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EUR/USD: Sitting Between Strikes Into NY Cut-Off

2010-02-22T09:45:00.002-05:00

EUR/USD is close to the mid-point between the 1.3600 and 1.3650 strikes as we head towards the NY cut-off. Failures in both directions have been witnessed intraday but selling strength will remain preferred in the medium-term, with the 10-DMA line (last at 1.3658) still key to the topside. Stops above 1.3660 will fuel short-term pops higher, if triggered, with a sustained push back into the 1.35s adding fresh weight to the outlook for the rest of the week. TR

FOREX TECHS: Continentals Flirting with Daily Pivot Points

2010-02-22T09:19:00.002-05:00

On Friday, the USD made new trend highs versus the EUR and the CHF, at 1.3443 and 1.0899 respectively. In doing so, the daily pivot points of those currencies have been adjusted much closer to current prices, making the task of producing nominal reversals of the dollar"s strengthening trend that much easier.

EUR/USD's new pivot point is the 1.3655 high from last Thursday, which prices have rallied exactly to thus far today, though been rejected by that pivot point thus far. Last at 1.3621, prices would have to not only trade above 1.3655 today, but close above there to mark a nominal reversal of the daily downtrend. With a series of oversold bullish divergences in place on the daily charts and studies we will be watching this pivot point quite closely.

The same can be said of the USD/CHF, with its pivot at last Thursday's low at 1.0750. Prices have breached that low intraday today, with a 1.0737 low thus far and prices last at 1.0753. The current low is a test of the 10-day MA line there. A close below last Thursday"s low and the 10-day MA line in conjunction with a 1.3655+ close in EUR/USD would be a bearish event for the dollar. TR

US Economy

2010-02-22T08:59:00.002-05:00

The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 monthly economic indicators, jumped from -0.58 in December to +0.02 in January.  That brought the three-month moving average up to -0.16, the best reading since July 2007.

While providing essentially no new information, the CFNAI is a handy one-number overview of the economic situation, with a flat zero reading representing "trend growth." The CFNAI has been tracing out a very sharp V-shaped recession over the past two years.  According to the Chicago Fed, a CFNAI-MA3 reading below -0.70 implies recession, while rising above +0.70 means that there is a likelihood that a period of sustained inflation has begun.

AUSTRALIAN DOLLAR OUTLOOK

2010-02-18T22:41:00.000-05:00

AUD/USD opened in Sydney at 0.8945 and has traded a broad 0.8887-0.8962 range so far; last at 0.8915. It all went haywire at 4.30pm NY time when the Fed announced a 25bps discount rate hike. AUD/USD was trading around 0.9020 at the time and went into a tailspin along with Euro, GBP and
others. It wasn't the actual hike decision that was a surprise (as Bernanke had already forewarned us); it was the timing. It came intra meeting and well ahead of the markets thinking. Analysts were at pains to suggest that the news was "no big deal" but players were having none of it. Close stops/option triggers were all gunned down in an hour or so of sheer panic. Whilst we have witnessed a few bounces today (Bullard said the chances of a rate hike this year are overblown) they have not been convincing. Local players report consistent buying of US Dollars across the board today by real money managers who are either taking something off the table or preparing for an extended period of rate hikes.
The lack of bounce in Asia today for AUD/USD, EUR/USD and GBP/USD is worrisome but it"s hard to disagree with the Bullard comments. PJW

UK Pound Follows the Rollercoaster Ride

2010-02-18T12:05:00.002-05:00

The dollar goes down and the dollar comes back up, and cable goes along for the ride. That's what we're seeing at this point. This hasn't just been about the greenback, though, based on what we've heard. Big Asian sovereign buying in cable at about the same time as a big Eastern European purchase of EUR/USD went through looks to have been largely responsible for the dollar's tumble, and by extension cable's rise toward overnight highs. With that trade out of the market, what we're basically looking at now is a return to the prior balance. Given the general strong US data (barring jobless claims, of course), rising Treasury yields, and all the rest of what's going on, a strong dollar makes sense at this point.

The really strong rise in Treasury rates witnessed today, which hasn't really abated to this point, favors strength in the USD. A retest of the earlier day low is very doable from here, and we would not be at all surprised if there were a break below that this afternoon. There's a bunch of support southward, though, so a major bearish extension is probably not in the cards at this juncture. TR

US weekly jobless claims

2010-02-18T09:21:00.002-05:00

US weekly jobless claims unexpectedly rose to 473k in the week ending February 13, from an upwardly revised 442k the prior week. A fall to 430k was forecast. US producer prices rose by 1.4% last month. A 0.8% increase was expected

FX OPTIONS: AUD/USD 0.8950 and 0.8990 Expiries Today

2010-02-18T08:36:00.000-05:00

0.8950 and 0.8990 are the closest-to-market option expiries for today's 10am ET NY cut. There are 0.9030 Tokyo and NY option cut expiries tomorrow. There is also a 0.9020 NY cut expiry tomorrow.

FX OPTIONS: EUR/GBP Volumes Soften

2010-02-18T08:00:00.002-05:00

ATMF vols have taken an across-the-curve hit, with the 1-mth currently indicated at 8.75/9.1. The period was 8.95 pct bid during the European morning.

2-mth, 3mth and 6-mth ATMF vols have all softened by 0.2 pct, and are currently indicated at 9.0/9.4, 9.4/9.8 and 10.1/10.5 respectively. The 1-year is 10.55/10.85 last. TR

JPY: Japanese Good Buyers Of Foreign Bonds

2010-02-17T19:58:00.002-05:00

Flow data from MoF for the week-ended February 13 show Japanese investors again good buyers of foreign bonds after a one-week respite. The previous week saw these players sell a net Y32.4 bln in foreign bonds. Data for the latest week show net purchases of Y426.00 bln. Volume was heavy in both weeks with purchases of Y2.7579 trln against sales of Y2.7903 trln in the week- ended February 6 and Y2.7361 trln against Y2.3101 trln in the latest week. January saw Japanese investors purchase a net Y825.6 bln in foreign bonds, and this trend looks to continue. Volume was massive with purchases of Y8.9576 trln against sales of Y8.1320 trln. Retail investors look to be behind the latest purchases but institutional investors have also expressed their desire to add to foreign bond portfolios, in some cases on an unhedged basis given recent currency movements.
In terms of other asset categories, Japanese investors bought a net Y115.5 bln in foreign stocks and a negligible net Y9.6 bln in foreign short-term bills. The net purchases of foreign stocks in the latest week follows net purchases of Y202.1 bln in the previous week. It seems Japanese investors are also adding to foreign bond portfolios. January saw net sales of Y93.6 bln in foreign stocks. Change in holdings of low-yielding foreign bills has been negligible this month with net purchases of Y10.0 bln seen in the previous week. January saw net purchases of Y138.1 bln.
On the other side of the ledger, foreign investors bought a net Y107.1 bln in Japanese stocks in the latest week after net buys of Y65.0 bln in the previous week and a hefty Y1.5433 trln in January. Volume remained high with buys of Y2.6494 trln against sales of Y2.5423 trln. The previous week saw buys of Y3.7785 trln against sales of Y3.7135 trln. January saw buys of Y14.1485 trln against sales of Y12.6052 trln. Japanese bonds saw a negligible net inflow of Y31.8 bln in the latest week after net sales of Y84.7 bln in the previous week with volumes receding here. Japanese short-term bills saw net sales of Y294.1 bln in the latest week after net sales of Y167.3 bln in the previous week. Volume remained high here however with purchases of Y2.2252 trln against sales of Y2.5193 trln in the latest week. TR

AUD/USD: NAB Confidence Data At Record Highs In Q4

2010-02-17T19:43:00.000-05:00

The NAB business Confidence Index came in at 18, up 2 points and at a 15 year high, with all sectors showing strength, which echoes the upbeat assessment of the local economy from the RBA's Lowe earlier this morning.

The data has not helped the AUD/USD, which is following the EUR/USD lower and has fallen to a session low at 0.8958. The AUD/USD trades 0.8961/66. TR

EUR/USD: Treads Water As Asia Opens

2010-02-17T19:16:00.002-05:00

The EUR/USD has traded a tight 1.3592/1.3607 in the twilight zone between the U.S. close and the Asian open, with little investor interest so far. Bids around 1.3580 that provided a base on the last three sessions remain in play, with significant stops likely under last week's 1.3532 trend low and offers around 1.3700 are initial resistance. The failure to sustain the higher levels yesterday suggests that there is little strategic reason to fight the downtrend, but as the price is so close to significant support, the value looks to be in selling a topside failure intraday. The EUR/USD trades 1.3602/07 TR

More Downside on Dollar Reaction to FOMC Minutes

2010-02-17T15:56:00.000-05:00

Cable has recovered a bit from the latest round of dollar buying, this one motivated by the minutes of the last FOMC meeting. There were several items in there which hints at a move toward tighter policy in the not too distant future, including a possible discount rate hike being considered and discussion of starting to sell off some of the assets the Fed has purchased during its QE program. Naturally, that all tends to be supportive for the greenback, and cable nearly hit 1.5660 on that basis.

The reversal after making a new high for the move up from the earlier month lows puts GBP/USD in a negative light. It sets up the very real prospect of continuing the move down from the January high, and in the bigger picture the November peak. At this point we"d favor looking for short plays rather than long ones./TR

Employment Data

2010-02-17T12:20:00.000-05:00

The dollar has kept ramping up through the conclusion to the London trading day, continuing to feed off the strong US economic data out this morning. That's had cable under steady pressure resulting in a fall back through 1.5700 in the most recent action. Sterling was subject to a bit of a mixed bag of data and news early on when some of the jobless figures came in surprisingly bad, but the MPC meeting minutes showed no dissent on the vote to hold QE at GBP 200bn. The latter was a sigh of relief sort of thing as there continues to be talk out there that more QE could yet still be in the offing. There was certainly considerable volatility through that process, but since the US data started coming out things have been very locked in to the strong dollar trade.
We have the minutes from the last FOMC meeting coming out this afternoon. That could stir the pot a bit. Between now and then it's worth noting that the dollar has reached the consolidation area from Monday in terms of the index. With the Europeans gone home for the day and that range in consideration, it's easy to see cable stabilizing around 1.5700, and maybe even posting a modest rebound. TR

Italy Reverberations Scare Away Longs

2010-02-17T11:42:00.000-05:00

The morning Italy chit chat is said to be weighing on the EUR. Earlier, headlines crossed that bad Italian bank loans were up 43% in December, derivatives may weigh on public finances, and that tax repatriation this year may be less than expected. The last headline mixed with a bearish headline from the OECD and news that police were checking bank branches to enforce tax laws. The State Auditor called corruption a "serious disease." This may have sparked worries about government funding but it is not showed up in swap prices as of yet. Failing to breach its 21 day MA at 124.82, EUR/JPY is trading back at 123.70. The 14 day MA is 123.77. -TR

British Pound

2010-02-17T11:08:00.001-05:00

With cable failing to hold new relative highs above 1.5800, it could be turning back in the direction of the larger trend down from the November highs. If the turn down carries on and results in a break of Tuesday"s 1.5628 low we will get short in expectation of at least a retest of last week's lows.

EUR/USD Update

2010-02-17T10:49:00.001-05:00

EUR/USD has fallen to a 1.3659 low, with stops below 1.3680 and 70 helping push the price lower as European markets look towards the exit. Further weakness remains the prognosis, with 1.3650 and the midday rebound lows from yesterday in the 1.3630s eyed below.

January Housing Rise!

2010-02-17T09:10:00.000-05:00

   Building permits fell 4.9% in January to 621,000 issued, very close to the 620,000 permits economists had expected, but below the 653,000 building permits reported in December.  Single family permits rose by 0.4% as 2-4 unit permits stayed the same at 18,000 and permits for 5 units or more fell over the month by 26.2%.  Permits are up 16.9% over the year.

    Overall, 659,000 homes were completed in the month, which is down 15.3% over the year.

    Permits tend to lead starts (with considerable volatility), so the convergence after last month's sharp divergence -- which saw starts fall 4.0% and permits rise 10.9% pre-revisions -- was expected.  The poor weather in December likely also contributed to a lower starts figure, leaving room for a January rebound.

    Starts are well up off the 479,000 rate bottom hit last April, but have essentially been treading water since a 590,000 reading in June.  They remain at roughly a third of their long-term historical rate, and it appears that builders remain cautious about expanding while foreclosures continue to mount, mortgage rates look set to rise somewhat, and the end of the homebuyer tax credit in Q2 looms ahead./tml

Australian Dollar Outlook

2010-02-16T23:06:00.002-05:00

AUD/USD opened Sydney around 0.9020 and has traded a modest 0.8998-0.9020 range so far; last at 0.9009. The AUD/USD ran into modest profit taking this morning after it outperformed the field overnight. There is not much one can say about a 22 point range other than it has consolidated the strong gains made overnight. The return of risk appetite has manifested itself across the board. Commodities/commodity currencies/EM currencies have all surged in what appears to be a positive response to the "Greece" saga, at least for the time being. Throw into the mix China"s RRR tightening move basically ignored after the initial knee-jerk reaction and we have the two biggest drags on sentiment, Greece and China tightening finally taking a backseat in global
matters. For how long is of course questionable but enjoy it for now as further short covering (especially against an oversold Euro) takes centre stage.

Terry McCrann's article has offshore players convinced that the RBA will hike in March & with at least 100bps worth of hikes in 2010. The futures market however remains unconvinced and is only building a 40% chance of a March hike. PJW

Japan Sales Concerns

2010-02-16T20:05:00.001-05:00

EUR/JPY saw what proved to be at first a very good short-covering rally. This was the case in Asia yesterday. Overseas trading looks to have gone one step further with real money players tipped to have been good buyers. From a Tokyo low of 122.33, the cross traded up to as high as 124.48 in New York. And it remains relatively bid in Asia at 124.35/40 at writing. The range so far this morning in Asia has been 124.08-38. Risk was definitely on overnight with good US data and stock and other asset market buoyancy helping to push the JPY crosses higher. The move up above 124.30 was good from a technical point of view as well with EUR/JPY now above the recent top of its range. If the break up can be sustained, moves towards 127.00 could be seen, 126.95-127.10 a double top from February 3 and January 28 (highs of 126.98 and 127.08, respectively. Dealers do note some concern that Japanese players, good buyers from the lows yesterday, could decide to lock in some profits on longs. Initial support below is seen at 124.00-10 with more at 123.80-90, a retracement level on the hourly chart. Topside, initial resistance is seen ahead of 124.50 with some stops eyed above. More resistance-stops are seen up around 125.00 -TR

Australian Dollar's Situation

2010-02-16T18:18:00.000-05:00

A tight 0.9005/0.9021 range for the first couple of hours in Sydney, as the pairing consolidates ate the higher levels. Dealers report that the order books have changed their bias, with buyers on dips now more numerous and the sellers into strength have declined. Bids are building at 0.8950/70 and the feeling is that if the Japanese don't sell at the higher levels, the topside could be the weak side this afternoon. The AUD/USD trades 0.9009/12.

Why Euro Kept on Climbing Today

2010-02-16T15:56:00.003-05:00

EUR/USD opened at 1.3650 and caught a bid after the NY Fed Mfg index popped to 24.91 from 15.92 in Jan and as Greece bought itself a month to prove its fiscal mettle. TIC data showed less demand in Dec for US debt, particularly T-Bills, but a strong US equity market open and a big batch of mid-month EUR/USD buying, led by EUR/JPY, after the 10 ET option cut and into the fix drove prices through resting buy stops above the pivotal 10-day MA line, then near 1.3715. The rally did not abate until after noon in NY, with a 1.3588 high made. The afternoon rally was held in check partly due to cautious comments on the economy, fiscal imbalances, inflation and Fed independence from KC Fed's Hoenig and a Fed economist from the Minneapolis Fed. Tight range trading above 1.3750 bids was seen from there on. Close above the 10-Day MA is bullish.

Though the EUR econ slate is light Wed, the US has Housing Starts/Permits, IP/CU, FOMC Minutes and API stats to ad interest. If the Housing and IP data are firm, the risk-on rally in EUR/USD will have fresh fundamental impetus. (RLD)

Warning of Inflation

2010-02-16T15:09:00.000-05:00

Many of the headlines crossing the wires infer that global inflation is around the corner. Fed's Kocherlakota says that inflation could rise if the government does not adopt a "good" policy. Fed's Hoenig added earlier that any plan to target higher inflation (a la IMF) would bring economy down the wrong path, hyperinflation is possible when the economy is under stress, and inflation can occur when CB's are influenced by politicians (referencing Argentina.) Turkey"s central bank said it would keep interest rates low and that inflation will move lower once temporary influences are removed. Similar words were spoken by the RBI Governor. More recently, the S&P warns that the Ukraine is on path for hyperinflation. The CRB is up 2.71%

In stark contrast to all the talk of inflation is the announcement that Ford is laying off workers because the US auto market is "not overly robust." Japanese automakers are under pressure from recalls and a verbal lashing from the DOT and Congress. Looking abroad, the shares of Indian, South Korean, and Chinese auto makers have moved up recently but most are being governed by stricter lending policies. Should the global auto sector remain weak, inflation pressures will likely subside. The risk is that labor becomes fungible and commodity inflation hits costs-of-goods directly. In this case, the Fed and other countries will be dealing with a global misery index.

In a scenario where soft demand meets inflation uncertainty, commodity currencies outperform (early 2009). Reflation policies may not emerge from a new economic soft patch (credit constraints) but countries with solid balance sheets should do well.

EURO Update

2010-02-16T14:27:00.002-05:00

Despite KC Fed's Hoenig talking about the tough times to come and the pitched battle brewing between the Fed and Congress, the NAHB index for Feb climbed to 17 from 15 in Jan, which was a tic better than forecast. A look at the home builders" stocks in the US shows what look like major bottoms being built there. If so, and if the US recovery is gaining traction, risk-off trades will quickly begin to look anachronistic. Of course the markets always go too far too fast, whichever direction they are headed, and this rebound in risk acceptance and dollar weakness will also get ahead of itself.

EUR is showing strength against most of the majors today, even the Loonie, which one would expect to be ahead given hefty commodity gains. EUR/USD is at 1.3757 last and well beyond the pivotal 10-day MA line, now by 1.3715. A close above there this mid-month afternoon would likely encourage more real money buying near-term with RMs perhaps also taking the opportunity to do a little balance buying along with specs either getting squeezed out of shorts or momentum traders joining the outright bid. The falling 21-day MA line, last at 1.3895, is a near-term hurdle along with the Feb 9 high by 1.3840, which is about where the 21-day will be tomorrow.

Support is at 1.3700-15 for those looking to buy a dip. The daily on-close
pivot point is at 1.3803. The current nominal daily downtrend has been in place
since the Jan 15 close at 1.4388.

US FED:Gov't Must Act Quickly on Debt

2010-02-16T12:25:00.002-05:00

Speaking before the Peterson-Pew Commission on Budget Reform Policy Forum today, Kansas City Fed President Hoenig said that policymakers face difficult choices in bringing long-term stability to federal finances, but that these choices should be made quickly lest the market impose a solution.

Hoenig said that we have only three options for managing our debt going forward, in increasing order of benefit for long-term stability, but decreasing in terms of political palatability: first, have the central bank print money; second, do nothing as long as markets will fund our borrowing at increasing interest rates; third, "act now to implement programs that reduce spending and increase revenues to a more sustainable level."

Although Hoenig noted that confidence in long-run stability and the Fed's credibility have helped keep demand for Treasuries strong, we should not take for granted that it would continue to be so indefinitely.  Hoenig argued that CBO projections show the current fiscal policies to be unsustainable, with federal debt held by the public reaching 181% of GDP by 2035.

An acceptable plan for reducing spending and increasing revenues would have to be seen as fair, with a sense of shared sacrifice across the economy.  According to Hoenig, this would "suggest an approach in which we are willing to disappoint a host of special interests."  This would be politically difficult, but ultimately an out of balance budget would need reform, whether by choice or "by force of the markets."

EUR/USD Breakout

2010-02-16T11:55:00.000-05:00

With US data repeatedly exceeding expectations of late and the Greek drama having pulled in a record hoard of spec short EUR traders the past few weeks, there appears to be far fewer folks left to keep the EUR/USD downtrend in gear at this point. There has been big risk-on buying into the London close, with EUR/USD having been propelled past its descending 10-day MA line by 1.3715 for the first time since Jan 15. A close above there today would reinforce the oversold bullish divergence buy signals that abound on the daily charts.

Stocks are up well over a full percent and the CRB index is on a tear as well, reinforcing the long USD profit-taking. EUR/JPY buying has been a leader on the upside this morning with more talk of BOJ QE to get CPI in positive territory. For EUR/USD there is scope in the coming sessions to retest the falling channel top derived from the Dec 3 and Jan 13 highs, currently by
1.4100. Perhaps the kind offer by Sweden to help the Greeks if need be will add another layer of insulation from default risk and risk-off trading in general -TR