Global forex trading: This is the European session overview of the global commodity and foreign exchange markets that cover forex trading, forex markets, forex news and commodity overviews. Each day we review the dollar index, the equity markets, as well as commodities. This information answers the what is forex question, by revealing what drives the foreign currency exchange markets.
Asian Session Wrap l Market Overview l TheLFB News l Apr 01 09 l 23:00 EDT
Global Equity Update
Asian trade: Asian markets are heading higher and sharing the same positive momentum as U.S. stocks, given that the economy appears to be at the start of the recovery phase, or at least getting really close to it.
On Wednesday the ISM manufacturing report climbed to 36.3, the third consecutive gain. The ISM report can be used as a good gauge for the upcoming GDP numbers. The positive reads over the last three months show that the economy improved during the first quarter of 2009 from the preceding, at least when it comes to the manufacturing side of the economy. However, the ISM March number still holds a long way from the 50 points mark that denotes contraction from growth
Additionally, the ADP report showed on Wednesday that the U.S. economy shed 742K workers in March, the second consecutive month in which the economy lost more than 700K jobs. Overall, the data coming from the labor market is very weak, both in the U.S. and in the Euro-area. On Friday, a release is expected to show that the unemployment rate in the U.S. reached 8.5% in March, a 25-year high. In the Euro-area unemployment jumped to 8.5% in February.
Taken as a whole, the ISM and the ADP reports show that the economy will contract for the 17th month in April, making it the longest recession since the Great Depression.
Overnight the Nikkei rose 198.42 points (2.38%) to 8,550.33. The Australian S&P/Asx gained 102.90 points (2.87%) to 3,682.60.
Crude Oil for May delivery rose $0.30 to $48.80 as the market moved on a low volume
Gold continues to trade within the range of the last few days of trading. Bullion for immediate delivery added $0.60 to $928.10.
Back to top
Asian Session Wrap l Market Overview l TheLFB News l Apr 01 09 l 23:00 EDT
Overall, the majors had no direction in the last few sessions,and were probably affected by negative equity markets and the expected ECB press conference on Thursday. The euro, cad and the yen closed the day mixed. The swissy lost ground, while the pound and the aussie strengthened. However, the majors were right on track during the Asian session and traded again inline with the dollar being sold lower.
The Euro (Eur/Usd) continues to look weak on the daily chart, and the pair was unable to hold a trend over the last three days. This was a reaction to the ECB’s press conference scheduledon Thursday, when the markets expect the European bank to reduce the overnight rate by 50 basis points. The Euro added 40 pips in the Asian session.
The Pound (Gbp/Usd) gained 100 pips in the U.S. session, with strenght coming from the U.K. Treasury that managed to sell all of its gilts, unlike last week when the auction failed for the first time in the last seven years. During Wednesday’s Asian session the pound added another 40 pips.
The Aussie (Aud/Usd) was sold in early overnight trade, but recovered strongly during the rest of the day. At the close of the U.S. session, the aussie rose 80 pips, with these gains being extended further in the Asian session. The aussie will soon hit the 0.7050 area, an important swing area.
Australia has posted a higher than expected trade balance for the month of February. Analysts were expecting a 0.70B reading when in fact; the country had a surplus of 2.11B. This is mainly due to imports of consumer goods declining while the price of gold surged higher. However, this may not be enough for Australia to avoid a recession, the nation’s first in two decades. This is the seventh consecutive month in which the Australian trade balance has been in the black.
The Cad (Usd/Cad) traded above the 20-day moving average, but was still unable to develop a decent trend. The cad tried to break above TheLFB R1 (1.2685) area during the overnight session, but failed. At the end of the day the cad formed a pin-bar pattern.
The Swissy (Usd/Chf) finished the session some 80 pips higher; recovering almost every pip lost during the previous session. On an intra-day basis swissy gained in the Asian and U.S. sessions, but was sold during the middle of Wednesday’s European session. In the current session, the swissy has fallen 30 pips.
The Yen (Usd/Yen) started the last day of trade strongly, but overall the pair failed to break any important price points. The yen traded in a range, initially between the high of the previous trading session and TheLFB neutral pivot point., At the end of trade the range came down to only 30 pips, which was extended into the Asian session.
The Japanese monetary base came in with a reading of 6.9 percent year over year in February. Banknote circulation in January was up 0.8 percent. Meanwhile, coins declined 0.1 percent.
Back to top
Asian Session Wrap l Market Overview l TheLFB News l Apr 01 09 l 23:00 EDT
Dollar Index: The markets on Wednesday have put in a strange phase of forex trade and are not in sync with the equity market optimism that has sent Wall Street dramatically higher in morning trade. The moves that have the dollar holding ground on a day of fundamentals, that would generally have seen it getting sold, may be attributable to the Treasury markets absorbing the impact of the Federal Reserve’s open market operations. The result has seen the yen tread water, the euro and swissy lose ground, and aussie, cad, and cable push near-term resistance; none of which have the momentum to actually break through and hold.
"The euro may be holding things back in regard to ease of the market being able to break the dollar lower, and that may be due to positioning ahead of the ECB rate decision due on Thursday" said TheLFB-Forex.com Trade Team members, "The expectation is for a 50 basis point cut in rates, something that built dramatically over the last week in response to jawboning from ECB officials who have reversed completely their public outlook on rates not moving after their March meeting. The euro makes up 60% of the dollar index and as such the short positions being built into on Eur/Usd may be impeding the other pairs ability to break near-term resistance".
It is unusual to see triple digit Dow Jones gains and not to see a reaction in forex valuations, but today the push-me pull-you moves in the equity/Treasury/euro markets have contained things. Market participants may now be looking for break-outs of the daily ranges as the Nymex oil markets close at 14:30 EDT, and also looking for price action in the Asian markets overnight.
"The Australian Trade Balance numbers are released overnight, and that sets up Thursday’s U.K. House Price Index, the start of the G20 meeting, and then the 07:45 EDT ECB rate decision" the Trade Team said. "Friday gets wrapped up in the Non-farm payroll circus that is coming to town, with ring-master Mr. Bernanke speaking to the masses soon after. Things may get to trend after the upcoming week of data, and the signals are there that the status quo may not last too much longer, and with the Fed’s determination to de-value the Usd it may be that the dollar index tests support at the 80.00 area".
"A dollar index move to support would equate to an average of 400 pips of gains on each of the major pairs, something that right now looks unlikely to easily happen; but we have to always respect the market’s ability to move at the most unlikely and unexpected of times. We have been banking short-term moves so as not to get caught on the bigger break-out that looks as though is not whether it comes, just when. Nobody really needs to get in front of the Fed at this point in time, not when they have all guns blazing".
On Wednesday, the dollar index rose 8.4 basis points (0.10%) to 85.514 as the cash markets reversed the overnight losses in S&P futures.
Back to top
Asian Session Wrap l Market Overview l TheLFB News l Apr 01 09 l 23:00 EDT
XLF Introduction: The long-held view of former Fed Chairman Allan Greenspan regarding the Fed's inability to deflate an asset bubble has always been open to debate, and no more so than since the bursting of this latest one. The problem is that the economic system's pro-cyclical tendencies where not directly under the control of the Fed, mainly because the Central Bank exerts its greatest influence onthe shorter end of the yield curve.
“There has never been an instance, of which I’m aware, that leaning against the wind was successfully done,” Greenspan, 83, said in a Feb. 27 telephone interview.
Procyclicality has to do with the ability of financial institutions to lower the cost and expand the amount of credit available as the economy is overheating, the exact opposite of what a Central Bank would like to see happen. In this last instance, the explosive growth of securitization had the effect of lowering long-term interest rates as asset prices were bubbling, a situation which was, according to Mr. Greenspan, out of the Fed's control.
One reason the Fed lacked the ability to control the situation was because regulators did not have the authority to require banks to take increased reserves (in percentage terms) against the loans they were writing beyond what the normal requirements were. Forcing banks to hold a higher percentage of capital in reserve would have naturally had the effect of making less cash available. For example, the Basel II requirement is only an 8% reserve against loans and there are no provisions in the agreement to raise the percentage as the portfolio of loans increases.
“It has always bothered me that our capital requirements are so low,” Greenspan said. “We do not have an adequate cushion.”
An important part of the problem was that the large commercial banks were not the only entities providing the capital this decade. Mark Gertler, a New York University economics professor who has collaborated on research with Fed Chairman Ben Bernanke, points out that leaving investment banks essentially unregulated even as they held mortgages and issued short-term liabilities like commercial banks was a big part of the problem. Once the ability to roll-over short-term debt ended as housing prices started to decline, the game was essentially over.
“The first-order cause of this crisis was the regulatory system was way out of whack,” Gertler said. “It’s not the case that you can get at this alone with interest-rate policy; it really requires smart regulatory policy.”
If you really want to trace the cause of the crisis, one needs to look at the massive current account imbalances which built up this decade as huge exporters such as OPEC and the Chinese sold their
goods to voracious U.S. consumers. A current account surplus is a form of national savings, because it represents that the population of the surplus country isn't consuming anywhere near what consumers in the current account deficit nation are.
This "savings glut" was a key for the asset bubble in the U.S. and elsewhere as China parked their enormous holdings of foreign reserves, which were and are held mostly in dollars, back into the U.S. in the form of Treasury purchases. Their holdings in U.S. debt helped to keep long-term interest rates low and flooded the market with cash, exactly at the time that demand for credit was soaring.
In essence, the supply-demand equation was skewed. The price of money (interest rates) declined and the availability (supply) of it went up as demand increased. This is procyclicality in action.
The situation we have now in the recession is the exact opposite; counter cyclicality. The supply of credit has decreased and the cost of credit (at least until the Fed really got into the situation) increased as demand waned.
On Wednesday, the XLF financial sector ETF rose 0.25 points (2.84%) to 9.06. The volume was light; 178,429,354 ETF's changed hands against a rising daily average of 239,181,000.
Back to top
Trade Data: Commodities, including forex pairs, tend to move 0.5% each day, anything above that needs to be monitored for an impact elsewhere, and the ability to hold any increasing trading range above the norm.
Historically: 1. Oil and gold up = Usd down 2. Treasury notes up = Treasury yields down 3. Treasury yields down = Usd down
Back to top
Copyright © 2007 - 2009 LFB Services, LLC. All rights reserved. l Risk Disclosure l