FOREXYARD: Forex News Blog | |
- Absence of CHF as Safe Haven Makes USD Ripe for Gains
- Minimum Bid Rate Held Steady; EUR Sinks
- US Trade Balance Better than Forecast
- Australian Employment Figures Gouge AUD
- News-Flow Begins to Lift Market Sentiment
- Ruble Bearish as Traders Flee Risk; BoM Receives 14B RUS Bailout
- German Court Ruling Grants Limited EUR Support
| Absence of CHF as Safe Haven Makes USD Ripe for Gains Posted: 08 Sep 2011 09:16 AM PDT
Now that the SNB has set a floor for the EUR/CHF having promised, "To buy foreign currency in unlimited quantities," traders will be forced to look outside the CHF for a new safe haven currency. Given that many of the currencies currently available in the market have a cloud hanging over their heads, this sets the stage for a potential USD rally. Between the traditional safe haven currencies of the USD, CHF, and JPY, as of late all three have a dark cloud hanging over their heads with each suffering from their own particular faults though the most relevant may be government attempts to artificially weaken the currencies. Following a 20 standard deviation move in the EUR/CHF when the SNB put a floor beneath the pair the CHF appears to be off limits temporarily. This policy will enable those looking to get out of the EUR a much better price versus the 1.10 level the EUR/CHF was trading at prior to the announcement. While the market may end up testing the resolve of the SNB to hold the 1.20 level the Swiss National Bank appears to have temporarily halted the appreciation of the CHF, thus limiting the upside for using the currency as a safe haven play. The JPY is another traditional safe haven despite the country carrying a debt to GDP ratio of 1.2. The country is a net creditor and a majority of the Japanese debt is held by local financial institutions. The cloud hanging over the head of the JPY is the possibility the Japanese Ministry of Finance will intervene once again in the market to artificially weaken the JPY as it did in early August and in March. Japan will likely attempt to rally support for further coordinated intervention at the G7 meeting on Friday and Saturday. The forex trading blogs have been overflowing with ideas for moving into the NOK as a safe haven play. This idea does have some talking points with the high cost of oil, a 10.5% budget surplus in 2010, and an AAA credit rating. The price action looks to confirm this theory as the EUR/NOK has breached its August low of 7.63. However, liquidity is sometimes a problem with the Scandinavian currencies; therefore, we turn to the most liquid currency, the USD. Despite a struggling economy that continues to run out of gas every time the Fed's quantitative easing programs end, an interest rate close to 0% and the Fed weighing even more measures to loosen monetary policy, investors who are seeking yield were previously inclined to search elsewhere. However, the USD does offer the most liquidity for real money investors with the US Treasury bond market being the largest bond market in the world. The USD, the most heavily traded currency in the 6.5 tn per day foreign exchange market has ample liquidity. For those investors that are concerned following the credit downgrade by S&P, the recent agreement between President Obama and Republicans to increase the US debt ceiling and to implement real budget reforms may be put the US on the path to fiscal austerity. Thus, when compared to the fiscal trouble the euro zone is experiencing, the USD may be well positioned to benefit from the European debt crisis. Given the recent price action that has the EUR/USD testing its June 2010 uptrend, the USD may be poised for further gains. Read more forex trading news on our forex blog. |
| Minimum Bid Rate Held Steady; EUR Sinks Posted: 08 Sep 2011 07:28 AM PDT
The euro (EUR) was last seen dropping against the US dollar (USD) late Thursday following the European Central Bank's (ECB) latest announcement regarding interest rates, known as the Minimum Bid Rate. Stuttering mildly ahead of the decision, there was an atmosphere of EUR avoidance in the market even prior to the statement by ECB President Jean-Claude Trichet. With nearly every analyst anticipating today's move, and the accompanied dovish statement by Trichet, the market followed suit with expectations and witnessed a quick plummet in EUR values. Several reports have begun to assume a possible rate reduction as early as mid-2012 by the ECB, though future economic growth will factor heavily in such a decision. For now, traders appear to be looking to a weakening of the EUR through the remainder of the week. Read more forex trading news on our forex blog. |
| US Trade Balance Better than Forecast Posted: 08 Sep 2011 07:26 AM PDT
In a sign that a weakened US dollar (USD) is perhaps aiding the US economy's growth, today's trade balance figure came in below the forecasted deficit. Though not an entirely positive signal, the trade deficit grew by only $44.8B instead of the anticipated $50.6B. Weakening the value of the USD both increases the ability of American firms to export goods while simultaneously reducing America's buying power abroad (i.e. reducing imports). The expected result is a less-than-stellar, but better-than-forecast widening of the trade deficit, which should help improve America's standing in the global arena. Read more forex trading news on our forex blog. |
| Australian Employment Figures Gouge AUD Posted: 08 Sep 2011 07:17 AM PDT
The value of the Australian dollar (AUD) took a hit in today's early trading following reports from the Australian Bureau of Statistics that employment saw sharp contraction in August. The Employment Change figure was forecast to see an expansion of roughly 10,700 jobs; the actual figure shocked even market pessimists. A surprise contraction of nearly 9,700 jobs in August has generated wide concern that the Aussie economy is facing an impending crisis, especially considering last month's 4,100 job contraction. The unemployment rate also increased from 5.1% to 5.3% this month. The AUD is losing value and could enter a longer-term downtrend if things are not changed soon. Read more forex trading news on our forex blog. |
| News-Flow Begins to Lift Market Sentiment Posted: 08 Sep 2011 05:21 AM PDT
European equities are up for the second day in a row as the market tone appears to be shifting. The policy responses needed to support the financial markets are slowly coming in and have helped to stabilize the markets. Beginning with the SNB's decision to fix the EUR/CHF rate at 1.20, the German Constitutional Court ruling, the passage of a new Italian fiscal package, an expected new jobs program from Obama and the potential for a policy response from the G7 shows the news-flow is now shifting in favor of higher yielding assets. The BOE left both its interest rate and asset purchase facility unchanged today but rumors continue to float of the BOE implementing additional measures to ease UK monetary policy. However, one must note that UK gilt yields are already extremely low with the 10-year gilt yield trading at 2.33%. At this stage it's unclear how much of an impact lower UK interest rates would impact the UK economy should the BOE implement another round of easing. The recent performance of the GBP/USD has been nothing short of ugly with the pair falling over 4% from its August high, though cable is up on the day following the BOE rate decision and it looks like the pair has made a triple bottom on the hourly chart. Support comes in at this week's high of 1.6200 which is reinforced by the 38% retracement from the mid-August high. A break of today's low of 1.5910 may have scope to the July low of 1.5780. This afternoon is filled with unemployment and trade balance numbers from the US and Canada as well as speeches by Bernanke and President Obama but it will be the ECB press conference that drives the North American trading session. Expectations are for the ECB to lower its official inflation forecasts. What remains to be seen is just how dovish Trichet appears in his press conference later today. Trichet runs the risk of tipping his hat to the ECB backpedalling on its two previous interest rate increases earlier this year. With the EUR already coming under pressure from the European debt crisis, market players may be quick to sell the EUR should Trichet hint at the ECB reversing its previous tightening schedule. The EUR/USD has support at 1.3990 and a close below the long term trend line from May could have further technical implications for the EUR. Below here rests the July low of 1.3835 while resistance is found at 1.4280. Read more forex trading news on our forex blog. |
| Ruble Bearish as Traders Flee Risk; BoM Receives 14B RUS Bailout Posted: 08 Sep 2011 12:18 AM PDT
The Russian ruble (RUS) has been getting hit by a market environment thick with risk aversion. Heightened sensitivity brought on by a German court ruling, Italy's debate over an austerity package, and peripheral discussions over Greek debt have all led many investors away from the riskier currencies, including the ruble. Moreover, as a bittersweet pill taken by the Russian economy lately, the Bank of Moscow (BoM) received a 14 billion ruble bailout from state-backed loans as part of a portfolio diversification program aimed at revamping the lender's development initiatives following the ouster of its former president, Andrei Borodin, in a hostile takeover by VTB. Borodin has fled to London in fear that he may face jail time due to his connection to $415M in loans issued to the wife of Moscow's mayor as part of a private real estate project. The bank will be issuing 100 billion rubles in new shares to its primary shareholder, VTB, this year in connection with this latest move. The issuance of these shares was not expected until the end of 2012, but recent market downturns have moved deadlines forward. The bank seeks to increase and enhance its credit portfolio from a current volume of 30 billion rubles to roughly 200 billion rubles by expanding participation from small and midsized businesses. Read more forex trading news on our forex blog. |
| German Court Ruling Grants Limited EUR Support Posted: 08 Sep 2011 12:12 AM PDT
The decision by Germany's Constitutional Court to reject lawsuits which challenged the country's participation in future euro zone bailouts offered limited support to the euro (EUR) in Wednesday's early trading. Investors are now watching the region closely as the regional interest rate decision by the European Central Bank (ECB) looms large. The court ruling, while putting some traders at ease about future euro zone stability, was not necessarily considered a positive, but rather the removal of a negative. Concern that the euro zone's largest economy would opt out of future bailouts made the whole bailout venture look fragile, but taking this fear away does not diminish the real debt problems the region still faces. As an aside, the EUR is also expected to take a hit Thursday as many are forecasting a dovish statement by the ECB regarding interest rates. Read more forex trading news on our forex blog. |
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