Connect with us

Trading

USD/JPY TUMBLES AMID DOVISH MINUTES, TIME TO BUY GOLD?

Published

on

usd

By Arnaud Masset, market analyst, Swissquote Bank

  • EUR/USD may trade range bound again between the 1.1310 support and the 1.1438 resistance as traders are wondering whether further dollar weakness is sustainable
  • USD/JPY reaching its lowest level since October 2014 and the BoJ, unhappy with the current yen’s strength, further reduces the odds of the Japanese economy reaching the 2% inflation target. On the downside, the next support can be found at 105.23
  • We therefore expect Governor Kuroda to take action to put an end to the yen rally either by expanding the Qualitative and Quantitative Easing program and/or by cutting rates further into negative territory
  • Nonetheless, the 1-month USD/JPY risk reversal shift to -1.48 on Thursday showed that traders rushed to buy protection against further yen strengthening as they do not believe the BoJ has the tool or the credibility to remedy the situation
  • CAD and the NOK took advantage of the crude oil rally, both surging against the greenback. USD/CAD continued to reverse early week gains moving closer towards 1.30
  • Gold: Buying pressures are growing
  • With regards to the US rate hike, the price of gold in US dollar should have gone down but instead the opposite happened. This trend will continue as we firmly believe that the American economy is under pressure and that there is no current ongoing intervention.

As expected the March FOMC minutes were roughly in line with the remarks made by Janet Yellen during the press conference following the release of the rate decision. However, the minutes further dampened the market’s sentiment towards the greenback by highlighting the growing divisions among Fed members, especially concerning a potential rate hike in April. We can now also certainly rule out an April rate hike. EUR/USD held ground above the 1.14 threshold after testing 1.1392 in Tokyo. Over the last few days, the pair has traded range bound between the 1.1310 support and the 1.1438 resistance with traders wondering whether further dollar weakness is sustainable.

The Japanese yen surged massively against the USD amid the release of the FOMC minutes with USD/JPY reaching its lowest level since October 2014. USD/JPY fell more than 13% since June 2015, down to 108.95 from 125.86. The BoJ is most likely unhappy with the yen’s current strength as it further reduced the odds of the Japanese economy reaching the 2% inflation target. We therefore expect Governor Kuroda to take action to put an end to the yen rally. This could be done either by expanding the Qualitative and Quantitative Easing program and/or by cutting rates further into negative territory. The 1-month USD/JPY risk reversal shifted to -1.48 on Thursday as traders rushed to buy protection against further yen strengthening, suggesting that investors do not believe the BoJ has the tool (or the credibility?) to remedy the situation. On the downside, the next support can be found at 105.23 (low from mid-October 2014), while on the upside a resistance can be found at 110.81 (high from April 5th).

Crude oil extended gains in the late European session as US stockpiles contracted unexpectedly during the week ending April 1st. Crude inventories contracted by 4937k barrels, while the market was expecting an increase of 2850k. Inventories increased by 2299k in the previous week. West Texas Intermediate crude futures rose to $38.16 a barrel on the New York Mercantile Exchange, up 8.15% from Tuesday’s low. The global benchmark, the Brent crude, passed the $40 threshold, up 7.75% over the same period. Overall, commodities gained ground in Asia with gold and silver surging 0.49% and 0.47% respectively. Iron ore active contracts on the Dalian commodity exchange were up 0.95%, while palladium and platinum rose 0.06% and 0.46% respectively.

The CAD and the NOK took advantage of the crude oil rally, both surging 0.33% against the greenback. USD/CAD continued to reverse the early week gains as it moves towards 1.30. On the downside, a support lies at 1.2858 (low from March 31st). USD/NOK tested the 8.2528 support once again but the number of sellers was not sufficient to break it to the downside.

Yann Quelenn, market analyst: “Time to buy gold? Since December the yellow metal has sharply increased and is now trading between 1200 and 1200 dollars per ounce. For many people, gold is useless as it does not provide dividends but still it seems that buying pressures are growing. However, in the last four years, gold has lost more than 30% of its value and a lower gold price indicates confidence in central bank actions. Ironically despite massive intervention by policymakers around the world (QEs and low rates) and a risk-off sentiment that dominates, gold has been in constant decline. With regards to the US rate hike, the price of gold in US dollar should have gone down but instead the opposite happened. This trend will continue as we firmly believe that the American economy is under pressure and that there is no current ongoing intervention.

The price of gold is composed of the physical and paper market. The paper market is far larger compared to the physical market. The ratio is an astonishing 200 vs 1. Most banks issue mainly paper ounces driving down the price of gold, resulting in a major counterparty risk. In the result of difficulties in the banking sector, the price of paper gold will decrease. However, as physical gold is also included in the overall price, this legitimises the purchase of physical gold which is undervalued. Banks are also experiencing massive exposure to derivatives. When we look at the balance sheet of Deutsche Bank for instance, one can guess how it is possible to be exposed as much as up to 25 times the German GDP. Another important issue is the premium paid for gold on the physical market and this has never been so high due to scarcity.” —

Today traders will be watching foreign currency reserves from Switzerland; industrial output from Spain; budget balance from Sweden; Halifax house price from UK; industrial production from Norway; manufacturing production South Africa; building permits from Canada; initial jobless claims from the US.

Trading

Oil extends losses as Texas prepares to ramp up output after freeze

Published

on

Oil extends losses as Texas prepares to ramp up output after freeze 1

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs, as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Brent crude futures ended the session down $1.02, or 1.6%, at $62.91 a barrel while U.S. West Texas Intermediate (WTI) crude fell $1.28, or 2.1%, to settle at $59.24.

For the week, Brent gained about 0.5% while WTI fell about 0.7%.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

U.S. energy firms this week cut the number of oil rigs operating for the first time since November, according to Baker Hughes data.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil prices fell despite a surprise drop in U.S. crude stockpiles last week, before the big freeze hit. Inventories fell 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

“Vaccines and the impressive rollouts we’ve seen have delivered strong gains, as have the efforts of OPEC+ – Saudi Arabia, in particular – and the big freeze in Texas, which gave oil prices one final kick this week,” Craig Erlam, senior market analyst at OANDA, said.

“With so many bullish factors now priced in, it seems we’re seeing some of these positions being unwound.”

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Marguerita Choy, David Gregorio and Nick Macfie)

Continue Reading

Trading

FTSE 100 ends higher on improving economic activity; gains for the third week

Published

on

FTSE 100 ends higher on improving economic activity; gains for the third week 2

By Shivani Kumaresan, Amal S and Shashank Nayar

(Reuters) – London’s FTSE 100 ended higher on Friday after the economy showed signs of improvement this month and was set to gain for the third consecutive week as investors bet that vaccine rollouts would spur economic growth.

British firms fared less badly during February’s lockdown than feared and are upbeat about the prospects for growth later in 2021 when they hope the roll-out of vaccines will allow a major relaxation of COVID-19 restrictions, a survey showed.

The blue-chip FTSE 100 index ended 0.1% higher with miners and banking stocks gaining the most, while the mid-cap index gained 0.5%.

“There is optimism and hope that the vaccine rollouts will eventually help the economy improve while the market is awaiting the government’s lcokdown easing plans to be revealed next week,” said Keith Temperton, an equity sales trader at Forte Securities.

However, data on Friday showed British retail sales tumbled much more than expected in January as non-essential shops went back into coronavirus lockdowns.

The FTSE 100 has recovered nearly 35% from its March 2020 lows and is nearly 13% away from its highest level last year as record stimulus measures and massive vaccine rollouts helped improve investor confidence.

NatWest gained 5.2% and was the third biggest gainer on the FTSE 100 index after it said it would wind down its Irish arm Ulster Bank, as Chief Executive Alison Rose continues to slash away at underperforming parts of the state-owned lender after it swung to a loss in 2020.

Segro Plc rose 1.5% after the real estate investment trust reported a near 11% jump in annual profit for 2020.

Banking group TBC Bank fell 6.1% after a slump in annual underlying profit due to lower interest rates and limited lending growth in the fourth quarter from the COVID-19 pandemic.

 

(Reporting by Shivani Kumaresan and Amal S in Bengaluru; Editing by Vinay Dwivedi, Krishna Chandra Eluri and Jonathan Oatis)

 

Continue Reading

Trading

UK bond yields head for biggest weekly rise since June

Published

on

UK bond yields head for biggest weekly rise since June 3

LONDON (Reuters) – British government bond prices fell again on Friday as a global debt sell-off continued on expectations of hefty U.S. fiscal stimulus, putting gilt yields on course for their biggest weekly rise since June.

The spread between yields on British 10-year debt and its German equivalent widened to 100 basis points for the first time since March, partly reflecting the faster roll-out of COVID vaccines in Britain which has lifted some of the country’s economic gloom.

Ten-year gilt yields peaked at 0.693% at 1429 GMT, their highest since March 20 during the so-called “dash for cash” at the onset of the pandemic.

Based their latest level they are on course of just under 17 basis points the biggest since the week to June 5.

Sterling also rose above $1.40 for the first time in nearly three years on Friday although it was flat against the euro.

Gilt yields surged at the start of the COVID pandemic due to a scramble for U.S. dollar assets, until the Bank of England calmed markets by restarting its bond purchase programme.

If yields stay where they are, February will see the biggest increase in 10-year gilt yields since October 2016, when markets judged Britain’s referendum vote to leave the EU was having less of an immediate impact on the economy than first thought.

(Reporting by David Milliken; Editing by William Schomberg)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

Google to evaluate executive performance on diversity, inclusion 4 Google to evaluate executive performance on diversity, inclusion 5
Top Stories1 min ago

Google to evaluate executive performance on diversity, inclusion

By Paresh Dave (Reuters) – Alphabet Inc’s Google will evaluate the performance of its vice presidents and above on team...

EU seeks alliance with U.S. on climate change, tech rules 6 EU seeks alliance with U.S. on climate change, tech rules 7
Business5 mins ago

EU seeks alliance with U.S. on climate change, tech rules

By Sabine Siebold and Kate Abnett BERLIN (Reuters) – Europe and the United States should join forces in the fight...

Oil extends losses as Texas prepares to ramp up output after freeze 8 Oil extends losses as Texas prepares to ramp up output after freeze 9
Trading10 mins ago

Oil extends losses as Texas prepares to ramp up output after freeze

By Devika Krishna Kumar NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from...

Dollar edges lower as investors favor higher-risk currencies 10 Dollar edges lower as investors favor higher-risk currencies 11
Investing13 mins ago

Dollar edges lower as investors favor higher-risk currencies

By Stephen Culp NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with...

Bitcoin hits $1 trillion market cap, surges to fresh all-time peak 12 Bitcoin hits $1 trillion market cap, surges to fresh all-time peak 13
Top Stories27 mins ago

Bitcoin hits $1 trillion market cap, surges to fresh all-time peak

By Gertrude Chavez-Dreyfuss and Tom Wilson NEW YORK/LONDON (Reuters) – Bitcoin touched a market capitalization of $1 trillion as it...

Packaged food giants push direct online sales to gauge consumer tastes 14 Packaged food giants push direct online sales to gauge consumer tastes 15
Business29 mins ago

Packaged food giants push direct online sales to gauge consumer tastes

By Siddharth Cavale and Nivedita Balu (Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing...

FTSE 100 ends higher on improving economic activity; gains for the third week 16 FTSE 100 ends higher on improving economic activity; gains for the third week 17
Trading6 hours ago

FTSE 100 ends higher on improving economic activity; gains for the third week

By Shivani Kumaresan, Amal S and Shashank Nayar (Reuters) – London’s FTSE 100 ended higher on Friday after the economy...

European shares end higher on strong earnings, positive data 18 European shares end higher on strong earnings, positive data 19
Banking6 hours ago

European shares end higher on strong earnings, positive data

By Sagarika Jaisinghani and Ambar Warrick (Reuters) – Euro zone shares rose on Friday, marking a third week of gains,...

UK bond yields head for biggest weekly rise since June 20 UK bond yields head for biggest weekly rise since June 21
Trading7 hours ago

UK bond yields head for biggest weekly rise since June

LONDON (Reuters) – British government bond prices fell again on Friday as a global debt sell-off continued on expectations of...

Siemens Healthineers gains EU nod for $16.4 billion Varian buy 22 Siemens Healthineers gains EU nod for $16.4 billion Varian buy 23
Business7 hours ago

Siemens Healthineers gains EU nod for $16.4 billion Varian buy

BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian,...

Newsletters with Secrets & Analysis. Subscribe Now