Carry trade "off" day, as negative sentiment regarding Greece
Fri, Feb 12 2010, 13:53 GMT
by T J Marta
Marta on the Markets
Currencies: Carry trade “off” day, as negative sentiment regarding Greece and poor data in New Zealand and Europe cause risk trade unwinding. USD and JPY outperformed while AUD and NZD lagged.
EUR/USD. Sliding towards 1.35
EUR/USD (1.3555) is down overnight on a combination of poor data and Germany showing recalcitrance towards bailing out Greece. Merkel repeatedly brushed off insinuations that European countries would provide a bailout package for Greece.
Data Releases: GDP and production disappointed. German Q4 GDP remained unchanged q/q (consensus +0.2%), as weak consumption and investment offset growth stemming from exports. The times series suggests that the mid-2009 surge is waning, and the question now is whether growth simply remains weak or the economy experiences a double dip. Eurozone Q4 GDP rose less than expected (0.1%, consensus 0.3%). This represents a moderation from the 0.4% growth in Q3. The long-term average for Euro zone growth is 0.4%. At best, the recovery appears to be pointing at subtrend growth. However, the risks are to the downside given the austerity budgets in place in Greece and Spain. Eurozone Dec production collapsed 1.7%(consensus 0.1%). For perspective, but for the past 2 years, this print marks the 5th worst print on record back to 1985. The recovery of 2009 looks at risk.
Technicals:
* Trend: Weekly down; Daily up.
* Overbought/Oversold (stochastics): Weekly oversold; daily oversold
* Support / Resistance Levels: Support for EUR/USD lies at 1.3537 (Feb12 low), 1.3424 (May18 low), 1.3330 (Jan27’09 high). Resistance lies at 1.3761 (downtrend resistance from Jan high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).
Positioning:
* The CFTC net non-commercial positioning appears particularly extreme for EUR. The short position has grown to -38.4K, near the record -43K established in Sep’08, weeks before EUR/USD bottomed around 1.25.
* The risk reversal (3m, 25delta) has begun collapsing again, consistent with the move lower in the euro, but it is also nearing the Dec’09 low, suggesting a stabilization in the currency.
* Implied Vol (3m) has retreated even as the downtrend in EUR/USD continues.
Cross-asset valuation: EUR/USD is re-establishing short-term correlations with other assets: Crude oil (positive), S&P (positive) and US 10yr yield (positive).
GBP/USD. Steady in 1.55-1.58 range
Cable (1.5598) is down overnight and appears to be stabilizing in the 1.55-1.58 range.
Technicals:
* Trend: Weekly lower; Daily lower
* Overbought/Oversold (stochastics): Weekly neutral; daily oversold
* Support/Resistance Levels: Resistance lies at 1.5765 (Feb10 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high),1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.5536 (Feb8 low) and 1.5373 (Jan’09 high).
Positioning:
* The CFTC non-commercial net position neutral to low at -34.9K
* The risk reversal (3m, 25delta), is grinding lower, suggesting the options market is pushing lower on GBP. However, it is also nearing the low in late-Dec, which marked a bottom in GBP/USD.
* Implied Vol (3mo) is settling again after jumping higher from very low levels.
Cross-asset valuation: The only strongly significant correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive).
USD/CHF. New high on suspected intervention
USD/CHF (1.0820) is up sharply overnight, and has traded a new high since Aug’09. While not confirmed, the sharp price action in EUR/CHF suggests that the SNB was in intervening again overnight to prevent excessive appreciation of the CHF versus EUR. SNB policymakers have warned that they would intervene, so the move is not a surprise.
Technicals
* Trend: Weekly higher, daily lower
* Overbought/Oversold (stochastics): Weekly neutral; daily overbought
* Support/Resistance levels: Resistance lies at 1.0825 (Feb12 high) and 1.1023 (Jun high), while support lies at 1.0643 (Jan29 high) and 1.05 (psychological).
Positioning:
* The CFTC non-commercial net position declined to -2.1K and is consistent with the rise in USD/CHF.
* The risk reversal (3m, 25delta), at +0.87, the skew is near an extreme in favor of USD/CHF. The options market went bullish back in Oct and hasn’t abandoned that view since.
* Implied Vol (3mo) has is stabilizing at a quite low 11.2775%.
Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative), the USD index (positive), and gold (negative).
USD/CAD. Swinging lower.
USD/CAD (1.0575) is up sharply on the poor European data overnight, but remains in corrective downtrend from early Feb highs.
Technicals:
* Trend: Weekly up; Daily lower
* Overbought/Oversold (stochastics): Weekly neutral; daily overbought
* Support/Resistance Levels: Resistance lies at 1.0781 (Feb5 high), 1.0870 (Nov2 high), 1.0959 (Oct high), 1.0993 (Sep high), and then 1.10 (psychological). Support lies at 1.0480 (Feb12 low), 1.0225 (Jan14 low), 1.0207 (Oct low), and 1.00 (psychological).
Positioning:
* The CFTC, non-commercial, net position retreated from overbought territory, consistent with the rally in USD/CAD. It is now relatively neutral.
* The risk reversal (3m, 25delta), at 1.115, is lower but remains massively overbought.
* Implied Vol (3m) has stabilized and remains relatively muted.
Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), DXY (positive), CRB (negative), and crude oil (negative).
USD/JPY. Testing downtrending channel
USD/JPY (89.93) is up overnight and testing the top of the downtrending channel in place since early Jan.
Technicals:
* Trend: Weekly higher; Daily crossing higher.
* Overbought/Oversold (stochastics): Weekly neutral; Daily oversold.
* Support/Resistance Levels: Support lies at 88.56 (Feb4 low) and 87.38 (downtrend channel bottom). Resistance lies at 90.31 (downtrend channel resistance), 90.35 (Feb12 high), 91.28 (Feb3 high), 91.88 (Jan21 high) and 93.77 (Jan8 high).
Positioning:
* The CFTC, non-commercial net position: The rise in the position to +8.4K is consistent with the recent decline in USD/JPY.
* The risk reversal (3m, 25delta) is relatively low, suggesting limited USD/JPY downside.
* Implied vol (3m): Has jumped from very low levels.
Sunday, February 14, 2010
UK leading indicator index grows less than forecast
FXstreet.com (Barcelona) - The economy of the United Kingdom is giving mixed signals of the strength of its recovery with the leading economic indicator slipping to 0.4% in December 2009 from 0.9% in the previous month.
The Leading Indicators released by the Conference Board measures future trends of the overall economic activity including employment, average manufacturing workweek, initial claims, permits for new housing construction, stock prices and yield curve. It is considered as a measure for economic stability in UK. A high reading is seen as positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).
The Leading Indicators released by the Conference Board measures future trends of the overall economic activity including employment, average manufacturing workweek, initial claims, permits for new housing construction, stock prices and yield curve. It is considered as a measure for economic stability in UK. A high reading is seen as positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).
Forex: Pound ends week with gains against JPY, USD and EUR
FXstreet.com (Córdoba) – The Pound finished the week with moderate gains against the Euro, the Dollar and the Yen.
GBP/USD rose slightly on a weekly basis. The pair moved all week inside a range with support at 1.5530/55 and resistance at 1.5760. Cable was able to gain strength only after falling on Monday to 1.5530, reaching a fresh 8-month low. On Friday managed to rise above 1.5640 but it was capped by 1.5685.
GBP/JPY finished a week in positive for the first time in the year. The pair found support at 138.60 and started to rise. The Pound needs to consolidate above a key resistance zone at 141.50 to gain strength.
Against the Euro, Cable jumped on Thursday and Friday, recovering previous losses. During Thursday’s European session EUR/GBP was being traded above 0.8830 at the highest level in almost a month; on Friday the pair bottomed at 0.8655, the lowest price in a week.
GBP/USD rose slightly on a weekly basis. The pair moved all week inside a range with support at 1.5530/55 and resistance at 1.5760. Cable was able to gain strength only after falling on Monday to 1.5530, reaching a fresh 8-month low. On Friday managed to rise above 1.5640 but it was capped by 1.5685.
GBP/JPY finished a week in positive for the first time in the year. The pair found support at 138.60 and started to rise. The Pound needs to consolidate above a key resistance zone at 141.50 to gain strength.
Against the Euro, Cable jumped on Thursday and Friday, recovering previous losses. During Thursday’s European session EUR/GBP was being traded above 0.8830 at the highest level in almost a month; on Friday the pair bottomed at 0.8655, the lowest price in a week.
Forex: EUR/USD losses ground for the fifth consecutive week
FXstreet.com (Córdoba) – The Euro fell against the Dollar on Friday, extending the decline. The pair posted a new 8-month low at 1.3528, but then managed to rise and hold above 1.3600.
EUR/USD extended to five, the number of weeks in a row with losses against Greenback. Since the beginning of 2010 has fallen more than 800 pips.
The Euro is still under pressure across the board as fiscal problems continue to weight in Europe. Against the Australian Dollar, the Euro fell to the lowest level since it was created and traded at 2-year lows against the Canadian Dollar.
EUR/USD extended to five, the number of weeks in a row with losses against Greenback. Since the beginning of 2010 has fallen more than 800 pips.
The Euro is still under pressure across the board as fiscal problems continue to weight in Europe. Against the Australian Dollar, the Euro fell to the lowest level since it was created and traded at 2-year lows against the Canadian Dollar.
North American Economic Market Wrap-Up from Forex Live
Economic Data US Retail Sales for Jan +0.5 % m/m from -0.1 % (revised from -0.3 %) expectations +0.3 % US Retail Sales (ex autos) for Jan. +0.6 % m/m from -0.2 % expectations +0.4 % Univ. of Michigan Consumer Sentiment (preliminary) for February 73.7 from 74.4, expectations 75.00. Current Conditions 84.1 from 81.1, forecast 81.4 and expectations 66.9 from 70.1, forecast 70.9. US Business Inventories for December -0.2 % from +0.5 % (revised from +0.4 %) expectations +0.2 % Philadelphia Fed. Forecast Q2 GDP +2.7 % revised from its previous forecast of 2.4 %, sees Q1 CPI Inflation at +1.3 % from previous forecast of +1.2 % and sees Core PCE Inflation at +1.2 % from previous forecast of +1.0 % US Federal Budget Balance for January announcement postponed until Wed Feb 17th Economic News Retail Sales in January increased better than expectations, the data for November and December revised higher. Consumer Sentiment declined this month according to the University of Michigan falling to 73.7 from 74.4. US Stocks opened the day lower, after China surprised the market by increasing reserve requirements for the second time in a month, but pared back some of their losses during the session.. Standard & Poors Analyst says that the EU support of Greece is positive but that will not be the complete solution to the problem. “Risks still lie ahead in the implementation of the consolidation program”. Nakheel CDs fall 2 points to a record low of 86.5 amidst rumors they were headed into administration. Currencies Euro Swiss trading quietly around 1.4640 until mid-morning when it spiked higher to 1.4700 in seconds. a move which looked like intervention to which the SNB declined to comment, Following the move the cross retreated to the 1.4660 – 1.4670 area where it has remained all afternoon. Dollar – Swiss traded at the top of its range until the dollar dropped on the weaker Consumer Sentiment and Business Inventory data but rebounded on the “intervention like” move of the Euro-Swiss to 1.0790. Since lunchtime has range traded between 1.0760 and 1.0775. Euro weakened on the short lived dollar strengthening after the Retail Sales data but then reversed direction heading higher as the dollar weakened and getting a slight boost on the rumored SNB intervention. Euro benefited from a further lift on the European closing before trading most of the afternoon between 1.3595 and 1.3615. Cable traded in a very similar pattern to the Euro although getting a boost as the session winds down trading to a session high of 1.5710 on news of a US led offensive against the Taliban in Afghanistan Dollar Yen’s fell from 90.35 to 89.85 on the back of Euro-yen dropping from 122.80 to 121.90 on the news out of Dubai. The currency then traded in an 89.87 – 90.07 band for the rest of the session . Currency Ranges EUR/USD 1.0550 – 1.0640 USD/JPY 89.85 – 90.40 (EUR/JPY 121.87 – 122.88) GBP/USD 1.5580 – 1.5594 USD/CHF 1.0735 – 1.0810 (EUR/CHF 1.4638 – 1.4700) AUD/USD 0.8784 – 0.8884 NZD/USD 0.6905 – 0.6965 USD/CAD 1.0504 – 1.0569 Closing Prices (4.30 pm EST) EUR/USD 1.3620/23 USD/JPY 80.03/06 GBP/USD 1.5704/09 USD/CHF 1.0760/64 USD/CAD 1.0500/05 AUD/USD 0.8876/80 NZD/USD 0.6972/77 EUR/JPY 122.63/67 EUR/CHFR 1.4660/64. Gold 1092.40/4.40 Crude Oil 74.13 -1.08 Dollar Index 80.40 +0.31 Dow Jones Industrial Index closed at 10,099-14 lower by 45.05 (- 0.44 %) Standard & Poors 500 closed at 1,075-51 lower by 2.96 (- 0.27 %) Nasdaq Composite closed at 2,183-53 higher by 6.12 (+ 0.28 %) On the week the Dow Jones and S&P 500 both higher by 0.9 % and the Nasdaq higher by 2.0 % Have a great weekend
Sunday, June 14, 2009
The Forex Glossary tips
Appreciation - A currency is said to 'appreciate ' when it strengthens in price in response to market demand.
Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Around - Dealer jargon used in quoting when the forward premium/discount is near parity. For example, "two-two around" would translate into 2 points to either side of the present spot.
Ask Rate - The rate at which a financial instrument if offered for sale (as in bid/ask spread).
Asset Allocation - Investment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor's objectives.
Back Office - The departments and processes related to the settlement of financial transactions.
Balance of Trade - The value of a country's exports minus its imports.
Base Currency - In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Bear Market - A market distinguished by declining prices.
Bid/Ask Spread - The difference between the bid and offer price, and the most widely used measure of market liquidity.
Big Figure - Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".
Book - In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
Bull Market - A market distinguished by rising prices.
Bundesbank - Germany's Central Bank.
Cable - Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Central Bank - A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Clearing - The process of settling a trade.
Contagion - The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.
Commission - A transaction fee charged by a broker.
Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.
Contract - The standard unit of trading,
Counterparty - One of the participants in a financial transaction.
Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Rate - The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.
Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Risk - the probability of an adverse change in exchange rates.
Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Around - Dealer jargon used in quoting when the forward premium/discount is near parity. For example, "two-two around" would translate into 2 points to either side of the present spot.
Ask Rate - The rate at which a financial instrument if offered for sale (as in bid/ask spread).
Asset Allocation - Investment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor's objectives.
Back Office - The departments and processes related to the settlement of financial transactions.
Balance of Trade - The value of a country's exports minus its imports.
Base Currency - In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Bear Market - A market distinguished by declining prices.
Bid/Ask Spread - The difference between the bid and offer price, and the most widely used measure of market liquidity.
Big Figure - Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".
Book - In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
Bull Market - A market distinguished by rising prices.
Bundesbank - Germany's Central Bank.
Cable - Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Central Bank - A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Clearing - The process of settling a trade.
Contagion - The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.
Commission - A transaction fee charged by a broker.
Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.
Contract - The standard unit of trading,
Counterparty - One of the participants in a financial transaction.
Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Rate - The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.
Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Risk - the probability of an adverse change in exchange rates.
The online Currency Trading Basics tips
The All currency trades involve the buying of one currency and the selling of another, simultaneously. that is, the value of one currency relative to another. The relative supply and demand of both currencies will determine the value of the exchange rate.
When a currency trader places a trade he wants the currency purchased to appreciate in value versus the currency sold. His ability to determine the direction that the exchange rate will move, will dictate his gain or loss in a trade. Let's do an example with a currency quote obtained from the forex trading system.
currency trading example
When a currency trader places a trade he wants the currency purchased to appreciate in value versus the currency sold. His ability to determine the direction that the exchange rate will move, will dictate his gain or loss in a trade. Let's do an example with a currency quote obtained from the forex trading system.
currency trading example
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