Forex Measuring Stick for Year 2010

Forex Measuring Stick for Week Ending 31/12/2010

Forex Measuring Stick for Week Ending 24/12/2010

Morning Currency Wrap for Tuesday December 21, 2010

Turnaround Tuesday  - Yesterday's trading was about rating downgrades and rising debt costs but not for long, welcome to Turnaround  Tuesday where the mere mention of China and Europe in the same sentence leads to a softer USD and a ray of hope. The Euro staged a decent recovery after Chinese Vice Premier Wang Qishan said his nation had taken “concrete action” to help the European Union with its debt problems. Why would China do this? For the same reason that Germany will not leave the EU - it's not in their best interest. If Germany were to leave the EU and go back to using the Deutsche Mark then the DEM would soar in value against the Euro, which in turn would kill its economy because the rest of the EU is Germany's biggest export market. So forget about what you read in the newspapers about Germans unwilling to bailout Greeks and paying for the Greeks to retire at the ripe old age of 58, this is about saving jobs for the economy and saving Western European Banks, which are loaded to the gills with debt from Greece, Spain, Portugal, and Italy. Now lets look a China's reason - the EU is China’s largest trade partner and the Asian nation is Europe’s second-biggest export market. If the EU were to break up, the currencies of the weaker countries would devalue, thus making importing from China more expensive. Secondly, with China's foreign-exchange reserves totaling a record $2.65 trillion, they are desperate to keep the Euro as a reliable currency alternative to the USD so that they can further reduce their exposure to the USD. The Euro's recovery rally ran into a little bit of head wind after Moody's announced that it was putting Portugal's A1 rating on review for possible downgrade. In Asia, the Yen climbed to a one-week high versus the USD on speculation Japanese exporters purchased the nation’s currency as the end of the year approaches and on news that tensions appeared to subside on the Korean peninsula after a U.S. negotiator said North Korea agreed to let inspectors visit its uranium enrichment facilities after the communist nation refrained from retaliating after South Korea’s military exercises in disputed waters yesterday. In Canada, the CAD was down for a fourth day in a row after Canada's annual inflation rate slowed more than expected in November, which could keep the Bank of Canada from hiking interest rates for longer than markets anticipate.

Currency Humour

Vacation Mode

I'm back from vacation but I don't expect to resume regular posting until after the Christmas break.

Merry Christmas and Happy New Year to you all.

Forex Measuring Stick for Week Ending December 10, 2010

Morgan's Roach says the Fed's Grand Experiment is a Flop

The Fed’s strategy to “artificially” pump up asset markets and “trick” people into spending will backfire, says Stephen Roach, non executive chairman of Morgan Stanley, Asia. He speaks to Michael Yoshikami of YCMNET Advisors and CNBC’s Karen Tso.

Currency Wars Likely to Continue in 2011

U.S. and China are unlikely to fight over currencies in 2011, says Peter Whitley, senior FX analyst at Thomson Reuters. He tells CNBC's Oriel Morrison that the currency fight may take place among Asian countries instead.

Ireland There's Hope, Look at Iceland

Iceland just came out of a recession after saying no to bailouts and letting bondholders pay for the collapse of the banking system. Read about how the free market system is suppose to work here.

Currency Humour

Tonight's Tweets

 Here are three good reads that I posted on my twitter page, http://twitter.com/fxdeskcambridge

1) Brazil ready for more currency warfare http://www.ft.com/cms/s/0/ff6a4556-03c4-11e0-8c3f-00144feabdc0.html?ftcamp=rss

2) Sterling will be strongest major currency in 2011, says Barclays - Telegraph http://t.co/B0gq9Ye

3) Banana Republic Finance: Why Keynes Is Rolling in His Grave http://www.minyanville.com/businessmarkets/articles/keynes-economic-growth-keynesian-tax-cuts/12/9/2010/id/31590?camp=featuredslide&medium=home&from=minyanville

Will China Bail Out EU?

CNN's Fareed Zakaria and Niall Ferguson and the FT's Gillian Tett on the EU crisis and possible help from China.

Currency Humour

Morning Currency Wrap for Thursday December 9, 2010

Increasing U.S. Bond Yields - Long Term Economic Growth or Funding Crisis? - Rising U.S. bond yields has been the key story driving the USD higher the last couple of days. Ten-year Treasury yields have risen by 25 bps, a six-month high, in response to the Obama/Republican deal to extend a series of tax cuts. Now, have yields increased because the deal points to long term growth in the U.S., which would be good, or do rising yields point to a funding crisis in the U.S., which would be devastating for the USD. The answer to this question will be found in future U.S. bond auctions. The media will have you believe that the rising yields was the work of the bond vigilantes - what a joke that is, where have they been for the last 10 years? If they were on the job, they would have forced government to restrain fiscal policies and we wouldn't be in this mess right now. Bond vigilantes, give me a break, we currency traders have been doing your work for the last 10 years. Back to the markets, the continued rise in bond yields is supporting the USD while the Euro remains on its back foot after ratings agency Fitch downgraded Ireland's sovereign debt. Fitch cut its rating on Ireland to BBB+ to reflect the additional costs of restructuring Ireland's ailing economy and banking sector. In Asia, the combination of Australian jobs growth and an improving economy in Japan help to boost all Asia currencies. Japan’s GDP grew at an annualized 4.5% pace in the last quarter, faster than the 3.9% previously reported, and Australian employers added 54,600 jobs in November, more than double the median 20,000 increase that was forecast. In Canada, the CAD was little changed versus the USD as commodity prices firmed and equity future pointed to a rebound in equities.

The Dollar Is Becoming A Risk-Free Zone

Instead of falling in line with rising risk appetite, as it would have in the past, the dollar is rising as U.S. growth prospects improve and yields rise.

Deutsche Bank's Currency Guide

Check Out Deutsche Bank's Guide To Which Currencies Are Cheap, And Which Are Way Too High, brought to you by businessinsider. Keep in mind that this analysis was done by utilizing purchasing power parity. Purchasing power parity looks at what you can purchase in once currency, vs. another. In the case of the USD, right now, you can purchase less with it than other currencies.

Currency Humour

Tim and Ben - One on One

Flexibility Is The Dollar's New Friend

Remarkably, the Fed's willingness to ease monetary policy in response to the needs of the US economy may now be a plus for the dollar. As last week's ECB meeting and the weekend's discussion over an 'E-bond' show, such flexibility doesn't exist in the euro zone.

Ireland vs Iceland: deflation vs devaluation

Plain and simple, it would be better for the citizens of Ireland to vote no on the budget, reject the IMF/EU bailout, and pull out of the Euro. All they have to do  is look next door towards Iceland to see how it would all turn out.

Read the full explanation from BCA Research by way of fellow blogger Prieur du Plessis of Investmentpostcards.com here.

Morning Currency Wrap for Tuesday December 7, 2010

Risk On, A Confluence of Factors  - With so many factors pointing to a risk on trade, I don't know where to start. Late yesterday we had a deal to maintain the Bush tax cuts for the next 2 years. Reports out of the UK today showed that manufacturing and consumer spending were both up adding to evidence that the UK recovery was gaining traction. We had no change in monetary policy in both Australia and Canada. Also, sovereign debt fears are abating at the moment with news that 2 independent parliament members in Ireland were going to vote for the budget thereby cementing its passing into law. These confluence of factors outweighed rumours of an interest rate hike in China over this upcoming weekend, it looks like nothing can stop this year end risk on trade at this point. As evidence, European shares hit a 26-month high today. It's funny how U.S. Federal Reserve Chairman Ben Bernanke assurance that he would do more if the economy needed it is helping to pull the USD up against the Euro. What does this mean for the forex market? USD down across the board, which reinforces the idea that the USD's rally has been more a function of Euro weakness than a real change in underlying USD sentiment. Having said that, I don't expect the Irish vote to start a Euro rally because the problem are still there, they are just abating for the moment.

Afternoon Market Video Update

A discussion about Friday's US jobs report, the FX reaction & the unfolding technicals in AUDUSD and EURUSD ahead of the RBA decision.

Will 2011 be the Year that China Implodes?

The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is not a forecast that China will default, but merely an insurance policy to protect against a hard landing, with ramifications across Asia.

The Chinese government needs to figure out how to deflate the credit bubble before inflation reaches levels that threaten social stability. Officially, inflation was 4.45 in October, but in reality it is much higher than that. For example, the prices of vegetables has risen by about 20% in the last. Price inflation is a much bigger deal in emerging countries because the price of food makes up a bigger percentage of household spending. Remember, inflation has proved a catalyst for social unrest in China, including in 1989, the year of the Tiananmen Square massacre, and it remains a sensitive political pressure point.

Albert Edwards from Societe General said the OECD’s leading indicators are signaling a "downturn" for Asia’s big five (Japan, Korea, China, India, and Indonesia). The China indicator composed by Beijing’s National Bureau of Statistics has fallen almost as far as it did at the onset of the 2008 crash. "I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s. Ignore these indicators at your peril," he said. Read the full story here.

Morning Currency Wrap for Monday December 6, 2010

QE Off, EU On  - According to a report obtained by Reuters last night, IMF chief Dominique Strauss-Kahn will present a report that will stress the need for a larger rescue fund at a meeting of euro zone finance ministers and European Central Bank President Jean-Claude Trichet on Monday. "The recovery could still stay the course, but this scenario could now easily be derailed by the renewed financial market turmoil," the IMF report said. "The sovereign and financial market storm affecting the periphery (of the euro zone) constitutes a severe downside risk." I have two comments on this; if you increase the size it will send a signal to the market that Spain is going to need a bailout and my second point is good luck selling this to Germany. This encouraged renewed selling of the Euro after a rebound late last week took it back above $1.34. Last Friday, trading was all about the poor U.S. jobs numbers and talk of the possibility of QE 3 and 4. In essence, today we have a QE off and EU on trade which means that the market is concerned about Europe's problems and has shrugged off comments from U.S. Federal Reserve Chairman Ben Bernanke that quantitative easing could be bigger than estimated. In Asia, the Yen remains confined to a tight range against the USD but is trading firmly on the crosses as the Japanese government continues to struggle getting a budget passed. But this did stop bond from rising the most in two weeks on speculation the central bank will ease monetary policy further to counter the strengthening Yen. In Canada, the CAD back off from Friday's close but remained in a tight trading range ahead of tomorrow's Bank of Canada policy meeting. The central bank is expected to hold its target lending rate at 1%, which it last set in October after three successive increases of a quarter-percentage point beginning June 1, citing a weaker economic outlook for the U.S., Canada’s biggest trading partner.

IMF to Encourage EU to Increase Bailout Fund

According to a report obtained by Reuters, IMF chief Dominique Strauss-Kahn will present a report that will stress the need for a larger rescue fund at a meeting of euro zone finance ministers and European Central Bank President Jean-Claude Trichet on Monday. "The recovery could still stay the course, but this scenario could now easily be derailed by the renewed financial market turmoil," the IMF report said. "The sovereign and financial market storm affecting the periphery (of the euro zone) constitutes a severe downside risk."

I have two comments on this; if you increase the size it will send a signal to the market that Spain is going to need a bailout and my second point is good luck selling this to Germany.

Merkel Warned that Germany Could Leave Euro

She apparently said it, I'm sure there will be denials shortly. Read the story in the Guardian here.

QE, The Sequel

You should have known this was coming when the media starting numbering QE. Federal Reserve Chairman Ben Bernanke this Sunday will make his second appearance on 60 Minutes, defending the central bank's controversial $600 billion bond buying program. And he doesn't rule out the possibility that more could be on the way. Translation, stay tuned for QE3, QE4, and so on. Read the full story here.

U.S. Government Jobs on the Decline

After watching this segment from CNBC, a double-dip must be back on the table. Former OMB director David Stockman gives a no holds barred analysis of the job market for the last 2 years. This is a must watch.

Shining a Light on America's Growing Debt

Investors are increasingly worried about government debt levels in Europe, but these International Monetary Fund (IMF) graphs show US debt is $13.8 trillion and is set to rise. Please see the rest of the charts here.

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: Central Bank Policy Decisions
Dec. 2, 2010
This week, central banks in Australia, South Korea and New Zealand will release policy decisions. MarketWatch's Michael Kitchen reports.



Europe's Week Ahead: Ireland in focus
Dec. 3, 2010
Ireland's parliament vote on the austerity budget, German economic data and the Bank of England's policy meeting will be in the spotlight next week. U.K. food retailer Tesco will release a third-quarter sales update, while European airlines will report November traffic statistics.



U.S. Week Ahead: Consumer Confidence On Tap
Dec. 3, 2010
The U.S. stock market will test investors' confidence after an upbeat week spurred by Black Friday shopping sales. Consumer-credit data, consumer-confidence figures and the debt crisis in Europe will all be in focus. MarketWatch's Rex Crum reports.

Trading the Currency Crisis

A look at how experts are playing the current situation, with Ashraf Ladi, CMC Markets chief market strategist.

Forex Measuring Stick for Week Ending December 3, 2010

Non-European Countries to Help Bailout the Euro?

Yes that is correct, non-European countries will help to bailout the euro zone countries by way of the IMF. US, Japan and China, in that order will spend over $250 billion (and soon much more) to rescue Club Med, as the Ponzi unwind shifts into a higher gear. Read all the details here.

Currency Humour

I keep my spending money at the bank, but I store my wealth in gold at an undisclosed storage unit.

Afternoon Market Video Update

Ashraf Laidi & James Hughes cover the ADP, ECB, S&P500 and gold.

Currency Humour

Morning Currency Wrap for Thursday December 2, 2010

The ECB Has Spoken, But Euro Falls Anyway  - European Central Bank President Jean-Claude Trichet indicated that he would maintain the status quo of having the ECB buy distressed sovereign bond. The Euro sold off because he failed to indicate that the central bank would boost bond purchases. Speaking at his monthly news conference in Frankfurt, Trichet said the central bank would continue to sterilize bond purchases under the program. The market was looking for a numerical number and the ECB failed to give it to them. Up to that point, the Euro had its best rally of the last couple of weeks on hopes that the ECB would signal its determination to contain the crisis from spreading to other countries, such as Portugal and Spain. Yesterday the Euro received a boost after a U.S. official told Reuters Washington would support boosting an EU rescue facility via IMF funds, although a Treasury Department spokesman later said an "extra commitment is not something we're discussing right now". In Asia, the USD was little changed versus the Yen but the AUD was down versus the USD. In Australia, data showed retail sales unexpectedly declined and imports slumped to the least since February. In Canada, the CAD extended its gains for a second straight day as the risk trade continues. The key employment reports for Canada and the U.S. are tomorrow. This will be the last major data release to consider before the Bank of Canada's next interest rate decision on Dec. 7. The market has already discounted that the central bank will leave interest rates unchanged at 1%.

Currency Humour

Afternoon Market Highlights with Ashraf Laidi

A charts look at gold, S&P500 & the Euro

Coming to America

The domino-like collapse of the economies of Iceland, Greece, Ireland, and, now, possibly Spain, is coming also to the United States.

One of the triggering mechanisms will be at the end of this month when two million idled workers, now collecting unemployment, will be dropped from the rolls. At the end of December, another two million workers will join the ranks of those who have exhausted their unemployment benefits and a total of 4 million Americans will be without unemployment checks and face destitution.

This will slowly put pressure on municipalities, which will then put pressure on individual states, with California and Illinois likely to be the first two states to default on their debts and declare bankruptcy. Read how this whole mess will play out here.The USD as a safe haven, you must be kidding.

Morning Currency Wrap for Wednesday December 1, 2010

Is The Euro Correction Over or Dead Cat Bounce?  - Time will tell, but the Euro would have to press passed yesterday's high of around 1.3150 for it to be sustainable. Why the rally off the lows - according to Bloomberg - The euro rose against the dollar and yen amid speculation European Central Bank policy makers meeting tomorrow may signal their willingness to act to prevent the spread of the region’s debt crisis. No kidding, does the ECB even have a choice? If they don't act the whole system will implode. The ECB will have to start printing money, strike that I mean they will have to start their own version of QE and buy every sovereign bond in sight. Remember last year when the Fed and ECB were talking about exit strategies, well that's all it was, just talk - QE will have to go on and on until the whole global monetary system is fixed. Back to the markets, the market awaits tomorrow's ECB policy meeting, which some expect the central bank to keep its three-month liquidity operations unlimited to help banks struggling for cash. This Euro bounce is just another opportunity to get short. Take a look at the gold price, is it telling you that the problems are fixed? No, what it is telling you is that it expects the ECB to engage in QE and this will further undermine the perception of the Euro as a hard currency alternative. News in China that purchasing managers' indexes registered their strongest readings in seven months and the story was similar in India, where the HSBC Markit PMI climbed to a six-month high help the market to change its focus from sovereign debt crisis to global growth. This was followed up with improved manufacturing in Germany, France, Italy, and the UK. This good news lit a fire on the risk on trade as better manufacturing means higher oil prices and firmer commodity prices. The bad news is that increased manufacturing in China and India leads to higher inflation - China raised interest rates in October for the first time in nearly three years and India has already raised interest rates six times this year. The good news spurred stocks higher and the USD lower. In the U.S. this morning, news that U.S. private employers added more jobs than expected in November caused the USD to slightly extend gains versus the Yen and trimmed losses against the Euro. ADP Employment Change data indicated that private payrolls expanded by 93,000 in November, more than the 58,000 that was expected, and October was upwardly revised to 82,000. In Canada, the CAD was firmer against the USD as good news in the U.S. is good news for Canada. Canada's data calendar is bare until Friday when the November jobs report is published.