Monday, 30 November 2015

Fed to take up 'too big to fail' emergency lending curb

The Federal Reserve headquarters in Washington September 16 2015.    REUTERS/Kevin Lamarque

The Federal Reserve Board will consider on Monday a proposal to curb its emergency lending powers, a change demanded by Congress after the central bank's controversial decision to aid AIG (AIG.N), Citigroup (C.N) and others in 2008.

A proposed rule, to be considered by the Fed's Washington-based board in an open meeting, would require that any future emergency lending be only "broad-based" to address larger financial market problems, and not tailored to specific firms.

The 2010 Dodd-Frank financial reform law instructed the Fed to curtail emergency loans to individual banks and prohibited it from lending to companies considered insolvent.

While some at the Fed worry the new rules will hamper the central bank's response in future crises, some politicians have said the proposed regulations are too imprecise, for example in defining insolvency, to prevent the types of deals done in 2008.

As the financial crisis intensified in 2008, the Fed invoked its little-used emergency lending power to stave off the failure of AIG and Bear Stearns, and help other "too big to fail" companies including Citigroup and Bank of America (BAC.N).

The Fed also enacted a series of more general emergency programs, in all providing $710 billion in loans and guarantees. Those programs were separate from the much larger Fed asset and bond purchases known as quantitative easing.

The loans have been repaid and the guarantees ended, ultimately earning the Fed a net profit of $30 billion, according to a September Congressional Research Service review.

However the effort was criticized as overreach, arguably important in limiting the crisis but also not clearly in line with the intended use of the Fed's emergency authority. The Fed routinely lends money to banks on a short-term basis to smooth the operations of the financial system. That is part of why it exists.

But since the 1930s it has had the power to lend more broadly in a crisis.

The Fed's support of major banks and nonfinancial firms highlighted the risks of having companies that are considered too big to fail, and of the implicit promise that they would be rescued. The Dodd-Frank reforms reined in those powers, and the rules to be considered on Monday put those Dodd-Frank provisions into effect.

Reference: Howard Schneider

Asia shares fall on China caution, yuan jumpy ahead of IMF decision

A man looks at an electronic board showing Japan's Nikkei average and related indices at the Tokyo Stock Exchange (TSE) in Tokyo August 26, 2015. REUTERS/Yuya Shino

Asian shares fell on Monday as Chinese stocks extended last week's sharp losses, while the yuan bounced in volatile trade hours ahead of an IMF decision on whether to promote it to a basket of global reserve currencies.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.7 percent, and was on course to log a loss of about 2.7 percent for the month of November, after making its first gains in six months in October.

Japan's Nikkei .N225 dropped 0.4 percent, though still looked set for a monthly gain of more than 3 percent.

The yuan bounced back in a volatile trade on the day when the International Monetary Fund is expected to add the currency to its benchmark currency basket on Monday.

Though analysts do not expect short-term impact, some analysts believe Beijing may allow the yuan to depreciate soon after its admission and may fell less pressure to push through promised reforms.

In onshore trade, the yuan fell to a three-month low of 6.3918 to the dollar CNY=CFXS before bouncing back to 6.3962, almost flat from Friday.

But in more volatile offshore trading, the yuan CNH= fell to a 2-1/2-month lows of 6.4591 to the dollar before rising back to 6.4354, up 0.2 percent on the day.

The board of the International Monetary Fund is widely expected to include the yuan in its Special Drawing Rights (SDR) basket at a meeting later in the day. Some traders expect Beijing may allow the yuan to depreciate after being admitted to the SDR basket, partly to reflect China's slowing economic growth, and may feel less urgency to push through further reforms.

Investors are also focusing on the ECB's policy decision on Thursday, with growing expectations that the ECB could cut interest rates by 20 basis points.

The euro traded at $1.0583 EUR=, down 0.1 percent on Monday and 3.8 percent on the month, edging near a seven-month low of $1.0565 touched on Wednesday.

"I think markets have almost priced in the ECB's rate cut and like after its easing in March, the euro is likely to rebound rather than heading towards parity against the dollar," said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management.

The prospects of an ECB easing also is putting pressure on the central bank of Switzerland, surrounded by euro zone countries, to take similar actions to stem any strengthening in the Swiss franc.

That pushed the franc to a five-year low of 1.0328 franc to the dollar on Friday. It last stood at 1.0311. CHF=.

In contrast, the dollar is supported as the Federal Reserve is widely tipped to hike U.S. interest rates at its mid-December policy meeting. The dollar index =USD .DXY rose to an eight-month high of 100.23.

The yen stood little changed 122.73 yen JPY=, showing little reaction after data showed Japan's industrial output rose slightly less than expected in October.

In commodities, gold licked wounds after Friday's two percent fall that took it to a near six-year low. The yellow metal logged its sixth straight weekly decline on a firm U.S. dollar and prospects of a U.S. interest rate rise next month.

Gold fetched $1,055.50 per ounce XAU=, just above Friday's low of $1,053.50.

Oil prices were also lethargic after their falls on Friday. Global benchmark Brent futures LCOc1 dipped 0.1 percent to $44.80 per barrel.


Friday, 27 November 2015

Euro on defensive, pressured by ECB stimulus expectations

Fifty-euro notes are seen at the Belgian Central Bank in Brussels in this December 8, 2011 file photo. REUTERS/Yves Herman

The euro languished near a seven-month low against the dollar on Monday, weighed down by expectations that the European Central Bank will ramp up its monetary stimulus next month.

Most major banks have stuck firmly to the view that the euro will fall toward parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.

Comments by European Central Bank President Mario Draghi on Friday reinforced expectations for the ECB to unveil more monetary stimulus at its policy meeting on Dec. 3, putting renewed pressure on the euro.

Draghi said the ECB is ready to act quickly to boost anemic inflation in the euro zone. He highlighted changes to the ECB's asset purchase program and deposit rate as possible tools to stop inflation from falling further below its target of just under 2 percent.

The euro was last at around $1.0635 EUR=, down slightly from around $1.0645 in late U.S. trade on Friday. The euro had touched a low of $1.0617 last Wednesday, its lowest level since mid-April.

"The euro seems likely to stay soft going into the (ECB) meeting," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

While U.S. Commodity Futures Trading Commission data shows that speculators have been increasing their bearish bets against the euro, the amount of such bets remains below this year's peak, suggesting there may be scope for such bets to increase further, Ino added.

Latest U.S. CFTC data showed that net short positions in the euro increased to their largest since June, in the week ended Nov. 17.

The euro traded heavily on the crosses, hitting a four-month low against the Australian dollar at A$1.4679 EURAUD=R in early Asian trade on Monday.

The euro slipped to 130.63 yen EURJPY=R on Monday on trading platform EBS, its lowest level in about seven months.

With the euro on the defensive, the dollar traded near a seven-month high against a basket of six major currencies. The dollar index last stood at 99.710 .DXY. It had set a high of 99.853 last Wednesday, its strongest level since mid-April.

The dollar has risen against the euro and the yen this month, after strong U.S. jobs data strengthened expectations for the Fed to raise interest rates in December.

San Francisco Fed President John Williams said on Saturday that there is a "strong case" for raising interest rates when Fed policymakers meet next month, as long as U.S. economic data does not disappoint.

Against the yen, the dollar held steady near 122.91 yen JPY=, having backed off from a three-month high of 123.77 yen set last Wednesday.


Euro on shaky ground, stocks up on talk of aggressive ECB easing

The euro slipped back towards seven-month lows, bond yields fell and European shares rallied on Thursday as talk of aggressive stimulus from the European Central Bank next week gained ground.

The pan-European FTSEurofirst 300 index .FTEU3 rose 0.8 percent, adding to Wednesday's 1.4 percent gain, while the Euro STOXX 50 index .STOXX50E was up 1.2 percent.

The firm gains came as Wall Street shares closed flat overnight in a pre-Thanksgiving holiday lull and Asian stocks closed modestly higher. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent.

"Expectations surrounding the ECB are running very high and this is driving European markets higher, weakening the euro and helping them do better than U.S. stocks," said Marco Vailati, head of research and investment at Italy's Cassa Lombarda.

"I think and hope the ECB will not disappoint but I realize that it won't be that easy," he said.

Euro zone central bank officials are considering options such as staggered charges on banks hoarding cash and buying more debt ahead of next week's ECB meeting, Reuters reported on Wednesday.

That fueled talk that the central bank is getting ready for aggressive measures to lift inflation and economic growth in the 19-member euro zone.


Against this backdrop, the euro remained on the back foot, dipping 0.15 percent to $1.0626 EUR=. It tumbled on Wednesday to $1.0565, its lowest level since mid-April, before recovering. Against the yen, the euro fell 0.2 percent to 130.12 yen, having hit a 7-month low of 129.77 EURJPY=R on Wednesday.

Overall market activity was thin due to the holiday in the United States.

"Ultimately, I think the ECB will be aggressive and that divergence in policy with the United States must imply a weaker euro," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

"The question now is how far can we go, and as the Fed tightens, euro/dollar parity is looking likely by the second quarter of next year."

Euro zone lending expanded at its fastest rate in nearly four years in October while a broader measure of money circulating grew well ahead of expectations, data from the ECB showed on Thursday.

Still, banks continue to park around 160 billion euros in overnight deposits with the ECB, indicating that even negative rates and extraordinary monetary stimulus has not unblocked the lending channel.

Short-term euro zone interest rates fell to record lows as markets interpreted an ECB debate about two-tier deposit rates as signaling the intention for an aggressive cut.

ECB easing expectations also pushed German five-year government bond yields DE5YT=TWEB to a new record low of -0.196 percent, while two-year yields DE2YT=TWEB hovered just above lows of -0.418 percent.

Expectations for a divergence in monetary policy meanwhile rose after U.S. economic data on Wednesday cemented expectations that U.S. interest rates will rise soon, helping push the gap between short-dated bond yields in the U.S. and Germany to their widest since 2006 and underpinning the dollar.


Oil prices fell, after six days of gains, as concerns that escalating violence in the Middle East would disrupt supply faded, and the focus returned to a persistent market glut. [O/R]

Brent LCOc1 crude oil futures were down 0.9 percent at $45.75 a barrel.

Spot gold XAU= was little changed at $1,071.65 an ounce, hovering close to its lowest in nearly six years on the back of a firmer dollar and expectations for higher U.S. interest rates.

Copper prices CMCU3 bounced to their highest in nearly two weeks, helped by funds starting to reverse some of their bets on lower prices. The metal has been hit hard in recent weeks by dollar strength.

Elsewhere, Turkish assets remained under pressure as a dispute with Russia over its downed jet rumbled on, but other emerging equities edged up, snapping a three-day losing streak.

Emerging stocks .MSCIEF were last up about 0.25 percent.


Thursday, 26 November 2015

Five Top Money Management Tips

Five Top Money Management Tips

Trading the forex market without safeguards can be like skydiving without a parachute. Anyone serious enough about trading would do well to incorporate money management techniques to their trading plan to protect their portfolio.

Nearly all successful traders use a money management strategy along with their regular trading plan, and if you have ever experienced a severe drawdown on your account, you probably do too.

Basically, having safeguards in place to protect your account to remain in business is far better than the alternative. What follows are some general guidelines for money management which can be incorporated into a trading plan.

Tip #1: Only Trade with Risk Capital

Trading currencies involves taking substantial risks, no matter how you look at it. Because of the free-floating currency market, currency trading has considerably more in common to gambling than investing.

As a result, putting funds at risk which you cannot afford to lose should never even be considered by a responsible forex trader. This includes money needed for key housing expenses such as your mortgage or rent payment, or the weekly food allowance necessary for your or your family's sustenance.

In general, traders do better by only trading forex with funds known as risk capital. Such money has been specifically designated for trading because it is expendable and therefore not needed for the basic essentials of living.

Tip #2: Cut Losses Short, Let Profits Run On

We cannot say this enough. These just have to be some of the most popular words of wisdom that Wall Street has ever passed on to its novice traders.

The basic idea behind this saying is that you should first endeavour to manage your risk by using stop losses in a disciplined way.

Secondly, you should also allow your profits to accumulate when you have a winning position. Traders often use trading stops for this purpose.

Furthermore, as a wise trader once said, "In trading, it's not what you make, profits take care of themselves; it's what you don't lose that really matters."

Tip #3: Avoid Using Too Much Leverage

Because of the nature of the forex market as a venue of exchange for currencies, initiating a forex position involves the equal value exchange of two currencies. This requires no money initially, in theory anyway, because it is not a purchase or sale of a commodity or stock, but instead represents a rate of exchange.

Most online forex brokers therefore offer their customers leverage ratios which can be as much as 500:1. This means that for every dollar you place up as collateral against potential losses, you can control $500. While this sort of leverage can be extremely profitable on a winning transaction, it can also deplete your account just as quickly, cleaning it out in just one sharp forex move. (In the U.S. the maximum leverage is 50:1 for majors and 20:1 for minors.)

Essentially, leverage must be only used if you keep the size of any potential losses firmly in mind. This way, your portfolio will not suffer severe, unplanned drawdowns if you find yourself on the wrong side of the market, as almost all forex traders do at one time or another.

Tip #4: Avoid Taking Too Much Heat

The heat factor when trading consists of how comfortable you feel with the amount of risk you have assumed on any given position.

Essentially, if you cannot sleep at night because you find yourself worrying about your forex trading positions, then you will generally be taking on too much heat in your trading portfolio.

Heeding this tip involves only taking positions you feel comfortable with and keeping your trades to a manageable size in proportion to your overall account size.

Tip #5: Do Not Give in to Greed

Maybe "greed is good" as Gordon Gecko, the fictitious trader pictured after Ivan Boesky once maintained in the classic financial markets movie "Wall Street". Nevertheless, greed has been the downfall of many a successful trader.

In fact, greed leads to a number of risky trading errors. These include: overtrading, excessive risk taking and failing to take profits at appropriate levels.

One of the best ways to deal with greed when it inevitably arises when trading forex involves having appropriate safeguards against it built into your trading plan.

Use the above tips in Your Trading Plan

By trading objectively through having a sound trading plan and incorporating the wisdom contained in the above money management trading tips, you will be far more likely to be profitable in the long run than if you traded based on your emotions and without any plan at all.

Perhaps even more important is maintaining the discipline necessary to follow your plan once you have made it.


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Dollar rises on manufacturing data, holds off euro rebound

The dollar rose on Wednesday, holding near multi-month highs against a basket of currencies as the latest batch of U.S. economic data continued to support views the Federal Reserve will raise interest rates in December.

Manufacturing output rose well above economists' expectations in October and a gauge of U.S. business investment plans surged. A survey of factories also showed a rise in new orders last month, the Commerce Department said.

The data turned the dollar upward against the yen JPY=, which rallied overnight on heightened tensions between Russia and Turkey. The dollar touched a session high against the yen after the data; it last traded at 122.73 yen.

The euro rebounded in late U.S. trading, showing some short-term technical resistance at $1.06.

The continental currency fell as low as $1.05785 in early morning trading, hitting a seven-month low against the dollar, after news that the European Central Bank is considering policy options such as staggered charges on banks hoarding cash or buying more debt. The ECB holds a policy meeting on Dec. 3.

The euro's recovery was largely the result of low-volume trading and traders cashing in already-held bets against the currency, analysts said.

"We did see some extended short positions on the euro coming in today, so they might have been covered a little bit there," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Limited in New York. "We think that the short positioning on the euro is a bit extended here in part because everyone expects the ECB to take some measures next week to ease monetary policy in the euro area further."

The euro was last down 0.2 percent at $1.0617.

Stephen Jen, who runs London-based hedge fund SLJ Macro Partners, said he believed the ECB would cut the deposit rate by at least 30 basis points to -0.5 percent.

The consensus from a Reuters poll is that the ECB will cut the rate to -0.30 percent from -0.20 percent currently. [ECB/INT]

Policymakers are discussing a split-level rate - a contested step that would impose a higher charge on banks depending on the amount they deposit with the ECB - to soften the impact of any further deposit rate cut on banks.

"Draghi said he wanted to accelerate the recovery in inflation," Jen said, referring to ECB President Mario Draghi. "That could not possibly be achieved by cutting the rate by 0.1 percentage point, as the market was expecting."

Reference: Reuters

Wednesday, 25 November 2015

How Gold Affects the Forex Market

Gold and other precious metals like silver, platinum and palladium have intrinsic value as hard physical assets with important industrial applications. They also have value due to their ability to store a considerable amount of wealth in a rather small space.

As a result, many people keep gold to protect against inflationary pressures and to provide a means of exchange in tumultuous times that may depreciate the value of paper fiat currencies. Furthermore, many currencies were at one time or another pegged to gold or the so-called "gold standard."

For example, from the mid-1940s to the early 1970s, gold determined the value of most major currencies in the global forex markets under the Bretton Woods system of exchange rates. This post-WWII system of fixed exchange rates broke down in the early 1970s as then-president Richard Nixon ordered the U.S. Dollar removed from the gold standard.

The following sections describe some of the more recent trading links between gold and several major currencies.

The Euro and Gold

Since 1980, when gold hit its former record high of $850 an ounce, the price of gold had declined gradually until 1999 when it had fallen to a low of $257 an ounce. Interestingly, the low in the price of gold coincided roughly with the introduction of the Euro in January of 1999.

Furthermore, until the recent Greek debt crisis at least, the E.U.'s Euro has generally risen in value versus the U.S. Dollar due in part to a relatively modest currency printing program overseen by the European Central Bank. This contrasts with the more active paper money printing program overseen by the Federal Reserve in the United States.

The Australian Dollar and Gold

Another interesting link between gold and currencies involves the value of the Australian Dollar. Since as gold rises in value, so generally does the Australian Dollar.

Basically, this link has to do with the fact that Australia has considerable gold reserves. Also, Australia is a net exporter of gold, and the precious metal makes up a significant percentage of its national exports.

These factors make the value of the Australian Dollar especially susceptible to fluctuations in gold prices, although its value is also affected by the price of oil and other key raw materials. As a result, the Aussie is often referred to as a commodity currency by forex traders.

The Swiss Franc and Gold

In 2000, the Swiss Franc became the last of the national paper currencies to be taken off the time-honoured gold standard. Before that time, the Swiss Franc had the status of being a safe haven currency that maintained intrinsic value when times became difficult since it was freely convertible into gold.

The Swiss currency still benefits from safe haven buying to a lesser extend due to its long history of political stability, neutrality and abstention from conflict. Nevertheless, the currency's former close relationship to the value of gold has declined considerably.

The U.S. Dollar and Gold

Recently, as the U.S. government continues to overspend its income by a considerable margin, under the guise of stimulating the country's failing credit-driven economy, investors increasingly look to gold as a way of hedging against the almost inevitable inflationary implications of increasing government borrowing to print more paper money. This has resulted in a recent inverse relationship between the value of the U.S. Dollar and gold.

Furthermore, as post-WWI Germany learned during its devastating hyper-inflationary period in the early 1920s, this sort of irresponsible fiscal policy can be a recipe for a currency's downfall and eventual replacement by a currency linked to gold - the forex market's standard of real value.

Reference: Forextraders

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Wall Street ends higher, driven by energy amid global tension

Traders work on the floor of the New York Stock Exchange November 24, 2015. REUTERS/Brendan McDermid

U.S. shares closed higher on Tuesday as energy stocks rose along with oil prices after Turkey shot down a Russian warplane near the Syrian border.

The three major U.S. indexes recovered from a morning selloff that was triggered by the overseas news despite some strong U.S. economic data.

Oil prices were up more than 2 percent after a spike in Middle East tensions.

"You came in this morning and everybody was talking about this potential escalation of violence between Turkey and Russia," said Andrew Frankel, co-president of Stuart Frankel & Co in New York. He added that investors settled down after it appeared that Russia's response would not be as confrontational as they initially feared.

Relatively light trading appeared to exaggerate swings in the market, according to Frankel, as many market participants were away ahead of the U.S. Thanksgiving holiday. Markets will be closed all day Thursday and close early Friday.

The Dow Jones industrial average .DJI rose 19.51 points, or 0.11 percent, to 17,812.19, the S&P 500 .SPX gained 2.55 points, or 0.12 percent, to 2,089.14 and the Nasdaq Composite .IXIC added 0.33 points, or 0.01 percent, to 5,102.81.

Investors steered clear of many of Nasdaq's higher-valuation stocks like Netflix (NFLX.O) and instead took safety in cheaper stocks due to geopolitical concerns, according to J.J. Feldman, portfolio manager at Los Angeles-based Miracle Mile Advisors.

"When you get that kind of thing people say they're going to get out of the high-flyer expensive P/E stocks and into the flight-to-quality value stocks that have been beaten down," he said.

Travel-related stocks fell after the U.S. State Department issued a global travel alert for Americans. The Dow Jones Airlines index .DJUSAR ended down 2.7 percent, led by a 5-percent decline in Allegiant Travel (ALGT.O). United Continental (UAL.N), Delta Air Lines (DAL.N) and Spirit Airlines (SAVE.O) all fell around 3 percent.

Six of the 10 major S&P sectors rose and energy .SPNY led with a 2.4-percent increase, followed by a 0.8 percent increase in materials .SPLRCM.

Hewlett-Packard (HPQ.N) shares fell 3.4 percent in extended trading after the close when it reported a revenue decline for the fifth straight quarter, its last before it split into two companies.

The U.S. economy grew at a 2.1 percent pace in the third-quarter, compared with an earlier estimate of 1.5 percent, data showed, but consumer sentiment in November was the weakest since September 2014 ahead of the crucial holiday shopping season.

Advancing issues outnumbered declining ones on the NYSE by 1,893 to 1,162, for a 1.63-to-1 ratio on the upside; on the Nasdaq, 1,659 issues rose and 1,121 fell for a 1.48-to-1 ratio favoring advancers.

The S&P 500 posted 9 new 52-week highs and 8 new lows; the Nasdaq recorded 63 new highs and 74 new lows.

About 6.9 billion shares changed hands on U.S. exchanges below the 7.2 billion average for the last 20 sessions, according to Reuters data.


Tuesday, 24 November 2015

Options Trading Explained

Newsletter 56

Basic Trading Concepts Defined

An option gives the buyer the right (but not the obligation) to buy the underlying asset at an agreed-upon price within an agreed-upon time frame. Options are a derivative, or secondary, market. Options can be based on stocks, indexes, ETFs, and more. That means that the ability to make profits in options depends upon a primary market. So in order to be successful at trading stock options, you need to have a solid understanding of how to determine when a stock is poised to move, which direction it is going to move, how much it will move, and how long.
Because stock option prices move with the underlying stock price, you are missing more than half of the equation by using this approach. You are studying the secondary market without considering the primary market. Instead, you have to know IF the stock is going to move, HOW MUCH it is expected to move, WHEN it will begin to move and HOW LONG it will take to move sufficiently enough to make your trade profitable.

How do you find this information?

You must start your options trading career not by learning options strategies but by first learning all you can about stock trading and, in particular, the trading style most suited for options. All option contracts have an expiration date. A popular time frame for options is 3 months. That places options clearly in the trading style called Position Trading.
In order to trade stock options successfully, you must know:
  • If the stock is going to continue up.
  • How many points the stock can move up based on the support and resistance in the stock chart.
  • How long it will take for the stock to move up to your target price based on the trendline pattern occurring in the chart and run analysis.
The answers to these questions are critically important to your success as an options trader. Before you ever look at an option chain or consider implied volatility and the Greeks, you need to consider whether you have chosen the right stock for your options strategy based on stock chart analysis.

To be successful at options, you must be able to read stock charts.

Study of the stock chart tells us that a bottom has completed and a buy signal with confirming indicators has formed to tell us that the stock is going to move up.
Resistance in the chart tells us how far, how many points, the stock can move before it begins correcting down, which is the price range where the exit should be anticipated. Support in the chart tells us how many points, or dollars, there are at risk.
The trendline pattern forming in the first daily chart as the price action develops tells us this stock tends to move sideways for roughly a month between runs up that gain around 3-4 points each. This makes an option expiration date of 3 months out reasonable. Then, only after you have studied the stock chart, you have the information you need to look at the option chains and find the right option to buy. You now know the Strike price and the Expiration date you need on the option contract.
Every time you trade an option, you must consider the actual price movement of the underlying stock. If you simply rely upon implied volatility or the Greeks for the option, you miss the most important aspect of your trade. This is just like deciding how much you want to pay without knowing what you're buying yet. No matter what option strategy you want to use, understanding the underlying stock-when it will move, how much it will move, and for how long it will move-is critical to your success. If you want to be an options trader, then give yourself the ultimate asset of learning how to read stock charts. This alone will save you from countless contracts that expire worthless.

Reference: Martha

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Commodities hit as dollar rises

Commodity markets were hit and stocks and bonds were in the firing line on Monday, as expectations for a first increase in U.S. interest rates in almost a decade next month pushed the dollar to a seven-month high.

Industrial metals copper and nickel plunged and oil prices whipsawed, while the euro fell as low as $1.06 as the prospect of more policy easing by the ECB in Europe was compounded by a security lockdown in Brussels.

European stocks .FTEU3 were down 0.5 percent despite better-than-expected euro zone data as the slump in commodities and the unrelenting appreciation of the dollar dominated sentiment at the start of the week.

Copper CMCU3 slumped to a fresh six-and-a-half year low and nickel CMNI3 dived more than 4 percent to its lowest since 2003 as traders bet metals prices still had further to fall, given slowing factory demand in China. [MET/L]

Oil prices were highly volatile, with U.S. crude CLc1 off $1.30 or 3 percent at $40.60 a barrel at one point and Brent LCOc1 down 2 percent at $43.57 before both jumped on comments from Saudi Arabia on co-operation with other producers. [O/R]

That put commodity-linked currencies such as the Russian rouble on another ride RUB= and even safe-haven gold XAU= was not immune as it hovered around $1,070.56 an ounce, having touched its lowest level in nearly six years.

"The biggest factor here is the dollar," said Hans van Cleef a senior energy economist at ABN Amro in Amsterdam. "It is having an impact on all major commodities at the moment."

"More and more investors are watching it (commodities sell-off) and sentiment therefore gets more jittery."

Wall Street was expected to see a subdued start to Thanksgiving week ESc1 with November manufacturing and home sales figures set to feed the Fed rate hike debate.

The dollar's .DXY fresh push left the euro EUR= at a seven-month low overnight, though the common currency managed to fend off the market's first attempt at dragging it below $1.06.

It was given some help as purchasing manager data showed euro zone business activity picking up at its fastest pace since mid-2011, partly thanks to the currency's recent weakness.

That also helped Europe's main bourses claw back some of their early losses, although the early woes around commodities ensured miners and oil and gas firms .SXPP .SXEP remained the worst performers.

The healthcare sector was also in focus after Pfizer (PFE.N) secured formal board approval on Sunday for its more than $150 billion acquisition of Botox maker Allergan (AGN.N), that will create the world's biggest drugmaker.


ECB stimulus hopes helped underpin Europe. The head of the European Central Bank, Mario Draghi, last week offered the strongest hint yet that the ECB will unveil fresh easing measures at its Dec. 3 policy meeting.

Its stance is in stark contrast with that of the U.S. Federal Reserve, which seems set to lift rates in December for the first time in a decade.

As a result the premium offered by U.S. 2-year paper over the German equivalent yawned to 130 basis points, the widest since 2006. Overall, though, euro zone yields edged higher ahead of the Fed and a heavy week of sovereign debt sales. [GVD/EUR]

Against a basket of currencies .DXY the dollar firmed 0.3 percent to 99.881, whilst also rising to 123.19 yen JPY=.

Emerging market were being squeezed again although Argentinean assets got a boost from the election victory of pro-business opposition candidate Mauricio Macri who has promised to open up the ailing economy to investors.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended off 0.2 percent. South Korea's main index .KS11 gained 0.7 percent while Australian stocks added 0.4 percent. Japan's Nikkei was closed for a holiday.

"Interestingly, (equity) markets are treating the prospects of policy divergence reasonably well," said Jo Masters, a senior economist at Australia and New Zealand Bank.

"But with two of the world’s major central banks about to head on divergent policy paths, can such smooth sailing continue over the months ahead?" they wondered. "Increased policy tension is likely to mean that volatility remains elevated."

Reference: MARC JONES

Monday, 23 November 2015

Euro and commodities skid, Asia stocks mixed

A pedestrian is reflected on an electronic board showing the graph of the recent fluctuations of the Japan's Nikkei average outside a brokerage in Tokyo, Japan, August 27, 2015. REUTERS/Yuya Shino

The euro sagged to a seven-month trough on Monday as the prospect of more policy easing in Europe benefited the U.S. dollar, while activity in Asian shares was crimped by a holiday in Japan.

The strength of the dollar also combined with worries about Chinese demand to clobber commodity prices again, sending copper to its lowest in over six years.

The head of the European Central Bank, Mario Draghi, last week offered the strongest hint yet that the ECB will unveil fresh stimulus measures at its Dec. 3 policy meeting.

The contrast with the U.S. Federal Reserve could not be more stark as it seems destined to lift rates in December for the first time in a decade, underpinning the dollar.

The impact was clear in bond markets where yields on two-year German debt hit their lowest ever at negative 38 basis points, while U.S. yields were at their highest since mid-2010.

As a result the premium offered by U.S. paper yawned out to 130 basis points, the fattest since 2006.

The drag from negative yields pulled the euro down to $1.0605 EUR=, breaching the recent low of $1.0615. It also peeled off to 130.55 yen EURJPY=, again the lowest since April.

Against a basket of currencies .DXY the dollar firmed 0.4 percent to 99.949, while also rising to 123.15 yen JPY=.

Equities were quieter, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS off 0.2 percent. South Korea's main index .KS11 gained 0.7 percent while Australian stocks added 0.35 percent.

Wall Street could find support from news of another blockbuster merger. Sources told Reuters that Pfizer Inc (PFE.N) was due to secure formal board approval for its acquisition of Allergan Plc (AGN.N) for more than $150 billion, creating the world's biggest drug maker.

The EMINI contract on the S&P 500 ESc1 was trading 0.1 percent firmer on Monday. The Dow .DJI had ended Friday up 0.51 percent, while the S&P 500 .SPX added 0.38 percent and the Nasdaq .IXIC 0.62 percent.

The S&P 500 boasted its best week in almost a year, while Europe's main stock index enjoyed its strongest week in a month.

"Interestingly, markets are treating the prospects of policy divergence reasonably well," said Jo Masters, a senior economist at Australia and New Zealand Bank.

"But with two of the world’s major central banks about to head on divergent policy paths, can such smooth sailing continue over the months ahead?" they wondered. "Increased policy tension is likely to mean that volatility remains elevated."

The strength of the dollar kept commodity prices under pressure. Gold XAU= was stuck at $1,070.50 an ounce having touched its lowest level in nearly six years.

Copper CMCU3 slipped to a fresh six-and-a-half year low, as traders bet metals prices had further to fall given China's slowing factory demand.

Oil prices sank again with U.S. crude CLc1 off 90 cents at $40.99 a barrel, while Brent LCOc1 lost 60 cents to $44.06.

Reference: WAYNE COLE

Fed's Williams sees strong case for December interest-rate hike

John Williams, president of the Federal Reserve Bank of San Francisco, speaks in San Francisco, California March 27, 2015. REUTERS/Robert Galbraith

There is a "strong case" for raising interest rates when Federal Reserve policymakers meet next month, as long as U.S. economic data does not disappoint, a top Fed official said on Saturday.

"The data I think have been overall encouraging, especially on the labor market," San Francisco Fed President John Williams told reporters after a conference at University of California Berkeley's Clausen Center.

"Assuming that we continue to get good data on the economy, continue to get signs that we are moving closer to achieving our goals and gaining confidence getting back to 2-percent inflation... If that continues to happen there's a strong case to be made in December to raise rates."

The Fed is widely seen increasing its benchmark overnight interest rate at its Dec. 15-16 policy meeting, and the debate is already shifting to the pace of rate hikes going forward.

Williams sought on Saturday to make clear that rate hikes would not only be gradual, but would not follow the stair-step pattern that characterized the Fed's last policy-tightening cycle, when it raised rates by a quarter of a percentage point at every meeting.

"I do think the slope is the most important thing to communicate, the pace of increases," he said, adding that the Fed's quarterly economic forecasts will be critical in that regard, along with public comments from Fed officials and possible changes to the Fed's post-meeting statement.

"We definitely do not want to, either through our actions or our words, indicate a preference for a very mechanical path of interest rates, whether it’s every other meeting or however you think about it," Williams said. "Since economic data can surprise on the upside and the downside, maybe there will be opportunities to show we are data dependent."

Reference: ANN SAPHIR

Friday, 20 November 2015

Who was Fibonacci?

Fibonacci and the Forex Market

One can earn high profits trading currencies with Fibonacci…but where is this coming from?

He is known as Fibonacci, but his real name was Leonardo Pisano, because Pisa was the town where he was born. His father’s name was Guillermo Bonacci. In Latin, the common European language of the time, “filius Bonacci” meant “son of Bonacci”. This was combined to make “Fibonacci”, similar in english to “Fitzgerald” (“son of Gerald”) or “Robertson” (“Robert’s son”) or “MacDonald” (“son of Donald”).

Fibonacci was born around 1170AD. So, if you are trying to reach him, you are out of luck, but if you do, please have him give me a call. That was a long time ago, way before currency and before computers and before the Forex Exchange. One thousand years later, his name is used daily by many traders, written thousands of times a day on charts, on trading sites, in newsletters. This man probably never met more than a few hundred people in his entire life.

Fibonacci, was a mathematician, and wrote his first book entitled The Book of Calculations in the year 1202.

This sounds like a history lesson, not something to do with the complex matters of the Forex Exchange and Currency Trading. Fibonacci developed a set of numbers from two studies.

The best explanation I can offer comes from a history on the life of Fibonacci.

“In his first publication, Liber Abaci*, Fibonacci presented the problem:

A certain man had one pair of rabbits together in a certain enclosed place, and one wishes to know how many are created from the pair in one year when it is the nature of them in a single month to bear another pair, and in the second month those born to bear also. Because the above written pair in the first month bore, you will double it; there will be two pairs in one month. One of these, namely the first, bears in the second month, and thus there are in the second month 3 pairs; of these in one month two are pregnant, and in the third month 2 pairs of rabbits are born, and thus there are 5 pairs in the month; ..

And so on, he explains each month in turn. Finally, he concludes:

You can indeed see in the margin how we operated, namely that we added the first number to the second, namely the 1 to the 2, and the second to the third, and the third to the fourth, and the fourth to the fifth, and thus one after another until we added the tenth to the eleventh, namely the 144 to the 233, and we had the above written sum of rabbits, namely 377, and thus you can in order find it for an unending number of months.

So the zero we now place at the start of the sequence arguably doesn’t belong, especially considering it wasn’t part of Fibonacci’s puzzle problem that made the sequence famous.”

From this study he developed the Fibonacci sequence 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377…

I know it sounds like a bunch of malarkey, but this sequence and these specific numbers have been tested and tested over and over again, and continually appear throughout nature and in mathematic equations.

Many technical analysis experts rely on the use of Fibonacci numbers. We will take a more in-depth look at these strange numbers in a more advanced article.

Believe me, many traders have used Fibonacci numbers to trade the forex markets and have earn high profits.

Reference: fxempire

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Dollar nurses losses against yen and euro, kiwi extends gains

A women walks past an exchange bureau advertisement showing images of the U.S. dollar, in Cairo , Egypt, November 19, 2015. REUTERS/Mohamed Abd El Ghany

The dollar steadied against the yen and euro on Friday after retreating from a recent rally that took the greenback to 7-month highs against a basket of peers.

The dollar was firm at 122.895 yen JPY= after sliding 0.6 percent on Thursday, snapping a four-day winning run. The Bank of Japan's decision not to ease monetary policy further weighed mildly on the U.S. currency, though it was still enroute to scape out a 0.2 percent gain this week.

"Foreign players appeared to have cleared out positions before the long Japanese weekend, pushing the dollar lower. Japanese investors, on the other hand, are buying on price dips and preventing a further decline," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The Japanese financial markets will be closed on Monday for a public holiday.

The euro was little changed at $1.0718 EUR= after gaining 0.7 percent overnight.

Traders saw the overnight decline in U.S. treasury yields more as a catalyst rather than a sole reason for the dollar's drop, noting the currency appeared ripe for profit taking after surging this week to a 7-month peak against a basket of currencies.

The dollar index stood at 99.070 .DXY, pulling back from a peak of 99.853 hit on Wednesday, its highest since mid-April.

The euro was still on track to lose 0.5 percent on the week after being buffeted by heightened prospects of the Federal Reserve hiking interest rates and the European Central Bank easing monetary policy next month.


The New Zealand dollar, one of the strongest G10 currency performers this week, gained 0.5 percent to $0.6597 NZD=D4, adding to a gain of 1.4 percent on Thursday when upbeat domestic producer prices data triggered a rally.

"NZD has been the best performing currency in recent months, confounding widespread expectation that lower milk prices and USD appreciation would drag it down," wrote Todd Elmer, Citi's Asian head of G10 FX strategy.

In August the kiwi slumped to a 6-year low of $0.6200 against the dollar in wake of global risk aversion following a tumble in Chinese stock markets, but it has since gained about 6.5 percent.

"Declines in the prices for New Zealand's main exports are clearly negative for the currency, but investors are probably under-accounting for the degree of support for NZD afforded by buoyant risk appetite and yield seeking," Elmer said.

The Reserve Bank of New Zealand has cut interest rates this year, but the country's government bonds still offer comparatively higher yields than debt from other industrialized economies.

The Australian dollar also stood tall after surging overnight on short-covering amid improved global appetite for riskier assets. The Aussie fetched $0.7207 AUD=D4 after rising from Thursday's low of $0.7103.


Thursday, 19 November 2015

Soothing Fed sounds send global shares, emerging markets higher

People walk through the lobby of the London Stock Exchange in London, Britain August 25, 2015.  REUTERS/Suzanne Plunkett

World shares rallied and the dollar dipped on Thursday, after the Federal Reserve flagged a rate hike next month, but also an intention proceed slowly and steadily after that.

The pick-up in risk sentiment combined with the dip in the dollar .DXY gave commodities a brief reprieve from recent selling, with oil LCOc1, copper and other industrial metals and gold XAU= up for a while before losing their traction.

European stocks also performed strongly with the FTSEurofirst 300 .FTEU3 pushed to a three-month high by 0.8 to 1.6 percent gains in London .FTSE, Frankfurt .GDAXI and Paris .FCHI, after Japan's Nikkei .N225 had hit a similar peak in Asia.

Minutes of the Fed's last policy meeting showed most members were ready to sanction the bank's first rise in rates in almost a decade in December as long as further moves then depended on the economy continuing to perform well.

It was a cautious enough message to ease any concerns that the U.S. central bank might over eager with its rate rises and torpedo what is already relatively lackluster growth in the world's largest economy.

"We have had an interesting FOMC minutes and risk assets have rallied across the board with the dollar weaker and EM leading the way," said Alvin Tax an FX strategist at Societe Generale in London.

"That is the success of the Fed really. We expect they will hike in December but then proceed slowly after that and that has soothed markets."

Futures prices pointed to Wall Street's main S&P 500 ESc1, Dow Jones Industrial 1YMc1 and Nasdaq NQc1 markets adding around 0.4 percent to the sharp 1.4 - 1.6 percent gains they had made on Wednesday. [.N]

The earlier leaps across Asia meant MSCI's benchmark emerging market share index .MSCIEF, which is up 10 percent since late August, was on course for its best day in a month and the 45-country All World equivalent .WORLD was up for a fourth straight day. [EMRG/FRX]

Bond markets also seemed to have got the message that there was be no post-December rush on rates from the Fed.

Longer-term debt outperformed and the yield curve flattened noticeably. While two-year yields US2YT=RR rose 3 basis points, those on 30-year paper US30YT=RR actually dipped a basis point.

Yields were lower across most of Europe and Asia too. The premium offered by U.S. two-year debt over its German counterpart yawned out to 124 basis points, the fattest margin since 2006 and a positive for the dollar.

However, being long dollars has been a very crowded trade and investors decided to book some profits in the wake of the Fed minutes. Against a basket of currencies .DXY the dollar dipped 0.5 percent and away from a seven-month peak.

The euro edged back above $1.07 EUR= and off a seven-month trough around $1.0615. The dollar also eased against the yen to 123.09 JPY=, after touching a three-month peak of 123.67.


U.S. traders were readying themselves for what is expected to be a minor fall in jobless claims figures due at 8:30 a.m. ET as well as speeches from heavyweight Fed members, Vice Chair Stanley Fischer and Atlanta Fed President Dennis Lockhart. [.N]

Minutes of the European Central Bank's last policy meeting reinforced expectations of further easing from Frankfurt next month just as the Fed is gearing up to raise U.S. interest rates.

Peter Praet, the ECB's chief economist, also kept up the speculation that the bank's 'deposit rate' could go even deeper into negative territory, saying in a speech that the so-called "zero lower bound" was lower than most experts had originally thought.

In Asia overnight, the Bank of Japan surprised no one at its regular policy meeting by maintaining the current pace of asset buying, though many still suspect it will have to ease again at some point to force inflation higher.

Tokyo's Nikkei .N225 firmed 1 percent, brushing aside a disappointing report on exports and imports, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 2 percent led by Australia.

After a slow start, Chinese markets caught the better mood and the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen added 1.6 percent. [.SS]

In commodity markets, gold XAU= added 0.6 percent to $1,077.20 an ounce having been at its lowest since early 2010. Zinc, copper, lead and nickel were all near their lowest in five to seven years. [MET/L]

Oil prices rose from three-month lows on short-covering but began to slip back again ahead of U.S. trading. U.S. crude CLc1 was a shade lower at $40.40 a barrel with Brent LCOc1 at $44.08. [O/R]

"People are seeing oil at these very low levels and so they want to step in," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam. "But the oversupply is capping gains."

Reference: Marc Jones

Asia shares climb, dollar slips on Fed wagers

A man walks past the logo of Japan Exchange Group Inc. at the Tokyo Stock Exchange (TSE) in Tokyo August 26, 2015.  REUTERS/Yuya Shino -

Asian shares jumped on Thursday and the dollar backed off highs on expectations the Federal Reserve would be confident enough of the U.S. economy to raise rates in December but would then proceed with great caution on further tightening.

The pick-up in risk sentiment combined with the dip in the dollar gave commodities a reprieve from recent selling, with oil and gold inching higher.

Financial spreadbetters expected opening gains of 0.45 percent for Britain's FTSE 100 .FTSE, 0.89 percent for the German DAX .GDAXI and 0.88 percent for France's CAC 40 .FCHI.

The Bank of Japan surprised no one at its regular policy meeting by maintaining the current pace of asset buying, though many still suspect it will have to ease again at some point to force inflation higher.

Japan's Nikkei .N225 firmed 1.07 percent, brushing aside a disappointing report on exports and imports.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.98 percent, while Australia's main index AXJO jumped 2 percent for a third straight session of gains.

After a slow start, Chinese markets caught the better mood and the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen added 0.9 percent.

Sentiment was supported by the Dow .DJI which ended Wednesday with a gain of 1.43 percent, while the S&P 500 .SPX added 1.62 percent and the Nasdaq .IXIC 1.79 percent.

Minutes of the Fed's last policy meeting showed most members were ready to sanction a lift-off in December as long as further moves were then highly dependent on the economy continuing to perform well.

"If - when - they lift rates in December, the Fed will likely be very aggressive in highlighting the idea of a very gradual pace," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

"We fully expect Yellen to promote this heavily at her press conference," he added, referring to what Fed Chair Janet Yellen will say after the pivotal Dec. 15-16 policy meeting.

The bond market seemed to get the message with longer-term debt outperforming and the yield curve flattening noticeably. While two-year yields rose 3 basis points, those on 30-year paper actually dipped a basis point.

The premium offered by U.S. two-year debt over its German counterpart also yawned out to 124 basis points, the fattest margin since 2006 and a positive for the dollar.

However, being long dollars has been a very crowded trade and investors decided to book some profits in the wake of the Fed minutes. Against a basket of currencies .DXY the dollar dipped 0.5 percent and away from a seven-month peak.

The euro edged up to $1.0707 EUR= and off a seven-month trough around $1.0615. The dollar also eased against the yen to 123.25 JPY=, after touching a three-month peak of 123.67.

Minutes of the European Central Bank's last policy meeting are due later on Thursday and will likely reinforce expectations of further easing in December.

In commodity markets, gold added 0.6 percent to $1,077.20 an ounce having been at its lowest since early 2010. Zinc, copper, lead and nickel were all near their lowest in five to seven years.

Oil prices rose from three-month lows on short-covering. U.S. crude CLc1 gained 22 cents to $40.97 a barrel, while Brent firmed 43 cents to $44.57.

Reference: WAYNE COLE

Wednesday, 18 November 2015

Dollar slips after solid gains, investors await Fed minutes

An employee of a money changer holds a stack of U.S.  Dollar notes before giving it to a customer in Jakarta, October 8, 2015.   REUTERS/Beawiharta -

The dollar slipped from a seven-month high against a basket of currencies on Wednesday as markets awaited minutes of the Federal Reserve's recent policy meeting which could reinforce expectations of a rate hike next month.

But with the Fed likely to flag concerns about the currency's recent strength, there were signs of wariness building in the long dollar trade.

"It will be a case of range-trading going into the Fed minutes. We could see some positions being pared, with the dollar having risen in the past few weeks," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

"The market is also mindful that the Fed may refer to the dollar's strength either implicitly or obliquely and that its rise has been tightening monetary conditions. That should make any hikes a rather slow and gradual process."

The dollar index .DXY has risen 6.3 percent in the past month FEDWATCH as market odds for an interest rate hike in December moved from around 30 percent to 66 percent. The Fed's broad-based dollar trade-weighted index has also pushed higher.

The index was 0.1 percent lower at 99.535 .DXY after touching 99.745 on Tuesday, its highest since mid April. The dollar was also slightly lower against the safe-haven yen JPY= and the Swiss franc CHF=.

The dollar's dip saw the euro regain ground despite what traders described as caution in early trading as French police hunted a Belgian militant suspected of masterminding last week's attacks on Paris.

The single currency rose to $1.0673 EUR=, having dropped to a seven-month low of $1.0630 on Tuesday. The euro has been losing ground on expectations the European Central Bank will ease monetary policy further in December, with many forecasters predicting it will reach parity with the dollar.

Pascal Blanque, chief investment officer at Amundi Asset Management told the Reuters Investment Summit that the bulk of the directional impact from quantitative easing by major central banks on exchange rates was "behind us".

"To an extent, I think it has become more uncertain compared to let's say two years ago," he said.

Comments on Tuesday by ECB chief economist and executive board member Peter Praet, who told Bloomberg downside risks may have increased in light of the events in Paris, reinforced expectations of further stimulus.

The euro lurched lower after Paris attacks as investors fretted about their potential impact on the euro zone economy.

Reference: Reuters

Dollar sits atop large gains, euro dogged by ECB easing expectations

An employee of a money changer holds a stack of U.S.  Dollar notes before giving it to a customer in Jakarta, October 8, 2015.   REUTERS/Beawiharta -

The dollar sat near a 7-month high against a basket of currencies on Wednesday as the euro slid on expectations for more monetary easing by the European Central Bank in December.

The greenback treaded water after its advance was halted by an overnight drop in U.S. Treasury yields amid investor demand for safe-haven assets.

The dollar index was little changed at 99.736 .DXY after touching 99.745 overnight, its highest since mid April.

The greenback's gains came in large part from the euro's weakness. The common currency was down 0.1 percent at $1.0635 EUR= after touching a 7-month trough of $1.0630 overnight, hurt by the potential harm the Paris attacks could do the euro zone economy, and which could require yet more easing by the ECB.

The euro could also face pressure in the longer run with France on a stronger war footing following the assault on its capital.

France is bound to overshoot its European Union budget deficit target as it boosts security spending in the wake of the Nov. 13 attacks, Prime Minister Manuel Valls said on Tuesday.

"Although French government bonds are unlikely to be sold immediately on this - the ECB is a steady buyer of debt - it is still a fiscal issue with negative consequences for the euro in the long run," said Ayako Sera, a senior market economist with Sumitomo Mitsui Trust in Tokyo.

"That said, the ECB's monetary policy firmly remains an immediate concern for the euro," Sera added.

Expectations of further central bank stimulus grew on Tuesday after ECB's chief economist and executive board member Peter Praet told Bloomberg that he was aware of present downside risks and that they may have increased in light of the events in Paris.

"The worst policy mix for a currency is loose monetary and tight fiscal policy. The eurozone is flirting with this combination, even if the region's fiscal straitjacket is not being enforced rigorously. This is part the case for a weaker euro in the quarters ahead," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

Moreover, latest data further highlighted the monetary policy divergence theme, with a rise in U.S. inflation reinforcing prospects of the Federal Reserve hiking interest rates next month. ECONUS

The dollar was flat at 123.43 yen JPY= after nudging up to a 1-week high of 123.49, its advance stalled by the overnight drop in U.S. debt yields.

Treasury yields declined on Tuesday as worries that more terror acts would follow Friday's attacks in Paris spurred demand for safe-havens. Two-year to 10-year debt yields rebounded on Wednesday, although their rise was too modest and gave little lift to the dollar. [US/]

Elsewhere, a fall in dairy prices knocked the New Zealand dollar lower. The kiwi struggled near a 6-week low of $0.6452 NZD=D4.

Data out late on Tuesday showed global dairy prices fell for the third consecutive auction, adding to pressures on New Zealand farmers and to the chance that the central bank could cut interest rates at its meeting next month.

The market will sift through the October Fed policy meeting minutes due later in the session for hints on the timing of a possible rate hike. The dollar had surged after the Fed left the door open for a December rate hike at the meeting held late in October.

Housing-related data to be released later in the day will also provide a glimpse into the health of the U.S. economy.


Tuesday, 17 November 2015

ECB, Fed ready for market jolts as they head on opposite policy paths

The shadow of the logo of Euro is seen on a U.S. one dollar note in this picture illustration taken in Madrid March 10, 2015.  REUTERS/Sergio Perez

The world's top two central banks accept they will face periodic market jolts as they move in opposite policy directions, senior officials say, with such risks inevitable given the hugely differing fortunes of the U.S. and European economies.

The European Central Bank and U.S. Federal Reserve - which appear poised respectively to ease and tighten monetary policy - talk to each other regularly but do not coordinate policy or try to guess what the other may do next, the central bankers say.

The banks' strategy is to factor in financial market moves that may result from their divergent paths without trying to counter them through monetary policy, they say.

The ECB surprised markets last month by raising the prospect of easing as soon as December. By contrast, with the U.S. economy in a buoyant state, the Fed delivered an unexpectedly hawkish message, boosting the chance that it will raise rates next month after keeping them near zero for almost seven years.

Together, these signals sent the euro down by more than 5 percent against the dollar in a matter of weeks, and this is unlikely to be last sharp market move as a number of leading central banks act.

A Fed increase is likely to be followed by the Bank of England sometime next year as the British recovery gathers strength. But growth is anaemic in the euro zone and slowing sharply in China, where the People's Bank of China is already easing policy. The Bank of Japan and the Reserve Bank of Australia have also both flagged the potential for more easing.

"Now we are going to enter a period of divergence," an ECB Governing Council member said. "We’re going into this with our eyes open. It reflects the different stages in the cycle on different continents."

ECB Governing Council member Ardo Hansson also argues that such divergences are a fact of life.

"The monetary policy of other jurisdictions is an external factor that we can't influence. It's like the weather, we factor it in but it's a given," Hansson said. "It of course matters, it's like the exchange rate, it has an impact as a policy variable so you factor it into the outlook."

Another Governing Council member, who asked not to be named, said the euro's exchange rate had not been widely discussed at previous ECB policy meetings, and there had been no attempt to manage currency rates.

Citigroup estimates markets have priced in 115 basis points of Fed rate increases between January 2016 and January 2018. Anything more than this very gradual course could cause some upset.

"The risk is if the Fed lift-off is quicker than now expected ... that could significantly increase market volatility and make it difficult for us to shrug off the Fed," a third Governing Council member said.


Sources close to the Fed said U.S. central bankers are reluctant to discuss policy with others because its upcoming decisions are far less certain under Fed chief Janet Yellen's committee style of decision-making. Officials also fear the consequences of making or discussing policy behind closed doors with foreign counterparts, the sources said.

The Fed also factors exchange rate movements into its decisions. However, most U.S. foreign trade is invoiced in dollars, so the currency's impact on the real economy is much less direct than in the euro zone, and complaints from U.S. exporters about the dollar's strength have been muted.

Nevertheless, Fed Governor Lael Brainard said the economy was feeling the dollar effect, which has already tightened monetary conditions somewhat. "We have seen about 15 percent broad real appreciation in the exchange rate over the past year, which is a drag on prices and exports," she said.

"We've already seen by that measure some material tightening in the United States," Brainard said on a recent visit to Frankfurt, Germany's financial capital and home to the ECB.

Still, the United States is approaching full employment, a factor that warrants a rate increase regardless of what the ECB does. Also, the Fed has long prepared markets for the move, so hesitation would be more damaging than acting.

"If you wait too long, you might end up having to raise rates at a faster pace than you want," said a Bank of Japan policymaker who asked not to be named. "That may be more disruptive for markets than kicking off the rate hike circle early."

Fed and ECB officials talk regularly on the sidelines of Bank of International Settlements and G30 meetings but mostly to explain and discuss what is already public information, sources said.

The conversations are often held by Fed Vice Chairman Stanley Fischer and ECB Board member Benoit Coeure, central banking sources said.

ECB President Mario Draghi is also known to have a personal relationship with Fischer, his professor at the Massachusetts Institute of Technology in the 1970s.

Reserve Bank of India Governor Raghuram Rajan says central banks should be talking to each other a lot more than they do now. Often their policies are counterproductive, especially when too many banks are easing at the same time and trying to reduce the value of their currencies, he says.

"You may try to depreciate your currency but (what) if somebody (else) is also depreciating their currency?" he said. "We can't all depreciate against each other, therefore the net effect will be limited."

The price of inaction can also be high. "If you stop doing it, your exchange rate appreciates significantly and you get burnt on the way up if it gets really strong," he said. "We may need more global, not so much coordination, but collective action."


Asia stocks surge as fallout from Paris attacks recedes

Employees of the Tokyo Stock Exchange (TSE) work at the bourse in Tokyo August 26, 2015.  REUTERS/Yuya Shino

Asian stocks rose across the board on Tuesday following a surge on Wall Street overnight as investors clawed back losses that came on the back of last week's Paris attacks.

Meanwhile, expectations for a December rate hike by the Federal Reserve also kept the dollar on a bullish footing.

Spreadbetters saw stronger risk appetite retained in Europe, forecasting a higher open for Britain's FTSE, Germany's DAX and France's CAC.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.7 percent, bouncing from a 6-week low struck the previous day on risk aversion triggered by the assault on the French capital.

South Korea's Kospi was up 1.4 percent, Australian shares gained 1.8 percent and Shanghai stocks climbed 1.4 percent. Japan's Nikkei added 1.6 percent, brushing a 3-month peak.

"Investors think that the attacks in Paris would have little impact on the global economy in the long-term," said Hikaru Sato, senior technical analyst at Daiwa Securities in Tokyo.

"Depending on new developments, the market could get affected in the future, but right now, market consensus is that the attacks have a limited impact on the stock market."

Asia took early leads from Wall Street, which surged on Monday as investors decided Friday's attacks in Paris would have little long-term impact on the U.S. economy and corporate earnings. The Dow rose 1.4 percent and the S&P 500 surged 1.5 percent. [.N]

European equities had also held firm on Monday, with the pan-European FTSEurofirst 300 index edging up 0.16 percent and France's CAC dipping only 0.12 percent.

"In light of all the tragedy in France, it is refreshing to see that the terrorists did not successfully terrorize the financial markets...and even though investors sold the EUR/USD, the decline could have been a lot steeper.

"In fact we did not see any unusually large moves in currencies," wrote Kathy Lien, managing director of FX Strategy for BK Asset Management.

The dollar rose to a 1-week high of 123.405 yen , a safe-haven currency usually sought in times of geopolitical tension. The greenback also rose to an 8-month high against the Swiss franc, another haven.

The euro dipped to $1.0656, a 7-month trough.

Crude extended gains after the Paris attacks raised geopolitical tensions that were seen to threaten global oil supply. [O/R]

Brent crude nudged up 0.2 percent to $44.64 a barrel, adding to overnight gains of 2.2 percent.

Spot gold was little changed at $1,081.77 an ounce. The precious metal pared gains overnight as an initial flow of flight-to-safety buying after the Paris attacks petered out.

Investor focus has returned to a potential rate hike by the Fed in December. Higher interest rates would diminish the allure of the non-interest-paying gold.

Industrial metals did not fare as well. Three-month copper on the London Metal Exchange (LME) plunged to 6-year lows, dogged by worries about demand from top consumer China. LME zinc also wobbled near 6-year troughs. [MET/L]

In addition to concerns about demand from China, the dollar's appreciation has buffeted industrial metals as a stronger U.S. currency makes greenback-denominated commodities more expensive for buyers.


Monday, 16 November 2015

Asian shares, currencies slide after Paris attacks, data

Asian stocks fell to six-week lows on Monday and emerging market currencies wilted as investors sought the safety of the greenback in the wake of Friday's attacks in Paris and downbeat economic data.

Financial spreadbetters expect Britain's FTSE 100 to open 0.70 percent lower, Germany's DAX to open around 1.3 percent, and France's CAC 40 to open 2.2-2.3 percent down.

French financial markets will be open as usual on Monday, with extra security measures taken for staff, stock and derivatives exchange Euronext said.

MSCI's broadest index of Asia-Pacific shares outside Japan fell nearly 1.5 percent - its biggest daily fall since Sept. 29. It racked up a 3 percent loss last week.

Leading the losers were the Nikkei stock index which tumbled nearly 1.1 percent, nearly wiping out last week's 1.7 percent gain as latest economic data undershot expectations.

Data released before the Tokyo market opened showed that Japan's economy slipped back into recession in the July to September quarter, contracting at a 0.8 percent annualised rate, compared with the median estimate for a 0.2 percent contraction.

The widely tracked CBOE volatility index or "fear gauge" was at its highest level since Oct. 2.

"Risk aversion is on the rise and we are seeing broad-based U.S. dollar strength across the board and this may continue until the year end as recent economic data has also disappointed," said Mitul Kotecha, head of Asian FX and rates strategy at Barclays in Singapore.

Recent economic data from China, where stock markets have recovered some of their poise after a summer collapse, has disappointed global investors.

Credit activity in China's financial system dropped to its lowest level in 15 months in October, while data last week showed steel consumption, a key measure of economic activity, slowed further.

Stock futures were pointing to another weak start on Wall Street after main indexes shed about 1 percent in light volume in late trade on


Losses for equity punters translated into gains for bond investors.

Yields on 2-year U.S. Treasury debt, the part of the yield curve most sensitive to rapid changes in investor positioning, edged lower to 0.83 percent from 0.86 percent on Thursday, retracing part of its impressive rise from late October.

In currency markets, the euro dropped about 0.5 percent to $1.07205, after logging a flat performance last week. It was down 0.5 percent against the yen at 131.24 yen.

Losses were particularly acute for Asian currencies with the Korean won and the Indonesian rupiah among the leaders.

"The spate of terrorist attacks added to USD strength," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore, expecting emerging Asian currencies to stay weaker though the U.S. Federal Reserve may not consider the attacks in Paris at its policy meeting in December as material.

The dollar slipped about 0.1 percent against the safe-haven yen to 122.43, while the dollar index, which tracks the greenback against a basket of six major rivals, was broadly flat at 99.082.

In sign of some stability for the euro zone, Greece and its euro zone creditors reached an agreement on many issues in the reform program that Athens is implementing in return for loans, the head of euro zone finance ministers Jeroen Dijsselbloem said on Sunday.

Markets in the Middle East, which trade on Sunday, were hit hard, though part of that decline was due to last week's drop in oil prices.

Crude oil futures registered their biggest weekly loss in eight months, dropping 8 percent on the week for their worst performance since March, as growing inventories fed into fears of oversupply.

Futures retraced some of the lost ground in early Asian trade. Brent was up 1 percent at $44.92 a barrel after shedding 1 percent on Friday, while U.S. crude was up about 0.54 percent at $40.96 a barrel after giving up 2 percent.

Spot gold rose 1 percent to $1,094 an ounce, moving away from its low on Thursday of $1,074.26, which was its deepest nadir since February 2010.