The Bank of Japan has unilaterally intervened on the FOREX market to devalue the YEN last night. After reaching pre-World War II levels, the yen was brought back to 79.15 where the chart turned into a horizontal line for a few hours (signaling a great support level), then trending downwards to the 78.8 level. The devaluing of the Japanese Yen would arguably stimulate the exports and the external demand of Japanese products, but is not a sustainable move since they have large current account and balance of trade surpluses
Monday, 31 October 2011
Sunday, 30 October 2011
This week has been a hectic trading week, with most of the FOREX currency pairs behaving like in a bee hive. The global turmoil was enhanced by the two major news: first is the agreed haircut of 50% of the Greek debt and the subsequent leverage of the EFSF and the second one is the systematic dump of US Treasuries by the foreign investors (the latest to join the party is the Norwegian sovereign wealth fund which dumped all US Treasuries and all US mortgage backed securities). What is in store for us next week?
Friday, 28 October 2011
Trading on the Foreign exchange market has been a bumpy ride, and the highest possibility is that it will get even bumpier. Most of the currency pairs surprised investors some way or the other: the EUR/CHF Swiss Bank intervention, the EUR/USD sharp drop then rebound on EFSF news, the USD/JPY fat finger and the expected Japanese easing, the USD/HUF breakout of its channel and imminent retest of channel resistance, etc. It's been a looong month.
Thursday, 27 October 2011
Talks on the third wave of financial aid for Greece have come to an end (finally), during last night's second crisis summit held in Brussels. The conclusion? Greek bondholders will accept a 50% haircut on Greek debt, while the EU will provide guarantees and collateral through the EFSF and will work on the recapitalization of European Banks. The "hot potato" question still remains? Who is going to provide the money for all this? The US, the IMF, China ?
Wednesday, 26 October 2011
Monday, 24 October 2011
Nowadays the media are painting a bleak picture of the European Union debt crisis. The EFSF has been leveraged, the proposed "hair-cut" on Greek debt has been twisted and turned on all sides, without any visible conclusion. Contagion from the perypheral countries (PIGS) may spread out to the more stable countries: Germany and France (which is already on a credit downgrade outlook from Moody's). Meanwhile the US debt crisis tidal wave is closing by without anyone noticing.
Friday, 21 October 2011
Interesting development on the FOREX market today was the unparalleled volume in the USD/JPY. The Japanese currency appreciated 0.9% to Y76.14 after it reached its all-time low of Y75.82. If you want to pick up this trade, tread carefully, as an intervention from from Bank of Japan is imminent on further signs of weakness. The Bank of Japan is trying to maintain the JPY at low levels to keep Japanese exports attractive, but doing so it hurts the Japanese savers who see their wealth generating lower and lower real returns.
The precious metals have been under fire recently, with gold dropping from its all-time high of $1920 close to its 200 daily Exponential Moving Average which acted as support level for such movements since early 2008. It spiked downwards beneath the 200d EMA for a brief period to its recent low of $1533 after quickly recovering ground and consolidating in the $1610-$1690 interval.
Thursday, 20 October 2011
The yields on peripheral countries are getting higher and higher, reflecting worries about the high levels of debt and fiscal deficit within these countries (Portugal, Ireland, Greece and Spain). The 1 year Greek yield reached an apex of 188%. Just a year ago the yield on a 1 year Greek bonds was only 5%. The same goes for Portugal where the 1 year yields 18%, from 3.2% the 2010 figure. Ireland was partially saved by bond purchases and the yield stabilized to 8% after peaking at 22%. Will the EFSF cool-off the European debt crisis ?
The European Union may have done a very costly mistake by banning naked CDS shorts, because traders will now retort to outright shorting the underlying bonds. And short they will: Greek yields reached a staggering 188% for a 1yr note and they don't show any signs of cooling off. With Angela Merkel and Nicolas Sarkozy still undecided about the European Rescue Fund, things can only get worse. Meanwhile America continues its slow road to serfdom.
Wednesday, 19 October 2011
Growing concerns regarding the leveraging of the European Financial Stability Facility (EFSF) are weakening the core EU financial markets. Yesterday, Spain has been downgraded by the rating agency Moody's, two notches to AA1 level and France looks to be the next to lose its triple A rating.
All these concerns have started to spill out at the core of the European Union: Germany, France and the United Kingdom. Does EU really have a firm response for the upcoming debt crisis ?
Tuesday, 18 October 2011
A sharp reaction from the financial markets came today after the participants expect further economic turmoil. US Stocks slump as the Goldman Sachs reported its second quarterly loss in almost 12 years and as IBM shows signs of weekness. Commodities drop, precious metals leading with Gold down 2.46%, and silver down 1.86%. Just a Manic Monday.
Monday, 17 October 2011
Even though the Chinese currency, the Yuan (or Renminbi), is still pegged to the current reserve currency, the Chinese officials are taking more and more steps towards consolidating the global role of Yuan. One of them is the long term purchase of gold, as the saying goes, with every dip, there is Chinese gold buying. The second step is to start offering gold in Yuan. The next step can only be denominating the yuan in gold and restricting yuan purchases.
Saturday, 15 October 2011
Friday, 14 October 2011
The debate on the real cause of inflation, and whether its positive effects outweigh the negative ones is growing steam, with the talks of more Quantitative Easing under way. Is QE3 going to generate more inflation or not? Is the view that QE and further market operations (POMOs) will fuel the increase in prices ?
To answer these questions, one has to start from the root of the problem. What is inflation and how should it be measured ?
Thursday, 13 October 2011
Today's initial jobless claims printed at 404k, "way better" than the estimate of 405k. That means the economy is going to get better and banks will start crediting again. Is that so?
Let's take a closer look on how the Department of Labor arrives at this particular figure:
The Federal Reserve released the minutes of the September 20-21 session in which there is talk of more monetary stimulus. Fed officials are considering further large scale asset purchases (QE3) as a form of boosting the economy due to “the considerable uncertainty” in the US growth prospects.
Wednesday, 12 October 2011
Marc Faber, the well known author of the GloomBoomDoom Report, and widely regarded as one of the investors who predicted the 2008 crisis, has declared in a recent interview on CNBC:
"I will tell you what the US needs. The US needs a Lee Kwan Yew who stands in front of the US and tells them, listen you lazy bugger, now you have to tighten your belts, you have to save more, work more for lower salaries and only through that will we get out of the current dilemma that essentially prevents the economy from growing."
This blog is created to provide quality economic, financial and investment analysis. Whilst sometimes focusing on macroeconomics or microeconomics, the clear tendency is to stick to down-to-earth common sense.
In the investment world, as you may know, common sense is not so common.
In the investment world, as you may know, common sense is not so common.