Elected President Barack Obama and Dollar

 

Overall public around the world and American one in particular are worried about the incoming Obama administration. The presidential campaign promised to raise capital gains a marginal taxes are view b many as a dangerous step in a debilitated economy.  Elected President’s plan will have little to no effect on positive views for the U.S. dollar.

In a general economical context, U.S. marginal tax rates as well as political fiscal matter far less than low interest rate and unified governmental response on the credit crisis. After the first blooms of the economical crisis in the U.S., European communities assured their citizens they were safe from the “virus” that was attacking the U.S.

As time went by European, Australian, New Zealand, British and Japanese central banks have been forced to cut their own rates. The US Fed Funds target rate is at 1.0%. Among the major industrial economies, only the Japanese rates are lower. But the dollar’s competitors in Europe and Asia have not obtained any advantage from their higher rates; neither has the dollar gained on the yen, despite its own rate bonus.

The European Central Bank refinance rate of 3.25% has been reduced 100 basis points in a month; the Bank of England has cut 200 points. The European and British recessions have already started and the current economic and financial situation is far worse than on 2003.

The October US Non Farm Payrolls brings the American job market into recession territory. The speed and magnitude of the decline in the job market highlights the seriousness of the September credit contraction and its deep impact on employment. The modest monthly job losses from January through August (average -81,875) were consequent with weak economic growth but not contraction. Jobs are normally a trailing indicator, but a number of secondary statistics (industrial production, retail sales, consumer sentiment, factory orders, ISM) had minor late summer improvements which did not affect payrolls.

Intense pressures on business by the credit market in late September and October may have temporarily converted payrolls into a leading indicator. As a consequence of credit restrictions business owners may have had no choice but to fire workers. They may also have used the crisis as an opportunity to release staff that they anticipated would be eliminated in the months ahead due to falling sales and revenues. Jobs may be the leading indicator of this recession.

With the dollar unsteady, the markets frozen and the economy marching towards recession Americans are tasting a quite sour turkey this thanks giving. However compared to European capitals and the quicksand of the yen crosses, the dollar shows as a safe station in the trading market.  

Traders have determined their choices by voting with their portfolios for the US dollar. The world’s central bankers have endorsed the US analysis and policy response because they have imitated it. No policy or appointment of the new Obama administration is likely to change that verdict. Obama has said his focus will be the domestic economy. That may help or it might hurt, either way the dollar will stay in its course.

Dollar going down versus Euro: Citigroup being saved

As the U.S. government agrees to inject $20 billion to rescue Citigroup, the dollar falls against the euro and a basket of currencies on Monday, as risk aversion eased.

European stocks rose, while U.S. stocks pointed to a positive opening in Wall Street. Traders are showing a higher appetite risk. However the forex market is still acting cautious on concerns of a global recessions.

“The forex market continues to be all about risk appetite and its proxy, equities,” said Dustin Reid, director of FX strategy at RBS Global Banking & Markets in Chicago.

The rescue plan “clearly sends a signal that some of the U.S. banks, in the government’s view, are too big and important to fail. The move should also help to calm overall market sentiment for the very short-term,” he added.

Trading morning in New York showed a euro higher than the dollar (EUR/TN 1.2826) and Japanese currency (EUR/JPY 123.61.)

The dollar was also 0.8 percent lower at 86.717 against a basket of currencies.

“Looking back on it, I think the market is concluding that maybe it was the wrong thing to let Lehman fail,” said Chris Turner, head of FX strategy at ING in London.

“So maybe this (Citi package) is the new model for how you handle the systemically-important banks in the States,” he added.

Demand for U.S. stocks rose, while the dollar has been falling since late Friday after news of President-Elect Barack Obama choosing New York President Timothy Geithner as U.S. s Treasury secretary.

.

 

 

What Obama Faces

By Mia Pierson

Elected U.S President, Barack Obama will take office at a time of economy struggling. Analysts are warning of a potential long recession.

Below is a resume of the recent economic data showed in the U.S:

* U.S. gross domestic product shrank at a 0.3 percent annual rate in the third quarter, the biggest contraction in seven years.

* U.S. employers have cut a total 760,000 jobs this year and the jobless rate hit a five-year high of 6.1 percent in September. A report on Wednesday showed private-sector employers cut 157,000 jobs in October, the deepest in six years, and a more-comprehensive government report on Friday is expected to show an even larger decline across all employers. Many analysts forecast the unemployment rate will rise by a percentage point or more over the course of the next year.

* U.S. stock markets crashed in October. The Standard & Poor’s 500 Index had its worst month since the October 1987 stock mark collapse, while the Dow Jones industrial average logged its biggest monthly drop in a decade.

* Consumer spending, which fuels two-thirds of U.S. economic activity, fell by 0.3 percent in September, the first drop in two years. U.S. consumer confidence in October suffered its steepest monthly drop since 1952.

* U.S. industrial production tumbled by 2.8 percent in September, the biggest drop since December 1974. A report on Monday showed factory activity fell last month to its lowest level in 26 years. U.S. auto sales plunged 32 percent in October to a 25-year low.

* About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and middle-market firms over the past quarter, showing the credit crunch that set in a year ago is worsening.

* The Federal Reserve has cut benchmark interest rates to 1 percent from 5.25 percent in the last 13 months, and has pumped hundreds of billions of dollars into financial markets to try to get credit flowing again, with only limited success.

 

South Korea´s won down

The won closed with an almost 4 percent dropped against the dollar on Friday, after data showed an economical growth 4-year low in the third quarter, feeding fears of an economical downturn in economics for the 2009 year.

 

Won rapidly cut much of its early losses and the foreign authorities were spotted selling dollars, to support the local currency, still it closed at a 10-year low today.

 

The currency was set at 1,424 per dollar, the lowest since 1998, and compared to Thursday close of 1,408.8.

 

Still it´s very likely the currency is only going to continue showing losses, as concerns grow towards the slowdown in Asia´s fourth largest economy, are keeping investors away from emerging economies like South Korea.

 

“Today’s GDP data bolstered worries about the economy, which has too many bombs inside for the government to solve,” said Jeong My-young, an analysts at Samsung Futures Inc. “Unless additional coordinated actions soothe sentiment of global investors, appetite for Korean assets will not revive,” she added.

South Korea´s currency tumbled 10.57 percent to end at 938.75 points, with benchmark index posting its biggest weekly loss since 1983. According to analysts the downturn is not over yet. “A year ago, I had dreamed of an era of the KOSPI of 2,000 points and a currency rate of 800 (per dollar). But now I am afraid that I may have to see an era of the KOSPI of 800 and a currency rate of 2,000,” said an analyst at a local futures firm.

Local economy has grown the lowest-quarter percentage of 0.6, the lowest since 2004, giving more room for central banks to cut interests. “The data showed that the economy is shrinking faster than before and is likely to slow down further in the fourth quarter and next year. Exports, which had been lifting growth, seem to have lost steam while domestic demand remains sluggish,” said Kim Jae-eun, economist at Hana Daetoo Securities.

Next policy meeting will be held on early in November, analysts say. “The Bank of Korea is more likely to lower interest rates next month and it will cut rates further, probably consecutively, to the 4 percent level,” Kim added. On Thursday, the central bank chief was quoted by a local online news provider as saying that the economy would mostly to grow less than 4 percent next year.

Yen´s going up, Euro goes down

Facing a tremendous general recession fear, the forex market opened to a yen rising against the dollar and euro, as more signs of economical weakness in the U.S. hit the FX market.

Despite the fact that governments all over the world have been injecting massive amounts of money into troubled banks, looking to reduce the cost of interbank borrowing, traders are still very much focused on the credit and economical situation, as they see the markets fall.

Signs of trouble have began to show in the emerging economies in Eastern Europe and Asia, Forex traders have reversed trading with low-yielding yen, helping lift the Japanese currency against stronger rivals.

The U.S. dollars have benefited from risk aversion and gained on the euro. Early this morning the dollar was down versus the yen JPY-TN 101.4 and the euro came closer to a three year low around 132.

The economic data released from the U.S. this week has completely discouraged traders, showing lows on retail sales and industrial development.

The U.S. currency has managed to maintain its spot on top of most currencies in the FX market, as risk aversion has led traders to stock up on dollars as a safety measure.

The euro, on the other hand, is coming close to a three year low, and it seems to only continue falling.

Another forex currency, the Australian dollar, was down 2 percent against the U.S. currency.

To complement the already unstable forex atmosphere, Ukraine and Hungary turned to the International Monetary Fund and other financial leaders, looking for help to improve their economical situation.

Forex market continues showing mix signals as to the path it will follow, and the traders uncertainty grows along with them.

Plan display: How will it work?

U.S. Government come out with a plan to inject %250 billion into struggling banks and guarantee a beat back on the financial crisis that has economy under threat.

Following are details of the U.S. Treasury Department’s recapitalization plan and the Federal Deposit Insurance Corp.’s decision to guarantee 100 percent of banks’ unsecured debt and non-interest bearing deposits.

Treasury plan

—The Treasury will buy up to $250 billion in preferred stock in banks, thrifts, or other depository institutions, but not those controlled by a foreign bank or company.

—Government non-voting stakes in qualifying financial institutions, with stakes in each institution limited to the lesser of $25 billion or 3 percent of risk-weighted assets. It set a Nov. 14 deadline for banks to apply for government purchases.

—The funds for the purchases will come from the $700 billion authorized by Congress under a financial bailout bill known as the Emergency Economic Stabilization Act. The rescue plan initially focused on purchases of bad assets from banks to allow them to room to resume lending.

—The government non-voting senior preferred shares may not be redeemed for three years and will pay dividends of 5 percent annually for the first five years and 9 percent thereafter until the institution repurchases them. The government senior preferred shares do not alter rights of existing senior preferred share holders.

—Participating banks will need the Treasury’s approval to increase common stock dividends for three years under the plan.

—The Treasury will also receive warrants to purchase common stock in a participating bank at an aggregate market price of 15 percent of its senior preferred stock investment. The warrants will be exercisable for 10 years and the exercise price will be based on a 20-day trailing average of the institutions’ common stock price on the date of the Treasury investment.

—Participating banks must comply with Treasury restrictions on executive compensation, which limit tax deductible of senior executive pay to $500,000. Banks also must ensure that incentive compensation does not encourage unnecessary and excessive risks that threaten the value of the institution. They require bonuses to be “clawed back” if earnings statements or gains are later proven to be materially inaccurate and prohibit “golden parachute” payments to senior executives.

—A number of these same executive pay restrictions apply to financial firms that sell more than $300 million of troubled mortgage related assets to the Treasury under the asset purchase plan.

FDIC guarantee plan

—The Federal Deposit Insurance Corporation, the government agency which traditionally guarantees deposits at banks, will guarantee senior unsecured debt issued by U.S-regulated banks, thrifts and other depository institutions issued before June 30, 2009, including promissory notes, commercial paper, inter-bank funding and any unsecured portion of secured debt. This must not exceed 125 percent of debt outstanding on Sept. 30, 2008.

—This debt would be fully protected in the event that the issuing institution subsequently fails, or its holding company files for bankruptcy. Coverage would be limited until June 30, 2012, even if the debt’s maturity exceeds that date.

—The FDIC will guarantee all funds in non-interest-bearing transaction deposit accounts held by FDIC-insured banks until Dec. 31, 2009. These are mainly payment processing accounts, such as payroll accounts used by businesses.

—Fees for these guarantees would not rely on taxpayer funding. They would be paid by participating banks that would pay a 75 basis-point fee to protect their new debt issues and a 10 basis-point surcharge for deposits not otherwise covered by the existing deposit insurance limit of $250,000. All FDIC-insured institutions will be covered under the program for the first 30 days without any costs. After this initial period, banks not wishing to continue their participation will have to opt out or be assessed for future guarantees.

 

Thursday showed market relief-FX

Wall Street- Forex markets breathe some relief

After six days of sharp declines, the European markets opened higher on Thursday, just one day after the world central banks joined in an effort to cut borrowing costs. Forex trading felt some ease.

Although the instability can still be sense in the forex markets, Traders have a clearer path for trading, at least for today. The Down Jones rose 1.5 percent –more than 130 points- while the Standard & Poor stock was up 1.3 percent.

Thursday trading opened to a much calmer market than on Wednesday, which included a 200-points-lower swing. The Down Jones hit the 189.01 points mark. The most venturous traders are already trading away; despise the general sense of the global economy.

“We´re getting a relief rally”, said Howard Wheeldon, senior strategist at BGC Partners in London, “but nothing has changed, all eyes remain on credit market conditions.”

Investors and traders of the forex market woke up to better news after I.B.M. reported greater earnings than expected by Wall Street. The company´s net income increased to 22 percent, or 3 cents higher than expected. 

After the huge Wall Street crisis that left hundreds unemployed, the Labor Department reported initial claims for jobless benefits dropped 20,000. Forex traders know they cannot rely on one day`s indicator, but still there´s a general sense of relief.

However the credit markets remain tight and the Treasury Department is considering a plan to take ownership on many U.S. banks to try to rescue the financial system.

In the European trading market, the DJ euro rose 1.6 percent, while London´s FYSE 100 index in London rose 1.7 percent. Paris showed a 2.6 percent rose in the CAC-40, while the Dax in Frankfurt rose 1.8 percent. All these indicators have the Forex market gaining a certain level of confidence, however, traders know they have to watch out for sudden switches in the world`s economy to better pair up currencies.  

 

One day after similar actions had taken place in different parts of the world, central banks in Taiwan and South Korea cut their rates by 0.25 pints. Honk Kong authorities did the same by a half point to 2 percent.

Russian trading markets had decided to suspend until next Monday, following the severe pressure, but then the market regulator ordered to keep the markets open. The Russian currency has suffered one of the biggest looses against the dollar, showing a current exchange rate of 26.118.

Banks stocks showed as bigger gainers in Europe. Royal Bank gained 18 percent, USB rose 7.2 percent. Deutsche Bank caught up a 7.5 percent and Sociéte Générale rose 5.8 percent.

Euro rose to$1.3755 from $1.3656 on Wednesday in New York, while the British pound rose to $1.7342.

As economies around the world are buying a significant amount of dollars and lowering their rates to aloud the currency´s circulation on the street, the Forex market starts to feel a general feeling of improvement, although there´s still a lot of work to come before bringing the financial world into stability.

 

 

 

 

 

 

Dollar remains strong

 

We´ve seen a lot of movement in the market this week. The NIKEI dropped almost 1000 points last night and DOWN JONES still trades down below 10.000. The overall feeling of the market remains negative.

 

Bernanke spoke in Washington late last night and clarified to investors the economy´s suffered greater damage than expected, so the bank will have to act accordingly.  He also said the inflation has eased. These just means the bank will have to cut rates sooner rather than later. Markets reacted buying dollars and strengthening the currency against the euro.

 

European GPD and US pending home sales are the only important events to watch out for today. As volatility in the market reach its highest currencies are humping up and done on their values. This just reflects the general discomfort and uncertainty that feels in the market.

 

Investors are all over FED´s move to buy all commercial papers directly from eligible users, ad although it  was meant to bring some stability to the market, it gave the opposite effect.  The move was perceived as an act of desperation and an acceptance of the financial sector collapsing.

 

The EUR/USD trading move towards 1.3740 reversed in less than an hour. The pair´s still trading between the 1.35-1.38 range and only a break could take it to the next level. Contrary to all predictions, dollar has only strengthened as a result of later events.  As long as risk aversion remains, dollar will stay strong vs. the euro.

 

ECB, BOE and FED are injecting money into the markets in a continuous attempt to bring stability. Still investors know they can be preparing themselves for the worse.

 

Another extraordinary move was seen all carry trades, as USD/JPY broke 100 due to risk aversion and GBP/JPY is moving fast and heavily towards 170.

 

As always, traders can take their chances in the chaotic market, or wait to see where it takes next.

 

 

 

 

Is the dollar going to remain strong?

 

The week started off with all markets in red and the Down Jones breaking the 10000 level for the first time since October 2004.

 

What was observed yesterday went beyond reason and normal behavior, and many traders around the globe were left shaken and confused by the markets actions.  This surprised move was due to a fresh and renewed fear in the market regarding the world´s economy as news came out the $700 billion plan was not going to be enough to fund all banks, and more money will soon be needed. The FED moved towards providing another $400 billion, looking desperate. Desperate times call for desperate moves!

 

EUR/USD broke support level 1.35 and printed a new lot at 1.3440. The pair traded above 1.35 with a highest level of 1.3620. The move was not enough and the pair dropped 100 points.

 

The question rises as traders ask themselves, why is the dollar showing so strong with US economy going into such a tremendous crisis? Let´s take a step back to previous recessions. The dollar always remained strong in order to help the trade deficit. With the current rescue plan, this deficit will only be wider. U.S. Elections are another fact to watch out for.

 

EUR/USD is evidently a downtrend as long as it keeps trading below 1.3660 only further losses will come. Is the pair breaks 1.34, net level of importance is 1.3360.

 

Times are clearly difficult right now, so staying aside and wait before taking any radical decisions seems like the right thing to do.

 

Euro going down against US dollar

This week starts with a general weakness on the currency trading, especially against the dollar, after the pair closed at 1.3780 on Friday and opened Sunday night at 1.3630. The euro felt its lose in Asia as well, and continues to trade on the down side breaking the support level of 1.3580 and breaking a new low of 1.3540.

 

The acceptance of the $700 Billion rescue plan in the US, after weeks of controversy, plus the recent negative feeling regarding the European economy, are the two main reasons that have deeply affected the currency.

 

This week will see a few economic events that should keep the market occupied; the FOMC minutes and Bernanke speech, the BOE rate decision on Thursday, which have already been priced by traders at a rate cut of 25 points. Traders will watch out for Bernanke comments on inflation. Analysts predict that due to the recent economic waves, FED might be forced to cut rates together with other central banks.

 

The economic calendar for today is empty, and therefore the markets have a change to digest all recent hurricane events from the weekend, including Paris emergency summit, where 4 of the major European economies met to discuss the Euro crisis. The news regarding hypo Real Estate failure in German also was in the menu.

 

EUR/USD continues to deteriorate and the next support level is down to 1.3480. The pair has suffered huge losses, and it only seems there are more to come. If 1.35 gives in, the next support level lays in 1.33.