Archive for November, 2006
Bloody Friday for the USD!!
By Marek W. Stupka | November 25, 2006
In course of the last few weeks I received emails from some of you asking why am I being so negative about the American economy and the prospects of the Dollar.
Well, my answer has always been the same: I just see substantial divergence between the real, underlying weekness of the US economy, and the actual performance of its currency compared to other major currencies.
The last few FOREX trading days proved my comments are anything but wrong. Just look at the reference EUR/USD chart and judge the latest development for yourself.
Last week’s Thursday and Friday were supposed to be really quiet FX trading days, with most US and Japanese dealers out for the holiday (Thanksgiving Day in the US and Labor Thanksgiving Day in Japan). However it has proven to be anything but that.
In fact, we have not seen this degree of volatility in a very long time. The US dollar has completely melted down, with the Euro and British pound hitting a yearly highs, and the JPY hitting a 2 month high. The reference currency pair EUR/USD moved from 1.2975 to 1.3075 in 10 minutes !!! at the Euro open which is a clear confirmation that flow rather than fundamentals is to blame.
The trught is, there was no US data released on Friday and the financial markets were all closed early because of the holiday. Comments from Chinese officials about the need for more flexibility in the Yuan and the country’s currency policy did certainly not help. But other than that there was no other market-moving data, and this gigantic move has been almost entirely caused by traded FX volumes and technical numbers, which only further supports the trading approach I teach in my courses (that also is shared by many trading professionals) which simply says it is the technical analysis rather than the individual economy reports (fundamentals), that really is behind the market moves.
Interestingly enough, we were able to see this exact development in the end of 2004 when USD recorded its lowest reading ever against EUR. The US dollar began to breakdown after two weeks of consolidation on the eve before Thanksgiving.
Then on Thanksgiving Day, the EUR/USD rallied 100 points. The move extended even further on the Friday after Thanksgiving, and on the Monday when everyone returned from their holidays, the move actually failed to extend much further. Instead, the pair consolidated for a few days as EUR/USD longs took more profits off the table while traders that were short banked their massive losses and quietly licked their wounds.
Consequently though, the EUR/USD reached its historical peak in the very end of 2004, much to the credit of this huge triggering Thanksgiving move.
In the light of what I’ve written above be not surprised, my friends, if the volatility that we have see on Friday is just the beginning of another ugly story for the currency of the world strongest economy in the weeks to come.
Topics: News From Wall Street | No Comments »
Poor US Housing Sector
By Marek W. Stupka | November 19, 2006
First think today I would like to introduce to you a useful website that was launched recently, and is a true blessing for every FOREX enhusiast.
The website’s URL is www.fxwords.com and contains many FOREX words, terms, and analysis. Check it out for yourself…
Let’s continue with an update on the latest development on FOREX markets. On Friday the US dollar lost considerable ground against its foreign counterparts, as a surprisingly poor housing report dampened optimism for the world’s largest economy. Following the bearish economic data, markets immediately sparked a significant and extended dollar decline that has left it at or near weekly lows against major currencies. Though it subsequently regained some ground in the afternoon, the dollar remained 30 points worse against the Euro, 70 lower against the Pound, and 50 points off its open against the Japanese Yen.
Frieday’s US Commerce Department report showed that national housing starts were the lowest since 2000, as a quickly souring real estate market hurt demand for new homes. In fact, the printed result was even worse than all of the 68 analyst forecasts reported by the Bloomberg News Service.
Given that economists have continued to cite the importance of housing market gains to national expansion, the Friaday’s result is another drop in the almost full bucket representing hawkish outlook on the US economy.
Topics: News From Wall Street | No Comments »
China to Abandon $ Reserves
By Marek W. Stupka | November 12, 2006
The U.S. dollar traded lower in the end of last week due to comments from the People’s Bank of China.
Governor Zhou Xiaochuan has said at a two day conference in Frankfurt that China will continue with plans to diversify the nation’s reserves out of US dollars and other assets.
Though he said they were not currently selling the greenback, the reassurance of such intentions stoked fear in US security holders. Such concern is expected as the PBoC’s more than $1 trillion reserves are the largest in the world. Zhou went on to stress that the diversification would be a gradual process.
Russia also has announced it would reduce its holdings of US dollars from 70 percent to an estimated 40 percent, Italy has said it would trim its 85 percent down to 63 percent and many others are following the trend. With all of the ‘plans’ to unload dollar denominated assets, the U.S. dollar has lost against all majors, and both treasury futures and the dollar crosses turned lower until more pressing news could take the yoke.
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