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The Forex Daily Digest - February 9, 2010
The European Central Bank has confirmed that ECB's President, Jean-Claude Trichet will leave a series of meetings and events in Sydney hosted by the Australian Central Bank earlier than planned in order to attend an informal meeting of European Union leaders in Brussels on Thursday. This month the EUR continues to fall as debt concerns surface in Greece. Last week, the EUR fell to an eight-month low below $1.37 versus the USD as worries rose over the possibility of a default by Greece as well as other debt-burdened southern European economies in Portugal and Spain.
There are members of the ECB who believe that Greece should not be bailed out. Two ECB policymakers said that Greece must get its own house in order itself. ECB Governing Council member Ewald Nowotny said, "The ECB has a clear mandate. We have a clear no-bail out clause." He added that speculation, driven by hedge funds, played a role in the current Greek situation and other peripheral euro zone debt, and said that there should be efforts to restrain those actions.
The EUR traded very close to an eight-month low against the USD on concern this week's European Union summit will fail to address Greece’s fiscal crisis, lessening demand for assets in the region. The EUR was near the weakest in 11 months versus the JPY after EU President Herman Van Rompuy said yesterday Thursday summit will focus on long-term economic strategy, making no direct reference to Greece. The JPY dropped against most of its major counterparts on speculation that importers and traders sold the currency to profit from recent gains.
In a related story, European Commission President Jose Barroso said Europe’s political commitment to the EUR means investors would be mistaken to bet against the EUR as Greece’s budget problems threaten to spread to other countries.
The AUD strengthened from near a four-month low against the USD after central bank Governor Glenn Stevens said holding on to low interest rates for too long might create asset bubbles. The AUD also increased the most in a week against the JPY as Chinese stock markets rallied, boosting demand for higher-yielding assets. The NZD recovered after Prime Minister John Key said the government may lower personal income taxes to support investment and economic growth.
Yuan forwards advanced the most in more than a week on the assumption that increasing inflation and an export recovery will encourage China to allow the yuan to resume appreciation. Local bonds were little changed. The People’s Bank of China sold 24 billion yuan ($3.5 billion) one-year bills at a yield of 1.9264 percent, which was unchanged from the week before. It steered the rate higher twice last month to assist in draining more cash from the money market before keeping it secure.
On Wednesday’s economic calendar look for December’s Trade Balance report, Crude Inventories and the Treasury Budget figures for January. Scheduled earnings include Dean Foods, New York Times, Coca-Cola Enterprise, Sprint-Nextel, Wyndham Worldwide, Allstate, Prudential, and Boston Scientific.
Happy trading,
James Dicks |
The Forex Daily Digest – February 8, 2010
Concern over a potential economic default in southern Europe relaxed a little today, which allowed the EUR to gain some lost ground against the USD. Economists have warned that monetary concerns will likely continue to affect the EUR but there are expectations that a European Union rescue effort is building. Economists believe that the EUR’s slight gain today is simply a rally following a lack of any fresh weekend news on the credit front. Uncertainty over the financial situation of Greece, Spain and Portugal could lead to future weakness for the EUR.
The finance ministers and central bank governors from the seven leading industrialized nations finished a two day meeting over the weekend, promising continued financial support to the recovery and future progress of the global economy. The G7 delegates from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States were also joined by Dominique Strauss- Khan, the Managing Director of the International Monetary Fund Managing Director, World Bank President Robert Zoellick, and the European Central Bank President, Jean-Claude Trichet.
The AUD and the NZD fell over concern about growing budget deficits in Europe which forced investors to sell higher-yielding assets. The NZD also weakened after central bank governor Alan Bollard said the nation’s economy is "still fragile." Both currencies declined as G7 finance ministers in Iqaluit, Canada, pledged to press ahead with economic stimulus measures amid concern about sovereign risk crises in nations including Greece, Portugal and Spain.
China’s Vice Commerce Minister Zhong Shan said his government faces pressure to allow the yuan to appreciate and might give the currency a "small range" to move depending on the economic situation. Financial analysts are saying that it is unlikely that China will allow its currency to advance versus the USD over the next few months as the international economy has made its leaders "more concerned" over the projections of Chinese exports.
The global economic recovery appears to be slowing. Trade figures from Germany, China and the United States are expected to show large gains from a year ago, when the international recession was at its peak. But this may also reflect a downshift in the rate of global economic recovery. In China, for example, economists expect a sharp 23 percent jump in January's exports, but a decline when compared with December. The disparity is even more dramatic for Chinese imports for the month of January, which are expected to increase by 86 percent from a year ago but fall from December.
On the U.S. economic calendar tomorrow watch for the December Wholesale Inventories report. And scheduled earnings will include Walt Disney Co., Coca-Cola, Gaylord Entertainment, Allied Health, Pulte Homes, Lions Gate Entertainment, Netgear, and Learning Tree.
Happy trading,
James Dicks |
The Forex Daily Digest – February 4, 2010
The USD traded higher against the EUR after European Central Bank President Jean-Claude Trichet said the economic outlook is subject to “uncertainty.” The EUR fell most against the JPY after Trichet said some governments in the region have “sharply rising” deficits and should have a “strong focus” on reforms. The pound fell against the dollar after the Bank of England kept its option open to extend its bond-purchase program.
ECB President Trichet reiterated his message that a strong dollar is beneficial both for the United States economy and the world economy as a whole. Trichet told French television, "I appreciate that the authorities of the United States of America, Ben Bernanke and Tim Geithner, are saying that a strong dollar is in the interest of the U.S. economy. I would echo that, and I would say that I trust it is also in the interest of the global economy itself.” His comments come after the EUR has experienced a sharp decline of the past few weeks.
The USD could extend its gains against the JPY and the EUR a day before the U.S. nonfarm payrolls report, which is forecast to show the U.S. economy adding the most jobs in two years. The EUR also weaker against the USD after the European Commission approved Greece’s deficit-cutting program. European Union Monetary Affairs Commissioner Joaquin Almunia said there is no need for Greece to seek outside help in dealing with its fiscal crisis.
The Bank of England announced there would be no increase to its unprecedented 200 billion pound asset-buying program, stopping the economic plan after 11 months in a move that could indicate a return to more normal policy. It also left UK interest rates at a record low of 0.5 percent, as expected.
The GBP dropped versus the USD and government bonds rose as some traders gambled that the Bank of England may opt to lengthen its bond-purchase program to safeguard the economic recovery. Sterling also fell versus the JPY. Policy makers say they will maintain their main interest rate at a record low level.
The Chinese government has rejected President Obama’s comments that the yuan should appreciate, saying its currency has little impact on the U.S. trade deficit. Obama said he will pressure China on the currency to make sure U.S. goods are not artificially inflated in price and their goods aren’t deflated. The yuan has been pegged at about 6.83 per dollar since July 2008, and China has rejected calls from U.S. and European officials to let it appreciate. Meantime, a Chinese state researcher said China may allow the yuan resume appreciation as early as March to help tame inflation as exports increase.
The Labor Department reported that the number of Americans filing new claims for unemployment rose to 480,000 last week from a revised 472,000 the previous week; an unexpected increase of 8,000. December factory orders rose 1% versus forecasts for a rise of 0.5%. Orders rose 1% in the previous month.
On Friday’s economic calendar watch for the Nonfarm Payrolls report for January along with the Unemployment Rate, Average Workweek figures, Hourly Earnings and Consumer Credit. Scheduled earnings include Aetna, Pinnacle, Simon Properties, Kelly Services, Imperial Sugar, TECO Energy, Tyson Foods, and Weyerhaeuser.
Happy Trading,
James Dicks |
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