Change Of Address

I'm on temporary leave due to my change in employment so posting will be intermittent. I should be back into full swing of things on or after May 2nd, 2011.

What Happened To All The Fed Hawks?

Where did all the Fed hawks go? No Fed members voting against the current policy, what happen to all the hawkish talk. I guess that's all it was, talk. And the reason for the talk was the USD was in danger of falling off a cliff. As you can see from the chart above, the hawks were trying to make sure that the supporting trend line would hold. So by talking tough and hawkish they were able to shake off the speculators who were jumping on the short side. Remember, all that the Fed and the government want is a controlled or orderly decent in the USD not a waterfall decline. Now that support has been violated, expect more USD weakness on the way, at least until the end of QE2 at the end of June.

Currency Humour, Sort Of

Rumour Mill - Greece To Restructure This Weekend

Greek 10-year spread hit fresh record high at +1131bps vs German Bunds earlier on continued speculation in the market of a debt restructuring, as soon as this Easter weekend. There is talk of a haircut of between 40-50% in order to make Greece's debt sustainable. Even if this happens, I don't think it is enough to knock the USD from the ugly duckling crown of the forex market.

Money in Motion: Dollar

Andy Busch, BMO Capital Markets, discusses the decline of the dollar as traders say "risk on."

S & P Downgrade & Debt Ceiling, What Does It All Mean?

Discussing the ways to address the country's long-term fiscal woes, with Andy Busch, BMO Capital Markets; Vince Farrell, Soleil Securities; David Dietze, Point View Financial Services and CNBC's Rick Santelli.




In a wide-ranging discussion, Jason Trennert, Strategas Research Partners; Maury Harris, UBS, and Ashraf Laidi, Intermarket Strategy, break down S&P's negative outlook report, what it indicates about the economy, and its impact on the markets.

Uncertainty To Help Commodity Currencies

Increased uncertainty over policy in the euro zone and the U.S. will make the greater clarity and higher yields of commodity currency policies more attractive.

Morning Currency Wrap for Monday April 18, 2011

It's The Debt Stupid  - I was going to start this commentary about how debt concerns was weighing on the Euro when a shocker came across the news feeds at around 9:01 am EST - Standard & Poor's revised its rating outlook on the United States to negative. Wow, I didn't think a US based credit agency had the guts to do it. Well its done now and the USD is down across the board. In overnight trading, China got things going with its fourth hike in bank reserve ratios this year and its seventh such move since October signaling that it is determined to combat inflation. In the European secession, the combination of the results of the Finnish vote and talk that Greece will be forced to restructure its debt caused the Euro to fall down to support at around the 1.4250 level. Firstly, the rise of Finland's anti euro party, True Finns, may cause problems for the euro zone because they are against any and all bailouts. This is problematic because Finland's parliament has the right to vote on European Union requests for bailout funds, meaning it could hold up costly plans to shore up Portugal and bring stability to debt markets. Secondly, a Greek newspaper reported on Monday that the government had asked the International Monetary Fund and European Union to start discussions on a restructuring. A Greek finance ministry source said the report was not true. Support for the Euro held on comments by Austria's Ewald Nowotny who said that expectations that the key ECB rate will be increased by another 50 bps in 2011 were "well founded." Keep in mind that this week will be short due to the long Easter weekend, so a lack of liquidity can exacerbate currency moves. In Canada, the CAD started the week softer as risk aversion went into full swing after China's move and the worries over the sovereign debt fears in Europe. Also weighing on the CAD, the price of oil fell by over a dollar, which is a little odd since Saudi Arabia decide to cut output saying the market was well supplied.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4271            USD/CHF      0.8949

GBP/USD    1.6285            USD/CAD      0.9672

AUD/USD   1.0489            EUR/CAD      1.3799

NZD/USD    0.7858            GBP/CAD      1.5750       

USD/JPY      82.57             USD/MXN     11.8005

Elliot Wave Update on the CAD

The CAD remains below daily channel support and therefore maintains the decline to a C=A target of 94.50 with a chance to over extend to a 5=1 objective of 92.70 before the reversal.

China Raises Bank Reserves Yet Again

China raised banks' required reserves ratio for the fourth time this year by 50-basis-point to a record 20.5% on Sunday in order to combat inflation. Read the rest of the story here.

US and China compete for Brazil’s oil

With the brewing conflicts in North Africa and the Middle East there is a rush to secure stable sources of energy. The US is realizing that strategic competition with China for scarce resources is no longer something it does far from home. Latin America, once the backyard of the US, is shaping up to become the stage for the next tussle between these two giants. Read the whole story here.

Money In Motion, April 15, 2011

Forex Measuring Stick for Week Ending 15/04/2011

Afternoon Market Video Update From CMC Markets

Michael Hewson looks back at the week just gone, a disappointing start to earnings season, rising inflation, sovereign debt fears, China and looks ahead to next weeks Bank of England minutes, UK public finances and UK retail sales figures.

Morning Currency Wrap for Friday April 15, 2011

Chinese GDP & Inflation and Irish Downgrade & Upgrade  - The Asian session started with a bang as Chinese economic data spurred risk aversion spurring the Yen higher because the data demonstrated that China still has work to do in terms of tightening monetary policy. China’s economy  grew 9.7% in Q1, while consumer prices increased 5.4% in March from a year earlier. In the European session, all eyes were on Ireland as Moody's Investors Service downgraded Ireland's foreign and local currency government bond ratings by two notches to Baa3 from Baa1 with the outlook remained negative. In essence, Moody's cut Ireland's rating to just above junk status. However, yesterday Fitch Ratings affirmed Ireland at BBB+ and removed it from Rating Watch Negative to negative outlook. Confused? I am. In sports betting they call that a push so I will choose to shake it off and move on and that is exactly what the Euro did. Today's euro zone inflation numbers came in a little higher than the flash reading, reaffirming views that the European Central Bank will continue to raise rates in coming months. The ECB raised rates by 25 basis points last week and the market is pricing in two more rate increases before year end. In the US today, the CPI data showed that consumers paid more for food, gas and rent last month, but outside those categories inflation remained tame, which allowed the USD to extend its gains against the Euro. In Canada, the CAD softened a little against the USD as the price of oil weakened and on concerns that the Chinese will have to be more aggressive on interest rate hike, which could possibly change the outlook for global growth. With no domestic data out today, I expect the CAD is stay within range. I don't see much downside in the CAD with plenty of sovereign interest to buy CAD out there.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4431            USD/CHF      0.8940

GBP/USD    1.6346            USD/CAD      0.9642

AUD/USD   1.0559            EUR/CAD      1.3917

NZD/USD    0.7968            GBP/CAD      1.5763       

USD/JPY      83.08             USD/MXN     11.7175

IMF Takes Aim at U.S.

Discussing whether the IMF could take action against the United States regarding its mounting debt, Vince Reinhart, American Enterprise Institute, and CNBC's Steve Liesman.

Morning Currency Wrap for Thursday April 14, 2011

Possible Debt Restructuring For Greece Spurs Risk Aversion  - Greece's debt costs surged after German Finance Minister Wolfgang Schaeuble  told a newspaper that Athens may need to restructure its debt if an audit in June questions the nation’s ability to make debt repayments. Of course this spurred speculation that other peripheral euro zone countries would also need to restructure their debts causing the Euro to move lower. European Central Bank Executive Board member Lorenzo Bin Smaghi warned that such a move would be a "catastrophe" and fellow ECB policymaker Juergen Stark also warned that Irish banks cannot rely on ECB emergency funding indefinitely. In the UK, the GBP bounced higher after a Nationwide Building Society report showed U.K. confidence rose in March from a record low as Brits grew more optimistic. In Asia, the risk aversion trade put a firm bid under the Yen while the SGD rallied to a record high after the Monetary Authority of Singapore said it will reorient the currency’s band upward. Meanwhile, China was in the news again after its foreign exchange reserves soared to a record of more than $3 trillion by end-March. Also, China's money supply growth blew past forecasts which is threatening to aggravate the nation's inflation woes so expect more hikes in bank reserve ratios. In the US, this morning's round of data flow, jobless claims unexpectedly increased and wholesale prices rose, caused the USD to give back some of its overnight gains. In Canada, the CAD was weaker in overnight trading due to peripheral European government debt woes and continued its downtrend after this morning's weaker-than-expected Canadian manufacturing data. Manufacturing sales fell in February, its biggest dip since August 2009, as auto sales pulled back after a January surge.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4429            USD/CHF      0.8932

GBP/USD    1.6330            USD/CAD      0.9647

AUD/USD   1.0511            EUR/CAD      1.3927

NZD/USD    0.7910            GBP/CAD      1.5757       

USD/JPY      83.16             USD/MXN     11.8049

World's Reserve Managers Sold Euro Bonds for CAD, AUD, & Gold

It looks like central bankers around the world were busy de-risking their reserves by selling euro-zone bonds issued by the pigs and replacing them with 'non-traditional' reserve currencies such as the Australian and Canadian dollars, and gold. Read the results of the poll conducted by Central Banking Publications over the winter of 2010-2011 in this Reuters article here.

Morning Currency Wrap for Wednesday April 13, 2011

Yesterday The Screens Were Red, Today The Screens are Green - Yes from risk off to risk on, now that turnaround Tuesday is over we are back to risk on, sort of, I think. With this change come Yen weakness across the board as traders go back to selling Yen and going long high yielders, aka the Yen carry trade. The Yen carry trade also put a firm bid under the AUD and NZD with a recovery in commodity prices and stocks. Also weighing on the Yen was the downgrade of the economy by the Japanese government for the first time in six months, which will ensure that Japanese monetary policy will remain ultra-loose for a prolonged period of time. Elsewhere in Asia, the Chinese Yuan snapped two days of losses as the Economic Information Daily reported that banks’ reserve ratios may be increased by 50 basis points on either April 15 or April 22. In Europe, the Euro continued to push higher on the back of data that showed the euro-zone economy is improving and on sovereign demand. Euro-zone industrial output rose for a fifth month in February, spurring speculation that the European Central Bank will tighten policy further after last week’s interest-rate increase. Also keeping a firm bid under the Euro was demand from sovereign names looking to recycle USD proceeds as the Euro offers better yields due to further rate rises in the euro zone while policy stays loose in the United States and Japan. In the US today, the USD clawed back some of its losses to the Euro after some measures of US retail sales improved more than expected in March. Excluding auto purchases, US retail sales rose 0.8%, a touch better than forecasts calling for a 0.7% increase. Statistics for prior months were also revised higher, which confirm that the US consumer is still spending. In Canada, the CAD was a little firmer ahead of detailed economic projections from the Bank of Canada. Yesterday, the market scaled back its expectations of future interest rate hikes in Canada after the BOC held interest rates steady at 1% as expected on Tuesday. The BOC did raise its growth estimates, but it also used strong language on CAD's strength. The market will now focus on the BOC's Monetary Policy Report and news conference later this morning to gleam any insight into future policy moves.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4475            USD/CHF     0.8985

GBP/USD    1.6260            USD/CAD     0.9623

AUD/USD   1.0493            EUR/CAD     1.3933

NZD/USD    0.7903           GBP/CAD     1.5653       

USD/JPY      84.10             USD/MXN    11.7949

USD Looks More Sick Than We Thought

Not only are yields moving against it but debt default fears and reserve diversification are conspiring to ensure that the USD doesn't have an early recovery.

Currency Humour, Sort Of

Morning Currency Wrap for Tuesday April 12, 2011

More Earthquakes & Fukushima At Defcon 7, On Par With Chernobyl - This caused risk aversion sending the Yen, USD, and CHF higher. The market was already getting nervous after Alcoa missed its earnings target after the market closed yesterday. That's all the market needed to induce profit taking after a big move last week in all markets, but I suspect that it will be short-lived with demand for Yen-funded carry trades set to pick up again. In the UK, the GBP fell after annual inflation came in at 4% versus 4.4% forecast and this was on top of yesterday's downgrade of growth by the IMF. This data helped to push back expectations for a rate rise from the Bank of England to October. Meanwhile, the Euro shot up to a 15-month high against the USD as markets are closer to pricing in a further rise in the European Central Bank's main refinancing rate in June, while no interest rate rise is expected in the US this year. In fact, dovish comments from two of the biggest US Federal Reserve doves, Yellen and Dudley, the previous day indicated the Fed is not in any hurry to tighten policy, thus reinforcing the USD's downside potential in the near future. In Canada, the CAD weakened off after the Bank of Canada held its key interest rate steady at 1% this morning, as expected. The BOC repeated its language from the last policy meeting that "any further reduction in monetary policy stimulus would need to be carefully considered," suggesting that the next interest rate hike will not come at the May meeting but rather the July one. The BOC raised it economic growth forecast for this year to 2.9% from 2.4% and projected that it would hit its 2% inflation target six months earlier than previously thought.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4505            USD/CHF     0.8972

GBP/USD    1.6306            USD/CAD    0.9521

AUD/USD   1.0502            EUR/CAD     1.3955

NZD/USD    0.7869           GBP/CAD     1.5690       

USD/JPY      84.25             USD/MXN    11.7775

Elliot Wave Look at the CAD

The CAD remains below daily channel support and therefore maintains the decline to a C=A target of 94.50 with a chance to over extend to a 5=1 objective of 92.70 before the reversal.

Morning Currency Wrap for Monday April 11, 2011

Political Theatre Isn't Over, So Risk On - I expect that Friday's last minute deal between US Congressional leaders and President Barack Obama to avert a government shutdown will give the USD a limited bounce but it will not change the downtrend that the USD is currently in. Why? - because Friday's deadline was one of many to come before the US Treasury will reach its statutory debt limit by about May 16, at which point the US government will no longer be able to issue debt. Also, it is not the US budget but US monetary policy which is the largest negative factor for the USD. Last week's move in the markets was amplified by a shift from risk aversion to the risk on trade (Yen & USD to AUD & CAD) and a shift from low yielding currencies to high yielding currencies (Yen & USD to AUD & Euro) all driven by relative interest rate rises in response to inflation. This trend should continue this week. Back to the markets, last night's 6.6-magnitude earthquake in Japan caused the Yen to rally across the board. The media will tell you that the reason for the Yen's rally is on speculation that insurance companies would need to repatriate offshore investments to help pay for damages. However, with data from the Commodity and Futures Trading Commission showing speculators went net short on the Yen for the first time in six weeks and by the biggest margin since May 2010, I would say that the earthquake was just an excuse to take profits as the trade was starting to get overcrowded. In Europe, both the Euro and GBP remain well bid, supported by interest rate differentials after last week's 25 basis point hike by the European Central Bank and increased probability that the Bank of England may raise rates as early as May. In China, the first quarterly trade deficit in seven years is sure to demonstrate to the world that China's currency policy is appropriate just ahead of possible criticism at the next G20 meeting. In fact, the People's Bank of China has set the exchange rate to its sixth record high in as many trading days. In Canada, the CAD was little changed as the market is reluctant to push it higher ahead of tomorrow's interest rate announcement from the Bank of Canada. The BOC is not expected to raise interest rates but the market but will be looking to its accompanying statement for its take on the economy and the impact of a rapidly rising CAD.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4454            USD/CHF     0.9085

GBP/USD    1.6397            USD/CAD    0.9575

AUD/USD   1.0552            EUR/CAD     1.3842

NZD/USD    0.7839           GBP/CAD     1.5704       

USD/JPY      84.61             USD/MXN    11.7483

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: China Releases GDP Data
April 8, 2011
China's first-quarter GDP and other data will take the spotlight next week in Asia, as well as central bank meetings in South Korea and Indonesia. MarketWatch's Lisa Twaronite in Tokyo looks at the week ahead.



Europe's Week Ahead: Banking Report, Earnings
April 8, 2011
U.K. banking report, ASML first-quarter earnings and Danone sales in focus next week.




U.S. Week Ahead: Corporate Profits on the Rise
April 7, 2011
U.S. corporate results are expected to show improvement for the first quarter as "earnings season" gets under way in the week ahead, MarketWatch's William Spain tells Kelsey Hubbard.

Forex Measuring Stick for Week Ending 8/04/2011

Money In Motion, April 8, 2011

A weekly look at currency trading and how to profit from it, with CNBC's Melissa Lee and the Money In Motion traders.

Spain is no Pig, no Bull

With Portugal, Ireland, and Greece down for the count all attention turns to Spain, but Spain is not pig. "We think the contagion stops here," said Erik Nielsen, chief European economist at Goldman Sachs – and many agreed. Portugal's total debt burden was greater, at 92.6% of GDP last year compared to Spain's 60%, but the Spanish deficit – the annual shortfall – was worse, at 9.2% to its neighbour's (recently upped) 8.6%. However , the Spanish government has not balked from aggressive moves to bring down its deficit, raising its pension age from 65 to 67, increasing taxes and cutting public sector wages. It has also injected small amounts of capital into the weakest banks, but did not repeat Ireland's mistake of guaranteeing bank creditors. Madrid now expects to cut its deficit down to 6pc as a share of GDP for this year. Read the rest of this Telegraph article here.

As you can see from the chart below, the Euro has broken above the trend line that goes back to the 2008 high indicating that the market also concurs with the article that Spain will not need a bailout.

Morning Currency Wrap for Friday April 8, 2011

Actions Speak Louder Than Words - All that hawkish talk from various Fed officials over the past couple of weeks was just that, talk. It's become very clear to me that the Fed is trapped and it can't exist its loose monetary policy, while on the other side of the Atlantic the ECB followed up its talk with action - a 25 bps rate hike yesterday. The media is going to spin today's move lower in the USD on the prospect of a U.S. government shutdown, but don't believe it. The White House and Congress are arguing over $20 billion in spending cuts, but this amount is a small rounding error on a $14 trillion national debt. Back to the market, the Euro continued its uptrend against the USD and has now acquired the 1.44 handle. But the real story this week is the GBP, it is one of the best preforming G10 currencies this week and after today's PPI data the pressure is on the Bank of England to boost interest rates. The GBP rose to its strongest level since January 2010 against the USD after producer prices rose at a faster-than-expected 0.9% rate in March, driving the annual rate of producer inflation to 5.4%. Meanwhile, the only bright spot for the USD was against the Yen as the ultra loose monetary policy of the Bank of Japan continues to weaken the Yen due to interest rate differentials. Elsewhere, the broad-based selling in the USD is spurring commodity prices higher and increasing the appetite for taking on risk. This propelled the dollar block currencies of the AUD, NZD, and CAD higher, in fact the AUD hit a fresh 29-year high against the USD. In Canada, the CAD continued its push to fresh 3-year highs against the USD on the back of oil prices hitting a 32-month high. Today's release of March employment data initially disappointed the market. Canada lost 1,500 jobs in March, the first decline since September and compared with expectations for a gain of 26,500 jobs, however employers added some 90,600 full-time workers to their payrolls while decreasing part-time jobs. The unemployment rate dropped in March to 7.7% from 7.8%, as expected, as fewer Canadians were actively looking for work.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4438            USD/CHF     0.9115

GBP/USD    1.6396            USD/CAD    0.9552

AUD/USD   1.0549            EUR/CAD     1.3791

NZD/USD    0.7819           GBP/CAD     1.5665       

USD/JPY      85.20             USD/MXN    11.7461 

Will Fed Follow ECB?

I Doubt It. Investors are watching to see what the Fed's next move will be, with CNBC's Simon Hobbs; Michael Pento, Euro Pacific Capital, and Don Luskin, Trend Macro.

Currency Humour, Sort Of

Morning Currency Wrap for Thursday April 7, 2011

One And Done Or The First Of A Series? - As expected the European Central Bank raised interest rates by 25 bps to 1.25%. ECB President Jean-Claude Trichet was so deceptive at the post ECB meeting press conference (like a true German central banker except that he is French) that it is very hard to determine if this was the first of series of rate hikes or just one and done. He did say that the hike was intended at anchoring inflation expectations. I think the market is also unsure since the Euro only came off only about 40 pips. Yesterday's announcement that Portugal would seek a bailout caused the Euro to push higher, yes that's right, higher. Why? Like I have said before, the market will view the bailout as the solution to the euro zone's problem. This notion was reinforced after Spain's successful auction of  4.1 billion euros of a new three-year bond today. Meanwhile in the UK, the GBP was little changed as the Bank of England kept its main interest rate at a record low. In Asia, the Bank of Japan kept rates unchanged, which was mildly surprising because there was talk of easing its policy interest-rate range further. Instead, the BOJ established a special lending facility for financial institutions to spur banks to lend to companies with cash-flow shortages in the wake of a magnitude-9 quake and tsunami on March 11, in part to avoid companies from going under. All this caused the Yen to strengthen against the USD as the market had priced in more aggressive liquidity injections. In Australia, the AUD continued to push to new 29-year highs against the USD as the economy added a higher-than-expected 37,800 jobs in March causing the unemployment rate to fall for the first time in 3 months to its lowest level in over 2 years at 4.9%. The large boost in full-time jobs over part-time jobs made this number particularly bullish. In Canada, the CAD was little changed as traders squared their positions ahead of tomorrow's domestic employment data. Canada created an average of 40,000 jobs per month over the last five months, but with February's lackluster gains, market players are keen to see if the February lull was temporary.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4318            USD/CHF     0.9179

GBP/USD    1.6334            USD/CAD    0.9579

AUD/USD   1.0497            EUR/CAD     1.3711

NZD/USD    0.7785           GBP/CAD     1.5643       

USD/JPY      85.23             USD/MXN    11.7674  

DJ FX Trader Roundtable

Best-selling author John Mauldin, Brown Brothers Harriman's Marc Chandler and Roubini Global Economics' Christian Menagatti discuss, among several topics, the future of the euro and how long the U.S. dollar will retain its global-reserve status.

USD/Yen Technicals

Morning Currency Wrap for Wednesday April 6, 2011

A Contrast Of Interest Rate Expectations - The Euro surged higher and breached the 1.43 level as the countdown to the first ECB hike since 2008 begins. Adding credence to the hike was strong German manufacturing. Industrial new orders in Germany surprised to the upside, rising 2.4% on the month in February, lifting the annual growth rate to +20,1%. The rise in the Euro came despite rising Portuguese bond yields across all maturities as Portugal raised more than a billion Euros in 6 and 12 month bill auctions. This all come down to a contrast of interest rate expectations - the ECB is hiking, the Fed is approaching neutral, and the Bank of Japan is negative. The only question for the Euro remains is this a one-and-done rate hike or the beginning of a series of rate hikes. In the UK, the GBP came off yesterday's high after weaker-than-expected round of manufacturing output and industrial production data for February, damping speculation that the Bank of England may increase borrowing costs. In Asia, the Bank of Japan begins its 2-day monetary meeting today and it main objective is to boost liquidity measures. It is considering offering a credit program to spur banks to lend to companies with cash-flow shortages in the wake of a magnitude-9 quake and tsunami on March 11, in part to avoid companies from going under. The take away from this is that the BOJ will stick to its ultra-loose monetary stance, which will encourage the Yen carry trade. For evidence just look at the Yen's recent performance, it is threatening to breach key long-term support levels against most currencies, and has already fallen to a 2-1/2 year low against the AUD. Elsewhere, yesterday's Chinese rate hike has already been shrugged off by the market as the reaction to subsequent hikes are less and less when compared to the first one. In Canada, the CAD continues to march higher underpinned by firm oil prices, higher commodity prices, risk on trade, merger and acquisition flows, a leverage play on the US recovery, central bank reserve allocation and expectations that the Bank of Canada will raise interest rates in the months ahead.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4302            USD/CHF     0.9177

GBP/USD    1.6299            USD/CAD    0.9587

AUD/USD   1.0416            EUR/CAD     1.3715

NZD/USD    0.7778           GBP/CAD     1.5626       

USD/JPY      85.30             USD/MXN    11.7975  

Chinese Rate Hike Today

For the second time this year and the fourth time since 2010, the Chinese government raised interest rates by 25bp, bringing its lending and deposit rates to 6.31% and 3.25 %. For a more detailed analysis of China's latest move to combat inflation please read here.

1 in 7 Chance of Euro Zone Breaking Up

The headline in this Telegraph article is misleading because if you read the article it does say that there is a 50% chance that the euro zone will stay together.

Morning Currency Wrap for Tuesday April 5, 2011

Portugal Downgrade & Chinese Rate Hike - The Euro was knocked off its five-month high perch after Moody's Investors Service downgraded Portugal's long-term government bond ratings by one notch to Baa1 from A3 and placed the rating on review for possible downgrade, saying debt problems on the euro zone periphery may prevent the European Central Bank from raising rates three times this year, which the market is pricing in. Also, there were reports that one of Portugal's biggest banks threatened to stop buying its government's debt, instead urging the caretaker administration to seek a short-term loan. Meanwhile in the UK, the GBP jumped after the purchasing managers index for the services sector unexpectedly rose to a 13-month high. The data is unlikely to convince the Bank of England’s Monetary Policy Committee to hike its key lending rate on Thursday, but since the services sector makes up over 70% of GDP it and increases the likelihood of a rate hike in May. In Asia, the People's Bank Of China raised the 1yr deposit rate by 25bps which took the sails out of the AUD's latest uptrend. Also, the Reserve Bank of Australia keeps rates unchanged at 4.75% after Australia suffered its first trade deficit in 11 months, mostly due to the economic fallout of the flooding in Queensland. Meanwhile in Japan, the USD/Yen is headed toward the 85 level after rumours that the Bank of Japan is considering offering temporary loans to banks to aid companies with cash-flow shortages following the March 11 earthquake. In the US, last night's speech by Federal Reserve Chairman Ben S. Bernanke didn't yield any new views. He basically said that inflation must be watched “extremely closely,” but that he felt that the current uptick in inflation was transitory, which in Fed speak means that he thinks that they are temporary in nature. I wouldn't expect any new revelations in today's release of the FOMC minutes. Interestingly, the Wall Street Journal reports that Goldman Sachs economists don't see the Federal Reserve raising short-term rates until 2013, which is well beyond what markets currently anticipate. In Canada, the CAD has firmed against the USD this morning despite slightly lower oil prices and slightly higher risk aversion due to China's rate hike. The market is waiting for Friday's employment report for Canada and until then it will take its cues from the equity markets.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4167            USD/CHF     0.9245

GBP/USD    1.6238            USD/CAD    0.9654

AUD/USD   1.0326            EUR/CAD     1.3681

NZD/USD    0.7693           GBP/CAD     1.5677       

USD/JPY      84.67             USD/MXN    11.8634  

Money In Motion, April 1, 2011

CNBC's Melissa Lee and the Money In Motion traders look at how investors can make money in the currency markets.

Euro & Pound Benefit From Ailing Dollar

With Federal Reserve chairman Ben Bernanke speaking later Monday, and UK and ECB interest-rate decisions due Thursday, the future direction of sterling and the European single currency should become clearer.

Morning Currency Wrap for Monday April 4, 2011

Men With Mics = Talking Up Your Book - There are no less than 7 central bank meetings and 9 Fed officials scheduled to speak this week, which means they will all be given a microphone and a platform to talk up their books. Talking up your book is a phrase given to financial market professionals who appear on "bubble vision TV" such as CNBC or BNN and recommend storks, bonds, currencies, or positions that they hold so that they can then sell them to the listener and be done with them. That's what all these men will be trying to do this week - the 7 central bankers will try to give their guidance while the 9 Fed officials will continue the verbal jawboning between hawks and doves so that the speculators can't all pile in on one side - so expect currency volatility this week. The most important central bank meeting this week belongs to the European Central Bank on Thursday April 7, which should deliver its first rate hike since 2008. The Euro could be setting up a buy the rumour sell the fact moment, in fact I will switch from long to short in the Euro if during the post ECB press conference ECB President Trichet signals that the next rate hike is not as close as the market expects. In the UK, the GBP was up due to better than expected UK construction data and on news that Vodafone' deal to sell a stake in France's SFR will mean positive currency flows into the GBP from the Euro. In the US, last Friday's speech by William Dudley, president of the New York Federal Reserve Bank poured cold water to the notion that the Fed would end QE2 earlier than expected. Also, the market went ga ga about Friday's US jobs data but when you looked at the more detailed data you would have seen that over half of the jobs created were from the birth death model, which is a statistical guess, thus caution is warranted. Elsewhere, look for the commodity darlings of the currency world, the AUD and CAD, to continue to carve out new highs on the back of monetary policy and global growth. Both central banks will probably hint that they will be switching from neutral to tightening during the week. Also with the risk on trade in full bloom, both currencies will be viewed as a leveraged play on the continued growth of the global economy.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4246            USD/CHF     0.9218

GBP/USD    1.6182            USD/CAD    0.9668

AUD/USD   1.0363            EUR/CAD     1.3771

NZD/USD    0.7674           GBP/CAD     1.5646       

USD/JPY      83.95             USD/MXN    11.8415  

The Week Ahead by MarketWatch Videos

Asia's Week Ahead: BOJ To Update Tankan Survey
April 1, 2011
Japan's central bank supplements this week's tankan survey, taking into account post-quake responses, while the Reserve Bank of Australia reviews its policy interest rate. Marketwatch's Phani Kumar in Hong Kong looks at the week ahead.



Europe's Week Ahead: ECB, M&S in Focus
April 1, 2011
European Central Bank interest-rate decision, Marks & Spencer trading update and Air-France KLM March traffic next week in Europe



U.S. Week Ahead: All Eyes on Oil
April 1, 2011
Oil prices continue to rise on geopolitical uncertainty, but will the unrest in the Middle East threaten supply? Kelsey Hubbard talks with MarketWatch's Steve Gelsi about next week's key inventory report.

Forex Measuring Stick for Week Ending 1/04/2011

Where Dollar Goes in Q2

The dollar had a tough Q1, and the trend may continue in Q2, with CNBC's Rick Santelli; Jim Iuorio, TJM Institutional Services; and Axel Merk, Merk Investments.

Currency Humour

Morning Currency Wrap for Friday April 1, 2011

Drum Roll Please, And The Number Is - The news that the market has been waiting for all week is today's US jobs data and here it is - the economy created 216,000 jobs in March and the unemployment rate dropped to 8.8%, which are both better than expected. All week we have been subjected to happy talk from various Fed officials pretending to be hawks with visions of removing monetary stimulus. All I can say to this is show me the rate hike. Talk is cheap, truth is the Fed is still a year away from an actual interest rate hike, in my humble opinion. The Fed member that we have not heard from this week is New York Fed President, Dudley. I'm most interested in hearing what he has to say because he is the most dovish so if he changes his tune then perhaps the Fed is closer to removing monetary stimulus. Back to the markets, the Yen fell through its 200-day moving average against the US as interest rate differentials weigh on the Yen. In essence, Japan is the only country that will continue with its ultra loose monetary policies because of the fallout of the earthquake, tsunami, and nuclear reactors situation. In Europe, the "tiffing Euro", as its being referred to due to its resilience in the face of the continued European sovereign debt crisis, continues to remain well bid ahead of its April 7th rate hike. In Canada, the CAD continues to push higher after positive US jobs data because good news for the US is good economic news for Canada, its largest trading partner. Also, stronger US jobs data provides a bit more of a lift to commodity prices in general. In fact, oil prices rose ahead of today's data which also lent support to the CAD.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4112            USD/CHF     0.9293

GBP/USD    1.6014            USD/CAD    0.9658

AUD/USD   1.0353            EUR/CAD     1.3637

NZD/USD    0.7633           GBP/CAD     1.5470       

USD/JPY      84.25            USD/MXN    11.8442