Tuesday update…. Greeks take it up ….to the wire

Not surprisingly all eyes were on Greece yesterday and once again they failed to deliver. The troika seem intent on getting some concrete actions from the Greek politicians before signing off on the bail out. The Euro was sold off across the board yesterday down to EUR/USD 1.3030 but once again is back at our favourite spot 1.3150 this morning. It is at least offering some intra day trading opportunities to supplement the lack of any major directional move. Greece of course will be in the spotlight again and if anything the default chatter has gotten louder.That said expectations still remain solidly for a positive result although time wise the tank seems to be running on empty now. A 24 hour strike today might be the start of further unrest to follow.
Elsewhere the big surprise was the Reserve bank of Australia’s (RBA) decision to leave rates unchanged at 4.25% when a cut was almost unanimously expected. Net result Aus$ above AUS/USD 1.08 and another new high against the Euro. Difficult to know what dissuaded them from cutting but obviously they still feel the economy is still running as well as they would wish.

Headlines

• Equities… Quiet session for stocks as they await Greek developments
• Greece… Agreement to cut 15,000 public sector jobs this year. Probably as before that’s the number of retirees in 2012
• Fitch… Ratings agency cuts Italian banks
• UK…. Still some talk of the Bank of England announcing more QE this week. Would seem a bit premature to me but Sterling could be vulnerable
• Australia… RBA keeps rates on hold at 4.25% surprising markets and sending the currency higher
• Japan.. The Finance ministry confirms that there was some stealth intervention at the end of 2011. That’s no good chaps , no one or the currency noticed it
• France… Just announced December trade deficit of € 5 billion (5.3 expected). Still big enough to show the Euro doesn’t work for them.

Tuesday Update…. Commodities and Equities move higher Currencies quiet

Commodities continued their recovery and helped the Ausie and Canadian Dollar to better levels. Elsewhere things were pretty quiet and EUR/USD has traded in a narrow range and currentlt trades around 1.4375. If past form is anything to go by currency markets will eventually tire of worrying about Greece and the Euro will slowly come back into favour. At present though markets seem reluctent to favour either the Euro or US Dollar.
The Bank of England Quarterly report on the outlook for inflation and growth is not expected to make good reading but most likely will reinforce the view that rates will not be going higher any time soon.Best to stay close to the shore until the picture becomes clearer

Wednesday Update…. EUR/USD hits 1.4715 on slow grind North

EUR/USD made it to 1.4715 overnight but has slipped back since to 1.4660. I make it 50/50 on where we go today but would be inclined to give long positions a trim between 1.4750/1.4800 and look to get something back cheaper. All a bit technical but just seems that it would be a little overextended in the short term.1.50s still very much on the cards but may require a shake out first.
Equity markets have performed well again across the world and I was reminded yesterday that in the US S&P index 50% of company earnings come from outside the country which helps to explain the continued improvement.
Elsewhere the AUS$ hit another all time high against the US$ as 1st QTR CPI came in at 3.3% against an expected 3%. The Ausies are having to live with a currency that has gained mini reserve status as Sovereigns continue to diversify.
In the UK today 1st QTR GDP numbers are due in less than an hour. 1.8% was the consensus although the figure is rumored to be worse. If it is then a test of 0.90 against the Euro looks likely.
US Treasury Secretary Geithner paid some lip service yesterday to the desire for a strong dollar which promptly continued falling.
The Euro continues to ignore the peripheral bond markets. Greek 13 week T Bills yield 4.1%, Germany 30 Year Bonds 3.8%. I know which one I would have in my pension fund.

Weekly Review…US Dollar has another bad week at the office

Last week proved another failure for any remaining US Dollar bulls. Having benefited from uncertainty on Monday regarding the Finnish Election , Greek debt, and the continuing sell off in peripheral bond markets it promptly sold off across the board. It seems that real investors and Sovereigns continue to sell into any US currency rebound. Commodities particularly Gold seem to have endless demand as a hedge against the currency. The Swiss Franc and Australian Dollar along with Gold also saw record highs but closed off their best levels. EUR/USD which fell under 1.4200 briefly extended gains over 1.4600 before closing around 1.4550. Standard & Poor’s negative watch for the US triple A status had little impact. Indeed the US treasure market continues to defy gravity to my mind.ECB President Trichet did seem to try and take the sting out of the EUR/USD by stating that they had not decided on any series of rate hikes. However, the rhetoric has mostly been the opposite and markets seem convinced otherwise
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At the moment barring technical or consolidation rallies the US Currency still seems to have very little going for it. Risk was back in favor with equity markets improving although events in Syria may put dampener on markets next week.
Greek debt restructuring has surely become a when, not if,despite political protestations to the contrary. Indeed the whole saga of bail-outs etc seems to run familiar patterns of denial, denial then acceptance.

It is difficult to know how short markets might be of the US Currency now ,but my instinct is that they are not too short at the moment Technically the Dollar remains in a down trend and therefore rallies should continue to be sold.
Next week has testimony from Bernanke who will no doubt hark on about fiscal responsibilities as US budget negations continue.Certainly the nearer to time-out on the budget ceiling gets markets could get edgy or even messy. All in all though their current strategy which resembles rearranging the deckchairs on the Titanic looks set to continue.

Thursday Update… Records Galore as US Dollar Sinks

New highs for Gold, Australian Dollar and Swiss Franc tell the story on the US currency which technically looks a goner pointing to lower levels ahead.EUR/USD has broken its shackles above 1.45 and surged to 1.4630 this morning. Risk appetite is back as equities world wide have surged and as I said yesterday markets focus on successful companies and earnings not indebted countries. The Euros progress has continued against a backdrop of worsening peripheral bond spreads which in days gone by would have knocked the currency. Not so now and although it seems to be only Germany that is powering ahead in economic terms the Euro for now is taking on the mantle the Deutche Mark.
Continued impasse on the budget ceiling in the US is merely adding to the US Currency weakness. However, currency weakness will not bother the US authorities one bit.
As we have seen before the rise of EUR/USD is no one way street but the 1.50s are surely within its grasp in a matter of a week or so.Of course Finland could upset things for a while should it choose to reject the Portuguese bail-out or Greece finally face up to the inevitable. This could slow progress nothing more. What might change things would be some perception the the ECB might ease up on rate hikes with a stronger currency. That could happen but not until much higher levels.
So continue to buy dips,there will be some. Right now resistance lies just under EUR/USD 1.4700 and support at that old 1.4525 level which held for a week.

Thursday Update…. Portugal seeks bailout, they need a miracle

Finally Portugal has done what the markets have been telling it. With 10 year bond yields at nearly 9% the inevitable bailout request has been made. Of course markets unlike governments are not stupid and this has been long discounted.
Yesterday saw more Euro strength across the board above EUR/USD 1.4300 and EUR/JPY 122.00.There has been some pullback this morning below those levels but with the ECB expected to do what is expected the bias is still to the upside.The Yen has staged a modest comeback generally from its very oversold levels and another shake out is still possible.
Elsewhere AUS$ hits record high and CAN$ 3 year highs against the US Dollar as risk appetite improves. In the UK the Bank of England can only surprise markets with a hike. Only one of nearly 70 Economists surveyed expects that, maybe he just ticked the wrong box.
So all eyes and ears on the ECB. 25 basis points the overwhelming expectation but comments from Trichet may give more market reaction.
French February Trade figures just announced. Deficit of Euros &.6.55 billion vs. 5.7 expected, more signs of convergence …me thinks not.

Friday Update .Does Trichet burst the Euro bubble?

If yesterday teaches us anything it was that markets had gotten ahead themselves as far as ECB tightening goes. I did see a rash of technically generated longs in EUR/USD and GBP/USD which were all stopped out and added to the reversal. Anyway with EUR/USD down near 1.36 I am reluctant to call an instant bounce today especially with Non Farm Payroll figures this afternoon. It could well be that we see a further sell off. The line in the sand remains at 1.3320/50.
Back to Trichet and I feel that he made an effort not to be hawkish on rates but the truth is if we get higher inflation numbers then unlike the Fed or Bank of England the ECB they will raise rates. That might still happen in a few months but in the meantime Trichet will not want to rattle markets.The answer is watch the CPI data.
Sterling led the way in the early morning with more bumper PMI data in services which will have cheered the politicians. GBP/USD hitting highs of 1.6275. Although sold off along with everything else EUR/GBP has fallen to 84.35( 1.1855 ). taking the bearish edge off it.
Elsewhere the Ausie Dollar has returned to favour as the sums on GDP look better with huge post disaster rebuilding.
Equities continue to ignore the Middle East for the time being helping risk attitude.

US Dollar Back to Square One as Euro Stages a Relief Rally

When we were up we were up and when we were down we were down as the song goes. Yes the US Dollar retraced all of its gains since the New Year as the Euro rallied. Sparked off by the relief in Bond markets as first Portugal and then Spain and Italy managed to get small Bond Auctions away at marginally better levels. Of course in the context of what is to follow it is just a few weeks pocket money for these guys and buys a bit of time.
The EUR/USD extended gains from around 1.29 to a high just above 1.3450 before settling back in the 1.33s and closing around 1.3390.Whatever news came out it tells you as much about the short positions that were held than anything else.The Euro also enjoyed a good rebound against the Swiss Franc and Sterling. The later which had enjoyed some heady days against the Euro demonstrated that it was Euro weakness not Sterling strength that fuelled the whole movement.

Looking to next week there is a far less exciting economic calendar to fire up the forex markets and I suspect the markets generally will be more occupied with the technical levels. Here as recently the EUR/USD will be the focus of attention. Fridays move from the mid 1.34 level was back from the brink and not least because of the distance travelled. Anything above 1.35 will probably trigger more stops. With one Investment bank going for 1.27 after a Friday sell recommendation ( mind you with a pretty close stop at 1.35 I understand) and another talking 1.37 from earlier that is what you call a market.
Something that may attract attention is the European Finance Ministers meeting in Brussels to discuss increasing the bailout fund. Anyone banking on something for the Euro there will be disappointed. Despite Angela Merkel´s reiteration that Germany will do whatever is required to stabilize the Euro she stated yesterday that this has to come as part of a complete package. Germany seems intent on waiting until a summit of European leaders in March……..if they can I assume.
So with all this uncertainty I would shy away from any predictions this week. It is ´seat of the pants´ trading at the moment. A time to be disciplined have smaller positions unless something comes along to convince you.If we cannot break 1.35 then we could be in for a quieter week.
Outside forex land Equity markets held in there well and particularly the US markets which seem to be attracting good demand not least least from Bond Markets
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Inflation is suddenly beginning to turn a few heads.Trichet mentioned it at the ECB meeting as a short term only problem at this time. It helped an already rallying Euro but reminds us that the ECB´s mandate concerns Inflation foremost, nothing else.China too unexpectedly raised bank reserve requirements again by 1/2 % in response to inflation at 5.1%. With food prices beginning to cause unrest in some countries ( not least the catalyst in Tunisia) it is a worrying development. If I was in any extreme camp it would be stagflation not deflation as a worry.
Some of the more speculative Hedge Funds seem to be betting on the demise of China. A recently publicized one calling for minimum Investments of US$ 1million will leak 20% a year if it doesn’t materialize. There seems to be plenty of takers……..now that really is a punt. If Chinese growth did collapse then woe betide us all. Watch out AUS$ and CAN$ for sure.

Finally France´s President Sarkozy gets the prize of the week for being, well a typical politician.He said this week,¨Ireland cannot seek European aid while keeping low Corporate Tax Rates¨. On November 20th at the time of the Irish bailout it was stated Ireland would not be required to raise those tax rates. Although he hinted at it being desirable he stated, ¨That is not a demand or condition just an opinion¨.If you have any doubts how that might go down check out any Irish press you care to last week.To the Irish it is sacrosanct and would slaughter their fragile economy. Threatened with that they would rattle the Euro cage to the core. Oh no boys and girls the Euro problem is far from solved…

Tuesday Update

 Well it has been a pretty quiet start to the week in forex land and the markets appear to be waiting for the results of the Portuguese bond issue tomorrow. Thus far the Euro bounce has resembled the proverbial dead cat but we shall see. I have a sneaking suspicion that it might not go as badly as perhaps expected but I don’t say that with much conviction. In any event I still consider we will not progress too much further down in the short term with lots of resistance around 12750 ,1.2800. When all said and done though sentiment for the Euro still remains negative even if we do se a more pronounced bounce.
Elsewhere the AUS$ has seen most action, weaker for reasons none of us would wish and puts as ever a proper perspective on life.

HAPPY NEW YEAR TO ALL OUR READERS

Saturday 1st January 2011 Estonia joins Euro……………Monday 3rd January 2011 Markets force Estonia bailout

Yes another one joins the club making it 17 in the Euro . The big question for this year is how many will be left by 2012
Check out our currency forecasts at the end of this article.

The final week of the last year saw the dollar weaken across the board and while it still remains in a pretty tight range its technical picture is in danger of turning again.With the EUR/USD hovering just under key resistance levels around 1.3450 the outlook for the pairing would be dollar bearish if we broke though that level.
The Australian Dollar, Swiss Franc and Japanese Yen led the way for much of the week with the later closing at 81.15 against the US Dollar. However, the Euro made gains even against these at the later part of the week recovering from oversold conditions.
Equity markets lost their Christmas shine a little and US Treasuries were improved on the back of the 7 year auction which went well.

So what lies ahead for 2011. Well there are any number of predictions out there for everyone to peruse but frankly making 12 month predictions to me is as close to guess work as you can get.Therefore I prefer to dwell on scenarios which might occur and I have detailed a few below. Only by envisaging what could happen in the world can you get an idea where markets might go.

So here are the market summaries for 2012

Case 1

The year began well enough with stocks continuing their rally as Economic conditions in the US improved and gradually following the Portugal bail out those too in Europe.Once the markets saw the improvement in Spain’s economy and finances and the pressures on the Euro eased. Forex markets perceived the crisis could be over and the Euro began to strengthen.Commodities especially Gold ( 1500) and oil ( US$ 150 a barrel) strengthened dramatically against the weakening US Currency despite much higher yields in US treasuries. The ECB which had been forced to raise rates as inflation nudged up began to worry about the Euro strength as it tested old highs of 1.60 against the US dollar and eventually touched 1.70. The US economy continued to improve on the back of a weaker currency and it looked more likely than ever that Sarah Palin could be the next US president as her popularity surged.

Case 2

Having eased initially pressure on the Euro exploded as it became apparent that Spain would need to be bailed out and subsequently was.. However. nothing could have prepared the markets for the late summer announcement from the German Constitutional court that such bailouts were illegal.As the Euro tested parity against the dollar the German’s announced their withdrawal from the Euro leaving president Sarkozy to hold the system together. The brief war in Korea saw further pressure on the Euro and newly emerged Deutche Mark. However, this proved to be temporary as the US currency topped out in late September.

Of course you may think I am crazy but never forget what can happen in the world to influence Forex markets. Nothing I have mentioned is an impossibility.but posting year end predictions of 1.35 EUR/USD and 85 JUSD/JPY serves no purpose whatsoever. Frankly I am a bit clueless in the short term. The US dollar index has been back and forward the 80 level for some time and as I mentioned earlier if the EUR/US$ breaks the heavy resistance at around 1.3450 we might well see levels 3 or 400 pips higher always of course with one eye on the situation in the Euro zone.