Forex Online Resource

Euro Goes Down, Yen Strengthens as Stocks Pared Gains

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:17:00 +0000

The euro fell for the first time since May 7 against the U.S. dollar, while the Japanese yen rose against all other major currencies, as the European stock markets failed to demonstrate a commitment to move farther up.

Euro consolidating inside a triangle

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:15:00 +0000

Consolidating inside a triangle clear in the hourly chart, 20 SMA has turned to the downside, acting as dynamic resistance for the pair, now around 1.3595. Base of the consolidation lays around 1.3555 first static support for today that if broken will discard the figure.

“Candle opening above the descendant line, now around 1.3595 will confirm the continuation figure, triggering further rises in the pair.”

USD/JPY breaks below 97.95

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:14:00 +0000

As expected, USDJPY breaks below 97.95 support and reaches as low as 97.13 level. Deeper decline to 96.50 to reach the next short term cycle bottom on 4-hour chart is possible.

“Initial resistance is at 97.75 and key resistance is located at 98.50, above this level will indicate that a short term cycle bottom has been formed and the fall from 99.64 has completed,”

GBP/USD Current price: 1.5109

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:14:00 +0000

GBP/USD Current price: 1.5109. Pair continues moving between 1.5080/1.5180 zone, but turning slightly bearish in the hourly chart. Indicators also turned to the downside, or lost bullish momentum even in bigger time frames, suggesting chances of a downside continuation.

First static support will come at the 1.5090 zone, where we have a short term ascendant trend line coming from 1.4942 low. “However, bigger support lies not at 1.5060, longer and stronger ascendant trend line in the daily,” said Valeria Bednarik, collaborator at FXstreet.com. Clear break under that zone, will bring more downside pressure for the pair.

Euro GDP could tumble on Q1

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:13:00 +0000

Despite the lack of macroeconomic events during American session, volume remained high most of the day, following stocks swings. Wall Street fell after confidence tumble, turning European currencies to correction move after past week rally.

Minor data published earlier in the euro zone, has turned into a key factor for the most traded currency of the world: early Tuesday, French and Italian Industrial Production slumped to record lows in March, suggesting euro zone economic contraction in these first three months of the year could be the worst on record. Italian industrial output fell 24%, while French industrial production fell 16% over the past month. Euro zone GDP for the first Q1 to be release next May 15, is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such reading will indicate that recession continued deepening this first quarter of the year, and could probably signal losses ahead for Euro.

Wall Street fell on profit-taking; Dollar rose across the board

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:13:00 +0000

Markets in the U.S. fell today from a 4-month high and the dollar strengthened across the board. Dow Jones ended at 8418 points; a fall of 1.82%. Nasdaq and S&P fell 0.45% and 2.15% respectively. Dollar recovered part of last week losses. Greenback recovered strength after the closing bell in Wall Street and started to head toward today’s highs.

EUR/USD after fighting at 1.3600 fell broking support at 1.3580. Current price is 1.3474 down 0.58% from opening price. Next support zone lies at intra-day low at 1.3555 next level to consider is 1.3535.

The pound also weakened to the dollar for the day. During the American session GBP/USD was able to recover part of early losses but failed to break resistance at 1.5170 and has fallen since then. Actual price is 1.5103. So far today GBP/USD falls 0.83%.

USD/CHF rose today after reaching a new 4-month low at 1.1020 during the Asian Session. The recovery of dollar against the Swiss Franc reached an intra-day high at 1.1104 near current price. The pair is now testing resistance zone at 1.1105.

The dollar also got stronger against commodities currencies. AUD/USD fell below 0.7600 after moving in a downtrend all day. USD/CAD rallied today from 5-month lows at 1.1460 to 1.1672.

Pound Sterling Trends Downward as BOE Expands QE

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:11:00 +0000

The Pound is holding its own against the USD, even touching a four-month high last week. But against other major currencies, the story is just the opposite. While managing to avoid parity against the Euro, for example, the Pound has nonetheless remained range-bound against the common currency. The Australian Dollar, meanwhile, has risen to $2 against the Pound for the first time in 13 years.

How to explain the stagnation of the Pound? It depends on which currency pair you look at. Against the Dollar, the narrative remains one of risk aversion; when stocks rise, so usually does the Pound. “The U.K. pound is joining other currencies in beating up on the dollar,” announced one analyst on a day that stocks and commodities rallied broadly. The Pound has also been able to hold its own against the Dollar because both currencies’ Central banks have embarked on similar quantitative easing plans, which could prove equally inflationary in the long run. [Chart courtesy of Economist].

In fact, the Bank of England just announced a huge expansion in its program, increasing total debt buying (i.e. money printing) by $50 Billion. One analyst summarized the impact of this announcement on forex markets as follows: “The Bank of England’s aggressive stance with regard to quantitative easing is adding to concern about the economy and that is negative for sterling.” Not much nuance there….

In fact, this is especially bad for the Pound against the Euro, where a juxtaposition of the Central Banks’ respective approaches to the credit crisis reveals stark differences: “The weakness in the pound suggests the market is drawing a contrast between the ECB, which seems to be dragging its legs on quantitative easing, and the BOE, which is still ‘full-steam ahead.’ ” Where the ECB is providing liquidity indirectly in the form of swaps and guarantees, the BOE is printing money and injecting it right into capital markets.

“Mervyn King, governor of the Bank of England, has said the exit strategy will be dictated by the outlook for inflation and that central banks should not support markets that cannot survive on their own,” but investors remain skeptical and for good reason. “Britain will sell a record 220 billion pounds of gilts this fiscal year, 50 percent more than last year.” Based on the fact that yields have risen for four straight weeks (against the backdrop of the first “failed” auction ever for UK government bonds), there is doubt that the government can finance its deficits.

The BOE continues to be roundly smacked with criticism, for its role in fomenting the credit crisis and in not adequately responding to it: “It happens that in the early years of inflation targeting, it did produce a stable economy. But I think it’s now clear that it can’t, by itself, produce a stable economy,” argued one commentator. Unemployment rates in the UK remain at frighteningly high levels. The government’s own economists (which aremore optimistic than third-party forecasts) forecast GDP at -3.5% for 2009, with a modest recovery in 2010. Of course, these forecasts should be taken with a grain of salt, as they hinge on the crucial assumption that the BOE’s interest rate cuts and quantitative easing plan will soon trickle down through the economy, proof of which has still not been observed.

As a result, I’m personally between neutral and bearish for the UK Pound. For as long as stocks continue to rally, investors will remain Adistracted. If and when the rally loses steam (I am skeptical that the rally is sustainable), they will quickly turn their attention to comparative economic and monetary conditions; suffice it to say that Pound won’t stack up well.

WisdomTree Unveils New Multi-Currency ETF

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:11:00 +0000

On Wednesday, the latest addition the Wisdom Tree family of currency ETFs officially debuted, and in its first two days of trading, the Emerging Currency Fund (CEW) returned an impressive 2.2%. It’s not worth annualizing this figure, but suffice it to say that its performance is already turning heads.

According to the prospectus, CEW “is an actively managed exchange-traded fund that seeks to provide the investor with a liquid, broad-based exposure to money market rates and currency movements within emerging market countries.” Investors will gain exposure both to the currencies themselves and to their respective short-term interest rates, via “short-term U.S. money market securities and forward currency contracts and swaps of the constituent currencies…designed to create a position economically similar to a money market security denominated in each of the selected currencies.”

Chosen from three regions (Latin America, Africa/Europe/Middle East, and Asia), the inaugural 11 currencies are as follows: Brazilian real, Chinese yuan, Chilean peso, Indian rupee, Israeli shekel, Mexican peso, Polish zloty, South African rand, South Korean won, Taiwanese dollar and Turkish new lira. According to WisdomTree, these currencies were selected not necessarily for economic reasons, but rather because of their relatively high liquidity and low correlation with each other. In addition, “The selected currencies are equally weighted in terms of dollar value at each currency assessment date and after each quarterly re-balancing,” to reflect fluctuations in exchange rates. Naturally, WisdomTree reserves the right to rejigger the portfolio in terms of constituent makeup, but this would probably only be effected to improve overall liquidity, rather to replace an under-performing currency.

The advantage of CEW lies in its automatic diversification, such that investors gain access to a variety of currencies but only have to transact in the fund itself. WisdomTree also points out that, “Emerging market currencies often move independently of domestic stock, bond and money market investments…[and] exhibit low correlations to other alternative asset classes, such as commodities and gold.” The chart below [courtesy ofCEW promotional materials] makes this point indirectly, and it probably comes as a surprise that US stocks are collectively more volatile than individual emerging market currencies. “Incorporating a 10% allocation of emerging currency into balanced portfolio mixes of the domestic stocks and domestic bonds over the last ten years…raised annual returns by an average of 0.66%, while lowering overall portfolio volatility” in a hypothetical exercise.

“In terms of taxation, WisdomTree says normal capital gains rules will apply to the sales of fund shares. However, income from the portion of the fund invested in U.S. money market securities usually will be taxed as ordinary income, while the tax treatment of the local currency forward contracts could vary with the situation.” The fund’s expense ratio, meanwhile, is .55%.

If the preceding paragraphs read like a sales pitch, I apologize, as that was not my intention. At the same time, I’m personally quite positive about CEW (as well as ETFS in general, for that matter), since it provides quick and easy exposure to a bunch of quality currencies, eliminating the need to buy them separately. Not to mention that this fund is debuting right when both the carry trade and emerging markets (and their currencies) are coming back in vogue.

I’m not sure if the timing was deliberate, but it could certainly have been worse. It’s tough to say whether the market rally of the last two months is sustainable, but if the decline in risk aversion that ignited the rally continues to obtain, it will be good for CEW.

Swiss National Bank Renews Threat of Intervention

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:10:00 +0000

When the Swiss National Bank (SNB) announced oln March 12 that it would intervene in forex markets for the first time since 1994, the Franc immediately plummeted up to 5% against select currencies. Since then, the currency has largely clawed back some of its losses, prompting talk of round two: “Speculation about animminent intervention in the foreign-exchange markets was rife…after the euro fell to CHF1.5031, the lowest level seen since March 12 when the SNB began selling Swiss francs against euros.”

It was unclear whether the Central Bank had chosen a magic threshold, such that a rise by the Franc above which would trigger a sale of Francs in the open market. Earlier in the week, one analyst asserted, “With the euro/franc exchange rate almost at pre-intervention levels - the euro jumped to a level above CHF1.52 after the SNB intervention in March from CHF1.4843 before the announcement - the stage is set for the SNB to either put up or shut up.”

Sure enough, both the Chairman of the SNB as well as a board member both announced yesterday that the campaign to hold down the the Franc is still in effect, and will soon enter a new phase. Thus far, the Bank has relied on various forms of quantitative easing to deflate its currency, both through direct currency transactions and purchases of bonds. The goal of such quantitative easing is only proximately to deflate the Franc; the ultimate goal is to ward off deflation. Given that the Bank had already lowered its benchmark interest rate close to zero, manipulating its currency was/is one of its few remaining options. “As long as the environment does not improve and as long as deflation risks are visible in our monetary policy concept, we will stick to this insurance strategy resolutely,” said Chairman Jean-Pierre Roth.

As the economic recession takes hold, the Swiss economy is forecast to contract 3% in 2009, but to grow in 2010. Consumer sentiment has fallen to the lowest level since 2003. Inflation, meanwhile is projected at -0.5%; deflation, in other words. Still, Switzerland maintains that its motivation is not to boost the economy, but only to increase monetary stability. National Bank governing board member Thomas Jordan “reiterated the interventions have nothing to do with a beggar-thy-neighbor policy, a strategy to weaken a country’s currency to improve the situation for domestic exporters.”

Given that forex intervention is usually doomed to failure, the SNB must rely on a combination of luck and improved fundamentals to keep the Franc down. Thus, when the next round of intervention was announced yesterday, the Franc fell by a modest .75% against the Euro, as investors largely shrugged of the news. Fortunately, the initial pledge to intervene coincided with a pickup in investor sentiment, and decline in risk aversion. This has reduced demand for the Swiss Franc, which had previously been bid up as a so-called “safe haven” currency. As long as the stock market rally continues, investors will stick to higher-yielding currencies and the Franc should be “safe.”

Australian, New Zealand Currencies Benefit from Risk Aversion

noreply@blogger.com (Manzoor Majeed) — Tue, 12 May 2009 06:07:00 +0000

Against each other, the New Zealand Kiwi and Australian Dollar have traded in a pretty tight range for the last year (except for a “blip” in the fall of 2008). This makes sense, as both currencies rise and fall in accordance with exports and interest rates.

Against other currencies, meanwhile, both have torn upwards in the last couple months. Despite steep interest rate cuts, both currencies have maintained their interest rate advantages against other industrialized currencies. This has not gone unnoticed, and the return of the carry trade has been kind. “The current improvement in sentiment is providing an underpinning of support and while that remains the case - and that may be until midyear - the New Zealand dollar is going to remain well-supported,” said one economist.

The correlation between the New Zealand Kiwi, specifically, with the US stock market has become remarkably cut-and-dried of late, which you can see from the chart below. For carry traders, therefore, it probably makes more sense to follow stock market commentary than to track New Zealand economic data. The same economist, for example, warned “that the equities rally, which has seen the broad U.S. Standard & Poor’s 500 index climb 36% from its March low after rising another 3.4% Monday to its highest since Jan. 8, may be dissipating.”

Besides, given the deteriorating economics in both countries, lower interest rates are probably inevitable: “We think this case for further cuts will be made in the second half of this year…we think it will be very difficult, no matter what the global economy is doing, for the RBA to ignore rapidly rising unemployment,” offered one analyst who predicted that rates would be cut to a “trough of 2%.” In such a scenario, the interest rate spread would still remain healthy, but perhaps not enough to offset the additional risk.

Australian home prices are falling at a rapid clip, the labor market is sagging. In New Zealand, meanwhile, a decline in sentiment and consumer spending has corresponded with a 1% contraction in GDP in the quarter ended March 31. Tourism is down, although net exports are increasing. The current account deficit continues to expand, but this is mostly a product of an investment balance - perhaps related to the carry trade.

For now, forex traders remain optimistic, albeit slightly less so than before: “The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop — so-called net longs — was 16,692 on April 28, compared with net longs of 17,250 a week earlier.”

US Initial Jobless Claims drop bu 34K to 601K in May 2 week

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:13:00 +0000

US Initial Jobless Claims drop 34K to 601K in May 2 week

Looks like US is dealing with the recession quite well.

Forex: EUR/USD: Euro reaches intra-day high at 1.3380 after ECB monetary policy decision

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:13:00 +0000

The Euro has reached a new intra-day high at 1.3380 after the ECB released its monetary policy decision, from levels around 1.3300 moment before the Bank´s release.

If the Euuro manages to hold above 1.3375 (May 6 high), next resistance level might lie at 1.3435 (May 5 high) and 1.3460/65. On the downside, support levels might be at previous intra-day high 1.3345 and below there, 1.3290/1.3300 and 1.3255/45 (intra-day low/may 6 low).

EUR/JPY has rally from 130.70 has extended after ECB decision to levels right below 132.80/90, May 4 and 5 high. Resistance levels lie at the mentioned 132.80/90, and above there, 134.33. Support levels lie at 132.40 and 132.00.

Forex: EUR/GBP rise above 0.8860 after ECB Cuts Benchmark Interest Rate

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:13:00 +0000

EUR/GBP has reacted up after the ECB monetary policy decision, the pair has risen around 40 pips from 0.8825 to 0.8865 after the ECB cut its refi interest rate from 1.25% to 1.00%, the lowest level. Currently the pair is trading around 0.8850/60, 0.80% above today's opening price.

The European Central Bank Monetary Policy Committee has decided to trim its key interest rate by 25 basis points to 1.0% after its May monetary policy meeting.

ECB cuts Refi Rate by 25 bps to 1.0%; Euro jumps to intra-day high

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:12:00 +0000

The European Central Bank Monetary Policy Committee has decided to trim its key interest rate by 25 basis points to 1.0% after its May monetary policy meeting.

The European Central Bank, as usual did not give any further explanation, so all the eyes are set on the press conference Mr. Trichet will hold later at 12.30 GMT.

EUR/USD has broken intra-day high jumping from levels at 1.3300 to levels above 1.3360, approaching May 5 high at 1.3375, immediately after the Bank published its decision.

Forex: EUR/GBP rises above 0.8820 after BoE monetary policy decision

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:12:00 +0000

The EUR has won around 65 pips against GBP after the BoE released its decision
of hold unchanged its interest rate at 0.50%, decision was in line of expectations. EUR/GBP climbed up from 0.8790 to reach 0.8855, intra-day high. Currently the pair is trading around 0.8820/30, 0.40% above today's opening price.

The Bank of England has decided to leave its official bank rate unchanged at 0.5%at its May monetary policy meeting and to continue with the program of asset purchases financed by the issuance of central bank reserves and increase its size by GBP50 billion to a total of GBP125 billion.

GBP/USD: Pound drops to 1.5050 after BoE monetary policy decision

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:12:00 +0000

BoE monetary policy decision has weighed on the Pound which has dropped to afresh intra-day low at 1.5050 from levels around 1.5065 before the Bank released its decision

On the downside, if the Pound consolidates below 1.5070 previous intra-day low, next support level could come at 1.4980/90 (May 6 low); below there, 1.4945 (Apr 30 high). On the upside, resistance levels remain at 1.5165 (May 5 high) and above there, 1.5200 intra-day high and 1.5370.

GBP/JPY has also dropped on the back of BoE’s monetary policy announcement, and the Pound declined from 150.90 to 149.30 although the Pound seems to be picking up to levels around 150.00. Resistance levels lie at 151.50 and 151.75. Support levels lie at 149.90 and 149.60.

Forex: GBP/JPY falls below 149.50 after BoE rate decision

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:11:00 +0000

The Pound has lost more than 100 pips against JPY in the first minutes after the BoE monetary policy decision to hold unchanged its interest rate at 0.50%. GBP/JPY has fallen from 150.50 to reach 149.35. Currently the pair is trading around 149.65/75, 0.30% above today's opening price action.

The Bank of England has decided to leave its official bank rate unchanged at 0.5%at its May monetary policy meeting and to continue with the program of asset purchases financed by the issuance of central bank reserves and increase its size by GBP50 billion to a total of GBP125 billion.

BoE leaves Bank Rate unchanged at 0.5%; GBP plunges

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:11:00 +0000

The Bank of England has decided to leave its official bank rate unchanged at 0.5%at its May monetary policy meeting and to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size by GBP50 billion to a total of GBP125 billion.

The Pound has dropped sharply after the Bank released its decision, from levels around 1.5160, the Pound has lost about 100 pips i a matter of minutes, dropping to levels below intra-day low at 1.5070.

Forex: GBP/USD reacts down after BoE monetary policy decision, below 1.5100

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:11:00 +0000

GBP/USD has reacted down after the BoE decision to hold unchanged its interest rate at 0.50%. Cable has lost more than 100 pips in the first minutes after data decision from 1.5155 to 1.5060. Currently the pair is trading around 1.5070/80, 0.40% down from today's opening price.

BoE leaves its interest rate steady at 0.5%

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:10:00 +0000

BoE leaves its interest rate steady at 0.5%

Looks like that have a strategy for their future all set.

Forex: EUR/USD: Euro reaches 1.3345 intra day high ahead of ECB

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:10:00 +0000

The Euro has appreciated on today’s European trading session, ahead of the ECB monetary policy meeting. From 13250 low, the Euro has reached an intra-day high at 1.3345 to set back later to levels around 1.3320.

The Euro will weaken after ECB publishes its monetary policy: “On a mild recovery path this European morning, the pair is currently trading at 1.3300 from lows around 1.3250. We see some more of this recovery move coming before the ECB’s publication of its monetary policy, but then a turn downwards around the 1.3330 level, bringing the market back to its today’s lows at 1.3250.”

Resistance levels lie at 1.3345/55 area (Intra-day high) and above there, 1.3375 (May 6 high) and 1.3435 (May 5 high). On the downside, support levels lie at 1.3280 and 1.3250 intra-day low, below there, next support could be at 1.3210 (May 4 low).

European markets rise as confidence in Banks return; Euro and Pound, up

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:09:00 +0000

European markets advance at a strong pace on Thursday on the back of Geithner’s affirmations that banks “stress test” conclusions have been more positive than expected. Euro and Pound have risen on European session.

Eurostoxx 50 Index adds 1.75%, while German DAX Index rises 1.71% and the French CAC trades 1.90% above its opening level. In England, London FTSE Index rises 2.25%.

On the macroeconomic side, German Factory orders jumped unexpectedly in March; 3.3% up against a 0.5% decline forecasted by market experts.

Euro and pound appreciate; Yen weakens

EUR/USD has appreciated during European session, after bouncing at 1.3250 intra-day low, the Euro has risen to levels above 1.3300 reaching intra-day high at 1.3344 after the release of German factory orders.

GBP/USD has jumped from 1.5070 low on early European session breaking 1.5165 resistance level, to reach a new 4 month high at 1.5195: At the moment the pair trades at 1.5155 level ahead of the BoE monetary policy decision.

USD/JPY has rallied during European trading times from 98.40 low to 9945 high, to pull back later to levels around 99.20.

Forex: GBP/USD: Pound breaks above 1.5165; fresh 4-month high

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:09:00 +0000

The Pound is picking up strength ahead of the BoE monetary Policy decision, and its rally from intra-day low at 1.5070 has extended above 1.5165 may 5 high reaching levels close to 1.5200, a fresh 4-month high.

Next resistance level remains at 1.5190, and above there, 1.5370 (Jan 8 high) and then 1.5725 (Dec 17 high). On the downside initial support comes at 1.5165 and below there, 1.5100 and 1.5065.

Germany Factory Orders rise 3.3% in Mar, -26.7% YoY

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:08:00 +0000

Germany Factory Orders rise 3.3% in Mar, -26.7% YoY

Looks Like Germany is going to have a good summer this year.

Forex: GBP/USD: Pound returns above 1.5100

noreply@blogger.com (Manzoor Majeed) — Fri, 08 May 2009 07:07:00 +0000

The Pound has strengthened during the European session and, after having bottomed at 1.5075, Sterling has returned to the previous trading range, above 1.5100 approaching 1.5165 resistance level.

On the way up, resistance levels lie at the mentioned 1.5165 (May 5 high) and above there, 1.5190 and then 1.5370 (Jan 8 high). On the downside, 1.5065 (Apr 16 high) and 1.4980/90 (May 6 low); below there, 1.4945 (Apr 30 high).

GBP/JPY recovery from 146.95 low yesterday has extended on European session above 150.00 on rally from levels above 149.00. Next resistance levels lie at 151.50 and 151.75. Support levels lie at 149.90 and 149.60.