Euro Drops to 4 1/2-Year Low as ECB Splits From Fed; Ruble Sinks

The euro slumped to the lowest in 4 1/2 years against the U.S. dollar after the European Central Bank signaled it will embark on large-scale government-bond purchases as the Federal Reserve moves closer to raising interest rates.

The 19-nation common currency slid for a third week after ECB President Mario Draghi said he can’t rule out deflation in the euro area. The yen also declined for a third week. The ruble plummeted 9.4 percent to lead emerging-market peers lower. The dollar advanced gained against all of its 16 major peers before a report next week that may show the jobless rate fell to a 6 1/2-year low.

 

“The U.S. labor market is performing well and the unemployment rate is falling further,” Ralf Umlauf, head of research for Helaba Landesbank Hessen-Thueringen in Frankfurt, said by phone yesterday. “In the euro zone, it’s a completely different picture. We have still very high unemployment rates near the historical top. So that’s the reason why we have the divergence in monetary policies.”

 

The euro dropped 1.5 percent last week to $1.2002 yesterday in New York after falling to $1.2001, the lowest since June 2010. The shared currency lost 1.3 percent against the yen to 144.63. Japan’s currency traded at 120.28 per dollar.

 

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.9 percent in the week to 1,141.02. It increased 11 percent last year, the biggest gain in data going back to 2005.

Looking Ahead

The dollar gained against all of its 31 major counterparts in 2014 for the first time in data going back to 1989, buoyed by an improving economy. Strategists don’t see a repeat of that dominance in 2015.

More than half of those counterparts are forecast to gain next year against the greenback, led by this year’s biggest loser, Russia’s ruble. It is predicted to add 17 percent after plunging 46 percent in 2014 under the pressure of sliding oil prices and U.S. and European economic sanctions against Russia for its role in Ukraine turmoil.

 

Mexico’s peso is projected to gain 9.9 percent after a losing 12 percent last year, and the Norwegian krone may add 4.6 percent after a 19 percent tumble.

 

Argentina’s peso is forecast to be the biggest loser in 2015, dropping another 29 percent after last year’s 23 percent descent.

 

The euro is projected to fall 1.7 percent and the yen 3.6 percent after each dropped 12 percent in 2015.

Lower Euro

The shared currency slumped 2.8 percent in December for a sixth straight month of losses, its longest skid since 2010.

“Those who are subtly encouraging the lower euro, they won’t be satisfied yet,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone yesterday. The extent of euro weakness “really does come down to the composition and size of this sovereign QE that they’re talking about,” he said.

 

Draghi seldom gives interviews and his comments to the German newspaper Handelsblatt reflect a drive to win over that nation. Policy makers there have led criticism of quantitative easing, saying it threatens financial stability, reduces the incentive for governments to restructure their economies, and is legally tricky.

 

“The risk cannot be entirely excluded, but it is limited,” Draghi said when asked if the region could enter a spiral of declining prices, falling wages and postponed spending. “We have to act against such risk.”

Japan Easing

Policy makers in Japan have also embraced monetary stimulus to ward off deflation, prompting the yen to fall for a third consecutive year against dollar in 2014.

 

The foreign-exchange market is bracing for more yen-debasing stimulus measures from the Bank of Japan after the nation slipped into a recession last quarter. The BOJ can employ new measures to reach its 2 percent inflation goal in the 2015 year, Governor Haruhiko Kuroda said in an interview with the Mainichi newspaper.

 

The dollar gained as economists surveyed by Bloomberg forecast forecast the U.S. unemployment rate fell to 5.7 percent in December, the lowest since June 2008, before the Labor Department report on Jan. 9. Employers added 240,000 jobs, economists projected.

 

The Fed said it will be patient on the timing of the first interest-rate increase since 2006 and raised its assessment of the labor market at the last meeting of its Open Market Committee on Dec. 17. The FOMC’s next scheduled decisions are Jan. 28, March 18 and April 29.

 

Fed funds futures show a 63 percent probability that the central bank will raise rates by September, up from a 45 percent likelihood at the end of November.

 

Analysts at BNP Paribas SA recommended buying the dollar and selling the euro and yen in a note yesterday.

 

“With U.S. economic outperformance keeping U.S. yields and the U.S. dollar supported, investors’ question at the start of the year should not be whether to buy the USD, but which currency to sell against it,” the bank said.

 

Source: Bloomberg (03 Jan 2015)

Dollar Halts a 5-Day Advance Versus Yen; Taiwan’s Currency Falls

 

The dollar weakened against the yen, ending a five-day advance, amid speculation its recent climb was too rapid.

 

The greenback pared declines after fewer Americans than forecast filed applications for unemployment benefits last week. The dollar has advanced at least 4 percent against all its 16 major counterparts this year and extended gains yesterday after a report showed the world’s biggest economy grew at the fastest pace in more than a decade. Taiwan’s dollar slid to a four-year low. The ruble gained a fourth day.

 

“We might track around these 120 yen-type levels for a little while,” said Steven Barrow, head of Group of 10 foreign-exchange research at Standard Bank Plc in London. “Longer term, dollar-yen is moving higher. 150 is a realistic two-year target. There may be, as we’ve been seeing in this Christmas period, quite a bit of volatility up and down.”

 

The dollar declined 0.2 percent to 120.46 yen at 9:57 a.m. New York time after rising to 120.83 yen yesterday, the highest since Dec. 9. It gained 3.7 percent during the five-day streak. The U.S. currency weakened 0.2 percent to $1.2192 per euro after touching $1.2165 yesterday, the strongest level since August 2012. The yen was little changed at 146.88 per euro.

 

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, has risen 11 percent this year, set for the biggest annual gain in data starting in December 2004. It slipped 0.2 percent to 1,130.75 today.

 

The index’s 14-day relative-strength index reached 71 yesterday, above the 70 level some traders see as a signal an asset may have declined too far, too fast and is due to reverse course. It was at 68 today.

Unbeatable Dollar

The greenback is headed for gains against all of its 16 major peers this year for the first time since 2000.

 

Declines range from the Singapore dollar’s 4.5 percent drop to the 19 percent plunge by the krone of Norway, as lower oil prices weighed on the economic outlook for Western Europe’s largest crude producer. The yen fell 13 percent and the euro lost 11 percent.

 

Taiwan’s dollar slid to a four-year low versus the greenback today as overseas investors sold $2 billion more Taiwan stocks than they bought this month, set for the biggest outflow since June last year.

 

The currency weakened 0.2 percent to NT$31.815 per U.S. dollar after reaching NT$31.894, the least since September 2010.

Ruble Gains

The ruble gained even after Standard & Poor’s said it’s considering cutting Russia’s credit rating to junk. Hours earlier, lawmakers pushed through legislation to allow the government to bail out struggling lenders.

 

The ruble rose 0.4 percent to 54.26 per dollar after reaching 80.10 on Dec. 16, the weakest level on record.

 

Russia’s currency has still dropped 8.3 percent this month, the most against the dollar among 174 foreign-exchange values, followed by the krone’s 6 percent depreciation. Libya’s dinar leads gainers with a 9 percent climb, while the Somali shilling added 6.1 percent.

 

Even as the euro gained today, it headed for a sixth month of losses against the dollar amid speculation the European Central Bank is moving toward boosting currency-depreciating stimulus to revive growth.

 

“The euro will weaken especially against the dollar as a result of additional easing,” said Masato Yanagiya, head of foreign exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “More and more people are expecting the ECB to start buying sovereign bonds.”

Economic Recovery

In contrast, the Federal Reserve is moving toward raising interest rates for the first time since 2006 as the U.S. economic recovery strengthens.

 

Jobless claims dropped by 9,000 to 280,000 in the week ended Dec. 20, the fewest since early November, from 289,000 in the prior period, a Labor Department report showed today in Washington. The median forecast of 47 economists surveyed by Bloomberg called for 290,000.

 

A report yesterday showed U.S. gross domestic product grew at a 5 percent annual rate from July through September, the biggest advance since the third quarter of 2003.

 

“The theme in the past few weeks has been dollar strength,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in a phone interview from New York. The dollar weakened today as “investors are overlooking the data -- we’re seeing some small position-squaring ahead of the holiday.”

 

Sources: Bloomberg (24 Dec 2014)

Forex News – Dollar Approaches 5-Year High on Fed Rate View; Ruble Rebounds

A gauge of the dollar rose toward a five-year high after Federal Reserve Chair Janet Yellen indicated the central bank is on pace to increase interest rates as early as April.

 

The greenback gained for a second day against the yen after Fed officials yesterday replaced a pledge to keep borrowing costs near zero for a “considerable time,” and held the rate at zero to 0.25 percent, where it’s been since 2008. Russia’s ruble snapped a seven-day drop as the finance ministry said it was selling reserves to counter a plunge that sent the currency to a record amid a slide in oil prices.

 

“The Fed meeting clarified that rate hikes will start by mid-next year, giving a big boost to the dollar,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “The Fed indicated that the decline in oil will boost spending more than hurt inflation.”

 

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.1 percent to 1,122.19 at 9:27 a.m. in Tokyo from yesterday, when it strengthened 0.9 percent. It closed at 1,122.34 on Dec. 5, the highest since March 2009.

 

The dollar rose 0.2 percent to 118.84 yen, after surging 1.9 percent yesterday, the biggest gain since October. The U.S. currency was little changed at $1.2328 per euro following yesterday’s 1.4 percent advance. The yen slipped 0.1 percent to 146.51 per euro.

 

Source: Bloomberg (18 Dec 2014)

Forex News – Yen Retreats From Four-Week High Before Fed; N.Z. Dollar Slides

The yen retreated from the strongest in four weeks against the dollar before the Federal Reserve concludes a two-day policy meeting today.

 

The yen has been the biggest gainer among the 10-currency Bloomberg Correlation-Weighted Indexes in the past week as tumbling oil prices added to concern the global economy will falter, boosting demand for havens. The ruble collapsed to a record yesterday even after Russia increased borrowing costs to the most since 1998. A gauge of emerging-market currencies fell to a 12-year low. New Zealand’s kiwi declined after the South Pacific nation’s current-account deficit widened.

 

“Looking toward the FOMC, it’s creating a bit of a cross current — the market may be more reluctant to sell the dollar-yen now than it may have been yesterday,” said Greg Gibbs, the head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore, referring to the Federal Open Market Committee. The greenback “remains basically in a nervous state, caught somewhere between 115 and 119” yen.

 

The yen dropped 0.3 percent to 116.74 per dollar at 12:05 p.m. in Tokyo from yesterday, when it touched 115.57, the strongest since Nov. 17. Japan’s currency slid 0.2 percent to 145.93 per euro after advancing 1.6 percent in the previous two sessions. The dollar was little changed at $1.2501 per euro.

 

West Texas Intermediate crude slid as much as 4.1 percent to $53.60 a barrel in New York, the least since May 2009, before trading at $54.70. The United Arab Emirates said the Organization of Petroleum Exporting Countries won’t cut production even if prices fall as low as $40 a barrel.

Source: Bloomberg

Oil Plunges Below $60 a Barrel

On 10^th December, the 12-member OPEC group predicted that the demand for crude oil will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003.

 

That sentence caused Brent futures to slide as much as 2.5 percent in London, coming close to $60 a barrel. Brent for January settlement declined as much as $1.57 to $60.28 a barrel on the London-based ICE Futures Europe exchange and was at $61.16 at 12:30pm Sydney time. The more active February future was 71 cents lower at $61.44.

 

US oil fell to $56 a barrel on Monday morning, extending its decline from the lowest level in more than five years. The United Arab Emirates has said that OPEC will resist output cuts even if prices slump as low as $40.

 

West Texas Intermediate for January delivery dropped as much as 2.7 percent, to $56.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract decreased $2.14 to $57.81 last Friday, the lowest since May 2009. Prices are down 42 percent this year.

 

In the interim, the International Energy Agency has reduced its 2015 demand forecast for the fourth time in five months amid rising supply from non-OPEC countries. Oil has lost more than 20 percent since OPEC decided at a meeting in Vienna last month to maintain its production target, resisting calls from members including Venezuela to cut output.

 

Drillers in the US, pumping crude at the highest rate in more than three decades, idled the most rigs in almost two years as prices sank further.

 

OPEC, which supplies about 40 percent of the world’s oil, pumped 30.56 million barrels a day in November, exceeding its target for a sixth straight month, a Bloomberg survey showed.

 

Along with oil, prices of iron ore has been one of the hardest hit as well. The price of the material used to make steel has almost halved this year and slumped to a five-year low of USD68.49 a ton last month.

 

Australia has estimated that iron ore will trade at about USD60 a metric ton as the largest mining companies press on with expanding supply, deepening a glut just as demand growth in China falters.

Iron ore currently accounts for about 20 percent of Australia’s export income, and government revenue is expected to be A$7 billion lower this fiscal year due to the sharp drop in commodity prices. The Australian dollar has fallen more than 10 percent since the start of September as the price of the steel-making material declined.

Top News This Week

Europe: German Flash Manufacturing PMI. Tuesday, 16^th December, 4.30pm.              
I expect figures to come in above 50.1 (previous figure was 49.5).

UK: CPI y/y. Tuesday, 16^th December, 5.30pm.              
I expect figures to come in at 1.5% (previous figure was 1.6%).

Canada: Manufacturing Sales m/m. Tuesday, 16^th December, 9.30pm.              
I expect figures to come in at -0.3% (previous figure was 2.1%).

Trade Call

Long USD/CAD at 1.1538

On the H1 chart, prices on USD/CAD have failed to rally to a higher high, signaling a pause in the upward momentum. I expect prices to retrace another 30-40 pips downwards as traders take profit on slumping oil prices.

 

With the negative data expected to come out from Canada this week, I expect the uptrend on USD/CAD to continue. An entry is taken at 1.1538 at the support level. A stop loss of 35 pips is placed below the previous low and we will have two targets on this trade, exiting the first position at 1.1573 and the second one at 1.1608.

 

Entry Price = 1.1538
Stop Loss = 1.1503
1st Profit = 1.1573
2nd Profit = 1.1608

 

Sources: (As written on BTInvest, 15 December 2014.)

 

Note: The information in this article has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This article is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this information.

 

US Non-Farm Payrolls Record Blow-out Number

Employers in the U.S. added 321,000 jobs in November, the most since January 2012, driving wage gains and highlighting increased corporate confidence the economy will endure a weakening in global markets.

 

According to figures from the US Labour Department, the advance in payrolls exceeded the most optimistic projection in a Bloomberg survey of economists and followed a 243,000 gain in October that was stronger than previously reported. The jobless rate held at a six-year low of 5.8 percent. Average hourly earnings rose 0.4 percent, the biggest gain since June of last year.

 

The USD/JPY shot up over 100 pips immediately after the blowout number was reported. On Monday morning, USD/JPY rose to 121.84, touching its highest level since July 2007. The MSCI Asia Pacific Index added 0.1 percent by 9:25 a.m. in Tokyo, as Japan’s Topix Index rose 0.4 percent to extend its highest level since December 2007.

 

Elsewhere in Europe, European Central Bank (ECB) President Mario Draghi has promised that the ECB will act should current stimulus prove insufficient when it is reassessed early next year. The central bank is said to be preparing a QE package to be discussed at the next monetary policy meeting on 22^nd January 2015.

 

On 11^th December, banks are expected to borrow about 148 billion euros in the targeted long term refinancing operation (TLTRO), according to the median estimate in the survey of 24 analysts. Predictions ranged from 90 billion euros to as much as 250 billion euros. An initial round of the program in September raised 82.6 billion euros, less than economists forecast.

 

The TLTRO, designed to spur lending to the real economy, will mature in September 2018 and will have a fixed interest rate, which is the refinancing rate at the time of take-up plus 10 basis point spread. After December, additional amounts can be borrowed in further target LTROs during the period from March 2015 to June 2016, depending on the evolution of the banks’ eligible lending activities in excess of bank-specific benchmarks.

 

A low take-up rate in December would make the prospect of actual sovereign bond QE in early 2015 more likely. Draghi’s plan to boost the ECB’s balance sheet toward early-2012 levels, when it was about 3 trillion euros compared with 2 trillion euros now, is aimed at ensuring the euro area is flooded with cash, keeping real interest rates low and spurring credit creation that can revive the economy.

 

As well as the long-term loans, it’s also fueled by purchases of covered bonds and asset-backed securities.

 

Since those private-sector asset purchases started in late October, the ECB’s balance sheet has barely budged as liquidity injections are countered by repayments on the older loans. In fact, between now and February 2015, banks must repay 270 billion euros of outstanding loans issued at the end of 2011 to alleviate the effects of the euro area’s sovereign debt crisis.

 

Covered-bond purchases totaled 17.8 billion euros as of 28^th November, and buying of asset-backed securities (ABS), which started late last month, reached 368 million euros.

 

The problem in all of the ECB’s moves thus far is that the 18-nation economy has also shown little sign of improvement. Inflation matched a five-year low at 0.3 percent in November and the ECB last week cut its forecasts for consumer prices and gross domestic product through 2016.

Top News This Week

UK: Manufacturing Production m/m. Tuesday, 9^th December, 5.30pm.              
I expect figures to come in at 0.2% (previous figure was 0.4%).

China: CPI y/y. Wednesday, 10^th December, 9.30am.              
I expect figures to come in at 1.5% (previous figure was 1.6%).

Australia: Employment Change. Thursday, 11^th December, 8.30am.              
I expect figures to come in below 16K (previous figure was 24.1K).

Trade Call

Short EUR/USD at 1.2276

On the H1 chart, there was a “short squeeze” last week when prices retraced upwards to hit 1.2456. The main reason was due to Draghi’s refusal to commit to QE this year. Some traders saw that as a reason to take profit on the short EUR/USD, causing the EUR/USD to have a push upwards.
However, the EUR/USD short trades have returned almost immediately, especially after the blowout number from Friday’s NFP. An aggressive entry is taken at 1.2276 once prices hit the support level. A stop loss of 35 pips is placed above the previous high and we will have two targets on this trade, exiting the first position at 1.2241 and the second one at 1.2206.

Entry Price = 1.2276
Stop Loss = 1.2311
1st Profit = 1.2241
2nd Profit = 1.2206

Sources: (As written on BTInvest, 08 December 2014.)

 

Note: The information in this article has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This article is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this information.

Forex News – Aussie Slumps Toward Record Nine-Day Losing Streak as Yen Gains

Australia’s dollar weakened for a ninth day and New Zealand’s fell for a third as a slide in commodity prices damped the outlook for nations that rely on sales of raw materials.

 

The yen strengthened versus all except one of its 16 major counterparts as a decline in Asian stocks revived demand for the currency as a haven. The Aussie extended its daily losing streak to the longest since it was allowed to float freely in 1983 as a gauge of business sentiment fell to the lowest since last year’s election. China’s yuan weakened to a four-month low.

 

“The Aussie is leading losses in commodity currencies with oil declining as a slowdown in global economy reduces demand,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. “Gains in the greenback against its Australian peer are spreading to the dollar-yen cross rate as well.”

 

Australia’s dollar fell 0.7 percent to 82.33 U.S. cents as of 2:46 p.m. in Tokyo, having tumbled 3.7 percent during its nine-day decline. The Aussie earlier dropped to 82.24 cents, the weakest since June 2010. New Zealand’s currency slipped 0.3 percent to 76.27 cents.

 

The yen gained 0.4 percent to 120.22 per dollar after strengthening 0.6 percent yesterday. Japan’s currency advanced 0.4 percent to 148.11 per euro. The U.S. dollar was little changed at $1.2320 per euro.

 

Source: Bloomberg (09 Dec 2014)