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Saturday, October 27, 2012

Your forexlive.com ENewsletter

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ForexLive North American wrap: US GDP up 2%

Posted: 26 Oct 2012 01:32 PM PDT

Stubborn yen-cross selling all day as the market retraced some of the weekly gains.

The euro briefly spiked above the European high to 1.2956 on the IMF headlines and a squeeze but quickly fell back to 1.2939.

USD/CAD nudged up against parity but wasn’t able to break through despite a swoon in stocks and the bank downgrades.

AUD/USD caught a bid in the early going and squeezed higher on a break of 1.0360. Offers around 1.04.

Have a great weekend.

Ready for the weekend?

Posted: 26 Oct 2012 12:56 PM PDT

If you’re not, you will be after some G&R.

CFTC: Market changes tune on yen

Posted: 26 Oct 2012 12:41 PM PDT

  • Market shifts to net short yen 18K compared to net long 10K last week
  • EUR net short 55K vs 53K last week
  • GBP net long 18K vs 20K last week
  • AUD net long 46K vs 38K last week
  • CAD net long 86K vs 94K last week
  • All data is as of the close on Tuesday

When the market shifts, the rule of thumb is to go with it (ie buy USD/JPY).

First time in net negative territory since May.

Risk appetite improving into the close

Posted: 26 Oct 2012 12:31 PM PDT

AUD/USD climbing back toward the highs of the day and EUR/USD to 1.2939.

The S&P 500 is up 4 points to a session high at 1416 after trading as low as 1403.

Moody’s may cut Canadian banks

Posted: 26 Oct 2012 11:56 AM PDT

  • Moody’s places 6 banks on review for downgrade
  • TD, CIBC, National Bank, Scotia, Desjardins and Bank of Montreal
  • Royal Bank (the biggest) affirmed
  • Moody’s: any downgrades expected to be only one notch

USD/CAD ticking back toward the highs of the day. There’s no reason cited for the downgrades but they all hold very high credit ratings (TD currently AAA, for one) so it probably won’t have a sizable effect on funding costs.

Update: Moody’s says concerns about Canadian banks stem from high consumer debt and elevated housing prices.They see 2-3% GDP growth in 2013 but downside risks have increased.

Looks like Moody’s doesn’t want to be left behind on another housing crisis.

FT: UBS to cut 10,000 jobs

Posted: 26 Oct 2012 11:48 AM PDT

The FT cites ‘three people close to the situation’ who say it will be announced Tuesday.

"There were several options on the table but UBS has decided on the most radical one," one person familiar with the plan said.

The layoffs will amount to almost one sixth of employees.

No one is going to shed a tear for Swiss investment bankers but, wow, that’s a lot of jobs.

Crude down almost $4 on the week

Posted: 26 Oct 2012 11:41 AM PDT

Crude took out some important levels this week but psychological support at $85 has held so far. On the week, WTI was down $3.77.

The techs look awfully negative but I struggle to envision oil at $77 again.

Still, I never fight the techs.

Treasury yields slide into the weekend

Posted: 26 Oct 2012 10:58 AM PDT

The market was dumping bonds after the break of the 200-day moving average last week and had been resilient even as stocks slumped but today 10-year note yields are threatening to break 1.75%.

If support breaks, look for further pressure on USD/JPY.

Shortly after the open of the market next week, Japan releases September retail sales. I have been reading some corporate commentary saying consumer demand in Japan has been dismal so there is downside rise to the -1.5% exp.

Best trade this week: NZD/JPY long

Posted: 26 Oct 2012 10:18 AM PDT

Some positive developments this week on the NZD/JPY charts. The gains were larger on all the yen crosses were until today’s retracement.

This pair has rebounded from uptrend support and broken above the September high. The next step will be a weekly close above 65.70 but overall, the picture is positive.

The latest BOJ chatter is about a 20T asset purchase, about double what the market is expecting. The resilience of the New Zealand dollar in spite of yesterday’s dovish comments from new RBNZ governor Wheeler were also encouraging.

Friday afternoon tune time

Posted: 26 Oct 2012 09:46 AM PDT

I’m not sure the the market is quite done for the week yet but there’s a good chance it is.

Jamie is done for the week and I just spilled a bowl of soup on my keyboard — I need some tunes.

It was a solid week for the Aussie, so how about a great band from Sydney that played in Montreal this week.

Fed Announces 5-Month Delay In Phase 2 Reserve Req Admin Prog

Posted: 26 Oct 2012 09:10 AM PDT

WASHINGTON (MNI) – The following is the text of a statement by the
Federal Reserve Board Friday:

The Federal Reserve Board on Friday announced a five-month delay in
the implementation of the second phase of its program to simplify the
administration of reserve requirements. The delay will allow for further
development and testing of automated systems to ensure a smooth
transition for affected institutions.

The Board issued a final rule on April 4, 2012, amending its
Regulation D to simplify the reserve administration program in two
phases. The first phase, which took effect on July 12, 2012,
discontinued as-of adjustments related to deposit report revisions and
eliminated clearing balance requirements.

The second phase of the amendments will introduce a common two-week
maintenance period and a penalty-free band around reserve balance
requirements to eliminate carryover and routine penalty waivers. The
second phase of amendments was originally scheduled to take effect on
January 24, 2013. The new effective date is June 27, 2013.

The purpose of the simplification is to reduce administrative and
operational costs for depository institutions, the Federal Reserve
Board, and Federal Reserve Banks. The project does not affect the stance
of monetary policy.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MK$$$$]

30% of Americans plan to work into their 80s

Posted: 26 Oct 2012 08:57 AM PDT

According to a Wells Fargo survey (clicking the link is worth it for the picture alone).

As they struggle to save for retirement, a growing number of middle-class Americans plan to postpone their golden years until they are in their 80′s.

Ok, if you’re working in your 80s, you’re never going to retire — it’s the nursing home or the graveyard.

On a related note, the Chief Economist at Morgan Stanley said yesterday that expectations of entitlements (like Social Security) are “the most overvalued asset across the world’s advanced economies.” It’s only going to get much worse before it gets better.

I better pace myself if I’m going to be writing on Forexlive for another 50 years.

Analysis: Beyond The Election What Does Future Hold For Fed?

Posted: 26 Oct 2012 08:40 AM PDT

By Steven K. Beckner

(MNI) – Although no new monetary policy measures issued from it,
this week’s Federal Open Market Committee meeting was something of a
milestone.

It was the last time Federal Reserve policymakers met before the
Nov. 6 presidential election. And, depending on the outcome of that
election, it could be the next to last FOMC meeting of the Obama
administration and the first to take place under president-elect Mitt
Romney.

Following its final meeting of 2012 on Dec. 12-13, the FOMC isn’t
scheduled to meet again until nine days after the inauguration of either
a reelected President Barack Obama or a new president Romney.

The election outcome could have important bearing on the leadership
of the Fed in 2013 and beyond.

In any case, the December meeting is not to be overlooked. It
promises to be much more significant than December FOMC gatherings have
traditionally been.

That is because the second phase of the Fed’s Maturity Extension
Program or “Operation Twist,” under which the Fed has been selling
short-term and buying long-term Treasury securities to lower long-term
interest rates, is due to expire on Dec. 31.

At that time, monthly asset purchases will abruptly shrink from $85
billion to $40 billion — the amount of mortgage-backed securities the
Fed is buying in its third round of “quantitative easing.” The FOMC will
have to decide whether it needs to adjust the size of QE3 to offset the
sudden drop-off of aggregate Fed asset purchases.

San Francisco Fed President John Williams told MNI not long ago he
does not expect any major “cliff effects” on yields when the Operation
Twist purchases end, but indicated he’d be prepared to increase the size
of QE3 and possibly move into Treasuries if there isn’t “substantial”
improvement in labor markets.

Others, notably Chicago Fed President Charles Evans, have been even
more blunt in saying the Fed should augment QE3 to offset the end of
Twist.

The FOMC gave itself leeway to adjust QE3 in its Sept. 13 policy
statement.

“If the outlook for the labor market does not improve
substantially, the Committee will continue its purchases of agency
mortgage-backed securities, undertake additional asset purchases, and
employ its other policy tools as appropriate until such improvement is
achieved in a context of price stability.”

Bernanke said the amount and the composition will be adjusted in
response to changing economic conditions. “If the economy is weaker,
we’ll do more,” he said in his post-FOMC press conference.

The minutes of the September FOMC meeting emphasized that, by not
announcing a predetermined amount of asset purchases over a set period
of time as in QE1 and QE2, the FOMC is taking a “flexible approach” that
will allow it “to tailor its policy response over time to incoming
information.”

Conceivably, the FOMC could wait until its January meeting to
decide what to do, but it seems more likely a decision will be made at
the Dec. 12-13 meeting, at which members will put together a fresh set
of economic projections and Bernanke will hold another news conference.

Whether the FOMC will judge that there has been sufficient
improvement in the economy and in labor markets by the time of the
December meeting is highly uncertain.

The Commerce Department estimated Friday that expansion of the
gross domestic product accelerated from 1.3% in the second quarter to
2.0% in the third quarter. And there have been signs that GDP has
continued to grow by at least 2% in the fourth quarter.

But the Fed regards 2% growth as the bare minimum needed to keep
unemployment from rising. The FOMC’s “longer run” growth projection is
2.3% to 2.5%.

And there has been insufficient job creation to make real inroads
into high unemployment.

More than three years after the formal end of the recession in June
2009, as determined by the National Bureau of Economic Research, the
unemployment rate still stands far above the FOMC’s 5.2% to 6% “longer
run” unemployment projection.

Although private payrolls have risen by some 4.5 million over the
past two and a half years, that is still only about half of the jobs
lost during the recession. About 5 million workers have been unemployed
for six months or more.

The unemployment rate dipped three-tenths in September to a
44-month low of 7.8%, but not for the best of reasons. There was a
582,000 upsurge in the number of “part-time workers for economic
reasons” — people who’d rather have a full-time job but couldn’t find
one. Factoring in discouraged and involuntarily temporary and part-time
workers, the “U-6″ unemployment rate stands at 14.7%.

Non-farm payrolls still rose by 114,000 in September, but even with
a 86,000 upward revision to prior months (mostly government jobs),
payroll gains have averaged an anemic 106,000 per month over the past
six months. That’s barely more than the minimum needed, at current rates
of labor force participation, to absorb new entrants into the labor
force.

Not surprisingly, Bernanke has said, “The stagnation of the labor
market in particular is a grave concern.”

It would be surprising to see a lot of improvement — “substantial
improvement” — in what little remains of this year, especially
considering worries about the “fiscal cliff” which looms in January. Fed
officials are also concerned about downside risks from Europe and China
and so forth.

So the FOMC may well decide in December to increase monthly QE3
purchases from $40 billion to something higher, with some of the extra
perhaps going into Treasuries, to offset the expiration of Operation
Twist and further insulate the economy against those headwinds.

If the fiscal cliff of automatic tax hikes and spending cuts is not
smoothly resolved and/or if the federal debt ceiling is not raised in a
timely way, there could be major financial market disruption and
budgetary contraction.

The Congressional Budget Office and the International Monetary Fund
have warned that could trigger a new recession, and Bernanke has said
there is nothing the Fed could do to offset the impact. So the FOMC
could decide in December that it needs to take out additional insurance,
knowing it could always reduce QE3 purchases later once the fiscal
impasse has been resolved.

The other issue on the horizon is the leadership of the Fed.

If Obama is reelected, it is expected that Bernanke would stay on
and probably be reappointed to a third term, when his current term
expires in early 2014 — assuming he wants it, which is not certain.
Vice Chairman Janet Yellen could ultimately succeed Bernanke under a
second Obama administration,

On the other hand, a Romney victory might mean the end of
Bernanke’s tenure. Romney himself has said he wants to replace Bernanke.

However, cooler heads may prevail in that instance. Columbia
University Professor Glenn Hubbard, Romney’s top economic advisor and a
potential Bernanke successor, has told MNI that Bernanke should be
considered for reappointment.

Romney might want to listen to that advice, knowing a Bernanke
exodus would likely hurt market confidence at a very inopportune time.

In a possible scenario, one could imagine that, on an initial visit
to the White House in a Romney administration, Bernanke might offer to
resign immediately, but be told by Romney that he wants him to serve out
his term.

Bernanke has kept to himself his personal desires, although there
have been unconfirmed reports that the former Princeton University
Professor does not want a third term.

It has been speculated that, under a Romney presidency, a
reconstituted Fed would make a dramatic shift toward a tighter monetary
policy. But it seems more likely there would be considerable continuity
for the foreseeable future.

** MNI **

[TOPICS: M$U$$$,MFU$$$,MGU$$$,MT$$$$,MMUFE$,M$$BR$]

European equity close: Modest gains but a losing week

Posted: 26 Oct 2012 08:37 AM PDT

  • UK FTSE +0.1%
  • German DAX +0.4%
  • French CAC +0.7%
  • Spain IBEX -+0.1%
  • Italy MIB +0.4%

Surprisingly, Europe stocks closed near the best levels of the day.

On the week, stocks basically wiped out all the prior week’s gains and have been essentially flat for the past month.

No one really knows what the bond meltdown will look like

Posted: 26 Oct 2012 08:31 AM PDT

But everyone knows it’s coming.

The Reformed Broker has some jarring commentary on the bond bubble.

There’s going to be such a brutal bond investor slaughter at some point over the next decade that the streets of Boston’s mutual fund district will run red with blood, the skies will be shot through with the lightning and thunder of unexpected capital losses and those who manage to survive will envy the dead.

US DATA: ADP reminds that their Oct pvt employment…

Posted: 26 Oct 2012 08:30 AM PDT

US DATA: ADP reminds that their Oct pvt employment report, due Nov 1, will be
compiled by Moodys and features a new methodology and an expanded level of
detail by company size and industry.

EUR/GBP is a cruel mistress

Posted: 26 Oct 2012 08:05 AM PDT

If we get much above 0.8035/40 looks like we could set off the mother of all short-squeezes.

That’ll teach you to buy GBP…

As Sean Lee once said:  It’s never too late to sell cable.

USD/CAD nears parity

Posted: 26 Oct 2012 08:04 AM PDT

Stocks are beginning to come unhinged. The S&P 500 is down 6 points to 1407.

USD/CAD hasn’t traded at parity since early August.

Parity is always a big number for USD/CAD but it’s not particularly notable on the chart. The orderboard shows some offers at 0.9980, 1.0000/1.0010 and better volume at 1.0060, which I think we could see relatively soon, especially if 1400/1398 breaks in the S&P 500.

Canada just reported an April-Aug deficit of $6.2B compared to $9B a year ago but it’s not a factor for the market.

Schaeuble: Doubt Greece Has Fully Met All Commitments: Press

Posted: 26 Oct 2012 08:00 AM PDT

BERLIN (MNI) – Germany wants Greece to stay in the Eurozone but
sees the need for Athens to step up reform efforts, Finance Minister
Wolfgang Schaeuble said in a television interview to be aired next
Tuesday.

“We want Greece to be able to remain in the Eurozone,” Schaeuble
told ZDF public television. “But Greece has a lot to do. That has not
been decided yet.”

The minister said he doubted Greece had met all of its obligations
under the fiscal consolidation and reform program agreed under the
EU-IMF bailout program. “These doubts have to be cleared up,” he said.

Deputy Finance Minister Steffen Kampeter said earlier this week
that Germany expected Greece would not meet the fiscal consolidation
goals agreed with the EU and the IMF. Any changes to the Greek program
have to be approved by the German Bundestag, the lower house of
parliament, he said.

A senior member of Chancellor Angela Merkel’s center-right
CDU/CSU-FDP government coalition said in a newspaper interview published
Friday that Greece might get more time to meet its goals.

“We might be willing to discuss a modest delay for achieving the
deficit goals,” FDP parliamentary leader Rainer Bruederle told the
regional daily Rheinische Post.

A Finance Ministry spokeswoman said earlier today that talks
between Greece and the troika of the European Commission, the ECB and
the IMF have not been completed yet.

“According to our knowledge the talks are still underway,” ministry
spokeswoman Silke Bruns said at a regular press conference here. Thus,
it was still not clear if Eurozone finance ministers will be able make
any decisions regarding further aid for Greece at their next Eurogroup
meeting on November 12, she said.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@mni-news.com

[TOPICS: M$X$$$,MGX$$$,M$$CR$,M$G$$$,M$Y$$$,MT$$$$]

Cable stalls after re-test of session high

Posted: 26 Oct 2012 07:41 AM PDT

Across-the-board head fake after Fink and the IMF headlines.

Cable looks vulnerable to a reversal on the hourly chart after failing at the 1.6145 intraday high. An hourly close below 1.6093 would be especially bearish.

Demand said to stretch down to 1.6080 with better bids at 1.6060.

Looking at the bigger picture, cable got an outsized bounce from the GDP numbers but there are still a series of lower highs and lower lows since mid-September. Unless 1.6178 breaks, the near term pressure will be to the downside.


at 5:09 PM

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