FX markets have entered the holiday season on a quieter note as majors traded in tighter ranges relative to last week's record swings. Risk appetite is largely subdued and most indices in the Asia-Pacific region are in negative territory, with the notable exception of the Nikkei which is positive despite more disappointing data out of Japan. The announcement by the White House last week regarding the provision of an emergency US$17.4bln loan to the US car industry has certainly helped steady sentiment around the world and removes a key short-term event risk heading into year-end. This could see significant fallout at the end of the first quarter when the markets begin to realize how massive this global financial restructuring is and will be, which will knock heads and rattle cages and drain accounts as the tsunami wave 2 hits. This global crisis will not end overnight and we've much more excitment to keep is getting out of bed in the morning. Forturnately, if you know what you're doing, FX is one of the only sectors to make money in this market. That is, of course, you can manage risk like the professionals... ahem, prudent professionals... not like the former wall streeters.

The dollar was steady in a range of 1.3911-1.4048 against the euro and 89.10-90.24 against the yen. Crude prices are also slightly firmer on the back of recent developments.
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Tags: Financial Crisis

The dollar recouped some of its recent losses against the major currencies as oil fell to the lowest level since 2004 and the credit outlook of a major US corporate was downgraded. Investors shrugged off the recent OPEC announcement to cut 2 mm barrels per day and less demand pushed crude prices below $40, where they stayed throughout the session. As the year-end approaches, there is still no solution for the automakers. The Bush administration said it continues to work on a solution as the automakers have shut down plants for now in efforts to conserve cash.

The US dollar has virtually collapsed since mid November, but we don't think USD weakness will last and expect a dollar comeback in 2009. With the current global financial crisis, global rates are converging towards zero with deflation risks looming. While carry may benefit on aggressive action in the short-term, we prefer to be long currencies which do well when global central bank rates move towards zero. Current account surpluses also provide a source of steady currency inflow. We believe investors will seek safety, liquidity and a store of value in such an environment and the USD and JPY meet those criteria. But the view can change in these uncertain times. I don't like that my next trip to Europe and that of the Monaco Grand Prix will, after fee's etc, will have me paying almost 2:1 on EUR/CAD, thus coffe and a croissant for 2 persons downstairs from the apartment will cost approximately $30 CAD. Or a round of 4 beers at the local pub on Grand Prix Wednesday will cost about $200. But its worth it, i guess.
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Tags: USD

The Fed reduced the target rate 75bp to a range of 0% to 0.25% and was very aggressive in its accompanying statement. The decision was unanimous, as the FOMC said they were committed to keeping the rate at "exceptionally low levels" for "some time." They did not mention quantitative easing, but they remained committed to using unconventional policy tools to fight the recession. Possible tools include purchasing long-term Treasury securities, purchasing agency debt and mortgage-backed securities and implementing the TALF, which could promote credit extension to households and small businesses. Given that the rate is essentially zero, UBS economists feel like this was as aggressive as the Fed could get. The FOMC decision came after a record monthly decline in the CPI and a mixed start to the Q4 earnings season. CPI was -1.7%m/m (cons -1.3%) as weak energy prices and a weak core CPI (0.0%m/m, cons 0.1%) drove down the reading. In corporate news, a major US bank missed earnings but a large retailer managed to beat expectations. With downbeat expectations for earnings season, there is a greater chance of surprising results to the upside. The automaker story continues, with press reports suggesting the Big Three may yet be given access to TARP funds. However, for the automakers to receive more than the $15bn left under the first tranche of TARP, the Bush administration will likely have to make concessions with Congress in order to access the second tranche. In other news, OPEC will discuss production cuts when it meets today, with reports suggesting a cut of about 2 million barrels per day.
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Tags: FOMC

Hello Traders,

Another Bloomberg interview with Jim Rogers for you. Watch the interview
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Tags: Videos

BoC cut its policy rate by 0.75% to 1.5% (0.5% expected), the lowest level in 50 years.
The new US 4-week Treasury bills were sold at a high rate of 0% and rate of 3-month Treasury bill briefly traded in the negative territory.
The US government and Congress were negotiating terms for emergency loans that could give taxpayers an equity stake in the US automakers.

US equities retreated after two days of big gains, on the profit warnings from FedEx and other companies. Dow fell 242.85 points (2.72%) to 8691.33 and S&P500 gave up 21.03 points or 2.31% at 888.67. Transportation stock led the pull-back, with Fedex plunged 14.5% after saying its 2009 profit would fall shy of estimates.

Markets were also rattled by an extraordinary sale of US Treasury bills which saw an unprecedented 0% rate. This highlighted the dysfunctionality in the money market as banks are unwilling to absorb new deposits from other banks and agencies and would rather pile it into equivalent maturity treasury.
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Tags: Rate Cuts

RBA Cuts Rates to 4.25% - Ref: UBS

Risk sentiment deteriorated further amid the unsurprising, but official confirmation for the US being in a recession, less constructive commentary by Fed Chairman Bernanke, and poor macroeconomic data. According to the National Bureau of Economic Research (NBER) the current recession began in December 2007, due in large part to the decline in jobs. The recession is likely still ongoing, as recent data has been getting worse. Fed Chairman Bernanke highlighted that the US economy remains under considerable stress and that more rate cuts are possible. He also noted that the scope for reductions to aid growth remains limited at this point. Bernanke alluded to quantitative easing (QE) like policies such as buying longer-dated Treasurys and agency debt as a way of injecting liquidity. His comments, while not explicitly mentioning QE, drove down long-term yields, consistent with the experience in Japan when it engaged in QE. The 2y Treasury yield is 0.88% and 3.22% on the 30y Treasury. The 2s10s Treasury curve is now 183bp, down from the mid-November high of 262bp. On the data front, the manufacturing ISM for November fell another 2.7 points to 36.2, following sharp declines in October and September. Read More...

Tags: Financial Crisis

Hi Traders

First I want to thank all the attendees at the Charlotte, NC workshop. It is always a pleasure to share my experiences and trading methods with the group. I hope that the content of the workshop has offered a clear vision and further insight into the FX market. I want to thank Angie Crisp for organizing the workshop and to Greg Crisp for his guest presentation. As you know, Greg has been a student of mine for three years and has become an independant thinking and hhighly successful full time trader. Although he uses my methods and market approach, he succeeded because of the commitment, effort and study he made to the business. All the students show great aptitude for the business and I hope I can continue to be a part of your growth as a trader. The process and pursuit of success in this business will enhance many area's of your life.

The US government has stepped in once again to shore up financial market stability, this time with a joint rescue package from the Treasury, Fed and FDIC for the US' second-largest bank, Citigroup! If you have not done so already, please view the video FDIC chariman posted in the blog, where the undertones suggest further bank failures. Hang on folks!! The government and the bank identified an asset pool of about $306bln worth of distressed real-estate backed loans and securities. Under the plan, the bank would be responsible for the initial $29bn of losses on the portfolio. The Treasury, FDIC and Fed would then take on any additional losses, with the Fed acting as the backstop. Treasury will also provide a $20bln cash injection (in addition to $25bn already issued under TARP) in return for preferred securities in the bank. On the economic front, US President-elect Obama announced a new initiative aimed at creating 2.5mln new jobs, which may act as good intentions but will likely not outweigh the tsunami of job losses to come as the auto industry and other related manufacturing suffer badly in the coming months. The new stimulus package could be in the range of $500bln to $700bln and Congress is expected to have it ready for Obama to sign shortly after his inauguration. Obama will also formally announce his economic team, with Timothy Geithner as Treasury secretary and Lawrence Summers as head of the White House National Economic Council. Read More...

Tags: Rescue Package

Traders,

Please review the document in the free members area titled "UBS Perspectives - Risk Aversion Still Key"

This document will provide you with an excellent insiders analysis of what is driving the foreign exchange market, at present. The importance of studying the review is to expand your knowledge of this market and enhance your ability to pick up on specific market drivers and identifying important factors influencing price, trends and volatility.

Ref: UBS

Good Luck with your trading and be careful out there!

Chris Lori
CTA
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Tags: Risk

The fear of recession took control of the US equity markets, overshadowing China's stimulus package and the increased AIG bailout package. Dow finished Monday at 8870.54, down 0.82%. S&P closed at 919.21, down 1.27%. The financial led the bourses lower as market expects a Q4 loss from US bank. Meanwhile, General Motors share came under significant selling pressure as one of the analyst reports expects its stock price to fell to 0. Meanwhile, Asian markets are lower at time of writing, evidenced by the JPY rally. Read More...

Tags: Risk

The dollar was undermined on Friday by falling risk aversion, with the S&P500 rising by 2.9%. In this context, EURUSD has risen to a high of 1.2833 in the US session from a low of 1.2718 and has subsequently traded even higher this morning to current levels around1.2850. Meanwhile, credit markets look to be normalising further - the 3-month spread between OIS and Libor for the US dollar fell to 1.76%, from 1.83% on Thursday. Read More...

Tags: Financial Crisis

Risk appetite deteriorated again overnight despite aggressive rate cuts by a number of central banks, including the BoE, the EBC and the SNB. US stocks however traded lower, with the S&P500 down by 5%, and Asian stock markets this morning are also heading lower with Australia's S&P/ASX200 down by 4.3% so far at the time of writing. Falling yield differentials globally and deteriorating risk appetite pushed EURUSD, EURJPY and USDJPY lower. Think about, if rate spreads are contracting against EUR and JPY is maintaining a sustained rally on any hint of risk aversion and falling equity markets globally (-2 to -5% is common lately), than a short EURJPY is a well defined fundamental trend. I see further downside for this pair... Don't chase it. In fact, a deeper than expected US NFP or Retail Sales next week can offer a rally in which to sell. The challenge is the volatility on the pair make stop placement a challenge. To mitigate risk, take unleveraged position sizes like the smart professionals, not the dumb ones. Read More...

Tags: BOE