CFD-Trading.co.uk

Renewed quantitative easing by the Bank of Japan sends the yen higher.

Another week of fruitless graft saw sterling open in London this morning three yen lower after the eight-day week. It range was wider than that of the previous week, covering nearly five yen, but a sharp downward move at the end of the week cost it three yen which it was unable to recover.

The Japanese ecostats followed their usual dreary course. The consumer price index (CPI) continued its depressing decline with deflation accelerating to -0.9% in the year to July. Core deflation, excluding food and energy prices, slowed to -1.4% from -1.5%. The one positive figure was the trade surplus which, seasonally adjusted, widened from ¥515 million to ¥610 million.

But the authorities are still worried about deflation and about the future effect of an unduly strong yen on exports. At the beginning of this week the Bank of Japan finally decided to extend its financial stimulus plan (quantitative easing) by increasing its lending facility from ¥20 trillion to ¥30 trillion.

If the Bank of England pulled a stunt like that the pound would go down, but the Yen? Ah, that is different. If the Japanese economy is on the skids and the authorities are panicking it must be time to stock up with the world’s leading safe-haven currency…take note if you are trading CFDs.

Looking at the spread trading markets, in the 36 hours after the move was announced the yen strengthened by 1.8% against the US dollar, 2.7% against the euro and 2.8% against the British pound. As unintended consequences go, it was a belter.

One-time BoJ monetary policy committee member Nobuyuki Nakahara was dismissive. He said the move was ‘too little, too late’ and that the measures ‘were meaningless and cannot stop the yen’s advance.’

Intervention by the BoJ to sell its currency is apparently on the cards but, with the market in its current mood and with no co-operation for the Federal Reserve or the European Central Bank, it is hard to imagine it being effective in any but the very shortest term.

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

JPY Forex Trading

Yen gains again from nervousness about the recovery.

In the spread trading markets, Sterling eased two yen lower between Monday and Thursday before rebounding to open in London this morning just one yen down on the week.

A set of low-key Japanese data included a -0.1% fall in the tertiary industry index and a 145% annual increase (from a very low base) in machine tool orders.

It was not Japanese economic performance that kept the yen ahead. The only really yen-positive factor was the weaker tone of economic statistics from around the world, including the United States. Investors worry that the global recovery might not have the horsepower to pull away from the black hole of recession.

For every good number here they can see a bad one there. In such a mood they are less likely to embrace risk, more likely to seek the security of a safe-haven currency such as the Japanese yen (last week’s best performer) or the US dollar.

CHF Forex Trading

SNB admits its power to intervene is limited.

A range a little over three cents kept the pound mainly below last Monday’s starting point. After a low on Friday sterling opened in London this morning a cent down on the week.

All the Swiss economic data came in better than expected. Well, both of them anyway. Rising exports and falling imports allowed the trade deficit to rise to SFr2.9 billion. ZEW’s survey of expectations improved from 2.2 to 9.1.

In the forex spread betting markets, the franc’s support arose again from the fact that it is not the euro.

With the market twitchy about fading global recovery there was particular nervousness on Friday.

Axel Weber is head of the Deutsche Bundesbank and current favourite to take over from Jean-Claude Trichet at the European Central Bank (ECB) when M. Trichet’s term expires next year.

People take him seriously. He is also quite a blunt chap.

What he said last week was that the ECB should continue to provide monetary stimulus – quantitative easing if you like – at least until the first quarter of next year. His comments drew attention to the disparity between what the ECB is doing – supplying cash – and what countries like Greece and Ireland are doing – turning off the tap. The EU and the ECB are putting a brave face on their problems but those problems are not going to evaporate any time soon. As the euro languishes, the franc prospers.

As if more help were needed, Swiss central bank President Philipp Hildebrand told the Tages-Anzeiger that his scope to hold the currency down using intervention is limited.

‘We’d reach our limits at the point where a possible additional expansionary monetary policy would spark inflation over the longer term.’

The SNB could have made clearer that it lacks the absolute power to hold down its currency if investors want to take it higher.

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

AUD CFD Trading

RBA rate outlook calm after latest board decision.

The Australian dollar tagged along with the other commodity currencies, rarely putting its hand up to be counted.

There were just two events that nudged it from its steady course. The combination of another monthly fall in new home sales (-5.1% and -6.4%) and another fall in building permits (-3.3% after -6.6%) made investors twitchy about the future upward course of interest rates.

Shortly after the announcement of thee building permits figure the Reserve Bank of Australia confirmed it would not be raising its cash rate from 4.5%. It was no great surprise after last week’s low inflation figure.

The governor’s accompanying statement ended with the not entirely surprising comment that ‘The Board judged this setting of monetary policy to be appropriate.’ After due consideration, investors came to the conclusion that there would be no further tightening at least until after the next quarterly inflation figure in October.

With low inflation and what looks increasingly like a struggling residential property market the cash rate could linger at 4.5% until next year. As that possibility sunk in the Australian dollar moved lower on the forex spread trading markets. A three-point quarterly rise in the new house price index the next day did nothing to change that view.

NZD CFD Trading

The spike in NZ unemployment looked more like an erratic labour market than the beginning of a negative trend.

In the financial spread trading markets, Sterling edged higher but with no conviction. It was essentially a three-cent range, not a big deal when you consider that means a +/- variation of about 0.65%. The pound made a net gain of two cents over the seven days, an equally inconsequential move.

The NZ dollar played the commodity-currency game. It was a commodity currency and felt the need to make no further effort. Commodity currencies were doing alright and the NZ dollar went along for the ride; no triumph and no tragedy.

The policy worked well until Thursday’s New Zealand employment figures came out. Unemployment jumped from 6.0% to 6.8% in the second quarter of the year. It was nothing like the 6.2% that investors had been expecting and investors suffered a sudden rush of blood. Their instant reaction was to sell the NZD, fearing the news would discourage the Reserve Bank of New Zealand from delivering its expected interest rate increase. On more sober reflection they decided to consider the figure, like the low 6.0% print three months earlier, more as a symptom of erratic NZ employment figures than as a sudden disaster. Rate increases in the next two months are still on the cards, if not certain.

CAD CFD Trading

Canadian employment data drag the Loonie down.

A five-cent range brought three changes of direction for sterling and a net gain of more than two cents.

The Canadian dollar had to choose between its ‘commodity’ status and its affinity with the US currency. In the spread trading markets it found it difficult to do so. A strong improvement in Canadian building permits, up by 6.5% in June, took the Loonie a touch higher. A disappointing -9.3k net change in employment took it lower and the poor US employment report did more damage on Friday afternoon. It would be an exaggeration to say the Canadian dollar underperformed the US version but it certainly did not better.

ZAR CFD Trading

South African house prices rising again.

A 25-cent range started with an upward push by sterling that delivered the high of the week on Tuesday. After that it was a directionless but ultimately downward drift that allowed the rand to regain most of its losses. The Sterling CFD trading market opened in London this yesterday morning just short of ten cents firmer on the week.

The rand performed in a similar way to the other commodity-related currencies, firmer against the ailing US dollar and yen, softer against the euro and the pound.

From a domestic point of view there was little to distinguish from the Australian or New Zealand dollars (although it did better than the Canadian dollar). The South African economic data were second division numbers. Monthly vehicle sales increased by nearly 5% in July, with 15.8% annual growth. It was encouraging but not conclusive. More encouraging, perhaps, was the 7.3% annual increase in house prices, according to Standard Bank’s index.

Even though the bank cautions that last year’s low was the result of a 5% price fall it notes that this was the first real price increase since mid-2007 and believes ‘confidence in the property market is returning.’

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

JPY Trading

UK economic data were hardly compelling. Nor were the Japanese data.

A range of well under two yen left sterling all but unchanged on the week.

An unusually low-key week left the yen with little to do other than serve as an antidote to the US dollar, which was on the retreat.

It did not make such a good fist of it as the euro or the pound, perhaps because it was anti-dollar sentiment rather than risk-aversion at the forefront of investors’ minds. With the best will in the world there was nothing useful to find in the Japanese economic data, which had less impact than usual on the yen’s tight spreads movements.

CHF Trading

Low inflation figure dents the franc.

A three and a half cent range started well but ran out of impetus by mid-week. The pound was the net winner on the week, to the tune of a cent and a half.

The rehabilitated euro once again left its neighbour behind. The franc did not do much wrong. Swiss retail sales were higher by 0.9% in the year to June; not brilliant but positive. SVME’s PMI rose by more than a point to an entirely respectable 66.9 in July. Unemployment was a tick lower at 3.8%.

In the UK spreads markets this was all good stuff but the figure that mattered failed to do its job.

The Consumer Price Index (CPI) went down by -0.7% in July. It was just 0.4% higher on the year. The Swiss National Bank will have been delighted that inflation slowed 0.4%. It has spent the last 16 months holding its currency down by buying so much foreign currency that it quadrupled its reserves over that period.

The last thing the SNB needs at the moment is upward inflationary pressure on its policy interest rate that would encourage the inflow of yet more foreign money. But that is the SNB’s point of view; the franc needed that upward pressure to retain its allure. The low inflation print was unhelpful to it.

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

Friday’s poor payrolls data was the catalyst for further US dollar weakness as the dollar index posted its 9th successive weekly decline, its worst losing sequence since 2004.

With no US data of note today the market focus will inevitably be on tomorrows Federal Open Market Committee (FOMC) meeting and how the market perceives the outcome of this meeting will dominate sentiment this week.

It goes without saying that rates will remain unchanged at 0.25%. What will be of particular note will be the tone of the language used in the statement especially after Friday’s weaker then expected payrolls data.

It will also be interesting to see if renowned hawk Thomas Hoenig drops his opposition with respect to the “extended period” language. This on its own would certainly give the market something to chew over and suggest that the Fed may well have the appetite to take further measures to stimulate the economy if data fails to improve.

Recent comments by St. Louis Fed President James Bullard at the end of July suggested that there are rumblings amongst Fed members for possible new programs of asset purchases in the event the economy continues to stumble.

Elsewhere in the fx spread trading markets In Japan the yen has continued to gain on the back of the recent weakness in the US dollar, fuelling some concern that the Bank of Japan might consider undertaking further measures to weaken it at its rate meeting tomorrow. This seems unlikely in the short term, however if Japanese stocks continue to weaken and the yen continues towards its all time highs, that may well change.

In the UK Wednesday’s quarterly inflation report will outline the banks outlook for inflation over the next three months and its outlook for interest rates. It is unlikely to throw up too many surprises with respect to the Bank’s view on slowly declining inflation pressures and unchanged rates into 2011.

EURUSD – Friday’s break of the recent range highs saw the single currency continue its recent steady up trend, making another new high at 1.3333 and make progress towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move.

The rising trend line support from the 1st July lows at 1.2190/00 now comes in around the 1.3170 level while below that the 1.3125, 38.2% level seems to be preventing any deeper sell-off.

A break below the 1.3120 level could well see some unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.

GBPUSD – despite the slightly waning momentum the pound continues to make new highs, almost touching 1.6000 on Friday as it continues to maintain its upward momentum.

A break below Thursday’s lows around 1.5810/20 could trigger a deeper correction towards the 1.5520/50 area, otherwise the pound still looks set to break above 1.6000 towards the 3rd February highs at 1.6070, towards 1.6280, the 28th January highs.

Long term rising trend line support levels, remain around the 1.5440/50 area, from the June lows at 1.4350.

EURGBP – Fridays break back above the old 0.8315/20 neckline throws into doubt the view that the euro could re-test the 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top. Friday’s close above 0.8315/20 should now re-target the 0.8410 level, however the lack of follow through buying from Friday’s break out is a concern and if the euro slips back below 0.8300 we could yet see the move to 0.8245 after all.

USDJPY – the dollar was unable the move above 86.00 early on Friday slipping back below the figure as declining yield differentials and the weak payrolls data weighed the dollar down.

Unless the dollar recovers the 87.00 level the downside scenario remains intact. The key support remains around last years lows at 84.80, a break of which would then look to target the 1995 lows below 80.00.

Note: FX, CFDs and spread trading, are leveraged products. They carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved. Seek independent advice if necessary. Note that CMC Markets provide an execution-only service. CMC Markets research and charting tools are indicative and provided for information purposes and must not be relied upon as investment advice.

Market News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority, registration no. 173730.

This material should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument by CMC Markets, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. The material is not a personal recommendation and you should seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks if you are at all unsure, as well as confirming the legal, tax and accounting characteristics and consequences of any transaction.