Chuch E Cash's Forex Blog
ECB: Really One and Done?
Jun 30, 2008
The European Central Bank meets Thursday, July 3rd. For the past month, bank members have been hammering home the point they will raise rates 25bps at this meeting.
But the real pricing action from the meeting will be the commentary. With inflation spreading like wildfire across the globe, can the ECB really be one and done?
On the one hand, it seems very unlikely. Today's CPI came in at 4% (vs 3.9% expected), double their mandated target rate of 2%. And while the German economy has definitely seen growing signs of a slowdown, the data remains mixed across the Eurozone.
French consumer spending remains resilient, coming in at 3.1% YoY. Indeed, French GDP remains inline with expectations, coming in at a steady 2%. Wage growth remains strong in Italy, coming in at a better than expected 3.3%. And that wage growth may be the biggest problem of all for Trichet and the ECB. After all, Trichet has cited a fear of spiraling wage inflation as a reason for this month's presumed 25bps hike.
On the other hand, their is growing pressure for ECB policy change. French President Sarkozy suggested the Euro is 30% overvalued against the dollar. He wisely pointed out that such over-valuation makes it tough for Airbus to compete with Boeing. President Sarkozy's comments echo that of his finance minister, Christine Lagarde. Both have suggested that growth, and not inflation alone, should be a considered in rate hikes.
But the Atlanticist French may be singular in their views.
I'm not suggesting the Europeans will raise rates when they next meet (August 7). But the idea that commodity driven inflation will come down from 1 ECB rate hike is...silly. The Eurozone economy will not come to a screeching halt July 4 and thus offer price relief.
Perhaps the typical post Olympics bust will cool China's appetite a bit, but their GDP is still forecast for 10.3% growth this year. They have plenty of reconstruction needed in the wake of the Sichuan earthquake.
And, political tensions across the Middle East and Africa seem unlikely to ease. Indeed, former UN Ambassador John Bolton has suggested Israel will strike Iran after the US election.
Barring an FX market intervention from the G8 (they meet in full July 7-9), the ECB may have little choice but to resume a rate hiking agenda later this year.
ECB, European Central Bank, inflation, Trichet, rate hike
Australia Hold Rates at 7.25%
Jun 30, 2008
As was expected, the RBA has held rates steady at 7.25%.
Forex traders are reacting quickly, sending the Aussie down against most of the majors. However, midterm traders need to look at this situation with some consideration.
Yesterday, the TD Securities-Melbourne Institute survey estimated an annual inflation rate of 4.8 %. That is well above the target 2-3% range. Commodity demand from China is likely to continue as their economy is forecast to grow by 10.3% this year.
In the policy statement, the bank noted:
"The rise in Australia's terms of trade that is currently occurring will...add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks."
The minutes from this meeting will be very interesting. One has to wonder how heavily the sharp contraction in PMI (down to the contraction level of 47) factored in their decision.
The full statement:
STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per cent.
Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.
As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month.
The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly. There have also been some tentative signs of an easing in labour market conditions.
The rise in Australia's terms of trade that is currently occurring will work in the opposite direction. It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks.
Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board's assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected.
Weighing up the available domestic and international information, the Board's judgement is that the current stance of monetary policy remains appropriate. The Board will continue to evaluate prospects for economic activity and inflation in the light of new information.
RBA
inflation, interest rates, trade balance, AUD, RBA, Reserve Bank of Australia
Forex Events for June 29 - July 5
Jun 29, 2008
This could be the week the Euro breaks 1.60. A score of data out of Europe, the Thursday's rate decision, and US Non Farm Payrolls could give it the final push.
A list of the forex events likely to move markets this week.
All times listed in eastern standard time.
MoM = month over month
YoY = Year over Year
Monday June 30
4am Eurozone May PPI (expect 0.9% MoM, 6.8% YoY)
4:30am Great Britain May Mortgage Approvals (expect 51k)
5am June Eurozone CPI (expect 3.9% YoY)
5am Italy CPI
Tuesday July 1
12:30am RBA Rate Decision (expect hold w/hawkish statement)
10am US June ISM (expect 49.0)
Wednesday July 2
9:30pm Australian Trade Balance (expect -950 million)
Thursday July 3
1:45am Swiss CPI (expect 0.3% MoM, 3.1% YoY)
7am Bank of England Rates Decision (expect hold)
7:45am ECB Rates Decision (expect 25bps hike, watch commentary)
8:30am US June Non Farm Payrolls (expect -55k)
Friday
US markets closed for holiday
ECB, Euro, interest rates, trade balance, jobs report, RBA, rate hike, upcoming reports
Asian Forex News: New Zealand Disappoints, Japanese Inflation Hits Decade High
Jun 26, 2008
All signs point to a rate cut for the Kiwi.
New Zealand's trade deficit grew by $196 million in May. This was far worse than the expected rise of $150 million. Thats nearly a $250 million swing!
Merchandise exports were up 11.2% year over year. However, merchandise imports were up 17.3%.
This comes on the heels of yesterday's current account deficit, which was an alarming $13.8 billion, 7.8% of GDP.
Considering the strength of the Tui oilfield and dairy prices, this is indeed worrying news for the Kiwis.
To top that off, New Zealand Q1 GDP was finalized at 1.9%, slightly worse than the expected 2.1%.
And the gloomy news kept on coming out of Asia.
Japan reported a jump in inflation from 0.9% in April to 1.5% in May. This is the largest month over month increase in a decade. However, traders need to keep some perspective. Japan reintroduced a fuel tax in May, which may account for some of the rise.
Separately, Food prices rose 2.4%, Like many other countries, japan excludes food when calculating CPI.
Japan's household spending also fell -3.2% in May, larger than the expected reading of -2.2%.
On the plus side, japanese unemployment remained flat at 4%, as expected.
Relevant Forex prices At 11:30pm est
USDJPY 106.970 (-0.990, -0.92%)
AUDJPY 102.35 (-1.20, -1.16%)
EURJPY 168.28 (-0.97, -0.57%)
NZDUSD 0.7565 (-0.0008, -0.11%)
NZDAUD 1.2636 (-0.0020, -0.16%)
EURNZD 2.0786 (+0.0091, +0.44%)
inflation, GDP, CPI, JPY, NZD, Yen, Kiwi
Dissecting Fed Commentary
Jun 25, 2008
As expected, the FOMC held rates at 2% today. Also as expected, the real focus of traders was Fed commentary.
Four things stand out in the FOMC statement
1. Analysts are sensing they key comment is:
"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased."
But is it really a significant comment? While upgrading inflation risks over the previous statement, it doesn't say that inflation concerns are greater than growth. It merely says that growth trends are still downward, while inflation is trending upward.
2. Commodity prices have entered the first paragraph
The April 30th statement did not mention commodity prices until the end of the 2nd paragraph. This statement specifically warns in the first paragraph that energy prices are a risk to recovery for the next few quarters.
3. The time period for battling inflation has changed.
The real key may have been the change in time periods. In April, the Fed stated:
"The Committee expects inflation to moderate in coming quarters"
Today, the Fed specifically "expects inflation to moderate later this year and next year" (emphasis added).
No doubt this is a recognition of the recent surge in energy and the likely impact of Midwest flooding.
4. The outlying votes have changed.
In the April meeting, Richard W. Fisher and Charles I. Plosser voted to hold firm. In this meeting, Richard Fisher voted to hike 25bps. With Mishkin leaving after the August meeting, inflation hawks may start to out number the growth doves.
The next FOMC statement will be released August 5th.
Markets remained largely muted to the Fed comments. Expect the EURUSD to edge towards 1.58 resistance before the next ECB meeting.
The Full FOMC Statement
June 25, 2008
Key changes underlined
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.
The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
inflation, interest rates, oil, FOMC
A Real Cure For Gas Prices
Jun 24, 2008
Forget the 2 presidential candidates. Uncle Chuck is here to tell you how the energy crises can really be solved in short order.
1. Send the cubicle workers home
Am I the only one dumbfounded by the number of commuters in the information age? With home bandwidth now reaching 15MBps for less than $50 a month and Web 2.0 on the horizon, why are so many people still driving to work?
In a recent US Department of Energy report, they suggested that increasing telecommuting in the 75 largest US Cities will have the largest net effect. They cite capital savings on transportation, reduced stress, fewer car accidents, reduced emissions, and a drop off in fuel usage
If telecommuting was increased solely in New York and Los Angeles, the nation would reap 50% of the reward.
2. Sigh, back to 55mph
I hate the idea as much as you. But it worked in the 70s, and it will work today.
3. Bring government employees in line
Outside of law enforcement, the US president, state governors, and snow plows - no government car should have anything bigger than a V4.
And while I am on it, perhaps we can start staggering the shifts of government employees? I recently stood in an office overlooking 3 freeways in Sacramento. I was stunned to see traffic doing ok at 4:50pm, and at a stand still at 5:10pm. I am told it is like that everyday, as the worker bees for the various government agencies have nearly identical schedules.
4. Drill off shore
Open up the land from 50 miles offshore and beyond to exploration. If China can drill off Florida, why can't we do the same? While congress is threatening to impose fines for unused leases, they ignore how far off shore they are. 50 miles and beyond is well out of eye sight from the coast. And I believe stringent environmental regulations can insure the eco-safety of new platforms.
5. Reduce the number and disparity of gas formulations
The large number of differing formulations on irregular intervals makes it hard for refiners to time out deliveries. This causes short term supply crunches and encourages distillate production. Lets get on one set of formulations at one set interval.
oil
Elliot Wave Preview, Bob Prechter on TV
Jun 24, 2008
Eliiot Wave, an awesome system of technical analysis, will be ending their free preview today. While you wait for the FOMC statement, check it out. If you are unsure about Elliot Wave, Bob Prechter, will be on Bloomberg during the 5pm eastern hour.
In July 2005, just before the housing peak, Elliot Wave put out this statement.
"This time, there's no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages."
This sentiment was delivered when the consensus among mainstream investors was that real estate was the ultimate capital-growth investment. Of course, we now know that real estate was peaking at that very moment.
There's still time for you to read what Elliott Wave International sometimes calls "tomorrow's news today' right now during their FreeWeek. If time is an issue for you, you can even print out the publications before FreeWeek ends and read them at your leisure.
They are also offering a 58% discount for a limited time.
technical analysis
The Calm Before the USD Storm?
Jun 24, 2008
Bring back Fed Speak.
The Fed will have to craft tomorrow's statement very carefully. Perhaps some good ole' Greenspan ambiguity would be best.
A spat of negative news today confirmed the US economy is facing difficult times. The Case-Shiller index showed a whopping 15.3% annual decline in home prices. The OFHEO report, which tracks mortgages backed by Freddie Mac and Fannie Mae, showed an annual drop of 4.6%. The Richmond Fed Survey dropped to a low of 4.5 And consumer confidence fell far more than expected, to a reading of 50.4 (vs expected 56.5).
Yet the dollar didn't fall of the face of the earth.
Instead, it remained within a fairly narrow range against the Euro, Pound, and Yen. Evidently, traders feel the Fed is turning hawkish.
Aside from a month of hawkish commentary, what fundamentals can rationalize a strong statement out of the Fed?
1. Uptick in Q1 GDP
I can't stress this one enough. Q1 GDP is expected to be revised up to 1.2% later this week. From an initial reading of 0.6% (later revised 0.9%), that is fantastic.
2. The ARM Conversion Wave
Years ago, the Economist put out a great article discussing the housing bubble pre-burst. In it, they included a graph detailing the ARM conversion wave. The wave had a considerable upswing in Spring 2007 (start of credit crisis), another bump Spring 2008, and a final massive bump in 2010. That suggests that housing will see at least a temporary reprieve for the next 18 months.
3. FDI Outflows are Dropping, Inflows are Picking Up
The OECD today reported that foreign outflows have dropped sharply among member nations. Outflows are now expected to come in at $1.14 trillion, down 37% from the $1.82 trillion in 2007. Indeed, lower than the $1.21 trillion in 2006.
And last week, the TIC showed a sharp increase of inflows of $115 billion vs expected $63.3 billion.
4. Durable Goods Orders
The last 2 reports have beat expectations. The latest report will come out almost 2 hours before the Fed statement. Another surprise (especially excluding autos) is a sure sign of US resiliency.
5. Politicians are Dragging Us Down
It is not a great stretch to suggest political speeches are helping to drag down consumer sentiment.
The Fed is charged with remaining out of politics. As such, they should be expected to ignore the constant down talking of the US economy that is coming out of the politicos.
6. The Greenspan Tarnishment
Former Fed Chairman has taken a lot of heat for leaving rates too low for too long. Bernanke must be conscious of this perception. He must show this Fed will not repeat the mistakes of the past.
Expect the Fed to leave rates unchanged with commentary highly suggestive of rate hikes in the near future.
GDP, housing, Bernanke, durable goods, Fed, FOMC, USD
Make No Mistake, ECB is Hiking 25bps
Jun 23, 2008
He raises rates. He raises not. He raises rates...
The double negative that hit the Euro this morning has fx traders changing their minds like a school yard kid debating their latest crush.
Make no mistake, the ECB is going to raise rates by 25bps July 3rd.
Why?
1. Trichet will not risk the credibility of the ECB.
2. ECB Governing Council member Nout Wellink said it himself last week. Traders are focusing on every little detail and ignoring midterm trends.
3. Euro-zone CPI comes out June 30. It is unlikely that number will dip month-over-month or year-over-year. With that report only 3 days before the ECB meeting, focus will remain on inflation.
4. Quietly, economists are fearing a housing crisis that spreads across the Eurozone. The ECB needs room to act should such an event occur.
While I am on this subject. I want to remind Forex traders, do NOT underestimate the FOMC! With Q1 GDP likely to be revised up to 1.2% on Thursday (from an original 0.6% and revised 0.9%), the Fed has plenty of room to act hawkish.
ECB, CPI, Trichet, rate hike, FOMC
Euro Drops on Weak PMI, IFO
Jun 23, 2008
DailyFX nailed the IFO numbers spot on, but PMI comes in weaker than anyone expected.
Euro-zone PMI came in at contraction levels, sharply lower than expected.
Services slumped to 49.5 (from 50.6 in May, vs expected 50.5)
Manufacturing slipped to 49.1 (from 50.6 in May, vs expected 50.2)
Composite fell to 49.5 (from 51.1 in May, vs expected 50.7)
The German IFO survey came in with the following numbers
Climate 101.3
Situation 108.3
Expectations 94.7
At 7;30am est the Euro is lower against most of the majors.
EURUSD 1.5516 (-0.0101, -0.65%)
GBPEUR 1.2628 (-0.0007, -0.06%)
EURAUD 1.63130 (-0.00310, -0.19%)
EURNZD 2.0477 (-0.0004, -0.02%)
EURCHF 1.6202 (+0.0035, 0.22%)
Read the IFO survey
EUR, IFO, PMI
Forex Events June 22 - June 25
Jun 22, 2008
This week will be dominated by US data. The key mover may be comments from the Fed rate decision at 2:15pm est Wednesday.
Events Monday and Friday are clearly Euro positive, Greenback negative. Watch for the Euro to test the 1.5800 resistance on Monday. If it finally breaks the range, we could see an end to the sideways trading of the last few months as the ECB is definitely going to hike rates July 3rd.
New Zealand and Japan, 2 key parts of the carry trade, report significant data late Wednesday evening. Surprises on either side could be an omen for future carry trade volatility.
All times eastern standard time
Monday June 23
4am German IFO - Current and Expectations
4am Euro-zone PMI Services (expect 50.4)
4am Euro-zone PMI Manufacturing (expect 50.2)
Tuesday June 24
4am Swiss UBS Consumption Indicator
9am Case Shiller Home Price Index (expect 168.8)
10am US Consumer Confidence (expect 56.7, a 16 year low)
7:50pm Japan Trade balance (exclude services)
Wednesday June 25
8:30am US Durable Good Orders (expect -0.9% excluding transport)
10am US New Home sales (expect 530k, a flat reading)
2:15pm Fed Rate Decision (expect hold at 2%)
6:45pm New Zealand Current Account (expect -7.5%)
Thursday June 26
7:30am US fed Vice Chairman Speaks at ECB
8:30am US Q1 GDP finalized (expect 1.2% from initial 0.6%, thats big folks. Note, upgraded from 0.6% to 0.9% previously)
10am US Existing Home Sales
6:45pm New Zealand Q1 GDP (expect 2.1%)
6:45pm New Zealand May Trade Balance (expect +150million)
7:30pm Japan CPI
7:50pm Japan Retail Trade (Domestic)
Friday June 27
2:50am France GDP (expect 2.2%)
4am Euro-zone Current Account
4:30am Great Britain Q1 GDP (expect 2.5%)
10:00am US university of Michigan Consumer Confidence (expect 56.8)
European Central Bank, CPI, Carry Trade, trade balance, housing, upcoming reports, consumer confidence, durable goods, Fed, IFO
FX News Under the Radar
Jun 21, 2008
Some FX news you might have missed Friday.
1. IMF upgrades US growth to 2% for 2009.
The International Monetary Fund (IMF) increased forecasts for US 2009 GDP growth to 2%. According to the IMF, The US downturn has been mitigated by well-timed fiscal stimulus, strong export growth, and healthy corporate balance sheets. However, the IMF warned of downside risks from "strains on household and bank finances, and now also by higher commodity prices."
Read the full release at the IMF
2. California Unemployment Hits 6.8%
California, hard hit by the housing crisis, hit a 2008 low in unemployment. Joblessness rose 0.6% month-over-month and was a full 1.5% higher than May 2007. The total number of unemployed came in at 1.26 million, up 300k year over year.
With the state facing a $15.2 billion deficit, things are bound to get worse. Among other proposals for a deficit fix has been an increase in already high state income taxes. Califonria's rate of 9.3% comes in 2nd only to Vermont. Higher state taxes could impose a major drag on a key component of the US economy.
3. India inflation hits 11%
India's wholesale inflation rose to 11% Year over Year. This is far higher than last week's reading of 8.75%. Unlike many other countries, India tracks inflation by tracking the wholesale price of 435 goods.
India is facing a very difficult period, as they have had to cut fuel subsidies by 10% and and just last week the central bank increased short-term borrowing rates from 7.75% to 8%.
The Sensex exchange is down 30% this year since peaking at 21,206.80 in January. The index closed at 14,571.29 Friday.
IMF, India, inflation, GDP, jobs report
EURUSD Headed Higher?
Jun 21, 2008
A host of factors indicate the EURUSD will head higher this week and test 1.5800 resistance. But beware, the European Service PMI (June 23) and the FOMC meeting (June 25) may hold down advances.
With Euro-zone inflation hitting 8 year highs a steady stream of ECB comments came out all but guaranteeing an ECB rate hike July 3rd. On Friday, President Jean-Claude Trichet reaffirmed comments from earlier this month, stating "I have no message that would retract what I said"
This was further backed by comments from ECB executive board member Juergen Stark, who stated on Friday "The current inflation rate in the Euro-zone...is unacceptably high...In this environment, the firm anchoring of inflation expectations to conform to price stability is absolute priority"
ECB member Bini Smagh joined in the chorus, commenting that if "inflation is left to creep up, the cost of bringing it down later will be even higher."
Technical analysis confirms the fundamental factors. THE EURUSD has;
- set a new 3 Day high Friday
- crossed the 20 day moving average
- is kissing the 50 day moving average
However 2 events could drag the EURUSD down.
1. On Friday at 4am est Euro-zone service PMI will be released. Consensus is for a slight easing from 50.6 to 50.5 (like the US report, any number above 50 signals growth). Cash thinks this data may surprise to the downside. This view is based on the ZEW report last week, Axel Weber's comments earlier this month that Germany will not see the normal spring bump, and higher than expected inflation.
Of course, Chuck may be dead wrong based on on French wage increases (up 1.1%) and the turn around in Italian industrial orders up 12.8% YoY
2. The FOMC may shock us all.
The ECB has talked of a rate hike and seems certain to follow through. The Fed has talked tough for several weeks now, and may be forced to act. While many are expecting the first rate increase to come in September, Bernanke has used unusual timing to his advantage over the last year. A Fed hike this meeting in unlikely, but don't be shocked to see a hike on the discount window. At the very least, the FOMC statement should include some rather hawkish tones.
technical analysis, EUR, FOMC, USD
Jeddah Conference Likely Meaningless
Jun 21, 2008
This weekend, Saudi Arabia will be hosting a conference of between OPEC, leaders of major oil using nations, and oil executives. The conference is unlikely to produce any substantial solutions to record oil prices.
Why?
1. Venezuela, the largest OPEC member from Latin America, is not attending
2. After news broke Friday that Israel staged a major exercise simulating an attack on Iranian nuclear facilities, Iran is likely to be at best unsympathetic
3. Their is a general feeling among OPEC nations that speculation and a weak dollar is responsible for oil prices
What MAY move oil prices is a new US House of Representatives energy bill that may be voted on this week. In the bill are provisions to a) charge oil companies a fine up to $50 per acre for unused leases and b) an anti speculation provision that seeks to combat perceived market manipulation.
oil
Rally in US Dollar Index?
Jun 17, 2008
The folks at Marketclub are calling for a rally in the US Dollar Index from the current level of $74 to a somewhere around $81. That is a whopping 10% swing.
They base this belief on a) their custom triangle trading indicator b) technical analysis and c) fundamental analysis of the marketplace.
Chuck has said for awhile now that the Triangle indicator is surprisingly accurate. Generally when using their indicator, traders can look at weekly charts for trends, and daily charts for entry points. However, with the US Dollar index, it behaves a bit different. Trends are indicated on a monthly level. Their triangle signal has given the first upside signal on the US Dollar Index in 20 months!!
From a technical analysis point of view, the index has been trading generally sideways for the past 4 months. The pivot point formed in early March 08 closely resembles the pivot point formed late 2004 that lead to a 1 year rally.
From a fundamental perspective, their call absolutely makes sense. The Fed has been talking up the dollar for a good month now. Except the Euro and Aussie, moth other banks have somewhat mollified recent commentary (including the BOE today).
Currently Marketclub is giving away a 2 week free trial. This is a rare opportunity that is only offered once a year. Take a few minutes out of your day and see what they are offering, it will be well worth your time.
Watch the US Dollar Index video
Greenback, technical analysis, USD
US PPI Mixed, Goldman Sachs Beats
Jun 17, 2008
In early news:
Goldman Sachs, the standard bearer of investment banks, posted much better than expected earnings of $4.58 per share vs expectations for $3.42 a share.
Meanwhile, the PPI came in wiht mixed data. The PPI itself came in at a sizzling 1.4%, far higher than April's reading of 0.25. But, the core PPI (stripping food and energy) came in at 0.2%, below April's increase of 0.4%.
At 9:30am est, EURUSD was at 1.5493, GBPUSD at 1.9506, and the USDJPY at 108.20.
PPI
German Investor Confidence Sinks, Euro Trade Balance Beats
Jun 17, 2008
The ZEW Survey of Economic Sentiment and Expectations hit a 15 year low today. The reading dropped 11 points to -52.4 vs expectations for a 1 point drop to -42.5. This is well below the historical average of +29.2. Expectations dropped for Germany and the Euro-zone as a whole.
Despite the expectations drop, European trade beat expectations to come in at +2 billion. Exports rose 6.2%.
At 7:30am est, the EURUSD has fallen below 1.55 to 1.5485.
Euro, ZEW Survey, trade balance
UK Inflation at 3.3% YoY, BOE Governor King Dovish
Jun 17, 2008
In a surprise to many Forex traders, BOE Governor Mervyn King reacted dovishly to an inflation rate of 3.3%.
In his letter, required by the 3.3% inflation reading, King stated "If the bank rate were set to bring inflation back to target... the result would be unnecessary volatility in output and employment." King went on to state inflation will remain above target into 2009 and he expects to have to write several more letters.
In reply, Chancellor Alistair Darling, stated the rise in inflation has been "extremely moderate" compared with the 1970s and 1980s.
Clearly an imminent rate hike is unlikely.
At 7:30am est the GBPUSD has fallen sharply to 1.9477
Bank of England, BOE, inflation, dove
RBA Minutes: Inflation Uncomfortably High
Jun 16, 2008
According to minutes from the June meeting, the Reserve Bank of Australia remains on a hawkish footing. the board highlighted their inflation concern by question "whether, as a result of earlier tightening..financial conditions were exerting an appropriate degree of restraint on demand.".
The Bank indicated that inflation rates are likely to remain above the 2-3 % target band until the end of 2010. Q1 inflation was a whopping 4.2%.
Notably, the minutes did not include a significant line from the May minutes. According to the May minutes, the board had spent considerable time debating a further rate hike.
In early pacific trading the AUDUSD is at 0.94310
inflation, RBA, minutes
Majors Roundup For June 16
Jun 16, 2008
The trading week got under way with events all over the world driving currency pricing.
The Pound rose on CPI speculation, and anticipation of a plan from Governor Meyer. The Euro rose on CPI data and ECB comments. The greenback fell early on Empire Manufacturing, an early spike in oil, and Lehman Brothers first quarterly loss. But the damage was slightly muted by a pull back in oil, Fed President Lacker, and foreign inflows of capital.
The GBP was driven up as traders geared up for an anticipated Year over Year CPI number of 3.2%. This will trigger significant commentary from the Bank of England's Governor Mervyn King. By law, the bank will have to present a letter explaining why inflation is above 2%, what will be done to bring inflation back in line, and when inflation is expected to come back in line. Despite signs of a slowing UK economy, the BOE is likely to suggest that rate hikes will be necessary to combat inflation.
In the Euro-zone, year over year CPI came in at 3.7% (above expectations for 3.6%). Additionally, ECB Governing Council member Nout Wellink seemed to confirm currency traders anticipation of an ECB rate hike. He stated that markets "should not react to every change in the environment ... They should look through the information to see the underlying trends"
Reading between the lines, trends have been to focus on fighting inflation, which means more rate hikes.
In the US, the Empire Manufacturing survey fell much further than expected, declining to -8.7 (vs -4.7 expected). Oil futures shot out of the gates to an all time trading high of $139.89 before falling $5 in the afternoon. Additionally, Robert Novak published an article stating anticipations for a rate hike were off base. On the credit crunch front, Lehman Bros reported their first ever quarterly loss of $2.87 billion.
However, not everything was doom and gloom for the USD. US Capital inflow increased to $60 billion (from -$48 billion). Lehman Brothers was able to reduce mortgage holdings by 20% and slash their balance sheet by $147 billion. Additionally, they were able to raise $6 billion in new capital during the quarter. And Richmond Fed President Lacker reiterated "The principal risk is that high overall inflation will become embedded in expectations"
The pessimistic outlook for an economic slowdown spread to Japan, as the government cut expectations. For the second time in a row, the government used the key word 'pause', saying the "recovery appears to be pausing". Backing this assessment, condominium sales fell 17.5% in May.
The big news will happen early tomorrow morning as, the UK CPI and Goldman Sachs reports will be released before US markets open.
At 1am est, the EURUSD is at 1.5522, the GBPUSD 1.96580, and the USDJPY is at 107.79.
ECB, European Central Bank, CPI, GBP, Pound, USD
Forex Events June 15 - June 20
Jun 15, 2008
Below is a summary of the major forex news of the week.
Cash believes the biggest events may have already occurred - a) the G8 did not intervene in the forex marketplace as some had speculated and b) flooding in the US Midwest has reduced corn and soybean crops significantly (see Bloomberg).
All times listed in eastern standard time
Monday June 16
5am
Eurozone CPI MoM (expect +0.6%)
Eurozone CPI YoY (expect +3.6%)
Eurozone Core CPI YoY (expect +1.8%)
8:30am
US Empire(NY) Manufacturing (expect -1.50
10am
Fed Chairman Bernanke Speaks before Senate
Lehman Brothers Reports Q2 Earnings (Cash expects negative news reminding everyone of last years credit crunch)
1pm
US Fed Lacker Speaks
9:30pm
Bank of Australia Minutes for June
Tuesday June 17
4:30am
UK CPI MoM (expect +0.4%)
UK CPI YoY (expect +3.2%)
UK Core CPI YoY (expect +1.5%)
5:00am
German ZEW Survey
Eurozone Trade Balance for April (expect -1.5 billion)
8:30am
US Housing Starts (expect 980k)
US Building Permits (expect 960k)
Wednesday June 18
4:30am
Bank of England Minutes for June
11am
Morgan Stanley Q2 Earnings
Thursday June 19
4:30am
UK Retail sales YoY (expect 4.1%)
UK Retail Sales MoM (expect -0.1%)
7am
Canadian CPI YoY (expect 1.9%)
Canadian CPI MoM (expect a sizzling 0.6%)
Canadian Core CPI YoY (expect 1.4%)
Canadian Core CPI MoM (expect 0.3%)
10am
US Philly Fed (expect a rise to -11.4)
Bank of England, BOE, CPI, RBA, Reserve Bank of Australia, minutes, upcoming reports, Fed
G8 Disappoints, Merely Urges More Oil
Jun 13, 2008
WTF is wrong with the G8?
After 2 weeks of central banker warnings of 'upside risks to inflation' and 'heightened alertness', they have failed to act in a meaningful way. At 11:45pm est they had the balls to issue a communique. A communique! Who are they kidding?
Surely they have seen the endless stream of headline inflation numbers rising to 4% and beyond. They must realize that recent Midwest flooding in the US will only further raise energy prices as corn (and ethanol) literally washes away. Certainly the ministers must grasp the geopolitical realities of continuing problems in Nigeria (light sweet crude) and the Middle East.
Perhaps the famous energy trader Phil Flynn said it best, "talk is cheap and the dollar is cheaper"
So what was the G8 thinking by merely putting out a communique? I am not sure, their is certainly time left for them to act. But IMHO, prospects for a substantial policy shift may have passed. If so, this lack of action will contribute to a weaker USD (and higher oil prices, and thus higher inflation) next week.
As for the communique, the G8 stated that,
""On the supply side, we urge oil producing countries to increase production ...In addition, the oil market can be made more efficient by promoting greater transparency and reliability in market data including on oil stock."
Ha! Officials from all over the world have been saying the same thing for months. Fat good that has done.
G8, oil
US Inflation Higher Than Expected
Jun 13, 2008
US Inflation numbers:
Year over year: 4.2%
May Headline inflation: 0.6%
May Core inflation (minus food and energy): 0.2%
IMO, this number all but guarantees a rate hike in the near future - no later than August.
The EURUSD has broken below 1.54 to 1.5339, the USDJPY has passed through 108 to 108.21
Greenback, inflation, CPI, USD
Greenback Moves on Retail Spending, Trading Flat Ahead of CPI
Jun 12, 2008
Bush and Congress can pat themselves on the back - at least temporarily. Consumers armed with extra cash from the stimulus package and a jump in energy prices sent retail sales higher in May.
Sales rose 1%, 1.2% excluding autos. That beat expectations for +0.5% (0.7% excluding auto) rise in retail sales.
The positive retail sales combined with InBev's $46 billion bid for Anheuser-Busch and continued down playing of ECB rate hikes across Europe lead to a strong daytime rally for the Greenback. (Notably, French Finance Minister Christine Lagard again took a pro USD stance suggesting a Euro rate hike might be off the table after this weekends G8 meeting).
The EURUSD fell to €1.542, the GBPUSD to £1.9477. On the other side, the greenback rose to $107.69 against the yen.
In early hours of the Asian session (1am est) the USD appears to be trading flat. The EURUSD (-0.09% to 1.5435) and GBPUSD (-0.06% to 1.9465) are trading slightly to the down side. The Yen is flat at 107.77.
Watch the inflation numbers at 8:30am EST! Headline year-over-year should come in at 4%, while core (excluding energy and food) should come in at 2.3%.
After your done trading the inflation report - you should probably get out of the market ahead of the weekend G8 meeting. Unless you have Trichet on speed dial, in which case, your probably not reading this blog.
G8 meetings can produce massive fundamental swings 5 factors strongly suggest a major policy shift this weekend.
1. A bullhorn like proclamation from the Fed and US govt that inflation is the top priority
2. The (not so) subtle backing down of the ECB from Trichet's comments last week
3. The dual storm of economic downturn + inflation numbers in the UK (and people worry about stagflation in the US!)
4. Softening of the Aussie and Kiwi economies.
5. The Gulf Cooperation Council's affirmation that they will peg to the Dollar when they form a monetary union.
Greenback, inflation, G8, CPI, USD
Aussie Dollar Falls on Unemployment Rpt
Jun 11, 2008
The June labor force report from the Australian Bureau of Statistics (ABS) showed an unexpected increase in unemployment. April was revised higher to 4.3%, while May held steady at 4.3%. Specifically, the total number of people employed fell 19,700.
Expectations had been for a drop in unemployment to 4.2% with an increase in jobs by 13,500. Subtracting the real drop vs expected growth reveals a 33,200 swing in jobs. This is the first decrease in employment since October 2006. The loss was evenly split between full-time (- 53% 10,400) and part-time (-47% 9,300).
10.69 million people remain in employment.
Combined with yesterday's fall in Australian consumer confidence (-5.7%), the chances for a rate hike seem remote. Some economists now see rate cuts starting in 2009.
In early hours of the Asian session, the Aussie has fallen against most of the majors. The AUDUSD fell to a new multi week low as the currency traded from A$0.9406 down to A$0.93920.
Other forex trades: AUDCAD A$0.95810 (-0.13%), AUDJPY A$100.66 (-0.09%), EURAUD €1.6485 (+0.04%).
jobs report, AUD, Aussie
USD Up Late on Retail Sales Expectations
Jun 11, 2008
After a disappointing Beige Book, forex traders look to a spike in energy and food prices is likely to lead to a bump in US retail sales
Expectations are for a rise of 0,5% (0.7% excluding auto). That number should be taken with caution, as a) the number is NOT adjusted for inflation and b) consumers have clearly cut back on discretionary spending on items such as apparel and furniture. Gas prices have gone from a nationwide average of $3.20 to $4.00 during that time.
Greenback, oil, USD
Inflation a Global Concern - Canadians Hold at 3%
Jun 10, 2008
The Bank of Canada joined a global chorus of inflation fears today, holding rates steady at 3%. Most traders had forecast a 25bps cut after the last 2 policy meetings featured 0.5% rate cuts and April inflation came in below 2%. But the writing is on the wall as the Bank stated:
"If current levels of energy prices persist, total CPI inflation will rise above 3% later this year...Against this backdrop, the bank now judges that the current stance of monetary policy is appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2% inflation target. There continue to be important downside and upside risks to inflation in Canada, which the bank will monitor closely."
The BOC joins the US, Euros, and Brits on warning of impending inflation concerns. New Zealand alone seems likely to cut rates in the near future among the major currencies.
Interestingly, Axel Weber of the ECB seemed to soften his tone from the previous week. At a speech in England, he stated that a mild winter may have exaggerated Q1 growth. Last week he was a Euro bull, repeatedly stressing the ECB was seriously considering a 25bps rate hike in July. German Q1 GDP growth came in at 1.5%, thanks in large part to unusual construction spending according to Mr. Weber.
With the recent wave of central bank warnings - watch for an interesting G8 Finance Minster meeting this weekend. The meeting, in Osaka Japan, kicks off on Friday June 13th at 7pm local (3am est). Since Forex markets will still be open, Cash does not expect a major announcement until Saturday At 1:30pm local Saturday (9:30pm est Friday), will be the Chairman's press conference. Given the spike in oil and chatter of central banks recently, it may be worth getting to the bar later than usual Friday.
Loonie, CAD, inflation, G8, interest rates
US Economic Calendar June 9 - June 13
Jun 8, 2008
Monday June 9
Pending Home Sales (expect 82.6, down 0.4)
NY Fed Governor Timothy Geithner Speaks About Economy (8:15am est)
Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn Speak About Inflation (3:15pm)
Tuesday June 10
Manpower Employment Outlook for Q3
Imports (expect $209.1 billion, +$2.4 billion)
Exports (expect $149.7 billion, +$1.2 billion)
Trade Balance (expect -$59.4 billion, +1.2 billion)
Dallas Fed President Richard Fisher Speaks
Wednesday June 11
Quarterly Services for Q1
Beige Book for June 24-25 FOMC meeting
Fed Vice Chairman Donald Kohn speaks
Fed Governor Randolph Kroszner speaks
Thursday June 12
Retails Sales (expect -0.3%)
Retail Sales excluding Auto (expect +0.2%)
Friday June 13
CPI (expect +0.2%)
Core Index (expect +0.1% to 2.2%)
University of Michigan Preliminary Consumer Sentiment (expect 55)
CPI, trade balance, housing, upcoming reports, consumer confidence, Fed
Tidbits Under the Radar
Jun 6, 2008
I won't recap the events of today - just about every news outlet has reported the record rise in crude, the jump in unemployment, and 3% drop in US equities.
With those events dominating headlines, several nuggets of information may have slipped by.
1. German industrial production fell 0.8% in April and factory orders contracted for a 5th month.
2. The French April Trade Balance balance beat expectations, coming in at -€3.7 billion vs the expected €-4 billion reading.
3. The CAD and NZD moved weakly against the greenback The NZD can be explained by the RBNZ comments Thursday. The CAD weakness may indicate that forex traders anticipate a rate cut from the Bank of Canada. The interest rate currently stands at 2.75%, and may be cut 0.25% on Tuesday.
4. US wholesale petroleum inventories jumped 8.8% in April. Additionally, March inventories fell less than previously reported. The March drop of 5.6% was revised higher to 4.5%
5. The 6 member Gulf Cooperation Council will meet Monday to discuss technical issues related to the proposed monetary union in 2010. Oman has already indicated it will not join the union.
Loonie, CAD, NZD, oil, Kiwi
Whoa - Unemployment Jumps to 5.5%
Jun 6, 2008
US Job Cuts came in at -49k, well below expectations for a 60k loss. However, traders are reacting to a headline reading of a 0.4% jump in unemployment. June is typically a difficult month - as college and high school age employees try to enter the work force.
In detail, construction lost 34k, manufacturing lost 26k, and services lost 39k, health and education gained 54k.
Hourly wages rose to 3.5%, beating expectations.
The greenback is weaker against the majors. EURUSD up 0.57% to 1.5669, GBPUSD up 0.15% to 1.9613, and USDJPY down 0.30% to 105.800.
jobs report, USD
US Non Farm Payroll Preview
Jun 5, 2008
Markets are expecting a loss of 60k jobs in tomorrow's Non Farm Payroll (NFP) report.
The DailyFX has a nice preview of the report. In general, they take a fairly negative view and hint that a 100k drop is not out of the question. Specifically, they highlight that each of the previous 3 recessions has seen jobs drop for 10 months or more. Further, previous recessions have seen monthly job losses spike above 300k. They reveal 10 indicators they are using to predict a number above expectations.
While I agree with their overall thesis, I do think they are jumping the gun.
1. Fed Comments - The Fed has made a number of comments indicating the economy may avoid a severe slowdown. It started last week with comments from Dallas Fed President Fisher and Fed Governor Mishkin's resignation. It continued this week with back-to-back days of comments from Chairman Ben Bernanke.
And today, in comments that may have flown a little under the radar with the RNBZ and ECB statements over the last 24 hours, Richmond Fed President Lacker reiterated that the US may avoid a severe slowdown and that inflation is becoming the main concern.
2. Macro reports this week - The ISM Non manufacturing, ADP, and Initial Jobless Claims all improved. Individually, each of those measures may be unreliable, but taken as a trio they can not be easily dismissed.
I believe economists may be missing a crucial factor in this slowdown - illegal immigration. Job losses are highest in construction and manufacturing. Those are 2 industries that have extensively tapped into the illegal immigrant labor pool. As jobs dry up, they will likely return to their native countries and never show up on job loss reports.
3. Foreclosures are becoming confined to 6 states. The six can broken into 2 groups - those with over development and risky loans (California, Florida, Arizona, and Nevada) and those suffering from job losses (Michigan and Ohio). Beyond those states, housing markets have begun to stabilize. While those states are big enough to remain a concern for the overall health of the US economy, it is important to realize that 44 other states are getting better.
I recommend you read the DailyFX NFP preview
This has been an eventful week in the forex markets - comments from central banks and jobs reports have seen sharp moves in the GBPUSD (200 point swing Monday), the EURUSD (2 big point swings this week - one uip, one down), and the Kiwi (down big against many currencies yesterday).
If you've ever felt you could be better at trading forex around economic news releases, this Elliot Wave Report is a must-read.
jobs report, housing, Fed, USD
ECB Shocks Forex Markets, Hints at Rates Increase
Jun 5, 2008
Continuing a week of market moving central bank comments, ECB President Trichet indicated the European bank may raise rates 25bps next month.
While he avoided using the word 'vigilant', Trichet stated that in the "next meeting we do not exclude to raise rates...I don't say it's certain, I say it's possible" Eurozone inflation is running at 3.6%, far above the target 2%, and just below their current 4% interest rate. The ECB may also be dealing with the reality of oil demonstrations spreading across Europe the last 3 weeks.
The ECB also narrowed 2008 GDP growth to a range of 1.5% - 2.1%. Previously, the low end was at 1.3%.
Amazingly, the hint of a rate hike came soon after a new report indicating a German slowdown. Factory orders in Germany fell -1.8% vs 0.5% projected.
The EURUSD tested the $1.56 level (up nearly 200 points) on Trichet's comments.
ECB, European Central Bank, Trichet, rate hike
Kiwi Down Against 16 Majors, Rate Cuts this Fall
Jun 5, 2008
As expected, the RBNZ held rates steady at 8.25%. But,governor Bollard shocked forex traders today with an extremely dovish statement after their scheduled meeting. In his statement Bollard stated the RBNZ was "in a position to lower the OCR later this year". Indeed, New Zealand has been hit with their own slowdown recently. While house prices recently rose 2.7%, sales are down severely across the country. This has prompted the RBNZ to predict a 13% reduction in home values, 22% when inflation is factored in.
Bollard suggested that inflation will hit 4.7% in Q3, as such the bank is unlikely to cut until they see further deterioration. But in a nod to the realities of the slowdown, Bollard suggested GDP expansion would be extremely limited this year with only a modest recovery next year. This sharply contrasts with predictions made earlier this year for strong growth. Should weakness persist, the chances for a September rate cut will certainly pick up.
One shore over, Australia continues to see strong growth. GDP beat expectations by rising to 3.6% annualized - far higher than the 2.8% estimated. And, the trade deficit improved drastically, shrinking from AUS $2.55 billion to AUS $957 million in April. Indeed, with an expected growth of 20% in mining contract terms, and increases to iron ore still unaccounted for, the trade deficit may vanish entirely. Forex traders continue to speculate that Australia may raise rates once again in the next year.
September-October may be a wild period if the US and Australia raise rates while New Zealand cuts.
The Kiwi is down against all 16 majors. The NZDUSD is at 76.67, down more than 2% from yesterday.
GDP, NZD, rate cut, Kiwi, RBNZ
Signs of USD Rebound Over the Next Few Months Continue to Mount
Jun 5, 2008
Fed comments, improvements in services, ADP Jobs, and more Asian Oil subsidies may signal a fundamental rally in the greenback.
For the second day in a row, Fed head Ben Bernake took a hawkish stance on inflation. He indicated that long term indicators of inflation were of "significant concern" This is the 3rd time in a week (President Fisher last week) that a Fed member has made comments focusing on inflation. With Mishkin on the outs in August, the chance of a US rate hike this fall looks positive.
In addition, the US economy continues to skirt inflation. The service sector accounts for around 80% of American jobs. Well, today the ISM non-manufacturing reported a reading of 51.7, 0.7 higher than forecast. It represented a minor dip from the April reading of 52. A number above 50 represents growth.
Also, ADP numbers for private employment showed 40k new jobs, 70k over expectations. However, that ADP number needs to be taken with a grain of salt. The number has been wrong by an average of 104k since November. Q1 productivity also beat expectations slightly, with a 2.6% reading vs a forecast 2.5%. By comparison, 2007 Q1 productivity was up 1.8%.
Meanwhile, numbers in the UK and Europe continue to sour. Eurozone retail sales fell -0.6 vs an expected gain of 0.2%. And services seemed to contract for both the UK and the Europeans. The UK slipped into contraction with a PMI service reading of 49.8 vs a forecast of 50.5. The Eurozone PMI service number came in at 50.6 vs an expected flat reading of 51.1.
As expected by many traders, Asian countries have begun cutting subsidies. Indeed, Malaysia announced a whopping 40% raise in gas prices, and 67% rise in diesel prices! Malaysian consumers of gas will now pay $3.30 a gallon of gas (vs $2.32) and $3.04 for a gallon of diesel (vs $1.22). Malaysia - a net exporter of oil - becomes the 5th major Asian country to cut subsidies. Indonesia (raised prices 28.7% in late May), Taiwan (ended all price controls effective June 1), India (raised prices 11% this week), and Sri Lanka (raised prices 25%) have already acted on the skyrocketing cost of oil. It should also be noted that Egypt, the most populous Arab country, raised prices 40%.
As an aside, Chuck thinks many governments and traders underestimated the impact of Cyclone Nargis and the China earthquake. The two mega-disasters created a sudden need for diesel fuel to power generators. Economic historians will eventually recognize that disasters and ambitious speculation was the reason oil reached $135. July futures fell to $122.30 today.
The EURUSD traded in a 50 point range over 1.5425. The greenback is up 4% vs the Euro since the all time high of $1.6019 in late April.
Greenback, jobs report, Bernanke, oil, Fed
RBA keeps Rates Unchanged
Jun 2, 2008
Minutes from the RBA meeting last month suggested they might be contemplating a rate hike this month. However, that did not pan out. Many forex traders thought it unlikely after retail sales fell an unexpected 0.2% yesterday .
In comments from the RBA, governor Stevens, credit expansion has "weakended significantly" for households and business. Nevertheless, sentiment remained bullish as price concerns remain a top focus for the RBA. The AUDUSD is down .24% to US 95.47 (2300 pst).
The Royal Bank of New Zealand meets Thursday.
interest rates, RBA, Reserve Bank of Australia
Return of the Credit Crunch?
Jun 2, 2008
Just as invesstors thought it was safe to come out and play - the credit crunch returns.
Reverberations from last year's financial market crises awoke the sleeping giant US today. The S&P cut ratings of 3 major investment banks (Lehamn, Merrill Lynch, and Morgan Stanley), warned of a cut to another (Wachovia) and changed the outlook to negative on 2 others (JPMorgan Chase and Bank of America). The lone silver lining from the S&P was kind of a slap and a kiss as they stated that Citigroup was no longer on the verge of a downgrade, but one may still happen over the next 2 years.
In other crunch related moves, Wachovia fired CEO Ken Thompson Sunday - 1 month after stripping him of his position as chairman. Acting chairman Lanty Smith will take over as CEO at a time when losses are expected to grow for Wachovia.
Washington Mutual also joined the fire the headfigure train. WaMu announced that Kerry Killinger will end his reign as chairman starting next month.
But those issues are all lingering effects from the US credit crunch last year.
The real problem may now stem from a crises in the UK.
UK mortgage approvals fell to 58k in April, 7k lower than expected. That is the lowest reading since they started tracking approval numbers in 1999.
With echoes of Bear Sterns still in the minds of many, Bradford ' Bingley closed down a whopping 24%. Shares had fallen as far as 32%. Shares stumbled after a series of bad news - profit will likely fall, the CEO will retire, and rights will be sold at a steep discount. They are the UK's largest buy-to-let lender and 8th largest bank. Profits will likely come in at £150m a whopping £100m short of forecasts. Chairman Steven Crawshaw will retire due to a cardiovascular condition known as angina. (Note angina itself is not a disease, rather a symptom of other diseases such as coronary artery disease). Chairman Rod Kent will take over for Mr. Crawshaw.
But the most stunning news coming from Bradford 'Bingley was a drastic slash in the pricing for rights. TPG (aka Texas Pacific) will buy a 23% stake for $353 million, at a rate of £. That is far below the initial price of £82. The whopping last minute discount helped Citigroup and UBS - 2 banks already suffering terribly during the credit crunch - as both would have been stuck with extra shares from the offering. In April, TPG also injected cash into Washington Mutual.
Since March 2006, Bradford and Bingley has fallen from a market cap of £ 3.3 billion to £405 million. Yikes!
Despite the heavy bout of negativity, signs of a US recovery from the crunch were still to be found. ISM manufacturing rose to 49.6 - 1.1 above expectations. While this is till technically a contraction (above 50 is growth), their is reason to be optimistic as exports hit a 4 year high. In addition, construction fell 0.4%, beating expectations for -0.6 reading. And March was revised up from -1.1% to -0.6%.
The GBPUSD fell 200 points, briefly touching 1.96 before recovering to 1.9640 late in the day. The Yen was the strongest performer of the day - as forex traders fled the carry trade in the wake of credit crunch fears.
Credit Crunch, housing, GBP, USD
FX Calendar: June 2 - June 6
Jun 1, 2008
After a couple weeks of see-saw data from the Eurozone and US, the FX market is looking for a definitive direction this week. US Reports will likely dominate Forex headlines. US Employment numbers on Wednesday (ADP) and Friday (Non Farm payrolls) have the potential to be major movers.
The European Central bank and Bank of England announce rates Thursday. Both are expected to remain flat.
Monday June 2
4:30am est - UK Mortgage Approvals (expect 65k, +1k)
10:00am est - US ISM Manufacturing (expect 48.5, -0.1)
Tuesday June 3
5:00am est - Eurozone MoM PPI (expect 6.1%, +0.4%)
7:01pm est - UK Consumer Confidence (expect 67, -3)
7:15pm est - Japan Capital Spending (expect -9.8%, -2.1)
Wednesday June 4
4:00am est - Eurozone Composite PMI (expect flat at 51.1)
5:00am est - Eurozone Retail Sales (expect 0.2%, +0.6%)
6:00am est - UK PMI Services (expect 50.5%, +0.1%)
8:15am est - US ADP Employment Change (expect -30k, -40k)
10:00am est - ISM Non-Manufacturing Composite (expect 51, -1)
Thursday June 5
7:00am est - BOE Rates (expect unchanged at 5%)
7:45am est - ECB Rates (expect unchanged at 4%)
Friday June 6
8:30am est - Non Farm payroll (expect -51k, -71k)
8:30am est - Unemployment Rate (expect 5.1%, -0.1%)
Bank of England, ECB, PPI, interest rates, jobs report, ISM, housing, upcoming reports, consumer confidence
Forex Elliot Wave Analysis
Jun 1, 2008
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Winning in forex is not easy. You need skill, discipline and sometimes, just pure luck. You also need a method, not emotional reactions. Elliott wave analysis is something many forex traders use. Wave analysis is not a crystal ball, but it helps you accomplish three crucial goals: Identify a trend, stay with a trend, and get out when the trend is likely over.
Elliott Wave International has multiple research tools. Of course, nothing trumps a good teacher. That's why you want to Watch Jim Martens, Senior Currency Strategist at Elliott Wave International. Learn from one of the best forex Elliotticians out there.
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If you've ever felt you could be better at trading forex around economic news releases, this report is a must-read.
technical analysis
Ending Dollar Peg would Not Help Gulf States Fight Inflation
Jun 1, 2008
US Treasurer Henry Paulson met with members of the of the Gulf Cooperation Council (GCC) over the weekend. Among the topics discussed was gulf state inflation and the dollar peg. Currently, 5 members of the GCC 6 (Saudi Arabia, Qatar, Oman, Bahrain, and the UAE) peg their currencies to the dollar. Kuwait, the sixth GCC member, removed their dollar peg in May of 2007 but still faces looming inflation problems.
According to Secretary Pauslon, the GCC agrees the dollar peg does NOT drive inflation "to a significant degree". Secretary Paulson will meet with a delegation from the United Arab Emirates on Monday.
In April, both the UAE and Qatar indicated they were unlikely to remove the peg for the foreseeable future. However, On May 1st, Kuawait Finance Minister Mustafa al-Shimali indicated that some members of the GCC were considering dropping their pegs.
It is important to note the GCC buys more goods and services from Europe. As a result, a Euro peg would have actually increased inflation at a faster pace than the current Dollar peg.
Read more at CNBC
Greenback, inflation, USD
There is a substantial risk of loss in forex trading.
You should only trade with risk capital that you can afford to lose without impacting your lifestyle or retirement plans.
The views expressed on this site represent the current good faith views of the authors at the time of publication. Please be advised that these views are subject to change at any time and without notice.
