Posts belonging to Category Yen

Volatile trading remains dominant theme in wise money markets

Volatile trading remains on the cards as we move into the weekend, after wild swings overnight in the Japanese equity markets and Yen as traders and investors remain unsure over overall direction.
Volatile trading remains dominant theme in wise money markets
The Yen traded as high as 154.67 against Sterling before the bottom dropped out of the equity market, which after trading up 2.5 per cent fell to a session low of minus 3.5%, dragging the yen along with it towards the low 152’s.

The overall market closed flat on the day bringing to an end once of the strangest days trading in many years. The question is will that volatility carry through to European and American sessions?

Early signs are that it should be calmer, with Sterling roughly unchanged from where we left it yesterday evening. The biggest move overnight has been in the Euro – Dollar pair, positive European data this morning driving the single currency slightly higher against the Dollar in low volumes with German consumer confidence beating expectations slightly.

Today’s data of note is centred on Europe and the US with more German data due – business climate figures and this afternoon US durable goods orders.

Every high profile US figure is suddenly doubly important in light of the Fed announcement this week, the markets main job over the next few months will be trying to discount the Fed withdrawing stimulus, even if that is still several years away.

Currency Wars start ahead of the G20 meeting

Currency wars have started in the build up to the G20 meeting in Russia this week with analyst’s expecting leaders to discuss a weakening of their currency to boost exports; this is being done currently by Japan where they are fighting deflation.Currency Wars start ahead of the G20 meetingHowever an initial statement has dampened such expectations as the G7 stated that ‘policies have been and will remain oriented towards meeting our respective domestic objectives’, which could be shown to underline the fact that central bank market intervention is regarded as an internal affair for now.

The ECB is refraining from applying unconventional policy measures, should the ECB continue a notably tighter monetary policy than the Fed and BoE, then the obvious implication is that EUR will continue to appreciate against the USD and GBP.

Sterling’s sharp drop in world markets will be the main discussion point in what should be a fairly important quarterly inflation report today from the Bank Of England.

Looking to the bond markets for inflation expectations you see a large jump upwards in the 10 year breakeven rate as the Pound deprecated against the euro and Dollar at the beginning of January.

We are now over 6% lower against the single currency and around 4% lower versus the US Dollar .

The Bank will probably address this with hawkish comments with the aim of trying to keep expectations in check, even if the overall stance will remain very dovish.

The coming year is further into the unknown for the Bank of England.

Central banks are managing the overall deflationary environment quite well by creating new money to counteract the deleveraging that is still proceeding across most developed nations, but we are now moving towards a point where this stimulus will need to be withdrawn, and how well this process is managed has large ramifications for inflation.

The Bank will need to begin addressing these issues in upcoming inflation reports and we may even see some mention of it this Wednesday.

USA’s Fiscal Cliff cheer fades

On Tuesday evening the US house of Representatives followed the lead of the senate and approved legislation that averted the full brunt of the fiscal cliff.USA's Fiscal Cliff cheer fadesEquity markets rallied strongly in response and the FTSE managed to claw above 6000 as the bounce kicked in.

In addition safe haven currencies such as the US Dollar and the Yen lost ground and we saw a move higher in GBP/USD to 1.63 and EUR/USD approached 1.33.

This move was to be expected after a significant market tails risk was cleared for now.

However, although the cliff has been averted the debt ceiling issue is still looming and this problem has simply been kicked down the road to be dealt with in February and March.

Given this fact the market is wary and this led to the steam running out of the risk on rally late yesterday.

As we open this morning the US Dollar  is stronger against the pound and the euro and the cheerful start to the year has turned a touch negative.

Today we have the Fed minutes and focus could return to the aggressive moves put forth by the Fed in terms of expanding its balance sheet further and whether we will see an explicit exit strategy from the Fed.

We may also hear more on the discussions leading to the introduction of numerical values for unemployment and inflation as thresholds to determine policy.

Greek election on Sunday is the focus of attention

The Greek election over the weekend looms large over the money markets. Greek election on Sunday is the focus of attentionThere is a genuine feeling of unease over what will happen to Greece over the coming months.

But as ever with the money markets, uncertainty over the outcome is the main driver rather than the prospect of a Greek exit from the eurozone.

The water was muddied further by an article in the FT by Alexis Tsipras, leader of the Syriza Party, suggesting he would keep Greece in the eurozone if elected.

A month ago the dominant thought was that if an anti-austerity party formed a government, Greece would then start along the road to leaving the euro.

However, it is possible that Greece could remain inside the eurozone even if they were to default.

Whatever happens on Sunday, next week will likely be an interesting one.

Across the major pairs the euro has gaining ground in Asian trading overnight as details leaked (what a surprise….) that European leaders are prepared to discuss a European banking union at the next EU summit.

It strikes us as yet another game of chicken between EU politicians and the money markets.

Let’s hope they can actually deliver what is needed this time, rather than just proposing something and then thinking it wouldn’t matter if they yet again fail to deliver.

The Swiss Central Bank held interest rates this morning and also reaffirmed it will defend the 1.20 level against the euro.

If Greece were to leave the SNB’s resolve would be tested to the max as people dumped euros and piled into the Swiss Franc. Although the SNB suggest that they will buy euros in unlimited quantities, would that work in practise?

Foreign exchange forex trading- Spirit Inside

Foreign exchange trading can be full of jargon.

For instance the word Forex comes from an abbreviation for foreign exchange, which itself is further abbreviated to just FX on occasions.

Originally, paper currency served as a mechanism of exchange which was convertible into “hard money”, usually Gold or Silver.

During the Second World War, industrialized nations of the world signed the Bretton Woods agreement laying the foundation for international exchange going forward.

Under Bretton Woods, nations maintained exchange rates to the US dollar and the US dollar was fixed to Gold.

In 1971, under President Nixon, the US suspended the convertibility of the dollar into Gold and this action led to a system of free floating, fiat currencies.

The value of a nation’s currency, in relation to other currencies, was whatever the free market determined it was. Banks, international business and speculators instantly recognized both the risk and opportunity this new system presented. In essence, this was the birth of the Forex market as we know it today.

With the advent of the internet and online trading, the market became accessible to the masses. Hence, leverage was introduced and became an integral part of online Forex trading.

By taking a position 100 to 500 times your deposited capital, the market could offer significant return on investment, but also significant risk. It is the use of leverage and daily volatility which have led to the Forex market exceeding a volume of 4 trillion USD per day.

Unlike most goods and services, currencies cannot be valued in themselves. We can say that 1 barrel of oil is worth X US Dollars but it is not possible to say that 1 US dollar is worth 1 US dollar.

We can however, compare currencies- for example to say that 1 USD is worth X Euros or Y Japanese Yen.

For this reason, Forex trading must be done via “currency pairs” – the ratio of 1 currency to another allows the market to function. The most actively traded currency pairs are the EUR/USD, USD/JPY, GBP/USD, USD/CHF and AUD/USD based upon these abbreviations:
USD – US Dollar     GBP – Great British Pound
EUR – EU Euro     CHF – Swiss Franc
JPY – Japanese Yen     AUD – Australian Dollar

Every time a trade is executed, it is the simultaneous buying of one currency and the selling of another. This is not as complicated as it seems.

When traveling, if you exchange Euros for dollars, you are in essence “selling” your Euros and purchasing dollars. The counterparty to the transaction, is buying your Euros for his/her dollars at the price he/she set.

Dollar and Yen continue to rise as risk aversion spreads

Risk aversion remains the main theme across the money markets this week with equity market continuing to slide and the safe havens of the US Dollar and Japanese Yen performing strongly. Dollar and Yen continue to rise as risk aversion spreadsVery positive German GDP yesterday gave the euro a boost in early trading but again developments in Greece have swamped any positive euro related news and driven the euro lower against the Dollar and Sterling.

News of large euro outflows out of Greece by citizens is not helping the nagging feeling that a Greek exit from the eurozone is approaching faster than European politicians would like.

They have desperately tried to manage the situation to ensure that if the worst did happen, Greece leaving could be orderly.

The fear is now that politicians no longer have the ability to manage the situation and a disorderly exit may now be on the cards.

The Bank of England inflation report is due today at 10.30.

We have covered what the Governor is likely to outline, namely lower that expected growth and higher than expected inflation.

The market has already built that into Sterling and the news will probably play second fiddle to news coming from the eurozone for the rest of the week.

Wise money markets looking for calm

Following last week’s US credit downgrade thus creating the highest levels of volatility seen for years, the wise money markets this week will be looking to restore some form of normality and calm. Wise money markets looking for calmWe saw huge swings in the FTSE which fell below the key 5000 mark on two trading sessions.

We also saw a brief bounce following the US Fed Chairman Ben Bernanke’s statement that the US will maintain interest rates at a low level only for unfounded rumours of French sovereign rating threat pushing the FTSE lower again.

This led to European leaders forcing a ban on short selling of banking stocks in four countries in an attempt to calm markets, however the success of this has been questioned by traders and City minister Lord Myners.

He said authorities and the Treasury should focus on more high-frequency trading which places trades within micro-seconds that exaggerates market volatility.

As a result of last week’s volatility we saw the Swiss Franc and Japanese Yen strengthen significantly as investors seeking protection from rising uncertainty in the markets.

Authorities in Japan and Switzerland are now looking at options to stop further appreciation in particular against the US Dollar.

Last week saw the JPY strengthen against the USD to 76.31 which last month prompted intervention from Japanese authorities to sell off the JPY.

In Switzerland the Franc did lose some ground as the Swiss National Bank’s indicated that it could align its currency to the Euro to prevent further escalation which moved GBPCHF from a low of 1.1511 last week to currently over 1.29.

Hope that you have a good week.

Rumours driving the rollercoaster wise money markets

The rollercoaster ride continued yesterday as stock markets, fresh from Tuesday’s melt up, took another leg down with Banks again taking the brunt of the selling pressure. Rumours driving the rollercoaster wise money marketsFrench banks, lead by Soc Gen, posted double digit declines after rumours of the size and scope of their exposure to Eurozone sovereign debt and talk of a French credit downgrade.

Both rumours have been strongly denied by the French authorities and it seems any nugget of information relating to both the Eurozone and US is being magnified hugely as markets depart from fundamentals and trade purely on politics and rumour.

The forex markets were no different, as we saw first a significant move upwards in the Euro-Dollar in the European trading session before it turned into a sharp reversal once the American trading day began.

The Swiss central bank attempted to reverse the recent surge in the Franc by expanding liquidity operations, but the bounce has been short lived so far as the safe haven currency continues to absorb funds fleeing riskier asset classes.

We are also approaching (again) levels were the Bank of Japan will intervene, the tide seems to be flowing against them, but they will continue with intervention until either the market turns or they run out of money and neither looks likely to happen any time soon.

Sterling was talked down by the Bank of England Governor Mervyn King during the Banks Quarterly inflation report yesterday.

We saw a huge move in the Pound in the Asian session on Tuesday night, from 1.64 all the way down to 1.61 and the trend continued yesterday as Mr King announced a downgrading of UK growth prospects and hinted that further QE has not been ruled out.

He stopped short of following the Federal Reserve in locking down monetary policy at current levels for the next two years, suggesting such measures were “not particularly sensible”.

Today has started in the same vein as the rest of the week – volatile.

Stock markets are up, which should help risk on currencies like the Euro and Sterling.

FED’s pronouncements focus money markets’ minds

Developments in US monetary policy last night make it unlikely that the Greenback is going to see much improvement over the coming months; at least until there are more positive signs of a US economic recovery.FED's pronouncements focus money markets' mindsThe US news has lead to a general rebound of exchanges around the world following heavy losses last week and early this week on fears there could be a new recession due to the euro zone and US debt problems.

Markets in London and Paris are up1.8% in opening trade, as shares in Frankfurt jumped over 2%.

The Dublin market had gained 1.9% in the first few minutes of trade.

Overnight Asian stocks fought back some recent lost ground, following a rebound in US shares, after the Federal Reserve’s unprecedented pledge on rates.

Tokyo’s Nikkei index closed 1% higher, while markets in Australia rose by 2.6% and shares in Hong Kong finished 2.3% higher.

The single European currency has been given a let off following the judgment of the ECB to purchase Spanish and Italian bonds – even though this will be short lived.

Sometime in the future EU officials will need to make tough decisions about the Euro’s future but the European Central Bank decision has given them some breathing space.

This will likely reinforce the support levels for the Euro against the major currencies for the next 2-3 months.

Finally, Sterling has enjoyed a rare period of stability, if not demand, whilst pressure mounts on the Dollar and Euro, with Gilt yields falling on an almost daily basis as overseas investors rush to buy the perceived safe haven Government bonds (still AAA …..).

The outlook for Sterling is less clear however, especially given the recent evidence weak outlook for the UK recovery and continued civil unrest.

So where does that leave the market?

Well, buying Swiss Francs and Yen primarily, with both currencies continuing to appreciate despite the best efforts of the respective Central Banks to curtail the move – the Yen is now just stronger than prior to the BoJ intervention last week, whilst the Swissy has made considerably gains since the SNB tried to hold the EUR/CHF at 1.1000.

Gold has also maintained its strong run ….

Swiss and Japanese central banks launch business and currency support

Yesterday the Swiss National Bank (SNB) cut their interest rates to 0%-0.25%- the main motivation behind the cut was to help weaken the Swiss Franc. Swiss and Japanese central banks launch business and currency supportOvernight the Bank Of Japan intervened in the markets to weaken the value of the Yen for the first time since March.

The bank also expanded its asset purchase fund by 5 trillion Yen and kept rates near zero.

Both the Yen and the Swiss Franc have seen exceptional currency strength recently and the currency gains were impinging upon economic growth- this is why exceptional measures have been taken in an attempt to devalue their respective currencies and support growth.

USD/JPY leaped up to 80.00 from 76  pre-intervention and GBP/JPY from 125 to 130.

The overall mood in the markets is still very mixed with intervention by the BOJ coupled with more negative feelers from the Euro periphery and real concern on the economic climate in the US.

Tomorrow we see non-farm payroll numbers from the US and this data will be hugely important on the backdrop of very negative data recently from the US economy.

It is key that the number is either above or in line with expectations- with the sheer volume of US debt it is vital that growth supports the fiscal condition of the US economy.