MasterForex Trend analysis of currency pairs and Comments (Updated daily)

Overview of the main economical events of the current day - 13/03/2013

JPY finally shows some gains

JPY has shown gains vs USD for the first time in 5 days after an opposition member announced that his party will vote against Deputy Head of Bank of Japan candidate Ivata, who is perceived by the market as a supporter of softer monetary policy.

EUR on the other hand is declining vs USD erasing recent gains on the back of German Minister of Finance saying that the lower house of Bundestag might make a decision regarding Cyprus during next week. He also added that inflation remains under control which is a sign that ECB might follow up with additional stimulation.

GBP is also under pressure thanks to poor manufacturing statistics that show a 1.2% mom and 2.9% yoy contraction in January with the main reason for the decline being lower oil and gas production, which was seen as a sign that the economy is entering into a 3rd recession in the last 5 years.
 
Overview of the main economical events of the current day - 18/03/2013

EUR was quite strong during most of last Friday, however this is likely to change today due to Cyprus news

USD reached a 7 day low vs EUR on Friday mostly on negative market sentiment as market participants are waiting for upcoming FOMC meeting during which they expect the terms of quantitative easing program to be revised. With these negative expectations in mind, investors were just waiting for a trigger to come and they found one in CPI rising by 0.7% mom in February compared to expectations of just 0.4% growth. This piece of news resulted in a prompt sell off of American currency.

GBP also rose vs USD on Friday thanks to Head of Bank of England Mervyn King who decided to calm the markets – and succeeded at that too. While he was known as a supporter of weaker GBP, King said that it’s market job to price the currency – not theirs. Moreover, he also commented that he finds current trade levels as comfortable, further calming the markets.

However probably the most important piece of news that is likely to set a trend for at least this week is an unprecedented step in a long-running Eurozone crisis – international lenders agreed to provide a EUR 10bn bailout package for Cyprus, but demanded that the nations pays for the help by taxing bank deposits. As a result, Cyprus government plans to impose a one-time 6%-9% tax (depending on the amount of a deposit) on all deposits in the country. This potentially creates an extremely unpleasant precedent – not only for Cyprus, but for other troubled EU economies as well, such as Italy and Spain. Banking customers realizing that government nationalizing part of their deposits in order to pay the debt is a real possibility might try and secure their funds by withdrawing their banking deposits – creating a Europe-wide banking run, which is could have unimaginable negative affect on recovery in Eurozone.
 
Overview of the main economical events of the current day - 19/03/2013

EUR shows a 14 month record decline against USD

Just as we expected, EUR found itself in quite a tough spot after announcement that Cyprus government might nationalize part of the banking deposits in the country. Not only this situation shows that EU is far from recovery, but it also sets a not so pleasant precedent. As a result, EUR hit a 14 months low against USD and a 2 week low vs JPY. This Eurogroup’s decision was met with an extreme opposition which led to Cyprus government cutting small deposits tax rate from 6.75% to 3% in this proposed measure.

However not all is lost for EUR as the currency actually climbed a bit up after Cypriot government postponed its bailout meeting to today in order to have time to provide some proposals which will put the largest levy on large deposits as opposed to small ones. Moreover, EUR also found some support in debt placements by Italy and Spain, whose yields remained almost flat after the news, showing some stability in European debt markets.

GBP is enjoining some healthy growth rates as investors are running from risks and this trend is likely to continue at least for a short term. However, watch out for today’s UK CPI data – if the numbers come too low, even weak EUR is unlikely to protect the British currency from a sell-off.
 
Overview of the main economical events of the current day - 20/03/2013

EUR reaches 3 months low vs USD

EUR heavily declined reaching a 3 months low vs USD on a rumors that Cypriot officials are unlikely to support the idea of a one time tax on banking deposits in the country – at least, in its current form. And indeed, news hit the wires in the evening – the Parliament voted against the idea. As a result, President of Cyprus invited party leaders for a meeting this morning, hoping to find some common ground. It looks like everything is about balance: Cyprus needs to find EUR 5.8bn to repay its foreign creditors and at the same time the government does not want to put a tax burden on small deposits in the country. At the same time, Central Bank of Cyprus says that if small deposits are not taxed as well, the government will not be able to collect the required funds. Eurogroup announced that Cyprus will be given a chance to leave small deposits untaxed, while Head of IMF supported the idea, proposing to put a 30%-40% tax on the largest deposits.

GBP on the other hand is feeling weak vs USD after reports that show growing inflation in February that reached a record high level since May, which puts additional economic pressure on households, slowing down the recovery. CPI rose by 0.7% mom in February after declining by 0.5% a month before. On a yoy basis, this means a 2.8% growth – negative news for GBP, however we were expecting some volatility on these numbers.
 
Overview of the main economical events of the current day - 21/03/2013

Lots of market moving news made yesterday’s trading quite volatile

Market focus remains on EUR and Cyprus problems in particular. However, despite the fact that Cyprus government did not accept EU's aid and the President was forced to start talks with party leaders and Head of Central Bank in order to find an alternative, the market seems to appreciate Cyprus looking for plan B resulting in EUR rising against USD. Moreover, there is a fair chance that Cyprus will find help elsewhere – and on a better terms: for example, Finance Minister of the island visited Moscow to prolong a EUR 2.5bn loan and to possibly secure some additional funding as Russia wants to protect its deposits in Cypriot banks.

USD remained somewhat flat after a two-day FOMC meeting as no changes were made to the monetary policy, which is a signal that officials do not believe that economy has recovered enough to cut the stimulus measures. Fed said they expect the unemployment to reach a required level of 6.5% only by 2015 and no rates increase is planned before that. As a result, FOMC is to continue its QE program in an attempt to fight high unemployment level, which sits above 7% since November 2008.

GBP's volatility was extremely high, swinging the British currency back and forth. While GBP was declining in the morning, it jumped up on the release of Bank of England meeting minutes that show that most of the members are against increased bonds purchases. As a result, labor market figures did not have a strong effect on GBP even despite the fact that unemployment level declined less than expected in February.
 
Overview of the main economical events of the current day - 22/03/2013

EUR is swinging back and forth vs USD

EUR is trading back and forth vs USD after showing a decline following weak PMI data from Germany, France and EU. Moreover, March numbers were a 4 months low for European Union, which is a signal that Eurozone is far from recovery. Nonetheless, EUR was able to offset most of the losses after a debt placement by Spain, which was oversubscribed with lower yields, showing growing investor confidence at least in Spain.

However Cyprus problem still remains probably the most important driver for European currency as EU government still hopes for a positive outcome during this weekend despite growing uncertainty as per recent survey 70% of Cyprus nationals would rather leave the Union.

JPY climbs up on comments of the new Head of Bank of Japan who says that exchange rate stability is a responsibility of Ministry of Finance, adding that purchase of foreign bonds by Bank of Japan might be seen as an intervention. Nonetheless, he still supports policy easing saying that the country needs to achieve a 2% inflation level in 2 years.

GBP showed gains vs USD thanks to strong retail sales data and lower than expected government borrowing level. According to the report, retail sales were up 2.1% in February compared to expectations of only 0.5% growth.
 
Overview of the main economical events of the current day - 25/03/2013

EUR reaches a weekly high on Friday

EUR was showing quite a rebound on Friday fueled by optimism regarding the Cyprus situation. EUR was growing against all major currencies after Deputy Head of the ruling party announced that political forces are close to finding a consensus. However, soon another piece of news followed the wires suggesting that ECB after all declined measures proposed by the Parliament of Cyprus. Despite all this, official persons remain relatively calm, and try to pass this state of mind to the markets – for example, Minister of Finance of Holland denied rumors that Cyprus might leave EU.

Even unexpectedly declined German business confidence index, that reached 106.7 in March compared to 107.4 in February was not enough to put any serious pressure on European currency.

GBP used to trade at a 4 weeks high vs USD, however this quickly changed after Fitch Ratings announced they might cut UK's AAA rating due to weak growth rates and unsettling debt forecasts. However this comes as a little surprise after UK said they expect their debt-to-GDP ratio to reach 100% in 2015-2016, which prompted a fast reaction from rating agencies saying that if the ratio climbs above 100%, a ratings cut is imminent. Fitch said they will wait until end of April to make a final decision.
 
Overview of the main economical events of the current day - 26/03/2013

EUR shows a major decline on Monday

EUR showed quite a fall on Monday due to European leaders saying that saving Cyprus might set an example, fueling safety concerns regarding other large EU members. Head of Eurogroup announced that it is important to avoid risks in government sector and added that he believes that agreement on Cyprus might lead to a restructuration of the banking industry. Add to the mix Head of the Financial Committee of Cyprus Parliament saying that they might leave EU and rumors regarding Italian rating cut and you’ll get the picture why EUR is under pressure right now.

GBP was enjoining string growth vs EUR, however it actually declined against USD – poor mortgage and housing prices statistics took care of it. Nonetheless, this is likely just an immediate market reaction rather than a forming trend of some kind.

JPY is growing vs USD, offsetting previous losses as investors are using the currency as a defensive option given European uncertainty. We want to remind, that new Head of Bank of Japan Mr. Kuroda announced last week that he will do everything in his power to reach a 2% inflation level.
 
Overview of the main economical events of the current day - 27/03/2013

EUR continues to decline as the situation in Cyprus develops

Just like we expected in the beginning of the story with Cyprus, European officials are making contradicting statements with the main concern being that saving Cyprus sets a negative example. As a result, EUR trades at a 4 months low vs USD. ECB promised to provided Cypriot banks with a much needed liquidity as they have EUR 68bn in deposits, while the largest banks will open only on Thursday, which is likely to result in a huge outflow from the savings accounts – hence the need for liquidity. Moreover, it looks like Bank of Cyprus will be restructured, while Laiki will be closed and its healthy assets transferred to a competitor.

As a result, many investors are concerned that European officials will continue to use this scheme in other problem countries. To make things worse, these officials are sending mixed messages: for example, Head of Eurogroup announced that the plan for saving Cyprus will be used as an example for other economies, while ECB commented that they do not agree with this point and that there is no reason to think that problems of Cypriot and French banks have anything in common. ECB also didn’t miss a chance to use the situation to once again announce, that they want to be an independent watchdog for European banks.

JPY declined vs most of major currencies as new Head of Bank of Japan gently starts promised economy interventions in an attempt to reach a 2% inflation level in the next 2 years. GBP was also under pressure after disappointing CBI retail sales data, which shows no growth in March compared to a year before. However, UK Finance Minister was able to affect the market mood by saying that he thinks that Cyprus saving plan is not completely thought-out as it would leave the island with quite a debt coupled with rapid GDP decline.
 
Overview of the main economical events of the current day - 28/03/2013

EUR is still under serious pressure

EUR continues to decline on the situation in Cyprus and political uncertainty in Italy. Cypriot government plans to take aggressive steps in order to prevent a capital outflow from the country: starting today, for the next 7 days a special banking regime is taking place – all non-cash operation with foreign parties are prohibited, special limits on cashing and credit card operations will be placed and clients will not be able to withdraw their deposits before the maturity date. This is an unprecedented solution which surely makes market participants nervous, resulting in a sell-off of the European currency. Add a real possibility of Italy loosing its rating coupled with political battles in the country and a really weak EUR emerges.

GBP reached a 2 months high vs EUR as investors are looking for defensive options. Yet again we want to warn that a single piece of negative UK statistics might very well change investor’s view of the currency as a defensive asset. Indeed, despite showing growth vs EUR, GBP declined vs USD on quite poor 2012 GDP numbers – only 0.2% growth compared to a 1.0% gain in 2011. As a result, investors remain concerned that UK’s economy might enter a third recession in the last 5 years – hence the volatility of the currency as a defensive option.
 
Overview of the main economical events of the current day - 29/03/2013

EUR finally shows some gains as banking crisis in Cyprus winds down

EUR demonstrated some growth vs USD on the back of falling yields of Spanish and Italian bonds which some investors saw as signal that banking problems of Cyprus are likely to be not so extreme as thought before. Cypriot banks opening their doors after more strict banking capital movement rules were applied, which also fueled EUR’s growth.

Weak statistics from the USA also allowed the union currency to finally offset some of the earlier losses. According to a published report, US initial jobless claims were unexpectedly high, which might be a signal that labor market is losing momentum. GDP data came stronger than last year – 0.4% growth compared to a 0.1% gain a year before. Nonetheless, the number is also below expectations (of 0.5%), but, still, looks like the year starts quite nicely for US economy giving hope for a fast recovery.

GBP showed gains vs USD thanks to strong service sector data that showed highest growth rates in January since August. Another report, showing that housing prices climb is continuing, supported the trend, allowing for nice gains.
 
Overview of the main economical events of the current day - 01/04/2013

EUR drifting lower still; market activity is low due to Easter holidays

Friday trading volumes were quite low, while weekend was relatively free of market moving headlines – all thanks to Easter holidays in both Europe and USA. And while there is not much to say regarding the States, some information on Europe did hit the wires.

First of all, there are fresh indicators that deposits greater than EUR 100K in two largest Cypriot banks are likely to sustain larger losses than originally feared – again, negative news not only for Cyprus but for EU as whole. And if this was not enough, additional pressure was put on EUR on Saturday with a release of a quarterly IMF survey that showed that reserve managers were net euro sellers during 4Q12 – a signal, that investors are losing confidence in the currency.

Meanwhile in Japan, USDJPY traded heavy in the wake of quarterly Tankan report and China PMI data. Tankan showed that large Japanese manufacturers see USDJPY trading well off current levels, which is the latest piece of evidence that corporate Japan remains skeptical that this USDJPY can last without experiencing a major correction.

Today, much of Europe is still on holiday as well as USA due to Easter Monday so expect low market activity today and possible volatility tomorrow if any market moving news hit the wire today, making US and EU investors adjust their positions tomorrow when markets open.
 
Overview of the main economical events of the current day - 02/04/2013

Europe returns from holidays, expect much attention to data releases

Europe returns from Easter holidays today so expect some extra volatility as well as be prepared for investors paying much of their attention to data releases during the week. Most important thing on the agenda is probably a ECB meeting this Thursday with some parts of the market expecting a rates cut – at least consensus surveys are certainly not unanimous in expecting unchanged rates.

Bank of Japan, represented by its Head Mr. Kuroda, continues its rhetoric promising to do “whatever it can” to beat deflation and conduct “bold easing” though it might take 2 years to reach the targets. Nothing new here, but watch out for BoJ meeting this week (April 3-4) as Kuroda might use a recent decline in manufacturing production as a leverage in his talks aimed adopting a bolder policy.

From US we saw some disappointing headline PMI numbers, which resulted in USD declining versus JPY, however we urge to look deeper into the numbers: sure, they do show a decline, but employment index is higher and indications are that housing and automotive sectors are doing well – which might mean that while US fiscal issues start to take toll on both activity and sentiment, US consumers may in fact have been reasonably resilient.
 
Overview of the main economical events of the current day - 03/04/2013

EUR heavily declines on poor statistics

EUR showed quite a loss yesterday due to poor data releases as well as increased volatility. According to a recently published report, unemployment level in Europe reached a record high number in February, which adds to concerns regarding recovery of the European Union. However, January data was revised to 12%, meaning there actually was no mom change across the Europe, but it still means a slight increase in EU.

Weak PMI data also put pressure on EUR, as the numbers show declining activity. This is yet another hint of shrinking GDP of the Eurozone, meaning that the economic decline continues, after ravaging for 15 months.

JPY declines vs USD, which is quite expected as investors are waiting for a two-day meeting of Bank of Japan this week. Another factor is the new Head of BoJ saying that they should not “sacrifice everything” in a attempt to reach a 2% inflation target – which potentially means that economy support is likely to be less aggressive as expected before.

GBP declined vs USD for the first time in 4 days after a report was published, showing that while UK manufacturing activity is falling, the decline was less than a month before – showing some hints of accelerating recovery. Nonetheless, the number was below expectations, resulting in a quick sell-off.
 
Overview of the main economical events of the current day - 04/04/2013

Markets are in caution mode ahead of central bank meetings today

Bank of Japan has just made its very aggressive announcement after a first meeting headed my Kuroda, who definitely left his mark. First of all, there is a very strong commitment to a 2% inflation target – BoJ says they will attempt to reach it as soon as possible with a 2 year guidance. Add to this quite aggressive bond purchases coupled with increased maturity and monetary framework changes and it looks like Mr Kuroda delivered. At first glance market reaction confirms it: USD was showing gains vs JPY after trading downside before the meeting.

Yesterday’s US data was quite weak, adding to recent data disappointments and hinting once again, that fiscal problems are bound to affect the economy. The non-manufacturing ISM fell short of expectations, while ADP report showed a decline in private-employment growth. As a result, markets become more and more concerned regarding US recovery and even Fed’s words that the substantial improvement in labor market may arrive already by the summer did not have much effect on trading.

Today all eyes are on ECB meeting, during which there is a possibility (albeit, quite small) for a rate cut. However, Draghi is more likely to present some kind of a new non-standard measure target at improving credit conditions for SMEs. Bank of England is also having a meeting, but is unlikely to surprise the market with any decisions. In USA, Fed’s speaker will talk on economic conditions and monetary policy.

Finally, before all the meetings, we‘ll get service PMI for the Eurozone and UK. Focus will be on first estimates for Spain, Italy and UK.
 
Overview of the main economical events of the current day - 05/04/2013

JPY continues its decline on aggressive measures introduced by Bank of Japan

JPY continues to fall fast, reaching 17 months low vs USD after Bank of Japan surprised the markets with its quite aggressive measures aimed at fighting currency devaluation. The decision was made with a vote count of 8 pro against 1 contra. Quite a result for a first meeting headed by Mr Kuroda.

EUR is swinging back and forth vs USD after Head of ECB Mario Draghi announced that EU officials are ready for decisive steps if the economy does not show signs of improvement. As expected, no rate cut was proposed, however it was said that ECB will closely monitor economy developments in order to assess risks for reaching a target inflation level, set slightly below 2%.

GBP rose on the news that Bank of England decided not to expand its asset purchase program and left the key interest rate unchanged at a record low level of 0.5%, which was quit expected. Another factor supporting the growth was strong service PMI data that shows a record high growth rates in the last 7 months.
 
Overview of the main economical events of the current day - 08/04/2013

USD is falling vs EUR on weak data releases

USD reached a 9 day low vs EUR on Friday after disappointing employment data release, which suggests that the growth of the largest economy in the world is slowing down. This falls under the trend we’ve been observing for last few days: looks like recovery in USA is slowing as fiscal problems take their toll on the economy. As a result, USD is declining as investors are getting more and more concerned that FOMC will be forced to continue its asset purchase programs due to weak growth.

JPY is unsurprisingly declining vs USD, reaching a new low since 2009 after Bank of Japan announced its aggressive measures aimed at fighting deflation in the country. We’ll remind that BoJ decided to expand its bond purchase program up to JPY 7tn compared to expectations of just JPY 5.2tn in an attempt to reach a 2% inflation target in next 2 years.

Today watch out for a speech by Head of FOMC, during which we can expect both information on asset purchase program and hints regarding possible future interventions.
 
Overview of the main economical events of the current day - 09/04/2013

Both USD and JPY are under pressure which falls under recent trends

JPY continues its decline, trading at 2009 levels on rumors that measures proposed by Bank of Japan last week will result in further decline of the currency. This comes as no surprise as new Head of Bank of Japan is a supporter of aggressive measures – and that’s a fact the market knew well ahead of him actually taking the position. Basically what we see here falls perfectly under JPY downside trend first occurred when Mr Kuroda was announced as a candidate for the Head position.

USD is also trading down vs EUR as market participants are waiting for FOMC meeting today, with the next one due on April 30th – May 1st. Currently FOMC buys USD 40bn of mortgage backed securities and USD 45bn of treasures per month which is part of the attempt to stimulate mortgage market and economy in general – and it looks like FOMC does not plan to stop these measures any time soon.

Another thing helping EUR was surprisingly strong German PMI data, which shows that the largest EU economy is slowly recovering after a decline in 4Q12.
 
Overview of the main economical events of the current day - 10/04/2013

Tuesday was quite a slow day; keep your eyes on FOMC message today

Yesterday was rather calm days in terms of trading volatility and most currencies traded basically either flat or under the known trends. EUR showed some gains vs USD thanks to strong headline Germany trade balance figures, which came above expectations. And while the reason for that is actually a visible decline of import/export operations, EUR still was able to demonstrate some modest growth.

GBP was also showing some gains vs USD on a surprising rise in industrial production that rose 1.0% over February, beating expectations for 0.4% and up from the revised 1.3% decline in production in January. And while this adds up to the sector showing some real recovery, trade balance was shockingly weak, which stopped the rise of the currency.

JPY trades more or less flat at newly found lows which comes as no surprise given the aggresive measures announced by Bank of Japan. Moreover, Japanese officials are saying that the current devaluation of the national currency does not trouble them at all, meaning we can expect a further decline.

FOMC message today is likely to be more dovish than not, despite the mixed signals, so get ready for that. While some Fed members are quite optimistic in their comments, a bunch of weak data points out that the jobs recovery could be stalling and that Fed would continue its easy policies for quite a while.
 
Overview of the main economical events of the current day - 11/04/2013

Trading remains quite calm as investors are waiting for newsflow

Trading activity remains somewhat low with most of the currencies trading more or less flat.

The most important thing yesterday was probably FOMC minutes leaked accidentally earlier than expected. The document revealed that “many” FOMC member would like to slow the pace of purchases over the next several meetings, while only “a few” deemed it necessary to continue at current pace “at least until late in the year”. It’s important to add, that these comments were made well before a soft patch in growth that US has recently hit, which has clouded the outlook. As a result, we would not expect any major changes in asset purchases at least until autumn.

JPY depreciation continues even despite Bank of Japan’s Head Kuroda saying that all “necessary” and “possible” measures have already been taken. Nonetheless, Kuroda also reiterated his commitment to achieve a 2% inflation goal – which potentially keeps the door open for further easing.

Today is going to be a rather quite day in terms of newsflow, however there are some stories worth following today. First of all, there is some employment data from USA and while it is bound to be somewhat skewed due to Easter holidays, it is still an important indicator. Next big market mover will be US retail sales for March tomorrow, which will give us more insight on how soft the soft patch may actually be. Finally, another important thing is Bank of Japan meeting – and while we are unlikely to hear any surprises, we recommend to check it out anyways.
 
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