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Asia Session - January 20, 2009 2:08 AM

Some really big moves today in Asia and the biggest of them all was the collapse of the British Pound, which hit a 7 year low against the US Dollar as the UK fell deeper into recession. Adding to the woes of the British Isles was Royal Bank of Scotland recording what looks to be the biggest loss in the history of all corporations in the UK, the stock led all banking stocks lower as it was down by over 65%. GBP/USD was destroyed this trade day, falling from early session highs near 1.4440, to just near 1.4135. This move is a continuation from yesterdays slip from just over 1.4900. A short squeeze near the bottom of the move was over dramatic due to thin markets, and pushed the pair to 1.4345. 1.4250-60 was where we were as of this writing. EUR/GPB was dramatic in its moves as well, climbing from near 0.9050 to a perch at 0.9180, and then the pair fell off a cliff, and dropped a full handle in a matter of minutes. Look for UK CPI later in the Europe session.

The Euro continued it's downward trend today after Spain was downgraded by Standard & Poor's, the single European Currency fell from 1.3100 to just near 1.2980 against the US Dollar. With German and Euro-Zone ZEW data due later, the softening Euro may continue.

The Yen strengthened against the Dollar as risk aversion was again in play in lieu of a dismal day in Asian stocks. USD/JPY dropped from 90.69 to near 90.10. As is the case across the board, bank stock led the fall, in this case HSBC in Hong Kong. GBP/JPY hit what looked like a record low near 127.40.

Tomorrow in the US is the long awaited Presidential Inauguration of Barak Obama, if you care to look back to our ''2008 Predictions'' from one year ago, you will see that our foresight was right on the money as we believed that he would be in the White House before he was even a frontrunner in the primaries.......Enjoy the show.

Upcoming Economic Data Releases (London Session):

1/20/2009

9:30

UK

CPI (MoM)

DEC

-0.10%

-0.90%

1/20/2009

9:30

UK

CPI (YoY)

DEC

4.10%

2.60%

1/20/2009

9:30

UK

Core CPI YOY

DEC

2.00%

1.30%

1/20/2009

9:30

UK

Retail Price Index

DEC

216

212.9

1/20/2009

9:30

UK

RPI (MoM)

DEC

-0.80%

-1.50%

1/20/2009

9:30

UK

RPI (YoY)

DEC

3.00%

0.80%

1/20/2009

9:30

UK

RPI Ex Mort Int.Payments (YoY)

DEC

3.90%

2.40%

1/20/2009

10:00

GE

ZEW Survey (Econ. Sentiment)

JAN

-45.2

-43.1

1/20/2009

10:00

GE

Zew Survey (Current Situation)

JAN

-64.5

-71.5

1/20/2009

10:00

EC

ZEW Survey (Econ. Sentiment)

JAN

-46.1

-46

Congress Gets on Board for TARP: Are Tax Cuts Next?


Fingers are being crossed for economic stimulus
The economy is The News lately. Especially the U.S. economy. And yesterday Congress voted to release the last half of the TARP funds approved for economic stimulus last year. Now, Congress is turning its attention to the economic stimulus plan suggested in part by Barack Obama.

The economic stimulus bill includes funding for:

  • Infrastructure.
  • Tax cuts.
  • Schools.
  • State governments.
  • Health care.
  • Technology.
  • Unemployment.
  • Alternative energy development.

It remains to be seen whether this bill is passed, and whether or not it truly does stimulate the economy.

For now, though, the economic troubles plaguing the U.S. are not causing trouble for the U.S. dollar.

Quite the opposite; with the global economy in ruins, the U.S. dollar is the safe haven currency of choice.

U.K. Announces Additional Bailout for Financial Market


Sterling falls in currency trading on new planToday, the U.K. has announced a new, massive bailout for the financial markets. The new program is means to be aggressive, and will set up asset purchases. Unfortunately, many of these assets are toxic, and that means that investors are wary of the plan.

Calculated Risk offers some of the details of the newly aggressive bailout plan in Britain:

  • Consumer car loans will be exchanged for government bonds in an extension of the Special Liquidity Scheme.
  • Northern Rock (state owned) will be required to provide more mortgages.
  • The Credit Guarantee Scheme will be extended until year’s end.
  • Billions in mortgage-backed securities will be guaranteed.

Sterling falls in currency trading as plan is unveiled

This new plan offers further proof that the U.K. economy is in big trouble. Things haven’t been improving, and this bailout of the financial market simply underscores the point. As a result,
the sterling is dropping in currency trading on the FX market as economic recovery is seen as something likely to take place in the far distant future.

forex news - U.S. Bailout Expectations Help Down Under Currencies in Forex Trading


Aussie, kiwi do well in currency trading — for nowRight now,

things are looking pretty good for down under currencies in forex trading.

The Australian dollar and the New Zealand dollar are both making gains against the Japanese yen as risk appetite makes a tentative appearance and high yielding currencies get a little more play.

Stock markets help down under currencies in forex trading

One of the main reasons that the Aussie and the kiwi are doing so well right now in currency trading is due to the fact that stock markets are turning toward optimism.

With talk of bailout in the U.S., there are hopes for economic stimulus, and that is fueling investment in the stock market right now.

Because they are currencies that rely on the global economy, the Australian dollar and the New Zealand dollar are likely to see a bounce as hope returns for economic recovery led by the U.S.

forex news / Spanish Downgrade Affects Euro in Forex Trading


EUR/USD pulls back in currency tradingEarlier today, the euro appeared to be making some headway in forex trading. That has stopped however, and EUR/USD has changed course in currency trading, on the news that Spanish government debt has been downgraded.

The euro is suffering as its individual members begin to have problems, contributing to the instability of the overall performance of the euro in forex trading.

ActionForex reports on the euro zone currency:

Today’s news also puts into focus the question of whether the euro, as a currency without a country, can withstand the stress of the current economic slowdown The EUR/USD pair declined in the immediate aftermath of the news and remains near day’s lows as traders become increasingly concerned about the credit worthiness of the individual members of the union.

forex news - Earnings News to Affect Forex Trading Forecast


Greenback awaits currency trading directionLast week, earnings began rolling out in the U.S. for the 4th quarter of 2008 — but just a trickle. This week, though, the earnings reports really start rolling in. And what happens this week is likely to affect the forex trading forecast.

So, while bailout news has been dominating the greenback in currency trading lately, it is likely to take a backseat for a little while.

FX Street reports on earnings expected this week:

Today we have Logitech, tomorrow IBM and Johnson & Johnson, on Wednesday United Technologies, on Thursday Google, Microsoft, Nokia, Lockheed Martin and Bank of New York Mellon and finally on Friday GE and Xerox. The impact of these results and the ones coming next week may be much greater than a short term relief after the bailout of Bank of America.

forex news - Russian Ruble Continues Its Descent in Foreign Exchange


Ruble devalued again in forex tradingThe Russian ruble has been seeing serious problems as it attempts to maintain some sort of value in foreign exchange. And the problems continue today. Once against, the Russian government has devalued the ruble in forex trading — and still no one wants to purchase rubles.

Indeed, the sad thing is that many feel that the ruble is still overvalued — even after 6 ruble devaluations so far this year. Concerns about continued drops in the price of oil are causing skepticism about how well the Russian ruble will hold up in foreign exchange.

New York Session / January 19, 2009 5:44 PM


Today's Market Update


Some really big moves today in Asia and the biggest of them all was the collapse of the British Pound, which hit a 7 year low against the US Dollar as the UK fell deeper into recession. Adding to the woes of the British Isles was Royal Bank of Scotland recording what looks to be the biggest loss in the history of all corporations in the UK, the stock led all banking stocks lower as it was down by over 65%. GBP/USD was destroyed this trade day, falling from early session highs near 1.4440, to just near 1.4135. This move is a continuation from yesterdays slip from just over 1.4900. A short squeeze near the bottom of the move was over dramatic due to thin markets, and pushed the pair to 1.4345. 1.4250-60 was where we were as of this writing. EUR/GPB was dramatic in its moves as well, climbing from near 0.9050 to a perch at 0.9180, and then the pair fell off a cliff, and dropped a full handle in a matter of minutes. Look for UK CPI later in the Europe session.

The Euro continued it's downward trend today after Spain was downgraded by Standard & Poor's, the single European Currency fell from 1.3100 to just near 1.2980 against the US Dollar. With German and Euro-Zone ZEW data due later, the softening Euro may continue.

The Yen strengthened against the Dollar as risk aversion was again in play in lieu of a dismal day in Asian stocks. USD/JPY dropped from 90.69 to near 90.10. As is the case across the board, bank stock led the fall, in this case HSBC in Hong Kong. GBP/JPY hit what looked like a record low near 127.40.

Tomorrow in the US is the long awaited Presidential Inauguration of Barak Obama, if you care to look back to our ''2008 Predictions'' from one year ago, you will see that our foresight was right on the money as we believed that he would be in the White House before he was even a frontrunner in the primaries.......Enjoy the show.

Upcoming Economic Data Releases (London Session):

1/20/2009

9:30

UK

CPI (MoM)

DEC

-0.10%

-0.90%

1/20/2009

9:30

UK

CPI (YoY)

DEC

4.10%

2.60%

1/20/2009

9:30

UK

Core CPI YOY

DEC

2.00%

1.30%

1/20/2009

9:30

UK

Retail Price Index

DEC

216

212.9

1/20/2009

9:30

UK

RPI (MoM)

DEC

-0.80%

-1.50%

1/20/2009

9:30

UK

RPI (YoY)

DEC

3.00%

0.80%

1/20/2009

9:30

UK

RPI Ex Mort Int.Payments (YoY)

DEC

3.90%

2.40%

1/20/2009

10:00

GE

ZEW Survey (Econ. Sentiment)

JAN

-45.2

-43.1

1/20/2009

10:00

GE

Zew Survey (Current Situation)

JAN

-64.5

-71.5

1/20/2009

10:00

EC

ZEW Survey (Econ. Sentiment)

JAN

-46.1

-46

Week of January 18, 2009


Risk aversion returns, but it may vanish just as quickly
 Markets remain caught between despair and the hope that things can't get much worse. This past week saw waves in both directions, with risk aversion rearing its head early in the week on renewed banking sector losses and overall gloomy outlooks. By the end of the week, however, a number of the key issues were being addressed (among others, additional US government bank guarantees for a major US bank; UK government considering similar bank mortgage guarantees; second half of TARP made available; US House passed $825 bio fiscal stimulus package; and US officials are now considering a so-called 'bad bank' aggregator to absorb toxic debts from banks to repair balance sheets and restore lending), raising the prospect that risk aversion may dissipate as quickly as it re-surfaced. Then there is the unpredictable sentiment shift that may occur with the inauguration of President-elect Obama and the departure of Bush 43.

 The backdrop of eroding global growth remains, however, and it will be with us for many months to come. In this light, the US still looks better positioned to emerge before other major economies and this keeps the USD generally better supported. But a significant source of USD support comes from heightened risk aversion, with stock market declines the best barometer of the level of fear, and sentiment swings seem likely to remain frequent and fierce. The USD was showing signs of potentially breaking higher across the board earlier this past week, but the indications are decidedly more mixed as the week closes and the risk is now that the USD relapses and risky trades (long JPY-crosses like EUR/JPY, GBP/JPY and AUD/JPY) recover further. Still another alternative is that key markets continue to bounce around in a relatively volatile range and no clear direction emerges.

Important price levels to watch
In this highly uncertain environment, I'll be watching the following price levels as key indications of likely market direction:

Stocks: The S&P500 index is currently trading below its Ichimoku cloud, keeping the overall bias lower. I would also note that the S&P banking index has led the way lower and has made new lows for the current downturn. A daily close above 858 next week will see back into the cloud and potentially signal strength and improving risk appetites.

EUR/USD: A trend line off the Dec. 29 and Jan. 8 highs is the key to keeping EUR/USD biased lower. That trend line is at 1.3380 to start next week and later moves as low as 1.3150 by the end of next week. The key here is that EUR/USD has been making successively lower highs, potentially setting up an accelerating, parabolic decline. That trend line should not come into play if such a pattern is to unfold. Daily close weakness below 1.2950/1.3000 will open up the downside and likely see declines to the 1.23/25 lows seen last year.

GBP/USD: Currently trading below its Ichimoku cloud (bearish), Sterling was sharply rejected from the base of the cloud at 1.4986 on Friday. The base of the cloud rises to 1.5050 to start the week and ends the week at roughly 1.5150. The outlook for Sterling remains negative while below the cloud and a daily close below 1.4450/4500 may see declines to 1.4200/50 initially.

USD/CAD: Closed the week above its cloud, suggesting a new phase of strength may just be starting. USD/CAD needs to maintain daily closes above 1.2450 during next week to stay above the cloud and potentially test recent highs at 1.3000. CAD's fate will be closely tied to oil and the Bank of Canada rate decision (see below).

USD/JPY: Trading below its cloud, USD/JPY has key resistance at 90.88/91.00. The base of the cloud falls from 92.61 at the start of the week to 91.36 by the end of the week and a daily close above suggests further gains are likely. Weakness below 88.50 is needed to suggest fresh downside potential.

WTI oil: Oil remains well below its cloud and the bias remains clearly lower. However, oil may have made a potential double bottom at $32/33/bbl and this may be a catalyst to a rebound. A daily close above $41.50/80 will be the first signal that such a recovery may be unfolding.
Bank of Canada poised to cut rates next week
 The Bank of Canada will meet on Tuesday and is expected to announce its rate decision at 9:00am ET. The market consensus is that the bank will reduce the key interest rate by -50 basis points to 1.0%. With the decline in economic activity and commensurate slowing in inflation, the bank will doubtless take rates lower. From the most current data we have in hand, it is clear that the Canadian economy continues to downshift.

The Ivey purchasing managers survey, which measures activity across public and private industries, sank to a record low 39.1 in December after a 40.2 read in November and 52.2 in October. Meanwhile, the employment picture continued to get grimmer. Unemployment rose to 6.6% from 6.3% in December and the uptick was actually limited by a +36.2K increase in part-time employment - the more important full-time employment measure plunged a massive -70.7K on the month.

With the fundamental picture deteriorating and oil prices revisiting 2008 lows, the bank will be hard-pressed not to cut by a sizeable amount. While the cut itself will likely get little reaction - barring a much more aggressive -75 or -100 bps decision - the accompanying press statement should elicit some CAD weakness. The expected somber assessment has the potential to see USD/CAD towards the 1.2670/80 highs of this past week.
Potential credit rating downgrade in Spain a catalyst for lower EUR
 With the downgrade to Greece's sovereign credit by Standard & Poor's to A- from A this week, speculation is widespread that one of the other countries currently on "watch" will be next. The most noteworthy of the bunch looks to be Spain. While Greece and the other countries mentioned by S&P are relatively small, Spain accounts for roughly 12% of EZ GDP and is the fourth largest EUR economy. Given the timing from the point Greece was announced to be on "watch" to when S&P actually cut their rating (about six days), we think the probability that we get an announcement regarding Spain next week is significant.

One of the big reasons Spain's credit rating is in trouble is the consumer borrowing binge the country has been on over the last decade, compared to more prudent borrowing in Germany for example. From 2000-2007 Spain averaged a staggering 19% annual growth in consumer debt while Germany was barely keeping up with inflation at a 2% run-rate. That this credit expansion was unsustainable is an understatement.

To add fuel to the fire, this week we had Spain's Finance Minister Solbes downgrading the economic outlook and suggesting the country will face the sharpest contraction in the last 50 years. Unemployment is expected to surge to near 16% in 2009 with the economy forecast to contract at a -1.9% annual rate. The estimated budget deficit increase - to 5.8% of GDP in 2009 from 3.4% last year - in the face of a contracting economy makes it a prime candidate for a credit rating downgrade as well as EU sanctions for violating maximum Maastricht deficit/GDP ratios.

The implications for EUR on this as we muddle through 2009 are ominous. While many believe that the massive amount of debt the US is taking on will eventually hurt the USD, I think the risk that this global recession hurts the EUR makes more sense. When thinking about debt, we need to consider the ability to finance that debt instead of the "nominal" amount of debt actually outstanding. If recent credit watch/downgrades in the EZ tell us anything it is that the confidence in the ability of some of these countries to finance long-term debt has deteriorated. Witness 10-year bond spreads between Germany and Spain for example, at 115 bps and the highest since 1997.

The risk is that as the global economy slows further, these rating downgrades in the EZ become more pronounced and prevalent. The US meanwhile is still one of the most productive countries on the globe, which acts as a buttress to confidence in the ability to pay creditors. Not sure one can say the same about many of the European counterparts. Bottom line is that continued credit rating downgrades in the face of a significant global slowdown are a recipe for EUR disaster.
Key data and events to watch next week
The US economic calendar is ultra light next week as the Martin Luther King, Jr. Day holiday and the US Presidential Inauguration slow the action in financial markets down a notch. Wednesday kicks it off in terms of pertinent data with the NAHB homebuilder confidence survey. Thursday is the busiest day and rounds out the week with housing starts/permits, initial jobless claims and weekly crude oil inventory data.

It is a bit busier in the Eurozone and the week starts with EZ construction output and the European Commission economic forecasts on Monday. The EZ and German ZEW surveys of economic sentiment are on deck Tuesday. Wednesday sees German producer prices while Thursday has French consumer spending and EZ industrial new orders. Friday closes things out with French business confidence and PMI manufacturing reports.

The UK has a modestly busy schedule, starting with Rightmove home prices on Monday. Tuesday has consumer prices lined up while Wednesday brings the BOE minutes and December employment. The CBI Quarterly Industrial Trend report highlights Thursday while GDP and retail sales finish off the week on Friday.

Japan is uncharacteristically busy and this could see a pickup in JPY price action in the Asia session. Monday has industrial production, nationwide department store sales and the key tertiary industry index. Tuesday sees consumer confidence and machine tool orders. On Wednesday the leading economic index is due while Thursday has the BOJ rate decision (which is likely to be a non-event).

Canada has a plethora of economic events lined up as well. Monday kicks it off with international capital flows. On Tuesday we see manufacturing shipments and the key Bank of Canada rate decision (more on this above). Leading indicators and retail sales are up on Thursday while consumer prices are on deck Friday.

The agenda down under looks just modestly busy. Monday kicks it off with Australian preliminary trade data and New Zealand consumer prices. Tuesday has NZ retail sales and AU consumer confidence on tap. Wednesday sees NZ credit card spending and business PMI while Thursday ends the week with AU consumer inflation expectations.

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Although the markets were far from busy today, there is a good deal of news and moves to digest as the session winds down. With the S&P lowering the credit rating of Spain to negative and an expected ECB .50bp cut due on Thursday, the Euro was aggressively sold across the board in late Asia trading. EUR/USD started the session near 1.3372 highs and melted all session until it fell off a cliff in late trading to rest at 1.3250 levels as London came online. The S&P also downgraded Ireland and Greece last week. Against the Yen, the picture was quite the same as Asian equities collapsed and risk aversion reigned supreme; EUR/JPY hit highs near 119.59 early and slid to 118.30 later in the session. Further proof of risk aversion was seen in AUD/JPY with a drop from 60.90 to close to 60.20. The AUD/JPY pair has dropped 8 big figures so far in the young year of 2009.

USD/JPY, to be put in perspective, started the year near 94.60, and moved from 90.00 to 88.90 in the past 24 hours.....In Asia, USD/JPY moved higher, bouncing from aforementioned lows, to just above 89.50. Word is that the BoJ is as usual, ''watching the FX markets'', and in the Japanese government, PM Aso's approval rating has hit a record low of 18% The Nikkei was down close to 5% as of this report.

Down under the Kiwi dollar was crushed as once again the S&P came out and revised New Zealand's ratings outlook to negative. The result of the negative rating was NSD/USD dropping like a stone from 0.5770 highs to lows of 0.5590ish. The Kiwi Dollar was down about 2% on the day.

As the reality looks gloomier as 2009 unfolds, many are looking for the ECB to cut beyond the expected 50bp cut to perhaps 75bp or more.....stay tuned Thursday.
Upcoming Economic Data Releases (London Session)



1/13/2009 7:00 GE Wholesale Price Index (MoM) DEC -3.30% - -


1/13/2009 7:00 GE Wholesale Price Index (MoM) DEC -0.80% --


1/13/2009 9:30 UK Wholesale Price Index (YOY) NOV £7750 £7500


1/13/2009 9:30 UK Visible Trade Balance GBP/Mn NOV £4359 £4200


1/13/2009 9:30 UK Trade Balance Non EU GBP/Mn NOV £3867 £3700


1/13/2009 9:30 UK Total Trade Balance (GBP/Mln) NOV -7.40% -8.50%


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