Daily Forex Report: BoJ Cuts 20bps, Has Euro Topped?
By ActionForex

The forex markets are rather steady today so far as little response is paid to BoJ’s rate cut. the Bank of Japan cut the overnight lending rate from 0.3% to 0.1% on 7-1 vote and announced plan to buy corporate debts to help corporate raise funds during deepening recession. Tado Noda was the sole member to dissent. Basic loan rate was also lowered by 20bps to 0.3% by unanimous vote. Yen remains mixed after the decision. Note that firstly, more upside cannot be ruled out in EUR/JPY and CHF/JPY as supported by the theme of intervention. Secondly, USD/JPY’s recovery is not convincing yet as the downtrend is still intact. Thirdly, GBP/JPY, AUD/JPY and CAD/JPY are staying in range despite all the volatility elsewhere. There is not broad based direction in the Japanese currency for the moment. Read the rest of this entry »

Central Banks & Interest Rate Forecasts

In light of dovish comments by central banks and the surprising 100bp rate cut by SNB Thursday, forecasts on cash rates were revised down more aggressively. For the week ended Nov 21, economists priced in a greater interest rates cut in US, Europe, United Kingdom, Australia and New Zealand in central bank meetings in December.

Fed: Deutsche Bank caught up with Danske Bank, Goldman and Morgan Stanley to expect a 50bp cut in December. ‘The recent further weakening of economic activity confirm the view that the economy is dropping into a severe recession. Under these circumstances, and given the recent sharp drop in inflation, we expect the Fed to bring all available ammunition to bear as quickly as possible. This points to a rate cut to unprecedented levels at the December meeting, and indications that they could remain at a very accommodative level for some time to come,’ the bank commented.

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Traders will be anxious over the weekend as financial turmoil once again dominates the markets and data takes a back seat. The U.S. Thanksgiving holiday will also impact trading this week as markets will be closed Thursday and Friday.
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US markets will be on Thanksgiving holiday next Thursday but in general, we don’t expect market volatility to drop a lot as a number of important economic data are scheduled to release throughout the week. But in any case, main focus will still be on developments in the stock markets. As mentioned before, most major currency pairs and crosses are still bounded in established range and sustained selling in the stock markets is needed to trigger a decisive breakout from the current ranges.

From US, existing home sales, new home sales, house price index Q3 GDP revision, consumer confidence, Oct Personal income and spending, durable goods will be released. From Eurozone, main focus will be on Germany Ifo on Monday and HICP flash and unemployment on Friday. Other data include Germany Gfk and unemployment, Eurozone business climes, industrial orders, and current account. UK Q3 GDP, Gfk consumer sentiment will be featured. From Japan, main focus will be on Friday’s string of economic data including Oct CPI, household spending, industrial production, retail sales and housing starts. Canadian retail sales and PPI will be released. Swiss KOF will also be featured.

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Economic calendar is relatively lighter this week. From US, trade balance , Fed Budget. retail sales, University of Michigan consumer sentiments will be released. In Eurozone, main focus is on Germany ZEW Investor Confidence, HICP final, Q3 GDP. Form UK, PPI, Trade Balance, employment report will be featured. Other scheduled data include Swiss ZEW, combined PPI, Canadian housing starts, new housing price index, trade balance, and New Zealand retail sales.

On the technical side, main focus is on how the current consolidation, in particular in dollar index and DOW, will develop. It will become even harder to trade if range in the dollar index continues to narrow as the triangle consolidation goes. Though, a break of 86.89 will be an early signal that the consolidation has completed. Focus on DOW will be on whether it will continue the current slide to next near term support at 8599. Another focus will be the development in yen crosses. So far, with the exception of GBP/JPY, most yen pairs are still holding above near term supports. However, weakness in the stock markets this week will likely trigger selling in yen crosses which will send them through near term support and thus pave the wave to retest recent lows.

Mid-Day Report: ECB 50bps, BoE 150bps, SNB 50bps… but Markets Still in Range

Markets remain steady in early US session even though three of the world’s major central banks announced rate cuts today. BoE’s 150 bps cut surpassed the most aggressive speculation of 100bps. In a somewhat coordinated way, SNB cut rates by 50bps in an unscheduled meeting. Expectations were then built up for a deeper than expected 50bps cut from ECB but the bank disappointed market participants by cutting rate by 50bps, exactly as they originally expected. There were plenty of reasons to send the markets to either side today but after all initial kneejerk reactions, major pairs and crosses are still staying in established range.

So what is happening? We believe the forex markets are already pricing those cuts as well as, very likely, further rate cuts from majors central banks to eventually bring interest rates within a very tight range between 0-2%. The indecisiveness is indeed on the unknown impact in cutting ahead of the curve or behind the curve. Somehow, this could be seen in EUR/GBP’s sharp fall even though BoE cut much more than ECB. In the end, the effect will be reflected in the economy which will also be led by the stock markets. So to put it in simple way, the forex markets are still driven by the developments in the equity markets and traders will probably avoid to commit too much before the correction/consolidation in the global equity markets complete.

Having said that, attention should be paid to the development of DOW today and tomorrow. A short term top should be made yesterday after Obama’s win and if the DOW continues its fall towards the lower end of the range below 8,000 level, the forex markets will follow. Also another key factors in driving the stock markets, as well as the forex markets will be tomorrow’s NFP report.

ECB just met markets expectation and lowered interest rates by 50bps to 3.25% on unanimous vote even though the possibility of a 75bps cut was discussed. Though, the case of 100bps cut was not discussed today. In the following press conference, Trichet said that markets are now facing an extraordinary degree of uncertainty stemming from the financial market turmoil which will dampen demand in the Eurozone. Recent data confirms that growth momentum has weakened. Sluggish domestic demand and tighter financial conditions are expected. Upside inflation risks has fallen and Trichet expects strong CPI declines due to base effects.

BoE surprised the markets by cutting as much as 150bps today to bring the benchmark interest rates to 3.00%, lowers since 1955. Also, this is the largest single cut in 16 years. The accompanying statement acknowledged that there is a “marked deterioration in the outlook for economic activity at home and abroad,” and “availability of credit to households and businesses is likely to remain restricted for some time”. Risks to inflation is believed to have “shifted decisively to the downside,” and now with “substantial risk of undershooting the inflation target”. Hence, it’s believed that the policy easing cycle is not over yet.

In also a surprised move, SNB lowed the LIBOR target rate by 50bps to 1.5-2.5%, with point target of 2.0%, in an unscheduled meeting. SNB said in the statement that the global economic outlook has “deteriorated more severely than anticipated”. Much impact is expected to growth which, as SNB said, might even be “negative” in 2009.

On the data front, jobless claims came in at 481. Q3 labor cost rose 3.6% in US, with productivity up 1.1%. Canadian building permits surprised on the upside, rising 13.4% in Sep. Germany factory orders dropped sharply by -8.0% mom, -2.7% yoy in Sep. UK Halifax house prices dropped more than expected by -2.2% mom in Oct. New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3. Australian unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%. Japan leading indicator rose 0.2% to 89.2% in Sep.
By ActionForex

Daily Report: Risk Aversion Back ahead of ECB and BoE Meetings

Risk aversion is back to the market following 486 pts fall in DOW and broadly lower Asian stock markets. The Japanese yen and dollar fight back with the usual candidate, the Aussie, hit most in spite of a better than expected job report from Australia. Dollar index climbs back to above 85, oil weakens to below $65 while gold also drops below $738. Markets’ focus now turns to two of the biggest events of the week, ECB and BoE meeting and much volatility is anticipated throughout the day.

ECB is widely expected to cut the benchmark rates by 50bps from 3.75% to 3.25%. Eurozone CPI peaked at 16 year high of 4% in July and moderated steeply to 3.2% yoy in Oct since then. With falling commodity prices, inflation is believed to be a much lesser threat now, giving room for ECB to cut rates to revive growth in the Eurozone and avoid a recession. Due to recent sharp deterioration in growth outlook, there are some speculations on a wider than expected cut by 75bps today. Also, markets are pricing in as much as 125bps cut in the coming nine months. Hence, be it a 50bps cut or more, Trichet will likely sound dovish and signal further rate cuts in the near term in the post meeting conference.

BoE is also expected to cut rates by 50bps from 4.50% to 4.0% today but there are even more speculations of a larger than expected cut of 100bps. It’s no doubt that UK is entering a recession with sharp deterioration in growth data and confidence in consumers and businesses. Markets are speculating that UK will be the next to follow US to get itself close to near Zero Interest Rate Policy. This is reflected in the fact that Sterling was the weakest European major currency in Oct and it’s even weaker than Aussie and Kiwi this month.

On the technical side of the story, a few things to note. Firstly, AUD/USD and USD/CAD are showing sign of momentum loss and the correction might be completing. Secondly, similar situation is seen in USD/JPY which argues that the rebound might have completed. Though, EUR/JPY and GBP/JPY remains relatively steady in range so far. Thirdly, Dollar Index’s rebound left the fall from 86.98 to 83.9 in three wave corrective structure which suggests upside potential in near term. But after all, note that the major pairs and crosses are mostly still bounded in established range and the current choppy consolidation could extend further in unpredictable path as long as the range holds.

On the data front, New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3. Australian unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%. Japan leading indicator rose 0.2% to 89.2% in Sep. Germany factory orders is expected to drop -0.2% mom, 3.2% yoy in Sep. US jobless claims is expected to edge higher to 480k. Q3 labor cost is expected to rise 2.8% with productivity up 0.8%. Canadian building permits and Ivey PMI will also be released.
By ActionForex

he week will feature three central banks’ meeting, US presidential election as well as a number of important economic data around the world. RBA, ECB and BOE are expected to cut rates by another 50bps to continue the coordinated global easing cycle. From US, ISM manufacturing and services, factory orders Q3 labor cost and productivity, pending home sales will be featured with the highly anticipated on-farm payroll. Eurozone PPI, manufacturing and services PMI, retail sales will be released. Swiss Oct CPI, SVME PMI, unemployment will be released too. Focus from UK will be on manufacturing and services PMI, nationwide consumer confidence, industrial and manufacturing production. Canadian building permits, Ivey PMI and job report, Australia retail sales, house price index, job report, New Zealand employment report will also be watched.

Technically speaking, as mentioned in various report, dollar and yen should have made a short term top. In most cases, it’s uncertain on whether these are medium term tops. Nevertheless, good range trading opportunities should be presented in most pairs in near term. In short, we’d expect some more choppy consolidation in last week’s range.

Daily Report: Yen Weakens after More News on Bank Rescue

Yen weakens again today after more news on bank rescue was announced. South Korea said that it will guarantee $100b in bank debts and provide $30b to financial institutions after S&P warned that it may lower the nations’ lenders’ credit ratings. New Zealand Finance Minister Cullen said that RBNZ and Treasury are “working on a possible wholesale deposit guarantee scheme.” The Netherlands government will buy non-voting preferred shares in ING to provide $10b euros to the bank. ECB Trichet urged banks to “normalize their relationships” and start “lending to each other” after central banks’ cash injection into the financial system. Technically, dollar and yen pairs are still bounded in consolidation but there is no change in the medium term dollar and yen bullish outlook yet. Though, as discussed before, such consolidation will likely follow consolidation in the equity markets and continue for a while.

Released overnight, UK Rightmove house prices posted -4.9% yoy fall in Oct, the biggest annual decline in at least six years. Australian PPI rose faster than expected by 2.0% qoq in Q3 with yoy rate up from 4.7% to 5.6%. Germany PPI rose 0.3% mom, 8.5%, also above expectation. Canadian wholesale sales and US leading indicators will be released later today. Focus will also be on Fed Bernanke’s testimony at House Budget Committee.
By ActionForex

Bank of Canada and Reserve Bank of New Zealand are both expected to cut interest rates again this week. BoC is expected to cut 50bps to 2.0% while RBNZ is expected to cut 1% to 6.5%. BoE minutes will be featured and should show unanimous vote for the coordinated global 50bps cut earlier this month. Bernanke’s will testify at House Budget Committee on Economy on Monday.

The economic calendar in US is pretty light next week. Economic data include leading indicators, house price index and existing home sales. From Eurozone, main focus is on manufacturing and services PMI. UK Q3 GDP and Sep retail sales will be released. Australian PPI and CPI, New Zealand CPI and Canadian retail sales, CPI will also be released.

Note that firstly, inflation are now a lesser threat that recession in the world economy, in particular after commodity prices tumbled in the past few months. Hence, the CPI data will have much less impact to the markets. Secondly, further down side is still expected in the global stock markets which will, in turn, trigger rally in dollar and yen. Though, it could either be European led or US led. And hence, close attention will be paid to growth data from Eurozone and UK which could trigger much volatility in the stock markets as well as the forex markets.
By ActionForex