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... from IDEApro Suite
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[INT] FX Alert GO SHORT GBPJPY
GO SHORT GBPJPY
When we look around the majors to find a trade recommendation that will give us the best bang for our buck, we believe going short GBPJPY is the option to choose. We feel that the recent run-up of GBP, brought on by UK's budget proposal and BOE's Sentance's comments about hiking rates, will be short-lived as the budget cuts will strangle growth in the UK eventually. The tax increases and spending cuts, projected to total about 135 billion pounds over the course of several years, will reduce UK's GDP figures. Additionally, hopes of revenue expected to come through trade will be dampened as UK's European trading partners are experiencing fiscal austerity measures as well. The Office of Budget Responsibility (OBR) estimates that 1.3 million jobs will be lost, with 600k coming from the public sector, and 700k coming from the private side. Yet, the same office believes that the economy will grow 2.3% in 2011 and 2.8% a year for the next four years. This may be too optimistic as some analysts expect a 1% GDP growth next year. There is even talk of more quantitative easing if the economy doesn't jumpstart.
With US and macro data coming in more on the weak side, talk of double dip is gaining traction. The risk aversion theme will definitely weigh on the majors, with USD and JPY benefiting as safe haven plays. Lately, the JPY appears to be the stronger beneficiary. That is why we rather opt to short GBPJPY as opposed to GBPUSD.
We can recommend shorting the commodity currencies too if risk aversion dominates, but we feel that the risk sentiment can turn on a dime, especially if nonfarm payroll on Friday shows a better than expected increase in private job hiring. We can short GBPCHF given CHF safe haven status and SNB lack of concern for deflation; however, we're afraid that the SNB may intervene to weaken the Swissie if CHF gets too strong. We feel there are better odds of an SNB intervention compared to a BOJ intervention.
The risk aversion theme, coupled with our prognosis that the UK economy will deteriorate given its budget issues, should see a weaker GBP. The same can be said about the euro; however, EURUSD has been relatively resilient despite the fear of a relapse in this global recovery story. Moreover, EURJPY, trading around 108, is at its recent lows. We expect GBPJPY to trade down to 130, then to 128, in the next 3 months.
Kevin Chau, CFA Eric Feld
FX Strategist Senior Account Manager
kchau@ideaus.com efeld@ideaus.com
(212) 835-1330
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... from IDEApro Suite [USD] FX Alert- AUGUST NON-FARM PAYROLLS DECREASE -54K--The August Labor Department employment situation report revealed a decrease of -54k in non-farm payrolls, versus the revised -54k decrease that occurred in July (prev. -131k), above market expectations for a -105k decrease. This comes alongside a modest increase unemployment rate of 9.6%, driven by an increase in the civilian labor force. Meanwhile, average hourly earnings came in +0.3% m/m (+1.7% y/y), versus the unrevised +0.2% m/m (+1.6% y/y) increase seen in July. Meanwhile, average weekly hours held unchanged at 34.2 in August. According to the release, the headline reading was weighed down by the unwinding of census activity, reflected in a -111k decline in Federal Government jobs. Private sector jobs increased +67k, showing some deceleration from the stronger increase seen in July. Overall, a mixed bag, though clearly weighed boosted by employment revisions (net +123k increase for June and July).
9/3/2010 7:23:06 PM
Read [CAD] FX Alert-CA DEFICITS AND BANK BALANCE SHEETS?-Currently a major concern for the advanced economies is that their banks are not lending. Clearly at face value the abundance of excess money sitting on deposit at central banks suggests that this is not a liquidity issue. For Spanish banks with many questioning the quality of the government debt they hold, they have been locked out of the wholesale funding markets and liquidity remains more of a concern. But it is noticeable that some of these problems are less prevalent in other advanced economies such as CAD and AUD, because their banks have not had to repair their balance sheets to the same extent. So issues related to tier one capital was much more relevant to the UK and German banks than those in AUD or CAD. The latest EUR bank stress tests and the ability of US banks to repay TARP funds suggests the equity raising capital process is no longer a significant hurdle to increased lending. Hence we look at why banks may still be reluctant to lend and what macro factors is likely to influence their willingness to lend in the future.
8/18/2010 8:32:02 PM
Read [USD]FX Alert JUNE US TICS REPORT: $44.4 BLN OF NET INFLOW--US Treasury's June TICS data on long term international securities revealed a net inflow of $44.4 bln vs. a revised inflow of $35.3 billion in May and market expectations of $45.7 bln inflow. June's net inflow wasn't enough to cover the month's trade deficit of $49.9 bil. The total net TIC flows, including short-term assets, showed an outflow of $6.7 bln, compared to a revised inflow of $17.1 bln in May. Foreigners bought US T-bills in the amount of $12.4 bil, compared to a sale of $9.3 bil in May.
8/16/2010 7:39:21 PM
Read [USD] FX Alert: What will determine outlook for JPY--Earlier this year one of the most high conviction views in the FX markets amongst some strategists was that USDJPY would end up rising as JPY began to be used as a funding currency for the global recovery. Instead USDJPY is now testing multi-year record lows (i.e. USDJPY has hit its lowest level this year after the non-farm payroll when it dipped into 85 territory). USDJPY usually trades with the US 2Yr bond yields and the Nikkei. But with US 2Yr yields at a record lows, if USDJPY is to break below 85 it will probably be on Fed moving towards QE.
8/9/2010 8:28:07 PM
Read [USD] FX Alert-JULY NON-FARM PAYROLLS DECREASE -131K-The July Labor Department employment situation report revealed a decrease of -131k in non-farm payrolls, versus the revised -221k decrease that occurred in June (prev. -125k), below market expectations for a -65k decrease. This comes alongside no change in the unemployment rate of 9.5% (lowest reading since July 2009), below expectations for an increase to 9.6%. Meanwhile, average hourly earnings came in +0.2% m/m (+1.8% y/y), versus the revised unchanged m/m (+1.8% y/y) increase seen in June (prev. -0.1% m/m, +1.7% y/y). Meanwhile, average weekly hours pushed higher to 34.2 in July (up from 34.1 in June). According to the release, the headline reading was weighed down by the unwinding of census activity, reflected in a -154k decline in Federal Government jobs. Private sector jobs increased +71k, showing some improvement from the more modest gains seen in June. Overall, a mixed bag, though clearly weighed down by employment revisions (net -97k decline for May and June).
8/6/2010 7:17:53 PM
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