* USD weakness is now excessive
* Commodity run-up raises inflation risks
* US consumer, job market stable despite housing slump
* RBA, ECB and BOE to hold rate-setting meetings
* BOJ Tankan on Monday; US NFP on Friday

The USD was hammered again this week, and you can pick your reasons why: a sharp drop in US consumer confidence; further declines in housing data; increased fears of a US recession leading to lower US rates; skyrocketing commodity prices; the sun rose in the East yet again. You name it and it was a reason to sell the USD. Never mind that US stocks finished their best month since 1998, or that Aug. US consumer spending gained more than expected, or that weekly ABC consumer sentiment improved from -20 a month ago to -11 in the latest week, or that jobless claims data have yet to confirm the labor market weakness evident in the Aug. NFP report. Ignoring positive data and embracing negative data are the hallmarks of a downtrend and that certainly seems to be the current situation for the greenback.  Full text »

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* USD bearishness hits fever pitch
* Risk assets/Carry trades are back in vogue
* Credit markets are on the mend, but not out of the woods
* Continuing to watch stocks as key gauge to risk seeking/aversion

The Fed surprised markets (and me) by delivering a larger than expected cut in benchmark interest rates, dropping the Fed Funds rate by 50 bps instead of the expected 25 bps. The result was as if a green light suddenly flashed on, signaling investors to resume risk-taking: equity markets surged, precious metals and commodities soared, and carry trades (long JPY-crosses, e.g. long EUR/JPY, AUD/JPY, and NZD/JPY) were put back on in a rush. Of course, the USD took a drubbing against all but the JPY, dropping sharply (1.5-2%) against European and commodity currencies by the end of the week. As of Friday afternoon, it’s safe to say USD bearishness has hit a fever pitch, with front-page New York Times coverage and nearly every other media outlet running lead stories highlighting the dollar’s weakness. Even the Loonie (CAD) made headlines, rising to parity against the USD for the first time since 1976.  Full text »

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* Fed set to cut rates only 25 bps; issue relatively stern statement
* Fallout is likely equity and risky trade negative
* GBP under pressure from Northern Rock, overextended housing market
* Eurozone sentiment set to take a hit with lower ZEW

The US dollar finished last week modestly lower on the close, but up from its intra-week low at 79.30 in the USD index. The market remains heavily focused on USD bearish themes, but I think the real story remains the ongoing credit crunch and the uncertainty it poses for financial markets. Late last week we got another dose of bad news in the form of Northern Rock, the fourth largest UK mortgage lender, seeking emergency funding from the Bank of England (BOE). Northern Rock may be the tip of the iceberg in the UK, with home price indexes starting to show declines for the first time since 2001. In past weeks I have repeatedly cautioned about the risk of negative news surprises in general and on the risk facing the UK housing market in particular. These events appear to be in play at the moment and are very likely to keep the GBP under pressure, both against the EUR and the USD.  Full text »

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About the Author Reggie Henkart was born in Belgium and has been a Foreign Currency Broker in the early 90s for a company from China trading their Forex fund. He quickly went from trader to trainer, supervising 28 other FX Traders. Finally he was offered the management of his own trading branch in Miami. In February 2006, he joined FreedomRocks and became the tenth Platinum in 6 months carrying 24% of the membership of the company. This was in perfect agreement with his Mission Statement: “To

* Risk aversion remains the key focus, not the USD
* Concentrate on JPY-cross selling (carry trade unwinding)
* Despite weak NFP, a Fed rate cut is still not assured
* Fed speakers on Monday will tell us what to expect
* US retail sales on Friday are the next key to the Fed outlook

The US dollar took a pounding after Friday’s NFP report indicated a loss of -4K jobs in the month of August. Revisions to June and July were also negative, compounding the appearance that the US economy is tipping over, weighted down by ongoing real estate declines, higher consumer lending rates and tighter lending conditions. Street analysts are back flipping over themselves to forecast how aggressively the Fed will cut rates at its Sept. 18 meeting, with futures markets pricing in a 75% chance of a 1/2% rate cut as of Friday. However, I would suggest the situation is not as clear cut as the market consensus seems to expect.  Full text »

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