EUR/USD
Continued its rally last week as both economies reported mixed economic numbers. The rate was supported by a neutral FOMC Statement and confidence that Greece was nearing an agreement with creditors. The week began with the pair making its weekly low of 1.0818 on Monday in the absence of any significant data out of either economy. The pair extended its gains on Tuesday after Greek Prime Minister Alexis Tsirpas expressed confidence that Greece would reach an outline deal with creditors before EZ finance ministers meet on May 11th, one day before a repayment of €700 million is due to the IMF. Also, U.S. CB Consumer Climate came out with a reading of 95.2 versus 102.6 expected. Continue reading


EUR/USD
Extended its previous week’s gains last week as asset flows favoured the Euro over the Greenback and despite continued concerns over Greece. The rate gained with mostly lower than expected economic data out of both economies. The week began on a soft note, with the rate declining on Monday in the absence of any significant economic data from either the Eurozone or the United States, and after ECB President Draghi said that, “growth projections, as well as inflation expectations – reflected both by outside observers and by ECB staff projections -have been revised upwards. And confidence overall has increased.” Continue reading



USDCAD Overnight Range 1.2223-1.2323

The US dollar is Mr. Toad and it has been on a wild ride this morning. Another bout of weak US economic data (Jobless Claims rose, Housing Starts and Building Permits fell) revered hard won US dollar gains in Europe. USDCAD which had scraped back above 1.2310 prior to the data plunged and is now 1.2228, below the overnight low. The break of major support at 1.2330 combined with a re-evaluation of the Canadian economic landscape and the prospect of higher oil prices have triggered a wholesale bail-out of stale Long USDCAD positions.

The overnight session was entertaining. AUDUSD took over where Canada left off in a lively Asian session. Short AUDUSD traders scrambled to cover positions when Australia announced a whopping 37,700 jobs increase and a drop in the unemployment rate to 6.1% from 6.3% and AUDUSD soared. Kiwi followed AUDUSD higher. USDJPY traders saw the carnage in AUDUSD and USDCAD and sold dollars as well. In Europe, EURUSD traders bought dollars and then reversed course just ahead of the New York opening. The US dollar has been offered ever since.
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EUR/USD Reversed direction, trading sharply lower last week as continued uncertainties for Greece and a possible Fed rate hike in June pressured the rate. The week began with the pair declining after making its weekly high of 1.1035 on Monday despite Spanish Unemployment Change showing a drop of -60.2K, significantly higher than the anticipated -18.3K, while U.S. ISM Non-Manufacturing PMI came out in line with expectations at 56.5. The rate continued its decline on Tuesday despite Spanish Services PMI printing at 57.3 versus 56.6 expected and German Final Services PMI, which printed at 55.4, in line with expectations.
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EUR/USD Continued its rally last week as the Eurozone reported mostly better than expected economic data and the United States reported the lowest Non-Farm Payrolls number since December of 2013. The week began on a soft note, with the pair declining despite German Preliminary CPI increasing +0.5% m/m compared to +0.4% expected and Spanish Flash CPI, which declined -0.7% versus -1.0% expected. U.S. data had Pending Home Sales increase +3.1% m/m, significantly higher than the +0.5% that was expected. The rate extended its losses on Tuesday, making its weekly low of 1.0712 as uncertainty over Greece — which is due to make a payment to the IMF on April 9th — pressured the Euro. Continue reading


EUR/USD Extended its previous week’s gains last week as the United States reported mixed economic numbers while Eurozone economic data was for the most part better than expected. The week began with the rate gaining ground on Monday after making its weekly low of 1.0766 after ECB President Draghi in a speech stated that, “We expect inflation in the euro area to remain very low or negative in the months ahead, because the recent fall in oil prices will continue to influence the figures until later in the year. However, inflation rates are expected to start increasing gradually towards the end of the year. They will be supported by aggregate demand, by the impact of the lower euro exchange rate and by the recovery of oil prices from their current troughs in the years ahead.” Also on Monday, US Existing Home Sales came out at 4.88M compared to an expected 4.91M. Continue reading


EUR/USD Reversed direction, trading sharply higher last week as the FOMC Statement was interpreted by the market as more dovish than expected, and with mostly lower than expected economic data out of both economies. The week began on a positive note, with the rate gaining after making its weekly low of 1.0479 on Monday after ECB President Draghi stated in a speech that, “We are meeting against the backdrop of a steadily recovering economic situation in the euro area. Most indicators suggest a sustained recovery is taking hold. Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.” Continue reading


America’s influence is waning in the world, militarily, economically, and culturally. The global financial structure which has been in place for decades is unraveling and it will not end well for the United States’ currency and economy. This change is being driven by a desire of many nations with totalitarian capitalism to rid themselves of a reliance on the US Dollar which gives the U.S. power over them through threats to remove a country or institution from the dollarized financial system.

We’ve discussed the consequences to the dollar and America in previous posts as far as reserve currency status and interest rates are concerned and the severe problems they could bring. What I’d like to get across right now is the level of uncertainty which is building up across the global financial architecture.
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I learned from my years on the “street” to buy on the rumor, sell on the news. Well, the news for weeks now has been the European Central Bank (ECB) starting its quantitative easing program and the Federal Reserve Bank of the United States possibly raising interest rates to ward off inflation and bring America out of its free-money bliss. In fact, it seems that this sentiment has become a very crowded trade, pushing the dollar to levels not seen in over a decade.

However, this is now maybe an old story and judging from the PPI data today, the conventional wisdom could very well be wrong. The numbers that came out this morning showed a decline in the Producer Price Index when the consensus estimate was for an increase of 0.3%. Of even more importance is the fact that this was the fourth monthly decline in a row. The PPI is down over the last year where economists expected a flat reading.
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EUR/USD Continued its sharp decline last week as the ECB started its government bond purchase program and the market continued pricing in anticipated guidance for the Fed’s interest rate policy. The rate started the week consolidating at a slightly higher level after making its weekly high of 1.0906 on Monday after the ECB began purchasing bonds under its recently expanded QE program. Also, the Sentix Investor Confidence Index printed at a 7 year high of 18.6, significantly higher than the reading of 15.3 that was expected. The pair then began selling off sharply on Tuesday after speculation in the market that the Fed would remove the word “patient” from their upcoming statement next Wednesday, which would set the stage for a rate hike this summer. Economic numbers had U.S. JOLTS Job Openings at +5.0M, in line with expectations and French Industrial Production, increasing +0.4% m/m versus -0.2% expected. Continue reading


ephesus

Dictators don’t have a good track record of financial management. Just look at Russia, Venezuela, Argentina, etc. if you don’t believe me. Okay, China may be the exception but I don’t think the fat lady has sung there yet. Turkey is channeling Russia big time right now and this will not end well. Stay away from the lira.

The problem is the same tired old scenario that we are unfortunately seeing too many times around the globe these days. Of course the situation in Turkey has the special circumstance that we are dealing with the old Ottoman Empire right next door to the Islamic State and a rising Iran, but that’s another story altogether.
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EUR/USD Extended its previous week’s losses, closing at a level not seen since September of 2003 last week. The loss in the rate was in large part due to a better than expected U.S. Non-Farm Payrolls release and the ECB leaving rates unchanged and reiterating its stimulus program which begins this month. Then pair began the week making its weekly high of 1.1240 on Monday after Eurozone CPI Flash Estimate declined -0.3% y/y compared to an expected decline of -0.5%, while U.S. ISM Manufacturing PMI printed at 52.9 versus an expected reading of 53.4. The rate then consolidated on Tuesday after Spanish Unemployment Change declined -13.5K versus -10.5K expected and German Retail Sales increased +2.9% m/m compared to +0.5% anticipated. Continue reading


AUD/EUR Fundamental Outlook

AUD/EUR extended its previous month’s gains adding another +1.8 percent overall in February. The increase was in part due to the ECB beginning its QE program, the four month extension to Greece’s bailout loan, the interest rate differential and mixed numbers out of both economies. Australian numbers showed improvement in the Trade Balance, which showed a deficit of -0.44B compared to an expected deficit of -0.85B. Also, the Australian housing sector improved last month, with Home Loans increasing +2.7% m/m compared to an expected +2.5%, while Building Approvals showed a decline of -3.3% m/m versus an expected decline of -4.8%.
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EUR/NZD Fundamental Outlook

EUR/NZD lost significantly in February, declining an impressive – 5.4% for the month overall. The decline in the cross was in part due to asset flows favouring the Kiwi over the Euro, Greece accepting a four month extension to its bailout loan and the ECB’s unveiling of their QE program. Economic numbers in Europe were mostly mixed last month, with some improvement in Spanish and Italian PMI numbers, German Factory Orders and German and Eurozone Preliminary and Flash Quarterly GDP data. On the negative side were German Ifo Business Climate and German and French Flash Manufacturing PMIs.
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Oz to me seems like a no-brainer. The Aussie dollar has been beaten down over a commodity slump and a rate decrease by the Reserve Bank of Australia in the face of the ECB’s quantitative easing program. But the real clincher has been the price action over the last few weeks. If you google Aussie currency news, and review the day to day articles, you will get an idea of what I am talking about. It’s enough to give a day-trader whiplash—Aussie dollar fades, Aussie dollar bounces, Aussie dollar beaten down, Aussie dollar rallies…

I call this a good-ole-fashioned consolidation. After almost reaching parity with the USD last summer, the Australian dollar is building a nice base here in the high seventies. Although the currency could obviously fall further against the USD if the world economy (and especially China) slumps further, I believe investors looks for good value should at least start watching the Aussie for a good entry point and maybe even start taking partial positions.
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There’s nothing that can throw cold water on irresponsible populist rhetoric than cold hard reality staring you in the face. It looks as though we are seeing this happen in Greece as we speak. Faced with imminent default, the Greek government stated over the weekend that they would pay their debts owed to the European Union.

With a conciliatory tone,the Greek Prime Minister said this, “The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.” In other words, Greek is looking to walk back some of the inflammatory comments after the election that caused Greek markets to tumble and drastically increased the market’s perception that Greece will not pay its debts.

The Greek situation is the biggest tail risk out there that could cause material volatility in currency markets. The problem is, it could go either way. If Greece swallows the red pill and refuses to abide by previously negotiated agreements, the tiny country would become the first domino in the destruction of the Eurozone as we know it today. Spain, Italy, and possibly others are watching with baited breath to see what happens as they would be right behind Greece in demanding their debts be forgiven or renegotiated. Then all bets are off and there will be unintended consequences in currency markets around the globe. The dollar will spike further.
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Financial markets over the past year have been defined by diverging monetary policy settings with shifting rate expectations changing the dynamic of broader forex markets. Having initially traded up above the 94 US Cents mark as recently as September the Australian dollar has now lost more than 15 percent over the past four months a shift made even more notable given its been more than three years since the Australian dollar hit its all-time high of 1.10 in August 2011.

With its weakness being driven mainly by a strengthening US dollar, investors are no longer tying macro developments directly to their implications for QE. Looking ahead over the coming year an eventual tightening of policy by the US Federal Reserve during the first half is expected, a move which should ensure the upward trajectory of the US dollar is maintained.

Keeping in mind the key theme remains Greenback (US Dollar) strength; significant falls across broader commodity prices, softer growth indicators from China as well as a relatively dovish domestic outlook have also played their part.

Looking ahead over the coming 12 months, more of the same is likely with higher rates of return available offshore reducing the attractiveness of the Australian dollar, as a result heightening the risks of a further depreciation.

Michael Judge, OzForex Corporate Dealer

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The Swiss National Bank gave us volatility on a historic scale last week as it rocked markets by abandoning the nearly three-year-old policy of supporting the value of the Swiss franc relative to the euro at 1.20. The Swiss franc consequently appreciated sharply across the board, distorting flows and liquidity market-wide.

While this took the market entirely by surprise, the likelihood is that the SNB’s hand would have been forced in the coming months by European Central Bank quantitative easing. The Swiss National Bank would likely not have enough ammunition to maintain euro/Swiss franc at a level of its choosing in the face of the kind of euro weakness that would inevitably result from eurozone QE.

Continued volatility anticipated

Things are unlikely to settle down too much this week either. The ECB’s meeting is the highlight this week, as the market currently expects the unveiling of a quantitative easing package in a bid to stem deflationary pressures in the eurozone.
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Throughout my years on Wall Street and to this day, one question has always bothered me. I have never got a good explanation as to why the price of crude oil and the strength of the USD move in negative correlation. I’ve heard many different arguments but none are foolproof. I’ve even read that there is no causality in the relationship, that’s it’s all in our minds.

The main argument seems to be that as most commodities, including crude, have historically been priced in dollars, if the dollar strengthens, it takes less dollars to buy a barrel of crude, and vice versa, hence the reverse correlation. This seems to make sense, but is it just the dollar that drives the relationship? Can an increase or decrease in the price of oil be the determining factor as well? Many explanations have focused on the economic impact of interest rate changes and the possible associated demand implications they would bring. But what about supply? What if, like today, the supply of oil is plentiful and growing due to geopolitical changes in the production of crude? Will this drive a stronger dollar as well? Or is it the stronger dollar that has pushed the oil price lower?
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By Jim Vrondas, OzForex

Currency markets breathed a sigh of relief following the release of the European bank stress tests. After nudging 1.2600 against the greenback last week the euro started the new week on a positive note, pushing above 1.2700 seemingly buoyed by the results.

Of the 130 banks tested across the region 25 failed, with the ECB identifying a gap of 24.2 billion euros in capital required as of the end of 2013. When you distil this down further the results seem more benign with 19 billion already raised this year, the aggregate shortfall is reduced to 6 billion.

The markets will now focus more specifically on the five major banks that need more than 200 million euros and must submit a capital plan, no doubt more headlines will follow.

Stronger European banks no medicine for growth

The credibility of the tests are quite rightly being questioned but on the positive side the result is significant because it emphasises the large capital raising and de-leveraging efforts the banks have undertaken since the last stress tests in 2011. The good news is that bank spreads have tightened making them more stable – for now.

Although the banks are in a stronger financial position the European economy is still not looking that flash. The economic slowdown appears to be spreading from the peripheral to the core with signs of weakness in Germany and fears of a deflationary spiral across the region still evident.

With the ECB only just beginning to print money the banks will no doubt be encouraged to “give” more money away, but there are still question marks around how much of this money will reach the real economy and whether it will positively impact growth.

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It’s a huge week ahead on the data front for the Australian economy. We have building approvals, GDP, retail sales and trade balance all out — can any one of these sway the Aussie dollar one way or another?

GDP is obviously particularly critical as it’s a key measure of economic growth. The market is expecting a pull-back from first quarter +1.1 per cent result to a second quarter reading of +0.4 per cent. This would bring the annualised rate down from 3.5 per cent to 3 per cent, but it is somewhat of a lagging indicator.

The beauty of this week’s releases is that we get a broad reading on the domestic economy, with data providing some insight across a number of fronts. Building approvals are important for construction activity and general confidence in the economy; so too are retail sales and the state of the consumer.

I can’t see any of these moving the Aussie out of this range unless we get a softer-than-expected GDP reading of say 0.2 per cent or less for the quarter — in this scenario we could see a re-test of strong support between 92c and 92.50c.

RBA decision due

Will today’s Reserve Bank of Australia meeting have any impact on the currency this time? Well we know the RBA has been struggling to exert real influence over the Aussie, despite continued attempts to talk it down. It’s not the only one concerned about the local unit’s strength: BIS Shrapnel recently blamed the high dollar for sapping the strength of Australia’s economic recovery.
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As the US dollar rally starts to gather momentum, the euro is approaching its lowest levels in almost a year.

Divergence between the FOMC and ECB interest rate outlooks has been the main driver behind the move that has seen the euro fall 6 per cent since early May. The wedge between the two is only getting wider, with comments from both US Federal Reserve Bank chair Janet Yellen and European Central Bank president Mario Draghi dragging the euro lower over the weekend.

Change of tone in the US

Most of the focus from the Jackson Hole symposium over the weekend has been on remarks made by Janet Yellen. Her comments on the North American economy appear more neutral than hawkish as some have suggested.

They are, however, less dovish as the market has come to expect, and it was a reference to interest rate hikes potentially coming “sooner than market participants currently expect” that sparked a flurry of demand for the greenback. Although the timing on US interest rates is unclear, Yellen’s tone is to be expected, especially from a central bank edging very slowly towards monetary policy tightening.

Economic data takes centre stage

Looking beyond the headlines, it is clear there are still some considerable risks ahead for the US economy. The Fed is looking at much more than just the unemployment rate for a reading on the employment market.
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AUD/EUR Fundamental Outlook
AUD/EUR continued gaining ground in July, gaining another +0.9% overall for the month. The gain in the cross was in part due to asset flows and risk appetite favouring the Aussie over the Euro, the interest rate differential and as both economies reported mixed economic numbers. Economic data out of Australia was on balance better than Eurozone numbers, although weakness was evident in Retail Sales, Building Approvals and the Trade Balance.

Traders will be looking to the ECB rate decision on the 7th, as well as the RBA’s Monetary Policy Meeting Minutes for a better perspective on the direction of the cross. Due to weakness in the Eurozone, the rate differential and improving numbers in Australia, the outlook for the cross is positive in the near and medium terms but neutral longer term.

AUD/EUR Technical Chart Outlook

After making a 0.6314 low in late January, AUD/EUR has since been rallying correctively. The cross made yet another recent high at the 0.7035 level on July 23rd after breaking up out of a mildly declining consolidation range on the 21st.

The outlook for AUD/EUR over the coming month is mildly bullish short term and more bullish in the medium term while the channel top line break is sustained to set up a 0.7780 breakout target.
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