FOREXYARD: Forex News Blog | |
- Coffee Prices Hit 34-Year Peak
- Widening Trade Deficit in US Generating Risk Aversion
- Pound Soars After BOE Signals Potential Rate Increase
- US Trade Balance Due as Market Turns to Economic Data
- Late Day Rally in Equities Brings Euro off its Lows
- Swedish and Norwegian Kroner Advance on Growth in Risk Appetite
| Coffee Prices Hit 34-Year Peak Posted: 11 May 2011 10:12 AM PDT
Has your morning cup-o-Joe gotten more expensive lately? Check your online trading platform to find out why. Coffee prices surged to a 34-year high last Tuesday, climbing over $3 a pound before meeting resistance. Coffee prices behave in interesting ways. Whereas many commodities will respond to price jumps with shifts in demand and consumption, coffee behaves more like a narcotic. No matter how high prices go, consumers are still willing to dish out the cash to get their next fix. As a socially acceptable addiction, the caffeine from coffee and resultant energy boost due to its consumption has become a societal norm in the business world among most countries. There will be variations between nations which prefer tea over coffee, but those which down that glass of hot java each morning have no doubt felt the pinch these past several weeks. Recent consumer reports have noted that the price for coffee at most cafés in Europe and the United States have been raised by $0.10 to $0.30 per cup. The size of each price hike was not just associated with coffee, however. Rising sugar prices have also been passed on to consumers since sugar packets are often given as complimentary to coffee purchasers. Look at your online trading platform, today's price for one pound of coffee is $2.75 (coffee prices are reported in US cents/lb.). Now, sugar prices have fallen significantly since touching their recent high of $0.35 a pound, so the relative price of sugar may have less impact than it did three months ago. Nevertheless, rising prices among these basic food-stuffs has caused many morning commuters to dole out additional funds for that energy-granting cup of coffee. |
| Widening Trade Deficit in US Generating Risk Aversion Posted: 11 May 2011 10:03 AM PDT
A shift into safer assets was generated today by bearish reports out of the world's leading economies. Among these figures were the Canadian and American trade balance figures. Canada's trade balance was largely on target with expectations, highlighting a C$0.6B growth in Canada's surplus. The CAD has seen little movement as a result, but traders should feel confident with the Loonie's strength considering these numbers. The American trade balance told a different story, however. With America's trade deficit widening from last month's -$45.4B to this month's -$48.2B, many investors felt insecure about seeking higher yields. Today's data, as such, appears to have caused many investors to seek safer assets like the Japanese yen, Swiss franc, and even US dollar. What a widening trade deficit signifies, moreover, is the inability of American companies to export at previously established levels. With the greenback sitting in a relatively weakened position, American buying power should have diminished, causing the downturn in imports which should have helped the move towards a narrower deficit. This means the weaker buying power has yet to stem the demand by US-based companies for foreign goods. It may also have a correlation with last summer's poor crop yields which may have forced countries with large populations to feed to look elsewhere for food imports. In sum, the USD should see further downticks in order to help boost exports and diminish demand for foreign goods by weakening American buying power. The widening deficit signals that this shift in sentiment towards imports and exports has not yet occurred and will likely have an impact on delaying further interest rate hikes by the Fed, thus holding the USD at its recent low levels. |
| Pound Soars After BOE Signals Potential Rate Increase Posted: 11 May 2011 04:47 AM PDT
Sterling was up across the board after the Bank of England increased its inflation forecasts and signaled it will begin tightening monetary policy vis-à-vis higher interest rates. This should keep Sterling as a bid in the near term versus both the dollar and the euro. The quarterly inflation report from the BOE began the process of mapping out future policy moves to fight rising inflationary pressures. The central bank said inflation will be "markedly higher" due to rising energy prices while growth should begin to slow. Inflation expectations are forecasted to remain above the 2% target set by the BOE for the next two years. To fight rising inflationary pressures which currently stand at 4% from the last reading in March, the BOE anticipates raising the benchmark interest 25 bps in the third quarter this year with an additional 25 bps hike in each quarter in 2012. At this pace the benchmark rate would rise to 1.75% by the end of 2012 from the all-time low and current rate of 0.5%. Despite the upcoming interest rate hikes, the rate of inflation could reach 5% this year. Growth rates should also weaken more than the BOE previously predicted as the recent belt tightening by the British government will weigh on GDP. Combined with higher energy costs, the BOE says growth risks are "skewed to the downside". The market took the announcement as an opportunity to place a bid on Sterling and the pound soared across the board with the GBP/USD rising to 1.6513 from 1.6369 and the EUR/GBP falling sharply to 0.8691 from 0.8795. While the announcement was not shocking to the market as most traders had at least priced in 25 bps of tightening this year, Sterling should remain supported in the near term despite the risks to growth. Markets continue to focus on yield differentials and the Fed is not expected to adjust US rates until mid-2012. Initial resistance for the GBP/USD is located at the April 21st high of 1.6600 followed by the April high of 1.6745. For the EUR/GBP, today's low coincides with the previous trend from the 2008 high which has turned into support. A breach here would test 0.8670 followed by 0.8350. |
| US Trade Balance Due as Market Turns to Economic Data Posted: 11 May 2011 12:27 AM PDT
Over the previous two trading days markets were focused on the Greek debt crisis and tumbling commodity prices. After yesterday's rebound in equity markets and commodity gains, economic data should be the driver for the remainder of the week with the highlight being US inflationary data on Thursday and Friday. Today's Economic Events: GBP – UK Inflationary Report – 9:30 GMT CAD – Trade Balance – 12:30 GMT USD – Trade Balance – 12:30 GMT Crude Oil – Weekly Crude Oil Inventories – 14:30 GMT |
| Late Day Rally in Equities Brings Euro off its Lows Posted: 10 May 2011 12:52 PM PDT
A rally in equities and a rebound in risk appetite helped boost the euro to the 1.4400 level as the 17-nation currency came off its lows from yesterday. In late day trading the S&P 500 rose 0.90% on merger news while commodities were also boosted with spot crude oil rising 2.5%. The surge in equities helped to pull up higher yielding currencies such as the euro which is up across the board along with the Aussie dollar. The EUR/USD rallied to a high of 1.4411 to trade back at 1.4400. The EUR/CHF is up at 1.2687 and traded back to 1.2680 after less than forecasted Swiss CPI. The Aussie dollar rose to a high of 1.0848 and looks to close on its daily high. The pound moved as low as 1.6315 and now trades at 1.6357. The remainder of the week may be data driven leading up to Thursday and Friday's US inflationary data. Beginning tomorrow the BOE Inflation Report will be delivered and higher than expected inflationary pressures would be a catalyst for the Sterling. Resistance is found at 1.4640 with support at 1.6290 off a trend line from the March low. US and Canadian trade balances will also be released tomorrow along with weekly crude oil inventories. Strong US data should feed into USD selling. Despite last week's collapse in the euro rate along with commodities, equities have been constructive. Should further gains be booked in global bourses and barring any debt restructuring in Europe, the euro and crude oil may build on today's rally. |
| Swedish and Norwegian Kroner Advance on Growth in Risk Appetite Posted: 10 May 2011 11:02 AM PDT
The Swedish krona (SEK) advanced today for the first time in five days after investors appeared to be seeking out higher yielding assets. This recent surge in risk appetite was brought about following several positive economic reports out of the region, soft economic data out of the United States, Japan and Switzerland, and from a general stabilizing effect wrought from oil prices hovering near $100. The Norwegian krone (NOK) experienced similar results this morning and afternoon as traders found reason to buy into the commodity-linked currency once oil prices found stability around $100 a barrel. Sweden's krona made a 1.2% advance versus the US dollar with a current price near 6.2410 whereas the NOK moved from its recent low of 5.5364 to its current value of 5.4429. Analysts at Bloomberg have noted that this week's market environment brought with it a surprising level of stability relative to last week, and market fundamentals seem to support the notion that traders are seeking higher yields. The US dollar met resistance at the start of this week following last week's rapid flight to safety which shoved the EUR/USD strongly towards 1.42 from its recent high of 1.49. The result has been for forex traders involved in Scandinavian trading to move en masse towards to the kroner of the region, with Denmark's krone (DKK) gaining the least of the three versus the UDS; a paltry 0.3% since Friday. Credit growth in the Norway has also helped fuel the recent return of strength for the Scandinavian kroner due to its implications for interest rate hikes later this month. While Sweden's Riksbank is set to raise rates at each meeting this year, Norges Bank has signaled it may hold off on rate increases until the second half of 2011. But a 6.3% surge in annualized credit growth, reported recently, has begun to push housing prices rapidly higher in Norway and could force a reevaluation in monetary policy at its next meeting, according to Bloomberg. |
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