Monday, June 29, 2009

US Dollar rate not the best again today as Madoff is sentenced to 150 years

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The calendar has some juicy stuff on it, holiday mentality or not. Today Bernie Madoff is sentenced to 150 years. His lawyer wants 12 years of jail time. The law would allow 150 years. It’s up to the judge. So far the liquidation manager has found only $1.3 billion of the $13.2 billion stolen and the rest will have to come from investor insurance and "clawbacks," or taking money from those smart enough to have gotten something back from Bernie. This seems inherently unfair, doesn't it? We were a bit shocked when the other Bernie, Ebbers, got 25 years, but it would set a good tone for Madoff to get a really high number, too. We can't believe that long jail sentences don’t serve as some kind of deterrent, and financial criminals are particularly dense.

Tomorrow we get Case-Shiller house prices, but for April - a real lag. The payrolls report on Thursday will be preceded, as usual, by the ADP Macro estimate on Wednesday. It's hard to see how the report can be good. High school and college kids will swell the ranks of the unemployed, with their usual service sector jobs not getting created this year.

Stock market guru Sandi Lynne (www.wallstreetinadvance.com) says "Bear in mind, as this week draws to a close, markets will be a mere two weeks away from earnings season. As expectations rose with stock prices, the opportunity for disappointment rose, as well, especially since the reality of business conditions may not fit the rose colored glasses of the anticipators who celebrated depression being taken off the table Worry, especially, about the growing number of people who’ve exhausted their unemployment benefits. The more people who fall off the continuing claims list, the more risk there is that another group of consumers will drop off the grid and stop paying their mortgage, credit card bills, and even their phone and electricity bills."

The WSJ reports today that Michigan, for one, is getting ready for a surge in applications for welfare once unemployment benefits run out. Michigan has 680,000 on the unemployment rolls already, which is about 10% of the national number. Here’s a shocker—the welfare check for a family of three is $492/month.

The End-is-Nigh club would have it that the Fed's enormous balance sheet expansion will inevitably cause inflation and foreign exchange traders will sell dollars buy euros, and that's the only way the US can repay all that debt. We can think of 18 reasons why this ain’t necessarily so, and one of them is that according to the University of Michigan survey, one-year inflation expectations are 3.1% and 5-year inflation expectations are lower, at 3.0%. This is not to say the great unwashed public is wiser than hordes of PhD-card-carrying economists, but it is to say that inflation fear is premature. You don’t get a bond market rally when inflation fear is rampant. There are multiple reasons for the June rally, but one of them is pushing back against inflation fear.

On the whole, we can imagine plenty of reasons for the us dollar rate to survive in the current environment, not least of which is doubt and skepticism about how stable the European financial sector really is and how much growth the continent can get, especially compared to the US with multiple green shoots. But look at a big-picture chart of the euro exchange rate - it’s on an uptrend, and the current phase is just that - a corrective, consolidative phase. On the daily chart, the linear regression drawn off the April euro rates low leads to a level over 1.5000 before end-July. With so much confusion and conflict over the fundamentals, the chart may rule.

Pounds to US Dollars = 1.6550
Pounds to Euros = 1.1768
Euro to Pounds = 0.8495
Pounds to Australian Dollars = 2.0550

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!
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Monday, June 22, 2009

euro exchange rate fell off the cliff overnight

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate rose on Friday (from 1.3925 at the US open to an intraday high of 1.4012), in part on a story that Moody's issued a ratings warning on California because of its $20 billion deficit and "imminent fiscal challenges," referring to the dysfunctional referendum system.

But then the best euro rates fell off the cliff overnight and today in European trading on the prospect of a 12-month ECB auction on Wednesday, according to the FT. It fell from 1.3940 at the Asian open to 1.3826 so far, or a little over 100 points in half a trading day. This is not much in the grand scheme of things but see an hourly chart - the euro rate can easily test last Monday’s euro low at 1.3745. On the daily chart, we could be forming the right side of a head of a big head-and-shoulders pattern (with the first shoulder in March).

The FT says the Wednesday auction has inspired talk that "funds will leak out of the eurozone as foreign banks tap the auction and convert the proceeds into other currencies." In other words, the ECB's colalteral conditions are too lax and the world’s banks wil ltake advantage of them. The euro fell despite a superficially good IFO survey this monring, and normally IFO sets the tone. In reality, the IFO results are not that hot. See below. And it's a little unclear which currencies would benefit from the supposed leakage, since the high-yielding Australian Dollars itself took a fall on local reports that the Reserve Bank of Australia should not be considered done lowering rates - when only last week the Australian Dollar exchange rate was being touted as the wonder-currency again with everything going for it.

The US dollar rate and yen benefitted from rising risk aversion after the World Bank issued a grim outlook and cut the 2009 forecast for most economies. Most of all, stocks closed down last week for the first weekly drop in a month, amid much chattering about a big pullback, perhaps to the March low or beyond.

Reuters says "Stock index futures pointed to a lower open on Monday as investors assessed the
potential strength of an economic recovery ahead of a round of key data this week. Energy shares could come under pressure as oil fell below $69 a barrel as the dollar exchange rate strengthened."

Off on the side is another factor mentioned in the WSJ today, that Germany’s budget deficit is ballooning at a torrid pace while at the same time upcoming elections (Sept 27) mean taxes cannot be raised.

Pounds to US Dollars = 1.6337
Pounds to Euros = 1.1785
Euro to Pounds = 0.8489
Pounds to Australian Dollars = 2.0754

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

Friday, June 19, 2009

Foreign Exchange Traders were hard-pressed to explain the dollar rally

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate rose yesterday in the US morning to a high of exactly 1.4002, breaking the magic round number but not able to hang on to it. The best euro rates then fell in the afternoon to 1.3868 before rising modestly into the close on the usual late-day short-covering. Market News reports that the afternoon euro selling was set off by a single name (a German bank) and then picked up by others on stop-loss selling. This suggests the market is not very deep these days, which is hardly surprising considering that everyone is licking wounds from very large losses.

Market News also notes that "Foreign Exchange Traders were hard-pressed to explain the dollar rally in afternoon dealings. Some pointed to the modest rise in US Treasury yields in afternoon dealings where the yield on the benchmark ten year Treasury lifted to 3.84% after beginning the day around 3.714%. Others pointed to simple weight of positions in euros to dollars, explaining that, earlier in the day, players built longs in the pair in anticipation that stop-loss buy euros orders would be triggered atop $1.4000. When those orders failed to trigger, longs were left holding the bag and quickly headed for the exit, chased out by the German bank sales." Well, that's instructive.

You can also look at the action as a function of data and other information. In the morning, risk appetite was spurred by good US data (see below) but then dragged back down by the LIBOR-fixing story (also below) and a rumor that a rogue North Korean ship with missile capability was possibly roaming around in the open seas. The story came from Fox News and lacked credibility. Finally at 6 pm, Reuters asked the Navy, which confirmed it is watching the ship, with Defense Secretary Gates saying the US can shoot down any N. Korean missile aimed at (say) Hawaii. The possibility of some kind of showdown with N. Korea is vaguely dollar-positive on the safe-haven theme, although everyone knows the N. Koreans are irrational and act in ways not consistent with any sane idea of self-interest. Let’s note again for the umpteenth time that anytime the US gets aggressive, the dollar goes up. We don’t know whether this is because Foreign Exchange traders are inordinately blood-thirsty, or what, but it’s a really reliable factor.

Pounds Sterling is coming back strongly this morning from what looked like the edge of the cliff late yesterday. From the low early yesterday at 1.6195, the pound rose to 1.6452 so far, nearing the high from the overnight session yesterday. Again, on the hourly chart we have a series of lower lows and lower highs, so today will be critical.

The dollar to japanese yen may have bottomed on Wednesday at 95.48. It has been rising in a straight line ever since to a high overnight of 97.18. Analysts try to torture the japanese yen’s moves into a risk appetite model, but that works only sometimes. The only explanation anyone has for the recent move is institutional - assuance of foreign currency denominated bonds and/or redemption/coupon payments.

Good luck trying to get hard data from the Investment Trusts Association (Toushin) website - click on a category and all the data is labeled in Japanese. You need a story from a trading desk and while these stories abound, they are by definition one-sided.

Yesterday the SNB said its intervention to manage the Euros to Swiss Francs exchange rate was a success and it would keep doing it as necessary. Foreign Exhcange Traders obediently took the Swiss francs down again.

Pounds to US Dollars = 1.5305
Pounds to Euros = 1.1752
Euro to Pounds = 0.8050
Pounds to Australian Dollars = 2.0600

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, June 17, 2009

Euro and Australian Dollar rates fall against the Japanese exchange rate

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar Rate put on modest gains yesterday, from 1.3907 at the US open to 1.3827 at the close, but again overnight this was reversed back to the starting point during the Asian session, giving us the same up-down swing in a short period we are beginning to dread. During Asian hours, the yen crosses set the tone, with both the Euro to Japanese Yen and Australian Dollar to Japanese Yen falling by a lot. When Europe came in, the euro exchange rate fell back to 1.3820 so far this morning.

We really want to see the euro rate fall below Monday’s low at 1.3745 to convince us that a US dollar rally is real. We get US CPI this morning and that may do the trick. Market News reported late yesterday that "On the downside, technical analysts were focussed initially on a pullback to $1.3610-15, the 50% Fibonacci retracement of the April lows near $1.2883 to the June highs near $1.4337. On the upside, the euro exchange rate will need to see a sustained break above Tuesday's highs and then psychological resistance at $1.4000 before there is talk of a return to last week's peak of $1.4177." In other words, stalemate between US dollar bulls and bears.

Sentiment today is influenced by the price of oil picking up the pace to the downside this morning, hitting $69.90 around 7:30 am ET. Foreign Exchange dealers were also watching S&P futures, around 906.50 at 7:15 am and approaching the 200-day moving average around 904.78, according to Reuters.

Pounds to US Dollars = 1.5305
Pounds to Euros = 1.1752
Euro to Pounds = 0.8050
Pounds to Australian Dollars = 2.0600

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