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Dollar Remains Uncertain After U.S. Debt Vote

January 24, 2013 in Forex Fundamentals and News

U.S. found temporary relief with the U.S. house vote for rising the borrowing limits today. The vote went into favor of increasing the government borrowing limits from the current 16.4 trillion U.S. dollars. The catch is that it is a temporary extension with a limit of May 19th. The voting result was 285 for versus 144 against.

The proposal will now be sent to the U.S. senate and it is expected that it will be passed as it is.

US national debt is estimated to have reached a level of 16.47 trillion against the government’s borrowing limit of 16.39 trillion. The national debt had become more that the U.S. gross domestic product in 2012. With the current situation is was estimated that without increasing the borrowing limits  the U.S. treasury would run out of funds to fulfill its obligation of payments by February 15 to March 1st week.

U.S. Dollar remains uncertain

EUR/USD remains under pressureThe dollar has been moving without any clear direction against most of the currency majors except Japanese yen.


After the markets opened on Monday, EUR/USD moved in tight ranges between 1.3300 to 1.3332 for over 30 hours of trading. A break of that range resulted in quite volatile moves which have been failing to show any clarity of direction. Since then the currency pair had gone to a high of 1.3371 before a fall to 1.3266. The subsequent rise saw it touching 1.3354 before another fall to 1.3264.

GBP/USDGBP/USD running in tight ranges

Since Monday market opening GBP/USD continues to move sideways in the range between 1.5802 and 1.5893.

USD/JPY uncertain about the initial fallUSD/JPY

Unlike other U.S. dollar pairs USD/JPY has seen some directional moves. After opening at 90.08 the pair had tried to move up initially but failed at 90.24. A strong fall from there took it to the low of 88.06. Some recovery has been seen after that but the pair is facing resistance below 88.80 and seems to be losing the steam again.USD/CHF running sideways


After a drop from 0.9354 to 0.9275 this week, the pair has gone into a sideways mode. The price action has been between a narrow range of 0.9275 and 0.9315 for past over 36 hours and is clearly not showing any trend.

Commodity Currencies Losing Direction Amidst Uncertain Economic Outlook And Psychological Pressure

January 23, 2013 in Forex Fundamentals and News

AUDJPY - direction less movesCommodity currencies has been seeing a directionless volatile moves against the U.S. dollar. AUD/USD has tried twice to touch the psychological 1.0600 level since yesterday but failed miserably. First time it had gone as high as 1.0578 and then after a drop to 1.0549 it again recovered but failed strongly at 1.0574 and fell sharply to 1.0527 before entering a sideways mode. USD/CAD has made 3 attempts since Friday to test 0.9950 level but failed each time. The first attempt took it to 0.9932 followed by 0.9946 and the last one failed at 0.9945. After recovering from 0.9815, the pair is moving into a narrow range between 0.9900 and 0.9950.

Mixed economic data

Today’s consumer price index data for quarter 4 of 2012 from Australia came out weaker than the market expectations. The quarter on quarter change in the CPI in Q4 was 0.2% against the consensus of economist for a change of 0.4% and the previous change of 1.4%. The year on year change of 2.2% was better than that of quarter 3’s 2% but was less than the expected 2.4%.

Today’s China Conference Board’s leading index data which aggregates six economic indicators to measure economic activity in China indicated a slowdown from previous 1.1 to 0.4 in December. China being the largest export market for Australia affects the sentiments for Australian dollar strongly.

On the other hand yesterday’s data showed an unexpected drop in the existing home sales in the U.S. also. The month on month change in the existing home sales in December 2012 dropped to -0.1% from the previous  4.8% while the market consensus was for a drop to 1.2%.

Global economic outlook concerns

U.S. debt crisis

US debt to GDP ratio

Though Republicans have shown some flexibility for their demand to have the budget spending cuts to increase government’s borrowing levels but this only gives a temporary relief.  On Wednesday in the U.S. the house vote is scheduled for Republican party sponsored legislation to allow Obama administration to extend the borrowing limits to cover the cost obligations for next 3 months. The estimates are that the U.S. Treasury will not have sufficient funds to pay all its bills sometime between Feb. 15 and March 1 week. Delays in firm steps to tackle the issue with longer-term goals is a threat not only to the U.S. economy but the global economy.

Mixed sentiments in Euro zone

Even though the progress in decisive steps in policy decision and Greece bailout have brought in some optimism but one the other hand the crisis is far from over. The high unemployment levels in Europe and ECB’s expectation that the euro-zone economy will shrink 0.3% in 2013 do not create any overall optimistic picture about the economy. The efficient channeling of rescue funds in the time to come and mutual agreements about the same remains a challenge.” Making the ECB a single European bank supervisor this year is a major organizational challenge”,  European Central Bank President Mario Draghi said late yesterday in Frankfurt.

Commodity currencies

Any uncertainties about global outlook keep the uncertainties on for the global currencies. Some positive recent outlook about China’s economic growth in 2013 have been favoring the strength of Australian dollar but on the other hand the overall global economic uncertainties are keeping the Aussie in check. Same is the case with Canadian dollar which has weaken against the US. dollar recently but is now hesitating ahead of the psychological level of 1.000 or parity.

EUR/USD Drops Amidst Changing Sentiments

January 16, 2013 in Forex Fundamentals and News

EUR/USD dropsAfter going as high as 1.3404, EUR/USD could not sustain the psychological resistance of 1.3500 ranges. The currency pair remained in sideways mode below 1.3400 for over 15 hours but then fell strongly to 1.3263 before recovering slightly.

U.S. Debt crisis and President Barak Obama’s Firm stand

President Barak Obama’s firm stand about raising the borrowing limits to come out of the debt crisis has given some push to the strength of the U.S. dollar. Obama has firmly refused to accept the demands of the republicans to negotiate on federal spending cuts to raise the borrowing limits. “America cannot afford another debate with this Congress about whether or not they should pay the bills they’ve already racked up,” was his message during a press conference in Washington yesterday.

Though the republicans are not backing away from their demands of linking the raise in the borrowing limits to the spending cuts and that keeps the pressure on  the dollar but on the other hand Obama’s refusal for any negotiations in this regards has been taking out some immediate pressure from the currency.

Latest economic releases

The latest economic releases from U.S. and Europe gave a neutral picture for comparative strength though it can be seen as mildly favoring the single currency i.e. euro in the short-term.

Euro zone economic data

1) Consumer Price Index: The previous year on year change in the German CPI was 1.9%. The latest data of December which was released at GMT 07:00 on January 15th showed a rise to 2.1% which was as per the consensus of the economists.

The previous change in the year on year harmonized CPI was also 1.9%. The latest released data for December showed a change of 2.0% and though it was slightly less than the consensus of 2.1% but was better than the previous release.

2) German real GDP growth: There was a drop from previous 3.0% to 0.7% which was also less than the consensus of 0.8%.

3) European Monetary Union’s Trade Balance: The trade balance reports showed an improvement.  The previous release of trade balance s.a. for November was Euro 7.4 billion while yesterday’s data for December showed an increase to 11.0 billion euro. Similarly the latest data for trade balance n.s.a. came as 13.7 billion euro against the Novembers 10.2 billion and the consensus of 10.0 billion euro.

Latest economic data from the U.S.

1) Producer Price Index: Year on year change in the PPI released at GMT 13:30 on Monday showed a drop to 1.3% against the previous release of 1.5% and also the consensus of 1.4%. Same was the case with  the producer price index ex-food & energy which showed a drop to 2.0% against the previous release of 2.2% and the consensus of 2.1%.

 2) Retail Sales: The retail sales climbed unexpectedly in December. The month on month change was 0.5% against the previous 0.3%. The consensus of the economists was for a drop to 0.2%. Retail sales ex-autos also saw an unexpected jump from the previous -0.1% to 0.3%. The consensus was for a growth to 0.2%.

3) Business Inventories: There was no change in the business inventories from the previous 0.3%.

Japanese Yen Gains On U.S. Debt Concerns And Economy Minister Akira Amari’s Comments

January 15, 2013 in Forex Fundamentals and News

Japanese Economy Minister Akira AmariTokyo: Japan’s economy minister Akira Amari commented today that Japan will not put efforts for weakening the yen further. This comment came 6 days after the Japanese Finance Minister Mr. Taro Aso had mentioned about Japan’s plans to use the foreign exchange reserves to buy bonds issued by the European Stability Mechanism (ESM) and euro-area sovereigns to weaken the Japanese Yen. Mr. Aso’s had briefed the reporters about this matter on January 8, 2013.

While a weak yen is good for Japanese exports which have suffered a lot with yen getting continuously stronger, any drastic weakening is bad for cost of imports which increases the manufacturing cost. Japanese yen had touched 75.36 level which is the post world war low. Exports have taken a hit because of the recent disputes with China about the ownership of the uninhibited islands in the East China sea.

Economy Minister Akira Amari said Japan faces risks from declines in the yen as the import costs go high. Japan’s imports have been rising and the budget deficit has been increasing drastically. The average imports of Japan during 1979 to 2012 has been 3398.6 billion Yen. The estimates for Japanese imports during 2012 are for JPY 5875.75 billion yen. With 32% of the total Japanese imports Fuel has the lion’s share. The growing dependency on Fuel to generate power because of  the shutdown of Nuclear power plants and the increasing cost of Fuel imports is also an issue.

A drastically weak yen also brings bearish sentiments about Japanese economy and affect the foreign investment in the country.

US dollar - Japanese yenJapanese Yen in today’s Asian session

USD/JPY had reached as high as 89.54 during today’s Asian session. It was the first time since July 2010 when USD/JPY moved above 89.00 level. It fell strongly to 88.62 from there.

The fall of Japanese yen came after Economy Minister Akira Amari’s comments but in the background the debt crisis issues of U.S. are also putting a negative pressure on US$ strength.

Today’s important economic releases

Economic releases scheduled from U.S.

1) Producer Price Index: The PPI data is scheduled for GMT 13:30 today. The previous year on year change in the producer price index was 1.5%. The consensus is that today’s release will see a drop to 1.4%. The previous change in the producer price index was 2.2% and a drop to 2.1% is expected in that too.

2) Retail Sales: A drop in month on month retail sales of December from previous 0.3% to 0.2% is being expected by the economist in the release scheduled at GMT 13:30 today.

3) Business Inventories: November’s business inventory report is scheduled today at GMT 15:00. October’s data had shown a figure of 0.4%, the consensus is for a drop to 0.3%.

Economic releases scheduled from Japan

1) Machinery Orders: The data is scheduled for GMT 13:30 today. The previous year on year change in the machinery orders was 1.2%. The consensus is that today’s release will see a sharp drop to -6.5%. According to the consensus of economists a drop is also expected in the month on month change of machinery orders from previous 2.6% to 0.3%. Today’s release will show the November data.