Bank Collapses, USD Plummets

Over the weekend, Bear Stearns, a prestigious American investment bank, hurriedly scrambled to find a buyer in order to avoid having to file for bankruptcy. While a buyer (JP Morgan) was ultimately secured, investors remained jittery, as the collapse of this magnitude is virtually unprecedented. When forex markets re-opened on Monday, the Dollar crashed against all of the world’s major currencies, namely the Euro and the Yen. Furthermore, analysts are now beginning to view forex intervention as increasingly likely. It’s still unclear whether the Bank of Japan or the European Central Bank (with or without support from the Fed) would spearhead any such intervention. At the breakneck speed at which events are unfolding, however, no one will be surprised if a plan is quickly cobbled together. The Wall Street Journal reports:

“Were such intervention to be seen, (the euro) could briefly trade down to $1.55, yet unless the (ECB) is prepared to back up such intervention with a rate cut, intervention will be futile,” said [one analyst].

Together with a syndicate of big banks, Merrill Lynch newly formed ELEMENTS, which unveiled five original currency Exchange Traded Notes (ETNs. Before ML entered the marketplace via ELEMENTS, there were simply two banks offering currency ETF products: Barclays Capital and Rydex, whose funds are proprietary CurrencyShares and iPath, respectively. ETNs disagree from ETFs in that the onetime constitute a debt responsibility whereas the latter constitute a kind of fairness. In use, however, since the danger of nonpayment is comparatively reduced, the two types of securities are functionally equal. Both salary stake somewhat below the benchmark stake rates of the currencies to which they are connected. The five original ELEMENTS ETNs are individually tied to the operation of the Canadian Dollar, Euro, Swiss Franc, British Pound, and Australian Dollar. Index Universe reports: Why would anyone select the original ELEMENTS ETFs? Because they take biannual cash dividend payments to noteholders based on the int

Technical Analysis - The Basics

Yesterday, the Forex Blog featured a tale that explained how to have money when unpredictability is reduced. The consensus of the clause is that investors must switch their scheme from trading to trending, which requires a readjustment in prospect from short-term to long-term. But given that unpredictability is reduced and that currencies frequently go laterally against each new, how do you recognize which instruction to wager on, and accordingly, when to purchase or trade? The response requires some insignificant technological analysis, involving two of the almost fundamental tools accessible: backing and opposition. These terms constitute approximate cost levels within which a particular currency appears to be trading. The meaning of these levels is normally capricious, and is probably grounded in psychology quite than any genuine mathematics. Furthermore, formerly the form is spotted, the backing and opposition levels frequently get self-fulfilling, keeping the currency rangebound. But, when, for whatever cause, the currency dips below or rises above

USD Spirals to Fresh All-Time Lows

The reports released today showed no revision in Q4 GDP, unchanged at 0.6% while core PCE prices also held steady for the quarter at 2.7%. However, weekly jobless claims jumped higher to 373k, versus 349k from a week earlier – highlighting continued weakness in the US labor market and shifting focus to next week’s jobs data. Consensus estimates call for the February unemployment rate to creep back up to 5.0% while non-farm payrolls are forecasted to reverse last month’s 17k contraction, instead improving by 35k.
Economic data slated for release tomorrow will see January PCE, personal consumption, personal income, February Chicago PMI and the February University of Michigan sentiment survey. The Fed’s preferred gauge on inflation, the personal consumption expenditures (PCE) price index is likely to remain buoyed in January, highlighting the predicament facing the FOMC in maneuvering monetary policy. Meanwhile, Chicago PMI in February is expected to fall below the key 50-level, dropping to 49.7 from 51.5 in January. The University of Michigan sentiment survey is forecasted to fall to 70.0 in February versus 78.4 a month earlier. However, the risk for a sharper decline remains given the unexpected plunge to 5-year lows in the Conference Board’s consumer confidence survey earlier in the week.
The US data being released continue to bode poorly for the economic outlook, and consequently, for the dollar – which remains mired in a downward spiral across the board. The greenback’s losses against the euro accelerated after breaching the 1.50-level yesterday plunging further to near 1.52 and slumping to a new 24-year versus the Australian dollar around 0.95. Burgeoning fears of an imminent recession and the increased scope for additional aggressive monetary policy easing from the FOMC have given traders the greenlight to dump dollars – plunging to new all-time lows against the euro and Swiss franc.

USD Losses Accelerate

The beleaguered dollar found no reprieve against the majors, with the accelerated selling pushing the currency to fresh all-time lows against the euro, Swiss franc, 24-year lows versus the Aussie and 3-year lows versus the yen. Underscoring the greenback’s weakness has been the continued deterioration in US economic reports, raising fears of an imminent recession and reaffirming the Fed’s need for further aggressive monetary policy easing over the coming months.
The reports today included January PCE, consumption, personal income, February Chicago PMI and the University of Michigan sentiment survey. Inflation remains firm as the January PCE price index edged higher with the monthly figure ticking up to 0.4% from 0.2% and 3.7% versus 3.5% a year earlier. The core PCE price index firmed to 0.3% m/m and 2.2% y/y. Personal consumption was flat in January and personal income eased to 0.3%, down from 0.5%. Boding poorly for the economy and the greenback was a dismal February Chicago PMI report, which fell sharply to 44.5, far greater than the expected decline to 49.7 from 51.5 from January – beneath the key 50-level. However, the University of Michigan sentiment survey in February fell by slightly less than estimates, declining to 70.8 instead of forecasts for a fall to 70 from 78.4 a month earlier.
Central bank policy decisions and US economic data will dominate the headlines next week. The ECB, BoE, BoC, BoJ and RBA are scheduled to announce policy decisions, with the Reserve Bank of Australia seen tightening rates by 25-basis points to 7.25%. The key highlight from the US will be Friday’s labor report, with the unemployment rate for February expected to edge higher to 5.0% from 4.9% and non-farm payrolls reversing the 17k jobs contraction from January, growing by 35k.

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