50bp Cut by the Fed Sent EURUSD to new Highs. | |
| Fed decided to cut the benchmark and discount rate 50 bp, which was more than expected. EURUSD new highs at 1.3988 at trend resistance with 1.40 coming closer. US data disappointing once again today. |
Overnight News Bullets
- German Producer Prices MoM (Aug) out at 0.1%/1.0% MoM/YoY as expected.
- Swiss Adjusted Retail Sales YoY (Jul) out at 3.3% vs. 5.3% expected.
- Italian Industrial Orders and Sales much better than expected.
- BoE Minutes: 9-0 in favour of keeping rates unchanged in September.
- US Mortgage Applications out at 2.4% vs. 5.5% prior.
- Canadian CPI MoM/YoY (Aug) out at -0.3%/1.7% vs. 0.1%/2.1% expected.
- Bank Canada CPI MoM/YoY (Aug) out at 0.1%/2.2% vs. 0.2%/2.3% expected.
- US CPI MoM/YoY (Aug) out at -0.1%/2.0% vs. 0.0%/2.1% expected.
- US CPI Ex Food & Energy (Aug) out at 0.2%/2.1% vs. 0.2%/2.2% expected.
- US Housing Starts (Aug) out at 1331K vs. 1350K expected. July Revision -14K.
- US Building Permits (Aug) out at 1307K vs. 1348K expected. July Revision +16K.
- US DOE Crude Oil Inventories out at -3874K vs. -2025K expected.
- NZ Current Account Balance (2Q) out at -2914B vs. 3286B expected.
- Japanese BSI Large All Industry QoQ (3Q) out at 6.2 vs. -0.9 prior.
- Japanese BSI Manufacturing QoQ (3Q) out at 7.7 vs. -2.2 prior.
- Australian HIA New Home Sales Mom (Aug) out at -8.6% vs. 1.5% prior.
O/N Data Heat map:
| EU | US | JP | UK | SZ | AU | CA | NZ | NO | SE | FR |
| 0 | - | + | 0 | - | - | - | 0 | 0 | 0 | 0 |
Calendar
Today's Highlights:
| 07:15 | SZ | Producer Prices MoM/YoY (AUG) | 0.1% / 2.6% |
| 08:30 | UK | Retail Sales MoM/YoY (AUG) | 0.0% / 4.0% |
| 08:30 | UK | M4 Money Supply MoM/YoY (AUG) | 0.8% / 12.9% |
| 08:30 | UK | M4 Sterling Lending (AUG) | 15.1B |
| 08:30 | UK | M4 BSA Mortgage Approvals (AUG) | Prior £3594 |
| 09:00 | SZ | ZEW Survey Expectations (SEP) | -10.0 |
| 09:00 | EC | Construction Output MoM/YoY (JUL) | Prior 0.6%/2.7% |
| 12:30 | US | Initial Jobless Claims (SEP) | 321K |
| 12:30 | US | Continuing Claims (SEP) | 2575K |
| 12:30 | CA | Wholesales Sales MoM (JUL) | 0.5% |
| 14:00 | US | Bernanke and Paulson testify about mortgage market | |
| 14:00 | US | Leading Indicators (AUG) | -0.4% |
| 14:30 | US | EIA Natural Gas Storage Change (SEP) | 66 |
| 16:00 | US | Philadelphia Fed. (Sep) | 2.6 |
| 23:50 | JN | All Industry Activity Index (JUL) | -0.4% |
This and Next Week’s Highlights:
| 21 Sep | AU | New Motor Vehicle Sales |
| 21 Sep | NZ | Credit Card spending |
| 21 Sep | SW | Riksbanks Svensson speaks on Monetary Policy |
| 21 Sep | EC | ECB Euro-Zone Current Account, PMI Composite |
| 21 Sep | CA | Retail Sales, Retail Sales Less Autos |
| 21 Sep | US | Baker Hughes US Rig Count |
| 24 Sep | UK | Public Finances, Public Sector Net Borrowing |
| 24 Sep | EC | Industrial New Orders |
What's going on?
- After major losses on Tuesday following the surprise 50 bp cut, the U.S. dollar has moved sideways against most of the majors. Both the equity as well as currency markets are waiting for Fed Chairman Bernanke's testimony before the House Financial Services Committee on the mortgage markets for further direction.
FX USD consolidating. GBP and JPY still weakening. EUR and AUD strengthening.
| EUR | USD | JPY | GBP | CHF | AUD | CAD | NZD | NOK | SEK | PLN |
| + | - | 0 | - | 0 | 0 | 0 | 0 | + | + | 0 |
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FX Trading Strategies
| Pair | Supp. | Resis. | Comments |
| GBPCHF | 2.3375 | |
| | We received a signal this morning to go short GBPCHF. So we placed an order to sell at 2.3591 stop offer, with a intra-day target of 2.3505…which could be extended via put options….Stop at 2.3620 bid. | |
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FOREX : Foreign Exchange Market
FOREX is a word play on the term Foreign Exchange Market. It is a market for buying and selling of currencies from all over the world. Certainly, such transactions are bound to be voluminous. It is just an estimate that there are about transactions of $1.5 trillion USD on a daily basis in the FOREX. Now just compare this with the paltry $300 billion USD a day transactions for the US Treasury Bond and the $100 billion a day transactions for the US Stock Exchange.
The FOREX came into existence in 1971 when the fixed currency exchanges were abolished. Currencies no longer had fixed values after that; on the contrary, their rates (mostly taken in comparison with the USD) were fluctuating, and changed on a daily basis. Throughout the seventies and the eighties the FOREX grew steadily, showing more advancement in the later years. The market has stupendously grown from $70 billion USD a day to the staggering amount that it transacts today on a daily basis.
There are actually about five thousand trading institutions in the FOREX. These include international banks, central government banks such as the US Federal Reserve, and commercial companies and brokers for all types of foreign currency exchange. The best thing that shows the unbiased nature of the FOREX market is that it has no fixed headquarters anywhere – it operates primarily from all major cities like New York, Tokyo, London, Hong Kong, Singapore, Paris, Frankfurt, etc. One can even use the telephone or the internet to make the transactions. The major businesses at the FOREX are the buying and selling of products in other countries. Several transactions are also conducted from the currency brokers or traders who stand to make small profits with the daily fluctuations in the market.
Most of the FOREX business is centered on big banks and financial institutions, but it doesn’t mean that the FOREX is inaccessible to small investors. The recent changes in the financial regulations have effectuated this accessibility. Earlier, a minimum transaction size was required to conduct business with the FOREX. But the current rules have made it possible to break large inter-bank units into smaller bits. Each bit is worth as less as $100,000. This makes it possible to each individual investor through loans that are extended for trading, known as leverage. The ratio to control the lots is 100:1. This means, every $1000 USD will allow one to control $100,000 on the FOREX.
The benefits of trading with the FOREX are mentioned below:-
(1) Liquidity of Investments – As the FOREX is a huge market, the funds have a very high degree of liquidity. This is because of the presence of the international banks who provide their bids and carry out a large number of transactions on a daily basis. Therefore, there is always a buyer or seller for any type of currency.
(2) Highest Degree of Accessibility – The FOREX is open 24 hours a day for 5 days a week. Every Monday morning the exchange opens at Australian Standard Time and closes on Friday afternoon at New York time. Greater accessibility is provided because the transactions can be conducted from the person’s home or office.
(3) Open Market – At the FOREX, there are no secrets. All the fluctuations that occur in the market are made accessible to everyone at the same time. There is no insider trading in the FOREX.
(4) No Commission – There is no hassle of paying commission to the brokers in the FOREX. Here the brokers earn by setting up a difference between the buying price and the selling price of a currency, which is known as a spread.
It must be understood by now that for the FOREX to work effectively, the currencies must always be traded in pairs. For instance, the Japanese yen must be traded against the euro. When one kind of currency is sold, there should be another to be bought in its stead.
The profit happens because there is always mobility between the different currencies. Even if there is a miniscule change in the exchange rate, then it could mean substantial changes in the profits due to the large amount of money involved in the transactions. People are thronging to the FOREX and not any other institution due to the trust that they have in it. To add to the advantage, the market is absolutely well-advanced and uses sophisticated software for dealing out its transactions.
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