Wednesday, April 13, 2011

FOREXYARD: Forex News Blog

FOREXYARD: Forex News Blog

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Sweden Cutting Taxes in 2012; Raising Capital Requirements for Banks

Posted: 12 Apr 2011 08:51 AM PDT

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The Swedish government announced Tuesday that it would initiate a new round of tax cuts in 2012, to be finalized in its autumn budget this year. Officials have stated, however, that this measure will be done incrementally and cautiously so as not to push growth too far too fast and cause a burnout.

The dynamic growth of the Swedish krona (SEK) has no doubt aided this measure, but Sweden's overall economic health is the main reason behind the move.

In a joint statement published in Dagens Nyheter, the leadership of Sweden's four government parties argued that "Growth is high, public finances are strong and unemployment is falling. That gives us room for reforms."

Sweden will be lowering the threshold for state income taxes, as well as reducing pensioner taxes and VAT charges at restaurants.

The government leaders also noted how "there is a risk that recovery will be disrupted by the development of imbalances." Among the counterbalances to these tax cuts will be an increase to capital requirements for Swedish banks, in order to quell the rapid growth in the housing sector, and tougher rules on financial operations.

Swedish Finance Minister Anders Borg has repeatedly stated that Sweden should crack down more on their banks' exposure to neighboring countries, especially given the downturn SwedBank and SEB experienced during the recession because of their overexposure to the Baltic States.

Sweden's government leaders persistently state that strong public finances are the main goal of these reforms and that their European neighbors are acting irresponsible for running up soaring deficits.

US Retail Sales to Sustain USD Gains

Posted: 12 Apr 2011 08:30 AM PDT

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The sudden turn to safe-havens by investors since last Friday has helped currencies such as the US dollar and Japanese yen make gains against most of their currency rivals. Tomorrow's retail sales reports out of the United States may help the greenback hold on to a fair amount of these gains in short-term trading.

The US retail sales data has been published with positive results for the past several months, with the lowest figure since last July being released in February 2011. Last month's higher than forecast reading helped the greenback sustain itself amid global weakness in its value. This month's reading, if published as expected, should also help the USD shore-up some of its recent gains.

Core retail sales figures are expected to come out with an identical reading as last month's 0.7% gain, though general retail sales may see less growth than last month's 1.0% reading. Nevertheless, both figures should help the dollar hold its ground until Thursday as short-term and technical traders price in the positive figures.

Canadian Trade Balance Disappoints

Posted: 12 Apr 2011 08:20 AM PDT

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As noted in yesterday's article, the Canadian trade balance data indeed came out lower than forecast. The effect has been a minor ripple across Canadian dollar (CAD) pairs, driving the Loonie lower against a number of its rivals over the past several hours.

The USD/CAD rose from yesterday's low of 0.9544 to a current price of 0.9633. Momentum appears to favor the continuation of the CAD's downturn as well. The GBP/CAD witnessed a similar move, spiking over 150 pips since the publication of the Canadian trade balance data.

The Bank of Canada (BOC) also held interest rates at 1.00%, as expected, noting faster growth than was expected and a surging CAD as the reasons for its decision.

As Canadians gear up for election debates, the nation's finances appear to be more volatile than usual. Some have cited high oil prices and recent global events for the instability, but tensions surrounding the national election, to be held May 2nd, have no doubt fueled a bit of the uncertainty in Canada.

Investors interested in CAD trading should follow these political debates and any additional data out of Canada over the next few days. The CAD may see some interesting movements as the elections get underway.

Euro Rallies on US Trade Deficit Data

Posted: 12 Apr 2011 07:56 AM PDT

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The US trade deficit declined in February and traders took the data as a signal US growth may be weaker than expected, bidding the euro higher as the EUR/USD moved to a new high.

For the month of February the US trade deficit shrank to $45.8B from $47.0B in January. The January numbers were revised up from a preliminary reading of $46.3B. Economists had forecasted the February numbers to show a deficit of $44.1B. The larger than expected gap may be attributed to higher energy costs as crude oil prices rose as high as $100 towards the end of the month. Imports rose at the brisk pace of 5.4%, the largest climb since 1999.

When factoring out inflation as is the measure for GDP numbers, the data shows the deficit shrank to $49.5B from $50.3, indicating Q1 growth may be on the light side of forecasters' range. However, next month's report may see a decline in the trade deficit as the effect of a weakening dollar may boost US exports with dollar priced goods relatively cheaper versus their international competitors.

Traders took the opportunity to bid the euro higher, pushing the EUR/USD above the 1.4500 level for the first time since January 2010. The strong bids for the euro were seen despite disappointing German economic confidence as shown by the ZEW Sentiment. The survey posted a decline to 7.6 from last month's reading of 14.1 in March. Forecasts were for a decline to only 11.7. Increasing commodity prices were cited for the pullback.

Strong bids for the 17-nation currency have been predominant as US central bankers have strengthened their resolve to carry out the full QE II program as highlighted by comments from FOMC member Janet Yellen.

Yesterday's pullback in risk only brought temporary gains for the greenback as Japan signaled a further deterioration in earthquake damaged nuclear reactors. As the risk on trades stay at the forefront of asset managers' portfolios, the euro should stay bid.

Initial resistance for the EUR/USD rally should be the January 2010 high at 1.4580. This is a level that coincides prior to the beginning of the Greek debt crisis A close above this level, specifically on the monthly chart will be extremely beneficial to upside momentum and would set the stage for a rally to the November 2009 high at 1.5140. To the downside, the rising trend line off of the January low comes in at 1.4200 today.

UK Inflation Figures Come in Below Expectations

Posted: 12 Apr 2011 05:35 AM PDT

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At lunchtime during the European session the pound was trading lower following slowing inflationary pressures which may influence economists' expectations for British interest rate increases.

British CPI y/y came in below forecasts at 4.0% as a majority of economists predicted an increase of 4.4%. Lower than expected food costs were one reason for the slower price increases. The price data had traders selling the pound following the release as the deceleration of rising prices may influence economists to scale back their expectations for an interest rate increase by the Bank of England. Previous forecasts were for an adjustment to the base lending rate in May but due to the slower gains in prices an interest rate adjustment may be pushed back until August.

The GBP/USD traded as low as 1.6226 from yesterday's high of 1.6425 and traded back at 1.6284. Today's low looks to be set as traders may have found an opportunity enter long following the pullback on the initial knee jerk reaction from the data release. Yesterday's high stands out as a good first target with 1.6460 on an extension.

The euro was trading higher at 1.4466 from 1.4391 after traders shrugged off disappointing German ZEW Economic Sentiment. The EUR/GBP is up at 0.8882 from 0.8834 with resistance at 0.8940. A close above this level would then target last March's high at 0.9150.

This afternoon is full of data releases with US trade balance numbers at 12:30 GMT and the Bank of Canada Overnight Rate announcement at 13:00. Strong US trade balance numbers could feed into further dollar selling. No adjustment is expected by the BOC but traders will be following the accompanying statement for signs of rising inflationary pressures or hints of monetary policy tightening.

USD Unlikely to Extend Gains with Trade Balance Figure

Posted: 11 Apr 2011 10:26 PM PDT

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Yesterday saw a mixed trading session for both the USD and CAD. While both recorded gains against the British pound throughout the day, the yen was able to develop serious bullish momentum in overnight trading, and took in well over 100 pips profit on each of the North American currencies. Today, traders will be paying close attention to both Canadian and US trade balance figures, as they are likely to determine the short term trends for both the loonie and greenback.

Here is a roundup of the day’s main news events:

12:30 GMT- Canadian Trade Balance

Analysts are forecasting the Canadian Trade Balance figure to come in at around 0.6B. If true, it would represent a stark increase over last month’s figure of 0.1B. The CAD could see a jump in afternoon and evening trading today as a result of this indicator, in particular against its main currency rivals the euro and US dollar.

12:30 GMT- US Trade Balance

The US Trade Balance figure is forecasted to come in slightly better than last month’s result. Analysts are calling for a number around -44.1B, as opposed to March’s figure of -46.3B.

While the prediction does represent an improvement, it is unlikely to help the dollar as it still shows the US importing significantly more than it exports. Unless the figure comes in well above expectations, the dollar is likely to see a drop following the release of this report.

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