Dollar Climbs From 4-Week Low Before Fed; Ruble Snaps 7-Day Drop

he dollar advanced from the weakest level in four weeks against the yen amid speculation Federal Reserve policy makers will remove their pledge to keep borrowing costs low for a considerable period in their statement today.

Russia’s ruble snapped a seven-day drop as the finance ministry said it was selling reserves to counter a plunge that sent the currency to the least on record yesterday. Norway’s krone weakened against all of its 16 major peers as oil traded near a five-year low. New Zealand’s dollar fell the most in more than a week after a report showed the current-account deficit widened.

“Pretty much everyone expects the ‘considerable time’ phrase to go,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “Our bias would be that we go into the meeting with the market still with a large overhang of long dollar positions and, if anything, the risk is therefore disappointment.” A long position is a bet an asset’s price will rise.

The dollar gained 0.6 percent to 117.14 yen at 7:02 a.m. New York time after depreciating to 115.57 yesterday, the weakest since Nov. 17. The U.S. currency strengthened 0.4 percent to $1.2456 per euro. The yen fell 0.2 percent to 145.89 per euro after gaining 1.6 percent in the previous two days.

Dollar Advance

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 trading partners, gained 0.4 percent to 1,114.74. It closed at 1,122.34 on Dec. 5, the highest level since March 2009.

JPMorgan Chase & Co.’s Global FX Volatility Index reached 10.06 percent, the highest level since September 2013. It has climbed from a record-low 5.28 percent set on July 4.

“The Fed is likely to get rid of the ‘considerable time’ phrase today,” said Shinji Kureda, head of foreign-exchange trading at Sumitomo Mitsui Banking Corp. in Tokyo. “But that could boost speculation of a rate hike in mid-2015, weighing on U.S. stocks and dollar-yen. There is no end in sight yet to declines in oil and commodity currencies.”

The ruble lost 4.7 percent yesterday after weakening more than 19 percent in the biggest one-day slump in 16 years after Russia’s central bank unexpectedly raised its key interest rate to 17 percent from 10.5 percent.

Ruble Panic

“It’s a panic,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy in New York, said by phone. While the currencies of other oil-producing nations have fallen, “it’s just the magnitude in rubles that’s stunning,” reflecting the illiquidity of the market, he said.

The ruble rose 2.3 percent today to 65.92 per dollar after depreciating to a record 80.10 yesterday.

“I certainly heard a level of 100 being spoken about yesterday,” Phyllis Papadavid, a senior foreign-exchange strategist at BNP Paribas SA in London, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “If we see the currency weakening and we see oil prices continue at these levels, it will feed through to further instability in the ruble unfortunately.”

Crude oil futures fell as much as 2.4 percent after sliding below $54 a barrel yesterday for the first time since May 2009. The United Arab Emirates said the Organization of Petroleum Exporting Countries won’t cut production even if prices fall as low as $40 a barrel.

Click here to read the full article on Bloomberg.


Read More

China struggles to support CNY & avoid exporting disinflation


By Ashraf Laidi, Chief Global Strategist at City Index

The People’s Bank of China is increasingly resisting traders’ weakening of the Chinese yuan, by announcing higher rate in its daily central reference rate. But as Chinese data continue to weaken across the board, FX traders have no choice but to bet against the yuan (pushing up the USD/CNY rate). 

The chart highlights the divergence between the PBOC’s falling reference rate, known as CNY fixing price as set by the China Foreign Exchange Trading System (red) and the spot rate in the interbank market, the fluctuations of which should not exceed +/- 2% of the average price.

Trade the Chinese yuan with City Index here 

Aside from signs of China’s slowdown shown in retail sales and consumer credit, last night’s release of Nov PPI contracting by 2.7% — below zero for the 13th consecutive months — and the 1.4% CPI being the lowest in five years underscores the threat that China’s hard landing story is at its most credible status since misplaced warnings have begun in 2009.

The adjacent chart highlights China’s deteriorating capital account balance, which tumbled to a negative $601 million in Q2 as a result of surging capital outflows. We patiently await the release of capital account breakdown for Q3.

city index

Click here to read the full article on City Index

Read More

Yen Weakens to 120 Per Dollar for First Time Since 2007

The yen weakened to 120 per dollar for the first time since July 2007, as policy makers’ decisions to expand monetary stimulus and delay a consumption tax increase highlight the risks the economy is deteriorating.

The yen has plunged 9 percent since the Bank of Japan on Oct. 31 increased the annual target for expanding the monetary base to 80 trillion yen ($667 billion), and Prime Minister Shinzo Abe delayed a second bump to the sales levy by 18 months, after the first in April sent the economy into recession. Abe is forecast to score a second landslide victory in a Dec. 14 election.

“It’s still the divergent-growth, divergent-policy story,” Robert Sinche, a global strategist at Amherst Pierpont Securities LLC in StamfordConnecticut, said by phone. “We are seeing capital flows out of Japan, and I think that helps bring capital out and continues this movement down in the yen.”

Japan’s currency fell to as low as 120.17 against the dollar before trading at 119.88 as of 10:02 a.m. New York time, down 0.1 percent.

The yen has been trading between 117 and 120 per dollar for almost three weeks, as traders trying to push the yen weaker ran into a wall of options centered around the price.

Options Obstacle

There were $3.01 billion of over-the-counter foreign-exchange options on the dollar-yen with a strike price of 120 that expired at 10 a.m. New York time, according to Depository Trust Clearing Corp. data tracked by Bloomberg. The strike price is the exchange rate at which call option holders can buy the underlying currency and put owners can sell.

Some options contain so-called barriers, causing the contract to either expire or to be activated if the pre-set exchange-rate level is reached. These types of contracts can also cause traders to attempt to push a currency through or away from barrier triggers. The barriers are often used as they reduce the cost of the strategy because they decrease the odds the options will be profitable.

The unprecedented stimulus by the Bank of Japan contrasts with the Federal Reserve’s discussion about raising interest rates as the world’s biggest economy strengthens, prompting further weakness in the yen. The Japanese currency will slide to 124 per dollar by the end of 2015, according to the median estimate of analysts in a Bloomberg survey.


Click here to read the full article on Bloomberg

Read More

GBP/USD poised for further potential breakdown


By James Chen @JamesChenFX, chief of technical strategy at  City Index


GBP/USD (daily chart shown below) continues to be weighed down in the face of renewed US dollar strengthening against major global currencies, and appears to be poised for a further breakdown.

Currently nearing the one-year low of 1.5584 that was just established earlier in the week, GBP/USD is firmly entrenched within a strong downtrend that has been in place for more than four months since the 1.7190 multi-year high in mid-July.

The sharp drop since July, which represents more than a 9% decline down to this week’s noted 1.5584 one-year low, has consistently traded underneath a well-defined downtrend resistance line as well the 50-day moving average.


Having recently consolidated in a bearish flag pattern, the currency pair has since made a slight break below that pattern, tentatively confirming a continuation of the current downtrend.

Click here to read the full article on City Index.

city index

Read More

Thanksgiving dollar rally ahead of EU inflation

FX markets have shown greater volatility, with volumes higher across G10 space than we’d normally expect to see over the US Thanksgiving holiday. The Us dollar has reversed most of its 100-point demise following the weaker US data readings this week and as we await the EU CPI reading for November.

The much-awaited decision from OPEC ignited downside pressure on the CAD and the NOK as the committee (as expected) decided not to cut oil production, which obviously has implications for countries on the brink of deflation. But it appeases those countries looking to stimulate their economies as importers of black gold.

Data out of Japan overnight was mixed. The CPI data came in slightly weaker at 2.9% versus the consensus of 3% as retail sales firmly beat expectations at 0.2% against the forecast of -0.6% with retail sales bang on at 1.4% with the Japanese jobless rate falling to 3.5%. This inspired the Nikkei to rally 1.23% as USD/JPY trades back on the 118 handle despite the month-end selling flow sighted from exporters.

city index

Read the full article on CityIndex by clicking here.

Author: Neil Looker, cief forex dealer at CityIndez.

Read More