Friday, January 30, 2009

Sterling’s odd firmness against the euro and US dollar is due mostly to firmness in the cross-rates

Foreign Exchange - Pounds Sterling Outlook

Sterling’s odd firmness against the euro and US dollar is due mostly to firmness in the cross-rates,including some fairly exotic ones like the pound/Swedish krona, recommended by Morgan Stanley.This is a strange outcome considering that the IMF just said on Wednesday that Britain will have the worst contraction in all of G7 this year, 2.8% (actually, Japan will be worse). Still, sterling was strong today after the Bank of England reported a rise in mortgage approvals, 31,000 in Dec after 27,000 in Nov and widespread forecasts of an additional drop. Probably the main point is that pessimism was overdone. We doubt the trend will reverse to upward for sterling. Overnight policy committee member Blanchflower said rates can still go to zero and the BoE may consider quantitative easing.

This was taken as sterling-negative but perhaps it can be twisted to be sterling-positive.

Confused? You are not alone.

Bye For Now

Barbara Rockefeller
Forex Trading Reports

Pounds to Australian Dollars exchange rate currently 2.2660

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Thursday, January 29, 2009

US Dollar exchange rate put on some significant gains yesterday

Foreign Exchange - Summary of yesterday:

The US Dollar exchange rate put on some significant gains yesterday and early today on hope that a US "bad bank" initiative is imminent, even though the Fed failed to give clear guidance on quantitative easing (buying Treasuries). Good news on potential US recovery lately has been a US dollar negative but not this time. Although the pounds to us dollar is seeing a corrective profit-taking hit as the US opens, we think the dollar exchange rate can continue to improve. It needs to surpass 1.3050 or so against the euro to feel confident about ongoing recovery.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Monday, January 26, 2009

pounds to us dollar made a strong showing on the Barclay's news

Foreign Exchange : The US dollar Exchange Rate is losing ground this morning across the board on a reduction of risk aversion, which was occasioned (oddly enough) by Barclays' saying that it had such strong earnings last year that it doesn’t need to ask the UK government for a capital injection. The foreign exchange market is very thin because of the Chinese New Year that has closed most markets in Asia, and foreign exchange traders are also somewhat confused by the giant rise in oil and gold on Friday. This seems to be the key reason for the Canadian dollar to be coming back strongly against the US Dollar rate.

On Friday the market pared short euro positions for no particular reason we can find except profit-taking and the desire to be square in case something happened over the weekend. During the day, the euro exchange rate rose from 1.2763 before the New York open to a high of 1.3035 in the afternoon before leveling off. Today it slumped until Europe came back in and caused a recovery to 1.3022 so far. If the US market mimics the European market, we could get a test of last week's intermediate high just shy of 1.3100 or 1.3386 from the week before.

Similarly, pounds to us dollar made a strong showing on the Barclay's news, but as the US starts getting active around 8 am, the upmove is already fading. The Japanese yen remains firm although on the north side of a pivot around 88.75, but soft against the euro exchange rate around 116. Sakakibara sees the equivalent of parity (100 yen per euro) at some point soon, so these are counter-trend corrections.

Thursday, January 22, 2009

nobody ever went broke shorting the pound


Foreign Exchange

Outlook for Pounds Sterling

The pound to US dollars staged a correction yesterday on perception that it was oversold, rising from a low of 1.3616 around noon to 1.4020 by the US close, but it couldn’t hold the level and slipped back to 1.3724 so far today. The low yesterday was a 23½-year low. The pound to euro, pound to yen has fallen to a multi-year low too, with a sense of crisis pervading the market.

According to Bloomberg, Merrill Lynch is saying that the pound's downfall reflects a perception that it will receive a downgrade to its Triple A rating. As noted below, the French FinMin complained about the British not being "efficient" in managing the pound better.

Tomorrow we get the Q4 GDP estimate, probably a drop of 1.2%, and on Feb 5, the Bank of England is likely to cut rates again by 50 bp to 1%. So much bad news is swirling around sterling that you have to wonder when it will be perceived as overdone. Having said that, the old saw has it

"nobody ever went broke shorting the pound."

This is not true, of course, but it is true that the bottom of the standard error channel is under 1.3000.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Wednesday, January 14, 2009

ECB to cut rates - or Foreign Exchange Traders to sell Euros

Foreign Exchange Outlook : We get retail sales and various other bits and pieces of data today. We say the institutional landscape holds more importance for foreign exchange traders today. Bernanke gave a sane and reasonable speech yesterday that marks out the path forward—no surprise: more public money backing for banks. As noted above, Congress wants specific spending for homeowners and the Fed is not delivering that. To be fair, it's not the Fed's job to make a value-judgment spending decision like that with big fiscal implications. Still, the Fed and Congress are aggressive and activist, which is US dollar favorable, even if we have big doubts about the Treasury.

All eyes are on the ECB to see if it comes up to Fed standards, and so far the voting is that it does not. A Market News story yesterday says "ECB member opinions remain divided in terms of the magnitude of the cut (50 basis point cut or more/less) and there are still concerns about a rebound in inflation. Though deflation worries have crept in, many members of the Governing Council fret that inflation could sneak back into the picture over time if the bank is not careful with its monetary policy. One senior source stressed that if the ECB does cut rates, the central bank would not follow the U.S. lead and said, 'The two situations are different.' He said that it was 'possible' that the economy had already hit bottom. At the very least, 'things should not get worse,' he argued. 'The next six months will still be difficult for the real economy, then we'll see. It's difficult at this moment to make projections and premature to say what the ECB will do.'"

Well, no.

Such a view is 180 degrees away from the consensus view of private sector economists, nearly all of whom believe things are going to get worse before they get better. We have seen only one forecast of improvement before the second half of this year, and that’s for the US, not Europe. The comment from this unnamed "senior source" at the ECB reflects a mindset of denial and delay that has beset the ECB from the beginning. If the ECB does indeed cut by only 25 bp tomorrow - or not cut at all - the euro exchange rate will be punished. In fact, it looks like it would take a cut of 75 bp (the new whisper number) to overcome the refreshed dislike of the ECB that has emerged this week. Markets are rewarding activism - consider sterling last week.

We shall see if they punish ostriches.

We imagine the US Dollar exchange rate will recover smartly from the corrective pause/bounce and that new fretting and fussing over US deficits will fail to grip foreign exchange traders imaginations. That means the euro to us dollars exchange rate "should" fall under 1.3000, and this week.

Note to Readers: Next Monday, Jan 19, is Martin Luther King Day and a national holiday in the US. The market is closed and we will not publish any reports. The next day is the Obama inauguration, yippee.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Tuesday, January 13, 2009

The US Dollar Exchange Rate continues to post gains for the 7th day

Foreign Exchange Outlook : The US Dollar Exchange Rate continues to post gains for the 7th day, with the euro exchange rate reaching a one-month low of 1.3220 overnight before Europe came in and engaged in a little profit-taking or perhaps less pessimism now that the German 50 billion stimulus plan is going forward. The consensus is firming that the ECB will cut rates by 50 bp on Thursday.

The Japanese Yen was stronger against everything.

Dollars to Japanese Yen fell yesterday from 90.33 at the open Sunday night to a low of 88.84 during the US session, and has gone sideways since then. The head of the Keidanren business association (who is also chairman of Canon) told the press that he thinks major countries should get together to intervene in the Foreign Exchange market to stop the rise of the Japanese yen.

He would like to see the Japanese Yen in a range of 5 yen on either side of 100. As we have noted before, Japan is suffering the biggest effects from the global downturn of all G7 or G20 countries - the biggest drop in GDP (12.1% in Q4) and the biggest drop in corporate sales and earnings. It's very strange for Japan to be the one country with a rising currency when everyone else is devaluing as fast as decently possible.

Pounds Sterling was hard hit by four bad data reports in single morning form the top reporting agencies (British Chambers of Commerce, Royal Surveyors, et al.) - housing, retail sales, a proxy for GDP, and trade deficit. The pounds to dollar exchange rate has straight lined from 1.5349 last Friday to 1.4536 so far today.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Thursday, January 8, 2009

We won’t get any more information about an ECB rate cut next week

Foreign Exchange Outlook : The US dollar is gaining ground today despite yesterday’s horrible ADP Macro estimate of private sector job losses in Dec. From the US open at 8 am yesterday at 1.3595, the euro slipped to 1.3558 by the time Asia was coming in last night. This is a minor move but also a halt to the euro’s upward momentum on Tuesday.

We won't get any more information about an ECB rate cut next week. The FT reports today that the ECB is likely to leave rates on hold, but today starts the no-comment period so we have only old reports. Euros to dollars volatility is very high on the uncertainty.

In Asia overnight, falling stock markets and re-evaluation of the Obama Effect triggered a bout of risk aversion. The US dollar fell against the Japanese Yen in a continuation move from the day before, from 93.20 at 8 am yesterday to the now-customary plunge at the end of the Asian day to 91.80 and so far to 91.33. This is near the bottom of the linreg channel on the hourly chart and the move "should" stop any minute now. If not, we have a downside US dollar exchange rates breakout that risks a return to the Jan 1 low of 89.46. .

Nothing has been stranger than the rise in sterling ahead of today’s BoE decision. The pound stopped falling last Friday at 1.4375 and has risen to breakout levels on the hourly chart in fits and starts, even surpassing yesterday’s high of 1.5281 by reaching 1.5292 this morning AFTER the BOE Monetary Policy Committee cut the bank rate by 50 bp to 1.5%, a new historic low and exactly as forecast by just about everybody. Again we have no reason for such a counter-intuitive move except that there are serious dumpers of euro in the euro/pound cross and it is bleeding into the pounds to dollars.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Tuesday, January 6, 2009

Pound rallies against the Euro exchange rate - at last

Foreign Exchange Currency Outlook : The US dollar rate is rising strongly this morning pretty much across the board, from a high of 1.4719 on Dec 18 to 1.3918 at the Friday close in New York to 1.3657 so far this morning. The move breaks the linreg channel drawn on the hourly chart and also the 50% retracement of the December move up in the euro. The 62% Fibonacci retracement comes out at 1.3377 - but that’s just the recent move. If we go back to the lowest euro exchange rate low last Oct 28 (1.2335), the 62% retracement is 1.3246.

The euro rate is suffering in part on expectations of really bad data this week, including retail sales, and also on a dovish comment from ECB VP Papademos, who said over the weekend that rate cuts might be needed to guard against recession.

Might be?

We have a flood of bad eurozone data today and it’s only Monday.

The odd move is the US dollars rise against the yen, priportedly on a cascade of carry trade unwinds, also breaking the linear regression channel on the hourly chart and actually touching the 62% retracement of the move down from the intermediate high on Nov 25 (97.42) to the low in mid-Dec at 87.19. The 62% level is 93.51. If we expand the timeframe back to the August dollar high of 110.67, the 62% retracement is 101.68. As you know, Dear Reader, we think Fibonacci numbers are superstitious crap, but a lot of people observe them so we must be vigilant.

We have a 3-week dollar high against the euro and a 4-week high against the yen. Sterling is not as weak, which Market News explains as "the pound able to take full advantage of general pressure on the euro. Sterling strength was aided by a euro-sterling sell recommendation by Goldman Sachs, along with expected sterling demand to emerge at the 1100GMT fix linked to HSBC's quarterly dividend payments and UK oil companies' sterling repatriation needs."

Bye For Now Barbara Rockefeller
Foreign Exchange Trading
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Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
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