Cable Rally Loses Steam in Forex Trading

April 30, 2010

Currency trading with sterling

Earlier today, cable rallied on the prospect of a possible Tory victory in Britain. The pro-business Tories are favored by some, and considered as likely to get the country back on track.

However, the campaign isn’t over yet, and concerns about the sterling remain. As a result, the cable rally has lost steam against the U.S. dollar in currency trading, and is now back in losing territory.

Indeed, even as the U.S. dollar weakens against the euro and the yen in forex trading, it is gaining against the U.K. pound. Public debt concerns continue to plague the sterling, and will until even more proof of an improving economy is seen.

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U.S. Dollar Weakens in Currency Trading

April 30, 2010

Greenback lower on economic report

The U.S. dollar is weakening in currency trading on the FX market today. The greenback is lower in forex trading on the most recent economic report. Even though Quarter 1 showed economic expansion, it was not in line with expectations from analysts. 

As a result, the U.S. dollar is down against the euro in forex trading, and weakened against the Japanese yen. Gold prices are also gaining as dollar weakness provides support.

We will have to see how things go moving forward, though. In terms of USD/JPY, the slightly disappointing number should not have a great deal of effect, reports Kathy Lien in FX360:

As long as job growth continues and non-farm payrolls remain positive, this sentiment should hold and risk appetite should continue to improve.  The weaker GDP number will only deal a small blow to USD/JPY which will be more sensitive to the market’s overall risk appetite. 

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Greek Problem Goes Global

April 30, 2010

“The problems we have in Greece are really hitting different pockets of the world,” Kathy Lien from GFT told CNBC Wednesday. Lien thinks the situation will keep downward pressure on ECB interest rates and the euro.

London Session – April 30, 2010 5:32 AM

April 30, 2010

EUR/USD has been squeezed higher back above the 1.3300 area this morning.   The market is likely covering a few shorts given that the talks between the IMF/EU and ECB regarding the Greek support package are scheduled to be completed over the weekend.  Given indications that the size of the loans on offer will have ballooned well beyond the EUR 45 bln EU/IMF package that was on offer just a few weeks ago there is some reason for short-term relief.  However, there is still a long way to go before Greece’s ails are healed.  The first hurdle is that the German parliament will not debate the topic of aid to Greece until next week implying at least a week’s delay before aid can be endorsed.  The second issue is that Greece still has to prove it can live within its means and this will be a slow process.  Given that the already announced doses of austerity will ensure Greece remains in recession this year, there is no guarantee that Greece will be able to tolerate continued belt tightening over the next couple of years.  Yet without austerity, further tranches of loans from the EU and from the IMF may not be forthcoming. This means that while IMF involvement implies there may be no imminent threat of default from Greece, this risk and that of a potential EMU exit still persists further down the line.  Meanwhile EU officials remain heavily obliged to try and stem fears of a default or devaluation in Greece since these fears would be consistent with an increase in contagion amongst the EMU region.  Yields on Greece, Portuguese and Spanish bonds have all fallen this morning in tune with the better tone of the EUR.  That said the release of the worst than expected Spanish unemployment rate at 20.1% is a sober reminder of the depth of the economic woes facing EMU’s fourth largest economy.  Full text »

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Asia Session – April 30, 2010 1:47 AM

April 30, 2010

The Euro licked its wounds and ended the Asian session slightly higher on the hopes that the EU/IMF aid package to Greece will soon be a reality. Traders pulled out of short positions with the optimistic view that a three year aid package worth as much as 120 billion Euros could be signed by possibly Sunday or Monday. Wisely, traders will remain cautious until the plan details are revealed. As well, many investors looked to square up open positions ahead of the five day holiday Golden Week holiday in Japan. Full text »

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New York Session – April 29, 2010 4:41 PM

April 29, 2010

The worsening problems in the Eurozone periphery have thus far failed to elicit any remarkable leg-down in the common currency. Despite downgrades to Greece (to junk!), Portugal and Spain just this week, the Euro remains back above what has become a near-term pivot by the 1.3200 area. The outlook for the Eurozone periphery (the so-called PIGS) remains decidedly negative and we firmly believe that difficulty to move debt around the rollover requirements over the next few months will prove extremely challenging for whatever Euro longs remain. Full text »

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Euro Sees Gains in Forex Trading

April 29, 2010

Stability returns to the euro zone — for now

The euro is seeing some gains in forex trading right now. Stability has returned to the euro zone, for the time being. In currency trading, the euro is getting some help from a slight return to risk appetite on the news that U.S. jobless claims are lower, and that the employment situation in Germany is improving.

However, there are still problems surrounding the debt situation in the southern countries of the euro zone, with Spain and Portugal downgraded, and Greek debt now at junk status. There are some hopes that the moves will spur euro zone leaders to action, but we will have to see.

GFT’s Boris Schlossberg offers a look at the forex trading forecast for the euro:

The EUR/USD rebounded above 1.3200 in the aftermath of the release and remained in a quiet consolidation mode throughout the morning European trade. The better than forecast economic data has been the one stabilizer to the massive risk aversion flows that have battered the currency. For the time being 1.3000 level in the pair remains out of reach and is unlikely to be challenged this week unless yet another exogenous shock triggers a wave of panic selling in the single currency. With the unit now grossly oversold and eco data supportive some light short covering could push it back above 1.3300 before the week’s end.

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U.S. Jobless Claims Drop for Another Week

April 29, 2010

High beta currencies get a boost in forex trading

Today, the news is that U.S. jobless claims have dropped for the second week in a row. The news is helping the U.S. stock market head for a higher open today, and helping high beta currencies as risk appetite makes an appearance.

Indeed, with the good news, the U.S. dollar is falling to the sterling and the euro as investors look for higher yields. Also contributing to losses by the U.S. dollar is the news from the Federal Reserve that interest rates are likely to remain low for a while, even as the economy recovers. 

For now, though, most of the news on the economic front — at least in the U.S. — is good. And the euro is even getting support from the idea that euro zone leaders might be spurred to action now that Greek debt has been downgraded to junk status.

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London Session – April 29, 2010 6:32 AM

April 29, 2010

Back in 1999 the Bundesbank was wary about allowing less well fiscally managed countries into EMU.  However, political will overwhelmed economic reservations and EMU was formed.  Today, BBK President Weber has admitted that in view of the path that was chosen back in 1999 that there is now no alternative but to help Greece.  In one way or another it has become inevitable that Germany will have to pay.  The crux of the matter lies with the fact that Greece, Spain and Portugal, amongst other are far less competitive than Germany.  Yet they operate with the same exchange rate.  These countries need to address this and effectively create an internal devaluation.  This means that wages will have to be reduced.  This process is painful and may take years.  There is no yet evidence that this goal is achievable particularly given the constraints of a fixed exchange rate, but cheap loans from Germany (and other EU countries) will smooth the way.  If Germany were to capitulate and refuse to pay it would accelerate a break-down of EMU or an alteration of membership.  Without Greece et al in EMU, Germany’s exchange rate would also certainly rise.  Since the German economy is dependent on exports, it would still be paying albeit in a different way.  It was never  going to be easy to run a monetary union without strong fiscal controls, given that the Greece debt crisis has opened the markets eyes to the inherence flaws of EMU the EUR is likely to remains a weakened currency for some time to come.  If Germany coughs up the necessary funds to allow EMU to muddle through, the prize will be a softer exchange rate.  The German parliament is due to debate the issue of a loan to Greece next week. 
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Asia Session – April 29, 2010 1:54 AM

April 29, 2010

With Japan out on holiday and the big moves flushing out the market earlier in New York, traders kept an ear out for news amidst a mostly quiet session in Asia. After a drop to new yearly lows near 1.3115 in the EUR/USD after an S&P downgrade of Spain, the pair remained centered near the 1.3200 mark. The session began early with the RBNZ rate decision, which although in line with expectations at 2.50%, hampered the New Zealand currency with talks of a more modest tightening policy ahead. The NZD/USD moved from 0.7205 to a quick 0.7230 high and subsequent 0.7170 within a matter of minutes. The pair eventually dropped a further 20 pips to post lows on the day before a bounce to 0.7165. The moves in AUD/NZD were a bit more drastic as the pair touched a quick 1.2785 before a high just north of the 1.2900 level right after the data was released out of New Zealand. AUD/USD was stale near the 0.9250 region. Both the yen and yen crosses were flat on the session. Full text »

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