Monday, 10 February 2014

US Congress Ends Government Shutdown & Approves Debt Deal

The US congress have approved the nation’s debit bill, with just hours before the October 17 deadline, where the US Treasury will exhaust its borrowing limit.

After nearly three weeks of a partial government shutdown due to the spending and Obamacare issues, the US congress have finally ended the shutdown on Wednesday after member of Congress a bill to raise the debt bill of $16.7 trillion and open funding for the US government until early 2014, reopening the government, federal agencies and bringing federal employees back to work.

In the Senate, the bill was opposed by 18 votes, while 81 legislators voted for the bill. In the House of Representatives, the deal was passed by 285-144. Both sides of the Congress supported the legislation and left the healthcare reform, also known as Obamacare intact.

President Barack Obama signed the legislation into law early on Thursday morning.

The proposal was a result of several days of discussions between a group of Senate officials with Minority Leader Mitch McConnell (R-Ky) and Majority Leader Harry Reid (D-Nev).

The proposal is raising the treasury’s borrowing limit until February 7 and the funds for the US government until January 15. The proposal also introduces tougher income verification for funding under the healthcare reform, also known as Obamacare.

Government Shutdown - Economy Threat

The US lawmakers faced major pressure to end the government shutdown which was threatening to the economy recovery and the possibility of causing a global economic meltdown.

On Tuesday, Fitch joined the International Monetary Fund (IMF) and World Bank and warned the Congress could cause both a domestic recession and global economic disaster.

The US Treasury has $30 billion in cash reserves, without any borrowing authority, according to the Fitch Ratings agency.

“The US risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens – all of which would damage the perception of US sovereign creditworthiness and the economy,” Fitch stated on Tuesday.

source:http://blog.hymarkets.com/forex-trading/us-congress-ends-government-shutdown.html

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What Can Forex Traders Learn from EUR/USD Surge?

Forex traders might benefit from learning about the recent surge in the EUR/USD to its highest level in more than two years.

The euro rose to as much as $1.3893 on Dec. 27, which was its highest level since Oct. 31, 2011, according to Bloomberg News. The appreciation in the common currency relative to the dollar was attributed to statements that European Central Bank Governing Council member Jens Weidmann made when speaking with the German newspaper Bild.

Several measures that compare the value of the greenback to other currencies also dropped, MarketWatch reported. The WSJ Dollar Index declined to 73.66 from its prior reading of 73.92. In addition, the ICE dollar index fell to 79.983, from 80.488 late in the previous day in North America.

Impact of Weidmann statement
“We must take care to raise interest rates again in a timely manner should inflation pressures build,” the paper quoted Weidmann as saying, according to Bloomberg News. “The euro area is recovering only gradually from the most severe economic crisis in the postwar period; pricing risks are slight. That justifies low benchmark rates.”

At least one market expert noted the key importance of the statements made by this government official, the media outlet reported. John Hardy, who works for Saxo Bank A/S in Copenhagen as head of foreign-exchange strategy, told the news source about this impact.

“The euro is trading to new highs since late 2011 on a Weidmann interview, in which he talks up the risks of ‘arbitrary monetary policy easing’ and the need to hike rates quickly if inflation returns,” he told the news source. “Illiquid holiday trading” is helping to make these fluctuations more severe, he emphasized.

Hardy is certainly not the only individual who observed the impact that the lack of trading activity has had on the price movements of the euro, as traders indicated that the lack of liquidity helped make these fluctuations in value more severe, according to Reuters.

EU banks prepare for AQR
Another factor that some have cited as helping to drive up demand for the common currency is lenders in the European Union making an effort to bolster their existing balance sheets so that they can be ready for an assessment that the ECB plans to conduct at the end of this year, according to Reuters.

Traders have told the news source that because these organizations want to improve their existing position, this objective has helped support demand for the euro. The evaluation is being conducted so that the region’s central bank can perform an asset-quality review early in 2014. The AQR will be conducted by the ECB so that the financial institution can pinpoint the banks in the region that need additional capital.

Impact of Fed tapering
Another factor that helped to push the EUR/USD higher in value by moving the greenback lower was speculation that the even though the Federal Reserve recently announced a timeline for reducing its bond purchases, the central bank will likely not increase its interest rates for some time, according to Bloomberg News.

At the end of the most recent meeting of the Federal Open Market Committee, it was revealed that starting in January, the Fed will start buying $75 billion worth of bonds every month. This figure compares to the $85 billion that the central bank has been purchasing every month since late in 2012.

As a result, the balance sheet of the central bank, which has surpassed $4 trillion, will continue to grow, although at a slightly reduced pace. This announcement was made at a time when the ECB has pulled back in terms of making bond purchases.

“The Fed did decide to taper, but the amount was minimal and we have yet to see what the policy outlook will be going forward,” Marito Ueda, senior managing director at currency-margin company at Tokyo-based FX Prime Corp., told Bloomberg. “Some bets on dollar gains are being unwound into year-end. The dollar is being sold across the board.”

The amount of time that the central bank will use to eliminate bond purchases entirely remains to be seen. Ben Bernanke, chairman of the Fed, shocked markets earlier this year when he announced at the conclusion of a policy meeting in June that these bond purchases could potentially be cut off altogether as early as 2014. This statement caused a sell-off that resulted in the decline of the value of many different assets.

He later provided some context around these statements, testifying before Washington lawmakers that for the bond purchases to be reduced, there would need to be significant improvement in crucial indicators of the economy. Since Bernanke made such statements, there has been substantial speculation circulating surrounding the timeline that the Fed will use to wind down its bond purchases.

Forex traders might benefit from knowing about a recent poll conducted by Bloomberg, in which economists predicted that the bond purchases of the Fed will be lowered at each one of the next seven FOMC meetings – by $10 billion per event.

source:http://blog.hymarkets.com/forex-trading/what-can-forex-traders-learn-from-eurusd-surge.html

USD/JPY News for Forex Traders

Those who trade forex might benefit from knowing that the USD/JPY pair reached its highest value in five years on Dec. 26, and then ticked up slightly on the following day, as global market participants responded to speculation surrounding the future policy moves of the Japanese government and its central bank.

On the first day, the dollar rose to as much as 104.84 yen, according to Bloomberg. This represented the highest value for the USD/JPY pair since October 2008. On the next day, the currency pair rose to 105.08, Reuters reported.

USD/JPY lingers at five-year high
The dollar kept rising against the yen at a time when many market experts believe that the Bank of Japan will soon have to take further action to utilize policy to stimulate the economy, since a sales tax will be implemented in April and there is speculation that the country’s inflation will reach a high point in the near future, according to the news source.

Any policies involving monetary easing will simply add to the actions that the BOJ has taken to stimulate an increase in the Asian nation’s price level, the media outlet reported. The financial institution has been harnessing robust stimulus in an effort to jumpstart the economy of the country and help fend off deflation, according to Bloomberg.

Alternatively, the Federal Reserve announced at the conclusion of a recent policy meeting its plans to reduce stimulus. At the end of this event, it was indicated that starting in January 2013, the central bank will purchase $75 billion worth of debt-based securities every month. This amount is slightly lower than the $85 billion per month that the Fed has been purchasing since 2012.

While this central bank has indicated its plans to lower its stimulus, the BOJ purchases 7 trillion yen ($67 billion) worth of bonds every month to increase the money supply and put upward pressure on the price level, the media outlet reported.

“The fact that BOJ members are concerned that improvement in growth, jobs, and consumer prices may not be as robust as before signals they will take some kind of measures going forward,” Takahiro Sekido, who was previously employed by the BOJ and now works for Bank of Tokyo-Mitsubishi UFJ Ltd. as a Japan strategist, told the news source. “Dollar-yen could test 105 as economic data in the U.S. continue to improve.”

Amid the continued efforts of this financial institution, the dollar was most recently on track to record its ninth straight weekly loss against the yen, Reuters reported. In the event that the most recent period ends up being another one where the greenback appreciates relative to the Japanese currency, it will be the longest streak of such gains since 1974.

Impact of government bonds
Another factor that could help motivate those who trade forex to seek out the dollar instead of the yen is the higher yields that are being paid by U.S. government bonds when compared to debt-based financial instruments being issued by Japan, according to Reuters.

At the time of report, 10-year bonds issued by the government of the Asian nation were only paying a yield of 71 basis points, which is far below that of the U.S. debt-based securities, the media outlet reported. If the Fed continues to reduce its monthly bond purchases, this development could help make the gap between the yields of the financial instruments issued by the governments of the two nations larger. One person who noted the key role that the bond yields play in the USD/JPY was Chris Weston, chief market strategist at IG in Melbourne.

“USD/JPY continues to move towards my long held year-end target of 105.00 and is clearly getting a helping hand by the fact that the U.S. 10-year treasury is at 2.99 percent and testing the September high of 3 percent,” he stated, according to the news source.

The Fed will need to have favorable economic data in order to keep reducing its bond purchases, and it received one more piece of information that would seemingly motivate it to lower these transactions when the U.S. Labor Department released a report indicating that during the week ending on Dec. 21, the number of jobless claims dropped by a large figure that surpassed expectations, Bloomberg reported.

The median forecast of economists who took part in a poll conducted by the media outlet was for the number of these weekly applications for unemployment benefits to decline to 345,000. However, the data provided by the government agency revealed that 338,000 of these claims were made during the period.

This most recent data was supplied after the Labor Department released a report earlier in December indicating that job growth was strong in November. Data provided by the government agency revealed that during the month, the unemployment rate declined to 7 percent from 7.3 percent and payrolls rose by more than 200,000. This data might be helpful to those who trade forex.

source:http://blog.hymarkets.com/forex-trading/usdjpy-news-for-forex-traders.html

European Stocks Opens Lower Before Services PMIs

Stocks in Europe opened lower on the first day of the trading week, as market participants focus on the release of some macroeconomic releases which includes services Purchasing Managers’ Indices (PMI) from countries in the euro area.

The pan-European Euro Stoxx 50 dropped 0.27% lower to 3,068.50, while the French CAC 40 declined 0.16% opening at 4,240.50 at the time of writing. At the same time, Germany’s DAX index edged 0.19% lower to 9,417.30, while the UK FTSE 100 dropped 0.10% to 6,723.30.

Shares in the Asian region declined, with the Japanese benchmark Nikkei 225 dragged lower by the stronger yen, while equities in China dropped due to drop in the China’s service sector.

Meanwhile in the US, the Institute for Supply Management’s (ISM) non-manufacturing data for December is expected to be released later in the day, with predictions of a rise to 54.5 points according to analysts.

Stocks – Macroeconomic data

The statistical office in Germany, Destatis is expected to release the preliminary consumer inflation data for December, with predictions that figures for the Consumer Price Index (CPI) would have risen from 0.2% to 0.4%.

In Spain, analysts are forecasting the country’s service PMI to have slightly climbed to 51.6, while Germany and France’s services PMIs are expected to remain the same at 54.0 and 47.4 respectively. The service sector for the euro-area as a whole is predicted to remain unchanged from its current level of 52.1 points.

On Thursday, the Bank of England (BoE) and the European Central Bank (ECB) are expected to finalize decisions over the monetary policy. Analysts are predicting interest rates to remain unchanged.

Stocks – China

In China, the HSBC services Purchasing Managers Index (PMI) dropped to 50.9 in December, compared to 52.5 points recorded in the previous month, data from Markit Economics and HSBC Holdings confirmed.

source:http://blog.hymarkets.com/forex-trading/european-stocks-opens-lower-2.html