Articles from February 2005

Dollar weakens to position squaring and oil pressure

The dollar fell across the board on Friday, despite encouraging Q4 GDP numbers, which came out higher than market’s expectations.

The Q4 GDP figure at 3.8 percent was above the market consensus of 3.7 percent but was still not good enough for the USD to hold on to its gains as traders were looking for a number closer to 4 percent. Further the single-family home sales numbers also disappointed the market and thus lead to a further sell off in the world’s reserve currency.
As if all this was not enough surging oil prices and comments from the Saudi oil minister acknowledging persistently high oil prices in the future also weighed on the greenback.
Yen, despite signs of continuing deflation in the economy and weaker than expected growth, gained further ground against the dollar as the dollar sell off vis a vis the single currency spilled over.
The GDP numbers from the US show that the economy is on the road to improvement and would thus lead to further rate hikes by the Fed. The market is torn between dollar positive data, increasing attractiveness of the dollar denominated assets and dollar negatives like the twin deficit.
This week’s crucial data includes the payrolls numbers and the manufacturing data.

Interbank forex trading online set to soar

Electronic spot trading of currencies should reach 90 per cent of the massive interbank market by 2007, up from 60 per cent today, according to new research into the market.
The report by Celent, the research and consulting group, also predicted that 70 per cent of the market between dealers and clients would be electronic by that point too, compared with just 43 per cent now.
About $1,900bn is traded daily on the foreign exchange markets, of which more than $600bn is spot, where the currency is usually traded for delivery in two days’ time.
The bulk of foreign exchange is traded between banks in units of at least 1m. Two electronic systems, Reuters and EBS, dominate. Traditionally, only the banks could get the best prices, and clients, including companies and institutions, phoned in orders to their bank.
But former “clients” now have much better access to the market through electronic trading platforms. The jump in volumes last year seen by a number of several providers was in part attributed to the effect of the increasing use of electronic trading in bringing new participants into the market.
Take-up of electronic and online trading platforms outside the interbank market was initially slow, as would-be users waited to see which would succeed.
Use of these platforms began to take off in the late 1990s during the internet boom as the banks automated basic trading functions and some standardisation of technologies allowed banks and clients to link up. Currently there is a variety of different trading models reaching critical mass in terms of trading volumes.
“At this point, it seems clear that the existing platforms are here to stay for a while,” said Jodi Burns, author of the report.
The survival of different trading models belied early predictions that only a few would survive.
“Because these dealer-to-client platforms have each specialised in some way, either by customer base or straight-through processing services, the market is large enough, and growing fast enough, to sustain these existing platforms,” added Ms Burns. FXall and State Street’s FX Connect offer prices from a number of several different banks, while HotspotFX facilitates trading between funds and companies as well as with banks. Cantor Fitzgerald’s eSpeed is set up like an exchange, with the platform serving as a central counterparty.
A sizeable amount of foreign exchange is still traded over the telephone, however. While common transactions have largely been automated, the phone is still used for more complex deals involving odd transaction sizes or less-traded currencies.

Dollar uplifted courtesy technicals’ and data

The Greenback seems to have gathered some of the forts lost earlier in the week after a strong rise in the capital goods orders, implying healthy conditions.
US durable goods orders fell 0.9% last month with December’s figures revised upwards to 1.4%. The weekly jobless claims rose 9K to 312K, but the 4-week average fell to 308K helping improve the sentiments specially the GDP report due today (expected to be revised higher to 3.7%)
Demand for the Japanese currency waned as oil prices galloped towards the 4-month high above $52 bbl. Crude oil futures surged after the Saudi Oil Minister, Al Naimi attributed oil price movement to supply and demand than a speculative activity.
Yen shed gains against the dollar (105.4) and the euro (139), as the crude price and a shrinking economy cemented the ‘soft patch’ for near term, before the Bank of Japan is able to boost the evaluation of its economy.
Sterling has an immediate resistance at 1.9130 with the support seen at 1.8980. A slide in the single currency saw the yellow metal follow suit to $433.

Dollar recovered on Fed Minutes, IFO & S Korea’s clarification

The Prices paid by U.S. consumer, CPI rose 0.1 percent in January (expected at 0.2%), easing concern that increasing prices would spur inflation.
While core CPI (excluding volatile food and energy cost) increased to 0.2 percent. Dollar gained across the board on release of the Fed minutes for February, which showed that fed funds rate is still on the lower side to contain inflationary pressures, especially incase of a weaker dollar, thereby increasing chances of a further rate hike.
Germany’s IFO index for Business Climate came below expectation (of 96.7) at 95.5. Both the indices for business expectation and current condition slipped to 96.4 and 94.5 respectively, restricting the single currency’s gains to 1.3274.
Cable shot above 1.91 on minutes of the Bank of England meeting for February showing one vote (8-1) in favor of 25-bp interest rate hike from the current 4.75%.
Clarifications from South Korea and Japan on not diversifying their portfolio into euro – resulted in yen losing ground from the 104 handle sinking to a low of 105.1 on the continuous surge in the crude oil price.

The US Dollar is beaten black and blue on asset diversification talk

The greenback was hammered across the board in the US session as well as in the early Tokyo trades as South Korea’s Central Bank indicated that they are looking at diversifying their reserves out of the dollar.
The US currency faced intense selling pressure against the international majors as the world’s fourth largest reserve holder signaled plans to diversify its foreign exchange reserves into high yielding currencies. Euro soared past the 1.32 mark to touch a 6-week peak while sterling rallied nearly 2 cents to kiss a month-and-a-half peak of 1.9134.
Capitalising on dollar weakness the Japanese Yen skyrocketed to a 3-week high of 103.82 but the dollar was bought back almost immediately vis-à-vis the yen as data release indicated a big slowdown in Japanese exports in January.
Australian dollar was another major beneficiary in this asset diversification talk as it surged to a 12-month high, breaking the 0.7950 barrier.
Other currencies that send the greenback tumbling include the New Zealand dollar, which escalated to a 22-years peak and the Canadian dollar, which touched a 4-week high inching towards its 100-day moving average.
A 6 per cent climb in the price of crude oil to more than $51 a barrel along with the retreat of the dollar on fears of central banks reducing their exposure to dollar assets combined to hit Europe’s bourses hard on Wednesday.
The FTSE Eurofirst 300 fell 1 per cent to 1,080.07 with the Xetra Dax in Frankfurt down 1 per cent to 4,280.54, the CAC-40 in Paris off 1.2 per cent to 3,955.04 and the FTSE 100 in London 1.2 per cent lower at 4,974.0, its first time below 5,000 for a fortnight.
Wall Street suffered its biggest single-day decline of the year on Tuesday, after investor jitters over the rising price of oil and a sharp fall in the dollar sparked a sell-off.
The Dow Jones Industrial Average fell 1.6 per cent to 10,611.13, and the S&P;?500 lost 1.5 per cent 1,184.22 – the biggest single-day fall for both indices since August last year. The Nasdaq Composite dropped 1.4 per cent to 2,030.32. US futures suggest the Dow will ease 5 points at the start.

Currencies relax as US markets celebrate the President’s Day

The major currencies were stuck in a tight range against the US dollar as holiday thinned trading hardly gave the traders to take positions.
This coupled with the fact that the market still awaits fresh inputs from the data releases expected this week kept the overnight and early morning trades lackluster.
While all this was happening the New Zealand dollar hit a 22 -year high on expectations that wage induced inflation would lead to further rate hikes in the near future- the interest rates of 6.5 percent in New Zealand is the highest in developed countries.
The markets this week keenly await the preliminary Q4 GDP numbers, the consumer price index and the minutes of the Fed meeting which should shed further light on the state of the economy.
Should the Fed in the minutes of its February meeting show signs of more aggressive rate hikes the market may drive the dollar higher putting aside concerns of the ever- increasing deficit.

Dollar hangs near the $1.31 levels as markets keenly await the release of inflation numbers

The dollar remained mired near it’s weekly low of $1.31, as traders seem keen to test this level time and again.
Though with the release of the PPI numbers the USD did receive a temporary relief towards the 1.3012 levels of Friday but it soon lost its strength to close the week around 1.3070 levels. The core PPI (producers price index) shot up to 0.8 percent suggesting that Fed could be more restrictive in its stand and could raise rates more aggressively than previously expected.
The markets will look for similar confirmation from the CPI numbers and the minutes of the Fed’s February meeting scheduled for release this week. Also on the radar this week is the preliminary Q4 GDP numbers, Germany’s IFO figures and the traders will also look towards President Bush’s visit to Europe where he hopes to mend ties.
Yen lost ground last week as it technically entered yet another recession with two consecutive quarters of slowdown but with the Japanese equities fairing well on the back of foreign flows would support the home currency against any fall beyond 106 levels.
Signs of a possible rate hike by the Bank of England in the next couple of meets and cable’s ability to breach the 1.89 mark will help support the currency.
US markets will remain closed on Monday in observance of the President’s day.

Mixed data keeps greenback at the edge

After the testimony to the Senate day before, Alan Greenspan gave no fresh indications on the monetary policy during his second testimony to the House yesterday dipping the dollar near the crucial technical levels.
The euro stands smart near the 38% retracement of the drop from 1.3664 to 1.2732.
Dollar was little changed by Philly Fed Index of manufacturing activity which made a comeback to 23.9 in February from 13.2 in January, though the Employees index and future employment index fell. The jobless claims came at a 4-year low dropping by 2K to stand at 302K. Leading indicators index fell 0.3% following a 0.2% rise in December and the US import prices rose 0.9% last month courtesy rising petroleum prices.
Unchanged monetary policy of Bank of Japan after the disappointing GDP report kept the yen fighting against the 105.75 resistance level.
Cable picked pace after UK January retail sales rose to 0.9%, higher than the forecast.
Aussie fell 0.4% against its US counterpart after the central bank Governor Ian Mackfarlane saw the economic growth slowing down and the interest rates rising. Commodities too rallied with the yellow metal at a 3-week peak ($428.6 an ounce). Oil prices were down 1.6% on a sturdy US inventory surplus at 8.5% higher than last year.
Data to watch out for the day – US PPI, University of Michigan consumer sentiment.

Greenspan delivers first installment of ‘Greenspan-speak’

Greenspan’s signal of further interest rate hikes in the US and an unexpected increase in housing starts figures initially bolstered the greenback in a choppy trading but made the market vigilant on the mere mention of the words “current deficit” in spite of no expression of concern by the Fed Chairman.
Traders switched over to buying Euros after drubbing it to lows of 1.2968 levels. Euro currently trades at 1.3040 facing a stiff resistance at 1.3080 with sellers at these levels likely to keep the upside capped.
Dollar also gave back its gains in a volatile trading due to renewed soaring of oil prices to a 3-week high at $48.66 a barrel as geopolitical threats loomed, in Iran this time (explosion near its nuclear reactor).
Yen was dealt a double whammy with the yield differential tilted in favour of dollar and the release of the Japanese Q4 GDP figures showing a drop of 0.5% suggesting a technical recession in the economy. Japan’s officials disappointed after release of the stagnant growth figures of the Japanese economy, diverted the heat on China exhorting them to remove the fixed peg of Yuan. But further losses for Yen are limited to the crucial 106 levels, where there’s lots of selling seen by exporters.
Markets look towards a second dose of Greenspan’s testimony to the House of Representatives today and release of other data like the E-12 industrial production, UK retail sales, US leading indicators and Philly Index.

Weak US foreign capital Inflows takes a toll on the greenback

The greenback suffered significant losses against the international majors as the eagerly awaited US capital inflows data release indicated a decline – foreign capital inflows into the US plunged 31% in December to $61.3 billion from the upwardly revised figure of $89.3 billion in the previous month.
Traders took that as more than adequate reason to dump the dollar and euro soared past the 1.30 mark while sterling rocketed to 1.8950 notwithstanding the fact that capital flows is well above the $56 billion December trade deficit.
An unexpected drop of 0.3% in the December US retail sales added further woes to the greenback.
The single European currency touched as high of 1.3052 in the late New York trade before settling around the 1.3020 mark.
Exploiting the broad based dollar weakness and further assisted by positive fundamental data (steady CPI reading of 1.6% and an optimistic RICS housing data) cable surged to a 6-week peak of 1.8979.
The Japanese Yen accelerated its gains to as high as 104.39 as the Japanese purchases of US treasuries fell 0.4% in December following a marginal increase in November and two successive declines in the prior months.