17 JUNE 2013: DOLLAR LOSES MOMENTUM

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The Japanese Yen held near a two-month high against the Dollar and the Euro in early Asian trade Monday, amid market hysteria and confusion over when and how the US Federal Reserve (FED) will begin to scale down its massive stimulus program. USD/JPY opened at the same level as it ended in New York on Friday, where the Dollar bought 94.23 Yen. Since the opening, Yen has weakened to 94.77. EUR/USD trades steady at 1.3322 as French President Holland’s Socialist party asks for a weaker Euro.

The Dollar lost momentum during volatile sessions last week, which saw sharp moves in the Yen and emerging market currencies. Stronger retail sales and lower weekly jobless claims released last Thursday, helped the green back rise from months of lows. Negative consumer confidence figures published on Friday effected, however, USD negatively. The Dollar index, weighed against a basket of currencies, are at a four month low. Both Euro and GBP are at their strongest level against the Dollar since February.

Oil prices rallied to a two month high after Washington’s announcement that it would provide arms to Syrian rebel groups. New York Crude, NYMEX, trades at USD 97.63 a barrel and Brent is above 105. The Syrian crisis going to be at the top of the agenda when the G-8 meets today. The Syrian civil war is threatening the stability in neighboring Countries such as Jordan, Iraq, Lebanon and Turkey, and challenges Israel’s security as well. The conflict threatens to develop into a regional Russia/US proxy war also directly involving Iran.

In a price analysis Barclay’s bank is forecasting crude oil prices to retrace to USD 111 a barrel, taking supply shortfalls as well as geopolitical tensions into consideration. The Bank estimates supply shortfalls from OPEC (Organization of Oil Producing Countries) to be 2 million barrels a day or equal to Germany’s oil imports. Libyan oil output has fallen below 1m barrels a day due to protests at oil fields and terminals. Nigeria’s output has fallen due to theft-related damage to pipelines.

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14 JUNE 2013: ROBUST US-DATA TURNS MARKETS UP

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Robust US retail sales and a drop in the weekly jobless benefits claims had a positive impact on global stock markets yesterday and this morning. Japan’s Nikkei jumped 1.9 % recovering some of the sharp losses the last two weeks. This followed a strong session in New York. Dow Jones passed the 15 000 mark again, adding 1.21 %. The technology heavy Nasdaq index gained 1.32 %. The Asian Pacific MSCI-index rose 1.4 %. Also Chinese shares recovered.

Volatility is still high in the currency markets. Better than expected economic data calmed global markets,after the last few days bruising sell off. Investors remained, however, nervous ahead of next week’s Federal Reserve, FED, policy meeting on June the 18th-19th. The Dollar lost at one point more than 1% from early gains against the Yen, and stands at a four-month low against a basket of major currencies, DXY. USD/JPY is hovering below 95 at 94.92 Yen to a Dollar. Euro/USD is at 1.3349.

The positive data yesterday appeared to have brought some temporary relief to markets rocked by speculation on whether FED is going to taper its monetary easing. The strong rally in global equity markets over the last half year, has been driven by FED’s bond buying scheme. There is an open question as to how the stock markets would be affected by a discontinuation in monetary easing, which other central banks have also copied. Currencies are most likely going to continue to be volatile until stability returns to equities.

Yen short and Dollar long positions have been built up to excessive levels over the last few weeks, and have contributed to the volatility in USD/JPY. Selling of the Yen was overdone and it seems that the latest market turbulence might have filtered out much of that excess. USD/JPY at 95 seems to be reasonable for now. The British Pound Sterling, GBP, is gaining ground against the USD, trading above 1.57. Oil prices are up on US- growth expectations triggered by the latest data. US crude futures stand at 96.70 and Brent trades at USD 104.73 a barrel.

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07 JUNE 2013: DOLLAR PLUNGES IN BROAD SELL-OFF

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The Dollar plunged against the Euro, Japanese Yen, and other currencies as investors reduced bets on the greenback on concerns that today’s US jobs report will disappoint. Euro/USD trades at 1.3262. American stocks fell in tandem with a weaker USD, but rebounded to end in positive territory. Dow Jones added 0.53 % to climb back above the 15.000 level. Nasdaq gained 0.66 % to 3 424. The changes seem to be technically driven by psychological factors.

A poll amongst economists expects 170 000 new jobs could’ve been added to the US economy in May with an unemployment rate of 7.5 %. Fear of a weaker than expected job report prompted, however, investors to unwind bets on a stronger Dollar that had been profitable for months. Gold prices, which have been under strong pressure for months, suddenly rose 1 percent to USD 1412 an ounce as investors sold long positions on the Dollar.

The Euro gained after the European Central Bank, ECB, left interest rates unchanged. ECB President, Mario Draghi, stated that further monetary support was unlikely in the near future. ECB has kept interest rates at a record low of 0,5 % waiting for a turnaround in the Euro zone. Bank of England have also chosen to leave their loose monetary policy unchanged. British Sterling, GBP, has jumped against the Dollar at 1,5612 and gained substantially during the last few days from low 1.51 levels.

Concerns that key US job data will disappoint sent the Japanese Nikkei into bear territory in Asia this morning. The Nikkei plunged 1.9 % to a two month low. Nikkei has lost 20 % from a five-and-half-year high, just two weeks ago. Other Asian stocks failed to capitalize on overnight gains in Wall Street. The Asian Pacific MSCI-index fell 0.6 % to its lowest level since November. The fall in equities seem to indicate a stronger appetite among investors for safe haven bonds. The yield on U.S, German and Japanese bonds have risen recently.

Oil prices are higher on the back of a weaker Dollar. Brent crude trades close to USD 104 a barrel, up from the USD 100 mark earlier in the week.

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22 MAY 2013: BERNANKE HOLDS THE KEY TO THE STRENGTH OF THE USD

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Global markets traded steadily yesterday building up to the publishing of the Federal Reserve’s minutes from the last BOD meeting in April/May, and Ben Bernanke’s statement to Congress later today. After a small correction on Tuesday, the USD continues to strengthen and is up close to record high against a basket of currencies, DXY.

As proven over the last few weeks, the overall trend in the USD is pointing up towards all currency pairs in spite of a day or two of declines. This trend is supported by three main factors; the forecast for the US is better than for any other economy, Europe is ridden with recession and Japan is concentrating its efforts on increasing the inflation to the 2 % target.

The upswing in the US economy is mainly due to its monetary easing and FED’s loose monetary policies. FED representatives have, over the last few days, indicated that the bond buying program will soon come to an end. If Bernanke “sneezes” today and states the same as his local FED representatives have done, it would mean a further strengthening of the USD.

A weaker Euro and Yen over the last few hours seem to indicate that this is what markets expect. After the Japanese Economy minister talked the Yen up earlier in the week, he seems to have been reprimanded by superiors, and the Yen continues its free fall. The International Monetary Fund, IMF, in a report today, urged Swiss authorities to weaken the Franc by unwinding its currency reserve funds. The Franc has already depreciated 3,7 % towards the Euro in 2013.

Precious metals continue to fluctuate, wildly searching for direction. The large increases in gold and silver throughout Asia and early European trade was quickly eaten by new steep falls. Oil prices keep steady. Smaller than expected English inflation strengthened GBP and gave the markets hopes for loser monetary policies, meaning more money printed by the Bank of England.
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08 MAY 2013: ASIAN SHARES RISE ON CHINESE TRADE DATA

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The positive sentiment in global equity markets received a new boost on better than expected Chinese trade data. Asian shares rose to their highest level in two years after China reported a 14,7% export increase in April. Imports were up 16.8% with a trade surplus of USD 18,16 Billion for the month. The Chinese data comes on top of new Wall Street highs with Dow Jones closing above 15 000. In Germany industrial orders showed unexpected strength last week and pulled the Dax index into record territory.

The Australian Reserve Bank became yesterday the last central bank to cut interest rate creating an opening for parity between Australian and US dollars. Share prices are helped by decreased bond returns. The cut in interest rates play into the hands of equities. The Asian Pacific MSCI-index rose 0,8% and reached the highest level since August 2011. Global market sentiments were helped by strong quarterly results by one of the world leading banks, HSBC, and a profit jump for the US Disney. Cut in the labor seems to be the driving force behind HSBC’s result.

The Chinese trading numbers are likely to ease recent concerns about weakness in the recovery in the world second-largest economy. Doubts remain, however, over real demand in China, and the accuracy of their figures. Oil and commodity prices are trading firmer after the Chinese data. A successful bond trade in Portugal supported the upbeat mood and strengthened the Euro. Euro/USD is steady at 1.3080. There is still no breakthrough in USD/JPY which sticks to the 99 yen a dollar level. USD/British sterling, GBP is trading at 1.5479 slightly down from yesterday.

Gold continues to be under pressure. Gold lost one percent during yesterday’s trade. It has recovered to 1455. Gold backed exchange traded funds fell to their weakest level since 2009 indicating that investors money is leaving gold for booming stock markets. This suggests that the super cycle of commodities might be over and that tough times might lie ahead especially for metals. Analysts see that commodity prices in the future probably may be more determined by normal supply and demand balances than by speculative money flows.

Gold traders take an opposite opinion. The present equity boom is driven by low interest rates and central banks money printing. This will create inflationary pressure and challenges for the market system as witnessed by the financial crisis in the autumn of 2008. In such an environment investors will still use gold and precious metals as a hedge. Gold bulls, therefore, stress that a rebound to the USD 1700 level is most likely also in a shorter term perspective.
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09 April 2013: Aggressive bond buying sinks JPY

ImageUSD/ JPY dropped for the third straight day as the Bank of Japan (BOJ) yesterday started  its aggressive monetary easing program. Following the strategy of the US Federal Reserve (FED), BOJ is buying Japanese bonds for trillion in an effort to stimulate economic growth.  The Japanese government intends to get out of the vicious inflation  circle and  has set a target for 2 % inflation. The bond buying has boosted the Japanese stock market. US stocks also gained yesterday ahead of second quarter earnings session which is expected to show moderate growth.

 USD rallied to its highest level towards JPY seen since 2009, trading at 99,50 yen as BOJ concluded its first bond purchases since announcing the new monetary easing last week. Wall Street slipped in early trading as caution ahead of the quarterly season dominated the sentiment. Stocks turned around and ended in positive territory.  US stocks have rallied strongly over the last months with major indexes hitting record highs. Earnings forecast are predicting a 1,6 % rise in earnings over the last year.

 The Nikkei index in Tokyo jumped 3.1 % and saw its highest level since 2008 as BOJ shall pump  an equivalent to USD 1,4 trillion into bonds over the next two years. These measures  have created a bonanza in the stock and real estate markets. Traders are waiting for a break through of the psychological  100 yen level a dollar.  US 10 years treasury bills fell sharply last week in response to the aggressive Japanese measures.

 Oil prices hitting a 8 month low on Friday, have recovered.  Brent crude is trading at USD 105,55 a barrel, up one dollar from the beginning of the week. Euro/USD has made a strong come back from its low level on 1.2760 last week in the aftermath of the turbulence in Cyprus and the press conference of the European Central Bank (ECB).  Euro/USD is  trading at 1.3050.  British pound, GBP, and other major currencies have also gained ground against dollar. Precious metals led by gold,  USD 1575 an ounce, is also trading higher.

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15 March 2013: Stock market growth smile on US dollar

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 The Dow Jones Industrial rose for a 10th straight day in a stock rally not seen since 1996, and ended up 0,6 % at 14 539. This followed a strong session in Europe.  In Asia stocks rose again this morning after two loss making sessions. The rally was spurred by new US- labour market data showing a fall in the weekly numbers of people applying for unemployment benefits. The data reflects  that the American economy is steadily improving.  A raft of recent data from retail sales and manufacturing to employment and housing have shown that the US  economy is gathering steam.

In contradiction to former historical stock rallies where the green buck was used as some kind of a life jacket, the USD has this time benefited greatly on the stock market’s surge to new highs and improved economic data.  Against a basket of currency, DXY, the dollar has reached a seven month high. Since January USD/JPY has jumped from 86,67 to over 96. Pound Sterling, GBP, has fallen from 1.62 to a bottom of  1.4832 earlier this week. The moves suggest that the dollar has entered a multi-year bull cycle where the dollar has outperformed nine of the major G-10 currencies.

Political uncertainty in Italy has re-ignited  fear about the  euro zone’s debt crisis and put new pressure on the Euro.  Weak economic growth and  prospects of aggressive monetary easing in Japan and Britain have driven the yen and GBP to multi-year lows.  Spending cuts in Washington could for sure damper US economic growth and the FED has further pledged to keep interest rates low for the foreseeable future.   But capital flows continue to rotate in the favour of US-assets and  strengthen both the US economy and the dollar.

The dollar strength against JPY and Euro  took a little breather  on Friday. USD/JPY trades at 96,03 down from the peak of 96,71 on Tuesday. If the Bank of Japan (BOJ) follows up on its  declared strong monetary easing policies, USD/JPY is likely to trade in a future range between 95 – 105. If BOJ disappoints the trading range is expected to be 86 – 96. Euro/USD was in the short term  strengthened by a positive Spanish bond auction on Thursday. It  trades at 1.3010. Pound sterling and Australian dollar were yesterday’s winners. The Aussie added another 0,8 % after another  one percentage jump on good employment numbers on Wednesday.

British pound surged yesterday as investors scrambled to cover short positions made on expectations of more quantitative easing by the Bank of England. The Bank’s Governor stated that GBP according to his opinion is properly valued and not seeking further depreciation.  GBP was helped by rumours that Qatar is planning to invest billions of GBP into British infrastructure projects. The GBP yesterday’s one % gain is the biggest seen in seven months.

These short term gains are nevertheless not expected to  have any major medium or long term  impact.  The long medium and long term outlook point towards  a stronger USD both in relation to Euro, JPY, GBP and most other currencies. These forecasts for Euro/USD point to  a new test on former bottom levels 1.19 – 1.20. It is also predicted that GBP/USD can drop as low as 1.35.  The corridor range 95 – 105 is the most likely medium term scenario for USD/JPY.

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13 March 2013: Fear of triple dip recession puts GBP under pressure

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Fears of a triple-dip recession put new downward pressure on British Sterling (GBP) yesterday. January data showed a surprise fall in British industrial output. This pushed GBP down to a low level of $1.482. USD/GBP has since recovered and trades 0,2% to 1.4933. The state of the British economy is highly questionable. Some analysts are waiting an even weaker British sterling, and expect to see that USD/GBP can fall as low as 1.35.

Asian shares fell on Wednesday as the recent stock rally run seems to run out of steam. The MSCI index for Asia-Pacific outside Japan fell 0,6%. Stocks in Australia, Hong Kong and mainland China also fell from 0,6 to 1%. The Dow Jones Industrial, however, posted a new record high rising for the eight straight day on Tuesday. European shares retreated just short of fresh 4-and-a-half year high. Some investors fear that stocks have risen, too, quickly without fundamental support. Investors might be more risk willing, but are still scared by past events as the financial crisis in 2008 where fingers were burnt.

USD/JPY which fell to a low of 96,71 yesterday, trades today at 95,87 reflecting fears that the yen has fallen, too, steeply. The Nikkei stock index retreated 0,5% on profit taking after the last days strong rally; boosting exporters taking advantage of a weaker yen.

Euro/USD is steady in the interval between 1,3030 and 1.3040. It was weighed down on Tuesday by a warning from the Chairman of the Bundesbank, Jens Weidmann, who is also on the board of ECB, the European Central Bank. Weidmann stated that euro crisis in no way is over. In other developments drought has put the New Zealand agricultural dependent currency under pressure.

NYMEX crude is up to USD 92,71 a barrel while Brent crude is weaker at 109,64. Gold, silver and copper are all up 0,2% clinging to gains earlier in the week. Gold trades at USD 1592.

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08 March 2013: USD/JPY rallies before US jobs

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The dollar surged to its highest level against Japanese yen in 3-1/2-year before US job numbers for February are going to be presented later today. USD stands at 95,43 yen up 0,6% since yesterday. It is expected that that the US economy last month created net 160 000 new jobs. The unemployment rate still stands at 7,9% far from the 6,5% which the Federal Reserve (FED) has set as target for ending monetary easing.

Investors waiting for more dovish signals from the European Central Bank (ECB) at its press conference yesterday was disappointed. The single currency posted its biggest rally this year and jumped more than 100 points against the dollar and stands at 1.3092 after flirting with 1.29 figures earlier in the week. ECB President Mario Draghi plaid down the threat of contagion to other euro members following the Italian political stalemate. Draghi stressed growing market confidence in the Euro which had EURO bears quickly to cover short positions.

The Euro skyrocketed 2% to 124,57 against the JPY. It stood at 118,74 last week. The 34 month peak of 127,71 set last month is thereby brought back in play. The rally might, however, be short played with investor’s attention back on Chinese trade data and whether the US unemployment rate will stay at 7.9%.

Bank of England (BOE) kept its guns yesterday and held fire on the expected more economic stimulus. The downward pressure on British sterling (GBP) continues, however. USD/GBP trades again below 1.50 after seeing some recovery yesterday. There is no change in the choppy trading pattern in commodity related currencies. Oil prices are steady. Gold fell back from USD 1583 an ounce reached yesterday to 1567 this morning.

The stock rally in the United States continue. Dow Jones ended at record high for the third straight day boosted by expectations of a pick-up in the payrolls report. Growth oriented sectors led the gains with strong jumps in Bank of America (up 2,9%) and JP Morgan Chase (1,2%). Worries about the path of US fiscal policy and the Euro zone crisis loom, however, in the background. For the moment the Bulls are in advance. 

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07 March 2013: GBP and Euro face strong pressure

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A solid job report showing that US private employers added a larger-than-expected 198 000 jobs in February, gave the dollar a strong boost yesterday, trading at its highest level against a basket of currencies in 6-1/2 months. Both the Euro and Pound sterling (GBP)are under strong downward pressure. Euro/USD dipped below 1.30 and trades at 1.2990 prior to meeting in the ECB, European Central Bank, later today.  GBPUSD traded below the critical 1.50 level on rumours on monetary easing.

 While the job data fuelled hopes that the US economy is improving, the British pound fell to its lowest level in 2-1/2-year as market players positioned for more stimulus from the Bank of England (BOE). The strict austerity measures introduced by the British government over the last two years have  not been working,  and the UK economy is facing the threat of triple-dip recession. While BOE and other central banks are considering the same monetary easing policies as the US FED  has practised, US is debating whether to exit their bond buying program.

 After the dollar index, DXY, hit, a bottom level of 78,918, in the beginning of February  it has rallied 4 % since. The stronger employment data along with better housing figures are likely to fuel speculation that FED  will end its bond buying program sooner than expected in spite of FED Chairman, Ben Bernanke’s strong statement to the contrary only weeks ago.

 Of the three major Western central banks;  ECB, BOE and FED,  BOE is the most likely to act in favour of more easing. Three of BOE’s members voted in favour of quantitative easing last month.  It is expected that a majority this week will opt for a moderate 25-billion-pound balance sheet expansion.  That would put sterling under further strong pressure.  ECB meets in Frankfurt today on the backdrop of a political deadlock in Italy and prospects for a further fall in the Euro. It is, however,  expected that ECB will keep its policies unchanged. 

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