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Q3 GDP No Barrier to QEII

October 29, 2010
Q3 US GDP rose 2%, in line with the expectations which had drifted slightly higher in recent weeks. Consumption contributed 1.8 percentage points to growth and auto output added 0.4 percentage points to growth. Inventories added 1.4 percentage points, while net exports subtracted 2 percentage points. Business spending on equipment and software rem…
Q3 GDP No Barrier to QEII Q3 GDP No Barrier to QEII Reviewed by Marc Chandler on October 29, 2010 Rating: 5
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Another Piece of the Yen Puzzle

October 29, 2010
Investors and policy makers are befuddled by the yen. Its strength continues to defy the traditional explanatory models that typically give a privileged position for the risk appetite, interest rate differentials, or external positions.
Earlier in October, the BOJ announced that it would purchase JPY5 trillion (~$61 bln) of various assets, includi…
Another Piece of the Yen Puzzle Another Piece of the Yen Puzzle Reviewed by Marc Chandler on October 29, 2010 Rating: 5
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Take Aways

October 29, 2010
The US dollar has recouped a good part of yesterday’s losses as the choppy range trading that has characterized recent trading continues. Despite a string of poor economic data, pointing to stronger deflation forces and weaker output in Japan, the yen is the strongest currency, posting across the board gains.
German retail sales were very disappoi…
Take Aways Take Aways Reviewed by Marc Chandler on October 29, 2010 Rating: 5
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More Thoughts about US Q3 GDP

October 28, 2010
The next string of US real sector reports are likely to solidify evidence that the economy is gradually recovering.
Tomorrow should kick of the string with the first look at Q3 GDP, but the string of data is likely to include auto sales in September, which appears to possibly be the strongest since the cash-for-clunker program ended last summer an…
More Thoughts about US Q3 GDP More Thoughts about US Q3 GDP Reviewed by Marc Chandler on October 28, 2010 Rating: 5
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EU Summit: Two Big Issues

October 28, 2010
The EU is holding a two day summit. There are two issues that are of interest to the foreign exchange market.
First, the German-France condominium reached an agreement about tightening up the deficit rule and the stick that would be used. The absence of automaticity has been criticized. It will be recalled that in 2003 France and Germany had breac…
EU Summit: Two Big Issues EU Summit: Two Big Issues Reviewed by Marc Chandler on October 28, 2010 Rating: 5
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Dollar in Yesterday's Range

October 28, 2010
The US dollar is weaker across the board today, but largely confined to yesterday’s trading ranges. Short-term participants are getting chopped up while long-term investors seem to have adjusted their positions and awaiting the passing of the significant event risk next week. Japan’s poor Sept retail sales (-3% vs consensus of -0.5%), nor the BOJ’…
Dollar in Yesterday's Range Dollar in Yesterday's Range Reviewed by Marc Chandler on October 28, 2010 Rating: 5
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Indonesia's Samurai May be Attractive Alternative to JGB

October 27, 2010
Indonesia is planning to issue a 10-year samurai bond next month and for fund managers who for benchmark purposes need exposure, this issue may be an attractive alternative to Japanese government bonds.
First, Indonesia's credit rating by S&P is BB. Our analysis suggests Indonesia is a good candidate for a ratings upgrade over the next 3-6…
Indonesia's Samurai May be Attractive Alternative to JGB Indonesia's Samurai May be Attractive Alternative to JGB Reviewed by Marc Chandler on October 27, 2010 Rating: 5
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Euro-Dollar Update

October 27, 2010
My piece from last Friday suggested medium term investors begin cutting short dollar exposure. We identified three factors that should be tracked (moving averages, risk-reversal, and interest rate differentials).
1. The 5-day moving average of the euro is still poised to fall below the 20-day in the coming days. Sterling's moving averages turn…
Euro-Dollar Update Euro-Dollar Update Reviewed by Marc Chandler on October 27, 2010 Rating: 5
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FX Drivers

October 27, 2010
The US dollar is retaining its new found firm tone. Position adjusting ahead of next week’s key events continues to dominate, encouraged by the loss of the dollar’s downside momentum.
Softer Australian CPI (2.8% in Q3 from 3.1% in Q2 sent the Australian dollar down the most today, about 1.2% as rate hike ideas pulled back (scratched) or pushed out…
FX Drivers FX Drivers Reviewed by Marc Chandler on October 27, 2010 Rating: 5
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Euro Taking Another Leg Down

October 26, 2010
Into the European close, the euro has broken down further. A break below $1.3835 warns of the increased risk of a return to last week's low near $1.3700. The unwinding of long euro cross positions, especially against sterling seems to be a contributing factor. Yet, given the euro's strong gains against Swedish krona, Swiss francs some east…
Euro Taking Another Leg Down Euro Taking Another Leg Down Reviewed by Marc Chandler on October 26, 2010 Rating: 5
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Observations about the Yen Conundrum

October 26, 2010
The yen appears to simply trend higher regardless of the extension of the BOJ's QE and what happens in other markets. Neither the rising equity markets (risk-on) nor the widening on interest rate differentials (10-year) has been able to deter yen buying. The market appears to have turned cautious about pushing the dollar below JPY80. The G20 s…
Observations about the Yen Conundrum Observations about the Yen Conundrum Reviewed by Marc Chandler on October 26, 2010 Rating: 5
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Dollar Firm, but the Pound is Sterling

October 26, 2010
The US dollar is still consolidating/correcting its recent decline against most of the major currencies today. The notable exception is the British pound, where a considerably stronger than expected initial estimate of Q3 GDP (0.8% quarter-over-quarter vs 0.4% consensus) and an upgrade in its sovereign rating to stable from negative has bolstered …
Dollar Firm, but the Pound is Sterling Dollar Firm, but the Pound is Sterling Reviewed by Marc Chandler on October 26, 2010 Rating: 5
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Q3 US GDP Oct 29

October 25, 2010
The US reports Q3 GDP at the end of the week. Expectations appear to have crept up and now stand around 2%. This is after a disappointing 1.7% annualized growth in Q2.
Part of the improvement is expected to come from consumption, which is expected to tick up to 2.4% from 2.2%. This would be the strongest since before the crisis began. In the 2003-…
Q3 US GDP Oct 29 Q3 US GDP Oct 29 Reviewed by Marc Chandler on October 25, 2010 Rating: 5
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Dollar Slumps Post G20

October 25, 2010
The US dollar is broadly weaker in the wake of the G20 statement that appeared to encourage flowing in emerging markets and risk assets in general. Leading the move is the Australian dollar and Swedish krona. The larger than expected rise in Q3 PPI (1.3% vs 0.5% consensus) and hawkish comments from RBA Governor Stevens, coupled with anticipation o…
Dollar Slumps Post G20 Dollar Slumps Post G20 Reviewed by Marc Chandler on October 25, 2010 Rating: 5
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Euro Dollar Outlook

October 22, 2010
Executive Summary:We suspect the dollar’s decline against the euro is reaching its final stages. US interest rates appear to have largely priced in some form of quantitative easing by the Federal Reserve (though headline risk remains in terms of the actual decision) and European rates have risen to a price in the risk of an ECB rate hike in Q1 11.…
Euro Dollar Outlook Euro Dollar Outlook Reviewed by magonomics on October 22, 2010 Rating: 5
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Current Account Targets

October 22, 2010
US Treasury Secretary Geithner has proposing that G20 members restrain large current account imbalances. Over the last quarter of a century such ideas were mostly aimed against the US, however, like the currency war language, the US has coopted the issue and has managed to turn it around.
He is also turning on its head the traditional burden that …
Current Account Targets Current Account Targets Reviewed by Marc Chandler on October 22, 2010 Rating: 5
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Take Aways from This Week

October 22, 2010
The US dollar continues to trade choppily against the major foreign currencies as corrective pressures encounter the underlying bearish sentiment. The unexpected rise in the German IFO (107.6 vs consensus 106.5 and 106.8 in Sept) and talk of sovereign interest helped the euro recover after nearing $1.3850.
Sterling retested the week’s low near $1.…
Take Aways from This Week Take Aways from This Week Reviewed by Marc Chandler on October 22, 2010 Rating: 5
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Another Twist on Reserve Diversification

October 21, 2010
We have identified the interest rate differential theme as the major driver in the foreign exchange market. Another theme has also impacted the foreign exchange market is the diversification of new reserve accumulation. The focus here is primarily Asia. A number of central bank Asia are believed have intervened in the recent period. They buy dolla…
Another Twist on Reserve Diversification Another Twist on Reserve Diversification Reviewed by Marc Chandler on October 21, 2010 Rating: 5
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Strong Dollar Policy in Time for G20

October 21, 2010
The US dollar is mixed today and the real feature is the euro’s strength. Asian central bank reserve diversification and model-driven leveraged accounts appeared to help drive the euro higher. News that US Treasury Secretary Geithner suggested that the major currencies were in rough alignment sparked a short lived dollar bounce, with the greenback…
Strong Dollar Policy in Time for G20 Strong Dollar Policy in Time for G20 Reviewed by Marc Chandler on October 21, 2010 Rating: 5
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Yuan in the Hong Kong: The Logic

October 20, 2010
One of the surprises of the year has been the increased internationalization of the yuan, even though the capital account has not been liberated and the currency remains tightly managed.
We were skeptical of the significance of the yuan swap lines with other countries, primarily emerging markets. However,, more impressive has been the growth of a y…
Yuan in the Hong Kong: The Logic Yuan in the Hong Kong: The Logic Reviewed by Marc Chandler on October 20, 2010 Rating: 5
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ForexTV: Dollar and Quantitative Easing in Japan ForexTV: Dollar and Quantitative Easing in Japan Reviewed by magonomics on October 20, 2010 Rating: 5
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China Reducing Rare Earth Exports to US?

October 20, 2010
US-China trade tensions have intensified in recent days. At the end of last week, the US began an investigation into whether China is violating international trade rules by subsidizing its clean energy industries. This also involved whether its rare earth export quotas since 2005, with already high export taxes, are illegal.
The NY Times reports t…
China Reducing Rare Earth Exports to US? China Reducing Rare Earth Exports to US? Reviewed by Marc Chandler on October 20, 2010 Rating: 5
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Keeping the Eyes on the Prize

October 20, 2010
The US dollar is trading heavier today as Asia and Europe sold into the strong gains scored in North America yesterday following yesterday’s surprise Chinese rate hike. Of the majors, the euro and Australian dollar are leading the move, but given the magnitude of yesterday’s losses, these gains today are modest.
The dollar’s pullback after Asia in…
Keeping the Eyes on the Prize Keeping the Eyes on the Prize Reviewed by Marc Chandler on October 20, 2010 Rating: 5
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China Surprises with Hike

October 19, 2010
China has surprised the market with a 25 bp hike in the key 1-year deposit and lending rates. With the hike the deposit rate now stands at 2.5%. This is still below the inflation rate, which in Aug was 3.5%. This leave monetary policy very stimulative, even if not as much as previously. The lending rate now stands at 5.56%.
China Surprises with Hike China Surprises with Hike Reviewed by Marc Chandler on October 19, 2010 Rating: 5
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Choppy Correction Unfolding in FX

October 19, 2010
The US dollar is mixed in choppy turnover. The dollar initially saw late yesterday’s Geithner’s anti-devaluation talk inspired gains reverse in early Asia and the euro briefly pushed through the $1.40 level and sterling approached $1.5950.
However, Asian accounts sold into the foreign currency bounce. The better-than-rumored German ZEW survey saw …
Choppy Correction Unfolding in FX Choppy Correction Unfolding in FX Reviewed by Marc Chandler on October 19, 2010 Rating: 5
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A Look at a Half Full Glass

October 18, 2010
Anticipation of QEII in the US remains among the most potent forces in the capital markets. Bernanke's pre-weekend speech and two dovish speeches since--Evans and Rosengren (both voting members of the FOMC).
The case the Fed has built for the public is based on inflation being too low and clearly officials are concerned about the contraction i…
A Look at a Half Full Glass A Look at a Half Full Glass Reviewed by Marc Chandler on October 18, 2010 Rating: 5
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Us Industrial Production Disappoints

October 18, 2010
The US industrial production fell 0.2% in Sept. The market consensus was for a gain of the same magnitude. This is the first decline since June 2009. Manufacturing output fell 0.2%, utility output fell 1.9%, and mining rose 0.7%. The decline in utility output appears largely weather related and fell 1.4% in August. The auto industry stabilized (+0…
Us Industrial Production Disappoints Us Industrial Production Disappoints Reviewed by Marc Chandler on October 18, 2010 Rating: 5
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Dollar Bounce, but Not Real Thing

October 18, 2010
The US dollar is broadly higher as the correction seen before the weekend was extended through the Asian session. In Europe, the greenback’s gains have been pared, but it remains above last Friday’s high against the major currencies. The exception is the yen, against which the dollar has been confined to roughly JPY81.00-JPY81.50.
The dollar’s bou…
Dollar Bounce, but Not Real Thing Dollar Bounce, but Not Real Thing Reviewed by Marc Chandler on October 18, 2010 Rating: 5
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Data View

October 15, 2010
The US reported a slew of data and although there are some interesting nuggets, the data is unlikely to alter views on the state of the economy or the likelihood of QEII.
CPI was uninspiring, though the core rate slipped to 0.8%, which is the lowest level in nearly 50 years. Of note, the owners equivalent rent was unchanged for the second consecut…
Data View Data View Reviewed by Marc Chandler on October 15, 2010 Rating: 5
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The Broken Cash Register

October 15, 2010
Opinion seems nearly universal that what we are currently experiencing is not the typical business cycle with which we are familiar. Besides being the end of a long speculative bubble and the magnitudes involved, the significance of what is happening is difficult to fathom. To the extent that some have thought about the bigger picture, the discus…
The Broken Cash Register The Broken Cash Register Reviewed by Marc Chandler on October 15, 2010 Rating: 5
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Waiting for Big Ben

October 15, 2010
The US dollar remains soft, but within yesterday’s trading ranges, as the market awaits Federal Reserve Chairman Bernanke’s speech early in the North American session (8:15 EST/12:15 GMT) on “Monetary Policy Objectives and Tools in Low Inflation Environment”. The market is hoping to glean more insight into the likely Fed actions.
Headline risk als…
Waiting for Big Ben Waiting for Big Ben Reviewed by Marc Chandler on October 15, 2010 Rating: 5
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More Thoughts on China's Reserve

October 14, 2010
Yesterday China reported its reserves figures. In my note I mis-represented the increase in reserves. Chinese figures show the reserves jumped a massive $194 bln. This a huge number.
The trade surplus is Q3 was about $65 bln. Can the rest be hot money, direct investment flows being neutralized, and extra efforts to restrain the CNY's rise? One…
More Thoughts on China's Reserve More Thoughts on China's Reserve Reviewed by Marc Chandler on October 14, 2010 Rating: 5
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Data Leaves Dollar Vulnerable

October 14, 2010
US headline PPI came in somewhat higher than expected at 0.4%. Weekly initial jobless claims were a bit stronger than expected and the US trade deficit was wider than expected. The trade balance, adjusted for inflation, is used to calculate GDP and there was a sharp widening of this deficit measure, which warns that, if anything, economists may ha…
Data Leaves Dollar Vulnerable Data Leaves Dollar Vulnerable Reviewed by Marc Chandler on October 14, 2010 Rating: 5
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Dollar Punished

October 14, 2010
The US dollar is getting punished; suffering steep broad based losses today. The spark that has driven the euro and sterling through their recent caps near $1.40 and $1.60 respectively, the Australian dollar, Swiss franc and Japanese yen to new highs and the Canadian dollar through parity, appears to have been initially triggered by unexpected tig…
Dollar Punished Dollar Punished Reviewed by Marc Chandler on October 14, 2010 Rating: 5
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China Update

October 13, 2010
There are four developments in China to note today.
First, China reported that its reserves jumped to $2.65 trillion from $2.45 trillion in June. The $200 bln increase is more than the $7.1 bln in Q2 and the $48 bln in Q1 put together. The reserve growth poses a management problem for Chinese officials and an absorption problem for rest of the wor…
China Update China Update Reviewed by Marc Chandler on October 13, 2010 Rating: 5
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Contrasts Weigh on Dollar

October 13, 2010
The US dollar is mostly lower as shorts get re-established after yesterday’s squeeze. The contrast between The ECB’s continued commitment to an exit strategy, leading to firmer euro zone interest rates, while the FOMC minutes underscore the Fed’s willingness to ease further was brought into stark relief yesterday, cutting short what had appeared t…
Contrasts Weigh on Dollar Contrasts Weigh on Dollar Reviewed by Marc Chandler on October 13, 2010 Rating: 5
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Thailand Developments

October 12, 2010
Thailand has become the latest emerging market country to take action to slow capital inflows. As hinted yesterday, Thailand’s cabinet approved today to impose the 15% tax on interest income paid to foreign investors that domestic investors subject to. Previously, foreign investors were exempt for income earned from government or quasi-government …
Thailand Developments Thailand Developments Reviewed by Marc Chandler on October 12, 2010 Rating: 5
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Long Awaited Dollar Correction

October 12, 2010
The US dollar is enjoying a broad correction against most of the major and emerging market currencies. The Japanese yen is one of the few exceptions and it is largely sidelined with the greenback confined in a narrow range on either side of JPY82. Japanese officials continue to brandish the threat of intervention.
The market had struggled to maint…
Long Awaited Dollar Correction Long Awaited Dollar Correction Reviewed by Marc Chandler on October 12, 2010 Rating: 5
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Capital Market Overview

October 11, 2010
The US dollar is little changed against the major foreign currencies as the consolidation seen at the end of last week continue. Holidays in Japan, Canada and the United States contributes to the subdued tone. The euro made a brief run above the $1.40 level in early Asia, but it was not sustained. Support is seen in the $1.3880-$1.3900 area. A bre…
Capital Market Overview Capital Market Overview Reviewed by Marc Chandler on October 11, 2010 Rating: 5
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Currency War: A View from the Trenches

October 08, 2010
Recent weeks have seen much talk about "currency wars". This talk suggests that many countries are seeking the devaluation of their currencies in order to promote their exports, which in turn forces other countries to respond with similar efforts. It harkens back to the disastrous beggar-thy-neighbor policy that was seen between the two …
Currency War: A View from the Trenches Currency War: A View from the Trenches Reviewed by Marc Chandler on October 08, 2010 Rating: 5
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Overview Ahead of US Employment Report

October 08, 2010
The US dollar is firmer amid last minute position agajust ahead of the employment data. With another round of asset purchases continues to seem probable, even though FOMC voting member Bullard and non-voting Dallas Fed’s Fisher indicated it is not yet a done deal.
Underlying sentiment is extremely dollar negative. In fact, the extreme sentiment re…
Overview Ahead of US Employment Report Overview Ahead of US Employment Report Reviewed by Marc Chandler on October 08, 2010 Rating: 5
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Dollar Selling is Relentless

October 07, 2010
The US dollar remains under relentless pressure. Even though the ADP has tended to under under-estimate private sector job growth, the unexpected weakness reported yesterday is the latest catalyst for expectations of renewed asset purchases by the Federal Reserve. The euro approached the $1.40 level before the market paused in Europe. Slightly str…
Dollar Selling is Relentless Dollar Selling is Relentless Reviewed by Marc Chandler on October 07, 2010 Rating: 5
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Mexico Update: Century Bond and More

October 06, 2010
Mexico is taking advantage of the investment climate and the near insatiable demand for emerging market credits. The peso may also benefit from actions by other countries, from Brazil to South Korea taking actions to deter hot money inflows.
Yesterday. Mexico brought a 100-year bond to market, an unprecedented duration for Latam and a rare issue i…
Mexico Update: Century Bond and More Mexico Update: Century Bond and More Reviewed by Marc Chandler on October 06, 2010 Rating: 5
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Understanding the FX Price Action

October 06, 2010
The price action in the foreign exchange market stands in sharp contrast with yesterday’s key developments.
First, like they did earlier this year, the Reserve Bank of Australia surprised the market by apparently signaling the need to hike rates and then failed to deliver. This led to a wash out of some of the late buyers of Australian dollars. At…
Understanding the FX Price Action Understanding the FX Price Action Reviewed by Marc Chandler on October 06, 2010 Rating: 5
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Did the MOF Signal No More BOJ Intervention (Near-Term)?

October 05, 2010
Japan's Finance Minister Noda has indicated that he will take advantage of the upcoming G7 and IMF meeting to explain its Sept 15 intervention. While US Fed and Treasury and the ECB did not comment on the intervention, several others did, including Eurogroup head Juncker, US House Ways and Means Committee Chairman Levin, and the heads of the I…
Did the MOF Signal No More BOJ Intervention (Near-Term)? Did the MOF Signal No More BOJ Intervention (Near-Term)? Reviewed by Marc Chandler on October 05, 2010 Rating: 5
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Capital Market Drivers

October 05, 2010
The RBA left rates steady, confounding market expectations and this led to a sharp sell-off in the Australian dollar, as one would expected. The RBA left the door open to additional easing. The next inflation report is due out Oct 27 and that will play a big role in shaping expectations for a Nov move.
The fundamental case for the Australian dolla…
Capital Market Drivers Capital Market Drivers Reviewed by Marc Chandler on October 05, 2010 Rating: 5
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FX in Nutshell

October 05, 2010
The US dollar rise yesterday looks like a one-day wonder, with the euro returning to the $1.38 area, sterling moving through yesterday’s highs and the Swiss franc at new record highs vs the greenback.
The Australian dollar is under-performing following the Reserve Bank of Australia’s decision not to hike rates as had been widely expected. The Bank…
FX in Nutshell FX in Nutshell Reviewed by Marc Chandler on October 05, 2010 Rating: 5
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ECB Winding Down or Winding Up?

October 04, 2010
A couple of ECB officials have indicated that when the extraordinary liquidity provisions expire at the end of the end of the year, they will not be renewed. Officials drew comfort in the recent news that the stock of bank loans accelerated in August. That European banks are weaning themselves off the special liquidity provisions is likely reinfor…
ECB Winding Down or Winding Up? ECB Winding Down or Winding Up? Reviewed by Marc Chandler on October 04, 2010 Rating: 5
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Swiss Developments and a bit of Hungary

October 04, 2010
There are several developments in Switzerland that investors should be aware of today.
First, Germany and Switzerland appear to have struck the basis for an agreement on a new tax treaty. This generally seen as Swiss franc negative and was cited as a factor for euro gains against the Swiss franc before the weekend.
Swiss Developments and a bit of Hungary Swiss Developments and a bit of Hungary Reviewed by Marc Chandler on October 04, 2010 Rating: 5
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Euro Correction or Reversal?

October 04, 2010
The key question today is whether the setback in the euro, after a marginal new high was recorded in early Asia above $1.3800, or if it is the start of a more sustained correction. Since September 10, the euro has advanced more than 9%.
In the three weeks since then, the euro has fallen one day in each week. The Commitment of Traders data released…
Euro Correction or Reversal? Euro Correction or Reversal? Reviewed by Marc Chandler on October 04, 2010 Rating: 5
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Corrective Pressures Grip the Start of the Week

October 04, 2010
The US dollar is enjoying a firmer tone, but has remained confined to its pre-weekend trading ranges. The euro is the hardest hit and although Nobel prize-winning economist Stiglitz pressed his pessimistic outlook for the euro zone and especially Spain, the market reaction outside of foreign exchange has been quite limited.
Corrective Pressures Grip the Start of the Week Corrective Pressures Grip the Start of the Week Reviewed by Marc Chandler on October 04, 2010 Rating: 5
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Rare Earths: The New Sputnik

October 01, 2010
The years of the Great Moderation had lulled us to sleep. The modern, dynamic, global economy has many vulnerabilities. The ongoing crisis demonstrates the fragility of the financial sector. High food and energy prices are also threats.
Another vulnerability has come to the forefront in recent weeks. Many goods that use modern technology, such as …
Rare Earths: The New Sputnik Rare Earths: The New Sputnik Reviewed by Marc Chandler on October 01, 2010 Rating: 5
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The More Considered Take

October 01, 2010
The US’s dollar’s slide that began in earnest in early September is set to continue. The prospects of QEII are deeply engrained. Some observers are emphasizing the sell-off in US Treasuries after the stronger Chicago PMI, but it seems the recovery was just as impressive. There seem to be two elements capture the forces at work.
First, the euro con…
The More Considered Take The More Considered Take Reviewed by Marc Chandler on October 01, 2010 Rating: 5
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FX in a Nut Shell

October 01, 2010
The US dollar is suffering broad losses. Signs that European growth are moderating or that an Australian rate hike next week is not as easy of a call as it appeared a few days ago has done nothing to dent the persistent appetite for the major foreign currencies. Even a sub-50 reading on South Africa’s PMI did not deter rand purchases against the d…
FX in a Nut Shell FX in a Nut Shell Reviewed by Marc Chandler on October 01, 2010 Rating: 5
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