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OctaFX.Com - EU leaders meet to chart eurozone future
European leaders will meet in Brussels this week to work on closer ties between eurozone countries that are seen as critical to converting recent progress on fixing the region's debt crisis into a sustainable path to growth.
The summit comes during a period of uneasy calm in global financial markets. Bond yields for troubled euro area governments have declined significantly after the European Central Bank said in September it was ready to buy potentially unlimited amounts of sovereign debt.
Despite signs of progress, investors remain nervous about Greece, where the government and its international creditors continue to negotiate over the latest installment of bailout money for the debt-stricken nation.
Leaders will meet Thursday and Friday to discuss an interim report outlining steps to strengthen the eurozone, including proposed reforms of the banking sector and more integrated budget policies, according to a letter from European Council president Herman Van Rompuy.
Spain has won relief from market pressure thanks to widespread expectations that it will request a formal bailout by seeking a credit line from the newly-activated European Stability Mechanism. This would allow the ECB to start buying its bonds.
Moody's confirmed its investment grade rating on Spain this week, based on an assumption that Madrid will tap the ESM, and reflecting progress on fiscal and banking reform. But it assigned a negative outlook to the rating, underscoring the pressure on eurzone leaders to agree much closer integration.
"Shocks at the euro area level could also have negative repercussions on Spain's rating, for example in the absence of concrete progress in reforming the euro area's fiscal, economic and regulatory institutions," the agency said.
Analysts say Prime Minister Mariano Rajoy will wait at least until after regional elections on Oct. 21 before asking for help from his eurozone partners.
A spokeswoman for the Spanish economy ministry told CNN the government was still considering its options.
Observers say the likelihood of progress at this week's summit is low, following a more substantial agreement announced at the last summit. In a move hailed as a breakthrough, the leaders outlined plans in June to establish a central banking regulator and increase budgetary oversight.
"Expectations are quite low," said Marie Diron, senior economic adviser at Ernst & Young in London. "If there was to be a significant agreement, we would normally hear about it in advance, but it's been very quiet on that front."
While talks in Greece continue, EU leaders are expected to praise the government in Athens for making difficult reforms and taking steps to modernize the deeply depressed Greek economy.
The Greek government is struggling to nail down all of the →11 billion of spending cuts it needs to satisfy the conditions of its bailout. Athens is also reportedly at odds with the IMF over the outlook for the economy and the likelihood it will achieve its deficit reduction targets.
Greek Prime Minister Antonis Samaras is pushing for a two-year extension of the nation's bailout program, which the previous government agreed to in March. In a show of support, German Chancellor Angela Merkel met earlier this month with Samaras in Athens, suggesting that Berlin is softening its stance on Greece.
"A political position has been reached to keep Greece in the eurozone," said Nicholas Spiro, director of London-based consultancy Spiro Sovereign Strategy.
"But nothing is being done to secure Greece's future in the single currency area."
Oct 17, 2012 01:51 PM
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OctaFX.Com - British Pound Forecast to Strengthen versus Yen
GBPJPY – Retail traders are now net-short the British Pound against the Japanese Yen for the first time since September, and the sharp shift in sentiment gives us contrarian signal that the pair may continue to further highs. Short interest has jumped 40 percent since last week, while long interest has fallen by the same amount.
This lines up well with our USDJPY-bullish bias, and indeed it seems as though the Japanese Yen has further room to fall against broader counterparts.
Oct 18, 2012 03:39 PM
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OctaFX.Com - Canadian Dollar Trading Bias Moderates
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USDCAD - The ratio of long to short positions in the USDCAD stands at 2.89 as approximately 74% of traders are long. Yesterday the ratio was 1.97; 66% of open positions were long. In detail, long positions are 12.9% higher than yesterday and 2.7% below levels seen last week. Short positions are 22.8% lower than yesterday and 2.1% above levels seen last week.
We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDCAD may continue lower. Current SSI is higher than yesterday and lower from last week. The combination of current sentiment and recent changes gives a further mixed trading bias.
Oct 18, 2012 03:39 PM
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Oct 19, 2012
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OctaFX.Com -Australian Dollar Forecast Remains Bearish Despite Faster Inflation
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The Australian dollar fell back from a fresh monthly high of 1.0410 as market participants curbed their appetite for risk, but the high-yielding currency may regain its footing next week as price growth in the $1T economy is expected to bounce back in the third quarter. The consumer price report highlights the biggest event risk for the aussie, and we may see a bullish reaction to the print as the headline reading for inflation is expected to increase 1.6% after expanding 1.2% during the three months through June.
However, the policy outlook continues to instill a bearish forecast for the AUDUSD as the Reserve Bank of Australia scales back its fundamental assessment for the region, and we should see the central bank continue to embark on its easing cycle in an effort to encourage a stronger recovery. Indeed. the RBA
Minutes sounded more dovish this time around as the board sees the resource boom peaking ‘a little earlier, and at a somewhat lower level,’ and we should see the central bank continue to target the benchmark interest rate as the softer outlook for growth gives the central bank scope ‘to be a little more accommodative.’ As commercial banks remain reluctant to pass on the RBA’s rate cuts, investors are pricing a 77% chance for another 25bp reduction at the November 5 meeting, while borrowing costs are anticipated to fall by at least 75bp over the next 12-months according to Credit Suisse overnight index swaps. As the interest rate outlook remains tilted to the downside, speculation for additional monetary support should continue to dampen the appeal of the Australian dollar, and the high-yielding currency remains vulnerable to further headwinds as China –
Australia’s largest trading – continues to face a risk for a ‘hard landing.’
Faster price growth in Australia should help to prop up the AUDUSD in the week ahead, but we will maintain a bearish forecast for the pair as it preserves the downward trend carried over from 2011. At the same time, the aussie-dollar appears to be carving out a lower top in October as the exchange rate fails to hold above the 23.6% Fibonacci retracement from the 2010 low to the 2011 high around 1.0370, and we may see the Australian dollar threaten the monthly low (1.0148) should market sentiment deteriorate further.
Oct 20, 2012 03:48 AM
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OctaFX.Com - Canadian Dollar At Risk For Further Losses As BoC Turns Dovish
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The Canadian dollar struggled to hold its ground against its U.S. counterpart, with the USDCAD advancing to a fresh monthly high of 0.9939, and the loonie may face additional headwinds in the days ahead should the Bank of Canada soften its tone to raise the benchmark interest rate from 1.00%. Although the BoC is widely expected to maintain its current policy next week, the fresh batch of central bank rhetoric may dampen the appeal of the loonie as the government sees a slowing recovery in the region.
Indeed, Finance Minister Jim Flaherty warned that the government may reduce its growth forecast as it prepares to release its updated budget, and we may see BoC Governor Mark Carney follow suit amid the ongoing slack in the real economy. As price growth holds near the lowest level since 2010, the central bank should sound more dovish time this around, and Mr. Carney may no longer see scope to withdraw monetary stimulus as growth and inflation tapers off. In turn, the BoC may strike a more neutral tone for monetary policy, and the protracted recovery in the United States – Canada’s largest trading partner – may keep the BoC on the sidelines given the historical ties between the two economies.
According to Credit Suisse overnight index swaps, market participants see the central bank keeping the benchmark interest rate on hold over the next 12-months, and Governor Carney may look to carry the wait-and-see approach into the following year in an effort to further shield the world’s 10th largest economy from external shocks.
As the relative strength index on the USDCAD finally clears interim resistance around the 58 figure, the upside break in the oscillator should pave the way for a higher exchange rate, but the pair may come up against trendline resistance as it maintains the descending channel from June. Nevertheless, should the BoC talk down speculation for a rate hike, the shift in the policy outlook may threaten the bearish trend in the USDCAD, and we will look for a close above the 200-Day SMA (0.9996) to encourage a bullish forecast for the dollar-loonie.
Oct 20, 2012 03:52 AM
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FOREX ANALYSIS: Canadian Dollar Forecast to Decline
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USDCAD –An aggressive shift in forex retail crowd positioning warns that the US Dollar (ticker: USDOLLAR) may be staging a larger rally against the Canadian Dollar.
Retail short interest in the USDCAD surged 61 percent since last week, while long positions are down a comparable 35 percent through the same period.
A positive technical forecast for the USDCAD and a sharp turn in retail sentiment leave us in favor of further gains.
Oct 25, 2012 03:10 PM
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OctaFX.com-FOREX ANALYSIS: Dollar up on signs US economy slowly improving
Dollar rises against euro, yen on signs that the US economy is slowly improving
NEW YORK (AP) -- The dollar is rising against the euro on signs that the U.S. economy is slowly improving.
The Labor Department says that weekly applications for U.S. unemployment benefits fell last week to 369,000. That's consistent with modest hiring.
The Commerce Department says orders for durable goods rose 9.9 percent in September, mostly due to a spike in aircraft orders. And the National Association of Realtors says its index of home sale agreements rose in September.
The euro fell to $1.2954 in afternoon trading from $1.2973 late Wednesday.
In Britain, the government says the country has emerged from a nine-month recession. The British pound rose to $1.6118 from $1.6036
The dollar rose to 80.11 Japanese yen from 79.78 yen.
Oct 25, 2012 04:48 PM
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OctaFX.com-FOREX - Sentiment Buckles Under Heavy Euro After Spanish Downgrades
News Summary: European Central Bank says private companies borrow less in ongoing weak economy
ASIA/EUROPE FOREX NEWS WRAP
CREDIT CRUNCH: The European Central Bank said Thursday that loans to non-bank businesses in the 17-nation eurozone shrank 1.4 percent year-on-year in September, double the contraction reported the month before.
FRACTURE FEARS: The numbers show the economy is struggling despite efforts by the central bank to stimulate credit and calm financial markets fearful that the eurozone might break up.
NEITHER A BORROWER, NOR A LENDER: Businesses see no reason to borrow to invest in expanding production. Meanwhile, banks in some countries have less to lend AS they struggle to recover from losses on real estate loans and on government bonds.
Oct 25, 2012
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OctaFX.Com - FOREX: Japanese Yen to Resume Down Trend on BOJ Stimulus, US Data
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The Japanese Yen marked its largest five-day drop in nine weeks against the US Dollar at the close of trade on Friday. Much of the selloff reflected speculation about an expansion of stimulus efforts from the Bank of Japan at the October 30 policy meeting, with various sources including Morgan Stanley / Mitsubishi UFJ and Nikkei News tossing around a ¥10 trillion yen estimate for the size of the increase.
While Japanese authorities attempted to pour cold water on reports identifying a specific size of a stimulus, they didn’t specifically talk down the possibility of further accommodation in general.
In the context of recent disappointments on the economic data front, this hints that an expansion of asset purchases may indeed be on the horizon.
On the fiscal side of the equation, the government unveiled a ¥750 billion spending package meant to prevent a sharp retrenchment in public-sector spending as officials struggle to reach a deal on financing legislation that would pave the way for continued bond issuance.
The government spends about ¥2.3 trillion per quarter on average however, hinting the modest size of the fiscal boost will not stave off the impact of forced austerity on economic growth for very long.
That seemingly gives the BOJ further encouragement to act.
Besides homegrown headwinds, the Yen continues to face downward pressure from the overall risk appetite landscape.
The currency’s average value continues to show a significant inverse correlation with the S&P 500, meaning it is likely to broadly rise at times of risk aversion and fall when investor sentiment is on the upswing.
That points the spotlight to the US economic calendar as another potential source of Yen volatility, with a busy docket of top-tier event risk including the ISM Manufacturing print and the all-important Employment report on tap.
US economic data has increasingly topped economists’ expectations over recent weeks, feeding hopes that firming growth in the world’s top economy will help offset a slowdown in Asia and a recession in Europe.
Consensus forecasts call for broad-based improvement across most of the week’s headline data releases, suggesting the path of least resistance favors a pickup in risk appetite that amplifies existing domestically-derived Yen selling pressure.
Oct 27, 2012
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