Dollar rises after Fed minutes reveal rate debate

NEW YORK: The dollar rose against the euro on Wednesday (Apr 8) after the minutes of the Federal Reserve’s last policy meeting showed a split over the timing of an interest rate increase.

According to the minutes of the Mar 17-18 meeting of the Federal Open Market Committee, “several participants” thought conditions were right for a June hike in the federal funds rate, stuck near zero since late 2008.

Others deemed the economy would not be able to weather a hike until later in the year, while “a couple” said liftoff would remain unlikely until 2016.

“After the FOMC meeting, people were convinced that the June rate hike was off the table, and the bottom line is between now and then,” said David Solin of Foreign Exchange Analytics. But the foreign exchange market “had jumped the gun by thinking that a June hike was off the table,” he said.

The dollar strengthened against the euro, pushing it down to US$ 1.0780 from US$ 1.0811 late Tuesday.

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said that the minutes had “a somewhat more hawkish tone than many were expecting, especially given the extent to which the Fed cut its forward guidance on growth and inflation at its March meeting.”

Euro hurt by Greek uncertainty, dollar helped by rate outlook

The euro fell on Monday, hurt by uncertainty over whether Greece and its international creditors will be able to strike a deal that will help Athens secure funding before it runs out of money by April 20.

Talks continued through the weekend on reforms to unlock loans and Athens sounded an upbeat tone, but the lenders said it could take several more days before a proper list of measures was ready.

The dollar rose broadly, helped by comments from Federal Reserve chair Janet Yellen, who underscored the view that the Fed is likely to start raising interest rates gradually later this year.

The dollar edged up 0.3 percent to 119.50 yen, while the euro fell 0.6 percent to $ 1.0830, having in the last two weeks pulled away from a 12-year trough of $ 1.0457.

“Even though euro short positions are at record highs, given the Greek uncertainty and the bias for more monetary injection by the European Central Bank, the path for least resistance is a lower euro/dollar,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.

“Unless the euro drops below $ 1.0770 we could see ranged trading, but with the Fed still looking to raise rates, we could see conditions later this week that are more helpful for overall dollar strength.”

U.S. jobs data on Friday will be a key event for the dollar this week and a robust report could see investors position for tighter monetary policy sooner rather than later.

CEMEX Announces Offering of Senior Secured Notes

MONTERREY, Mexico–(BUSINESS WIRE)–

CEMEX, S.A.B. de C.V. (“CEMEX”) (CX) announced today its intention to offer senior secured notes in one or more series denominated in Euros (the “Euro Notes”), subject to market and other conditions. Contemporaneous with the offering of the Euro Notes, CEMEX also intends to offer senior secured notes in one or more series denominated in U.S. Dollars (the “U.S. Dollar Notes”), subject to market and other conditions.

CEMEX intends to use the net proceeds from the offerings of the Euro Notes and the U.S. Dollar Notes to fund the redemption and/or repurchase of (i) the Floating Rate Senior Secured Notes due 2015 (the “September 2015 Floating Rate U.S. Dollar Notes”), issued by CEMEX, (ii) the 9.000% Senior Secured Notes due 2018 (the “January 2018 U.S. Dollar Notes”), issued by CEMEX, and/or (iii) the 9.250% Senior Secured Notes due 2020 (the “May 2020 U.S. Dollar Notes”), issued by CEMEX España, S.A., acting through its Luxembourg Branch, and the remainder, if any, for general corporate purposes, including the repayment of indebtedness under CEMEX’s Credit Agreement, dated as of September 29, 2014 (the “Credit Agreement”), CEMEX’s Facilities Agreement, dated as of September 17, 2012, as amended (the “Facilities Agreement”), and/or other indebtedness, all in accordance with the Credit Agreement and the Facilities Agreement.

The September 2015 Floating Rate U.S. Dollar Notes are redeemable beginning on June 30, 2015 at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest through the redemption date; the January 2018 U.S. Dollar Notes became redeemable on January 11, 2015 and may be redeemed at a redemption price of 104.50% of the principal amount thereof, plus accrued and unpaid interest through the redemption date; and the May 2020 U.S. Dollar Notes are redeemable beginning on May 12, 2015 at a redemption price of 104.625% of the principal amount thereof, plus accrued and unpaid interest through the redemption date. Pending application of the proceeds from the offerings to redeem and/or repurchase the September 2015 Floating Rate U.S. Dollar Notes and/or the January 2018 U.S. Dollar Notes, CEMEX may use such proceeds to temporarily reduce the revolving tranche of the Credit Agreement.

The Euro Notes and the U.S. Dollar Notes would share in the collateral pledged for the benefit of the lenders under the Credit Agreement, the Facilities Agreement and other secured obligations having the benefit of such collateral, and would be guaranteed by CEMEX México, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, S.A., Cemex Asia B.V., CEMEX Corp., CEMEX Finance LLC, Cemex Egyptian Investments B.V., Cemex Egyptian Investments II B.V., CEMEX France Gestion (S.A.S.), Cemex Research Group AG, Cemex Shipping B.V. and CEMEX UK.

This release is neither an offer to purchase nor a solicitation of an offer to sell or buy any securities of CEMEX in any transaction.

The Euro Notes, the U.S. Dollar Notes and the guarantees thereof have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and they may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Euro Notes and the U.S. Dollar Notes will be offered only to qualified institutional buyers pursuant to Rule 144A and outside the United States pursuant to Regulation S, both as promulgated under the Securities Act.

THE EURO NOTES AND THE U.S. DOLLAR NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE NATIONAL SECURITIES REGISTRY (REGISTRO NACIONAL DE VALORES) MAINTAINED BY THE MEXICAN NATIONAL BANKING AND SECURITIES COMMISSION (COMISIÓN NACIONAL BANCARIA Y DE VALORES, OR CNBV), AND MAY NOT BE OFFERED OR SOLD PUBLICLY IN MEXICO, EXCEPT THAT THE EURO NOTES AND THE U.S. DOLLAR NOTES MAY BE OFFERED AND SOLD IN MEXICO, PURSUANT TO THE PRIVATE PLACEMENT EXEMPTION SET FORTH IN ARTICLE 8 OF THE MEXICAN SECURITIES MARKET LAW (LEY DEL MERCADO DE VALORES), TO INSTITUTIONAL AND QUALIFIED INVESTORS. UPON THE ISSUANCE OF THE EURO NOTES AND THE U.S. DOLLAR NOTES, WE WILL NOTIFY THE CNBV OF THE ISSUANCE OF THE EURO NOTES AND THE U.S. DOLLAR NOTES, INCLUDING THE PRINCIPAL CHARACTERISTICS OF THE EURO NOTES AND THE U.S. DOLLAR NOTES AND THE OFFERING OF THE EURO NOTES AND THE U.S. DOLLAR NOTES OUTSIDE MEXICO. SUCH NOTICE WILL BE DELIVERED TO THE CNBV TO COMPLY WITH A LEGAL REQUIREMENT AND FOR INFORMATION PURPOSES ONLY, AND THE DELIVERY TO AND THE RECEIPT BY THE CNBV OF SUCH NOTICE, DOES NOT CONSTITUTE OR IMPLY ANY CERTIFICATION AS TO THE INVESTMENT QUALITY OF THE EURO NOTES AND THE U.S. DOLLAR NOTES OR OF CEMEX’S SOLVENCY, LIQUIDITY OR CREDIT QUALITY OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THE DOCUMENTS USED FOR THE OFFERING. THE INFORMATION CONTAINED IN THE DOCUMENTS USED FOR THE OFFERING OF THE EURO NOTES AND THE U.S. DOLLAR NOTES IS THE EXCLUSIVE RESPONSIBILITY OF CEMEX AND HAS NOT BEEN REVIEWED OR AUTHORIZED BY THE CNBV.

This press release contains forward-looking statements and information that are necessarily subject to risks, uncertainties, and assumptions. No assurance can be given that the transactions described herein will be consummated or as to the ultimate terms of any such transactions. CEMEX assumes no obligation to update or correct the information contained in this press release.

CEMEX Announces Pricing Of €550 Million And U.S.$750 Million in Senior Secured Notes

MONTERREY, Mexico–(BUSINESS WIRE)–

CEMEX, S.A.B. de C.V. (“CEMEX”) (CX) announced today the pricing of €550 million of its 4.375% Senior Secured Notes due 2023 denominated in Euros (the “Euro Notes”) and U.S.$ 750 million of its 6.125% Senior Secured Notes due 2025 denominated in U.S. Dollars (the “U.S. Dollar Notes”).

The Euro Notes will bear interest at an annual rate of 4.375% and mature on March 5, 2023. The Euro Notes will be issued at par and will be callable commencing on March 5, 2019. The U.S. Dollar Notes will bear interest at an annual rate of 6.125% and mature on May 5, 2025. The U.S. Dollar Notes will be issued at a price of 99.980% of face value and will be callable commencing on May 5, 2020. The closing of the offerings is expected to occur on March 5, 2015, subject to satisfaction of customary closing conditions.

CEMEX intends to use the net proceeds from the offerings of the Euro Notes and the U.S. Dollar Notes to fund the redemption and/or repurchase of (i) the Floating Rate Senior Secured Notes due 2015 (the “September 2015 Floating Rate U.S. Dollar Notes”), issued by CEMEX, (ii) the 9.000% Senior Secured Notes due 2018 (the “January 2018 U.S. Dollar Notes”), issued by CEMEX, and/or (iii) the 9.250% Senior Secured Notes due 2020 (the “May 2020 U.S. Dollar Notes”), issued by CEMEX España, S.A., acting through its Luxembourg Branch, and the remainder, if any, for general corporate purposes, including the repayment of indebtedness under CEMEX’s Credit Agreement, dated as of September 29, 2014 (the “Credit Agreement”), CEMEX’s Facilities Agreement, dated as of September 17, 2012, as amended (the “Facilities Agreement”), and/or other indebtedness, all in accordance with the Credit Agreement and the Facilities Agreement.

The Euro Notes and the U.S. Dollar Notes will share in the collateral pledged for the benefit of the lenders under the Credit Agreement, the Facilities Agreement and other secured obligations having the benefit of such collateral, and will be guaranteed by CEMEX México, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, S.A., Cemex Asia B.V., CEMEX Corp., CEMEX Finance LLC, Cemex Egyptian Investments B.V., Cemex Egyptian Investments II B.V., CEMEX France Gestion (S.A.S.), Cemex Research Group AG, Cemex Shipping B.V. and CEMEX UK.

This release is neither an offer to purchase nor a solicitation of an offer to sell or buy any securities of CEMEX in any transaction.

The Euro Notes, the U.S. Dollar Notes and the guarantees thereof have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and they may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Euro Notes and the U.S. Dollar Notes are being offered only to qualified institutional buyers pursuant to Rule 144A and outside the United States pursuant to Regulation S, both as promulgated under the Securities Act.

THE EURO NOTES AND THE U.S. DOLLAR NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE NATIONAL SECURITIES REGISTRY (REGISTRO NACIONAL DE VALORES) MAINTAINED BY THE MEXICAN NATIONAL BANKING AND SECURITIES COMMISSION (COMISIÓN NACIONAL BANCARIA Y DE VALORES, OR CNBV), AND MAY NOT BE OFFERED OR SOLD PUBLICLY IN MEXICO, EXCEPT THAT THE EURO NOTES AND THE U.S. DOLLAR NOTES MAY BE OFFERED AND SOLD IN MEXICO, PURSUANT TO THE PRIVATE PLACEMENT EXEMPTION SET FORTH IN ARTICLE 8 OF THE MEXICAN SECURITIES MARKET LAW (LEY DEL MERCADO DE VALORES), TO INSTITUTIONAL AND QUALIFIED INVESTORS. UPON THE ISSUANCE OF THE EURO NOTES AND THE U.S. DOLLAR NOTES, WE WILL NOTIFY THE CNBV OF THE ISSUANCE OF THE EURO NOTES AND THE U.S. DOLLAR NOTES, INCLUDING THE PRINCIPAL CHARACTERISTICS OF THE EURO NOTES AND THE U.S. DOLLAR NOTES AND THE OFFERING OF THE EURO NOTES AND THE U.S. DOLLAR NOTES OUTSIDE MEXICO. SUCH NOTICE WILL BE DELIVERED TO THE CNBV TO COMPLY WITH A LEGAL REQUIREMENT AND FOR INFORMATION PURPOSES ONLY, AND THE DELIVERY TO AND THE RECEIPT BY THE CNBV OF SUCH NOTICE, DOES NOT CONSTITUTE OR IMPLY ANY CERTIFICATION AS TO THE INVESTMENT QUALITY OF THE EURO NOTES AND THE U.S. DOLLAR NOTES OR OF CEMEX’S SOLVENCY, LIQUIDITY OR CREDIT QUALITY OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THE DOCUMENTS USED FOR THE OFFERING. THE INFORMATION CONTAINED IN THE DOCUMENTS USED FOR THE OFFERING OF THE EURO NOTES AND THE U.S. DOLLAR NOTES IS THE EXCLUSIVE RESPONSIBILITY OF CEMEX AND HAS NOT BEEN REVIEWED OR AUTHORIZED BY THE CNBV.

This press release contains forward-looking statements and information that are necessarily subject to risks, uncertainties, and assumptions. No assurance can be given that the transactions described herein will be consummated or as to the ultimate terms of any such transactions. CEMEX assumes no obligation to update or correct the information contained in this press release.

Greece Wants a 'New Contract' With the Euro Area

(Bloomberg) — Greece is seeking a “new contract” with the euro area on how to continue its bailout, as talks resume and both sides signal willingness to compromise, according to government officials taking part in the talks.

Greek Prime Minister Alexis Tsipras met his European Union peers at a summit for the first time Thursday and said afterwards he sees political will to agree on what happens after the current aid program expires this month. Greece’s goal remains a six-month bridge agreement that would lead to a new deal with euro-area authorities, he told reporters.

More from Bloomberg.com: One Hundred Years of Austerity

German Chancellor Angela Merkel urged Greece to move swiftly with its next request, which she portrayed as a follow-on to the current bailout program. She said her first meeting with Tsipras was “very friendly” and cited ability to compromise as one of Europe’s strengths.

“I would like them to apply for the extension as soon as possible,” Merkel said at a news conference in Brussels. “And if the goal is to fulfill it by the end of February, then I’d like the intention to fulfill it to be announced soon.”

More from Bloomberg.com: Denmark Steps Up Currency Sales as Rate-Cut Tool Shelved

Behind-the-scenes negotiations resumed in Brussels hours after euro-area finance ministers failed to reach a joint conclusion. Greek negotiators and officials from its euro-area creditors plan to meet in Brussels Friday to discuss the way ahead as they struggle to decide whether to call the arrangement an extension, a new program or a bridge deal, officials said.

Deal Elements

Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget-surplus requirement and conditions to sell off government assets.

More from Bloomberg.com: Quality Dividends Sweet Spot for EU Equities:Fowler

Greece’s willingness to hold to more than two-thirds of its bailout promises shows that Greece is broadly prepared to stick to the program, the German officials said. Improving tax collection and fighting corruption will win German backing, and getting a deal will depend on Greece’s overall reform pledges.

Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4 percent of gross domestic product, according to Greek government officials. Tsipras’s coalition also might compromise on privatizations, one of the officials said. The officials asked not to be named because the deliberations are private and still in progress.

Greece wants a “a new contract” in which “ our commitments for primary fiscal balances will be included and continuation of reforms,” Tsipras told reporters after the EU summit. “This also obviously needs to include a technical solution for a writedown on the country’s debt, so the country has fiscal room to return to growth.”

Deadline Looms

Euro-area creditors have ruled out writing down Greece’s rescue debt while dangling the prospect of adjusting the repayment terms. Loan extensions and lower interest rates could make a sizeable dent in Greece’s long-term obligations if Greece can meet the required conditions, according to the Brussels-based Bruegel research group.

Greece and its partners are seeking a deal on financing to get beyond the bailout’s expiration at the end of February, keep Greek banks afloat, pay salaries and put the euro area’s most-indebted nation on a path to longer-term aid. Ultimately, Greece’s place in the 19-nation currency union is at stake.

An accord could pave the way for Greece to extend its rescue program and assure its financing by as soon as Monday, when finance chiefs resume talks in Brussels.

Shifting Tone

In a bid to restart work toward a solution, Tsipras also met Thursday with Dutch Finance Minister Jeroen Dijsselbloem, who heads meetings of his euro-region counterparts. The Greek side agreed to let a team of euro-area experts “engage with the Greek authorities to start work on a technical assessment of the common ground” on future financing, Dijsselbloem spokeswoman Simone Boitelle said in an e-mail.

The collegial conversation marked another shift in relations between euro-area officials and Tsipras’s government, which won last month’s election on a platform of ending austerity and easing Greece’s economic hardship.

Germany, the biggest country contributor to bailouts, has led calls for Greece to stick to its policy promises regardless of the change in government. France and Italy have been more sympathetic to Greek efforts to secure bridge financing while it works out a longer-term plan.

“The timeline is tight and I think the Greek prime minister is aware of that,” French President Francois Hollande said after the summit.

To contact the reporters on this story: Rebecca Christie in Brussels at [email protected]; Eleni Chrepa in Brussels at [email protected]

To contact the editors responsible for this story: Alan Crawford at [email protected] Tony Czuczka

More from Bloomberg.com

  • Gold Posts First Consecutive Gain in a Month on U.S. Outlook
  • U.K. Bonds Fall as German Growth Surprises; Pound Climbs in Week
  • Hollande Oversees Worst French 3-Year Growth Stretch Since WWII

Positioning Unwind May be Driving Factor, Not QE, for Euro

DailyFX.com –

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Positioning Unwind May be Driving Factor, Not QE, for Euro

Fundamental Forecast for Euro: Neutral

The technical prospects of a top in the US Dollar (vis-à-vis the USDOLLAR Index) have accumulated the past week.

EURUSD and USDCHF wedges hint at possibility of bottoms in European FX starting to take shape.

Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro stabilized in the second week of December, just a few days after hitting fresh yearly lows below $ 1.2250 against the US Dollar. EURUSD closed on Friday with a five-day gain of +1.44%, finishing the week at $ 1.2459. The 18-member currency only closed lower versus the Japanese Yen, with EURJPY declining by -0.81% to ¥147.95. Although chatter regarding a potential QE program from the European Central Bank has only increased in the wake of its December 4 meeting, the combination of year-end portfolio rebalancing and overstretched short positioning may be contributing to the recent rebound.

For several months, the futures market has been stretched with net-short Euro positions. Peak bearishness was evident in early-November, when traders were net-short to the tune of 179.0K contracts for the week ended November 4. As of December 9, short positions were being lifted, contributing to the recently choppy rate of decline, having eased to 136.9K contracts. Herein lies the longer-term hope for bears: even as short positions abated from November 4 to December 9, EURUSD has still managed to decline by -1.37%.

Even if any upward drift in recent days is the result of further short covering – something we won’t have definitive proof of until the next release of the CFTC’s Commitment of Traders report on December 19 – traders need to be aware of this threat into trading conditions around the holidays. Overarching fundamental themes of 2014 could lose gravitational pull on price as traders’ anxiety to close their books builds.

Although economic conditions have moved off the low, the Euro-Zone remains in an economic state on the verge of its third recession since the financial crisis began in 2008. The Citi Economic Surprise Index closed the week at -20.3, barely changed from the prior weekly close on Deecmber 5 at -21.4, and little changed overall over the past month, when the index was at -26.4 on November 14.

The greatest source of distress that should hold back market participants from helping the Euro set anything other than a short-term bottom is the ongoing pressure in medium-term inflation expectations. The 5Y5Y breakeven inflation swap, ECB President Mario Draghi’s purported preferred market measure of medium-term inflation expectations, slumped to a new yearly low. The gauge fell as low as 1.364% on Friday and closed the week at 1.377%.

With inflation expectations still disparingly low, the ECB’s doves will continue to chirp about a potential QE program, which should be a big enough threat to keep a major Euro rally from commencing. Several policymakers have stated their desire to see the ECB’s balance sheet move back towards its early-2012 levels (roughly €2.6 to €3.1 trillion), and there are few signs that the current measures are accomplishing just that: as of December 5, the ECB’s balance sheet stood at €2.04 trillion, barely higher than the €2.01 trillion it was three-months earlier. Euro bulls shouldn’t get too comfortable just yet. –CV

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Shekel moves near NIS 4/$ threshold

After a brief respite in which the shekel gained ground against the dollar, the Israeli shekel resumed its slide this morning against the US currency, although it was slightly stronger against the euro.

The shekel-dollar rate is currently on the threshold of NIS 4/$ , 0.83% above Friday’s representative rate, at NIS 3.993/$ , while the shekel-euro rate is 0.10% lower, at NIS 4.892/.

FXCM Israel says this morning, “The volatility in the shekel-dollar exchange rate continues to be high. Last week after the exchange rate almost touched NIS 4/$ we saw a wave of profit taking, which saw the exchange rate retreat to NIS 3.94/$ . This was a natural and expected response after the dizzying rise of the past few weeks, which has been almost unstoppable. However, due to the market conditions and negative sentiment towards the shekel, it seems that breaking above NIS 4/$ will come this week. Breaking through this level will operate many stop orders for short traders and give added momentum to the exchange rate.

FXCM added, “The election period, characterized by uncertainty, will increase pressure on the shekel. The exchange rate is nearing the NIS 4.09/$ peak set in June 2012. Amazingly the exchange rate has within five months almost totally wiped out the changes of the past two years.”

Published by Globes [online], Israel business news – www.globes-online.com – on December 8, 2014

Copyright of Globes Publisher Itonut (1983) Ltd. 2014

Euro Faces Economic Headwinds with Weakening German, Euro-Zone PMIs

Fundamental Forecast for Pound:Neutral

The Euro may have its own problems, but it may be able to lever the US Dollar’s moment of vulnerability.

The retail crowd’s shift in the US Dollar is led by what could be a bottom forming in EURUSD led by sentiment.

Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro broadly stabilized for the second straight week, posting a +1.09% gain against the US Dollar, with the EURUSD exchange rate closing at $ 1.2761 on Friday. The 18-member currency gained against all but two of the other seven major currencies, with minor gains rewarded to the Swiss Franc (EURCHF -0.09%) and the New Zealand Dollar (EURNZD -0.31%). Concerns over the region’s growth prospects continue to linger, but they haven’t produced further downside yet in the Euro.

Although economic conditions have moved off the low, the Euro-Zone remains in an economic state on the verge of its third recession since the financial crisis began in 2008. The Citi Economic Surprise Index closed the week at -54.1, barely off the yearly low established on October 14 at -57.3.

The big concern levied by market participants that’s holding back the Euro is the ongoing pressure in medium-term inflation expectations. The 5Y5Y breakeven inflation swap, the European Central Bank’s preferred market measure of medium-term inflation expectations, slumped to a new yearly low this week before rebounding sharply. The gauge fell as low as 1.541% on Wednesday but closed the week at 1.779%.

What’s particularly interesting about this recent mix of financial and economic conditions is that the Euro hasn’t been depreciating. EURUSD is nearly 300-pips off of its early-October low, and the futures market remains saturated with aggressively short speculators. Non-commercials/specs held 155.3K net-short contracts for the week ended October 14, an increase from the 146.2K net-short contracts held a week earlier. Still, market positioning is off its extreme seen in early-September, when specs held 161.4K net-short contracts.

There is latent potential, then, if the Euro is braving weakening conditions and a buildup of short positions, for a short covering rally. One could develop as the US Dollar faces its own moment of vulnerability, or if incoming economic data doesn’t disappoint market expectations too greatly. The week is packed with typically market-moving PMI releases. Overall, further weakness is anticipated in the broader Euro-Zone indicators due to drag originating out of France and Germany.

The scope of the incoming recession to the Euro-Zone’s largest economy will be in particular focus, as the preliminary October German Manufacturing PMI is expected to decrease further to 49.6, indicating a heightened pace of contraction. The weak reading should reflect not only weakening domestic demand but also softer foreign demand, from Euro-Zone and emerging market partners alike. This means that any economic weakness forthcoming may be beyond the current scope of the ECB’s measures.

If the table is getting set for a Fed-styled, sovereign QE program to bolster the ECB’s easing stance, then that too will have to wait: the market is eagerly awaiting the ECB to release the results of the asset quality review (AQR) on Sunday. –CV

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Fed Rate Hike to Dampen Appeal of Euro Bonds, Says Moody's

With the Federal Reserve apparently preparing for its first rate hike since 2006 by early next year, portfolio adjustments in favour of US debt will affect eurozone sovereigns, while tighter dollar liquidity will impact inflows to emerging markets, Moody’s said on Thursday.

“The opposite trends of the policy paths of these (Fed, BoJ, ECB) central banks could also result in greater volatility in the currency and stock markets around the world in the short term, as global investors respond by rebalancing their portfolios,” the Moody’s report on 6 November said.

Euro Area, Japan and EM

The Euro Area and Japanese economies will benefit from the relatively accommodative monetary conditions and the resulting depreciation of the euro and the yen, but portfolio rebalancing by global investors will take away a portion of those benefits, Moody’ said.

Yields on Euro Area sovereign bonds are at historical lows – with several countries benefiting from yields that are already lower than those of US Treasuries, Moody’s noted.

“A potential reversal in the flow of funds could adversely impact the funding conditions of EA Sovereigns, with possibly higher borrowing costs, particularly for those countries that are reliant on foreign investors,” the rating agency said.

Moody’s said loose monetary policy by the BoJ and ECB will only partially offset the impact of Fed tightening on EM inflows.

“The tightening of these external financing conditions as US interest rates rise can therefore be a headwind for these economies, only partially compensated by the looser condition in the Euro Area and in Japan,” Moody’s said.

Fed Rates and US Banks

The rise in Fed rates will result in re-pricing of US bank’s securities holdings, which will decrease the related net interest margins, and more so with smaller banks, Moody’s said.

“Most large US banks have a short duration position on their security books, dampening their sensitivity to rate rises, but smaller ones appear to have added duration on their security portfolios in the search for yield, so the impact will be more,” according to Moody’s.

Gradual Hikes

The US jobs market is still not out of woods, so the Fed is unlikely to set out to a faster rate normalisation path, Moody’s said.

“Although rapid hiring has pushed the unemployment rate just below 6% in September 2014 –close to the level at the start of the global crisis, some slack still remains as evident in the declining labour force participation rate and subdued wage growth,” Moody’s said.

“This means that although interest rates will be hiked next year, the pace will likely be cautious and measured.”

Related articles : Across the Board Yen Sell-Off and Dollar Rally Trigger Fears of Currency War
Fed Rate Hike to Dampen Appeal of Euro Bonds, Says Moody’s

Euro Faces Economic Headwinds with Weakening German, Euro-Zone PMIs

DailyFX.com –

View photo

.

Euro Faces Economic Headwinds with Weakening German, Euro-Zone PMIs

Fundamental Forecast for Pound:Neutral

The Euro may have its own problems, but it may be able to lever the US Dollar’s moment of vulnerability.

The retail crowd’s shift in the US Dollar is led by what could be a bottom forming in EURUSD led by sentiment.

Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro broadly stabilized for the second straight week, posting a +1.09% gain against the US Dollar, with the EURUSD exchange rate closing at $ 1.2761 on Friday. The 18-member currency gained against all but two of the other seven major currencies, with minor gains rewarded to the Swiss Franc (EURCHF -0.09%) and the New Zealand Dollar (EURNZD -0.31%). Concerns over the region’s growth prospects continue to linger, but they haven’t produced further downside yet in the Euro.

Although economic conditions have moved off the low, the Euro-Zone remains in an economic state on the verge of its third recession since the financial crisis began in 2008. The Citi Economic Surprise Index closed the week at -54.1, barely off the yearly low established on October 14 at -57.3.

The big concern levied by market participants that’s holding back the Euro is the ongoing pressure in medium-term inflation expectations. The 5Y5Y breakeven inflation swap, the European Central Bank’s preferred market measure of medium-term inflation expectations, slumped to a new yearly low this week before rebounding sharply. The gauge fell as low as 1.541% on Wednesday but closed the week at 1.779%.

What’s particularly interesting about this recent mix of financial and economic conditions is that the Euro hasn’t been depreciating. EURUSD is nearly 300-pips off of its early-October low, and the futures market remains saturated with aggressively short speculators. Non-commercials/specs held 155.3K net-short contracts for the week ended October 14, an increase from the 146.2K net-short contracts held a week earlier. Still, market positioning is off its extreme seen in early-September, when specs held 161.4K net-short contracts.

There is latent potential, then, if the Euro is braving weakening conditions and a buildup of short positions, for a short covering rally. One could develop as the US Dollar faces its own moment of vulnerability, or if incoming economic data doesn’t disappoint market expectations too greatly. The week is packed with typically market-moving PMI releases. Overall, further weakness is anticipated in the broader Euro-Zone indicators due to drag originating out of France and Germany.

The scope of the incoming recession to the Euro-Zone’s largest economy will be in particular focus, as the preliminary October German Manufacturing PMI is expected to decrease further to 49.6, indicating a heightened pace of contraction. The weak reading should reflect not only weakening domestic demand but also softer foreign demand, from Euro-Zone and emerging market partners alike. This means that any economic weakness forthcoming may be beyond the current scope of the ECB’s measures.

If the table is getting set for a Fed-styled, sovereign QE program to bolster the ECB’s easing stance, then that too will have to wait: the market is eagerly awaiting the ECB to release the results of the asset quality review (AQR) on Sunday. –CV

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