Forex Analysis & Today's Strategy - By Finexo Ltd.

USD a bit stronger on commodities fall and despite record low consumer confidence. Volatility remains low.


Yen higher with carry trades coming off...
Overnight News Bullets
  • SZ Trade Balance (Apr) out at 1.57B vs. 1.27B prior.
  • FR Business Confidence Indicator (May) out at 102 vs.105 expected.
  • FR Production Outlook Indicator (May) out at -15 vs. -10 expected.
  • FR Own-Company Production Outlook (May) out at 6 vs. 11 expected.
  • FR Housing Starts 3M YoY (Apr) out at -18.8% vs. -6.50% expected.
  • FR Housing Permits 3M YoY (Apr) out at -16.3% vs. -13.90% expected.
  • SW Manufacturing Confidence (May) out at 0 vs. 1 expected.
  • SW Consumer Confidence (May) out at -1.1 vs. 0.0 expected.
  • SW Economic Tendency Survey out at 98.5 vs. 102.5 prior.
  • SW PPI MoM/YoY (Apr) out at 0.4%/2.9% vs. 0.5%/2.9% expected.
  • SZ UBS Consumption Indicator (Apr) out at 2.179 vs. 2.249 prior.
  • UK BBA Loans for House Purchase (Apr) out at 38704 vs. 35546 prior.
  • US S&P/Case-Shiller Home Price Ind (Mar) out at 172.2 vs. 176.0 prior.
  • US S&P/Case-Shiller Composite-20 YoY (Mar) out at -14.4% vs. -14.2% expected.
  • US S&P/Case-Shiller US HPI (1Q) out at 159.2 vs. 170.6 prior.
  • US S&P/Case-Shiller US HPI YoY (1Q) out at -14.1% vs. -8.9% prior.
  • US New Home Sales (Apr) out at 526K vs. 520K expected.
  • US New Home Sales MoM (Apr) out at 3.3% vs. -1.1% expected.
  • US Consumer Confidence (May) out at 57.2 vs. 60.0 expected.
  • US Richmond Fed Manufact. Index (May) out at -3 vs.1 expected.
  • US ABC Consumer Confidence (May) out at -51 vs. -49 expected.
  • AU Westpac Leading Index MoM (Mar) out at 0.2% vs. -0.1% prior.
  • AU DEWR Skilled Vacancies MoM (May) out at -0.1% vs. -0.3% prior.
  • AU Construction Work Done (1Q) out at 2.3% vs. 2.3% expected.
  • JN Small Business Confidence (May) out at 42.2 vs. 43.1 prior.
  • GE Import Price Index MoM/YoY (Apr) out at 0.9%/5.7% vs. 0.7%/5.5% expected.
O/N Data Heat map:
EU
US
JP
UK
SZ
AU
CA
NZ
NO
SE
FR
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-
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+
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Calendar
Today's Highlights:
Time (GMT)
Region
Release
Consensus
07:30
SW
Retail Sales MoM/YoY (Apr)
-0.1%/3.5%
08:00
E-Z
ECB Euro-Zone Current Account (Mar)
4.3B (Prior)
11:00
US
MBA Mortgage Applications (May 23)

12:00
NO
Norwegian Deposit Rates (May 28)
5.50%
12:30
US
Durable Goods Orders (Apr)
-1.5%
12:30
US
Durables Ex Transportation (Apr)
-0.5%
23:50
JN
Large Retailers’ Sales (Apr)
-1.3%
23:50
JN
Retail Trade MoM/YoY (Apr)
0.0%/0.5%
This and Next Week’s Highlights:
Date
Region
Release
May 29
UK
Nat’wide House Prices
May 29
SZ
Employment Level
May 29
GE
Unemployment Rate
May 29
NO
Unemployment Rate, Retail Sales
May 29
E-Z
A string of Confidence Figures
May 29
US
GDP, Core PCE, Personal Consumption, Intial Jobless Claims, Continuing Claims, DOE/API Inventories, EIA Natural Gas Storage Change
May 29
NZ
Building Permits
May 29
JN
Jobless Rate, Household Spending, a string of CPI figures, Industrial Production
May 30
JN
Vehicle Production, Housing Starts
May 30
GE
Retail Sales
May 30
SW
GDP, Current Account
May 30
E-Z
CPI Estimate, Unemployment Rate
May 30
US
Personal Income, Personal Spending, PCE Core, Chicago PMI, U. of Michigan Confidence
May 30
CA
GDP, Raw Materials Price Index
What's going on?
  • Despite a positive opening to the week with US stocks ending Tuesday higher, Asian stocks fell with losses led by raw-materials companies.
  • Crude oil has significantly corrected lower in yesterday’s trading with prices trading near 1-wk lows on speculation record high fuel prices will reduce demand ahead of peak U.S. driving season.
  • Yen has risen for the first time in three days against both dollar and euro as decline in Asian equities prompts investors to reduce holdings of high-yielders funded by yen.
FX
http://www.saxobank.com/__DotNet/Site/Analysis/GetImage.aspx?ResUID=3598dcc2-a7e7-45ad-8400-6853b8392ecb
EUR
USD
JPY
GBP
CHF
AUD
CAD
NZD
NOK
SEK
PLN
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FX Trading Strategies
Pair
Supp.
Resis.
Comments
EURUSD
1.5630
1.5815
EURUSD took a hit yesterday and we are possibly looking to some follow through IF we see our level get taken out. We placed an order to sell at 1.5690 stop offer, targeting 1.5615, stop at 1.5711 stop bid.



MAJOR HEADLINES – PREVIOUS SESSION
  • US Weekly ABC Consumer Confidence fell to -51 vs. -49 a week ago.
  • Australia Mar. Westpac Leading Index rose 0.2% vs. -0.1% in Feb.
  • Australia Q1 Construction Work Done out at 2.3% as expected
  • Japan May Small Business Confidence fell to 42.2 vs. 43.1 in Apr.
THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)
  • Germany May CPI (no time given)
  • France May Consumer Confidence (0645)
  • Sweden Apr. Retail Sales (0730)
  • Norway Announces Deposit Rates (1200)
  • US Apr. Durable Goods Orders (1230)
  • Norway Norges Bank's Gjedrem to Speak (1245)
  • Japan Apr. Retail Trade (2350)
  • US Fed's Fisher to Speak (0100)
  • Australia Q1 Private Capital Expenditure (0130)
Market Comments
The USD managed to punch a bit stronger in places yesterday, most notably against EUR and CHF, though action remains fairly muted across the board. The obvious trigger for the USD move was a 4-dollar drop in the price of crude oil, the largest fall in the price since March. Gold also went into a freefall yesterday, registering an 18-dollar drop. CAD, NOK and AUD were far more resilient than one might have anticipated in such circumstances, as presumably the growth-positive aspects of the energy sell-off were weighed as heavily as the negative implications for these currencies' current accounts. It appears we would need both demand-related commodity weakness and an equity sell-off to give these currencies a one-two punch.
Also bolstering the USD a bit were the Fed's Yellen's comments. Widely considered a dove, her comments were on the hawkish end of the spectrum, saying that "significant change" would be needed for any more rate cuts and that weak data alone is not enough reason to cut rates. She also said the Fed should not be complacent about inflation. Still, she underlined the developments in the housing market as "one of the biggest risks facing the outlook". Clearly, the fed is on hold for now.
The USD certainly didn't rally based on the results of the latest round of confidence surveys, as the monthly Conference Board number came in far lower than expectations and the weekly ABC number registered a record low for the 22-year history of the survey. Those trying to look ahead of the curve might presume that a large component of the negative sentiment has been generated by record high gasoline prices, and that the confidence problem could be quickly turned around as soon as gas prices stabilize or fall. That's presumably what drove the equity market higher yesterday, in any case - although at least one website trumpeted Asia's falling equity prices as a driver of a weak equity market in the Asian session!
In other news, the US April New Home sales figures were slightly better than expected, but the March number was adjusted downward and the Case/Shiller house price index registered a record drop for March, bringing the YoY level to -14.1% YoY for Q1, vs. -8.9% in Q4. The April and May numbers will be key to watch for signs of stabilization, or at least a deceleration of the deflation, as March saw the climax of the first round of the credit crunch with the Bear Stearns rescue and credit conditions have improved dramatically since then.
EURUSD ticked to a new low late yesterday, but stopped right at the 55-day moving average - there's still a bit of wood to chop to the downside before we can call the technicals bearish. A strong reversal higher is needed to improve prospects for a further rally above yesterday's 1.5817 top. Let's see if the German inflation data can trigger any volatility.
Looking across the market, volatility is rather muted and trading volumes are very light, as conviction in fx-land seems very low. This seems to have favored the accumulation of carry positions. As long as the market avoids any shocks, this could continue for a while longer, but we feel this is a risky proposition at best. It feels like the market lacks a theme to grab on to at the moment beyond oil prices and is searching for a catalyst of some kind. We're keeping our eyes peeled....
Finexo Ltd. Mörsenbroicher Weg 19140470,Düsseldorf 40470, GERMANY | accounts@finexo.com | Phone: + 49 211 9954 7956
Risk warning
Finexo A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Finexo that clients will profit from the strategies herein or that losses in connection therewith can or will be ,limited. Trades in accordance with the recommendations in an analysis especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not .occur as anticipated

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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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