Daily Forex Brief London: Monday 19th March 2012

Friday a dim day for the dollar

Friday was a remarkably dim day for the dollar, and yet apart from 'flows' it was no easy task to pinpoint an exact trigger for it. During the early afternoon there were some large sell orders for the greenback, especially against the euro – the single currency almost touched 1.32 at one point, after declining to 1.3050 earlier. Sterling did even better, with cable climbing from under 1.57 to above 1.5850. The dollar index, which had seemed rather comfortable above 80 over recent days, suddenly and rather inexplicably found itself below that level. Interestingly, bond yields were under continued assault, with 10yr bund yields up above 2.0% for the first time in a few weeks and the 10yr gilt yield climbing to 2.43% - just two weeks ago, it was trading below 2.0%. US treasury yields also rose, not helped by news that one-year inflation expectations in the latest University of Michigan survey had jumped to 4% from 3.3% in the latest month. Stocks remained well-bid while Brent crude rose above USD 124.

Also in today's Daily Forex Brief:

• Keep a close eye on Spain
• Fiscal compact resistance
• Brazilian fragility

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Daily Forex Brief London: Friday 16th March 2012

No hurry to worry

For once, markets are approaching the end of the week in a relative state of calm. Oil prices have eased around 4% from the highs seen earlier in the month, global equities have more than recovered from the modest correction and the sell-off in higher yielding currencies (Brazil and Australia, among others) has stabilised, at least for the time being. The other notable event was the further fall in the VIX index to levels not seen since mid-2007. In other words, investors are putting a much lower premium on uncertainty. Now, this can be seen as both a good thing and a bad thing, given that it was the under and mis-pricing of risk that was partly a factor in the financial crisis in the first place. But for now, investors appear content to at least breathe a sigh of relief and not to worry about the latest twist and turn in Greece. Enjoy it, as it won't last forever.

Also in today's Daily Forex Brief:

• China's growing pains
• Rate race
• Another bubble bursting – this time down under

 

Daily Forex Brief London: Wednesday 15th 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: 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