Dollar Gains Ground On Stronger US Economic Data

NEW YORK (Dow Jones)--The dollar's rally picked up steam Wednesday morning in New York, hitting a two-week high against the yen, after stronger U.S. economic data fueled bets the Federal Reserve will tighten monetary policy sooner than previously anticipated.
The dollar jumped to the highest level since Feb. 3 against the yen, rising as high as Y91.12. Demand for the greenback pushed the euro well below the $1.37 level, on the back of data that showed that U.S. housing starts in January climbed to the strongest level since July 2009, while industrial production beat analysts' estimates.
"The data show that the economy will rebound in the U.S. before it does in Europe and Japan," said Sebastien Galy, currency strategist at BNP Paribas in New York. Based on that stronger U.S. economic data, "the market is also making a bet that the Fed will tighten [monetary] policy before the [central banks] in Europe and Japan."
Rising U.S. Treasury yields, in the wake of the economic data, is also adding more pressure on the yen and the euro, making dollar-denominated assets more attractive, traders said. Yields on the 10-year U.S. Treasury notes rose 3.8 basis points to yield 3.706%.
Wednesday morning in New York, the euro was at $1.3707 from $1.3772 late Tuesday, according to EBS via CQG. The dollar was at Y90.98 from Y90.11, while the euro was at Y124.70 from Y124.08. The U.K. pound was at $1.5780 from $1.5787. The dollar was at CHF1.0708 from CHF1.0660.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 79.952 from 79.630.
U.S. January industrial production came in slightly better than expected as the factory sector paces the recovery. Production last month increased by 0.9%, with manufacturing up 1.0%. Economists had expected a 0.8% increase. December output was revised to 0.7%; originally, production was reported rising 0.6%.
Earlier, data showed U.S. housing starts climbed 2.8% to a seasonally adjusted 591,000 annual rate compared to the prior month, the Commerce Department said Wednesday. Economists surveyed by Dow Jones Newswires forecast a 5.9% increase in January housing starts, to an annual rate of 590,000. The pace of 591,000 was the strongest since July 2009.
Investors are now eyeing the release of the minutes from the last Federal Open Market Committee meeting, scheduled to be released at 2 p.m. EST.
The dissent vote in the last FOMC's rate-setting meeting "will be the focus" of investors' attention, said Kasper Kirkegaard, a currency analyst at Danske Bank in Copenhagen. However, Kirkegaard said it was unlikely to be "a market mover" event.
"We've already seen [Federal Reserve's chairman] Ben Bernanke outlining some of the Fed's thoughts about exit strategy, hence we do not expect many surprises from the minutes," he said.
Meanwhile, the Bank of England's Monetary Policy Committee was unanimous in its decision to suspend its bond-buying program in February, but for some members it was a close call, meeting minutes released Wednesday showed.
The MPC judged that "a case could be made" for extending its GBP200 billion quantitative easing policy of buying gilts with freshly created central bank money, and said it could extend it in future, if conditions warranted it.

Canada Morning 

The Canadian dollar was slightly lower Wednesday morning after stronger U.S. economic data triggered demand for the greenback.
"We do not think for one moment that the recent uncertainties that have spooked risk assets have disappeared permanently, but, for the moment, the lull in risk aversion should allow the Canadian dollar more room to explore the lower end of the recent trading range against the dollar," TD Securities strategists wrote in a note to clients. "The low 1.04 area has proven to be a source of support for the U.S. dollar in previous phases of softness."

FACTBOX-China, the U.S. Treasury's top foreign creditor

WASHINGTON, Feb 10 (Reuters) - Senior Chinese military officers have recommended Beijing "dump" some U.S. Treasury bonds to punish the Obama administration for Washington's latest round of planned arms sales to Taiwan.

Luo Yuan, a major general in the People's liberation Army, was quoted in an official publication saying bond sales could be part of a package of economic "counter punches" over the arms sales.
Speculation of how China might use its position as America's top foreign creditor to influence Washington has risen steadily as U.S. deficits have swelled and tensions grow over the restricted valuation of the yuan. Following are some key facts about China's Treasury and dollar asset holdings:
* China's holdings of U.S. Treasury debt dipped to $789.6 billion in November from $798.9 billion, a month-on-month decline of $9.3 billion or 1.1 percent. It remains the largest holder of Treasuries, ahead of Japan, which held $757.3 billion in November.
* China's holdings of Treasuries has nearly doubled in the last two years. Beijing held $421.1 billion in Treasuries in March 2007, before the financial crisis emerged, compared to Japan's $611.2 billion, which made it the largest Treasury debt holder at that time. China's Treasury holdings peaked at $801.5 billion in May 2009.
* China's foreign exchange reserves, the world's largest, rose $453 billion in 2009 to $2.4 trillion. While China does not provide a breakdown of its reserves holdings, analysts believe about two thirds is held in dollar assets. A move to punish the United States by selling Treasuries or other holdings would undoubtedly hurt the value of this stockpile.
* China has attributed about $71 billion of the 2009 reserve gains to changes in foreign exchange rates and rises in asset values, citing in particular gains in non-dollar assets. The State Administration of Foreign Exchange has said the appreciation of its non-dollar holdings "has definitely led to growth in outstanding foreign exchange reserves calculated in dollars." Chinese officials also had expressed concerns the dollar's decline last year was hurting its reserves value.
* China held $1.205 trillion worth of U.S. long-term and short term securities, including Treasuries, as of June 2008, according to the Treasury's latest annual data on foreign portfolio holdings. At the end of June 2008, China's forex reserves stood at $1.809 trillion, so the dollar portion stood at almost exactly two thirds at that time.
* China's first purchase of long-term U.S. Treasury bonds and notes from U.S. sources was recorded in March 1985, with gross purchases of $29 million and gross sales to U.S. investors of $11 million that month. China's monthly gross purchases topped $1 billion for the first time in May 1992 and topped $5 billion in September 1996. They exceeded $10 billion in January 2000 and $20 billion in August 2002, peaking at $40.47 billion in June 2009. That same month, China sold $13.85 billion in long-term Treasuries to U.S. investors.
* In November, China's gross long-term Treasury purchases were $28.45 billion with gross sales of $13.51 billion to U.S. investors. Total November purchases of U.S. Treasuries by all foreigners from U.S. sources totaled $1.194 trillion, while sales to U.S. residents were $1.076 trillion.

FACTBOX-China, the U.S. Treasury's top foreign creditor

WASHINGTON, Feb 10 (Reuters) - Senior Chinese military officers have recommended Beijing "dump" some U.S. Treasury bonds to punish the Obama administration for Washington's latest round of planned arms sales to Taiwan.
Luo Yuan, a major general in the People's liberation Army, was quoted in an official publication saying bond sales could be part of a package of economic "counter punches" over the arms sales.
Speculation of how China might use its position as America's top foreign creditor to influence Washington has risen steadily as U.S. deficits have swelled and tensions grow over the restricted valuation of the yuan. Following are some key facts about China's Treasury and dollar asset holdings:
* China's holdings of U.S. Treasury debt dipped to $789.6 billion in November from $798.9 billion, a month-on-month decline of $9.3 billion or 1.1 percent. It remains the largest holder of Treasuries, ahead of Japan, which held $757.3 billion in November.
* China's holdings of Treasuries has nearly doubled in the last two years. Beijing held $421.1 billion in Treasuries in March 2007, before the financial crisis emerged, compared to Japan's $611.2 billion, which made it the largest Treasury debt holder at that time. China's Treasury holdings peaked at $801.5 billion in May 2009.
* China's foreign exchange reserves, the world's largest, rose $453 billion in 2009 to $2.4 trillion. While China does not provide a breakdown of its reserves holdings, analysts believe about two thirds is held in dollar assets. A move to punish the United States by selling Treasuries or other holdings would undoubtedly hurt the value of this stockpile.
* China has attributed about $71 billion of the 2009 reserve gains to changes in foreign exchange rates and rises in asset values, citing in particular gains in non-dollar assets. The State Administration of Foreign Exchange has said the appreciation of its non-dollar holdings "has definitely led to growth in outstanding foreign exchange reserves calculated in dollars." Chinese officials also had expressed concerns the dollar's decline last year was hurting its reserves value.
* China held $1.205 trillion worth of U.S. long-term and short term securities, including Treasuries, as of June 2008, according to the Treasury's latest annual data on foreign portfolio holdings. At the end of June 2008, China's forex reserves stood at $1.809 trillion, so the dollar portion stood at almost exactly two thirds at that time.
* China's first purchase of long-term U.S. Treasury bonds and notes from U.S. sources was recorded in March 1985, with gross purchases of $29 million and gross sales to U.S. investors of $11 million that month. China's monthly gross purchases topped $1 billion for the first time in May 1992 and topped $5 billion in September 1996. They exceeded $10 billion in January 2000 and $20 billion in August 2002, peaking at $40.47 billion in June 2009. That same month, China sold $13.85 billion in long-term Treasuries to U.S. investors.
* In November, China's gross long-term Treasury purchases were $28.45 billion with gross sales of $13.51 billion to U.S. investors. Total November purchases of U.S. Treasuries by all foreigners from U.S. sources totaled $1.194 trillion, while sales to U.S. residents were $1.076 trillion.

Canada Bonds End Lower; Short End Underperforms Longer Issues

TORONTO (Dow Jones)--Canadian bonds ended lower Wednesday, with the short end of the yield curve selling off sharply along with U.S. Treasurys as comments from U.S. Federal Reserve Chairman Ben Bernanke incited speculation that the Fed could embark on monetary tightening earlier than previously expected.

1.50s 2012   100.33     dn     0.13  1.34% vs 1.28% 
   2.00s 2014    97.67     dn     0.33  2.52% vs 2.45% 
   3.75s 2019   102.50     dn     0.46  3.43% vs 3.38% 
   5.00s 2037   115.74     dn     0.68  4.04% vs 4.01% 
   10-Yr Spread to U.S. 10-Yr:    -27 vs -26 

"I would say all the action is Fed related today," said James Price, senior vice-president and director of fixed-income at MacQuarie Private Wealth.
In prepared testimony before the House Financial Services Committee, Bernanke suggested the rate paid to banks on excess reserves held at the central bank may for a time replace the Fed funds rate as the main operating target for policy.
As part of the Fed's plans to end its liquidity programs, Bernanke also said the central bank could "before long" increase the spread, or difference, between the discount rate it charges banks for emergency loans and the Fed funds rate.
"We initially had Bernanke speaking, saying there's a chance we might see the discount rate start to move higher, as opposed to the fed funds rate," said MacQuarie's Price.
"He almost immediately backtracked by saying this doesn't mean we're going to be in all-out-tightening mode. Nonetheless, he said it, and that had the short end underperforming right off the bat and the curve flattening," Price said.
A tepidly received auction of $25 billion of 10-year U.S. Treasury notes also weighed on North American bond markets Wednesday.
The Bank of Canada reported an average yield of 1.875% at an auction of C$3.2 billion (US$3.0 billion) of 1.75% non-callable government bonds due March 1, 2013.
With the issue of the new bonds, the outstanding total of 1.75% bonds due March 1, 2013, will be C$6.4 billion.
"To be honest, I think most people were watching the Treasury side of the equation more than the homegrown," said MacQuarie's Price. "Our supply is still relatively constricted compared to theirs, so the bearish talk we hear on the Street because of excessive Treasury supply doesn't necessarily apply to us."
The weakness in the front end of the yield curve resulted in significant flattening of the Canadian yield curve Wednesday, with the spread between two-year and 30-year bonds moving to 270 basis points from 274 Tuesday.
Price said he expects further flattening of the yield curve in response to the prospect of central bank tightening. The Bank of Canada, and, to a lesser extent, the U.S. Federal Reserve both have some room to tighten interest rates in the coming months, he said.
"I think they've got room to start lifting the short-term rates, or at least hinting that they're going to lift, and still be very accommodative," he said.
In domestic data on Wednesday, Canada's trade deficit widened to C$246 million (US$230 million) in December from an upwardly revised C$201 million the previous month. The market had expected a C$100 million deficit.
On Thursday, the new housing price index for December will be released.

Forex Review - Greece Again Rattles the Euro

written by: Ron Finberg , Trading Analyst

Today’s Action

Well, so much for yesterday’s rally. Once again Greece hits the headlines, as yesterday’s denial of a German assisted bailout is finally registered by the market. Nonetheless, some of the losses were pared after new French reports signaled help was on the way.
First, a recap of the numbers: (as of 20:30 GMT)
EURUSD : 1.3740 (-40 pips)
GBPUSD : 1.5588 (-116 pips)
AUDUSD : 0.8758 (-20 pips)
USDCAD : 1.0620 (-62 pips)
GOLD : 1070.00 (- $5.50)
CRUDE OIL : 74.50 (+ $0.50)
S&P 500 :1065 (-2.75 points)
What’s really going on?
Yesterday, we questioned whether yesterday’s risk appetite rally was anything more than a bounce combined with short covering. The answer came quickly as Forex traders wasted no time in a return to selling the euro. What today’s trading reveals is that Forex traders aren’t ready to move on, and are worried about the fallout that would occur if Greece would go bankrupt. On a side note, a CNBC interviewee had a grat quote about yesterday saying that Greece has been on the brink of economic collapse for the past 100 years, and they have always seemed to roll along.
Also occurring today were Trade Balance numbers from China, the US, and Canada. The US numbers showed a greater than expected deficit, but also revealed export growth. Dollar bulls used the growing export numbers as an excuse to buy dollars. As a result, the EURUSD traded down to a low of 1.3680, after being above 1.3800 yesterday.

Pound hit by BoE Inflation Report

The big loser today was the pound. The GBPUSD is down over 100 pips on the day to 1.5585, as the BoE’s inflation report appears to have convinced Forex traders that the BoE may reinstate its QE policies. The BoE’s outlook was for worse than expected UK growth in 2011 and low inflation levels. On the positive side (and this initially led to gains in the pound), BoE Governor Mervyn King believed that the UK will continue its gradual recovery and risks of another economic contraction appeared limited.
In the past, the BoE has had a habit of being conservative and attempting to lower market expectations. If so, the pound could be in line for an upside move, if we do in fact see better than expected economic numbers released.

Using Fibs in the Direction of the Daily Trend

Students Question:
I would enter at 1.3600, place a stop at 1.3400 and sell at 1.4000. Does this seem reasonable?


Instructor's Response:
Good work on the 1:2 Risk Reward Ratio.

While your understanding of Fibs is good and the Fib line that you have drawn is valid, the first point we as traders must take into consideration is the direction of the Daily trend and how to use Fib levels to get us into a trade in that direction.

The higher probability trade will be to wait for the current downtrend to bottom out and stall. Then draw a Fib line from the Swing High to the Swing low so we can identify a potential fib retracement level for a short entry on the pair.

Take a look at the second chart below for a visual...




After this current bearish move ends, using Fib levels, we would wait for the pair to retrace into the "sell zone" and stall at one of the Fib levels. Then a short position could be taken with a stop above the highest penetration of a Fib level by price.

Read more: DailyFX - Using Fibs in the Direction of the Daily Trend http://www.dailyfx.com/forex/education/trading_tips/post_of_the_day/2010-02-08-2354-Using_Fibs_in_the_Direction.html#ixzz0eznw2WNB

The Trend Trader For Forex Trading on Tuesday, February 9, 2010

The Trend Trader helps to identify the current trend status of your favorite forex markets. It not only helps us to stay on the right side of market direction, but also helps us avoid those without a trend. You can even use the grid as a spread matrix too - buying strength and selling weakness. Before you place your next trade, be sure to consult the Trend Trader.

The Trend Trader for Forex For Trading On Tuesday, February 9, 2010 Presented by the Pattern Trapper - PatternTrapper.com - 952-892-5550 Trend Trader readings are based on Daily Pivot calculations.  For a detailed explanation Click Here!     THE BIG SIX Close % Change 3x1 7x5 Minor Trend Major Trend Trend Reading  AUDUSD - Aust Dollar / US Dollar 0.8647 − 0.42 0.8672 0.8729 Bearish  EURUSD - Euro / US Dollar 1.3649 − 0.20 1.3704 1.3762 Bearish  GBPUSD - British Pound / US Dollar 1.5584 − 0.35 1.5683 1.5755 Bearish  USDCAD - US Dollar / Canadian Dollar 1.0757 + 0.45 1.0710 1.0678 Bullish  USDCHF - US Dollar / Swiss Franc 1.0732 + 0.08 1.0697 1.0671 Bullish  USDJPY - US Dollar / Japanese Yen 89.253 + 0.02 89.392 89.684 Bearish    ALL OTHERS  AUDCAD - Aust Dollar / Canadian Dollar 0.9299     0.00 0.9292 0.9334 Neutral  AUDCHF - Aust Dollar / Swiss Franc 0.9277 − 0.36 0.9280 0.9311 Bearish  AUDJPY - Aust Dollar / Japanese Yen 77.170 − 0.41 77.490 78.262 Bearish  AUDNZD - Aust Dollar / New Zealand $ 1.2655 + 0.55 1.2600 1.2552 Bullish  CADCHF - Canadian Dollar / Swiss Franc 0.9973 − 0.38 0.9982 0.9985 Bearish  CADJPY - Canadian Dollar / Japanese Yen 82.944 − 0.44 83.434 83.926 Bearish  CHFJPY - Swiss Franc / Japanese Yen 83.147 − 0.08 83.526 83.908 Bearish  EURAUD - Euro / Australian Dollar 1.5782 + 0.22 1.5800 1.5762 Neutral  EURCAD - Euro / Canadian Dollar 1.4679 + 0.24 1.4682 1.4709 Bearish  EURCHF - Euro / Swiss Franc 1.4649 − 0.12 1.4668 1.4678 Bearish  EURDKK - Euro / Danish Krone 7.4441 − 0.01 7.4445 7.4446 Bearish  EURGBP - Euro / British Pound 0.8756 + 0.13 0.8738 0.8731 Bullish  EURJPY - Euro / Japanese Yen 121.819 − 0.20 122.482 123.241 Bearish  EURNOK - Euro / Norwegian Krone 8.1654 − 0.19 8.1799 8.1815 Bearish  EURNZD - Euro / New Zealand Dollar 1.9975 + 0.72 1.9908 1.9815 Bullish  EURSEK - Euro / Swedish Krona 10.1550 − 0.21 10.1721 10.1611 Bearish  GBPAUD - British Pound / Aust Dollar 1.8020 + 0.07 1.8077 1.8055 Bearish  GBPCAD - British Pound / Canadian $ 1.6763 + 0.10 1.6799 1.6839 Bearish  GBPCHF - British Pound / Swiss Franc 1.6725 − 0.27 1.6796 1.6842 Bearish  GBPJPY - British Pound / Japanese Yen 139.094 − 0.35 140.127 141.026 Bearish  GBPNZD - British Pound / New Zealand $ 2.2805 + 0.61 2.2772 2.2673 Bullish  NZDCAD - New Zealand $ / Canadian $ 0.7344 − 0.48 0.7376 0.7417 Bearish  NZDCHF - New Zealand $ / Swiss Franc 0.7327 − 0.84 0.7362 0.7405 Bearish  NZDJPY - New Zealand $ / Japanese Yen 60.940 − 0.87 61.496 62.198 Bearish  NZDUSD - New Zealand $ / US Dollar 0.6828 − 0.94 0.6882 0.6950 Bearish  SGDJPY - Singapore Dollar/Japanese Yen 62.665 − 0.11 62.890 63.223 Bearish  USDDKK - US Dollar / Danish Krone 5.4535 + 0.21 5.4318 5.4097 Bullish  USDHKD - US Dollar / Hong Kong Dollar 7.7708 + 0.01 7.7702 7.7689 Bullish  USDNOK - US Dollar / Norwegian Krone 5.9814 + 0.02 5.9671 5.9439 Bullish  USDSEK - US Dollar / Swedish Krona 7.4405 + 0.01 7.4244 7.3798 Bullish  USDSGD - US Dollar / Singapore Dollar 1.4237 + 0.14 1.4207 1.4171 Bullish

Statement of disclaimer: This information was compiled from sources believed to be reliable, but its accuracy cannot be guaranteed. There is substantial risk of loss in trading futures, forex. ETFs, and stocks. There is no warranty, express or implied, in regards to the fitness of this information for any particular purpose. Past performance is not a guarantee of future results. All materials are copyright © 2010 by Bob Hunt. No part of these resources may be reproduced, stored or transmitted without the prior written permission of the copyright holder.