Friday update… Greece backtracks, ECB cut rates .Everyone adds liquidity

It was almost like Christmas yesterday there were so many surprises flying around. The ECB cut rates by 25 basis points and suggests more to come as Super Mario makes a big start at the helm. The about turn by Greece as Papandreou abandoned his referendum plan under flack from internal and external forces added to the positive mood. Improving liquidity seems the order of the day from the ECB and IMF.Plainly they can see how the credit crunch is getting worse and are now openly predicting recession in Europe. The Italians are going to have their reforms monitored by the IMF (Will be like watching paint dry) and the French announce an impending spending cut plan( That should help fight recession) .In the real world Spanish unemployment up 3.2% in October is a frightening issue.
All this led to a yoyo day for risk and currencies but eventually positive territory for equities which helped EUE/USD back over 1.38 where it now sits.
Markets have the Non Farm payroll data to clear today and the likely ousting of poor Mr Papandreou. Strange how the Greek opposition who cooked the books for so long seem destined for power.Politics in Italy is also bubbling and Burlusconi looks to be on borrowed time.
I would not be surprised to see equities up further and the dollar down further in the short tem. We could test levels over EU/USD 1.39 although I still remain bearish on the trade.
All in all I see no change in prospects for peripheral eurozone countries in which I now include Spain and Italy. Recession, credit crunch, austerity. Now there is a recipe for disaster. Italian bond yields need to come down but who on earth is going to buy them. Not the Chinese for sure.

Friday Update…….OK wrong so what next

Against my expectations EUR/USD finds itself back at the 1.4250 level certainly a bigger dip than I expected. The move was afoot before equity markets nudged lower so I cant blame that.All in all though it seems that the recent range for August still captivates the pair and like all ranges makes the breakout more important.
US Non Farm Payroll (NFP) and unemployment data will dominate today and one suspects weaker figures more likely than strong. However, as we know economic data is never easy to predict and major bank economists generally play safe and call consensus numbers.
So it will be seat of the pants stuff and I for one am glad the week will be over. Another one where the P & L is more L than P

Friday Update— What’s the Difference Between Strong Vigilance and Monitor Very Closely

About 5 Big Figures is the answer. Yes finally the difference in those words prompted a EUR/USD correction. With commodities (followed by commodity currencies) and equities all falling the US Dollar and Euro also corrected. Trichet seemed ready to tone down his rhetoric and pushed the next ECB rate hike to July or later. Of course the real thing to watch now will be inflation data which could speed or slow things down.
So we have our long awaited correction. For me EUR/USD is a buy, still technically positive but mostly I feel that I could have some big buddies on my side. Namely Sovereigns/Central Banks who should continue to divest away from the US Currency. US Non Farm payroll (NFP) and Unemployment this afternoon and not sure what they might do for markets. However weaker employment data going forward could trigger thoughts of QE3
Under 1.4360 would cause some concern but I don’t want to think of that yet. Equities while weaker have not suffered the huge sell-offs of commodities. It certainly has been a risk off sell in May so far but not a rout yet
The Yen has continued its quiet strengthening across the board now with no sign of intervention. Official comments suggest there is not too much concern at the moment. Would like to sell it against the Euro but maybe not yet

Friday Update…. ECB´s Erica points way to 1% Rate Hike

ECB´s longest serving employee and former Bundesbank tea lady Erica has announced that she fully expects a 1% rate hike from the ECB.’ This will reflect the prices and wage growth in Germany, never mind that the rest of the EU doesn’t require it,´she said.Erica was asked to comment as the only ECB employee who had not yet been quoted on the matter.
In Ireland thousands of people took to the streets to celebrate the outcome of the latest banking stress tests. These showed another €24 Billion in capital required for its banks bringing it to a total of €70 Billion
Fantastic news shouted a reveler ´just € 15,500 per person´. ´
Portugal announced its Election is to take place on June 5th. Earlier Portugal’s 2010 Budget deficit had been revised to 8.6% of GDP as against a forecast 7.3%. A government source said´It would have been 6.8% if Eurostat hadn’t stuck their noses in , we were simply following the Greek accounting methods´.
In forex markets the US dollar made gains against the Yen overnight to US$/JPY 83.74 pushing EUR/JPY to 118.60. Although back a touch Japanese Yen weakness continues to be the feature of the week.
US Non-Farm payroll (NFP) will dominate the afternoon but it remains to be seen if at can push EUR/USD out of its recent parameters.

Happy April 1st

Weekly Review…Will Olie Rehn in the Dollar Revival.

It turned out to be a recovery week for the US Currency as a number of events conspired to provoke shorts to capitulate.Firstly we had the press release from the ECB. While this said nothing different from the previous meeting, its lack of further hawkish comment was viewed as bearish for the Euro.

In truth the markets were wrong to have expected any more for the time being. However, the next few months inflation readings will be key. If by the end of March we have a comprehensive Euro package and inflation is worse then I believe the ECB will change tack. They will be anxious to reestablish their credibility and focus on their one true mandate,inflation control.
On the United States side of events Fridays employment data while disappointing on the Non Farm Payroll ( NFP) of just +36000 was overshadowed by the dramatic fall in the headline unemployment rate to 9% from 9.4%. US Treasury yields raced higher and this in contrast to German yields which declined added more ammunition to the US dollar rally. However, I think any thoughts of the Fed changing tack are well premature.
Technically the US Dollar is still hanging on to the bearish trend However,if the the Dollar Index were to move above 79 ( currently 78 against a low of 76.88) then things might change. In EUR/USD terms below 1.3470 level would be damaging and 1.3300 probably capitulation.
I do believe though that the single most important factor over the coming weeks will be the emergence of details of the Euro area stability package. As Olie Rehn the President of the EU put it, ´No more phony-baloney economic union´. The German and French inspired package ( Although mainly Merkel) is intended to produce a comprehensive package to co- ordinate Wages Taxes and Pensions.
This for the peripheral EU members will if you like be their premium for a truly watertight Economic Insurance.
If this package does not materialize in such form then of course we could see a massive Euro fallout. It is for these reasons that the pressure to agree will be compelling.
There will be sticking points, most notably the Irish and their hallowed level of (12 1/2%) Corporation Tax. That will certainly be a tester for the new Government. The upshot maybe a fazed increase. If they refuse then it could give us some interesting times. Certainly the mood in Ireland is that taxpayers have bailed out their own banks to support the European banking sector.
Events in Egypt have cooled a whisker and hopefully a peaceful transition can worked out. Of course events will stay on the Forex markets radar but perhaps diminishing.
Equities hung on in again while Bonds did exactly what I think they will do.US Treasury yields have not affected the Yen thus far but may yet do so at some point.
Elsewhere,commodity currencies still looking bid and Sterling benefitting from data puts it back in the middle of its recent trading range vs. the Euro

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.

Thursday Update.. Forex markets tread water ahead of busy stats day

Despite its continued weaker tone the US Dollar escaped any huge damage yesterday as markets continued to keep an eye on events in Egypt Today sees a wealth of statistics first in Europe and then the US with Non Farm Payroll. The ECB meeting will not provide any shocks unless statements following it diverge from the recent tone. Trichet has to balance his words carefully so as not to spook markets. However, with inflation up at 2.4% he does not have much more leeway..
All in all I think we have potential either way but feel US Dollar bears will still get a cheaper entry at some point.The Stock markets have failed to push on but what little corrections have not influenced forex markets. USD/GBP( Cable) seems thus far to have been the biggest indicator of a further move lower for the US dollar. However, as we know from experience a bad set of figures cause more effect because of its illiquidity at times. As far as EUR/USD goes would probably risk a short 100 pips higher and the reverse if we went down.

France´s Lagarde has just been quoted as saying France and Germany are working on common proposals for the Euro zone. Designed for competitiveness and coordination. Of course we all know they will be calling the shots as the biggest paymasters. Ireland may well have its ´High Noon´ moment coming on its low Corporation Tax.

Greece and Ireland bookies favorites for 2026 and 2030 World Cup

Following a week on the ropes the Euro made back some significant ground  particularly against the US dollar. The ECB was reported to have bought Irish and Greeks bonds giving some relief to their beleaguered markets and announced that it would continue support for the time being. The Euro was further helped by weakness in the US Dollar following weaker employment data in Non-Farm Payroll figures and headline Unemployment which rose to 9.8%.
The Euro which had briefly touched levels under 1.30 finished close to 1.34 against the dollar with the Yen also strengthening to 82.70.
Other data including housing numbers has been better but if the markets were looking for an excuse for a correction they found one.
Going forward I continue to be impressed with Equity market performances which were approaching levels seen before the Irish crisis headlined. While I worry when shares start to give me a warm feeling I do favor a rally in stocks( and weaker bonds) and this could well influence currency markets. I still favor a lower Japanese Yen against most.
The Euro debate will continue and surely it is only a matter of time before Portugal is forced to avail of support. Nothing much has been written about next weeks Irish budget which could still fail to be passed putting turmoil back into forex and bond markets.

Late News just in
Ireland was celebrating another loan this time from an organization  rumoured to be called Fix It For Anyone. The loan believed to be the equivalent of several billion Euros( but in two other currencies) will carry an even higher rate than the EU and IMF loans. An unnamed spokesman for Ireland stated that they were still counting the money at the present time but that despite the current situation the success of their 2030 World Cup bid would lift the nation.

Aint no cure as summertime blues continue for US Dollar

The US dollar continued its poor run.Indeed the US Dollar index posted its 9th straight weekly decline to a low just above the physiological 80 level.
All in all though there was nothing too exciting for the forex markets to get its teeth into. Equity markets which benefited from positive data early in the week shrugged off Fridays Non Farm payroll figures which were worse than expected at -131 thousand and also saw last months revised to -221 from 125 thousand.
The Euro also benefited from ECB comments pointing to better than expected growth levels in the Euro zone which added to the anti dollar sentiment.
Difficult to get too excited about some volatility next week and if equity markets continue to edge higher then the dollar may continue to suffer.However, I continue to believe that out there somewhere lives another Euro bogey man waiting to give the markets some jitters. Maybe when the Greeks add up the summer takings it kicks off again.
 

Weekly review

 No Chinese Takeaway

The Chinese rescued the week after denying the rumors that they were reviewing European Debt Holdings, confirming the Euro zone as one of the most important Investment Markets.
Hardly surprising when they have half a Trillion dollars worth of investments to protect.
The effect was to reverse the recent decline in Equities Oil and commodities together with the commodity currencies.
The Euro faired less well and thus far has achieved very little in terms of a rebound against the dollar closing just below the 1.2300 level. Against the recovering Australian and Canadian dollars it lost over 4% and 3% respectively.
The week ahead will again focus more on the equity markets for a lead although statistics , ISM indices and Non Farm payroll may add some weight.
Next weekend sees the G 20 meeting in Korea and one suspects voices to try and steady the markets. The worry that the Euro zone led panic will push Europe and perhaps elsewhere into a double dip recession will be high on the agenda.

Technically all eyes will remain on equity markets and on balance the likelihood that we have not yet seen a bottom will hang over markets. The Euro Dollar level of 1,2140/50 remains crucial but the odds are that it will be taken out  if equity markets and risk appetite in general suffer.That will lead to pressure on the 1.20 level

The Euro debate commands ever more press space. Whatever the immediate outcome further out into summer the problems will probably surface but may take a lead from how the austerity measures are reflected in civil unrest or not.