Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Jun 19 09 03:43 GMT |

EUR/USD closed lower on Thursday ending a two-day short covering bounce off Tuesday's low. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices is possible near-term. If it renews this week's decline, the reaction low crossing is the next downside target. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted. USD/JPY posted an inside day with a lower close on Thursday as it consolidated some of this week's rally as the dollar extended its gain. The low-range close sets the stage for a steady to lower opening on Friday. Despite today's setback, stochastics and the RSI remain bullish signalling that sideways to higher prices are possible near-term. If it extends this week's rally, the reaction high crossing is the next upside target. Closes below the 10-day moving average crossing would temper the near-term friendly outlook in the market. GBP/USD closed lower due to profit taking on Thursday as it consolidates above the 20-day moving average crossing. The mid-range close sets the stage for a steady opening on Friday. Stochastics and the RSI are neutral to bearish hinting that sideways to lower prices are possible near-term. Closes below the reaction low crossing are needed to confirm that a short-term top has been posted. If it renews the rally off April's low, the 62% retracement level of the 2008-2009 decline crossing is the next upside target. USD/CHF posted an inside day with a lower close on Thursday ending a two-day short covering bounce as the dollar extended its gain. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices are possible near-term. Closes below the reaction low crossing are needed to confirm that a short-term top has been posted. Closes above the reaction high crossing would confirm that a short-term low has been posted. HY Markets http://www.hymarkets.com

Read more...

Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 19 09 01:31 GMT |

News And Views Data surprises. US data from the Philadelphia Fed and the leading index positively surprised the markets, the S&P500 jumping at the open, and closing up 0.8%. Commodities remained unstirred, however, the CRB index -0.1% on the day. US 10yr treasuries clearly responded, rising 16bp to 3.84%, a record supply next week also contributing. The US dollar, which had been stuck in a 0.5% sideways range during the London session, lurched upwards a couple of hours ago to be +0.5% on the day. It seems a move by the British Bankers Association to expand the Libor fixing panel was behind the lurch, the reasoning being the new panel members are expected to be of lower credit quality, which would raise the Libor fixing rate; the market responded by pushing swap rates higher, in turn supporting the dollar. EUR was contained in a sideways 1.3900 to 1.4000 range before the Libor news, falling to 1.3870 and settling just below 1.3900. GBP saw a volatile range, falling from 1.6460 to 1.6190 during the London morning after a disappointing retail sales report, before recovering to 1.6340. The CHF weakened against the USD from 1.0760 to 1.0900 after the Swiss central bank intervened verbally and supposedly via buying EUR/ CHF. The Canadian central bank repeated its pledge to hold rates until June 2010, and said the CAD was being closely watched, with no obvious effect on the currency. AUD ranged between 0.7925 and 0.8005 until the London afternoon, when it broke higher to 0.8050, settling at around 0.8000. NZD was similarly subdued until an afternoon breakout to 0.6445, settling at 0.6400. AUD/NZD continued its week-long grind lower, to a 1.2480 to 1.2540 range. US Philly Fed jumps to -2.2 in June. The Philly Fed factory survey jumped 20 points this month, and although the headline remained slightly negative, in the detail shipments turned slightly positive. Orders also posted a dramatic improvement although jobs were only marginally less weak. Whilst an undeniably up-beat report, we would note that the NY Fed survey did exactly this a month ago in May, before slipping back in June. Also, the last time the Philly Fed jumped 20+ points was in September last year; in October 2008 it fell 40 points (in the aftermath of the Lehman's collapse). US leading index posted back to back rises of over 1.0% in April-May. Going back 40 years, we cannot find a stronger two month performance. The May gains were driven mainly by the supplier deliveries, interest rate spread, equities, money supply and consumer expectations components. Coupled with the Philly Fed survey, this result has reignited talk of US economic recovery. US initial jobless claims hovered just above 600k for the second week running last week, but the real news was that in the prior week, continuing claims fell a sizeable 148k, their first decline since January this year. Clarification - continuing claims have on occasion fallen this year, but the decline has subsequently been revised away. So before we add this result to the growing swag of evidence pointing to less deterioration in the labour market, we will need to wait for next week's figures at the very least. UK retail sales down 0.6% in May, pay-back for apparent April strength which was due to distortions caused by the timing of Easter and warm weather. May's annual pace of retail volume decline matches February's low point, and those two months represent the slowest annual sales pace since 1992. Also, the June CBI industrial survey only posted the mildest of improvements. Along with huge public sector borrowing numbers in May and deceleration in money supply growth, this added to the weak tone of the UK data. Canadian headline CPI dipped to just 0.1% yr in May, its lowest since 1994. However there was some upward on the core rate. As last year's late cycle gasoline price rises drop out of the annual calculation, and this year's CAD appreciation impacts on prices, the CPI should continue to moderate. Outlook The NZD's short term strength could take it to 0.6470 today, which doesn't damage our medium-term view of a multi-month decline to around 0.5500. US markets tonight could be volatile, given the quadruple witching day, where several important futures and options contracts expire simultaneously. Next week's data calendar is busy, including a number of heavyweight releases such as GDP and the current account, and increased volatility in the NZD is likely. Events Today Date Country Release Last Forecast 19-Jun Jpn Bank of Japan Minutes (May) Ger May Producer Prices %yr –2.7% –3.0% Can Apr Retail Sales 0.30% 0.10% 22-Jun NZ May External Migration 9,100 9,800 May Credit Card Transactions 2.3% – Aus May New Motor Vehicle Sales 0.9% – Jpn Q2 BSI Large Manufacturing –66.0 – Apr Tertiary Industry Index –4.0% 2.30% Ger Jun IFO Business Climate 84.2 85 UK Jun Rightmove House Prices %yr –6.2% – Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

Read more...

BOJ Members Said Exit Policy Up to Markets, Economy

By Mayumi Otsuma

June 19 (Bloomberg) -- The Bank of Japan should consider whether to stop pumping extra cash into the banking system by evaluating trends in corporate financing and the economy, some policy board members said last month.

They said whether to keep buying corporate debt from banks and providing them with unlimited loans after Sept. 30 “should be determined based on close examination of developments in financial markets and corporate financing,” according to minutes of their May 20-21 meeting published in Tokyo today.

Governor Masaaki Shirakawa said this week that the central bank will decide how to deal with the measures “by the end of September in a predictable manner to market participants.” The Bank of Japan said this week that the country’s worst postwar recession is easing as fiscal stimulus measures worldwide spur demand and companies increase production.

“The governor explicitly indicated the bank will let financial markets know in advance should it decide to make any changes to the policy measures,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “The bank probably wants to allow investors to incorporate policy changes sufficiently beforehand.”

The yen traded at 96.68 per dollar at 9:55 a.m. in Tokyo from 96.66 before the minutes were published.

At the May meeting, the policy board raised its assessment of the economy for the first time since 2006. It lifted the evaluation again this week, saying the economy has “begun to stop worsening.” Still, Shirakawa said he is “cautious” about the rebound because renewed demand may only be temporary.

‘Lose Steam’

“Japan’s economy will probably return to growth this quarter and achieve a pretty solid expansion next quarter,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. “However, the rebound will lose steam next year, when the stimulus effect evaporates. It may well become the shortest recovery since the end of World War II.”

One board member said the central bank needs to pay attention to the risk that bond yields will rise because the government plans to issue more debt. Higher bond yields drive up borrowing costs on mortgages and loans.

The yield on Japan’s 10-year bond rose to 1.47 percent at 9:55 a.m. today after touching 1.44 percent yesterday, the lowest since May 26.

Some members said there’s a risk that companies and households will expect prices to fall as demand slackens. A Cabinet Office official who attended the meeting also alluded to the risk that deflationary expectations may take hold.

Falling Prices

Consumer prices excluding fresh food declined in March and April, and the central bank expects them to keep falling next fiscal year.

At the same time, some members said the bank should watch the risk that commodity prices will increase, stifling the economy’s revival by increasing costs for companies and consumers. Crude oil has risen 20 percent in the past month.

Since lowering the overnight lending rate to 0.1 percent in December, the central bank began buying commercial paper and corporate bonds from lenders. It has also offered to lend to commercial banks limitlessly in exchange for sufficient collateral. The programs expire on Sept. 30.

A weak recovery will probably compel the bank to keep rates on hold until 2012 at the earliest, Nishioka added.

Finance ministers from the Group of Eight nations said over the weekend that they need to begin considering how to roll back policies to counter the financial crisis as their economies show signs of improvement.

Ending Policies

Atsushi Mizuno, a Bank of Japan board member, last month said central banks need to start discussing how to end their unconventional policies even though the global economy is still in a slump.

BOJ policy makers forecast the world’s second-largest economy will return to growth in the year starting next April after contracting for two years.

Gross domestic product will shrink 3.1 percent in the year ending March and expand 1.2 percent in the following 12 months, the central bank said in its twice-yearly outlook on April 30. Policy makers will review the forecasts next month.

One board member said the central bank’s decision in May to start accepting sovereign bonds from the U.S., the U.K., France and Germany should become a permanent measure.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Read more...

BBA May Increase Number of Banks in Daily Setting of Libor

By Shannon D. Harrington and Liz Capo McCormick

June 19 (Bloomberg) -- The British Bankers’ Association may expand the pool of banks that set the London interbank offered rate in a bid to bolster confidence in the benchmark for more than $360 trillion of financial products around the world.

Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor-setting process, the BBA said yesterday. Banks will have to be “material participants” in the London market, said the BBA, which a year ago said it would look to expand the panel of contributors and possibly add a second daily survey.

The London-based BBA began a review of the 25-year-old system for setting Libor rates last year amid speculation that some banks may have understated their funding costs to avoid being seen as having difficulty raising financing amid a seizure in the credit markets. The rates banks say they pay for three- month dollar-denominated loans fell to 0.61 percent yesterday, from 4.82 percent on Oct. 10.

“Longer-term this change should create more depth and credibility to Libor,” said George Goncalves, chief fixed- income rates strategist at Cantor Fitzgerald LP, one of 17 primary dealers that trade with the Federal Reserve. “More people will trust it. Shorter-term it creates uncertainty in the process and that is what feeds into more volatility, and possibly an uptick in Libor.”

Gaining Attention

Libor, a benchmark rate for everything from mortgages to corporate borrowing costs, gained attention in August 2007 as losses from subprime-contaminated securities made banks wary of lending to each other.

Investors said they were convinced institutions were reporting incorrect Libor figures to keep from appearing that they were in difficulties. The BBA threatened to ban members that deliberately understated rates before beginning a consultation process to discuss improvements.

“The more names you add to the survey the more you dampen the volatility of the results and that’s a good thing,” said Chris Ahrens, Stamford, Connecticut-based head of interest-rate strategy at primary dealer UBS Securities LLC. “But we need to see” which banks join the survey, he said.

The BBA, which isn’t regulated, asks member banks once a day how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. It then calculates averages and publishes them before noon in London. Sixteen banks contribute to the dollar setting, three of which are U.S.-based.

BBA Clarification

“This clarification will not affect the way in which current contributors formulate their rate submissions,” Brian Mairs, a spokesman for the BBA in London, said by e-mail. “It may allow banks that participate in the London markets, whose eligibility for inclusion in the fixing was not previously clear, to apply to join the panels.”

The BBA has “no expectation of the numbers of banks who might apply,” Mairs said. The BBA said it will make a further statement today, he said.

“Most of the banks that are in the panel would tell you that right now it’s not necessarily worth the trouble,” said Carl Lantz, an interest-rate strategist in New York at primary dealer Credit Suisse Securities LLC. “It just brings scrutiny on you. If you put in a high fixing people are saying you’re having problems. If you put in a low fixing people are saying that you’re trying to distort the fixing.”

The BBA first said in June 2008 that it may increase the number of banks that set the rates and was considering the addition of a second daily survey to reflect U.S. trading. London-based ICAP Plc, the biggest broker of transactions between lenders, introduced a new measure of U.S. bank rates last year as an alternative to Libor.

“One can always argue that you’ll get a better fix if you have a larger sample of relative players in the market,” said Laurence Meyer, vice-chairman of Macroeconomic Advisers LLC and a former Fed governor. “There was the somewhat discrediting of Libor earlier and some even suggested that we get a New York sample. This sort of pre-empts something like that.”

To contact the reporters on this story: Shannon Harrington in New York at sharrington6@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net.

Read more...

Yen Falls as Signs Global Slump Easing Spurs Demand for Yield

By Yoshiaki Nohara and Ye Xie

June 19 (Bloomberg) -- The yen fell versus the Australian and New Zealand dollars for a second day as signs the global recession is easing spurred demand for higher-yielding assets.

Japan’s currency fell against all 16 major currencies after the Federal Reserve Bank of Philadelphia’s general economic index climbed yesterday to minus 2.2 from minus 22.6 in May, signaling the U.S. recession is bottoming out. The Conference Board’s index of U.S. leading economic indicators also rose more than forecast in May for the second straight month.

“We have seen some encouraging news about the global economy in the last 24 hours,” said Danica Hampton, a currency strategist in Wellington at Bank of New Zealand Ltd., the nation’s third-largest bank. “There’s been some relatively promising data out of the U.S. This is helping underpin growth to currencies like Japanese crosses.”

The yen fell to 61.69 against the New Zealand dollar as of 8:36 a.m. in Tokyo, from 61.56 yen yesterday in New York. The Australian dollar climbed to 77.22 yen from 77.02 yen. Japan’s currency traded at 96.58 per U.S. dollar from 96.47. It fell to 134.30 per euro from 134.17, declining for a third day.

The U.S. dollar rose versus the euro yesterday for the first time in three days after the British Bankers’ Association said it may allow more institutions to take part in the daily survey that sets the London interbank offered rate, the benchmark for more than $360 trillion of financial products around the world. Investors also abandoned bets that the euro would appreciate further after the common European currency failed to strengthen beyond $1.40.

Higher Libor?

“It would be a wider group of banks, so some ‘weaker’ ones who would submit higher rates, thus Libor would aggregate higher,” said Scott Ainsbury, a portfolio manager at New York- based FX Concepts Inc., the world’s largest currency hedge fund with about $12 billion in assets. “The market really has no conviction either way. So people are easy to get squeezed out.”

The dollar traded at $1.3906 per euro from $1.3900. It touched $1.4001 yesterday.

The Swiss franc weakened versus the euro yesterday on speculation the country’s central bank may sell the currency as it approaches the strongest level since March.

The franc slid 0.3 percent to 1.5103 per euro yesterday after rising as much as 0.3 percent to 1.5008. The currency hasn’t reached 1.50 since March 12, when the Swiss National Bank intervened. The SNB and the Basel-based Bank for International Settlements declined to comment on the currency’s turnaround.

Yield Differentials

Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor-setting process, the BBA said yesterday. The BBA threatened in April 16 to ban members that deliberately understated rates before beginning a consultation process to discuss improvements.

“We think it’s the knock-on from the BBA report that’s boosting the dollar,” wrote Benedikt Germanier, a currency strategist in Stamford, Connecticut, at UBS AG, in a research note to clients yesterday. “The simple way to look at it is from a perspective of interest rate differentials moving in favor of the dollar.”

The yield advantage of two-year German bunds over the same- maturity U.S. note narrowed to 0.27 percentage point yesterday, the least since March.

“There is some focus on rising U.S. rates across the curve, and that is lifting the dollar,” aid Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-biggest bank.

Treasuries fell yesterday, pushing yields higher, as reports showed the deepest recession in 50 years may be ending and the U.S. said note sales will increase to a record $104 billion next week. Yields on two-year notes increased 0.09 percentage point to 1.25 percent yesterday.

A “very large” euro sell-order hit the market immediately following the BBA news, said Greg Salvaggio, vice president of capital markets at currency-trading firm Tempus Consulting Inc. in Washington.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

Read more...

Japan Stocks Rebound on U.S. Economy, Weaker Yen; Shippers Rise

By Masaki Kondo and Kotaro Tsunetomi

June 19 (Bloomberg) -- Japanese stocks rose, trimming a weekly slump, as U.S. economic reports indicated a recession in the world’s biggest economy is easing, helping drive gains in the dollar.

Canon Inc., which gets a third of its sales from the Americas, jumped 2.9 percent as the yen weakened versus the dollar. Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., Japan’s second- and third-biggest shipping lines, rose at least 3 percent after Morgan Stanley raised their ratings. Sumitomo Realty & Development Co. led property stocks higher after Merrill Lynch & Co. boosted share prices estimates on the sector’s three-largest companies.

The Nikkei 225 Stock Average climbed 107.33, or 1.1 percent, to 9,811.05 as of 9:38 a.m. in Tokyo. The broader Topix index rose 11.95, or 1.3 percent, to 923.16.

“The yen’s depreciation will likely give a boost to exporters,” said Juichi Wako, a senior strategist at Tokyo- based Nomura Holdings Inc.

The Nikkei has lost 4.3 percent in the past four days and is poised for the steepest weekly drop since March 6. Companies on the gauge trade at 44.5 times estimated net income, compared with 15.5 times for the Standard & Poor’s 500 Index and 12.8 times for Europe’s Dow Jones Stoxx 600 Index.

In New York, the S&P 500 Index climbed 0.8 percent, breaking a three-day losing streak. The number of Americans collecting unemployment insurance dropped in the week to June 6 by the most since November 2001, the Labor Department said yesterday. The Conference Board, a New York-based non-profit organization, said its leading economic index rose 1.2 percent last month, exceeding the 1 percent gain estimated by economists.

Weaker Yen

The Japanese currency depreciated versus the dollar to as much as 96.73 today from 95.88 at the close of stock trading in Tokyo yesterday. A weaker yen boosts the value of overseas sales at Japanese companies.

Canon leapt 2.9 percent to 3,190 yen, breaking a four-day slide. Sony Corp., an electronics maker that gets a quarter of its sales from the U.S., added 2.6 percent to 2,540 yen.

Kawasaki Kisen jumped 4.4 percent to 431 yen, and Mitsui O.S.K. added 3 percent to 660 yen. Morgan Stanley raised Kawasaki Kisen to “equal weight” and Mitsui O.S.K. to “overweight.”

Sumitomo Realty, Japan’s third-biggest property company, jumped 4.1 percent to 1,771 yen, while bigger rival Mitsubishi Estate Co. climbed 4.3 percent to 1,640 yen. Mitsui Fudosan Co. advanced 3.6 percent to 1,684 yen. Merrill Lynch lifted its estimated share prices for the developers by at least 17 percent.

Nikkei futures expiring in September added 0.8 percent to 9,810 in Osaka and Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

Read more...

Stock Futures Discount Lowest Since ‘07 as Credit Freeze Fades

By Alexis Xydias

June 19 (Bloomberg) -- Futures traders are demanding the smallest discounts to speculate on European stocks since June 2007 as equities rally and financial markets recover from last year’s credit seizure.

Markdowns that traders require to exchange the current Dow Jones Euro Stoxx 50 Index futures contract, which expires today, for one that matures in three months was 2.63 index points as of June 17, according to estimates by Frankfurt-based Deutsche Bank AG. The discount averaged 8 points in the two weeks leading up to the December expiration, the widest difference since the data began in March 2006.

The narrowing gap for the so-called rollover shows traders are growing less concerned about financial markets freezing again, like they did when Lehman Brothers Holdings Inc. collapsed in September. It also suggests that investors are growing less pessimistic about stocks in the benchmark index for the euro region’s biggest companies.

“The last remnants of the panic are vanishing,” said Gunnar Stangl, the head of portfolio strategy at Commerzbank AG in Frankfurt. “A normally operating futures market is yet another sign confirming that the panic is over.”

Rollover discounts compare the spread between the market values of current and approaching futures contracts and their so-called theoretical fair values.

The contract on the Euro Stoxx 50 that expires in September traded at 2,406 at 10:48 p.m. in Frankfurt yesterday, compared with its 2,410.95 theoretical value, which takes into account the index price, expected dividend payments, days to expiration and interest rates. The contract that expires today traded at 2,412 compared with a fair value of 2,414.52.

Futures Trading

Futures trading plunged as the Euro Stoxx 50 tumbled from its bull-market high on July 16, 2007, until March 9 of this year and wiped out almost 1.6 trillion euros ($2.2 trillion) in market value. The volume of Euro Stoxx 50 futures fell 63 percent in January from a year earlier to 607 billion euros, the steepest decline this decade, according to data from Frankfurt- based Eurex. In March, open interest had the biggest drop in at least six years, tumbling 40 percent to a four-year low of 48.2 billion euros, the data show.

There are currently 2.8 million Euro Stoxx 50 futures traded on Eurex, Europe’s largest derivatives exchange, with a notional value of 68 billion euros of shares, according to the exchange’s Web site.

Diminishing Discounts

Futures discounts are diminishing along with the cost of borrowing in dollars between banks and the price of protecting European corporate debt from default.

The Libor-OIS spread, a measure of the willingness of banks to lend to each other, has dropped to 37 basis points from 87 before New York-based Lehman’s collapse, the biggest bankruptcy in history. Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings slid as low as 101.75 basis points this month, compared with 102 on Sept. 12, according to CMA DataVision.

The Euro Stoxx 50 is still down 26 percent since the day before the Lehman debacle, even after a three-month, 33 percent rebound. The VStoxx Index, which measures the cost of using options as insurance against declines in the index, has dropped to 32.44 from a record 87.51 in October.

“Seeing Euro Stoxx 50 roll costs revert closer towards a longer-term average is somewhat of a representation of an overall normalization of the market, which would be in line with the decline in volatility and the rebound in equities we had in the last three months.” Pamela Finelli, an equity derivatives strategist at Deutsche Bank in London, said in an interview.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

Read more...