Thursday Update… Euro drifts lower despite continued risk improvement

Despite what might have been thought of negative US dollar activity in risk markets EUR/USD has made a steady decline towards 1.4300.Although it is somewhat strange I still prefer to buy the dips for the time being. Economic data will continue to watched closely. China manufacturing PMI data showed a tiny bounce to 50.9 from the low of 50.7 but not enough to lift markets.
I note that the technical picture in equities could get interesting. the US S&P index has some key resistance levels around 1260. Move above and we could be looking for a sustained rally in stocks. Failure and we could well see new lows.The latter seems more likely with the outbreak of bad news always seeming more possible than good.
Meanwhile forex markets continue to offer less in the way of volatility. Who´s stolen the forex markets mojo?

Weekly review….No QE3 but Bernanke doesn’t close the door.

After an initial rush into the dollar following Bernanke´s long awaited Jackson Hole speech, and no mention of QE3 the US currency was then sold off . Far from excluding it he merely left markets to await a longer FOMC meeting in September. So who knows? If things aren’t better by then despite all the misgivings we may just get a dose of the only medicine left in the cupboard (even if the desired affect is somewhat dubious).
In EUR/USD terms we were down at 1.4330 before a bounce to close near 1.4500.
It has seemed better to play the pair from the long side recently and that could continue. However, it will be vital for equity markets to steady up for risk appetite to reappear.European debt markets have skipped the limelight for while but any re-emergence of tensions in Italy and Spain would rock the Euro boat again.
Going forward I think that it will be economic data which will dominate trading in equity, bond and forex markets and there will be plenty next week certainly US wise.
The other dominant thought for equity markets will be banks. Certainly the cloud over European banks remains, their ability to lend sufficiently to business still very much questioned.
Elsewhere notably the Swiss franc has edged lower against the Euro with banks there expected to announce penalties for Swiss franc balances.If things remain calm that trend could continue.However, the strength of the currency was due to safe haven flows generally from the Euro so any flair up will see an upward trend again in the currency. Playing the short view on the swissy maybe a great call one day but it is too early in my view for a major trend reversal yet.
Gold has made some pretty volatile moves recently which could be topping signs. I am not convinced although a stream of higher projections from the banks can sometimes be a reverse indicator.
So I still have no great conviction in currency markets. It is still a time of trading small and very much ´seat of the pants stuff´.That way when we do hopefully get a nice trend we still have some chips left at the table.

Wednesday update…..Japan ratings cut slips by quietly

Moody’s downgrade of Japan one notch this morning had little effect on the currencies as forex markets continued to churn in narrow ranges,
Equities were better in North America but a little softer in Asia but generally volatility there also has fallen.
EUR/USD hovers around 1,4400 as what news there is remains Euro negative. The debate on collateral for Finland seems set to develop more I think. The Finns seem intent on doing their own negotiations while Germanys Merkel seem dismissive of it. As a story it needs to be watched as it has the potential to be a full scale row between some countries Yesterday a Chinese official from the Peoples Bank of China (PBOC) insisted currency reserves should be used for acquisitions of energy ,recourses and equities rather than bonds in Europe. All seems very sensible to me and China continues to pay mainly lip service to Europe’s problematic bond markets.
Euro bulls might argue that all the negativity has produced little downside certainly in EUR/USD ,however it was not long ago the resilience in equity markets seemed the same only to dump eventually.
All in all still a very cloudy picture in the currency world

Weekly review.. Where is the cavalry coming from this time ?

With equity markets crashing again against the background of worse economic data and downward revisions for growth globally you wonder how an earth Governments can help this time around. In the last recession governments ploughed in more money (which they did not have) and central banks slashed borrowing costs with official rate cuts and then quantative easing in some cases.This time it seems almost the perfect storm as many countries are being forced into austerity drives at time when logically they should be splashing the cash. To me it seems inevitable that Mr bernanke will be forced into more quantative easing, yes QE3. Strangely its as if forex markets seem more convinced than equity markets. The US dollar made no ground up last week despite the sell off in shares. US treasuries may be a safe haven but the dollar is not,well not yet at any rate. While bond markets in Europe helped take some of the tension away ( well the ECB did) surely the next Euro headache is just a matter of time. A common Eurobond has been rejected thus far but I still believe it would be the only real fix it for the Euro and that might last only a few years. Indeed if they did announce a common bond you could expect a very much stronger Euro which would just add to the woes of Southern Europe. At the moment bubbling under the surface we have Finland demanding collateral for their Greek loan and apparently the Netherlands and Austria looking to do the same. As far as the right wing Finnish government are concerned they are against the bailouts and will only contribute on this basis. The real problems will follow if indeed some others do the same. Greece is depositing its loan from Finland back to them so effectively getting no funds.

So with all this uncertainty and forex markets just unsure which horse to back we finished not far from where we started EUR/USD 1.4400 USD/JPY 76.50 and EUR/SFR 1.13. Sterling in fact performed best which has been rare occurrence these last several years. What it does show about the UK, where government bonds have performed well is that by devaluing the currency you make investment more attractive. In the Euro zone for many years peripheral bond markets were treated as surrogate German bonds with a slightly better yields but no additional currency risk.That of course has ended in tears but merely emphasises that getting Eurozone countries converging their economies is still a pipe dream.

Despite all this EUR/USD has actually held up very well so far. It might well be right to play it from the long side at the moment especially if Mr Benanke does announce something at the Jackson Hole conference.However, in current circumstances you wont want to be married to it. In fact as far as currency positions go at the moment I am definitely a one night stand man or even a speed dater

Gold up again shows the current mind set of investors and speculators
 

Wednesday Update.. Germans French and Swiss all disappoint

Not that expectations were high but yesterdays Franco German love in and news from the Swiss national bank have come up well short of surprising markets.
Messrs Merkel and Sarkozy advanced nothing new to solve today’s problems merely repeating fiscal responsibilities further ahead. Markets no that probably only a Eurobond will truly extinguish the eurozone problems and that is not mentioned. That old chestnut of financial transaction tax was wheeled out serving only to knock a few financial shares lower most notably the bourses. Of course anyone sensible knows it would have to be worldwide to succeed and if just an EU tax was announced London would be celebrating . It wont happen.
The Swiss have announced more liquidity etc but no peg which is what might make a difference. That of course could happen but more likely announced when markets are closed for a weekend.
The upshot for forex markets has been a little gyration and no fireworks. EUR/USD back just below 1.44 and EUR/SFR 1.1275. The Swiss franc has seen a little more volatility but there seems to be no clear push from markets yet. Unfortunately for the Swiss their currency acts as an Insurance policy during EU worries which will not end any time soon. That said Spanish and Italian bonds are holding improved levels adding some support to the common currency.
Equities have edged lower but without the pace of last week, however, they remain a key influence on forex markets. All clear as mud as usual, recently I’m afraid.

Weekly Review.. EUR/USD narrowly mixed amidst carnage elsewhere.

If you only traded EUR/USD last week would have been better spent on the beach earning some income selling volatility at EUR/USD 1.4250  strike.
Of course the same could not be said for politicians and bankers many of whom would have been summoned back for any number of political and economic problems.
I start in the US where no one just no one would have believed that US treasuries could have enjoyed such a spectacular week after the ratings cut from Standard & Poor’s. A new 10 year issue away at record low yields of 2.14% shows just what safe haven status means whatever rating its given. Of course they were helped by the Federal Reserve who indicated rates would stay low for a couple of years and a meltdown in equity markets early in the week.In fact equity markets made it back up pretty much to weekly opening levels and in some cases higher.The US dollar was a side show compared to the Swiss franc which mirrored equity markets surging then sold off sharply. EUR/SFR closed near 1.1100 nearly 8% up from the lows with even stronger losses against a resurgent Yen. Talk of Swiss franc peg against the Euro just added to the correction move.If you believe that the worst is over for risk markets then dump the Swiss currency but the likelihood of that seems highly remote .
In Europe Spanish and Italian bond yields receded as the ECB finally came to the rescue( behind the scenes kicking and screaming no doubt). However, worries switched to France and particularly French banks. Bank shares which had led the way down bounced sharply at the end of the week but by no one believes a happy ending in that saga yet.The ECB has bought some time which seems the usual story in Europe but in the days weeks or maybe months ahead there will be plenty of anxious moments to come.
The growth story or lack of it seems certain to dominate attention. Can we have austerity and enough growth to support it? No. If you are in the US as the politicians jockey for position ahead of next years Presidential election there seems little hope of a quick fix. In Europe too will the rich be persuaded to bail out the poor where many leaders also face a domestic vote in the months or year ahead.
I suspect forex markets will continue to focus on equity markets. Probably the best investors could hope for is at least a quiet week but I certainly wouldn’t rule out another sell off, justified or not. The US dollar failed to make much ground as a safe haven currency even as its bonds surged which shows a distinct lack of appetite to buy it.QE3 will be on everyone’s mind ahead of the Feds Jackson Hole meeting. That said where does one get an appetite for Euros in current conditions.
Oh for a friendly trend but alas I cant see one in forex markets so best advice remains to stay low on the risk front.

Friday Update…. Swiss Franc and stocks hog the volatility

It was business as usual in stock markets as once again huge swings affected markets around the globe. Eventually things finished on a better tone and early weakness in Europe has given way to a recovery.Bans on short selling in most of Europe may just have coincided with some buying at lower levels.
The only place to be in forex markets for an adrenalin kick was the Swiss Franc. It met with heaving selling particularly against the Euro and Yen.EUR/SFR has surged to 1.0970 this morning leaving this weeks lows under 1.03 well behind. Talk of a possible temporary peg against the Euro has helped but the correction was well under way anyway. Quite where we might turn is difficult to see at the moment but one feels that Swiss franc strength will reappear at the drop of a hat or should we say on the next risk sell off. EUR/USD remains sidelined amidst all the action but will jump one way or another sooner or later.
French GDP data today was flat against an expected +0.3% but might have been worse.Reports on the newswires suggest German approval of the EFSF (European Finance and Stability Facility) may not be a simple rubber stamp job leaving perhaps the ECB to carry on supporting bond markets way longer than they would wish. Indeed we could have many hurdles as the richer Euro countries struggle to convince electorates that a transfer union is the only option left.
All in all its still seat of than pants stuff but uncountable get the inside track on equities and you have more of a chance in forex markets

Thursday Update.. Bank Of Japan hits markets with heavy intervention

It seems like the Japanese Finance Ministry finally decided the time was right to halt the Yens rise and instructed the Bank of Japan(BOJ) to sell Yen aggressively.
USD/JPY is back to 80 from 77.10 and this has helped the US dollar strengthen elsewhere ( EUR/USD back to 1.4250 from 1.4350.
Yesterday saw a shake out in the Swiss franc which showed up more on EUR/SFR where I suspect most positions were, having the affect of lifting EUR/USD.
However the BOJ selling of Yen against the US dollar has as I said lifted the US currency, although EUR/JPY is higher nearing 114.
Tensions in the Euro block bond markets remains high with both Italian and Spanish politicians trying to dispel fears.As things stand though it will be some months before the EFSF can buy their bonds in secondary markets meaning that the cavalry in that shape are some way away.
Equities are off the lows but by no means is the economic gloom cloud lifting at the present time.
With longs of the Swiss franc and Yen taking a bit of a squeeze its been left to Gold ( new high of US$ 1672) to continue to hold the safe haven mantle.
Fundamentals ,technicals and whatever remain very difficult to read for short or long term trends in forex markets and as such I have no inspiration to call anything at the moment.
European rate decisions today , with any ECB hike well off the agenda now. Markets will continue to watch economic data and also up and coming Spanish and Italian bond auctions.Spanish PM Zapatero has cancelled his summer vacation but at least has the prospect of lots of free time after the November election.
Stay small if you must have a punt is my advice

Thursday Update… Euro jitters not done for yet.

Additional comments from German Finance minister Schaeuble yesterday, not least that the euro crisis was not over yet, served to knock the currency. Standard & Poor’s added fuel by downgrading Greece again which had bond spreads widening in Europe. Well Greece cannot at least suffer many more downgrades as it is junk already but quite what Mr Scaeuble`s agenda is I don’t know.
With US equity markets in retreat it was a pretty much a straight line down for EUR/USD to 1.4330. We sit just above now but there will be more stops around 1.4300 as conviction remains very low amongst most traders. Forex markets in Asia summarised the mood with participants unwilling to push the dollar or euro anywhere.
I would admit to being small long EUR/USD but frankly more hope than conviction now. Markets generally seemed destined to remain nervous and edgy until we see at least the US pass its D day next week. Much the same as Europe a bunch of politicians dithering is causing markets to fret. Maybe dealers should be in charge,we might get it wrong but we would make a decision quick.
Lets hope for a nice friendly trend some day soon. Of course the Swiss franc, Gold , Ausie Dollar all keep having their moments but we could of course see a shake out there if it all turns out alright on the night.

Some Euro confidence data this morning might jog markets, supected to be weaker.

Euro hits 10 month low against the Dollar

The Euro has hit a 10-month low against the US dollar…. below $1.3300.

Markets are still jittery after Portugal’s debt was downgraded yesterday and with Euro leaders due to discuss a bail out for debt-stricken Greece.

The course of action is still undecided- Germany now wants the IMF to play a role (interestingly following Gordon Brown´s earlier line). The fact that Fitch Ratings downgraded Portugal’s sovereign debt yesterday did nothing to allay the fears over the stability of the currency. The bears are out!

The euro tanked below $1.33 on various trading platforms, its most southerly position since May 2009. It has recovered somewhat over the morning, as day traders cashed in their profits.

And the Chinese government is also stirring things up a bit, following a couple of days of Google bashing (after they decided to lift the censorship on Google.cn, or rather redirect it to Hong Kong along with those sandstorms from Beijing).
Chinese central bank deputy governor Zhu Min said the Greek debt crisis was just the start. ("Ouch"). But then, he does hold rather alot of dollars…..

The Euro was also down against the Swiss franc to the dismay of chocolate and watch makers. It hit a record low of 1.4230 francs yesterday.

EVERYONE LOVES UNCLE SAM.

Well not everyone, but the forex markets seem to be heading that way.The dollar index, which is a measure of the greenback’s performance against a basket of 6 other currencies, rose to 82.062, a 10-month peak.

Although the dollar lost traction by 0.2 % against the Japanese currency to 91.95 yen JPY, generally the direction is up.