forex

EUR/USD reached today the highest level since December 13 on rumors that talks about Greek credit swaps are progressing. Today’s data eased concerns about the US economy that were caused by yesterday’s reports. The economy expanded last quarter and consumer sentiment improved this month.

GDP rose …

Plans for the Greek Private Sector Involvement remain a source of considerable uncertainty for peripheral markets, and the inconclusive result of negotiations over the past few days will leave the EUR and risk complex vulnerable to a large correction. However, the EU economic and monetary commissioner has indicated that authorities are very close to concluding their talks, either later today or over the weekend. Will the market add to the risk trades that have been applied since the Fed, earlier this week, increased its “free money” term length by 18-months? So far it’s been too tempting for the market to refuse and risk is being added accordingly.

The mixed signals from the Euro-zone debt market means investors need to tread with caution. Thus far, ECB liquidity has boosted demand for Spanish and Italian debt. The same cannot be said for Portugal. Peripheral bond yields have resumed their collapse this week, with Italian 10-year yields down -18bp to +5.84%, a long way from that +7% imploding benchmark. Portugal remains the outlier, with yields still under upward pressure. Perhaps if China invested in Europe we would not care so much?

Below are some other highlights of the week:

EUROPE

• EUR: Greek talks were expected to show something of substance last weekend. Not unexpected, this week began with Greece failing to yield agreement on the public sector involvement. Negotiators have been squabbling over the coupon that restructured bonds will carry.
• EUR: The single currency opened lower in the Chinese New Year and despite all the negatives, soared through last weeks highs allowing the techies to start talking about outside weekly reversals as the currency remains elevated.
• EUR: Analysts expect that even a successful conclusion to discussions would still leave the actual degree of private sector uptake unclear. EUR bears are still looking for that top, as default risks will not fully ‘abate’.
• FRF: French January business confidence surprised weak, falling to 91 from 94. The market had been expecting a small uptick, especially after the German IFO and EU PMI prints.
• EU: Portuguese debt worries have resurfaced to add to Greek default concerns.
• EU: Finance Ministers reject Greek debt swap offer, coupon demands too high.
• S&P’s Chambers: Greece ‘In all likelihood’ is down to a selected default. However, this default is not expected to destroy the credibility of EMU.
• EU: Euro-zone flash PMI’s came in firmer than expected with the composite back above 50 after four-months in contraction territory. This suggests that the region ‘should avoid a collapse in output’ and another quarter in the GDP ‘red’. Manufacturing PMI rose to 48.7 from 46.9 and services PMI rose to 50.5 from 49.0.
• GER: Their numbers were strong with manufacturing PMI at 50.9 and services PMI at 54.5. Big picture, data should help the Scandis and CE3 currencies.
• ESP: Spain saw strong demand at its bill auction. Spanish Treasury sold +EUR2.51b of 3-and 6-month bills. The bid-to-cover was high in both issues.
• EU: With Greek PSI negotiations inconclusive, the IMF is pushing for the ECB’s to take a haircut along with PSI as a means of distributing losses back to governments. However, the ECB and German coalition remains opposed to taking a loss on ECB holdings. Expect the heavy peripheral issuance schedule to remain a key factor in keeping the bulls on their toes.
• GER: German ifo surprised higher with the expectations component at 100.9, above the consensus for 99 and up from 98.6 previously (the third consecutive rise) and suggests a GDP growth rate of +0.5% q/q.
• GBP: UK GDP contracted more than expected in Q4, down -0.2%, q/q, vs. -0.1%. The weakness was driven mainly by soft industrial production in October and November and poor services at the start of the quarter.
• GBP: BoE minuets deferred the decision on more QE until next month, as expected. The assessment on the economy was somewhat less pessimistic as members judged the most serious downside risks have abated. However, others understood that the “risks of undershooting the target meant an expansion of the QE program is likely to be required”.
• FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
• HUF: Hungary sold HUF +48b worth of bonds (+13b more than expected). This would suggest that market perception of HUF risk has improved. PM Orban has softened his stance on recent legislation and indicated that he is willing to adjust their policies in order to win financial backing from the EU and IMF.
• SEK: Manufacturing confidence surprised soft, falling to -14 vs. -11. Analysts believe that weak growth and the recent sharp moderation in core-inflation allows for a rate cut by the Riksbank at the next meeting.
• EU: Peripheral bond yields have resumed their collapse, with Italian 10-year yields down -18bp to +5.84% (Friday Morning). However, Portugal remains the outlier with yields still under upward pressure.
• EU: On Friday, Rehn indicated that PSI talks are very close to conclusion, either today or over the weekend.
• EU: Euro area M3 growth has slowed significantly to +1.6%, y/y, from +2.0%.
• CHF: Swiss KoF leading indicator dropped to -0.17 this month from +0.01 in December (ninth consecutive monthly decline and the first negative reading in two years). However, the release is at odds with the recent upward surprise in the PMI back above 50.
• Fitch: Downgrades Belgium, Italy and Spain.
• PLN: Poland recorded above consensus 2011 GDP growth of +4.3%, y/y. Should continue to attract foreign capital and support the PLN.

 

AMERICAS Week in FX

ASIA Week in FX

 

 

“Key” surprises have ended up being the theme of this week. The Fed has extended the term of free money by 18-months and the door is now ajar for further QE. It’s the “when” that many appear to disagree with. It seems unlikely to be applied until after operation twist ends in June. QE2 and the ‘twist’ arrived after extensive debates and many months of weak data. In the medium term, both equities and commodities should continue to benefit from the idea that the Fed has better than even odds of performing additional QE.

US GDP, despite growing at a solid +2.8% in Q4, provided its surprise in the details. The mix of growth suggests weakness this quarter and beyond. The bulk of last quarter’s growth came from the inventory sector (+2% of the top-line). Real GDP ex-inventories were a poor +0.8%, the weakest pace in a year.

Below are some other highlights of the week:

AMERICAS

• CAD: Retail Sales rose a tad more than expected in November (+0.3% vs. +0.2%). However, it was the smallest of four consecutive monthly gains, on increased sales of gas and clothing. Sales rose to +$38.7b slowing from a revised +0.9% increase in October. Sales volume at +0.5% was also the fourth straight increase.
• USD: Obama’s campaign begins. In the State of the Union address he called for the creation of a trade enforcement division to investigate unfair trade practices, an end to tax deductions related to US company closures of facilities in the US for relocation abroad. He also announced plans to provide financing for US firms competing with overseas firms receiving state financing.
• USD: December Pending Home Sales (-3.5% to 96.6) fell from its 19-month high print the prior month. The results were +5.6% above the December 2010 point.
• USD: Weekly crude inventory report increased by +3.6m barrels last week to +334.8m barrels.
• FOMC: The Fed surprised markets mid-week by extending its contingent commitment to low policy rates through 2014 (an extension of 18-months). In their transparency approach, the FOMC central projections showed only 6 of 17 committee members anticipate no easing before 2015.
• USD: December durable goods orders firm with a +3% increase and a +2.1% ex-transport print. This supports recent manufacturing survey’s that the sector is regaining some momentum.
• USD: As expected, seasonally adjusted initial unemployment benefit claims contracted upwards last week to +377k, up +21k w/w. The less volatile four-week average stands at +377.5k. Continuing claims now at +3.55m is more consistent with a +8.6% unemployment rate.
• USD: December new home sales unexpectedly fell -2.2% to +307k, well below consensus estimates of +320k. It’s disappointing data on the back of other recent housing indicators having been positive. The data suggests that the market cannot be confident of a strong and sustained boost to GDP despite lower mortgage rates.
• USD: First reading of the US Q4 GDP did not live up to hype. Economists expected +3% and they got +2.8%, however, still a notable improvement from the +1.8% in Q3 print.
• USD: The belief that more jobs are to be had pushed the UoM consumer sentiment higher to 75 from 74. Sentiment has been expanding for five-months; stronger payrolls lead to stronger sentiment.
• USD: UoM inflation expectations edged higher to +3.3% at the end of January from +2.7% earlier in the month.

 

EUROPE Week in FX

ASIA Week in FX

 

 

Other regional data and policy innovation has mostly been positive for the Asian region this week. The Fed’s surprise extension of its commitment not to raise US rates for another 18-month’s, until late 2014, “should be the key to medium-term development”. Yen is expected to be the natural beneficiary of the latest dovish rhetoric by Bernanke and company and monetary easing by other G10 members. The lack of attractive yield opportunities complicates Japans current account recycling efforts. The stronger than expected Euro area flash PMI’s this month should be Asia’s strongest macro support (it suggests that the regions exports have ‘bottomed out’). Analysts historically use this indicator as a bellwether for Asian currency appreciation.

Below are some other highlights of the week:

ASIA

• CNY: Chinese New Year of the Dragon begins.
• AUD: Because of the Chinese Holidays, markets down-under were vulnerable to illiquid pockets this week.
• AUD: The IMF has warned that Aussie banks might need “tougher capital requirements.”
• JPY: It was no surprise that the BoJ cut growth forecasts at this weeks monetary meeting, while maintaining the policy rate (+0.05%) and leaving the QE program unchanged. Policy makers have revised down the country’s growth outlook for 2011 (from +0.3%, y/y, to -0.4%) and 2012 (from +2.2%, y/y to +2.0%) attributing the slowdown to the overseas economies and the retroactive revision of GDP stats.
• JPY: Their inflation metrics remain unchanged, believing that the global financial markets, US balance sheet adjustments and price stability in the emerging economy, all represent risks to Japanese growth. What about the yen? It’s a currency that is likely to continue to “benefit from policy convergence and risk aversion.”
• INR: The RBI held the repo rate unchanged at +8.5% (as expected), however, they unexpectedly lowered the cash reserve ratio to +5.5% from +6.0% (It’s first ease in nearly three-years). Analysts expect this to add approximately +INR320b into the economy.
• INR: The RBI also revised this years growth forecast lower to +7% from +7.6%.
• AUD: Australia headline CPI was flat in Q4 (forecasted for a +0.2%, q/q rise) due to a sharp fall in fruit prices. The RBA’s trimmed mean measure of CPI inflation was +0.6%, q/q, and the weighted median was +0.5%. Both are running at +2.6%, y/y, after some upward revisions to Q3 numbers. However, with core prices in the middle of RBA’s +2-3% target band suggests further easing is not required just yet. The market expects the RBA to cut rates +25bps because of Euro woes.
• JPY: Japan’s December’s trade deficit rose to -JPY567b, pushing the 2011 trade balance into a deficit of JPY2.5trn (the first annual trade deficit in 20-years). Analysts expect this trend to continue for 2012. Euro uncertainties and global central banks monetary easing will continue to make it hard for any current account surplus to be recycled offshore. With repatriation of overseas assets remaining strong, the currency should remain under pressure longer term.
• PHP: Philippine imports remained at a high, +$4.9b in November, pushing the trade deficit -$0.7b wider to -$1.6b. Remittances continue to support the PHP and a current account surplus. Expect policy makers to remain reluctant to allow their currency outperform in the region.
• SGD: Singapore CPI inflation was at +5.5%, y/y in December, in line with the consensus forecast. Inflation is expected to remain high through the next one to two quarters. This scenario would suggest that the MAS to maintain the SGD on its current mild appreciation path.
• FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
• KWN: With EM Central Banks more active in reducing the appreciation of their own currencies, the BoK is supposedly restricting KRW appreciation to about five won per day.
• NZD: RBNZ remains on hold at +2.5%, as widely expected. No rate move is priced in until Q4.
• KRW: GDP growth slowed to +3.4%, y/y, in Q4 vs. +3.5%. The underlying details were soft, with domestic demand and investment continuing to be weak. Net export growth also slowed.
• SGD: In Singapore IP rose +12.6%, y/y, in December, much higher than the consensus forecast of 6.4%yoy. The MAS is expected to keep the SGD on an appreciating trend.
• KWN: Korea’s manufacturing business survey rallied +2pts to 81 in January, and still below the expansionary level of 100. Analysts expect the index to rise in line with the recovery in global PMI’s. This would suggest stronger export growth and support for the won.
• NZD: New Zealand recorded a trade surplus of +0.3b in December, this after four consecutives months in the red. This was achieved on the back of increased dairy exports. In December exports rose +13% while imports fell +1.6%. For 2011, the trade surplus was largely flat at around +1.1b. Expect further Kiwi appreciation to hurt exports. Governor Bollard at the RBNZ said he is comfortable with the current market pricing of no rates hike for the year ahead.

 

AMERICAS Week in FX
EUROPE Week in FX

 

 

Loonie slightly higher in currency trading

The Canadian dollar is slightly higher in forex trading, moving a little bit higher on the strength of a weaker US dollar. The loonie is gaining as US dollar sinks under its bad news.

Additionally, loonie is being supported by oil prices right now. Oil prices are a little bit higher, and that is helping the Canadian dollar hold its gains -- even though risk aversion is setting in and would normally lead to losses for the loonie.

For now, though, Canadian dollar is just managing to hold its gains. It will be interesting to see how long it lasts. Poor economic data in the US, and renewed worries about Greece are likely to result in risk aversion soon. 

See Also

• What's Next for the Loonie? Forex trading trends

Greenback pressured in currency trading

US dollar is lower in forex trading, heading down as concerns about the economy once again take center stage. Greenback is lower in currency trading, pressured as concerns about GDP and jobless claims take precedence.

Indeed, worries about US GDP are rising, and jobless claims are rising as well. This is in contrast with recent data out of the eurozone that has been better than expected. Eurozone data has beat expectations, and that is helping the euro -- even though there are still issues related to Greek debt.

For now, the dollar index is losing ground, but the situation is still volatile, and the story could change quickly. It will be interesting to see what happens next, and what news shapes the forex market going forward.

See Also

• Dollar in Forex Trading Currency trading news

Greenback lower in currency trading

Jobless claims are higher in the US, rising sharply as concerns about the economy come to the fore. Jobless claims rose to 377,000 in the week ending January 21, 2012, and that is causing some concern.

Worries about the US economy, which include a slightly disappointing GDP figure from the fourth quarter of 2011, are once again sending the greenback lower in currency trading.

Indeed, US dollar is lower against the euro in forex trading, as well as against other currencies, including the pound and commodity currencies. The dollar index is lower, but things may change as the day progresses. Dollar has been hit, but this news also usually means a reduction in risk appetite. As a result, the greenback could soon turn around as Forex traders look for safe haven. 

See Also

• Economic News and the US Dollar Currency trading news and information

Despite expanding at the fastest rate in over a year, U.S. 4th quarter growth fell short of the 3.0 percent expansion economists had predicted. Still, the 2.8 percent annualized increase was a strong improvement over the 1.8 percent recorded in the previous quarter.

However, there are concerns that given the main areas responsible for driving growth for the quarter, the rate of expansion cannot be sustained.

“The economy ended 2011 on a fairly positive note, but the composition of growth in the last quarter is not favorable for growth early this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Growth in the fourth quarter got a temporary boost from the rebuilding of business inventories, which was the fastest since the third quarter of 2010, after they declined in the third-quarter for the first time since late 2009.

Source: Reuters

Japan’s Core Consumer Price Index declined 0.1 % The figure came after Tokyo’s CPI 0.4% decline a month earlier. Coupled with a 1.2% drop in Retail Sales due to a strong yen that makes Japanese exports less competitive and imports more attractive signal a reduced wage expectation from the net exporting nation.

The Bank of Japan and the government concede that the economy is in a lull, and they could come under increasing pressure to support it with currency intervention and monetary policy easing as Europe’s debt crisis weighs on external demand.

Auto and Machinery sales had record losses in 2011 even though they recovered by 2.5% in December.

Bloomberg

With little excitement in the currency markets O/N, US benchmark yields have backed up a tad ahead of this mornings US GDP report. Treasuries have managed to snap a two-day rally that sent five-year yields to a record low yesterday (+0.75% intraday) as the market expects the report to show that US growth quickened in the last quarter of 2011 (+3% vs. +1.8%, q/q).

Yields along the curve are trading higher for different reasons. The shorter end, out to 5’s, has seen more profit taking by market participants, one day after Bernanke and company pledged to keep short-term interest rates “exceptionally low,” at least until late 2014. At this weeks FOMC meeting, policy makers indicated that they are extending their low rate policy for another 18-months. Currently, futures prices see lower odds of an early 2014 hike, before the meeting it was at +20%. The benchmark yield, 10-year product, trades relatively steady at +1.97%, up from this weeks low print of +1.915% after the Fed announcement and from +2.09% at the end of last week. It’s in the long end that has led the decline, 30-year bonds trade at +3.13% (up +4bps) on bets that the Fed’s decision will spur inflation. Like most initial market moves, price movements seem to get over extended.

A stronger US number this morning should encourage further swapping out of the relative safety of US government debt into more corporate product, where yields and returns are more attractive. The Euro sovereign debt crisis and the threat of a US slowdown combined to give fixed-income a +9.8% return last year (the most in three years). So far this year, treasuries have handed investors a -0.2% loss through yesterday. The Fed’s longer term low policy rate should provide further short term support for equities.

At yesterday’s $29b 7-year auction, the final treasury issue of the week, brought a record low yield, however, it was higher than the market expected, indicating buyers’ reluctance to step in at current levels. The recent run in prices, no matter what is occurring at the Euro debt debate table, US product is a tad rich at current levels despite the Fed’s mandate. The mid-2014 language will help the belly of the curve longer term, however, at these levels, market participants seem to expect stronger data short term to trump current levels.

 

Other links: A “Dovish” FOMC

U.S. Ten-Years:

 

On Wednesday, the Office for National Statistics (ONS) revealed that the UK economy contracted by 0.2 percent for the final quarter of 2011. Economists had predicted a slight increase of 0.1 percent for the last three months of the year.

Despite the feeble ending to the year, the latest ONS data shows overall growth for 2011 was a mediocre, but still positive, 0.9 percent. Still, this level of expansion is well below the Bank of England’s 2 percent growth target and there is a real concern that the economy will continue to shrink during the first half of 2012.

This could hardly come at a worse time for the British government. Like many of its G8 counterparts, the UK is faced with the dilemma of promoting growth, while at the same time, keeping a lid on spending. In fact, government spending was a central theme in the 2010 election and resulted in a coalition government led by Conservative Prime Minister David Cameron together with the Liberal Democrats.

The new government came to power on a promise to address the country’s out-of-control spending which few would argue was not already well beyond a crisis point. And that is actually saying something as Great Britain has a long history of deficits. In fairness, some of this debt was accumulated as part of the effort to fight two major wars, but even in peace time, Britain typically spends more than it earns.

During the 1970s and 1980s, high levels of inflation forced the government to rely on borrowing to maintain spending programs. In the span of those two decades alone, total debt rose from £33.1 billion ($51.6 billion) in 1970 to £197.4 billion ($308.0 billion) by 1988.

Since then, Britain has actually increased its reliance on deficit financing. By 1997 total public debt was £352 billion ($549 billion), but by the end of 2009, debt had once again more than doubled and has now broken through the £1 trillion ($1.6 trillion) barrier.

Britain’s 2011 deficit is expected to be in the range of £150 billion ($234 billion), making it only marginally better than the previous year’s deficit of £170 billion ($234 billion) despite a full year of government spending cuts. The country’s debt to GDP ratio is still nearly 80 percent and with weaker growth expected in the coming year, this statistic could worsen.

Both the Bank of England and the International Monetary Fund (IMF) recently downgraded earlier growth projections for 2012. The IMF slashed its prediction by a full percentage point and now expects the British economy to expand by only 0.6 percent this year.

Eurozone Crisis and Austerity Measures

With its close proximity and trade ties with Europe, Britain is heavily exposed to the uncertainty arising from the Eurozone debt crisis. In late November, the Organization for Economic Development and Cooperation (OECD) released a stark statement warning that the UK will almost certainly face another recession in the first half of 2012 because of the turmoil in the Eurozone. Britain has already recorded one quarter of negative growth – should the first quarter of 2012 also be negative, the OECD’s prophecy will come true.

While there is little the government can do with respect to solving the Eurozone issue, it will be interesting to see if the government moderates its drive to eliminate the deficit in deference to the slowing economy. Reducing the deficit is necessary, but it is impossible to dramatically slash spending without impacting growth. With growth already on the decline, it may be advisable for the government to moderate its spending reduction plans at least until the economy gathers strength.

EUR/USD was at the highest since December 21 as yesterday’s pledge of the Federal Reserve to keep interest rates low at a prolonged time continued to push the dollar lower. Macroeconomic reports weren’t helping the US currency as housing and jobs data was negative, while leading indicators rose less than expected.

Initial jobless …

Sterling drops against 17-nation currency

UK pound is lower against the euro in forex trading today, dropping as concerns about the British economy acquire prominence. The British economy, which appears to be struggling, stands in contrast to the eurozone economy, led by a Germany that appears to be seeing improvement.

Euro is also higher in general as commodities and other risk assets rise on the latest from the US Federal Reserve. With so much risk sentiment, euro is doing well indeed. And with so much confusion over the British economy, it is now surprise that the sterling is lower.

For now, EUR/GBP is gaining. However, Greek debt worries could change things around again, sending the euro lower against the pound in forex trading. It will be interesting to see what happens next. 

See Also

• Sterling in Forex Trading Currency market news

Aussie gains in currency trading

The Aussie is rising today, thanks to newfound popularity with the Russians. The Russian central bank deputy minister announced that the Australian dollar will be used as a reserve currency going forward.

Indeed, Russian announced that the Aussie will begin being used as a reserve currency possibly in February. This news has provided a boost to the popularity of the Australian dollar in forex trading, since there will be increased demand.

Also helping the Aussie today is the rise in gold prices. Aussie relies on gold prices for support, and the surge in gold right now is positive for the Australian dollar. It is little surprise that the Aussie is doing so well in currency trading on the FX market today. 

See Also

• Economic News and Forex Trading Currency trading on the FX market

17-nation currency gains on risk appetite

Here comes the risk rally. Euro is heading higher in forex trading, gaining as the markets look forward to continued stimulus from the United States.

Yesterday, Federal Reserve Chair Ben Bernanke announced that interest rates would remain near zero probably until 2014. Additionally, with the release of the latest negative jobless claims data, many expect that the Fed will engage in more quantitative easing.

All of this is sending commodities and equities higher today, and weighing on the US dollar. As a result, the euro is getting a boost today, helped along by a renewal of Greek debt talks and recent positive news about the German Ifo. 

See Also

• Euro in Forex Trading Currency market news and information

EUR/USD: The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 100-Day SMA in the 1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA has now crossed back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2800, while only a daily close back under this figure would negate short-term bull bias. A bullish reversal week further supports short-term constructive outlook.

As part of the Davos World Economic Forum, UK Prime minister, David Cameron is urging his EU counterparts to follow Britain’s example. In his words: “In Britain we had to be bold”.

In a message to his European counterparts, Mr Cameron argued his government’s efforts to tackle its deficit had “earned credibility and got (the UK) ahead of the markets”, and eurozone leaders should now take similarly decisive action.

The eurozone crisis was “weighing down business confidence and investment” across Europe, he said, and EU leaders had to “to show the leadership our people are demanding”.

“Tinkering here and there and hoping we’ll drift to a solution simply won’t cut it any more,” he said.

via BBC

Yesterday, the Federal Open Market Committee (FOMC) statement extended the current near-zero interest rate policy another year to the middle of 2014. The FOMC also addressed the resumption of the Fed’s bond buying program.

The Federal Open Market Committee “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation,” Bernanke said yesterday at a press conference in Washington.

Source: Bloomberg

The market sure did not see this one coming from the Fed. An “unambiguous and aggressive” statement from US policy makers is certainly laying the groundworks for QE3. With unemployment elevated and inflation subdued, Helicopter Ben can certainly put this option back on the table. The Fed has set a long term inflation target of +2%, a level they expect to fall short of this year and next. Despite the US economy appearing to be picking up steam in manufacturing, housing and employment, the goto excuse for Central Bankers, Europe and its debt laden outliers, is allowing the Fed to prepare for a third round of large-scale asset purchases.

The Fed’s extended commitment to low dollar funding costs is broadly bearish for the USD and bullish for higher-yielding G10 and EM currencies. The risk addicts are getting what they want. CAD at parity, AUD at new yearly highs, Kiwi, Mexico and other growth currencies following suite. The dollars demise has “emerging” Cbankers intervening to stem the speed of domestic appreciation and other G10 just worried for now about their appreciation. The Fixed Income dealers are taking the middle of the US yield curve sharply lower as pricing for policy tightening gets pushed back further into the future.

With the market lapping up this risk, it is intensifying the EUR bear squeeze. For now, the short positions have some of the crosses working in their favor. USD/CHF sales continue to weigh on the cross, with EUR/CHF being sold to session lows in Europe. There has been rumors of SNB interest in the mid 1.20’s over the last couple of sessions as the cross gravitates towards that Central Bank floor barrier.

An 18-month ‘exceptionally’ low yield extension will obviously take some time to price in, a job certainly not made any easier by EUR record shorts, weak shorts and a plethora of new hopeful position taking, the type who are trying to find the ideal speculative EUR top ahead of the record periphery debt issues this quarter. At such lofty heights, how much more to the top if private lenders accept a lower Greek coupon deal?

US firmer data bodes well for risk. Analysts expect a strong headline print from US durable goods this morning (+2.5%, m/m on the headline), new home sales to have reached a new yearly high and jobless claims to have risen in line with consensus. No one can argue that a dovish Fed, coupled with strong data will help risk and trigger more weak EUR stops and option barriers. Wait until the world stops spinning and pick your levels!

Other Links: A “Dovish” FOMC