Wednesday, May 18, 2011

FOREXYARD: Forex News Blog

FOREXYARD: Forex News Blog

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UK CPI Rises Supporting Sterling, Dollar Mixed

Posted: 17 May 2011 05:38 AM PDT

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At lunchtime during the European trading session the US dollar was sliding versus the euro and the pound while rising versus the yen. Stronger than expected inflationary data supported the pound versus the dollar but sterling's gains versus the euro have been rolled back.

The GBP/USD was higher at 1.6230 from 1.6193 after this morning's UK CPI report showed higher than expected inflationary pressures in the UK with y/y inflation rising 4.5%. Economists expected the data to show rising price pressures to the tune of 4.2%. Forecasts are for the Bank of England to increase rates between 2 and 4 bps. However, BOE Governor Mervyn King has been adamant in his opinion that the inflationary pressures in the UK economy are temporary increases due to the higher VAT and rising commodity prices. Thus may explain sterling's inability to hold gains versus the euro.

The EUR/GBP fell as low as 0.8681 from 0.8745 before recovering to 0.8730. Markets appear unconvinced the BOE will be increasing rates in the near terms and this may explain sterling's weakness. EUR/GBP support comes in at 0.8670 with a break here possibly triggering declines to 0.8620 where the 200-day moving average resides. Cable has resistance at 1.6515 with support coming in at 1.6300.

The dollar is mixed versus the remaining majors with the EUR/USD higher at 1.4180. Event risk remains for the euro as European finance ministers continue their second day of meetings surrounding the European debt crisis. The euro could receive support if a new aid package for Greece is announced. Initial resistance for the EUR/USD is found at yesterday's high of 1.4240 followed by 1.4340.

The Japanese yen is on its back foot as the USD/JPY has reached its highest level since the beginning of the month. Supporting the rise in the pair were comments from Bank of Japan Governor Shirakawa who suggested further monetary easing measures could be enacted. The USD/JPY is up at 81.60 from 81.13. Resistance is found at 82.05 where the 55-day moving average lies, followed by 82.80. Support comes in at 80.60 at the bottom of the consolidation pattern from the May 4th low.

Traders are now anticipating US building permits this afternoon as well as increased utilization rates.

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Consumer Sentiment in Decline Across Europe

Posted: 17 May 2011 05:31 AM PDT

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This morning's ZEW economic sentiment reports out of Germany and the broader euro zone came in below expectations, but so far the news has had little effect on the value of the EUR.

Traders had turned their attention on the interest rate differential between the euro zone and the United States yesterday following the publication of solid CPI figures in Europe and soft investment data in the US. The result had been for the EUR/USD to move back into a bullish posture from last week's downturn.

So far this week, the EUR/USD pair has shifted from its recent low of 1.4050 to its current price of 1.4205. The EUR/GBP has witnessed similar behavior, with the pair shifting back into a minor bullish uptick from 0.8670 to its current value near 0.8740.

The ZEW reports are leading indicators of economic health. They are based on a diffusion index of surveyed analysts and investors across the region. The number released in the report is a gauge of consumer sentiment. Above 0.0 represents optimism, below that mark represents pessimism.

While the report showed continuation of optimism in Germany and the euro zone, the number is rapidly approaching the zero mark. Debt woes from Greece and Portugal have been striking front page headlines these past several weeks and many investors have shown a tendency to move into the safer USD and Swiss franc (CHF) as a hedge against uncertainty.

The EUR does not appear to have been affected too strongly by this shift in sentiment, though the release of afternoon data from the United States could be enough. Forex traders will definitely want to be active on their trading platforms today.

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Corn Price in Steep Decline as Supply High, Demand Low

Posted: 17 May 2011 05:26 AM PDT

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The price for a pound of corn fell from its recent nominal high of $7.83 to a current price of $6.96 after reports showed supply for the commodity above expectations. Alongside the supply figures was also an estimate showing a steep decline in demand for corn and its byproducts.

The sharply rising inflation of basic food staples like corn has pushed the price of other products higher through their interconnected nature. Corn is used in a number of ways not necessarily correlated with human consumption. Farmers use corn as feed for cattle, pigs and chicken; several mid-west American states have attempted to develop ethanol fuel from corn fructose as an alternative energy; and corn syrup is a substitute for sugar in many less-nutritional foods.

The price of corn therefore carries a steep cost on consumers as the recent spike over the past year or more has pushed many more people below the poverty line; over 40 million globally by some estimates.

Luckily, recent crop reports show corn yields in the United States to be growing and prices are expected to taper off in late 2011 as a result, according to the US Department of Agriculture. But greater supply is not the only element in this equation.

Since corn prices have been rising to unnatural levels these past ten months, farmers and feed-makers the world over have shifted to lower consumption rates and many farmers have started planting more corn seed this year.

The lower usage implies a decline in demand for corn and its byproducts and the side-effect of higher planting patterns will likely result in higher yields in 2011. On top of lower demand and higher supply, a significant sell-off in commodities this past week has also helped drive the recent downturn. But the aforementioned supply and demand data should drive corn prices lower in the long-run.

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Scandinavian Kroner Reaching Tipping Point vs. USD?

Posted: 16 May 2011 10:35 PM PDT

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Looking over the fundamentals tells the story of an ascendant Scandinavia in the currency world. The Swedish krona (SEK) and Norwegian krone (NOK) are among the globe's highest yielding currencies from a fundamental standpoint. But why then does the technical data read differently? Are we witnessing the wind being taken out of the sails of the Norwegian and Swedish kroner?

Against the US dollar, both the SEK and NOK have pushed strongly bullish to the point of record highs. Several analyses herald the Swedish krona in particular as being among the top performers in the forex market since early 2010. The Riksbank is even on schedule to lift its short-term lending rate at each policy meeting this year.

Norges Bank is also considering monetary policy tightening in 2011, though it has been far more reluctant than its Swedish neighbor in doing so. Growth in Norway has been only mildly limited in comparison but by no means insufficient for such a move by its central bank.

The linkage of the NOK to Crude Oil prices may also have something to do with recent stagnation in the Scandinavian currency as oil has been trading flat within a tight range recently.

Technical Data Supporting Reversal?

Regardless of this fundamental data supporting a strengthening SEK and NOK, on the technical charts what we see is a consolidation on both pairs against the USD and a heavy push-back by the greenback.

According to reports from several currency strategists, a material base may be forming just above the 6.20 level on the USD/SEK, with a confirmation of a trend reversal potentially found slightly above 6.50. The USD/NOK is forming a similar base near 5.45 with a confirmation point found a similar distance near 5.73.

If the pairs move above their confirmation point, as opposed to dropping back within their heavily bearish trend, there is a chance the market will adjust its sentiment and begin shorting the Scandinavian currencies in expectations for a mid-year flop. Both pairs are approaching a decision point and it will be interesting to watch their next move unwind.
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