Daily Forex Brief London: Wednesday 14th March 2012

Well Fed markets

The US Federal Reserve pulled off a difficult balancing act last night, sounding both more upbeat on the economy, but also keeping open the option of further easing measures and maintaining the commitment to keep rates low until the end of 2014. The expectation of growth was altered from "modest" to "moderate", a seemingly small adjustment but a sign of the Fed's cautious optimism that the recent run of good data is more than likely to be sustained. It also noted the easing of strains in financial markets, whilst acknowledging the "notable" decline in the unemployment rate which remains "elevated" in its view. The interesting thing is that, even with reduced chances of further QE, markets are increasingly shifting their focus onto economy, so Asian stock were able to follow through on the strong gains seen yesterday in European and US markets. But FX remains more circumspect. It's interesting to note the declining correlation between AUD/JPY and stocks, from 0.90 to just above 0.70 now (rolling 3mth vs. S&P500). It's a sign that FX is disconnecting from the wider risk-on/risk-off ebb and flow in other markets

Also in today's Daily Forex Brief:

• China further eases lending standards
• Yen weakness not down to BoJ
• Green shoots in the UK

Daily Forex Brief London: Friday 9th March 2012

A great result for Greece

Greece announced the details of the largest sovereign debt restructuring in history this morning, with private sector bond-holders finally recognising that the deal on the table was probably a much better one than they were likely to get by holding out. According to a statement from the Greek government, the participation rate of investors in the debt swap was extremely high at 95.7%, no doubt encouraged by the threat of collective action clauses being imposed. Some EUR 152bln of Greek-law bonds were tendered, together with EUR 20bn of foreign-law bonds. Athens ought to be very pleased with this outcome. The aim of the restructuring exercise was to reduce the EUR 206bln of Greek debt held by the private sector by 53.5%, in order to put Greece onto a more sustainable debt footing. Importantly, high participation is a key condition for the EU to approve the EUR 130bln bailout. ISDA is set to meet later today to discuss this 'potential credit event'. Although the take-up has been well above expectations, the single currency has actually softened slightly, with some traders taking profits on long positions accumulated over the last couple of days. Apart from the way that the euro responds to this Greek debt-restructuring, observing how the bond markets of Europe's other fiscal miscreants perform over coming days will also be instructive. Despite some real concerns in recent weeks over the extent of private sector participation, in the end this outcome surpassed even the most optimistic expectations.


Also in today's Daily Forex Brief:

• Yen on the back foot once more
• Brazil backs more sober global outlook
• SNB faces a tougher year ahead.
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Daily Forex Brief London: Thursday 8th March 2012

Underlying unease

Ahead of today's ECB and BoE meetings, and the impending Greek PSI announcement, both investors and traders displayed an understandable reluctance to commit to risk yesterday, although overnight nerves steadied just a little. For example, the single currency is back near 1.32, after lingering threateningly near 1.31 yesterday afternoon. The recovery is partly on the back of positive noises regarding participation in the Greek debt-swap, with the minimum participatory level (below which would mean a disorderly default) apparently set to be reached. Despite the partial overnight recovery, equity markets are on edge too and commodity prices are on the defensive. The gold price for instance has really struggled of late, falling USD 100 since late last month. A sharp decline in both German industrial orders and Spanish industrial production contributed to the underlying tension. Unsurprisingly, high-beta currencies in Asia have been tentative while the yuan has been softening as well.

Also in today's Daily Forex Brief:

• Beyond the Greek PSI
• RBA refuses to countenance Aussie FX intervention
• Reasons to question the ECB

Daily Forex Brief London: Tuesday 6th March 2012

Dollar wobbles

It's the Aussie and Kiwi that were hurting overnight, the Kiwi taken to a five-week low vs. the USD. Whilst there were domestic factors that were evident in both moves, the wider tone is one of more caution so far this month. There's a certain dynamic at play, in that there is a concern that the large amount of cash that European banks are currently sitting on could shift the euro into becoming a carry currency. But the more important issue is that where the cash might go. There are concerns with all the high yielders that have done well in recent months, such as Brazil's desire to weaken its currency and the simple fact that many are viewing the dollar bloc as looking rich, especially if we are entering a period of slower growth in China. Furthermore, the impetus to invest in eurozone debt is less than was the case in December, given the rally in yields seen over the past two months. For now, the cash seems happy to sit at the ECB, but we've got to watch the numbers given this situation is unlikely to last.

Also in today's Daily Forex Brief:

• The ECB numbers
• Russia's slow road to ruin
• China's subtle shift

Daily Forex Brief London: Friday 2nd March 2012

Some good news in Europe

The deadline and hurdles for Greece are passing at a pace. Yesterday it was the decision that CDS would not be activated on Greek bonds, although this does not mean that they won't be in the future (for lengthy technical reasons). The other factor to note is that, even thought the EU has delayed the approval of the full EUR 130bln of the second aid package, there were positive responses to the degree of progress made by Greece to date in fulfilling the 38 requirements needed before full approval will be given. Don't expect any major headlines from the remainder of the EU summit today, with just a set-piece signing of the 'fiscal compact' on the main agenda. The other small slice of good news was an agreement to further speed up payments into the new rescue fund (European Stability Mechanism) which starts in the middle of the year. The single currency was feeling heavy during yesterday's session though, seemingly still pondering the implications of the ECB cash injection from earlier in the we.

Also in today's Daily Forex Brief:

• The recovery of gold
• The liquidity risks in Europe
• What makes Portugal different