Unprincipled speculators are making billions every day by betting on a Greek default

Foreign Exchange - Currency Outlook

Euro Exchange rate Special: Without naming names, today the WSJ reports "Greek officials" saying the high premium Greece is paying to issue bonds is "unsustainable" and must come down in the next two months. "Greece may formally seek European Union financial aid if its borrowing costs don't fall sharply in coming weeks and, if that doesn't work, will seek a rescue from the International Monetary Fund, government officials said." The preferred form of aid is for European state-owned banks to buy Greek debt. "The officials said Greece needs the spread to tighten to around two percentage points before crunch time: Athens must redeem some €22 billion ($29.92 billion) of bonds in April and May." Greek yields are about 3% higher than German Bunds.

“The first official said Greece will seek to raise a further 10 billion Euros through one or two bond issues this month, and between $5 billion and $10 billion through an offering in March or April targeting investors in the U.S. and Asia.”

Today’s bombshell follows a busy visit to the US by Greek PM Papandreou. He was all over Washington, meeting Congressmen, the President, the TreasSec and the IMF. Papandreou said "Unprincipled speculators are making billions every day by betting on a Greek default," and Obama was receptive to the idea of regulating speculation and that means it will be on the next G20 agenda.

With really interesting timing, CFTC Chairman Gensler said, according to the WSJ, that the US could adopt new regulations for credit-default swaps. The EU said yesterday it may try to ban speculative trading in credit-default swaps on sovereign debt in Europe. The WSJ says the US wouldn’t go that far. Gensler outlined several approaches, including a central clearinghouse, swap activity directly linked to bank capital requirements, and reform of bankruptcy law. In other words, we will get restrictions on speculation when pigs fly. Gensler seems to be one of the heroes in all this but it remains for Congress to do something. Gridlock in Congress, not mention infuriating stupidity, is enough to drive support for executive orders.

In Europe, German Chancellor Merkel agreed that rules should be rushed to halt “the most speculative elements of derivatives trading, including so-called naked transaction, which do not hedge the value of real assets,” according to the FT. On another matter, the formation of a European Monetary Fund, the head of the Bundesbank and probably the next head of the ECB, Weber, said the debate over a monetary fund as “unhelpful” and “a sideshow that will distract from the necessary (fiscal) consolidation.”

As for the IMF, everyone agrees Papandreou didn’t ask for aid or loans or guarantees, just “technical assistance.” We have no idea what that means. Fast computers? Spreadsheets? A gaggle of green-eyeshade guys? If the assistance consists of human beings, how will they greet the Eurostat guys in Athens?

It’s hard not to think all of this is meaningless drama, but it’s hard also not to recognize that Papandreou is a very smart cookie and handling this all quite skillfully. Today’s news, that “Greek officials” are now demanding guarantees so that the cost goes down, may destroy whatever sympathy Papandreou has engendered. It seems likely Greece can continue to issue the rest of the debt at high prices. The last two issues were wildly oversubscribed. Now it doesn’t like the terms, a 3% premium over German issues. Well, too bad.

Pounds to US Dollars = 1.4918
Pounds to Euros = 1.10955
Euro to Pounds = 0.9125
Pounds to Australian Dollars = 1.6303

Bye For Now
Barbara Rockefeller
Foreign Exchange Trading
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solution for the Greek debt problem

Foreign Exchange - Currency Outlook

An announcement of a solution for the Greek debt problem is only that—an announcement. It will probably have the usual announcement effect - foreign exchange traders buying euros. A more positive tone and a sense of confidence that the EU/EMU will save Greece from itself is a good thing but only temporary. Words are good, in markets, but actions are better. Observers want to pore over specifics and if history is any guide, we are not going to get specifics today, or maybe ever.

Disillusion could set in very quickly. The bond and forex markets are not going to sit around for long basking the glow of apparent solidarity - they want details, and plenty of them. We remain deeply worried that the market will buy into a public relations exercise that will carry the euro exchange rate back up over 1.4000 to perhaps 1.4350. So far it looks like the market is being skeptical, but it’s never wise to count on traders making deep analysis on which to base trades.

Normally the shallow explanation is the one adopted, at least at first. If the market doesn’t accept the "accord" today, risk aversion will take off and and fx traders will be buying us dollars. This is what "should" happen but we have to wait and see.

Pounds to US Dollars = 1.5690
Pounds to Euros = 1.1466
Euro to Pounds = 0.8718
Pounds to Australian Dollars = 1.7624

Bye For Now
Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
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euro exchange rate recovery this week?

Foreign Exchange - Currency Outlook

We must always expect a bounce up off a big move down, and we may get that this week. On Friday, foreign exchange analysts used words like "panic," "frenzy," and "mayhem." Foreign Exchange Traders can’t sustain that level of adrenaline. A pullback is clearly in order. At the same time, it’s important to acknowledge that the US dollar trend has changed and that there are good and ongoing reasons for it. From a high around 1.5145 in late Nov, the euro fell to 1.4580 in mid-Jan, and further to 1.3852 on Friday. This is a huge move and unless something just as bad against the US dollar exchange rate comes along to stop it, we have to assume it will continue. That means we must evaluate the “reasons” given for any euro exchange rate recovery this week with a sharp eye. Just because something is oversold doesn’t mean it deserves to be bought for its own sake.

Deficit hawks have a strong case for disliking the dollar today. Commentators correctly point to gridlock in Washington, which is worse than wimpy presidential leadership, that will fail to resolve the US’ deficit dilemma. Yes, the US has a higher debt burden than Europe, if a bit less than Greece (about 10% vs. over 12% of GDP for Greece and about 6% for the EMU as a whole).

But we say this doesn't pass the "So what?" test. The US can tolerate higher deficits because it has a more flexible and resilient economy that is more likely to generate the higher tax revenue needed to cut deficits. The US is already emerging from the crisis, as Bernanke will talk about on Wednesday when he tells the House Financial Services Committee about removing emergency liquidity supports. Meanwhile, the ECB had to cobble together an emergency liquidity plan that saved the banks, just barely, but is at a loss institutionally on how to resolve the sovereign debt crisis. There is a vast difference. We may criticize the Fed for failing to acknowledge that the financial sector is not adequately self-policing or its responsibility to prevent bubbles, but the Fed did that one job quite well and the incident is ending. This gives the US dollar rate a strong base of support.

This week the data is not very interesting. We get trade, Jan retail sales, Dec manufacturing, and the preliminary University of Michigan consumer sentiment index. There is nothing here to support or detract from the real action, the eurozone saga of what to do about its southern tier.

By Friday of this week, we expect the euro lower, although you never know - if a correction gets a grip, we could end up with a longer-lasting pullback. The worst case is also possible--a choppy sideways move. But keep the faith.

Pounds to US Dollars = 1.5578

Pounds to Euros = 1.1407

Euro to Pounds = 0.8763

Pounds to Australian Dollars = 1.8036

Bye For Now

Barbara Rockefeller

Foreign Exchange Trading

Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!

Buying Dollars? Buy US Dollars at the Best Dollar Rates!

Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

Chinese will re-commit to the US dollar exchange rate

Foreign Exchange - Currency Outlook

Everybody and his brother is calling for the Chinese to revalue, from the Philippines and Malaysia to the eurozone, US, IMF and World Bank. APEC finance ministers have so far resisted making the same call, but the summit isn’t over yet. The APEC chairman, Singapore FinMin Tharman Shanmugaratnam, said "From today's discussion, none of us were calling for, or thought it advisable, to have any sudden significant re-alignment of exchange rates." Asked about Chinese revaluation, he said "It's not a silver bullet for solving either the question of domestic demand or towards achieving balanced and sustainable growth."

Is everyone counting on Obama to pull the rabbit out of the hat?

Market News reports today that the Chinese say he won’t. The report says "China has no plans to allow the yuan to appreciate in the short term because the economy is still recovering from last year's global financial crisis, a source familiar with discussions among monetary policymakers told Market News International Thursday. The source said that the government expects to receive a message from President Barack Obama about the need for greater exchange rate flexibility during his visit here next week. Obama will be making his first official visit to China November 15 to 18. His visit will include talks with President Hu Jintao and Premier Wen Jiabao. 'China will not see Obama's requirement for more exchange rate flexibility as a key consideration,' the source said."

Well, of course the Chinese would not tip their hand ahead of time if they do plan to deliver Obama a big victory. And if they do deliver such a victory, what is the cost? The Chinese would not be giving it away for free. Another unnamed official told Market News that "China's exports are more important than U.S. deficits. The Chinese government will not ask for any specific U.S. announcement about an exit strategy but will simply mention it." This is the usual ploy of changing the subject to avoid talking about the elephant in the living room. Or maybe the Chinese will re-commit to the US dollar exchange rate and promise to stop talking about SDR's in return for keeping the US dollar peg a little longer.

Nobody knows what the outcome will be, but clearly something is afoot. Uncertainty about the size of the something is US dollar rate -favorable all by itself since it raises the idea of tectonic shift in sentiment and real flows. But we must not allow expectations to get too high. Summits hardly ever result in a big change. One of the few exceptions was the US TreasSec hounding China at G7 on revaluation a few years ago - and it worked, albeit not right away. The next two or three days will require nimble foreign exchange trading trading with close - in stops and a willingness to be open-minded. Adopt the Boy Scout motto and "be prepared."

Pounds to US Dollars = 1.6579
Pounds to Euros = 1.1071
Euro to Pounds = 0.8949
Pounds to Australian Dollars = 1.7968

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900

Foreign Exchange - Currency Outlook

Yesterday Dallas Fed Pres Fisher said the decline of the dollar exchange rate has been orderly. We are stunned by this statement. For one thing, the Fed hardly ever talks about buying dollars, which is the Treasury’s turf. For another, it implies approval of the any decline as long as it’s not disorderly. Fisher went from an inflation hawk to now seeing more deflationary concerns than inflationary ones, suggesting that a falling dollar is a good anti-deflation tactic. The risk we run by maintining low interest rates is that it fuels the carry trade and eventually the Fed would have to "craft an appropriate remedy." Holy cow, is Fisher wishing for a US dollar exchange rate crisis so that the Fed can step in with anti-speculation measures?

The mind boggles.

Our favorite Fed, San Francisco Fed Pres Yellen, again said the recovery will be L-shaped, if with an upward tolt, with deflation a bigger risk than inflation and unemployment probably staying high for years to come. Atlanta Fed Lockhart is most worried about commerical real estate and worries the banking system ,not yet recovered, will face another blow.

More to the point, World Bank Pres Zoellick came right out and said emerging markets face a greater threat of inflation and asset price bubbles than developed one. Speaking on the sidelines of the APEC summit in Singapore, he said Asian "central banks need to look beyond just raising interest rates to constrain the amount of liquidity that has been injected into financial systems in response to the crisis,"according to Market News. Bubbles could undermine confidence, whereas "In the U.S. and Europe, because things are in relatively weak conditions, I don't see likely inflationary effects at this time. In East Asia if you start to get a strong rebound in growth and a lot of liquidity there is the question of whether one could start to face asset bubbles in particular markets."

Out of all this, the Chinese potentially revaluing against the dollar by adopting a basket should have the biggest effect. Quite apart from the global political implications, it could be a giant boost to European exports, whereupon Europe's trade surplus will appear to be an issue. It already is an issue, but not as much as the US’ deficit. Then the question becomes whether China diversifies further into the basket currencies. On the whole, the news will be interpreted as dollar-favorable, but underneath, it’s only US-favorable. Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900 and below is based more on technical ideas than on economic analysis. New euro exchange rates demand from China is the same thing as a weakness factor for the dollar, and a biggie. Fixing the global imbalance is a good thing for the world, but not necessarily for the US dollar itself.

Pounds to US Dollars = 1.6574
Pounds to Euros = 1.1060
Euro to Pounds = 0.9039
Pounds to Australian Dollars = 1.7813

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

Pound and Euro exchange rate outlook improves

Foreign Exchange - Currency Outlook

Unless something happens that is now unforeseen, most FX analysts expect a return of the status quo - rising growth nearly everywhere means the Great Recession is ending and it’s safe to seek yield in riskier places and in riskier assets (away from the US and the dollar exchange rate). We never had any right to expect that G20 and the IMF would be effective in pressuring the Chinese to revalue - they are weak organizations with no enforcement or compliance capability, and the Chinese know which side of the bread their butter is on.

It may well be that the US secretly took everyone aside and asked for reticence on China, since the weak US dollar rate really is good for the US economy, even if it’s not good for consumers, but then the US would have been risking a deeper drive out of the dollar as a reserve currency - so if it was some kind of ploy, it was a dangerous one. Does the US have a grand plan for the dollar? Almost certainly it does not, and any talk of US policy being designed to weaken the dollar deliberately is silly. Analysts suspected that was the not-so-secret Bush agenda but we have no evidence this is how the Obama Administration thinks. Still, "allowing" it to weaken (for a greater good like export industries) is another matter.

Clearly Washington is unfazed by the rise in gold (as long as it’s not fuelled by inflation expectations except by a few nutcases). That it is also fuelled by a bigger cohort who fret about budget deficits seems to be only slightly more worrisome. It seems that when it comes to matters pertaining to the dollar exchange rate and related matters like gold, the Administration is going to remain silent. We wonder if Obama even feels much pressure for results from the China trip this week. This is a laissez-faire approach that is not getting the attention and perhaps praise it deserves from those who think Obama is a control freak or a pinko or a big-government collectivist (to revive a Randian term now that two big Rand biographies are being reviewed).

We expect the US dollar Rate to embrace and surpass the 1.5000 mark now that it has kissed the level. Round numbers are nice, and will suffice - next stop, 1.5250.

Pounds to US Dollars = 1.6723
Pounds to Euros = 1.1148
Euro to Pounds = 0.8967
Pounds to Australian Dollars = 1.7997

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

Australian Dollar Exchange Rate has everything going for it, from commodities to a higher yield.

Foreign Exchange - Currency Outlook

Among the large amount of data this week, including IFO business sentiment tomorrow, today we get the Case-Shiller home price index for June, forecast at a drop of 16.4% y/y in the Bloomberg survey or the smallest drop in nearly a year. The index was down 17.1% y/y in May but had risen 0.5% m/m for the first rise monthly since July 2006. Also this morning we get the Conference Board consumer confidence index, probably rising in Aug for the first time in 3 months to 47.9 from 46.6. Tomorrow it’s July new home sales, probably a 4th monthly rise.

It may seem that we have decoupling of the US stock market from the Shanghai Composite, with today’s outcome a test case. But foreign exchange traders everywhere have their own reasons to worry about having gotten into equities too far, too fast and making too rosy assumptions about recovery. If you want to feel optimistic, you can find green shoots to justify trying to get in early, whether it’s German industrial orders or possibly bottoming US housing construction (US homebuilder stocks are up 36% as foreclosures continue to rise—go figure).

But if you are looking for reasons to feel fearful, they abound, too. Bernanke said at Jackson Hole that major difficulties remain. Today the EC chairman Barroso said there is "still no firm recovery" in the EU economies. China is talking out of both sides of its mouth, with one official saying the recovery is too fragile to change anything and another one stepping up to say bubbles are forming and must be burst.

Similarly, we have a huge simmering debate just under the surface about whether we are going to get massive inflation or perhaps a bout of deflation comes first. Pundits opine that Bernanke may seize this moment to institute inflation targeting, which would probably be a good thing for public confidence but opens all kinds of doors for money and bond market shenanigans, the one good reason not to do it. The problem with the inflation/deflation argument, and the sideline story about the proper role of a central bank, is that just about everyone has an ideological slant and it’s really, really hard to get an unbiased grip on the true issues.

We say the most important things is not whether the Fed should have a dual mandate or only an inflation mandate, but rather explicit recognition that mostly free capital markets historically have an intrinsictendency to boom and bust, or mania and panic. Once we acknowledge that, it’s not much of a leap to say somebody ought to be in charge of managing institutional behavior in such a way to avoid the worst consequences of both mania and panic. Right now we have a mishmash of regulatory agencies, with more agencies proposed and a wild tangle of responsibilities. We don’t know whether it should be the Fed in charge of manias and panics or some other agency, but the independence of the Fed argues for it taking the job. This opens a can of worms, of course, with the extreme right wanting no regulation on the perfectly sound thesis that government interference always causes nasty unintended consequences, but the extreme left making the equally sound argument that panics harm the non-elite the most and for longer periods of time. See, you can't talk about this stuff without getting political!

But it’s a welcome argument if we can keep the nutcases from dominating the story.

Back to the US dollar exchange rate. There is a small chance that it will get rewarded with a firmer tone as good data comes in, but it’s still the last week of August and with the market thin, we can’t trust any such move. We guess the stock market will continue to rise during the early fall, with everyone’s nerves getting shot to pieces by October 1, with the US dollar slinking lower, but the possibility of a surprise jump can’t be ruled out. This is not very helpful. The one thing we feel the least uncertain about is the ascendancy of the Australian Dollar Exchange Rate - it has everything going for it, from commodities to a higher yield.

Pounds to US Dollars = 1.6358
Pounds to Euros = 1.1414
Euro to Pounds = 0.8758
Pounds to Australian Dollars = 1.9521

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790