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Grexit for euro

In May-June, 2015 the American currency was mainly affected by political events in Europe. Yet, macroeconomic factors will reinforce their impact. Greece concluded a bargain on bailout extension worth €86bln euros in exchange for austerity reforms.

In the second half of May the US dollar advanced due to rising risks of the Greek default and withdrawal from the European Union. However, July, 20 the dollar gained only 0.5% as compared to the beginning of June. Thus, despite strong fluctuations, US Dollar Index has been traded in a range for 2 months. It has been demonstrating a bullish trend last four weeks . We suppose that it was encouraged by good private sector statistics. For a whole year unemployment rate in the USA has been low. In June it fell to its lowest since April, 2008, making 5.3%, which resulted in personal income growth due to the strong dollar. New Homes Sales hit a 7-year high in the same month. Building Permits soared to 1.34mln in absolute terms – the maximum since July, 2007. American citizens feel rather comfortable. For example, University of Michigan Consumer Confidence index has been balancing above 90 for 8 straight months. Macroeconomic statistics bolster investors' confidence about the early rate hike by Fed. We believe this scenario is very likely, given declarations by Fed representatives, including Reserve System Chair Janet Yellen. She confirmed that the first rate raise may take place in early autumn. It does not contradict the main macroeconomic indicator of inflation; the Consumer Price index has been gradually growing for 5 consequent months.

Rate hike is one of the basic factors that underpin the dollar. Meanwhile, in spite of Federal Reserve rhetoric, it is difficult to say when it may happen. The intrigue will remain, providing the currency market with volatility. The point is that American GDP slipped 0.2% in the first quarter, yet, FRS confirms that if the dollar gains 10%, the economy will contract 0.5%. That is why the American regulator will probably try to postpone rate hike, confining itself to “word intervention”. That is why the second quarter GDP report becomes of prime importance. According to official forecasts, it is supposed to increase 2.5%, outrunning by far the first quarter statistics.

Important macroeconomic data, expected in the US in the near future:

July, 27 — Durable Goods Orders;
July, 28/29 — Regular FRS meeting;
July, 30 — Preliminary GDP, Q2;
August, 3 — Personal Income in June.

As far as eurozone is concerned, we believe that the €86bln bailout extension will increase European countries' financial burden. However, this is not our main subject here. The economies of such countries as Italy, Spain and Ireland have a very large foreign debt to GDP ratio, which can be compared to the Greek one. There is a risk that these countries will seek financial aid as well. We assume that this factor reins in the euro potential.

22 July 2015 @ 17:39

Poor US economic data

In early April the US dollar index continued to strengthen and by the middle of the month it edged near the recent high. Afterwards there were a few poor US economic data releases and a pullback started. Investors reconsidered the timing of possible Fed rate hike. Late last year they were expecting it to happen in April. Later the consensus forecast was shifted to early July, then to October and even December. Now investors assess the probability of the rate to be raised this year as 50/50. It means that it may not happen at all.

The first disappointing data was the publication of Retail Sales on April 14, which was weaker in March, as expected by market participants. Later on, very weak Q1 GDP for this year, which slipped only 0.2%, was released on April 29. At the same time, CPI in March was quite sluggish, meanwhile the number of new jobs increased. Thus, there are signs of the economic slack, but low interest rates do not involve risks for the labor market or hyperinflation to take place. In such circumstances, the Fed may maintain the current monetary policy for quite a long time. All these factors weakened the US dollar. The bearish trend continued in May following the weak data on labor market and Retail Sales in April. As a result, the dollar fell 6.7%, down from its recent high posted in April, and since early May it sagged 2%. Note that since the beginning of this year it is still advancing 3.7%. The euro has tumbled 5.5% since early 2015 on the start of the ECB money printing program and Greek default risks. However, as the US dollar was weakening, the euro has added 1.9% since early May. The Q1 GDP growth of 2015 in the euro zone outperformed the US level and in annual terms amounted to 1%. Note that the liquidity increase due to money issuing with the rising economy resulted in a rally on European stock markets. Since the beginning of this year the German DAX has climbed 16.7% in euro terms, or 10% in dollar terms. Meanwhile, S&P 500 rose only 2.9%. The pan-European FTSEurofirst 300 index has upped 15% since early 2015. The gainer over the same period was the Russian RTS index, soaring 36% as the Ukraine tensions were gradually eased and world oil prices increased.

Significant macroeconomic events expected in the near future.

    USA:
  • May 22 - CPI in April
  • May 29 - Preliminary Q1 GDP
    Euro zone:
  • May 19 - CPI in April and Trade Balance
  • June 5 - Revised Q1 GDP
20 May 2015 @ 14:36

US dollar showed sharp growth

In March the US dollar showed both sharp growth and considerable fall. Compared to the beginning of the month, it is still in the green zone at the moment. Durable Goods Orders jumped 2.8% in January and made leading investment banks increase their GDP forecasts. Besides, investors sentiment was buoyed by inflation, which has become negative for the first time since 2009. To be noted, in early March market participants were sure that Fed rate hike was inevitable. We consider this factor very important as far as the dollar is concerned.

Positive macroeconomic statistics continued to be released then. Non-Farm Payrolls rose to better-than-expected 295 thousand. Unemployment in the US fell to its weakest since May, 200 8 (5.5%). The following days some investors had doubts that with good statistics taken into consideration, Federal Reserve System would hike the rate. However, Dollar Index edged higher as ECB launched the bond-buying program. We remind that the amount was announced in January: the bank would spend €60 bln every month til September, 2016. Yet, at the very start quantitative easing pulled down the euro. Dollar Index exceeded 100 despite the fact that there were no positive macroeconomic statistics. Vice versa, economy demonstrated some negative dynamics: retail sales in the US has slumped for 3 straight months, the first time since 2012.

The payback was soon to occur and since the mid-March US Dollar Index has marked a sharp decrease. After a while, at a regular Fed meeting, Janet Yellen stated that they were not in a hurry with rate hike, while inflation is low and American economy offers enough jobs. We agree but another factor is worth mentioning – the strong dollar may influence Fed decision. In theory, if US Dollar index plummets, Reserve System may raise the rate before macroeconomic situation changes.
When it comes to the euro, we suppose that the common currency started growing as soon as investors doubted that rate hike was imminent. In our opinion, EU economy doesn't show clear signs of recovery. However, due to 20-25$% surge in stock indices since the beginning of the year, the demand for the single currency was supposed to increase.

Important macroeconomic data to be released soon:

The United States: March, 27 — Final GDP (Q4), April, 1— ISM Manufacturing, April, 3 — Employment Situation;
Eurozone:March, 30 — Consumer Confidence, March, 31 — Employment Situation,April, 8 — Retail Sales;
Japan:March, 26 — Inflation and Employment, March, 29 — Industrial Production,March, 31 — Tankan Survey.
30 March 2015 @ 19:02

US dollar index continued to boost

The USD Index continued to boost in December 2014. It was almost unchanged compared to November and amounted to 2.5%. The main reason for this has remained exactly the same, i.e. the Fed plans to raise interest rates next year. The positive dynamics of the US currency was also maintained by good economic reports released in the United States. At the same time, similar information from the EU and Japan was much weaker which added extra stimulus for the dollar strengthening.
The US currency was traded sideways almost the entire first half of last month. The Fed announced the rate hike planned for next year at the meeting on December 17. Also the fallen CPI in November was released, indicating the drop from 1.7% to 1.3% yoy. It supported the Fed’s plans from a fundamental point of view. Investors deem that the rate hike wouldn’t lead the consumer prices to climb above the target level of 2%. A week later, more positive reports were published on December 23. The third estimate of Q3 US GDP upped from 3.9% to 5%.

Apart from the US economic data, the reports from the European Union were particularly bad. Inflation in November was 0.3%, and in December it was negative (-0.2%). As the economic growth indicated a lower pace, which in November amounted to 0.8% in annual terms, we assume that deflation hits the European economy. Of course, all these factors contributed to the euro depreciation. Another negative factor adding pressure on euro was the uncertain policy conducted by the ECB, which first announced the immediate launch of euro printing for the economy stimulation, but later postponed this issue. The bank is expected to announce the “quantitative easing” at the next meeting on January 22. The second factor for fallen euro was the political instability in Greece. The country has a chance to leave the European Union in case of non-conformance with the scheduled repayment of the public debt. A number of Greek parliamentary parties approve the need to revise relations with foreign investors. A snap parliamentary election will be held on January 25. As a result, euro tumbled 4.5% against the US dollar in December.
Japanese economy has entered the recession period. The Q2 GDP tumbled 6.7% and in the third quarter it slipped another 1.9%. However, the yen dipped only 1.3% against the US dollar in December. Investors assume that the double plunge in global oil prices would influence the Japan’s economy in the most favourable way. The same applies to China.

The economic calendar for January:

USA :
January 9 – Labor market data;
January 14 – Retail Sales;
January 16 – CPI and Industrial Production.

EU:
January 22 – ECB Press Conference;
January 26 – Retail Sales;
January 30 – CPI.

Japan:
January 19 – Industrial Production;
January 25 – Trade Balance;
January 30 - CPI.
12 January 2015 @ 15:13

Completion of Fed’s QE3

In our opinion, the main event of the currency market was the completion of Fed’s QE3 program in late October. To a large extent, it caused the US dollar index increase in November by 2.3%. Of course, it was anticipated, and it surged 11% since the beginning of this year. It was also promoted by clear evidence of the US economy recovery. After the US Q1 GDP in 2014 shrank 1%, it rose 4.2% in the second quarter, and 3.9% in the third quarter. The unemployment rate dropped from 6.6% in January to 5.8% in October.
Amid the US successful economic development, the EU economy indicates a slowdown. The European Q1 GDP upped 1%, while in the second and third quarters it grew 0.8%. The labour market recovery is almost invisible. The unemployment rate in the EU in January was 11.8%, and in October – 11.5%. EUR/USD rate slipped 1.6% in November, and dipped 10.6% since the beginning of the year. Note that currently the ECB is preparing to launch the bank bond purchase program supported by euro printing. This program is similar to the completed QE3 conducted by the US Fed.

The Q1 GDP in Japan this year rose 5.9%, and in the second quarter it tumbled 6.8%. According to forecasts, Q3 GDP would fall 1.6% more. This negative trend is explained by the economy slowdown amid the nuclear plant disaster clean-up operations in Fukushima and “freezing” a number of other plants, the higher price on hydrocarbons in the first half of the year and strong competition of high-tech goods manufacturers from China and South Korea. Japan increased the sales tax from 5% to 8% since April 1st this year in order to reduce the debt load. It also had a negative impact on economic activity. As a result, JPY/USD rate in November dipped 6%, and 14.3% since the beginning of the year. Note that the yen depreciation was caused by the BOJ program of purchasing government bonds, similar to the American "quantitative easing". The unemployment rate in Japan is traditionally low, and in September it was 3.6%. However, it was higher than 5% over the past 60 years only in the midst of a global economic crisis of 2000 and in 2008.

As for December, we accept the possibility of the US dollar strengthening continuation. We recommend paying attention to the following macroeconomic indicators. They may affect the exchange rate.

USA:

  • Dec 5: Unemployment rate;
  • Dec 11: Retail Sales;
  • Dec 17: CPI and Fed meeting.
European Union:
  • Dec 12: Employment change and industrial production;
  • Dec 17: CPI.
Japan:
  • Dec 16: Trade Balance.

9 December 2014 @ 17:59

Euro against the Greenback at Fresh 22-month Low

The Euro against the US dollar increased its downside momentum early on Thursday morning trading and dropped to 22-month low at 1.2728. At the moment there is not any technical support level to maintain the negative bias in the forex pair. In addition, the much better than expected New Home Sales, released at 504K while were expected at 432K reaching a 6-year high gave a boost to the greenback.


The US dollar is broadly stronger in today’s trading with the US dollar index breaching previous cap at 84.77 and heading now to the next longer term resistance at 88.36, it was lastly seen at 85.22. Investors’ expectations build toward an earlier rate hike than expected. For today we expect some major news for the greenback, first we will focus on US Durable Goods orders and on the US Jobless Claims.


Elsewhere, the British pound has been also declining against the greenback returning to previous Thursday’s level at 1.6276. The sterling has been stronger after the No vote for independency but was unable to recover strongly due to weak fundamental data indicating that the BOE would be far away in terms of time of a rate hike. The BOE Governor, Mark Carney would speak today and could give its view over the UK economy, thus we would watch it closely.


The US dollar against the Japanese Yen returned to previous peak at 109.40 and its now threatening to rise to fresh 6-year high. The Fed and the BOJ diverge in their monetary policies and that has been providing a support to the US dollar. We are highly anticipating the Japanese CPI data tomorrow for further conclusion Japanese monetary policy. Lastly, the Australian dollar versus the greenback dropped to fresh 8-month low at 0.8795 as the bearish bias is sustainable despite the oversold technical oscillators.


Questions and suggestions:analytics@infinmarkets.com

25 September 2014 @ 09:24

US Dollar Index at 4-Year Cap ahead of Principal Reports

The US dollar strengthened yesterday against the commodity currencies, more specifically the Australian dollar and the Canadian, while against other major currencies the greenback was in a range trading formation. The US dollar index remains limited by more than a 4-year cap at 84.77. The Fed’s chairwoman Janet Yellen said that the investors should be prepared for an earlier than expected rate hike but this did not raise further the US dollar and that is due to the previous week Fed’s decision. Moreover geopolitical tensions are rising as United States bombed militant groups in Syria yesterday. We recognize risk-off as the European and US equities are declining.


The US dollar against the Canadian found resistance at 1.1082 in yesterday trading after the weaker than expected Canadian Retail Sales data. The USDCAD refreshed its upside momentum in the intraday and is currently retesting the longer term cap at 1.1097. In the daily timeframe the trend is rising and could overpass its resistance zone between 1.1082/1.1097. Commodities are falling, the Crude Oil is declining as US increases production and the demand growth is diminishing.


The Australian dollar against the US dollar declined to support at 0.8830, geopolitical risk is rising and that increases selling pressure. Moreover Iron ore estimate prices were cut further for the 2015 and that adds to the selling pressure. Additionally the terrorism alert remains high citing the threat posed by supporters of Islamic State extremists. Lastly, the RBA warned in its semiannual Financial Stability Review about some housing market imbalances and sound lending practices by commercial banks should be reinforced. The AUDUSD is oversold at the moment but there are fundamental pressures, we do not consider the 0.8880 a good price to sell we would be more comfortable to go short after a bounce up.


On the data front we expect today the US New Home Sales data and Crude oil inventories. The US Dollar index it was limited by a very important resistance at 84.77 which is a more than 4-year high. We would watch closely the New Home Sales as well as the following days reports like the US Jobless Claims, Durable Goods Orders, Final GDP report and ofcourse for the longer run the next week’s Non Farm Payrolls.


Questions and suggestions:analytics@infinmarkets.com

24 September 2014 @ 09:11

Scots Go With Union, British Pound Separation Risk Eliminates

Currency markets received some important events in the recent trading. Firstly the Federal Reserve reduced its asset purchases to $15 billion monthly and said that at the next meeting would end quantitative easing program. Secondly, Scotland voted 55.4% no to independency and chose to go on with UK.


The US dollar was broadly stronger after the Fed monetary report release. The FOMC projections revealed that expectations for a rate hike in 2015 remains solid, with 14 FOMC participants projecting a 2015 hike and 2 in 2016 instead of the June release where 13 participants projected a rate hike in 2015 and 3 in 2016. Also, the average projection of the Fed funds rate increased. All that strengthened the greenback yesterday with the US dollar index peaking at 84.77 which is a 14-month high and we do not expect an easy penetration of that cap.


Early on Friday the Scottish referendum outcome strengthened the European currencies because the uncertainty faded. The British pound jumped to 1.6524 against the US dollar recovering from previous losses. The Bank of England is returning to the normal course of its monetary policy and we expect a tightening of the policy in first half of the 2015 as on Tuesday we saw the non-volatile items CPI increasing. The UK Gilt 10 year yield declined 30bps as risk of separation eliminated.


Elsewhere, the Euro against the US dollar recovered to resistance at 1.2928 in yesterday trading but in the last two hours downside bias refreshed. We look forward for the Euro-zone Current Account data but the common currency in general is week. The EURUSD declined since May 7th from 1.3927 to today’s bottom at 1.2835, the lower price limits the potential profits for going short and that is an add up risk also we are near a 2-year support at 1.2772, therefore we might see a corrective move in the longer term. Lastly, the US dollar against the Canadian eased back to support at 1.0924 and we focus today on the Canadian core CPI and Wholesale data.


Questions and suggestions:analytics@infinmarkets.com

19 September 2014 @ 09:25

Investors Lie Low Under FOMC and Scot Referendum Shadow

Ahead of the FOMC meeting the US dollar is mostly steady against its major peers. The US dollar index is consolidating in 84.47/83.94 zone waiting for the tone and the projections of the Federal Reserve later today. In the last NFP report for August the employment increase was well below expectations and that limited speculation for an earlier rate hike. We expect that the central bank would continue its asset purchase tapering to $15 billion monthly buying from $25 billion that is currently and use a straight language on when the bond buying program would end. Moreover, earlier than the Fed monetary announcement we expect the US CPI data, it is projected that the yoy CPI eased to 1.9% increase in August from previous month at 2.0%.


Against the Japanese Yen, the US dollar is firm slightly below the cap at 107.18 and holds ready for advancing to fresh 6-year highs. Some downside pressure came from news that People’s Bank of China is adding $81 billion stimulus to support growth but the currency pair held its ground as Japanese funds showed their preference for foreign assets. At the same time, the US dollar is down against the Canadian dollar, risk appetite improved on Chinese stimulus plan and also Canadian Manufacturing Sales were stronger than projected lifting the loonie. Another factor supporting the Canadian dollar is that its central bank monetary policy does not diverge from current Fed monetary policy with Bank of Canada likely to increase rates earlier than Fed. Therefore, we expect in the long term the Canadian to be stronger than the US dollar.


Elsewhere, the Australian dollar jumped to cap at 0.9110 against the US dollar as investors risk appetite improved due to Chinese QE. Nevertheless, the currency couple is likely to return to downside bias as pressures on exchange rate remain elevated since fundamental values take some time to adjust. The British pound versus the US dollar made a reversal structure in the intraday rising to fresh 10-day high at 1.6309 that is the largest upside in the last two months. The sterling was supported by higher percentage increase on core CPI and HPI than what was expected. Latest polls on Scottish referendum showed fragile lead for the No camp. The GBPUSD would be a highly risky currency for trading until the outcome is out.


Questions and suggestions:analytics@infinmarkets.com

17 September 2014 @ 09:17

Eyes on US Dollar and GBP ahead of FOMC and Scotland Vote

The Australian dollar against the US dollar is hovering above psychological support at 0.90, recovering slightly in yesterday due to oversold indicators. Earlier on Tuesday the Reserve Bank of Australia released its last meeting minutes where the central banks neutral stance is shown there as well and that the fundamental value of the currency rate is lower. That is adding to the pressure on the currency couple, the downside bias revived and the prices are likely to retest 6-month low at 0.8983.


The US dollar against its major peers was mostly firm as the FOMC meeting is closing. Investors are speculating on the time of Federal Reserve rate hike with chances increasing that rate increase will take place in the first half of 2015. The US dollar index holds its ground near 15-month high at 84.47. There is a major resistance there and that could limit upside bias of the greenback.


The US dollar against the Japanese Yen maintains its ground slightly below the resistance at 107.37. The bullish structure prevails but the technical indicators are overbought and that creates concerns over the sustainability of the upside development. At the same time the greenback against the Canadian declined to support at 1.1033 after the weaker than expected US Industrial Production. The USDCAD attempts to recover the rising bias and could revisit previous peak at 1.1097.


The British pound remains weak against the greenback due to high risk of Scots independency vote. Polls between Yes and No on the question should Scotland be independent has narrowed so much that is hard to call the result. The GBPUSD has escaped to the downside from the earlier shorter term range trading between 1.6277/1.6218 and is currently trading at 1.6193. On the data front today we expect the UK CPI data which are projected to be lower than in July. Later on we focus on the Euro Zew Economic Sentiment and in the evening we will watch the US PPI and the Canadian Manufacturing Sales.


Questions and suggestions:analytics@infinmarkets.com

16 September 2014 @ 08:46

 

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