Dow Jones Ramps up Forex Coverage
In a nod to the growing importance of forex ($4 Trillion per day and growing!), Dow Jones recently announced the development of a new forex news service. While many of the features may only be available at some expense to professional subscribers, retail traders should still enjoy some benefit.
According to the Financial Times, “Financial institutions spend over $1.7bn for foreign exchange news and information… However, Dow Jones’ estimated $22m forex market data sales last year trailed far behind Thomson Reuters, at $1.28bn, and Bloomberg, at $518m.” The “news and commentary” segment (which includes The Forex Blog…) accounted for about $100 million of such spending, “with two-thirds of the market controlled by Informa, Dow Jones and IFR Markets.”
DJ FX Trader will apparently aim to solidify Dow Jones position in forex news, while enhancing its stature in the forex information space. Towards that end, its news coverage will be backed by a staff of more than 100 – which have already been instructed to “seek out interviews that could move foreign exchange markets,” while its information offerings will be supported by its investments in algorithmic trading technology, the hiring of former currency traders, and use of a comprehensive outside data feed.
Of course, most of the advanced features will be made available only to those that pay a hefty subscription fee, estimated at more than $100,000 per year. (Bloomberg Terminal, by comparison, costs about $20,000 per year.) It’s not clear exactly what that will include, although for that price, you would expect nothing less than real-time quotes for all currencies on all major exchanges at all times. Its software package would presumably be the the best available, with the ability to run multi-variable trading strategies that execute instantaneously and automatically.
You might wonder why I bother to report on a service that will be prohibitively expensive for almost all retail forex traders. As I reported last week, a recent Federal Reserve Bank study showed that the effectiveness of technical analysis has gradually declined over the last few decades. As a result, the only way to consistently profit is through the use of increasingly sophisticated trading strategies and instantaneous and comprehensive access to information and rates. Similarly, the majority of currency traders (sadly in my opinion) rely on leverage and rapid-fire trading to eke out small gains on each trader. Being even one second late and losing to other traders (or scammed by your broker, as the CFTC has alleged) could mean the difference between winning and losing over the long run.
I’m not seriously encouraging anyone to consider plunking down $100K for DJ Forex Trader. Instead, I merely want to illustrate the gap in information that is forming between the “have” traders and the “have-nots.” As trading is increasingly electronic and algorithmic, and all technical analysis is performed by computers, I remain more convinced than ever that quality, fundamental analysis is the key to making money trading currencies over the long run.
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January 23rd 2011
Latin America Enters Currency War
A few years ago, I wouldn’t deign to discuss such obscure currencies as the Chilean Peso and the Peru New Sol. But this is a new era! These currencies – and their Central Banks – are being thrust into the spotlight as they join more established Latin American countries in the fight to contain currency appreciation.
Major Latin American currencies have collectively appreciated more than 29% since March 2009. (When researching this post, I discovered the fantastically apropos JP Morgan Latin American Currency Index, which is based on the currencies of Mexico, Columbia, Brazil, Argentina, Peru, and Chile, and is displayed in the chart above). That includes a nearly 45% gain in the Brazilian Real and a 30% rise in the Mexican Peso, with more modest gains by the Peru New Sol, Chilean Peso, and Colombian Peso. The Argentinean Peso seems to be dragging the entire index down, having never recovered from the sovereign debt default in 2008.
Over this period, capital has poured into Latin America: “Net private inflows surged to $203.4 billion last year from $57.5 billion in 2003, according to the World Bank. Stock market indices in the region are closing in on all-time highs, and bond prices have risen (i.e. 32% gain in Colombian bonds in 2010) to such an extent that spreads to Treasury Securities – the most common comparison – have narrowed to record lows. Perhaps this not for naught, as the region recorded economic growth of 5.7% in 2010 on the basis of rising commodities prices, aggressive/fiscal policies, and an overall global economic recovery.
Faced now with rising inflation (6% in Brazil, 4.5% in Chile, 11%+ in Argentina, etc.) and declining export competitiveness, Latin American countries have moved to stem the appreciation of their respective currencies. Brazil, whose finance minister coined the term ‘currency war’ and has been one of the most aggressive interveners in the forex markets, has been the most active. Its Central Bank continues to buy massive quantities of Dollars, it has raised taxes on capital controls, and most recently it moved to limit the ability of banks to short Dollars as a means of betting on the Real’s appreciation.
Meanwhile, “Chile, which hadn’t bought dollars in the foreign-exchange market since 2008, announced Jan. 3 it would purchase a record $12 billion, equal to 43 percent of the country’s currency reserves. In Colombia…the central bank is buying at least $20 million a day in the spot market. Peru purchased $9 billion last year, the second-biggest amount ever. While Mexico has so far refrained from intervention, it recently negotiated an IMF credit line which it could potentially tap for the purpose of holding down the Peso. All together, the Central Bank reserves of the six currencies mentioned above rose 16.5% in 2010 and now exceed $500 Billion.
It’s difficult to discern whether this intervention is having any impact. On the one hand, the raising of reserve requirements will certainly make it difficult for domestic banks to short their own currencies. In addition, some foreign speculators are getting spooked about all of the uncertainty and have moved to limit their exposure to Latin America. “There might be every macro reason in the world to love the Brazilian currency, but the randomness of policy to try and stop appreciation makes us want to have a smaller position,” explained one fund manager.
On the other hand, there is the possibility that legitimate institutional investors will also be scared away, which is problematic because Latin America remains reliant on foreign capital to fund its lavish fiscal spending and growing trade deficits. “There’s always a danger that by having capital controls, you can force some good capital to stay out of the country,” summarized one analyst. There are also concerns that Central Banks are losing sight of the bigger picture: “Central banks view the level of exchange rates as the priority rather than using them to help slow inflation.”
The problem, ultimately, is that Latin American countries want to have their cake and eat it too. The President of Colombia spoke recently of 5% GDP growth and the country’s desire to “put itself in the coming years among the most dynamic economies in the world,” but has whined about the upward pressure on the Peso. Brazil’s newly elected president has also spoken of becoming a global economic leader while its Finance Minister continues to sound off on the currency war. Meanwhile, Chile’s economy remains heavily tilted towards copper exports (it is apparently the world’s largest producer), and then wonders why rising prices have lifted the Chilean Peso. All blame the Fed’s Quantitative Easing Program for their currency woes and use China’s currency peg as basis for intervention.
In short, the appreciation of Latin American currencies has largely mirrored fundamentals. Individually and as a group, their exchange rates are still well below the bubble levels of 2008. Most of the rise over the last two years has merely offset the precipitous declines that took place during the height of the credit crisis. In addition, given the divergence in performance between individual currencies, it’s clear that investors (whether speculative or passive) are discerning. They have flooded the commodities producers with cash, while continuing to punish Mexico and Argentina over fiscal issues.
For that reason, there is reason to believe that most of the region’s currencies will continue to appreciate. Central Banks might manage to stall that appreciation in the short-term, but once they accept the inevitability of interest rate hikes (as Brazil already has) as the cure for inflation, the long-term upward path will be restored. Summarized one economist, “In these games of cat and mouse, I think policy makers will probably lose. There is too much unregulated capital in the world, particularly in developed countries. These guys will find ways around various restrictions.”
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January 20th 2011
Aussie May Have Peaked in 2010
When offering forecasts for 2011, I feel like I can just take the stock phrase “______ is due for a correction” and apply it to one of any number of currencies. But let’s face it: 2009 – 2010 were banner years for commodity currencies and emerging market currencies, as investors shook off the credit crisis and piled back into risky assets. As a result, a widespread correction might be just what the doctor ordered, starting with the Australian Dollar.
By any measure, the Aussie was a standout in the forex markets in 2010. After getting off to a slow start, it rose a whopping 25% against the US Dollar, and breached parity (1:1) for the first time since it was launched in 1983. Just like with every currency, there is a narrative that can be used to explain the Aussie’s rise. High interest rates. Strong economic growth. In the end, though, it comes down to commodities.
If you chart the recent performance of the Australian Dollar, you will notice that it almost perfectly tracks the movement of commodities prices. (In fact, if not for the fact that commodities are more volatile than currencies, the two charts might line up perfectly!) By no coincidence, the structure of Australia’s economy is increasingly tilted towards the extraction, processing, and export of raw materials. As prices for these commodities have risen (tripling over the last decade), so, too, has demand for Australian currency.
To take this line of reasoning one step further, China represents the primary market for Australian commodities. “China, according to the Reserve Bank of Australia, accounts for around two-thirds of world iron ore demand, about one-third of aluminium ore demand and more than 45 per cent of global demand for coal.” In other words, saying that the Australian Dollar closely mirrors commodities prices is really an indirect way of saying that the Australian Dollar is simply a function of Chinese economic growth.
Going forward, there are many analysts who are trying to forecast the Aussie based on interest rates and risk appetite and the impact of this fall’s catastrophic floods. (For the record, the former will gradually rise from the current level of 4.75%, and the latter will shave .5% or so from Australian GDP, while it’s unclear to what extent the EU sovereign debt crisis will curtail risk appetite…but this is all beside the point.) What we should be focusing on is commodity prices, and more importantly, the Chinese economy.
Chinese GDP probably grew 10% in 2010, exceeding both economists’ forecasts and the goals of Chinese policymakers. The concern, however, is that the Chinese economic steamer is now powering forward at an uncontrollable speed, leaving asset bubbles and inflation in its wake. The People’s Bank of China has begun to cautiously lift interest rates, raise reserve ratios, and tighten the supply of credit. This should gradually trickle down in the form of price stability and more sustainable growth.
Some analysts don’t expect the Chinese economic juggernaut to slow down: “While there is always a chance of a slowdown in China, the authorities there have proved remarkably adept at getting that economy going again should it falter.” But remember- the issue is not whether its economy will suddenly falter, but whether those same “authorities” will deliberately engineer a slowdown, in order to prevent consumer prices and asset prices from rising inexorably.
The impact on the Aussie would be devastating. “A recent study by Fitch concluded that if China’s growth falls to 5pc this year rather than the expected 10pc, global commodity prices would plunge by as much as 20pc.” [According to that same article, the number of hedge funds that is betting on a Chinese economic slowdown is increasing dramatically]. If the Aussie maintains its close correlation with commodity prices, then we can expect it to decline proportionately if/when China’s economy finally slows down.
Forex : 2011, année du déclin du roi dollar…
Par Eberhardt Unger
En cette fin d’année 2010, le TWEX (index du dollar évalué par son poids dans les échanges commerciaux) revient buter sur sa ligne de soutien historique autour des 70 points.
Le dollar américain est toujours la monnaie de référence mondiale ; cependant, ces derniers temps, ce rôle fait de plus en plus débat.
Dans les réserves monétaires mondiales estimées à 8 954 milliards de dollars US, environ 61% sont libellés en dollars américains (source : FMI/COFER).
Cette proportion a diminué au cours des dernières années d’environ 10% en faveur de l’euro, du yen et de la livre sterling.
La Chine, à elle seule, possède des réserves de change de 2 648 milliards de dollars, et pour toute l’Asie ce montant s’élève à environ 5 000 milliards. Au cours des 10 derniers mois, différentes banques centrales ont acheté de l’or comme réserves monétaires ou ont procédé à une augmentation de leur stock.
Derrière une monnaie de référence, on doit trouver une économie construite sur des fondamentaux solides. Or l’économie américaine est dans une phase de stagnation, et c’est le pays le plus endetté au monde où les dettes augmentent plus vite que le PIB.
Pour le total du passif (Total Liabilities) des Etats-Unis, la Fed a reporté le chiffre 114 428 milliards de dollars dans sa publication « Flow of Funds » pour 2009.
En comparaison, la valeur nominale du PIB américain est de 14 575 milliards de dollars : les dettes ne pourront jamais être remboursées.
Et la Fed continue à faire tourner la planche à billets (QE2). Avec ces billets fraîchement imprimés, elle achète des obligations et – pour résumer – paie la facture pour le pétrole brut importé. Ainsi, les Etats-Unis achètent quasi « gratuitement » du pétrole brut et avec ces « pétrodollars » l’OPEP achète des titres aux Etats-Unis.
Dans les pays émergents, la crainte grandit que le QE2 pourrait accentuer ces afflux de capitaux. La pression de réévaluation sur leurs monnaies pourrait alors s’accentuer et détériorer leur compétitivité, dans le droit fil de ce qu’espère Washington.
Plusieurs pays d’Asie et d’Amérique latine préparent la mise en place de mesures destinées à contrôler ou à réguler l’afflux des capitaux étrangers (QT2 = Quantitative Tightening 2).
La Banque du Japon décidera cette semaine quelles sont les mesures à prendre pour contrer le phénomène. Le contrôle des flux de capitaux seraient une nouvelle étape vers plus de protectionnisme dans l’économie mondiale.
Conclusion : compte tenu des risques de dévaluation, les investissements en dollars US sont déconseillés, à l’exception de l’or et l’argent, puisque le prix de ces métaux précieux augmente plus vite que la baisse du billet vert.
MoneyWeek
14 novembre 2010 | Auteur: Henri | Mots clés: afflux, Amérique latine, Argent, Asie, Banque, banques, capitaux, centrales, change, Chine, Compétitivité, déclin, Dette, dévaluation, Dollar, Eberhardt Unger, économie, émergents, endetté, Etats-Unis, Euro, FED, fondamentaux, indice, investissements, Japon, Livre Sterling, métaux précieux, milliards, mondiale, mondiales, monétaires, monnaie, obligations, OPEP, Or, passif, pays, pétrole, PIB, planche à billets, prix, protectionnisme, QE2, QT2, réévaluation, référence, réserves, stagnation, titres, TWEX, USA, Yen | Catégorie: Actualité, Article de fond, International, La Une
As we roll into the new year we expect a continuation of positive fundamental data from the US, indicating a stable and sustainable US economic recovery. We believe the US dollar will strengthen tremendously on safe haven demand as the eurozone battles with sovereign default risks, aggressive austerity measures and uncertain European solidarity. Risk aversion spurred by eurozone problems will feed into the price of gold, the US dollar (USD) and the Swiss franc (CHF).
We estimate that gold will trade by the end of Q2 in a range of $1550 – $1650 as global risk aversion remains elevated and the dollar/yen (USD/JPY) will trade around a 93 – 97 range. Although the Japanese yen is traditionally expected to strengthen during global risk aversion we expect the Bank of Japan to openly intervene at the 80 levels and that the size of the Japanese deficit will cast a shadow on the yen’s safe haven status.
Our Euro/dollar (EUR/USD) expectation by the end of Q2 is to trade between 1.20 – 1.25. The Swiss franc strength will mostly be expressed through short EUR/CHF trades and we expect the pair to trade to new all-time lows between 1.23 – 1.28.
Q3, Q4
As we move into Q3 and Q4 of 2011 we believe that China’s economy will overheat and result in aggressive interest and reserve ratio tightening cycles. This will eventually lead to a Chinese revaluation of the yuan, which should improve China’s relationship with the US, help rebalance global trade and combat local Chinese inflation.
We believe that Japan will benefit if China revalues as global rebalancing will allow Japanese exports to become more competitive. Higher Japanese corporate profit margins and large unsustainable budget deficits will result in Japanese corporations looking for higher returns in US higher-yielding assets. The US dollar is also likely to strengthen on the back of Chinese yuan revaluation as the global rebalancing trends start to materialise.
In the US we expect GDP growth to pick up at 3% and 4% for Q3 and Q4 respectively with inflation remaining at or below the 2% mark. We also expect a pickup in US employment. Q3 we believe will see the start of the debate for the Federal Reserve Bank to unwind its extraordinary monetary policy and by the end of Q4 we feel that the markets would have fully priced in a Fed exit strategy from its loose monetary policy. This will add further strength to the greenback.
In Europe we believe the focus on the sovereign debt markets will intensify. The fundamental structure of the European Union and the common currency will be questioned as European leaders are unlikely to act unilaterally. We believe that the eurozone will continue with its piecemeal approach to solving individual country issues. This will pressurise the euro as investors will continue to worry about potential defaults by member countries in the future. We feel that such an approach will heighten the risk of an EU breakup as leaders fail to meet eye to eye and economic policies diverge. Furthermore we expect that Greece, Spain and Portugal will not meet their deficit reduction targets. This may result in a vicious debt spiral for peripheral Europe where any savings made from austerity measures will be paid in higher interest rates demanded by the bond markets. Europe will be faced with high unemployment and weak economic growth which should persist well into the year end.
As a result, the euro will be the great loser against most major pairs. By the end of Q4 we expect the EUR/USD to trade near parity between 1.00 – 1.05, the EUR/CHF to trade between 1.05 – 1.10, the GBP/USD between 1.30 – 1.35 and the USD/JPY to trade between 105 – 110. Gold should make an attempt for the $1900 level and trade between $1800 and $1900 by year end.
Country perspective: United Kingdom
In the UK, we believe that the combination of a higher VAT rate on consumer goods, tighter fiscal policy on businesses and a eurozone slowdown will have a negative impact on consumer and business confidence into 2011. We believe that the Bank of England will have no other choice but to stimulate growth through more quantitative easing into Q3 and Q4.
Despite higher inflation, the labour market still remains under pressure. This will restrict the Central Bank’s monetary policy in terms of interest rates and justifying another round of gilt purchases. The combination of the above coupled with a strong US recovery will keep GBP/USD under pressure. In 2011 we estimate the GBP/USD pair to retest 2009 lows at 1.30 – 1.35.
Country perspective: Australia
The Australian economy was one of the few major economies that narrowly missed a recession during the financial crisis of 2008 and 2009. It was also one of the first countries to start creating jobs following the crisis and the first major economy to aggressively hike interest rates to 4.75% following the crisis so as to prevent price pressures.
Australia is a major commodities exporter and has benefited greatly from China’s double digit growth and demand for recourses. We expect Australia will continue to benefit from China’s huge appetite for commodities and drive growth to 3-4% in 2011. We believe that there is a large possibility of a Chinese yuan revaluation which we feel will slightly dampen the demand for Australian commodities. Australia is also embarking on a self prescribed fiscal consolidation plan over the next few years.
Given both these factors we feel that the current level of interest rates in Australia will remain on hold for 2011. We believe the Australian dollar/US dollar (AUD/USD) is actually trading at its high and will consolidate in a trading range between 1.01 – 0.91 into 2011.
Country perspective: South Africa
South Africa achieved real GDP growth of 3.3% in 2010 as it received a boost from strong commodity and precious metal demand, a successful FIFA World Cup and loose US and EU monetary policy investing in higher yielding currencies such as the South African rand (ZAR).
Despite strong growth, South Africa is still suffering from high unemployment and elevated household debt which will undoubtedly dampen domestic demand in the coming year. We expect June year-on-year 2011 growth to be 4.5% as inventory restocking picks up. We then see growth moderating by year end to 3.5% as inventories stabilise. We expect interest rates to be hiked no more than 75 basis points, attracting more foreign capital flows looking for attractive yields and supporting the rand. We also expect an increase in overall private investments both foreign and local while government spending will be constrained. Overall for the South African rand/US dollar pair (ZAR/USD) we foresee trading between 6.2 and 6.4 by June 2011 and 6.9 – 7.1 by year end. The euro/rand pair (EUR/ZAR) is expected to trade between 8.6 – 8.7 by June 2011 and between 8 – 8.2 by year-end.
Expected trading ranges for 2011
End of 2nd Quarter (2011)
End of 4th Quarter (2011)
EURUSD
1.2000 – 1.2500
1.0000 – 1.0500
USDJPY
93.00 – 97.00
100.00 – 105.00
EURCHF
1.2300 – 1.2800
1.0500 – 1.1000
XAUUSD
$1550 – $1652
$1800 – $1902
AUDUSD
1.0100 – 0.9100
1.0100 – 0.9100
USDZAR
6.2000 – 6.4000
6.9000 – 7.1000
EURZAR
8.6000 – 8.7000
8.0000 – 8.2000
GBPUSD
1.4200 – 1.3700
1.3500 – 1.3000
GBPZAR
10.0000 – 9.5000
8.5000 – 8.0000
AUDZAR
6.4000 – 6.3500
6.10000 – 6.0500
Foreign Exchange
Posted by Foreign_Exchange on 17:44
