Wednesday update…Japanese Yen falls… is this reality at last

There hasn’t been many days recently that the Yen has taken centre stage but it did overnight as it fell close to 78 against the dollar and 101.60 against a recovering Euro. This move was prompted by Japanese trade data that showed another deficit but more importantly its first yearly trade deficit since 1980.Over the years I have always found timing on the Yen very difficult but my year end predictions for 2012 was for US$/JPY over 90. It could be 100 plus.However another Euro wobble amidst an equity sell off might see it return as a safe haven but just maybe we have seen the beginning of a weaker Yen which by all measures is overvalued.
Elsewhere as I said the Euro recovered from its early sell off, now back at EUR/USD 1.3030. Jitters remain about Greece although recent PMI data from Europe is leading to some predictions that any recession will be over quickly. I don’t believe that. The IMF lowered world growth predictions to 3.25% from 4 % and all their warnings of worst case scenarios revolve around Europe.
Headlines

• UK. Bank of England minutes and 4th Qtr GDP data could add some volatility to sterling. Negative growth expected but how much. Predictions range from +0.1 to a horrible -0.7%
• Japan. A surprise December trade deficit left Japan in deficit for the first time since 1980. Early days but perhaps a sign of things for the future US$/JPY falls to 78
• Australia. Aus$ picks up on risk appetite and inflation data that may stall a rate cut
• Europe. Still no resolution on Greek debt. IMF calls for ECB to take haircut on its 40 billion Greek bond holding.That would be a nice $20 billion loss for Europe’s tax payers and a no argument transfer against EU rules.( The ECBs holding of bonds has always been excluded from any haircut plans and seems unlikely to happen)
• Davos. As the great, good and some might say rubbish of the commercial, financial and political world gather in Davos, Switzerland expect plenty of profound statements from those who think they have the answers or know what’s going to happen. Legendary George Soros already predicting social unrest from the `have nots´ against the ´haves`. Where was my invite, Spanish post again.

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 ¡

Thursday Update.. Risk sell off reverses US dollar decline.

EUR/USD made it to 1.4500 yesterday as reports of buying from the IMM in Chicago sent the US currency lower. However, once again equities pointed the way and a sell off in Asia and weaker European opening for stocks has seen EUR/USD under 1.44 this morning.Sterling enjoyed some good demand leading the rally and made ground up against the Euro.It has held its ground against the US currency above 1.6500 Retail sales figures there could add more substance to the rally if they are better than expected.
The Japanese yen remains close to its all time low of USD/JPY 76.25 at 76.60. Traders remain wary of intervention but an unhindered break lower could add some momentum to the downside.
I get the feeling that US traders are beginning to sniff more quantative easing from the Fed. This has not shown up in equities yet but might be the lifeline for them. Certainly it would lead to a more pronounced US dollar sell off. In Euro bond markets support by the ECB sees Spanish 10 year bonds under 5% this morning and while that continues we might see some more support for the common currency. Gold though remains strong as the markets best currency hedge.
Interesting comments from the ECBs Nowotny who admits to being concerned about low growth and low inflation. Somewhat of a back track there but maybe he was a dissenter for the disastrous rate hike earlier which like many events have dented ECB market credibility.
Better US equities today will send the US currency back down which seems the market bias at the moment so watch that crucial USD/JPY level

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

Tuesday Update…. Obama inspires US Dollar sell off

With forex markets churning for a day as they digested last weeks events it was reaction to President Obama’s TV speech which finally got some action.The US Dollar was sold as participants reacted negatively to his comments for US Republicans and Democrats to come up with a deficit package he can sign.On balance it looks like markets feel that he will sign something rather than go into technical default even if it is a temporary debt ceiling hike.
The upshot was EUR/USD through 1.45 from the mid 1.43s in short order and USD/JPY at 78.00. The Euro has been the main beneficiary and if it holds higher levels today it may well gain some technical support.I cant get super bullish yet but am beginning to think we could see further upside in EUR/USD ahead.
Data from around Europe is still appearing soft with latest consumer confidence figures weaker and going forward that will need to be watched. Indeed in the UK today 2nd quarter GDP data is now expected to be down at 0.2 from 0.5 as the UK economy struggles to show any real growth.Mind you anything better and that might give sterling a lift.
I would expect some retrace of the Dollar move at some point and that might be a chance to get short the currency.
During all the recent hullaballoo of EU tensions and US budget talk equities have remained remarkably resilient. With some good news you feel stocks might just have a surge higher but not sure where that might come from at the moment.
p.s. The Greek Finance Minister who visited US Treasury secretary Geithner yesterday has declined to comment that he was asked to give advice.Well they certainly know what its like being in the poop.

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

Tuesday Update…. Consolidation and more……consolidation

A brief challenge on EUR/USD 1.4900 failed yesterday and has left the pair very much back where we were at just over 1.4800. Slowly but slowly the oversold dollar situation is easing but still nothing in terms of a retrace yet to maybe get a chance of some cheaper EUR/USD. Commodities ark generally a shade easier which has probably helped the US Currency back. However, Asian central bank buying seems to be evident still on any dip in in the EUR/USD.
Equities were mixed US markets a tad easier but stronger in Japan. The USD/JPY has been quietly easing back down. Under 81.00 this morning although markets are still wary of central bank intervention. However, the steam has well and truly gone from the upside on the USD/JPY and any weakness of Yen seems now more likely to show up against the European currencies.
The ECB rate decision will remain the focus for the week but Commodities could also hold the key. US dollar weakness and commodity price strength have fed off each other in recent weeks and that could easily happen in reverse. At the moment though that seems like wishful thinking on my part.
Sterling remains vulnerable against the Euro and another rate hike by the ECB could well push it above the 90 level against the Euro unless the Bank of England surprises markets,which they will not.

Wednesday Update ..Yen and US Dollar rebounds turn out to be Dead Cat

Tuesdays reversal in the Japanese Yen and to some degree the US Dollar turned out to be the proverbial dead cat bounce. The Nuclear Crisis seemed to have sparked a panic in risk but today it seems more like business as usual. the JPY/USD is back over 84.00 EUR/JPY over 122.00 and EUR/USD 1.4500.
The Euro continues to find support from Sovereigns diversifying reserves and turns a blind eye to anything adverse on the peripheral country news. In the hear and now I still think mid 1.45s EUR/USD could prove a bit a a barrier but in reality I am just hoping for another correction to stock up.EUR/USD 1.50 still looks likely in the coming weeks together with EUR/JPY 130.
In the long run of course a stronger Euro will just add to the woes of PIG but for now markets seem to be happy to ignore what might happen some time in the future. The Politicians rule out restructuring as they did with bailouts while most knowledgeable commentators think the opposite.My own view is that in the end it will be the public in Portugal and Greece who will decide enough is enough. Certainly the appetite for austerity in Portugal just does not seem to be there. When months turn into years then patience will snap.
Elsewhere Sterling continues to look vulnerable following disastrous retail sales figures. A move over 90 against the Euro might be a bearish sign for a test of all time highs…….that should send the Irish shoppers back over the border in droves and prove a killer for the Irish economy.

Weekly Review..Euro Strength and Dollar Weakness set to continue but..

With the ECB raising rates as expected and the US still unlikely to raise their rates any time soon it was up and away for EUR/USD lat week.Technically the picture points to a test of EUR/USD 1.50 but in the immediate future there seems good resistance between 1.4500 to 1.4575. This means that trimming long positions may offer better levels to reestablish. Of course we may just consolidate rather than retrace but whatever I feel we will not see 1.46 at least until later , if at all next week. With Gold, Oil and other commodities adding to the US Currencies woes though it does just look like it will be a pause for breath.If there is some kind of surprise around to damage the US dollar negative view then I for one cant see it at the moment.
The Japanese Yen continued its declines as well and likewise after some consolidation should continue. This may well show up more in EUR/JPY rather than USD/JPY .
Equities lost a bit of their luster on Friday but would need more of a sell-off to influence forex markets.

Weekly Review … Mass debate at the Fed

It seemed like every Fed official wanted to have their say last week on QE2 inflation and normalization of activities by the Federal Reserve. Certainly there has been a more hawkish tinge to comments but not enough to give a clear direction on future Fed action. Some of the comments gave a short term boost the the US Dollar but nothing lasting, as seems to be the case with any dollar positives at the moment.
ECB members were no less vocal last week but unlike their US (and UK) counterparts are all singing from the same song sheet. Official rates are going up in the EU next week the only debate there is by how much. Markets seem to be split evenly on whether it will it will be 25 or 50 basis points this time around. Certainly there cannot have been a time when action has been flagged to such a degree.Personally I give 1/2% more chance but if it is only 1/4 then there will be more to come soon. ECB officials as is always the case seem to focus on Germany where inflation has been met by increased wages. This has much to do with a country that can afford them. Of course the same is not true elsewhere. The peripheral countries of Portugal, Greece and Ireland woes seem to be affecting the Euro less and less. However, much of this has been because bond markets in Spain have not been badly affected. What will hurt Spain is rate increases where a very large proportion of the public will feel the pinch on their mortgages. From now on all attention will be on Spain, how it’s austerity measures work, it’s banking system fairs and what levels of growth it can attain. If news gets bad on these three then watch out for market turmoil.
The major forex feature of the week was of course Yen weakness. It suffered against the US Dollar hitting USD/JPY 84.72 before closing near 84.00. Against the Euro it hit EUR/JPY 119.78 almost our target of 120 and closed just a little lower.Technically it seems set for lower levels (the Yen) but I would caution as it’s short term oversold against many currencies. We could see better levels to establish EUR/JPY longs again but further out expect 120 plus .The yens slide as I have said before suits all parties at the moment. While the BOJ has not been seen directly in markets there is some thoughts that Insurance Companies and Exporters may be dealing direct with the Central Bank. While not proven it would make sense that everyone behaves and follows the National line.
EUR/USD was a bit of a side show last week as it oscillated around 1.4150. Fridays trading was something to behold as having been sold off on strong US employment data down to EUR/USD 1.4062 it surged back to close at EUR/USD 1.4233 having touched the 1.4260s. Conclusion seems to me to be higher levels next week.
Elsewhere the commodity currencies faired best Canada especially, and low interest currencies led by the Yen but also Swiss Franc and Sterling suffered.The strategy for next week could well be the same but watch for knee jerk moves on ECB action and the press conference. Remain vigilant as Mr. Trichet says : I have found a website that seems to be a bit of a reverse indicator recently ( gold dust if you can find one) and their consensus is for a stronger US.
Congratulations to India on their World Cup Cricket victory. The best team won which does not always apply in Forex markets.