Markets Still On Edge!

Overnight, the Asian equity markets fell, following yesterday’s 2%+ declines in US equities.  This has brought about some continued risk aversion, and US stock futures are lower to start the morning.  European stocks have held up modestly, though revised growth projections from the ECB and lower than expected industrial production figures have put some pressure on the Euro.

In Australia, the economy added more jobs than expected, but the unemployment rate ticked higher as more people entered the workforce.

Meanwhile here in the US, jobless claims increased to their highest levels in nearly 5 months, coming in worse than expected and lending more credence to the Fed’s forecast of slower growth.

Speculation is heating up in Japan over currency intervention as the Yen advanced to 15-year highs vs. the D

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Mid-Day Report: EUR/USD Breaches 1.28, USD/JPY Consolidates Above 85

Dollar’s rally against Euro and Sterling extend further today with EUR/USD breaches 1.28 level before recovering mildly. Yen crosses are generally lower and are back pressing yesterday’s low. Nevertheless, USD/JPY remains relative firm above 85 level as the greenback also extends rally against European majors. Japan Finance Minister Yoshihiko Noda pledged to “monitor economic conditions carefully and respond appropriately” in an unscheduled press conference today but declined to comment on intervention. Also, Noda said there is no planned conference call with G7 FMs on currency volatility. That’s somewhat disappointing to those who are at least looking for Japan to step up the rhetoric on yen’s appreciation.

Euro is indeed the worst performer this week on concern that if global recovery slows, the situation in Eurozone will be worse due to the austerity measures to cut fiscal deficits.

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China Currency Revaluation: More Than Just the Yuan at Stake

I concluded my last post (Euro Recovery: Paradigm Shift Confirmed) by musing about how interesting it is that nobody has taken credit for predicting/profiting from the sudden reversal in forex markets, whereby the Euro has surged and the Dollar has tanked. Two days later, I think I can offer an explanation: China.

That’s right. The force behind the sudden sea change might not be private investors, which up until the spike entrenched itself as a full-fledged connection, remained firmly behind the declining Euro. Instead, it seems quite reasonable that China – via its sovereign wealth fund, which is charged with investing its foreign exchange reserves – might be the responsible party.

That China is buoying the Euro would make sense on a couple fronts. First of all, it would explain the mysterious silence behind the rally. China

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Weekly Review and Outlook: Dollar Broadly Lower as Markets Prepare for More Easing from Fed

Dollar Broadly Lower as Markets Prepare for More Easing from Fed

Dollar was broadly lower last week as poor non-farm payroll report intensified speculation that Fed will re-start the quantitative easing program in this week’s meeting. Dollar index dropped to as low as 80.08 before closing at 80.41. Indeed, it was the ninth consecutive week of decline in the index, which was the worst losing streak since 2004. EUR/USD breached 1.33 level briefly before closing at 1.3278 while USD/JPY dived to 85.01, inches above 2009 low of 84.81. The Japanese yen continued to stay in range against most currencies, except dollar, as stocks maintained gain in spite of poor job data. Meanwhile, Canadian dollar lagged behind other majors for it’s own poor employment data.

Positive US data from early part of the week was overshadowed by the disappointing non-farm payroll report.

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Euro Recovery: Paradigm Shift Confirmed

In early July, when the Euro rally was (in hindsight) just getting under way, I reported on the apparent paradigm shift in forex markets, whereby risk-driven trades that benefited the Dollar were giving way to trades driven by fundamentals, which could conceivably favor the Euro. Since then, the Euro has continued to rally (bringing the total to 12% since the beginning of June), confirming the paradigm shift. Or so it would seem.

Euro fundamentals are indeed improving, with an improvement in the German IFO Index, which measures business sentiment, seen as a harbinger for recovery in the entire Eurozone economy. To be sure, Spain and Italy, two of the weakest members, registered positive growth in the most recent quarter. Contrast that with the situation across the Atlantic, where a growing body of analysts is calling for a double-dip recession with a side of deflation.

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Bye-Bye Dollar!

This morning’s much anticipated Non Farm Payrolls report disappointed the market which sent the US dollar careening lower. While the unemployment rate held steady at 9.5%, this is probably more of a function of discouraged workers leaving the workforce. For the month of July, the US economy lost 131K jobs, nearly twice the expectation of a 65K loss.

In addition, the revisions to last month’s data came in nearly twice as bad as reported in what is becoming a familiar pattern. But the US isn’t the only country with bad employment figures today.

In Canada, the unemployment rate rose .1% to 8% as the Canadian economy lost 9.3K jobs, which is the first loss in 2010.

This report sent equity index futures and commodities lower, as well as the US dollar. Under a “normal” risk-aversion scenario, one might expect Dollar strength. However,

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Fed Mulls Options for Next Week’s Meeting

Next week, the Open Market Committee (OMC) of the Federal Reserve Bank will hold its monthly meeting. Even without checking futures prices, it’s obvious that the probability of an interest rate hike is nil. [In fact, the odds of a rate hike in November have already converged to 0%]. Why, then, are investors keenly awaiting the outcome of the meeting?

In a nutshell, they will be watching for two things. The first is any changes in the statement released at the close of the meeting. According to James Bullard, President of the St. Louis Fed, “If any new ‘negative shocks’ roiled the economy, the Fed should alter its position that interest rates would remain exceptionally low for ‘an extended period.’ ” If the OMC determines that the prospects for continued economic recovery are good, and/or the inflation hawks get their way, we could see subtle – but meaningful – changes to statement.

More importantly, the Fed must make a decision regarding the other tools in its monetary arsenal. Of immediate conc

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