* Fireworks are likely in carry trades and USD weakness
* More uncertainty over mortgage-backed market expected
* BOJ Tankan on Monday in Tokyo
* BOE expected to raise rates, RBA hold steady
* US NFP on Friday

The US dollar is closing lower across the board after an extremely choppy week of trading. The week opened up with a sharp sell-off in USD/JPY and the JPY-crosses, collectively representing the carry trade, as concerns mounted over the extent of losses in the mortgage-backed securities market, fallout from the sub-prime mortgage meltdown. I had cautioned in last week’s report that there was a disconnect between the resilience of the carry trade (Strong JPY-crosses) and the mortgage market problems, and that something had to give. The sell-off early in the week validated my concern, but the carry trade proved resilient and came storming back by the end of the week, with the JPY-crosses returning to re-test the highs made last week. So I’m left in much the same position as last week and continue to anticipate a larger shake-out in the JPY crosses.  Full text »

digg this! | del.icio.us | Technorati | Stumble It!

* Mortgage-back market in US unnerves investors, raises risk fears
* JPY crosses make new highs, but look to be setting up for a reversal
* FOMC meeting on Thursday; housing data and durable goods are key
* RBNZ looks to have intervened in Kiwi during late NY Friday afternoon

The US dollar is finishing the week lower against European currencies and slightly higher against the JPY, which means the JPY-crosses continued their relentless gains higher. New highs were reached in all the major JPY carry trade pairs: NZD/JPY, AUD/JPY, GBP/JPY, EUR/JPY, CHF/JPY and USD/JPY (CAD/JPY only managed to test prior highs). Despite the new highs in the JPY-crosses, I’m getting the sense that a shake-out lower is increasingly likely and I’ll explain later in this update.  Full text »

digg this! | del.icio.us | Technorati | Stumble It!

Futures volume and open interest are significant factors to monitor when trading futures, for several reasons. First, let’s define the two terms. Open interest is the total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. It is an indicator of the depth or liquidity of a futures market, which influences the ability to buy or sell at or near a given price. Open interest can be a tricky concept, especially for beginners. In a nutshell,

* USD looks to have stalled against Europe
* JPY-crosses on fire as carry trades roar back
* Stock market gains are needed to keep JPY crosses up
* Light data week all around; US data focus is on housing

The dollar is finishing the week mostly unchanged against European currencies, but sharply stronger against the JPY, as carry-trades surged yet again and the BOJ signaled interest rates are not moving higher in the near future. The currency market was fixated on the bond markets for much of the week, after the sharp rally in global bond yields saw rates move higher globally, with US 10 year rates up over 35 bps over the last ten trading days at their peak. However, the bond yield rally had run it course by mid-week, and subsequent benign PPI and CPI reports saw yields retrace nearly 20 bps from the peak. The lower inflation readings dashed nascent speculation that the Fed’s next move would be to raise rates, which in turn supported equities as they rallied strongly back to recent highs. Stock market strength in turn fueled additional JPY-selling across the board, as carry trades recovered. The strong positive correlation between JPY weakness and equity markets remains intact and Forex markets are likely to continue to be driven by stock and bonds next week as little data of consequence is out to drive currencies.  Full text »

digg this! | del.icio.us | Technorati | Stumble It!

* RBNZ intervenes to stem Kiwi gains
* US yields rally sharply, but look to have peaked
* Shake-out in carry trades looks to be short-term
* Heavy US data schedule in second half of week

The USD had one of it better weeks last week, rising against European currencies and the JPY, while remaining mostly sideways at low levels against the minor dollar pairs. Stronger US data (higher ISM non-manufacturing and narrower trade deficit) and hawkish commentary from Fed Chair Bernanke and other Fed officials saw US 10 year Treasury yields spike to 5.25% from 4.95% at the start of the week, though the weekly close looks to constitute a rejection from the key 5.25% level. Along with the US data and Fed comments, a not-completely unexpected NZ rate hike ignited global fears of higher interest rates which led to a shake-out of speculative positioning across global markets. As a part of this, the US stock market swooned in mid-week, but recovered about half of its losses by the end of the week, reinforcing the idea that the wave of risk reduction might have already run its course.  Full text »

digg this! | del.icio.us | Technorati | Stumble It!

As the online Forex trading market becomes increasingly saturated and the choice of brokers becomes wider, the decision of which broker to run with becomes increasingly important for the trader.  Although the majority of brokers provide the same basic trading platform, there can be a vast difference in what they offer their clients, both in terms of trading conditions as well as customer support.  By simply visiting a company’s homepage it may be hard to separate the second-rate

* Eurozone finance ministers meet next week
* G8 meeting next week unlikely to mention currencies
* Central bank rate decisions from RBA, RBNZ, ECB and BOE
* US economic data show rebound alongside receding inflation

The currency market remains hemmed in, with the USD continuing to range against European currencies and probe higher against the JPY. The minor dollar pairs (AUD, CAD, NZD) saw the USD weaken, with gains in the CAD continuing relentlessly after the BOC signaled it might need to raise rates in July. My much hoped-for breakout from recent ranges failed to materialize yet again, but the more it goes on the larger the break out is likely to be. We had a lot of data out this week from the US and rather than providing the spark to light a new directional trend, it mainly served to reinforce the existing consolidation. US Treasury yields made new highs for the year, with the 10 year note yield set to close around 4.95%, up nearly 6 bps on Friday alone. Importantly, though, the interest rate differential between the USD and most other major currencies held steady, meaning interest rates are moving higher across the board. Gold reversed course on Friday, rallying over $10/oz and ended the downside correction that dominated most of May.   Full text »

digg this! | del.icio.us | Technorati | Stumble It!