Global Stock Rally Dominates USD Trading

Witnessing a steady decline during yesterday's trading sessions, the USD became weakened as traders unwound their Dollar buy positions in exchange for riskier assets, such as stocks. The global stock market rally seen yesterday may have been one of the leading causes of the Dollar's depreciation. With recent market optimism, traders may continue to see a small downward trend in the U.S. Dollar, as its positions are unwound in exchange for higher yielding assets.



USD - Dollar Outlook Remains Weak

The USD continued its decline against the EUR, as well as other risk sensitive currencies on Wednesday. However, the overall direction of the market was subdued due to unsteady equity markets. While the Dollar sentiment is bearish, the EUR seems unable to really take off. On Wednesday, the Dollar index was at 78.745, down from 78.920 on Tuesday

Strong performances from the stock markets continue to put downward pressure on the Dollar, as investors move to riskier higher yielding assets. Furthermore, the Dollar outlook suffers from concerns over U.S monetary policy. With growing uncertainty about the framework of the monetary and fiscal policies, particularly in light of the proposed health care reform, the outlook on the Dollar looks very weak despite the Fed's and Treasury's assurances.

Looking ahead to today, several important news releases are expected from the U.S, including the Unemployment Claims at 12:30 GMT and the Existing Home Sales at 14:00 GMT. These indicators are very important since they are leading indicators of economic health and tend to create great market volatility.

EUR - EUR Rises on Weaker Dollar

The EUR experienced a moderate rise against the Dollar and Yen yesterday. Late Wednesday, the EUR was at $1.4211 from $1.4197 late Tuesday and at ¥132.96 from ¥133.01. The Pound depreciated 0.3% to 153.92 Yen, and traded at 86.41 pence versus the EUR. The British Pound also appreciated slightly versus the Dollar, trading at $1.6463 from $1.6436.

The Pound's drop against the EUR came after the National Institute of Economic and Social Research stated that home values will resume their decline. The institute also predicted Gross Domestic Product (GDP) will shrink by 0.4% in the second quarter, slightly worse the 0.3% expected by economists. Also putting downward pressure on the Pound were losses in equities throughout the trading day.

While no major news releases are expected from the Euro-Zone today, traders should follow the release of British Retail Sales that is due at 8:30 GMT. As this is a leading indicator of economic activity, it is likely to cause great volatility for the GBP pairs.

Yen - Yen Benefits from Stock Market Losses

The Yen gained for a fourth day against the Dollar, and for a second day against the EUR yesterday following a larger than expected second-quarter loss by Morgan Stanley, as well as a statement by Wells Fargo & Co. stating that bad loans jumped. The Yen traded at 132.87 per EUR from 133.18 and at 93.56 versus the Dollar from 93.68 yesterday.

With reports from CIT Group Inc. and American Express Co., risk aversion today will likely stay prominent as the expectation is for weak earnings announcements. As the Yen is highly sensitive to moves in the equity markets, any negative earnings reports will revive risk aversion among investors and push them toward the safety of the Japanese currency. The Yen may also rise today ahead of the U.S Unemployment Claims report which is expected to show an increase in claims.

Crude Oil - Oil Prices Slide on Disappointing Inventories Report

Crude Oil for September delivery settled down 21 cents, or 0.3%, at $65.40 a barrel Wednesday, snapping a five-day rally following the release of slightly worse than expected U.S Oil inventories. However, losses were limited due to a weak Dollar and equity gains.

With inventories remaining high and OPEC members not sticking to quotas, there is still too much supply and not enough demand. While rising equity markets and a weak Dollar continue to push Oil prices up, the fundamentals are still weak and do not supports another rally to the $70 price level. Furthermore, any negative news from the stock market, or signs of a faltering economic recovery might send Oil back to the $60 level.

Article Source - Global Stock Rally Dominates USD Trading

British Pound to Look Past Retail Sales, Home Loans Data to Trade on Risk Appetite (Euro Open)

The British Pound is likely to look past an upswing in Retail Sales and a continued rebound in Home Loans data to fall in with trends in risk appetite as another round of key earnings reports crosses the wires in European hours. Japan’s trade surplus expanded for the third month in June as imports continued to tumble.

Key Overnight Developments

• Japanese Trade Surplus Grows as Imports Continue to Tumble
• Euro, British Pound Little Changed Despite Overnight Stock Gains

Critical Levels



The Euro tested below 1.42 and rebounded as high as 1.4243 but stands little changed ahead of the opening bell in Europe. The British Pound followed a similar dynamic, oscillating around the 1.6470 level.

Asia Session Highlights



Japan’s Merchandise Trade Balance surplus expanded for the third consecutive month, rising to 508 billion yen in June from 298.2 billion in May. We argued the likelihood of such an outcome in our Japanese Yen weekly forecast, noting that the abysmal job market will surely continue to weigh on imports. Indeed, inbound shipments tumbled -41.9% from a year before while exports shed -35.7%. More of the same is likely in the months ahead as unemployment continues to push higher: a survey of economists conducted by Bloomberg suggests the jobless rate surpassed 5% in the second quarter and will approach the 6% mark by the second half of 2010 while minutes from the last meeting of the Bank of Japan revealed policymakers expect consumption to remain weak as “the employment and income situation [is] likely to become increasingly severe”.

Euro Session: What to Expect



UK Retail Sales are set to swing back into positive territory in June, growing at an annualized rate of 2.1% after shrinking -1.6% in the year to May, the most in 17 years. A rebound in retail spending seems to bolster expectations from NIESR, a closely watched London-based think thank, that forecast the economy probably shrank just -0.4% in the second quarter, the smallest drop in a year. NIESR has argued that “the U.K. economy is now stagnating rather than continuing to contract at a sharp pace.” Notably, the apparent signs of stabilization may not translate into meaningful gains for the British Pound. Retail sales figures have exhibited extraordinary volatility since the beginning of this year: annualized receipts grew 2.6% in January, dropped -1.5% in February, then gained 0.9% and 2.7% in the following two months before plunging again in May. This suggests traders will be wary of taking even a sharp improvement at face value, waiting for a discernable trend to be established. Cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.

Separately, BBA Loans for House Purchases will probably continue to rebound in June, extending a move higher that began after the metric set a record low in November 2008. The metric closely tracks the GfK measure of consumer confidence; indeed, indeed, 24-month rolling studies show the two are 96.6% correlated. Consumer confidence rose to a 14-month high in June, suggesting the BBA report will follow.

On balance, risk trends are likely to remain as the primary driver of forex price action. A number of notable earnings releases are on tap in European hours: ABB Ltd, the world’s largest maker of electricity grids, and Cie. de Saint-Gobain SA, Europe’s top supplier of construction materials, are set to report that profits fell by a staggering 42% and 83% respectively in the second quarter. Credit Suisse, Switzerland’s largest bank by market value, may help support shares in the Financials sector with expectations calling for the second consecutive quarter of profits driven by trading revenue.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound to Look Past Retail Sales, Home Loans Data to Trade on Risk Appetite (Euro Open)

Another Duality We Just Cannot Afford

I spoke yesterday about a duality that exists when Central Bank figure heads, like Ben Bernanke and Jean-Claude Trichet of the US and EU Central Banks, Respectively, straddle political affiliations with fair representations of their economies.

My assessment yesterday was that both of them have toned down their views to appeal to a political agenda, rather than giving accurate interpretations of what is going on. One week they say this, and one week they say that was the thought.

Yet, after Chairman Bernanke gave his report to Congress yesterday, he seemed to play both cards on the same day – in the span of an hour, in front of the same panel, painting optimism and caution all at once.

In his remarks, the Fed Chairman said that he believes that the economy is moving along well for the situation and that he feels that the US can and will see growth in the coming months – that the recovery is poised to begin in the latter part of 2009.

Yet, only 15 minutes later he began to speak of a high unemployment rate, one that is at levels that were unanticipated, one that is expected to continue to grow through the end of the year.

He also spoke of a tight credit market which is squeezing consumers, even ones who traditionally have had great credit are finding it hard to manage in this climate. He spoke of record low real-estate prices which inhibit refinancing and have caused many relying on income from property bought at high prices to take monthly losses from leases and rental agreements.

As Mr. Bernanke spoke, the Dollar, which was down most of the day on a continued risk appetite rally, turned upward, then downward, then upward again – as if the Forex traders and those Forex online professionals tracking his words on the internet could not figure out where he was going.

This is a problem, a big one as I see it, because Mr. Bernanke’s role was, traditionally, to sober up the euphoria that exists or confirm that all is OK – not paint two pictures with one speech.

His predecessor, Alan Greenspan, was noted for his “party-pooping” ways – not giving in the political agenda’s of the administrations he served under – he served four presidents from Reagan to Bush 2.

Greenspan called the internet bubble two years before it happened – “irrational exuberance” he called the fervor with which public offerings were being valuated. He criticized presidential policy when he thought it was harming the economy – like with his testimony in Congress over Bill Clinton’s proposed health care reform – which ultimately failed before it even got to a vote in Congress.

This is the kind of honest and unbiased judgments the Central Bank chair needs to give – and what Bernanke did was coddle the administration of Obama, colluding with them so as not to cause any panic that might jeopardize Obama’s policy initiatives.

Forex traders are becoming less trustful of the Central Bank heads, and it is a problem as this is how fundamental trading is done. It used to be a reliable source of information that would directly affect the currencies of a specific country – now it is taken in stride like a stump speech before an election.

Obama is looking to overhaul the Health Care system by pushing through a bill that will cost more than 1 Trillion Dollar according to the Congressional Budget Office.

This is a bill he has even acknowledged that he has not read – and is making contradictory statements about what it contains because he really has no idea what is in it.

A dire economic outlook would kill it – and trust me, it is losing support by the day right now. Bernanke for his part, is up for re-nomination in January. It is widely expected that Obama’s senior political advisor, Larry Summers, will be the one tapped for the role instead of Bernanke, who was a Bush 2 appointee.

Bernanke would serve his job better, serve the people of America better and serve the Forex traders better if he would focus on his current job, and not worry about keeping it come next year. Chances are, he is not even in the running now anyway, and all this back and forth to help Obama is not going to change that.