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Five Key Events Next Week

July 29, 2011
The US debt ceiling remains unresolved at this late date.  The market's response over the past week to Europe's new initiatives is poor as peripheral, including Spain and Italian, bond yields and spreads over bunds widened considerably.  Yet as investors, we must look ahead.
There are five key events next week that will be on radar screens…
Five Key Events Next Week Five Key Events Next Week Reviewed by Marc Chandler on July 29, 2011 Rating: 5
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Torn Between Two Drivers

July 28, 2011
The same two issues continue to vie for dominance in the global capital markets. On one side, there is the unresolved European debt crisis.  The ink is not even dried on Greek 2.0 in the sense that government's need to ratify the agreement and implementation must begin, and already it is evident that to bring Greek debt burden to more sustaina…
Torn Between Two Drivers Torn Between Two Drivers Reviewed by Marc Chandler on July 28, 2011 Rating: 5
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No Closure

July 27, 2011
The US debt ceiling debate continues.  The House vote, initially slated for today, has been postponed.  President Obama's advisers and the the executive branch's Office of Management and Budget were urging a veto of it in any event as it provided for a six month fix only.  Such a short term fix would not have been sufficient to prevent a d…
No Closure No Closure Reviewed by Marc Chandler on July 27, 2011 Rating: 5
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In Ugly Contest, US Moves into the Lead

July 26, 2011
The stalemate in Washington has eclipsed the Greek tragedy to be the main driver of the foreign exchange market.  The US dollar has sold off hard as a credit downgrade and possible default looms closer.  The Aug 2 deadline seems rather soft as indications suggest US government revenues rose recently more than projected and outlays were less than e…
In Ugly Contest, US Moves into the Lead In Ugly Contest, US Moves into the Lead Reviewed by Marc Chandler on July 26, 2011 Rating: 5
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Reflections on Europe's New Initative

July 24, 2011
After staring into the abyss, and reducing risk, investors anticipating a new European initiative spent most of last week putting risk back on.  The details of the European initiative were less important in the first instance than the fact that a new initiative was to be taken.
My general sense is that European officials have bought some time, bu…
Reflections on Europe's New Initative Reflections on Europe's New Initative Reviewed by Marc Chandler on July 24, 2011 Rating: 5
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Note on Private BOJ Briefing

July 21, 2011
The Bank of Japan held a private briefing with a small group of analysts from leading financial institutions in their NY rep office. The Director-General of the Research and Statistics Department led the presentation. Must of the discussion was a summary of what has happened. There was little new or fresh here, but more interesting was some forwar…
Note on Private BOJ Briefing Note on Private BOJ Briefing Reviewed by Marc Chandler on July 21, 2011 Rating: 5
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Fears of Default Send Euro Reeling

July 21, 2011
The optimism of a resolution of the European crisis, especially after Merkel and Sarkozy presented a united front were squashed by Eurogroup head Juncker who first seem to let it slip that a selective default in Greece might take place. 
On Monday, in this space, I suggested the euro would head to $1.4300, sterling $1.42 and the dollar toward JPY7…
Fears of Default Send Euro Reeling Fears of Default Send Euro Reeling Reviewed by Marc Chandler on July 21, 2011 Rating: 5
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Swiss Franc to Parity with the Euro? What are the Odds?

July 20, 2011
While there has been some talk of a Swiss sovereign wealth fund, it might raise more problems than it solves. Companies facing an adverse currency shock typically have two strategies. The first is boosting productivity which helps blunt the loss of competitiveness induced by the over-valued currency. The second is to increase foreign direct invest…
Swiss Franc to Parity with the Euro? What are the Odds? Swiss Franc to Parity with the Euro? What are the Odds? Reviewed by Marc Chandler on July 20, 2011 Rating: 5
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Europe: Don't Forget the Sixth Man

July 20, 2011
In basketball, with 5-person teams, the crowd is often referred to as their "sixth man". (My webmaster, an Ann Arbor Native, would like us all to take a moment and realize this year marks the 20th anniversary of the Fab Five) Ahead of tomorrow's summit, there are numerous proposals being floated that involve modifications to the EFSF…
Europe: Don't Forget the Sixth Man Europe: Don't Forget the Sixth Man Reviewed by Marc Chandler on July 20, 2011 Rating: 5
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Right Noises, Logjams Weaken?

July 20, 2011
Embattled officials in both the US and Europe appear to be making the right noises and this has served to spark a further recovery in most major and emerging market currencies.  The dollar has traded on both sides of yesterday's range against the yen.  Although it has recovered the JPY79 area is now offering resistance.  Elsewhere the Canadian…
Right Noises, Logjams Weaken? Right Noises, Logjams Weaken? Reviewed by Marc Chandler on July 20, 2011 Rating: 5
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The Yen: Still Waters Run Deep

July 19, 2011
Between the looming US debt ceiling and the European debt crisis, the Japanese yen has been largely sidelined. Over the past three sessions, for example, the dollar has been confined to a JPY78.80-JPY79.30 range. The implied 3-month volatility is hovering near 10%, a level that it is has rarely traded below since the financial crisis began around …
The Yen: Still Waters Run Deep The Yen: Still Waters Run Deep Reviewed by Marc Chandler on July 19, 2011 Rating: 5
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Chutes and Ladders

July 19, 2011
The euro is leading the recovery in the foreign exchange market as speculation mounts of a deal at the EU summit later this week.  It has raced to almost $1.4220 after testing $1.40 yesterday. 
There talk suggest three options are being considered: 1)  A debt buyback scheme with credit enhancements for the private sector.  This would seem to trigge…
Chutes and Ladders Chutes and Ladders Reviewed by Marc Chandler on July 19, 2011 Rating: 5
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Euro Crushed, Dollar Firm

July 18, 2011
The US dollar has begun the new week on a strong note, although there appears to have been little progress on the debt ceiling talks.  The European debt crisis is simply eclipsing the US debt situation as there seems to be a a consensus that at the last minute US politicians will find a resolution.  The European debt situation is seen a more intra…
Euro Crushed, Dollar Firm Euro Crushed, Dollar Firm Reviewed by Marc Chandler on July 18, 2011 Rating: 5
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Stress Tests, Debt Talks and More

July 15, 2011
The week will finish with a bang.  European bank stress test results, and what might be the softest headline CPI reading since Q2 last year, the Empire state survey, where the forward looking new orders component may be the most important component, and the ongoing US debt talks. 
Press reports have suggested that 10-15 European banks will be foun…
Stress Tests, Debt Talks and More Stress Tests, Debt Talks and More Reviewed by Marc Chandler on July 15, 2011 Rating: 5
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How to Think about Intervention Risks

July 14, 2011
Officials from Japan and Switzerland have stepped up their rhetoric protesting the price action that has propelled their respective currencies sharply higher. Contrary to market anxiety the risk of intervention remains low and lower for the SNB than the BOJ.
The BOJ has a track record of being more interventionist. Many market participants continue…
How to Think about Intervention Risks How to Think about Intervention Risks Reviewed by Marc Chandler on July 14, 2011 Rating: 5
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Seven Thoughts For Thursday's Capital Markets

July 14, 2011
Capital markets have been buffeted by a number of different forces and volatility is rising.  Here is my sense of their significance. 
1.Misunderstood Bernanke:  I think the market misunderstood Bernanke to the extent that he was understood to break any new ground or signaled an increased likelihood of QE3.  He essentially repeated the main thrust…
Seven Thoughts For Thursday's Capital Markets Seven Thoughts For Thursday's Capital Markets Reviewed by Marc Chandler on July 14, 2011 Rating: 5
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Euro Bounces

July 13, 2011
The main feature today is the euro's strong recovery after falling through the 200-day moving average yesterday and Moody's cutting the Irish rating to below investment grade.  Today is a new day.  The combination of stronger than expected Chinese data, which eases fears of a hard landing,  ongoing talk that the the ECB is buying sovereign…
Euro Bounces Euro Bounces Reviewed by Marc Chandler on July 13, 2011 Rating: 5
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Wider US Trade Deficit Helps Dollar Pare Gains

July 12, 2011
With some positive headlines coming from Europe, including talk of ECB bond purchases after 15 week hiatus, and the US trade figures, the euro bounced to about $1.4020, but selling into bounces is still the most likely course as a resolution of the European debt crisis remains elusive.
The US trade deficit for May came in well above expectations a…
Wider US Trade Deficit Helps Dollar Pare Gains Wider US Trade Deficit Helps Dollar Pare Gains Reviewed by Marc Chandler on July 12, 2011 Rating: 5
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Europe Center Stage

July 12, 2011
The European debt crisis and the policy paralysis continues to dominate the capital markets. The euro has been driven lower, breaking below the 200-day moving average in Europe for the first time since January 12th today, before recovering following respectable bill auctions in Italy and Greece and talk that the ECB broke a couple month hiatus and…
Europe Center Stage Europe Center Stage Reviewed by Marc Chandler on July 12, 2011 Rating: 5
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Europe: Contagion and Containment

July 11, 2011
Tolstoy tells us in the first line of Anna Karenina that "Happy families are all alike; every unhappy family is unhappy in its own way." This is directly applicable to Europe. It is easy to tar all (growing) peripheral countries with the same brush, but that risks over simplification and the faulty analysis may generate poor investment d…
Europe: Contagion and Containment Europe: Contagion and Containment Reviewed by Marc Chandler on July 11, 2011 Rating: 5
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New Week, One Issue Dominates: European Debt

July 11, 2011
There is one main force in the capital markets today and it is European debt crisis.  The crisis is becoming deeper and broader.  Deeper in the sense that the Greek 2.0 is looking more difficult and some reports suggest that if the rating agencies will declare nearly any "voluntary" private sector participation as a "stressed exchan…
New Week, One Issue Dominates: European Debt New Week, One Issue Dominates: European Debt Reviewed by Marc Chandler on July 11, 2011 Rating: 5
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Key Take Away from This Week

July 08, 2011
The key take away from this week is not the weakest US jobs data in nine months. After all, it was well appreciated that for a number of reasons the US economy has lost some momentum in H1. Even the Federal Reserve has acknowledged this. Nor is the take away from the week that European officials have yet to design a way to get the private sector t…
Key Take Away from This Week Key Take Away from This Week Reviewed by Marc Chandler on July 08, 2011 Rating: 5
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Euro Pares Gains Ahead of US Employment Data

July 08, 2011
The US dollar is generally little changed against most of the major currencies, with the notable exception of the euro and Swiss franc, against which the greenback is recouping some of yesterday's losses. 
The word cues in Trichet provided yesterday is suggestive of another rate hike in Q4.  The issue is whether Trichet delivers it at his last…
Euro Pares Gains Ahead of US Employment Data Euro Pares Gains Ahead of US Employment Data Reviewed by Marc Chandler on July 08, 2011 Rating: 5
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Homeland Investment Charade

July 07, 2011
Republicans and Democrats in the US Congress are having a difficult time agreeing on changing a law that will allow the federal government to pay for what it has already spent. However, there does seem to be bipartisan support for giving American companies a tax holiday to repatriate funds that have been kept abroad. The discussion has been taking…
Homeland Investment Charade Homeland Investment Charade Reviewed by Marc Chandler on July 07, 2011 Rating: 5
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Conceptualizing Forces Driving the Euro-Dollar Exchange Rate

July 07, 2011
We identify two main forces that have driven the euro-dollar exchange rate in recent months. The first is the divergent monetary policy trajectories, with the Federal Reserve easing policy through the end of June, while the ECB today delivered its second rate hike in the cycle that began in Q2. We expect the ECB to hike rates at least a couple of …
Conceptualizing Forces Driving the Euro-Dollar Exchange Rate Conceptualizing Forces Driving the Euro-Dollar Exchange Rate Reviewed by Marc Chandler on July 07, 2011 Rating: 5
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Waiting for Godot

July 07, 2011
The US dollar is holding on to yesterday's gains as the market awaits the key events of the week:  the ECB meeting and press conference and the US jobs data--for which the imprecise ADP data will serve as the proxy today ahead of tomorrow's national report. 
While yesterday's free-fall in peripheral European bonds has moderated today, …
Waiting for Godot Waiting for Godot Reviewed by Marc Chandler on July 07, 2011 Rating: 5
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Italy--Still Part of the Periphery

July 06, 2011
Many have long suspected that Greece, Ireland and Portugal are ultimately manageable given the relatively small size relative to the euro zone GDP and institutional capacity of the EFSF. Spain was the real challenge. Yet the price action in recent days warns that beyond Spain, Italy looms even larger.
Over the past five sessions, Italian bonds hav…
Italy--Still Part of the Periphery Italy--Still Part of the Periphery Reviewed by Marc Chandler on July 06, 2011 Rating: 5
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Containment Failure

July 06, 2011
There is only one story today in the capital markets.  As European officials continue to debate private sector participation in Greece's second package, Moody's seemingly caught the market off-guard by slashing Portugal's rating 4-notches late yesterday--keeping it on negative watch and warning it may need a second aid package as well.…
Containment Failure Containment Failure Reviewed by Marc Chandler on July 06, 2011 Rating: 5
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Mexico Snaps Six Day Advance, Correlated with Equities

July 05, 2011
The Mexican peso is losing ground against the dollar today for the first time in seven sessions. The peso's heavier tone is consistent with the generally heavier tone among emerging market currencies today. Concerns about global growth, with softer than expected PMI readings from China and Europe, concern that China may still hike rates, and t…
Mexico Snaps Six Day Advance, Correlated with Equities Mexico Snaps Six Day Advance, Correlated with Equities Reviewed by Marc Chandler on July 05, 2011 Rating: 5
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Consolidative Tone Offers Fragile Support to Dollar

July 05, 2011
The recent pattern is holding.  Fridays tend to be trend days.  There is often some albeit limited follow through on Mondays before consolidation phase sets it.  The foreign exchange market is in that consoldiative phase that began yesterday. 
The euro found support near $1.4460 and looks to probe higher in North America today.  Still the uncertain…
Consolidative Tone Offers Fragile Support to Dollar Consolidative Tone Offers Fragile Support to Dollar Reviewed by Marc Chandler on July 05, 2011 Rating: 5
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Fourth of July Note

July 04, 2011
The US dollar is mixed against the major and emerging market foreign currencies. It is largely consolidating the losses suffered in recent sessions as the Greek government survived a vote of confidence and parliament approved a new austerity program in the face of public protests. 
This led to the EU approval of the next tranche of aid under the pl…
Fourth of July Note Fourth of July Note Reviewed by Marc Chandler on July 04, 2011 Rating: 5
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Dollar Finishing Week Softly

July 01, 2011
The dollar is mixed today, but is set the finish the week on soft footing.   The euro's resilience is notable today in the face of the disappointing news stream.  However, it has not convincingly violated the downtrend line (connecting the early May and early June highs) and comes in near $1.4540-50 today.   

The short-term momentum indicator…
Dollar Finishing Week Softly Dollar Finishing Week Softly Reviewed by Marc Chandler on July 01, 2011 Rating: 5
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