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OctaFX.Com -Japanese Yen Strength Persists; EURUSD Consolidates

Australian labor market data was a major disappointment in the overnight, showing that nearly all of the jobs gained in May were wiped out in June (save 0.8K). Australia, as a proxy to China, has been putting out weaker than expected data once again, raising emerging market growth concerns. In light of recent Chinese data, which has showed significantly weaker domestic demand in the world’s most important economy, the People’s Bank of China has cut its key rate twice since the first week of June. Scope for further rate cuts, not only from the People’s Bank of China but from the Reserve Bank of Australia as well, will be revealed tomorrow when the Chinese second quarter GDP report is released.

More importantly, however, is that the US Dollar is surging in the wake of the Federal Reserve’s June 20 to 21 meeting Minutes yesterday. While it’s evident that policymakers are concerned about the direction of the US economy, any further easing will be on the sidelines as long as the recovery muddles along at its current rate. One needs to look no further than commodities and highly-correlated currencies to

appreciate the US Dollar’s strength: AUDUSD and NZDUSD are both down over 1% thus far today; NYMEX WTI Crude Oil has fallen 1.13%; spot Gold is down 0.91% and spot Silver is down 1.78%; and COMEX Copper Click here to See More

Jul 12, 2012 10:55

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OctaFX.Com -Australian Dollar Gained as RBA Reports Stronger Economic Growth, Headwinds Exist

THE TAKEWAY: Minutes from July third meeting reports Australian economic strength > GDP growth is expected to continue at moderate pace while inflation figures suggest easing prices and substantial risk of spillover from European financial crisis exists > Australian Dollar gained

The Australian Dollar gained versus the U.S. Dollar after the Reserve Bank of Australia released their minutes from the July third meeting. Overall, RBA officials noted that the economy had been growing at a stronger than previously estimated rate since mid 2011 as gross domestic product registered at 4.3% over the first three months in 2012. Furthermore, the recent CPI data suggests that inflation appears to have moderated, decreasing to 1.6 percent in March 2012, year over year, from 3.1 percent in December 2011, year over year. Officials also said holding borrowing rates at 3.50% allows for “more domestic growth.”

Moreover, it was noted that there still remains a substantial risk of spillover from the European financial crisis, however recent developments from the European summit helped to boost market sentiment for the time being.

Officials also noted that China’s economy slowed at a slower rate than initially indicated and that the outlook remains uncertain.

Markets likely interpreted the data to mean that further rate cuts may not be on the horizon thus providing support for the higher yielding Aussie currency.

AUDUSD, 5 Minute Chart

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Jul 17, 2012 03:25

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OctaFX.Com -Canadian Dollar Strengthens as Bank of Canada Keeps Rate at 1.00%

THE TAKEAWAY: CAD Bank of Canada Rate Decision > Overnight Interest Rate Unchanged at 1.00% > USDCAD BEARISH

The Bank of Canada kept its main refinancing rate on hold at 1.00% today, as expected, while similarly leaving its Bank Rate at 1.25% and the deposit rate at 0.75%. As the Bank of Canada noted in its policy statement, the main reasons for keeping the main rate on hold have more due to with exogenous factors and less to do with the Canadian growth picture itself.

Governor Mark Carney said that “the United States continues at a gradual but somewhat slower pace, developments in Europe point to a renewed contraction. In China and other emerging economies, the deceleration in growth has been greater than anticipated, reflecting past policy tightening and weaker external demand.” The main headwind to confidence and growth, the Euro-zone crisis, has led the Bank of Canada’s “base case projection assumes that the European crisis will continue to be contained, although this assumption is subject to downside risks.”

However, “domestic factors are expected to support moderate growth in Canada.” Governor Carney finds that “consumption and business investment are expected to be the primary drivers of growth.” “Lower commodity prices,” influenced by the slowdowns in China, Europe, and the US will hurt “incomes and wealth,” as well as “record-high household debt.”

Presented below without commentary are the Bank of Canada’s outlook on inflation and growth:

Core inflation is forecast to remain around 2% over the projection horizon as the economy operates near its production potential, growth in labour compensation stays moderate and inflation expectations remain well anchored.

Given the recent drop in gasoline prices and with futures prices suggesting persistently lower oil prices, the Bank expects total CPI inflation to remain noticeably below the 2% target over the coming year before returning to target around mid-2013.

The economy will grow by 2.1% in 2012, 2.3% in 2013 and 2.5% in 2014.

The economy is expected to reach full capacity in the second half of 2013, thus operating with a small amount of slack for somewhat longer than previously anticipated.

Jul 17, 2012 13:20

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OctaFx -Australian Dollar Declined as Chinese Real Estate Data may Provide Support for Softening Economic Conditions

THE TAKEWAY: Chinese real estate prices ease > Data in line with the recent softening in economic conditions > Australian Dollar declines

The Australian Dollar declined in value versus the U.S. Dollar as Chinese real estate prices show signs of economic slowing. From a sample of 70 Chinese cities surveyed, prices for new residential apartments decreased in 57 cities. Moreover, 58 cities also experienced declining prices for existing residential apartments. The data fell in line with recent CPI figures which increased by 2.2 percent in June, the slowest rate of increase in 29 months.

Declining real estate prices might suggest that credit demand may also be slowing. Earlier in July the PBOC cut lending rates in an effort to provide credit-borrowing incentive, offering additional support for a possible flagging credit demand case.

Finally, softening Chinese data could have negative spillover effects to the Australian economy as China is in large demand for Aussie exports. If the Aussie economy experiences a drop in export demand, then markets may likely project a more accommodative RBA monetary stance and thus reduce expectations for rate hikes.

Jul 18, 2012 03:02

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OctaFx -Japanese Yen Strength Persists; EURUSD Consolidates

Risk-aversion is the tone across the board on Wednesday as US equity futures have declined, commodities have sold off, and the Japanese Yen is the top performer. In the wake of this, the Euro is leading losses (though quizzically, the Australian Dollar is the second best performer against the US Dollar on the day) as the German 2-year note yield fell to -0.06%, perhaps one of the best indicators that uncertainty remains high among investors.

Despite yesterday’s promising results from the Spanish bond auction, Spanish debt is back under pressure which is adding to the Euro’s woes. The Italian 2-year note yield has pulled back to 3.426% (-7.3-bps) while the Spanish 2-year note yield has risen to 4.802% (+21.0-bps). Similarly, the Italian 10-year note yield has dropped to 5.973% (-3.9-bps) while the Spanish 10-year note yield has risen to 6.767% (+5.1-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:55 GMT

JPY: +0.13%

AUD: -0.09%

CAD: -0.14%

GBP: -0.32%

CHF:-0.48%

NZD: -0.49%

EUR: -0.50%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.19%(-0.48% past 5-days) READ MORE

Jul 18, 2012 10:59

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OctaFX.Com -Dollar rises as Bernanke gives no hint of stimulus

Dollar rises against the euro as Fed Chairman Ben Bernanke gives no hint of imminent stimulus

NEW YORK (AP) -- The dollar is rising against the euro after Federal Reserve Chairman Ben Bernanke gave no indication that the Fed was about to step in again to help the U.S. economy.

In his second day of testimony before Congress, Bernanke said Wednesday economic growth remains weak and that the Fed will contemplate additional action if unemployment stays high.

But he offered no hints that the Fed would launch another round of bond purchases. The Fed has already launched two rounds of bond purchases, most recently in August 2010. Those programs push interest rates lower and can weaken the dollar.

The euro fell to $1.2269 in afternoon trading Wednesday from $1.2289 late Tuesday. The British pound fell to $1.5650 from $1.5647.

Jul 18, 2012 17:01

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OctaFX.Com -Euro vs. Dollar: Who's the Ugliest One of All?

The euro may be winning the unpopularity contest in the markets at the moment, but the dollar is close behind, according to David Bloom, head of foreign exchange strategy at HSBC.

He described the euro (EUR), which has continued its medium-term fall against the dollar this year after rallying slightly in February and June, as "the ugliest of all" - but maintained the U.S. dollar is far from beautiful.

The Eurodollar is also becoming less effective as a benchmark as investors move away from both currencies, Bloom argued.

"Investors are abandoning the euro and the dollar. We've been focusing on the Eurodollar as the bellwether but if you look at the dollar against other currencies like the Australian dollar or the rand, it's actually weakening," he told CNBC's "Squawk Box Europe" Friday.

"You've got the ugliest of all, which is the euro, but the dollar is starting to look quite ugly as well. The Eurodollar as a benchmark isn't working - people are selling the U.S. dollar now too because we're heading towards elections and the fiscal cliff."

"We're stuck between Europe and the U.S. QE 3, 4, 5 - it's like the Rocky movies!" he said, referring to a third, fourth or even fifth round of quantitative easing.

He is far from the only currency expert to warn against the euro. In the absence of any headline-grabbing meetings or summits in the euro zone this week, markets' attention has turned elsewhere - but risks remain (click here for a slideshow on the world's most indebted nations).

"We still have plenty of event risk up ahead in the euro zone - the German constitutional court for starters - and the chance of a full-fledged (troika) program in Spain," Geoffrey Yu, currency strategist at UBS, told CNBC.

"The euro is being considered more as a funding currency and people aren't trading much off euro-specific news. Looking at our volumes in the past week, people are packing up for the summer.

Politics in the developed world are going to keep their grip on markets and currencies, according to Bloom.

"Politics is the new economics. There's no longer this laissez faire attitude to free markets,"

he said."Look at the Swiss. They have made a political decision to keep manufacturing jobs and its costing them to keep the franc low."

The Swiss National Bank is buying bonds in an effort to keep the Swiss franc (CHF) at a level which will not put companies off investing in jobs in the country.

New safe havens are emerging from the mire, with Nordic currencies like the Swedish krona (SEK), which recently hit a 10 year high against the euro, performing well.

"We're trying to find beauty in this world of ugly. Sweden has turned the corner. It's the rose amongst the thorns," Bloom said.

"The market has switched on to this change already, but we think that it's right to continue buying it."

There are some who believe that the krona has already come too far and now is the time to sell, including analysts at Nomura, who issued a sell note on the currency earlier this week.

The Australian dollar (Exchange:euraud=) has also strengthened, but is more vulnerable than most global currencies to any slowdown in China because of the Australian economy's dependence on commodities.

"A lot of clients are finding the Aussie difficult to sell right now," Yu said.

"If the money does flow in Australia's direction (from China), it'll be hard to fight. If clients want a commodity-linked currency, the Aussie seems the best place to go."

Jul 20, 2012 09:14

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OctaFx -ECB's Coeure warns against betting on euro collapse

MEXICO CITY (Reuters) - The euro zone political commitment to the euro should not be underestimated, European Central Bank Executive Board member Benoit Coeure said on Friday in a warning to those doubting the single currency's survival.

In a speech in Mexico City, Coeure said there was a lack of understanding about the euro zone's approach to tackling the debt crisis and that he disagreed with those who said the bloc did not have the right tools to fix the situation.

"I would caution those who have doubts about the euro, that they underestimate the political commitment to it at their own risk," Coeure said.

"The ambition to provide long-term foundations for EMU in less than a decade is a historical step of great significance," he added.

He added that the euro zone would remain a cornerstone of the international economy and that euro zone leaders had "clearly understood that the time of partial solutions and piecemeal reform is over".

He underscored the bloc's decision to give the ESM permanent bailout fund the ability to capitalize banks directly, a move he described as "crucial to break the vicious circle between banks and sovereigns that is at the heart of the crisis".

In addition he said short-term measures were clearly needed to help growth and soften the blow from austerity.

Jul 20, 2012 15:03

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OctaFx -Oil prices rise as ECB head vows to save euro

Oil prices rise as ECB head pledges to do what's necessary to protect euro

The price of oil rose after the head of the European Central Bank vowed to protect the currency used by 17 countries in the financially strapped region.

Europe's worsening debt crisis has raised speculation that the central bank will act to promote economic growth. A stronger economy would boost demand for oil and other energy products.

Demand for oil in Europe has dropped as some countries have fallen into recession. Earlier this month, the International Energy Agency estimated oil demand in Europe this year at 14.6 million barrels a day, down from 15 million last year. The European Union accounts for about 16 percent of global oil use.

At an investment conference in London, ECB President Mario Draghi pledged Thursday to do "whatever it takes to preserve the euro." He also suggested that the bank could act to lower escalating borrowing rates for financially troubled countries like Spain and Italy.

Benchmark oil rose 39 cents to $89.36 per barrel in New York after earlier topping $90 per barrel. Brent crude, which is used to price international varieties of crude, gained 46 cents to $104.84 per barrel in London after earlier hitting $106.18 per barrel.

U.S. stocks and gold also surged.

Concerns have intensified that Spain may need a financial bailout package, similar to those given to Greece, Ireland and Portugal because its borrowing rates are high. That would strain Europe's finances because Spain's economy is the fourth largest among the countries that use the euro.

Draghi's comments marked a reversal from his position over the past few months. He had been insisting that it was up to the governments to restore confidence in the euro.

Price Futures Group Phil Flynn speculated that oil prices couldn't hold the earlier gains because of a lack of specifics in Draghi's remarks. "Once again...the market is moving on what we think we know but we really don't know," Flynn said. "What does he mean by that statement that we'll do 'everything it takes?'"

In other trading, natural gas prices were flat at $3.05 per 1,000 cubic feet after the government said the nation's supply expanded last week. Natural gas inventories were 15.8 percent more than the five-year average as of July 20.

Heating oil rose 2 cents to $2.87 per gallon and gasoline futures gained 3 cents to $2.74 per gallon.

At the pump, the national average for gasoline rose less than a penny overnight to $3.49 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's about 5 cents more than a week ago but still 20 cents lower than last year at this time

Jul 26, 2012 15:23

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OctaFX.Com -Euro strengthens after Draghi comments

Euro jumps vs dollar after ECB head Mario Draghi says the bank will save the single currency

NEW YORK (AP) -- The euro rose sharply against the dollar Thursday after the head of the European Central Bank said the ECB would do whatever it took to save the single currency.

The euro jumped to $1.2286 late Thursday from $1.2160 late Wednesday. It rose as high as $1.2329, its highest point against the dollar in over two weeks.

Mario Draghi was speaking Thursday at a global investment conference at the Olympics. His comments sent stocks in the U.S. and Europe sharply higher.

Fears that Spain and Italy may need to be rescued have intensified in recent weeks. Spain's economy, the euro zone's fourth-largest, may be too big for Europe to save. Draghi's comments helped ease those concerns.

The dollar was mixed against other currencies.

The British pound rose to $1.5690 from $1.5511. The dollar fell to 0.9775 Swiss franc from 0.9878 Swiss franc and to 1.0097 Canadian dollar from 1.0145 Canadian dollar.

Jul 26, 2012 15:41

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German gloom pressures shares, central banks eyed

LONDON (Reuters) - A gloomy assessment of the business climate in Germany kept European shares under pressure on Monday, but moves were capped ahead of a meeting of central bankers at the end of the week which could point toward fresh stimulus measures.

The latest Ifo index, which is compiled from a survey of some 7,000 German firms on economic conditions, fell in August to its lowest level since March 2010 as the euro zone crisis and a slowdown in China took their toll.

"It looks as if the German economy will, at best, be treading water in the coming months," Carsten Brzeski, senior economist at ING.

The euro zone's blue chip Euro STOXX 50 index <.STOXX50E> was down about 0.1 percent after the Ifo data at 2,431.10 points, although volumes were thin as the British market, Europe's largest, was shut for a public holiday.

The main German stock index (.GDAXI) was little changed, recovering some of its earlier losses, as some of the Ifo institute's findings were not as bad as many feared.

The euro also rose to $1.2530 after the Ifo survey was released, up 0.15 percent on the day, but was holding below a peak of $1.2590 set last Thursday.

Analysts said the weaker outlook in Europe's biggest economy could also support political efforts to find a solution to the region's fiscal crisis, in part by supporting arguments made by German Chancellor Angela Merkel and European Central Bank President Mario Draghi.

"The declining growth rate in Germany shows that the country is not immune from the general slowdown in Europe and outside Europe," said BNP Paribas economist Dominique Barbet.

"This could help Merkel and Draghi convince German people that more efforts to support the euro zone are necessary and are in the interest of Germany."

TIGHT RANGES SEEN

But risk assets were expected to stay in a tight range this week as investors watch for clues on the next steps to tackle the euro area's debt crisis, and wait to see what emerges from a key gathering of central bankers at Jackson Hole, Wyoming on Friday.

ECB chief Draghi signaled earlier this month that the bank may start buying government debt to reduce crippling Spanish and Italian borrowing costs, comments that fuelled a broad-based upturn in sentiment on global markets.

However, over the weekend the powerful German Bundesbank chief Jens Weidmann likened the ECB's bond-buying plans to a dangerous drug, pointing to mounting unease over the policy.

Markets have also been unsettled by rising talk of a Greek euro zone exit which have bubbled up again in recent days [iD:nL5E8JQ6JZ]

With the ECB's next policy meeting not until September 6, most attention is now on Friday's central bankers meeting, and a speech that day by U.S. Federal Reserve chairman Ben Bernanke.

Talk of more accommodative monetary stance from the Fed has grown in the wake of data showing the U.S. economy struggling under the twin impact of the euro zone crisis and a slowing Chinese economy.

The speculation has helped the FTSEurofirst 300 index of top European shares (.FTEU3) rise by about 7 percent in August, while the S&P 500 index (.SPX) is up around 2.3 percent.

On Monday, gold was at its loftiest levels since mid-April, at around $1,676.45 an ounce, due to the strength of the view that a further monetary easing from the Fed is imminent.

Oil has also risen sharply, with Brent climbing above $115 per barrel on Monday, although it was also given a lift from supply concerns as Tropical Storm Isaac threatened to interrupt most U.S. offshore oil production in the Gulf of Mexico.

Aug 27, 2012 07:43

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OctaFX.Com - Draghi: No going back to old euro ways

ECB head says euro's original setup unworkable, but needed fixes are "within reach"

FRANKFURT, Germany (AP) -- European Central Bank head Mario Draghi says the euro's original setup was unworkable and there's no going back — but argues that ways to fix the 17-country shared currency are within reach.

European officials don't need to set up a complete political union but can repair the currency union through less drastic steps such as stricter central oversight of national spending and tougher scrutiny of banks.

Draghi says in an opinion piece published in a German newspaper that the euro's original 1999 setup — one currency shared by countries that only loosely coordinate their economies — has been discredited by the debt crisis.

Draghi says budget oversight is needed because "the consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed."

Aug 29, 2012 10:09

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Merkel says "absolute political will" to stabilize euro

BEIJING (Reuters) - The euro zone has an "absolute political will" to stabilize the single currency, German Chancellor Angela Merkel said on Thursday after talks with Chinese Premier Wen Jiabao in Beijing.

On a trade row with China over imports of solar modules, Merkel said Germany was not planning a lawsuit against China and that both sides should try to solve the problems through talks. She added that the German government would seek to convince the EU of her approach.

Aug 30, 2012 05:43

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OctaFX.Com -Merkel in control despite allies' Greek cacophony

Merkel allies indulge in sharp rhetoric on Greece, but German chancellor's footing looks firm

BERLIN (AP) -- Chancellor Angela Merkel wants the Greeks to keep the euro. Her vice chancellor says it wouldn't be so bad if they abandoned the common currency. Another ally says Greece should leave the euro club within months.

Merkel's image abroad may be that of Europe's determined taskmaster, but at home the picture has long been less clear: Her coalition government has become notorious for infighting over a range of issues. At first glance, the cacophony over Greece fits that picture — but it shouldn't be mistaken for policy drift.

The chancellor still appears in control of the delicate balancing act she has performed for two years: to help struggling countries that accept tough budget cuts and reforms while convincing Germans she is defending their interests — and wallets.

This week, a prominent lawmaker from a party allied with Merkel made headlines when he declared that Greece should leave the eurozone in 2013 — flatly contradicting Merkel. His party backed down from such talk after she said in a television interview that politicians should "weigh their words."

Her personal popularity and reassuringly level-headed image, along with the opposition's reluctance so far to pick a serious fight, still give her room for maneuver against domestic pressure and foreign governments anxious for Germany to bail out weaker European economies.

Manfred Guellner, head of the Forsa polling agency, said that "people appreciate Merkel and in the end go along with her course" in hopes that the economic problems gripping much of Europe won't affect their lives.

Merkel's government insisted on tough conditions in return for German, and European, support for eurozone strugglers such as Greece and the two other countries that have received bailouts, Ireland and Portugal. With borrowing costs for Italy and Spain worryingly high, more such aid is likely to lie ahead.

Her diligence in demanding budget cuts and structural reforms as the price for German aid may be unpopular in Greece or Italy but it plays well among German voters.

"I think Merkel, whatever she does, will get a majority because the (opposition) Social Democrats and Greens also have to be statesmanlike," he said.

Merkel hasn't come close yet to losing any parliamentary vote on eurozone rescue measures. Although more than 20 coalition lawmakers voted in June against setting up a permanent European rescue fund, she had solid support in the 620-member parliament, with much of the opposition in favor.

The three-year-old coalition of Merkel's conservative Christian Democratic Union, its Bavarian sister, the Christian Social Union, and the pro-market Free Democrats has squabbled endlessly and inconclusively over issues as diverse as tax cuts, privacy laws and highway tolls.

The bickering extends to policy regarding the European debt crisis.

But on Europe, there's a key difference in that the center-right alliance agrees on the broad outline: It's united by distaste for pooling Germany's debt with that of southern strugglers and of making open-ended commitments to help them with economically sound Germany's check book. The opposition — as well as many private economists — argues for pooling debt.

Coalition lawmakers broadly agree that Greece shouldn't have more aid money on top of the two €240 billion ($300 billion) bailout packages of which Germany has been a key financier and that Athens shouldn't be given more time to meet its reform commitments.

Bailing out Greece was never popular in Germany, and frustration with Athens is rising.

Raising questions over Greece's future in the euro offers hopes of political gain to some in Germany's two junior coalition parties, which both face domestic political challenges, though Guellner cautioned that "no party in Germany has ever been able to score points with the euro and the issue of Europe."

The Free Democrats won nearly 15 percent of the vote in Germany's 2009 election, but have slumped to around the 5 percent needed to win seats in Parliament — a contrast with the solid ratings of Merkel's CDU, which consistently leads polls.

Their leader, Vice Chancellor Philipp Roesler, has struggled to turn around their fortunes.

Roesler irked Merkel last fall by talking about the possibility of an "orderly insolvency" for Greece, ignoring heavy hints from the chancellor to drop the subject.

This summer, he said a Greek exit from the euro had "lost its horror." Roesler didn't explicitly call for Greece to leave and Merkel let that pass without comment.

She clearly wasn't amused, however, by a new broadside from the CSU that comes as it prepares for important local elections in Bavaria next year.

Just a day after Merkel asserted, while standing next to Greece's prime minister, that she wants Greece to stay in the eurozone and that others in the coalition do as well, CSU general secretary Alexander Dobrindt was quoted as telling the mass-circulation Bild am Sonntag newspaper that "there is no way past a Greek exit from the Eurozone." He added: "I see Greece outside the Eurozone in 2013."

Aug 30, 2012 06:47

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OctaFX.Com - Australian Dollar Rallied as RBA Kept Rate Unchanged, Global Demand Slows

THE TAKEWAY: RBA kept benchmark lending rate unchanged at 3.50% > RBA concerned over European and Chinese slowing > Australian Dollar rallies after selling off heavily since Aug 9

The Australian Dollar traded higher versus the U.S. Dollar as the Reserve Bank of Australia left their benchmark lending rate unchanged at 3.50% in August. Governor Stevens cited in his statement that “economic activity in Europe is contracting” and that “growth in China remained reasonably robust” through the year, however the “robust” growth appears to have weakened when compared to growth from prior years.

Moreover, Stevens further states that “some commodity prices of importance to Australia have fallen sharply.” Falling commodity prices may perhaps be the single most important concern to the Aussie economy as it signals a key tell on the flagging European growth story. Australia exports iron ore to China and China then uses the ore to produce steel which is subsequently sold to Europe. The slowdown in Europe has resulted in decreased demand for Chinese steel which invariably leads to a commensurate drop-off in demand for Aussie resources. The process ultimately results in less wealth flowing into the Aussie economy. Stevens provides further support by stating “growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.”

The Australian Dollar likely rallied in relief to the larger selling pressure that has broadly taken place since August 9 where the pair lost 3.67 percent versus the greenback over the period.

Sep 04, 2012 05:25

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OctaFX.Com - Euro Looks to EU Chatter for ECB Clues, Dollar May Rise on ISM Data

Talking Points

  • EU Policymakers’ Comments in Focus Before ECB Rate Announcement
  • Dollar May Rise if Stronger ISM Print Weighs Against Fed QE3 Outlook
  • Australian Dollar Gains as RBA Signals No Hurry to Resume Rate Cuts

A quiet economic data calendar in Europe will shift the spotlight to the speaking docket. European Commission President Jose Manuel Barroso is scheduled to speak in Brussels while EU President Herman Van Rompuy meets Germany

Chancellor Angela Merkel and Italy’s Premier Mario Monti sits down with French President Francois Hollande. Traders will monitor regional leaders’ remarks for clues about the possibility that the ECB is preparing to unveil details of its highly anticipated bond-buying scheme at this week’s policy announcement. Signs of progress on this front may help to boost the Euro in the near term, although ultimately the ECB seems likely to disappoint this time around.

The spotlight then turns to the ISM Manufacturing report, which is expected to show the US factory sector held up in August after activity contracted in the preceding two months. Markets are likely to interpret the result through the prism of Fed stimulus expectations after Ben Bernanke was seen as giving a nod to QE3 at the Jackson Hole Symposium last week. The Chairman didn’t give explicit guidance but laid out a case for the benefits of nonstandard policy and stressed the importance of achieving “further progress” on economic growth and job creation, adding that the Fed will provide additional help “as needed”. With that in mind, an upside surprise may weigh on risk appetite while boosting the US Dollar as hopes for accommodation fade, and vice versa.

The Australian Dollar outperformed in overnight trade after the RBA opted to keep interest rates unchanged at 3.50 percent as expected. Governor Glenn Stevens reiterated familiar rhetoric in the statement accompanying the announcement, saying that “the stance of monetary policy remain appropriate” at below-average levels given a subdued international outlook despite growth tracking close to trend and inflation close to target.

The remarks suggested the RBA remained in wait-and-see mode, with policymakers in no hurry to resume interest rate cuts.

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Sep 04, 2012 08:50

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OctaFX.Com -Euro edges lower ahead of ECB meeting

LONDON (Reuters) - The euro dipped against the dollar and European shares edged up on Wednesday with investors trading cautiously ahead of a European Central Bank meeting and a U.S. jobs report.

Markets have been expecting ECB President Mario Draghi to unveil a bold plan to tackle to the euro zone's debt crisis at Thursday's meeting, but public disputes among policymakers over the extent of the measures have begun to sow doubts.

Friday's jobs report will provide a reading on the health of the world's largest economy after other data pointed to a global slowdown in manufacturing.

"We might not get all the details about the ECB bond buying plan tomorrow, but we know it's coming, so it's priced in. Now the question is: how bad is the situation in the U.S. economy? We'll get a better idea on Friday with the payrolls," David Thebault, head of quantitative sales trading, at Global Equities.

The single currency was down 0.25 percent at $1.2530, off its Tuesday's high of $1.2629 but not far from Friday's high of $1.26378.

The caution gripping investors ahead of the ECB meeting saw share markets across Europe open lower with the FTSE Eurofirst index (.FTEU3) of top

European shares down 0.1 percent at 1080.30 points.

Germany will sell 5 billion euros of new 10-year bonds with a record low coupon of 1.5 percent later in the session and the sale will give an indication of how concerned investors are about the outlook. German Bund futures were 10 ticks higher at 143.60 ahead of the sale.

Signs of slower factory activity across the United States, Asia and Europe during August have heightened fears about health of the global economy, although this has raised hopes of central bank action to ease monetary policy.

Those hopes kept oil prices near $114 a barrel and gold near a six month high at $1,691.64 an ounce.

Sep 05, 2012 07:55

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OctaFX.Com -Greece Needs to Leave Euro: Economist

Greece needs to leave the euro and reintroduce its own currency if it wants to get back on its feet and return to growth, Manfred Neumann, Professor of Economics at the Institute for Economic Policy at the University of Bonn told CNBC on Wednesday.

The country's dominant tourism industry and exporters simply cannot recover by lowering prices and wages, he said.

"It has to be done by devaluation and therefore they need their own currency," the professor of international economics who supervised German Bundesbank chief Jens Weidmann's 1997 doctoral thesis said.

A decision on whether Greece will receive further aid from international creditors to cover its funding needs will be taken in October. The country needs to demonstrate it is committed to implementing a series of economic reforms.

Other countries may also need to leave, Neumann said, adding that under a very negative scenario in which he does not believe, the entire southern region could have to leave the euro.

"Now with respect to the other countries, I would say... if we are very negative... I'm an optimist, but if you [are] a pessimist, you would say possibly - over the next ten to fifteen years, the whole south has to leave," he said.

Spain had not been governed well, both under its previous socialist government and under the current conservative government, he added. Its high level of unemployment - historically above many of its European peers and now at a staggering 24 percent - could have been tackled ten to fifteen years ago, according to Neumann.

He expressed concern over the European Central Bank's response to the crisis in comments which showed his support for Weidmann, who clashed with the

ECB's chief Mario Draghi over a new bond buying program.

One newspaper report suggested last week that Weidmann was considering stepping down from the ECB board. The Bundesbank chief opposes the program, which is aimed at lowering borrowing costs for heavily-indebted countries facing high borrowing costs, such as Spain and Italy, arguing that the move amounts to a form of monetizing debt, which is illegal.

Echoing this view, Neumann said: "The problem is a change in the whole trend of policy making because up till now, it was forbidden. It was a rule not to buy bonds."

"The understanding when they started in 2010 was... well we have to buy some bonds simply to keep the market floating, to keep them flexible, but meanwhile, it's clear this is not the idea," he said.

He believes the move now amounts to outright support for southern European governments and that it endangers the euro.

He also saw no reason to support the idea of a banking license for the new permanent european bailout fund, the European Stability Mechanism or ESM, allowing it to tap funds from the ECB.

"No, the ESM should not get a banking license because if the ESM gets this license, it would mean the ESM can borrow as much central bank money from the ECB as ESM wants to. And that would mean monetary policy would effectively [be] handed over from the ECB to ESM. That can't be," he said.

Sep 05, 2012 11:00

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OctaFX.Com - Is Now the Time to Buy Australian Dollar?

 

The Australian Dollar has fallen sharply off of its $1.0610 peak seen through August, but does the 400+ pip decline offer a buying opportunity?

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- Overnight economic data shows the Australian economy failed to accelerate, pointing to downside risks for the Australian Dollar itself.

- Our weekly trading forecast shows Australian Dollar is at clear risk as futures positioning remains extremely one-sided

- Australian Dollar may have topped amidst clear market complacency

The DailyFX Argument for Australian Dollar Long Positions:

- The Reserve Bank of Australia boosted the AUDUSD as it kept interest rates unchanged, giving hope that the Aussie currency would maintain its substantial interest rate advantage versus major counterparts.

- Highly-correlated Gold and Silver prices have broken key technical resistance, offering AUD support.

- Key Fibonacci support may offer an important AUD price floor at $1.0100

Conclusion:

Substantial Australian Dollar declines offer an attractive price at which to get long, but traders should be careful of clear fundamental risks to the AUDUSD currency.

Proprietary Speculative Sentiment Index data likewise shows that the vast majority of retail traders have gotten long the AUDUSD amidst one-sided price moves. There are currently 2.2 traders long Aussie Dollar for every one that is short—a level that has historically coincided with further AUDUSD weakness.

Reward/risk on AUDUSD longs looks attractive, but we can’t advocate joining the retail trading crowd in getting long the fast-falling Australian Dollar.

Sep 05, 2012 13:00

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OctaFX.Com - Asia stocks rally on Europe central bank debt plan

British Pound At Risk Amid Weakening Labor Market, Slowing Trade

BANGKOK (AP) -- Asian stock markets surged Friday, boosted by a highly anticipated European plan to lower the borrowing costs of debt laden Spain and Italy.

Markets shot higher after the European Central Bank announced it was creating a new bond-buying program under which the bank will buy government bonds with maturities of one to three years. There will be no limits to the amount of purchases it can make.

The program — the ECB's most ambitious yet in efforts to halt Europe's financial crisis — is intended to keep the short-term borrowing rates of countries such as Italy and Spain at manageable levels, giving them time to enact debt reduction measures and economic reforms.

Large-scale purchases of short-term government bonds by the ECB are expected to drive prices up while pushing down their interest rates, making it less expensive for financially strapped countries to borrow.

Japan's Nikkei 225 index surged 2 percent to 8,850.49. Hong Kong's Hang Seng jumped 2.4 percent to 19,663.92 and South Korea's Kospi bolted up 2.4 percent to 1,926.42. Australia's S&P/ASX 200 rose 0.2 percent to 4,322.30. Benchmarks in Singapore, Taiwan, Indonesia, New Zealand and Thailand also rose.

Mainland Chinese shares soared. The benchmark Shanghai Composite Index jumped 4.2 percent to 2,138.02 while the smaller Shenzhen Composite Index added 4.2 percent to 895.27.

Wall Street surged Thursday after the plan was announced. The Standard & Poor's 500 index soared to its highest level since January 2008, and the Dow Jones industrial average hit its highest mark since December 2007.

"Hong Kong market is in a very good mood today because of the rally from the Wall Street which is triggered by the ECB new unlimited bond purchasing program announced last night," said Jackson Wong, vice president of Tanrich Securities in Hong Kong.

"Now investors are getting more confidence that the ECB might be able to handle the current situation again. The euro went up above $1.26 and the ten-year bond yield of Italy and Spain went down significantly."

Spain's interest rate on its 10-year bond was down 0.3 percentage points at 6.12 percent after the ECB announcement. Italy's 10-year rate was down 0.1 percentage points at 5.33 percent.

And in an encouraging sign for the American job market, a report from the payroll processor ADP said Thursday that businesses added 201,000 jobs last month, the most reported by the survey since March.

Separately, the Labor Department said the number of people applying for unemployment benefits fell by 12,000 last week to 365,000. That figure won't affect the August jobs report, due out Friday, but could be a sign of better hiring this month.

Japan's powerhouse export sector — with many companies heavily dependent on European sales — enjoyed strong gains. Honda Motor Corp. rose 4.4 percent, and Toshiba Corp. jumped 6 percent. Heavy equipment maker Komatsu Ltd. added 4.9 percent.

Gains in South Korea, meanwhile, were driven by tech shares. Samsung Electronics Co. rose 4.4 percent and LG Electronics added 2.7 percent. SK Hynix Inc. soared 7.7 percent.

Chinese property shares soared. Hong Kong-listed Evergrande Real Estate Group surged 7.1 percent and Shanghai-listed Poly Real Estate was 6.6 percent higher.

Benchmark oil for October delivery was down 63 cents to $94.90 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 17 cents to finish at $95.53.

In currencies, the euro fell to $1.2635 from $1.2643 late Thursday in New York. The dollar fell to 78.92 yen from 78.95 yen.

Sep 07, 2012 02:44

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OctaFX.Com -German media warns unlimited ECB aid could ruin euro

BERLIN (Reuters) - Germany's conservative newspapers on Friday accused ECB chief Mario Draghi of writing a "blank cheque" to troubled euro zone states that could put the entire currency at risk, with top-selling Bild warning his policies could make the euro "kaputt".

The Italian president of the European Central Bank unveiled a new plan on Thursday to lower the borrowing costs of euro zone states like Spain and Italy by buying their bonds.

Germany's central bank opposes the ECB's move. Chancellor Angela Merkel has supported Draghi while insisting Bundesbank chief Jens Weidmann's public criticism of the bond-buying has been useful too.

For the country's conservative newspapers, many of which have taken an increasingly euro-sceptic stance as the three-year-old euro zone debt crisis wears on, Draghi's latest measures went too far.

"Help without end for crisis countries," said Bild on its front cover, adding that Draghi had signed a "blank cheque" and that his policy endangered the independence of the ECB. It cited German politicians saying the ECB had gone beyond its mandate of safeguarding the stability of the currency.

"Draghi sets off Germany's alarm bell," was the headline in the conservative daily Die Welt.

Business daily Handelsblatt, which often voices concern at the financial burden of the bailouts on German taxpayers and business, had a cover story on "the Rise, Fall and Resurrection of the Bundesbank" and gave prominence to Weidmann's warnings.

Inside, Handelsblatt criticized "the democratic deficit of the euro rescuers" - and linked the ECB's chosen path to next week's ruling by Germany's Constitutional Court on the legality of the euro zone's new bailout mechanism and budget rules.

The Frankfurter Allgemeine Zeitung, a sounding board for Germany's monetary hawks, wrote that "the border between monetary and fiscal policy has been blurred" and called the argument that bond-buying was within the ECB's mandate "far-fetched".

Finance Minister Wolfgang Schaeuble, attending an awards ceremony for Draghi late on Thursday, reiterated the government line that using monetary policy to solve the euro zone's fiscal problems could not be a permanent solution.

But senior Merkel MPs like her deputy floor leader Michael Fuchs insisted the ECB was acting within its mandate, telling Reuters:

"As long as there is conditionality, it is okay."

Sep 07, 2012 07:37

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OctaFX.Com -Analyst Interview: Christopher Vecchio on the Fed, Canadian Dollar Strength

The big question of the week is if the Fed will launch QE3. What do you think? If the Fed will indeed act, how could they explain their actions? Yields are already very low.

Moving beyond the headlines you see from the media, we need to consider what Chairman Bernanke said at the Jackson Hole Economic Policy Symposium: that nontraditional monetary tools have worked in the past, and the Fed is still open to using them, but there is growing concern among policymakers that implementation of programs previously used might have diminishing returns.

That last part is key for the narrative right now, with US equity markets at multi-year highs and Treasury yields hanging around near all-time lows: what more will unsterilized bond purchases do?

There’s additionally been talk about the Fed implementing some sort of open-ended bond-buying program that keeps the pedal on balance sheet expansion until certain benchmarks in key economic indicators (growth, inflation, labor market) meet predefined levels. Perhaps this is an option; given Chairman Bernanke’s modus operandi in recent years – limited balance sheet expansion and definitive targets for maturity extension programs (QE-Twist) – this would represent a new form of quantitative easing that the Fed hinted at in the July 31 to August 1 meeting Minutes.

I’d like to think that the Fed would implement an entirely different type of program, aimed more specifically at helping the housing sector and the labor market. This would have to fit in the scope of the United States’ consumer-based economy. Anything that would boost disposable income – especially in the face of tax hikes should the fiscal cliff come at the beginning of the near year – would be most beneficial. Although it’s a bit of a counterfactual argument, I tend to think that previous large scale asset purchases (LSAPs) (QE1) and unsterilized bond purchases (QE2) have had little influence over labor market conditions. Many tend to think this is the case as well; that’s part of the reason Chairman Bernanke had to defend nontraditional policy responses at Jackson Hole.

Spain is taking its time with asking for aid, perhaps it is wary of having to undertake more austerity measures. Do you see a possibility that Spain will receive a "soft bailout" or "precautionary program" as the ECB mentioned?

I think that the German ratification of the European Stability Mechanism (ESM) leaves void any risk-positive catalysts out of the Euro-zone over the coming weeks. The idea that Spain will receive some ‘white glove’ sort of treatment beyond the already agreed upon framework is asking a bit much from a reluctant core (still) at this point (though we do note that tones have softened in Germany and in Holland). This concept of conditionality is obviously a big concern because it means that any bond-buying the European Central Bank wants to undertake will not come without international budgetary oversight – just like in Greece. If Spain doesn’t agree to new measures, then it won’t receive bailout funds, and the ECB will stay on the sidelines, pushing borrowing costs back up. It remains to be seen how long the market buys cheap talk from Spanish Prime Minister Mariano Rajoy that Spain will seek help if yields rise, but I doubt it will be more than a few weeks maximum.

Japan has published more disappointing figures, including lower growth and a lower than expected current account. Do you see the yen suffering from weak figures? Or will its moves remain prone to risk on / risk off moves?

While the Japanese Yen is under pressure in its own right given weak economic data, the big picture is that of the big three safe havens (alongside the Swiss Franc and the US Dollar), the Japanese Yen is the best option available. This keeps the focus on the Yen as a proxy to ‘risk-on’ or ‘risk-off’ news. Keeping it short and simple, if the Fed doesn’t undertake a massive bond-buying program that diminishes yields on the Treasuries underpinning the US Dollar, the Bank of Japan will relieve a massive sigh of relief. If the Fed does a QE3-type program (see prior comments), I’d expect the BoJ to be very vocal and active in the markets with its own currency dilution response.

EUR/CHF woke up from the dead and began moving. Is it a result of the euro's rise? Or could the SNB also be behind this move? Do you see the Swiss franc returning to trading independently of the euro?

Rumors were floating around late last week that the Swiss National Bank was readying to raise its floor to 1.2200 in response to the ECB’s new debt monetization scheme (using sterilized bond purchases to lower borrowing costs in Italy and Spain), as the perceived uptake of peripheral debt would pressure the Euro and boost demand for the Swiss Franc.

Although the EURCHF has traded lower in the past few days since the initial spike up towards 1.2200, the SNB’s decision will force a decisive move in either direction: the EURCHF, in my opinion, will be sitting comfortably above 1.2200 or back riding 1.2000 by the end of the day Thursday. A removal of the floor seems unlikely at present time, but it is not something to be ruled out in the future if the crisis eases; the SNB’s foreign currency reserves are heavily weighted towards the Euro and some diversification would do the bank some good.

The Canadian dollar enjoyed rising oil prices, strong employment figures and also hopes of QE3. What could risk the strength of the loonie?At present time…nothing. The Canadian Dollar is a fundamentally strong currency, with both fiscal and monetary policymakers offering prudent guidance that has kept the country well-insulated from financial shocks in the US, Europe, and China over the past four-years. With recent housing data coming in better than expected amid slowing inflation rates, there’s clearly scope for further strength in the Canadian housing sector that could in return buoy the labor market. Right now, the only thing far enough out in the future to consider would be a dramatic ending to the US fiscal cliff situation, as the US as

Canada’s largest trading partner would likely slow imports, damaging the Canadian economy. Fiscal cliff aside, there are few things standing in the way for a strong finish to the year by the Canadian Dollar.

Sep 13, 2012 04:00 AM

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OctaFX.Com -Euro Falls Most in 8 Days - Time to Buy the Dip?

The Euro has lost the most versus the US Dollar (ticker: USDOLLAR) in eight days. Is this the start of a larger pullback or a good buying opportunity? Here are two reasons for why the EURUSD might bounce:

Pros that favor a Euro bounce against the US Dollar

Euro correction in line with what was expected, important EURUSD level at 1.30 offers support

The US Dollar downtrend is intact, and we favor selling as retail crowds remain heavily long

We can’t ignore risks that this could be the start of a long-awaited EURUSD correction, however, and we see two key reasons for which this could be the start of a larger US Dollar bounce.

 

Cons against buying into the Euro/US Dollar decline

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US Dollar may continue to strengthen as Aussie and Euro lead way lower

The US S&P 500 nears a possible reversal, and highly-correlated EUR could decline

We ultimately view a break below the $1.30 mark as somewhat unlikely, and indeed favorable reward to risk on a long position is enough of a reason for this author to take a long EURUSD position against the key level.

Sep 18, 2012 01:45 PM

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OctaFX.Com -Italy, Greece insist on safeguarding eurozone

Italy, Greece insist on safeguarding eurozone as Greece tries to finalize critical cuts

ROME (AP) -- The leaders of Italy and Greece are insisting on the "absolute need" to preserve the eurozone, as Greek politicians struggle to put together an austerity package critical to the country's financial survival.

Italy's Premier Mario Monti met Friday with Greek Prime Minister Antonis Samaras on the sidelines of a political conference in Rome.

A statement from Monti's office said the two leaders reiterated their conviction of "the absolute need to safeguard the integrity of the eurozone, stabilize markets and proceed in the process of European integration."

Samaras' coalition government has yet to agree on the final list of €11.5 billion ($15 billion) worth of cuts so the country can get bailout cash. Without the money, Greece might default and abandon the euro, unleashing new financial gloom across the continent.

Monti was later meeting the leaders of Ireland and Spain.

Meanwhile, Greece's bailout creditors said they are taking a "brief pause" of about one week in talks regarding the country's new austerity program, saying that "good progress" has been made so far.

The officials from the so-called troika of the International Monetary Fund, the European Union and the European Central Bank, also said in a statement that they will continue contacting the Greek officials from their headquarters during that time. The announcement followed talks with Greek Finance Minister Yiannis Stournaras.

An official at the ministry said the departure of the troika representatives from Athens is not significant since they had not initially planned to stay beyond the end of the week.

The debt inspectors from the IMF, EU and ECB have been meeting senior Greek officials since early September, ahead of a crucial progress report that will determine whether Greece keeps receiving vital rescue loans.

But weeks of deliberations among the three parties in Greece's fragile, conservative-led governing coalition have failed to produce an agreement on the final list of cutbacks.

The Greek official, who spoke on condition of anonymity, said Athens hopes to have the list ready by the time the troika inspectors return. He said an agreement was reached earlier this week with the troika on some €9 billion ($11.7 billion) worth of cutbacks — which will include an estimated €1.1 billion ($1.4 billion) from raising the average retirement age from 65 to 67.

He said that in addition to the €11.5 billion cutbacks, which will mostly come from pension and salary cuts, the troika also wants Greece to increase its state revenues by some €2 billion over the next two years.

Greece has depended on international rescue loans since May 2010, and in return imposed a harsh austerity program that saw incomes slashed, taxes repeatedly hiked and the retirement age increased to 65. The belt-tightening, amid a deep recession and high unemployment, has sparked a wave of strikes and often violent demonstrations.

Sep 21, 2012 10:10 AM

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OctaFX.Com - Australian Dollar Correction Could Be Over if Risk Trends Permit

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The Australian Dollar had a mediocre week, shedding -1.17% against the top performer, the Japanese Yen, while gaining +0.26% against the worst performer, the Euro. The AUDUSD dropped back by -0.89% as price action was largely dictated by two main themes: a US Dollar rebound; and deteriorating sentiment on China.

With respect to the first point, it looks like the initial reaction to the Federal Reserve’s unlimited quantitative easing program was largely priced in, and an overextended market from a technical perspective warranted a pullback. In terms of the second, data was mediocre at best out of China, but commodity prices tied to Chinese growth – Copper and Iron Ore – were relatively steady. We believe that base metals will be a strong guide for the Australian Dollar (considering that Iron Ore is Australia’s top commodity export), and as long as they remain strong, with the Fed priming the liquidity pump, the Australian Dollar could strengthen going forward. However, this may not be that week, we now hold a neutral outlook for the Aussie until global risk trends pick up.

In terms of data out of Australia this week, there’s not much by way of the economic docket that could really provoke a breakout from its current trend: weak in the short-term, but strong in the medium- and long-term. There is one data release that is of interest, however. On Friday, the Private Sector Credit report for August will be released. According to a Bloomberg News Survey, credit grew at a pace of +0.3% on a monthly-basis, from +0.2% m/m in July. On a yearly-basis, credit growth was up by +4.3% in August from +4.2% y/y in the prior month. If Private Sector Credit is improving as predicted, the Australian Dollar could see a boost.

Looking at the calendar going into the first week of October, we note that there’s a Reserve Bank of Australia Rate Decision coming up on October 2. We thus suspect this will start to drive the Australian Dollar by mid-week. According to the Credit Suisse Overnight Index Swaps, there is a 62.0% chance of a 25.0-basis point rate cut, with 90.0-bps priced out over the next 12-months. Earlier this week, there was a 70.0% chance of a 25.0-bps rate cut, up from a 40.0% chance last Friday. These rate expectations ahead of the RBA are important to watch: if they show a greater likelihood of a rate cut, the Australian Dollar will depreciate.

Given the psychology surrounding the Australian Dollar and China right now, any positive signs out of either country could provide some much needed relief; and if US equity markets rally again, so too will the Aussie.

Sep 22, 2012 01:27 AM

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OctaFX.Com - British Pound Looks to Spain Event Risk, US Data for Direction

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A limited stock of noteworthy homegrown event risk leaves the British Pound at the mercy of larger market themes in the week ahead. Broadly speaking, traders remain primarily concerned with quantifying the degree of slowdown in global economic growth over the coming quarters as well as financial stability in the Eurozone.

On the growth front, US economic performance is in the spotlight once again. Consensus forecasts continue to suggest output growth will accelerate in the world’s top economy this year, all the while Europe sinks into recession and Asia posts a meaningful slowdown. This means investors remain focused on establishing the extent to which a firmer US recovery can offset headwinds elsewhere in formulating a reading on global growth trends.

Data compiled by Citigroup suggests US economic data has tended to increasingly outperform expectations over the past three weeks. With Fed stimulus speculation no longer factor after this month’s FOMC outing, similar outcomes this time around are likely to be interpreted directly in terms of their implications for global output.

That means positive results are likely to be supportive for risk appetite and lift the British Pound against established havens like the US Dollar and Japanese Yen. By contrast, weakness can be expected against higher-yielding and sentiment-sensitive counterparts, particularly in the commodity bloc (Australian, Canadian and New Zealand Dollars). Needless to say, softer outcomes are likely to produce the opposite scenario.

Turning to the Eurozone, all eyes are on Spain. The government of Prime Minister Mariano Rajoy will present its 2013 budget to Parliament on Thursday and publish stress test results for the country’s banks on Friday. The former announcement may pave the way for a formal bailout request by the Eurozone’s fourth-largest economy, a colossal undertaking in its own right that will be made all the more noteworthy in that it activate the ECB’s new bond-buying scheme. The latter will be used to gauge whether the €100 billion EU aid package to rescue Spanish lenders will prove sufficient.

The British Pound continues to play the role of a regional alternative to the Euro at times of sovereign stress, with a Bloomberg index of the Pound’s average value showing a significant correlation with the Spanish 10-year bond yield (a measure of funding stress). That means another flare up of sovereign risk jitters triggered by Spanish event risk is likely to send Sterling higher against the single currency, and vice versa.

The risk appetite implications of Euro crisis developments are likely to follow the same dynamic as when US data is the catalyst du jour.

Sep 22, 2012 01:29 AM

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OctaFX.Com -Forget Euro and Pound - What About Local Currencies?

German Chancellor Angela Merkel maybe be trying her utmost to keep Greece in the euro, but a high school teacher from Bavaria may have found a better solution and is pitching the idea to Greek politicians.

Economics teacher, Christian Gelleri, started a local currency in 2003 with his students in the small town of Prien am Chiemsee, around 50 miles south of Munich. The currency has performed so well that on Wednesday he was invited to travel to the Greek region of Macedonia to show local politicians how it could keep them from leaving the euro.

"We see complementary local currencies as an answer to balance differences between regions within a currency zone," he told CNBC.com. "We have very big differences in the euro zone when you compare a region like Munich with Thessaloniki [in Greece]."

His idea doesn't stop at Greece and he believes it could prevent the euro zone break up in the long run.

The idea is called "express money" that would be issued by governments. It would have fast circulation with a 2 percent levy for hoarding notes with a 10 percent charge for conversion into euros. A supporting document co-written by Gelleri reminds readers that doubling monetary velocity, doubles gross national product.

He recommends a complementary currency on a national level in Greece and even if they did break from the euro, he believes that local currencies could be used alongside the drachma to strengthen poorer areas.

And Gelleri has plenty of experience, the currency he created - the Chiemgauer - will celebrate its 10-year jubilee next year.

"With a turnover of 6 million euros last year and a growth rate of 20 percent we see a continuous and very positive development," he said.

The amount of local currencies across Europe has now reached 104, all of which are listed on complementarycurrency.org. This week Bristol, a city in southwest England, launched the latest of these - the Bristol Pound.

The project is backed by the Bristol Pound Community Interest Company who initially set the exchange rate which is simply one-to-one with the pound sterling.

A secure printing firm creates the notes, seven main outlets then issues them and 350 independently owned businesses in the region will be accepting them in the coming weeks. They hope 1000 businesses will sign up to the scheme by the end of the first year.

A business consultant who lives in the area, Ross Parker, isn't so keen on the idea saying it won't change people's spending habits or the amount of money they have.

"The Bristol Pound is linked to the U.K. pound, and neither the Bristol Pound, nor other local currencies would survive without such a link," he told CNBC.com. "There is no reason why people would trust their local council to stand behind any currency if they can't trust their central bank."

Dr Gill Seyfang, an academic from the University of East Anglia in the U.K., who lectures on sustainable consumption, has a more positive outlook for the Bristol Pound.

She sees it as being more professionally-organized, more useful and better marketed than previous attempts. There's a clear reason why these local currencies are appearing according to Seyfang.

"As people find that more of their needs are simply not met by national (and international) currencies, then naturally people look to new, innovative financial solutions," she told

"These initiatives always spring up in times of economic recession," she said, citing the "stamp scrip" that begun in the American state of Iowa during the 1930s Great Depression.

Sep 24, 2012 10:27 AM

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OctaFX.Com -Bailout fund boost to 2 trillion euros not feasible: German spokesman

BERLIN (Reuters) - Germany's finance ministry said on Monday that talk of the euro zone's permanent bailout fund being leveraged to 2 trillion euros via private sector involvement was not realistic, adding that any discussion of precise figures was "purely abstract".

Ministry spokesman Martin Kotthaus said there were talks going on in Brussels about leveraging the capacity of the European Stability Mechanism (ESM) in the same way as its predecessor, the European Financial Stability Fund (EFSF).

But, asked about a report in Spiegel magazine that the ESM's capacity could be leveraged to 2 trillion euros, he said this was "illusory".

"It is not feasible to talk about figures at present," he told reporters. "It is purely abstract."

Kotthaus said Germany's government and parliament backed the idea of boosting ESM capacity via "private capital participation in loans or other instruments for states which require them" just as they had supported such instruments for the EFSF.

The ESM is expected to come into force on October 8 with a firepower of 500 billion euros.

Kotthaus said he had no information about a separate Spiegel report on a 20 billion euro hole in Greece's state budget.

Sep 24, 2012 10:41 AM

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OctaFX.Com -Concerns Over Bailout Funds Weighs on Euro, Lifts Japanese Yen

The Japanese Yen and the US Dollar are leading the majors today as some risk-aversion has taken hold amid broadening concerns out of Europe. We note that these influences are three-fold: German business sentiment as measured by the IFO dropped further as investors remain reticent despite the European Central Bank’s ‘bazooka’ plan; the German Finance Ministry has dismissed reports suggesting that the European Stability Mechanism (ESM) would be leveraged from €500 billion to €2 trillion to accommodate the future bailouts of Italy and Spain; and media has concentrated on some disagreements between French President Francois Hollande and German Chancellor Angela Merkel in terms of a pan-European banking union.

With respect to the ESM, the German Finance Ministry did note that no number has yet to be agreed upon for the leverage that will be employed, so essentially it is hapless to speculate on the size of the ESM. That’s that, for now.

With respect to the disagreement between French and German leaders, Chancellor Merkel refuted President Hollande’s quip that the banking union should be completed on a timetable of “the earlier, the better.” With the ECB buying politicians time, it is off little surprise that the urgency behind implementing the necessary safeguards has died down a bit. But Chancellor Merkel is making sure leaders get this round of measures right even as financial markets “are watching Europe [and] want to see results,” saying that “[the banking union] has to be thorough, the quality has to be good and then we’ll see how long it takes,” she said.

Taking a look at credit, peripheral European bond yields are mixed amid the Euro’s weakness. The Italian 2-year note yield has increased to 2.231% (+11.7-bps) while the Spanish 2-year note yield has decreased to 2.973% (-2.7-bps). Likewise, the Italian 10-year note yield has increased to 5.080% (+5.2-bps) while the Spanish 10-year note yield has decreased to 5.716% (+5.1-bps); higher yields imply lower prices.

Sep 24, 2012 11:20 AM

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OctaFX.Com -Eurozone considers boosting bailout fund firepower

Germany: eurozone discussing boosting firepower of new rescue fund, but results uncertain

BERLIN (AP) -- Germany says eurozone officials are discussing the possibility of boosting the firepower of their new, permanent €500 billion ($650 billion) rescue fund by involving private investors.

Finance Ministry spokesman Martin Kotthaus said Monday that "the discussion in Brussels is not concluded" on the issue and it's not possible to say by how much a so-called leveraging of the fund, the European Stability Mechanism, might increase its power.

Eurozone countries agreed last year that the existing temporary rescue fund, the European Financial Stability Facility, could be leveraged, but the possibility has never been used.

Kotthaus said that, whatever happens, Germany's total liability of up to €190 billion won't increase and any agreement would need the German Parliament's approval. The new ESM is expected to start work next month.

Sep 24, 2012 01:36 PM

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OctaFX.Com - Schaeuble says no need for new Spanish program

HELSINKI (Reuters) - Spain does not need a new bailout program but simply to regain market confidence, German Finance Minister Wolfgang Schaeuble said on Tuesday.

Investors are watching euro zone leaders' comments on Spain and its financing needs closely for signs of any terms that may be imposed on Madrid in exchange for aid from the European Central Bank and euro zone rescue funds.

Asked if Spain needed a new bailout, Schaeuble said it did not need a "new program". The country was making progress with reforms, he added, and just needed to win the markets' confidence.

Sep 25, 2012 10:33 AM

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OctaFx -European Parliament to tackle bank union split fears

BRUSSELS (Reuters) - The European Parliament debates plans for a euro zone banking union on Wednesday, with members likely to raise concerns that the project designed to ease the currency bloc's crisis could sow divisions within the wider EU.

Earlier this month, Brussels proposed that the European Central Bank should supervise all euro zone banks as a first step towards creating the union, under which the 17 member nations would form a united front to back their lenders.

However, the plan has aroused worries in the 10 other European Union states, with their own currencies, that they will be indirectly affected.

They are free to join the scheme but many may not. Britain, home to Europe's biggest financial center in London, will not participate but avoids openly criticizing the project. Other governments have publicly expressed their reservations.

"The European Commission banking union proposal has the problem that it makes it very difficult for countries outside the euro," said Sven Giegold, a German member of the parliament.

"We have a big interest that countries outside have voting rights to stop a split between countries such as Poland and Germany," said Giegold, who will play a leading role in talks with European countries about the plan. "The same goes for Sweden."

Legally the European Parliament will have no say in writing much of the legislation to underpin a banking union. But it has powers to amend other important financial regulations and is likely to exert its influence in changing the new regime. Wednesday's debate starts at 0700 GMT.

Banking union, which aims to restore confidence in an industry that has been battered by crisis, has three major steps: the ECB takes over monitoring euro zone banks - and others that sign up - from national regulators; a fund is created to close down and settle the debts of failed banks; and a comprehensive scheme to protect savers' deposits is established.

Giegold underscored a central problem of the union - that it will drive a wedge between those countries inside the scheme and those outside, whose banks may suffer as a result.

Earlier this Swedish Finance Minister Anders Borg said he would not accept ECB oversight of Nordea (NDA.ST), the Nordic region's biggest bank, as long as his country remained outside the banking union. Nordea has its headquarters outside the euro zone in Stockholm but has major operations in Finland, the sole Nordic country to use the common currency.

While Britain will stay outside the scheme, many international banks in London have operations in the euro zone that will be affected by the ECB's new supervisory reach.

London is worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's financial capital.

Some believe that the European Banking Authority, set up to coordinate the supervision of banks in response to the financial crisis and which is run by regulators from across the European Union, could act as a counterbalance.

The European Commission has already suggested a special voting mechanism among EU regulators as a counterweight to the power of those in the euro zone.

The close ties between some troubled governments and the banks they supervise - and on which they also rely to buy their debt - have dragged both ever deeper into crisis.

A banking union would break this link by making the policing of banks supranational and establishing central schemes paid into collectively to cover the costs of closing failed lenders and protecting savers' deposits.

Sep 26, 2012 12:06 AM

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OctaFX.Com -Europe worries start share selloff, Spanish yields jump

LONDON (Reuters) - World shares fell sharply and the euro hit a two-week low on Wednesday as growing opposition to measures aimed at resolving the euro zone's debt crisis unnerved investors already worried about weak global economic growth.

The selling focused on Spain, where the main share index fell 3.5 percent (.IBEX) and yields on 10-year bonds rose back to six percent, as doubts grew about Madrid's commitment to reform due to violent protests and talk of secession by the wealthy Catalonia region.

A general strike in Greece and signs of discord among top euro zone officials over new policies to tackle the crisis added to investor concerns, taking the gloss off recent moves by the European Central Bank to calm the markets by buying bonds.

"Markets have realized despite reducing a large number of tail risks the ECB's program is not the solution to all the problems in the euro area," Philip Shaw, economist at Investec, said.

Markets were also reacting to a letter from Germany, Finland and the Netherlands on Tuesday that implied that any rescue funds Spain receives for its banks will remain part of its public debt - a decision which would also affect Ireland.

"Once again, it shows that when the ball is back in the governments' court, I think there's all this room for disappointment," said Tobias Blattner, European economist for Daiwa Capital Markets.

The renewed concerns about the euro zone have caused a sharp rise in volatility on equity markets, and led to the biggest daily drop on the S&P 500 index on Tuesday since June and subsequent falls across Asia on Wednesday.

The MSCI world equity index <.MIWD00000PUS> was down 0.8 percent at 332.23 points and has retraced most of the gains made after the U.S. Federal Reserve announced a new round of aggressive monetary easing last week.

U.S. stocks were looking to extend their losses when Wall Street opened with stock index futures pointing to a weak open. (.N)

In Europe the selling was across the board with the STOXX Europe 600 index (.STOXX) down 1.4 percent, its biggest one-day fall since late July, led by declines in Spanish and Italian markets which fell more than three percent. (.IBEX) (.FTMIB)

The FTSEurofirst 300 (.FTEU3) had shed 1.5 percent to 1,103 points, having risen 0.4 percent on Tuesday. It is still up about eight percent for the September quarter.

SPANISH PAIN

Spain's growing problems, exacerbated by uncertainty over when the government might request an EU bailout, pushed the euro down 0.4 percent to $1.2850, its lowest level since September 12.

"The Spanish story does seem to be deteriorating. We are seeing Spanish bond yields pushing higher this morning and that's being echoed by a slightly lower euro," said Daragh Maher, currency strategist at HSBC.

Spain's benchmark 10-year bond yields rose 23 basis points to 6.00 percent, while the cost of insuring the debt against a default has also risen sharply.

But analysts cautioned that the moves came on light turnover with many investors choosing to stay out of the market given the long list of potentially negative news from Madrid this week.

"We've got some major event risks in Spain at the end of the week in Spain and it's not really worth having the exposure," Peter Chatwell, interest rate strategist at Credit Agricole.

In addition to a tough 2013 budget to be unveiled on Thursday, the government is due to release plans for new structural reforms in the economy and the results of stress tests on the Spanish banking sector.

On Friday ratings agency Moody's will publish its latest review of Spain's credit rating, possibly downgrading the country's debt to junk status.

Madrid is also facing all these challenges in an environment in which its economy is still contracting at a "significant rate", the central bank said on Wednesday

Economically important Catalonia's decision to hold early elections added to the pressure on Spanish Prime Minister Mariano Rajoy, who conceded in an interview with the Wall Street Journal that he would ask for a bailout if the country's borrowing costs remain too high for too long.

"Ahead of these elections, we will have that classical political paralysis. So I think the government in Catalonia will probably not try its hardest to meet the targets," said Daiwa's Blattner said of goals set for reducing public deficits.

"All the targets for the year as a whole for Spain I think are now under threat."

GROWTH WORRIES

The stronger dollar and concerns about the global economy added to the European worries to push down oil prices but gold was finding some support from this month's policy easing measures by the world's major central banks.

Brent crude oil futures were down $1.30 to $109.15 a barrel, their second drop in three days, and U.S. crude fell $1.04 to $90.33 per barrel.

Despite the drop, traders said oil was getting some support from the rise in tension between Iran and the West over its nuclear program, and by worries over possible risks to Middle East supply if hostilities break out in the region.

Three-month copper on the London Metal Exchange was down 1.3 percent to $8,164.25 per metric tonne, although this followed a gain of more than 1 percent on Tuesday.

"With worries about Europe and Spain in focus this week, and lingering anxiety over China's economic growth, we see the risk of gains in Q3 turning out to be a false dawn," said ANZ Bank's metals analyst Nicholas Trevethan.

Gold held above $1,760 an ounce on investor demand after the Fed, the ECB and the Bank of Japan all unveiled bond-buying programs this month which will provide markets with extra liquidity.

Sep 26, 2012 07:33 AM

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OctaFX.Com -Euro zone confidence falls in September, inflation expectations rise

BRUSSELS (Reuters) - Euro zone economic sentiment defied expectations of stabilization and again fell sharply in September, underlining the economic gloom brought on by the sovereign debt crisis as the euro zone sinks into a recession.

The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August. Economists polled by Reuters had expected a flat reading on Thursday.

"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank.

The euro zone economy stagnated in the first three months of the year quarter-on-quarter and contracted 0.2 percent in the April-June period. Economists expect another contraction in the third quarter, which would take the euro zone into recession.

"The data also shows that while the ECB promise of bond buying and the German court ruling (endorsing the euro zone's permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth," Brzeski said.

The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009.

The Commission survey showed euro zone sentiment in industry declined to -16.1 in September from -15.4 in August, and to -12 in the services sector from -10.8.

Sentiment among consumers fell to -25.9 from -24.6 and to -18.6 from -17.2 in retail trade. Construction was the only sector where confidence improved marginally, to -31.9 from -33.1 in August.

The data also showed that inflation expectations rose among producers, the services sector and households alike, potentially complicating any possible decision by the European Central Bank to cut interest rates and help the economy.

But ING's Brzeski said the results of the Commission survey on inflation expectations were more closely correlated to ongoing price developments, with opinions strongly influenced by the spike in fuel prices.

"It does not make life easier for the ECB, but, under (President Mario) Draghi, the ECB has become more growth oriented with inflation more a derivative of growth, so with this drop in growth, the window for another rate cut this year is still open," he added.

Sep 27, 2012 09:32 AM

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  • Dennis#MD changed the title to Financial News And Analysis by Octafx.com

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