Discussion of recent and prospective price action in the foreign exchange market.
A brief discussion of the technical condition of the major currencies going to what is a week packed with fundamental developments.
While Edward Snowden can perhaps breathe a sigh of relief at being abale to avoid the humdrum beat of airport food for a while, he will be stepping out into the 2nd most expensive city in the world. Based on a survey of over 200 items, Moscow ranks 2nd in the world (with $8 cups of coffee and $4,600 average apartment rental costs), and Tokyo 3rd (with $5 newspapers and $7 coffees). But the most expensive city in the world will come as a surprise to most and likely create the need for a Google Maps search. With 40.5% of the population of this nation living in property and the average monthly rent a sky-high $6,500, this southern African country's capital is the most expensive city in the world (it would seem the Chinese arrival in resource-rich African nations - N'Djamena, Chad is 4th - has had its hot-money inflationary effects).
Overview of currency market outlook.
Bernanke's comments washed out some late dollar longs and they may be reluctant to re-establish ahead of the Chairman's testimony before Congress at the end of next week. The underlying bullish case for the dollar remains intact.
The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.
What next for the mighty greenback ?
Tryingto make sense of the price action in the foreign exchange market. The dollar was heavier than we anticipated and there is no compelling sign of a turnaround, but the key is the FOMC meeting.
Here is my weekly outlook for the major foreign currencies. Yes they are not backed by silver or gold, it is still the largest of the major captial markets at an estimated turn-over of some $4 trillion a day. Yes, officials may try to guide the market directly and indirectly, but success is often elusive.
Outlook for the dollar and major foreign currencies in the week ahead.
The US currency is shrinking as a percentage of world currency today according to the International Monetary Fund. It’s still in pole position for the moment, but business transactions are showing that companies around the world are today ready and willing to make the move to do business in other currencies.
Markets are starting to price the removal of the unprecedented policy stimulus provided by the Fed. Investors have faced this situation several times in recent years, but as Barclays notes, these prior episodes lacked broad consensus and proved short-lived as further risks to the global recovery quickly re-appeared. The edginess of markets to ebbs and flows in the data and Fed communications in recent months suggests this time is different. Market movements are saying the Fed’s exit is now more ‘when’ than ‘if’. Fed actions have led to some of the most extraordinary market moves on record. Nominal US bond yields are at historically low levels, and real yields have been negative for a prolonged time. Risky assets, by contrast, have rallied sharply, supported by central bank policy even in the face of poor economic data. If the Fed is preparing for an exit, these market moves may need to go in reverse...
Price action in the foreign exchange market. Discuss.
A look mostly at prices in the currency market and the outlook.
In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.