Global forex trading: This is the U.S. 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.
European Session Wrap l Market Overview l TheLFB News l Apr 02 09 l 07:00 EDT l
European Session Overview
Current Futures: Dow +96.00, S&P +11.70, NASDAQ +15.50
European Trade: Overnight equity markets traded on very strong momentum, as the outlook for the global economy has improved over in the last few weeks.European markets rose 3% in the first hour alone, while Asian markets closed the trading session very strong. The Nikkei drove the regional markets higher, as auto-industry sales in the U.S. fell less than expected. The Nikkei reached a three month high, at the same time as Chinese stocks were trading near the highest value reached in the last seven months.
The strong start in Europe propelled the Ftse above the 4,000-point benchmark. U.K. markets were driven higher by commodity stocks, which were helped by gains in the metal’s market. Twenty companies, on the FTSE, rose more than 5% today, while only three companies out of 102 declined. On the German Dax, the car-manufacturers continued to post very strong gains, as BMW rose over 9% and Daimler gained 7%. Every company listed on the German Dax rose today.
The G-20 meeting is getting under way today, with the European parties opposing additional fiscal measures to stimulate the economy, but asking for further regulations of the financial environment. France and Germany, the two eternal European rivals, went so far to say they would boycott the summit if conditions for tougher tax haven regulations are not meet. On the other hand, the IMF is criticizing both the U.S. and Europe for dodging a very important measure: cleaning the bank’s balance sheets.
Overnight, the Nikkei rose 367.87 points (4.40%) to 8,719.78. The Australian S&P/Asx gained 100.50 points (2.81%) to 3,680.20. The U.K. Ftse gained 112.64 points (2.85%) to 4,068.25, while the German Dax rose 120.09 points (2.91%) to 4,251.16
Crude oil traded flat, on a low volume. Crude oil for May delivery rose $0.60 to $49.20
Gold continues to trade within the range of the last few days of trading. Bullion for immediate delivery fell $3.10 to $924.70.
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European Session Wrap l Market Overview l TheLFB News l Apr 02 09 l 07:00 EDT l
Overall, the market seems to be in risk-acceptance mode, as the higher yielding currencies post gains on positive equities. The only exception is the euro, affected by the upcoming interest rate decision. However, activity in the euro is expected to pick up during the press conference, in which Mr. Trichet will lay out the new monetary stance.
The Euro (Eur/Usd) advanced during the Asian session, but retraced a large portion of those gains as the European session started. In the last three days, the euro has traded sluggish, as the market expects the ECB to reduce the overnight rate by 50 basis points this morning.
The Pound (Gbp/Usd) rose as much as 150 pips during the overnight session, but gave up some gains as the Asian session concluded. The pound advanced against both the dollar and the euro, helped by a better than expected economic release from the U.K. housing market.
March’s U.K. Construction PMI rose more than expected, after last month the index fell to an all-time low. The U.K. Construction PMI was released at 30.9, while analysts forecasted a 27.6 read. Despite this month’s positive read, almost every sub-index of the release still points to a severe slowdown, as the British construction market has tumbled for more than a year. U.K. house prices rose unexpectedly in March, after declining for sixteen straight months. The average price for a U.K. house in March reached £150,946, up 0.9% from the previous month
The Aussie (Aud/Usd) gained 60 pips in the Asian session, testing TheLFB R1 (0.7030), but traded flat until the European session got under way. After the London open, the aussie advanced further, breaking above the 0.7050 area, where it topped in Wednesday’s trade.
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) extended the decline, seen in the last U.S. session, during the overnight sessions. The cad fell an additional 80 pips, breaking below the 20-day simple moving average. Additionally, the cad is now trading just above the 50-day simple moving average.
The Swissy (Usd/Chf) moved somewhat lower during the Asian session, but hit a support trend-line that connects the lows of the last two days of trading, near the 1.1400 area. From there the swissy briefly reversed direction and returned to the opening price of the Asian session.
The Yen (Usd/Yen) is trading just below the 200-day simple moving average, helped by the gains seen in the overnight equity markets. The yen re-tested the 98.50 support level in the early Asian session, but failed to break anywhere lower. For the rest of the Asian session the yen traded flat.
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.
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European Session Wrap l Market Overview l TheLFB News l Apr 02 09 l 07:00 EDT l
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.
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European Session Wrap l Market Overview l TheLFB News l Apr 02 09 l 07:00 EDT l
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.
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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
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