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[FXCM-PR Rep]

U.S. Durable Goods Orders Tops Expectations in September

Durable goods orders in the world’s largest economy jumped 3.3 percent in September after falling a revised 1.9 percent the month prior amid expectations of 0.5 percent, while orders excluding transportation unexpectedly tumbled 0.8 percent. Indeed, transportation equipment was the main driver behind today’s report, while inventories added 0.5 percent for the month. Subsequent to the report, the EURUSD rallied, but the advance quickly reversed course as price action remains capped by the 20-day moving average. At the same time, U.S. equity futures continued their southern journey as risk aversion regains its footing.

The report is of great importance due to the fact that durable goods orders are expected to last more than five years, and in turn reflect optimism in the economy. It is noteworthy that the headline figure was driven by Boeing orders as the world's largest airplane maker received 117 orders in September from 10 orders in August. Taking a look at the breakdown of the release, unfilled orders added 0.1 percent to mark the sixth successive increase, while core capital goods shipments rose 0.4 percent.

U.S. Durable Goods Orders

Source: Bloomberg

In the currency markets, the EURUSD initially rallied, but quickly reversed course. Indeed downside risks remain so long as price action can remain capped by the 20-day moving average. As of late, technical indicators continue to point to further declines. The MACD has crossed over to the downside last week, while the parabolic SAR signaled for losses around the same period. With the trendiness likely to test 1.3600, I will look to remain short this pair.

EURUSD Daily Chart

Source: Bloomberg – Prepared by Michael Wright

 

[FXCM-PR Rep]

Fed Needs to Change Investor Perception to Help Facilitate Legitimate Recovery

FUNDYS
A solid trading day for the Buck on Wednesday is being compromised in Thursday trade thus far, with the Greenback well offered ahead of the North American open. The Pound and Kiwi are the biggest gainers on the day, with UK currency already recovering all of its losses from the previous day. Meanwhile, all other major currencies are also tracking higher against the US Dollar. Economic data released in Europe produced some stronger than expect Eurozone confidence numbers, while a weaker UK Nationwide house price print was offset by the better than expected CBI reported sales. Kiwi is showing some relative strength after the RBNZ left rates on hold at 3.00% but left the door open for additional hikes.

Relative Performance Versus USD Thursday (As of 11:10GMT)

1. STERLING+0.70%
2. KIWI +0.64%
3. AUSSIE+0.59%
4. EURO+0.58%
5. YEN+0.58%
6. SWISSIE+0.53%
7. CAD+0.32%

But we look no further than a Bloomberg article entitled “Fed Asks Dealers to Estimate Size, Impact of Debt Purchases” for what we believe to be the clear driver of this latest price action. We are somewhat surprised with the publicity of such actions as they clearly call into question a certain degree of confidence and independence that the Fed has in making its decisions. The article also helps to sway confidence back in favor of QE bulls that had been more uncertain of the outcome for such measures over the past few days.

Clearly a poll conducted by the Fed on how much QE markets are expecting evokes some uncertainty from Fed officials and also sends a message that the Fed and Treasury might be very concerned with letting market expectations down. Investors have been buying equities and feeling better about the economy largely on the expectations for additional accommodative measures, and the Fed could be worried that if they let the markets down with a small injection of QE2, that it will open a major sell-off in the equity markets and seriously damage confidence.

However, we do not believe this to be good reason to pump more money into the system, and remain highly skeptical of the effectiveness of additional easing measures. It is our opinion that the Fed should not be pressured by the markets at this point and should instead continue to focus on the fact that the economy has indeed stabilized and that attention must now be given to the longer-term impacts of the current ultra-accommodative policy. To us the longer-term implications could be disastrous for the US economy with a severe threat of hyperinflation should the Fed inject too much additional stimulus into the system. Instead, the strategy should be to continue to buy time and offer as little as possible in the form of additional stimulus, while continuing to monitor economic data, hoping that additional easing measures are not “necessary.”

Right now, we believe it is very much about good public relations. At present, investor confidence is directly correlated to expectations for QE2. Market participants have grown to believe that QE2 is a good thing and have therefore been buying equities on the back of this expectation. In our opinion, all that needs to be done is to show investors that QE2 is not necessary (and could even be a bad thing) and that a move to actually reverse monetary policy and begin to raise rates is a positive, as it sends a message that the economy can stand on its own two feet and no longer needs to rely on the Federal Reserve to support it. It sends a message that the US economy is on the path of recovery and prosperity. To us, it is simply maddening to think that US equities have been rallying because the US economy needs more stimulus. How counterintuitive is that? Hey…let’s buy equities because we need to be supported some more from collapsing. Does this make sense?

We feel that the Fed needs to step up at this point and attempt to bolster confidence by sending a message that the economy does not need another round of quantitative easing and that this is a good thing. Bernanke needs to tell investors that the economy is showing signs of stabilization and even moderate signs of growth, and while it may take some time, we are finally on the path to recovery and can now finally begin start to think about reversing monetary policy.

We would analogize the current situation to a patient who has suffered a severe accident and is in the process of recovering. At some point, the crutches need to be put away and the patient needs to begin a very tough and difficult rehabilitation process that he/she may initially be reluctant to embark upon. The patient however is motivated by the fact that they know full well that if the timing of rehabilitation is delayed then there is a serious risk of not being able to make the full recovery (this should be the focus of the Fed right now). While the process of recovery and rehabilitation is indeed quite difficult, it is also a very healthy, positive and necessary step in order to ensure that the patient is able to make the full recovery. At the same time, once the patient starts to fight through the pain and realize that he/she is making progress, it motivates them to work harder so that they can recover as fast as possible.

As such, we remain highly critical of those who continue to influence market perception, conveying a message that additional quantitative easing measures are market positive. Here the analogy is more likened to a drug addict-dealer relationship, and what better analogy when talking about the need to “inject” more liquidity into the markets. Furthermore, are we really then expected to rely upon the results of a poll which asks the junkie if they need more drugs? We would stress that we are not adamantly opposed to the need for additional stimulus “if necessary,” but at present we seriously question whether in fact additional measures are really “necessary.”

Looking ahead, US initial jobless claims (455k expected) and continuing claims (4430k expected) are the only economic releases scheduled in North American trade, while the market will take some time to also digest the latest earnings reports. US equity futures are mildly bid, while commodities are also tracking higher into North American trade.

GRAPHIC REWIND

TECHS

EUR/USD: The market is in the process of rolling over and carving out what could be the right shoulder of a major head & shoulders top. Key neckline support comes in by 1.3695, and a break below will confirm reversal prospects and potentially open a material decline back towards a measured move objective by the 1.3300 area which also loosely coincides with the 50-Day SMA. The 10-Day SMA is also in the process of crossing the 20-Day SMA (bearish) for the first time since early September when the market was trading in the 1.2700’s. For now, look for any intraday rallies to be well capped ahead of 1.4000.

USD/JPY: Setbacks have stalled out for now by 80.40 and just shy of the record lows from 1995 at 79.75. At this point, it is way too early to call for any material base, however, daily studies have turned up from oversold with Tuesday’s bullish reversal day suggesting that the market wants to head higher, at least over the short-term. Next key resistance comes in by 82.00, and a break and close above this level will be required to officially relieve immediate downside pressures and accelerate gains. Any intraday setbacks should be well supported ahead of 81.00.

GBP/USD: As per our commentary in Tuesday’s analysis, rallies were indeed very well capped by 1.5900 and this keeps our bearish bias intact. Look for a lower top by Tuesday’s 1.5900 highs ahead of the next drop back below the vey well supported 50-Day SMA by 1.5650 and towards 1.5300 further down. Ultimately, only a close back above 1.6000 would negate outlook and give reason for pause.

USD/CHF: With daily studies finally crossing up from oversold and the market managing to close back above the 20-Day SMA for the first time since August, we are encouraged with the prospects for the formation of a major base by the recently established record lows at 0.9460. From here, look for any intraday setbacks to be well supported on dips towards 0.9700, with the market now eying a move towards next key resistance by 1.0000 over the coming sessions. Last week’s inability to extend declines to yet another record low below 0.9460, set up a strong bullish reversal week to end a sequence of 9 consecutive weekly lower highs. This further strengthens our constructive outlook and over the medium and longer-term we see significant upside risk. The market is now looking to establish back above the 50-Day SMA for the first time since mid-June.

FLOWS
A UK clearer was seen buying through triggers and corporate demand was also seen in Eur/Usd an ACB provided supply and semi-official sales were noted. Middle Eastern names seen on the bid in Cable all morning with real money accounts appearing on the offer. Model names sold large quantaties in Gbp/Chf and Gbp/Aud early on.

 

[FXCM-PR Rep]

Be the Next King in FXCM’s King Of the Micro Forex Trading Contest

New York, October 29, 2010—FXCM has announced the winners of the King of the Micro Contest for September. Contest participants demonstrated the perseverance it takes to be King, as the market dictated a decline on the EUR from a five-month high versus the USD and against 15 of its 16 major counterparts concerning bank debt. The live currency trading competition engaged a diverse group of forex traders and the title winner was Zhondg Da Jian, who boasted nearly 2,860.58%* in profits and a prize of $25,000 for September.

Winners:
Standing Prize Name Country Percentage Growth*
1st $25,000 Zhong Da Jian Canada 2,860.58%
2nd $10,000 Yong Ze Zhang China 1,309.64%
3rd $5,000 Wessam Elhamy Allam Egypt 565.18%


More about the Winners and their Strategies:
1st Place:

Zhondg Da Jian, boasted nearly 2,860.58% in profits* and a prize of $25,000 for September. Utilizing fundamental analysis and numerous technical indicators, Jian demonstrated his understanding of the financial markets as he traded GBP/USD, EUR/USD, AUD/USD, and EUR/JPY. As the first place winner and an avid trader, Jian recommends others to “follow the rules, be disciplined, and concentrate on trading and always be ready to learn.” View Jian’s trading report and survey.

2nd Place:

Runner-up Yong Ze Zhang is a devoted trader with five years of trading experience. He leaned on financial information and currency market commentaries to stay on top of the market and take second place with 1,309.64%* in profits trading the AUD/USD. Yong Ze Zhang recommends viewing weaknesses as an opportunity to learn and to keep trading even if a loss is experienced. View Zhang’s trading report and survey.

3rd place:
Finishing up in third place was Wessam Elhamy Allam, who opened his first real Micro account in September. With seven-months of trading experience on a demo account, Allam attained a 565.18%* profit and he finds educational resources not only beneficial but necessary as trading tools. He recommends others to “find a way to deal with your losses and to handle a losing trade when you are still on a demo, as this is one of the most difficult parts of trading.” View Wessam’s trading report and survey.

What is the FXCM King of the Micro Contest?

King of the Micro is a currency trading contest hosted by FXCM, which gives away cash prizes every month: $25,000 for the trader with the highest trading return, $10,000 to second place, and $5,000 goes to third place.

In the past, winners have come from different trading levels, from people who are in the process of learning forex trading to trading experts. It’s free to enter and no registration is needed.

To be a part of the November King of the Micro contest you must be an FXCM Micro client with $500 in your account at the beginning of the month, and you’ll be automatically entered.

You must make ten trades during the month to remain eligible. To read the full contest rules, and to deposit money into your FXCM Micro account, view the King of the Micro Monthly Trading Contest Rules.

About FXCM Holdings LLC

FXCM Holdings LLC (FXCM) is a global online forex and CFD broker† that caters to both retail and institutional markets. Founded in 1999, FXCM is regulated by several of the world’s most respected financial authorities.

At the heart of FXCM’s client offering is No Dealing Desk forex trading. Clients have market access to FXCM’s large network of forex liquidity providers that enables FXCM to offer clients spreads as low as 1 pip on major crosses. Clients also have the benefits of mobile trading, one-click order execution, and trading from real-time charts. FXCM’s UK subsidiary, Forex Capital Markets Limited, offers CFD products† with no re-quote trading and allows traders to trade oil, gold, silver, and stock indices, along with forex on one platform. In addition to currency and CFD trading,† FXCM offers educational courses on forex trading, and provides free news and research through DailyFX.com.

*Past performance is not indicative of future results.
† Please be advised that CFD accounts are not available to residents of the US or its territories.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Any opinions, analyses, or other information contained is provided as general market commentary, and does not constitute investment advice. Read full risk disclaimer.

 

[FXCM-PR Rep]

British Pound Rally Gathers Pace, U.S. Dollar Recoups Losses As Market Sentiment Flip

Talking Points

* Japanese Yen: Mixed Price Action Across The Board
* British Pound: Home Prices Weaken Further in October
* Euro: Maintains Narrow Range Ahead of Fed, ECB Rate Decisions
* U.S. Dollar: Personal Spending, ISM Manufacturing on Tap


The British Pound extended the rally from the previous week to reach a high of 1.6088 on Monday, and the exchange rate may continue to push higher throughout the week as investors scale back expectations for further easing. As the GBP/USD maintains the upward trend from May, with market participants anticipating the Bank of England to maintain its current policy later this week, the pound-dollar looks poised to make a run at 1.6220-40, the 23.6% Fib from the 2009 low to high, as it continues to retrace the decline from the previous month. If the central bank refrains from releasing a policy statement later this week, traders may show little reaction to the meeting as the BoE is scheduled to release its quarterly inflation report ahead of the policy meeting minutes due out later this month. At the same time, we are likely to see MPC board member Andrew Sentance continue to dissent against the majority and push for a 25bp rate hike given the stickiness price growth, and the central bank may look to drop its dovish tone as the economic recovery in the U.K. slowly gathers pace.

Nevertheless, the economic docket showed home prices in the U.K. weakened the most since 2009, with the Hometrack survey slipping 0.9% in October, and the data suggests that the ongoing slack within the real economy may continue to bear down on inflation as the central bank talks down the risks for inflation. A separate report showed manufacturing activity unexpectedly expanded at a faster pace during the same period as the PMI advanced to 54.9 from a revised 53.5 in September, and the recent developments could lead the BoE to revise its economic assessment for the medium-term as policy makers expect the recovery to gather pace in 2011. As the outlook for growth and inflation improves, the MPC may see scope to start normalizing monetary policy in the first-half of the following year, and hawkish comments from the BoE could lead the GBP/USD to retrace the decline from earlier this year as investors weigh the prospects for future policy.

The Euro fell back from a high of 1.4010 during the overnight trade as investors scaled back their appetite for risk, and the EUR/USD may hold steady throughout the day as it maintains the narrow range carried over from the previous week. Nevertheless, we could see a break out in the euro-dollar later this week as the Federal Reserve and the European Central Bank are scheduled to release their interest rate decision in the days ahead, and comments from the central banks is likely to stoke increase volatility in the exchange rate as investors anticipate the FOMC to expand monetary policy further while the Governing Council is expected to maintain their current policy going into the end of the year. Given the slew of market moving data lined up for later this week, there could be a muted reaction to the economic event risks scheduled for Monday, and we are likely to see risk trends dictate price action throughout the day, which could lead the euro-dollar to retrace the overnight rally as the reserve currency benefits from safe-haven flows.

The greenback lost ground against most of its currency counterparts, with the USD/JPY falling back to a low of 80.23 during the overnight trade, but there appears to be some dollar strength heading into the North American trade as investors scale back their appetite for risk. As equity futures foreshadow a lower open for the U.S. market, a U.S. dollar reversal could pan out throughout the day, but the event risks scheduled for Monday could spark a rise in risk appetite as the economic docket is expected to reinforce an improved outlook for future growth. Personal incomes in the U.S. are forecasted to rise another 0.2% in September after expanding 0.5% in the previous month, while private sector spending, which remains one of the leading drivers of growth, is projected to increase 0.4% for the third consecutive month. At the same time, manufacturing is expected to expand at a slower pace in October, with market participants forecasting the ISM index to fall back towards 54.0 from 54.4 in the previous month, and currency traders may show little reaction to the mixed batch of data as they wait for the FOMC interest rate decision scheduled for Wednesday.

Learn currency trading with a free practice account and charts from FXCM.

 

[FXCM-PR Rep]

AUD/USD Short Position Triggered @1.0005; Latest Rate Hike Questionable

FUNDYS

The Australian Dollar has exploded to post-float record highs above parity on Tuesday, with the single currency now contemplating establishing itself above the psychological barrier following a decision by the Reserve Bank of Australia which caught most of the market off guard. The general consensus had been that the RBA would leave rates on hold at 4.50% in light of some softer inflation data and concerns over a potential slowing in the global economy. But the central bank felt that inflation was a serious concern going forward and reacted by raising rates by 25bps to 4.75%.

Relative Performance Versus USD Tuesday (As of 10:15GMT)

1. AUSSIE+1.23%
2. SWISSIE +0.65%
3. EURO+0.53%
4. CAD+0.36%
5. KIWI+0.26%
6. STERLING-0.17%
7. YEN-0.31%

We remain highly skeptical of the latest move by the RBA and feel that a central bank that has already been overly aggressive with its tight monetary policy has now moved itself even further away from being able to deal with any potential slowdown in the economy. In a global macro environment where central banks have been very cautious with moves to raise interest rates on fears of a potential slowdown, the RBA continues to ignore potential red flags and tightens its own policy. Australia has the highest interest rate amongst the major currencies, and this aggressive monetary policy has helped to propel the antipodean to fresh post float record highs by parity.

We also find it extremely interesting to see such a disparity in the approach to monetary policy by the RBA relative to the Fed. While it is quite obvious that one central bank is tightening policy while the other is looking to accommodate further, this is not the disparity that we refer to. We find it quite fascinating that the RBA has been much less sensitive to market expectations, while the Fed has gone out of its way to be sensitive to what the markets are looking for. While we can certainly be critical of the Fed for gauging the opinion of the market to help make its decision, we are much more critical of an RBA that ignores consensus estimates and moves to raise rates in an environment where most would have been perfectly satisfied with a no-change decision.

We believe that just as there are risks to the US economy if the Fed is too accommodative this week, there are equal risks to the Australian economy if the RBA is too aggressive. In fact we would take it a step further and say that the Fed should be less concerned with market demands and more independent in its decision making, while the RBA should be more sensitive to what the markets are looking for.

Technically, we continue to argue that the Australian Dollar is by cyclical highs and this in conjunction with some stretched medium-term and longer-term studies, leaves the market at risk for a serious pullback over the near-term. While we would not rule out the possibility for another attempt to hold above parity, we do not expect to see any gains beyond this critical psychological barrier as sustainable. We have gone ahead and issued a recommendation to sell at 1.0005 today with an open objective and stop-loss by 1.0115.

Elsewhere, a quiet session of Asian trade picked up in Europe, with the US Dollar coming under some more pressure against most of the other major currencies. Kiwi traded to fresh multi-month highs by 0.7700, while the Franc decided to finally mount a recovery after being relatively well offered in recent trade. Most market participants however remained focused on Eur/Usd which despite some gains, still remained well confined to familiar ranges. On the data front, German and Eurozone manufacturing PMIs came in on the better side of expectation, while UK data was far less impressive after construction PMI came in well below analyst forecasts.

Looking ahead, trade is expected to be quite busy in North America, with pre-FOMC positioning, and mid-term elections all factoring into volatility. There are no major economic releases, with the only noteworthy data coming from some secondary oil and gas inventory numbers. US equity futures are tracking higher, while commodities are mixed with oil up and gold flat.

GRAPHIC REWIND

TECHS

EUR/USD: The prospects for a head & shoulders top are fading following the latest break back above 1.4000, and the market is once again contemplating a fresh upside extension beyond 1.4160 and towards some major longer-term falling trend-line resistance by 1.4500 off of the record highs from 2008. For now, we will retain our bearish outlook and look for any rallies to be very well capped ahead of 1.4080, in favor of some renewed weakness. Key short-term support comes in by 1.3735 and a break below will be required to reaffirm outlook and accelerate declines.

USD/JPY: While we like the idea of the market establishing a major base by current levels over the medium and longer-term, short-term price action has still not confirmed any signs of a bottom, with the price action over the past few days more characteristic of a bearish consolidation ahead of the next drop towards the record lows. Ultimately, a close back above 82.00 will now be required to relieve downside pressures. However, we will be on the lookout for an opportunity to buy on dips below the 79.75 record lows.

GBP/USD: The latest close back above 1.6000 is concerning for bears, with the market contemplating a fresh upside extension beyond 1.6100. Still, the market has been very well capped on rallies above 1.6000 in recent weeks, and will look for another topside failure in favor of a some renewed weakness and a continuation of a broader multi-week range trade. However, should the market manage a close above the 1.6100 figure for more than 2 days, it will force a shift in the outlook and expose fresh upside towards 1.6500 further up. For now we remain sidelined and await a clearer signal.

USD/CHF: With daily studies finally crossing up from oversold and the market managing to close back above the 20-Day SMA for the first time since August, we are encouraged with the prospects for the formation of a major base by the recently established record lows at 0.9460. From here, look for any intraday setbacks to be well supported on dips towards 0.9700, with the market now eying a move towards next key resistance by 1.0000 over the coming sessions. Inability a couple of weeks back to extend declines to yet another record low below 0.9460, set up a strong bullish reversal week to end a sequence of 9 consecutive weekly lower highs. This further strengthens our constructive outlook and over the medium and longer-term we see significant upside risk. The market is now looking to establish back above the 50-Day SMA for the first time since mid-June.

FLOWS

Middle Eastern demand in Cable with a European CB on the offer. Japanese accounts selling in Usd/Jpy with a US prime name on the bid. A model name on the offer and a local importer on the bid in Usd/Cad.

TRADE OF THE DAY

AUD/USD: Longer-term cyclical studies continue to warn of a near-term top in the pair, and we have once again established a counter-trend short position following the latest break above parity. While we are not sure at this point whether the market has indeed found the top, intraday studies suggest that our entry is most ideal over the shorter-term, with the daily ATR having already been met and our short triggering at an hourly RSI reading well above the super overbought 80 level. From here, we will look to see if the market can’t carve out a much needed intraday bearish reversal that will build into a more meaningful pullback on the daily chart. A break back below 0.9795 will now be required to relieve topside pressure and strengthen bias. POSITION: SHORT @1.0005 FOR AN OPEN OBJECTIVE; STOP 1.0115.

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[FXCM-PR Rep]

US Dollar Forecast Bearish on Post-FOMC Crowd Buying

* URUSD – Euro Sentiment Points to Further Gains
* GBPUSD – British Pound Forecast to Rally Further
* USDJPY – Japanese Yen Outlook Calls for Continued Gains
* USDCHF – Swiss Franc Anticipated to Strengthen vs US Dollar
* USDCAD – Canadian Dollar Forecast Calls for Strength against USD
* GBPJPY – British Pound Forecast Moderates Against Japanese Yen

View individual currency SSI charts in our FX Sentiment section

Sharp US Dollar declines following the highly-anticipated Federal Reserve interest rate announcement have been met with similarly aggressive crowd buying, giving contrarian signal that the US Dollar may continue lower through upcoming trade. The number of traders short the Euro against the USD outnumber those long by 2 to 1, while traders long USDJPY outnumber shorts by a sizeable 6.65 to 1. Given such one-sided sentiment extremes, we see little option but to remain contrarian US Dollar bearish until further notice.

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[FXCM-PR Rep]

U.S. Nonfarm Payrolls Jumps 151K in October

Nonfarm payrolls in the world’s largest economy jumped 151K in October after falling a revised 41K the month prior amid expectations of 60K. At the same time, the unemployment rate remained unchanged at 9.6 percent during the same period. Taking a look at the breakdown of the report, private payrolls added a massive 159K, while manufacturing payrolls slid 7K.

Meanwhile, average hourly earnings increased 0.2 percent, which is slightly higher than my forecast of 0.1 percent, but wasn't enough to bring the annualized rate up from 1.7 percent. Not to overlook, government employment dropped 8K versus 148K, thus, it appears that the plunge in census workers have faded. Indeed, today’s report is a step in the right direction; however, the labor market will need to gather further upside momentum in order to bring down the employment rate. The release is of particular interest due to the fact that the Fed recently announced 600 billion of new asset purchases in order to stimulate employment and consumer prices.

U.S. Nonfarm Payrolls

Source: Bloomberg – Prepared by Michael Wright

EURUSD Daily Chart

Source: Bloomberg – Prepared by Michael Wright

Taking a look at price action, the EURUSD has halted its three day advance and now looks poised to test 1.400. Technical developments are mixed at the moment and there is no clear direction on a technical or fundamental basis. The euro is expected to come under pressure in the coming months as governments in the bloc implement tough austerity measures in order to battle their high budget debts. At the same time, recent news that the ECB refused to disclose internal documents concerning Greece’s methods to hide its government debt is adding weight on the euro. Meanwhile, the Fed’s asset purchases continue to weigh on the greenback. All in all, wait for further developments before entering into a trade.

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[FXCM-PR Rep]

Euro Looks For Support, U.S. Dollar Benefits From Flight to Safety

Talking Points

* Japanese Yen: Rallies Across The Board
* British Pound: Holds Narrow Range
* Euro: Investor Confidence Advances to Three-Year High
* U.S. Dollar: Fed Officials on Tap

The Euro slipped to a low of 1.3890 on Monday as investors scaled back their appetite for risk, and the single-currency may depreciate throughout the North American trade as risk sentiment continues to dictate price action in the foreign exchange market. With the U.S. dollar regaining its footing, the EUR/USD looks as though it will retrace the advance from October as it appears to have carved out a near-term top ahead of 1.4300. However, as the euro-dollar bounces back from the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3890-1.3900, we may see the pair hold steady throughout the day as the economic docket remains fairly light for the remainder of the day.

Nevertheless, investor confidence in the Euro-Zone rose to a three-year high in November, with the Sentix survey advancing to 14.0 from 8.8 in October to exceeded projections for a 10.0 print, while the trade surplus for Germany widened to EUR 16.8B in September from EUR 9.0B following a 3.0% in exports. At the same time, we saw industrial outputs in Europe’s largest economy unexpectedly contract 0.8% in September to mark the biggest decline in over a year, but it seems as though currency traders are showing little reaction to the mixed batch of data as fears surrounding the European debt crisis resurface. European Union Economic and Monetary Affairs Commissioner Olli Rehn has flown into Ireland today to review the government’s new budget plan, which will increases tax revenues by as nearly EUR 6B over the following year, and the uncertainties surrounding the economic outlook may continue to drag on the exchange rate as investors weigh the prospects for a sustainable recovery. As the governments operating under the single-currency tighten fiscal policy to address the budget deficit, there could be increased pressures on the European Central Bank to support the real economy as the rebound in global trade cools, and the Governing Council may uphold the expansion in monetary policy throughout the beginning of 2011 in order to balance the risks for the region.

The British Pound extended the decline from Friday, with the exchange rate slipping to a low of 1.6102 during the overnight trade, but the GBP/USD may continue to push higher over the near-term as it maintains t he upward trend from May. As the Bank of England holds the benchmark interest rate at 0.50% and maintains its asset purchase target at GBP 200B, the neutral policy stance endorsed by the central bank could spur a rise in interest rate expectations as the recovery in the U.K. slowly gathers pace, and members of the MPC may see scope to start normalizing monetary policy over the coming months as price growth continues to hold above the government’s 3% limit for inflation. However, as the BoE is scheduled to deliver its quarterly inflation report due out later this week, the GBP/USD may be confined within a narrow rate in the days ahead, but hawkish commentary from the BoE could spark another short-term rally in the exchange rate, which could lead the pound-dollar to retrace the decline from earlier this year.

The greenback advanced against most of its major counterparts, while the USD/JPY slipped to a low of 81.00 as the Japanese Yen rallied across the board, and the rise in risk aversion may dictate price action throughout the day as the economic docket remains fairly light for Monday. We have Fed policy makers scheduled to speak throughout the day, with James Bullard lined up to speak on deflation at 17:30 GMT, who will be followed by Richard Fisher at 18:00 GMT. In addition, the Fed’s Kevin Warsh is scheduled to speak on the economy at 20:30 GMT, and comments from the central bankers could spark a shift in market sentiment as central bank maintains a cautious outlook for future growth. Nevertheless, as equity futures foreshadow a lower open for the U.S. market, the drop in risk appetite may keep the U.S. dollar afloat throughout the day, and the greenback may appreciate further throughout the day as market sentiment continues to dictate price action in the currency market.

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[FXCM-PR Rep]

FOREX TREND MONITOR: US Dollar and Fed QE – The Morning After

Major Currencies vs. US Dollar (% change)

General Comment: US Dollar and Fed QE – The Morning After

The hangover after last week’s dizzying surge in risk appetite has descended upon the markets, with the US Dollar rallying decisively against most major currencies having reached multi-year lows after the Federal Reserve rebooted its quantitative easing (QE) program. The key question now is whether current price action represents little more than a near-term correction or something bigger and more significant. Indeed, one can’t help but wonder if the sudden parade of QE skeptics across the wires – a group notably including three Fed officials, two of whom voted for its reinstatement – is starting to breed doubts about the policy’s merits or, worse yet, rekindling fears of competitive devaluation.

Regardless, a deeper US Dollar rebound seems likely going forward considering that even in the more modest correction scenario, the move to be retraced dates back not to last week but to August when the Fed began to publicly massage the idea of renewed stimulus at the central bank summit in Jackson Hole. Having deftly managed the markets’ expectations over the subsequent months, Ben Bernanke and company delivered just about what the markets had priced in, removing a good bit of uncertainty and opening the door profit-taking ahead of the year-end.

As for the threat of “currency war”, traders will be tuned in with bated breath for the outcome of the G20 leaders’ summit in Seoul this week, although expectations of some sort of paradigm-changing “grand bargain” seem remote. The most likely outcome is for a final communiqué thin on specifics but packed with vague commitments not to engage in competitive devaluation, which may boost risk appetite temporarily but ought not prove lasting considering it would amount to little more than a restatement of the status quo.

EURUSD: Euro Threatened as Risk Trends Shift Into Reverse

The Euro continues to track broad trends in risk appetite with prices still showing a strong correlation with the MSCI World Stock Index on 20-day percent change studies. Needless to say, this directly threatens the single currency as risky assets correct lower. However, pair may find support in preliminary Euro Zone Gross Domestic Product figures expected to put the annualized growth rate at 1.9 percent in the third quarter, matching the two-year high set in the three months through June, as well as the expiry of a 6-month ECB LTRO that may put upward pressure on yields.

Source: Bloomberg

GBPUSD: Dollar Trends, Inflation Report Vie for Influence

The British Pound has re-coupled with risk appetite after last week’s Bank of England rate decision proved to be a non-event, opening the door for the Dollar’s response to the Fed’s QE reboot to take over. While this bodes ill given the corrective nature of current price action, the publication of the central bank’s Quarterly Inflation Report adds a layer of uncertainty. Indeed, the document represents the first opportunity for BOE officials to weigh in on the implications of the government’s austerity program with in-depth knowledge of where deficit reduction will come from. To that effect, traders will be eager to see if this pushes the rat-setting MPC any further into dovish territory, perhaps even to consider following the Fed down the path of additional asset purchases.

Source: Bloomberg

USDJPY: G20 Summit May Interrupt Otherwise Quiet Trade

The short-term yield spread remains the paramount driver of Yen price action. It is small wonder then that prices have tracked sideways since mid-October as both the Federal Reserve and the Bank of Japan pushed ahead of additional monetary easing. The economic calendar is lackluster for the remainder of the week but things may get choppy heading into the G20 summit on Thursday and Friday considering the topic of “currency war” threatens to resurface. Naturally, this subject is particularly touchy for USDJPY considering the US is now being internationally accused of intentionally depressing the greenback’s value with QE while Japanese officials explicitly intervened in FX markets just several months ago.

Source: Bloomberg

USDCAD, AUDUSD, NZDUSD:Weakness Likely if Risk Appetite Fades
Risk trends remain firmly in control of the commodity bloc, putting the spotlight on the correction underway since the beginning of the week. On the domestic data front, Australian Unemployment data is set to show the jobless rate fell to 5 percent – the lowest in 20 months – while Home Loans add 1 percent for the second consecutive month in September.

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg

 

[FXCM-PR Rep]

BoE Says U.K. Recovery to Continue; Inflation To Remain Above Target Through 2011

Fundamental Headlines

• Ireland’s Fate Tied To Doomed Banks – Wall Street Journal

• Commodity Prices Surge – Wall Street Journal

• G20 Draws Up Two-Tier Bank Plan - Financial Times

•G-20 Unity Born in Crisis Fractures as Leaders Pursue Own Ends - Bloomberg

•Recovery to Speed Up as Fed Moves Build Confidence, Survey Says - Bloomberg


GBPUSD: In its quarterly inflation report, the Bank of England was unexpectedly hawkish. The BoE said that inflation expectations indicate consumer prices around target in the medium term, and went onto add that there is a “high probability” that Governor Mervyn King will have to write an inflation letter to the Chancellor of the Exchequer. Meanwhile, the central bank said that the recovery in the region will continue, with inflation above target through 2011, and went onto add that near term consumer price forecasts are higher than in August. Not to overlook, in a speech subsequent to the inflation report, Mr. King said that there is “vigorous” debate on MPC on risks, and noted that there are sizable risks to consumer prices in both directions. In turn, the British pound rallied against all major currencies and will likely continue its northern journey during the North American trade. Of particular note, the GBPUSD halted its three day advance to reach an intraday high of 1.60978. Upside risks remain so long as price action is capped by the 20-day moving average. Though I am not long the GBPUSD, I will maintain my long GBPJPY and GBPCHF positions.

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