21:00
GMT- Mar 12 (global-view.com) It seemed that traders suddenly lifted
their heads in the middle of the week past and realized that the lead EURUSD
pair has been unable to distance itself from 1.3600. This was disappointing
to those who had built sizeable short positions in this pair. This is doubly
disappointing to those who had figured the better than expected
U.S.
February employment data would be the catalyst for a strong
U.S.
advance. So far it hasn’t. That data also came at the time of a WSJ story
that suggested that major hedge fund managers were making what was called
career bets on a sharply weaker EUR.
On
Friday, the EURUSD turned higher following word the Obama Administration is
considering naming SF Fed
President Yellen Vice-Chairman of the Fed. Some say she would then be next
in line to be the next Chairman. Markets were mildly unhappy with her
because she is seen to be a monetary policy dove. Dealers also noted that
the Greek debt default issue has become less of a market factor. A key
question for traders will be whether the EURUSD can continue to distance
itself from its key 20-day moving average, which was 1.3610 using the
Global-View forex
database as of the close on Thursday.
Data
released over this week did not have much of an impact on forex prices in
the period. The immediate focus into the weekend is what the Bank of Japan
policy decision will be next week. It’s a given that interest rates will
remain at near zero levels. On Thursday, Japanese 4Q09 GDP was revised down
to 3.8% per annum vs. the previous estimate of 4.6%, There have been press
reports that the central bank has been mulling doubling the size of a
special bank lending facility for corporations introduced in December.
Political pressure from the new government on the central bank to do
something concrete about the current deflationary pressures in
Japan
has been intense.
FinMin
Kan
also opened the specter of possible forex intervention.
As
for the JPY, we wonder if there have been behind the scenes efforts recently
by Japanese monetary authorities to guide the JPY weaker. The currency
normally encounters strong seasonal demand at the end of the first quarter
of the year. Japanese fiscal yearend flows are still in play. The Japanese
fiscal yearend is March 31. Our best guess is that the JPY will come under
pressure in 2Q10 and beyond. Volatile trade is likely in the interim.
The
SNB kept its interest rates steady as expected on Thursday. It also
reinforced its commitment supporting the EUR forcibly vs. the CHF via
intervention. It was not clear from their comments if the SNB will
specifically defend the 1.4600 line or not. Heavy intervention to support
the EUR vs. the CHF is inconsistent with the policy objectives of the
central bank.
See ECONOMIC CALENDAR
for a complete list of future forex market events and consensus data
estimates. Go to the forex
forum for up-to-date market developments and technical trading ideas.
EUR/USD is
firmer. The equity correlation trade has been working off and
on recently. The ECB has been backing away
gradually from extraordinary policy. Worries about the weaker
Eurozone economies have been a weight off and on.
EUR/CHF is
weaker. USD/CHF
is down. The SNB periodically has reconfirmed EUR/CHF support. The
SNB continues to signal that it will continue to prevent excessive CHF gains against the
EUR. The SNB periodically has been intervening
in the EURCHF cross.
USD/JPY is lower,
and the
EUR/JPY is higher. Japanese forex policy is aiming at weakening the JPY. The
government and BOJ are reconciling their differences.
GBP/USD is
up. National elections in the U.K. are looming. The EUR/GBP
is steady. Political uncertainty and
mixed data have been triggering instability in the GBP.
The
CAD is better. The Bank of Canada has increasingly been turning
less
dovish as the economy stabilizes. Canada could be one of the early major
economies to raise interest rates, but not immediately.
The AUD
and NZD
are up. Risk trades keep cycling in and out. The RBA is likely to hike
again
in 2Q10. The RBNZ has signaled a rate hike by mid-year.
Gold and Oil are
up. Gold, oil, equities and the commodity currencies are all carry
trades. Gold is another anti-dollar.
Far East
equity markets closed mixed. European bourses are higher. U.S.
equities are better.
The U.S.
10-yr note is 3.72%, 0 bp. Fixed income markets are vulnerable as they
consider the prospect of an end to excessive Fed ease and large
borrowing needs by the the U.S. government. Nevertheless. Fed Funds
should remain low for an extended time period.
John M. Bland is an author, and co-founder
and partner of Global-View.com
in 1996. Before that, he was a
Vice-President and senior dealer in the fx inter-bank and futures
trading arm of the Continental Grain
Company in NYC. Previous to that, he was an early member of the
Chemical Bank (NYC) corporate advisory service. He also worked in
international liability management. John has an MBA from
the
Hass
School
at the University
of
California
at
Berkeley
and a bachelors degree in International Economics from Berkeley.
Weekly-- Focus on Open
Interest
21:00 GMT- Mar 5 (global-view.com) Recently we have been focusing a
lot on the impact on open interest (existing positions) on forex trading. It
is our view that these are one of the most powerful influences on trading.
Someone with a position with a stop on a position that has gone bad has no
choice but to execute a trade at the closest price available no matter what it
is. On the other hand, those entering into a position have the option not to
trade if the price is not right.
Because
of this, we keep close tabs on both the weekly CFTC Commitment of Traders
report and also daily open interest figures from the futures exchanges. For a
good while now, we have noted record open interest in the EURUSD futures
contract. This major overhang of EURUSD shorts has started to impact the
markets several times a week. It is our view that recent EURUSD demand has
been coming from short-covering of oversold positions. What we believe the
market has been experiencing is periodic bouts of EURUSD short-covering as
every EURUSD bounce tends to trigger covering by sensitive shorts. Thus short-covering can trigger a price spike, but demand does not follow
through once those shorts are covered. We have been taking note of the lack of EURUSD demand at higher levels.
On Thursday
Japan
announced an increase in its borrowing limits for forex intervention. We have
serious doubts if a limit increase was necessary, and assume the
announcement had been an expression of displeasure to the markets about the
current strength of the JPY. At some point intervention is inevitable. On
Friday,it was indicated that the Bank of Japan would be doing a
lot more to combat deflation and the strength of the JPY. Some of the current
JPY demand has undoubtedly been related to the fiscal year end (March 31).
Typically fiscal yearend JPY demand has run its course by the end of the third
week in March.
John
M. Bland is an author and co-founder and partner of Global-View.com.
Prior to Global-View.com, he was a Vice-President and senior dealer in a
forex inter-bank and futures trading arm of a subsidiary (ContiCurrency) of
the Continental Grain Company in NYC. Previous to that, he was one of the
early members of the Chemical Bank corporate advisory service in NYC, and
also worked in international liability management for that bank. John holds
an MBA from the
Hass
School
at the
University
of
California
at
Berkeley
and a bachelors degree in International Economics
fromBerkeley.
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John M. Bland is an author, and co-founder
and partner of