Thread: Finexo Forex Updates

Market Comments

A true whirlwind of developments this weekend, as the markets last week made it painfully clear to global officialdom that they better deliver the goods, or else. And indeed, we saw the powers that be coming through with the most dramatic and far-reaching measures yet. Some highlights of this weekend's developments in bullet form:


- The G-7 issued a broad statement of intent, saying that it would use "all available tools to support systemically important financial institutions and prevent their failure" as well as pledging to take decisive action and "all necessary steps" in this crisis. Critics point out rightly that the communique was a bit vague, but the clear intent to shore up the interbank market is there and importantly the clear intention is to "avoid another Lehman" as well. We'll inevitably see follow on measures to this communique in the coming days and weeks.


- EU leaders met already on Sunday on a coordinated plan aimed at guaranteeing all bank debt issues until the end of 2009 with maturities up to 5 years and avoiding failures of large banks by recapitalizing any banks in distress. The coordinated statement from all 15 EuroZone members at the weekend's summit was a key signs that the EuroZone countries are able to operate together effectively when the market forces them to do so (this was after the previous week's clearly uncooperative German stance). As long as risk appetite remains robust in the short term, this will boost the EUR. It was precisely the lack of such signs of coordination that weighed most heavily on the EUR previously.

- The UK govt. is rolling out its plan to recapitalize banks this morning. Under the plan, RBS, HBOS will be effectively nationalized and Lloyds TSB and Barclays will also receive government funds. Of the major British banks, this leaves only HSBC, which is seeking to avoiding the plan altogether. Apparently, the HBOS/Lloyds TSB merger is in flux today and this is weighing on GBP, as is the possibility that trading in key banking shares may be suspended this week as the government rolls out its capital injection/takeover plan.


- Australia announced that it will guarantee all bank deposits for 3 years in an effort to shore up confidence in Australian banks. This move and the generally recovering risk appetite have boosted AUD to open the week. AUDJPY is already over 5% off recent lows.


- The US Fed and the major European central banks to offer unlimited dollar funds at 7, 28, and 84-day maturities. This measure is important as it addresses the shortage of USD funding - especially for European banks that need to roll their debt - that has been one of the key drivers of the recent leg of USD strength.


- Japan over the weekend suggested that it would be willing to loan the IMF some of its enormous FX reserves to help out with emergency loans to emerging markets countries that also need to bail out their banks. With the move to healthier risk appetite to open the week, the EM currencies - which were hit the hardest last week - have also been the quickest to move stronger this morning.
- The Lehman CDS settlement on Friday went more smoothly than feared. This enormous settlement to the tune of $400 billion ended up, after netting, only involving the transfer of something like 2% of the settlement amount.


- Norwayannounced a massive NOK 350 Billion government bond swap facility that will allow Norwegian banks to swap collateral (including, importantly, mortgage-backed securities) in exchange for government bonds. This and the bounce in oil is seeing a recovery in NOK after EURNOK peaked at 8.500 overnight.

- US Treasury Secretary Paulson is apparently accelerating plans to guarantee US bank debt. The original TARP provisions seemed to only discuss the lifting of bad debt from bank's books by buying it on the open market, but apparently there are enough back doors in this legislation to expand its implications into this kind of bank guarantee and to other areas as well. This is important, as the US could be vulnerable in a situation where Congress is out of session and campaigning for election while the rest of the world is enacting similar bank debt guarantees an other measures that would set up the potential for arbitrage - so it is probably an important background support for the USD further out that the bank debt guarantee idea is on the table.

Let's hope that the risk appetite continues to recover this week. Tomorrow will offer better market conditions for judging the real market sentiment, as Monday was a holiday in Japan and is also a banking holiday in the US, with the bond market closed while stock markets will be open. Also, we dare not contemplate the longer term fall-out of this crisis at the moment, but we will be forced to in coming weeks as the white knuckle environement eventually begins to calm somewhat. For now, we'll take one day at a time and see how the new sweeping measures enacted daily by global officialdom are acting on risk appetite and those all important credit spreads.

FINEXO MARKET COMMENTS

We thought the Lehman CDS settlement issue was behind us after last Friday's auction, which was actually not the settlement, but only the auction intended to determine what Lehman's senior debt was worth in order to determine how much credit protection sellers would have to cough up in the estimated $360 billion settlement. Apparently, the fall-out from the situation is not over with - while it was initially stated that only a few billion dollars will need to change hands, other sources now claim that the real figure is closer to $250 billion (source of this information is an article over at the Telegraph from the incomparable Ambrose Evans-Pritchard). Have a look at this article for the moral hazard angle as well (AIG - i.e., the US government, having to pay up for the Lehman CDS that it insured.) And next Tuesday is when the actual settlement of the Lehman CDS' takes place after last Friday's auction. So it will be interesting to see if liquidation pressures can ease after that date and whether a more sustainable rally in risk appetite could unfold.

The more generalized problem here is that Lehman was just one of hundreds of companies in which CDS are actively traded - and this is causing a wider problem in financial markets. The opaque world of $55 Trillion in CDS contracts means that any counterparty may be on the hook for untold billions if a company goes bankrupt. This situation shows why Warren Buffett called them financial weapons of mass destruction. One wonders if the authorities can step in with some kind of new transparency rules or further "tear ups" to eliminate this risk to the financial system. This will be a key area of focus going forward.


The Philly Fed survey rolled in yesterday at an abominable -37.50, the lowest level since 1990 and indicative of a sharply contracting manufacturing sector. This and the recent Empire Manufacturing number suggest that the ISM for October is shaping up as possibly the worst since the 1990-1 recession as well. The ISM Non-manufacturing number is actually more important as the US economy is predominantly a service economy. This number was miraculously still levitating around 50 the last time around, but is likely to see a sharp drop this month as well. US economic data today includes Housing Starts (can builders really be kicking off the construction of an annualized 872,000 new houses in this economic environment? We wonder about these numbers sometimes. The Sep. number should be bad, but the Oct. number is likely to be shockingly so.) An "as expected" reading would show new housing starts at the lowest since the early 1980's, when the population was 25% smaller. The NAHB Index measure of interest in new houses plummeted to a new record low in the 23 years of the survey.


Also out later we have the preliminary October reading for the University of Michigan Confidence. It appears from the weekly numbers that confidence is "double-dipping" as the initial bounce in confidence may have only been related to gasoline prices and the average consumer now has much larger things to worry about with this credit crisis quickly spreading to the real economy.


Yesterday showed a healthy rally attempt in the equity markets after a nominal retest of recent lows (missed by a few percent, but that's not much these days.) Still, the outlook is far from stable here, and we would have to recover enormous ground to bring this market out of the bearish trend in risk appetite - so any guesses at a rally are simply that for now. We still don't have enough of a contraction in the various credit indicators to build any serious hopes for a rally just yet.


Along with the rally in risk came a rally in crude oil, though only after crude scratched to new lows below 70 dollars. OPEC is out promising to cut production next week and US crude and gasoline inventories are building strongly after a recent supply scare. At these levels, the crude oil price is becoming destabilizing for various exporting powers as their expectations and budget expenditures grew quickly with the risk in oil prices over the last several years. The supply/demand equation will be very interesting going forward. A continued oil rally may provide for a large enough sell-off in USDCAD for brave participants to find new entry levels for longs. EURNOK is also well of its highs, but so far, these moves are relatively small compared to recent trends.


Technical levels to watch in the bigger picture are: 103.00-50 in USDJPY for risk appetite rally (we're in the red zone in risk as long as this area holds as resistance. For the status of the USD rally, we would focus on the 1.3350 area in EURUSD first. This was the low yesterday and comes in below the 200-week moving average - now around 1.3375 at which the pair closed last week.


As every, be very careful out there.

Forex market updates by Finexo

JPY stronger again after odd-ball 20 bp cut. USD also plows stronger as recent EURUSD rally was apparently just a short squeeze.


End of month fixing madness may make for hairy trading environment today. Consumption drop in Q3 US GDP number bodes ill for Q4 growth tallies.


MAJOR HEADLINES – PREVIOUS SESSION


* Japan Sep. Jobless Rate out at 4.0% vs. 4.2% expected
* Japan Sep. Household Spending out at -2.3% vs. -4.0% expected
* Japan Oct. Tokyo CPI out at 1.2% YoY vs. 1.3% expected
* Japan Sep. National CPI out at 2.1% as expected
* UK Oct. GfK Consumer Confidence fell to -36 as expected and vs. -32 in Sep.
* Australia Sep. New Home Sales fell -1.8% MoM
* Japan BoJ Target Rate lowered 20 bps to 0.30% vs. -25 bps cut expected
* Japan Sep. Annualized Housing Starts rose 54.2% YoY vs. 52.0% expected
* Germany Sep. Retail Sales fell -2.3% MoM vs. -1.0% expected

THEMES TO WATCH – UPCOMING SESSION

Events Today:
* EuroZone Oct. CPI Estimate (1000)
* EuroZone Sep. Unemployment Rate (1000)
* Switzerland Oct. KOF Swiss Leading Indicator (1030)
* Canada Aug. GDP (1230)
* US Sep. Personal Income and Spending (1230)
* US Sep. PCE Core (1230)
* US Oct. Chicago PMI (1345)
* US Oct. FinalUniversity of Michigan Confidence (1400)

Market Comment:


The Bank of Japan was apparently trying to send some kind of message to markets overnight by only cutting 20 bps rather than moving in the usual and expected 25 bp increment. One can only imagine that they are trying to leave room to be able to cut 10 or 15 bps at a time, but they have so little yield left with which to work that the entire exercise is rather silly. In any case, the JPY hardly budged and its strengthening again late in the Asian session on nosediving equities suggests that the recent rally sequence in JPY crosses was mostly a short squeeze (this may be the case across markets really, combined with the equity/bond rebalancing we discussed previously). Still, one wonders whether we will be able to do much more than go back and test recent lows in some of these JPY crosses as the BoJ will undoubtedly be lurking the next time the action heats up. Still plenty of room on the downside between here and there.

UK confidence was out overnight at the lowest levels since the oil crisis of 1974. And yet GBP has remained relatively bid in some of the crosses - especially vs. the Euro. One focus for the Euro of late has been its vulnerability relative to the turmoil in CEE currencies and it was notable that as these turned sharply south yesterday, so did EUR. Also weighing on the Euro are the divergent yields on various countries in the EU, what some have called the PIGS spreads (The yield on paper from Portugal, Italy, Greece, Spain vs. that of German benchmarks.) Still, with the JPY and USD moving stronger again, GBP is likely to stay on a weak footing against these currencies. With things looking so dire on the sceptered isle, many are talking up the possibility of the BoE moving by 100 bps next week.


Up today we have the final regional US manufacturing survey with the Chicago PMI. The other regional surveys have been awful this month and could set up the worst ISM number on Monday since the early 1980's. The trends are all pointing to a truly ugly Q4 GDP picture for the USA: First, the strong export market was propping up US growth numbers previously, but the financial and economic implosion unfolding in EM and elsewhere have put an end to this phenomenon. So the slightly better than expected Q3 growth numbers still contained a bit of residual strength from the export sector that will not be there in Q4. Also, the Q3 growth numbers showed a sharp deceleration in consumer spending that is clearly deepening into Q4 and the combination will prove toxic for Q4 growth data. Clearly, none of this spells ill so far for the US dollar, where its strength related mostly to the global deleveraging issue - the more mayhem, the more the greenback strengthens, in other words. We're also very curious to see the ISM non-manufacturing data for October next Wednesday as the resilient September number simply defied belief.


The EuroZone picture looks far from rosy as well. Just this morning, German retail sales for September look very weak and we have to consider that unemployment numbers in the less flexible European labor market have not even begun to tick higher in some places while they've already risen by a third in the USA. It's hard to believe that the October unemployment rate for Germany, for example, ticked down to a new low since the integration of East Germany began in the early 1990's - this in an economy that is crash landing....


Liquidity is absolutely atrocious and one should adjust leverage accordingly. At one point this morning in the late Asian session, GBPUSD jumped around 60+ pips back and forth - likely on hardly any flow at all. Today is also the last trading day of the month, which means end of month fixing based on relative market performance around the world and this could mean drastic swings in the 1200-1600 time block in London.


Be careful out there - markets may be more than a bit ghoulish on this Halloween.

thanks for the forex updates does anyone knows finexo or have any experience with this forex broker?

Hi there,

Thanks for your appreciation. I am trading with Finexo.com last 2 years and seen major developments with this broker. You can open live account with just $25 and trade on 50+ currencies. The Pip charged is as low as compared with other broker.

Also the forex updates and recommendations have being improved tremendously. But the only thing i dont like is that as most of the broker provides it does not provide market analysis for minor pairs.

Regards

Hi,

The forex updates are:

BOE cuts massive 150 bps and sends GBP on a roller coaster ride. US employment report out today likely an ugly one.

BOE takes a machete to rates


Yesterday the BOE decided to one up the market with an enormous 150 bp whack to the overnight rate. Expectations had moved from 50 to well over 75 bps on average, but the huge move was certainly not priced into the equation. At first, the market didn't know what to do with this announcement. A knee-jerk selling move that one might expect was the first order of business, but then a huge rally in GBP materialized within minutes, perhaps due to our argument yesterday that a central bank trying to help the economy is better for the currency than one that is dragging its feet, interest rate differentials aside. Alas, the pound ended the day on a very weak note as risk aversion set in and equities sold off. GBPUSD was dragged to a new low overnight and EURGBP was up trying recent highs (BOE rates are now below ECB rates for the first time ever.). Some argue that this puts the BOE ahead of the curve, but we could also argue that the Bank is really only playing catch-up to where it should have been on the curve a long time ago. The numbers rolling in for the UK economy are awful and there is no relief in sight. That said, the GBP short positioning is already very extreme, and there is huge rally potential in GBP if the market sees any sudden rally in risk appetite.


SNB surprise and ECB foot-dragging

The SNB also came out of the blue to cut by 50 basis point simultaneously with the BOE announcement, and this fact fed into the idea of a "coordinated" cut from all of the European central banks and perhaps as much as 100 bps from the ECB, as Euribor contracts spiked out of control ahead of the ECB's actual announcement. But the ECB only moved by the relatively sedate and foot-dragging 50 basis points. At the press conference, Trichet professed a more pronounced negative view on growth now and said inflation pressures are easing, with the ECB seeing price stability in 2009, but no risk of deflation. Considering the ECB's profoundly misguided move in July of this year to hike rates, we can put any projections from this group of characters right into the shredder. The ECB is in complete rear-view mirror mode. Miraculously, the ever-vigilant president declared that the EuroZone was not in a credit crunch. Is that why we have seen a 1.3 trillion Euro bank bailout? The chairman did not rule out a further rate reduction at the December meeting, which in all likelihood will come to pass. The ECB's behavior is not bullish for the Euro...nor was yesterday's -8.0% month-on-month drop in factory orders for September from Germany. Decelerating growth prospects indeed.

US Employment Report


All eyes today on the US employment report. We have a gathering storm of negative employment-related data of late and could see the worst US nonfarm payrolls number today since -300k levels were notched in 2001. Weekly initial jobless claims, mass layoff indicators, the ADP poll and the ISM employment subcomponents are all pointing the same negative direction. Baseline expectations for the payrolls figure, according to Bloomberg consensus, are running around -200k, but we could easily come in well below this. The unemployment rate is expected to jump to 6.3% from 6.1% last month. This would match the high from the last cycle in 2003, but as we have discussed before, the employment situation is far worse this time, especially underemployment. Obama is going to have to create enormous numbers of jobs in the coming years to keep this rate from hitting 8.0% eventually.


CAD too strong?


The employment data for Canada is also up today. CAD has been far too strong of late due to a large M&A deal and we'd like to find a way to short it in the crosses - perhaps AUDCAD or EURCAD? Consider short CAD trades in general, and especially if the employment report shows any sharp deceleration with the other eye on energy prices, after yesterday saw a new 18 month low in crude. History tells us that the Canadian and US economies are tightly coupled and the Canadian unemployment level only started ticking up in February of this year, compared to spring of 2007 for the US unemployment numbers. That's a lot of catching up in the pipeline.


Today a pivot day.


Despite the foreboding ahead of the US employment report, our "sixth sense" feels a bit uncomfortable in the shortest term looking for big further moves in risk aversion right here. The JPY crosses showed a lot of stability overnight considering the ugly close in the US and the AUDUSD consolidation has been very shallow, suggesting a background bid in risk. Still, let's see how the US employment report comes in and the market's reaction to it for a better read on where we may be headed next week. Today could be an important pivot day for risk.

EUR/USD Chart analysis

I revisit the EURUSD chart for the umpteenth time lately. The 21-day SMA (in blue on the chart below) held miraculously once again on Friday and now lies at 1.2775. Clearly, the bulls will need for that one to give way before generating any upside argument. Meanwhile, the daily trading ranges are constricting a bit, and the bears need for 1.2400/1.2330 to fall for another leg down and perhaps a try at the 1.2000 area initially. We lean to the downside argument for now.

Hi there,

Here are some forex market comments.

Currencies followed the pattern one would generally expect lately as Wall Street staged another sharp and impressive rally which saw the major averages up as much as 17% from Friday's lows. EUR/USD and EUR/JPY were higher and the commodity currencies were the star performers, with USD/CAD swooning as much as 400 pips on the day. JPY crosses were the hardest hit as one might expect. Now, with the first layer of resistance breached, we try to determine how long this move can extend. Counter-trend rallies are difficult to gauge and very difficult to trade. Our overwhelming conviction is that the world is headed for more trouble in the medium term and that we still haven't priced in the extent of economic malaise and the deleveraging that is still in the pipeline. US Treasury Secretary, Henry Paulson and his team are busy trying to focus more on the consumer right now. This is because it is clear that the liquidity injections are stopping at the vaults in the banks and not reaching out to consumers, an unanticipated consequence of their prior efforts. We have to wait and see what they come up with next.

The UK's Darling was out with the UK pre-budget report yesterday, which, as we mentioned yesterday, contains an odd mix of promises to stimulate the economy through various short term measures but also talks up plans for fiscal austerity down the road to stem the avalanche of red ink that the shortfall is tax revenues will generate. The expected plans to cut taxes on companies' foreign dividends were also a part of the report. All of this seems to be an effort to ensure foreign holders of large amounts of sterling not to liquidate their holdings as the UK fiscal situation looks precarious at best in the years to come. Looking at the EUR/GBP cross, it doesn't appear that investors are especially comforted so far, and we would need sub 0.8330 level to even discuss the idea of a rebound in the pound.

Our conviction is that EUR is still way over-priced in the bigger picture. When these bouts of risk willingness hit the market, it seems that EUR should be a much smaller beneficiary than it was in the kind action we saw yesterday. Yes, EUR was not as strong as the commodity currencies at times yesterday, but it should under perform more than it has and some of its strength in the big picture is simply due to premium the market places on liquidity and the fact that much of the Emerging Market trade is versus the Euro. Eventually, the EUR could face a more extended bout of weakness: if there is anything that the past rounds of banking system problems have shown us, it's that European banks were as bad as or worse than their US counterparts, but that disclosure only comes later. Many have estimated that the large European banks are even more leveraged than their US counterparts, so we can only watch and wait for the next cracks to show. Yesterday's German IFO business survey was brushed aside by the market, but it was far worse than expected at 85.7, showing the worst Business Climate sentiment in 15 years and close to the record low just below 85. We also should expect that European Central Bank rates will quickly come into line with BOE and Fed rates, meaning the meeting next week should see at least 50 bps of easing (and ought to see 125 bps, but the European Central Bank has been dragged - kicking and screaming all the way....).

On the technical side, our model of the situation suggests that this is a classic rally within a bear market. Using the US S&P500 as our global proxy for inter market action (JPY crosses, major USD crosses, etc) the maximum this rally can extend and still remain in the "comfort zone" for our expectations is around 900. This could correspond with EUR/USD trying up toward 1.3250 or even 1.3400 on a blow-off and EUR/JPY perhaps toward 130.00 again. Considering our jaundiced view of the situation, though, we would prefer to wait for signs of a reversal and look for ways to short this rally in risk appetite. The first signs of a reversal come in around 1.2715 on EUR/USD (that pesky 21-day moving average) with a more profound reversal evident if the pair trades below 1.2600. Those levels could change slightly if we go on to etch new highs in the short term.

Some have suggested that the moves here late in the month (later than it actually looks because the US Thanksgiving holiday means that most workers are off on Thursday and Friday, so for US markets, the month effectively ends tomorrow.) are due to portfolio rebalancing, an idea we talked about late last month, when the market rallied furiously in the last four days of the month. To repeat the idea is that you buy more of the assets that have underperformed (stocks in October and November), and sell more of the assets that have outperformed (especially bonds in November) in order to get the correct percentage allocations in your portfolio. We would suggest that having been bitten once by rebalancing in October (anyone doing the above enhanced losses dramatically in November), the effect could be far smaller this month. This means that the situation should clear up by Monday on whether this is a sucker rally or a one that has longer legs.

Hi guys,

Here are some more updates by Finexo.
Current Moves in Forex Market

US-China talks yield little.


The US-China economic dialog talks seemed to have mostly centered on shoring up the stability of the financial system, an understandable worry on China's part after all of this turmoil, considering its enormous holdings of US debt. The talks ended with no substantive announcement on Chinese currency. Instead, measures were announced to allow freer access by Chinese banks in the US market and various other "agreements" were likely on electricity generation, environmental issues, etc.. The talks were unlikely to lead to much substantive with Paulson as the lame duck US treasury secretary. We will have to wait for Obama and Geithner and company to see whether the Strategic Dialog framework continues and how combative the president-elect remains on the Chinese currency, after using it as a populist issue in the campaign. Will the Chinese continue to keep the Yuan in this range just below 7.00, or will they allow some weakening of the Yuan to test the Obama team's resolve ahead of inauguration? This is a huge issue.


US employment report


Another fearsome US employment report is on tap for today, as the US economy may have lost more jobs in one month than at any time since the early 1980's. Expectations for the Change in non-farm payrolls are running for a drop of well over 300k. The unemployment rate is expected to jump again, this time to 6.8%. There is nothing to suggest any chance of upside surprise on this data. The question is how dependent the USD is on economic data after yesterday's attempt at a reversal.


CAD under pressure


CAD fell sharply across the board yesterday on another wave of capitulation in crude oil prices and on developments in Canadian politics: as PM Harper convinced the Governor General to suspend parliament until late January in a bid to save his government from a confidence vote and attempt to refocus the legislature on the budget. This was an unprecedented move. Also, the bottom fell out of the Canadian Ivey PMI yesterday, which registered its lowest level in the near 10-year history of the survey. It would appear that a test of the 1.3000 level in USDCAD may be in the works soon.


Market action


Equities sold off sharply later in the US session, and this took the JPY stronger again after the short squeeze earlier in the day had driven the JPY sharply weaker. These markets are indeed treacherous as directional signals last mere minutes before reversing course. CHF also woke up and got back on its old safe haven horse briefly, and EURCHF dipped to test its 21-day moving average again before easing back higher overnight as the equity sell-off failed to turn into a rout. We really need a breakout of some kind that holds to get a better directional indicator.
The parabolic drop in US yields at the long end is due to the clear intention by the Fed and Treasury to try to control the long end of the government yield curve, in an effort to shore up the housing market. The dramatic fall in mortgage rates (due to outright purchase of GSE mortgage debt announced previously and the indication that the Fed will likely monetize debt down the road) has seen a boom in refinancings. US yields are plummeting relative even to European yields all along the curve, and thus not really providing any support for the USD in terms of interest rate differentials. This action looks downright panicky and unsustainable.


Regards

That is informative. thank you. There is very useful articles at Forex Currency movement