BOE Holds Steady But Extends QE by GBP50B; Unexpected

Recent polls by Bloomberg and a Shadow MPC report calling for an end to QE from the Bank of England are way off the mark with the Bank of England announcing this morning that not only will they extend the QE programme, but also double the expected GBP25B addition to GBP50B. This takes the total programme to GBP175B.

The MPC has said that the world economy remains in recession, despite increasing signs that the output in the UK’s export market is stabilizing, and that financial markets are still fragile even with noticeable improvements. This has weighed tremendously on Sterling across the board, and could very well set the tone for the day. Rates were left unchanged at 0.50% as expected.

Wed, Aug 5 2009 news

• Forex: GBP/USD breaks 1.7000 resistance

The Sterling has finally broken the 1.7000 key resistance against the Dollar after rising around 90 pips in the last hour from 1.6960 to post fresh 9-month highs.

GBP/USD has jumped above the 1.7000 key resistance after several attempts since the yesterday opening. Pair has risen around 90 pips from 1.6960 to post 1.7045 as fresh highest level since last October 21.

Currently the pair is trading around 1.7035/45, 0.50% above today's opening price action.

According to Carol Harmer, technical analyst at Charmer Charts, the Pound could break above 1.7000 heading to 1.72: "Now today the market does remain looking as though it could trade higher back to 1.7005. Here will be quite crucial. The sellers failing to hold off buyers will see this then trade higher with 1.72 targeted. 1.72 is the measured target from the continuation pattern we experienced all through June and July."

todays update

Finance Minister Halts Canadian Dollar Rally

The Canadian dollar, which has gaining heavily versus several most traded currencies, finally stopped its rally after the national Finance Minister affirmed that eventual measures may be taken to damp the rising demand for the loonie, which is already jeopardizing Canadian exports.

The Canadian currency was one of the best performing ones since the world started to post more solid signs of economic recovery last month, creating a bullish pattern for high-yielding currencies fueled by a new wave of risk appetite. The current rise of the loonie, may already affect Canadian exporters negatively, since the national currency rose intensively, more than its Australian and New Zealand counterparts for example. Yesterday, Canadian Finance Minister Jim Flaherty stated that the rapid rise of the national currency is already a reason of concern, and measures may be taken to halt its continuation, affecting immediately the Canadian dollar, which dropped from a 10-month high level.

Analysts examine the loonie’s short term situation as an obstacle for Canada to grow, since a high loonie will affect Canadian’s exports and consequently different sectors of the economy. The Bank of Canada may indeed intervene in the currency market, being Flaherty’s declaration already an effective psychological measure that pushed the dollar down for the first time in a almost a week.

USD/CAD traded at 1.0763 as of 10:21 GMT from yesterday’s rate of 1.0681.

Forex: GBP/USD posts 9-month high at 1.6987

The Sterling has risen around 170 pips against the Dollar during the American session from 1.6820 to post the highest level since October 21 at 1.6987 in its way to test 1.7000 level. Currently the pair is trading around 1.6935/45, 1.40% above today's opening price action.

Valeria Bednarik, Fxstreet.com collaborator, comments: “Pair has resume midterm uptrend, after breaking to the upside, both, 61.8% retracement of last weekly fall, and the roof of the range the pair has been trapped since early June. First strong resistance level comes at the 1.7120 area, followed by 1.7400 level. Downside corrections will find support around 1.6700, that should hold to keep bias intact. Intraday supports come at 1.6950 and 1.6900, while resistances from actual price lie 1.6980 and 1.7030.”

ECB On Hold Once More?

ECB On Hold Once More?

The ECB meets this week in Frankfurt (Germany). Rates should stay on hold once more, as the recovery process is just beginning in Europe. The U.S. dollar, in the mean time, is still at key support levels against major currencies.

U.S.: Consumer confidence weak.

The process might be slow and the recovery could not take the form of the classical V shape. However, the worst should be over for U.S. economy, after more than one year of losses. Leading indicators increased last month for the third consecutive time, while some corporate earnings have risen above expectations. In addition, manufacturing industries have reduced inventories and orders have improved, despite the sector remaining very volatile. In June, durable goods new orders slumped 2.5% after having increased 1.3% in May and 1.4% in April. Nevertheless, excluding transportation, orders would have jumped 1.1%. The real estate market has found a bottom at current levels and the increase of sales could boost consumer confidence. New home sales moved up 11% in June to 384,000 units. The up move was well distributed among all the U.S. regions with the exception of the South where sells declined 5.3%. Inventories are now at 8.8 months of supply from 10.2 months, while building permits, a forecasting indicator, rose almost 9.0%.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

Forex Top Story

Dollar Hits The Skids As Recovery Hopes Rise

The dollar plummeted across the board versus major counterparts on Friday as traders expressed increased risk appetite after a report showed that the US economy contracted less than analysts were predicting.

The report fueled hopes that the world's biggest economy could lead the world out of the worst recession in decades, and sooner than once feared.

Traders had been hedging of late, refusing to go all-in on the prospect of a global recovery beginning by year's end. However, with stocks on the rise and a number of key indicators showing a faint pulse in the housing and labor markets, the dollar could be in for some big losses to higher-yielding counterparts.

Its already been a rough month for the dollar versus resource-linked currencies, and the euro and sterling joined the buck-bashing party on Friday.

The dollar tumbled to 1.4270 versus the euro, giving back all of its gains from earlier in the week. With the loss, the dollar moved within a penny of its 2009 lows.

The dollar plunged from a month-long trading range versus the sterling, slipping to a 4-week low of 1.6732 before finding support. Back in June, the dollar hit a 2009 low of 1.6744.

Even the yen battered the dollar on Friday. The buck slipped to 94.58 by mid-day after challenging a monthly high near 96 in the previous session.

Versus the loonie, the dollar dropped to C$1.0762, coming within a hair of Monday's 10-month low of C$1.0749.
The U.S. economy continued to shrink in the second quarter, according to new government statistics released Friday, although the pace of contraction slowed by more than economists had been expecting.

The U.S. Commerce Department revealed that Gross Domestic Product, a closely watched measure of broad economic performance, fell at a pace of 1 percent for the second quarter. Economists had expected GDP to fall at a 1.5 percent rate.

And while the Institute for Supply Management - Chicago released a report on Friday showing a continued contraction in manufacturing activity in the month of July, the pace of contraction slowed by a little more than economists had been expecting.

North of the border, Canadian real gross domestic product (GDP) decreased 0.5% in May, a faster rate of decline than in the previous three months, according to data released Friday by Statistics Canada.

Economist were looking for GDP to fall 0.3% in May.

Gold Prices Rally Above $950 As Dollar Falls

Gold prices saw notable strength on Friday, boosted by a weaker U.S. dollar. The rise pared losses seen earlier in the week.

August-stamped gold settled at $953.70 per ounce, up $18.80 on the session. Prices touched as high as $958.10 after earlier touching $932.

Gold gained $2.40 on the volatile week as uncertainty in the global markets led to mixed feelings on the need for a hedge investment. The metal rallied about 2.8% in the month of July.

The dollar tumbled versus the euro and moved within a penny of its 2009 lows. The buck also fell to a four-week low against the pound.

Bank of England urged to extend quantitative easing

The Bank of England’s monetary policy committee (MPC), which meets this week, is under pressure from economists and business to extend its policy of “quantitative easing”, or creating money.

The shadow MPC, which meets under the auspices of the Institute of Economic Affairs, says interest rates should stay at 0.5% but the Bank should extend quantitative easing.

The policy, which has mainly been achieved by purchases of gilts, has so far amounted to £125 billion, within the £150 billion limit agreed with the Treasury.

The shadow MPC says the Bank should proceed with the remaining £25 billion and then go further, with between £50 billion and £300 billion of additional easing.

Japanese Yen May Trade Heavy If Risk Appetite Continues

Fundamental Forecast for Japanese Yen

The Yen was mixed to end the week as it rallied against the dollar on the better than expected GDP figures and braid based greenback weakness. However, it would end the week unchanged against the Euro and weaker against the pound as risk appetite continues to weigh it against riskier currencies. Equity markets have show no signs of abating but they are near significant resistance levels and with the U.S. employment report scheduled next week a pull back is possible. Meanwhile, Japanese fundamental data continues to point toward a slow recovery as unemployment rose to a six year high of 5.4% signaling that gains in domestic growth will be challenging going forward. Consumer prices falling at a record pace of -1.8% will continue to squeeze corporate profits and limit the potential for a Japanese recovery. Optimism from the economy can be derived from industrial production rising for a fourth month by 2.4% and PMI returning to expansion levels, which could be a sign that global demand is improving. There were some signs of hope domestically with improvements in small business confidence and household spending.

BoJ member Tadoa Noda stated this week that central bank shouldn’t end their emergency credit programs prematurely as it could limit the scope of a recovery. The central bank this month extended the credit-support programs of buying corporate debt from banks and providing them with unlimited loans to Dec. 31 from Sept. 30 as lending conditions remain frozen. The upcoming economic docket is relatively light with labor cash earnings and leading and coincident reading. The forward looking gauge for the economy is expected to rise to its highest level since November as the outlook continues to improve for the economy. However, price action will most likely be dependent again on risk sentiment which could be limited with US NFP’s looming. The USDJPY has been in a downward trending channel and which was kept intact with Friday’s sell off. Trend line resistance is near 96.15 which is being reinforced by the 38.2% Fibo of 110.69- 87.14. Support may be found at the 20-Day SMA at 94.19 and 93.09-the 7/22 low.

Gold Unaffected by the Economic Crisis?

I am no gold bug. I am not one of the fanatical core, the priesthood, a worshiper of the shiny metal. I have, however, recommended it from time to time, and believe it to be an excellent core component of a balanced portfolio. And as such, I take a gander at it, fairly frequently. Not the actual metal itself - that would make me strange. But rather the stock chart of the GLD, the ETF

Gold hasn't done much over the past several months, aside from chop around in a sloppy range. There has been a lot of swapping in and out of gold by flighty traders, used as a hedge against fears of future inflation, bought and sold by institutions, and as of late, exited in favor of material possession of the shiny metal itself by some hedge funds (those who pay attention to the paper-to-metal arbitrage).

But irrespective of this continued, underlying jostlithat tracks the price of gold bullion.ng of positions, one thing is certain - the price of gold has largely been unaffected, for good or bad, by the economic crisis, and consequently by the most recent "flight from safety" rally.

So what gives? The dollar has been getting crushed, emerging markets assets have surged. The best emerging markets movers have been consumer-related, anticipating the effectiveness of these countries recovery efforts. Gold has been unimpressed by the decline of the dollar, and at the same time unaffected by the move away from safe haven assets. It is nearly the same price now as it was to start 2008. Who would have guessed?

With the markets at overbought levels, it may be worth keeping an eye on GLD here. Obviously many investors have core positions in gold. And buying the GLD for a trade while it is still muddled within the parameters of its range is probably unnecessarily risky.

However, taking a step back and eying the GLD from a longer-term time frame certainly lends one the confidence that this range should eventually be resolved to the upside, and potentially in dramatic fashion. Longstanding consolidations often beget powerful moves.

NewZealand Dollar May Lead Losers If Stock Rally Reverses

NewZealand Dollar May Lead Losers If Stock Rally Reverses

The NewZealand Dollar will continue to look to risk trends to guide directional momentum in the week ahead: further gains can be expected if stock markets are to remain supported, but any opportunity for economic fundamentals to recapture the spotlight will likely open the door for a sharp reversal lower. The comparatively higher-yielding currency has attracted risk-seeking capital despite admonitions from RBNZ Governor Alan Bollard, who said following the central bank’s last policy meeting that recent appreciation of the New Zealand Dollar is “not helping the sustainability of future growth, and brings with it additional economic risks.” Talking down the currency may not prove fruitful, however, with the market firmly focused on US news to drive risk sentiment and with it the Kiwi dollar. On that front, the calendar is packed with market-moving event risk in the week ahead, culminating with the always significant Non Farm Payrolls report. Modest improvements are expected nearly across the board, which points to smooth sailing for risky assets barring any significant downside surprises on key metrics or a particularly disappointing second-quarter earnings outcome from a major company.

That said, technical positioning is hinting that the equities rally that began in March is starting to run out of momentum and may be on track to putting in a double top at the October 2008 swing high, with volumes steadily declining since early May and clear negative divergence between rising prices and stalling relative strength studies. If stock markets do indeed turn lower, the New Zealand Dollar stands to lose disproportionately more than it’s equally risk-driven counterpart in Australia as the market’s attention shifts back to the dismal state of the smaller antipodean economy, complete with a precarious sovereign credit outlook and the central bank’s clear promise to keep interest rates “at or below the current level [through] the latter part of 2010.”

Turning to scheduled economic data releases, the stand-out report to watch is July’s ANZ Commodity Price Index. The metric is likely to underline once again the damaging effect of a stronger local currency on New Zealand’s exporters, a sector that contributes up to 30% to overall economic growth, and help open the door for sellers to gain the upper hand. Recent Kiwi dollar appreciation has made the country’s goods comparatively more expensive for foreign buyers, leading Prime Minister John Key to conclude that the exchange rate was “derailing” the economy. Ratings powerhouse Fitch has also decried the fact that the currency is “more responsive to global financial conditions than to domestic economic fundamentals,” saying this complicates the necessary adjustments to New Zealand’s current account and budget deficits. These comments in addition to similar sentiments out of the central bank (noted above) could fuel expectations that, as we noted in last week’s forecast, an interest rate cut is the next logical step to check the currency’s ascent.

Elsewhere on the docket, private sector Labor Costs are expected to grow by a meager 0.5% in the second quarter, the least in over 4 years, reflecting the same kind of aggressive cost-cutting that has been seen across firms in industrial economies and that has produced upside earnings surprises over recent weeks despite small to non-existent revenues. The release will foreshadow employment numbers set to cross the wires two days later, with forecasts suggesting the jobless rate ticket higher to 5.7% in the three months through June, the highest reading since the fourth quarter of 2000.

Forex: EUR/USD tests intra-day at 1.4280

The Dollar weakness continues across the board. EUR/USD is near intra-day high at 1.4280 testing those levels, after Greenback recovery found support at 1.4235. The Euro is rallying on Friday against the Dollar. The pair is up 1.40% from the opening price and has recovered form Wednesday loses.

Ralph Shell, ForexRazor's analyst, comments: “It looks like the government's popular (up tp $4500 back) cash for clunkers program, it about to be junked. Coming from this group of Washington spendthrifts, excessive cost to the government is cited as the unlikely reason. More likely President Obama, and his keepers of the Chicago Way, are searching for a way receive, in return, a portion of this government largess. Reinstatement of the program will likely occur if some of these details are remedied. The trade Monday should prove to be interesting. Are we getting ready for an assault on the 1.4300 resistance or the 1.4000 support?”