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 »

Daily Report: Focusing Turning to UK CPI

The forex markets remain bounded in tight range today even though the greenback is mildly firmer on risk aversion. More noticeable movements are found in GBP/USD’s recovery as well as USD/CHF’s strength. Though, both are cross driven as sterling continues to recover after hitting record low of 0.8660 against Euro last week. Swissy also continues to retreat in EUR/CHF and GBP/CHF crosses after both hit record low earlier this quarter. Note that since Sterling’s recovery is corrective in nature, recent down trend is still expected in respective pairs. Swissy, only other hand, will likely remain the weaker one among European majors until it’s pullback in crosses completes. Elsewhere, crude oil is set to retest 55 level again while gold remains directionless in tight range.

Main focus in the European session will be consumer inflation data from UK. CPI is expected to moderate from 5.2% peak in Sep to 4.8% yoy in Oct. Core CPI is expected to be unchanged at 2.2%. RPI is expected to slow from 5.0% to 4.6% while RPI-X is expected to slow from 5.5% to 5.2%. BoE has noted that inflation risk has ’shifted decisively to the downside’ and justified the much larger than expected 150bps cut earlier this month. Today’s data might mark the turn of trend in inflation that support BoE’s cut. Also, any sign of steeper than expected fall in inflation will give room to BoE for carrying on the steep path of policy easing. Other data from Europe include Swiss retail sales.

US Treasury Paulson said overnight that financial markets distress will remain for “a number of months” even though fears of bank collapse subside. He also said that he’s not looking to start new lending program unless it’s absolutely necessary. The reserves, which are in excess of $400b, will be preserved for Obama administration. Markets focus will turn to TARP testimony of Fed Bernanke, Treasury Paulson and FDIC Bair. data from US is expected to show steeper moderation in PPI by -1.8% mom in Cot, brining yoy rate down from 8.7% to 6.2%. Though, core PPI is expected to be unchanged at 4.00% yoy. NAHB housing markets index is expected to be unchanged at 15 in Nov.

By ActionForex

Mid-Day Report: Dollar and Yen Regains Ground after Retail Sales Fell by Record Amount

Dollar and yen continues to regain grounds in early US session after poor retail sales data from US. Headline sales dropped more than expected by -2.8% yoy in Oct, worse on record and even below 2001’s 2.65% fall after terrorists attacks. Ex-auto sales also dropped more than expected by -2.2%, also the worse performance ever. Both export and import prices fell -1.9% mom and -4.7% mom in Oct, deeper than consensus. The overall forex markets remain indecisive though and will depends on the development in the stock markets.
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Daily Report: A Busy Day Featuring BoE and FOMC Minutes

The forex markets are still bounded in tight range in generally as markets are still searching for a theme and direction. Meanwhile, as mentioned before, Swiss Franc remains the weaker one as driven by its pull back in EUR/CHF and GBP/CHF crosses. USD/CHF continues to climb higher. GBP/USD, on the other hand, loses momentum after hitting 1.5080 minor resistance. Dollar index continues to be bounded inside a triangle like consolidation pattern below 87.98. A number important events are scheduled today, including the release of FOMC and BoE minutes as well as US housing and inflation data, which could trigger some volatility in the markets.

BoE MPC minutes are expected to reveal a 9-0 vote for the surprised 150bps cut earlier this month. With core CPI having the steepest drop in at least 11 years and a clear sign of turnaround in inflation trend, markets expect that BoE is now free to have further steep rate cuts from BoE to avoid a prolonged recession in the UK economy. Indeed, markets are pricing in another 100bps cut over the next 12 months. The minutes are expected to affirm this view. But the impact on Sterling might be minimal.

FOMC minutes, on the other hand, is expected to elaborate on the perceived dovish bias of Fed and provide details of the discussions between board members, including those in the intermeeting cut before Oct 29. Markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook.

Consumer inflation in US has peaked at 5.5% in Jul and is expected to continue the down trend in Oct. Headline CPI in US is expected to moderate drop sharply by -0.8% mom in Oct, with year-over-year rate steeply down from 4.9% to 4.0%. Core CPI is expected to rose 0.2% with year-over-year rate down to 2.4%, after plateau at 2.5% for three consecutive months from Jul to Sep.

NAHB builder confidence surprised the markets yesterday by plummeting sharply from then record low of 14 in Oct to new record low of 9 in Nov. Such pessimism is expected to be reflected in today’s new residential construction data too. Housing starts is expected to continue the down trend and drop from 0.82m to 0.78m annualized rate. Building permits is also expected to drop from 0.81m to 0.78m annualized rate.

The forex markets continue to stay in tight range today despite some big surprises from inflation data from US and UK. US PPI dropped sharply by 2.8% mom in Oct, biggest fall since the series began in 1947. Year over year rate was down from 8.7% to 5.2% versus consensus of 6.2%. Core PPI, though, rose 4.4% with yoy rate up to 4.4%. TIC capital flow rose to 66.2B in Sep. Focus will turn to testimony of Bernanke and Paulson.
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Weekly Review and Outlook: Sterling Dived in Volatile but Indecisive Markets
Dollar and yen were broadly higher last week on risk aversion as economic data continued to confirm the global economy is entering into recession. However, the overall short term outlook in the forex markets remained rather mixed. Dollar index made a new high at 87.98 but failed to sustain there and retreated back into established range below 87.87. Indeed, looking at the monthly currency heat map, most of the pairs are still kept inside last month’s range with the exception of some Sterling pairs and USD/CHF. Developments in EUR/USD, EUR/JPY, AUD/USD, AUD/JPY argue that these pairs are still bounded in consolidation after last months’ sharp fall. The indecisiveness in forex markets could be attributed to the lack of direction in the stock markets. DOW dived to as low as 7965 but staged a strong rebound before weakening again towards the end of the week. And, the index is still staying in established range of 7884 and 9785 as consolidation continued. Gold is still bounded between 681 and 778. Crude oil, on the other hand extended the down trend to below 55.
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Mid-Day Report: Dollar and Yen Regains Ground after Retail Sales Fell by Record Amount

Dollar and yen continues to regain grounds in early US session after poor retail sales data from US. Headline sales dropped more than expected by -2.8% yoy in Oct, worse on record and even below 2001’s 2.65% fall after terrorists attacks. Ex-auto sales also dropped more than expected by -2.2%, also the worse performance ever. Both export and import prices fell -1.9% mom and -4.7% mom in Oct, deeper than consensus. The overall forex markets remain indecisive though and will depends on the development in the stock markets.
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Daily Report: Focus on Non-Farm Payroll

Dollar and yen strengthens mildly overnight on weakness in US stock markets but no follow through buying is seen in the Asian session today. Markets are holding their bets ahead of the highly anticipated Non-Farm Payroll report. Economists expect the job market in the US to contract for the tenth consecutive months in Oct and the contraction is accelerating with -200k drop in payrolls. Unemployment rate is expected to climb to a five year high of 6.3%.

There are many reasons to expect an even worse NFP number today. ADP report has already disappointed the markets by showing -157k drop in private payroll. Employment component of both ISM indices were deep in contraction region. Challenger layoffs rose to a 5 year high of 79%. Initial claims were elevated above 470k while continuing claims reached five year high. These are known facts and hence even if the NFP number is worse than expected, there may not be much impact to the markets if it’s not too far off. Instead, the mover could indeed be the unemployment rate.

Technically speaking, the forex markets are still lacking a clear direction. Though, this week’s development argues that we may have seen the bottom of the pullback in dollar and yen. Stock markets development is still the main driver in FX. Since we’re expecting DOW to head lower to test the lower side of recent range of 7884/8440, more upside is still in favor in dollar and yen in near term.

Another piece of important data to watch will be Canadian job report which is expected to show -10k contraction in Oct. Unemployment rate is expected to climb from 6.1% to 6.2%. USD/CAD’s break of 1.1892/1900 resistance suggests that correction from 1.3015 has completed already. A weaker than expected job number today will support this near term bullish view and encourage a rally in USD/CAD through 1.2375 near term resistance.

Data released today so far saw Swiss unemployment rate rose from 2.4% to 2.5% in Oct. Germany Trade surplus cam in at 13.7b. Germany industrial production, US pending home sales and wholesale inventories will be featured.
By ActionForex

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: Dollar Higher after Obama Win but Short Term Outlook Mixed

The forex markets remain generally mixed in consolidation phase. Dollar recovers after Obama’s victory in the US presidential election and on hope that the first African-American president of US and the Democrats will speed up policies that help overcoming a recession. Dollar index is back above 85 level after diving to 84.45 earlier yesterday. Crude oil and gold also retreats from this week’s high. While the markets are generally mixed, Sterling is noticeably the weaker one this week so far ahead of BoE rate decision. On the other hand, the Canadian dollar is supported by the rebound in oil prices and is the relatively stronger one this week so far.

Though, technically speaking, firstly, the current price actions in dollar and yen are treated as consolidations only. The larger down trend is still in force even though the current consolidation may extend further. Short term outlook will remain mixed though as the path of the choppy consolidation is rather unpredictable. Also, note that USD/CAD is somewhat losing downside momentum as it’s approaching 1.1304 support which the fall could be contained.

On the data front, UK nationwide consumer confidence unexpectedly improved to 55 in Oct. Australia trade surplus widened to record 1460M in Sep. Upcoming in the European session, UK Services PMI, industrial production and manufacturing will be released. Eurozone finalized Services PMI and retail sales will also be featured. ISM non-manufacturing index and ADP employment report will be the main focus in US session.
By Action Forex