Tradervox.com - News and Analysis for the Forex Market
Greek PSI drives Euro to a Bullish Mode
Tradervox.com (Dublin) - The EUR/USD is currently trading in strong bullish markets. The currency seems to be well bid supported by strong volatility and volumes. Technically the currency is likely to continue its upward momentum and may well close the trading session around the 1.327 levels.
However on the fundamental side we have a few risk events up ahead. At 12:45 GMT there is the ECB rate decision. The central bank is likely to keep rates on hold and may well keep away from citing any market mover talks as the ECB awaits the effect of the last weeks LTRO. The LTRO funding last week was one of the largest with the ECB handing out €529 billion of liquidity. The liquidity injection saw almost 800 Euro zone banks tapping into the LTRO to meet their funding needs.
This was not anticipated and raised concerns over the funding ability of the Euro zone banks and raised brows over the financial stability of the entire Euro zone. This resulted in a sharp sell-off in Euro and other risk correlated assets. The dollar benefited from this risk averse money flow and rose to 3 weeks highs.
After this sell off the Euro was lingering around 1.319 levels in the early trades of the week. However the currency seems to have found the boost today and is seen surging into bullish zone. This boost seems to be coming from the second and most important risk event of the day-the Greek PSI Talks. The Greek Government needs considerable participation in the PSI talks to initiate the bond swap deal. This bond swap deal is necessary and crucial for the Greece if it wants to avoid a disorderly default and also to enable it to get the next tranche of money from the European Union.
Rumors are spreading around that many PSI investors are positive regarding the bond swap and the country may be able to pass the bond swap, the details of which will be available tomorrow.
This optimism regarding the Greek PSI talks is fuelling risk sentiments driving the pound, euro and the commodities into strong bullish territory.
Source:http://www.tradervox.com/fundamental-analysis/PSI-drives-Euro-bulls
Yen Remains Strong against Most Currencies
Tradervox.com (Dublin) - The yen remains strong against major peers, holding gains made yesterday. This has come amidst falling Asian stocks that has boosted the appetite for the currency as a safe haven. The Australian dollar dropped after a report showed that the economy expanded less than it had been forecasted in last year’s fourth quarter. The euro is another currency that increased against the US dollar due to speculations that it had reached a level that made the value of some contract worthless. However, the appetite for the euro was limited as the deadline for debt-swap deal for Greece approaches.
According to Satoshi Okagawa, the market is in a risk-off environment hence the yen is more likely to be bought than most other currencies hence the increase. Satoshi also estimate that the yen might strengthen beyond 80 per dollar today. The Japanese yen sold at 106.27 per euro at 11:00 am in Tokyo which was is a drop from yesterdays 106.07 in New York. The yen had gained 1.6 percent against the euro in New York trading session which is the sharpest increase since November 9 last year. The JPY remained unchanged against the US dollar at 80.89 yen. The euro increased by 0.3 percent against the dollar at the opening of the Asian session.
The MSCI Asia Pacific Index of share declined for the third day by 0.9 percent while the standard & poor’s 500 index declined by 1.5 percent. MSCI World Index dropped by 2.1 percent yesterday. Another index showing the volatility of the market today –the Chicago Board Options Exchange Volatility Index- closed at 20.87 yesterday which is the highest since February 15.
The Australian dollar dropped by 0.2 percent to $1.0536 after a report showed that the economy rose by 0.4 percent which is lower than the o.8 percent growth rate registered in the third quarter. The bureau of statistics released this report in Sydney today. According to Lee Wai Tuck, a Currency Strategist at Forecast LTD in Singapore, the talk of barrier options with a $1.3100 knock-out strike appears to be buying the euro to remain on the safe side.
Source:http://www.tradervox.com/fundamental-analysis/Yen-Remains-Strong-against-Most-Peers
ECB Records an Increase in Overnight Deposits
Tradervox.com (Dublin) - The ECB has indicated that its overnight deposits have increased to a record high after it offered the second allocation of three-year loans. The European Central Bank indicated that banks in the euro zone deposited 776.9 billion Euros. This is the most amounts deposited since the Euro became a legal tender in 1999. This amount was from 475.2 billion Euros a day before. The financial institutions are getting 0.25 percent on the deposits.
The increase in overnight deposits is as a result of the 529.5 billion Euros it has lent to financial institutions in the area. This is the biggest refinancing operation the bank has done in its history, bringing its total long-term lending to more than 1 trillion Euros. The banks received this money yesterday and they are supposed to pay the average of the ECB’s benchmark rate that is currently held at one percent. This is supposed to proceed over the entire period of the loan. There are 800 banks that have participated in this operation out of the 2,267 financial institutions registered to borrow from the ECB.
According to Laurent Fransolet, the Head of Fixed Income Strategy at Barclays Capital in London, the deposits will stay at around 800 billion over the next one year. Economists have indicated that around 230 billion Euros of the money was accounted for by the existing European Central Banks loans that have been rolled into the new facility. This means that the new cash from the banks operation is about 300 billion Euros.
Mario Draghi indicated yesterday that policy makers were satisfied with the reception and number of participants in the operation. This operation is aimed at unlocking credit for households and companies by allowing small and medium sized financial institutions to access the funding. However, the ECB President Mario Draghi had indicated in his Feb. 21 letter to a member of the European Parliament that the increase in overnight deposits does not reflect the impact of the loan on the economy, but reflects a balance sheet identity with the increase in refinancing operation.
Source: ECB Records an Increase in Overnight Deposits | Tradervox
The USD Declines Ahead of US Manufacturing Data
Tradervox.com (Dublin) - The dollar opened the trading weaker after speculation that the Manufacturing data report will show that the manufacturing in the country increased in February. This has caused the greenback declined against major counterparts as the appetite for safe haven asset reduced. The Australian and the New Zealand dollar were the biggest gainers against the greenback. The International Swaps & Derivatives Association indicated that there would be no payout on the $3.25 billion in Greek credit default swaps. The Fed chairman Ben Bernanke said this yesterday as he testified before Congress, but he did not indicate whether there is any further monetary easing consideration.
A Currency Strategist at Deutsche Bank AG in London, Henrik Gullberg said that the signs of economic recovery would benefit the higher-yielding currencies as opposed to the dollar, since this would increase risk appetite. However, he was quick to add that some investor are reassessing comments by Bernanke yesterday in efforts to get clues on whether there is another looming round of quantitative easing.
The dollar declined against the Australian dollar by 0.3 percent to settle at $1.0762. The dollar did not show any considerable changes against the euro as it remained at $1.3332 per euro. However, the dollar declined against the yen by 0.2 percent to settle at 81.02 per dollar. On the other hand, euro declined 0.2 percent against the sterling pound to sell at 83.55 pence and traded at 108.01 against the yen.
According to Bloomberg Correlation-Weighted Indexes, the US dollar was the worst performer today, falling by up to 0.2 percent. According to the Institute for Supply Management’s index in US, the index rose to 54.5 which are the highest it has been in eight months. This was an increment from 54.1 recorded in January. According to economic analysts, reading above 50 is an indication of growth in the economy. Investors are also waiting for another report to be released later today which will show that US personal spending increased by 0.4 percent in January.
Technical Analysis Update - US Session
Tradervox.com (Dublin) - The rally on the hope of Greek deal during the European session peaked at 1.3273. It is currently trading at 1.3254, up about 0.80% for the day. The resistance may be seen at 1.3260 and above at 1.3310 levels. The support may be seen at 1.3200 and below at 1.3160 levels. ECB kept the interest rate unchanged 1% as expected. ECB president Draghi mentioned the improved sentiment during the press conference.
The sterling pound is trading around the 1.5800 levels. It is presently trading around 1.5806, up about 0.42% for the day. The resistance may be seen at 1.5900 and above at 1.5970 levels. The support may be seen at 1.5800 and below at 1.5760 levels.
The Australian dollar has given back some of the early gains of the day and the pair has come back near the 1.0600 levels. The pair is currently trading around 1.0623, up about 0.23% for the day. The high of the day so far is 1.0666. The resistance may be seen at 1.0650 and above 1.0700 while the support may be seen at 1.0600 and 1.0560 levels.
The USD/CHF has come below the 0.9100 levels and it is presently trading around 0.9080, down about 0.95% for the day. The pair has printed a fresh low of 0.9076 during the US session. The support may be seen at 0.9060 and below at 0.9010 levels. The resistance may be seen at 0.9110 and above at 0.9150.
The USD/JPY is trading around 81.52 up about 0.55% for the day. The resistance may be seen at 82 and above at 82.20. The support may be seen at 81.27 and below at 81.
The US dollar index is trading around 79.20.
Source: http://www.tradervox.com/technical-analysis/Risk-on-sentiment-continues-in-US-session
Aussie and Kiwi Set for a Decline
Tradervox (Dublin) - The New Zealand and Australian dollars are set for a weekly decline. The Australian dollar continues to decline after a report showing that the nation registered a trade deficit in the fourth quarter. The New Zealand dollar is headed for five day decline in two months against the yen after the Central Bank Governor Alan Bollard indicated in a news interview that an interest-rate cut is a possibility if the strong currency undermines the economic growth. The decline in the South Pacific currencies was reduced by reports showing that the inflation in China reduced last month.
Greg Gibbs, a Foreign Exchange Strategist at Royal Bank of Scotland Group Plc said that the trade balance data appears like a weak number and it has put some downward pressure on the Australian dollar. This is also as a result of a weaker tone in the economic data in the past two weeks.
The Australian currency was little changed selling at $1.0642 from yesterday when it surged 0.6 percent against the dollar. The Australian dollar has declined 0.9 percent this week. However, the Aussie increased by 0.2 percent against the yen to sell at 86.99 yen after strengthening 1.2 percent yesterday.
The New Zealand dollar increased by 0.2 percent against the US dollar to settle at 82.58 US cents; it also climbed 0.4 percent against the yen to settle at 67.51 yen. The Kiwi is, however, headed for a 0.5 percent decline against the JPY this week. This is the largest weekly drop for the Kiwi since the week ended Dec. 30.
A report from the Bureau of Statistics indicated that the Australian imports outpaced exports adding pressure to the RBA governor Glenn Stevens to end the two-month pause in the interest rates. The Australian economy also slowed in the last quarter and payrolls have fallen in February.
The Reserve Bank of New Zealand governor Alan Bollard have decided to keep the interest rates at record low of 2.5 percent but indicated that a rate cut is a possibility if the strong currency affects the economic growth of the nation.
Source: Aussie and Kiwi Set for a Weekly Decline | Tradervox
Greece Managed to Secure Bond Swap Deal
Tradervox.com (Dublin) - The Greek Government has managed to secure the 75 percent participation required to get the 130 euro-bailout. After closing the bond swap deal yesterday with optimism, it has now been confirmed that the bondholders’ participation exceeded the minimum requirement of 75 percent by registering an 83.5 percent overall participation. According to the Greece finance minister, 85.8 percent of private investors who hold bonds under the Greek law voluntarily agreed to accept the deal while 69 percent of those holding Greek bonds under foreign law took the deal. This tallied to an 83.5 percent overall participation that gives the Greek government to legally force wayward creditors to accept the deal.
By accepting this deal, bondholders have agreed to incur losses totaling to 75 percent of their investments. The deal involved writing down 53.3 percent of the value of the bonds and swapping their Greek debt for lower interest rate securities that will be offered by the Greek government. The Greek government has finally managed to escape bankruptcy and the threat to of its membership to the Euro region seems to have waned for now. The 130 billion Euros of its debt refinancing is expected to be available by March 20[SUP]th[/SUP] when the government is expected to make repayment.
The euro-zone is scheduled to hold a phone conference to deliberate on the participation. The Greek finance minister indicated that the recalcitrant creditors have been given up to March 23 to comply with the deal.
Despite the strong participation by creditors and Greece securing the bailout money, there are some analysts who are very skeptical about the state of the Euro zone and Greece. Some have blatantly expressed this skepticism by claiming that Greece and Euro are finished since the second bailout does not accomplish anything worthy of note. They are citing the fact that the country has not had any growth for the last five years and its economy is on a negative spiraling trend, and expecting to register growth in the next two years after 130 billion euro bailout is “outright insane.”
Investors are now keen on the effects of the participation and economic analysts are waiting to see how Greece handles this situation.
Draghi’s Loans Silences Pessimists
Tradervox.com (Dublin) - When euro-area was in deep crisis, numerous economists predicted the end of the economic block. The Greece debt crisis looked insurmountable and this crisis was compounded by troubles in Italy, Spain, and Ireland, which looked to follow the way of Greece.
Analysts indicated that the best thing for Europe and Greece was for Greece to leave the union. But this was not what was in Draghi’s mind; after Greece successfully secured the bailout money needed to avoid default, Draghi gave the euro region financial institutions additional three-year loans that have boosted the economy in the region. The success of these loans has silenced many analysts who predicted fallout in the region.
One of the economists who admitted having irrational market panic at the end of 2011 is Holger Schnieding. He also recommended the ECB’s efforts that have brought some semblance of calm diminishing the breakup sentiments. According to John Normand, the currency might even trade at $1.34 by June this year. The continued focus on relieving credit crunch by the ECB officials has yielded fruits with euro gaining stability over the last three months. Investors are still keeping a close eye on events from Greece as some analysts still warn that the crisis is far from over.
Despite the success cited by Draghi on his March 8 statement, some analysts still believe that the euro might go down since the Greek debt crisis has shown that investors can lose money investing in bonds. Ian Stannard, a European Foreign Exchange Strategists pointed that Spanish bonds are looking awful and this might lead to another loss to investors. He also indicated that the need for further action by the ECB might have reduced hence making the currency prone to weakening.
The euro region economy is expected to decline by 0.4 percent in 2012, with recessions expected in countries such as Greece and Italy. Germany is expected to grow by 0.6 percent in the same year. On the other hand, the US economy is expected to grow by 2.2 percent hence making it the stronger economy. This may prompt investors to buy dollar assets as they seek safe haven currencies.
High Employment Rate Increased Consumer Spending in February
Tradervox.com (Dublin) - A report released by the Labor Department on March 9 indicated that employers took in 227, 000 new employees in the February; this followed a bigger-than-expected intake of 284,000 employees in January. The report indicated that the unemployment rate has been held at a record low of 8.3 percent.
According to many analysts, the boost in employment over the last 3 months could have led to an increase in consumer spending in the US. A US retail sales report expected to be released later today is likely to show an increase of 1.1 percent for February, up from 0.4 percent recorded in January.
Economist such as Omair Sharif of RBS Securities LLC indicates that the strong retail sales for February could be as a result of the large number of jobs created by employers. The Fed’s low interest rate is seen to be working as the economy seems to be gaining stability each month. Retail Sales Report is released by the department of commerce every month to show consumer spending for each month.
A strong increase in consumer spending is an indicator of stability in an economy. In a report released on February 14, the retail sales were at $358.78 billion. Retail sales report, which excludes food services, has been on the rise since July 2010.
There has been a boost in car sales in the month of February. Among the companies that have recorded an increase in car sales include Chrysler Group LLC and General Motors. According to Don Johnson, the person in charge of sales in GM US, the increased number of sales is as a result of good credit availability and stronger employment.
The retail sales report is likely to show an increase in gasoline cost, which is one of the concerns Ben Bernanke, the Fed Chairman, indicated as a possible cause of inflation and reduce consumers’ spending ability.
Source:High Employment Rate Increased Consumer Spending in February | Tradervox
Trade Data Suggests Global Economic Slowdown
Tradervox (Dublin) - Despite fears of global economic slowdown following a disappointing trade data report from China, the greenback and the yen registered strong showing in the Asian session. Chinese trade data reported that exports grew by 18.4 percent which is less than 31.1 percent increase expected by many economists.
Trade data from China is especially important in the global economy since China is the largest exporter in the world. Analysts are now warning that there might be global economic slowdown later in the year if this trend continues. However, there are some analysts who are reluctant to place any significant weight on the trade data from Asia saying that the year-on-year growth for exports has been on the low since May 2010.
The Chinese trade data might augur the looming Euro area recession which is expected later in the year. Analysts have already warned that the recession might bring global economic growth to a halt, which will be one of a kind since the great recession. However, with the Greek debt crisis fairly resolved and the positive US jobs data released on Friday, some analysts have refused to accept the negative reports as signs of global economic slowdown.
The euro had dipped to its lowest of $1.3079 which is the lowest it had been since February 16. This coincided with the solid support at 55 day moving average for the euro. But some traders were wary of a close below 1.3080 which would prompt some hedge funds to augment short euro positions. The euro closed the Asia session at $1.3114. The strong showing of the dollar is as a result of safe haven appetite in the market after lower-than-expected Chinese trade data.
The yen increased against the dollar to close at 82.12 yen after rising to eleven month high of 82.65 yen 0n Friday. The strong yen and US dollar currencies have been viewed as signs for an increase in safe haven demand in the market.
Source: Trade Data Suggests Global Economic Slowdown | Tradervox
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