Tuesday, April 26, 2011

FOREXYARD: Forex News Blog

FOREXYARD: Forex News Blog

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Turkey Pressured to Hike Rates or See TRY Depreciate

Posted: 25 Apr 2011 08:30 AM PDT

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Last week's statement by Goldman Sachs that the Turkish lira (TRY) will come under selling pressure if the Turkish central bank doesn't hikes rates has begun to see results. Advising its clients to hold long positions on the USD/TRY, Goldman Sachs' strategy appears to be creeping across the forex world and the pair has indeed moved bullish since Friday.

The Central Bank of the Republic of Turkey is scheduled to meet this Thursday to discuss its monetary policy and bank regulations. Goldman doesn't expect the bank to hike its rates beyond their current 6.25%, nor to adjust capital requirements for its banks.

As a result, many are joining the chorus and recommending long positions against the lira as part of their short- and mid-term portfolio. Should the central bank raise rates, the TRY's strength may return. But for now a downturn is expected.

Turkey has always battled with what world it belongs to, the Middle East or Europe. With the growth prospects in Europe and the recent rate hike by the ECB, Turkey would need to follow suit to keep pace with its northerly neighbors. But the Middle East is in turmoil and the region's currencies are under significant pressure. To keep its goods competitive with its southerly neighbors a weakened currency will be required.

This Thursday's meeting will be a clash between those who view Turkey a part of Europe and those who view it as a part of the Middle East. With Turkish Prime Minister Recep Tayyip Erdogan leaning towards its Arab neighbors to the south, a Turkish policy in favor of holding rates steady and weakening its currency may be expected, thus depreciating the TRY over the next several weeks.

USD Corrects Upward after Housing Data

Posted: 25 Apr 2011 08:04 AM PDT

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Today's better-than-forecast results from the US New Home Sales report has helped to reaffirm the USD's position via its Atlantic rivals. Last week's Existing Home Sales report came at a time when risk sentiment was in a delicate position and thus represented something different than today's figure.

Today's view from traders is to find something to cling onto in order to hold their USD a bit longer amid market turmoil.

After pushing beyond the 1.47 mark temporarily, the EUR/USD now appears to be correcting downward as dollar traders buy back into their positions with more force in the short-term.

The opening of the US market, which is not closed for the Easter holiday today, has also bolstered market liquidity, assisting the movement of the major currencies out of their tight ranges from last week's thin trading.

The solidity of the greenback is on trial this week. The calls for a broad sell-off among speculators have never been stronger than these past several weeks. The S&P downgrade of their outlook for US debt is one factor fueling this vitriol; monetary policy differentials are another.

So long as the US economy continues to publish reports of solid, positive growth the USD may continue to find reasons to correct upward against its main currency rivals.

Euro and Pound Rising on Interest Rate Differentials

Posted: 25 Apr 2011 06:07 AM PDT

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In a slow European trading session the dollar is once again its back foot and trading lower versus the majors. Today's FX trading is quiet with light volatility as many institutional trading desks are operating on a skeleton staff over the long Easter weekend. US home sales are the lone data piece up this afternoon in the New York trading session.

Interest rate differentials appear to be the driving factor in the dollar's demise. The spread between the 2-year German Bund and the 2-year US Treasury bond is trading at a difference of 110.6 bps in Germany's favor today.

Despite the rumors, a Greek default has not taken place over the holiday and the market continues to put a fence around the countries at risk (Greece, Portugal, Ireland), while focusing on yield differentials in Europe and the US.

The US deficit is also taking center stage with last week's announcement by S&P to put the US credit rating on a negative watch. A combination of rising European rates and a bloated US deficit should allow the EUR/USD to continue its bullish trend and test the 2009 high at 1.5140.

Continued euro gains would also benefit the pound given the strong correlation between the EUR/USD and GBP/USD (0.80 from January 1 to mid-April) The BOE is also expected to raise interest rates in the near term. The spread between the UK 2-year and the US is currently at 41 bps. The 2009 high at 1.7040 would be a likely target for the GBP/USD.

US New Home Sales May Boost the Dollar

Posted: 24 Apr 2011 11:27 PM PDT

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Traders can expect a light trading day today, as the Easter holiday has resulted in the closing of European markets. Still, news out of the US may impact dollar pairs in afternoon trading. The greenback has tumbled against its main currency rivals over the last several weeks. Positive news may help give the currency a short term boost to start off the week.

Here is a roundup of today’s main economic news:

14:00 GMT- US New Home Sales

Analysts are predicting the number of new homes sold in the US increased over the last month to 280K. Should the figure turn out to be true, it will likely be seen as evidence of further improvements in the US economy and may give the dollar a short term boost. At the same time, traders should be aware that a worse than expected figure may take the dollar below its current record lows against its main currency rivals.

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