Buy Euros before Ireland Defaults?

The IMF may well be running Ireland by February, ifthe Irish budget "fails to convince the financial markets," warns economist Colm McCarthy in an Irish Independent story on Sunday. Thebudget is due to be released on December 7 and McCarthy believes that ifit does "too little" to convince the markets then the Government will beunable to finance itself, "which means an IMF/European bail-out andeconomic policy dictated from outside the country for the first timesince the State was founded".

McCarthy also warns that Ireland's cashreserves will diminish by spring next year unless they re-enter the bondmarket with an issue of up to buy Euros 5bln. However, the NTMA's Brian Lenihansaid: "The NTMA as the Exchequer is fully funded until late June 2011."He then added, "the Agency has decided not to proceed with the bondauctions scheduled for October and November. The NTMA will return to thebond markets in the normal way in early 2011."

The country's priority,as extolled by McCarthy, is to limit new borrowing in 2011, and to hope for a positive re-entry by Ireland into the bond market.

Visit http://www.independent.ie/national-news/mccarthy-warning-imf-is-at-our-door-2401372.html to read more




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Greek drama is a euro exchange rate negative

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Greece may be losing whatever sympathy was building. Ireland already instituted heart-breaking austerity measures, as reported in the WSJ, demonstrating a real commitment to EMU membership. To rail against speculators and whine for better market pricing really cuts into whatever respect investors had for Greece. Those who complain about speculators are always the ones whose prior bad acts put them on the losing end of the trade.

This is not to say credit default swaps should not be regulated. Clearly they wreaked havoc in the housing market. But when it comes to sovereign credit default swaps, why should investors buying Greek bonds be deprived of insurance? We look forward to a lively debate on this topic. A good start is the editorial in the WSJ today that says "The bets against Greek solvency are the result, not the cause, of Greece's debt problems." We think European leadership in banning sovereign swaps is all hat and no cattle.

If the Greek drama is a euro exchange rate negative, so is the relative growth story. The Market News fixed income reporter says the bond gang is mulling over some wild and woolly forecasts, including a rate hike in June, probably unlikely but let’s not be surprised. Some are forecasting a giant rise in March payrolls at the April 2 release, as much 250,000 to 275,000 new jobs created. Unfortunately, April 2 is Good Friday when the stock market is closed and the bond market is open only until noon. You know that optimism is running high when foreign exchange traders start talking about the next payrolls only one week after the last one.

Optimism about the US economy is running high whatever the payrolls forecast. The Blue Chip Economic Indicators report says the economists in their survey raised the forecast for economic growth in March to 3.1% for the third straight monthly rise (although trimming the growth recast for 2011 to “only” 3% from 3.1%). Europe would be thrilled to get “only” 3%.

We do not agree with Wharton Prof Siegel that the ECB will stay its hand on raising rates because of structural problems in the southern tier, but we do think it will stay its hand because it needs to keep low-rate stimulus going and inflation is not a problem. In fact, deflation is still a problem, as an inevitable corollary to recession.

Until we get some additional hard data, like US retail sales (looking good so far), the market will be twitchy. The oil inventory report today could be a real factor—if oil goes up despite higher stockpiles, it would mean oil traders are back of the growth higher-demand-coming bandwagon. Unfortunately, this is either good or bad for the us dollar rate depending on whether the growth story is accompanied by its occasional sidekick, higher interest rates. We like the outlook for the dollar near-term, but first it must break hand-drawn red support around 1.3515.

Bye for Now

Barbara Rockefeller
Foreign Exchange Trading
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Euro Exchange Rates to hit 1.3000 vs US Dollar Exchange Rate

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The bandwagon is gathering speed, as we expected. Bloomberg reports Barclay’s Wu and UBS’ Yu have each cut their 12-month euro exchange rate forecasts (to 1.40 and 1.30, respectively). Gary Shilling predicts parity, which the euro exchange rates has not seen since 2002. At the core of these forecasts is the idea that the ECB will hang on to its current low rate for longer because so many countries will be falling back into recession due to budget austerity, including Spain and the other PIGS. The US, meanwhile, will be raising rates, even if last Thursday’s discount rate hike was not the bell-ringing.

We agree the euro rate is going to remain weak for a very long time to come, but we disagree with the idea that the ECB will be looking at recession data in some countries. The ECB looks at inflation data, period. There is nothing in the ECB’s past behavior that suggests it would refuse to hike rates if it saw inflation (and inflation expectations) rising to a dangerous level, recession in some members be damned. One size fits all, remember? Of course, recession by its very nature is non-inflationary, so the issue may not arise.

Not to be flippant, but Greece not being able to get data to Eurostat on deadline because its finance ministry is on strike to protest EMU-imposed austerity sums up the situation with stunning simplicity - worse than a SNAFU if something less than a full-blown Crisis.

Back on this side of the Atlantic, the Fed’s discount rate hike had a number of purposes, only one of which was to signal a readiness to raise "real" rates (Fed funds). One purpose was to take the punchbowl away from banks after many not only recorded big profits but also paid themselves 2007-level bonuses. A second purpose was to acknowledge that discount window borrowing had fallen back to minor levels, so the hike is a message to all and sundry that the crisis is over. A third reason, which may be wishful thinking although we hope it is not, is that the Fed wants to dampen commodity speculation. We have no way of knowing whether anyone borrowed 28-day discount window money to speculate in pork bellies and gold - it seems improbable, doesn’t it? - but an overall rise in the cost of borrowing does make managers re-consider risk/reward.

As one analyst put it, the discount rate hike didn’t bring forward a rise in Fed funds by one minute, and this is almost certainly true. The Fed is managing expectations, not engaging in monetary policy. The Fed has always played mind games with the market, and this is just another one. We get a number of Fed officials speaking this week, including Chairman Bernanke on Wednesday and Thursday. The expectation is that he will talk about normalization and decline to say much about monetary policy except that the discount rate move wasn’t it. The one to watch is San Francisco Fed Pres Yellen late today speaking on the economic outlook. She is the most straight-shooting of the bunch and often tells us the right perspective.

As noted above, a big move is almost always followed by a corrective move in the other direction as foreign exchange traders take profit, reconsider the reasons for the original move, and sometimes vote with their feet the other way if they perceive the currency is still oversold and more will be leaving the herd. This is called “fading the trend” and is very risky. We have had two such minor consolidations in recent weeks and they were exceptionally lame.

Bye for Now

Barbara Rockefeller
Foreign Exchange Trading
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Pounds Sterling and Euro Exchange Rate Outlook

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate rose from a spike low at 1.3721 early in New York to 1.3747 at the close, not really a convincing move. Overnight the euro high was only 1.3801 and since then, the euro rate slid to a low of 1.3679.

This would seem to suggest that the market is not impressed by whatever the upcoming announcement may have to offer. We are surprised - normally the forex market likes announcement effects and the ensuing tussle over whether it’s a credible announcement.

Japan is having a holiday today. Pounds Sterling dipped as low as 1.5555 overnight but is staging a recovery this morning on Middle East and Asian sovereign demand, according to Market News. All our long-term models switched back to a selling pounds position yesterday.

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Barbara Rockefeller
Foreign Exchange Trading
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European sovereign debt problem

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro to US dollar exchange rates is trading in a narrow range of about 1.3620 to 1.3720 since late Friday, having dropped during the US session on Friday from 1.3742 to 1.3582, an 8-month low. The euro exchange rate came back later in the day in the usual end-of-week position paring, albeit a modest one this time.

The WSJ reports that "The cost of insuring Greek and Spanish debt against default fell amid a lack of fresh bad news Monday. However, the debt problems of Greece, as well as those of Spain and Portugal, are expected to remain a dominant feature in currency markets. Last Friday's vote by Portugal to extend the spending powers of its regional councils aren't going to help either as this will make it more difficult for Lisbon to curb the country's budget deficit."

During Asian hours, the failure of G7 to say anything interesting or worthwhile did not escape the notice of traders. G7 is so far down the news list that you have to search hard to find out what they did say. The group did not talk about the European sovereign debt problem, although EU officials made some comments on the sidelines, and although Japan wanted to talk about China, the rest of G7 chickened out. G7 gutlessness pushed Asian stock markets mostly lower, although the dollar/yen is flat as pancake in a tiny range of 89.10 to 89.56.

The US dollar index made a giant leap last week, from 78.68 on Feb 3 to 80.68 on Friday. See the chart. It probably went too far and too fast last week. We know prices don’t move in a straight line so we must expect a pullback at some point, but after that, the index has the potential to reach the 50% retracement level at 81.86 in Feb or March.


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Barbara Rockefeller
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We could issue a sell signal in the Australian Dollars to Japanese Yen,

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Last week before the Thanksgiving holiday, we wrote that the Fed gave the market an excuse to sell dollars by speaking of the US dollar’s decline as “orderly.” It’s not clear (and probably never will be) whether the Fed actively wants a lower dollar or was simply accepting a fact of life - that until it raises rates, the US dollar rate will fall. To give the Fed its due, it was probably unhappy about the dollar becoming a safe-haven play last week and Fed officials no doubt huddled with BoJ officials and their Treasury - MoF counterparts on whether to intervene. It seems clear from the incoherent and inconsistent statements from Japanese officials that the US declined to participate.

It’s hard to say whether the Dubai story will become a bigger contaminant of all emerging markets or a one-time aberration. At a guess, it’s a one-time thing and the UAE, which has ambitious plans for the region to become a financial center rivaling New York and London, will fix it quickly and quietly, and we can all go back to worrying about China. Dow Jones has a story that the UAE may guarantee the Dubai World debt, all of it. This would be better than the bank liquidity plan already offered. If so, safe-haven flows into the yen will be short-lived, too.

The Dubai saga reminds us once again that the world can always deliver a Shock and on the whole, Shocks are US dollar exchange rate -favorable because they inspire an emotional safe-haven impulse. Something that is a lot less clear is the effect of underlying fundamentals on trading activity. We tend to complain that traders are short-sighted and interested only in their own bottom line, not first-class economic analysis (which is why first-class economists are lousy forecasters and worse traders). But foreign exchange traders have one characteristic that puts them back in the real economic world, and that is penchant for pointing out that the emperor is not wearing any clothes. In today’s market, we say the naked emperor is the Swiss franc, which breached parity last

Wednesday before the holiday at 0.9911. On Friday it bounced, hard, to 1.0076 and this morning it’s back to 0.9990. As we have noted before, Switzerland is always more expensive than its neighbors, but parity with the dollar is, economically, ridiculous. At some point the Swiss franc will be seen as overbought and then watch out.

This week is full of scheduled events, including retailers reporting on Black Friday, vehicle sales, the Bernanke hearing, another 10-year auction announcement, and more - but the biggie, as always, is payrolls on Friday. We don’t have forecasts yet but they will start coming today and up to Wednesday’s ADP Macro release for the private sector. With the UK fretting about a double-dip recession, should the US be fretting, too? Probably not, because there is still plenty of undisbursed stimulus money to be spent, even if Q3 GDP data still overstates the recovery so far, as most economists think.

Some politically-minded analysts say the Obama administration has until March to get employment up or the mood will turn decisively down, and mood counts. We are not so sure, since all the forecasts are for employment to keep falling for longer than March. So, perhaps the payrolls report will not have as big an effect this time, and retail sales will be a bigger factor. So far we know more people went shopping but they spent less per head than last year, not a big help, analytically. Clothes are not of interest but electronics and toys are hot. We continue to find it really weird that the US shopper is setting the tone for the global economy.

At a guess, the US dollar rates will resume its downtrend and the biggest winners will be the currencies that got the knee-jerk sell-off, especially the New Zealand Dollars and the Australian Dollars, but the charts are very scary. We could issue a sell signal in the Australian Dollars to Japanese Yen, for example, based on our rules. We didn’t do it because the end of last week was extraordinary, but were the market darlings to lose favor, we could get a re-shuffling of the deck that could (at least temporarily) favor buying US dollars.

Bye for Now

Barbara Rockefeller
Foreign Exchange Trading
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We consider the Australian Dollar exchange rate outlook the canary in the coal mine,

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate is falling this morning from yesterday's high at 1.5050, which was hit ahead of the US open. We can see on the charts that many currencies, including the euro, closed down yesterday from the open and well off the high, with the euro rate and Swiss franc actually closing at the low or near it. This was a warning sign for today, and sure enough, the euro exchange rates has dipped so far to 1.4918 (at 7:30 am ET).

One report says that a large amount of euro to us dollars options at 1.5000 are due to expire today and players are pushing the euro down to avoid paying out. Market News reports that slipping European stocks this morning took the edge off the euro, while the euro also "came under pressure from Russian sales which helped to knock the pair down around 80-points to lows under $1.4930." Market News also names "East Europeans" as sellers with German names adding weight before running into Asian demand during the European morning.

Explanations for the euros downmove range from the mundane (the options) to the sublime (Chinese revaluation, oil prices).

At a guess, this is a consolidative move rather than an outright reversal, but there are some worrying aspects to it. For one thing, the high yesterday failed to match, surpass and hold the high at 1.5063 from Oct 25. Thirteen points isn't much of a shortfall but it’s still a "failure." Another issue is that so many traders like Fibonacci numbers that it would be negligent not to calculate them. On the 6-hour chart, we get a 50% retracement to 1.4840 and a worst-case 62% retracement at 1.4789. These levels could be reached without scaring the horses but any more would create a new environment.

The trigger for such a new environment might be the Chinese actually changing from the de facto dollar peg to a basket, as suggested in yesterday's People's Bank report. Most commentary says this is not a realistic expectation until the middle of next year, but the probability is not zero for such an Announcement at the APEC summit or next week after the Obama visit. Obama has said he is taking the currency issue very seriously and it will be discussed directly (along with other trade and finance issues).

A second idea is that when we get the US oil inventory report today, foreign exchange traders will take seriously that the risk of rising oil is so dire for economic recovery that some government somewhere may do something about oil becoming a "security" and alternative asset. We have a fresh warning from the International Energy Agency to that effect, with some additional analysts saying the price of oil is the whole ballgame for recovery. A return to bubble levels would stop the recovery dead in its tracks. This argument has a lot of emotional appeal and has the added virtue of being largely correct. The question is whether government interference is realistic (it’s not) or that enough speculators think it might be (possible).

But real economic events are still drivers, too. The Australian dollar jumped over 100 points to 0.9371 on release of the employment report (a rise of 24,500 when a drop of 10,000 had been forecast). Foreign Exchange Traders immediately jumped the conclusion that the RBA can raise rates a third time in December, even though it has never done three in a row before. It’s interesting that the Aussie Dollar has now given back all of the gain and lost a bit more from the US close yesterday. We consider the Australian Dollar exchange rate outlook the canary in the coal mine, leading the euro for reasons we have never nailed down.

The pound remains under pressure, evidently on BoE Gov King talking it down yesterday. The yen rose against everything as a bit of a safe-haven after Chinese Premier Wen Jiabao said “The worst is over. The global economy is starting to recover but a total recovery will be a slow and bumpy process.” According to Bloomberg, among others, this was taken to mean a safe haven might be needed. One analyst (Mitsubishi) says the yen is headed straight for 85 again, but this source has a tendency to draw straight lines off the smallest of moves. The latest weekly capital flow report from the Japanese MoF shows that Japanese investors are buying foreign bonds and equities for a total of ¥332.1 billion) while foreigners were net sellers of Japanese bonds and equities but buyers of money market instruments for a new outflow of ¥431.3 billion.

This doesn’t support a rising yen but it’s for last week, not this one.

Bye for Now

Barbara Rockefeller
Foreign Exchange Trading
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foreign exchange traders is out gunning for Pounds sterling

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate closed yesterday just under the magic round number at 1.4991 after hitting the high at 1.5021 before the US open, suggesting US traders were slow to jump on the bandwagon. The best euro rate made a new high at 1.5050, again overnight, on good data from Japan and China and despite a strong dollar policy statement in Tokyo from Treas Sec Geithner.

The change in attitude toward gold is interesting. You can’t follow currencies without knowing something about gold, and the only time when it was not dominated by ideologues and true believers was the run-up to over $800 in 1979 and 1980. Speculators joined the party then and are joining it again now, although this time gold is "just another commodity." According ot the FT, spot gold prices rose as high as $1117 before falling back.

Another curious development is in Pounds sterling exchange rates, which fell from 1.6754 to 1.6599 in a single hour yesterday on the news that Fitch sees the UK as potentially facing a sovcereign ratings downgrade (but probably escaping that fate upon fixing the deficit after the spring election). Pound to us dollars recovered yesterday after that shock and rose steadily, spiking to a level higher than the pre-Fitch level at 1.6799. But then it put in a giant downmove, again in a single hour, to 1.6625. Find an hourly chart if you can. Seldom can we see so clearly when a gang of foreign exchange traders is out gunning for sterling.

But the news from the UK is mixed. Job losses were less than expected, which was sterling-favorable. The Bank of England’s Quarterly Inflation Report said the CPI will average about 1.6% for the next two years, interpreted as meaning the Bank will keep rates on hold all year next year - and sterling-negative. But near-term, the BoE inflation forecast is for a possible pop over target. By now the market was weary of lobbing balls back and forth, and then Gov King spoke about 27 topics, among which was the observation that a weak currency has been of benefit to the economy, and that was the only thing the market heard.


Bye for Now

Barbara Rockefeller
Foreign Exchange Trading
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Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate rose over 1.5000 around 5 am ET today for the first time since Oct 26 as the market voted with its feet on the unemployment rate Friday and the failure of G20 even to mention Foreign Exchange and specifically the yuan. Reuters says "G20 leaves door open for fresh pressure on dollar rate," pointing out that Brazil (and Canada) had said ahead of the summit that they would bring it up.

The FT says "Furthermore, a report from the International Monetary Fund also weighed on the US dollar rate as it named the US unit as the currency of choice for funding carry trades, in which low-yielding currencies are sold to fund the purchase of riskier, higher-yielding assets elsewhere. The report said that while the dollar had depreciated in recent months, it still remained on the ‘strong’ side.”

Bloomberg elaborates a bit more on the IMF report, which was published just as G20 was meeting. “There are indications that the U.S. dollar is now serving as the funding currency for carry trades. These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” Bloomberg reports "While the dollar [in real effective terms]'has moved closer to medium-run equilibrium,' it is still 'on the strong side.'"

The IMF also says the euro exchange rate “is on the strong side of its equilibrium.” Hello? How can the dollar be on the strong side and the euro be on the strong side, too? The IMF doesn’t view the ever-changing market price of the euro/dollar as the benchmark and is using other measures, based on baskets, to derive “real effective terms.” This may be fine for ivory-tower economists but is not at all good for an agency that should have a higher sensitivity to the real world. Finally, the IMF said the yuan “has depreciated in real effective terms in tandem with the U.S. dollar and remains significantly undervalued from a medium-term perspective.”

In a word, bah.

Pounds Sterling exchange rate is rising strongly this morning, to over 1.6800, on a story that Kraft has until 5 pm ET today to increase its offer for Cadbury. M&A has often been a driver of the pound in the past. In dollar/yen, though, Friday’s big drop (from 90.75 to 89.59) has not been matched so far today. Still, it’s a breakout under the previous intermediate lows and we now await whether it also surpasses the Nov 1 low at 89.17.

Bye for Now

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euro exchange rate at $1.50 is a disaster for the European economy and industry

“The euro exchange rate at $1.50 is a disaster for the European economy and industry," said Henri Guaino, right-hand man of President Nicolas Sarkozy. The currency has risen 15pc in trade-weighted terms since March, equivalent to six quarter of a percentage-point rises in interest rates. It briefly flirted with $1.50 against the us dollar rate on Tuesday before falling back on intervention fears.

What concerns European policymakers most is the lockstep rise against China's yuan. Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency. Fresh reserves are mostly being invested in eurozone bonds, pushing the euro higher.

French finance minister Christine Lagarde said it was intolerable that Europe should "pay the
price" for a dysfunctional link between the US and China. "We want a strong dollar, and we have reiterated it again in the strongest manner," she said after this week's Eurogroup meeting. China's trade surplus with the EU reached €169bn (£154bn) last year.

Europe and Japan are now the last two blocs standing as everybody else lets their currencies
fall, or takes active measures to hold down the exchange rate -- with "beggar-thy-neighbour" echoes of the 1930s. Brazil has become the latest country to intervene, resorting to controls to cap the real after its 42pc rise against the us dollar exchange rate since March. It is imposing a 2pc tax on flows into bond and equity markets. Finance minister Guido Mantega said the move was to head off an asset bubble. Critics called it a "desperate move" that would distort markets.

Hans Redeker, currency chief at BNP Paribas, said the strong real is "eating away" at Brazil's
manufacturing base. "They are not willing to take any more of the adjustment burden as long as China and other surplus countries do nothing," he said.

Switzerland is openly intervening to hold down the franc in order to stave off deflation. Canada and New Zealand have talked down their currencies. Britain and Sweden have opted for stealth devaluations.

Korea, Thailand, Taiwan, the Philippines, Indonesia and Russia have all been buying dollars to
stem their currencies' rises. The effect is to perpetuate the imbalances that led to the credit bubble from 2004-2007 and ultimately caused the financial crisis. Reserve accumulation fuels asset booms because it creates a wash of liquidity and drives down global bond yields. Asia
clearly needs to sharply revalue against the West to right the system.

Professor Michel Aglietta from Paris University says the euro exchange rate is 40pc above its
purchasing parity of level $1.07 (a low estimate), citing it as the reason why Peugeot and Renault have shifted annual production of one million cars to Eastern Europe since 2004.

Airbus is moving plants offshore, building A320 jets in China. It is relying heavily on US
contractors for its A350 jet. Fabrice Bregier, Airbus chief financial officer, said the current exchange rate is "becoming very difficult for all industrial companies which have their costs and need to buy euros. We can only appeal to monetary authorities to see to it that there is stability in exchange rates."

The European Central Bank could take some of the steam out of the euro rate by signalling a less hawkish policy. It may be pressured into doing so. EU ministers have the final say on exchange rate under Maastricht, though they have never used this power – publicly.

What is missing is a unified front of EU governments. Italy has been remarkably quiescent,
given its export slide. Germany has a higher pain threshold for a strong currency after gaining competitiveness by squeezing wages. But there are limits even in Berlin. The IWK institute says the danger point for German exporters is $1.45.

Jean-Claude Trichet, ECB president, has stepped up his rhetoric against "disorderly" currency
moves, warning that authorities on "both sides of the Atlantic" were monitoring the markets. He made an unscheduled appearance on Monday to drive home the point. The body language is changing.

For the Full Story visit www.telegraph.co.uk

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Canadian Dollar exchange rate not reach parity with the US

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The important release today is retail sales at 8:30 am ET, which will set the tone for the day until corporate earnings start having their effect. The Market News forecast comes in at -2.1% with the range minus 1.3 to -2.6% - no positive number is even possible. Since August sales rose 2.7% (led by autos), the Sept results will mostly offset and probably cause doubts about such a joyous and heedless embrace of risk. Ex-autos, Sept retail sales may rise 0.2%, which is nothing to write home about.

We may get a pullback today, or we may not. We may get one Friday as foreign exchange traders stand back and look at what they have wrought (and take profits). Note that there is no particular sense of panic or crisis abroad in the land. The US dollar rates is falling for reasons we think we can identify and understand, especially the oil/gold story. As for perspective, why should the Canadian Dollar exchange rate not reach parity with the US? It may have a messy political landscape but it also has commodities galore and some very smart guys in the BoC with a tart tongue. The closest the Canadian dollar has come to parity is 1.1163 in 1991, by the way.

While we don’t have a problem with the Canadian , or even the Australian dollar exchange rates, we do have a problem with the Swiss franc nearing parity with the dollar. Nobody much pays attention to purchasing power parity these days, but the Swiss franc was already overvalued at 1.1500 (November 2007), so it must be wildly wrong at 1.0200. We may pay $1.50 for a Coke in Connecticut, but in Switzerland, it’s about $4.50. Eeek. Besides, the SNB is not amused at too-strong a Swiss franc, and while its main concern is with the swiss franc to euro exchage rate relationship, the best us dollar rate counts, too. The Swiss franc reached its highest ever against the dollar in March 2008 at 0.9639, the height of the financial sector crisis (and the stock market low). We would be flabbergasted to see the same crisis-level seen again--without a crisis. In fact, it’s been a while since we had something that could be named a crisis. We can’t forecast the unforecastable, but we can warn that crises are a regular feature of the landscape and we should not act as though a new one is not possible.

Pounds to US Dollars = 1.5948
Pounds to Euros = 1.0710
Euro to Pounds = 0.9339
Pounds to Australian Dollars = 1.7472

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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euro exchange rate continued its corrective dip yesterday from 1.4359

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro exchange rate continued its corrective dip yesterday from 1.4359 Sunday night to 1.4271 after the US close as Asia was gearing up for a new day. The lowest euro low was 1.4250 at the Asian hand-off to Europe, whereupon the euro rates took off to the upside again to 1.4336 so far. You can chart the euro’s fortunes move-by-move to the US equity markets yesterday, with a new risk aversion becoming visible and helping as traders were buying dollars - but not by much. The euro rate recovery this morning also matches the rise in US equity index futures. Overnight, the euro rate drop is attributed by Market News to "Asian and Russian supply of euros, as this pair triggered stops through the Asian base in the $1.4270 area down to $1.4254."

The euro’s low overnight is attributed to the Shanghai Composite falling as much as 5.7% overnight, according to Bloomberg, closing down 2.6% after the CEO of China Construction Bank said excess liquidity in the Chinese economy is leading to asset bubbles. In Asia, foreign exchange traders were also influenced by a comment from a regional US banker that commercial real estate has yet to bite and will continue to bite next year.

As usual, the rise in risk aversion during Asian hours affected the euro/yen and dollar/yen the most. Market News reports that "The morning's drop in Asian stocks led to another wave of risk aversion, which put yen crosses under pressure, and led investors to seek shelter in US dollar exchange rate instruments. Euro-yen fell steadily through the morning session, from a high near Y135.25 to a Y134.23 low. Dollar-yen followed the cross down, falling from Y94.60 through Y94.00 to lows around Y93.92." But the dollar/yen made it only to 93.77 before bouncing back up to 94.43 after Europe came in.

Pounds to US Dollars = 1.6358
Pounds to Euros = 1.1414
Euro to Pounds = 0.8758
Pounds to Australian Dollars = 1.9521

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

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euro exchange rates rose from 1.4090 to 1.4265

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Yesterday the US dollar rate flip-flopped on the US equity market shaking off the negative influence of the Shanghai Composite rout, causing dollar and yen longs great distress. As Market News puts it, "The overnight slide in Chinese stocks led to anticipation of risk aversion in U.S. action and market players entered into euro, sterling and yen carry shorts accordingly. When U.S. equities trimmed losses in early morning action, currency positions were pared back modestly. Later as stocks rallied further, market players raced to unwind existing dollar long position, with the euro exchange rate and other currencies rising sharply."

From the US open around 8 am ET, the euro exchange rates rose from 1.4090 to 1.4265 by noon. The euro has failed to build on it, though, and is sliding softly downward along a hand-drawn resistance line that lies about 1.4225 at 8 am today. We see ultimate support at the midpoint of yesterday's breakout bar at around 1.4188. The Market News technical analyst puts support at something he names the 9-day resistance line (whatever that is) around 1.4242, or maybe the Fibonacci retracement level 1.4246 (50% of the 1.4447 to 1.4046 move).

We say that technical levels are often powerful if everyone is looking at the same indicators, but right now, we have bigger things on our mind like the US equity market decoupling from the Shanghai and some actual economic data, which was in short supply on Wednesday, allowing the oil inventory report to hold the room.

Dollar/yen got a boost, or rather the yen took a hit, on rising oil and commodity prices and rising global equity prices overnight. The FT has an interesting report, saying "Weekly data showed continued currency inflows into the Japanese equity market, prompting BNP Paribas analysts to argue this suggested the dollar was 'increasingly used as a funding currency taking a position
previously occupied by the yen.'"

In the UK, a dire fiscal condition report had little effect, although sterling dipped from 1.6607 before the news to 1.6449. The pound is especially tricky these days, overreacting to the QE stories but now under-reacting to the deficit news. In one of our long-term model systems, sterling is a sell and in the other, it’s a buy, while in the short-term trading system, it’s a buy but with support at about 1.6430, close to the current quote at 8:10 am of 1.6477.

Pounds to US Dollars = 1.6496
Pounds to Euros = 1.1586
Euro to Pounds = 0.8628
Pounds to Australian Dollars = 1.9848

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

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Buying Dollars? Buy US Dollars at the Best Dollar Rates!
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Australian Dollar exchange rate rallies as do stock markets

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

We wrote last winter that at some point, hysteria and selling panic have to stop not because of fundamentals, but because people become exhausted. It's tiring to be truly fearful. It literally wears out the adrenal glands (the source of flight-or-fight juice). A 20% drop in the Shanghai may be just what the doctor ordered as long as it stops somewhere around there... having said that, we doubt the Chinese government is going to intervene in any signficant way. It is newly committed to free markets (one decade) and doesn't want to appear to be rigging them too much. These are very smart people with their eye firmly on the long-term horizon.

The market will just have to sort itself out.

The best of all possible worlds would be if Chinese credit is indeed tightened and the stock market decides it can live with that. Then global stock markets will rally like crazy, and so will the Australian Dollar exchange rate. The US dollar rate will sink back as the need for a safe-haven fades and relatively riskier currencies, including the euro exchange rate which yield a tad more - go back into favor. We imagine this is still the big-picture and the events in the Chinese stock market are just a bump in the road.

We can't find a reason to buy dollars other than safe-haven reasons, especially with the political picture in the US so nasty… even FIFO doesn’t work anymore, with Europe actually ahead of the US in the growth sweepstakes, a rare occurrence.

The problem is that we can't name the exact timeframe in which risk appetite comes back. We have to watch the Shanghai and commodity prices, especially oil. Instead of nice smooth swings, we could continue to get jumpy moves that are up one day and down the next. For tend-following traders, this is a recipe for big losses, so extreme caution is called for.

Pounds to US Dollars = 1.6496
Pounds to Euros = 1.1586
Euro to Pounds = 0.8628
Pounds to Australian Dollars = 1.9848

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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Euro exchange rate up against the US dollar

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar rate was already losing ground yesterday morning in New York, with the best level at 10 am at 1.4040, just shy of the round number 1.40. The euro exchange rate proceeded to put on gains all day, closing at 1.4080, although the range was narrow 40 points and the euro rate bounce was interpreted as the normal bounce off a level near support. The US dollar rates was on the firm side across the board yesterday on the global stock market story, with the riskier currencies (Canadian Dollar and Australian Dollars exchange rates) tracking US equities point-for-point.

But the euro exchange rate move kept going and turned out to be more than bounce, reaching 1.4135 by 7 am ET today, on the news that the German ZEW investor sentiment index rose to 56.1 in August from 39.5 in July and far better than the forecast of 45. Yesterday, US data was also pretty good, suggesting risk aversion on equity losses was overdone. The US data set the stage for the Germany data today. Well, that was one bounce. As of 8 am, the nice ZEW effect is already wearing off and the euro exchange rate is down to near 1.4100.

You'd think risk aversion would be too important a phenomenon to seesaw back and forth in a single day. Maybe it’s the wrong name, or maybe we are attaching too much importance to it. When we first started to use the term, we thought it was pretentious and self-important, but gradually came to accept it along with everyone else as useful shorthand. But now we are back to thinking "risk aversion" is pretentious and too weighty for the sentiments it is describing - plain old greed and fear.

Market News Singapore reports today the euro/yen and dollar/yen tracked the Shanghai and Tokyo stock markets move-for-move all morning in Asia, with improvements in the equity indices reflected almost immediately. "Euro-yen, a popular risk sentiment play, rose strongly earlier in the session, mounting its Y133.32 overnight to hit a peak of Y134.20 this morning. But by midday here, the cross was drifting back down to Y133.71 as stock market indexes headed back south." Special Case - the Mexican Peso: The US dollar rate rose strongly against the peso for the biggest one-day move since May, according to Bloomberg, led by the drop in global stocks yesterday that led traders to think the rise in "higher-yielding, emerging-market assets has outpaced the prospects for economic growth." The dollar peak in March at 15.5803 and dropped to 12.7686 last Friday, or about 17%.

Also, the Brazilian real fell "to the lowest this month as foreign direct investment in China plunged in July and Japan’s second-quarter economic growth missed estimates, raising uncertainty about the global economic recovery. The currency lost 1.7% to 1.8807 per U.S. dollar at 5:09 p.m. New York time, from 1.8484 on Aug. 14. It earlier fell as much as 1.9%to 1.8840, the weakest since July 31. Today's drop pared the real’s gain this year to 23%, the best performance against the us dollar exchang rate among 26 emerging-market currencies tracked by Bloomberg. The Bovespa stock index declined 2.5%, the most in eight weeks.”

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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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!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Contact IMS Foreign Exchange + 44 207 183 2790

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!
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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!
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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!

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Traders are Buying Euros, than selling euros get bored than buy euros again

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The euro dollar, having risen dramatically last Thursday and Friday, was already decelerating by Monday and Tuesday, with the highest high 1.3722 late Tuesday night. From there the euro has retraced almost 25% of the gain from the April 22 low at 1.2883. Some technical traders like these Fibonacci and Gann numbers. The euro made the lowest low (1.3523) late last evening as Asia was coming in and needs to get past it today for the congestion to be considered a correction. For what it’s worth, the 32% retracement level is 1.3404 and the 50% is 1.3305. We like the channel bottom as support and it lies at 1.3434 at noon today.

Sterling in unstable, having broken a support line on the hourly chart early yesterday around 1.5150, with sentiment contaminated by a slew of factors, not least of which is expected skimpy demand for the giant upcoming Gilt issuance. The UK can’t raise rates in the face of the worsening recession, despite evidence inflation is not falling as much as desired, and potentially the Treasury could have another failed auction. Beware pity—the US faces the same thing not too many months down the road.

The yen is also considered a proxy for risk aversion, and has risen from 99.77 last week to 95.07 around 6 am ET today. This is, of course, bad for the export-driven Japanese economy and the Nikkei. Pretty soon we will have to start looking for threats of intervention. We imagine the “line in the sand” is probably 90. Earlier, most analysts would have said 95 was the limit, and the speed of the move to that round-number level is pretty scary.

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!

Contact IMS Foreign Exchange + 44 207 183 2790