World Market Pulse Forex Update: Measured QE2 And Beyond

By world market pulse team on October 28,2010

Most of the world currency markets is brimming with activity as speculation over QE2, G20, capital controls and inflation continues to be in the limelight today with the BOE and the FED grabbing most attention. Meanwhile Asian news suggesting currency reserves are also on the rise with the EU Head of State meeting where the German Chancellor is expected taking a non-compromising position while the BOJ bringing its policy meeting forward. Markets are generally softer, with the USD biased for strength.

There is also a market sentiment suggesting that China and the US are close to an agreement on current account imbalances pushing markets to curtail their expectation for QE2 as forex experts feel that the logic being that a softening in China’s stance would ease pressure on the US to implement QE2. Analysts at BNP Paribas meanwhile expect USD range trading today, but with US bonds yields staying bid for now USDJPY and EURJPY should rally, while EURUSD’s upside should be limited by 1.3920. GBPUSD remains a clear sell near 1.5800 after Posen's suggesting that QE might come too late and might be not enough.

EUR-USD: The EUR has weakened since yesterdays close, but is still trading within its three-week 1.3698 to 1.4159 range. A break of this range should foreshadow the next move. Today the focus is on the USD rally driven by scaled back expectations of QE. Analysts at Scotia Capital have suggested that this will prove temporary and that the EUR will still face upward pressure into year-end on the back of a weak USD. However, for now the risk is that the market is extremely short the USD and shift in sentiment could see downside pressure on EUR as position squaring takes over.



USD- CAD: CAD is under performing today, having lost 0.4% against the USD and 0.2% against EUR. USDCAD is within a hundred points of the clustering of its 50, 100 and 200-day moving averages (1.0314, 1.0345 and 1.0344, respectively) and the year-to-date average trading level of 1.0345. All in all, USDCAD remains firmly within its year-to-date range, unable to break decidedly on either side of it. The main driver of USDCAD continues to be QE in the US and the odds of a currency agreement. With the PBoC hiking rates ahead of key data releases on Thursday, these odds improved. This thematic has already taken over. USDCAD around 1.0350 continues to offer opportunities to go short.


Asian Currencies: Asian currencies have come in firmer dragging G-10 currencies against the USD with it. Korea doubling its current account surplus from August to September and China allowing USDRMB to fix higher for the 4th consecutive day will bring the theme of Asian currency reserves and the related allocation issues back to the market. Meanwhile, the Bank of Japan is expected to downgrade its forecasts for the country's economic growth and prices at its policy meeting today amid signs that the return of the economy to a path of sustainable expansion will be delayed due to deflation.

AUD-USD: AUD is under performing having lost 1.3% against the USD and 1.1% against EUR. A softer than expected CPI release (coming in at 0.7% q/q and 2.8% y/y) has dampened the expectations for further interest rate increases and weighed on AUD. In some ways, the CPI release has simply offset the positive impact the currency and interest rate outlook received with the above consensus PPI release earlier this week. Governor Stevens recently indicated that monetary policy would have to take into account one off shocks to terms of trade on inflation over and above the regular cyclical factors.

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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.

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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%

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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.

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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%

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Tracing Job Data's Impact On Dollar Index And Forex Trends

By world market pulse team on October 09,2010

As if the business services firm ADP's latest installment of its National Employment Report, indicating that the situation for private employment in the U.S. took a turn for the worse in September was not bad enough, the dollar fell across the board as investors dumped the dollar for higher yielding and more lucrative currencies.

The ADP reported a loss of 39,000 jobs in the private sector against expectations of new job creation of 50,000. Although most optimists were surprised by the results, ADP said there was no clear momentum in employment as of now. Although its hard to please everyone, most analysts agree that ADP numbers are one of the best single predictors of the official payrolls number, even if there have been a handful of bad misses.

Most analysts believe that it would take a payrolls reading bigger than +150k to get the market to think the Fed would reconsider QE2 and even with neutral numbers, it is likely the market will hold and the USD is most likely to continue breaking through to new levels of weakness like 1.40 or higher in EURUSD. With a negative ADP outlook, the dollar index fell to its lowest levels since January at 77.619 from 77.811 while the euro hit a fresh 8-month high at 1.3918. Despite concerns over the Eurozone sovereign debt re- igniting, most analysts believe that the dollar might just continue its ongoing fall against the Euro.

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US Policy And The Weakening USD:

Given the recent USD weakening and unilateral actions on exchange rates, discussions between the G20 Deputy Finance Ministers and G7 Finance Ministers/Central Bank Governors are likely to feature currency games much more prominently than in the past couple of years. There is a deep concern that the US is likely to receive a strong degree of criticism for effectively ‘debasing’ the dollar via extremely accommodative monetary policy. Experts also feel that despite the criticism, the US government or Fed will not change course and if comments on the sidelines of the meetings foster expectation for action, eventual disappointment should only reinforce downward pressure upon USD.


Forex Trends Update: Goldman Sachs Global Economic report has meanwhile revised the majority of its FX forecasts to reflect broad dollar depreciation and it revised its euro forecasts to hit a whopping $1.55 in the next 12-months. Meanwhile, the pound hit a new 2-month high at 1.5938, while the CAD breached a new 5-month high at 1.0083, as it nears dollar parity. The riskier currencies also took advantage over its higher yields over the plummeting buck as the Australian Dollar hit a fresh 2-year high at 0.9781 while the New Zealand Dollar also hit a new 1-year high at 0.7537.

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