USD - Dollar Moves on U.S. Housing Market Data
The Dollar recorded a volatile trading session on Tuesday after U.S. data showed that the construction of new houses increased by an unexpected 22%. In some cases in Dollar trading, this positive news went against the greenback, as many investors feel that the news indicates a bottoming out of the housing slump in America. The reason why this is so critical is because the roots of the current U.S. and global financial crisis lie in the U.S. housing bubble, which burst after over 10 years of bullishness. These positive figures also led to a rally on Wall Street.
The Dow Jones climbed by nearly 180 points or 2.5%. The main gainers on Wall Street were housing and banking stocks. For example, J P Morgan, Citigroup, and Bank of America shares increased due to recent figures showing that all 3 companies were profitable in the first 2 months of this year. This led to the Dollar's failure to gain a strong bullish momentum against the EUR yesterday. This was due to the possibility that the beginning of the end of the current financial crisis in the U.S. has arrived. Therefore, demand for the greenback has started to sway, as demand for safe-haven currencies diminishes when economic times are good.
The Dollar fell against the EUR to eventually close down 42 pips at the 1.3046 rate. The Dollar closed up 14 pips against the JPY at 98.44, as the JPY also lost some of its safe-haven status, as the Japanese economy continues to deteriorate. The Dollar made more inroads against the GBP to close up 81 pips at 1.4041. This comes about as investors preferred to keep their money in the Dollar over the fragile Pound, which is dependent on the unstable British banking industry and energy sector.
Looking ahead to today, there is likely to be high volatility in the Dollar's currency crosses. This is so, as traders weigh-up on what's next for the U.S. economy. Traders are advised to follow the U.S. Current Account figures at 12:30 GMT, the Federal Open Market Committee (FOMC) Statement and the Federal Funds Rate at 18:15 GMT. Positive economic figures and an increase, or unchanged U.S. Interest Rate may lead to a rally on Wall Street, leading to a bearish Dollar in trading later on today as investors eye risk taking.
EUR - EUR Climbs Against Dollar
The EUR climbed against the Dollar on positive Euro-Zone figures, and a rally on Wall Street. German ZEW Economic Sentiment was better than expected at -3.5. The Euro-Zone recorded better-than-expected ZEW Economic Sentiment figures of -6.5 too. Both of these data releases helped push the EUR up against its other major currency pairs. Later on, this was helped when the U.S. released better-than-expected figures showing that construction of new houses was up 22% in February from January. This led to a rally on Wall Street, and a bullish demand in predominantly housing and banking stocks.
The rally on Wall Street helped in the drop in demand for the safe-haven U.S. Dollar vs. the EUR. Therefore, the EUR finally closed up 42 pips against the Dollar at 1.3046. The EUR also closed up against the Yen by 58 pips at 128.44. This comes about as the JPY loses some of it safe-haven status, and the EUR returns to the forefront. The EUR finished yesterday's session up by 82 pips against the Pound at 0.9288. This came about ahead of today's British Claimant Count Change at 09:30 GMT that is expected to show poor figures, as Britain's economy continues to deteriorate.
Today, there is plenty of news that is expected from Britain and the Euro-Zone, which is likely to affect the main currency crosses pairs of these respective currencies. However, 2 of the most important data releases will be coming out of Britain later today. At 09:30 GMT, there is the release of the Monetary Policy Committee (MPC) meeting from the Bank of England (BoE) in regard to future rate cuts. Additionally, at the same time there is the release of the British Unemployment Rate figures. These 2 data release may help determine the GBP's currency crosses going into end-of-week trading.
JPY - JPY Tumbles on Japanese Banking Plan
The JPY tumbled on Tuesday against most of its main currency counterparts on renewed plans for a Japanese banking stimulus and U.S. housing data. Firstly, U.S. housing data showed better-than-expected results. This led to a drop in demand for safe-haven currencies, such as the JPY and USD. Additionally, forex traders are dissuaded on putting big sums of money in the Japanese currency as Japan's economy is scheduled to shrink by 13.1% this quarter. The Bank of Japan (BoJ) concludes their 2 day meeting later today, and it is expected that they are going to unveil an aggressive plan to tackle the Japanese recession. This is in coordination with Japan's government, which is scheduled to push through the 3rd stimulus through Japan's parliament of over $2 billion for Japan's banks.
The leaks from the BoJ yesterday that it will continue lending large amounts of money to banks led to a rally in Japan's stock market. This was also spurred by the stock market rally on Wall Street. These events led to a higher risk appetite in Japan, and therefore a bearish Yen. The Yen closed down 14 pips against the USD at 98.44. This is significant, considering both currencies are safe-haven and usually show little volatility when trading against each other. The JPY rose against the Pound, as traders preferred the Japanese currency over the unstable British economy. However, against the EUR, the JPY closed down about 60 pips at 128.44. Today, Traders are advised to make their trading decisions in regards to the Yen on the conclusion of the BOJ Press Conference.
Crude Oil - Crude Oil Hits $50 Mark
Crude Oil prices jumped a staggering $2 yesterday, hitting $50.55 a barrel, before closing at the $49.45 price level. This was owed to the good news coming out of the U.S. that the construction of new houses was up a better-than-expected 22% in February from a month earlier. This signaled to investors that the worst of the U.S. housing crash and recession was over, and that a recovery is in sight. Automatically, investors took advantage of this, leading to the bullish Crude prices.
The dramatic increase in Oil prices comes on the back of an OPEC meeting last Sunday, which was pessimistic about a global economic recovery. Ministers concluded at this meeting that they will delay any further supply cuts in Oil. In the coming days, Oil may climb further if the U.S. releases more positive economic data releases. Additionally, if the Crude Oil Inventories figures at 14:30 match forecasts or are better-than-expected, then Crude prices may hit $54 by the end of today's trading.
Article Source - U.S Interest Rate Announcement on Tap
Key Overnight Developments
• Australia Likely in Recession, Says Westpac
• Bank of Japan Keeps Rates Unchanged at 0.10%
• US Dollar Extends Losses as Risk Appetite Improves
The Euro extended gains in overnight trading, testing as high as 1.3055 against the US Dollar as risk appetite continued to improve. The British Pound traded sideways, consolidating at support above 1.4030.
Asia Session Highlights
Australia’s Westpac Leading Index fell -0.2% to a reference reading of 252.1 in January, the sixth consecutive month in negative territory. The annual pace of decline is -3.1%. According to Matthew Hassan, a senior economist at Westpac, “The leading index is now in deeply negative territory consistent with contracting economic activity.” The index has fallen to current levels only four times since record-keeping began 49 years ago and every instance preceded a significant recession. Australia’s GDP unexpectedly shrank -0.5% in the fourth quarter, the first negative print in 8 years, with a recession confirmed should the economy contract again in the three months to March. Minutes from the last policy meeting of the Reserve Bank of Australia said the central bank has “flexibility” to cut interest rates further, with overnight index swaps pricing in 75-100 basis points in easing over the next 12 months.
The Bank of Japan voted unanimously to keep interest rates at 0.10% as expected. Policymakers said they will begin buying bonds of maturities up to 10 years to lower long-term borrowing costs and promote lending. The bank reiterated that the economy has “deteriorated significantly” and cautioned that although they currently expect recovery late into the 2009 fiscal year, the outlook is highly uncertain. Japan’s current fiscal year ends March 31, 2010.
The US Dollar ended the session lower as risky appetite improved, pushing the MSCI Asia Pacific Stock index higher for the fourth consecutive day. Investors were encouraged after US economic data topped forecasts having viewed America’s economic health as synonymous with that of the world at large on expectations that a rebound in the world’s largest consumer market will have positive spillover elsewhere.
Euro Session: What to Expect
UK economic data tops the docket in European hours. The labor market is set to show continued weakness, with Jobless Claims rising by the most since March 1991. The Claimant Count Rate (the timeliest measure of unemployment) is set to rise to 4.0% in February, the highest in 9 years, while the ILO Unemployment Rate increases to an annual pace of 6.5% in the three months to January, the highest in 12 years. Job losses can be expected to translate into sluggish spending to weigh on economic growth, deepening the current downturn. Indeed, the International Monetary Fund has predicted that this time around the UK will see the worst recession of the G7 nations.
Against this backdrop, the Bank of England will release the minutes from the last policy meeting where Mervyn King and company suggested that the bank was done cutting rates and would now focus on quantitative easing. Indeed, the Monetary Policy Committee pledged to buy 75 billion pounds in assets, specifying that purchases of “medium- and long-maturity conventional gilts” will make up the “majority” of purchases over the next three months. This implies an active policy to drive down medium and long-term interest rates, signaling downward pressure on the British Pound in the months ahead.
Early data suggests Switzerland’s Retail Sales may reverse lower in January after December’s rebound to 3.6% as the UBS Consumption Indicator holds at the worst readings in 4 years. We had expected December’s uptick, noting that the SECO measure of consumer confidence rebounded from record lows as inflation came to a near-standstill, boosting Swiss consumers’ purchasing power. Looking ahead, the underlying fundamental environment is hardly supportive of continued strength. Unemployment has risen to 3.4%, the highest in over 2 years, and will weigh on disposable incomes as well as prompt precautionary saving. Further, the fallout in price growth will work against consumption if inflation expectations turn negative, encouraging consumers to perpetually delay purchases to get the best possible deal and putting the brakes on spending altogether. Indeed, the government said yesterday that it expects consumer prices to fall -0.2% through 2009. The prospect of deflation has seen the Swiss National Bank adopt the most aggressive posture of any major central bank: policymakers cut interest rates to 0.25%, announced quantitative easing, and said they were prepared to intervene in forex markets to prevent appreciation of the Swiss Franc.
Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Stands Still as Traders Brace for Bank of England Minutes (Euro Open)
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The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
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