13 února 2009


• Germany Q4 preliminary GDP reading out at -2.1% QoQ vs. -1.8% expected
• Switzerland Jan. PPI out at -0.8% MoM and -0.9% YoY vs. 0.0%/-0.1% expected, respectively
• EuroZone Q4 preliminary GDP reading out at -1.5% QoQ vs. -1.3% expected
• Canada Dec. New Motor Vehicle Sales fell -14.8% MoM

Events Today:
• US Feb preliminary University of Michigan Confidence (1500)
• US Treasury Secretary Geithner to hold press conference after G-7 (Sat 1430)
• New Zealand Q4 Producer Prices (Sun 2145)
• Japan Q4 preliminary GDP (Sun 2350)

Equities stepped back from the brink yet again yesterday, as a late US session rally materialized on a vague announcement from the Obama administration that new measures are on the drawing board to aid certain mortgage holders before they get into trouble. The S&P has still avoided penetrating the 800 level, but the technical action in the Dow was perhaps more interesting, as the index dipped to new lows for the year before recovering and closing on a high note. This comeback throws a hurdle in front of the risk averse crowd, as we may need to see these lows breached to get out of this ever ranging environment in the pairs that trade along the axis of risk appetite.

Germany's GDP contracted at -2.1% on quarter on quarter comparisons, the sharpest contraction in more than twenty years and worse than expected. The overall EuroZone growth was also weaker than expected and continues to provide a strong headwind for the single currency in addition to the challenges in the banking system we discussed yesterday.

The Telegraph was out this morning with an article suggesting that the German and French finance ministers are ready to take off the gloves with the UK's Darling on the weak sterling issue this weekend at the G7 meeting in Rome, as they are dealing with domestic complaints of British suppliers gaining orders due the UK's weak currency. The article even dramatically suggested that we could be witnessing the "opening salvo of a currency war". This is perhaps a bit over the top, and we suspect that the EuroZone's problems are so intractable that their weight will soon help unwind another sizable chunk of the EURGBP rally from last year as the pair heads back toward its 200-day moving average, now coming in below 0.8300.
Still, all eyes should be on the intra-Europe dialog between the major powers over the weekend. We're also curious whether Euro is losing enough shine here to weaken through recent support in EURUSD regardless of the moves in other major asset markets. The 1.2700 area remains the first key downside trigger for opening up a try at those old lows below 1.2350. We suspect that the G-7 meeting will generate no changes to the basic line of recent meetings, and the focus is likely to remain on the global economic weakness and concerns over protectionism.

The Australian stimulus package finally passed muster in the Asian session, and the Aussie continues its bid tone as we head into the weekend. The recent sell-off from 0.6800+ cut deep, however, and AUD will likely need for equities to continue to rally to gain further traction. A key resistance level in the form of the 55-day moving average is approaching just above 0.6700.

Remember that this is a three-day weekend for US financial markets, as Monday is a banking holiday (President's day). Obama is trying to push Congress to pass the $789 Billion stimulus bill that was approved by the Senate yesterday after three Senate Republicans crossed the aisle after a compromise to the original, larger bill. We have a hard time seeing how this package can generate any significant optimism in the market, but after yesterday's late rally, there is the possibility that those positioned for further negative sentiment will want to square their positions ahead of the long weekend. Stay tuned.

The Japanese preliminary GDP figures for Q4 are due in Monday's Asian session, with an unbelievable -11.6% Annualized contraction expected. As one commenter stated: this is the worst data for any major economy - even during the great depression. With this in mind, it is tough to build a bullish case for the JPY, though it still seems to be trading largely on moves in risk appetite.
EURGBP saw a very interesting pivot yesterday, as the pair found strong resistance right at the key 55-day moving average. The outlook is bearish below this level, but the situation is muddled a bit by the move back above 0.8800, which was the old low. If the pair works its way below recent lows, we could be launching an attack at the 200-day moving average, currently down below 0.8300. Just as we are going to publish, Lloyds announced further problems (7 billion pounds of impairments - worse than expected) at HBOS.

13/2 GOLD

Gold fell for the first time in four days in Asia as the rally to more than $950 prompted Chinese investors to sell the metal to lock in gains.

Overall consensus in the market is that Gold should advance to $1,000-$1,050 short term.

12 února 2009

12/2 Forex Market Update

Very strong US Retail Sales surprise the market. NOK goes to the back of the class on renewed plunge in oil prices.

EURGBP rallies, but finds resistance at key moving average. US Jobless claims still desperately weak.

· New Zealand Jan. Business NZ PMI out at 42.0 vs. 42.5 expected.
· Japan Jan. Domestic Corporate Goods Price Index fell -1.0% MoM vs. -0.6% expected
· Australia Jan. Employment rose 1.2K vs. a drop of -18k expected
· Australia Jan. Unemployment rate rose to 4.8% vs. 4.7% expected and 4.5% in Dec.
· Australia Q4 NAB Business Confidence fell to -42 from -7 in Q3
· EuroZone Dec. Industrial Production fell -2.6% MoM and -12.0% YoY vs. -2.5% and -9.5% expected, respectively
· US Jan. Advance Retail Sales rose +1.0% vs. -0.8% expected and +0.9% less Autos vs. -0.4% expected
· US Weekly Initial Jobless Claims out at 623k vs. 610k expected

· US Dec. Business Inventories (1500)
· New Zealand Dec. Retail Sales (2145)
· New Zealand REINZ House Sales (2300)

The pound followed up its move lower with even more weakness in today's European session on continued risk aversion and as the market continues to weigh the negatives for the currency brought on by the BoE's King yesterday, as he clearly stated intentions to move forward with quantitative easing. EURGBP is now trading up close to its 55-day moving average close to 0.9060, an MA that provided decisive resistance recently.

US Treasury Secretary Geithner did little to flesh out further details on the bank bailout plan after he was grilled by lawmakers yesterday. In other news, Geithner and Chinese Vice Premier Wang spoke and agreed on the need for "strong cooperation". This spells perhaps some relief on the protectionism front after Geithner rolled a grenade into the global economy's tent during his confirmation hearings, stating flat out that china is a currency manipulator.

One issue that is not yet weighing on the Euro, but should be, is the worry about the soundness of European banks. An article in the Telegraph yesterday reported on a document (not meant for the press) circulating in Brussels that estimated "impaired assets" at European banks could be 44% of bank balance sheets.

Another column out this morning from the same source estimates European corporate debt at nearly 100% of European GDP, vs. about 50% in the US. European corporate debt tends to be shorter term and in the form of shorter term loans from banks as compared to the corporate bond market of a wider range of durations in the US. The need to roll over this debt when banks aren't extending credit, and the enormous quantities of public debt in the shakier EU member states whose bond yields trade at a hefty premium to German bond yields will make for an ugly situation this year. These issues will really test the viability of the EuroZone and the generosity of the German taxpayer (who will be bailing out the Club Med countries if and when the next bailout packages arrive to shore up these countries public finances).

NOK longs lost their composure as the front contract in crude oil shed another 5 dollars over the last couple of days. NOK has been on a roll recently as it has become a popular currency as the theme of grading currencies on their "relative fiscal horrors" makes NOK stand out as a winner. But perhaps the market has taken things a bit too far and we may be looking at a move bak toward the 9.000 handle for EURNOK. This same theme may be what has kept CAD from weakening more quickly, as its finances are still relatively sound based on years of budget surpluses.

The US Retail Sales was far stronger than expected, though we have to take the data with a grain of salt due to the trend toward gift certificate based purchases from the Christmas season and the possibility that some of the uptick may have been due to so many liquidation-type activities taking place with many stores going out of business. This kind of promotion can move consumers buying horizon forward temporarily. Countering the good news about retail sales was another incredibly weak weekly initial jobless claims report of above 600k. It makes little sense that shoppers are running out and splurging when so many are losing their jobs. Let's have a look at February data before we start to call for any kind of stability in consumer demand.

The Australian employment data overnight was a mixed bag, with the employment changge up slightly rather than showing a shar drop, but the unemployment rate rose by 0.3%, the sharpest rise in the cycle as the recession starts to bite a bit deeper down under. The NAB business confidence number plunged to a record low for the 20-year history of the survey in Q4.

Looking at the market action, the market continues to show no willingness to work up a head of steam in any direction outside of the moves in GBP and NOK. EURUSD has been stuck in a miniscule range for the last two weeks and is going to have to work down through the recent 1.2707 low if we are to believe it has further downside potential. Equities are likely to provide the direction, and 800 in the S&P is the downside line in the sand at the moment.

11 února 2009


Crude Oil failed the upside once again yesterday after the passage of the stimulus plan led to some “Sell the fact” unwinding of long position. The subsequent break through $38 support did not trigger any follow through selling indicating continued range trading.

The monthly roll by long only commodity funds come to an end tomorrow and the spread yesterday settled at $6.21. Today we have the weekly storage numbers and a rise of 2750k in Crude inventories is expected while a modest rise of 500k is expected for Gasoline.

OPEC has once again said that they are determined in working towards restoring balance to the market. In other words they are ready to take whatever decisions that may be necessary during their next scheduled meeting in Vienna on March 15th.

Support: 3735 3500 3295
Resistance: 4175 4355 4500

Gasoline and Crude stands top and bottom of the commodity return ranking so far this year with RBOB Gasoline showing a gain of 19.4% while Crude is showing a loss of 19.3% (see below).

Gold (GCJ9) rallied strongly yesterday after recent bout of profit taking. The $890 level is for now confirmed as the line in the sand and that gave the market enough confidence to re establish long positions.

Flows into ETF funds continues at record pace with the biggest, SPDR Gold Trust, now holding a record 894.74 metric tons.

The passage of the U.S. stimulus plan yesterday increases the risk of inflation boosting the appeal of Gold as a hedge. As the uncertainty and anxiety among investors are growing they turn to Gold for its perceived safety.

Support: 907 901 890
Resistance: 920 927 938

10 února 2009

10/2 Forex Market Update - US session

EUR regains composure after Russian debt scare, but there is little fuel for sustaining a rally for the single currency.

GBPUSD ran into a brick wall at 1.5000 as GBP consolidates recent gains despite mostly supportive data.

- Switzerland Jan. CPI out at -0.8% vs. -0.4% expected
- Sweden Dec. Industrial Production out at -5.1% vs. -1.2% expected

EUR has squeezed higher all morning in the European session as the Nikkei story overnight about Russian banks delaying repayment of foreign obligations was denied by Russian officials.

Still, the reaction itself speaks volumes about a clear and present danger for the single currency: its enormous loans to many touch-and-go EM countries and what percentage of these loans end up in default. This is a vital issue in addition to the entire ECB/EuroZone framework vulnerabilities that are still the largest open question for the Euro. 1.3000 proved once again to be the line in the sand here for EURUSD as the US session is getting under way.

Interest rate differentials continue to suggest that there is little fuel for sustaining any EUR rally, though so much momentum has come out of the market, that the market could squeeze either way within the 1.2700-1.3300 range for now depending on the direction in risk appetite.

Looking across markets, we note that this seems to be an important inflection point, with the US 10-year treasury benchmark having maxed out at the symbolic 3.00% yesterday (the old cycle low) and with the US S&P500 trading up against flat level resistance in the 875 area and the 55-day moving average in the 866 area. These represent key barriers for the latest rise in risk appetite and the market will have to have a lot of gumption to continue higher from here.

GBP weakened again after yesterday's push at 1.5000 in EURUSD and attempt through 0.8665 support in EURGBP failed to bear fruit. This is despite fairly supportive data in today's releases, including a better than expected Trade Balance number and a BRC report out overnight that showed a strong rise in Retail Sales after seven months in a row of contracting same store sales.

In other European data, Sweden Industrial Production reading for December showed a -20.3% fall in year-on-year comparisons, and this seems to have put in some solid support . Sweden's export engine is suffering as global trade has collapsed and its trade surplus will continue to contract until global economic circumstances stabilize. The Riksbank tomorrow is expected to lower interest rates again by 50 basis points to bring the rate below the ECB rate for the first time since late 2007, as the Riksbank, like nearly every other major central bank, has been quicker to slice rates than the foot-dragging ECB.

There's plenty of activity ahead in the US session today, with a Senate vote later in the day on the compromised version of the stimulus package (the House has already passed its own plan, so if the Senate plan passes, then House and Senate leaders will have to get together to hammer out a final stimulus bill that would go up for a vote later this week).

Also, watch out for the Geithner press conference at 1600 GMT a bit later for the latest on the plans for the US banking system. The latest noise is that the plan could eventually reach the $2 trillion level and it will involve heavy oversight that ensures that participating banks are healthy enough to be able to use the public funds to extend loans before the funds are injected. The plan will be renamed the Financial Stability Plan and the old TARP moniker will be dropped.

To top all of this off, Bernanke will be out testifying at 1800 GMT on the Fed programs before a House panel. The reaction to the Geithner plan could set the tone for markets for the rest of the week.

John Hardy, Forex Consultant for Saxo Bank

10/2 Market update

Today at 14:30 CET we have the monthly release of the Supply and demand report from the U.S. Department of Agriculture (USDA).

For Corn it is expected to show increased U.S. stocks and decreased South American production. Last month we saw Corn lose 12% after the release only to recover later on the back of the deteriorating weather conditions in South America.

Wheat will focus on the drought situation in China http://www.ft.com/cms/s/0/016d885e-f607-11dd-a9ed-0000779fd2ac.html (Beijing fights drought as wheat fears rise) and the dryness in U.S. Southern Plains.

Soybeans will also focus on the South American drought.

WTI Crude (CLH9) failed once again the break 20 day ma yesterday and has been dragged lower by a stronger dollar and continued selling pressure from the monthly roll into April with the spread settling at -$6.28 yesterday.

Euro under some pressure this morning as a Russian bank official said the nations lenders are in talks with foreign creditors about $400 bn of loans. This has once again lead to JPY buying and EUR selling.

Algeria says that OPEC would cut production futher if oil remains below $40.

Elsewhere hopes are still pinned on the US stimulus package with Congress seeking to complete work so it can be sent to the President before the end of the week.

Support: 39.40 38.00
Resistance: 42.20 44.40

GCJ9 dropped below $900 yesterday on the back of buying fatigue after the rally of the last couple of weeks ran out of steam after having failed to break the $930 level. Price upgrades to $1,000 from several analysts helped the market getting ahead of itself.

The platinum / gold spread has received some interest as well recently with Platinum being favoured. Keep an eye on a break above $1,015 on PLJ9 which could trigger more buying.

For now though Gold is letting the EUR/USD play catch up after rallying despite a stronger dollar recently.

Support looks firm around the $890 level while resistance is seen at $902 and $910.

09 února 2009

9/2 clarification on US stimulus package

For very good, reason, there is a lot of confusion on the stimulus package that the US House and Senate are tyring to put together this week.

The House: has already approved a $819 billion package (not made into law yet because both houses of congress must pass legislation and then it must be signed by the president before it becomes effective)

The Senate created its own package that has a lot of overlap with the package passed by the house, but has other provisions due to the need to garner a few more Republican votes that would create the necessary majority for passage.


If Dems can get 60-vote majority in voting today in the Senate, this will “close off debate” on the bill and then it can be voted on tomorrow.

But, since the Senate and the House have different bills, the leaders of the efforts will have to get together to make revisions for the final proposed bill that would not be voted on by both houses until possibly Thursday or Friday of this week.

Bank Bailout
This is a separate effort and Secretary of Treasury Geithner will be holding a press conference tomorrow at 1600 GMT to announce what the administration wants to do in the continued effort to shore up bank balance sheets – various mixtures of bad asset buying versus insuring against losses on bad assets are being thrown about, together with proposals for taking increased public interest in the banks.

By John Hardy, Forex Consultant for Saxo Bank

9/2 Saxo Bank Forex Update

EURUSD breaches 1.3000 again on improved risk appetite - can it maintain these levels?

Squeeze on risk averse positions continues after a steep, if brief bout of consolidation in the Asian session

Friday saw risk-takers thumbing their noses at the torrent of terrible data out of North America, as the US and especially Canadian job reports failed to obstruct the recent swing into risk-taking mode across markets.

Yields on the long end of government treasuries have been creeping higher of late even as central banks around the world have been cutting rates. Current yield levels will offer an interesting psychological test, as we stand precisely at 3.00% on the US 10-year benchmark as we start the week and close to 3.75% on the 30-year. That 3.00% level on the 10-year was the previous cycle low back in the post internet-bubble blowup when Greenspan was lowering rates to the then-unbelievable 1.00%, so it is a structural resistance level that tests the resolve of the latest round of seemingly improved sentiment. (Our niggling devil's advocate asks us, by the way, whether this really is about improved sentiment, or if it is about some of the more aggressive pessimists simply unwinding some of their positions as the momentum has come out of the market of late...).

In any case, the reactions in currency land to the seeming rays of sunshine have been as one would expect, with a tremendous squeeze on JPY crosses, a squeeze on CHF and USD longs and especially on GBP shorts. EURGBP again tested that key support are down under 0.8700 (the old high and last week's low of close to 0.8665 is the critical area) before rallying sharply, suggesting that GBP may not have the penetrative forced necessary to break through stronger right away here - though if it does, the implications could takes us much lower toward 0.8250. In the major EUR crosses, 120.00 in EURJPY is still intact, though the psychological pivot in EURUSD at 1.3000 has just been breached here ahead of the North American session.

The market's reaction to the Canadian jobs data on Friday was an amazing act of defiance, as the loonie fought back to a solid gain on the day despite a surprise level of several standard deviations from the norm. Still, USDCAD is perched near the middle of this months old, churning range and today's follow up moves show us that the action there (spike low and then strong rally) has more likely been driven by frustrated CAD shorts unwinding their positions due to USD strength elsewhere rather than an incipient sign of a more sustainable move to CAD strength.

The focus in the news remains on the announcement of Obama's stimulus package this week and especially Geithner's plans for the banks, as there is still considerable uncertainty surrounding the nature of the eventual "solution" to their constantly eroding balance sheets. Soros has advocated a "side pocket" solution, where banks can park their bad assets until a better day rather than the much discussed "bad bank solution that would have the US government possibly overvaluing bad assets by creating a market for them and bidding on them. Obama has been unpleasantly surprised at the resistance offered up by the Republican opposition, after all of his attempts at creating a bipartisan esprit de corps in the legislature. Negotiations and planning must be furious, as Geithner was forced to delay a press conference announcing plans for banks originally scheduled for today until tomorrow at 1600 GMT. Bernanke will also be testifying tomorrow in front of a panel of the House of Representatives.

The data emerging from Japan in Monday's Asian shows how the contraction in global demand is most brutal on the producers of production equipment, as Japan's January Machine Tools orders showed an astounding drop of -84.4% year-on-year. Still, this data point was somewhat confused by the earlier release of Dec. Machine Order data, which showed a much smaller decline than expected.

As we head into the US session, it appears that the wind is still at the back of the recent moves in USD and JPY weakness, with 120.00 in EURJPY and 1.5000 in GBPUSD possible key tests of resistance for those moves. Also keep one eye on treasuries as a barometer for whether this move has legs here in the short term or whether it will be turned back. The 55-day moving average in EURUSD in the 1.3300 area is the next major resistance if last week's high at 1.3070 gives way. We suspect that this move higher in risk appetite will run into resistance sometime this week.