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Nov-06-2009Nowotny Says ECB Hasn't Decided to Stop 12-Month Loan(topic overview)
CONTENTS:
- Investors will be focused on the flow of important U.S. econ data along with more Q3 earnings reports before Wednesday'''s FOMC meeting. (More...)
- On the dollar, we expect no news either. (More...)
- There are the substantial easing in monetary and fiscal policy, the BoE purchases of assets and the substantial drop in sterling effective ex-change rate which supporting growth. (More...)
- Industrial Production rose 1.6%, higher than forecast of 1.2%. (More...)
- As for the downside, the currency pair has multiple uptrend lines serving as technical cushions along with 11/4 and 10/27 lows. (More...)
- This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. (More...)
- The ECB's rate-setting body is likely to take a decision in December on ECB's programme of offering 12-month money to banks at just 1%, Trichet said. (More...)
- EUR/GBP spiked lower (not higher as we thought) on the decision, maybe as market expected a bigger, ''50B extension. (More...)
- Analysts are expected the Unemployment Rate to print at 9.9%, just shy of the psychological 10% level. (More...)
- Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. (More...)
- The sustainability of gold'''s new near-term uptrend will likely depend upon a broad-based devaluation in the Dollar since the two are negatively correlated. (More...)
- Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. (More...)
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Investors will be focused on the flow of important U.S. econ data along with more Q3 earnings reports before Wednesday'''s FOMC meeting. Investors will receive monetary policy decisions from both the ECB and BoE on Thursday. Therefore, we could be in for another volatile trading week since there is an air of uncertainty surrounding the upcoming central bank decisions. For the time being, it seems investors may favor the Yen over the Dollar as a safe haven due to yesterday'''s selloff in conjunction with pullbacks in the EUR/USD, GBP/USD and AUD/USD. As a result, the USD/JPY could be in for further weakness should the S&P futures choose to test their October lows and the psychological 1000 level. [1] U.S. Pending Home Sales rose 6.1%. This number beat estimates as first time buyers rushed to beat the expiration of an $8000 federal tax credit. The Dollar weakened on this report. Trading was light and thin throughout the day as the bigger players decided to stand aside ahead of a number of central bank meetings this week. Tomorrow the Reserve Bank of Australia holds its monthly meeting. This is followed by the U.S. Fed on November 4th. The European Central Bank and the Bank of England hold their monetary policy meetings on November 5th. Choppy, two-sided trading could be featured this week as traders lighten up and adjust positions ahead of the news. Although the Dollar moved lower as demand for higher risk assets rose following the ISM report, equities broke during the mid-session, thereby helping the Dollar to rebound off its bottom. The EUR USD opened higher and was able to hold on to its gains at the close. Traders are keeping this market in a tight range ahead of the ECB meeting on November 5th. This market has held inside of 1.4859 to 1.4684 for the past four days.[2]
LONDON, Nov 5 (Reuters) - The dollar and the yen gained broadly on Thursday, paring earlier losses after the Federal Reserve pledged to keep interest rates low, as investors turned cautious before policy decisions in the UK and euro zone. The U.S. central bank's maintenance of its commitment to keep borrowing costs near zero for an "extended period" as it acknowledged the economy was recovering sparked a rally in the euro and perceived higher risk currencies. This soon fizzled, however, as investors took profits on the rally and equities turned sour given the event risk ahead.[3] The euro earlier got a boost after European Central Bank President Jean-Claude Trichet presented an optimistic tone on euro zone growth, saying the economy will recover next year. Both the ECB and the Bank of England left interest rates unchanged on Thursday. The decisions came after the U.S. Federal Reserve on Wednesday held borrowing costs near zero percent and kept its commitment to low rates for an "extended period." With the central bank meetings out of the way, investors turned their attention to Friday's U.S. jobs data.[4]
NEW YORK (Reuters) - The dollar edged up against major currencies on Thursday, recovering some recent losses, as investors booked profits before a U.S. employment report expected to shed more light on the health of the economy. The greenback fell in the prior session after the Federal Reserve kept interest rates at record lows and signaled they were likely to stay there for some time to come. It lost more ground earlier Thursday after European Central Bank President Jean-Claude Trichet sounded an optimistic note about a 2010 recovery and hinted at a slow-motion exit strategy for some emergency stimulus measures.[5] Investors are closely monitoring economic reports and speeches by RBA officials for direction on whether interest rates will be raised again in December. The New Zealand dollar lost its gains vs. the U.S. dollar after weaker than expected jobs data and central bank comments on the fragility of the economy'''s recovery.[6]
Both the EUR/USD and GBP/USD registered an initial positive reaction to their respective monetary policy decisions. The ECB and BoE kept their interest rates at their present levels, yet the BoE only increased its QE packaged by 25 billion Pounds vs 50 expected. The ECB isn'''t budging on their language that their will practice a gradual removal of alternative liquidity measures from the monetary system. Therefore, it seems the ECB will make us wait until next month to get a better idea of if/when/how the central bank will reign in liquidity.[7] Any reading at or above 10% could deal a negative psychological blow to equities, and vice versa. Therefore, tomorrow'''s wave of unemployment data could be a market mover. The Fed kept its monetary policy unchanged as anticipated since unemployment hasn'''t improved enough for the central bank to feel comfortable with tightening liquidity. On a positive note, the BoE increased its liquidity package by 25 billion Pounds vs. 50 billion expected. The GBP/USD is receiving a nice boost in reaction to the tighter than expected monetary policy from the BoE. On the other hand, the ECB kept its policy unchanged, and will likely make investors wait another month before outlining their plan for reducing their alternative liquidity measures.[7]
With regard to monetary policy, ECB'''s Gonzalez-Paramo will speak today in London, while Fed'''s Evans and Duke will speak to the Community Bankers conference in Chicago. We don'''t expect them to break new ground after this week'''s central bank meetings. At the ECB press conference, Trichet sounded more optimis-tic on the economic outlook yesterday, as he said that the '''available data and survey-based indicators continue to signal an improvement in economic activity in the sec-ond half of the year'''. Trichet also strongly hinted that the ECB would start withdraw-ing its emergency liquidity measures from next year onwards.[8]
The yield curves in the U.S., euro zone and UK steepened further amid rising concerns that central bankers are keeping their policy too loose for too long and that sooner rather than later inflationary pressures may emerge. This was especially the case in the U.S. and the UK, where the Fed had reaffirmed its commitment to keep the Fed funds rate at exceptionally low levels for an extended period and in the UK where the Bank of England yesterday decided to expand its QE policy by another ''25B to ''200B. In both the U.S. and the UK, the 10-year break even inflation rates reached new recent highs after the decision. In the euro zone, a significant different message was heard, as the ECB moved closer to a gradual exit from its emergency liquidity measures after ECB president Trichet strongly hinted that the December 12-month tender will be the last.[8] "Looking ahead, and taking into account the improved conditions in financial markets, not all our liquidity measures will be needed to the same extent as in the past," Trichet said in his introductory statement after the ECB Governing Council retained its key interest rate at a record low of 1% for a sixth straight month. "The current rates remain appropriate," he reiterated. As global economic conditions have started moving to a pre-crisis level, central banks are preparing to wind up their emergency measures.[9] The GBP/USD is currently trading at $1.6590 as of 21:00pm, GMT with a bullish trend. European Central Bank President Jean Claude Trichet said officials will withdraw some of the emergency liquidity measures introduced to fight the worst recession since World War II. '''Not all our liquidity measures will be needed to the same extent as in the past''' as the economy recovers, Trichet said at a press conference in Frankfurt today after the ECB left its benchmark interest rate at a record-low 1 percent. Extraordinary liquidity measures will be '''phased out in a timely and gradual fashion''' in order to '''counter effectively any threat to price stability over the medium to longer term,''' he said. Trichet indicated that the auction of unlimited 12 month- loans, one of the ECB'''s flagship policies this year, won'''t be continued after next month'''s operation. '''The market is not expecting that we will prolong''' it, he said.[10] The euro rose modestly. The European Central Bank kept its benchmark interest rate at 1.00%, as expected. ECB President Jean-Claude Trichet said the ECB plans to phase out its unlimited liquidity operations next year.[11]
Initial jobless claims declined by 20K to 512 K in October 31 week. The ECB and the BoE have decided to keep interest rates on hold, at 1% and 0.5% respectively while the Bank of England approved a GBP25 billion boost to its assets buying program, to a limit of GBP2000 billion. EUR/USD extended its recovery from 1.4810 low to 1.4915 high, as Jean Claude Trichet, ECB's president gives his first press release after the ECB' monetary policy decision, although the Euro has failed to remain at 1.4900 and trades now around 1.4870.[12] The 12-month refinancing program was used by banks to take huge loans from the ECB, worth billions in some cases, at rates near 1%, with a 12-month maturity. On fiscal policy, Mr. Trichet again noted that governments need to return to fiscal stability (a shot at euro-area governments currently bulking up their budget deficits and national debt). Interestingly, he added that "high public deficits and debts may complicate the task of the single monetary policy to maintain price stability", which should sound as a huge warning bell from the head of the ECB. Down the line, high public deficits could act as a destabilizing factor on the euro area, creating price instability and weighing strongly on the EUR/USD exchange rate. The Q&A conference was straightforward, with Mr. Trichet reiterating his dissatisfaction with the weakness of the dollar and echoing calls on the U.S. to stand behind its "strong dollar policy." During the Q&A session, Mr. Trichet put a lot of emphasis on the fact that banks should repair their balance sheets.[13]
As for the downside, gold now has multiple uptrend lines serving as technical cushions and the psychological $1050/oz level is working the precious metal'''s favor now. Investors should keep an eye on the EUR/USD and AUD/USD and monitor their ability to break through their respective Friday highs. Investors should track the S&P'''s present interaction with its own psychological 1050 level. It seems we should be in for another volatile week considering the amount of econ data we have to go along with Fed, BoE, and ECB monetary policy decisions. Therefore, investors should exercise caution and monitor the markets carefully since surprising news could shift sentiment rather quickly.[1] Investors are monitoring the Dollar as the markets digest today's monetary policy decisions from the ECB and BoE while contemplating a test of the psychological $1100/oz level. Regardless, this week's breakout was a sign of strong support for gold's uptrend since the precious metal moved without full participation from the Dollar.[14]
Analysts predicted that the BoJ would end the program since it hasn't received much interest from corporations. Fortunately for bulls, the USD/JPY has found support at its psychological 90 level and our 2 nd tier uptrend line. Both the EUR/USD and GBP/USD are heading higher following their respective monetary policy decisions. The question becomes whether the EUR/USD and GBP/USD can make a commitment to their near-term uptrends. Such a movement could be positive for the USD/JPY as long as U.S. equities follow suit.[15]
As for the downside, crude futures have our 1st tier uptrend line, Friday lows, and the psychological $75/bbl level serving as technical cushions. The EUR/USD is trading well off October highs and its psychological 1.50 level while the S&P futures are presently staring down their own psychological 1050 level. Therefore, topside headwinds remain with more important econ data on the way along with central bank meetings beginning with the Fed on Wednesday.[1] Crude futures find themselves stuck around their psychological $80/bbl level following mixed U.S. labor data and relatively quiet central bank meetings. Both the Fed and ECB kept their monetary policies unchanged, while the BoE increased its QE packaged by 25 billion Pounds vs. 50 expected.[7]
Market's focus has turned to ECB and BOE meetings. USD recovers from yesterday's low as both European central banks are likely to keep interest rates unchanged. The ECB is expected to keep the main refinancing rate unchanged at 1% this month.[16] U.S. Non-farm productivity was also released overnight and saw the figure surge well above market expectations to be now at a 5-year high of 4.3%. Last night also saw the Bank of England (BOE) and the European Central Bank (ECB) announce that their interest rates were to remain unchanged. The central banks announcements and the rise in equity markets in both the U.S. and Europe yesterday saw the USD lose some strength. The GBP/USD rallied to a two-week high of 1.6637 after the BOE extended quantitative easing and the EUR/USD also improved to 1.4880 after the ECB took a step in removing its emergency stimulus measures.[17]
The data had initially given a mild boost to risk sentiment that benefited the dollar's rivals, but that effect had worn off by mid-morning. Otherwise, currencies have registered only limited response to Thursday's largely as-expected policy decisions by the Bank of England and the European Central Bank. Both held their benchmark interest rates steady, though the U.K. monetary authority also announced an expansion of its asset purchase program to lend further support to the U.K.[18] At the press conference following the ECB's monthly rate decision press, at which it left its key interest rate unchanged at 1%, central bank President Jean-Claude Trichet issued a statement of two halves, addressing monetary and fiscal policy. On the monetary front, the statement was little changed from his more recent monthly missives.[13] The European Central Bank left interest rates unchanged at 1% while ECB President Trichet hinted at the central bank's exit strategy.[19]
FRANKFURT, Nov 6 (Reuters) - Bundesbank President Axel Weber is gaining a reputation as the leading indicator for the European Central Bank. ECB President Jean-Claude Trichet's signal on Thursday that the ECB will likely not extend its 12-month liquidity operations into next year followed a similar suggestion by Weber in a speech a week earlier. This follows Weber's argument earlier this year that 1 percent should be the lower limit for the ECB's main policy rate -- a level the central bank has not yet crossed, nor is expected to.[20] After the so long awaited data, and usual spikes, both Euro and Gbp are barely above pre data levels against dollar, as any of both Central Bank had shock markets, keeping rates and policy accordingly to expectations. They kept rates unchanged and slowed the pace of bond purchases, announcing plans to increase it by 25 billion pounds to 200 billion pounds; the Committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of under-utilized resources persists, bearing down inflation for some time to come.[21] Locally, the RBA Governor Glenn Stevens addressed a dinner in Melbourne last night and said that "the neutral cash rate is higher than the current level" but was refusing to come out with a specific number as it is "dangerous to put a precise figure on it". Today we will see the RBA publish its Statement on Monetary Policy, which contains the central banks economic outlook for the year. Markets are expecting that this document will show a positive outlook from the Reserve Bank on the Australian economy.[17]
As other central banks, UK policy makers kept interest rates at record lows of 0.50% and increased asset purchases to 200 billion pounds, 25 billion pounds less than forecast, citing signs of economic recovery taking hold.[6] EUR/USD - The European Central Bank kept their target interest rate at 1.00% as expected as policy makers continue to view rate are appropriate or the current environment.[22]
For much of the past year, the dollar has tended to fall when stocks rise, a reflection of high risk appetite and investor preference for stocks, commodities and higher-yield currencies over the low-yielding dollar. Both the ECB and Bank of England left interest rates on hold Thursday, as did the Fed the day before, though sterling initially rose after the bank increased its asset buying program by less than many had expected. That suggested the BoE may be signaling a slow withdrawal of emergency measures, while some analysts said the Fed's move to cut the amount of housing agency debt it buys might also be a nod in the same direction.[5] Focus today is set on markets' interest rate decisions, since the ECB and BoE are scheduled to keep interest rates steady at 1.00% and 0.50% respectively. Due to these announcements markets are steady, while the dollar is mixed versus major currencies. In the U.S. economy today, they are releasing initial and continuing claims ahead of the jobs report tomorrow, which is another reason why markets are calm.[23] The European single currency and the British pound rose against the dollar after the interest rate decision by the ECB and BoE. The ECB held the rate unchanged at 1%, while Trichet confirmed that the economy is recovering and the stimulus package will be withdrawn soon.[24]
The euro hit as high as $1.4917 EUR=, according to Reuters data. It last traded at $1.4847, down 0.2 percent on the day and above a session low of $1.4810. Trichet, speaking after the ECB held interest rates at a record low 1.0 percent, said the latest evidence suggests a pick-up in activity in the second half of this year. He also said extra liquidity measures would be withdrawn in a timely manner.[4] '''Looking ahead, and taking into account the improved conditions in financial markets, not all our liquidity measures will be needed to the same extent as in the past'''. During the Q&A, Trichet said that he would say nothing to dispel the market view that the ECB won'''t offer 12-month loans next year and left open the possibility to charge a higher interest rate at the December 1-year tender.[8]
But,''as markets currently expect an ECB rate hike''in the third quarter of next year, setting the interest rate''on''one-year liquidity offered next month at the current policy rate, could''be seen as''a loosening. My best guess is that Mr Trichet did not really intend his comment to refer at all to December's operation - and that a decision about the terms of that offer are not yet decided. The scope for mis-signalling in December does appear to strengthen the case for some form of indexing - so the interest rate changed for the one-year liquidity would rise if the ECB did decide to increase its main policy rate in 2010.[25]
Many economists see the ECB's decision to flood markets with liquidity and push overnight rates down to around 0.3 percent as zero interest rates by stealth, and a compromise between the polarised views of Weber and Orphanides. Weber said in March he would like to see the overnight deposit rate not fall below 0.5 percent, but the ECB cut this to 0.25 percent in April.[20]
Weber, 52, joined the German central bank from academia in 2004, the year before the ECB began to raise interest rates and was quickly cast as a typical Bundesbank super-hawk. One of those who pushed for the ECB to resume its tightening cycle after a year-long break and raise rates in July last year, he had to backpedal when the collapse of Lehman Brothers and the escalation of the financial crisis called for sharp rate cuts. Looking at his public comments, Weber has been one of the most outspoken among the national central bank governors.[20] The central bank as mentioned will announce interest rate, and as investors wait for the big announcements, we see the pound trying it hardest to gain versus the dollar.[26] In October, Australia became the first among G-20 nations to hike interest rates since the onset of the financial crisis in late 2008. The Reserve Bank of Australia raised its key interest rate for the second straight month on November 3. On October 27, India's central bank ended some of its liquidity support measures, signaling the start of its exit strategy.[9] The European Central Bank announced that interest rates would stay at a record low of 1.00%.[6]
LONDON, Nov 5 (Reuters) - The dollar and the yen gained broadly on Thursday as the euro and perceived higher risk currencies succumbed to profit-taking ahead of policy decisions by the Bank of England and the European Central Bank. Traders were wary of extending the rally in riskier assets triggered after the U.S. Federal Reserve on Wednesday kept its commitment to low borrowing costs for an "extended period", driving the safe-haven dollar lower.[27] TORONTO (Dow Jones)--The dollar is marginally higher against the euro and down slightly versus the yen early Thursday, with the currency market so far registering only limited response to Thursday's policy decisions by the Bank of England and the European Central Bank.[28]
The rate hike decision ball gets thrown '''across the pond''' to the Bank of England (BOE) and the European Central Bank (ECB) this morning for their versions of: Leave rates at present levels, but try to sound upbeat''' I think you'''ll have the '''tale of two central banks''' here this morning. While both will keep rates unchanged, I think you'''ll see the BOE opt for more bond purchases in an attempt to shore up Britain'''s banking system. The ECB will NOT be making any such announcement.[29] Now the markets''' attention turns to the BoE and ECB. We expect the central bank will hold rates and at the often hyped ECB press conference, Trichet will stick to the company line (that it'''s currently premature to implement an exist strategy).[30] VIENNA, Nov 6 (Reuters) - The European Central Bank will offer 12-month funds at 1 percent at its next one-year operation in December, ECB Governing Council member Ewald Nowotny said on Friday. "In December, we have said that already, we will certainly decide on a one-year tender, that means we will offer unlimited funds for one year at 1 percent," he said at the Vienna press club. ECB President Jean-Claude Trichet said on Thursday the Governing Council would decide on the rate for its 12-month tender at the December ECB meeting.[31]
Today's ECB press conference confirmed that central bankers begin to see the exit ahead, but are determined to approach it extremely slowly, to avoid the risk of derailing the recovery. It also confirmed that the major central banks are ready to sign a truce with the markets to avoid a head-on confrontation on the issue of asset bubbles'although Trichet was slightly more aggressive than Bernanke, and explicitly acknowledged that maintaining the current scope of liquidity support would pose a risk of bubbles and of excessive trading profits in the banking sector[32] During the Q&A, Trichet explicitly acknowledged that maintaining the current pace of extraordinary liquidity provisions (notably with the 1-year LTRO) could pose a risk of bubbles and excessive trading profits in the banking sector. This reinforces the idea that economic and financial conditions are beginning to normalize to a sufficient degree that the gradual unwinding of liquidity support needs to begin, albeit gradually. It is a meaningful admission that the risk of early bubbles features in a very concrete way in the ECB'''s discussions. One issue that was left un-addressed, however, is the dichotomy that we have been highlighting within the eurozone'''s banking system, with some banks still heavily dependent on the ECB and therefore more exposed to risks as liquidity support is scaled back.[33]
Along with that ECB President Trichet indicated that the auction of unlimited 12 month loans will not be extended after next month. This helped support the euro against negative economic data showing that Eurozone retail sales fell 0.7% in September, lower than forecast of a 0.2% increase. Sterling increased against the dollar after the Bank of England expanded its debt-buying program by less than predicted.[6] London, 06 November 2009 - Thursday was all about rate announcements as both the Bank of England and the ECB followed the Feds lead leaving base rates unchanged at 0.5% & 1% respectively. As with the Federal Reserve the focus was more on the strength and tone of accompanying statements as both banks signalled they would start to withdraw emergency measures after Jean-Claude Trichet announced the withdrawal of some liquidity operation and the BoE slowed its bond purchase programme. Both Sterling and the Euro gained as a result however the Dollar Index finished down only 0.1% as traders remained cautious ahead of today'''s NF Payroll release.[34] Follow-ing the Fed'''s commitment to keep rates low for an extended period a better than ex-pected report may result in a further steepening of the U.S. yield curve, as it may raise concerns that the Fed is keeping rates too low for too long. In the euro zone, the steepening should be less outspoken after the ECB moved closer to a gradual exit from its emergency liquidity measures.[8]
Euro gains above $1.49 were short-lived, and analysts said investors were largely moving to the sidelines ahead of Friday's jobs report, expected to show a slower pace of U.S. job losses but another rise in the unemployment rate. "This is really going to be a serious indicator of the relative health of the U.S. economy," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.[5] The U.S. Unemployment Rate is expected to print at 9.9%, just a hair below the 10%. '''If the number prints at 10% or above, this could have a negative psychological impact on investors and rattle U.S. equities, thereby appreciating the Dollar. Any stronger than expected unemployment data could boost U.S. equities and lead investors towards higher risk vehicles such as the EUR/USD. Therefore, investors should keep a close watch on tomorrow'''s unemployment data while monitoring the Dollar'''s broad-based reaction.[7] The Dollar is getting a slight boost, yet the ECB'''s inaction leaves investors a bit disappointed. Therefore, although the technical environment for the EUR/USD and GBP/USD are improving, downside pressures remain. Due to all of the mixed signals around the marketplace, crude is opting to consolidate around $80/bbl as investors await tomorrow'''s key unemployment data from the U.S. The U.S. will print its headline Unemployment Rate along with Services Employment Change data.[7]
There remains a downward pressure on U.S. equities, meaning investors could continue to favor the Dollar since the Greenback and equities are normally negatively correlated. Therefore, investors should keep an eye on the S&P'''s reaction to upcoming econ data and Q3 earnings, particularly if we should witness a retest of October lows. The Cable should ultimately follow its positive correlation with U.S. equities despite its relative strength as of late, that is unless the BoE behaves surprisingly hawkish at this week'''s policy meeting.[1] The U.S. dollar traded lower vs. most major currencies as an increase in equities and positive economic data increased investor risk-appetite for higher-yielding currencies.[6]
Regardless, today's monetary policy decision may provide investors with enough incentive to send the Cable higher towards October and September highs, especially if tomorrow's U.S. unemployment data prints positive.[35] Though U.S. data will be relatively quiet tomorrow, the markets should come to life on Wednesday with the release of ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data points. Not to mention the FOMC will announce its monetary policy decision later that afternoon, only to be followed by the BoE and ECB on Thursday.[1] To recap''' The FOMC left rates unchanged and said they would remain there for an '''extended period of time''' this sent the dollar to the woodshed, but reversed on a dime''' PPT at work? The BOE and ECB meet this morning to discuss monetary policy.[29] As we expected yesterday, the Fed was unwilling to end the liquidity-fueled party just yet and that'''s just what happened. The FOMC members voted unanimously at the meeting to hold rates steady and indicated its ultra loose monetary policy would remain "excessively low" for '''an extended period.''' The recent sell-off in risk correlated trades has been driven primarily by the worries that the Fed would subtly signal a timetable for its exit strategy.[30] Nowotny said the ECB has no pre-commitment on whether further 12-month tenders will be held in 2010, or on the continuation of three-month and six-month tenders. "It will depend on the economic development. We will discuss it at our meeting in December," he said. Nowotny also underlined that the scenario for the coming two years points to a very low rate of inflation, saying this "leaves a certain elbow-room" in terms of monetary policy.[36]
The main event in the currency markets was of course the FOMC meeting that concluded with the publication of the statement at 20h15 CET. However, it seemed that the market correctly anticipated the FOMC decision to keep its ultra-loose policy in place and continued to anticipate keeping rates at these exceptional low levels for an extended period of time. This is intrinsically of course dollar negative as it leaves the U.S. with the most loose policy stance throughout the world and might incite traders to use the dollar as funding for carry trades. EUR/USD which bottomed already at mid session on Tuesday continued its recovery throughout yesterday'''s session to trade at 1.4850 when the FOMC was released, up from opening levels around 1.4720.[37] The U.S. jobs report will set the tone for the day as it represents a way to gauge the health of the economy - namely consumer spending. This year's report carries a little more weight than previous reports because it will either back or refute the recent evidence that the economy has turned the corner. Equity market traders are hoping for a good number ahead of this year's holiday season. On Wednesday the U.S. Federal Reserve announced that it remained committed to its low interest policy for an "extended period." This statement can be interpreted by investors as a 30-day free ride in the market until the Fed meets again next month. This means the possibility of a softer Dollar and greater demand for higher yielding assets.[19] Although, we will have to see how the Fed acts on Wednesday first. Therefore, between now and then activity in the EUR/USD will likely focus on U.S. econ data and Q3 earnings reports. Investors should keep an eye on the S&P futures and their interaction with present technicals along with October lows should they be tested.[1] Today'''s early morning rally in the EUR/USD has halted in reaction to the decision, and could limit immediate term gains in the S&P until we receive tomorrow'''s wave of data. The S&P futures have popped back above their psychological 1050 level and our 1st tier uptrend line, and it appears they may try to make a run towards our 2nd tier downtrend line. Investors should keep in mind that gold experienced a large topside breakout earlier this week.[7] As for the downside, crude has our 1st tier uptrend line serving as a technical cushion along with 11/3 lows. There aren'''t too many strong immediate-term supports below these cushions besides the psychological $75/bbl level. Therefore, crude futures could easily reverse course should their present cushions give way.[7] Gold has 11/05 and 11/04 lows serving as technical cushions along with our new 3 rd tier uptrend line and the psychological $1075/oz level.[14]
As for the topside, the EUR/USD now has multiple uptrend lines bearing down on price and the psychological 1.50 level becomes a technical barrier once again.[1] The EUR/USD has three uptrend lines to fall back on along with the psychological 1.45 level should the currency pair take a turn for the worst.[1] The currency pair sank past the highly psychological 90 level along with our 1st tier uptrend line on high volume.[1] The currency pair is getting awfully close to our 2nd tier uptrend line, which may separate the GBP/USD from stabilization and a retest of the psychological 1.60 level.[1]
The S&P futures are fighting to climb back above our 1st tier uptrend line and the psychological 1050 level.[1] Crude is strengthening from our 1st tier uptrend line after bottoming out above the psychological $75/bbl level.[1]
The precious metal has since plowed past the psychological $1050/oz level and our 1 st tier downtrend line after U.S. ISM Manufacturing PMI and Pending Home Sales data points knocked aside analyst expectations.[38]
Yesterday the Bank of England announced that interest rates would remain at the historically low 0.50% level. The BoE did increase its quantitative easing program by $41 billion. This figure came within the range of expectations and triggered a rally in the GBP USD. The main trend is up and the market is within striking distance of the October high at 1.6691.[19] We forecast an ongoing recovery in private sector activity, particularly evident in the housing market, which will lead to a tightening in the mortgage and corporate spreads offered by the banks. In our view the BoE will want to absorb this by raising interest rates from 'emergency' low to a level that is still extremely accommodative.[32]
USD traded mixed to lower Thursday as investors digest the impact of Wednesday's decision by the Fed to maintain low interest rates for an extended period and today's decision by the BOE to maintain current level of interest rates and expand its asset purchase plan.[39]
Majors: As noted above the jobless claims data out of the U.S. beat market expectations, with all eyes now on the U.S. payroll data, which comes out in the U.S. tonight. Should this data be positive and with the FOMC continuing to keep the U.S. interest rate at 'emergency lows' we could see further movement away from the USD into riskier currencies.[17] The S&P advanced 1.5 percent after the U.S. Labor Department announced that initial jobless claims dropped to 512,000 in the week ended Oct. 31. The Fed reiterated yesterday its intent to keep interest rates '''exceptionally low''' for '''an extended period''' as long as the inflation outlook is stable and unemployment fails to decline.[10] The Federal Reserve kept interest rates at a record low range of zero to 0.25%. The Fed also repeated its intention to keep interest rates '''exceptionally low''' for '''an extended period''' as long as inflation expectations are stable and unemployment fails to decline.[6]
ECB President Trichet should continue to describe current interest rate as 'appropriate' while growth and inflation risks as 'broadly balanced'.[16] On inflation, Trichet reiterated in the introductory statement that '''over the policy-relevant horizon, inflation is expected to remain positive with overall price and cost developments remaining subdued, reflecting ongoing subdued sluggish demand in the euro area and elsewhere." The beginning of the rate hiking cycle will not be imminent as long as the ECB sticks to this sentence and does not add significant upside risks to its medium term inflation forecast.[40]
In the press conference following the ECB policy decision ECB president Trichet made positive comments about EU economic outlook and signaled the first steps towards an exit strategy from non-conventional policy measures. His comments boosted demand for the EUR. AUD was supported by hawkish comments from RBA governor Stevens that neutral policy is higher than current yields JPY traded higher supported by risk aversion as equities decline in Asia.[39]
"Following the very sharp gains seen (in the euro and higher risk currencies) in the wake of the Fed decisions, it is not surprising to see a bit of profit-taking, particularly given that equities and commodities have moved lower," said Michael Klawitter, currency strategist at Commerzbank in Frankfurt. "But I see this as profit-taking and nothing else. After the Fed announcement the negative carry of the U.S. dollar versus other G10 currencies has increased and the risks are that the euro will move back above $1.50," he added.[3]
Little new was said on the exchange rate. Trichet reiterated his references to the strong dollar policy saying that '''we appreciate the statements made by the U.S. secretary of the Treasury and the chairman of the Federal Reserve on the fact that a strong dollar vis-a-vis the euro and other major floating currencies is in the interests of the United States, and I echo these statements as something which is important in the present circumstances.'''[40] The key news released overnight was the U.S. Federal Reserve Rate announcement, which kept rates on hold as expected, weighing on the U.S. Dollar.[41]
TORONTO (Dow Jones)--Most major currencies are trading in narrow ranges Thursday as investors await guidance from Friday's U.S. October non-farm payrolls report. The dollar has fluctuated during the New York session on both sides of late Wednesday's levels.[42] Data showed New Zealand'''s jobless rate hit a nine-year high to 6.5% in the third quarter, which backed the case for rates to be held low well into the coming year. The Mexican peso gained for the first time this week as U.S. stock rose, boosting investor demand for riskier assets.[6] NEW YORK (Dow Jones)--Major currencies stalled in a holding pattern Thursday, despite strong gains in U.S. stocks, as cautious investors looked toward Friday's U.S. jobs data, seen as a key gauge of economic health.[43] NEW YORK (Dow Jones)--The euro dropped against the dollar Friday after disappointing U.S. unemployment data cast doubt over the pace of the global economic recovery.[44] TORONTO (Dow Jones)--The dollar is now flat against the euro and yen Thursday morning, as currencies stick to narrow ranges after better-than-expected U.S. economic data.[18]
The dollar's net movement was slight ahead of the monthly employment report, with the foreign-exchange market shrugging off a 200-point surge in the Dow Jones Industrial Average and some better-than-expected U.S. economic data.[43]
The U.S. Dollar is trading lower ahead of this morning's U.S. jobs data report.[19] Australia: Weaker commodity prices have held the AUD back overnight despite the positive data releases out of the U.S. and strong gains in the U.S. equity market. The AUD has opened slightly higher this morning to be currently trading just under USD0.9100. Better than expected jobless claims data should have seen the AUD rise further, one would have thought, but these gains were limited by commodity prices trending lower during the offshore session.[17] U.S. economic data was positive with jobless claims dropping to the lowest level since January, Q3 productivity rose the most in six years and unit labor costs declined by more than expected. The drop in the jobless claims may encourage analysts to revise their nfp estimates lower.[39]
Minutes from the Bank of Japan'''s October meeting show that policymakers felt it important that rates be kept low despite an end to the emergency funding programs. The Canadian dollar was slightly firmer against the U.S. dollar after U.S. jobless claims fell and productivity rose at its fastest pace in six years.[6] As financial markets wait to see if the Bank of England extends quantitative easing later Thursday and whether the decline in U.S. non-farm payrolls slows as expected, the dollar is higher as investors avoid risk.[45] Improving investor sentiment towards risk is still considered a good reason to sell the U.S. dollar. On top of that, in this low yield environment, the dollar has become (or is at least perceived to have become) the preferred currency to fund carry-trade deals.[37]
Statistics Canada reported permits for housing construction in Canada surged to a one-year high in September to 1.6% as expected. Although investor appetite for risk has spurred on positive economic news, many are still holding back as they await both Canada and the US'''s employment reports due tomorrow.[6] Earlier in Asian session, the MSCI Asia Pacific Index dropped -0.4% as New Zealand's unemployment rose to 6.5% in 3Q09 from 6% in the prior month. South Korea's Finance Minister said he's uncertain of the nation's economic growth is unsustainable as it remains too dependent on external demand. This diminished investors' risk appetite.[16]
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At the press conference, however, investors may pay attention to questions about new 12-month tender operation. It's interesting to know if the central bank will charge a margin over the policy rate.[16] Perhaps interestingly, the committee refrained from expressing any skepticism over the reported 0.4% decline in Q3 GDP, simply noting that output continued to fall, but also remarked that a number of indicators suggested that a 'pickup in economic activity may soon be evident'. We note that the BoE is the only major central bank to be still easing policy, while in some other economies (Australia, Norway and Israel), rates are already on their way up. Whilst the MPC acknowledged signs of global recovery and asset price strength, its core assumption is that there is a very large output gap and despite near-term upward pressure on inflation from weaker sterling, this dominates the medium-term outlook for inflation.[32] Policy makers may take some solace in the fact that domestic demand has started to show signs of life as economists were expecting a 0.2% rise on the month. Regardless, the central bank will maintain their measured approach unless inflationary pressures rise, which would force them to begin tightening as the look to adhere to their price stability mandate. GBP/USD - The BoE left their benchmark rate unchanged at 0.50% today but added £25 billion to their asset purchase program to bring the total to £200 billion. The central bank was upbeat in their post release comments stating that banks funding conditions have improved and a pickup in U.K. activity may soon be evident.[22]
For BOE, the most important issue is whether the central bank will extend the 175B-pound asset purchase program as keeping the policy rate at 0.5% is widely anticipated.[16]
A day after, Norway's central bank became the first in Europe to raise key interest rates as economies in the region show signs of emerging from the financial crisis.[9] The British Pound was under pressure the whole day as traders positioned themselves for the Bank of England meeting on November 5th. Traders seem to be betting that the BoE will leave interest rates alone but may announce an extension or an expansion of its asset purchasing program. Currently this market is rangebound between 1.6691 to 1.6250. The mid-point of this range at 1.6470 repelled the market today. The close under this price indicates weakness.[2] BoE also left interest rates unchanged at a record low of 0.5% as widely expected.[46] Treasury interest rates have risen off their lows, credit spreads have narrowed and interbank rates have declined, indicating the financial panic is over and the economic outlook is improving.[11]
The ECB left the interest rate unchanged, but Trichet's speech spurred confidence and enhanced demand on the euro.[24] The comment came in''response to a question about whether overnight market interest rates''needed to''be brought up closer to the ECB's main policy rate. "It is not our intention to change that in the next period of time," Mr Trichet confirmed. The obvious''conclusions were that the ECB would not rush to drain liquidity and would''continue into next year to provide liquidity on an unlimited basis in its weekly operations.[25] The recent moderate correction in risky assets has helped defuse the situation, but the truce remains fragile. Trichet implicitly confirmed that the December 1-year Long Term Refinancing Operation will be the last of its kind, as the improvement in activity and financial markets is sufficient to start gradually phasing out the exceptional liquidity support. He was at pains to reassure that the exit will be slow and gradual, timed to economic and market conditions. He stated that the ECB has no intention to move short term rates away from the deposit rate (0.25%) and towards the refi (1.0%).[33] "Most likely, the liquidity measures can be rolled back sooner than the rate-related measures," Nowotny said. His comments lend credibility to those market observers and analysts who don't expect the ECB to increase its core refinancing rate from the current historically low rate of 1% before the second half of 2010 at the earliest. Analysts at UniCredit MIB, for example, wrote in a note Thursday they anticipate the refi rate staying on hold throughout 2010. The ECB has also indicated it may start gradually phasing out liquidity support after the last planned 12-month tender in December this year, the analysts said.[36] The euro-area and global economy are recovering at a sluggish pace and the outlook is rather fragile. The bank's governing council did, however, make its first reference to a possible exit strategy from current emergency policy, saying that, "Looking ahead. not all of our liquidity measures will be needed to the same extent as in the past". This echoes the statement made by Bundesbank President Axel Weber a week ago, when he said that the ECB's 12-month refinancing program -- the main liquidity tool used by the bank during the credit crisis -- might not be available next year.[13] In comments which contrast with the ECB's official line, Nowotny said the decision to extend the central bank's one-year loans to banks -- accounting for 75 percent of outstanding ECB liquidity -- would depend on the economy.[47] The president clearly hinted that the exit strategy would soon (in a few months) be im-plemented. For the first time, he said that '''taking into account the improved condi-tions in financial markets, not all our liquidity measures will be needed to the same extent as in the past''' and also ''''''the Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed.''' It looks to us that the ECB will be the first major Central Bank to unwind these emergency measures.[48] The central bank chief refused to "dispel" a market view that the scheme would not be extended beyond December. He declined to indicate whether or not the ECB would apply a spread to December's operation. "The ECB will opt for the gentle backdoor exit for its non-standard measures, not for an active withdrawal of liquidity, by not extending these 12-months operations in December," ING economist Carsten Brzeski said.[9]
VIENNA, Nov 6 (Reuters) - Stopping the European Central Bank's 12-month liquidity operations next year is not a done deal, ECB Governing Council member Ewald Nowotny said on Friday.[47]
Earlier in Asian session, euro retreated on long-liquidation. The single currency rose from its intra-day low of 1.4811 after European Central Bank president Jean-Claude Trichet said that the latest eurozone economic data showed improvement in growth in the second half of 2009 and saw gradual recovery in 2010.[46] The greenback traded lower versus the euro before the U.S. payrolls report on speculation the Federal Reserve will trail other major central banks in ending economic stimulus.[10]
The USD/JPY has backed away from yesterday's highs after the currency pair was deflected by our 2 nd tier downtrend line. Today's strength in the Yen came despite the fact that the BoJ's meeting minutes showed that just because the central bank decided to halt its corporate bond purchase program, this doesn't necessarily imply that the BoJ will reign in liquidity any time soon.[15] Tomorrow'''s Australian central bank meeting could have a spillover effect on the New Zealand Dollar.[2] So''' With the FOMC finished and the two European Central Banks on the docket today, somehow the risk aversion has crept back into the markets. I received an email from a reader the other day, asking me why I prefer Australian dollars ( AUD ) to New Zealand, as the kiwi ( NZD ) had outperformed its kissing cousin across the Tasman from 2002 to 2008'''. '''Both countries have survived the crisis well, due to a mix of strong institutions and stimulative policies. Their immediate prospects are different.[29]
Educated at Cambridge and Harvard, Krishna was a Fulbright and CV Starr scholar. He has worked as an FT economics editorial writer and Lex columnist. He has been watching the European Central Bank and eurozone economies since 2004. He has previously worked in London, Bonn, Berlin, Jerusalem and Brussels. A speaker of Chinese and Japanese, he joined the FT as Taipei correspondent in 1998 and was Beijing correspondent from 2003 to 2008. Before that he was a journalist and editor for Reuters news agency in Beijing and Tokyo.[25]
The ECB is probably the first of the major central banks to start a tightening of policy, even if it is more a redraw of part of the extra-ordinary monetary accommodation needed in the past year because of the crisis than already a genuine tightening.[48] There is increasing investor uncertainty surrounding the present monetary stances of the aforementioned central banks.[1]
Since the central bank meetings left something to be desired, tomorrow'''s wave of data could prove to be a market mover.[7] The initial price reaction was one of uncertainty as the central bank also reduced the target agency debt purchases from $200bn to $175bn. Participants seemed to be confused whether this was the exit signal they were searching for.[30]
The supple-ment will be set at 0.25 percentage points for loans with three-month and six-month maturities and at 0.30 percentage points for loans with twelve-month maturities. The Bank said that '''by gradually raising the price in line with the further improvement in market conditions, the facility will be phased out naturally and the banks will be en-couraged to gradually reduce their dependence on Riksbank loans'''. A similar ap-proach could also be followed by the ECB for their supplementary tenders, as the 6- and 12-month Euribor rates are now at or even higher than the 1% level at which the ECB provides the funding.[8] ECB policy remains on hold for now, but the bank is clearing the way for withdrawing some of its extraordinary liquidity support measures. The impression given by the ECB is that its exit strategy will be both gradual and careful given likely only gradual Eurozone recovery, the major uncertainties still surrounding the outlook, subdued inflation over the policy-horizon period and anchored medium-term inflation expectations.[32] Improving economic conditions in the Euro Zone are showing that stimulus measures are no longer warranted. Traders are basing their expectations on the following statement by Trichet, "will make sure that the extraordinary liquidity measures taken are phased out in a timely and judicial fashion and that liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term." This upbeat assessment of the Euro Zone economy helped the Euro yesterday and is giving it additional support overnight.[19] Nowotny also said the economy was still fragile and faced many risks, especially from euro strength versus Asian currencies, and it would be a topic Trichet would raise later this year with Chinese officials. 'What we are seeing is the beginning of upward trend. but only a slow upward trend,' he said. 'It is not only about strengthening of the euro against the dollar, but also Asian currencies, which are pegged to the dollar. It is important to break the distortions in the foreign exchange market, and Trichet and European Union's Economic and Monetary Affairs Commissioner Joaquin Almunia will talk about that in Beijing, he said. They are scheduled to travel to China by the year-end with Eurogroup Chairman Jean-Claude Juncker.[47] Interesting to notice, Trichet does not see improved economic performance, saying recent data has shown some strength but also weakness, capping Euro rally. Still risk appetite and dollar weakness remain strong across the board, favoring both European currencies to the upside.[21]
Trichet is becoming increasingly concerned that fiscal sustainability could become jeopardized, and the wording on fiscal policy has become harsh. Today he warned that '''many Euro area governments are faced with high and sharply rising fiscal imbalances. If not addressed by a clear and credible exit strategy, this could seriously risk undermining public confidence in the sustainability of public finances and the economic recovery.[40]
On the dollar, we expect no news either. Compared to the previous meeting, the trade weighted euro is nearly unchanged and Trichet knows that speaking too much about currencies when one has not the leverage to influence its course is contra-productive. In this respect the ECB meeting probably will be neutral for the EUR/USD pair. [37] The Q3 productivity will be very strong (but that'''s also the consensus) while the claims are difficult to gauge, but the trend is still downward oriented. We expect the ECB to keep its statement very close to the previous one, signaling an unchanged policy stance and Trichet to give a dull performance. He might acknowledge that the economy has improved, but in a way that is not relevant for policy and lecture the governments on the need for a fiscal exit strategy. On its exit policy, we don'''t expect much new either. The December meeting should in this respect be more interesting, also because the ECB will have the new staff forecast (that should show an upward revision of growth).[37]
Today, the U.S. eco calendar is less interesting with the Q3 productivity figures that should be outstanding and the weekly initial claims where the trend is down, but weekly surprises are a fact of life. The ECB and BoE meetings will be closely followed, but we don'''t see them having a major impact on USD/JPY. Equities will remain the most important factor and here yesterday'''s dismal reaction on the FOMC statement suggests that another selling wave may be around the corner, which if it happens should help the yen to some gains. It will remain trading within a rather tight sideways range.[37] The currency market got quite a lot of key drivers like the ECB and BoE meetings, the stunning U.S. productivity data and an ebullient equity run.[48]
Just like in October, the ECB may be pleased with the status quo. It is only in December that the debate inside the ECB will heat up and the ECB will have to come with decisions about the fate of its emergency liquidity measures introduced in the crisis.The meeting of the BoE may have more market impact as a decision is expected on the extension of the QE (currently worth ''175B). It is probably a finely balanced decision.[37] The ECB was complaining about the strength of the Dollar recently, and the Euro has since declined about 300 basis points. The ECB may be less inclined to take any liquidity measures at this week'''s meeting.[1]
The ECB is likely waiting to see how the Euro interacts with the Dollar and Yuan over for a little longer before moving forward. This neutral language isn'''t quite what the bulls were hoping for, yet the EUR/USD is trading in a relatively strong technical position despite today'''s inaction.[7] The EUR/USD is currently trading at $1.4870 as of 20:41pm, GMT with a bullish trend. The British pound jumped against the dollar on Thursday after the Bank of England expanded its quantitative easing program by 25 billion pounds, against some analysts expectations of a bigger increase expected at 50 billion.[10]
'''However, Australia'''s potential raised the prospects for New Zealand'''s manufacturers and services, which have a bigger share of exports than the same sectors in Australia.''' The Brazilian real ( BRL ) rally took a walk on the wild side yesterday, gaining 2.5% versus the dollar in one day! But that'''s relatively tame for some of the wild moves we'''ve seen in recent times with the real''' As long as you are not watching the currency like a hawk, and sweating out each pip move, this is no biggie''' Keep your eyes on the horizon. OK''' I had a few callers and emails yesterday telling me that I was wrong about the gold sales to the Reserve Bank of India (RBI), saying that it was done in SDRs''' I think the confusion exists in the fact that the gold sale kept getting reported as $6.7 billion worth of gold''' But to put these questions to rest''' Here is a report from the Economic Times of India (their leading financial newspaper).[29] NEW YORK, Nov 5 (Reuters) - The dollar held steady against a basket of currencies on Thursday a day ahead of a key government jobs report that will shed light on the health of the U.S. economy.[4] The economy likely lost 175,000 jobs in October, while the jobless rate rose to 9.9 percent, according to economists polled by Reuters. "We should be relatively subdued today given the fact that we have this very important number out tomorrow," said John McCarthy, director of foreign exchange at ING Capital Markets in New York. "This is really going to be a far more serious indicator of the relative health of the U.S. economy. Until you see jobs recover, you are not going to get any sustainability in the economic turnaround, nor are you going to get any reason for the Fed to tighten," he added.[4]
Jobless claims in the U.S. fell by 20,000 to a seasonally adjusted 512,000, which was below markets expectations of 523,000. This is the lowest figure that the U.S. has seen in 10 months. This data is watched closely and seen as a gauge as to the pace of layoffs and the indication of employer's willingness to hire new workers, which can indicate how the U.S. economy is recovering.[17]
U.S. productivity surged for a second quarter and jobless claims declined more than expected. The S&P 500 rose 20.13 to 1,066.63, supported by those good economic news and an optimistic outlook from the technology giant Cisco.[11] The U.S. Dollar was generally weaker during the New York session following the release of a better than expected ISM Factory Report.[2] A weaker than expected report may support bonds, but after the recent deterioration in sentiment, we feel the upside is rather limited, unless equities would fall below key support at 1019 in the S&P. Regarding the European bond market, the longer-term bullish technical picture of the Bund started to deteriorate after the Bund fell off the highs at around 123.00 and broke below its long-standing uptrend channel. It didn'''t however come to a real test of the September lows at 119.85 and the Bund tried to recoup its lost uptrend channel, which failed for now. This suggests that the upside is limited and a new test of the lows may be looming, in case the report comes out stronger than expected.[8] Our 2nd tier uptrend line seems to be a key technical since it runs through October lows and likely represents the support separating the EUR/USD from a retracement towards 1.45.[1] There remain several uptrend lines we can form, meaning the EUR/USD has a few technical cushions to rely upon before investors can safely cry bear.[1] A downward momentum remains in the market, signified by our 2nd tier downtrend line and the pop in sell-side volume equities received on Friday. Therefore, the S&P futures are currently at a crossroads and investors should actively monitor the markets for any significant technical shift in either the S&P futures or their correlations.[7] Overall, although the uptrend remains intact, investors should tread carefully since U.S. equities are facing headwinds.[1] Friday'''s selloff in the USD/JPY accelerated on large volume as investors headed divested from riskier investment vehicles in reaction to the large selloff in U.S. equities. Friday'''s strength in the Yen also stemmed from the BoJ'''s decision to end a couple of its bond purchasing programs in an effort to tighten liquidity.[1]
Equities posted solid gains yesterday as traders and investor interpreted the ECB/BoE actions as a suggestion the broader economic picture was improving. Both the Dow and S&P gained in the region of 2% while markets have been bolstered overnight after the Reserve Bank of Australia suggested the Australian economy would expand at 3-times the pace forecast in August.[34]
The smaller than expected increase in the BOE's asset purchase plan is seen as a sign of confidence in the UK economy. Not all forecasters are satisfied with today's BOE decision, Kaletsky calls for the BOE to cut rates to 0.25% and a former MPC member says that the BOE should cut his remuneration rate to zero to encourage bank lending.[39] The'pound is down at $1.6516. The BOE will make a rate and policy announcement at 1200 GMT. Citigroup analysts say that in the wake of this week's strong PMI data which suggests a sharp rebound after the shock third-quarter GDP, the BOE's decision on QE remains finely balanced.[45] The problems that concerned investors on Friday haven'''t been answered today. Therefore, a downward pressure does remain and investors may wait for more econ data and the monetary policy decisions later this week before making a larger commitment in either direction.[1] The EU will be relatively quiet data wise until Thursday'''s monetary policy decision.[1]
Overall, with key econ data and an abundance of monetary policy meetings we should be in for another volatile trading week.[1] The EUR/GBP has been hit heavily recently, making today'''s pop in the currency pair and present relative weakness in the Pound warranted. The Cable is adding onto its losses today after a Bloomberg report signaled that many analysts expect the BoE to increase its QE package by 50 billion at its upcoming monetary policy meeting.[1] Traders believe that an increase in Chinese manufacturing will lead to a potential increase in Australian exports. Tomorrow the Reserve Bank of Australia holds its monetary policy meeting.[2] Lingering uncertainty on the huge U.S. financing needs, some international debate on the status of the dollar and the Fed'''s intention to run an expansionary monetary policy for a prolonged period of time offer additional ammunition for carry traders to use the dollar rather than other currencies. This has put the dollar in a vulnerable position. We stay dollar skeptical as long as we don'''t get a clear signal that the Fed is coming closer to reversing its very stimulating monetary policy.[37]
The outcome of the December LTRO will also give a very important signal. Trichet was hard on governments, stressing that a fiscal exit strategy is urgently needed to support confidence, and that lack of such a strategy would complicate the task of monetary policy and eventually lead to higher market rates and therefore higher refinancing costs for public and private sector alike'''including because of possible rating downgrades.[33] Friday'''s monetary policy falls in line with the BoJ'''s more conservative stance since the DPJ took office. The BoJ was likely encouraged by the USD/JPY'''s recent solid performance above its important 90 threshold. Yesterday'''s larger than expected decline in both the Tokyo Core CPI and Household Spending tell us the BoJ can'''t be too conservative with its monetary policy since deflationary pressures are still bearing down on consumer prices.[1] The MPC would go on to warn that inflation is likely to rise sharply in the near-term on the back of a weaker pound and stronger growth. Therefore, policy makers may start to consider tightening monetary policy sooner than previously expected as the try and stem rising consumer prices.[22]
There are the substantial easing in monetary and fiscal policy, the BoE purchases of assets and the substantial drop in sterling effective ex-change rate which supporting growth. There is the need of banks to repair their balance sheet which limits the availability of credit. [48] The BoE decision in August to raise the asset purchase program to ''175B and Governor King'''s call for an even greater effort indicated that the Bank intended to maintain a loose policy for a prolonged period of time. This triggered a new sterling selling wave. At the September meeting, the BoE took no additional policy steps and this applies also to the October meeting.[37]
Overall we believe the ECB meeting will be a non-event and energy would be better spent monitoring the BoE rate decision.[30] EUR/GBP trading was dominated by the BoE and the ECB meetings, but in the end the pair didn'''t close (0.89675) very far from previous closing levels (0.89768).[48] Now, the pair is trading around 90.50 after hitting a high of 90.86 and a low of 89.99; while the pair is currently facing the coming support level at 90.28, while the resistance is spotted at 90.70 then 90.85.[24] Palladium was in a similar mood trading $326.50-32.50. Both metals appear comfortable at current levels but may look to challenge recent highs at $1371 & $340 should today'''s data continue to support an improving economic outlook.[34]
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The psychological 1.65 level may now work in the Cable's favor. Investors should keep in mind neither the Cable nor the EUR/USD fully participated in the Cable's topside breakout earlier this week. Therefore, considering the BoE made a more hawkish than anticipated move today, gold may be hinting that a sizable pullback in the Dollar is in order.[35] Speaking of which, gold stopped just short of $1100/oz, hinting that the level could have a near-term psychological impact on investors.[14]
Investors found that U.S. prices and personal spending continue to decline while Unemployment Claims remain at historically high levels. Therefore, unemployment and consumption are lagging behind the improvement in corporate earnings.[1] The U.S. unemployment report will be key to investor risk sentiment and speculation about whether the U.S. recovery is sustainable.[39]
Improved U.S. labor market and growth outlook contributes to risk appetite and demand for high yield currencies like AUD. Tuesday the RBA elected to hike rates 25 basis points and gave no indication whether interest rates will be hiking in December.[39] FOMC held U.S. interest rates, and offered a stable outlook on forward growth, but still remained bearish on interest rates.[49]
ECB left interest rates unchanged at 1.0% and the single currency hit a one-week high at 1.4918 in New York morning before easing.[46] RBA Governor Stevens said that neutral policy is higher than the current level of Australian interest rates. His comments revive speculation that the RBA may hike rates again in December.[39] 'I hold it as probable that liquidity measures can be pulled back more rapidly than interest rates, but the exact timing, and the exact structure must be discussed, based on developments,' Nowotny also said.[47] Improvement in the job market is crucial to get the Fed thinking about higher interest rates.[5] The prospect of widening interest rate advantage helped keep the Aussie aloft.[6] Fans point to a January speech about the fallacy of interest rates being ineffective at zero.[20]
Industrial Production rose 1.6%, higher than forecast of 1.2%. Overnight, the Japanese yen held onto its gains against the dollar after yesterday'''s FOMC decision to keep rates at their record lows, but the dollar was able to recoup some of its losses after better than expected jobless claims. [6] EUR reaction to the ECB's decision to hold rate policy was mixed as the decision was widely expected.[39] Trichet would not comment on the spread on the December LTRO. The decision is to be taken in one month. Given that this will be the last 12-month LTRO and the ECB is now focusing on liquidity withdrawal, we think that a 10-15 bp spread will be added. The market initially reacted with higher rates, but they quickly came down again.[40] If 1.4860 goes, (the 20-day SMA) then by the time Jean Claude Trichet announces ECB rates on Thursday, the 50-day SMA may be in play at 1.4685. That is if global equities take the cue that a 1.5% tumble in 30 minutes equals stock jitters.[49]
Surging equities or increased risk appetite in recent months was a euro positive, while also the ECB press conference should be considered euro positive.[48] U.S. equities rallied sharply in reaction to today's data but the reaction in the Forex market was muted. There was little reaction to a statement from and NYU economist Roubini that he expects the USD to rise 20% over the next six months and that the end rally in risk assets may end abruptly.''''''[39] We doubt that with the recovery still fragile and extended weakness in the U.S. labor markets (reinforced by yesterdays ADP and ISM data) that the Fed would risk prematurely popping any asset bubble.[30]
Direction today will depend largely on the U.S. payrolls reading later with a better than forecast reading potentially fuelling increased risk appetite and pushing gold to new highs above $1100/oz in the coming sessions.[34]
The precious metal is usually negatively correlated with the Dollar and positively correlated with the S&P futures. Therefore, gold'''s breakout could be hinting at a similar movement in U.S. equities.[7] In midday trading, the ICE Futures U.S. dollar index, a measure of the greenback against a basket of six currencies, was up 0.2 percent at 75.800.DXY.[4] The U.S. Dollar is trading lower against most currencies with the exception of the Japanese Yen as stronger equity markets in Europe and Asia helped drove up demand for higher yielding assets.[50]
If Friday's U.S. non-farm payroll numbers for October come in better than expected, investors are likely to pile into the euro and other higher-yielding currencies; if the numbers disappoint, the dollar will gain.[43] The dollar ended mixed against major currencies on Thursday as investors tended to close positions and stay on the sidelines a day before the release of key U.S. jobs data.[46]
Before the data turned mixed the BoE was becoming more hawkish and the ECB dovish. Therefore, while investors are expecting the Fed to keep its policy unchanged, it will be interesting to see how the other two behave later this week.[1] Sterling dropped earlier to 1.6467 versus the dollar, however, the pair then shot up to 1.6637 after BoE's announcement as the QE expansion was less than many investors had expected.[46] We've recently seen the USD/JPY head higher with broad-based risk rallies, implying investors view the Dollar as a riskier asset than the Yen. Therefore, investors should keep an eye on today's activity in the USD/JPY's correlations, particularly the GBP/USD since its technical resistances are wearing thin.[15] Investor uncertainty is rising, as seen by the large pop in the VIX, and are divesting from risk and heading towards the Dollar.[1]
"In particular, I see a risk from the development of currency exchange rates. It's not only a question of a depreciation of the euro against the dollar, but also against the Asian currencies that are tied to the dollar," he said.[36] "What we see now is a very weak upswing, and the question urging itself upon us is, whether we will succeed in turning this weak upswing into stronger growth dynamics, or whether we will see the same problem that Japan faced--that of the lost decade," Nowotny said. "It's a danger I won't rule out," he said. The growth forecast for the euro zone for 2010 and 2011 "definitely won't suffice to reduce unemployment or to stabilize the mounting budget deficits in a sustainable way," he said, adding that he also sees "large risks to forecast economic development."[36]
Trichet sounded somewhat more confident on the growth outlook, and indicated that if recent indications from hard and soft data are confirmed, the ECB'''s forecasts will likely be revised upwards in December. To put this in perspective, however, consider that the ECB'''s current projection of 0.2% growth in 2010 is clearly unreasonably low, and that Trichet today was at pains to repeat that data are still mixed, the road as bumpy as expected, and that prudence and caution are therefore of the essence.[33] As expected, President Trichet did not make an announcement regarding the non-standard measures. The ECB changed the wording regarding the implementation of the measures. This change in wording in combination with a more upbeat assessment of the economic and financial market situation suggests that the ECB will present details for a timely and gradual exit from the non-standard measures in December.[32] Positive comments from ECB President Trichet about the outlook for the EU recovery sparked mild demand for the EUR. Trichet said that the inventory cycle and exports have boosted the economy. Trichet also said that he sees a pickup in economic activity in the second half of the year and expects the EU to experience a gradual recovery.[39] The assessment of the economic situation has become notably more positive and Trichet has said goodbye to the stabilisation phase. The ECB ought to revise its growth estimate for 2010 upward by a full two percentage points to get it right, but it is unlikely to revise it up by much more than half a percentage point in December.[40]
Due to the lack of movement in markets, the euro is struggling to climb to the resistance of 1.4932, while markets await the President of the ECB Jean-Claude Trichet's speach, providing an outlook for the euro zone. The zone today, released retail sales showing that they plummeted, which indicates that consumption remains curtailed; thus, undermining growth prospects.[23] Thirdly, Mr. Trichet re-iterated yesterday that excessive volatility in the cur-rency market was undesired and stressed the importance of the strong dollar. While in a certain way, these remarks are empty of meaning, they clearly signal the ECB'''s reticence to see the euro becoming stronger.[48]
The less expan-sive policy of the ECB is also reflected in the break even inflation rates in the euro zone, which are still some way off the recent highs.[8] Tomorrow'''s U.S. unemployment data has taken on a larger role since the ECB decided to sit tight for the month of November. The U.S. will release its headline Unemployment Rate along with Services Employment Change data.[7] Data to be released on Friday include Japan leading indicators, U.K. PPI, German factory orders, Switzerland unemployment rate, Canada unemployment rate, U.S. non-farm payrolls, unemployment rate and wholesales inventories.[46]
The S&P futures are creeping higher after Weekly Unemployment Claims registered an encouraging drop to 512K. However, the claims data comes with mixed signals since productivity surged and labor costs plummeted. Therefore, employers are getting much more out of their workers for a reduced cost. This could drag on the employment market since companies will likely higher at a slower, more cautious rate.[7] The Q3 GDP report showed an unexpected prolongation of the recession in Q3 (-0.4% Q/Q) which is at odds with the timelier monthly data that pointed to a small increase of GDP. Analysts are predicting an extension of QE by a 3-to-2 margin according to a Reuters poll. Those in favour were evenly divided in their expectation for an extension by ''25B and ''50B. We think the decision will be either no extension or a ''50B one, but the BoE may try to dampen market reactions by making clear that the decision is conditional on future developments. The market reaction may crystallize between whether the MPC decides to stop its QE, extend it by ''25B or by ''50B. In the former case, sterling might strengthen and test the downside.[37] Crude'''s strength stemmed from relative stability in the EUR/USD and gold. Speaking of which, both are trying to set new bottoms of their own as we speak. The S&P futures are bouncing nicely after ISM Manufacturing PMI and Pending Home Sales data points both printed much better than analyst expectations.[1] The S&P futures slammed beneath Wednesday lows, yet managed to avoid a retest October lows by a narrow margin. Investors are testing the waters again this morning after the ISM Manufacturing PMI and Pending Home Sales data points came in well above analyst expectations.[1]
Positive unemployment data could help send crude towards previous 2009 highs, while disappointing figures could drive the futures towards previous November lows. Our trendlines are beginning to reach their respective inflection points, meaning a period of increased volatility could be approaching.[7]
Today'''s data negates Friday'''s sluggish personal spending number, and crude futures are stabilizing as a result. Despite crude'''s present strength, the futures still need to deal with their psychological $80/oz zone, previous 2009 highs, and our downtrend lines. Therefore, crude does have some work cut out for it to the topside.[1] Technically speaking, we'''re at a loss of downtrend lines and historical perspective again. Therefore, the psychological $1100/oz level serves as our only trustworthy topside technical for the time being.[7] Speaking of technicals, the EUR/USD still faces technical barriers in the form of our 2nd and 3rd tier downtrend lines along with October highs and the highly psychological 1.50 level. Therefore, a few tough topside challenges are separating the EUR/USD from more accelerated upward movements.[7]
As for the downside, the currency pair has multiple uptrend lines serving as technical cushions along with 11/4 and 10/27 lows. [7] The currency pair found strength once again just around our 2 nd uptrend line, setting a slightly higher low than Thursday.[51]
Today'''s test will be to see if the 12 month uptrend line at 1.4780 offers any support and if it does then we have a nice triangle to play between that level and 1.4900.[30]
Below there 89.30 provides support in the form of a new trend channel that has formed over the last month so the risk reward at that level favours the long side.[30]
EUR traded higher supported by a recovery in risk appetite sparked by release of better than expected U.S. jobless claims and a huge jump in U.S. Q3 productivity.[39] U.S. equities surged in reaction to report a sharp drop in U.S. jobless claims and soaring U.S. productivity.[39] The jobless claims report boosted demand for equities and encouraged a rewind of risk.[39] FX price direction remains closely correlated to equities and risk sentiment.[39] AUD price direction will continue to closely track risk appetite equities in the direction of commodity prices.[39]
The risk though is for a weak reading which could trigger a correction in equities and put gold under pressure.[34]
Crude may look for either the EUR/USD, U.S. equities, and/or gold to make the first move.[1] The EUR/USD and AUD/USD held up relatively well on Friday considering the extent of the selloff in U.S. equities.[1]
Crude futures managed to avoid any significant technical setbacks on Friday despite the substantial selloff in U.S. equities.[1] Regarding the U.S. Treasury market, the technical picture of the U.S. T-Note future is very similar to the Bund future, as the T-Note future has also fallen off the highs (119-729) since early October and rebounded before a test of the September lows (116-18) occurred.[8] As for the downside, the futures made a fairly negative statement by dropping beneath 10/29 lows on high volume. Should the S&P futures deteriorate further they have October lows and the highly psychological 1000 area serving as technical cushions.[1]
This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. It is based of the most accurate information currently available, but should not considered investment advise or a guarantee of future exchange rate or trends. [6] This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the U.S. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.[40]
Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. He leads coverage of the U.S. economy, the IMF and the World Bank, writing on the global economy for 15 years.[25] There have been rising bets on the expansion after the UK reported economic contraction of -0.4% qoq in 3Q09. The reading made the nation's economy worrisome as countries such as U.S., Germany and France have already returned to growth.[16]
Real Time Economics offers exclusive news, analysis and commentary on the economy, Federal Reserve policy and economics.[32] Strong investment and export growth would mean big challenges for Australian policy. This all means an economy that looks less like New Zealand.[29]
As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy.[13] Economists react to the Bank of England monetary policy committee's move to extend quantitative easing by '25 billion.[32]
Policy makers held the target rate for overnight lending between banks in a range of zero to 0.25 percent.[10] Only limited fireworks from the Bank of England We suspect that there may well have been significant divisions within the MPC given the current uncertainty as to the true state of the economy resulting from conflicting data and survey evidence. The fact that the MPC decided to limit the increase in QE to '25 billion and to enact it at a slower rate over the next three months suggests that they believe that the economy is on a modest recovery track despite the shock third-quarter GDP contraction but could do with some extra help.[32] The BOE elected to hold rates unchanged at 0.5% and expand its asset purchase plan by ''25bln to ''200bln. Some analysts have concluded that this may be the last extension of the quantitative ease program by the BOE unless the economy starts to turn down.[39] NIESR says the UK economy contracted by 0.4% in the three months through October. '' The impact of the BOE decision should be limited as focus returns to risk appetite.[39] The Nikkei carried a report which states that the BOJ blames government policies for job losses and lower wages. A rift appears to be brewing between the Japanese government and the BOJ over the outlook for Japan's economy and the BOJ's decision to begin an exit from its corporate bond support plan.[39] The Minutes of that meeting nevertheless attracted the attention. Some observers correctly noted that in contrast to September meeting, the more dovish MPC members didn'''t re-state there preference for more QE, making such an expansion of the QE unlikely, especially as some MPC members including governor King in a newspaper had become slightly more optimistic on the economy. We were not sure whether such an interpretation of the Minutes was correct and have to wait for today'''s MPC meeting to know. This week'''s drop below the key 0.8984 support is a technical warning signal, suggesting that the unwinding of sterling overextended short positions is not completely worked out. For now we keep a wait and see approach to see how the test of this key support area will work out. It is obvious that our ST sterling negative bias is under pressure.[37]
Canada's LEI Up 1.1% m/m in SeptemberCanada'''s leading economic indicators index rose a more-than-expected 1.1% m/m to stand at 220.2 in September, a fourth consecutive monthly gain, after an upwardly revised 1.2% m/m advance in August, LEI data from Statistics Canada showed, signaling the Canadian economy is recovering.[11] There are no signs of a double dip or W recession. The Globicus/qEcon Research U.S. overall leading economic index reached 11.3 in September, its highest level since the 1981-82 recession, indicating the ongoing U.S. economic expansion is intact for the next 6-9 months.[11] Majors: The FOMC Statement noted that the economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period".[41] Of note, the FOMC said that economic conditions had continued to pick up, with household spending now expanding rather than just stabilising. They also noted in the statement that with ongoing job losses, sluggish income growth, lower housing wealth, tight credit and businesses still cutting back on fixed investment and staffing, low rates will be warranted for some time.[41]
U.S. unemployment is expected to rise to a new 26 year high but nonfarm payroll job losses will likely be less than 200k.[39] Investors were reluctant to put on new positions ahead of Friday's employment reports in the U.S. and Canada.[39] The Cable may need a little help from upcoming U.S. econ data. Britain will release some more data of its own tomorrow, Input PPI. Investors are expecting an increase from -0.5% to 1.6%.[35] Thirdly, currency investors might have been cautious too as the U.S. payrolls are published today and recently equities showed quite a lot of uncertainty and volatility.[48] Should the U.S. unemployment figure edge up to 10%, the psychological impact on investors could potentially cause equity markets and higher yielding assets to fall.[17]
Investors expect to see a 25 basis point rate hike. This has already been priced into the market so the focus will be on the policy statement.[2] Overnight deposit rates have since come to act as a floor for money markets. Barclays Capital economist Julian Callow said Trichet's policy of presenting a consensus view at his monthly news conferences skimmed over undercurrents in the discussion, and set the stage for differing views to be aired.[20] A few minutes later, ECB left also rates unchanged, and market waited for Mr. Trichet words to send EUR/USD to the 1.4920 resistance area.[21] ECB Trichet clearly pre-announced a gradual exit from emergency liquidity measures, starting with a non re-newal of the 12 month funding auctions.[48] The ECB president said officials will withdraw some of the emergency liquidity measures '''in a timely and gradual fashion''' in order to '''counter effectively any threat to price stability over the medium to longer term'''.[21]
The bank will also ensure that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. "The bank is clearing the way for withdrawing some of its extraordinary liquidity support measures," IHS Global Insight Chief UK and Eurozone Economist Howard Archer said.[9] The European Central Bank's message yesterday was pretty straight-forward: expect''its exit strategy to be implemented gradually from December, when the last offer of one-year liquidity will be held.[25] Largely status-quo messages from the European Central Bank and the Bank of England reinforced a prevailing tone of caution.[42] The correction should not be deep as supporting forces including central bank diversification, broad-based weakness in USD and rising inflationary expectations remain intact.[16] The final conditions for the December tender are still open,' Nowotny said, according to a central bank spokesman, in response to an inquiry from Reuters.[47] Cyprus central bank governor Athanasios Orphanides is also seen as an opinion leader, but in the other direction to Weber.[20]
The ECB's rate-setting body is likely to take a decision in December on ECB's programme of offering 12-month money to banks at just 1%, Trichet said. [9] The December ECB meeting will be extremely important: the bank will release updated economic forecasts and probably cast more light on the rest of the exit strategy, especially as regards shorter-term refinancing operations.[33] Today attention will focus on the BoE and ECB meetings more than to the UK production or the EMU retail sales data.[37] Expect the BOE to announce more bond purchases, and expect the ECB to announce a move to withdraw stimulus. We learned that New Zealand is not Australia, but lucky to be Australia'''s neighbor! And try as they might to keep the real from gaining versus the dollar, the Brazilian government'''s moves have not worked.[29] Says the ECB echo the U.S. message of support for a strong Dollar which is important in present circumstances.[52]
U.S. GDP growth, not directly measuring the labor market, should be in a 4% range in Q3 2009. This would be in line with an average growth rate of 3.8% following the previous three recessions.[11] The U.S. unemployment rate rose to 9.9 percent last month from 9.8 percent in September, according to the median estimate of 81 economists in a Bloomberg survey before tomorrow'''s Labor Department report.[10]
Regarding bond trading today, the U.S. Payrolls report will be the key driver.[8] Overall, the eco data didn'''t play a major role neither did the strong rebound on the equity markets, as markets are now awaiting the key U.S. Payrolls report.[8] Australia: Weaker commodity prices have held the AUD back overnight despite the positive data releases out of the U.S. and strong gains in the U.S. equity market.[17]
Friday'''s weakness came on the heels of worse than expected British HPI data along with disappointing U.S. pricing and spending numbers.[1] JPY upside is limited by report of a bigger than expected decline in U.S. jobless claims and stronger U.S. equity market trade.[39] CAD traded mixed initially supported by strong U.S. jobless claims and productivity data.[39] The Labour Department reported that U.S. weekly jobless claims fell to a 10-month low of 512,000, well below the economists' forecast of 523,000 and revised 532,000 for the previous week.[46]
EUR/GBP spiked lower (not higher as we thought) on the decision, maybe as market expected a bigger, ''50B extension. This doesn'''t fit well with recent sterling strength that followed the weak Q3 GDP figures and triggered renewed speculation on an extension of QE. Whatever, the spike down stopped above the recent lows, meaning the move was insignificant in the broader picture. Another possibility is that investors were happy that the end of the QE expansion is now appearing on the horizon, while on the other hand it pro-voked some inflation fears as evidenced by the spike in inflation breakevens and the steepening of the curve. [48] The data, opinions and special sections (dates of assemblies, dates of board meetings, press releases, presentations, etc.) appearing in Investor Relations are included exclusively for the purpose of providing information on the activities of the UniCredit banking group, Gruppo Bancario UniCredit.[33] The lighter than anticipated injection of liquidity has given a boost of confidence to the markets, and investors are opting to retreat from the Dollar in reaction.[35] Global context: USD/JPY reached a reaction high in the 97.80 area early August. Despite positive global investor sentiment, the dollar could not hold on to its gains against the yen.[37] Investors should keep in mind that much of the rebound in earnings has been driven by a combination of deep cost cutting measures and global economic stimulus measures.[1]
Investors should keep a sharp on the interaction of gold'''s correlations with tier respective topside technicals, most notably the EUR/USD and AUD/USD.[7]
Our view yesterday that the EUR/USD downward correction was nearly over is still on track with the pair regaining the uptrend channel a positive. The dismal reaction of equities make us a bit wary very short term, but these worries should dissipate after the payrolls when the longer term outlook may be clearer.[37] EUR/GBP dropped to 0.8919, near the post correction lows. No break occurred and the pair turned course in lockstep with better equities and rising EUR/USD. This failure to break below recent lows might be an indication that the downward correction might be over.[37]
Overnight, Asian equities are trading weak, which weighs currently modestly on the euro with EUR/USD changing hands around 1.4850.[37] Overnight, equities continued to fall, albeit moderately, sending the pair further down, currently trading at 90.36. These intra-day gyrations don'''t change the broader picture a great deal.[37]
After the FOMC decision, the pair moved initially somewhat higher touching an intra-high at 1.4909, but equities soon after the decision turned south, which helped the dollar to recover slightly, leaving the pair at 1.4862 in the close, still good gains when compared to 1.4725 close on Tuesday.[37] Gold has recovered nicely from Friday's slight pullback in the face of a stronger dollar and sliding equities.[38]
With DJIA approaching to the 10.000 level, and gold hovering around $1090/oz, greenback is being punished across the board; Japanese yen, the other safe haven currency is also losing some ground, yet quite limited compared to dollar weakness.[21] An index that measures the dollar against six other major currencies rose 0.1 percent.DXY, while the euro, the biggest component of that basket, was unchanged at $1.4874. It rose as high as $1.4917 earlier in the day.[5] Midday Thursday, the euro was at $1.4859 from $1.4872 late Wednesday, according to EBS via CQG. The dollar was at Y90.45.[42]
"We are still biased for the euro to push higher," said Tom Fitzpatrick, chief technical strategist at Citigroup in New York. "I don't know that we'll make it to $1.60 by year end but retesting those (2008) highs is certainly a possibility in the early part of 2010."[5]
Following two waves of euro selling/sterling buying, the pair is stabilizing slightly below the 0.90 level. It is still uncertain whether these waves were simply a profit taking affair or some more structural re-positioning following a period of one-sided sterling selling. We cannot exclude another euro selling wave will develop that may conclude this re-positioning. The BoE decided to extent the QE pro-gram by an extra ''25B. We were a bit surprised by both this compromise outcome (between doing nothing and going for ''50B), but also by the market reaction, which differed from our expectations.[48] We will review and reassess the situation profoundly soon. The BoE MPC kept its official bank rate at 0.5%, but decided to continue its QE pro-gram.[48]
The message in my view is that monetary conditions will remain supportive, with market rates still low in the coming months and the Refi rate on hold throughout next year.[33] After the rate announcement, the sterling advanced 0.6% towards 1.6619. It currently slipped to 1.6584 after setting a high of 1.6634 and a low of 1.6464; while the coming support for the pair is seen at 1.6550 and the resistance is spotted at 1.6602.[24] The pair is currently trading at 1.4848, while recording a high of 1.4875 and a low of 1.4810, where current support is at 1.4819 and another one at 1.4762.[23]
EurUsd The pair saw some whipsaw action yesterday evening as the Fed made the same statement of low rates for an extended period and the USD sold off rather aggressively only to see 1.4905 resistance provide a cap.[30]
Analysts are expected the Unemployment Rate to print at 9.9%, just shy of the psychological 10% level. [7] Earlier Swiss CPI printed lower then expected at y/y -0.8% vs. 0.7% exp. With the SNBs Jordan recently reiterating that inflation would define the bank'''s exit strategy, we would expect the SNB to stick with its FX intervention policy.[30] This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content.[37]
GBP traded mixed to higher supported the BOE's decision to expand its asset purchase plan by less than expected and in reaction to report of improving UK industrial and manufacturing output.[39] Recent UK economic data shows improvement in the housing and consumer sector and today's manufacturing data also points towards recovery. Whether the BOE will continue expanding its asset purchase program will depend on upcoming UK economic data.[39]
Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. [19] Topside barriers remain in the form of our 2nd tier downtrend line while $80/bbl could continue to have a gravitational pull on price for the time being.[7] Analysts had been surprised by Nowotny's comment on the cost of the December funds, but noted that Trichet spoke for the policymaking Governing Council. 'It's obvious what the ECB's official line is,' Societe Generale economist James Nixon said.[47] The ECB has become significantly more positive on the economic situation than it was a month ago.[40]
The sustainability of gold'''s new near-term uptrend will likely depend upon a broad-based devaluation in the Dollar since the two are negatively correlated. [7] At 0833 GMT, the dollar index.DXY, which measures the dollar's value against a basket of currencies, rose 0.4 percent to 75.912, pulling away from Wednesday's one-week low of 75.60. It hit a 14-month low of 74.94 in late October and has been holding in a downtrend since March.[3] Key technical levels to watch in USD/JPY include support at 89.18 the November 2nd low with resistance at 91.80 the October 28th high.[39]
Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer FX, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Strategies using combinations of positions such as "spread" or "straddle" trades may be just as risky as simple long and short positions. [19] The high degree of leverage available in Forex trading means that small price movements will have a much greater impact on account performance and can result in large losses as well as gains. In no event should the content of this correspondence be construed as an express or implied promise, guarantee or implication by or from Brewer Investment Group, LLC, or its subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Strategies using combinations of options and/or futures positions such as'spread' or'straddle' trades may be just as risky as simple long and short positions.[19]
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1. Comprehensive FX and Futures Daily Research
2. Sell-off in U.S. Equities Prompts Late Session Dollar Rally
3. FOREX-Dollar, yen gain as focus turns to ECB, BoE | Markets | Europe | Reuters
4. FOREX-Dollar holds steady ahead of Friday jobs data | Currencies | Reuters
5. Dollar up modestly ahead of jobs data | Reuters
6. The euro stayed mostly flat against the dollar after a mix of news
7. Comprehensive FX and Futures Daily Research
8. ECB heads for gradual exit from liquidity measures
9. RTTNews - Economic News, Economic Reports, Global Economic News,Global Economic Reports, Economic Market Analysis.
10. ForexHound.com the Forex Trading Portal: Forex Daily Analysis
11. ForexHound.com the Forex Trading Portal: Macroeconomic Research
12. U.S. markets, higher after jobless claims decline; Dollar attempting recovery
13. The ECB Prepares Q.E. Exit Strategies; Rate Unchanged -- Seeking Alpha
14. Gold Consolidates After Huge Gains -
15. USD/JPY Fights to Stay Above 90 Despite Present Weakness -
16. Commodities Change Little Ahead of BOE and ECB Meetings | IBT Commodities & Futures
17. Australian Dollar Forecast Nov 6 - International Business Times
18. WORLD FOREX: Dollar Flat In Skittish Trade - WSJ.com
19. Dollar Trading Lower Ahead of U.S. Jobs Data - Forex TV
20. ECB FOCUS-Weber gaining prominence as ECB leading indicator
21. U.S. Update: After BOE and ECB
22. DailyFX - ECB, BoE Remain On Hold But Sees Signs Of Improvement
23. Currencies Ahead of BoE and ECB Rate Decisions , Currencies Updates - ecPulse.com
24. The euro and pound climb after the rate decision , Currencies Updates - ecPulse.com
25. FT.com | Money Supply | An ECB puzzle
26. Currencies Ahead of BoE and ECB Rate Decisions -
27. FOREX-Dollar, yen gain as focus turns to ECB, BoE | Reuters
28. WORLD FOREX: Dollar Little Changed After BOE, ECB Stand Pat - WSJ.com
29. Rates to Remain Near Zero
30. Forex - Fed Stays Ultra Loose onto BoE & ECB
31. Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
32. Economists React: 'Limited Fireworks' From BOE - Real Time Economics - WSJ
33. Slow down! Exit ahead'''
34. Precious metals consolidate as traders await payrolls reading
35. GBP/USD Heads Higher Following BoE Decision -
36. ECB Nowotny: Danger Of "Lost Decade" For Euro Zone- Onet.pl - Wiadomo'ci -06.11.2009
37. Dollar in the defensive pre-FOMC, but renewed equity weakness gives the dollar some dynamic
38. Gold Darts Past $1050/oz on Positive U.S. Econ Data | IBT Commodities & Futures
39. Daily Forex Report - USD mixed, jobless claims fall more than expected | Daily Reports North America | Easy-Forex
40. ECB meeting: Withdrawing extraordinary liquidity
41. Australian Dollar Forecast Nov 5 - International Business Times
42. WORLD FOREX:Currencies In Narrow Range Ahead Of US Data Fri - WSJ.com
43. WORLD FOREX: Currencies In Tight Ranges As US Payrolls Eyed - WSJ.com
44. WORLD FOREX: Euro Sinks As US Unemployment Rate Tops 10% - WSJ.com
45. Dollar Climbs; Risk Aversion Climbs Ahead of BOE - MarketBeat - WSJ
46. Dollar ends little changed ahead of U.S. job data - Nov 5 -
47. UPDATE 2-ECB's Nowotny: No decision on 12-month tenders - Forbes.com
48. Currencies show little reaction to strong equities and important ECB and BoE meetings
49. Market Wire Update: Euro Ahead Of The ECB - Forex TV
50. U.S. Dollar Losing Ground Ahead of ADP and ISM Services Report
51. EUR/USD Hovers Around Our 1st Tier Uptrend Line -
52. Global Forex Trading :: Resources :: Forex News
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