Pound Gains in Thin Year End Trading
The pound gained on the dollar and reached a ten day high of $1.6154 in thin year end trading. Year end position adjustments led to a broad dollar sell off benefiting the pound. Sterling declined against the euro which has been the chief beneficiary of the widespread dollar sell off. The exaggerated price movements were blamed on thin trading in currency markets. Geoffrey Yu of UBS stated, “This is just year-end trades. Trade is so thin it only takes a few orders to go through to cause a big movement.” The pound gained 0.4% vs. the dollar trading at $1.6131 and against the euro the pound last traded at 89.27 pence, a gain of 0.1%.
UK Banks to Make More Credit Available
Investors received encouragement from a Bank of England quarterly survey that showed that British financial institutions intend to make credit more easily available to households and businesses during the first quarter of 2010. Pound sentiment remains broadly negative due to concerns about massive UK deficits and an underperforming UK economy. Low Bank of England rates have also pressured the currency. Neil Mellor of Bank of New York Mellon said, “Fiscal concerns are one reason people are starting to get worried about sterling, and if you believe UK interest rates are going nowhere for some time it doesn’t look good for the pound.”
Analysts Say Year End Moves Have Little Meaning
Many currency analysts said that today’s movements had little meaning due to thin trading and there is disagreement whether the dollar’s recent rally is sustainable. The dollar has rallied on recent improved US economic data and speculation that the Fed will raise rates and withdraw stimulus measures. Lee Hardman of Bank of Tokyo-Mitsubishi UFJ stated, “We could some a partial retracement of December’s sharp dollar rally early in 2010, but ultimately further improved U.S. economic data will fuel Fed tightening expectations and support the dollar.” Most markets will be closed over the weekend and Japanese markets will reopen January 4th.
Quick Forex Tip: Selecting a reputable forex broker has been made easy thanks to broker reviews and forex forums on the internet. There are lists of individual forex broker available on the net making it easy for new traders to compare forex brokers. Broker review sites contain the real life experiences of traders who have worked with individual forex brokers and can be a very valuable source of information.
Rising Equities Spark Optimism
Rising equities have lifted higher yielding currencies such as the euro and the Aussie and Kiwi dollars. Trading volumes were thin due to years end and holidays and analysts were loath to draw conclusions based on recent trading. European stocks rose 0.3% prompting year end investor optimism. Christian Lawrence of RBC Capital Markets stated, “With so little in the way of data and not many people around the market has gone back to what it is familiar with and is trading on the back of stronger risk appetite, which is pushing the euro and higher-yielding currencies higher.” Investors showed little reaction to the Fed’s plan to create a “term deposit facility” designed to help the Fed withdraw money from the US banking system when the Fed decides to tighten monetary policies.
Fed Rate Speculation
Investors are waiting for U.S. consumer confidence figures for December and the Standard & Poor’s Case-Shiller home price index for October. Most experts expect the figures to show continuing signs of US recovery. Despite repeated statements by the Fed that interest rates will remain low for an ‘extended period’ many are speculating that the Fed may raise rates sooner than expected. Johan Javeus of SEB currency strategist in Stockholm said, “Anything that points in the direction of the Federal Reserve raising interest rates earlier than previously thought will support the dollar — there has been no indication of this from the Fed but U.S. data recently has been coming in on the strong side.”
Dollar at Two Month High vs. Yen
The dollar rose to a two month high against the Japanese yen as speculation increased that the Federal Reserve will withdraw stimulus measures sooner than expected. The dollar advanced 0.4% against the yen trading at 91.99. Japanese data was limited as many companies close for year end holidays. In recent trading the dollar has risen broadly on optimism that the US economy will continue to recover in 2010.
Quick Forex Tip: Education is very important for anyone interested in forex online currency trading. Many factors influence currency exchange rates including economic reports, political conditions, and market psychology. Fortunately there are many excellent training programs available for free on the internet to help novice traders gain a thorough understanding of forex markets and the fantastic opportunities they provide investors.
Slight Dollar Dip vs. Euro
In early Asian trading the US dollar dipped slightly against the euro but the dollar remains near a three month high against the euro. Stronger US employment figures, the Fed’s positive assessment and higher retail sales data have all combined to boost the dollar in currency markets. Masafumi Yamamoto of Barclays Capital in Japan stated, “The dollar may extend gains a little more as momentum buyers could chase the dollar up while it stays in an uptrend. But gains are likely to slow down, unlike what we saw last week, because many dollar-short positions have already been neutralised by now, and short positions in the euro on the other hand are growing.”
Euro Pressured by EU Banking, Debt Woes
The euro has been pressured by EU banking woes and last week the ECB increased its estimate of euro zone bank writedowns. Euro gains were also capped after ECB Vice President Lucas Papademos said the ECB will not change its plans to tighten collateral rules even if Greek sovereign debt ratings fall below the required A- standard. The euro gained a mere 0.1% against the dollar and traded at $1.4350. Many currency experts are wondering if markets will continue to support the dollar on positive US data or whether optimistic news will prompt investors to sell the dollar in favor of high yielding assets.
Aussie, Kiwi Take Big Hits
Recent big winners, the Aussie and Kiwi dollars fell in global currency markets. The Aussie continued the worst weekly performance among the most traded currencies. The Kiwi hit a one week low but this may be limited due to an expected report that will show that the New Zealand economy grew 0.4% in the third quarter. Khoon Goh of ANZ National Bank Ltd stated, “The markets will now look for any good economic data coming out of the U.S. as potentially signaling earlier Fed rate hikes. The key risk facing the Australian and New Zealand currencies is whether or not the U.S. dollar rally has further to extend.”
Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.
Dollar Gains on Positive Fed Assessment
According to many experts the US dollar is likely to extend its recent gains into next week. The dollar has been supported by evidence of a stable recovery in the US and the Fed’s willingness to withdraw emergency measures in February 2010. Despite the Feds announcement that rates would remain at record lows both factors are contributing to speculation that the Fed may raise rates earlier than expected. Nick of Wells Fargo stated, “We see the U.S. economy continuing to recover and monetary policy settings starting to move back to normal. Although our economics team does not expect actual rate tightening to take place until late in 2010, the withdrawal of non-conventional measures could start tipping the scales in the dollar’s favor.” Assets such as stocks, commodities and emerging currencies that have gained over the course of the year have led to year end profit taking benefiting the dollar.
Ongoing Greek Concerns Pressure Euro
The ICE futures’ dollar index .DXY which measures the dollar vs. a basket of six major currencies has gained since early December but is still down 4.3% for the year. The DXY has fallen 13% since March 2009. For the week the DXY is up 1.9% the best weekly performance since April. The euro was down 2.4% against the dollar this week and on Friday the euro fell to $1.4269 the lowest since September. The euro has been pressured by the Greek downgrade by Standard and Poor’s and Austrian banking concerns. Todd Elmer of CitiFX stated, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.”
Upcoming US Data
This week will bring a slew of economic data from the US. The final estimate for third quarter gross domestic product will be released along with housing data, reports on personal income and spending, and durable goods orders. Most economists expect the figures to support the view that the US is on the road to recovery. All this is expected to be dollar positive.
Quick Forex Tip: The International Currency Trading market has no central exchange like stock and commodities markets. Currency markets are dispersed throughout the world and the primary trading centers are, in order of importance, London, New York and Tokyo. The geographic dispersal means that markets are always open somewhere in the world and traders can jump on the internet and hopefully make very profitable trades at any time of the day.
Pound Reverses Recent Decline
The pound reversed its recent decline against the euro and the yen as UK inflation data weakened arguments that the Bank of England should keep rates at historic lows. UK inflation data was “slightly stronger than expected” according to currency strategist at Barclays Capital in London. U.K. Chancellor of the Exchequer Alistair Darling said that the UK inflation rate is expected to reach about 3% in 2010. On December 10th the Bank of England left rates at 0.5% and kept its bond purchase program at 200 billion pounds. ($326 billion USD) UK Policymaker Kate Barker said she is cautious about increasing the bond purchase program calling the UK economy “bumpy and uneven.” She also stated, “There are reasons to think you wouldn’t want asset prices to go up too far. For me, there’s a bit of caution about how much further I’d like to take the policy.”
Euro Pressured by Austrian Banking Concerns
The euro was pressured by Austrian banking woes which came on the heels of recent Greek fiscal concerns. The Austrian press reported that the country’s central bank and its financial market regulator have put the country’s top cooperative bank on a watchlist. A spokesman for Oesterreichische Volksbanken said the bank is not at risk of nationalization and that the reports were inaccurate. The report prompted concerns about the health of the EU’s banking sector. Earlier in the week the announcement of the $10 billion dollar bailout for Dubai had eased banking concerns. Many European banks are heavily exposed to Dubai debt.
Lingering Greek Fiscal Concerns
Greek fiscal concerns remain despite the announcement of spending cuts by Greek Prime Minister George Papandreou. Tomohiro Nishida of Chuo Mitsui Trust and Banking company stated, “Persistent concerns about sovereign risk in Europe such as those in Greece and softer stock markets are lending support to the dollar.” Investors are waiting for the results of the Fed meeting taking place today and Wednesday.
Quick Forex Tip: Most forex brokers offer those interested in e currency trading training courses and demo accounts. Demo accounts allow new traders to trade in real time without risking actual funds. Many experts recommend that new traders use a demo account until they feel comfortable and confident trading. These trading platforms are available from most brokers. Additionally, there are several trading platforms available for free on the internet, offering access to a wide selection of currency pairs.
Dubai Bailout
The euro rose and the Japanese yen fell on news that Dubai had received a $10 billion bailout from Abu Dhabi to enable the country to pay a $4.1 billion Islamic bond which matures on Monday. Last month the news that the Dubai government holding company Dubai World may default on its debts sent shockwaves through global markets. The news of the bailout lifted risk sentiment in global markets. Jun Kato of Shinkin Central Bank Research Institute in Tokyo stated, “The announcement eased concerns about the Dubai debt troubles to some degree, but it will likely be temporary and the positive impact on stock and currency markets seems to be short-lived.” In November the yen had benefited when Dubai worries were at their height as investors sought safe haven assets. The yen is widely used to fund carry trades and usually rises on risk aversion.
Euro Gains Likely to be Capped
Currency analysts said the euro benefited from the bailout but said gains were likely to be capped due to market liquidity decreases in advance of years end. Kasper Kirkegaard of Danske Markets in Copenhagen stated, “The Abu Dhabi news helped risk sentiment, boosting the euro. The yen suffered from a squeeze (in long yen positions). But we should be careful; the markets are thinning out so we could see some volatile moves.”
Euro Zone Data
Euro Zone economic data released Monday showed euro zone industrial production in October and rising unemployment. European Union statistics office Eurostat said that the euro experienced a month to month fall of 0.6% and a year on year decline of 11.1%. Some economists say that decreased industrial production indicates that euro zone recovery may be prolonged and weak. European Union statistics office Eurostat said of ING stated, “The marked relapse in industrial production in October is a sobering reminder of the fragility of the economic recovery in the euro zone,”
Quick Forex Tip: Selecting a reputable forex broker has been made easy thanks to broker reviews and forex forums on the internet. There are lists of individual forex broker available on the net making it easy for new traders to compare forex brokers. Broker review sites contain the real life experiences of traders who have worked with individual forex brokers and can be a very valuable source of information.
Retail Sales, Consumer Confidence Up
The US dollar gained on the euro and yen as a better than expected retail sales report fueled economic optimism. Equity markets were lifted by positive Chinese economic data prompting investors and traders to seek high yielding currencies and investments. US retail sales rose 1.3% in November as US consumers spent money on a wide range of products and goods. Boris Schlossberg of GFT Forex said, “This is another notch in the belt for the recovery bulls. It is really an unexpectedly powerful number. The report also confirmed what we saw overnight, which was very good Chinese data, suggesting that global recovery is gaining momentum.” The data increased speculation that the US Federal Reserve will raise rates sometime next year although Fed Chairman Bernanke has said rates would remain low for an extended period.
Yen Pressured by Risk Appetite
The Japanese yen fell against the 16 most traded currencies as evidence of economic recovery prompted demand for riskier assets. Some currency analysts predict a shift from the dollar to the yen as a funding currency for carry trades. Michael Hart of Citigroup stated, “We’re shifting decisively into a new trading regime. We’ll see a shift of the prime funding currency away from the dollar to the yen. That will be yen-negative.”
Dollar May Trade on Fundamentals Rather Than Risk
The dollar index rose 0.7% to 76.609 for a weekly gain of 0.9%. The dollar index has dropped 6% so far this year and the Fed’s benchmark rate of 0 to 0.25% has made the dollar a popular funding currency. The risk based trading pattern for the dollar changed last week as better than expected US employment figures sent the dollar higher in currency markets. Andrew Busch of Bank of Montreal said, “That the dollar strengthened against the euro changes this risk-on, risk-off scenario.” He also said trades “will morph into something else.” Many believe that the dollar will trade on fundamentals rather than risk in the near future.
Quick Forex Tip: Education is very important for anyone interested in forex online currency trading. Many factors influence currency exchange rates including economic reports, political conditions, and market psychology. Fortunately there are many excellent training programs available for free on the internet to help novice traders gain a thorough understanding of forex markets and the fantastic opportunities they provide investors.
Bernanke Says Rates to Remain Low
The US dollar has retreated from a five week high after remarks by Fed Chairman Ben Bernanke who said that the US economy is still fragile and that unemployment is likely to remain high. He also dampened speculation that the Fed would raise rates on recent improvements in US employment figures. Last week’s non farm payrolls report showed that 11,000 US jobs were lost in November instead of the 130,000 that had been predicted. Brian Dolan of Forex .com had this to say about Bernanke’s remarks, “Bernanke is emphasizing the weakness and the downside to the U.S. economy. Therefore, he’s postponing interest rate hike expectations. He left a very clear impression that rates will remain on hold.”
Euro Pressured by Greek Downgrade
The euro declined against the dollar after data showed that German industrial output fell an unexpected 1.8% in October. The euro was also pressured by news that Fitch’s rating agency had lowered Greece’s rating from A- to BBB+. A Standard and Poor’s report said that Greece’s banks are Europe’s riskiest. Dubai debt fears lingered after a report said that Dubai World could no expect significant government support. James Hughes of CMC Markets said, “While you’ve got weak data coming out and doubts about Greece and Dubai you will get fickle markets ruled by fear.” Moody’s downgraded six Dubai-linked issuers after concluding that the company could expect no ‘meaningful’ support from the Dubai government.
High Yielders Unchanged
A drop in US and European stocks sent the US dollar to a near one month high against the euro. The greenback posted its biggest gain since June after US job figures showed that US employers cut fewer jobs since the global recession began. Vassili Serebriakov of Wells Fargo stated, “We’ve seen this equity-dollar correlation reinstalled. The key to breaking the correlation is consistently improving U.S. data shifting interest-rate expectations, and outside of payrolls we haven’t really seen that.” High yielders like the Aussie and Kiwi dollars remain relatively unchanged in advance of a speech from Reserve Bank of Australia Governor Glenn Stevens.
Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.
Dollar Rallies on Jobs Data
The US dollar rallied strongly against other major currencies as US jobs figures were much better than expected. Markets had forecast job losses of 130,000 and employers shed 11,000 jobs in November. The figures were so unexpected that some analysts thought they were a misprint. Fabian Eliasson of Mizuho Corporate bank stated, “A jobs recovery is the last piece of the puzzle before we can say we’re in full recovery, so it raises the question that maybe rates will go up sooner rather than later. That’s pushed the dollar higher. “We even thought it was a misprint at first so I want to see more follow through.” He also said that after four straight quarters of economic decline that the jobs figures “almost seems to good to be true.” The US has lost about 7 million jobs since December 2007.
Yen Will Replace Dollar For Carry Trades
Against the Japanese yen the dollar was up 1.6% trading at 89.60 yen and the greenback gained 0.9% against the euro trading at $1.4939 after falling as low as $1.4913. In last week’s trading the dollar fell to a 14 year low against the yen at 84.82 yen. The yen has been pressured by the Bank of Japan’s move to inject 10 trillion yen into the financial system to relieve monetary conditions and stem deflation. The strong yen has had an adverse effect on major Japanese exporters. Many currency analysts believe the yen will replace the dollar for carry trades. The Canadian dollar affectionately known as the ‘loonie’ was bolstered by the addition of 79,000 jobs in Canada five times more than the 15,000 jobs forecast in a Reuters poll.
ECB to Withdraw Stimulus Measures
The euro had been pressured by remarks by ECB President Jean Claude Trichet who said that the ECB will move towards eliminating stimulus measures taken by the central bank to address the recession. Jean-Claude Juncker who heads a group of Euro Zone finance ministers said that the euro is ‘clearly overvalued.’ Junker made the remarks while addressing reporters at a press conference in Luxembourg.
Quick Forex Tip: The International Currency Trading market has no central exchange like stock and commodities markets. Currency markets are dispersed throughout the world and the primary trading centers are, in order of importance, London, New York and Tokyo. The geographic dispersal means that markets are always open somewhere in the world and traders can jump on the internet and hopefully make very profitable trades at any time of the day.
Dollar to Resume Long Term Decline
Many currency experts expect the US dollar to resume its long term decline against other major currencies. The easing of Dubai World fears among investors and financial institutions and an unexpected rise in U.S. pending home resales has spurred a rise in risk sentiment in stock and currency markets. On Tuesday the dollar fell against the euro for the second straight day and the Canadian dollar rose as record gold prices and rising oil prices pushed the commodity linked currency higher. Raw material exports account for more than half of Canada’s export revenues. Amelia Bourdeau of UBS AG stated, “It’s more the type of risk seeking we saw in September and October. There are investors who want to close out these risk-seeking positions and investors who want to get in. So they wait for that pullback and get in.”
Pound Extends Gains Against Dollar
The US dollar experienced its fifth straight monthly drop and fell 1.9% in November. The British pound extended gains made against the dollar on Tuesday and traded at $1.6620 after hitting $1.6647 on Tuesday. Bank of England chief economist Spencer Dale said that the UK appeared to be exiting the recession but cautioned that credit is likely to remain tight. Traders and investors are sitting on the sidelines in advance of the European Central Bank meeting on Thursday. Both groups are also waiting for US non farm payroll figures due Friday.
BOJ Attempts to Stem Yen’s Appreciation
The Japanese yen declined due to a rise in risk appetite and concerns about possible actions by the Bank of Japan. After an emergency meeting on Tuesday the Bank of Japan said it would provide 10 trillion yen ($115 billion USD) in three month funds at a rate of 0.1% in an attempt to stem deflation and shore up the ailing Japanese economy. The Japanese government is trying to stem the yen’s appreciation which is hurting major Japanese exporters.
Quick Forex Tip: Most forex brokers offer those interested in e currency trading training courses and demo accounts. Demo accounts allow new traders to trade in real time without risking actual funds. Many experts recommend that new traders use a demo account until they feel comfortable and confident trading. These trading platforms are available from most brokers. Additionally, there are several trading platforms available for free on the internet, offering access to a wide selection of currency pairs.
