Friday update….. PLEASE JOIN OUR CAMPAIGN

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Bonds and Equities edge higher. Its all plane sailing

The Euro pushed on and the US currency fell again as suddenly forex markets were filled with the joys of spring. Spain and France sold bonds and the Japanese Yen finally took a beating on the crosses as it finished the weakest currency on the day. Pity those poor USD/JPY traders who may have been asleep for 3 months.
Indeed EUR/USD tested its limits on the daily chart ( reaching 1.2947), at the top side of a trend we have seen since early November.We would need a bigger high on a close to confirm that and the brave might want to sell here. What it does do is signal that on any further squeeze a potential 300 plus points higher could still emerge.I would say at that point I would be tempted to go all in short.
It seems as so often is the case that the very thing hanging over forex markets i.e. the downgrades were indeed the classic sell the rumour buy the fact. Even Greece is presumed to be off the hook, although I wouldn’t believe that until its well and truly confirmed. With economic data though still continuing to support the stock rally the feel good factor seems to have taken hold on the Euro. A very premature move but capable maybe of testing bears to the brink and most likely taking many shorts out on the way.

Headlines

• Greece inches towards agreement with bond holders
• Euro recovers ground but EUR/CHF remains close to 1.20 peg EUR/USD fails to break 1.30
• Russia indicates willingness to contribute to IMF but hints at strings
• China PMI unchanged at 48.8 still in contraction territory
• Equities continue to inch higher globally

News from Moscow was good news and bad news for the Euro zone. Russia agreed that they should make a contribution to the IMF together with other emerging nations.However, they added that they would need to participate in formulating a rescue plan to troubled countries. Great news for peripheral strugglers. As if being overseen and under orders from Brussels wasn’t bad enough, now it will be austerity Russian style. Maybe they could supply some bad weather to complete the misery.
I think Moscow is somewhat revelling in this and who can blame them. They deserve to rub it in. The IMF bailout of Euro zone countries is a disgrace for all concerned. Citizens of receiving nations where the rich and greedy have failed to pay taxes and when massive savings are stashed away should be ashamed of themselves. That ,however, would require some semblance of a conscience.

JOIN THE CAMPAIGN : NO IMF OR EU BAILOUTS : LET THESE COUNTRIES FUND THEMSELVES FROM DOMESTIC PENSION FUNDS, ALL THOSE RICH AND GREEDY WHO PAY DERISORY TAXES ,HAVE SOME PRIDE AND A BIT OF CONSCIENCE.

Weekly review……….. Mrs H´s forex tips

News that Swiss Central Bank Chief Hildebrand’s wife Kaysha was making money trading the Swiss franc as the central bank intervened and introduced the peg is certainly an embarrassing revelation. However, it is not illegal. No you cannot be caught for insider trading in foreign exchange to my knowledge. So leave the women alone and find out what she thinks of the Euro I say.
It’s a sell of course as any ex forex dealer would say. The trend is down. Fine tune or finesse you’re selling. Take profits and intra day trade but don’t miss out. EUR/USD is going down, not in a straight line but it will be under 1.20 some day soon. I had hoped for a bounce to maybe sell some more but price action on Friday shows that there is big sellers out there and barring some freak about turn by Germany and the ECB its going South.
You can bet your last dollar or euro that the growth story is getting worse in Europe. If anyone can produce one instance in economic history where increasing taxes and reducing spending will somehow produce growth and not decline then please show me. Greece is the forerunner to any other Southern Mediterranean euro zone country. Do people spend if they don’t have money? Do people spend if they are worried they might not have a job or money? No.
Anyway that’s enough ranting and you know we are short EUR/USD and our target is near 1.20. We might lower that but we will see how things pan out. Quantative Easing (QE) by the Federal Reserve is still on the cards at some point but do not factor that in as some bearish dollar signal yet or for some time I would suggest. Right now why would you buy a Euro (and I don’t mean for some technical bounce as players are very short) all signs are for a weaker currency which will at least help out economies a small bit (the Germans even more ha ha)
China is also somewhere to watch closely together with other emerging countries. I am in the camp that thinks growth in these places could suffer more than is being factored in. The only real good news has come from the US where despite all the gloom the economy seems to be getting itself slowly better. What a pity it will be if as looks likely it is derailed from abroad.
Finally the stories from Italy and the tax police (Guardia di Finanza,) just have to get a mention. Having pounced on their exclusive ski resorts they are going to do more in other rich playgrounds in Italy
The description of Ferrari driving rich who claim to earn less than €20,000 a year is amusing but also sad. Tax evasion is endemic and what’s more presumably for the last 30 or 40 years those same tax police have ignored it or more likely benefitted from ignoring it. It’s too late to get quick fix as markets will not wait that long.

Headlines
 

• US Non Farm Payrolls (NFP).. Up 200,000 against expected 150,000.Unemployment falls to 8.5% from 8.7% expected. . US data continues better adding to the firmer US dollar tone
• ECB takes a record €455 billion on overnight deposit…. Now we know what happened to the €489 billion that 523 banks borrowed for 3 years…..Interbank lending remains virtually non-existent
• Italian Unicredit struggles to raise more capital and share price falls
• Sarkozy…France prepared to go it alone on transaction tax. Go on Sarky a few extra votes but not from Paris bankers we assume
• IMF Economist sees euro zone recession… What a guru thinks Greece still in trouble too… even more of a guru
• Euro zone retails sales down 0.8% (2.5% YOY) in November much weaker than expected………Recession
• German November industrial orders down 4.8% month on month (Expected –1.8%)…. Even German data disappoints
• IMF´s Lagarde… IMF to downgrade global growth forecasts. Confident Euro will survive 2012….. Was that a vote of confidence 2013
•  

No matter where you look Europe and particularly euro zone data is worse. The ECB continues to fend off weakness in peripheral bond markets with limited intervention.
The policy of muddling through continues and the EU summit scheduled for the month end and apparently to discuss and promote growth in the region could be a failure even by their high standards of underwhelming markets. Only one conclusion Euro lower. EUR/JPY hits all time lows but my preference is to stick with shorts against the dollar
 

Tuesday update…….Are we all waiting to sell or buy?

German Chancellor Angela Merkel points out Mr. Sarkozy’s shortcomings. Barroso gives her estimate a haircut.

Equity markets again seemed in charge yesterday as marginally worse Euro area PMI data was shrugged off. The fact is US stock markets are really in charge( focussing on their better news rather than Euro worries) with European banking stocks still the biggest influence outside that.We bounced from EUR/USD 1.3820 back to 1.3950s but were unable to break that level again slipping back to 1.3900 overnight.
US bankers Morgan Stanley handed out a buy recommendation for EUR/USD but with a 1.4030 target which hardly seems bold and indeed comes a few days behind me.What it does tell you is the lack of any real conviction on an upside move following the final announcements on Wednesday.Unfortunately currency traders may have to get their lead off equity markets but as I have said it will be bond market reactions in France,Italy and Spain which will be watched. Quite simply if those markets take it well then forex markets and EUR/USD particularly will follow suit. On balance I feel like I will be waiting the opportunity to sell and I certainly wont be going into Wednesday long EUR/USD unless we have some clues of something more dramatic coming out. There is still talk of an overhang of long US dollar positions in the forex markets but I have my doubts. .Aside from EUR/USD 1.4020/30 there is bigger hurdles up above 1.42 before you could even think about getting bulled up on EUR/USD. But who knows,maybe they buy a lot more time but just how would Southern Europe cope with a stronger Euro when for them its way too high already.
Just maybe the politicians are thinking they are doing enough as expectations of a mega EFSF gearing , banking licences and more ECB muscle have all been discarded without any risk and Euro sell off. We shall see but before the meetings even starts Angela Merkel will have to get approval from the German Bundestag which, following the recent decision by lawmakers, means they hold the purse strings and will have to agree every decision along the way. Ironically this is all supposed to go to Brussels one day ( presumably with a German Eurozone Finance minister). It appears she will be telling them that the EFSF will be geared up to € 1 trillion not really the shock and awe figures we were once led to believe.Enough for Greece but not much more.
Elsewhere the sabre rattling in Japan continues but with USD/JPY suffering inertia around 76.00 no signs of intervention yet. Likewise the Swiss Franc which has edged a little firmer against the Euro but no real pressure.

Oh isn’t it exciting ¡

Weekly review…… The Long and Short of it and No, don’t buy Libyan Dinar

Friday´s forex trading and for that matter equities seemed to be about what positions existed rather than any real conviction. The currency market saw a US dollar sell off across the board as long positions were discarded. Even the Japanese yen woke up as USD/JPY fell through 76.00 to hit a record low of 75.78 before recovering to close at 76.30. The Swiss franc also made a move against the US dollar as shorts covered. EUR/USD made it to 1.3902 but the Euro made no progress on the crosses as the EFSF debate continues. As I said last week I favour a move higher for the Euro on relief as much as action next week although for the long term the jury will stay out much longer.However lets be clear even that sort of rally remains in the balance.

Despite continued differences between seemingly Germany and the ECB on one side and France and the other troubled countries on the other, next week will produce something. Latest rumblings still point to some kind of bond insurance through the EFSF and maybe crucially some IMF involvement which will add badly needed muscle to the proposals. On the other side of the coin the German budget committee have made it clear they want no ECB backing for the EFSF or leveraging.A banking bailout package of €100 Billion, the bare minimum I would think and the lobby for a Greek haircut of 50% at least is also surfacing. Neither of these would suit the French who can see their AAA status slipping away.In the midst of it. Herman Van Rompey European council president and circus clown has put forward a plan for a single treasury to oversee tax and spending across the eurozone. Well Herman its 10 years too late or 10 years too early depending on which way you look at it.

For forex traders I would urge you to watch Eurozone bond markets after events unfold, for it is their reaction that is crucial to how things pan out. Also bank shares which will probably be the lead for equity markets. We could see a continued short squeeze there leading to a surge in equities and therefore more US Dollar selling but that may require a bigger bailout package.

It will be interesting to see how long a honeymoon ( presuming it gets one ) that all markets get after the summits.

My own feeling is that we are headed for a European credit crunch as banks will retrench. You cannot have your cake and eat it. No growth and continued austerity….well you can see the answer to that one in Greece. What’s more the International Monetary Fund forecasts Germany to run a current-account surplus of more than 5% of gross domestic product this year. Meanwhile, this year Greece and Portugal are expected to run deficits of more than 8% of GDP, Spain 4.6% and Italy 3.5%. Even France—the latest victim of investors’ nervousness is seen running a 2.7% shortfall. These along with all the other imbalances within the eurozone are what really require some action not just lip service.

Finally don’t be looking to buy Libyan Dinar quite yet and certainly not those notes with you know who’s face on it. Presumably plenty of toilet paper around. Anyway good luck to a new and hopefully peaceful nation .

p.s. Congratulations to New Zealand on winning the Rugby World Cup but a very honourable defeat for the French instead of the humiliation predicted. Oh how they would take the same at the EU summit.
 

Weekly Review….ECB one trick pony? Will Slovakia say až vás? and the Italy nightmare

With Fridays announcement of a pretty big blip up to 3% from 2.5% in Eurozone inflation you would think that speculation of an ECB cut in rates next week would have dissipated completely. However, for once markets seem to think otherwise with a .25% cut priced in and rumours in late trading Friday still pointing to a .5% cut. It would certainly be a move away from the norm and probably to much for Mr Trichet concede and explain in what would be his final press conference. What’s more it would certainly indicate just how serious things have got. Mind you in current circumstances the Euro might suffer every which way.
Friday proved a real risk off day with equity markets and commodities tumbling despite moderately better data in the US. Markets rightly remain in a state of anxiety over the Euro debt problem with the positive German vote on the European Finanancial and Stability Facility ( EFSF) shrugged off with more negativity.
More meetings next week of course but outside the Eurozone politicians continue to berate those inside for their lack of any new initiatives.Last weekend I ventured to suggest the EFSF might be leveraged up big time but now too many heavyweight politicians ( mainly from Germany) have pretty much rubbished the idea .If the absolute death nail is sounded on any leverage whatsoever then the whole thing will once again look inadequate even before it hits the road.
Of course its not quite there yet anyway. Such is the ludicrous nature of the Eurozone that Slovakia who vote last in a couple of weeks could upset the whole plan
Yes Slovakia 1.6% of the Eurozone population and with a possible commitment of just 1% of the fund could still derail it. Having said that I think the pressure to pass will be too great even for sceptical coalition partners there. However, it all adds to tension at the moment.
Greece is still the focus of attention and remains on borrowed time and money. I stick with my view that they will default immediately the EFSF is effectively ready later this month. I think it will be a haircut of at least 50% as anything less will prove too short term and for now they will stay in the Euro.

Back to forex markets where the Euro was sold off across the board closing just under EUR/USD 1.34 and nudged close to 1.21 against the Swiss franc before reports of intervention saw it close at 1.2140. It could be a tough week for the Swiss National Bank I do hope the have plenty of dealing tickets printed. A continuation of market pessimism could see even more pressure on the Euro. That said there have still been reports of Asian central banks buying Euros still intent on diversifying away from the US dollar.
Eurozone bond spreads continue to widen against the German bunds and it seems Italy is now faring a good deal worse than Spain with 10 year yields over 5.5% again.
Before the end of the year Italy has about 250 billion Euros of debt which needs to be rolled over and that’s not counting the 17% they are hooked into the EFSF for.
So If you worry about Greece as another possible Lehman moment what about Italy. Their banks hold so much Italian debt that it would account for 160% of their capital….that means bust.
So maybe the Germans Fins and whoever else is saying no no no to the EFSF on steroids idea will have to change their minds. If it has to happen it will happen because there is still plenty of nutters out there who are intent on preserving what will prove to be the biggest financial cock up in history, the common currency.
Oh and that final little twist is that an Italian Snr Draghi will take the helm of the ECB a man who once lorded the Italian bond market as the biggest and most liquid in the eurozone.
The weeks mad hatter though at the EU tea party is commission president Jose Barroso who reiterated the desire for a ¨financial transaction¨ tax on EU banks which would by the commissions own admittance send the industry fleeing from Europe.
You could´t make it up could you.

Weekly review…G20 buying time in preparation for Greek default

Although as yet there does not appear anything 100% concrete out of G20 members in Washington the leaks and press speculation are beginning to outline what we can expect.
The major initiatives if you can call them that are all in preparation for a Greek default of some degree but not an expulsion from the Euro zone. To some degree its the same old same old with a G20 meeting in Cannes (get used to seeing that name) in early November for the great unveiling. Depending on who you read, what we will get will be an EFSF (European Finance and stability fund) on steroids. That is leveraged up some how to offer help in Trillions of Euros be it 1 or 2 or more. Banks will be recapitalised amid plans that definitely include some default from Greece and possibly Portugal and Ireland. The idea then is that Italy and Spain can if necessary be supported in the event that they are effectively shut out by bond markets.It all sounds so easy but in truth the Germans in particular have been dragged in against much of their thinking. What they will have to do is sell it to their public. The alternative, a return to the Deutche Mark which would endure strength beyond even Swiss franc proportions will be one of the frighteners used to convince. I sincerely doubt this will be a long term solution to the fundamental floors but if enacted could buy even more time, maybe several years.

So what for markets? Well lets be honest most of the action last week was in equities and commodities which tanked.In contrast currency markets were almost a haven of stability., certainly percentage moves were nothing to compare.In case we forget, it was initially reaction to a not so aggressive Fed move that sparked things off followed by continuing concern of EU debt and European Banks. In commodities particularly Gold and Silver I think we just saw an old fashioned clear out, although not to say we cant go lower, $ 1400 for gold maybe.
Greece is going down as politicians realise that more austerity wont work, certainly with the Greek public. Of course as yet the Greeks have barely tinkered with the real issue, a bloated unaffordable public sector which is sucking the blood from the private sector and individual taxpayers.
With the likelihood of statements coming thick and fast today and early tomorrow it could of course be, all change, but I think not. I would fully expect to see the Euro benefit and the dollar to suffer. EUR/USD which closed around 1.3500 may well open much higher, and depending on the depth of creditability of any new plan be at least in the 1.40s before to long.
German parliament will give the thumbs up this week to the original EFSF plan , which will then be leveraged in terms to be agreed. The only hiccup I see is a smaller nation e.g. Finland screwing things up by refusing to participate. However ,one suspects they or someone else will not want to be the architect of Euro Armageddon.

Finally when analysing recent months in currency markets some things are evident. We have not had a Euro crisis ( a Swiss franc one maybe) The Euro has faired pretty well against the US dollar still holding on to levels above even the purchasing power parity.When I look at Sterling I see a currency that could barely make any ground up against it even during these troubles.
The Euro project still remains deeply floored and we will never see convergence amongst all participants, but it could just get patched up for a long while to come although in nature if not name it will have become a transfer union.

 Wednesday Update…. Welcome to the rumour market

While attention is mostly fixed on the continuing saga that is Greece and the FOMC meeting, EUR/USD has remained fairly calm. Hovering around the 1.3600 to 1.3700 range ahead of the outcome of both events. Where we did see some yoyo action was in the Swiss Franc and Yen.Rumours of an announcement of a new EUR/CHF peg at 1.25 from 1.20 have seen some weakness in the Swiss Franc. The upshot is that we have settles in the middle around 1.2250 which seems as logical as forex markets ever get. USD/JPY which was at a 1 month low near 76.00 hit the dizzy heights of 76.75 on some intervention rumours but has gone no further. Why do I say all this rubbish? Well because its a quiet news day and that’s why rumours start.So lets head back to the shelter until the real action begins

Many Mountains We Have in Norway (& Some Oil)

 Well, you’ve invested as much as your comfortable with in gold, you’ve had your fingers burnt by the Swiss National Bank, and you are still wondering where to hide your funds from the current fall out. What do you do in this scenario?

The Swiss National Bank threw all of it toys out of the pram today and announced that the bank will be seeking a floor in its EUR/CHF price at 1.2000: basically a peg then. And gold is jumping around like a jack in the box- so this would seem like a trade for those without pacemakers for the time being.

EUR/CHF has come off the blocks strongly and has risen more than 1,000 pips from 1.1035 to break 1.2000 frontier and set fresh daily highs of 1.2190. USD/CHF also surged around 700 pips to 0.8570.

So where does that leave you? Well, many are turning to the black stuff in Norway. And we don’t mean the Guinness. All the talk in the market is about Norway’s Krone as the new safe haven. It’s not the easiest currency to trade but NOK seems to be on the up – EUR/NOK fell to it s lowest level since Feb. 2003. Norway has a huge sovereign wealth fund, of course, driven off its natural resources (mainly oil). The Scandinavian country normally invests abroad. They might well need to turn their big guns on the FX markets to control this latest trend. 

Of course the beauty of forex & commodity trading is that you can make money whether it’s "Risk On" and the equity markets are heading up, or as we seem to be living at the moment, in a "Risk Off" mode, where confidence in the world economies and stock markets is being eroded. You just need to get your timing right. All the signs are that there is still a healthy demand for gold, and we are coming into the Indian wedding season which traditionally drives demand. Try and buy the dips and bail out when you get to the previous highs (that seems to be what everyone else is doing). At the moment the price seems to crash back through 1900 like a drunk before working its way up again.

EUR/USD and GBP/USD seem to be drawn towards 1.40 and 1.60 respectively. If they bounce a couple of hundred pips off this floor, then going short wouldn’t be a bad punt, but set a reasonably tight stop loss just in case.

As I type we are at 1.4052, a small bounce off the 1.4 30s..let’s see if it is a dead cat bounce or not.

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.. 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.