Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Tuesday September 6 2011

US traders will return from their Labor Day holiday to find the state of markets in turmoil. A combination of the euro zone debt crisis and the slowing of the global economy are pressuring risky assets. With the US stock markets closed on Monday the S&P 500 looks to gap significantly lower upon Tuesday’s opening bell. As noted in yesterday’s daily analysis, US investors will be looking to both the President and the Fed for policy responses to stop the bleeding.

President Obama will speak on Thursday and will provide support with a fiscal response, most likely proposing an extension of the payroll savings tax cut, prolonged unemployment benefits, and a program to support employment with infrastructure development. The wild card remains the monetary policy response from the Fed. Economists continue to debate the merits of rolling the Fed’s short term debt it holds on its balance sheet into longer term Treasuries. Barring any significant fallout in the equity markets, QE3 remains relevant, just not for the September Fed meeting.

US data will be released today with the ISM services PMI due out at 14:00 GMT. The survey is expected to show continued weakness in the services sector though forecasts keep the data well above the 50 boom/bust level. The survey will be watched closely as it is considered a leading indicator in contrast to last week’s non-farm payrolls report which is a lagging indicator.

Prior to the European open the EUR/USD has made a push below the 1.4050 support level. Market positioning is directionless according to the most recent CFTC data.The next support for the EUR/USD is found at the 200-day moving average at 1.4010. However, the real test will be the long term trend line from May 2010 which comes in at 1.3975.

European equities were hit on Monday though one has to point out the light volumes due to the Labor Day holiday in the US. Nevertheless, the German DAX finished the day down by a whopping -5.28% and the London FTSE 100 was lower by -3.58%. French banks were hit hard as US money markets continue to pull their funding.

A rumour of an Italian ratings downgrade was also spreading and the source appears to be the Société Générale Rates Strategy team who noted the possibility in their daily note on Monday morning. Comments from Mario Draghi, the Italian who is set to take over the helm of the ECB on October 31st was quoted in the wires as saying the ECB buying of Italian bonds is temporary and is not a substitute for fundamental budgetary discipline. Italian 10-year bond yields are up to 5.58%, above the 5% yield the ECB has tried to maintain. The Italian parliament is attempting to pass budget reforms with an aim to balance the budget by 2013 with EUR 14 bn in cuts and an additional EUR 6 bn in new taxes.

Greek bond yields continue to come under pressure with the 2-year rising to a record 50.37%. The Greek 5-year CDS also stands at a record 2493 bp. A default of Greece is at risk once again which could bring about additional pressure on the EUR and European equities.

The EUR/CHF is trading back near the 1.10 level after almost touching 1.20, a truly a remarkable move. The SNB risks losing both its hard fought gains in the pair as well as the central bank’s credibility should the SNB not step into the market to stop the appreciation of the CHF.

The RBA agreed to hold its benchmark rate steady at 4.75% in light of the increasing risks to the European and US economies. Uncertainty in the global economy may only be temporary and the RBA maintained hawkish tone as inflation remains elevated and economic growth continues to increase due to higher commodity prices. On Monday company operating profits in Q2 rose 6.7% compared to a -2.2% decline in Q1.

On the other hand it appears the RBA is weighing heavily the global economic situation versus its own sovereign factors. The RBA may be leaving the door open to a holding period should the economies of Europe and the US continue to underperform.

The downturn in risk sentiment has left the AUD susceptible and the AUD/USD has sold off since Thursday’s high of 1.0763. Support for the pair stands at the mid-August low of 1.0315. As mentioned in yesterday’s daily analysis, traders should keep eyeing the AUD/NZD as the pair is encroaching on the neckline from a bullish head and shoulders pattern.

Spot gold prices climbed to a new record high this morning as risk sentiment hit the wall following yesterday’s European equity losses. Risky assets were down across the board with higher yielding currencies and commodities all taking a hit. Traders have been eager to move into gold as systematic threats continue to plague the euro zone and the possibility of an additional round of monetary policy easing has kept traders from moving into the USD as typically occurs during periods of low risk sentiment.

The price of gold has recovered all of its losses from late August following the raising of margin requirements in a number of international exchanges. With the rebound in the price to a new all-time high this leaves the big round number of $2,000 as the next potential resistance. To the downside the August 25th low of $1,702.50 will serve as support.

Jovi Overo

 

 

Beta Forex News, Jovi Overo Beta 2 Ltd, Monday September 5 2011

The disappointing data from the US economy continues to roll in. Friday’s NFP report showed the US failed to add new jobs in the month of August. Average hourly earnings fell to -0.1% from a gain of 0.5% which takes a bit of the bite out of last week’s strong personal spending data. The number of aggregate hours worked also declined.

In contrast to Europe the US economy is stalling but not contacting. This will likely bring policy responses from both the fiscal side as well as the monetary policy side. With pressure from Republicans, President Obama has moved his economic speech to September 7th where the ideas being kicked around range from extending US unemployment benefits, an extension of the payroll tax break, and a potential jobs program that may fall short of such previous ambitious programs of the Works Progress Administration from the mid-1930s.

A monetary policy response may come from the2-day Fed meeting in September. The potential exists for the Fed to increase the length of maturities of the debt it holds on its balance sheet or perhaps a pledge to target inflation at a particular rate, similar to the Fed’s commitment to hold interest rates until mid-2013. Additional bond buying seems unlikely at this time given the uptick in US inflationary pressures.

After a stellar Q1 where the German economy grew by 1.5%, Q2 stands in stark contrast with growth sputtering to 0.1%. Expectations are not rising with euro zone manufacturing PMIs falling below the 50 boom/bust level in August. The French economy has also stalled with zero growth in Q2. Additional pressures are being felt in both Italy and Spain with PMIs falling to new lows.

Europe has been engulfed in a debt crisis and in contrast to the US will not allow for a fiscal policy response. The opposite approach has been taken to implement additional austerity measures in Italy and Spain which may intensify the stagnant growth just as the global economy begins to slow. The options for the ECB remain limited in its upcoming policy meeting. Last week Trichet hinted at a slowing of inflationary pressures and a reduced inflation forecast will likely be formally made on Thursday. It is unlikely the ECB will back away from its two interest rate increases earlier this year as to do this would be the admission of a failure to correctly implement monetary policy. Note that in 2008 the ECB continued to raise interest rates as the world crept towards the financial crisis, only to backtrack in light of the Lehman Brothers collapse.

Additional pressures are being felt in Greece. The Troika has packed up and left Athens early after failing to complete their review of Greece’s finances. The Greek government has admitted that GDP will likely contract further than expected and therefore the country will likely fail to reach its previously outlined budget deficit reductions. Greek 2-year yields have been trading at their highest levels prior to the July 21st agreement.

As such the EUR/USD has fallen from 1.45 to below 1.42 this morning in Asian trading. The pair has broken its rising trend line from the July low and is moving towards the 1.4100 level where the August 11th low coincides with the 61% Fib retracement from the July to August move. The EUR/USD could remain range bound unless the pair moves below the 1.4050 level. The EUR/CHF also looks vulnerable after closing the August 15th gap. The EUR/CHF dropped a dramatic 1000 pips in only a week.

The Reserve Bank of Australia will be meeting tomorrow and the forex trading blogs have been widely speculating of an impending RBA rate cut, similar to that of Turkey and Brazil. However, growth in Australia is not slowing as it is in other parts of the global economy. Retail sales continue to post strong returns and commodity prices remain well supported. The speculation of an RBA rate cut may be premature and could leave some upside potential for the Aussie dollar.

This morning the AUD/USD gapped lower and this level of 1.0625 followed by 1.0800 should serve as the first two resistance levels. To the downside, movement may be capped at 1.0310. The AUD/NZD is showing a bullish head and shoulders reversal pattern with the neckline providing resistance at 1.2750 with a measured move of roughly 400 pips.

Spot crude oil prices continue to struggle to maintain their gains. Last Friday’s disappointing NFP report did little to bolster expectations for increased global economic growth or demand for the commodity. Stagnant US unemployment continues to weigh on the US economic recovery but hopes of additional policy easing by the Fed may allow a test of the $90 resistance level. Support may be found at $84.50, $83.00, and $79.40.

Jovi Overo

Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Thursday August 18 2011

The US dollar (USD) was seen trading moderately lower at yesterday’s close after a day of mixed news from the global economy. Weak gains seen on the USD this week was offset yesterday after the Swiss National Bank (SNB) failed to halt the rising strength of the franc (CHF). So far, this action has pushed investors back into the value of the Swissie, sapping safe-haven appeal from the greenback.

Economic news over the last few weeks has pushed traders into a position of market pessimism; and trading yesterday behaved more so than many analysts had anticipated. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the remainder of August news to determine what the third quarter may bring.

With a very heavy news day expected from the US today, traders will want to be on guard against added volatility as today’s news may generate some swings in value. Following yesterday’s better-than-expected PPI growth figures, today’s data should help generate some volatility as investors assess CPI, manufacturing, and home sales. As the trend persists, any additional negativity in today’s news will likely spark heavier aversion from risk. Where the CHF stands in this fight could be the deciding factor in how much the USD gains as a result.

The Swiss franc (CHF) was seen trading with largely bullish results yesterday as traders moved away from riskier assets worldwide. The move came after the Swiss National Bank (SNB) delivered a dovish statement that failed to peg the currency to any regional neighbours, nor set a price floor on its skyrocketing value. Traders took cue from the SNB announcement and made a heavy push into the Swissie in yesterday’s early trading hours.

The largely bearish reports out of Europe yesterday have appeared to confirm many fears felt by traders who were anticipating a string of pessimism. Debt concerns remain a priority in the euro zone’s periphery, and the holiday season in Europe is generating significant uncertainty as European leaders take leave amid a tremendous crisis. Such moves are acting solely as a fuel to the fire lit beneath the CHF, assisting its meteoric rise.

On tap today, traders will witness the release of a less a string of news out of the United States, with zero data arriving from Switzerland or the euro zone. Many analysts are now looking to Germany to shore up much of the euro zone’s economic strength, with added responsibility falling to one of the few nations which has experienced very little economic distress. Should today’s reports show additional weakness in the US, there is a good chance traders will purchase more francs.

The Japanese yen (JPY) was given a boost yesterday, as market reports showed further flight to safety. Piling atop recent reports on Japan’s shrinking household spending figures, the publication of Japanese trade data has shown a decline in exports consistent with an overly strengthened yen. Despite a meeting between French and German ministers over economic cooperation, the Pacific

Nations appear to be rushing ahead with their bullish endeavours, contrary to market outlook among the European nations.

Japan’s economy has been much worse in its performance than it was expected to be just one month ago. Investors have been piling into the JPY en masse as its strength as a store of value gained appeal. As housing slumps, and as monetary adjustments take place in China and New Zealand, the Japanese and Swiss economies now finds themselves gaining the most from the blows coming down on Europe. Should this bombardment continue the JPY will likely remain in its current bullish channel.

Crude Oil prices fell mildly lower Wednesday as the downgrade of US debt by S&P last week pulled demand for oil significantly lower. Data releases out of Europe and the US last week are also driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

The impact has been a decline in oil values from over $100 a barrel a few weeks back to a current price near $85 a barrel. An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady, with gradual losses priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week’s end.

Jovi Overo

 

 

Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Wednesday August 10 2011

The value of the US dollar (USD) versus several of its safe haven counterparts, like the Swiss franc (CHF), plummeted nearly 5% on the day Tuesday, hitting historic lows for the third straight session. Statements released by the Federal Reserve yesterday sparked a wave of pessimism in trading circles as no clear plans were put forth to address the financial weakness seen since S&P’s historic downgrade of the US credit rating.

Though analysts view the downgrade as overall bearish for the USD, a sharp downturn was held in check Monday by financial moves elsewhere. Tuesday’s rate statement by the Fed, however, unleashed the bears on dollar values as the official position appears to have changed to one which will keep rates near zero through 2013. With no plans were put forth to renew market support, many fled to other stores of value, primarily among them was the Swissie.

The most significant news to hit the economic calendar today will be a release of the Federal Budget Balance, which is forecast to show a severe widening of the deficit. Should such an estimate bear fruit, USD values will likely continue to suffer. Statements from world leaders regarding the S&P downgrade, as well as financial turmoil in Europe over Italy and Spain will likely be released today and throughout the week, causing portfolio shifts that traders will want to be on guard against.

The Swiss franc (CHF) was seen trading with strongly bullish results yesterday following shifts away from the US dollar (USD) and euro (EUR) after both regions failed to produce an adequate response to the current crisis. Against the dollar, the Swissie was trading significantly higher by early morning hours Wednesday, climbing 5% since Tuesday. The euro witnessed similar losses as traders clamped down on regional investments due to heightened risk aversion.

Traders are looking for a way to balance a renewal of risk appetite with continued shakiness in global markets. A strongly pessimistic sentiment towards investing in the US dollar at the moment, due to the S&P downgrade, has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc make gains.

Sentiment across the region has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely push up on the CHF as investors flee risk. Going long on the Swissie may appear favourable this week so long as risk aversion dominates the global market outlook, but a rebound should be forming on the technical charts sometime in the near future.

The Australian dollar (AUD) was seen trading significantly lower versus most other currencies this morning after poor housing data drove the appeal of the Aussie even lower. Being linked to the value of commodities, the Aussie experienced an unexpected downturn during a period when shifts away from the US dollar should have helped drive its values higher. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets, which could explain this week’s unpredictable behaviour.

 

The latest moves have helped to push down on the AUD as traders pulled away from commodity-linked assets as a result of the plummeting Dow Jones index. Coupled with the pessimistic housing reports from last week, the Australian economy appears to be contracting this quarter, particularly in the housing sector. If that is indeed the case, the Aussie will likely continue to take losses this week despite a move away from the US dollar.

The price of Gold met resistance over the past week despite the plummeting strength of the US dollar, the currency in which such assets are valued. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from Italy and Spain and a recent downgrade of US debt by S&P’s ratings agency.

As investors seek safety, the value of gold, which has been seen trading with mixed results, was expected to rise, but a selloff in commodity futures pulled down on precious metals Wednesday morning. A sudden flop in dollar values due to this week’s uncertain environment is expected to do little to suppress this price movement. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value.

Jovi Overo

Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Monday August 8 2011

The US dollar (USD) was seen trading only mildly bearish Monday morning as traders began digesting what impact S&P’s historic downgrade of the US credit rating will have on financial markets. The downgrade from AAA to AA+ was seen as a response to political deadlock in Congress over the nation’s debt, and a view that both political parties were expressing unwillingness to compromise in order to effectively handle the nation’s financial crisis. Though analysts view the downgrade as overall bearish for the USD, a sharp downturn was held in check by a continued purchase of bonds by European investors. Another view states that although the rating may reduce the foreign purchase of Treasury notes over time, those investing in such assets have little alternative at the moment which could match the US bills’ implicit and explicit values. As for today, no significant news will hit the economic calendar officially, but emergency sessions of the G7 industrialized nations and central banks worldwide may generate wide shifts in today’s market, and possibly without warning. Statements from world leaders regarding the S&P downgrade, as well as financial turmoil in Europe over Italy and Spain will likely be released today and throughout the week, causing portfolio shifts that traders will want to be on guard against. The euro (EUR) was seen trading with mixed results this morning following news of a downgrade of US debt by S&P’s ratings agency. Against the US dollar (USD) the euro was trading somewhat bullish in early morning hours Monday as the greenback moved bearish against all currency rivals. The euro, however, does not appear in a position to capitalize on the gains being seen elsewhere. Traders are looking for a way to balance a renewal of risk appetite with continued shakiness in global markets. A weakly optimistic sentiment towards investing in the US dollar at the moment, due to the S&P downgrade, has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains. Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk, despite a moderate sentiment of euro favouring sentiment this morning due to the flight from the US dollar. The Australian dollar (AUD) was seen trading moderately lower versus most other currencies this morning after the S&P downgrade of US debt created a selloff in commodity futures. Being linked to the value of commodities, the Aussie experienced an unexpected downturn during a period when shifts away from the US dollar should have helped drive its values higher. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets, which could explain the erratic behaviour of this morning. The latest moves have helped to push down on the AUD as traders pulled away from commodity-linked assets as a result of the plummeting Dow Jones index. Data from this morning also showed job advertisements in Australia plummeting 0.7%. Coupled with pessimistic housing data last week, the Australian economy appears to be contracting this quarter. If that is indeed the case, the Aussie will likely continue to take losses this week despite a move away from the US dollar. The price of Gold met resistance over the past week despite the plummeting strength of the US dollar, the currency in which such assets are valued. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from Italy and Spain and a recent downgrade of US debt by S&P’s ratings agency. As investors seek safety, the value of gold, which has been seen trading with mixed results, was expected to rise, but a selloff in commodity futures pulled down on precious metals Monday morning. A sudden flop in dollar values due to this week’s uncertain environment is expected to do little to suppress this price movement. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value. Jovi Overo

Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Thursday July 7 2011

The news of China hiking rates has sent several traders into a risk averse mentality, helping to lift the value of the USD as riskier currencies like the EUR dipped in yesterday’s afternoon and evening sessions. Global growth concerns are coming to the fore with many viewing China’s third rate hike this year as a sign that getting inflation under control has topped their agenda.

The US dollar was seen increasing yesterday as traders began to seek shelter following China’s hawkish monetary policy adjustment. The EUR/USD was seen moving towards 1.4270 yesterday while the GBP/USD fell just below 1.60. A slump in a US manufacturing indicator yesterday also added to the risk averse assessment by most investors. Should Friday’s Non-Farm Payroll (NFP) data continue this trend of disappointment we may see the greenback making long strides against its currency rivals as traders flee risk.

Increased market volatility is on today’s forecast with a significant news day preceding Friday’s ever-pressing NFP release. Most significantly, the US economy will be publishing its ADP Non-Farm Employment Change data on the private sector. Should today’s news foreshadow a dismal employment outlook, there is a possibility that more investment will get pushed towards the safety of the greenback, driving USD values higher.

The euro (EUR) has been trading bearish these past several trading days on a recent downgrade of Portugal by Moody’s Investor Services and a general uneasiness about risk following a rate hike by China that may quell some of the region’s recent growth. Inflationary concerns are rising, as signalled by China’s policy adjustment, and pressure may be significant enough to warrant a rate hike by the European Central Bank (ECB) later today.

The last time the ECB council met to discuss interest rates, a statement of mildly hawkish uncertainty was released, and traders took it as a cue that rates may be adjusted in the next session, which is why many are expecting a 50 basis point increase this morning. Should the ECB lift rates today, there is potential for the EUR to see a sharp downturn as investors collate the data with China’s adjustment to mean that inflation is becoming a concern and risk may be off the table.

The euro zone’s interest rate announcement will be made 45 minutes after the Bank of England (BOE) releases a similar statement regarding its monetary policy. England is not expected to hike rates until early 2012, but hints at adjusting its Asset Purchase Facility could lead to shifts among large investment portfolios. Today’s market should be highly volatile and traders will want to be on guard as they traverse today’s investment landscape.

The Australian dollar (AUD) was seen trading strongly bearish versus most other currencies yesterday after China’s rate hike began to shift many traders back into risk averse assets. As was anticipated yesterday, news of a rate hike in China pulled strongly down on the value of the Aussie as investors moved away from higher yields in exchange for stores of value.

 

Yesterday’s news weakened the Aussie, fuelled by poor fundamental data on Monday and flat news on Tuesday. With this morning’s release of Australia’s employment sector data; many are expecting the southern nation to begin addressing its growth outlook. Weakening commodity prices are beginning to pull on the nation’s economic growth and the AUD’s meteoric rise has gouged Australia’s exports. The downturn may look dismal from afar, but the runaway inflation caused by the Aussie’s rise was expected to cut into the country’s growth projection eventually. The bearish movement may prove positive for the country’s growth as it fights through an unusually extreme winter.

Crude Oil prices found support near $94 a barrel Wednesday as sentiment appeared to favour a mild growth in global industry alongside a potential uptick in demand for the black gold. Data releases out of the US and China yesterday were driving many investors back into safe haven assets as most reports suggested a surprise downtick in growth among global industrial output and consumer spending; with dismal consumer confidence reading these past few days from the major economies of the West.

As investors sought safety, the value of crude oil, which has been seen plummeting all week, in fact rose to a weekly high of $96.15 a barrel. A sudden jump in dollar values due to this week’s risk averse environment was expected to drive many investors into short-taking positions on physical assets. The move was not forthcoming; however, as traders took cue from China’s rate hike that oil demand may actually increase through the autumn months. Should Crude Oil sentiment hold steady this week, oil prices may see a flattening out in the days ahead.

Jovi Overo

 

Beta 2 Forex News, Jovi Overo, Beta 2 ltd, Thursday June 23 2011

The US dollar was seen trading flat late yesterday as traders began to seek riskier assets after the Federal Reserve released its rate statement, hinting at no future economic stimulus or monetary policy tightening. The EUR/USD was seen moving sideways along the 1.4450 support line yesterday as a result. Analysts expect the USD to see further downside as interest rate differentials between the US and Europe comes back into view.

On a different note, US housing data beat expectations yesterday, as the Office of Federal Housing Enterprise Oversight (OFHEO) released an assessment showing homes that were mortgaged by Fannie Mae and Freddie Mac saw a rise in value of approximately 0.8%. The report came one day after the National Association of Realtors published the existing home sales data that also met growth forecasts. The numbers may prove a turning point in the US housing market if growth can continue along this trajectory.

With another heavy news day expected today, traders are sure to see heightened volatility. Most significantly, the US will be publishing more housing info that could help strengthen the trend seen these past two days. The weekly unemployment claims report will also get released this afternoon alongside the natural gas storage report. Given recent events, many traders appear to be favouring short positions on the greenback.

The euro has been experiencing mixed results following yesterday’s rate statement by the US Federal Reserve. Despite a dovish report suggesting a lingering low interest rate in the US, traders appeared more concerned with the potential Greece implosion as its economy struggles to make steps to secure another instalment of its financial bailout. The vote of confidence for the government of Greece was just another episode in the saga, but one which may prove pivotal in the weeks ahead.

While debt concerns loom in the euro zone, the higher yielding assets like the GBP and EUR still appear positioned to gain value as traders choose between debt worries and interest rate differentials. The growth in risk appetite may have many investors choosing the latter as their gauge of direction.

As for Thursday, the euro looks to be anticipating mixed results against the other major currencies with mild bias to the upside. The euro zone will be publishing a spattering of economic events on today’s calendar. Traders should try and follow the serial release of manufacturing and service data out of France, Germany and the broader region. These numbers may give an indication for how well the region will fare in the second quarter.

The Australian dollar (AUD) was seen trading higher versus most other currencies yesterday after news began to shift many traders back into riskier assets. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.

Helping to assist the AUD’s recent rise was the vote of confidence in Greece Tuesday evening. With news that the euro zone may soon tackle its debt woes more effectively, higher yielding assets are gaining ground, the Aussie chief among them. Moves toward riskier currencies tend to favour the high growth economies like Australia, China and India. With this morning’s publication of the Australian Conference Board’s (CB) leading index, traders may get another injection of good news that could lift the AUD even further.

Crude Oil prices rose mildly after finding support near the $92.50 price mark Wednesday as sentiment appeared to favour a shift back into riskier assets and commodities. Interest rate differentials have come back into play and this has so far led several large investors and analysts to consider a shift back into the EUR and physical assets instead of the USD.

As investors sought risk, the value of crude oil, which has been seen plummeting all week, rose to a weekly high of $93.45 a barrel. A sudden dip in dollar values due to this week’s risk sensitive environment has helped many investors move hesitantly back into assets like oil. Should Crude Oil sentiment hold steady this week, oil prices may continue to make gains, possibly reaching back towards $95 by Friday.

Jovi Overo

 

 

Market commentary by Jovi Overo, Beta 2 Ltd, Monday April 4 2011

The U.S payrolls printed strong numbers on Friday coming in at 216k with the unemployment rate extending its downtrend. The report was further supported as the February numbers were revised higher to 1964k from 192k. The unemployment rate dropped to 8.8% from 8.9%. Also showing improvement was the ISM Manufacturing PMI which came in above expectations at 61.2 with economists forecasting only 61.1.

Five consecutive months of job growth in the U.S economy boast well for the recovery and will probably start to influence the Federal Reserve. Earlier in the week, the hawks inside the Fed had started a vocal campaign advocating a through discussion of exit policy.

Today’s speech by Fed Chairman Ben Bernanke in Atlanta will carry extra significance in the FX markets. Should he come out with a more hawkish tone, this could be the beginning of a turnaround for the dollar.

On Friday, Fitch rating agency cut the Portuguese sovereign debt rating by three notches from A- to BBB-, the lowest investment grade level, saying the debt-laden country needed external financial aid. The downgrade followed Thursday’s publication of the results of the bank stress test which showed that Ireland’s four troubled banks needed a further 24 billion euro’s to be properly capitalised.

Last week, the eurusd headed higher despite a fairly strong U.S payrolls report on Friday due to comments by NY Fed Dudley that “the March payrolls hadn’t changed the outlook for Fed monetary policy” as a result, investors looked forward to the ECB meeting on Thursday expecting the ECB to officially start its tightening cycle.

While a 25bp increase may already be priced into the euro, there may be further room for euro appreciation should the ECB continue to pre-commit to interest rate hikes. A signal of further interest rate increases during the accompanying statement would be catalysts for the euro. However, a change in the U.S interest expectations is a risk to the euro.

The calendar is uneventful in both the UK and EMU, later on in the week the UK PMI and industrial production may present some food for thought but the majority of eyes will be on the aforementioned ECB and the BoE policy meetings.

For the BoE, we expect no change as we believe the governors will stick to their vote of March, leading to a 3 way split with the majority still in favour of no change. There is little new information for the governors to change their views. The key meeting will be the May one, when the MPC will have information on Q1 GDP, more survey evidence and the inflation report.

The Japanese yen remains weak vs. the dollar and the euro over speculation widening interest rate gap between Japan and other major economies and concerns over the Fukushima Daiichi nuclear plant made the Japanese currency less attractive to hold.

It is looking likely that the BoJ will probably not raise rates until 2013, in stark contrast with it’s counterparts in Europe and the U.S, which are expected to bring to an end the current credit easing policies.

Also, a renewal of the carry trade has added momentum behind the yens decline with further weakness attributed to the rebound in the global equity markets following the selling that occurred after the geopolitical unrest in Libya and the natural disasters in Japan.

Crude oil moved to a two and half year high near the $108.50 mark last week on stronger than expected U.S job growth in March and weakness in the dollar.

A weaker dollar tends to boots the price of dollar priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive for their products.

Written by Jovi Overo

Market Commentary by Jovi Overo. Beta 2 Ltd, Monday March 14 2011

Due to the devastating earthquake and tsunami in Japan, gold moved higher by about 1%. Japan is battling a nuclear catastrophe, has seen whole villages and towns wiped off the map and estimates of those feared dead have risen to 10,000.

Japan will move to import more liquefied natural gas and low sulphur fuels to generate power at thermal plants and replace nuclear electricity supplies put out of action after the worst earthquake in Japan’s history.

The dollar rebounded from near record lows vs. the yen this morning boosted by hedge fund buying after the BOJ injected trillion yen into the money markets to help ease nervousness following Friday’s massive earthquake.

On Friday, the yen surged higher against the dollar on talks of repatriation flows as the disaster unfolded and was seen likely to extended gains especially if Japanese insurers try to raise funds by selling overseas holdings-crucial to USD/JPY near term direction is the size and financing sources for Japan’s reconstruction.

The spreads between bonds issued by euro zone loan rates states and benchmark German bunds narrowed today in reaction to an unexpected agreement by EU leaders to boost the powers of the bloc’s bailout fund.

Euro zone leaders agreed to increase the full lending capacity of the European financial stability and allow it to buy bonds of distressed countries primary markets and lower interest rates of Greece’s bailout.

Irish spreads were little changed however as better bailout terms were only announced for Greece. Spanish, Portuguese, Italian and Greek spreads were last around the 10bp narrower on the day.

US crude futures on Monday fell by more than $2 to below $99 a barrel on fears that economic growth will slow in the wake of Japan’s earthquake and tsunami, while easing unrest in the Middle East threw the focus back onto ample oil supplies.

US crude fell $2.26 to $98.90 in the early deals of Monday. Japan’s strongest earthquake on record shut refineries and other industrial plants in the world’s third-largest oil consumer.

The country is battling to avert a nuclear catastrophe in its worst crisis since World War Two after Friday’s earthquake, which is feared to have killed more than 10,000 people.

Market commentary by Jovi Overo Beta 2 ltd, Friday March 4 2011

A day prior to the US Non-Farm Employment Change report, ECB President Jean-Claude Trichet set the stage for the first European interest rate increase since the financial crisis.

A significant drop in weekly US unemployment claims helped spur dollar gains versus the major currencies. The lone exception to this price action was versus the euro where the pair surged to its highest level since November 2010 on the back of hawkish comments by the ECB. Weekly unemployment claims came in better than expected with new jobless claims falling to 368K from the previous week’s 388K. Labour economists had forecasted a rise to 394K jobless claims.

At the end of the day’s trading, the EUR/USD was up at 1.3960 from 1.3855. The USD/JPY surged to close higher at 82.40 from 81.83, while the GBP/USD was down at 1.6270 from 1.6312.

The drop in unemployment claims also spurred gains in higher yielding assets as the major US equity indices were up by more than 1%. The Dow Jones Industrials Average rallied by 1.59%.

All eyes now turn to the release of the US Non-Farm Payrolls report that is expected to show the US added 180K new jobs in the month of February after the economy added 36K jobs in January. However, this release may be taken with a grain of salt as the report could be subject to weather related effects. The trend of a weakening dollar looks to continue but could be reversed if the payrolls report surprises to the upside.

Following yesterday’s breakout, resistance for the EUR/USD is found at 1.4080 with a further target at the trend line that falls off of the January and November 2007 highs which comes in today at 1.4150. Support is located at yesterday’s low of 1.3830, 1.3700, and the rising trend line off of the February 14th low at 1.3640.

The euro gained across the board today following ECB President Jean-Claude Trichet’s hawkish comments that solidified future interest rate increases in the euro zone. The message was crystal clear when Trichet stressed “strong vigilance is warranted.” He also suggested a rate hike could come as early as the next ECB meeting which is scheduled for April 7th.

Following the speech the EUR/USD rose to its highest level since November 2010, peaking at 1.3975 and closing near its high at 1.3960, up from 1.3855. The EUR/CHF was also up sharply, trading as high as 1.3019 and closed at 1.3000 from 1.2803.

These comments by Europe’s leading central banker show the ECB’s commitment to fight inflationary forces. Rising food and commodity prices have the ECB concerned that if it does not get out ahead of inflation concerns then rising prices could have a negative impact on the euro zone economy.

The ECB kept its rate steady at 1.00%. However, Trichet did emphasize that this may not be the start of a rate tightening cycle. These strong comments will increase expectations for quicker adjustments to rates as well as a faster timetable for interest rates to rise.

This is certainly a catalyst for the euro and further gains may be expected. The appreciation seen yesterday in the EUR/CHF took the pair as high as the 61.8% Fibonacci retracement level from the February downtrend. Further resistance may be found at 1.3080, a level that coincides with the falling downtrend from the November and February highs. A move above this level would target the 200-day moving average at 1.3170.

Yesterday the dollar strengthened versus the yen following better than expected US weekly jobless claims. Weak capital expenditure also had traders buying the pair as Japanese companies increased capex spending, though at a slower pace than the market expected. Q4 capital expenditure rose by 3.8%. However, economists had forecasted an increase of 5.9%

Following the yen negative economic data, the USD/JPY rallied sharply higher, moving above its first resistance level at 82.20 to close at 82.40 after opening the day at 81.83.

Further gains in the pair may be expected tomorrow should the US Non-Farm Payrolls report show an improving employment picture in States. A minor resistance level at 83.50 looks to be reinforced as this price coincides with the 200-day moving average, a resistance level the pair failed to break previously in mid-February.

The price of spot crude oil fell earlier in the day on reports of a possible settlement that would end the fighting in Libya. However, once this rumour was dispelled by Libyan officials, spot crude oil rose from the daily low and is now trading back above the $102 mark.

Prices fell as low as $100.15 before rebounding to the opening day price near $102.21.

The drop in prices that moved in tone with a potential settlement of the conflict underscores just how closely the price of crude oil tracks the violence in the Middle East. An absence of Libyan crude supplies is also beginning to have an impact on European crude oil stocks as Europe is the main recipient of Libyan crude exports.

Tomorrow’s US jobs report will be moving crude oil markets. A better than expected jobs report may support rising crude oil prices. Resistance is found at last week’s high of 103.30, followed by $110.00.