Forex Market Pulse: Euro's Surge, QE2, And the Next Direction of USD

By world market pulse team on November 03,2010

Most of the world currency markets are brimming with speculation over US Congress election results and QE2 grabbing the most attention. While the US dollar was unable to sustain its gains from the previous session Thursday morning, coming under pressure ahead of the latest word on the US jobs market, the euro on the other hand snapped back against the dollar on Thursday, as better-than-forecast economic data from the Euro zone raised speculation that central bankers in Brussels will begin to normalize interest rates rather than ease further. The mid-term election results are likely to be overshadowed by the FOMC where speculation that the Fed will announce USD500bn of asset purchases Wednesday has intensified, but analysts at BNP Paribas believe that with investors increasingly expecting a month-by-month approach to the implementation, a more gradual approach would be consistent with the G20 meeting, where negotiations appear to be ongoing.

Next direction of USD?
USD: The dollar has been unable to sustain its gains from the previous session coming under modest pressure ahead of the latest word on the US jobs market. The Fed meets today, November 3, and is reportedly set to embark on a series of gradual asset purchases totaling a few "hundred billion" dollars. In 2009, the Fed snapped up around $2 trillion in an effort to spur the economy. Still, currency experts feel that the dollar is relatively stable amid growing speculation that the size and scope of the Federal Reserve's anticipated bond purchase program is likely to be smaller than its first round of quantitative easing. Certain analysts and economists believe QE2 may contribute, at the cost of bringing down the USD almost 20% over a period of time, to triggering US exports and helping the economy etc. even though it will cause a disaster to the world currency status of the USD. While this may be gradual, the scene does not look very likely. We believe the USD may remain strong.

US Data Analysis: Initial US jobless claims fell to 434,000 from the previous week's revised figure of 455,000. The decrease surprised economists, who had expected claims to edge up to 458,000 from the 452,000 originally reported for the previous week. While there were no special factors cited for the decline in claims, analysts at Deutsche Bank are hesitant to read too much into the data, and the four-week moving average is still consistent with job growth of around 100k per month. Continuing claims registered a more robust decline of 122k to 4356k for the week of October 16, the lowest since November 22, 2008.

Correlating Currencies and Inflation: Although the Fed appears to have succeeded in stabilizing market implied inflation expectations higher, this has been accompanied by a markedly weaker US dollar in recent times. Faced with a strong disinflationary trend, it seems that the Fed would want to keep inflationary expectations anchored at higher levels, but there are concerns that once deflationary expectations get entrenched, consumers postpone their consumption plans while businesses refrain from investing. Moreover, given the side-effect of the weaker dollar, the Fed’s strategy has run into international resistance with the G20 statement noting “advanced economies with reserve currencies” promoting excessively volatile capital flows.

Meanwhile analysts at BNP Paribas believe that with an arguably stretched short USD position prone to covering, the appropriate strategy would be to shift to funding long Asian FX plays in GBP instead of the USD.

ETFs Investment Options For The US Dollar include:

PowerShares DB USD Index (UDN): The Index is a rules-based index composed solely of short USDX futures contracts. The USDX futures contract is designed to replicate the performance of being short the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

Expense Ratio: 0.40%

PowerShares DB USD Index Bullish (UUP): The Index is a rules-based index composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

Expense Ratio: 0.50%

EUR: The euro, meanwhile, snapped back against the dollar after better than forecast economic data from the Eurozone raised speculation that central bankers in Brussels will begin to normalize interest rates rather than ease further. Economic confidence in the 16 countries that use the euro rose to its highest level in nearly three years during October, the European Commission said on Thursday. The euro rose to $1.3910 versus the greenback, paring most of this week's losses. With the advance, the euro moved back towards a recent 8-month high near $1.4150.

EUR Data Analysis: The European Central Bank lowered interest rates to a record low one percent during the throes of the worst recession in decades, but has resisted additional rate cuts despite a sluggish economy. Analysts at Deutsche Bank have meanwhile suggested that the euro is still in a correction mode and may remain so while the EU summit is in session. Good support entered yesterday only at 1.3610.

Euro ETFs To Watch Out For:

Rydex CurrencyShares Euro Currency Trust (FXE): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar.

FXE Tracks: Euro Index. Expense Ratio: 0.40%

Short Euro ETFs

ProShares UltraShort Euro (EUO): ProShares UltraShort Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the U.S. Dollar price of the Euro.

EUO Tracks: Euro (-200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Short Euro ETN (DRR): As the Index is two-times leveraged, for every 1% weakening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

DRR Tracks: Double Short Euro Index. Expense Ratio: 0.65%

Long Euro ETFs

ProShares Ultra Euro (ULE): ProShares Ultra Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the U.S. Dollar price of the Euro.

ULE Tracks: Euro (200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Long Euro ETN (URR): As the Index is two-times leveraged, for every 1% strengthening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% weakening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

URR Tracks: Double Long Euro Index. Expense Ratio: 0.65%

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

World Market Pulse Forex Update: Analyzing Sterling’s GDP Boost

By world market pulse team on October 27,2010

The GBP received a significant boost as it posted its biggest one day gain against a basket of currencies in 3 months after the surprise rise in UK Q3 GDP to 0.8% in addition to a ratings upgrade from Standard and Poors to a “stable” outlook bringing them into line with their agency peers, Fitch and Moody.

An Overview Of UK GDP Figures: U.K. GDP came in stronger than expected, up 0.8% q/q and 2.8% y/y in Q3, compared to the consensus forecasts for 0.4% and 2.4% respectively. This was the highest annual growth rate since Q3 of 2007. Service sector growth came in surprisingly strong, up 0.6% q/q, same as in Q2, while industrial production growth was 0.6%, after 1.0% in Q2. Construction sector output rose 4.0% q/q, after rising 9.5% in Q2, when it rebounded after weather related weakness in Q1 of 2010.

Meanwhile according to analysts at BNP Paribas, the sterling remains a sell despite the better UK Q3 GDP. We base our projection on weak money supply and credit indications, the sharp decline of savings seen over the past three quarters and weakening cyclical conditions coming on the back of fading global demand.

GBP-USD Outlook: GBPUSD rebound on stronger GDP data expected to be short lived providing a renewed buying opportunity. Although The UK GDP has come in much stronger than expected with growth the strength has been driven purely by the construction sector which rose 4.0% q/q in Q3, up 11.0% y/y, the highest reading since Q1 1998. According to BNP Paribas analysts, sterling gains following the UK GDP data are likely to be short lived providing renewed a medium term selling opportunity. GBPUSD is now approaching the 1.5875 high seen last week. A break above here could see sterling recovery back towards the 1.60/1.61 peaks seen over the past couple of months.



Britain Economic Overview: PM David Cameron is to strongly oppose demands from Brussels for significant increases in Britain's contribution to the EU budget and instead call for spending cuts when EU leaders meet in Brussels tomorrow. While the summit is expected to be dominated by Germany's demands for treaty changes to discipline states UK has made it clear he will not accept that the EU's budget should increase by 6 per cent at a time when national governments are paring back spending. Meanwhile leading indicators in the UK economy, along with the housing market have turned sharply lower suggesting that quantitative easing is still likely to be on the agenda, but likely to be delayed until the beginning of 2011.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

World Market Pulse Forex Update: Analyzing The G20 Sound Bites

By world market pulse team on October 25,2010

World currency markets have been largely sluggish in the past week. As the November date of the FOMC draws ever nearer, there has been a wait and watch situation developing especially about the level of any stimulus especially in light of some of US Treasury Secretary Tim Geithner’s recent comments with respect to the major currency pairs.

Meanwhile the market sentiment turned out to be correct regarding the G20 finance ministers and central bankers meeting in South Korea as the meet failed to achieve anything of note apart from a few sound bites about monitoring the situation, and urging countries not to use their currencies as weapons of devaluation. Although the G20 meet made all the sound notes, analysts feel that it is unlikely to reverse the overall pressure on the US dollar as it continues to remain under pressure.

USD And Q3 GDP:

After the G20 meet failed to set any market tone, all eyes are now focussed on the coming week which can is a critical week for both the dollar as well as the pound as traders are keeping a close watch over the release of Q3 GDP figures for evidence of economic deterioration and the increased likelihood of further stimulus. Meanwhile the US dollar is continuing to show signs of a possible rebound as it continues to hold above key trend line support. The release of Q3 GDP on Friday where a figure of 2.2% is expected will in all likelihood be a key indicator of what sort of measures the Fed may embark on at the conclusion of its next meeting on November 3rd.

GBP: The pound is also set for a key week with the release on Tuesday of Q3 GDP where expectations are for a slip back to a figure of 0.4% which would be a shot in the arm for the dovish camp in the Bank of England’s monetary policy committee (MPC) for a further round of quantitative easing (QE) into the UK economy, and send the pound lower. The pound is currently trading near trend line support at 77.80 from its all-time lows on its trade weighted index at 73.05, set in early 2009. A break below this level could well target further sterling weakness in the near term. A break of this trend line could well target further sterling weakness towards this years low’s at 76.10.


World Market Pulse Euro Update: Traders are likely to remain in a Euro Bullish mode despite the firming up of the US dollar amid Improved Home Builder Confidence even as EUR together with Scandinavian currencies under performed the rest of G10 at the start of the week after investors sought to take profit on their USD-short positions. EU’s Economic and Monetary Commissioner Olli Rehn has meanwhile indicated that the currencies will feature prominently on the agenda after Eurogroup’s Chairman Juncker had said that there has been too much volatility between the main global currencies.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Tracing China Rate Hike And Positive Dollar Index Correlation

By world market pulse team on October 20,2010

It’s been a down bound journey for the US Dollar in the distant past. After being under immense pressure in recent times the US Dollar not only witnessed its worst month since May 2009 against a basket of currencies and was caught in the currency war crossfire but an Improved Home Builder Confidence helped the dollar improved across the board following improvement in the housing market survey. All three of the HMI’s components registered gains in October. The index of current sales conditions improved by 3 points to 16, the index for sales expectations for the next 6-months rose 5 points to 23 and the index gauging traffic of prospective buyers rose 2 points to 11. The improved data gave investors an excuse to lay off the buck as it briefly put into question the extent of Fed easing.

Our analysts at World Market Pulse had already discussed the case of a positive US data triggering the Dollar Index in an earlier article. But more than the US Data, the real thrust in the US Dollar appears to come from least expected quarters after a surprise move by China raised its one year lending and deposit rates by 25 basis points. Despite a number of Fed officials indicating that the US central bank will soon embark upon further monetary stimulus for the US economy it would appear that the Chinese may have done something the Fed had been unable to do and that is to stem the tide of negative sentiment against a rapidly falling greenback. Testimony to the fact is that yesterday’s US dollar rally was the largest one day move up in the US dollar index since the 11th August, and if sustained throughout the remainder of this week could well be the start of a new phase of dollar strength.


Overview Of Chinese Rate Hike: China’s central bank today raised its benchmark interest rates for the first time since December 2007, following signs the China’s economic slowdown is bottoming out in recent months. The interest rate increase comes as the economy has shown signs of rebounding from its slowdown in recent weeks, and ahead of a range of important data later this week. August retail sales quickened to 18.4% y/y, while industrial output quickened to 13.9% year/year, and both are forecast to accelerate further when September
figures are released. Lending has also been strong, with new loans raising some 596B renminbi in September.

China Benchmark Interest Rates




USD-CNY Projections: While Chinese currency appreciation may not quite match the pace of the past month going forward, analysts still forecast a gain of a little more than 1.5% per quarter, targeting a USD/CNY rate of CNY6.25 in a year’s time, or a gain of around 6.5% from current levels. Moreover China’s domestic monetary policy measures (reserve requirement increases or interest rate hike) should act as a constraint on liquidity or offer more attractive returns on renminbi funds, which should both contribute to an upwards bias for the Chinese currency.


For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

World Market Pulse FX Update: Dollar Drive Amid Housing Data And Geithner Remarks

By world market pulse team on October 19,2010


The US dollar had its worst month since May 2009 against a basket of currencies. In fact for the last six weeks the US dollar has slid lower relentlessly on speculation that the Federal Reserve would embark on a further stimulus program to liven up the flagging US economy. In fact the US dollar index despite making new 8 month lows actually finished the day higher than when it started after the Fed chairman Bernanke's speech on Friday underlined the inevitability of such a move in the near future. The Dollar index however lost some ground towards the end of the day as doubts remained about the scale and the extent of any easing at next months Fed meeting. The US dollar did however gain some late support from some comments by US Treasury Secretary Tim Geithner, who stated in Paolo Alto that the US would not seek to devalue the dollar saying, "It is not a viable, feasible strategy and we will not engage in it.”

Low US Industrial Production: Meanwhile a worse then expected US industrial production figures for September at -0.2% against an expectation of a 0.2% gain, seems to reinforce the case for additional stimulus measures and saw the US dollar slide back from the highs of the day, especially against the euro as 10 year bond yields closed in the single currency’s favor for the first time in 10 months

Improved Home Builder Confidence: The dollar improved across the board following today’s improvement in the housing market survey. All three of the HMI’s components registered gains in October. The index of current sales conditions improved by 3 points to 16, the index for sales expectations for the next 6-months rose 5 points to 23 and the index gauging traffic of prospective buyers rose 2 points to 11. The improved data gave investors an excuse to lay off the buck as it briefly put into question the extent of Fed easing.

Some of the other potential catalysts that can act for a positive Dollar Index are discussed here.

A Case For A Positive US Data Triggering Dollar Index:

Linking Economic Data Release And USD

According to BNP Economic Research, US economists tend to react quickly to data releases. When data comes in weak, expectations are scaled back lower, increasing the chance of data exceeding expectations. Hence, the surprise indicator becomes very erratic. Hence, months of positive data surprises are often followed by a months with negative data surprises. Only, when there were severe growth deteriorations as in autumn 2006, summer 2008 and the May – July period of this year will the surprise indicator run negative readings for several months. US growth expectations have been scaled down suggesting that it will not take a lot to exceed low expectations.

ETFs Investment Options include

Rydex CurrencyShares Euro Currency Trust (FXE): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar.

FXE Tracks: Euro Index. Expense Ratio: 0.40%

PowerShares DB USD Index (UDN): The Index is a rules-based index composed solely of short USDX futures contracts. The USDX futures contract is designed to replicate the performance of being short the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

Expense Ratio: 0.40%

iPath GBP/USD Exchange Rate ETN (GBB): The GBP/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the British pound and the U.S. dollar.

Expense Ratio: 0.40%

iPath EUR/USD Exchange Rate ETN (ERO): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar.

Expense Ratio: 0.40%

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Why Stronger EUR Is Here To Stay

By world market pulse team on October 19,2010

Traders are likely to remain in a Euro Bullish mode despite the firming up of the US dollar amid Improved Home Builder Confidence even as EUR together with Scandinavian currencies under performed the rest of G10 at the start of the week after investors sought to take profit on their USD-short positions. EU’s Economic and Monetary Commissioner Olli Rehn has meanwhile indicated that the currencies will feature prominently on the agenda after Eurogroup’s Chairman Juncker had said that there has been too much volatility between the main global currencies.

According to analysts at CitiFx, ahead of the G20 meetings in Korea, euro area officials should continue to concentrate their efforts on promoting coordinated solution to the ‘currency wars’. In this regard we would expect to see further calls on EM economies to allow more flexibility of their currencies. At the same time there should be still fairly muted critique (if any) of the Fed plans to potentially add to its unconventional monetary policy accommodation. We think that the European officials continue to see the problems of euro area’s fiscally weak members as a far greater threat to its stability and growth outlook than the strong EUR of late.

Possible ECB Intervention: Even though the basic decision to intervene on the FX market lies with the ECOFIN, the economy and finance (and budget) ministers of the euro zone member countries, there is a possibility that the ECB could still take part in the discussions as a consultant. Analysts feel that the ECB is thus much more closer to the decision making process than say the BoJ which acts as an agent of Japan's MoF. On the flip side, the ECB has shown very little desire so far to engage in any interventionist talk or indeed into discussions about the EURUSD level.


EURUSD – Friday’s daily chart posted a significant daily reversal, which could well indicate that a period of consolidation could well now be due. This daily candle is classified as “dark cloud cover” or a weaker form of engulfing pattern and yesterday’s down move stopped short of the 1.3800 levels rebounding from 1.3830. Meanwhile according to Deutsche Bank analysts, investors had no reason to sit on any open positions after the Fed chairman Bernanke's speech on Friday until the central bank begins QE2, as they had already received confirmation and the market had already processed the information. Given that a significant amount of euro-shorts were forced out during the euro-rally last week, the weakness on Friday afternoon is transformed into bull-market exhaustion this morning. Our risk limit was undercut, leaving us with a neutral outlook. Significant corrections will be in order below 1.3850.



Euro ETFs To Watch Out For:

Rydex CurrencyShares Euro Currency Trust (FXE): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar.

FXE Tracks: Euro Index. Expense Ratio: 0.40%

Short Euro ETFs

ProShares UltraShort Euro (EUO): ProShares UltraShort Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the U.S. Dollar price of the Euro.

EUO Tracks: Euro (-200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Short Euro ETN (DRR): As the Index is two-times leveraged, for every 1% weakening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

DRR Tracks: Double Short Euro Index. Expense Ratio: 0.65%

Long Euro ETFs

ProShares Ultra Euro (ULE): ProShares Ultra Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the U.S. Dollar price of the Euro.

ULE Tracks: Euro (200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Long Euro ETN (URR): As the Index is two-times leveraged, for every 1% strengthening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% weakening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

URR Tracks: Double Long Euro Index. Expense Ratio: 0.65%

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Why the Euro Should Remain Bullish Despite Firming U.S. Dollar

By world market pulse team on October 14,2010

Traders are likely to remain in a Euro Bullish mode despite the firming up of the US dollar Tuesday on what market participants describe as a wariness of any further intervention by the BoJ, and the increasing uncertainty over the size and timing of a much anticipated round of stimulus by the Fed.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

USD Recovery: The US dollar had its worst month since May 2009 against a basket of currencies and the slight USD recovery is very welcome news even amongst the euro bulls, as it basically allows them the opportunity to enter their putative strategies at a more advantageous levels. The movement in the dollar index has a lot of affect on commodities and other currencies, even if it does not replicate the action of the index. But the USD needs some sort of a trigger mechanism to come out of its negative sluggish cycle. Some of the points that can trigger the positive spike in the Dollar index are discussed here.

Fed Public Debate Grows: Meanwhile, the Fed’s members continued a very public debate of the central bank’s policy, with Kansas City President Hoenig stating that QE could do more harm than good while the newly appointed Fed Vice President Yellen voiced her concern about extraordinary low rates, saying they may motivate investors to ‘reach for yield’ by engaging in excessive risk-taking. If the public Fed debates are to be considered as the yardstick for future policies, it's gives the impression that the Fed has many options up its sleeve. But there is a growing market view that the Fed would not utilize any other choice and instead hold the rates near zero to try to implement further accommodative measures simultaneously.

In FX markets, the mere thought that the Fed was considering adding more liquidity via QE was sufficient to weaken the dollar by 5.5% from mid-September to early October against its trade weighted currency basket and by over 9% against the euro.

Euro ETFs To Watch Out For:

Rydex CurrencyShares Euro Currency Trust (FXE): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar.

FXE Tracks: Euro Index. Expense Ratio: 0.40%

Short Euro ETFs

ProShares UltraShort Euro (EUO): ProShares UltraShort Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the U.S. Dollar price of the Euro.

EUO Tracks: Euro (-200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Short Euro ETN (DRR): As the Index is two-times leveraged, for every 1% weakening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

DRR Tracks: Double Short Euro Index. Expense Ratio: 0.65%

Long Euro ETFs

ProShares Ultra Euro (ULE): ProShares Ultra Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the U.S. Dollar price of the Euro.

ULE Tracks: Euro (200%) Index. Expense Ratio: 0.95%

Market Vectors-Double Long Euro ETN (URR): As the Index is two-times leveraged, for every 1% strengthening of the euro relative to the U.S. dollar, the level of the Index will generally increase by 2%, while for every 1% weakening of the euro relative to the U.S. dollar, the Index will generally decrease by 2%.

URR Tracks: Double Long Euro Index. Expense Ratio: 0.65%

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Can GBP Beat The Double Dip To Stay Positive?

By world market pulse team on October 13,2010

Sterling traders have been worried over the news about falling house prices in the UK with the release of the RICS House price survey for September which indicated that the number of surveyors reporting falling home prices increased relative to those reporting increases. The release not only corroborated the view that the UK housing market continued cooling recently and weighed on sterling sentiment but is also one of main reasons why ‘double-dip’ is starting to reappear in market discussions after the pound lost a little ground yesterday.


Inflation Report Supporting GBP: Despite data pointing to weakening demand and a cooling housing market, the CPI data release out of the UK corroborates the view that QE2 is still only a distant prospect. The CPI release indicates that inflation remains well above inflation targets with headline CPI at 3.1%, core CPI at 2.7% and RPI at 4.6% (all year over year figures). The CPI figures were almost exactly in line with expectations although the RPI came in slightly higher than the expected 4.4%. Positive inflation surprises last month triggered a temporary correction higher in market inflation expectations as proxied by the implied rate of the UK 5y Inflation swap.

Analysts at World Market Pulse expect that the inflation support is likely to continue adding to the GBP strength in the short term despite the release of the RICS House price survey; while analysts at the Deutsche Bank believe the door to further near-term gains to 1.6090/110 remains open as long as support at 1.5800 is unbroken. Indeed, an early dip to 1.5860 would create the necessary risk-reward conditions for a new bullish

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Britain Economic Overview: The Bank of England has reported a decline in services output in both June and July. Consumer confidence deteriorated more than expected last month. Industrial output is off 11% from pre-recession levels and has been flat since February. Retail sales seem to be holding up pretty well but consumer credit was up a meager 0.2% y/y. Business lending has fallen for five consecutive months. The government feels the Bank of England can come to the rescue if the economy does show serious signs of faltering as cuts and tax hikes hit home. Maybe yes maybe no; the BoE interest rates remain at record lows but QE remains an option. However, with the planned deficit reduction it seems unlikely that economic growth can do anything other than head south over 2011.

For More World Market Pulse ETFs stocks futures commodities forex indicators forecast http://worldmarketpulse.com/

Is Global Currency War A Clear Advantage To The Chinese Yuan?

By world market pulse team on October 09,2010

As the global economies, business and market trends change momentum towards the east, the relationship between a country's economy and its currency is getting much more complicated as governments across the globe are assuming a bigger role in propping up the financial system and encouraging economic growth. What started as a small echo with allegations on China to knowingly undervalue its currency has now grown into a currency war after the Japanese government's intervention in the currency markets by weakening the Yen for the first time in six years while the counter strike from the Dollar came when the FED announced the readiness to introduce a new round of quantitative easing to boost the economy. Such has been the impact of the recent currency games that IMF chief Dominique Strauss-Kahn has now joined those warning that governments are risking a currency war if they try to manipulate exchange rates to solve domestic problems.

Experts meanwhile feel that if the currency games continue for a long term, investor confidence in international currencies could break down to such an extent that it could lead to sharp changes in the near future. A few forex experts and analysts have expressed concern that Chinese Yuan could very well emerge as the next preferred currency of global trade as and when the dust settles down from the current tit for tat mechanism. If investor confidence is shaken up badly by the prolonged currency tug of war, the absence of any other credible alternative to the US dollar as the reserve currency of choice might just work in favor of the Chinese Yuan.

According to Joseph Yam, a former chief executive of the Hong Kong Monetary Authority, the yuan should become fully convertible, the domestic debt market in China should acquire depth, and a robust financial infrastructure should be put in place if the Chinese Yuan has to emerge as the preferred choice of the investors in the near future.

China and Hong Kong had earlier agreed to loosen rules regulating trading of the yuan in the territory in July, tweaking rules to allow the sale of yuan-denominated financial products and giving companies greater access to yuan funds. Much of the trade settlement business came from companies looking to re-denominate to yuan away from the US dollar, which most companies operating in China use to pay and issue invoices.


Although skeptics have questioned an such possibility because China as of now runs a balance-of-payment surplus by keeping its currency artificially pegged might find it extremely difficult to take the yuan global without changing its export focus but Guonan Ma, senior economist at the Bank for International Settlements believes that it isn’t entirely necessary for the yuan to become fully convertible for it to be gradually internationalized. There is another argument saying that if China can work its way around the problem by building good institutions, established rule of law, property rights, good corporate governance with long-term bond markets and stringent regulations

Meanwhile China’s central bank, the People’s Bank of China, has already been trying to do by establishing currency swap agreements with central banks around the world.

The depreciation of the Yuan compared to the Dollar has already caused a growing tension between The U.S and China in recent weeks. The U.S is blaming the cheap Yuan for its economic issues and even financial sanctions against China have been on the cards. If these two giant economies are starting to threaten each other, the impact on the ever-slowing recovery could be enormous.

Reality Of The Chinese Currency Drama: China, from its earliest civilizations has always been a clever economy and it's certain that it would not enter into an economic suicide by blindly imitating the west. It is also quite clear that the Chinese government would not allow their currency to go down with the dollar ship as most of the export dependent companies of China which form big chunk of current Chinese economy may lose steam as most of them work on very thin margins. Although economists continue to be skeptical about the goodness of the Chinese currency moves, there is no doubt that China is ready to resume greater flexibility with its yuan.

Political Complications: Although financial analysts are divided over the issue, most political observers have been quite unanimous in saying that whether the yuan becomes more international if at all, politicians and Chinese policymakers are likely to loose their degree of freedom, as there would be deep international repercussions of their policy measures.

Whatever might be the case, most economists are of the view that the rise of the Yuan or renminbi is desperately needed as a multipolar system actually helps in stabilizing the international monetary system.

For more Forex Currency Trends and research articles visit http://Worldmarketpulse.com