Bridgewater surges on euro short

Bridgewater typically bets on dozens of markets at once, making its portfolio relatively unconcentrated. Besides the bearish euro bet, winning positions for Pure Alpha funds in January included a long bet on the Japanese yen versus a short bet on the euro. The fund also made money on long stock bets in Europe, according to the person briefed on the performance.

In February, the largest winner was a long bet on Japanese equities, plus gains on U.S. and European stocks (also long). Smaller gains were made by betting long on interest rates in the U.S. and U.K., the person said.

In March, the largest gain came from a short of the British pound versus a long on the U.S. dollar. There were also winning short currency bets on the euro, Brazilian real, Australian dollar and Canadian dollar, according to the individual. Other winners were bullish bets on stocks and interest rates from both the U.S. and Japan.

Those portfolio gains came as Dalio recently expressed concern about making big investment bets ahead of a potential interest rate increase by the Federal Reserve.

“We expect a Fed tightening and are cautious about our exposures,” Dalio and Mark Dinner of Bridgewater wrote in a private note to clients and other followers March 11.

Read MoreDalio: Fed risks toppling apple cart, 1937-style

Bridgewater’s performance far outpaces many other hedge funds.

The average macro fund is up just 3.07 percent net of fees as of April 1, according to a report by Bank of America Merrill Lynch. The average return for all hedge fund strategies was 2 percent over the same period.

Read More‘Machine’ Ray Dalio takes on ‘Man’ Bill Ackman

Euro weakness sparks analyst clash over currency war

Paris (AFP) – The euro’s slide against the dollar has reignited talk of a “currency war”, with analysts in opposing camps over whether or not countries are consciously playing with their exchange rates.

War language is no stranger to modern monetary policy.

The massive bond buying programmes, or quantitative easing (QE), that central banks have used in response to the financial and economic crises that have rocked the global economy since 2008 are often referred to as a bazooka.

After lowering interest rates, sometimes to zero or even into negative territory, major central banks turned to buying government and corporate bonds to stimulate the economy.

First tried by Japan in 2001 to combat deflation, the US Federal Reserve began using it in 2008 to respond to the financial market crisis and pull the US economy out of recession.

Japan used QE with more success in 2013 after Shinzo Abe came to power, and the European Central Bank joined the party in March.

– Monetary policy bazooka –

But central banks fired this bazooka as governments had little they could do.

“We are really in a situation where monetary policy has substituted for budgetary policy” as “the governments don’t have any more budgetary margin for maneouvre,” said Saxo Banque economist Christopher Dembik.

And the bazooka wasn’t directly aimed at exchange rates.

The bond purchases inject money into the economy, thus addressing any concerns about market liquidity. To the extent the funds result in new investments in the real economy it stimulates growth, another aim of QE policies.

But some funds end up leaving the country as investors seek better returns elsewhere. This pushes the value of the currency down, which is also not an unwelcome effect for policymakers as this favours more exports of goods and services and thus growth.

“The currency weapon is rarely the official objective,” said Patrick Jacq, a bonds specialist at BNP Paribas bank.

Led by Brazil, developing countries charged that the US QE programme was a first shot in a currency war because their economies suffered as exports slumped thanks to the weak dollar.

Those complaints were brushed aside with commitments by the leading economies to “market-determined exchange rates”.

But public comments from elected officials about currency values often muddy the waters about policy objectives, even if central banks in most major economies are independent.

Lowering a currency’s value may not be the stated policy objective “but they are thinking it so loudly all the world hears it,” said Rene Desfossez, a bonds specialist at Natixis investment bank.

The reason is clear as “the exchange rate is one of the principle levers on which they can use to make monetary policy as favourable as possible for economic recovery”.

A weak currency can provide a boost to exports, and thus contribute to a wider economic recovery if companies raise wages and create new jobs.

– Policy free for all –

And UniCredit’s global chief economist, Erik Nielsen, observed recently that days of “gentlemanly” cooperation between central banks is long gone.

“I am not in the ‘currency war’ camp, but it is important to note that the world’s leading central bankers are now making it explicitly clear that they run monetary policy for their own country only,” he said in a note to clients.

“And while the currency is not an explicit objective in their policy set-up, the FX is seen — and explicitly referred to — as an integral part of creating the desired financial conditions for the domestic economies.”

More countries have been joining on the easing bandwagon, either on their own initiative or in response to others.

The Organisation for Economic Cooperation and Development noted recently that monetary policy in countries accounting for roughly half of global output had been eased in the past few months.

– ‘Not necessarily warfare’ –

But is it a currency war?

Editors at Bloomberg recently wrote that “this isn’t necessarily warfare”.

The eurozone, Japan and China all have ample justification for monetary stimulus, they noted.

One way of uncovering unfair currency manipulation, Bloomberg editors said, is to look at foreign reserves, which should increase if a country is deliberately buying foreign currency to keep the value of its currency low.

But no major country has been massively hoarding foreign reserves, according to Bloomberg data.

The massive swings in currencies in recent months — the dollar has appreciated by a quarter against a basket of major currencies since August — may be due more to monetary and economic dissonance.

While the eurozone and much of the rest of the world are easing monetary policy, the United States is on the cusp of raising interest rates from the zero level where they have been for more than six years.

The prospect of higher returns on US bonds caused a brief stampede out of emerging markets last year, and with much of eurozone debt now providing little if no return, the euro has been slumping against the greenback.

“As we have said for over a year now, the divergence in central bank policies is crucial to where these currencies move now,” said Greg Smith, an analyst at currency trading firm World First.

Currencies: Dollar steadies on renewed views of early Fed rate increase

The dollar was steady against the yen and the euro in Asia Friday, with the revival of expectations for an early U.S. rate increase giving support to the greenback.

The dollar USDJPY, +0.10%  was at ¥120.71, compared with ¥120.77 late Thursday in New York. The euro EURUSD, +0.05%  was at $ 1.0680 from $ 1.0660.

The overnight development in U.S. financial markets where stocks tumbled, U.S. Treasury yields and the dollar rose came in contrast with the previous day. On Wednesday, the Federal Reserve issued a dovish policy statement and its chairwoman Janet Yellen raised views that the Fed is likely to raise its key short-term interest rate in September or later.

“Given Thursday’s market development, as opposed to Wednesday’s, hopes for early Fed action haven’t receded. The possibility of June is still alive,” said Junichi Ishikawa, market analyst at IG Securities said.

Ishikawa cited how U.S. jobs and wage conditions, as well as inflation, will fare are crucial to gauging the timing of the Fed’s tightening down the road.

June rate hike back on the radar: “I personally think there is more than a 50% chance of the Fed’s rate increase in June, even though any action would be data-dependant,” said Yuji Saito, executive director of foreign exchange at Crédit Agricole Corporate & Investment Bank.

What does latest Fed move mean for economy?

Jason Meister of Avison Young New York Capital Markets joins MoneyBeat to discuss the Federal Reserve’s announcement Wednesday and what it means for jobs, markets and the economy.

Saito said it would be safe for the Fed to act when they believe they can minimize any shocks from its own action amid globally easing environments.

Read: The dollar’s meteoric rise may be just about over

Looking ahead, the release of both U.S. and Japan’s consumer price index data next week will be in focus as a clue for the direction of each monetary policy, said Saito who expects the dollar/yen rate to move in a ¥119-¥122 range next week.

Separately, the market mostly shrugged off remarks from the Bank of Japan Gov. Haruhiko Kuroda.

Speaking at the Foreign Correspondents’ Club of Japan, Kuroda said the BOJ is the first major central bank since the Great Depression to fight deflation, and if it succeeds, it “will strengthen confidence in central banks’ ability to achieve their price stability targets.”

Kuroda also said the central bank will make adjustments to its current policy as necessary without hesitation, when there are changes in the underlying trend in inflation.

The WSJ Dollar Index BUXX, -0.04% a measure of the dollar against a basket of major currencies, was down 0.14% at 88.33.

Interbank Foreign Exchange Rates At 00:50 EST / 0450 GMT Latest Previous %Chg Daily Daily %Chg 2150 GMT High Low 12/31 Dollar Rates Close High Low 12/31 USD/JPY Japan 120.71-72 120.76-77 -0.04 120.86 120.62 +0.83 EUR/USD Euro 1.0679-82 1.0659-62 +0.19 1.0697 1.0650 -11.72 GBP/USD U.K. 1.4760-65 1.4751-56 +0.06 1.4779 1.4744 -5.24 USD/CHF Switzerland 0.9893-97 0.9898-902 -0.05 0.9905 0.9874 -0.48 USD/CAD Canada 1.2685-90 1.2713-18 -0.22 1.2721 1.2674 +9.17 AUD/USD Australia 0.7673-77 0.7649-53 +0.31 0.7687 0.7645 -6.07 NZD/USD New Zealand 0.7431-37 0.7410-16 +0.28 0.7452 0.7404 -4.63 Euro Rate EUR/JPY Japan 128.90-94 128.70-74 +0.16 129.11 128.65 -11.05 Source: ICAP PLC

Write to Tatsuo Ito at [email protected]

(END) Dow Jones Newswires

March 20, 2015 01:28 ET (05:28 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.

GLOBAL MARKETS-Euro rises, shares sag as dollar lays low ahead of Fed

* World shares hit one-week high; Asia gain from dollar pause

* Fed begins two-day policy meeting later on Tuesday

* Bank of Japan maintains policy, economic assessment

* Chinese shares near seven-year high on policy hopes

* Platinum hits 5 1/2-year low as precious metals struggle

By Marc Jones

LONDON, March 17 (Reuters) – The euro gained on Tuesday as the dollar laid low before a two-day meeting of the U.S. Federal Reserve where the central bank may edge closer to its first interest rate rise in almost a decade.

Solid gains for Asian markets overnight failed to transfer to Europe where the recent rally in euro zone shares and bonds stalled as the euro notched its first two-day run of gains in three weeks, a disadvantage for the bloc’s exporters.

Wall Street was expected to give back around 0.3 percent of Monday’s 1.3 percent jump when it resumes, while oil and other commodity markets also remained under heavy pressure from a global supply glut.

Fed policymakers will kick off their two-day meeting later, and many analysts expected them to remove the “patient” reference to rate rises from their policy statement. That would put them a step closer to their first hike since 2006.

Economists polled by Reuters are almost evenly split on whether a rate increase will come in June or later in the year. But more downbeat housing data on Tuesday added to lacklustre U.S. manufacturing and other housing figures on Monday that had fuelled talk that the Fed would remain cautious.

“U.S. data has remained on the weak side, despite tightness in the labour market. This allows the FOMC (Fed) to remove the patience language and remain dovish in the statement tomorrow,” said Nick Lawson, a managing director at Deutsche Bank.

“That so much discussion around the economy is still warranted whilst equity price performance marches on toward imperious new highs is clear evidence that assets are out- performing underlying economics.”

After weakening to a 12-year low of $ 1.0457 at the start of the week, the euro had secured a firm foothold back above $ 1.06 as it hit $ 1.0620 as U.S. traders began to arrive for the day.

The dollar meanwhile was down against a basket of major currencies as it added to its biggest drop in more than a month on Monday. Benchmark 2- and 10- year U.S. government bond yields also made it six days of declines in the last seven.

COMMODITIES CRUNCHED

Britain’s FTSE 100 was the only major index in Europe in positive territory in early afternoon European trading. Wariness over the Fed offset the effects of the bond-buying programme the European Central Bank began last week.

London was up a meagre 0.1 percent, but Frankfurt’s Dax dropped 1.2 percent and Paris’s CAC 40 lost 0.8 percent. Italian and Spanish stocks both declined 1 percent.

The falls came despite German business confidence data from the ZEW institute seeing a fifth consecutive rise, largely thanks to the ECB’s efforts to stimulate the euro zone economy.

The region’s car makers, which have been flying along in the fast lane over the last nine months as the euro has dropped 25 percent, were among the day’s biggest losers, down 2.7 percent , as poor sales data saw them hit the skids.

A warning from rating agency Moody’s that a Greek exit from the euro would still have “serious consequences” also cast a shadow over the region.

That came as Greek Prime Minister Alexis Tsipras requested a meeting with top European leaders including German Chancellor Angela Merkel at this week’s EU summit, as his cash-strapped government, which has been locked in an ugly spat with Berlin in recent days, scrambles to stave off bankruptcy.

Chinese shares reached seven-year highs in Asia trading on hopes that the Chinese government would loosen policy to bolster its slowing economy. Japan’s Nikkei climbed to a 15-year high as the yen edged lower after the Bank of Japan maintained its stimulus and its optimistic assessment of the economy at its latest meeting.

Beijing’s use of monetary and fiscal policies to bolster the economy is identical to what happened in the U.S., when the Fed’s quantitative easing in 2009 caused U.S. stocks to soar, said Wu Wenzhe, fund manager at China International Management.

Despite the pause in the U.S. dollar, Brent oil fell towards $ 53 a barrel in choppy trade, copper tumbled 1.8 percent, gold buckled and fellow precious metal platinum slumped to a 5 1/2-year low.

“The sentiment around platinum is quite negative. It’s a combination of supply coming back online after the strikes last year and it’s certainly getting no support from the gold market,” said ANZ analyst Victor Thianpiriya.

(Editing by Ralph Boulton)

Premarket: Weak euro powers European stocks to new highs

The euro struck a fresh 12-year low on Monday and euro zone stocks reached new peaks on bets that the currency’s relentless fall will boost corporate earning prospects just as the rising dollar hits those of U.S. firms.

German stocks powered above 12,000 points for the first time, while the main pan-euro zone benchmark indices hit new seven-year highs.

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The euro rebounded as European trading got under way, however, while U.S. oil prices recovered after slipping to a fresh six-year low, although they were still down on the day.

This week’s focal point for global financial markets is the U.S. Federal Reserve’s policy decision on Wednesday, with the euro/dollar exchange rate likely to remain the dominant driver for major equity, currency and bond markets until then.

“With dollar momentum this strong and investors unlikely to ride any euro rally ahead of the (Fed) meeting, risks for the euro are still to the downside for the next couple of days and any bounces are likely to be limited,” Unicredit FX analysts said on Monday.

In early European trading the euro was up 1/3 of a per cent against the dollar at $ 1.0530, having slid to $ 1.0457 early in the Asian session, its lowest since January 2003.

The euro has lost roughly a quarter of its value versus the dollar since mid-2014 and suffered its biggest weekly fall since September 2011 last week, shedding 3.2 per cent as the European Central Bank launched its trillion euro money-printing scheme.

Goldman Sachs now sees the euro at $ 0.80 by the end of 2017.

European stocks took heart. Germany’s DAX was up 0.85 per cent at 12,001 points, France’s CAC 40 half a per cent higher at 5,039 points, and Britain’s FTSE 100 index up 0.25 per cent at 6,758 points.

The FTSEurofirst 300 index of top European shares rose 0.3 per cent to 1,584 points and the euro zone top 50 stocks index was up 0.5 per cent at a seven-year high of 3,673 points.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed a few ticks higher, while Chinese shares outperformed to hit five-year-highs.

The CSI300 index and the Shanghai Composite Index both rose more than 2 per cent after Premier Li Keqiang said Beijing had scope to adjust policies to help boost the world’s second largest economy.

Japan’s Nikkei hit a 15-year high of 19,349 points Recent weak U.S. inflation and retail sales data have not derailed expectations that the Fed will tighten monetary policy, and the prospects that higher rates and a stronger dollar will hit U.S. corporate profits have dragged on shares.

Wall Street futures were seen opening 0.2 per cent higher on Monday, lagging Europe’s main bourses.

Many observers expect the Fed to remove its pledge to remain “patient” on delivering its first interest rate hike since 2006, with economists polled by Reuters almost evenly split on whether a first hike will come in June or later in the year.

German 10-year Bund yields inched up 1 basis point to 0.265 per cent, having hit a record-low 0.188 per cent last week. Longer-dated German yields fell, however, and benchmark Spanish, Italian and Portuguese yields were also headed back towards their recent record lows.

The ECB is expected to buy more sovereign bonds as part of its stimulus program this week, limiting any upward pressure on bond yields.

“The current dynamic is incredible, logical and extendable … until something changes, but there is little sign of that right now,” Citi rates strategist Mark Schofield said.

Oil prices continued to tumble, with U.S. crude dropping more than 2 per cent at one point to a six-year low on fears of oversupply. The International Energy Agency said on Friday that a global glut of oil is growing and U.S. production shows no sign of slowing.

U.S. crude was last down about 0.8 per cent at $ 44.48 a barrel, while Brent was 0.6 per cent lower at $ 54.32.

After snapping its longest daily losing streak since 1973 on Friday with a first rise in 10 sessions, gold consolidated its gains. Bullion was flat on the day at $ 1,158 an ounce.

ECB Bond Buying Makes Fed Rate Increase More Likely

Dollar bulls say Europe’s 1.1 trillion euro ($ 1.23 trillion) bond-buying plan will bring the Federal Reserve a step closer to raising interest rates before the year’s out.

By pumping cash into global markets, the European Central Bank may clear the way for the U.S. to tighten its own money supply without stoking volatility, according to Citigroup Inc. and Bank of America Corp. As Fed officials start a two-day policy meeting, the greenback is extending a rally that’s taken it to a more than decade-high versus a basket of its peers even as bond investors express less conviction about the timing of an U.S. central bank’s first rate increase since 2006.

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“We’ve been expecting dollar strength, and it’s coming quicker than we thought,” Steven Englander, the head of Group of 10 foreign-exchange strategy at Citigroup in New York, said by phone on Jan. 23. Fed officials “may feel they actually have to advance the first tightening rather than put it off.”

Money has flooded into dollar assets in recent months as the world’s largest economy outperforms its developed peers and the Fed prepares to raise its main interest rate from the zero-to-0.25 percent range it’s been in since 2008. That makes the dollar more valuable to investors, particularly as central banks from Japan and Canada to Europe debase their currencies by easing their monetary policies.

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October Increase?

The anticipated timing of that first Fed increase inched forward as the ECB unveiled its government-bond purchase program. Investors now expect the U.S. central bank to boost borrowing costs from near zero in October, after betting on a December increase just a month ago, according to futures prices compiled by Bloomberg.

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Some 45 percent of 53 economists in a Bloomberg survey released Monday said the central bank will raise the benchmark lending rate in June. Six percent said July, while 30 percent said the Fed will wait until September for the first increase since 2006. Fed officials last month said they expect to raise the rate this year.

When the ECB finally laid out its plans on Jan. 22, surprising investors with the scope of the purchases, the euro responded by tumbling to an 11-year low. It touched $ 1.1098 on Monday, the weakest level since September 2003, after the anti-austerity Syriza party won Greek elections that investors speculated may lead the country out of the euro. The common currency was at $ 1.1334 at 9:01 a.m. in London, having fallen about 7 percent this year.

Forecast Cut

Credit Suisse Group AG, the largest Swiss bank, cut its 12-month forecast for the euro to $ 1.02 from $ 1.05 after the ECB announced quantitative easing, or QE.

“All of these countries are easing, or in an environment where potential immediate easing action is a real possibility,” Shahab Jalinoos, the global head of foreign-exchange strategy at Credit Suisse in New York, said by phone on Jan. 22. “You don’t need to price in a near-term Fed rate hike. All you need is a Fed that’s neutral and you see the dollar outperform.”

Intercontinental Exchange Inc.’s U.S. Dollar Index — which tracks the currency against six major peers — is headed for a seventh straight monthly advance, after surging 19 percent since the end of June. It climbed to 95.527 yesterday, the highest since September 2003.

Strategists have rushed to keep up with the gauge’s strength, boosting their year-end forecast to 96.6 from 94 on Jan. 16. Before that, the outlook hadn’t changed since early December.

‘Financial Volatility’

Soft wage growth and consumer prices have the U.S. central bank expressing caution about when to embark on a return to tighter monetary policy. Fed Chair Janet Yellen said in November that “normalization could lead to some heightened financial volatility.”

JPMorgan Chase & Co.’s Group of Seven Volatility Index, which measures currency price swings, has jumped to 10.95 percent, from an all-time low of 5.11 percent in July, when the dollar started to rally.

As the Fed ponders tightening policy, the Bank of Japan is still seeking new ways to pump stimulus into its economy to complement a record bond-purchase program. Last week, Canada and Denmark unexpectedly reduced interest rates to boost growth and stave off the crippling effects of deflation.

Fed Program

By pumping more cash into global markets, Europe and Japan are effectively replacing the money that the Fed already drained out of the system last year when it ended its own QE program, Citigroup’s Englander said.

Englander’s company is the world’s biggest foreign-exchange dealer and sees the 19-nation euro falling an additional 3.9 percent to $ 1.08 by year-end. It has the equal strongest prediction on the dollar versus the yen in a Bloomberg survey of more than 60 strategists, forecasting a gain of almost 12 percent by Dec. 31.

To Bank of America, easing elsewhere in the world will give the Fed confidence to signal higher rates more quickly than previously thought. The U.S. lender cut its year-end euro forecast to $ 1.10 from $ 1.20 after the ECB’s QE announcement.

Looser monetary policies in Europe and Japan allay concern that Fed increases will “create a vacuum in global liquidity,” David Woo, the head of global rates and currencies at Bank of America in New York, said by phone on Jan. 23. “All else being equal, the Fed’s going to be more hawkish than dovish.”

To contact the reporter on this story: Andrea Wong in New York at [email protected]

To contact the editors responsible for this story: Dave Liedtka at [email protected] Paul Armstrong, Nicholas Reynolds

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Euro Climbs as SNB Says It’s Ready to Intervene; Yen Advances

The euro strengthened after a Swiss National Bank official said it remained ready to intervene in markets, sparking broader gains for the shared currency.

The euro climbed against 13 of its 16 major peers even as it reversed its advance versus the franc. The yen rose against the dollar after Japan’s economy minister said neither the government nor the central bank has committed to a strict schedule for achieving 2 percent inflation. A gauge of the U.S. dollar was close to its highest level on record amid speculation Federal Reserve policy makers meeting this week will stick to their stance that suggests an interest-rate increase this year.

“The move on euro-Swiss is grabbing attention,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “It’s generating a bigger euro move. It’s unclear, but obviously there’s going to be a lot of discussion around what the SNB is going to do next. I don’t think there’s enough here to suggest any clear influence.”

The euro rose 0.4 percent to $ 1.1279 at 6:17 a.m. New York time after falling to $ 1.1098 on Jan. 26, the least since September 2003. The shared currency was little changed at 133.20 yen. The euro weakened 0.1 percent to 1.01652 francs after appreciating as much as 2.3 percent to 1.03826 francs, the strongest level since the SNB lifted its currency cap on Jan. 15.

The franc had traded near parity against the euro since the SNB sent ripples through markets on Jan. 15 by abandoning its cap of 1.20 francs per euro and increasing a charge on deposits. That pushed the Swiss currency as much as 41 percent higher against the euro to the strongest level on record.

SNB Comment

“We’re fundamentally prepared” to intervene again, SNB Vice President Jean-Pierre Danthine said in an interview with Tages-Anzeiger newspaper published on Tuesday. The Tribune de Geneve and 24 Heures newspapers published similar comments. Danthine told the latter that the current euro-franc exchange rate wasn’t justified.

“Everyone is watching for the SNB, but we are still skeptical,” said Peter Rosenstreich, head of market strategy at Swissquote Bank in Gland, Switzerland. “The euro is finding buyers across the board, so this could be more of a short squeeze. Some are citing comments by Danthine but I doubt that would push euro-Swiss higher. It’s more like franc traders seeing shadows.”

The euro has tumbled 4.6 percent this year, the worst performance after the Canadian dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the European Central Bank last week announced a quantitative easing, or bond buying, plan. The yen has advanced 4.9 percent in 2015 and the U.S. dollar gained 3.2 percent.

Fed Policy

The Fed is forecast to leave interest rates unchanged at a two-day policy meeting that begins today, a Bloomberg News survey of economists shows. The chance of a interest-rate increase by the October meeting was 52 percent, futures data showed.

“The U.S. dollar remains supported, and that will continue for the foreseeable future,” said Robert Rennie, head of currency and commodity strategy in Sydney at Westpac Banking Corp. “That’s being driven by other central banks needing to be much more aggressive.”

The Bloomberg Dollar Index, a gauge of the currency’s performance against is major peers, was little changed at 1,159.98. It closed at a record 1,161.42 in New York on Jan. 26.

Inflation Target

The yen strengthened as Economy Minister Akira Amari told reporters in Tokyo that neither the government nor the Bank of Japan has set a specific time for achieving the inflation target, and the central bank’s expression of “about two years” may include the possibility of taking longer than two years.

“The government seems to have relaxed its attitude toward the inflation target,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo. “Speculation about additional Bank of Japan easing is getting pushed back, prompting some yen-buying.”

Japan’s currency strengthened 0.3 percent to 118.08 per dollar.

The ruble rebounded from a plunge Monday when Standard & Poor’s lowered Russia’s credit rating one step to BB+, putting it below investment grade for the first time in a decade.

The currency strengthened 1.4 percent to 67.83 versus the dollar, after declining 6.6 percent on Monday, the most since Jan. 5.

To contact the reporter on this story: David Goodman in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Keith Jenkins

Euro and EZ Capital Market Investors Watch Important ECB Court Ruling

DailyFX.com –

Talking Points:

  • Dollar Weighs Growth Forecast Upgrade, FOMC Fodder and Active Counterparts
  • Euro and EZ Capital Market Investors Watch Important ECB Court Ruling
  • Pound Mixed After Headline CPI Hits 15-Year Low

Dollar Weighs Growth Forecast Upgrade, FOMC Fodder and Active Counterparts

The Dollar struggled for both direction and conviction this past session, but the fundamental seas look heavier ahead. On an individual, the Dow Jones FXCM Dollar Index (ticker = USDollar) was little changed through the past session. On the economic front, the day’s docket was generally positive. Of the scheduled data to print, the NFIB small business optimism survey neared an eight-year high withjob openings at 14-year highs and the largest group reporting wage growth in seven. Considering small businesses account for the majority of jobs in the US economy, this was a particularly credible read of labor conditions after last week’s NFPs stirred concerns with its participation and wage measures. Furthering the positive read of the US economic backdrop, the World Bank also issued its updated 2015 growth forecasts from 3.0 to 3.2 percent which provides direct contrast to the downgraded Global expected pace from 3.4 to 3.0 percent.

This past session’s event risk touched upon all three major veins of Dollar strength: growth potential, support for the hawkish policy path and weakened competition. All three venues will be explored further this upcoming session. On the economic front, retail sales and MBA mortgage applications doesn’t hold the same level of poignant appeal as the NFIB figure, but they tend to generate more recognition and often volatility. The monetary policy implications will be leveraged with the Fed’s Beige Book – the assessment of economic conditions across districts to be used at the January 28 FOMC rate decision. Perhaps the greatest potential for the Greenback though lies with the contrast the Euro will present with the EU court ruling that could redefine the ECB’s stimulus path.

Euro and EZ Capital Market Investors Watch Important ECB Court Ruling

Top event risk over the coming 24 hours can be found in the Euro’s economic docket. An advisor for the EU Court of Justice is set to weigh in on legality of the OMT (Outright Monetary Transaction) program the ECB introduce back in 2012 to reinforce the vow made to do whatever was necessary to ensure the region’s financial and economic stability. Though non-binding, the courts tend to follow the assessment; and this opinion can undermine a significant safety net and shape the central bank’s next big step on a path of heavy policy easing. If the outcome is critical of the ECB’s reach, shaping an outright QE program similar to those of the US, UK and Japan will be extremely difficult, if not impossible. A hurdle to a full-scale government bond purchase program doesn’t condemn the group’s objective of increasing the balance sheet by €1 trillion. However, it will make it materially more difficult and likely piecemeal. If the Euro found some kind of relief from such an outcome as there isn’t a direct tap to stimulus, it wouldn’t last long. Furthermore, Europe’s capital markets would likely be unnerved by the limitations. As such, this could prove a global risk catalyst. Alternatively, an ‘all clear’ sign on QE would embolden ECB expectations for next week.

Pound Mixed After Headline CPI Hits 15-Year Low

Rate expectations for the UK have collapsed over the past six months. After Tuesday’s release of the December inflation figures, those diminished forecasts were reinforced. From an array of price measures (factory, retail, housing), the CPI was the market’s primary concern. Already expected to cool significantly due in large part to energy prices, the headline pace actually dropped to a near-15 year low of 0.5 percent. Alone, that may have crippled BoE rate expectations even further, but the core reading would mitigate it somewhat with an uptick to 1.3 percent. The Short Sterling futures market is now showing the first rate hike isn’t fully priced in until after December (at 0.74 percent).

Yen Crosses Retreat as Key Milestones in Capital Markets Come Into View

The correlation (rolling, 20-day) between the USDJPY and S&P 500 is 0.86 – strongly positive. This is not to suggest one leads the other, but rather they are operating on the same underlying fundamental theme: risk trends. Volatility continues to trend higher with short-term measures in the FX up to 10.1 and equities jumping to 19.6 percent. The dominos on sentiment are precariously set.

Copper Price Plunge, Aussie Dollar Feels the Pinch

Copper has collapsed the past few days, and this session’s tumble – at one point over 8 percent – is the worst since October 2011. The direct commodity-currency correlation isn’t as distinct as many believe, but a move of that magnitude and a tumble in the broader commodity group certainly weighs on countries considered large resource exporters. Therefore, it’s not surprising to see AUD down across the board.

Emerging Markets Receive Optimistic World Bank Growth Forecast

Emerging Markets have been roiled recently and their economic forecast has suffered the downgraded view given their Developed world trade partners. However, the World Bank’s growth outlook still sees the group on an upgraded trajectory going forward. The optimism hasn’t engendered much strength for the EM FX world. In particular, a downgraded Russian GDP view sent the Ruble down 3.2 percent Tuesday.

Gold Searching for Fundamental Demand Versus Speculative Appetite

A two week advance has pushed gold back up to a two-month high and within reach of $ 1,250. Yet traders have to wonder what the source of this strength is. A speculative drive that is supported by the rise in net speculative futures holdings reported by the COT (122,178 contracts net long is the most bullish positioning since August) lacks the appeal of long-term interest. ETF holdings of the precious metal – a gauge of speculative interest for a cheaper entry – hit its lowest level since April of 2009 (51.311 mln ounces) this past session. Fundamental demand for the precious metal comes through financial collapse or a Dollar tumble (alternative to FX). Neither theme has yet to take.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

23:00

NZD

QV House Prices (YoY) (DEC)

5.10%

Has been increasing on a YoY basis in 2014

23:50

JPY

Japan Money Stock M2+CD (YoY) (DEC)

3.60%

3.60%

Tends to increase with monetary stimulus

23:50

JPY

Japan Money Stock M3 (YoY) (DEC)

3.00%

2.90%

0:30

AUD

Job vacancies (QoQ) (NOV)

-0.70%

Showed contraction last quarter.

6:00

JPY

Machine Tool Orders (YoY) (DEC P)

36.60%

Has been increasing at a positive pace in 2014 on a YoY basis.

10:00

EUR

Eurozone Industrial Production (MoM) (NOV)

0.00%

0.10%

A strong measure might show a stronger Eurozone. However, this measure isn’t likely going to change the markets’ expectation on future ECB policy.

10:00

EUR

Eurozone Industrial Production (YoY) (NOV)

-0.70%

0.70%

12:00

USD

MBA Mortgage Applications (Jan 9)

11.10%

A volatile measure that isn’t likely to be market moving

13:30

CAD

Teranet/National Bank HPI (MoM) (DEC)

-0.30%

Has been increasing at positive pace on a YoY basis in 2014. IMF voiced concerns on the housing market.

13:30

CAD

Teranet/National Bank HPI (YoY) (DEC)

5.20%

13:30

CAD

Teranet/National Bank HP Index (DEC)

167.51

13:30

USD

Advance Retail Sales (DEC)

-0.10%

0.70%

Has been increasing at a positive pace for 10 months in 2014. A strengthening labor market and lower oil prices may have been leading to an increase in retail spending.

13:30

USD

Import Price Index (MoM) (DEC)

-2.70%

-1.50%

Has been showing contraction since August 2014. A strong US Dollar might be adding to the deflationary pressures from imports.

13:30

USD

Import Price Index (YoY) (DEC)

-5.20%

-2.30%

15:00

USD

Business Inventories (NOV

0.30%

0.20%

It has been positive for every month in 2014. Might indicate increased optimism in US consumption.

23:50

JPY

Domestic Corporate Goods Price Index (MoM) (DEC)

-0.30%

-0.20%

A measure in 2014 that might be inflated due to Japan’s sales tax hike

23:50

JPY

Domestic Corporate Goods Price Index (YoY) (DEC)

2.10%

2.70%

23:50

JPY

Machine Orders (MoM) (NOV)

4.40%

-6.40%

Has been contracting in October 2014 as Japan recorded a recession in third quarter of 2014.

23:50

JPY

Machine Orders (YoY) (NOV)

-6.30%

-4.90%

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

INTRA-DAY PROBABILITY BANDS 18:00 GMT

v

— Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email [email protected] Follow me on twitter at http://www.twitter.com/JohnKicklighter

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The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

original source

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Euro hits nine-year low versus US dollar on manufacturing, oil-price slump

The euro hit a nearly nine-year low versus the dollar on Monday as investors bet on quantitative easing by the European Central Bank while soft manufacturing surveys pushed down shares and sent oil prices to 5 1/2-year lows.

European shares are expected to dip, with Britain’s FTSE seen falling by up to 0.4 percent. Germany’s DAX andFrance’s CAC are both seen falling as much as 0.2 percent.

The euro fell to as low as $ 1.18605, its weakest level since March 2006, having fallen below an important support at $ 1.20. The common currency last traded at $ 1.1926, down 0.6 percent from late U.S. trade on Friday.

In an interview with German financial daily Handelsblatt published on Friday, ECB President Mario Draghi said the risk of the central bank not fulfilling its mandate of preserving price stability was higher now than half a year ago.

“The market took his comments to mean that he is ready to adopt quantitative easing,” said Shin Kadota, chief forex strategist at Barclays in Tokyo.

Economists forecast that Wednesday’s euro zone inflation data will show that in December prices fell 0.1 percent, the first decline since 2009.

That should fan expectations the ECB could ease its policy as soon as Jan. 22, when it holds its first policy meeting this year.

Also underscoring the pressure on central banks to implement more stimulus, business surveys last week showed factories struggled to maintain growth across Europe and Asia.

Even in the United States, which is seen as one bright spot in the global economy, the pace of manufacturing growth slowed more than expected in December.

That sapped investor appetite for stocks, with Wall Street shares ending mostly flat on the first day of trade in 2015 on Friday, after stellar gains of 11.4 percent in the S&P500 index last year.

S&P futures dipped 0.1 percent in early Asian trade on Monday while MSCI’s broadest index of Asia-Pacificshares outside Japan dropped 0.6 percent.

Japan’s Nikkei fell 0.2 percent on the first trading day of the year.

Chinese shares, however, maintained their bullish tone since last year on hopes of more stimulus, as property shares jumped on local media reports saying mortgage restrictions had been loosened.

The CSI300 index, hitting a five-year high, added more than 3 percent on the first trading day of 2015. It rallied 52 percent last year.

Oil prices, whose decline of more than 50 percent from peaks in June last year rattled many energy producers, hit a 5-1/2-year low as global growth concerns fanned fears of a supply glut.

Brent crude futures dropped as low as $ 55.36 a barrel, also its lowest since May 2009, before edging back to $ 55.42, still down a dollar.

“Oil demand is unlikely be robust this year when we look at the state of economies in China, Japan and Europe,” said Yusuke Seta, a commodity sales manager at Newedge Japan.

That did not help commodity currencies such as the Canadian dollar, which fell to C$ 1.1843 to the U.S. currency, its lowest level since mid-2009.

The Australian dollar likewise dropped to a 5-1/2-year low of $ 0.8036.

The U.S. dollar also surged against the Swiss franc and sterling, extending a recent bull run as markets wagered a relatively healthy U.S. economy will lead the Federal Reserve to raise rates in the middle of this year. 

Euro hits lowest since 2006

While Federal Reserve minutes on Wednesday will be parsed for clues on when the U.S. central bank will drop its pledge to keep interest rates low for a considerable time, central banks in Europe and Japan are pondering how and when to inject more stimulus.

The euro dived below $ 1.20, falling as low as $ 1.18605 in Asian trade. It recovered some ground but by 1109 GMT was again looking shaky at $ 1.1905, down 0.8 percent on the day. Against the yen, it hit a two-month low of 143.15 yen, down 1 percent on the day.

“Increasing expectation for the ECB to deliver quantitative easing on Jan. 22, combined with rising political concerns ahead of Greece’s general election (on Jan. 25) should maintain downward pressure on the euro,” BNP Paribas strategist Michael Sneyd said. “The bullish momentum on the dollar should persist.”

Sterling was down 0.5 percent at $ 1.5245, having fallen to a 17-month low of $ 1.5185 in Asian trading. The yen fared better, gaining 0.2 percent on the day at 120.26 yen per dollar.

Dealers in London said there was room for a pause in dollar strength, with some seeing strong support for the single currency around $ 1.1850.