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

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Barbara Rockefeller
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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

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Barbara Rockefeller
Foreign Exchange Trading
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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

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Barbara Rockefeller
Foreign Exchange Trading
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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
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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
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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