Articles from November 2004



Tue 30th Nov: Dollar selling suspended for the day

The Dollar resumed trading in indecisive markets ahead of a week lined with key economic data releases.

Yesterday’s lack of data meant the dollar would loose no more, as traders shied away from a further sell off in the US currency.

The Swiss National Banks Chairman was the newest member of the list of people voicing concern over the recent spate of appreciation against the dollar.

Jawboning from the Japanese officials and some lack luster data releases from Japan saw the yen move back above the 103 levels.

The euro hovered around the 1.3250 levels, as Sterling moved back from the 1.8940 levels ahead of a week of key data releases.

The focus now shifts to the Euro zone Q3 GDP figures and the CPI figures expected today, with market expectations of dampening figures, there could be a long overdue correction in the euro.

Despite reassuring comments from the Saudi regarding any further price rise, oil prices remained firm at $49.74 per barrel.

With a host of data expected from the US and the Euro Zone as well, markets are expected to get choppy ahead.







Mon 29th Nov: Wanted….Dollar bulls

Virtually every day the US dollar seems to hitting new lows. According to Intelligence Capital Advisiors it achieved a rare distinction last week- it even declined against the Zimbabwean dollar.

The dollar is starting to resemble the seven stone weakling who gets sand kicked in his face. Last week Russia hinted that it wanted to diversify it’s foreign exchange reserves away from the dollar and China said it was up to the US to put it’s affairs in order. It is a bit of a humiliation for the so called capitalist behemoth to get economic lessons from two (barely) ex communist powers. When negative opinion is so widespread about any asset price, the chances are there is scope for a short term rally. But when Alan Greenspan and legendary investor Warren Buffet are both arguing that the dollar should fall ove the long term- it is a very brave man who takes the opposite view.


The search for dollar bulls continues as the bears take charge over the US economy, refuting to take in to consideration any kind of positive data. The World’s most dominating currency continued to be battered falling below 1.33 against the Euro as traders panicked at signs that Asian Central Banks might become more reluctant to fund the US current account deficit.

The dollar did sustain a brief rally when the Chinese Central Bank denied the rumors of reallocating their forex reserve portfolio in favour of Euro, helping the Greenback rise to 1.3205 against the Euro and 1.8850 against the Pound.

However, the rally was short lived as comments from Indonesian Deputy Governor hinting towards a shift in their forex reserve, reaffirmed the fears of Asian Central Banks dumping the US assets to avoid large losses as the dollar’s value falls.

The Yen’s incessant rise hails from the silent reaction from the BoJ against the falling dollar and is now expecting a move to 101 during the week.

Though there have been comments from the monetary commissioner of EU indicating comfort for the Euro exchange rate at these levels, the economic indicators released (falling growth projections, reducing business sentiment, tumbling economic sentiment) are not supporting the statement; in turn calling for a more aggressive intervention from the ECB – which would eventually take the form of secret Euro selling via German and French commercial banks.

With projections of the bull-run extending further, we suggest that non-dollar importers should hedge their very short term import transactions; while exporters should hedge their receivables using the step up approach once it nears 1.3350.

US stocks held close to the flat line in an abbreviated post-Thanksgiving session on Friday, capping a modest, uninterrupted weeklong rally on Wall Street
. The Dow Jones Industrial Average inched up 2 points to 10,522 for a fractional rise on the week. The Nasdaq Composite eased 1 point to 2,102.






Fri 26th Nov: Dollar flops as the traders go for shops

Dollar extended its fall for yet another day against the majors, as the non-dollar importers sit gasping and perspiring in expectation for a correction.

Traders, hedge funds and Central Governments, all of them seem to have lost faith in the World’s most dominating currency.

The euro climbed to a high of 1.3240 in a very thin trading (as US markets observe the Thanksgiving holiday), despite the German Business Community losing confidence (Index falling to 94.10 against 95.3 last month) due to the incessant rise in the domestic currency.

However, it is very clear that the markets have closed their eyes to any economic indicator being released from any corner of the world.

It appears that the bull – run in any non dollar currency would only stop if the community is convinced of the regular portfolio flows and possibility of a reduction in the deficit figures of the US.

Yen also moved to its multi year high of 102.40, despite a continued jaw-boning by the Government of Japan. It would take a heavy intervention by BoJ to stop this run.

We would advise the receivers of non-dollar currencies to start hedging their exposures, while the importers should keep a level to hedge their risk.





Thu 25th Nov: Greenback plunging to new nadir everyday

Euro steamed ahead to an all-time high of $1.3188 hit just before the start of Tokyo trade as a mixed bag of data from the US led the major currencies on a renewed dollar-bludgeoning trail.

Other majors like Sterling hit 1.8827 and Yen cautiously climbed up to 102.70 levels as traders decided to dump dollar despite US new homes sales rising to 1.23-million units (the 3rd highest in record) and unemployment claims dropping to their 2-month lowest levels of 323K (falling by 12K).

There was mix of economic data released as the University of Michigan’s consumer sentiment measured 92.8 (previous: 91.7) below the forecast reading of an optimistic 96 and durable goods orders fell by a disappointing 0.4% (forecast: 0.5% rise) in spite of strong demand from defence.

Crude prices rose to $49.44 amidst tight winter supplies in the US.

Yen did well for itself as the “All economic activity index” fell only by 0.1% in September against forecasts of a 0.4% decline and tertiary industry index rose 0.1% beating expectations of a 0.4% decline.

Markets await the current account data for September from the ECB and the German IFO business sentiment survey expected to fall, but with the momentum notched up by the majors against greenback, it might just prove to be a minor blip amidst holiday mood percolating in the markets.







Wed 24th Nov: Euro rallies past $1.31 on reserve review talk by Russian central bank, gold a whisker away from $450

The single currency finally breached the $1.31 mark yesterday in a technically driven and thinly traded market.

This movement was triggered by comments from Russia’s Deputy central bank chairman who stated that the bank might review its holding of euro assets which was taken as a signal by the market to be a move by the bank to increase its euro reserves. The euro topped out for the day at $1.3105.

The market today focusses on important data releases like the US weekly jobless numbers, durable goods(expected to rise higher) and final Michigan sentiment numbers.

But it seems as if the traders are completely ignoring the short term US fundamentals and thus any dollar relief rally is very short lived. Further no intervention rhetoric from the EU officials and business houses also appears to be supporting the euro rally.

The Yen- despite an increase in the rhetoric by the Japanese central bank hovers around the early 103 mark as the markets await the numbers of tertiary services and the All industries index.

Gold took a further cue from the euro by shooting up to fresh 16 year highs of just short of $450 mark while increased concern over oil supplies from Iraq after a pipeline burst helped the crude oil futures rise to $50 yet again.

Tuesday 23rd Nov: Dollar grateful to the “Thanksgiving” holiday lull

The greenback did not see any improvement in its fortunes against the crosses but neither did it lose further ground in pre-holiday thinned trades.

The single currency is currently trading at 1.2978 as euro net long holders pare some of their positions ahead of Thanksgiving holiday.

Even some mild rumblings from Euro zone officials over the growth prospects getting hurt by brisk euro gains, have not transformed into any concrete intervention till now. The EU Monetary Commissioner Al Munia did not help matters by stating that Euro zone could remain competitive with euro at current levels as long as there were no volatile currency actions.

The BoJ Governor Fukui joined his European counterparts in exhorting US to tackle its twin deficits and not rely on currency adjustments for a “quick fix” solutions.

The Canadian dollar rose to a fresh 12-year high at 1.1826 against the greenback after the country’s central bank chief ruled out intervention unless in extraordinary circumstances.

The economic data releasing today from Japan – the September Industry index, tertiary industry report with forecasts of a fall, may give BoJ the handle it has been waiting for to pare the currency gains.

The US October existing home sales are expected to be flat.

Oil trades not much changed at $48.33 per barrel since the morning trade after hitting above the $49 mark in the European session yesterday.

Monday 22nd Nov: Dollar hold firm after weekend meetings

The dollar held steady against most major currencies in European morning trade on Monday as the market awaited signs of government intervention, either verbal or actual.

The weekend meeting of G20 finance ministers in Berlin and the APEC summit in Santiago failed to provide any fresh sense of direction for the market.

The G20 communique pledged the US to cut its yawning budget deficit, and Europe to introduce measures to support domestic demand, but made no mention of the sliding dollar.

The APEC meeting proved similarly inconclusive for the market, with Chinese officials insisting they were not pressured by the US to relax their peg against the dollar.


President Bush did reassert his support for a “strong dollar policy”, but such rhetoric is increasingly being viewed as hollow by traders.

“The political gatherings over the weekend did not result in any substantial policy shift that would lead foreign exchange market participants to question the continuation of the current trend of dollar selling,” said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi.

“With little sign of any political attempt to arrest the decline in the dollar, market participants are likely to revert their focus to Friday’s comments from Fed chairman Alan Greenspan who stated that foreign investors would ‘at some point’ likely tire of increasing their holdings of US securities rendering the funding of the current account deficit problematic.”

The G20 communique did call for greater exchange rate flexibility from “emerging” Asian economies, but any fresh support for Asian currencies was lessened by Hiroshi Watanabe, the Japanese vice finance minister, who described the yen’s recent rise against the dollar as “too rapid” and said the yen had the potential to “become a big concern”.

Amid jitters that Japan may lead a renewed bout of intervention, the yen drifted a fraction to Y103.12 against the dollar and the South Korean won slipped a little to Won1,065.3 against the greenback.

The dollar was also little changed at $1.3032 to the euro, although it strengthened to $1.8538 against sterling. The pound was generally weak, slipping to a fresh 11-month low of £0.7029 against the euro and to Y191.15 against the yen.

The catalyst was the latest soft UK housing market report, with Rightmove reporting a 1.7 per cent slide in prices in November, just a day after reports that Barclays Bank sees house price falling 20 per cent over the next three years. Such talk lessens the likelihood of any further UK interest rate rises.

The Canadian dollar firmed to C$1.1910 against the greenback after David Dodge, the governor of the Bank of Canada, said the loonie appreciation against its southern counterpart was not inappropriate, and that he only favoured currency intervention in “exceptional circumstances”.

Friday 19th Nov: Dollar shorts unwound ahead of G-20

Traders were unwilling to take too many risks ahead of the G-20 meet in Berlin and the European Banking Congress in Frankfurt on Saturday where Fed Chairman Greenspan and ECB Prez Trichet would address on “Euro in wider circles”.

This would be to acknowledge Euro’s pre-eminence in the Euro bond market.

The unwinding of dollar shorts gave greenback some respite amidst a clutch of disappointing data from US. Euro hit a record high of $1.3075, notching up gains of nearly 7% from its low of $1.22 levels in October. Weekly U.S. jobless claims fell, but the US leading indicators fell for a fifth straight month by 0.3% (forecast 0.1%). The Philly Manufacturing index fell to 20.7 in November (previous 28.5) with only the employment component showing a rise.

But with markets focusing on global forex policy, dollar showed little reaction to economic data. Despite dollar’s rebound, it will remain under pressure because of the burgeoning current account deficit.

The only silver lining (if any) could be the elections in Iraq going smooth in January’05 which may be positive for dollar in the medium term.


Thursday 18th Nov- Greenback Snowed under

The US treasury Secretary John Snow’s symbolic strong dollar rhetoric did not hold much water with the currency traders as it was followed by an exhortation to Euro zone to share “joint responsibility” in the current account deficit woes of the US and shore up their domestic growth prospects instead.

Traders saw through these ambiguous verbal exercises and drubbed the dollar as Euro touched the till now unassailable 1.30 mark (9 year highs), and Yen reached a fresh 7-1/2 month high of 103.78 emboldened by silence from BoJ who have not intervened till now.
Aussie and the cable did well for themselves by notching up the 0.78 and 1.86 mark.
Positive data from US did nothing to support the dollar as surging energy costs drove up U.S. consumer prices a hefty 0.6% in October (forecast 0.4%), but excluding food & energy rose a moderate 0.2%. Industrial output and housing starts rebounded strongly from the previous month, which climbed 0.7% (expected: 0.3%) and 6.4% (highest in 10 years) respectively and capacity utilization edged up to 77.7% from 77.2%.
But these were merely brushed aside as a renewal of activity after the spate of hurricanes.
The G-20 meeting over the weekend possibly weighs on the “I” word (intervention) by central banks, which may reiterate the G-7 statement of asking countries to adopt more flexible foreign exchange systems and to curb excessive volatility.
For a doctor in economics who was taught by two Nobel Prize winners, John Snow appears to display a weak grasp on the fundamentals of the science.
When asked this morning, as United States Treasury Secretary, why Washington is adhering to a strong dollar policy, he could answer only: “Because that’s our policy.”
An inquiry of whether America secretly supported the currency’s decline was met thus: “No one has ever devalued their way to prosperity.”
The markets were unconvinced, sending the dollar lower. For Mr Snow was wrong or, at least, disingenuous. While devaluations rarely accompany economic success, they are often a symptom rather than a cause of crisis.
Indeed, consider the doubling in the size of China’s economy over the last nine years. As industrial powers, including America, have noted, China has exploited an undervaluation – if not devaluation – of the yuan of perhaps 40 per cent below the level it would achieve on a free market to support the surge in exports behind growth running at more than 9 per cent a year.
So, my oh my, the dollar fell against the euro and hit a seven-month low against the yen. Which, of course, is what the Treasury Secretary wanted.

Snow will not fall on questionable economic analysis. But the dollar will, improving America’s trade position and, crucially, devaluing the value of the dollar debts at the root of its wobbly finances.
The trouble is, of course, where Mr Snow’s comments have left the euro – at a record high – and hopes of a revival in the eurozone economy – at a new low. Data last week showing a fall to 1.2 per cent in eurozone annual economic growth reflected the weakening prosperity of the region’s exporters, notably in Germany, where foreign markets have protected manufacturers from a paucity in domestic demand.
No one has ever devalued their way to prosperity John Snow US Treasury Secretary
So no surprises that some of the region’s biggest shots have taken aim at the weakening dollar.
“It would not be desirable that the appreciation of the euro should continue, still less that it should accelerate,” Guy Quaden, a member of the European Central Bank’s governing council, said.
Wolfgang Clement, the German Economy Minister, said: “I assume the ECB will act if it deems necessary.” Jacques Chirac, the French President, added: “I am a bit concerned about the downward tendency of the dollar.”
If that sounds tame, consider it in the costume drama terms of central banking diction. And recall the attack by Jean-Claude Trichet, the ECB president, on the “brutal” moves in the currency markets – that’s wrong-side-of-the-watershed language for makers of monetary policy.
Yet however forcefully European leaders voice their objections, they will always be trumped by a disingenuous comment from an influential American. Indeed, even a threat of follow-up European intervention to bolster the euro has failed to steady the euro.
The trouble is that European leaders made a wish in launching the euro – and have had it answered. They wanted to create a currency which would rank with the dollar as an international fixture. And so the euro has.
But, in achieving only second place on the currency podium, the euro has been doomed to behave as an alternative dollar rather than a force in itself. Europe’s single currency has appreciated without the underlying economic strength which such a rise would typically reflect.
It would have been easier, of course, if the eurozone’s individual currencies still existed. Investors would have snapped up the Deutschemark, as Europe’s strongest legacy currency. But at least, with an independent central bank, Germany could have cut interest rates to offset the impact.
Now, eurozone nations united have, ironically, little power. Not even the clout to bring a devaluation which would speed the region’s way to prosperity.

Wed 17th Nov: US fundamentals optimistic, markets unimpressed

The currency markets persisted with their dollar dumping notwithstanding buoyant economic data releases from the world’s largest economy.

Producer prices registered the largest monthly increase in the last 14 years and rose 1.7% in October with the core prices rising a measly 0.3%. Moreover, the capital flows data released by the Treasury indicated a 6% surge in the foreign purchases of US stocks and bonds to $63.4 billion in September vis-à-vis a 5% decline in the previous month.

These positive fundamentals didn’t please the traders’ one bit and euro held around the 1.2950 mark. The euro zone officials at the E-12 ministers meeting commented on the rising euro but refrained from remarking on the topic of intervention.

It was noted however that the EU’s Audit Commission failed for the 10th straight year to approve the EU’s annual financial report citing fraud and incompetence as the ongoing reasons for the EU’s ongoing failures.

The single currency would face an immediate resistance at 1.2980 and markets would await euro zone October CPI figures, which is anticipated to show a rise – an indication that ECB would be increasingly wary of talking down the currency.

Yen traded around the 7-month peak against the dollar in Tokyo trade with Nikkei flat at 11,150. Currency traders look to the G-20 meeting where the Asian Central Banks maybe pressurized to scale back their currency intervention practices.

Cable managed to hold above the 1.85 mark, prevailing over a disappointing UK housing report – UK RICS housing price survey plunged to almost 2-year bottom, falling to –42 in October against a –30 previous reading.