Tuesday, April 28, 2009

how long the swine flu panic will affect the financial markets

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

We honestly do not know how long the swine flu panic will affect the financial markets. A lot depends on whether the public health initiatives around the world are effective, or at least seem credible and trustworthy. As noted above, bird flu and mad cow panics were contained, mostly, by strong action in the countries of origin. Britain slaughtered hundreds of thousands of cows and China slaughtered many hundreds of thousands of birds. The prospect of the same thing happening to pigs is very sad; we happen to like pigs. Who didn’t like the movie "Babe"? According to the World Health Organization, SARS affected a total of 8,098 people worldwide in 2003 and of these, 774 died--the tsunami killed more people. Car accidents kill more people. Like SARS, swine flu is transmitted person-to-person. Restrict travel, make people wash their hands (and get banks to disinfect ATMs), and it could be short-lived. Not to be cavalier, but recent history teaches us that the world can contain this thing. The people who will end up suffering the most, including economically, are the Mexicans, where it seems the swine flu originated.

Once the panic fades away, assuming it does, we will be left with the same landscape we had last week. This includes probable rate cuts in New Zealand Dollars (this week) and Europe (next week). For some reason, this time the prospect of rate cuts is weakening the currencies, not strengthening them as has been the case of late. We are still clueless about "unconventional measures" the ECB may take. Yesterday Trichet spoke of "improving confidence and more favorable conditions." We say this doesn’t pass the reality check and must be a public relations exercise.

Today in the US, we get the Case-Shiller home price index for Feb, probably a drop of 18.7% y/y, a little better than –19% in Jan. Some economists say the pace of decline is slowing and the market is stabilizing. Well, perhaps, but we have yet to see unemployment at its worst, and surely that has something to do with home sales and prices, however much "affordability" improves. Conference Board consumer confidence comes out today, too, expected to rise to 29.9 in April from 26 in March, according to the Bloomberg median forecast. It had hit a record low of 25.3 in February.

An astute Market News reporter points out that the list of worries gets longer every day. We say there is a limit of how much adrenaline the body can pump before it gets, literally, exhausted. After the stupid airplane trick yesterday, foreign exchange traders don't have enough juice left to face all the stuff that will come flying over the wires. Tomorrow is the big day, with the Fed meeting, Q1 advance GDP, the Treasury refunding announcement, and even an Obama press conference in the evening - and that's just Wednesday. Commentators say the GDP number is probably the one to watch. Market News reports one analyst says "The market looks for Q1 GDP to come in around -4.7%, an improvement from the "massive" -6.3% contraction seen in Q4."

On Thursday it’s March personal income and spending (a more reliable metric than "confidence"), weekly jobless claims, the ECI for Q1, and the NY NAPM. Friday delivers the final April University of Michigan confidence index, March factory orders and April ISM. We may all be hiding under our desks by then. The main point is that the market is just about untradeable now. Any scenario is plausible. We could argue 'til the cows come home about whether the US dollar exchange rate "deserves" the boost it is getting from a tragedy, but the point to keep in mind is that bad news is dollar-friendly, and like to remain so. One fly in this dismal ointment is US equities, which are actually quite resilient, even if they don’t deserve to be on a hard-hearted look at earnings and other facts. A rising stock market has been, in recent months, a negative correlation for the US dollar.

We could see the US dollar correct sizeably today if equities come back.

Pounds to US Dollars = 1.4650
Pounds to Euros = 1.1122
Euro to Pounds = 0.8987
Pounds to Australian Dollars = 2.0643

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!

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Monday, April 27, 2009

Three guess what is the forecast for the Australian Dollar against the New Zealand Dollar

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro's breakout over the channel top was short-lived and it has moved back inside the channel without making a higher high for the third time. See the special chart. We wrote last Friday "It "should" stop and reverse now." And so it has, but the path downward may be rocky. Note that the WSJ says the highest high in the professional market was 1.3299 while the retail platforms (eSignal) had a highest high at 1.3301 - this is the two points that retail foreign exchange traders pay for the privilege of being somewhat near the game. The broker ads that say retail traders with their piddly $20,000 capital stake (or still-piddly $100,000) are playing in the same game as the big banks - they lie. Retail traders always pay a premium. Two points is minor compared to some of the spreads.

The Mexican peso took a nosedive by the most in a single day since November, according to Bloomberg, on the outbreak of swine flu, which will damage tourism. We say this is just an excuse - it was always unlikely to cross the 200-day moving average considering Mexican dependence on the US economy. You don’t expect a satellite to shine while the star is fading. The US dollar was already oversold while Mexico continues to release ever-worse data, including the forecast of a drop in GDP this year of 2.8%.

Not to downplay swine flu, which is having a ripple effect around the world. Emerging market Asian currencies are all down this morning on the story. Bloomberg says the Australian Dollars and New Zealand Dollars were hit on the outlook for tourism, not that many Mexican take their vacations down under. Evidently a global slowdown in tourism is to be expected, since we don’t know how the flu spreads (it’s not food). Oh, yes, and the Reserve Bank of New Zealand holds a policy meeting this week and is expected to cut rates by 50 bp. The Reserve Bank of Australia also meets and is expected not to cut rates.

Three guess what is the forecast for the AUD against the NZD.

Pounds to US Dollars = 1.4599
Pounds to Euros = 1.1136
Euro to Pounds = 0.8975
Pounds to Australian Dollars = 2.0462

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

Foreign Exchange Traders Buy US Dollars as Swine Flu scares the market

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Foreign exchange traders are buying dollars and is gaining strength across the board as the outbreak of swine flu in Mexico and elsewhere is causing a knee-jerk reaction--risk aversion and flight to the US dollar as a safe-haven. This is a reversal from sentiment on Friday, when stock markets rose, indicating an on-going drop in risk aversion. Now risk aversion is back and that favors the us dollar exchange rate, which may break its link with the stock market one of these days.

Yes, we think the US stock market will keep rising on perception that the worst is behind us.

Pounds to US Dollars = 1.4612
Pounds to Euros = 1.1137
Euro to Pounds = 0.8976
Pounds to Australian Dollars = 2.0448

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

Thursday, April 16, 2009

If this is a dollar recovery, as the fundamental suggest, it’s an odd one.

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The dollar exchange rate is stronger against the euro exchange rate this morning, from a minor intermediate high late yesterday at 1.3267 to a low of 1.3125 just after Europe took the baton from Asia. The euro rate looks choppy on the hourly chart but Europe keeps putting out bad news as well as evidence of conflict within the ECB, and sentiment is turning against it.

The interesting development is in the US Dollar/yen, where the seeming downside dollar selling breakout peaked at a dollar low of 98.13 on Tuesday and stumbled upward to 99.99 early yesterday but back to 98.50 overnight. If this is a dollar recovery, as the fundamental suggest, it’s an odd one. The reason seems to be cross-rate action. Overnight the euro-yen hit a fresh two-week low at 129.33 (from 134.21 on Monday) and that dragged the dollar down, too. Nobody really understands the euro/yen move and the commentary at various places is all but incoherent. Since the big Asian news today, expected since Monday, was the Chinese GDP, everyone blames that - but GDP was actually a tad better than forecast, and nobody knows what it means.

Pounds to US Dollars = 1.4892
Pounds to Euros = 1.1285
Euro to Pounds = 0.8855
Pounds to Australian Dollars = 2.0676

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

Wednesday, April 15, 2009

Pounds sterling exchange rate is stronger against the dollar

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US Dollar Exchange Rate is recovering against the euro exchange rate, from 1.3265 at the close in NY yesterday to 1.3187 at 8 am today, the euro rate having tried and failed to make a new high overnight after Asia handed off to Europe. The best the euro rate could do was 1.3297, not breaking 1.3300, when yesterday’s high was 1.3303. These little things count.

The reason for the euro's sharp drop could include bad European data (although the US had bad data yesterday) but is more likely a renewed burst of risk aversion as stock markets everywhere are falling, led by banks. Today UBS reported a big loss and big job cuts, with the CEO saying markets “are very unstable.” The sentiment is back that the recession will get worse before it gets better. This is the reality check we were expecting but it arrived like a gale force wind.

The stand-alone factor behind traders selling euros drop could also be comments by BBK chief Weber, who repeated opposition to an ECB rate cut but said the bank will announce "non-standard measures" in May. This gets a little confusing. You’d think that preservation of the rate differential would favor the euro exchange rate.

But no, the market is rewarding cuts these days, and punishing acknowledgement of needed emergency measures.

We already saw risk aversion emerging when the US reported retail sales down 1.1% in March and the stock market fell. Weaker stock markets led to an unwinding in yen crosses that pulled dollar/yen down. In fact, the yen rose against everything as risk appetite was pared in every time zone. So much for the carry trade story. It’s possible that the halt in the dollar slide against the Mexican peso is meaningful, just ahead of the 200-day moving average. The peso is not the best proxy for risk appetite (that’s probably the AUD/JPY), but it’s not chopped liver, either. The peso, like any emerging market currency, can continue to rise only if foreign exchange traders think the recovery is here. We say the recovery is not here and recognition of that sad fact should be bad for emerging market currencies. Not everyone is Singapore.

One side-effect has been the emergence of sterling/yen, a favorite of Japanese securities houses, and even pounds to euros, which has fallen into oversold territory. As a result, sterling is strong against the dollar, despite appearing overbought and facing the round number 1.5000, always an obstacle. This morning it breached the level for a few minutes for the first time in three months, while also hitting a 6-week high of 88.12 pence - but it has pulled back sharply in both cases. Some analysts attributed the strong sterling tone to a less-bad RICS housing report that shows (perhaps) "green shoots."

Pounds to US Dollars = 1.4984
Pounds to Euros = 1.1332
Euro to Pounds = 0.8818
Pounds to Australian Dollars = 2.0614

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