Tag : US

US Dollar Extends its Run but How Long will Risk Aversion Hold?

Posted by Mulder Venture at 9:24 am

US Dollar Extends its Run but How Long will Risk Aversion Hold?

Fundamental Outlook for US Dollar: Bullish

-    Risk appetite takes the lead on the US dollar’s rally
-    Non-farm payrolls has a limited impact on volatility, but the fundamentals are still weak
-    Will the dollar’s drive straight through next week or are there correction in store?

Considering the extraordinary rally the dollar was able to muster this past week, and the momentum it has added to the currency’s impressive bull trend; it may seem inappropriate to start speculating on when this drive will stall. However, it is vital to always have a view on the life span of a trend. Otherwise, how would we know when to take profit or otherwise stick it out for the full breadth of a developing move? The primary fundamental drive behind the dollar’s current run is a deep source of momentum. The reversal of risk flows in the financial markets can last for some time and entail substantial shifts in underlying capital. Throughout 2009, investors were looking to reinvest their speculative capital that had been idled by the worst financial crisis in memory. From cash and other ‘risk-free’ assets, investors were looking to first put their money back to work and second to avoid excessively risky markets. This meant a large influx of capital into specific markets. Naturally, a bottleneck of liquidity would form; and asset prices would rise dramatically in response. And, though values were undoubtedly depressed when the market’s first reversed higher in the beginning of the year, they were equally overinflated by the end of the year. What we are experiencing now is a move to find an equilibrium that is supported by the potential for growth and expectations for returns. This brings us to the critical question: how much excessive premium is there left to work down?

It is a complicated task to determine when the markets are fundamentally overbought or oversold – especially in the time frame of just the forthcoming week. There has been a move to deflate risk in the capital markets for approximately three weeks now; and the progress that some benchmarks (like the Dow) have made is very modest compared to the initial buildup. For this reason alone, it is reasonable to assume that a natural retracement can develop for a considerable time. However, for the dollar, the currency has already retraced more than 50 percent of its losses against the euro since its early-December reversal. As long as the risk aversion trend maintains its momentum, the greenback will benefit; but the amplitude of the currency’s move can diminish. A market flow reason for this is that the market may be comfortable in reinvesting in safe havens other than the US dollar and Treasuries. Another factor in this move is that carry positions that were funded using the US dollar (which has the lowest three-month Libor rates among its major peers) are being unwound and capital is being repatriated to the US. In near-term, the bearing on sentiment will depend on the catalysts available and the ease in developing trends. The focus will remain on big-ticket concerns like sovereign debt risk, efforts to curb speculation and the focus on potential points of systemic risk. And, with a relatively light scheduled docket, there may be little standing of the way of such trends.

The dollar’s broader trend will be defined by the general quality and direction of risk appetite; but in the end, this will be developed through the unpredictable nature of group fear and greed rather than any definable economic indicators. Among the few definable drivers that can have a meaningful effect on the sense of risk appetite for the global markets are the first readings of 4Q GDP numbers for the European region and Fed testimony on systemic risks. Other scheduled indicators like the advanced retail sales report, University of Michigan consumer confidence survey and trade balance will likely play a reduced role with short-term volatility.

Obama’s Glass-Steagall2

Posted by Dennis Ariens at 12:21 pm

After President Obama’s dramatic speech yesterday on banking reforms, the tremors are still reverberating through financial markets. US indices took the brunt of the impact yesterday afternoon, and in the FX space, the JPY is still elevated against the USD and other crosses.
However with a high degree of uncertainty still surrounding specific details; whether these sweeping changes can be passed, and how they will be implemented, the European markets have actually performed extremely well considering.
The FTSE is, at the time of writing, marginally higher on the day, with the DAX and SMI indices only sustaining moderate losses (down less than half a percent).
If Obama’s proposals are indeed enacted in the spirit of Glass-Steagall as feared, the consequences for large US banks like JPMorgan would indeed be severe. But already the doubts are creeping in that this may not be seen as the best approach; sources quoted by Reuters suggested Treasury Secretary Timothy Geithner has expressed reservations over the proposed bank limits and its economic implications, and that he wanted to limit risk-taking but not necessarily break up banks. For now we will be left with a period of uncertainty until further details are supplied, and with no data releases due this afternoon, FX markets may be erratic and nervous as traders stew over their interpretation of how this reform plan will play out.

Forex Trading: USD against major currencies

Posted by Byung Koo at 3:12 am

Tomorrow biggest news event of every month. NFP(Non-Farm Payrolls), Wednesday we saw an worse drop in jobs in ADP report.

The U.S dollar trading this week in a small range against major currencies, except Australian dollar who rally since the beginning of the week. What we could expect next week for the U.S dollar?

We will see a stronger U.S dollar next week and it will start Friday after the numbers. Because it’s very unclear where the U.S economy stands, the number will be bad or good. Analysts expectations are 0k. The number implicate that they even don’t know. Two scenarios:
What’s gonna happen in U.S dollar if we get another surprise and let’s say the number is + 25k-50k. First move in the U.S dollar is down against major currencies. People believe in more risk appetite but after the news settled the U.S dollar will start to rally because the expectations in rate hike later this year will raise fast. The movement will hold and even rally more next week.

Different scenario, bad numbers like Wednesday, like -50k-100K. The same patron will follow as above but on other reasons. First move in the U.S dollar will be down, because investors/traders see a bad number about U.S economy, so last number was one surprise not more, no continuous. This movement should also be covered by a rally in dollar because the stockmarkets will going down rapidly and investors buy the dollar, investors look for safe haven currency and downgrade risk appetite. This movement will start later than first scenario, because often you will see stockmarkets will hold steady on Friday trade, but for sure next week the U.S dollar will rally more than in first scenario.

Trade with smaller lots sizes than normal, because the movement after NFP are big for sure. First important number of the year 2010, so look out and trade carefully.
For exactly levels to take position is hard to say but few examples.
EUR/USD key level to take short positions: around 1.4550 if EUR/USD in range of 1.43-1.44 before numbers. Would EUR/USD stands before numbers like 1.4450 or higher, take short position at around 1.4650. Main key level in EUR/USD and also major resistance level is 1.47. Mulder Currency Fund would trade on the short side but main key level and support level is in EUR/USD around 1.4175, break this level we will see 1.40 very rapidly.

For many investors in other major currencies against the U.S dollar the movement will be more volatile. GBP/USD trade right now around 1.60. Go short on 1.6250 and main support level is 1.5800. USD/JPY shortposition at 93.50-94 and support level at 92.

After the numbers their will be also a big movement in other currency pairs, major movement expected in GBP/JPY and EUR/JPY.
Different story, Yen is last week ultra-weak, so if the NFP are better than expected, big movement up and not with 100 pips, maybe 300 pips.
Key resistance level and Mulder Currency Fund take short position in EUR/JPY at 136.00 and for GBP/JPY 151. Sometimes I think by myself I put my order too high, no fill but for sure after few secondes after NFP numbers I happy I put that order. For all traders if you trade well and love the volatility in the currency markets, you could earn a lot of money in one hour. Sometimes the same money what you earn in the rest of the whole month.

So please trade careful!

Forex Trading: EUR/USD 2010

Posted by Byung Koo at 12:01 pm

In 2009 the U.S. Dollar dropped against other major currencies. From safe-haven currency to carry trade currency. From 1,2450 in March to 1,5150 in December. Back to 1,25 in 2010 it won’t happen I guess but only way for the U.S. Dollar is up against the euro. My prediction for end 2010 EUR/USD is 1,35.
Reasons for this, the FED is no longer implementing quantitative easing. Economic growth in the United States is likely to have a positive impact. EU suffer of deficit problems in more countries in 2010. Volatility in financial markets(mostly down) will investors boost the dollar.

For long term investors in currencies:
Short levels
1,4698, 1,4845en 1,5034
Buy levels
136,54, 1,3350, en 1,3152

2010 U.S. will lose their triple-A status

Posted by Mulder Venture at 10:57 am

The Big Trend

Excessive government spending causes foreigners and even our own citizens to continue to shun the dollar, which will continue to decline through 2010. China will begin to let the yuan appreciate, probably with an informal peg to a basket of competitive exporters. The yuan’s appreciation will export inflation to the U.S., not only in the obvious end-products, but also in the form of parts that are manufactured in China and used in assembled products here in the U.S.

Most economists expect inflation to remain flat due to high unemployment. Unemployment will likely remain around 10%, but it is normally around 5%. The dollar’s further devaluation (which by definition, is inflation) coupled with China’s appreciating yuan, will cause inflation here at home, long before most believe.

The Misplaced Assumption

The general assumption for interest rates is that they will remain low throughout 2010, with the Fed raising around mid-year. I expect the Fed to keep the funds rate near 0% through the end of the year and will likely use every arrow in his quiver to keep long-term rates low, at least until the end of April when the current “first-time” home buyer tax credit expires. Upon exhausting what can be done by the Fed, I expect the yield curve to steepen, with the 10- & 30-year Treasury yields rising sharply. Expect the 30-year yield to close above 6.5%.

The Watch List

Watch gold to rise above $1,500 during 2010. Miners, food and clean-water companies will have a good year. Especially companies selling products to the Chinese government or to the growing Chinese middle-class, regardless of the company’s domicile. People who stand to have a good year will likely consist mostly of conservative candidates come next November.

The Bold Prediction

Great Britain’s government debt, followed by U.S. Treasuries, will lose their triple-A status. Heavy deficit spending by Washington will continue to drive the dollar down as more countries and investors become concerned that the U.S. will not be able to pay debts through taxation or budget surpluses. As Treasury rates begin to rise, so will the deficit, both through the government’s overspending and due to the increased interest rate expense on current debt. The expectation, first with investors and then with rating agencies, will become one where the U.S. turns on the printing press. Expect AA+ by end of year.

G20 Comments on Currency Prices

Posted by Mulder Venture at 4:13 am

In the aftermath of the G20 meeting it seems that policy makers are still clearly disturbed about the state of exchange rates. In the last few days we have heard choirs of high profile complaints against currency strength. With the EURCHF trading around the 1.5100 level, markets should be focused on the recent SNB comments, which forcefully defend action (not a “beggar-thy-neighbor” strategy) while staying committed to their current interventionist policy.In Canada, BoC Governor Carney reiterated that long term persistent strength of the CAD would be negative for the Canadian economy and prolong soft inflation figures.

While yesterday ECB’s Trichet and Nowotny both said a strong USD is “important” for the global economy. Perhaps the most interesting, while confusing, would be the comments from Japan. Overnight new Minister of Finance Hirohisa Fujii seems to be backtracking from recent comments and now has expressed some displeasure at JPY moves but also declined to commit to intervention, stating the market had twisted his earlier statements. In the last 24hr Fujii has said “We are watching FX moves closely” and “FX intervention is possible under extreme circumstances.”

On the other side, Prime Minister Hatoyama stated that the JPY rise is already hurting small companies, hinting that the new government will probably not permit the Yen to appreciate forever. Sounds like the historical goverment policy of a weak JPY is returning.

These comments have created considerable distortion in the FX markets and traders would be advised to watch out for continued verbal intervention. Wall Street was able to close on a high note and for the most part Asian regional indexes follow (lone exception Shanghai -0.21%). The rally in risk appetite feels light with only a slight rebound in risk correlated trades. Yesterday’s economic calendar was light, while today we have couple of releases, which could move the markets. The UK Q2 GDP turned out to a nonevent, printing at -5.5% y/y vs. -5.4% exp, -0.6% q/q vs -0.6% exp.

And from the Eurzone September’s increase in economic sentiment to its highest level in a year is another good sign that the domestic economy continues to recover. Economic sentiment, jumped to 82.8 from 80.8 , a touch higher than expected . From the US we’re awaiting S&P/Case-Shiller Composite-20 Y/Y Jul house price index and the consumer confidence for September.