myTradeForex

Operation Twist and its Effects

2011-09-22T15:31:00.000+08:00

Effectively what the Fed did today was nothing more than a punch in the face of their constituents (the banks) as banks make money by lending long term and paying for that money on the short term. Hence, why they say that a steep yield curve turns idiots into banking geniuses. The steeper the yield curve, the more money banks make on their loans, and the faster they repair their troubled balance sheets.

Helicopter Ben announced a measure whose intent is to lower long term rates.
What he fails to understand is that he is tackling the wrong issue (doesn’t he read the papers?), the impact of lower long term rates on the economy is marginal. What we need is to restructure the balance sheets of consumers and of governments. What they achieved with operation twist is that the banks will be even less likely to lend money to the real economy or that they will demand higher spreads in order to make the same profit margin that they used to make when the curve was steeper.

None of which is good for the economy.

The author is Pedro Noronha, Fund Manager at Noster Capital.

How China Manages its Yuan

2011-09-21T16:32:00.000+08:00

To keep the yuan largely stable, the People's Bank of China buys foreign exchange inflows generated by China's trade surplus and foreign investment from commercial banks, resulting in an injection of yuan into the banking system.

The central bank then soaks up excess yuan in the system via open-market operations and higher bank reserve requirements to prevent the money from flowing into the economy and fuelling inflation.

But as long as foreign funds keep flowing into China, the central bank's efforts to soak up liquidity are not entirely effective because the surfeit of yuan in the banking system often leads banks to increase lending.

Should Greece Default and leave the Euro Zone?

2011-09-20T14:32:00.002+08:00

Greece should begin an "orderly" default and voluntarily leave the euro in order to escape a "vicious cycle of insolvency, low competitiveness and ever-deepening depression," economist Nouriel Roubini said in a guest column published Monday in the Financial Times.

Other options, such as a sharp weakening of the euro, a rapid reduction in Greece's unit labor costs or a rapid deflation in prices and wages appear unlikely or impractical, said Roubini, a New York University professor and chairman of Roubini Global Economics.

While the process would be traumatic, a return to the drachma and a sharp depreciation in its value "would quickly restore competitiveness and growth, as it did in Argentina and many other emerging markets which abandoned their currency pegs," he said.

Leaving the eurozone would make it easier for the most distressed countries to regain competitiveness. But, if they are willing to make the necessary sacrifices, they could also remain: the EFSF would protect their domestic bank deposits, and the IMF would help to recapitalize their banking systems, which would help these countries escape from their current trap. Either way, it is not in the European Union’s interest to allow these countries to collapse and drag down the entire global banking system with them.

Preparing for the possible default or defection of three small countries from the euro does not mean that those countries would necessarily be abandoned. On the contrary, the possibility of an orderly default – financed by the other eurozone countries and the International Monetary Fund – would offer Greece and Portugal policy choices.

Moreover, it would end the vicious cycle – now threatening all of the eurozone’s deficit countries – whereby austerity weakens their growth prospects, leading investors to demand prohibitively high interest rates and thus forcing their governments to cut spending further.

Euro To Test 1.3410 Today?

2011-09-13T16:19:00.001+08:00

The expected rally was shallower than expected. It shows the Euro is rather bearish at the moment. It hints to me that Euro will break the previous low before this counter trend rally by a more significant amount that expected.

Euro should revisit the low at 1.34985 and is likely to move lower to 1.3410, most likely today. Watch out for the drop.

Greece's membership of the euro is hanging by a thread.

2011-09-09T15:12:00.000+08:00

While this situation seems to have finally dawned on the country's political elite this week, for most Greeks there is little real understanding of the scale of what is going on around them.

The taxi drivers are striking again over government plans to deregulate their industry, and on Saturday we can expect large scale demonstrations as Prime Minister George Papandreou delivers a speech on the economy in Thessaloniki.

Time may have already run out.

The economic situation is now incredibly grim with the latest figures indicating that this country slipped even deeper into recession during the second quarter (- 7.3 percent y/y).

There is now very little chance that any of the main conditions for international aid will be met. Germany's Finance Minister Wolfgang Schaeuble has said that unless the targets are hit there will be no more money. His word's should not be taken lightly.

No more money means a hard restructuring for Greece and a massive recapitalization of Europe's banks. I suspect that Berlin is not prepared to pull the trigger just yet but it is clear the mood in the Merkel camp has changed.

For the time being though some kind of a fudge will be found to keep the aid coming.

The Troika inspectors will return to next week and some how Athens will conjure up more unachievable cuts to keep them happy.

The inspectors may even take solace in the latest report from the OECD which indicates that Greece can avoid disaster "But [that this] this requires impeccable implementation [of reforms] from the Greek government".

So far the Greeks' implementation has been anything but impeccable. The end will probably come towards the end of the year.

When the Troika return to assess the feasibility of giving Greece its seventh tranche of aid it will be clear to everybody that the situation is out of control. In the meantime there will be a great deal of talk from desperate politicians about a lurch towards greater fiscal integration.

The idea of a eurobond riding to the region's rescue though is misplaced.

The German constitutional court on Wednesday made it very clear that any assumption of liability by Berlin must only come with greater control over other country's economic sovereignty.

This will not be acceptable to the Greek people or even the Italians.

The euro bond debate also misses the point that the initial problem with the euro lay not in its rules but with its membership.

It would have been possible to move towards fiscal integration if the likes of Greece had not been admitted in the first place.

© 2011 CNBC.com

Gold brewing bubbles or backed by fundamentals

2011-08-15T17:59:00.001+08:00

The case thus far: Gold futures hitting the $1,800 level is of no surprise. First and foremost, the US credit rating downgrade to AA+ by Standard and Poor’s had somewhat eroded USTs as a safe haven, and gold have been increasingly demanded as a viable substitute asset to hedge against uncertainties. Secondly, renewed Eurozone fears stemming from France’s banking exposure to Greek debts and rumors of a credit rating downgrade also intensified risk aversion in the markets, driving up demand for safe havens. Lastly, Korea’s purchase of 25 metric tons of gold for diversification had signalled central bank’s continuing interest in the bullion as protection against declining paper currencies and economic uncertainties.

Key events to watch out for would be the Fed’s decision on QE3 (or anything similar to it), as well the ongoing developments on the Eurozone debt crisis. A resolution to the Eurozone debt crisis could stall the short-term gold rally, but the medium-term uptrend for gold prices remains structurally intact in our view. On the other hand, the any QE3 should prove supportive of inflation expectations, stymie the USD and in turn allow further upside in gold prices.

From OCBC Treasury Research

FOMC spelt out clearly to keep ultra loose interest rate policy through mid-2013

2011-08-10T17:02:00.000+08:00

The US Federal Open Market Committee (FOMC) held its scheduled meeting on 9 August and explicitly spelt out that the Fed will keep the Federal Funds Target Rate (FFTR) at 0-0.25% and “economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013” (instead of the usual phrase “for an extended period”). The other significant takeaway from the FOMC statement was that the economic outlook was significantly weaker than expected as “indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.” Note that this policy decision was not a unanimous one, there were three dissenting votes (while 7 voted yes, passing the statement comfortably), something that is quite rare. The last time there were three voters that dissented was nearly 18 years ago.

Implications if US were to lose it AAA rating

2011-07-18T09:50:00.003+08:00

In time of crisis, the US dollar will tend to rise due to its safe haven status. Many investors/funds will tend to park their money in US Treasury earning a higher returns than money market deposit.

U.S. Treasury bonds could soon lose the privilege of being the only debt securities in the world whose value actually rises on the threat of a ratings downgrade.

That is because for the first time, the United States' top-notch debt rating is in jeopardy.

U.S. Congressional leaders are refusing to lift the country's debt ceiling , preventing the Treasury from raising money it has already spent.

The political deadlock is threatening the United States' prized AAA credit grade, which major rating agencies have warned could face near-term cuts.

Even billionaire Pete Peterson, co-founder of private equity giant Blackstone, appeared to be getting worried. He has spent many years and a lot of money pushing for cuts in government spending to cut U.S. debt levels.

"The dangerous irony is that a refusal to compromise on a deal to reduce the nation's debt now will only serve to increase our debt," Peterson said in a statement.

Ironically, Peterson's often flashy anti-debt campaigns are partly to blame for the impasse, since Republican leaders have the backing of a majority of Americans on the issue, according to recent polls.

Economists say many individuals oppose the debt ceiling because they think that would mean giving a green light to additional government spending — rather than simply making good on past promises, as is actually the case.

A downgrade of U.S. government debt would have unpredictable and highly disruptive consequences in financial markets and the broader economy.

Treasuries have long been used as a global safe-haven for investors shunning risky assets. They serve as a benchmark for market interest rates and investment portfolios.

Federal Reserve Chairman Ben Bernanke argued this week that failure to raise the statutory limit would have "calamitous" results, including a long-term loss of confidence in the United States and possibly a new financial crisis.

Italy Is Different?

2011-07-15T20:44:00.001+08:00

Escalation. The shock waves emanating from the global debt crisis continue to spread. While the US is facing the threat of the loss of its AAA rating because of the deadlocked debt ceiling negotiations, the crisis in Europe has definitely reached a new level.

Italy. As if the political impasse on a second Greece bailout and the junk status of Irish bonds were not bad enough, the crisis has now spilled over to a core EMU country – Italy. Yields and insurance premiums of Italian government bonds rose strongly.

Joint liability. However, this appears to be the result of primarily a loss of market confidence in the ability of European and Italian policymakers to resolve the problems rather than a dramatic deterioration of credit fundamentals. They are very different from those of the problem countries.

Facts. Italy may have a high public debt level, but the structure and dynamic of its debt are much better compared to peripheral countries. And the austerity package is likely to be approved by parliament this evening, providing for a balanced budget as early as 2014. Over the medium term, this should bring down the country’s gearing (chart) – even if part of the recent risk premium remains.

Chances. Italy’s Achilles heel continues to be its low growth potential. Any substantial increase would require far-reaching structural reforms. Then, Italy could shoulder even higher risk premiums. If the government makes (further) progress in terms of consolidation and structural policy, the debt problems will, therefore, remain manageable (pages 2-5).

Italy: Europe's Fannie Mae moment?

2011-07-12T14:34:00.001+08:00

Italy, while technically part of the euro zone monolith, is by itself the world'sseventh-largest economy. A debt and banking crisis there would be infinitely more problematic for the rest of the world than a combined collapse of Greece, Portugal and Ireland.

If nothing else, troubles in Italy would confirm the worst-case scenario that many have been predicting since the Greek debt crisis first begin to unfold more than a year ago: namely that Greece would be just the first euro domino to fall.

"The danger is that the problems are gathering momentum," said Frances Hudson, global thematic strategist with Standard Life Investments in Edinburgh, Scotland. "Italy's economic challenges are real because they are very indebted."

Making matters worse is the fact that the market seems to have lost all confidence in the European Central Bank's abilities to get the crisis solved in a timely fashion. That is reminding some of the heady days before Lehman Brothers went bankrupt less than three years ago.

"It's astonishing how Italian bank stocks were crushed. That's worrisome because banks are the best indicator of how a crisis is developing -- just like it was in 2008," said Andrew Busch, global currency & public policy strategist with BMO Capital Markets in Chicago.

In fact, Italian bank stocks plunged so dramatically that Italian regulators even took the bold step over the weekend to institute a partial ban on certain types of short selling in order to keep stocks from falling further.

That's not good. When regulators decide that the problem is not the underlying fundamentals but the big bad speculators and hedge funds, the battle is already lost.
That's also a lesson from 2008. The Securities and Exchange Commission waged war against so-called naked short selling and even temporarily banned short selling of several big financial stocks in September 2008 ... to little avail.

"If the global financial community has no faith in what you are doing, you can use as many Band-Aids as you want to try and slow down the speculators. But in the end, it's not going to work," Dietrich said.

In Europe, an 'Argentinean Re-Run'

2011-07-06T16:54:00.000+08:00

Could this be just the starts of more to come? Could Greece follows in the footsteps of Argentina? Euro could be in for a long period of weakness.

The situation facing European countries like Greece and Portugal is directly comparable to the economic crisis which hit Latin America in the late 1990s, Andy Brough, co-head of Schroders’ Pan European Small and Mid Cap team, told CNBC Wednesday.

"I get the feeling we're having an Argentinean re-run," Brough said. "In Europe, they've tried everything to sustain the system but it's unsustainable."

Argentina, together with the region's largest country Brazil and with Uruguay, suffered a sustained economic crisis last decade after building up a huge debt pile.

Argentina in particular continued to borrow heavily from the International Monetary Fund (IMF) without repaying its debts.

"In the end the populace is going to say we didn't go into the euro for this," the Schroders fund manager said.

Fernando de la Rúa, then president of Argentina, had to flee the country in a helicopter after the unrest grew. While the political situation in Greece and Portugal is not yet that serious, there have been widespread protests on the streets of Athens against austerity measures demanded by the ECB and IMF as part of a second bailout of Greece.

Evangelos Venizelos, who was brought in as Finance Minister of Greece just two weeks ago, told CNBC in his first international broadcast interview Tuesday that Greece's part in the euro zone was "not reversible". He insisted that "the common will of our people" was behind staying in the euro zone.

More doubt was cast on Portugal's ability to withstand its economic problems on Tuesday after ratings agency Moody's downgraded its government debt, citing growing risks the country will require a second rescue package because it cannot meet its debt reduction targets.

It may be even more difficult for Greece and the banks supporting it to recover from its economic problems than it was for Argentina and Brazil, according to Brough.

"If you look back then, we didn't have the transparency we do now, so all the banks that were funding Latin America could smooth over what was going on," he said. "Now, everyone is in the spotlight so it's much harder for banks to smooth it over."

"The middle class in Argentina couldn't just withdraw their money, whereas the middle class in Greece or Portugal can take it out and buy anything that isn't the euro," Brough added.

In Argentina, the government slapped a $250 a week limit on withdrawals from its banks to halt massive pulling out of savings.

Debt Rollover Plan for Greece May Put It Into Selective Default, S&P Says

2011-07-04T16:22:00.001+08:00

Standard & Poor’s said the debt rollover plan for Greece may temporarily place the country in “selective default” if the French plan allowing bondholders to roll over their debt is implemented.

The French proposal would qualify as a distressed debt restructuring because it offers creditors “less value than the promise of the original securities” and would therefore put Greece in default, S&P said in a statement today.

Europe is inching toward a goal of getting banks to roll over 30 billion euros ($44 billion) of Greek bonds, instead of opening a hole for the official lenders to fill. French banks, with the biggest holdings in Greece, worked out a rollover formula that is serving as an example elsewhere, with two options for bondholders to replace their maturing securities.

“It is our view that each of the two financing options described in the Federation Bancaire Francaise proposal would likely amount to a default,” S&P said in the statement. “But, once either option is implemented, we would assign a new issuer credit rating to Greece after a short time reflecting our forward-looking view of Greece’s sovereign credit risk.”

European Central Bank President Jean-Claude Trichet reiterated last week that the ECB opposes “all concepts that are not purely voluntary” and called for “the avoidance of credit events or selective default or default.” He declined to comment on the French proposal.

Waiting for a pullback

2011-06-30T23:51:00.001+08:00

Waiting for the pullback to enter. The ideal level would be around the 50% level.

Greece - Beyond the Parliament Vote

2011-06-27T16:50:00.001+08:00

Greece is in a spot of bother. In fact, in terms of its debt-to-GDP ratio, it is in worse shape than Jamaica was back when we nearly imploded, two years ago. With creditors dumping its bonds and its credit rating being quickly downgraded, Greece remains solvent only because its partners in the European Union are keeping it afloat.

Heavy debt load
The euro had enabled Athens to borrow at German rates, yet spend with Greek enthusiasm, in a nation which takes what might be called a rather sceptical attitude to tax collectors. So when the boom days ended, Greece's heavy debt load made it especially vulnerable to a downgrade of its debt. Greece was another Jamaica, with slower sprinters but better (well, for a while, at least) footballers.

When the masters of the eurozone in Brussels, Berlin and Paris came to the rescue, they demanded a pound of flesh, as the IMF did of Jamaica. This brought the protesters on to the streets, angered that with their attempts at economic micromanagement, the Germans were doing with the euro what they had failed to do with their armies - take control of foreign lands.

Lehman brothers sequel
If the Greek Parliament were to vote down the government's proposed austerity package this week, the country might be forced to default on its loans. If it defaults on its loans, French, German and American banks, exposed to Greek debt, would face losses. Some analysts fear that as they unloaded assets to cover those losses, they could create a tailspin similar to 2008's. Some, therefore, bill this moment, Lehman Brothers - The Sequel.

There is some debate as to whether or not this is a realistic scenario. Nonetheless, it is likely that neither the French nor the Germans want to find out. They will almost certainly continue to string the Greeks along, buying the government in Athens some breathing space, while giving their own banks time to gradually unload Greek bonds.

Sooner or later, Greece seems likely to implode. When it does, the euro will struggle not to go with it. And until it happens, a cloud will continue to hang over Europe's other peripheral economies, as well as the global financial system. A crisis may be postponed, but the economic recovery will continue to remain anaemic.

Euro Reached its Target

2011-06-15T23:35:00.002+08:00

In yesterday's post, I was looking at 1.4313 in 2 days time, but just today alone, we are now at 1.4250. Support is around these areas, 1.4250 n 1.4230. If these levels break the next one will be at 1.4160. I am not looking that far. I will be happy with 1.4230.

Euro Pullback Over?

2011-06-14T21:53:00.002+08:00

In yesterday's post, I was looking for Euro to correct higher to 1.4450 to 1.4490. Today, the high in Euro is 1.4471. Is this the end of the Euro correction? Is Euro posed to fall lower below the 1.4313 low?

Looks like it. The wave should be coming. Euro needs to move above 1.4490 to negate the decline, if not we should see 1.4313 in about 2 days time.

Is the decline from the trend channel over?

2011-06-13T22:01:00.002+08:00

In the previous post, I highlighted a potential break of the 4H trend channel for the Euro. The trend channel broke and has reached a low of 1.4313. The decline from the high has corrected about 50% of the rally. Is the the end of the Euro correction?

I do not think so. I think for the moment, there low is at 1.4313. Euro will attempt a corrective rally higher to 1.4450 to 1.4490. From there, I am expecting another decline lower below 1.4313.

Euro at an important point

2011-06-09T13:40:00.002+08:00

Euro is at an important point. It is sitting on the edge of its trend channel. A break of the channel will lead the Euro lower to test its 38-50% correction levels. It not, it has to advance higher to its upper channel level. Today, there is ECB meeting and this will help the Euro to make its decision. Watch out for the movement.

Bernanke's View of the US Economy

2011-06-08T14:09:00.000+08:00

Fed Chairman Ben Bernanke gave no surprises on monetary policy, indicating that the economy is still below potential and accommodative policy is still needed. However, he sees the economy as temporarily softened by the tsunami and earthquake in Japan. Bernanke anticipates hiring to pick up from the pace in May. The Fed chief sees stronger job growth as critical for making sure the recovery is fully established. However, he is concerned that more than half of the jobless have been unemployed six months or more. He sees no sign so far that inflation is broad-based or ingrained. Bernanke sees the business sector as more upbeat with business credit conditions mostly improved and profits up. He sees housing as still weak with mortgage credit still constrained and declined prices an impediment to sales and construction. Bernanke calls for the federal government to create a credible plan for long-term for fiscal consolidation.

Greece The Debt Background

2011-06-02T15:52:00.002+08:00

Greece – At the Crossroads
Over the past few weeks, we have had streams of headlines concerning the negotiations and discussions surrounding the ECB, IMF and various EU governments. Much of the focus has been on Greece, where the review of the country’s fiscal progress and prospects by the EU/IMF is due to conclude in the coming days.

The background to these discussions has been associated with two financing issues: the first being the fifth disbursement of EU/IMF financial aid, which had been scheduled for June 29; and the second being how Greece can meet the expected shortfall in refinancing from March next year.

1) The Upcoming Fifth Disbursement Of EU/IMF Financial Aid
By the end of this month, the EU and the IMF will have to decide whether to disburse the next EUR12 billion in loans to Greece as part of their EUR110 billion rescue package. Out of this amount, EUR3.3 billion is due to come from the IMF while EUR8.7 billion will come from the EU governments. Apart from the ongoing financing requirements, Greece faces a EUR6.6 billion redemption of a 5Y bond on August 20.

There are increasing concerns that the program (which assumes that Greece would be able to refinance itself in markets as early as 2012) negotiated last year is looking less credible and the market does not believe any more that Greece will come to the market in the course of 2012 as stipulated in the bailout agreement.

2) Refinancing In 2012
Even assuming that the next tranche of payments is released, the country is only funded until early next year. What happens afterwards is the question.

Greece’s debts are officially forecast to hit about 160% of GDP in 2012; and with the government financed only until May, it would need to raise around EUR27 billion next year. Yields on long-term government debt, currently more than 16%, are near Euro-era highs. Meanwhile, the Greek economy is in its third year of recession, amplified by the fiscal tightening.

Europe Problems Go ‘Way Beyond’ Greece

2011-06-01T10:31:00.000+08:00

Europe’s financial problems aren’t confined to Greece and a reorganization of the continent’s banking system is necessary, Laurence D. Fink, chief executive officer of BlackRock Inc., said in a Bloomberg television interview today.

“The European problem is way beyond Greece,” Fink said in the interview in Hong Kong. “Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we’re probably going to have to restructure Ireland and restructure Portugal.”

Inspectors from the EU, International Monetary Fund and European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($157 billion) bailout in coming days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue package.

Many smaller banks in Europe will need to be recapitalized, said Fink. The largest banks on the continent are well capitalized, though devaluation of some of the sovereign credit will put stress on them, he added.

“The banking system in Europe owns all this debt,” Fink said. “If we restructure one country, we’re now basically putting huge capital stress on these banks. Before we restructure any country, we’re going to have to restructure the banking system in Europe.”

Europe is going to need a “giant TARP,” Fink said, referring to the Troubled Asset Relief Program that the U.S. introduced to rescue financial firms. BlackRock advised the Federal Reserve on illiquid debt portfolios during the height of the financial crisis

Money Trouble Takes Personal Toll in Greece

2011-05-17T18:23:00.002+08:00

Landon Thomas of the the New York Times reports Money Troubles Take Personal Toll in Greece.

My own thoughts on two basic economic principles. “You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession,”

"A year after Greece received a bailout from Europe and the I.M.F., people’s anxiety has grown into deep despair. It has been one year since Greece avoided bankruptcy when Europe and the International Monetary Fund provided a 110 billion euro ($155 billion) bailout. While no one expected the country to reverse its sagging fortunes quickly, the despair of Greeks like Anargyros D. reflects a level of suffering deeper than anyone here had anticipated.

Economists are predicting a 4 percent contraction in gross domestic product this year, and the data support the pessimism. Cement production is down 60 percent since 2006. Steel production has fallen, in some cases more than 80 percent in the last two years. Analysts say that close to 250,000 private sector jobs will have been lost by the end of the year, pushing the unemployment rate above 15 percent.With headlines shouting of credit rating downgrades, panicky Greeks are taking their money from banks. Greece lost 40 billion euros of deposits last year, and bankers say withdrawals have increased recently. These struggles have again made Greece an urgent matter for the 17-nation euro zone, whose finance ministers are to meet on Monday to discuss Greece and the debt crisis that has defied Europe’s yearlong efforts to contain it.

On the table will be whether Greece, which is now projected to miss its deficit target by as much as two percentage points of G.D.P. this year, will be granted another round of loans totaling as much as 60 billion euros, and what further budget cuts would be required in return.But there is serious debate about whether this kind of prescription — subjecting Greece to more cuts and sacrifice in order to justify a second installment of funds from a reluctant Europe — is the right one.This form of remedy violates two basic economic principles, according to Yanis Varoufakis, an economics professor and blogger at the University of Athens. “You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession,” he said. “It’s pretty simple: the debt is going up and G.D.P. is going down. Have we not learned the lesson of 1929?”

The arrest on Saturday of Dominique Strauss-Kahn, the head of the I.M.F., on charges related to sexual assault could create new uncertainty about a push for more severe austerity. Mr. Strauss-Kahn generally favored a less onerous approach, and if he is forced to resign it is possible that tougher conditions preferred by Germany will be imposed."

My thoughts
This reminds me of Malaysia and the Asian Financial Crisis of 1998. “You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession,”

#1 In a financial crisis, you do need to lend money at low interest rate to keep the economic activity going. High interest is meant to slow down the economy. The US, using this policy of low interest rate and abundant of loans, did manage to revive its economy. Malaysian PM had the common sense in 1998 to do this which was against the prescription of the IMF and Malaysia recovered from the Asian Financial Crisis. Has IMF learnt its lesson? Or is it due to the person in charge, pressured to administer some wrong medicine?

#2 "You do not introduce austerity into a recession" You do need to expand the economy through fiscal measures. Austerity is an anti expansion measure! Cut back will only reduce the economic activity and GDP, sending the already fragile economy, to its death.

Just my 2 cents worth.

Bernanke Happy With Weak US$?

2011-04-27T21:00:00.001+08:00

“Bernanke has no interest in throwing the USD a life raft,” says David Gilmore of Foreign Exchange Analytics. And that’s how market is reading it hours ahead of Fed Chairman’s close-up with the world’s media following FOMC statement.

ICE Dollar Index trades down to its lowest levels since Aug 2008 early Wed. “[Bernanke] has nothing to gain to even shine a light on the currency,” continues Gilmore. “Quietly he and his consensus are pleased with the orderly decline in the dollar since QE2 was conceived at … Fed conf last August.”

USD has recovered slightly though off its overnight lows and is essentially even on day.

China Must Watch for Rising U.S. Treasury Yields

2011-04-25T22:01:00.001+08:00

China needs to guard against volatility in U.S. Treasury prices should investors demand higher returns from U.S. government debt, a researcher at the Chinese central bank said on Monday.

Zhang Jianhua, a head of research at the People’s Bank of China, said worries that the heavily indebted U.S. government may not repay its debt could drive Treasury yields higher and cause U.S. debt prices to fluctuate.

Investor concerns that U.S. Treasury yields may spike higher came to the fore last week when Standard & Poor’s threatened to cut the United States’ prized AAA credit rating unless it reduces its yawning budget deficit.

As the biggest foreign buyer of U.S. Treasurys, China is especially sensitive to fluctuations in U.S. debt prices and has periodically sought assurances that its investments would be protected.
But price volatility aside, Zhang was otherwise confident that demand for U.S. Treasurys would stay healthy due to lack of investment alternatives, if nothing else.

The S&P cautionary note had little impact on Treasury purchases by foreign central banks, which continued to grow in the week ended April 20. The Fed said its holdings of U.S. securities kept for overseas central banks rose $14.09 billion during the week to stand at $3.423 trillion.
Due in part to its size, the U.S. Treasury market is deemed to be among the safest in the world as it allows investors to buy and sell without prices swinging too much.

But the gigantic-and-growing market is also a sign of poor U.S. fiscal health. U.S. government debt is expected to hit its $14.3 trillion ceiling as early as May.

China owned $1.154 trillion in U.S. government debt in February, U.S. data showed.

Copyright 2011 Thomson Reuters.

The Insatiable Appetite For Risk Ensues

2011-04-21T11:48:00.001+08:00

The U.S. dollar was significantly weaker today as the desire to take risk soared.

1. The AUD/USD made fresh multi-decade highs, coming up just shy of the 1.07 figure,
2. The USD/CAD made new 3-year lows as crude oil continued to push higher.

3. The Scandinavian currieries were no slouches today either, as USD/SEK fell by around 1.26% and USD/NOK declined nearly 1.04%, partially fuel by the Riksbank’s decision (Sweden’s Central bank) to raise their interest rate by 25bps to 1.75% earlier today.

4. Precious metals continue to defy gravity, as silver broke above the $45 handle and Gold broke above the key psychological $1500 level.

5. March U.S. existing home sales came in stronger, rising to 5.1M from an upwardly revised 4.92M a month ago adding to this ‘feel good’ sensation.

China Should Stop Buying US Treasuries.

2011-03-12T23:38:00.001+08:00

Know the reasons why China keeps buying and supporting US Treasuries.

Former Chinese Central Bank advisor Yu Yongding was back to ringing alarm bells on US Treasurys Thursday. Bloomberg newswires in Beijing has Yongding saying China should stop buying US debt. “China has kept on lending money to the US to keep its export machine going, and to prevent losses” on its holdings of Treasuries, said Yu. “Perhaps it is too late to do anything about the existing stock without causing a serious political and financial backlash. But at least China should stop continuing building up its holdings.”

The US congress will vote this spring on whether or not to raise the $14.29 trillion debt ceiling. Congress had voted to raise the debt ceiling to that historic high in January 2010. This year’s vote will be a test of the political power of the new Republican congress and its anti-spend, anti-tax Tea Party cohorts. If they have their way, the debt limit will not be increased. The debt ceiling is a way of controlling how much money the Treasury can borrow. Interest on those bonds are paid back to the bond holders through the unlimited taxing powers of the US government, which is what makes them AAA rated. There is no date set for the spring debt ceiling vote.

China is the largest foreign investor in US government debt, with over $1.45 trillion according to recent numbers released from the UST. Bloomberg reporters noted that experts, including the current Chinese central bank adviser Li Daokui, have urged diversification of the nation’s foreign exchange reserves away from US debt after the country’s holdings of Treasuries rose to a record $1.175 trillion back in October. They clearly didn’t listen (and Washington and its ambassador in China is surely scrambling to make sure they do not listen).

China has stated interest in diversifying its currency and debt holdings in its foreign reserve accounts by buying up other BRIC assets, mainly currencies in Russia, India and Brazil, one of the strongest and most stable currencies in the Americas.

From Bloomberg News.

Renminbi Near a 17 Years High

2011-03-06T16:35:00.002+08:00

China’s Renminbi is trading near to a 17 years high. Since its fix peg against the US$ was relaxed back in June 2010, it has gained almost 4% against the US$. Looking back further over the years, it is at its strong level in 17 years. Will it strength further against the US$?

While the US keeps it interest rate low to keep its economy on a growing path, China on the other hand, has hiked its interest rate to fight inflation as well as to slow its overheated economic growth. In Feb 2011, China increased it interest rate for the 3rd time in 4 months. US interest rate is 0.25% while China is now 3%. It looks more likely that the next hike in interest rate will come from China and not the US. With a growing interest rate differential in China’s favour, the slow rate of appreciation by the Renminbi is due to China’s government policy to keep its currency from appreciating too much so that its exporters will not suffer.

Looking at the example of Aussie, having a interest rate differential in your favour can only help to strengthen your currency. It should be no different for the Renminbi.

Euro On the Pullback

2011-03-02T20:26:00.000+08:00

After a strong rally in early Europe, Euro is going through a correction and consolidation. The trend is up and strong. So it might be a good idea to find an idea point to enter into the uptrend. Momentum is strong as well.

An idea level to buy would be around 1.3805. A stop should be placed at 1.3780 on entry. That would be 25 pips loss. The target would be around 1.3850, which is about 45 pips from entry. That would give a good risk reward ratio.

Euro Ready to Push Higher?

2011-02-08T19:14:00.001+08:00

Posted on 02/08/11 in Blog, No Comments Edit

Over the past 3 trading days, from Thursday to Monday, Euro has had a lower low each day. With each lower push, the magnitude is also lower with each passing day. It shows a decisive loss of momentum on each of the 3 pushes lower. Today, Euro is starting to move away from the low. Has the Euro found its bottom?

MACD has turned positive for today, but the important resistance has yet to be taken out. Once the high of Friday is taken out(which was established when NFP was released) is taken out, that would be the confirmation of Euro pushing higher after finding its low at 1.3507.

For today, or till the high is taken out, Euro is likely to bounded by the resistance at 1.3677 and today’s low at 1.3571. Watch the support and resistance point for clue to the next direction

Business Leaders See Euro Zone Break-Up

2011-01-31T19:58:00.000+08:00

Financial Times 31 Jan 2011 05:59 AM ET

An overwhelming majority of business and financial leaders from around the world think there is a chance that one or more euro zone countries will leave monetary union over the next three years.

More than four out of five senior executives, or 85 percent, said there was a chance of this happening, while two in three, or 60 percent, said there was a chance the euro zone would break-up over the next three years.

The survey of 461 senior executives from leading companies, investment banks, hedge funds and sovereign wealth funds in Europe, the US and Asia highlights the grave concerns over the future of the euro zone, as policymakers consider reforms to tackle the problems of the indebted countries on the currency club’s periphery.

The poll, commissioned by RBC Capital markets and conducted by the Economist Intelligence Unit, singled out rising concerns over the build up of public debt in Europe and the US.
More than four in 10 executives, or 46 percent, said their own country’s external debt was growing at an unsustainable level. More than 60 percent of US and UK executives said this was true about their own government’s debt.

Executives from the euro zone’s peripheral nations of Greece, Ireland, Portugal and Spain fear indebtedness will hold back growth and could put pressure on the future of the euro zone as Germany, Europe’s strongest economy, recovers more quickly, creating a dilemma for policymakers over whether to hold or raise interest rates in the coming months.

“The debt that hangs over individual countries is casting a long shadow in the minds of corporate executives and investors,” said Marc Harris, co-head, Global Research, RBC Capital Markets.
“The results of the study are a clear call to action by the world’s business leaders.”

Even in countries that are less severely affected by sovereign debt problems, almost all executives believe that governments will have some problems financing themselves, particularly when the scale of debt that is maturing over the next year is taken into account.

Free Forex Workshop

2011-01-23T22:48:00.001+08:00

Spain put on possible downgrade by Moody. Euro in trouble

2010-12-15T15:21:00.001+08:00

The USD/SGD rose as high as 1.3158 vs 1.3036 in early Asian trade tracking falls in the EUR/USD after Moody’s puts Spain’s Aa1 ratings on review for a possible downgrade. “There is still a loose relationship between Asian currencies and the euro. Moody’s review (of Spain’s Aa1 rating) will shake out risk appetite,” a trader at a local bank says. He adds, “the year-end low liquidity is amplifying the moves” and tips resistance for the USD/SGD at 1.3200 with support at 1.3100. The pair is recently at 1.3132.

FX Weekly Focus Nov 1 to Nov 5

2010-11-01T23:31:00.000+08:00

Weekly FX Focus
01 - 05 November 2010

An interesting week lies ahead for currency markets. First up, we have the US midterm elections on Tuesday, where the consensus is for the Democrats to lose quite a substantial margin in the House and the Senate. Following that, the Fed’s statement on Wednesday after its two-day policy meeting is widely anticipated for details of its economic stimulus plan. We see some probability that the Fed may announce a target for Treasury purchases to the tune of roughly USD 100-250 billion per month up to USD 500 billion within half a year, with the programme reassessed at subsequent meetings.

Other central bank meetings on tap this week include the RBA (Tuesday), ECB and BoE (Thursday), as well as the BoJ (which has moved its policy meeting forward to this Friday). Apart from the central bank announcements, more earnings from S&P 500 companies and a stream of top-tier economic releases will be rolled out from the US as well. Markets are looking for Monday’s manufacturing ISM to rise to 54.0 from 54.4, and Wednesday's non-manufacturing to see a print of 53.5 from 53.2. Of course, the main data would be Friday’s non-farm private payrolls report, which is expected to show a gain of 60,000 jobs in October, compared with September’s loss of 95,000 jobs, and for the unemployment rate to hold steady at 9.6%.

EurChf pullback opportunity

2010-09-20T20:14:00.003+08:00

On the 4H time frame chart, EurChf after hitting a high at 1.3388, pulls back to 1.3140. The pullback now sits on the Trend Channel line as well as near to the Moving Average line. MACD line is trying to turn around as well.

Currently at 1.3160, it looks like a good opportunity to go long on the Eurchf. Stop at 1.3130 and profit target at 1.3388.

BOJ Eases Policy to Fight Yen Rise, Impact Seen Slim

2010-08-30T17:46:00.002+08:00

By: Reuters

The Bank of Japan expanded its cheap loan scheme on Monday, heeding government calls for action to curb a rise in the yen that threatens a fragile economic recovery and leaving the door open to more policy easing.

The Yen surged more than 1% against the dollar after the central bank beefed up the supply of fixed-rate loans to banks, a move investors saw as a symbolic gesture that will do little to halt a climb in the currency that hurts exports and may prolong deflation.

"Today's move is not a bold move," said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong.

"If the yen continues to appreciate, say it appreciates beyond the 80 level, that could trigger more direct intervention at some point."

The decision at an emergency meeting called a week ahead of a scheduled policy review follows weeks of efforts by Tokyo's policymakers to talk down the yen, which intensified after the yen hit a 15-year high of 83.58 yen against the dollar last week.

Aware of slim chances of a coordinated market intervention and risks of taking on markets alone, the government stepped up its pressure on the central bank to curb the yen with some form of monetary easing.

Now, however, the ball was back in the government's court, analysts said.

"They don't really have any other policy tools they are prepared to use, so that might make it more necessary to have intervention if the yen goes," said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

Market players were disappointed the BOJ had stopped short of more aggressive moves such as increasing Japanese government bond purchases or cutting its overnight rate call target from 0.1 percent to zero.

BOJ Governor Masaaki Shirakawa said told a news conference the current level of bond buying was appropriate.

He also said, however, the central bank could not rule out downgrading its forecast of a moderate economic recovery — a hint that it might act again if clearer evidence of a slowdown emerged.

PM Kan Keen to Look Active

The yen's rebound pulled the Nikkei share average off its peaks and helped Japanese government bond futures bounce back from an early plunge.

Prime Minister Naoto Kan, whose Democratic Party swept to power a year ago but was thrashed in a July upper house poll, is keen to show that he is doing something about the economy ahead of a challenge from powerbroker Ichiro Ozawa in a Sept. 14 party leadership vote that could split the party.

Kan was to meet Shirakawa after the policy board meeting, and his cabinet was to decide the basic thrust of additional measures to help the slowing economy at a meeting later in the day.

"The government's fiscal policy and the BOJ's monetary policy should be in sync to send a strong message," Trade Minister Masayuki Naoshima told reporters.

But Japan's huge public debt, now twice the size of the economy, limits Tokyo's options, and the government is expected to propose shifting funds around rather than announce new substantial spending.

Flying Solo?

Japan will probably have to intervene alone if it were to step in to curb yen gains, as its Group of Seven counterparts, happy with the benefits to exports from their weak currencies, are in no mood for coordinated intervention.

Solo currency intervention, however, will not have much effect in weakening the yen unless backed by aggressive monetary easing, traders say.

In Monday's move, the central bank increased the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion yen ($351 billion) from 20 trillion yen. It also put in place a six-month fund operation in addition to the three-month loan program already in place.

Of the 30 trillion yen, 10 trillion yen will be the six-month fund operation, BOJ said. The decision was by an 8-1 vote, with board member Miyako Suda dissenting.

The central bank, as widely expected, maintained its overnight core rate target at 0.1 percent by a unanimous vote.

The BOJ launched the funding scheme, which offers loans at 0.1 percent, in December.

That failed to boost bank lending but helped to push the yen further away from a November high.

The BOJ last eased monetary policy in March, when it doubled the size of the fixed-rate fund supply tool to 20 trillion yen.

Euro Big Resistance

2010-08-04T21:09:00.001+08:00

While I believe Euro could be going higher in the long term, in the near term Euro may run into resistance and could face a correction lower before it resumed it uptrend again.

As can seen from the chart, there is a big resistance at 1.3270. The previous 2 important supports (end Mar and early Apr) are now its biggest resistance at the moment. Just above is another strong resistance at 1.3367. Euro may have problem penenating these 2 important resistance chart point in the near term. MACD Indicator is showing a loss of momentum and a possible bearish divergence. As the trend is still strong, the upside momentum may well push Euro to its next higher resistance at 1.3367. But it will struggle to get there with a loss in the upside momentum.

I am expecting Euro to turn lower somewhere between 1.3270 to 1.3367. From this resistance zone, Euro could go back to 1.3060, 1.2990 or 1.2750(not likely) before heading higher again.

Euro on its way higher

2010-07-23T18:50:00.003+08:00

On the 14 July, I blog about the reversal of the Euro. Euro went to a high of 1.3030 before falling to a low of 1.2730 on 22 July. Euro has been climbing since then. Today after a short pullback to 1.2858, Euro broke out of flag pattern. Euro should be on its way to 1.3030 again. It is likely to move above this high early next week. Euro should go to 1.3060 as its first target. The Euro has problably ended a 8 months downtrend and is likely to move higher over the next 2-3 months.

http://mytradeforex.com

Euro and GBP Chart

2010-05-18T21:33:00.002+08:00

Chart for 18 May 2010 Trading Guide

2010-05-18T19:51:00.001+08:00

Euro Drops to Multi-Year Low

2010-05-17T19:09:00.001+08:00

Euro Drops to Multi-Year Lows Below 1.2330; Technicals Highly Oversold
Monday, 17 May 2010 09:56 GMT
By Joel Kruger

Any remaining optimism from the recent EUR750B aid package has all but faded, with market participants growingly even more concerned with the outlook for the Eurozone, and broader global macro economy.

MORNING SLICES (Early Edition)

FUNDYS

The Euro easily broke below its 2009, 1.2330 lows in early Asian trade, and into the 1.2200’s thus far ahead of the latest minor consolidation. Technically oversold studies have failed to influence price action, and all major currencies have been tracking considerably lower against the buck on the day in sympathy to the Euro price action.

Relative Performance Versus USD on Monday (As of 9:50GMT) –
1) YEN +0.10%
2) CAD -0.18%
3) SWISSIE -0.38%
4) EURO -0.40%
5) STERLING -0.82%
6) KIWI -0.88%
7) AUSSIE -1.08%

The general consensus is that the crisis in the private sector has now only shifted to a government debt crisis, with government bond purchases and fiscal spending reductions only seen exacerbating the situation. The UK Times has come out calling the Euro to parity, and this has also not helped to generate any bids for the beleaguered currency. ECB President Trichet adds that the markets are in the worst predicament since WWI, and has appealed for a “quantum leap” of fiscal governance.

While the Euro weakness has most likely been the catalyst for the major broad based currency sell-off, it is Sterling has also been hit quite hard and approaches next key downside barriers at 1.4000, which guard against the critical multi-year lows by 1.3500. The UK Times outlines concerns over an export led economic recovery in the UK, and also reports that the new government has come out accusing the Labour of having manipulated forecasts to help the previous government present the budget that it wanted to. Also adding to the relative Sterling weakness has been a Rightmove index which shows sellers of properties starting to lower their prices on the back of an ever weakening housing market.

Other data released in Monday trade has come out of Japan, but the solid core machinery orders and higher wholesale inflation have hardly factored into price action, with the Yen tracking higher mostly due to a negative carry environment. A disappointing Eurozone new car registrations has also been released but it too has had a negligible impact.

Elsewhere, clashes in Thailand and the news of more volcanic ash disruptions out from Iceland, have not been doing anything to help the extremely downtrodden investor sentiment on Monday. The Euro is now testing levels not seen since 2006, with the next major support coming in by 1.2000, below which exposes a drop into the 1.1600’s further down.

Looking ahead, UK CBI industrial trends are due at 10:00GMT, followed by US empire manufacturing (3.00 expected) at 12:30GMT, and TICs ($50B expected) at 13:00GMT. NAHB house prices (20 expected) cap things off at 17:00GMT. US equity futures have recovered nicely and now point to a slightly firmer open, while oil has also recovered close to opening levels and gold trades flat.

TECHS

EUR/USD: The sharp declines continue with the market now easily taking out next key support in the form of the 2009 lows by 1.2330. From here, next key support comes in by psychological barriers at 1.2000, with the market now trading in territory not seen since 2006. Below 1.2000 then exposes a drop into the platform base from 2006 in the 1.1600’s. It is however worth noting that technical studies, both daily and weekly, are now highly oversold and we can not rule out the potential for a meaningful corrective bounce before considering bearish resumption. Key short-term resistance comes in by 1.2575, with a break above to potentially trigger said correction.

USD/JPY: The whipsaw price action from violent trade in early May has delayed our outlook but certainly does not change our overly constructive bias. The medium-term higher low from early March just over 88.00 remains intact, with the market stalling out ahead of the level, and we now look for a push higher from here back towards and through next key topside barriers by 95.00. Only a break back below 88.00 would negate and give reason for pause.

GBP/USD: The market has finally taken out the key 2010 lows by 1.4780 to confirm a fresh medium-term lower top by 1.5500 and open the next major downside extension towards critical psychological barriers by 1.4000 over the coming days. At this point however, with daily studies looking stretched, we would not rule out the possibility for a short-term corrective bounce back towards 1.4500-1.4700 to allow for daily studies to correct from oversold. It is worth noting that the 78.6% fib retracement off of the major 2009, 1.3500-1.7050 move, is now being tested in the 1.4200’s, and this area could provide the necessary support to help trigger a bounce.

USD/CHF: The overall outlook remains highly constructive and while daily studies do not rule out the possibility for some form a pullback to allow for technicals to unwind, any setbacks should be very well supported ahead of 1.1100, in favor of an eventual push towards 1.2000. Friday’s close back above 1.1245 confirms bullish bias and opens next upside extension.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com

Greek Bailout : EU "bought time, nothing more"

2010-05-17T16:51:00.002+08:00

Blog updated.
Read it at www.mytradeforex.com

Euro Bailout -The Day After

2010-05-11T20:24:00.001+08:00

Blog updated with the 3rd series of the Euro Bailout.

Read it at www.mytradeforex.com

Happy reading.

Chart of the Day

2010-05-05T23:33:00.001+08:00

http://mytradeforex.com/?p=258

Posted at the above URL. Take a look.

Chart for Trading

2010-04-20T21:10:00.002+08:00

Chart for Trading

2010-04-20T20:13:00.002+08:00

Chart for Trading

2010-04-20T20:07:00.001+08:00

Support 1.3490.

Chart of the week

2010-04-18T23:38:00.002+08:00

To view my lastest blog, Chart of the week, go to the website below.
http://mytradeforex.com/?p=228

Euro Nice 5 wave pattern

2010-04-07T20:47:00.003+08:00

Nice wave pattern. Give me something to work on tonight.

FX Trader Magazine

2010-04-04T18:20:00.002+08:00

A free magazine for FX traders.

Check it out.
http://www.fxtradermagazine.com

Happy Reading.

4 Charts

2010-03-30T19:52:00.002+08:00

www.bbforex.com Review

2010-03-28T21:35:00.000+08:00

A review of the website by traders.com.

A website by John Bollinger, with news and charts.

Take a look at it.

http://www.traders.com/Documentation/FEEDbk_docs/2009/08/website.html

Euro Declines as Greece Draws in IMF.

2010-03-24T17:22:00.001+08:00

March 24 (Bloomberg) -- The euro weakened to a 10-month low against the dollar after French and German leaders said any aid package for Greece would require help from the International Monetary Fund, denting confidence in the European Union.

The 16-nation currency also fell against the yen and the pound. The Swiss franc traded near a record high against the euro on speculation the Swiss National Bank is abandoning a policy of curbing the currency’s gains. The New Zealand dollar declined against 13 of its 16 major counterparts after the current-account deficit widened more than economists estimated. The yen dropped against all 16.

“If Greece goes with the IMF, that says something terrible about the political process within Europe,” said Stuart Bennett, a senior foreign-exchange strategist at Credit Agricole Corporate and Investment Bank in London. “This undermines any confidence in the currency.” The euro may fall as low as $1.33 by the end of June, and to $1.28 by September, Bennett said.
The euro fell dropped to $1.3391 as of 8:43 a.m. in London, from $1.3499 in New York yesterday, after earlier falling as low as $1.3407, the weakest since May 8. It declined to 121.81 yen from 122.03 yen. The dollar traded at 90.95 yen from 90.40 yen.

Germany and France agreed to back an IMF role in any aid for Greece, a German Finance Ministry official told reporters in Berlin on condition of anonymity. The accord came a week after euro-area finance ministers agreed to a European framework for a bailout. EU leaders begin a two-day summit tomorrow.

Temporary Exit
The euro may decline to $1.28 before the end of April on speculation IMF involvement in the crisis may prompt Greece to withdraw from the euro region temporarily, according to CMC Markets.

“Any IMF-backed deal for Greece may prevent further credit downgrades from the rating agencies but could also imply the Fund would require a more austere economic plan considering that Athens cannot devalue its currency,” Ashraf Laidi, chief market strategist at CMC Markets in London, wrote today. “This may raise speculation of a temporary Greece exit from the euro-zone to address the currency issue, which would assault the euro.

German Chancellor Angela Merkel’s Christian Democratic Union party expects her to “resist calls to agree” to aid at the summit, CDU parliamentary group finance spokesman Michael Meister said in an interview yesterday. French President Nicolas Sarkozy had backed a European solution. Luxembourg’s Jean-Claude Juncker, who heads the group of finance ministers in the euro region, said the EU wouldn’t “abandon” Greece.

‘Changed Its Stance’
“It looks like Germany has changed its stance in the last couple of days and is now keen to at least have some IMF involvement in any bailout package,” said Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second- largest foreign-exchange trader. “The idea there is to make any eventual deal more passable to a domestic audience.”
Merkel said on March 22 that Germany would only consider financial aid to Greece as a “last resort” if the country were to face insolvency. Sixty-one percent of Germans are opposed to their government giving money to Greece, the Financial Times reported March 22, citing an FT/Harris poll.

The franc traded near a record high against the euro after strengthening below 1.43 per euro yesterday for the first time, amid speculation the SNB’s resistance to currency appreciation is waning. SNB President Philipp Hildebrand repeated yesterday that policy makers are ready to act “decisively” to counter any “excessive” gains.

SNB ‘Manipulator’ Fear
“Market perceptions are still strong that SNB may be taking a relaxed stance on foreign-exchange intervention,’ said Takashi Kudo, a general manager in Tokyo of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This factor and possibly its safe-haven allure are causing the franc to be bought.”

The SNB’s unwillingness to curb the franc’s advance may indicate it’s concerned about being labeled a currency manipulator by the U.S., according to RBC Capital Markets. The franc has strengthened 2.5 percent against the euro in the past two weeks.
“The SNB, despite jawboning, is nowhere to be seen,” Sue Trinh, a senior currency strategist at RBC in Hong Kong, wrote in a report today. “It is possible the SNB has let the franc go because Switzerland is more at risk of being named a manipulator than China in the April 15, 2010, report on international exchange-rate policy.”

New Zealand Dollar
The New Zealand dollar declined versus 12 of the 16 most- traded currencies after the nation posted a current-account deficit of NZ$3.57 billion ($2.52 billion), more than the NZ$1.6 billion forecast by economists surveyed by Bloomberg.
“We’ve seen a drop in the currency on the back of the current-account numbers,” said Mike Jones, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington.
New Zealand’s economy expanded 0.8 percent in the last three months of 2009, according to a Bloomberg survey before the statistics bureau report tomorrow. That would be the fastest since the fourth quarter of 2007.

The so-called kiwi fell 0.5 percent to 70.40 U.S. cents, and lost 0.2 percent to 63.82 yen.
The dollar rose on speculation improving data in the world’s largest economy will allow the Federal Reserve to ends its stimulus measures ahead of major counterparts.
“If expectations about future rate increases rise amid the plethora of positive data, the dollar will strengthen against the yen and euro,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG.

Orders for U.S. durable goods rose for a third month in February, gaining 0.6 percent, according to a Bloomberg News survey ahead of the Commerce Department report today.
Futures on the CME Group Inc. exchange showed a 58 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, compared with 54 percent odds a week earlier.

Euro May Rise to 5-Week High Against Yen: Technical Analysis

2010-03-12T14:31:00.000+08:00

March 12 (Bloomberg) -- The euro may rise to a five-week high against the yen after breaking through a key level of resistance, Ueda Harlow Ltd. said.

The 16-nation currency is in an uptrend after climbing above the “baseline” of an ichimoku chart, said Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow in Tokyo. Resistance refers to an area where sell orders may be clustered. The euro also advanced above its 21-day moving average, gaining upward momentum, Yamauchi said.

“I expect the euro to rebound in the short term,” Yamauchi said yesterday. “The euro recently dipped below 120, but its loss was limited.”

The currency is set to test resistance at 125.28 yen, Yamauchi said. That level represents a 38.2 percent Fibonacci retracement of the currency’s decline from 134.38 yen on Jan. 11 to 119.66 yen on Feb. 25, the lowest in a year. The euro traded at 123.79 yen at 7:33 a.m. in Tokyo.
“If the euro breaks that level, it may try to advance above 126 yen,” Yamauchi said.
That level is near the lower end of the ichimoku cloud, he said. The last time the euro traded above 126 was Feb. 4.

An ichimoku chart analyzes the midpoints of historic highs and lows. The baseline is the sum of the highest high and the lowest low over the past 26 trading days.

Fibonacci analysis is based on a theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance, or below support, indicates a currency may move to the next level.

Euro 'May Not Survive' Deficit Crisis, Soros Says

2010-03-01T23:25:00.000+08:00

Feb. 28 (Bloomberg) -- The euro is being "severelytested" and "may not survive" the Greek deficit crisis,billionaire investor George Soros said. The European currency's construction is "flawed" becausethere is "a common central bank, but you don't have a commontreasury," Soros said on CNN's "Fareed Zacharia GPS" program. "The exchange rate is fixed. If a country gets intodifficulty, it's can't depreciate its currency, which would bethe normal way," Soros said. "And it's not getting the kind oftransfer payments that American states get if they happen to bedoing worse than other states."

Greece's debt has put the euro on its longest losing streakagainst the dollar since November 2008. Investors have alsogrown concerned about budget deficits in other euro-regioncountries such as Spain. Soros predicted Greece will survive its fiscal crisis,"but it still leaves Spain and the other countries" facingsimilar difficulties. "And so either Europe now takes theinstitutional measures that are needed to make up for thedeficiency or, in fact, it may not survive," he said of theeuro. Writing in the Financial Times last week, Soros said thatif European Union member-countries don't take the next steptoward political union, the common currency may disintegrate. While the latest meeting of European finance ministerspledged to safeguard financial stability in the euro area as awhole, no mechanism has been set up for doing that, Soros wrote.

Sell Eurobonds
The best solution for Greece would be for EU countries tosell eurobonds to refinance 75 percent or so of its maturingdebt, provided it meets its targets, leaving the country tofinance its remaining needs as best it may, Soros said in thenewspaper. Harvard University Professor Martin Feldstein, who warnedin 1997 that European monetary union would spark greaterpolitical conflict, said Feb. 12 that Greece's fiscal woesexpose the fault lines of the single currency project. A day after EU leaders promised "determined andcoordinated action" to help Greece control its budget deficit,Feldstein said the weakness of having a single monetary policyand different fiscal policies is being revealed.

Higher Taxes
EU finance ministers have told the Greek government to beprepared at a March 16 review to adopt higher value-added taxes,a new levy on luxury goods, increased taxes on energy productsand cuts in capital spending if Greece can't show sufficientprogress in bringing down the deficit, which at 12.7 percent ofGDP last year was the EU's highest. With EU Monetary Affairs Commissioner Olli Rehn flying toAthens tonight for talks, German lawmakers say euro-areaofficials are crafting a plan to grant Greece about 25 billioneuros ($34 billion) in aid should the need arise, possibly byusing state-owned lenders such as Germany's KfW Group to buy itsdebt. Soros also endorsed a proposed tax on financialtransactions, called a Tobin tax after the late U.S. economistJames Tobin, a Nobel laureate who proposed a surcharge oncurrency trading to deter speculation. "Why shouldn't those transactions provide the revenues tomake up the losses," Soros said. "I think it's a naturalsource of revenues." Soros, who supported Barack Obama during the 2008presidential campaign, said he's "not satisfied" with the jobObama has done. "The solution he found to the financial crisis,which was to effectively bail out the banks and allow them toearn their way out of the hole, was, in my opinion, not theright solution," Soros said. "He should have compulsorily replaced the capital that waslost," Soros said. "This is what they call nationalizing thebanks. And he made the political decision that that is un-American, will not be accepted."

Charts for 23 Feb 2010

2010-02-23T19:49:00.001+08:00

Euro Worst to Come as Greece Hammerlocks ECB on Rates

2010-02-22T19:14:00.000+08:00

Feb. 22 (Bloomberg) -- Derivative traders are signaling that the euro’s slump to a nine-month low will continue even if European Union leaders bail out Greece.

Short-term rates for borrowing in euros in the forwards market are the cheapest relative to loans in dollars since September. The 50 percent collapse in that spread this month signals investors are betting the European Central Bank will keep its target interest rate at a record low, sacrificing euro strength to prevent deficit cutting by debt-laden economies in the region from stymieing growth.

“Investors have already started to think about the next likely phase of the present crisis, and it appears that all they are finding are new reasons to sell the euro,” said David Woo, global head of foreign-exchange strategy at Barclays Plc in London. “Aggressive fiscal tightening by Greece, Spain and Portugal are likely to plunge their economies back into recession. All else being equal, this calls for a looser monetary policy.”

The shift underscores a turnabout in the two most-traded currencies. In the last three quarters of 2009, the euro outperformed the dollar relative to 15 major currencies tracked by Bloomberg, with Deutsche Bank AG’s euro index gaining 1 percent and the IntercontinentalExchange Inc.’s Dollar Index down 9 percent.

Since Nov. 25, the dollar is up 8.3 percent and has outdone all but four major currencies as the euro lost ground against them. The euro traded at $1.3611 as of 8:30 a.m. in London, from $1.3613 in New York on Feb. 19. The currency is down 5.2 percent against the U.S. currency this year.

‘Poster Boy’

Futures traders are more bearish than ever on the 16-nation currency, and strategists are slashing forecasts at the fastest clip since December 2008, data compiled by Bloomberg show.

Woo cut his 12-month estimate to $1.40 from $1.45 on Feb. 12. Geoffrey Yu, a strategist at UBS AG, the world’s second largest currency trader, says the euro may test $1.30. Gary Shilling of the economic research firm A. Gary Shilling & Co. in Springfield, New Jersey, said it may slide to parity with greenback. The currency has traded above $1 since 2002.

“It’s a one-size-fits-all monetary policy” for “different fiscal statuses in the individual countries,” said Shilling on Feb. 18 in a Bloomberg Television interview. Greece is “obviously the so-called poster boy, but you’ve got the rest of the PIIGS -- Ireland, Portugal, Italy, Spain -- right behind it. It isn’t so much that we’re doing anything right but that Europe has got serious problems,” he said.

Ahead of Schedule

The euro fell to $1.3444 on Feb. 19, the weakest since May, a day after the Federal Reserve boosted the rate charged to banks for direct loans for the first time in more than three years. The move signaled anew that the Fed is ready to withdraw unprecedented measures employed against the financial crisis amid increased speculation the ECB won’t raise rates this year.

The currency is down 6 percent since Jan. 14, when it closed at $1.4499, its fastest decline since early 2009. Of 41 strategists surveyed by Bloomberg, 36 forecast it being weaker than that level at some point this year. Median forecasts predict it will remain below $1.43 through 2012 and beyond. The consensus year-end forecast for 2010 is $1.41.

The euro posted its biggest gain since July on Feb. 16 after Greek Finance Minister George Papaconstantinou said the nation is ahead of schedule on its plan to trim the EU’s biggest budget deficit and won’t need “a bailout.”

Adrian Foster, head of financial markets research for Asia at Rabobank Groep NV in Hong Kong, said the currency would survive a default by Greece because the country accounts for only about 2.5 percent of the area’s gross domestic product.

Forward Contracts

“If Greece defaults, I don’t see that that has any particular implications for the euro itself,” Foster said on Bloomberg Television Feb. 18.

Forward contracts used to lock in interest costs show traders expect the three-month euro-denominated London interbank offered rate to be 1.45 percent a year from now, or about 0.17 percentage point higher than the dollar Libor forward rate. At the start of this month, investors were betting the difference would be 0.41 percentage point, giving the euro more of an edge.

Fixed-income investments denominated in currencies from economies with higher rates yield greater returns, making them more valuable. As recently as July, the gap between the forward rates was virtually zero. The euro appreciated 6.2 percent between July 31 and Nov. 25 as that forward rate spread surged from almost nothing to 0.71 percentage point.

Credit Cuts

Both the spread and the currency then started tumbling, following a slide in Greece’s stocks and bonds that began in October amid concern that its creditworthiness was deteriorating. Standard & Poor’s, Moody’s Investors Service and Fitch Ratings downgraded the country’s credit in December as its deficit approached 13 percent of GDP.

European Union leaders’ Feb. 11 pledge to support Greece’s efforts to control its finances helped fuel the spread’s sharpest three-week drop since July as more investors became convinced that ECB President Jean-Claude Trichet would keep borrowing costs low.

The Fed will raise its benchmark from a range of zero to 0.25 percent to 0.75 percent by the end of the year as the ECB increases its 1 percent rate by a quarter percentage point, narrowing the difference to half a percentage point, median economist forecasts show. The consensus predictions see the difference shrinking to zero by mid-2011.

“It is fairly clear that not only Greece but several other countries in Southern Europe are probably going to be forced to take fairly severe fiscal contracts,” said Ron Leven, currency strategist at Morgan Stanley in New York. “That combined with already weak growth makes it very unlikely that the ECB is going to be in a position to hike rates.”

‘Big Discrepancy’

The region’s economy grew 0.1 percent in the fourth quarter after expanding 0.4 percent in the previous three months, the European Union said in a Feb. 12 report. Federal fund futures last week showed a 52 percent chance the Fed will raise borrowing costs by the end of September after the U.S. economy surged 5.7 percent last quarter.

“You have a big discrepancy between the Fed’s and the ECB’s timetable,” said Stephen Jen, a London-based managing director at BlueGold Capital Management LLP. “This is supportive of the dollar against the euro.”

Futures traders increased bets against the euro to a record this month. Hedge funds and other large speculators had 59,422 more wagers that the euro would decline than bets on a gain. As recently as the first week in December, traders were bullish on the euro, as they had been for the previous 30 weeks.

‘Deflationary Force’

“The prospect of sizeable fiscal tightening in many Economic and Monetary Union countries will act as a disinflationary force in many of these countries in coming months, pressuring the euro and keeping the ECB on hold until at least the fourth quarter,” said Nick Stamenkovic, a strategist in Edinburgh at brokerage RIA Capital Markets.

The Greek budget crisis is increasing speculation that the euro region will break up. Societe Generale SA strategist Albert Edwards said the country highlights fiscal imbalances that will lead to the currency’s downfall. Harvard University Professor Martin Feldstein said on Bloomberg Radio this month that the monetary union “isn’t working.”

Robert Mundell, the Columbia University economist who won the 1999 Nobel Prize for research that helped lay the foundation for the currency, said in a Feb. 17 television interview that Italy, saddled with the region’s second-largest debt, is the “biggest threat” to the bloc’s growth. Europe’s fourth-biggest economy contracted 0.2 percent in the fourth quarter, and its debt will rise this year to 117 percent of GDP, the EU’s second highest after Greece, according to the European Commission.

“The Europeans would be silly to let this blow up,” said Dominic Konstam, head of interest-rate strategy for Credit Suisse Group AG in New York. “The ECB will have to be relatively dovish and relent a bit on their plan to withdraw liquidity.”

Chart for 9 Feb

2010-02-09T20:09:00.002+08:00

Chart for 9 Feb

2010-02-09T19:51:00.003+08:00

The Scary Budget Numbers

2010-01-27T18:07:00.002+08:00

The Scary Budget Numbers
By David WalkerNew York, New York

The recession and attendant financial shock appear to be easing as I write this. But in Washington, financial imprudence is part of the fabric of government. You can see that in a single document that gets updated everyyear: the US budget. In putting together the budget, the president and Congress set our national priorities and allocate resources among them. The results have been pretty consistent.

Over the forty years ending in 2008, revenues have averaged about 18.3 percent of our economy and spending has averaged over 20.6 percent, resulting in an average deficit of about 2.4 percent. But that gap began to widen under Bush, who cut taxes while starting two wars, bolstering homeland security, adding an expensive prescription drug benefit to Medicare, and increasing other spending. In 2007, the federal deficit stood at $161 billion, or 1.2 percent of our economy. In 2008 itwas $455 billion, or 3.2 percent. In 2009, figuring in the billions spent to pull our economy out of recession and on various bailout efforts, the deficit rocketed to about $1.42 trillion, 9.9 percent of our economy.

In Washington, they speak of our "fiscal exposure" - the sum of all the benefits, programs, debt payments, and other expenses that will cost us big bucks in the future whether or not we want to cut spending. The term I've used for all of that is our "federal financial hole." In the first eight years of this century it has grown from $20.4 trillion to $56.4 trillion -a 176 percent increase. Maybe you have a few bills - mortgage payment, auto loan, cable TV, phone -deducted automatically from your checking account. How would you feel if those expenses had risen 176 percent in eight years while your income remained steady? The hole is getting deeper because we are doing little to bring our income into line with our spending. And until now I haven't even talked about theinterest payments on our federal debt.

Suppose our government fails to increase federal revenues above the current rate. Based on the GAO's latest long-range alternative budget simulation, within about twelve years, our interest payments will become the largest single expenditure in the federal budget. By 2040, all of our federal tax revenues will add up to enough to cover only our two biggest expenses: interest on our debt and Medicare and Medicaid. Everything else - Social Security, defense, education, road building, you name it - will fail to be funded. As you know, benefits payments are the biggest chunk of the government's massive obligation. Since the 1960s, the growth of these mandatory payments has overtaken what we spend on defense as a share of our national output -and what we spend on everything else in our federal budget, from law enforcement to border protection, children's programs to national parks, highways to foreign aid. Although defense has declined dramatically as a percentage of the overall federal budget over the past forty years, we have actually increased total defense spending. In recent years, we have added resources to fight terrorism abroad. That means that other discretionary programs are much more susceptible to cutting. These include education, research,transportation, infrastructure, and other programs that, if properly designed and effectively executed, can promote economic growth and development. How will squeezing those areas serve to keep America great?

All of this puts us in a major-league quandary. Our nation has to bringwhat we earn into line with what we spend at a time when our spending literally is out of control. One option - cutting investments in America's future in order to finance our large and growing mandatory spending programs - is another way of cheating the next generation. Unfortunately,today we are both cutting our investments in the future and handing our descendants a mountain of debt. That is a double whammy for young people and the unborn. It's not just irresponsible, it's immoral and downright un-American.

Euro 4H Pullback

2010-01-25T23:10:00.002+08:00

While trading the 4H chart is not my forte, this year I will try my hand on it. So let's go.
Selling this pullback for a test back to 1.4030. Stop at equal distance to profit from entry.
Will see how things goes tomorrow.

EurJpy 15 min Chart

2009-12-15T20:30:00.002+08:00

Yen Rising to 74 Per Dollar by 2011 ?

2009-12-03T15:45:00.000+08:00

Dec. 3 (Bloomberg) -- The yen may rise to a record 74 per dollar by 2011 because the Bank of Japan hasn’t done enough to combat deflation, said Eishi Wakabayashi, a strategist who forecast the currency’s surge to an all-time high in April 1995.

Wakabayashi, head of Tokyo-based Wakabayashi FX Associates Co., said the BOJ should re-think its “fundamentalist” stance on combating inflation while neglecting measures to stimulate the economy.

Prime Minister Yukio Hatoyama’s government should revise the central bank’s by-laws to give it a mandate to stabilize prices and expand employment, similar to that provided to the U.S. Federal Reserve, he said.

Any attempt by the Bank of Japan to stem the yen’s advance would be “foolish and would have little effect,” Wakabayashi, 66, said in an interview in Tokyo.

The yen rose as high as 84.83 per dollar on Nov. 27, the strongest level since July 1995. Japan’s currency traded at 87.88 to the greenback as of 2:49 p.m. in Tokyo. The yen reached a post-World War II high of 79.75 in April 1995.

Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said in an interview in Tokyo yesterday. Japan hasn’t intervened in the foreign-exchange markets since March 2004.

Brief Reverse
The dollar will briefly reverse its decline after falling to 80 yen in February 2010, Wakabayashi said. The U.S. economy may stop losing jobs around March, and the dollar’s slide will also spark inflation concern, pushing up longer-term bond yields, he said.
By the end of the third quarter of 2010, the global economy will suffer deflation as an asset bubble bursts in Brazil, Russia, India and China, collectively known as the BRIC countries, Wakabayashi said. The dollar will weaken to an all- time low of 74 yen in 2011, he said.
Wakabayashi, citing technical charts, said the dollar-yen moves in a five-year cycle. The currency pair reaches a bottom once every five years, followed by a rebound. The recent troughs came in 1995, 1999 and 2005, the strategist said.

The dollar has been declining in three-stage “waves” against the yen, Wakabayashi said. The first wave was from 1971 to 1978, when the dollar depreciated to 177 yen from 360 yen, and the second covered the period when the dollar weakened to a record 79.75 yen in April 1995, he said.

Wakabayashi said we are now in the third wave, and this will come to an end in 2011, concluding the dollar’s 62-year decline that began in 1949, when the yen’s peg to the dollar started as part of the Bretton Woods system to restrain inflation.

Dollar Slump Persisting as Top Analysts See No Bottom

2009-11-23T21:28:00.000+08:00

Nov. 23 (Bloomberg) -- The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.

Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 7.1 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.

“History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates,” said Callum Henderson, the Singapore-based global head of foreign-exchange strategy for Standard Chartered.

The best forecaster of the dollar against the euro in the six quarters ended June 30 in Bloomberg’s ranking of 46 firms last month predicts the greenback will weaken 5.4 percent to $1.58 per euro in 2010, from $1.4944 today.

“It’ll take time to drain the oversupply of dollars from the market,” Henderson said. “The dollar will remain weak until the Fed’s rates rise above the competitors’.”

Group of 10

The U.S. will be one of five economies represented in the Group of 10 to wait until after mid-2010 to raise benchmark rates, according to median predictions in Bloomberg surveys of as many as 60 economists. The Fed, the European Central Bank, the Bank of England and the Swiss National Bank will increase borrowing costs in the third quarter and the Bank of Japan will remain at 0.10 percent at least through March 2011, the surveys show.

By the end of 2010, only Japan will have lower borrowing costs, and those will be higher when adjusted for inflation, the forecasts show. The Fed’s target for overnight loans between banks will be 1 percent, compared with the ECB’s 1.5 percent benchmark.

U.S. borrowing costs will make dollar-based assets less attractive, said Camilla Sutton, the foreign-exchange strategy director at Scotia Capital in Toronto. The Bank of Nova Scotia unit, the most-accurate forecaster of the dollar versus the Swiss franc in Bloomberg’s rankings, predicts 2010 will end with the greenback weaker at $1.60 per euro.

“The dollar will lose the near-term race for interest rate increases and then lose the long-term race,” Sutton said.

History Lesson

Once the Fed raises its target, the dollar’s performance likely will mimic the pattern that followed the central bank’s past three rounds of increases, Sutton and Henderson said.

After policy makers started boosting borrowing costs in July 2004, the Dollar Index tumbled 10 percent and didn’t get back to where it had been before the first increase and stay there for more than a month until November 2005.

Intercontinental Exchange Inc.’s dollar gauge fell 6 percent and took seven months to recover after the Fed began lifting borrowing costs in July 1999. It dropped 16 percent following the Fed’s 1994 move without regaining lost ground until 1997.

The top forecasters are in the minority, with median predictions in Bloomberg surveys of as many as 43 strategists showing the dollar gaining against the euro, yen, Swiss franc and Swedish krona by Sept. 30. The other two currencies measured by the Dollar Index, the pound and Canada’s dollar, will outperform the greenback by 0.3 percent and 2 percent, the projections show.

Limiting Liquidity

Twenty-four of 37 predictions for the end of next year have the U.S. dollar strengthening against the euro. The median is $1.47, up 1.7 percent. Twenty-seven of 31 strategists see the yen also getting beaten. The U.S. currency will gain 13.6 percent to 101 yen, from 88.87 today, the median shows.

“The dollar will gain support as soon as the Fed starts to rein in liquidity,” said Lee Hardman, an analyst in London at Bank of Tokyo-Mitsubishi UFJ Ltd., Japan’s biggest lender by market value. The dollar will strengthen 10.7 percent to $1.35 per euro by the end of 2010, the bank predicts.

The stock rally that pushed the MSCI World Index up almost 70 percent since March 9 will grind to a halt as the global recovery slows, spurring demand for the perceived safety of the dollar, according to Landesbank Baden-Wuerttemberg, which scored highest overall in Bloomberg’s rankings with a 5.6 margin of error for all currencies.

Global Growth

“Financial markets and equity markets have been too optimistic concerning economic growth next year,” said Gernot Griebling, the Stuttgart bank’s head of bond and economic research. “Risk aversion should rise again,” strengthening the U.S. currency to $1.37 per euro by Sept. 30, he said.

For now, the global recovery is on track, with the Paris- based Organization for Economic Cooperation and Development doubling its 2010 growth forecast for leading developed economies to 1.9 percent and predicting a 2.5 percent expansion for 2011. The recovery is fueling investments in higher-yielding currencies funded by selling dollars.

The Dollar Index has fallen 15.5 percent since March 5, a steeper drop than in any eight calendar months in 23 years. The decline began four days before the Standard & Poor’s 500 Index of stocks started its strongest rally since the 1930s, gaining 60 percent.

Fed Chairman Ben S. Bernanke said on Nov. 16 that “significant economic challenges remain” in the U.S. and reiterated the Federal Open Market Committee will keep borrowing costs low for an “extended period.”

Waiting

Policy makers may not change course until 2012, Federal Reserve Bank of St. Louis President James Bullard said Nov 18.

“If you look at the last two recessions, in each case the FOMC waited 2 1/2 to three years” after they ended to raise rates, Bullard said.

What happened after those moves convinces Standard Chartered’s Henderson and Scotia Capital’s Sutton that the dollar will keep sliding. HSBC, the top pound-dollar forecaster, and Aletti Gestielle, the best on the dollar versus the yen, also say the greenback will depreciate, to $1.50 and $1.60 per euro by mid-year, respectively.

The dollar will weaken “as investors worry about its status as a reserve currency and the public deficits,” said Sutton, a former Ontario Municipal Employees Retirement System money manager.

Budget Deficit

The U.S. budget deficit reached a record $1.4 trillion in the fiscal year that ended Sept. 30. Its debt amounted to 9.9 percent of the economy, up from 2004’s average of 3.5 percent.

Central banks that disclose which currencies they hold put 63 percent of their new cash into euros and yen in April, May and June, the highest percentage for any quarter when global reserves grew more than $80 billion, Barclays Capital data show.

Henderson sees similarities to 2004, when the Fed had lowered its overnight target below the ECB’s.

The 2001 recession, induced by the crash of technology stocks, prompted the U.S. to cut rates by 5.5 percentage points to 1 percent in June 2003, a point below the euro region. The Fed stayed there until June 2004, more than two years after the recession ended. The dollar started rallying after the rate surpassed the ECB’s 2 percent that December.

“If the apex of the crises were in 2001 and 2008, then dollar weakness will last into 2011,” said Henderson.

‘Being Dovish’

The dollar didn’t start rallying after the Fed’s June 1999 increase until the ECB began raising its rates that November.

“When the Fed shifts from being dovish to the early stages of the tightening, the dollar continues to trade weak,” said Ray Farris, global head of foreign exchange research at Credit Suisse Group AG in London, the third-best euro-dollar forecaster. “It’s really only in the late stages of a Fed tightening when U.S. interest rates are high relative to everybody else that the dollar stabilizes and then recovers.”

The dollar plunged to a record low $1.6038 in July 2008 as seven Fed cuts opened up a 2.25 percentage gap to the ECB, making Europe’s securities more attractive. It rallied later in the year as the collapse of Lehman Brothers Holdings Inc. in September froze credit markets and sent investors to the safety of U.S. assets and the greenback.

“There’s nothing in the cards from a monetary policy angle that could persuade me from being a dollar bear in 2010,” said Jens Nordvig, a managing director and head of G-10 currency strategy at Nomura International Plc in New York, Japan’s largest brokerage firm, which bought Lehman Brothers’ European, Asian and Middle Eastern assets in 2008.

5 min chart for 10 Nov

2009-11-10T19:37:00.001+08:00

USD/JPY Chart for 10 Nov

2009-11-10T19:34:00.002+08:00

EUR/JPY Chart for 10 Nov

2009-11-10T19:33:00.002+08:00

Euro Chart For 10 Nov

2009-11-10T19:32:00.002+08:00

Sterling Chart for 10 Nov

2009-11-10T19:31:00.002+08:00

Forex Course

2009-11-01T21:50:00.002+08:00

Euro is bullish for tonight

2009-10-13T19:53:00.003+08:00

USD JPY heading lower

2009-10-13T19:51:00.003+08:00

No Clear Direction

2009-10-13T19:50:00.002+08:00

Nice Pattern for USDJPY

2009-10-06T15:48:00.001+08:00

A very nice pattern today in the USDJPY.

Pullback to between 50-60% retracement of the rally. It also holds around the MA support area. Indicators are turning up, signaling a turning up and resumption of the rally again.
Good luck

Channel Breakout in EurJpy?

2009-10-05T20:29:00.003+08:00

Small breakout in Euro

2009-10-01T21:28:00.002+08:00

A small breakout in Euro on the MDR pattern.

Forex Course

2009-09-25T22:02:00.000+08:00

Euro on a downtrend

2009-09-25T20:33:00.002+08:00

Breaking down after the data.

Sterling in a range, waiting for a break.

2009-09-22T22:09:00.001+08:00

UsdJpy Chart for tonight trading

2009-09-10T20:05:00.001+08:00

The Making of a Flag Pattern

2009-09-04T21:02:00.003+08:00

The market was crazy after the NFP. The major currency pairs all set new day high and new day low right after the annoucement of the figures. Direction was hazy but now it seems the market is finding its feets and its direction. Look like it will go in the direction of its first instinct right after the annoucement.

A small flag pattern to take advantage off.

Waiting for GBP to pullback

2009-08-28T22:38:00.002+08:00

USDJPY breakout

2009-08-27T20:47:00.003+08:00

Pullback opportunity for USDJPY

2009-08-24T20:43:00.002+08:00

Yen Currency on the Wane.

2009-08-24T16:33:00.001+08:00

Expect Higher EurJpy, AudJpy and GBPJpy.

Aug. 24 (Bloomberg) -- The yen weakened for a third day against the euro as improving economic data and central bank comments that the global recession is abating spurred investors to buy higher-yielding assets.

The Japanese currency declined the most versus the South Korean won and Australian dollar as stocks extended a rally after Federal Reserve Chairman Ben S. Bernanke said last week chances for near-term growth “appear good.” The euro rose against 12 of the 16 most-traded currencies before a report that economists said will show European industrial orders fell at a slower pace.

Bernanke's Speech

2009-08-21T22:11:00.000+08:00

From Bernanke's Reflections on a Year of Crisis: "After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good."

Aug Forex Course

2009-08-21T21:53:00.000+08:00

USDJPY Twitter Trades

2009-08-21T21:51:00.001+08:00

You can follow me on my twitter.com/mytradeforex

New Charts

2009-08-19T21:58:00.001+08:00

Euro Chart

2009-08-19T20:46:00.000+08:00

Sideway Breakout

2009-08-17T21:16:00.003+08:00

Here is the chart on Sterling that I twitter about. A sideway breakout that will bring Sterling to 1.6335 and maybe even 1.6353.

Waiting for the MDR

2009-08-13T21:21:00.001+08:00

A potential MDR may be forming. Waiting for confirmation.

2009-08-13T19:19:00.003+08:00

We are likely to see a continuation of yesterday movement. Below are the reasons from Bloomerg.

13 Aug (bloomberg) The euro strengthened for a third day against the dollar after a report showed Europe’s economy shrank less than economists predicted in the second quarter, and France and Germany unexpectedly grew.

The common currency also gained for a second day versus the yen after the European Union’s statistics office in Luxembourg said gross domestic product fell 0.1 percent from the first quarter. Analysts estimated GDP would decline 0.5 percent in the period, a Bloomberg survey showed. The dollar fell against 14 of the 16 major currencies after the Federal Reserve said yesterday it will keep interest rates low for an “extended period,” diminishing the appeal of U.S. assets.

“We’re getting pretty excited about these numbers, seeing big hitters in euro land moving back into the black, and that’s why the euro is higher,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “We’re in a risk-on mode today.”

Yen Advances as Asian Stock Losses Spur Demand for Safer Assets

2009-08-12T17:04:00.002+08:00

Aug. 12 (Bloomberg) -- The yen rose for a third day against the euro and the dollar as Asian stocks extended a global slide in equities, increasing demand for the relative safety of Japan’s currency.

The yen also gained versus all of its 16 major counterparts after China’s Commerce Ministry said efforts to boost the economy cannot fully offset slumping export demand, and CIT Group Inc. said it was delaying a quarterly report, reviving concern it needs more time to raise funds. The dollar weakened against the yen on speculation the Federal Reserve will today affirm its commitment to keeping interest rates low, reducing the appeal of U.S. bonds.

“The market is feeling that the recovery in financial institutions may be limited,” said Satoru Ogasawara, a foreign- exchange analyst and economist in Tokyo at Credit Suisse Group AG. “It’s reasonable to expect market participants being risk averse and turning to the yen.”

This is likely to keep US$ weakness going for a 4th day.

Is US$ strength over?

2009-08-11T16:42:00.002+08:00

US$ strength which started on 5 Aug could be over after last night low. We could be seeing a pullback of the decline from 1.70 Sterling to 1.6430. This could bring Sterling back to 1.6650 by the end of the week. A move below 1.6430 would abort this view.

Will update more as we progress.

A strong data and a strong US$ run

2009-08-07T23:42:00.002+08:00

Since the release of the data, US$ has been strengthening. Other than a brief period when retracement run up to 62% level, the trend has been steadily down for Euro/USD. There was little sharp movement. The whole trend down was rather smooth and nice. A real treat for traders. Hope to see that more often next week.

US$ turning around

2009-08-05T17:28:00.000+08:00

After falling since Monday, US$ could be turning around.

Aug. 5 (Bloomberg) -- The yen and the dollar rose after Lloyds Banking Group Plc posted a first-half loss and increased the size of bad-debt provisions, boosting demand for the safety of the Japanese and U.S. currencies.

Today's News

2009-08-03T20:59:00.002+08:00

Yen and low yielding currencies fell as appetite for risk and high yielding currencies increased.

Economic expectation improved after HSBC posted an unexpected profit and Greenspan sees economic growth faster than most economists have forecast.

Aug. 3 (Bloomberg) -- The yen declined and the pound rose after HSBC Holdings Plc posted an unexpected profit and former Federal Reserve Chairman Alan Greenspan said the most severe recession in at least five decades may be ending.

Japan’s currency fell against all its 16 most-traded counterparts on increased demand for higher-yielding assets as HSBC reported its results. U.S. manufacturing shrank in July at the slowest pace in almost year, a report from the Institute for Supply Management is forecast to show today.

“HSBC’s results were good compared to expectations, so that’s proven supportive to the pound and is dragging on the yen,” said Geoffrey Yu, a foreign-exchange strategist in London at UBS AG, which Euromoney Institutional Investor Plc ranks as the world’s second-biggest currency trader “Clients are skeptical about this rally but can’t afford not to be in it.”

The yen weakened 1 percent to 159.76 per pound at 7:12 a.m. in New York, from 158.23 on July 31. Japan’s currency dropped 0.5 percent to 135.70 per euro and slid 0.3 percent to 94.97 per dollar. The U.S. currency declined 0.2 percent to $1.4290 per euro, compared with $1.4257.

Economic growth may resume at a rate faster than most economists foresee, Greenspan said in an interview yesterday on ABC’s “This Week” program, predicting 2.5 percent in the current quarter.

2009-07-31T21:04:00.000+08:00

Potential Break in Sterling

China's Concern about weak US$

2009-07-31T20:19:00.001+08:00

July 28 (Bloomberg) -- Treasury Secretary Timothy Geithner pledged to rein in the U.S. deficit as China underscored concern about preserving the value of its $801.5 billion of Treasury holdings.

The U.S. will ensure a “sustainable” deficit by 2013, Geithner said at the beginning of the first round of Strategic and Economic Dialogue talks under President Barack Obama in Washington. China is “concerned about the security of our financial assets,” Assistant Finance Minister Zhu Guangyao said.

In a shift from meetings under the Bush administration, officials indicated there were few signs of tension over the value of China’s yuan, which U.S. lawmakers have labeled as artificially cheap and an aid to Chinese exports. That may be because the “best idea is just to keep the yuan-dollar rate stable” given U.S. need for Chinese demand for Treasuries, said Ronald McKinnon, a professor of economics at Stanford University.

“The Chinese are trapped with supporting the value of the dollar,” McKinnon said in a telephone interview from Stanford, California. “If they withdrew from the market, there’s a big appreciation” of the yuan as a result that would send China’s exports down, he said.
China’s Reserves

The new focus on the deficit and Treasuries reflects the legacy of China’s record trade surpluses and its accumulation of dollars as a result of holding down the yuan. Chinese foreign- exchange reserves surpassed $2 trillion for the first time in the second quarter, and its holdings of Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

Sterling Pattern

2009-07-29T21:58:00.001+08:00

Waiting for the pattern to form.