict lending due to a tightening of the money supply, but comments from a Chinese vice Governor of the central bank stating China would use a loose monetary policy for recovery was the match hitting the fuse for risk appetite. The loose monetary policy comment helped ebb concerns of growth and stocks rose and safe haven currencies were ditched. Now traders need to rethink their positions ahead of Germany employment data due later today. Full text »

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New York Session – July 29, 2009 3:59 PM

July 29, 2009

Capitulation was the name of the game in NY trading today as the risk trade continued to unwind in orderly fashion. The overnight news that China would be capping its lending carried through for the better part of the session and not even better US economic data could shift the tone. US durable goods disappointed on the headline with a -2.5% print for June but the details were more upbeat with the proxy for private capital expenditures rising 1.4% on the month. Indeed the decline in the headline was driven by a massive drop in the transports sector which tends to be very volatile. If past is prescient, this sector will likely contribute positively to the report in the next round. Oil inventories surprised to the upside with a 5.2 million barrel build for the week. The market was looking for a modest draw and so the surprise was palpable. The commodity took a sharp spill down to the handle after trading above overnight. Gold also took it on the chin and slipped more than into the 929/930 zone. In sum, it was a perfect storm for US dollar strength. Full text »

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