Wake up wake up read all about it ……….Fed gives green light to Forex markets to sell US Dollar.

Where as the Japanese have used billions of dollars ( Trillions of Yen) in intervention to keep the Yen from strengthening the US Federal Reserve have managed to put the US dollar on the skids without using a cent.
Yes the selloff in the US currency continues as pretty much all events conspired to weaken it. The FOMC minutes showed the Fed to be concerned about Deflation and pointed as expected to further quantative easing. The equity markets also finished the week on a high as risk appetite improved . All this saw the US Dollar index fall under 80 and the biggest beneficiary the Euro head towards 1.3500.
Without lingering doubts about the weaker Euro members we could be talking about a year end 1.60 Euro Dollar which might seem fanciful but no more so now than year end predictions of 1.15 which many banks still have posted by their economists.
While I am not predicting 1.60 it really does look like we are in for a period of dollar weakness and I suspect it has caught much of the market off guard. So what could prevent this? Well equity markets could take fright, the Irish, Greeks, Portuguese or Spanish could spook the Euro but for the time being that’s not happening.
So for the weeks ahead at any rate expect the US to win the Competitive Devaluation race and with the technical picture also looking bearish we could be at 1.40 within a week or two.Most would love to see a pullback to get long Euros so that becomes less likely.
Elsewhere the Canadian and New Zealand dollar lagged the Ausie dollar which should continue. Gold finally broke the 1300 US Dollar level and Sterling lost ground against the stronger Euro . This too can continue if the Euro dollar continues to power ahead.

Finally congratulations to Ed Miliband who became leader of the UK Labour party. He is just the leader that the Conservative party would have chosen. Apart from lack of experience, a drab personality and generally the 2nd choice of all but Trade Union voters he looks the perfect choice to lead the party ( I give him 2 years)

The Currency Devaluation Race gets underway and the Japanese prove they Kan intervene

The Race is on in the currency markets- Who can devalue their currency quickest. This weeks winners are the Japanese with the intervention inspired losses ( up to 1.5 trillion yen this week in intervention). The new government of Prime Minister Kan surprising the market and pushing the yen to 85:70 against the USD and almost 113 against the Euro at one stage.
Next comes the US Dollar with the Goldman Sachs inspired view that the Fed will begin Quantative Easing again in November.
Last comes the Euro up from 1.2800 to 1.3050 having touched 1.3150 against the USD,closely followed by the British pound.
All in all a very interesting week with a conclusion that this race will have further to run. The Chinese of course are also in the race but play to different rules. However the overriding theme seems to be that with sluggish growth a continuing reality a weaker currency will help, a stronger one will not.In a nutshell completive devaluation
I think this is something that may well override all other factors as an influence on forex markets.Certainly while the Japanese surprised the market and despite the intervention being uncoordinated with other central banks they do appear to be serious. Whether they can win or the US dollar will overtake them in this devaluation race remains to be seen. One suspects that the market will want to test their resolve of the Japanese
As things stand a move through the 1.3350 level EUR/USD could see that pair back to the 1.40 level very quickly. Many year end predictions of 1.15 or thereabouts could suddenly look very silly. Technically the dollar index which has fallen under support at 81 looks vulnerable and a move below 80 would indeed be bearish.

As far as the Euro is concerned its case of some good news some bad. A compromise on the Basel 111 bank accord helps the European banks(To become known as the Basel Brush) .Spain enjoyed a successful government bond auction at better levels than previously.Greece survived the European Road show by Finance Minister Papcontantinou who did little to help or damage sentiment. However, Ireland`s banking debacle seems to be draining the life out of the country with every day. This really is problem that just seems to be impossible to close out and spreads in the 10 year Bond finished the week at record levels against German Bunds possibly preventing any further Euro strength against the US dollar.

So where to from here ? The answer is that the markets will need confirmation of the Federal reserves intention to buy bonds and I suspect that no one in the US will shed tears if the dollar weakens and can help exporters. In Japan while intervention does not always work it would seem unlikely that a new government will want a failure at such an early stage of their tenure and the market may yet be surprised at the level of intensity of intervention to follow. There could be several rounds of heavy Yen selling to hit the markets without the blessing of anyone outside the country.

So who could be the losers and see appreciation ………well the Swiss of course although it faired less well this week, commodity currencies (Ausi Kiwi Can$) and possibly Gold.

Forex Markets Continue Narrowly Mixed

That old saying which means that generally forex markets were somewhere between a haircut and a walk around the block in terms of excitement.
Aside from some strengthening of commodity currencies (Ausie and Canada dollar) there was very little for the forex market to get its teeth into. Equity markets continued to edge up which helped risk sentiment.
The Euro suffered a little at the beginning of the week as some weaker members saw their government bond markets edge a little worse( Ireland Greece Spain and Portugal) Also a Wall Street Journal article pointed out some European banks may not have stressed themselves enough in the European Bank stress test.
There was no real exciting data anywhere so we plod on into September with volatility creeping lower.I continue to believe that equity markets will kick start any major currency trends. In this respect I favor if anything a move higher in equities some time and some pressure on the US Dollar. However, as I mentioned last week my only proviso is keep an eye on Greece Ireland and the others for any real signs of trouble. Last weeks mini wobble was nothing and things may be quiet for while.

Easy………. Equities Up Dollar Down, who cares what the stats are

It was yet another week where mixed statistics mattered little to forex markets as they continued the recent trend of following equity markets.In fact if things stay as they are all forex traders will need to complete a quick learning curve on what is driving stocks and act accordingly with the dollar. Of course this will all stop one day but right now that is certainly how the dollar seems to trade. So if the key is equities, where do they go? Well probably still range bound which is pretty useless information. However, there seems to have been a continued move out of stocks and into bonds. Double dip talk also continues so all in all shares have held up pretty well and certainly if all the gloom lifts a little a year end rally for stocks could happen with the US Dollar retreating in the other direction.
Elsewhere The Ausie dollar won the weekly strength award on better GDP ( Gross Domestic Product) numbers and building permits. At the other end of the scale Sterling faired worst. Following recent better data on growth the reality of up and coming austerity measures due in a few months have led to some institutions  to flag a weaker pound.

Finally a note about the weak parts of Europe. Firstly Ireland where a poll this weekend has 75% of people expecting that Allied Irish Bank losses will eventually bankrupt the country and bring down the government. For those who are interested this bank has already cost the country 22 Billion Euros and estimates are for a final figure of 35 billion or maybe even more.Those fears may well be overdone (although try telling  the bond markets that) but undoubtedly the Celtic Tiger has been well and truly stuffed.
Greece has been sidelined for a while but last weeks ban on smoking will not stop them from going up in smoke either. Don´t chuck away your packet of filterless Papastratos (Παπαστράτος) just yet, or your box of Hamlet cigars, for that matter.
All this is intended to remind you that we will get round 2 of a Euro wobble at some point and that could stop any dollar rout in its tracks, to be sure to be sure as they say.