Daily Morning Report 28/11/2012 | Forex Trading Analysis

 In Asian trading on Wednesday dollar traded mixed to lower against the world's major global currencies on growing fears regarding actions US policymakers need to take to steer the American economy away of the ‘’fiscal cliff’’ as time is running out. EURUSD was down on fears that despite a recent deal that will free up aid to Greece, the broader European debt crisis won't abate anytime soon. Many investors seeking safe haven opted for the yen.

Yesterday Conference Board, a market research group, reported that its index of consumer confidence rose to 73.7 in November from a reading of 73.1 in October, whose figure was revised up from 72.2. In other announcement the U.S. Census Bureau reported that core durable goods orders, which exclude volatile transportation items, rose by a seasonally adjusted 1.5% in October. Total orders for durable goods were unchanged last month compared to expectations for a 0.6% decline. Standard & Poor's/Case-Shiller home price index rose at an annualized rate of 3.0% in September from a year earlier, beating expectations for a 2.9% increase.

Later, the US is to release official data on new home sales, a leading indicator of economic health, as well as government data on crude oil inventories. Also the Fed is to publish its Beige Book.

Daily Morning Report 27/11/2012

 The dollar weakened against the world's major global currencies on Tuesday after IMF and EU policymakers agreed to reduce Greece's debt-reduction target by EUR40 billion to 124% of gross domestic product by 2020, an accord needed by IMF to free up aid. Greece will cut debt burdens down further to 110% by 2022, while EU and IMF policymakers agreed to trim interest rates on Greek loans, extend their maturity by 15-30 years, and grant the country a 10-year interest repayment deferral. Greece is set to avoid default.

 In Spain’s Catalonia region separatist parties won the majority of the public vote in elections held over the weekend, which tempered the euro's rally. Catalonia accounts for nearly a fifth of Spain's economic activity and provides the most tax revenue to the central government.

 Later US are to release official data on durable goods orders, a leading indicator of production, as well as industry data on house price inflation. US consumer confidence data will also be published and FED chairman is to deliver brief remarks at the National College Fed Challenge Finals, in Washington DC.

ECB's Coene: Spain Banking Aid Decision Will Prevent Contagion

By Frances Robinson

BRUSSELS--The decision to provide assistance to Spain's banks will prevent further contagion in the euro zone, a member of the European Central Bank governing council said Monday.

Over the weekend, Spain said it would accept up to 100 billion euros ($125 billion) in guarantees for its troubled banks and is expected to make a formal request for the money this week, although independent assessments of the amounts required will only come towards the end of June.

"What's positive is we've got a mechanism in place that will allow us to isolate the Spanish problem," Luc Coene told reporters. "This risk is now being limited, it's under control, we've got the necessary resources to do that."

Statements about the bailout by Spain and the European Union have left several open questions, including the exact amount of aid the country will need and how the funds will be disbursed.

And while Coene said details needed to be finalized about how the money will flow from the permanent bailout fund--the European Stability Mechanism--to Spain's banks, he advocated taking the best approach according to circumstances.

He also said the funding decision wouldn't affect the European Central Bank's exceptional policy measures, such as the securities markets program of bond-buying, which was designed to improve monetary policy transmission.

"There is no connection between the two things," he said.
Asked if the structure of senior creditors within the ESM could cause problems, Coene replied he "didn't think so."

"ESM debt is senior, but that is not in itself enough to have a credit event," he said, adding that the final details have yet to be confirmed.

"This has nothing to do with ratings, or non-compliance with conditions," he said.
Initial market reaction to the deal shouldn't be over-interpreted as "it's not unusual for markets to fluctuate," he added.

Spanish government bond prices fell Monday, after an initial relief rally as concerns mounted that the deal will load more debt on to the Spanish state and threaten to subordinate bondholders behind official creditors.
Write to Frances Robinson at frances.robinson@dowjones.com

END) Dow Jones Newswires May 31, 2012 22:19 ET (02:19 GMT)

0219 GMT [Dow Jones] Korea government bonds are higher, helped by continued risk aversion amid worries over the euro zone debt crisis, while data tips weaker growth in China and the U.S. "Yields of local bonds, like those on U.S. Treasurys, are already trading at very low levels, but there is no clear momentum yet to revive risk appetite in the market," says Kim Se-hun, a fixed-income analyst at Daishin Securities. "The bullish run for local bonds is expected to continue in June. The three-year yield may fall near the BOK's policy rate of 3.25%" in the near term, he adds. The three-year yield is down 2 bps at 3.30%, the five-year yield is down 3 bps at 3.40% and the one-year yield is down 4 bps at 3.65%. Lead June bond futures are up nine ticks at 104.74. 

Daily Forex Brief London: Friday 25th May 2012

The euro bails out

Markets approach the end of what has been a pretty difficult week. The single currency has made news lows for the year (vs. the USD) and markets have no more faith in the ability of eurozone leaders to quell speculation around a Greek exit as anti-bailout parties retain their lead in the Greek election opinion polls. We've also seen the capitulation of the single currency, something which we talked about earlier this month, where the euro has been the weakest currency in a period of dollar strength, rather than the more traditional high-beta currencies, such as the Aussie. The price action on the single currency this week means that we run the risk of short-covering activity into the weekend. Also, the Swiss franc is worth keeping a small eye on after yesterday's volatility (at least compared to recent activity), which was mostly on the back of - so far - denied rumours of further measures to quell currency strength.

Daily Forex Brief London: Thursday 24th May 2012

Europe's impossible dream

Probably not by accident, yesterday's Brussels dinner party of EU leaders ended too late for the European press to pass judgement. There was a weight of expectations, which was largely misplaced given this was an informal meeting to pave the way for the main summit of leaders at the end of next month. The same differences remain on common bonds and the financial transaction tax (UK opposing) and more subtle differences on the growth agenda. Of course, everyone would like more growth but delivering it alongside a program of continued austerity is naturally a different matter and, for now, it remains the impossible dream for European leaders and a balance which Europe (and indeed others) has yet to achieve. In the FX markets, after the push lower through the 1.26 level into the European close yesterday, EUR/USD has held steady overnight, but activity elsewhere shows that dollar-dominance remains the underlying theme.

Daily Forex Brief London: Wednesday 23rd May 2012

Dollar dominance returns

The dollar index made a new high for the year yesterday, 3.8% higher than the level seen at the start of the month. This follows on from two sessions of downward pressure on the dollar, which was more down to the extent of short positioning on some of currencies under pressure for most of the month. As we start the European session, EUR/USD itself is not that far off the lows for the year at 1.2624 as EU leaders meet for an informal summit in Brussels. Germany is looking increasingly isolated with its austerity - with no Plan B stance - and continues to rule out any sort of common debt for the eurozone. This summit is designed to shape the plans around the next formal summit at the end of June, so don't expect any major statements, but the surrounding comments will be key in shaping the debate ahead of that meeting. For now, currencies look set to reflect the theme of dollar dominance once again, with stock markets seen heading lower in Europe after the recent breather.

Daily Forex Brief London: Tuesday 22nd May 2012

All about positioning

The price action seen on both Friday and also yesterday reflects the fact that, it's all about positioning in the FX markets for the moment. This has been most evident on the euro, not only in the weekly CFTC data which is reflecting a record amount of speculative shorts, but also in the price action. The single currency has pulled away from a threatened break of the year's low, not that surprising after a run which saw EUR/USD up on only two of the last fourteen trading days. The Aussie has also corrected from the recent lows, partially reversing a downtrend of similar style as seen in EUR/USD. Even though the relationship between the two has broken down a little of late, stocks also look set for a second day of gains after the recent down-run. The underlying themes remain in place, namely continued concerns surrounding Greece and the other peripheral eurozone nations, so the current correction should not be aligned with a perception that things are improving underneath, because they are not.

Daily Forex Brief London: Monday 21st May 2012

Here we go again

It's Monday and the shifting sands of the European mindset are moving (not for the first time) towards the issuance of common bonds as a means of overcoming the sovereign crisis. This is one of the changes in momentum that has emerged from the weekend's meeting of G8 leaders, together with giving the EFSF the ability to re-capitalise banks. It's a sign that there is stronger desire to see an alternative to the hard-line German stance of austerity, with few after-thoughts. Furthermore, the German Chancellor will find it increasingly difficult to resist this shift, especially when it is being endorsed at the international level. The wider issue is that at no point have European leaders really seized the initiative on the crisis, compromising by doing just as much as they believe necessary to stop things getting worse, rather than going all in to turn things around. Imagine where we would be if Greece had restructured its debt back in May 2010, a decent firewall was set-up and a shift towards common bonds was put into train. Most likely, we'd be in a better place than we are now. The single currency recovered on Friday, despite the weaker tone to stocks. This is partly a function of the extent of the short-positioning that has built up in the single currency, which could mean that a push below the year's low at 1.2724 could prove a little tougher than some expect.

Daily Forex Brief London: Thursday 17th May 2012

Europe must decide urgently

Nearly five years into the global credit crunch, you get a feeling for when something has reached the point of no return, when no amount of reassurance, promises or policies will fight the tide of markets. This is not to define markets as pure 'speculators', rather rational individuals and entities that are removing deposits from Greek banks, reducing their exposures to all types of market risk and doing their best not to be crushed by a moving train that is Greece. As well as reports of large-scale withdrawals from Greek banks, we have had (unconfirmed and then denied) reports that the ECB is also refusing liquidity requests from Greek banks, pushing them to the Greek central bank because of the lack of recapitalisation undertaken. We've seen sharp increases in forward Libor-OIS spreads, the measure of interbank liquidity risk that was so watched during the early days of the crisis. From being taboo in official circles, a Greek exit is now more openly discussed rather than dismissed outright. At the same time, after two years of fire-fighting the Greek and wider sovereign crises, there are no policy responses that can credibly stem the tide. We've had two large scale EU/IMF rescue packages, a tortuous 'voluntary' private sector-restructuring and vast lending form the ECB (with ever lower collateral standards applied). The more credible response now from the authorities would be measures to stem contagion elsewhere, particularly with respect to bank deposits in other eurozone countries now that permitted cross-border lending between deposit-guarantee schemes will not be workable. Contagion remains the biggest single risk, given that a Greek exit will mean that what was previously presented as irreversible and unthinkable will have become reality. This is where efforts now need to be focused otherwise the single currency will be left horribly exposed by a Greek exit. Furthermore, all efforts to 'save' Greece from here on in will have been wasted and at the cost of failing to deal with the contagion issue. Policy-makers face a critical choice over coming days. Let's hope they choose the right track.

Daily Forex Brief London: Wednesday 16th May 2012

Dollar soars after Greek talks fail

News that ongoing talks amongst politicians in Greece have failed to come up with a coalition government and that new elections will need to be called, has triggered renewed fears that a Greek exit from the eurozone might not be too far away. In response, risk assets are again on the defensive with both traders and investors seeking sanctuary in the US dollar. Overnight, the dollar index stopped just short of its highest level for the year, reaching 81.45. The euro was singled out for especially harsh treatment, falling to 1.27; EUR/GBP dropped to 0.7960, a 3½ year low. Bond yields amongst Europe's southern fiscal miscreants surged once more; the Italian 10yr yield has reached 6.0% for the first time since the end of January. Latam currencies were also savaged; the Mexican peso for instance has dropped 6% against the dollar in just the past two weeks while the BRL is down more than 4%. Likewise, commodities fell hard – the gold price has opened up in London this morning down near USD 1,530 an ounce while WTI is close to USD 92 a barrel. Asian equities have been buffeted; the Kospi and Hang Seng fell 3%. There is very little prospect of the Greek uncertainty ending any time soon. The Greek President has been alerted by the head of the central bank that depositors are increasingly anxious about the safety of their savings and are pulling money out of local banks. Clearly, Greek citizens are not sufficiently reassured by the deposit guarantee scheme which exists in the country. It supposedly guarantees individual deposits with any bank or financial institution up to EUR 100K. The Greek deposit guarantee scheme can also (supposedly) borrow from other schemes around Europe in the event that it has insufficient available funding. No doubt the likes of Germany et al would be aghast if Greece were to put in such a request. Nevertheless, the risk of a significant bank run in Greece is now very real.

Daily Forex Brief London: Tuesday 15th May 2012

Another bad hair day

Yet another bad hair day for risk assets yesterday amidst continuing concerns over a myriad of issues, including the unstable political situation in Greece and ongoing question marks around whether it will remain in the eurozone, the dire state of Spanish banking and sovereign finances, and a sense that the losses registered by the CIO unit at JPMorgan could turn out to be much greater than already disclosed. Also contributing to the uncertain mood was Moody's announcement that it was downgrading 26 Italian banks and worries over whether Greece will pay the holders of a EUR 436m floating rate note which matures today. Gold, a traditional safe-haven in times of distress, has lost its lustre, falling to its lowest level for the year at USD 1.550 an ounce (more on gold below). Instead, it is the greenback that is the preferred destination of those fleeing risk, with the dollar index already up by 2% so far this month. For the dollar bulls, should we see a sustained break of the mid-January high of 81.50 (in the dollar index) then this would provide further encouragement. Indeed, it could justifiably be argued that, against the backdrop of dreadful financial and economic conditions in large parts of Europe, and with China in the midst of a very bumpy landing, the dollar really ought to be performing better than it has done. Another currency that continues to attract buying interest is the pound, with cable steadfast at around the 1.61 level and EUR/GBP now comfortably under 0.80. The single currency fell to 1.2815 overnight, but it has been a remarkably measured sell-off rather than blind panic. Even for the Aussie, which has been under sustained fire all month, the decline through parity was not one of capitulation, notwithstanding the evident determination over recent weeks of traders to eliminate their long positions.

Daily Forex Brief London: Monday 14th May 2012

A sea of red

Unfortunately, in financial markets at least, it is rarely the merry month of May. Last week was another sea of red, with equity markets on the slide, high-beta currencies heading south and core G4 bond yields declining. Spanish equities were singled out for the harshest treatment, falling another 3%, with the financials again hard hit. The Aussie is back at parity, the euro is under 1.29, and cable is near 1.6050. German 10yr bund yields fell below 1.5%, at the same time as the 10yr yield in Spain rose above 6.0%. Apart from the deteriorating political situation in Greece and the equally disturbing Spanish banking predicament, markets were rattled by the massive loss recorded by one of the units of J.P.Morgan. Overnight, the mood stabilised slightly after China decided to reduce the bank reserve requirement (RRR) by 50bp (see below). Worryingly, many of those forces which were so unsettling last week are still in play, including growing speculation that Greece may well leave the euro before too long

Daily Forex Brief London: Thursday 10th May 2012

Reality bites

The euro's break below the 1.30 level has been sustained overnight and it's notable that the dollar has risen in all but two of the past nine sessions, looking at the dollar index chart. The political events in Europe, both in France and Greece, have served to enhance the more risk-averse trend that was already in place last week. Furthermore, in Europe we are seeing fresh signs of stress in the banking sector, such as widenings in cross-currency basis swaps and also Libor-OIS spreads. These both reflect greater concerns with regards to the fragility of the European banking sector, but at present there are few signs that the ECB is keen to get stuck in, already having undertaken two 3Y injections of liquidity. We've also seen disappointing trade data from China overnight (a bigger balance but also a slowdown in both exports and imports). Meanwhile, Asian equities are declining for a sixth consecutive session, the MSCI Asia (ex-Japan) index is now around 7% up on the year, having stood 16% higher at the end of February. Reality is biting hard and not only in Europe

Daily Forex Brief London: Tuesday 8th May 2012

Drawing the eurozone battle lines

After the initial weakening of the single currency on the back of the weekend's political developments in both France and Greece, the euro crawled back through most of Monday's session, although volumes were naturally muted by the London holiday. In France, there is a new President keen to rebalance the agenda in Europe towards growth and away from yet more austerity. In Greece, there is a mad scramble to try and form a government from the results of the latest election, which at present looks to be a tall order. Now, the task of forming a new government has fallen to the leader of the Syriza party, who is seeking to re-negotiate the bail-out terms. Meanwhile, writing in the FT today, the head of the German Bundesbank (Weidmann) has, in no uncertain terms, made clear that the ECB is not set to bow to pressure from anyone to do more to help. Not surprisingly, he is clear about the limits of what the ECB can achieve and shows no signs of giving ground to any fresh-faced European leaders. Politically at least, we are heading for a turbulent few weeks in Europ

Daily Forex Brief London: Friday 4th May 2012

Caution ahead of payrolls

Markets face up to the US jobs data today in tentative mood, Asian stocks having softened by the greatest degree in nearly two weeks overnight and the past two days having seen high-beta currencies, such as the Aussie and Korean won the weakest performers of the majors. The recent trend in jobless claims, together with the ADP data earlier in the week, have tempered expectations of a strong set of numbers, with the market looking for a 160k gain in headline payrolls following the softer 120k increase seen in March. Nevertheless, in the wider picture, expectations of further QE from the Fed have also been cut back, so it would take a pretty weak payrolls number to shift this expectation and knock the dollar from its relatively steady tone of the past month.

Daily Forex Brief London: Thursday 3rd May 2012

A dark and dismal Europe

A swathe of dismal economic news cast a long shadow across Europe yesterday, beating the single currency lower by nearly 1%. The manufacturing PMIs in the periphery for April were uniformly dreadful, Spain down to 43.6 and Italy to 43.8 (from 47.9 in March). For the latter, the new order balance saw the biggest monthly decline for three years, from 45.7 to 39.2, suggesting that there's not much on the horizon to turn around the fortunes of the manufacturing sector anytime soon. There was also a modest downward revision to the provisional PMI readings for both France and Germany, by 0.4 and 0.1 respectively, to 46.9 and 46.2. As if that wasn't bad enough, the unemployment rate in Italy jumped to a 12yr high of 9.8% in March (9.4% was expected), Germany recorded the largest monthly increase in unemployment (19k) for nearly two years, and the unemployment rate for the euro-area rose to a 15yr high. Today's ECB meeting is therefore extremely timely. At the very least, with recession deepening in a number of Eurozone economies, Mario Draghi and his men must be considering how they can ease financial conditions further. With the US recovery looking more assured these days, it is no wonder that the single currency took yesterday's smorgasbord of shocking news rather badly. It was also worth noting the response of peripheral bond markets to this darker economic landscape – bond yields rose markedly in both Italy and Spain, while the spread to Bunds at the long end widened by around 15bp. Both the dollar and the yen gained from this renewed burst of risk avoidance, while the Aussie dipped back to 1.03.

Daily Forex Brief London: Wednesday 2nd May 2012

A trans-Atlantic good-news story

Genuinely positive stories on the economic front are relatively rare these days, with no fewer than ten of the EU's 27 economies in recession and Australia's central bank forced to cut rates by 50bp yesterday in part because the non-mining economy is contracting. Thankfully, both Germany and America continue to defy the global gloom. In the US, the manufacturing sector is expanding at a respectable pace, propelled by solid growth of both domestic and export orders. Strong automobile-demand is making a significant contribution to the upturn in manufacturing – auto sales in the first quarter were the highest for four years and auto production accounted for roughly one-half of the growth in GDP in Q1. In response to this latest batch of healthy data, the Dow Jones index last night reached its highest level since the end of 2007. Over in Europe, the German labour market continues to forge ahead, with employment up another 37K in March, the 25th consecutive MoM gain. Currencies remain generally becalmed although, with a myriad of important economic releases due over coming days, we can expect volatility to increase. Friday's payrolls figures are critical following last month's disappointment.

Daily Forex Brief London: Tuesday 1st May 2012

RBA boldness should be applauded

Last night's decision by the RBA to lower the cash rate by 50bp to 3.75% ought to be applauded. Faced with an economy which, outside the mining sector, is in recession and with inflation likely to be lower than expected, policy-makers rightly decided that financial conditions needed to be loosened considerably. Australia's central bank would also be concerned by the continued decline in property prices – according to the ABS, established house prices fell by a further 1.1% in the first quarter, the fifth consecutive quarterly decline. More rate cuts are likely to be in the pipeline, judging by the level of term interest rates and the shape of the yield curve. For shorter-term maturities, yields fell by as much as 20bp overnight with the 2yr yield now just 2.8%! Both 5yr and 10yr bond yields fell to record lows. The RBA will also be pleased by the response of the currency, with the Aussie down 1% to just above 1.03. Last night's sudden drop aside, it is worth recognising that the AUD's recent performance has actually been remarkably resilient considering the significant narrowing in interest rate differentials. As we were suggesting yesterday, the key driver for the currency is invariably global risk appetite rather than domestic fundamentals.

Daily Forex Brief London: Monday 30th April 2012

The dollar's gentle descent

It has been exceedingly gradual, but the dollar has been drifting downwards over the past two weeks. Not that we are talking about a big move mind you – the dollar index is down by roughly 1.5% over that time. That said, some of the major dollar crosses are at levels not witnessed for some time – cable for instance reached a 7mth high at just under 1.63 overnight. Indeed, the pound has been something of a revelation so far this year, despite the fact that the economy is apparently back in recession. Clearly sterling is attracting flows from a number of different sources. Just imagine how well the currency might be doing if the economy was actually registering the kind of growth that America is experiencing. The Japanese yen is also faring quite well, after a torrid period in February and the first half of March. Even the beleaguered Aussie has perked up, despite mounting speculation that the RBA will cut rates by 50bp by mid-year. All things considered, it has been an indifferent first four months of the year for the dollar, which is slightly surprising as the economy looks better than most, corporate earnings are healthy and the Fed has backed away from implementing further QE after Operation Twist finishes next month. Part of the explanation is that there has been a slight improvement in risk appetite recently. For now, some of the high-beta currencies such as the Kiwi and the ZAR are attracting interest, while sterling retains a very healthy bid.