Category: International Forex

Short Currency Exposures are Trimmed (Except the Euro and Pound)


Speculators in the currency futures made mostly small adjustments to their gross foreign currency exposure.  There were only three position adjustments of more than 5k contacts. 

Since the markets turned on 11 February, the Canadian dollar has been the strongest of the major currencies, appreciating a little more than 4.5% against the US dollar.  Gross shorts have been nearly halved since then.  They were cut by 6.9k contracts or about 10% to reach 61.5k contracts during the recent reporting period. 

The Euro and Yen’s Momentum Loss Resurfaces Down Under


There are two broad themes among the major currencies today.  The first is the pullback in the euro and yen after yesterday’s run-up.  Position adjustments with the help of stop losses seemed to be the key consideration.  Both the euro and yen extended the recovery seen in the second half of last week.  Year-end considerations, both in terms of positioning and less liquidity, likely played a role as well.

Europe and China Target More Currency Exchanges


The European Union and China have joined forces to increase currency exchanges between the two, bypassing the U.S. dollar.

The European Central Bank and People’s Bank of China began a currency swap late last week aimed at making it easier for currencies to flow between the two bilaterally. The arrangement will make it easier for European and Chinese banks to allow capital flows between one another, and theoretically improve trade and even out currency rates between the euro and the yuan.

Sterling Puts in a Strong Week Among Major Currencies


The US dollar turned in a mixed performance in the week after the strong jobs data boosted expectations that the Fed’s lift-off would take place next month.  The Fed funds futures imply a 20.5 bp effective rate in December.  At the end of October, it was 19.5 bp.  In contrast, the 2-year note yield eased 3 bp over the past week to 85 bp, which is still 13 bp above where it closed last month.

Dollar-Bloc Currencies Firm on Longs and Short Covering


The US dollar is trading softer though largely within yesterday’s ranges against the major currencies. The rally in equities carried over into Asia but European markets are narrowly mixed, and US shares are trading lower.  Bond yields are mostly higher though US Treasury yields are paring yesterday’s push higher. 

Putting the Brakes on Overreaction to VW’s Euro Influence


The emission scandal at the world’s second largest automaker, Volkswagen, has reportedly “rocked” the German political and business elites.  Some have argued that it will rival the refugee challenge for Germany.  Others have argued that it is a source of euro weakness.

To be sure, Volkswagen is the not first automaker caught manipulating its emissions tests. Ford did a similar thing with its vans in 1997.  Hyundai and Kia paid $100 mln in fines last year for fixing their tests.

The Fed, Dollar, and Dollar-bloc Currencies


The US dollar is mostly little changed against the major currencies.  The chief exception is the yen.  Its apparent purchases on the crosses succeeded in pushing the dollar from near JPY120.50 to almost JPY119.80.  Lower US bonds yields and falling stocks in Europe may have been the trigger in an otherwise light news session.  Recall Tokyo markets remain closed and will re-open Thursday.

Two Monetary Policies Diverge in the Woods


The Canadian dollar took a sharp tumble on the contrast between the Bank of Canada’s rate cut and Yellen’s confirmation that the Fed is still on track to hike rates later this year. 

The Bank of Canada cut its overnight rate 25 bp to 0.5%, the second cut this year.  It cited the impact of the drop in oil prices and the failure to non-energy exports to pick-up the slack. 

Amidst the Chaos, there is the Dollar


The euro has retraced nearly all of the pre-weekend gains.  While buy the rumor sell the fact, pay have played a role, the last leg down to new lows (~$1.1040) seemed to be in response to reports that the ECB did not lift the ELA ceiling.  This ensures that banks remain closed, likely now through at least Wednesday. 

The Vietnamese Currency Peg to the US Dollar is Under Pressure


The appreciation of the Vietnamese dong, coupled with characteristics specific to Vietnam’s transitional economy, leaves the State Bank of Vietnam (SBV) with difficult choices in conducting monetary policy. Luckily, the SBV retains adequate fiscal flexibility to respond to this pressure through its exchange rate policy.