Thursday, February 26, 2009

we still have massive problems in the US that could derail the stock market and fuel greater fear - rational fear, not irrational

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US budget deficit will be $1.75 trillion, and that the US dollar did not fall on this horrendous amount is a tribute to faith in the US economy and perhaps also the government's recovery initiatives. We don’t like the opposition GOP outright wanting the US to fail - why is that not unpatriotic? - but we admit that if there is too much pork in the stimulus and if the plan fails to deliver some significant signs of recovery by year-end, they will have proven the point that government is a bad actor on the economic stage and its role needs to be severely limited. Are we getting a return of attention to hard economic data? We propose that developments in Japan are making it unavoidable. The giant trade deficit yesterday shoved that point home painfully. The comparison of zombie banks between the US and Japan is on everyone's mind, too.

Japan acted too slowly and got a lost decade.

Comparsons of other countries with the US favor the US - "it's worse elsewhere." Meanwhile, Europe has yet to deal with what some critics called its subprime - Eastern Europe, which barely has a foothold on coming up to western standards. As far as we can tell, Western Europe feels responsbility, having initiated integration talk, but (as with the wars in the former Yugoslavia), lacks the guts and political will to take real action. How long will it be before we hear of US aid to (say) Croatia or Hungary? It should be someone else delivering aid.

But before these big-picture issues ripen,

we still have massive problems in the US that could derail the stock market and fuel greater fear - rational fear, not irrational.

We could get a bombshell from AIG, as rumored yesterday. Today we have General Motors reporting a worse-than-expected quarterly loss for a full-year net loss of $30.9 billion for 2008. Reuters says "That ranked as the second largest annual loss for the 100-year-old automaker on record behind only the $38.7 billion loss recorded for 2007. Revenue plunged by more than a third, and the pension plan is underfunded by about $12.4 billion as of the end of 2008. "GM said it could receive a 'going concern' notice from auditors, who will assess the risk that the automaker might not be able to continue as a going concern."

The failure of GM—is that fully priced in to the dollar? Be careful.

Pounds to US Dollars = 1.4313
Pounds to Euros = 1.1219
Euro to Pounds = 0.8906
Pounds to Australian Dollars = 2.1901

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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GM may not be a going concern

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar exchange rate is firmer this morning across the board as traders try to digest far too much information from hard economic data and other markets, including equities and oil. Risk aversion may be falling as specific plans are announced (in the US and UK), which normally would be viewed as dollar-negative, so for the dollar to rise on a drop in risk aversion is a good thing. It means foreign exchange traders are looking at growth prospects, something that developments in Japan are bringing back to the forefront.

Today it looks like GM may not be a "going concern," though - surely a US dollar risk.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Tuesday, February 24, 2009

The Pound rallies again on bad news? Why?


Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

In the UK, the government statistics office reported that investment by manufacturing and non-manufacturing companies in the three months to December fell an estimated 3.9% q/q and 7.7% y/y. Combining both private sector and public sector investment, the drop was 11% q/q and 15.7% y/y. This is huge. The ONS also revised downward the investment in calendar Q3 to –2.1% (from –1.3%).

That was the bad news.

Also bad were job losses at retailers, reported in the CBI survey, down at a record pace. The employment index fell 49% from 16% in the Nov quarterly survey. But the Feb sales balance was a lot better, only –25% after –47% in Jan. The expected sales balance was also less bad, -33% from – 52%.

This was seen as sterling favorable for reasons that escape us.

Pounds to US Dollars = 1.4340
Pounds to Euros = 1.1275
Euro to Pounds = 0.8865
Pounds to Australian Dollars = 2.2100

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Monday, February 23, 2009

The US dollar exchange rate fell victim to a selling frenzy Friday afternoon that no one can explain


Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar exchange rate fell victim to a selling frenzy Friday afternoon that no one can explain. On the hourly chart it is a shocking move, from 1.2560 around 9 am to 1.2884 by 1:30 pm ET, or 324 points in under four hours. The Dow-Jones newswire reported that the move was triggered by the break of a key resistance level that set off a flurry of stop-loss selling, but other than that, the press ignored the move. The WSJ says there was a euro spike (but the US dollar remains set to rise), while the FT website doesn’t even have a currency story update as of 5:30 am ET.

Market News says the move was set off by a big hedge fund trade that triggered a series of cascading stop losses.

On Sunday night as Asia came in, the euro exchange rate took another jump upward to 1.2992, perilously close to the round number 1.3000, but then started to fall back. So far today, the euro is at 1.2781 at 8 am, or down about 50% of the upmove from early Friday. If it continues past the 62% Fibonacci level, about 1.2738, the whole thing could be over.

What is not over is the dollar/yen rise.

On Friday, the US dollar slumped against the yen along with everything else. But as the Asian day progressed and especially after Europe came in today, the dollar spiked to 94.95 - twice. This was a 200+-point rally is under 12 hours, or in the bigger picture view, 780 points since Jan 21, about one month. Again, note the reluctance to print a round number. In this case, the US dollar high is higher than on Friday and over the highest high so far this year (Jan 6 at 94.64).

Might the dollar/yen get back to 110.67 from last August?

Some foreign exchange forecasters say so.

The 50% retracement of the dollar’s downmove/yen upmove from 110 would be 98.86, or nearly 99…. Again, near the key round number of 100.

You have to wonder if foreign exchange traders are fighting their inner OCD, like Mr. Monk.

Pounds to US Dollars = 1.4340
Pounds to Euros = 1.1275
Euro to Pounds = 0.8865
Pounds to Australian Dollars = 2.2100

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Buying Dollars? Buy US Dollars at the Best Dollar Rates!
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Thursday, February 19, 2009

The UK is the first country to admit out loud that it has nationalized some banks

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The UK is the first country to admit out loud that it has nationalized some banks. According to the Office of National Statistics, it will start including the liabilities of Royal Bank of Scotland and Lloyds on the government balance sheet, meaning they are "public sector entities."

Technically this happened last October with the injection of capital giving the government a majority share. We don’t know how much this adds to the public debt just yet, but it’s probably on the order of £1 to £1.5 trillion, or 70-100% of GDP.

Pounds to US Dollars = 1.4340
Pounds to Euros = 1.1275
Euro to Pounds = 0.8865
Pounds to Australian Dollars = 2.2100

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

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But for the moment, a new optimism about the eurozone is in the air

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar exchange rate is correcting downward after a big move up earlier this week, in part as a purely technical response to an overbought condition and in part because German Finance Minister Steinbrueck announced yesterday that Germany may be stepping up to the plate to offer "emergency" financial aid and leadership to the rest of the eurozone countries. What form this might take is unclear but Chancellor Merkel is holding a press conference later today (4:15 GMT) with EC Pres Barroso, so we might get details.

From the midday low in New York yesterday at 1.2510, the euro has swooped up to 1.2723 or over 200 points in less than 24 hours.

A German initiative could be a watershed moment, since the ECB lacks the authority to and operating capability to assist on the fiscal front. The eurozone lacks institutional depth - it has no combined Treasury/Ministry of Finance, let alone a State Dept and the other functions of a political union. The eurozone is little more than a customs union with a common currency. To address this shortcoming is a major step forward.

The announcement may bode well for the future of the euro but perhaps a little less well for the idea that the eurozone is a band of equals. By Germany taking a leadership role again, as at the beginning of the customs union, it is again clear who has the most self-interest at stake in the survival of the euro. To be fair, Germany has already sacrificed much for the sake of the eurozone, chiefly in the form of the cost of reunification of East and West, and it looks like it will be doing it again. This is both pragmatic and idealistic at the same time. Since Germany was willing to spend only €480 billion in stimulus funds last fall, the willingness to take on massive new debt is also a sea-change - if that is what is happening.

Or are our imaginations running away with us? If the German "leadership" turns out to be weak, insufficient, or not accepted by the others, the euro exchange rate could be punished. We are also skeptical of a comment reported by Bloomberg from an analyst in Singapore that "The markets may begin to perceive that the U.S. economy will fare worse than those of other major countries. This is likely to be negative for the US dollar." We don’t buy it at all. The US economy is bigger, more robust and more adaptive than any other. That doesn't mean it makes the right policy choices or that it is destined to succeed - the probability of failure is not zero - but the idea that it will fare worse than other countries, even mighty Germany, is improbable.

But for the moment, a new optimism about the eurozone is in the air. The euro exchange rate correction has already gone to the limit of the usual correction after recognition of an oversold level, about halfway up the breakout bar. If the euro rate breaks the linreg channel of the current move at about 1.2950, the whole ball game could change.

A dose of skepticism is proper. Today the Bundesbank in the monthly report renewed its usual statements that the German government must promise to reduce deficits once the crisis is over to maintain investor confidence. Pump-priming is fine but will take time to get a grip, and in the meanwhile, a plan to reduce deficits has to be made and believed. "Past experience has shown that it is easier to reach a consensus on expanding deficit spending than on the necessary consolidation of public finances afterwards. After all, confidence in the long-term sustainability of public finances is a condition for the success of government stimulus measures."

So how would a German rescue plan line up with the BBK's strict ideas about keeping to the Stability Pact, since Germany is already at the 3% cap? Clearly if Germany is going to buy the paper of distressed countries (Portugal, Italy, Ireland, Greece, Spain), it will have to get a waiver from the EC and the ECB. This is kind of like a hall pass… and doesn't address the source of the most recent crisis, Eastern Europe. It’s unthinkable that Germany would rescue Hungary, Poland, the Czech Republic and other non-members-isn’t it?

In other Foreign Exchange market news, Barclays says the Canadian Dollar is about to change direction (and recommends traders to sell the US dollar in a 9-month timeframe). Risk aversion could take the Canadian Dollar to 1.30, but that’s about it. "We see the Canadian dollar emerging with a cyclical growth profile that is as good as or better than that of the U.S. dollar, with far fewer structural and policy negatives." The Bank of Canada will start raising rates ahead of the Fed, and Canada will spend less on stimulus, too. We say it’s ridiculous to imagine that the Canadian economy can fare well when the US economy contracts. Canada is joined at the hip to the US.

Pounds to US Dollars = 1.4338
Pounds to Euros = 1.1270
Euro to Pounds = 0.8868
Pounds to Australian Dollars = 2.2100

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

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Wednesday, February 18, 2009

We are having a hard time understanding why sterling is holding up so well,

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US Dollar exchange rate continued to gain against the euro rate to about mid-day yesterday in New York on the European bank story, but the power of the story had faded by the close. Overnight as Asia was handing off to Europe, some euro bulls tried a push to the upside, but it failed to go very far - only 1.2640 from the US closing low of 1.2556. Market News reports somewhat cryptically that "Early (euro) dips met with demand from a major German name and a semi-official entity, though this proved insufficient to halt further slippage as strong cable sales helped to drag euros to dollars lower." We take this to mean that the euro's bounce is merely a minor correction and doesn’t signal a change in sentiment.

Sterling is buffeted by opposing forces, including the Bank of England seeking permission to expand money supply to buy government paper and the minutes of the last meeting showing that the 50 bp rate cut would have been 100 bp if Blanchflower had had his way. The Policy Committee voted unanimously to ask for the power to carry out quantitative easing (buying government paper), which it is already doing - pretty darn fast for a government agency. We are having a hard time understanding why sterling is holding up so well, relatively speaking, in a flattish range of 1.4100 to 1.4300. It’s well off last week's weird high over 1.4600 but why is it not breaking 1.4000?

Evidently because the euro exchange rate looks worse.

The dollar/yen (and euro/yen) are highly controversial these days. Bloomberg reports that some foreign exchange analysts see 96 and others see 85 (whereupon we should expect intervention). We are following the chart, which shows Day 1 of an upside breakout. We switched the signal but are never really happy with a new signal until it surpasses the most recent extreme level, in this case the high of 94.64 from January 6. Considering that the Japanese economy is in the worst shape of all G7, the yen "should" be weak… but considering that there is probably a trillion of two still out in the world to be repatriated to Japan and plenty of risk aversion triggers to come, the yen could resume its uptrend on capital flows or perception that capital flows "should" be occurring.

Pounds to US Dollars = 1.4287
Pounds to Euros = 1.1330
Euro to Pounds = 0.8817
Pounds to Australian Dollars = 2.2390

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

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US dollar exchange rate is resuming its uptrend against all the currencies

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar exchange rate is resuming its uptrend against all the currencies, especially the benchmark euro, on a renewed round of risk aversion. The risk to the rising us dollar exchange rate scenario comes from deniers and wishful thinkers who imagine that the end is in sight and stock markets may recover after nearing or hitting the November lows. We believe the extent of the crisis is under-appreciated and new waves of catastrophic news are on the horizon, so the outlook for the US dollar remains bright, if for bad reasons.

Pounds to US Dollars = 1.4289

Pounds to Euros = 1.1339

Euro to Pounds = 0.8815


bye for now

Barbara Rockefeller

Foreign Exchange Trading

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Tuesday, February 17, 2009

exposure to Eastern Europe caused the euro exchange rate to fall




The US dollar exchange rate held flat against the euro exchange rate yesterday in a range of 1.2725 to 1.2825 and without direction, but overnight the news that Moody’s may downgrade a slew of European banks because of their exposure to Eastern Europe caused the euro exchange rate to fall off a cliff from 1.2765 to 1.2656 in a single hour. After that the euro exchange rate has crept a bit lower to 1.2600 at the lowest. The euro rate went on the defensive also because of a new rise in risk aversion on falling equity markets worldwide yesterday.

Technically, it was helpful to the dollar exchange rate that the euro failed to match and surpass highs last week, putting in a series of lower highs. Some foreign exchane analysts now say the eurozone’s financial sector woes could take the euro rate down to test the Oct 28 low of 1.2329 in a flash. We note that the channel bottom on the hourly chart by 6 pm this coming Friday is 1.2126. Do not expect such a level at a speedy pace - prices never move in a straight line.

We are not getting the usual opposite effect in dollar to japanese yen, where the US dollar rose to 92.76, breaking last week’s high and possibly marking the beginning of a new move in the yen. Some forex analysts think that Japanese risk aversion has already been satisfied - i.e, everyone who was going to repatriate trading and investment money to yen has already done so. It won’t be long before we start hearing about the “normal” March repatriation flows that supposedly push the yen up as the Japanese fiscal year comes to an end on March 31. This is a myth. We get a rise in the yen in March less often than we get a drop, but a couple of years it was true and in size, so the story lingers. This time we have the dreadful GDP numbers yesterday to contribute drag to any yen rise.



Pounds to Euros = 1.1174

Euro to Pounds = 0.8947


Bye For Now




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Moody’s is gearing up to downgrade banks

Foreign Exchange - Currency Outlook

The euro exchange rate and Japanese yen each fell on news related to their economic performance and financial sector outlook. In Japan, GDP contracted 12.7%, the most since 1974, and in Europe, Moody’s is gearing up to downgrade banks because of their unsustainable exposure to faltering Eastern European economies. In sum, the us dollar exchange rate is rising across the board on perception that "it’s worse elsewhere" than the US, which is taking aggressive measures against the global economic downturn. The US stimulus package was signed yesterday and the Obama administration will propose a mortgage bailout plan tomorrow.

bye for now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
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Friday, February 13, 2009

Euro to us dollar exchange rate is trading in a narrow congestion band





The US dollar exchange rate was moving sedately upward until late in the day yesterday, when a sudden rally in US stocks surprised the Foreign Exchange market. Foreign Exchange Traders rushed to sell the yen against everything and to buy emerging market currencies (including the Mexican peso), putting the US dollar rate on the defensive. The dollar/yen rose to a new high of 91.77. The new rule - Foreign Exchange traders need to follow equities - was proven. Overnight in Asia, the euro to us dollars was all but forgotten as attention and activity focused on euro to japanese yen, which whipped from 116.95 at the US close last night to a high of 118.54.

Euro to us dollar exchange rate is trading in a narrow congestion band of 1.2860 - the New York close last night - to 1.2943, the overnight high and 1.2853, the overnight low. This is under 100 points and may not mean anything. The euro exchange rate might have moved more but economic releases were just awful - eurozone GDP falling more than forecast. See below. Sterling is getting a boost from having been dramatically oversold and a rumor in the UK press that G7 will talk about it (of which there is zero chance, since the UK would squelch any such thing and the agenda was set a long time ago, anyway).


Bye For Now

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Thursday, February 12, 2009

Pound and Euro Exchange rate fall again against the US Dollar


Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Yesterday a draft EC paper, drawn up together with the ECB, was released. It recommends the "bad bank" approach to the crisis as the least budget-heavy way to rescue banks. This assumes the bad bank toxic assets can eventually be sold for a profit… How to get started? "In order to limit this budgetary impact, one could consider combining a bad-bank approach and asset insurance whereby bad assets are transferred to a separate entity which benefits in some way from a government guarantee," the report suggests, according to Market News.

Meanwhile, officials in the UK are defending quantitative easing, aka buying Gilts, as the first line of defense. BoE Gov says the Bank has a mandate to hold inflation at around 2%--not zero. It’s a symmetrical obligation, meaning the Bank has to create inflation. The US Fed may end up in the same place, as Bernanke has suggested, but is holding off as long as it can. So far the ECB rejects any thought of quantitative easing, mostly because it has a "no bailout" clause and is technically forbidden to buy government paper lest it be charged with favoritism.

Pounds to Euros = 1.1087
Euros to Pounds = 0.9003

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Contact IMS Foreign Exchange + 44 207 183 2790