The Euro Is Proving Almost Immune To Egypt

The single currency seems to be driven more by yield differentials than risk aversion, helping it to remain resilient in the face of the unrest in Egypt.

Currency Humour, Sort Of

Suckers rally: Pimp Bernanke and the Psychopathic Super-Whores of CNBC

The bears come back to explain the latest rally and offer some insight into the worlds second oldest profession.

Morning Currency Wrap for Monday January 31, 2011

Food Riots & Facebook = A Berlin Moment For The Arab World  - It started in mid December with an altercation between a Tunisian fruit vendor, Mohamed Bouazizi, and a policewoman which led to Bouazizi setting himself on fire in front of a government building. Thanks to facebook and the internet, this lead to protests and riots until the government fell. Then in early January in Algeria, people started rioting over soaring food prices. A few weeks later, the unrest in Egypt can be traced back to food inflation. The surge in global food prices since the summer is not the underlying cause of Arab revolt, it is just the trigger. It is not a coincidence that food prices began to rise when the Chairman of the U.S. Federal Reserve, Ben Bernanke signaled a fresh round of money printing, aka QE2. Now anti-government protests and riots are starting in other neighboring countries, such as Yemen, Jordan, and Saudi Arabia. In fact, Kuwait just granted $3500 and free food for more than a year to each citizen out of fear. The rest of the Asian world is also looking on - Indonesia just ordered 800,000 tones of rice. Meanwhile, the Chinese leadership is watching this in fear - why? Remember what started the Tiananmen Square protests of 1989? You guessed it, food inflation. And Bernanke only wanted a little inflation, be careful what you wish for. Back to the markets, the Euro rose against the USD as a report showed European inflation accelerated at its fastest rate since October 2008, signaling policy makers may be moving closer to raising interest rates. Inflation in the euro region accelerated to a 2.4% annual rate this month from a 2.2% pace in December, and more than the 2.3% that was expected. The data reinforces the difference in policy between the ECB and the Fed. ECB policy makers will discuss the inflation outlook at their meeting Feb. 3. Elsewhere, the USD traded near a four-week low versus the Yen as a measure of inflation watched by the Fed advanced at the slowest pace on record. The Fed’s preferred price index, which is tied to spending patterns and excludes food and fuel, increased 0.7% from December 2009, the smallest increase since records began in 1959. Meanwhile, the safe haven flows into the USD, CHF, Yen , and gold have retraced a little as the markets awaits to see if Egypt’s problems spreads to other neighboring countries. In Canada, the CAD climbed off of its overnight lows and moved higher after data showed that the Canadian economy grew at a faster than expected pace in November. GDP grew 0.4%, better than the 0.3% reading that economists expected.

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: Sony, Honda Results; RBA
Jan. 28, 2011
Third-quarter earnings reports from Honda and Sony, as well as an interest-rate decision from Australia, China PMI and industrial output data from Japan will be the highlights of a week in which many regional markets will close for the Lunar New Year holiday. MarketWatch's Lisa Twaronite in Tokyo looks at the week ahead.



Europe's Week Ahead:ECB Meeting; BP,Shell,Earnings
Jan. 28, 2011
The spotlight will turn next week to the European Central Bank's monetary policy announcement and to earnings reports from BP, Shell, BBVA, Santander and Deutsche Bank.



U.S. Week Ahead: Consumers, Jobs and Profits
Jan. 28, 2011
Old economic concerns carry into a new month for investors, who will be watching reports on payrolls, unemployment and consumer spending. Exxon Mobil, Dell, Coca-Cola and Disney lead the earnings parade. MarketWatch's Greg Morcroft reports.

Forex Measuring Stick for Week Ending 28/01/2011

Currency Humour

Morning Currency Wrap for Friday January 28, 2011

Moody's Warns It May Have To Revise US Credit Rating  - U.S. Q4 GDP increased at an annualized rate of 3.2%, which is not as strong as the 3.7% increase that had been expected, but was still better than the 2.6% annualized rate that had been recorded in Q3. Personal consumption increased 4.4% in Q4, up from 2.4% in Q3. The market is taking this in stride but it is being overshadowed by Mood's Investors Service warning that it may need to place a “negative” outlook on the U.S. debt rating sooner than anticipated. I guess this should have been expected after yesterday's downgrade of Japan by Standard & Poor. These two developments makes you question the safe haven appeal of the Yen and USD. Maybe the market will start moving to other safe haven such as Gold, CHF, CAD, NOK, and the Chinese Yuan. Elsewhere, the GBP weakened across the board after consumer confidence dropped the most in almost two decades in January after an increase in sales tax reduced spending power, thereby fanning speculation that the Bank of England may not be able to raise interest rates to fight inflation as growth slows. Also in Europe, the SEK weakened across the board on news that retail sales only rose by 0.1% in October. In Asia, the USD trimmed its losses against the Yen after the release of Q4 U.S. GDP. The Yen did recover some of yesterday's losses after the rating downgrade as investors reasoned that the move could hasten fiscal reform in Japan. Keep in mind that market players are instead positioning for Yen weakness in the options market. In Canada, the CAD was slightly down but remain in a tight trading range versus the USD after the U.S. GDP came in slightly weaker than expected. The CAD also received positive comments by Canadian Finance Minister Jim Flaherty. Flaherty said that the CAD is likely to prove resilient on the back of relatively strong commodity prices and healthy public finances. "We're not going back to the old days, the CAD (at) 65 cents, 75 cents, that led to some inefficiencies in business,"Flaherty told Reuters Insider TV on the sidelines of the World Economic Forum in Davos. "The fiscal fundamentals of the country are strong, commodity prices for the most part, including agriculture prices are relatively strong, so there are good reasons for the CAD to have some resilience."

Euro's Short-Term Range $1.35-$1.38: Strategist

The euro's overall direction is higher until it hits $1.38 while the yen will not get weaker until a policy shift in the U.S., says Vassili Serebriakov, currency strategist at Wells Fargo. He shares his outlook for the majors, with guest host, Shrikant Bhat of Citibank and CNBC's Martin Soong and Karen Tso.

Currency Humour

Morning Currency Wrap for Thursday January 27, 2011

This Phenomenon Can No Longer Be Ignored - That is what ECB policymaker Lorenzo Bini Smaghi said today in a speech in Bologna, Italy. He was referring to "permanent and repeated increases in prices of imported products" and their impact on inflation in advanced countries. These statements highlighted the policy divergence between the U.S. and not only Europe, but the rest of the world, causing the Euro to reach another two month high against the USD. The Euro's gains come after yesterday's Fed statement that gave no indication that it may back away from its loose monetary policy and Tuesday's State of the Union address which further outlined loose fiscal policy. The irony here is that the Fed's QE2 program is causing excess liquidity to flow to the commodity sector, thus the U.S. is exported inflation to the rest of the world. In Asia, the big news was the S&P downgrade of Japan to AA-minus due to the country’s political leaders lack a coherent strategy to address its debt dynamics. This caused the Yen to fall across the board calling into question the Yen's status as a safe-haven currency, boosting the appeal of the USD and the CHF. I think the effect on the Yen will be short lived because firstly, the S&P downgrade simply brings them in line with Fitch, which it cut back in May 2009; and secondly, most of the debt is held domestically so the downgrade will not lead to a bond sell off. Elsewhere, the AUD weakened across the board because the government announced a one-time tax to help pay for damage caused by recent floods. The flood will cost an estimated A$5.6 billion ($5.58 billion) and shave around 0.5% off gross domestic product growth. In Canada, the CAD was little changed despite a rise in risk aversion due to Japan's downgrade and lower oil prices.

Afternoon Market Highlights with Ashraf Laidi

Ashraf previews today's FOMC decision, with analysis on GBPUSD, SIlver, EURUSD and Gold.

Morning Currency Wrap for Wednesday January 26, 2011

Another Sterling Surprise  - The GBP was able to recover some of yesterday's losses after Bank of England policy maker Martin Weale joined Andrew Sentance  in voting for a rate increase this month, and officials said the balance of risks to inflation had moved “upwards,” according to minutes of the Jan. 13 rate decision released today. Keep in mind that the BOE members would not have known that the economy contracted and  given that in yesterday's speech by Bank of England Governor Mervyn King indicated that he was in no rush to raise rates , its hard to see how much interest this would be to the markets. Meanwhile, the Euro reached its strongest level against the USD in more than two months after German import-price inflation hit its highest level since October 1981 fanning the perception that interest rates will rise sooner in the euro zone than in the U.S. German import-price inflation accelerated to 12% in December, more than 10.8% that was expected. Also boosting the Euro was yesterday successful bond auction for the European Financial Stability Fund, which the Japanese government snapped up more than 20% of. In Asia, the USD remained in a tight trading range near a three-week low against the Yen after U.S. President Barack Obama proposed a partial spending freeze. In last night's State of the Union speech, Obama proposed a partial halt to spending increases that would save $400 billion from the budget in the next decade. This proposal and a promise to cut corporate tax  make it more difficult for the Federal Reserve to raise interest rates. No change in monetary policy in expected in today's Fed decision, but they may acknowledge a recent improvement in the U.S. economy. It will be interesting to see how the market will react to a possible change to the Fed statement. In Canada, the CAD recovered some of yesterday losses after Tuesday's weak inflation report as most major stock markets and commodities rose on optimism the global economic recovery will continue.

Best Way to Play the Yuan

The cheapest way to get involved in the yuan is via the traditional off-shore renminbi market -- the dollar settled non-deliverable forward or the NDF, says Eddie Tam, CIO at Central Asset Investments. He tells CNBC's Bernard Lo & Oriel Morrison more.

Morning Currency Wrap for Tuesday January 25, 2011

Cable's Unwind Just Starting & Cajas  - Cable, aka GBP, got hammered in European trade after data showed the economy unexpectedly shrank the most in more than a year, damping speculation that interest rates will rise in 2011. GDP fell 0.5% in Q4 after rising 0.7% in Q3, compared with economists' forecasts of a 0.5% gain. Keep in mind that the UK government's austerity measures are being implemented this year, which will surely slow growth even further. The aggressive tightening that started to be priced in early January after the release of the 3.7% CPI reading for December will now start to be unwound. Today's speech by Bank of England Governor Mervyn King will be that much important after this data release. Meanwhile, the Euro pulled back after hitting a two-month high against the USD as the shocking UK GDP report flashed a warning sign of what is to come to the euro zone. I think it is just a matter of time before euro zone interest rate expectations get pulled back, which have been driving the Euro higher this month. Also weighing on the Euro were reports that Spanish government will limit the need to recapitalize the cajas to the tone of 20 billion euros. This statements makes the market nervous because this is exactly what happened in Ireland - recapitalization of Irish bank keep getting changed higher and higher. Don't let the successful bond auction for the European Financial Stability Facility fool you, there is a lack of triple A paper in European bond markets so market players switch from lower grade paper to higher grade. In Asia, the USD was slightly down against the Yen after the Bank of Japan kept its monetary policy unchanged. The AUD continued on its down trend after the release of a lower than expected Australian CPI. In Canada, the CAD fell back towards parity after domestic CPI came in softer than expected, reducing the odds that the central bank will hike rates soon. Consumer prices  rose 2.4% in December from a year earlier after a 2% gain in November, while the core rate, which excludes eight volatile items such as gasoline, quickened to 1.5% from 1.4%. Also weighing on the CAD was a drop in commodities such as crude oil and gold. Crude oil, Canada’s biggest export, fell to the lowest in almost eight weeks after Saudi Arabian Oil Minister Ali al-Naimi signaled that OPEC may bolster production and maintain spare capacity to meet rising fuel demand.

Irish Politics Leave Euro Unruffled

For once financial markets seem fairly relaxed about political turmoil in a euro-zone member state, as Ireland's Prime Minister hangs on.

Morning Currency Wrap for Monday January 24, 2011

The Euro Takes Out Stops And Then Takes Breather  - Market players used tough talk on inflation pressures from European Central Bank chief Jean-Claude Trichet on Sunday to surge ahead against the USD to take out all the near by stop losses by Euro shorts. The lack of follow through demand allowed the Euro to take a breather after last week's big gains, which took it to levels last seen in November 2010. In a Wall Street Journal interview on Sunday, Trichet said core inflation was not a good gauge of future price pressures and that the central bank was ensuring higher energy prices do not seep into other prices. Trichet's hawkish comments were offset by negative political development in Ireland. The resignation of Prime Minister Brian Cowan as leader of the Fianna Fail party has plunged the country into political turmoil because it not yet passed legislation enacting the final measures from last December’s budget, which are needed in order to tap the EU/IMF bailout fund. The opposition parties have called on the government to fast-track the vote in order to clear the way for a general election in February rather than March 11. The lack of reaction to Ireland's news tells me that market players are starting to believe German Chancellor Angela Merkel when she says Europe’s biggest economy will do whatever it takes to save the region’s currency. Meanwhile, the GBP was down as market players are starting to doubt that the Bank of England will hike rates anytime in the next few months. Market players will be looking at the mine set of the BOE with regard to price pressures on Wednesday's release of BOE minutes. Elsewhere, the USD was up against the Yen as this will be a big week for U.S. economic news, Fed monetary decision, and President Barack Obama’s State of the Union address. In Canada, the CAD was little changed in overnight trading as the usual drivers of  U.S. equity futures were flat and commodity prices were mixed ahead of Tuesday's December CPI. Any weakness in the CPI will take the pressure off the timing of interest rate increases by the Bank of Canada, which could send the CAD lower.

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: RBI and BOJ
Jan. 21, 2011
Interest-rate decisions from India and Japan and a number of key corporate results will hog the limelight this coming week in Asia. MarketWatch's Phani Kumar reports.



Europe's Week Ahead: Leaders gather in Davos
Jan. 21, 2011
World leaders and top corporate executives gather Wednesday in Davos, Switzerland, to kick off the World Economic Forum's annual meeting. Next week sees more earnings, including figures from electronics giant Philips.



U.S. Week Ahead: FOMC, economic data, earnings
Jan. 21, 2011
U.S. investors will focus on the Federal Reserve's policy setting meeting, a rush of economic data and another flood of corporate earnings. Amazon, Microsoft, American Express, DuPont, Ford and Chevron are among the big names reporting.

Forex Measuring Stick for Week Ending 21/01/2011

Morning Currency Wrap for Friday January 21, 2011

The Euro Recaptures November Levels  - The Euro rose against the USD, surpassing a level last hit in November of last year, after the Ifo institute’s business climate index showed that business confidence in Germany surpassed analysts’ forecasts and rose to a record high in January. That’s the highest since records for a reunified Germany began in 1991. This week's strong advance for the Euro came despite the inability of European policy makers to find a long-term solution to deal with the sovereign-debt crisis. The idea that keeps hitting the news wires is whether the euro-region rescue fund should be able to provide credit to Greece to buy back its bonds from the secondary market at a discounted price, thereby reducing its service costs. Elsewhere, the GBP was weaker against both the USD and the Euro after a report showed U.K. retail sales slumped the most on record for a December as heavy snowfalls and price rises deterred consumers. The report might take some of the pressure off the Bank of England to lift rates. With rising inflation and a slowing economy, the UK is looking at a stagflation scenario. In Asia, the AUD and NZD continue to be under pressure after strong Chinese data on Wednesday renewed worries the world's second-biggest economy could take a tougher stance on fighting inflation this year, and ultimately slow its demand for commodities. Also weighing on the NZD was a weak retail sales report adding to speculation that a faltering recovery will deter the Reserve Bank from raising interest rates. In Canada, the CAD has shaken off the malaise of possible aggressive monetary response by Chinese officials and managed to regain parity. Commodity prices have slowly started to recover following news that Q4 economic growth in China was stronger than expected. Helping the CAD was news that November retail sales increased 1.3% to $37.3 billion, reflecting growth at most store types. This marks the sixth consecutive monthly rise in sales and was the largest increase since March 2010.

Mixed Signals in FX

Peculiar patterns in the currency markets show that while key exchange rates hold steady, the options market is warning of violent shifts ahead. Katie Martin reports.

Morning Currency Wrap for Thursday January 20, 2011

China's Data Fan More Monetary Tightening - Chinese economic growth is on fire fanning fears that Beijing will have to intensify its easy going approach to tightening. China's GDP for Q4 was 9.8%, up from 9.6% in Q3, and better than the 9.2% that was expected. GDP growth for all of 2010 was 10.3% from 9.2% in 2009. Domestic inflation for December did come down to 4.6% compared to November's 28-month high of 5.1%, but it was still higher than the 4.4% that was expected. China has raised banks' required reserves seven times over the last year, but it has only increased consumer interest rates twice. The data reinforces the notion that China will have to be more aggressive in its tightening by utilizing interest rate increase and RMB appreciation in order to keep the economy and inflation from overheating. The market expects this to lead to a decrease in China's appetite for commodities thereby hitting the dollar block currencies of AUD, NZD, and CAD, which were all down in overnight trading. In Europe, the euro remained well bid on persistent demand from Asian sovereign accounts in order to diversify away from the USD, which is giving euro zone officials time to make progress on finding a sustainable solution to its debt crisis. Another German newspaper has pick up the story of stealth restructuring for Greece, which of course continues to be denied by all parties - euro area finance ministers are apparently discussing a plan to ease pressure on Greece by allowing it buy back its own debt using credits from the EFSF. Meanwhile, a cabinet shuffle in Japan demonstrates that the leadership is unhappy and it is causing the Yen to move lower on fears of more currency intervention after the Yen had pierced through the 82 level for the first time in two weeks. In Canada, the CAD is in danger of falling back below par against the USD on the risk off trade due to the stronger-than-expected Chinese growth data spurred fears of tighter monetary policy. The CAD began the week on its back foot after dovish language by the Bank of Canada raised some doubts about the timing of the next interest rate hike. I suspect that we will hover on either side of parity for the next little bit until we get the next piece of news that will power the CAD higher.

Comments on the GBP & Euro's Recent Rise

Adrian Foster, head of financial markets research, Asia Pacific at Rabobank, shares his rate outlook for the Bank of England and trading strategy for the GBP and Euro, with CNBC's Oriel Morrison.

USD Charts

Here is a couple of charts from Trader Dan Norcini, a frequent contributor to Jim Sinclair's blog Mineset. The first chart is the USDX and the second chart is the Broad Dollar Index. As a side note, the second chart clearly shows that USD weakness began around 2002 and had its first bounce with the onset of the credit crisis in 2008. If you would like to read more of Dan's comments that are not on the charts please click here.

USD Charts

Morning Currency Wrap for Wednesday January 19, 2011

USD Weakness Means Risk On Trade  - The USD continues to weaken across the board as the shift in interest rate expectations continues to take hold. The realization that the U.S. will maintain ultra low interest rates for  all in 2011and could possibly lower them while the rest of the world is raising or slowly shifting to raising rates to combat inflation is weighing on the USD. Wow, you can really tell that the U.S. is exporting inflation to the rest of the world by way of QE2. This morning's news of U.S. housing starts only reinforces the fact that the U.S. economic recovery will remain sluggish. Housing starts declined 4.3%to a 529,000 annual rate last month. In Europe, the Euro continued to rise on short covering as market players acknowledge that a change in trend as occurred. Reports out of Germany suggest that the German government was considering a Greek debt restructuring plan allowing Greece to buy back its own debt using a euro zone crisis fund.  Of course, both parties deny this. Meanwhile, the GBP continued to add to its nine day winning streak on news that claims for unemployment benefits unexpectedly slipped 4.1K in December amid forecasts for a flat reading. In Asia, there is increased speculation that Asian central banks have been busy diversifying away from the USD and into the Euro. Interest in bonds for Europe's bailout funds, EFSF and EFSM, which are rated triple A has been surprisingly high. Why? Because it is in Asia best interest to have a viable competitor to the USD for diversification reasons. In Canada, the CAD pared some of it overnight gains after domestic manufacturing data came in softer than expected. Canada reported that manufacturing sales declined 0.8% in November to $44.9 billion, led by decreases in the motor vehicle and motor vehicle parts industries. Bank of Canada Governor Mark Carney is likely to attempt to talk down the CAD by suggesting that the strong CAD is curbing exports, which won’t prompt a quick interest-rate increase. The BOC led the G7 by raising interest rates three times last year, starting in June, which caused the CAD to appreciate by  6.4% against the USD, pressuring exporters.

Sterling's Rally Is Built On Quicksand

Even with U.K. inflation leaping higher, the pound's rally is unlikely to last as any rate hikes will be counterproductive.

Morning Currency Wrap for Tuesday January 18, 2011

Rising Interest Rate Expectation Due To Inflation  - It looks like to me that we could be in for a renewed bought of across the board USD weakness as the markets digest changing interest rate expectations. Why do I say this, one word, INFLATION. Firstly, the GBP jumped in overnight trading after a report showed inflation accelerated faster than forecast in December, fueling speculation that the Bank of England may need to raise borrowing costs. CPI  accelerated to 3.7% last month from 3.3% in November, against an expected increase of 3.4%. Secondly, last week's hawkish comments by ECB President, Jean-Claude Trichet, were confirmed by the 2.2% increase in December euro zone CPI. These two facts have moved forward possible interest rate hikes for 2011. Meanwhile, inflation in the U.S. is forecast to  rise to 1.7% this year from 1.63% last year causing interest rate expectations to be pushed further out into 2012. Yes I know that UK's austerity program will cut into GDP growth and that the euro zone is still being hampered by sovereign debt vows, but the U.S. is also staring at both those problems. Back to the markets, the Euro managed to rise after an influential German survey pointed to robust growth in Europe's largest economy and on speculation that efforts by euro zone’s policy makers to prevent the sovereign-debt crisis from deepening may succeed. The ZEW's headline economic sentiment indicator surged to 15.4 points in January from 4.3 points in December, which was better than the 6.8 points that was forecasted. Also, euro zone finance ministers pledged this week to strengthen the safety net for debt-strapped countries and indicated they don’t face pressure for immediate moves to tame the fiscal crisis. In Asia, the Yuan rose to a 17-year high against the USD before Chinese President Hu Jintao meets with President Barack Obama tomorrow in Washington. The move comes after a bipartisan group of U.S. Senators said yesterday they will pass legislation this year to push China to strengthen the currency. In Canada, after hitting a two and a half year high against the USD in overnight trading, the CAD softened after the Bank of Canada kept interest rates steady at 1%. The Bank of Canada indicated that the economic recovery has gathered strength both at home and abroad, but not enough to encourage it to start raising interest rates. The BOC did upgrade its growth forecast for the economy to 2.4% this year and 2.8%t next year, up slightly from the 2.3% and 2.6% growth rates it had forecast in October. The BOC did signal that it is clearly worried about the persistent strength in the CAD, which is currently trading over parity against the USD.

Top Asian Currency Plays

Chia Woon Khien, head, FX strategy, emerging Asia at RBS, recommends investors go long on the Malaysian ringgit and the Singapore dollar. She shares her top currency plays with CNBC's Rebecca Meehan, Yousef Gamal El-Din and Chloe Cho.

Morning Currency Wrap for Monday January 17, 2011

EU Officials Versus European Finance Ministers  - The Euro fell broadly in overnight trading as a deal for an immediate increase in the euro zone's bailout fund, known as the European Financial Stability Facility (EFSF), faded after German Finance Minister Wolfgang Schaeuble was quoted ruling out bolstering the size of the fund. Uncertainty about whether Germany and France would support an increase in the effective lending capacity of the bailout fund will be the focus at today's meeting of euro zone finance ministers. Germany is instead pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.  Last week we heard various European officials, such as European Union Economic and Monetary Commissioner Olli Rehn and European Commission President Jose Barroso on the need to increase the fund. Why the mixed signal? Let me be frank here, EU officials are not publicly elected so all they want to do is ensure that their gravy train continues while the various finance ministers have to answer to their public and the public in Germany and France are in no mood to bail out others. Also weighing on the Euro were comments by ECB policymaker Athanasios Orphanides which played down euro zone rate hike expectations, which rose last week after the ECB hinted it was ready to act to curb inflation if necessary. Elsewhere, the GBP hit a eight-week high against the USD on rising speculation that UK inflation pressures could prompt the Bank of England to raise interest rates as early as June. In Asia, the Yen was up against the USD but well within its recent trading range while the AUD continued to flounder due to the ongoing flooding. In Canada, the CAD was higher on Monday despite lower oil prices and reduced liquidity due to the U.S. public holiday. The main focus will be tomorrow's Bank of Canada announcement on interest rates. No rate rise is expected but the accompanying statement will be scrutinized for clues as to when the bank will resume hiking rates.

China Questions The Dollar

You new this was coming, the Chinese always take to the news wires before a big meet up with Washington in an effort to dampen attempts to make the meeting about China's currency policy. This time around Chinese President Hu Jintao voices his concerns over the USD's de facto reserve currency status and calling it a "product of the past." He also critized the Fed's QE2 program as a move to weaken the USD at the expense of other countries' exports.  Hu also highlighted China's efforts to turn the yuan into a global currency. Read the whole story here.

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: China Inflation Figures
Jan. 14, 2011
This week in Asia, China announces inflation and economic growth figures and Australian mining giants release quarterly reports. MarketWatch's Chris Oliver reports.



Europe's Week Ahead: Burberry, SABMiller In Focus
Jan. 14, 2011
British luxury fashion house Burberry and brewer SABMiller will issue trading updates next week. In Germany, the ZEW indicator of economic sentiment will be released.



U.S. Week Ahead: Citi and Apple Earnings on Tap
Jan. 14, 2011
U.S. corporate earnings season gets into full gear next week, with headline results from Goldman Sachs, Citi, Bank of America and Apple, among others.

Forex Measuring Stick for Week Ending 14/01/2011

Bullish Case for the CAD

David Rosenberg, Chief Economist and Strategist for money manager Gulf Sheff, makes a bullish case for the appreciation of the CAD. He sees the CAD moving at least 20% higher against the USD over the next 5 years.

Donuts with Dave 011311

Morning Currency Wrap for Friday January 14, 2011

Trichet, The Hawk, Is Back?  - The Euro has pulled back from one-month highs but is close to making its biggest weekly gain against the USD in almost two years on speculation the European Central Bank may need to raise borrowing costs as German inflation accelerated to the fastest pace since 2008. The inflation rate, calculated using a harmonized European method, increased to 1.9% from 1.6% in November, the Federal Statistics Office in Wiesbaden. In the month, consumer prices jumped 1.2%, the biggest gain since December 2002. Yesterday, ECB President Jean-Claude Trichet ignited a strong rally in the Euro after he signaled that he is prepared to raise interest rates and today council member Axel Weber said inflation risks could increase. However, let's not lose site of the fact that the severity of the euro zone's debt problems persists, which can be seen it the charts after a bearish signal flashed yesterday due to the 55-day Euro/USD moving average crossed below the 100-day moving average. Staying with the inflation theme, China raised banks' reserve requirements by a further 50 basis points today, it's seven increase in the past year, in its latest move to fight inflation. China's inflation rate jumped to a 28-month high of 5.1% in November. Mindful of the political turmoil linked to past bouts of inflation and recent rioting in some African countries over the rising cost of food, as Beijing doing all it can to combat rising prices. In Asia, the Yen was little changed against the USD but the AUD was hit the most, given Australia's close links to China in terms of the shipment of commodities. In Canada, the CAD had its first major set back in nine days against the USD after China's latest moves to combat inflation fanned expectation that Beijing's appetite for buying commodities could lessen. Today's key news items are U.S. inflation and retail sales data and a Thomson Reuters/University of Michigan's reading on consumer sentiment. Market players will be awaiting the Bank of Canada's interest rate decision next week, with particular focus on the tone of central bank chief, Mark Carney, which may provide further direction for the currency.

Currency Tensions Leads To Capital Controls

As you can see for the above graph, curtsy of the Financial Times, foreign policymakers are pulling out all the stops in trying to stop hot money from flowing into their countries in order to stop their local currencies from rising against the USD. Surprisingly, the various capital flows that we have seen to date have been modest at best - Wow you meant it will only get more stringent! Read the whole article here.

Morning Currency Wrap for Thursday January 13, 2011

Political Jawboning Trend Change?  - The Euro jumped to one week highs against the USD after Spain was able to easily sell 3 billion Euro worth of five-year bonds via auction. This came after Portugal's own successful bond auction on Wednesday. Also Italy successfully raised the money it was looking for in the bond markets today. The real story here however was yesterday's political jawboning by every and any political figure pledging to do what ever it takes to support the Euro and to stop the debt contagion from spreading. Here is a prime example, German Finance Minister Wolfgang Schaeuble said on Wednesday that euro zone countries are working on a "comprehensive package", which may be agreed by February or March, to solve the bloc's debt crisis. Of course the fact that the ECB was hitting every bid in sight in the bond market, which drove down yields, didn't hurt either. Was all of this enough to change the trend and place a floor under the Euro? Only time will tell. Elsewhere, the CHF took a nose dive after Swiss National Bank Vice President Thomas Jordan said that the recent appreciation versus the Euro poses a threat to economic growth this year. This has put the market on notice that the SNB may intervene. The last time the SNB intervened to weaken the CHF it lasted for over a year before being abandoned June of 2010. Meanwhile, the GBP managed to move higher after the Bank of England kept its main interest rate and emergency stimulus program unchanged. In Asia, the USD was little changed against the Yen, while the AUD was finally able to muster a gain as stronger commodity prices help to negate a surprisingly small rise in employment data. In Canada, the CAD was slightly lower but remained well above parity. Yesterday, Finance Minister Jim Flaherty acknowledged that the CAD will hover at parity with the USD for some time to come, and deservedly so thanks to Canada's economic strength. Flaherty went on to say that "It is unreasonable, given those fundamentals, for anyone in Canada to expect the CAD to go back to the days when it was significantly devalued vis-a-vis the USD.... it makes sense for the CAD to be much closer to the USD that it was for some years." That's why Ottawa is throwing a lifeline to exporters and manufacturers by lowering corporate taxes, reducing tariffs and extending an accelerated capital cost write-off, Flaherty said.

The Yuan Trade

The Chinese yuan is still a good bet, according to Ashraf Laidi, of CMC Markets. He said we should expect about three more rate hikes from China.

CAD Holds Parity, This May Just Be The Beginning

Look for the CAD to first test and then exceed the high reached in November 2007 against the USD some time this year. Read why the CAD is being pressed higher by a "beggar-thy-neighbour" policy of competitive currency devaluation here.

Morning Currency Wrap for Wednesday January 12, 2011

Portugal Gets Reprieve For Now  - The Euro was able to forge higher for a third straight day against the USD as Portugal's bond auction went well and helped peripheral spreads decline - ten year yield fell for Greece, Spain, and Ireland. Portugal was able to sell E600 million of bonds due in 2020 at a yield of 6.716. The yield was able to stay below the 7% level, which is the magic number where debt levels become unsustainable due to high service costs. Let's put this into perspective, this auction for Portugal was minor compared to the heavy refunding due in April and I'm sure that the ECB was busy buying the bonds in order to buy more time and to calm the markets. Meanwhile, the GBP was able to muster some positive ground despite news that the U.K. trade gap widened to record levels. Stock markets have caught a bid on the successful Portuguese bond auction and this is encouraging a move to risk on so the USD has been moving down across the board this morning. In Canada, the CAD continues to make headlines by remaining above parity and powering ahead as interest rate expectation continue to move forward. Swap markets are pricing in an 80% chance that the Bank of Canada will raise interest rates in April. Also adding support to the CAD are the move up in prices of oil, copper, and gold.

Sarkozy Just Won't Let It Go

Sarkozy plans to bring his campaign to reform the global monetary system to Washington next week. This time around he will point to riots around the world due to the escalating price of food. I don't know how this conversation will go - look President Obama, we need to replace the USD as the global reserve currency in order to contain food prices - ya right, like that's going to fly. Read more here.

State of Virginia Creates Subcommittee To Study Monetary Alternatives

Wow, you know things are serious when a state in the union is working on Plan B just in case there is a breakdown of the Federal Reserve System. Enough said, read the rest form Zerohedge here.

legp604

Currency Humour, Sort Of

After 45 years, Harry Schultz,  now 87, has just published the last issue of his International Harry Schultz Letter. Here is a little gem from his last letter ... “Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.” Read more about Harry's last letter here.

Morning Currency Wrap for Tuesday January 11, 2011

And The Magic Number Is 7  - If your country's sovereign bond yield reaches the 7% mark then your country is headed to debt servitude by way of an EU/IMF forced bailout. This has been the MO, method of operandi, for the European debt crisis. As yields rise the politicians deny, deny, deny, that they have a problem then as soon as that 7% level is reached they are dead because servicing debt at that level is unsustainable. Watch the yield on tomorrow's Portugal bond auction to see what happens next. The Euro did manage to rally overnight after first China (on yesterday's comments) and today Japan pledging  to buy bonds planned by a European rescue fund. These particular bonds are expected to be issued by the European Financial Stability Facility later this month. These bonds will be used to finance Ireland's bailout plan and are rated triple A. Since the bonds are rated triple A this isn't much of a pledge, if they pledged to buy Portugal bonds then that would be something that would support the market, so look for the Euro rally to fizzle - especially due to the heavy schedule of debt issuance by southern European countries this week. In the U.K., the GBP was lower after a report showed retail sales dropped last month as the cold winter weather kept would be shoppers indoors. Evidence that domestic demand is starting to slow down in the U.K. ahead of the planned fiscal austerity measures is not positive for the GBP. In Asia, the AUD continue to take a pounding as the flooding in Australia worsens. Adding insult to injury, Australia's trade surplus narrowed in November more than economists forecast. The Yen was also down slightly with their pledge to support the Euro. Meanwhile, the Chinese Yuan was up on news that China’s foreign exchange reserves climbed by a record last quarter and lending exceeded the government’s annual target, increasing pressure on the central bank to tighten policy to rein in inflation. In Canada, the CAD moved higher as market players move forward possible interest rate increase by the Bank of Canada and moved the target to 2% by the end of 2011. Also adding support to the CAD was firmer commodity prices across the board.

Afternoon Market Video Analysis on the Euro

Richard Yetsenga, global head emerging market FX strategy at HSBC, forecasts the euro will fall below $1.25 by the end of the first quarter. He tells CNBC's Oriel Morrison how investors can profit from the decline in the currency.



Ahead of the government bond auctions in Portugal, Spain and Italy this week, David Buik, partner at BGC Partners, shares his thoughts on what the EU should do to give the euro some stability, with CNBC's Rebecca Meehan, Lisa Oake and Yousef Gamal El-Din.

Morning Currency Wrap for Monday January 10, 2011

Portugal Under Pressure To Accept Bailout  - The Euro fell towards four-month lows against the USD as worries about Europe's mounting debt continues, this time with Portugal under attack. Every news report I read says that Portugal is being pressured to accept and EU/IMF. We can substitute Portugal for any other country because it's the same MO. No matter what the country, it always comes down to the country resisting and the rest of the European Union and the IMF applying pressure - Why is that? Well the countries in the EU want to prevent the debt crisis from spreading to their country and the country in trouble doesn't want to sign on to debt servitude to the EU/IMF. For those that think the current bailout fund will be to small comes news that Steffen Seibert, Chancellor Angela Merkel’s chief spokesman, declined to repeat the nation’s objections to restocking the fund fanning speculation that Germany may soften its opposition to expanding the region’s bailout fund. This should be an interesting week for the Euro as Portugal, Spain and Italy are all due to tap the bond market for funds this week. In the U.S., Friday's worse than expected jobs data in the U.S. only reinforced that the Fed would not be in a hurry to wind down its QE2 program of buying assets to stimulate the economy, despite recent upbeat data that pointed to a more self-sustaining recovery. In Asia, the AUD continues to be hindered by the economic impact of the massive flooding in Queensland. Queensland Roads Minister Craig Wallace said today that damage to the state’s transport network stands at around A$1.5 billion. Meanwhile, China’s customs bureau said today its trade surplus was $13.1 billion in December, less than the $20.8 billion forecasted as China's imports continue to grow. In Canada, the CAD was weaker but still held above parity against the USD as commodity prices remained soft. Friday's better than expect jobs report in Canada fueled speculation that the Bank of Canada would raise interest rates sooner rather than later, but only time will tell.

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: Rate Decisions and Trade Data
Jan. 7, 2011
On tap in Asia, Thailand and South Korea will make rate decisions, China announces trade data and Japan releases core machinery orders statistics. MarketWatch's Lisa Twaronite reports.



Europe's Week Ahead: Retailers In Focus
Jan. 7, 2011
Retailers in focus with Tesco, Carrefour, Sainsbury giving updates. On the economic front, ECB and Bank of England interest-rate decisions on Thursday.



U.S. Week Ahead: Auto Show, Intel
Jan. 7, 2011
The U.S. market will gauge the health of the car industry with the Detroit auto show. Also, Intel's quarterly earnings report and a slate of economic data will roll out next week. MarketWatch's Rex Crum reports.

Forex Measuring Stick for Week Ending 7/01/2011

Morning Currency Wrap for Friday January 7, 2011

Buy The Rumor Sell The Fact  - The build up in expectations in today's U.S. jobs report after Wednesday's better than expected ADP report has been ridicules. I saw some estimates revised up to over 500K new jobs from the low 100K - so the report was bound to disappoint. USD bulls out there get ready to buy into the sell-off today has the overall trend remains USD friendly especially with the refinancing hump facing the euro zone this spring, after that the trend should change. The USD pared its advance against the Euro after the U.S. payrolls report showed employers added fewer jobs last month than economists forecast. Non-farm payrolls increased 103,000, the Labor Department said on Friday, below economists' expectations for 175,000. However, overall employment for October and November was revised to show 70,000 more job gains than previously reported. The unemployment rate fell to 9.4%, the lowest since May 2009, from 9.8% in November. Next up will be Fed Chairman Ben Bernanke who speaks on the economic outlook before the Senate Budget Committee at 9:30 a.m. I'm sure that he will continue to say that he is focused on unemployment and that he fully expects to complete the QE2 bond-buying plan. Meanwhile, as I posted yesterday here, the Euro continues to be hampered by EU insistence on spreading the cost of bank failures. In Asia, the AUD continues to drift lower on concerns about how devastating floods in Queensland and other parts of Australia could affect the economy and its exports of key commodities. In Canada, the CAD moved higher after Canada's economy created more jobs than expected in December after three months of disappointing employment numbers. Employment rose by 22K, better than expected 17K, mainly because of a surge in manufacturing jobs. The unemployment rate held steady at 7.6%. This report allowed Canada to be the first Group of Seven country to recoup all the jobs lost during a global recession and credit crisis. This will probably not be enough to persuade the Bank of Canada to hike interest rates this month, but  it could mean its next hike will come sooner than previously expected.

Daily Market Update by Ashraf Laidi

Ashraf Laidi previews Friday's US jobs report & the implications for USDJPY, gold, EURUSD and GBPUSD.

Proposed Bondholder Haircuts is Weighing on the Euro

It looks like this plan also has the backing of the ECB, which is surprising because they were opposed to the idea of sovereign bond holders taking haircuts. Read the story here.

It's All About Geography

Don't know much about geography
Don't know much trigonometry
Don't know much about algebra
Don't know what a slide rule is for

But I do know that Australia is next to China
And that Canada is next to the United States
And this could be the currency story for Q1 2011



Let me explain my modified take on the old Sam Cooke song, Wonderful World. Last year the AUD was one of the top performing currencies against the USD with an increase of about 14% compared to the CAD which only rose slightly over 5% against the USD. See my post last week regarding relative performance here. Why did the CAD lag? I think the answer is mainly due to geography and a little to do with the price of oil. Geography, yes look at a map and you will see that Australia's biggest market is China. Now look and see where Canada is located, right next to its biggest market the U.S. So my thesis is that the CAD will outperform the AUD this quarter due to geography. Of course, massive flooding in Australia only reinforces my thesis.

China started to apply the brakes by hiking interest rates in late 2010 and will continue to do so in 2011. This will reduce China's GDP and hence reduce demand for commodities out of Australia. Meanwhile, the U.S. has been slowly and steadily gaining economic traction in late 2010 and this should continue in 2011. So signs of stronger U.S. economic growth bode well for the Canadian economy. Add to this a rebounding price of oil and the CAD should easily outperform the AUD, so short AUD/CAD.

Melt The Dollar

Brazil’s finance minister, Guido Mantega, is at it again with another zinger of a sound bite - “We’re not going to allow our American friends to melt the dollar.” Mantega is also known for his  ”currency war” comment last year. Read about how Brazil plans to curb capital inflows further here.

Morning Currency Wrap for Thursday January 6, 2011

Unwind Of 2010 Year End Moves Continues  - The Euro retreated to its lowest level against the USD in a week, near the support of its 200-day moving average, on concerns that a slower recovery in some European nations will only worsen the region’s debt crisis. Anyway that's what the sound bites will say but the real reason that the Euro is down is do to cost sharing - the European Commission will today continue with a plan to spread the cost of bank failures to senior bondholders instead of having the public pick up the tab. Since this proposal would by unfriendly to investors, I can't see investors stepping up to buy European bank shares, hence the sell off in the Euro. Meanwhile, the GBP had its own problems after a report showed U.K. service industries unexpectedly shrank in December for the first time in more than 1 1/2 years. After yesterday's disappointing news that construction shrank in December for the first time in 10 months, and add in today news and the evidence points to a possible downturn in the U.K. for 2010 Q4. In the U.S., each economic release keeps points to a slow and steady economic recovery. Faced with rising euro zone government debt issuances in the coming months and a general stabilization in the U.S. economy, investors are riding the USD higher. The USD could sell off after tomorrow's jobs numbers but that should be perceived as a buying opportunity unless the data changes expectations for the U.S. Federal Reserve to keep its quantitative easing in place through June. Keep in mind that the release earlier this week of the minutes of the December FOMC meeting made it clear that by last month the Fed did not view economic conditions as having improved enough to reign in the $600 bln target for June. Fed Chairman Ben Bernanke is set to testify on the economic outlook before the Senate Budget Committee on Friday an hour after the jobs report. In Canada, the CAD continues to remain firm, and at times push higher, as signs of stronger U.S. economic growth bode well for the domestic economy, despite the inability of the price of oil to regain the $90 handle. December employment reports tomorrow will provide the main focus this week, with job growth expected in both the U.S. and Canada.

Good Entry Point For Long Aussie Positions

The recent decline in the Australian dollar is a good opportunity to buy the currency against the euro and greenback, says Kathy Lien, director of currency research at GFT. She shares her FX trading strategy with Rajiv Biswas of IHS Global Insight and CNBC's Martin Soong & Sri Jegarajah. This maybe true but I would rather be long CAD versus the AUD.

China to Let Yuan Rise 5% in 2011

No kidding, how else are they going to combat inflation. The other ways to fight inflation could cause more harm. If they keep raising interest rates that could curtail growth and if they install price controls on certain commodities that will certainly lead to rationing. Read the full story here.

Morning Currency Wrap for Wednesday January 5, 2011

Good Bank, Bad Bank, & Forced Majeure  - Europe's debt crisis returned front and center to the mind's of traders today after the Irish Independent, a Dublin based newspaper, reported that Switzerland's central bank (SNB) refused to take Irish government bonds due to be repaid between 2011 and 2025 as collateral. Funny how the ECB (bad bank) will take Irish, Greece, and Portugal government debt for collateral on repos but not the SNB (good bank), what kind of message does that send? On the bright side, Portugal was able to auction bonds today but at much higher rate than its previous auction in early September. We should continue to see pressure on the Euro as debt crisis continues from one nation to the other. In Asia, the big story is the AUD. After hitting a 28-year high last week, the AUD has fallen about 2.7% against the USD as investors fear that widespread floods in the country's northeast will hit economic activity and about 20%of Australia's export revenue. Record rainfall has caused floods the size of Germany to destroy cotton crops, halt coal deliveries, and shut down mines prompting BHP and Rio Tinto to declare force majeure on their contracted deliveries. In the U.S., the USD continues to recover from December's pounding as the recent string of economic data has raised hopes for a sustainable U.S. recovery. Today was no different with a much better-than-expected ADP Employment Change reading. The reading reported that 297,000 private payrolls were added during December, when an increase of 100,000 had been expected. In Canada, the CAD is slightly down but continues to trade around parity as good news in the U.S. means good news to the Canadian economy. With the sharp drop in commodity prices yesterday, don't expect the CAD to make much head way. December employment reports on Friday will provide the main focus this week, with job growth expected in both the U.S. and Canada.

Euro: 12 Years Later

Discussing the outlook for the euro, which debuted 12 years ago, and how investors can play the currency, with Ashraf Laidi of CMC.

Everybody is Doing it!

We're talking about currency intervention here. Chile's central bank said on Monday it will buy $12 billion in U.S. currency in its biggest-ever forex intervention aimed at taming the soaring peso, which is near 3-year highs and hammering local exporters. Read more here.

Morning Currency Wrap for Tuesday January 4, 2011

Spring Is In The Air, For Today Anyway  - Risk appetite is back on, which means the USD is down across the board on upbeat euro zone economic news and on top of yesterday's U.S. economic data pointing to springtime feel. Euro zone purchasing managers' index (PMI) was revised upwards on Monday from the earlier flash estimate, indicating a pick up in the region's growth momentum. The Euro also received a boost on comments from a Chinese official, who said on Monday the country would continue buying Spanish debt. As I mentioned in the past, it is in the best interest of China to have a viable alternative to the USD so they will continue to support the euro zone with bond purchases. Yesterday's reports out of the U.S. continue to add to a recent string of encouraging data, which demonstrates that the economy is slowly and steadily improving. Yesterday, the ISM index rose to 57 in December from 56.6 a month earlier, which marked the 17th month of growth in manufacturing and a separate report showed that construction spending picked up in November to its best level in five months. For the Euro, the next couple of months will be crucial due to an estimated 150-200 billion Euros of government bonds are scheduled be issued by euro zone countries, some of whom are struggling with rising budget deficits and higher borrowing costs. In the U.S., this week's main focus will be Friday's U.S. nonfarm payrolls, which are seen rising by 126,000 in December, and U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony and today's release of the minutes of the Federal Open Market Committee's Dec. 14 meeting. Elsewhere, the GBP was up across the board as data showed UK manufacturing activity grew robustly while the AUD fell more than 1% as massive flooding in north-east Australia fueled worries over coal production. In Canada, the CAD is firm but slightly down after hitting its strongest level since May 2008 in yesterday's trading action. The CAD continues to hold above parity on firmer oil prices and better economic news out of the U.S., which is Canada's largest trading partner. This week's main driver with be the domestic jobs report on Friday.

Morning Currency Wrap for Monday, January 3, 2011

First Trading Day Of The Year For Some, But Not All - With markets closed in Tokyo and London today, market players are taking advantage of thin holiday liquidity to create some volatility and earn some quick easy money. As you can see from last week's post, the Euro was down 6.73% for 2010, its biggest annual drop since 2005, thanks to the European sovereign debt crisis. Last week we saw a lot of short covering in the Euro as the 200-day moving average just below 1.31 has offered strong support. In term of the crisis, nothing has changed there but the equity markets have been rising cause the USD to retreat from its 2 months advance. I can see the rally in the equity markets continuing for at least another couple weeks, before focus shifts back to the Euro. The key drivers this week will be Friday's U.S. nonfarm payrolls, which are seen rising by 126,000 in December, and U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony. Today news that the Institute of Supply Management’s index on U.S. manufacturing showed an improvement for December help spur the USD higher against the Euro. In Canada, the CAD continues to hold on to its gains against the USD due to continued improvement in the U.S. economy and firmer oil prices.

China Continues To Strive To Internationalize Its Currency

Ronald Arculli, chairman of the Hong Kong exchanges discusses the internationalization of the Chinese currency.