Bid-offer spreads have widened dramatically and the amounts that can be done at even widened spreads have shrunk

Hi All,

We asked the meaning of the phrase “dire liquidity” in a Market News report yesterday, and Market News obliged with a full report on worsening conditions in the supposedly liquid Foreign Exchange market. Bid-offer spreads have widened dramatically and the amounts that can be done at even widened spreads have shrunk. This phenomenon is across the board from majors to emerging market currencies. In the Mexican peso, the usual spread was 15 points and good for $5 to $10 million. Now it’s 100 points wide and good for only $1-2 million. In the Australian Dollar exchange rate, the normal 1-point spread used to be good for $10 million, but now it’s good only for $1 million. If a client wants AUDUSD 100 million, the spread goes from 9-10 points to 40-50 points. In the euro exchange rate, the spread for €50 million used to be 3 points and now its 5-7 points. Market News goes on to cite reports showing a big and steady unwinding of unhedged long-term investment positions in emerging markets -and also in Europe.

Buy for Now

Barbara Rockefeller
Forex Trading Reports - click here for a free trial

We remain astonished that what started as $200 billion in failed US subprime mortgages could have turned into $3 trillion in global losses

Foreign Exchange Outlook : The global financial system is under severe stress, and so is the global economy. Ripple effects are only just now starting to appear in places like China, which was partly insulated from the free-market world but can’t hide forever. It’s interesting that the richest entities are the ones in the most denial that everything has changed-the oil producing Middle East as well as China. OPEC is busy trying to raise prices in a world of falling demand, which seems particularly foolish. Of course, these are the very countries that are getting richer by the minute as their dollar reserve values go up, but these reserves may be needed for domestic spending if their exports, whether oil or socks, start falling apart.

We remain astonished that what started as $200 billion in failed US subprime mortgages could have turned into $3 trillion in global losses, showing that even financial professionals are having a hard time grasping the extent of the leverage that was out there and still remains. It’s easy to see how nonprofessionals are bewildered by the collapse of pyramid-upon-pyramid, including our presidential candidates. We think only two things are clear;

1. the bottom will come only when US housing bottoms, no matter the state of deleveraging at the time.
2. And the US economy will survive, however tattered. It is literally too big to fail. But other sovereigns are not too big to fail.

We already have Iceland and Argentina. Well, Argentina is too easy a target for sarcasm. It always fails the minute the wind blows. The most interesting aspect of this whole debacle is that not one single analyst or commentator is calling on G7 or the new summit group (that will include China) to deliver a global rescue. Everyone seems to assume that no major Bretton Woods-level response is likely or maybe even possible. That’s because you need capital controls to enforce such things, and the US is against capital controls.

At some point in this trend the currencies will bounce up and at some point the trend will reverse, but in the meanwhile, keep the faith—the US dollar is the safe place to be.

Buy for Now

Barbara Rockefeller

Forex Trading Reports - Click her for a free trial

Buying Euros? Buying Dollars - Need to Buy Australian Dollars?

Contact IMS Foreign Exchange +44 207 183 2790 for the best exchange rates

New Zealand Dollar strengths as RBNZ cuts Rates - No further Rates Cuts is the current Outlook

Hi All,

the Reserve Bank of New Zealand cut rates by 100 bp to 6.5% yesterday, with Gov Bollard
saying it’s a “frontloading” of future interest rate cuts. "One should not necessarily expect or build in further cuts of this magnitude. We've done quite a lot right now to try to get rates re-calibrated right down to where we think they should be. One should not assume we would continue in such radical fashion."

The Reserve Bank has meets scheduled for Dec 4 and Jan 29.

The Pounds to New Zealand Dollar Exchange Rate went from 2.76 to 2.71 and you can buy New Zealand Dollars at the moment at 2.7250

Buy For Now

Barbara Rockefeller
Forex Trading Reports - click here for a free trial

The euro exchange rate should fall to 1.28 by year-end and lower in 2009

In Foreign Exchange Markets Yesterday in the New York morning, the US Dollar Exchange Rate broke out of the sideways range (of 1.3343 to 1.3538) from last Thursday. It sank under the previous intermediate low to 1.3286, crawled along sideways for the rest of the day, then put in another breakout move to a new low of 1.3205 so far this morning.

Foreign Exchange Analysts have come up with numerous explanations. The FT says "hedge funds were liquidating long positions in riskier assets funded by selling US dollars and returning to cash in anticipation of massive investor withdrawals." Also, according to the FT, the US dollar was supported by Bernanke’s support of a second fiscal stimulus, despite the hit to the deficit--foreign exchange traders like a pro-active stance instead of dithering. Bloomberg says Citibank analysts are encouraging euro sales on the grounds that the euro exchange rate is in for a perfect storm as the ECB cuts rates toward 2.5% on slowing growth. The euro exchange rate should fall to 1.28 by year-end and lower in 2009. Even the IMF is saying the ECB has room to cuts interest rates further (in association with its new lower growth forecast for the eurozone).

We say the Foreign Exchange market is not only buying dollars because US dollars are in authentic demand for transaction purposes, but also selling euros because of greater uncertainties in Europe than in the US. We simply do not know the extent of bad loans and investments. The ECB recently tightened colalteral rules but the suspicion runs high that the quality of European bank balance sheets (including stupid investments in toxic US paper) is lower than the quality of bank balance sheets in the US.

This reflects the bigger perspective that the US may have generated bad loans but then dumped them on unwitting foreigners.

This is somewhat parallel to selling Rockefeller Center to the Japanese.

This time the fear arises because today is settlement day for some Lehman CDS paper, an issue we don’t understand. Surely derivative paper comes nearly last on the recoverable list of a bankrupt entity and anyone holding it is screwed.

And interest rates do count, even if we don’t buy the argument that the ECB will stop being a one-note Johnny. In Australia, the Australian Dollar took a nosedive on release of the latest RBA minutes. This was the early Oct meeting at which the RBA decided to cut australian interest rates by 100 bp, and in the discussion, the policy committee determined that growth was getting so weak that inflation would subside faster than previously thought. The consensus is not that the RBA will cut aggressivley by another 50 bp and maybe 75 bp by year-end - wow.

(Pounds to australian Dollar exchange rate currently 2.5000. The Outlook for the Australian Dollar suggest that there may be further opportunities to buy australian dollars over 2.6000)

The Japanese Yen is quite confusing, having softened from the high last week under 100 to 102.42 early yesterday but now rising again to 100.73. We are talking about the Japanese yen exchange rate and not the dollars to yen exchange rate because the market is thinking about the yen as the bellwether for risk aversion/risk preference, and noting that it has been tightly linked to equities.

Really?

We say the relationship is sometimes very strong but lacks logic to forecast the yen based on what equities are doing.

It’s like forecasting the US dollar up because oil is down.

Buy For Now

Barbara Rockefeller
Forex Trading Reports - click here for free trial

Buy Australian Dollars at best exchange rates - call IMS Foreign Exchange for a free quote
+44 207 183 2790

French banks were unwilling to tap the government fund in case it made them look weak

Euro Exchange Rate Outlook : The French government shoved €10.5 billion of its €40 billion rescue plan down the throats of the 6 biggest French banks today, a bit like food down the gullet of a goose. Until the government forced the issue, French banks were unwilling to tap the government fund in case it made them look weak. The stocks of all the banks rose on the announcement that Credit Agricole will get €3 billion, BNP Paribas will get €2.55 billion, SocGen will get €1.7 billion, and so on.

It’s interesting that the form of the capital injection is not preferred shares, as elsewhere, but subordinated loans at the base rate plus 400 bp. According to the FT, “the loans are repayable after other debts have been met, do not dilute existing shareholders and do not require a change in dividend policy. Nevertheless, subordinated debt can nonetheless be used to increase the banks’ tier one capital ratios, a main measure of balance sheet strength.

The Euro exchange rate today is still very weak as a result and the pounds to euros exchange rate is currently 1.2900

Buy For Now

Barbara Rockefeller
Forex Trading Reports - click here for a free trial

Buy Euros at the best euro exchange rates

call IMS Foreign Exchange for a free quote +44 207 183 2790

This is puzzling - how can Europe’s biggest economy avoid recession while the rest fall into it?

Euro Exchange Rate Outlook: The German Econ Minister, Mr Glos, praised the newly weaker euro exchange rate as a good thing for exports. Most commentary continues to deny that Germany will fall into recession, even if the eurozone does, as is highly likely, having already marked one quarter of negative growth. This is puzzling - how can Europe’s biggest economy (40%) avoid recession while the rest fall into it?

Eurostat reported that construction activity inched up in August by 0.1%, the same July, for a quarterly drop of 3.5% q/q. Year-over-year, Aug was sown 2.5%, which is better than 03.3% in July.

In trade, the eurozone Aug deficit was €6.1 billion after €6.7 billion (revised) in July, with imports down 1% and exports down less, 0.6%. We remain a little confused about why Europe has a trade deficit at all.

Exchange rate to buy euros today against the Pounds is currently 1.2852

Buy for now

Barbara Rockefeller
Forex Trading Reports

Buying Euros - Best exchange rates call IMS Foreign Exchange +44 207 183 2790

Average Property Prices in Australia Fall

Hi All,

Thought i havent been here for a while and point out a new opportunity. The credit crunch and global meltdown has presented a very unique opportunity;

Australian Property.

The pound to australian dollar exchange rate has risen by more than 27% and you can now buy australian dollars at 2.6500+.This means an average priced australian property would have cost $300,000 australian dollars in July this year would have cost in;

US Dollars - $288,000.00
Euros - E191,000.00
Pounds - £150,000.00

Today the costUS Dollars - $195,000.00 saving 93k us dollars
Euro - E144,000.00 saving 46k euros
Pounds - £113,000.00 saving 37k pounds.

this could be a brilliant opportunity for the australian property market and especially since you can still get a decent range of australian mortgages. Also the fact that rental prices are soaring in sydney to a rental property shortages make the opportunity all the more tempting.so if you need to have a look start at Real Estate, Property, Land and Homes for Sale, lease and rent - realestate.com.au

Buy for now

call if you need to buy australian dollars