Wednesday, 22 November 2017

Dollar treads water, capped by sagging long-term U.S. yields

TOKYO (Reuters) - The dollar treaded water against its peers on Wednesday, capped as U.S. Treasury yields failed to rise despite increasing investor risk appetite in broader financial markets.

The dollar index against a basket of six major currencies was little changed at 93.941.

The index fell back from a one-week high of 94.165 overnight after a rally triggered earlier this week by a sagging euro stalled as long-term U.S. Treasury yields continued inching lower.

The greenback was a shade lower at 112.280 yen, after slipping overnight from a high of 112.705.

“The dollar should be getting more of a lift against the yen in this ‘risk on’ environment. But what is taking precedence is the adjustment of positions before the Thanksgiving and year-end holidays by participants, resulting in the covering of yen shorts,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Wall Street shares rose yet again to record highs on Tuesday, while Japan’s Nikkei climbed back towards 26-year peaks.

The ongoing flattening of the Treasury yield curve, which has capped long-term yields, is a further drag on the dollar, Daiwa’s Ishizuki said.

The U.S. yield curve flattened to its lowest in a decade on Tuesday, as investors price in the expectation that the Federal Reserve will continue to raise rates while the Treasury is seen increasing short-dated debt issuance. At the same time low inflation and global demand for yield has supported longer-dated debt.

Another factor seen supporting the Japanese yen on a broader level was its recent gains against the euro.

The common currency slumped against its peers at the start of the week as German Chancellor Angela Merkel’s failure to form a three-way “Jamaica coalition” government clouded the country’s political outlook.

“Cross yen pairs recently enjoyed a good run higher. Of these pairs, euro/yen holds a dominant position,” said Koji Fukaya, president at FPG Securities in Tokyo.

“Selling of the euro against the yen gathered momentum as traditional profit-taking before Thanksgiving was joined by market participants dissolving euro longs on the German political news.”

The euro was last 0.2 percent lower at 131.790 yen, having gone as low as 131.160 on Monday to its weakest since mid-September.

The currency market showed little response to comments by Fed Chair Janet Yellen, who said late on Tuesday the central bank is “reasonably close” to its goals and should keep gradually raising U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long and driving unemployment down too far.

Next in focus was the minutes of the Oct. 31-Nov. 1 Fed policy meeting minutes due later in the session, to be evaluated for any new indications that an interest rate hike is likely in December.

The euro was steady at $1.1737 after crawling away from a one-week low of $1.1712 brushed overnight on the political impasse in Germany.

The Australian dollar was 0.1 percent lower at $0.7568 after slipping to a five-month trough of $0.7532 overnight on dovish-sounding Reserve Bank of Australia policy meeting minutes.

The New Zealand dollar was steady at $0.6829 after digesting a surprise increase in October domestic milk production. New Zealand is a top dairy exporter and factors that are considered negative for milk prices tend to hurt the kiwi.

Reporting by Shinichi Saoshiro

Dollar near highs as German political impasse pressures euro

TOKYO (Reuters) - The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029, but was still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1739, nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September’s election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany’s president told the parties they owed it to voters to try to form a government.

“It was primarily a euro weakness story, based on the failure to form a coalition government in Germany,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“Stepping back from the daily activities, the big mountain that we’re still looking to traverse is still tax reform -- what form, and on what timeline,” Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday, which is also a national holiday in Japan.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech later on Tuesday. Minutes from the Fed’s November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89 yen, which was its lowest since mid-October.

The euro was steady on the day against the yen at 132.15 yen, after skidding as low as 131.16 on Monday, its lowest since Sept. 15.

“Ahead of this week’s holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

“But due largely to the euro’s moves, the dollar is holding up,” she said.

The Australian dollar was down 0.2 percent at $0.7536, after falling as low as $0.7529 earlier, its deepest nadir since mid-June.

Minutes of the Reserve Bank of Australia’s (RBA) Nov. 7 policy meeting showed it harboured “considerable uncertainty” about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.

Bitcoin slipped nearly 4 percent on Tuesday after notching a fresh record high of $8,253.

Reporting by Lisa Twaronite

Tuesday, 21 November 2017

Asia stocks hit 10-year high on global growth optimism, dollar strong

TOKYO (Reuters) - Asian stocks rose to a 10-year high on Tuesday as investors took heart from further evidence of strength in the global economy, while the dollar hovered near a one-week high against its peers thanks to higher U.S. yields and a floundering euro.

European markets were expected to be somewhat more subdued in early trade, with financial spreadbetters expecting Britain's FTSE .FTSE to open 0.05 percent higher and Germany's DAX and France's CAC to open unchanged.

Gains on Wall Street overnight helped MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rise 0.8 percent to a fresh decade-high.

Japan's Nikkei .N225 advanced 0.7 percent, while South Korea's KOSPI  rose 0.1 percent and Australian stocks climbed 0.3 percent. Shanghai .SSEC added 0.5 percent and Hong Kong's Hang Seng was 1.3 percent higher.

Equity markets have enjoyed strong support this year thanks to rising corporate earnings on the back of an improving global economy.

That confidence was again on display overnight, with upbeat data in Germany helping the benchmark DAX brush off worries over the collapse of German coalition government talks.

German data showed strong industrial activity, while the Conference Board’s leading economic index for the United States rose 1.2 percent in October, double the rate economists polled by Reuters had expected.

Wall Street was led up by telecom and tech shares, with the Dow .DJI edging back towards record highs scaled two weeks ago. [.N]

In currencies, the dollar index against a basket of six major currencies stood near a one-week peak of 94.104 .DXY touched overnight.

The greenback was boosted by rising bond yields, with the two-year U.S. Treasury yield touching a nine-year high of 1.755 percent overnight.

The yield has risen as investors priced in more interest rate hikes by the Federal Reserve, while the Treasury is expected to increase debt issuance with a focus on short- and intermediate-dated maturities.

"The two-year yield appears to have risen too high now, as the Fed is only likely to hike rates twice at most next year considering current trends in U.S. wages and prices," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar was also lifted as the euro has been weakened by political risks arising from German Chancellor Angela Merkel’s failure to form a three-way coalition government, thrusting Europe’s biggest economy into a political crisis.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

“So another grey cloud has formed over euroland for investors to worry about. The euro may slide more in the days ahead unless a solution to Germany’s government can be found, fast,” wrote Carl Weinberg, chief economist at High Frequency Economics.

The euro inched up 0.1 percent to $1.1745 EUR= but remained near a six-day low of $1.1722 touched on Monday. A week ago, the common currency had rallied to a one-month high of $1.1862 on robust German growth data.

The dollar was steady at 112.545 yen JPY=, having bounced from a one-month low of 111.890 set overnight.

The Australian and New Zealand dollars were both slightly lower at $0.7543 AUD=D4 and $0.6804, respectively.

Oil prices were little changed as expectations of an extended OPEC-led production cut were cancelled out by rising U.S. output.

Brent crude futures were at $62.30 per barrel, 8 cents above their last close. U.S. crude were 3 cents higher at $56.45 per barrel.

Spot gold XAU= crawled up 0.25 percent to $1,279.76 per ounce after sliding more than 1 percent overnight on the dollar’s bounce.

Reporting by Shinichi Saoshiro

Euro rebounds from earlier lows as traders brush off Germany worries

LONDON (Reuters) - The euro recovered from a two-month low against the yen touched in Asian trade on Monday, with investors brushing off broader political risks arising from German Chancellor Angela Merkel’s failure to form a three-way coalition government.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

The development thrust Germany into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government.

But after selling off sharply in early deals in Asia, trading down as much as 0.8 percent to hit 131.16 yen, the euro’s weakest since Sept. 15, the single currency rebounded as much as 1 percent to trade flat on the day, at 132.18 yen.

“What usually happens after any news at the weekend is that Asian trading tends to be a bit less liquid, and that can exaggerate the scale of the moves; when Europe came in, markets took a more level-headed approach,” said MUFG currency strategist Lee Hardman, in London.

“There’s a bit of uncertainty – we don’t know what the next step is going to be, whether it’s going to be a minority government or fresh elections - but in terms of the bigger picture I don’t see any significant change in how you value the euro,” he added.

If there were another election in Germany, the far-right, anti-immigrant Alternative for Germany (AfD) party could add to the 13 percent of votes it secured in September. But the parliamentary process required to get through another election is considered to be quite difficult, involving more than one vote in the German parliament.

The dollar had also sold off against the yen - generally sought at times of uncertainty - in Asian trading, dipping to a one-month low JPY=. But it turned higher against the Japanese currency in European trading, up 0.1 percent at 112.14 yen.

The euro fell as much as 0.5 percent against the dollar in Asian trading to $1.1722 EUR=, pulling away from a one-month high of $1.1862 set on Wednesday last week. But it recovered to trade flat on the day at $1.1789 in London trade.

“There’s no panic in the market at all – it’s really a European story,” she added. “We’re not seeing a broad risk-off move here,” said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

Bitcoin was trading at just above $8,000, after hitting a record high of $8,087 on the Luxembourg-based Bitstamp exchange on Sunday.

Many analysts expect this to be a relatively calm week of trading, with U.S. markets closed for the Thanksgiving holiday on Thursday and with few major data releases.

Reporting by Jemima Kelly

Monday, 20 November 2017

Asia stocks wilt as China weakness dims mood, euro skids

TOKYO (Reuters) - Asian shares pulled back on Monday, with investor sentiment hurt by a retreat on Wall Street and a slide in Chinese stocks, while the euro skidded after German coalition talks hit an impasse.

Spreadbetters predicted the gloom would spread to European openings, with Germany's DAX .GDAXI and France's CAC  each seen down 0.5 percent and Britain's FTSE expected to fall 0.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan, was off its session lows but still down 0.1 percent.

Japan's Nikkei stock average .N225 finished down 0.6 percent.

“It’s year-end season, so people have more incentive to take profits,” said Kyoya Okazawa, Hong Kong-based head of institutional clients, APAC at BNP Paribas Securities.

“This week and next week, more profit-taking is coming, especially whenever some negative news comes out,” he said.

“Long-only clients overseas are looking at the Japanese equity market, because they’ve been a little bit underweight, and there is still some room to add Japanese equities going forward.”

China stocks clawed their way off session lows but were still down, after Beijing set sweeping new guidelines to regulate asset management products. Analysts said that could dampen investor appetite for riskier assets.

The Shanghai Composite index .SSEC was down 0.5 percent, while China's blue-chip CSI300 Index .CSI300 fell 0.2 percent.

“The new guideline is not the last shoe to drop, or the last piece of bad news,” said Li Huiyong, an economist at Shenwan Hongyuan Securities. “The era of tough financial supervision has just begun.”

On Friday, the Dow Jones Industrial Average .DJI shed 0.4 percent, the S&P 500 lost 0.3 percent and the Nasdaq Composite  was down 0.2 percent.

The U.S. House of Representatives on Thursday passed their version of a tax overhaul bill that would cut corporate taxes, but the Senate continued to wrangle over its rival tax bill, with investors uncertain about whether Congress will be able to reach a compromise.

Against the yen, the dollar edged up 0.1 percent to 112.10 JPY=, after earlier falling as low as 111.89, its lowest since Oct. 16.

The dollar index, which tracks the greenback against a basket of six rival currencies, added 0.4 percent to 93.987 .DXY, as the euro fell 0.5 percent to $1.1734 EUR=.

Talks among four German parties seeking to form a coalition government following an election that weakened Chancellor Angela Merkel broke down on Sunday after the pro-business Free Democrats (FDP) pulled out, citing irreconcilable differences.

The decision by the FDP means that Merkel will either seek to form a minority government with the Greens or a new election will be held.

“It’s not a total surprise, and this kind of political change will not derail the German economy,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

“We are seeing this kind of reaction in the Asian session, but we need to see how Europe will react to this news later.”

He noted that emerging currencies, which are “usually the biggest victims of risk aversion, are not really falling.”

Position unwinding ahead of this week’s U.S. Thanksgiving holiday could keep the dollar’s gains in check, market participants said.

With the market nearly fully pricing in an interest rate increase by the Federal Reserve next month, speculators cut their bearish bets on the dollar for the seventh straight week.

The net negative value of positions against the greenback fell to a four-month low in the latest week, according to calculations by Reuters of data released by the Commodity Futures Trading Commission (CFTC) on Friday.

Lower benchmark U.S. Treasury yields also restrained the dollar, as the yield curve continued to flatten. The 10-year Treasury yield stood at 2.327 percent in Asian trade, down from its U.S. close of 2.354 percent on Friday.

Yields briefly rose on Friday, with those on 2-year notes hitting a fresh nine-year peak, after U.S. housing starts surged 13.7 percent to their highest since October 2016.

Spot gold XAU= was down 0.2 percent at $1,291.54 an ounce, after it jumped to a one-month high on Friday as the dollar softened amid tax reform uncertainty.

Crude oil futures were mixed. Brent crude oil dipped 10 cents, or 0.2 percent, to $62.62 a barrel, while U.S. crude CLc1 added 7 cents, or 0.1 percent, to $56.62 a barrel.

Oil rebounded more than 2 percent on Friday after falling for five straight session as a major U.S. crude pipeline was shut and traders anticipated an OPEC deal to extend curbs on production.

But crude prices still fell for the first week in six, pressured by rising U.S. output data and doubts that Russia would support an extension of the OPEC output cut deal.

Reference: Lisa Twaronite

Sunday, 19 November 2017

Fed's Williams joke shows how a novel policy could work, or fail

BERKELEY, Calif. (Reuters) - Economists presenting at a conference earlier this week blew through the organizers’ four-slides-per-speaker limit, and the host, San Francisco Fed President John Williams, vowed to take action.

“I am going to try, over the rest of my time at the Fed, to undo that damage by not showing any slides,” he said on Saturday at a separate conference at the University of California, Berkeley.

His joke elicited chuckles from the audience of scholars who had suffered through an immense number of equation-packed slides at the San Francisco Fed’s just-concluded conference.

By paying for that excess with a promise not to show any slides himself, Williams said, he hoped to ultimately bring the total number back in line with the original limit.

The approach neatly illustrates the logic behind a bold and nearly untried monetary policy idea that Williams has lately embraced.

The idea, known as price-level targeting, calls for a central bank to make up for bouts of low inflation by encouraging high inflation later on.

It differs from the Fed’s current approach of targeting inflation at 2 percent while taking a position of “let bygones be bygones” to past periods when it is above or below that level.

Williams, Chicago Fed President Charles Evans and former Fed Chair Ben Bernanke have in recent months championed price-level targeting as a way to give central banks more scope to combat a severe downturn when merely cutting interest rates is not enough.

If people believe the central bank will stick to this policy, they will try to spend what they can during a downturn, before their money’s value is eroded by future inflation. That spending will itself pull the economy from recession faster, shortening any future period of high inflation induced by the central bank.

If such a policy were put in place now, the Fed would need to allow inflation to run at 3 percent, about twice as high as it is today, for about the next five years.

But the idea that the Fed would subject Americans to such a paycheck-draining policy strains belief, critics say.

“I find that quite implausible,” former Minneapolis Fed President Narayana Kocherlakota said earlier this week.

One economist at the Saturday conference said: “We’d probably bail on the policy halfway through.”

Williams completed his 15-minute talk there without showing a single slide. It remains to be seen whether he will stick to his policy in the 10 years before he reaches the Fed’s mandatory retirement age.

Reporting by Ann Saphir

Friday, 17 November 2017

What is The Elliott Wave

An Educational Article

Ralph Nelson Elliott developed the Elliott Wave Theory in the late 1920s by discovering that stock markets, thought to behave in a somewhat chaotic manner, in fact traded in repetitive cycles.
Elliott discovered that these market cycles resulted from investors' reactions to outside influences, or predominant psychology of the masses at the time. He found that the upward and downward swings of the mass psychology always showed up in the same repetitive patterns, which were then divided further into patterns he termed "waves".

Elliott's theory is somewhat based on the Dow theory in that stock prices move in waves. Because of the "fractal" nature of markets, however, Elliott was able to break down and analyse them in much greater detail. Fractals are mathematical structures, which on an ever-smaller scale infinitely repeat themselves. Elliott discovered stock-trading patterns were structured in the same way.
Market Predictions Based on Wave Patterns.

Elliott made detailed stock market predictions based on unique characteristics he discovered in the wave patterns. An impulsive wave, which goes with the main trend, always shows five waves in its pattern. On a smaller scale, within each of the impulsive waves, five waves can again be found. In this smaller pattern, the same pattern repeats itself ad infinitum. These ever-smaller patterns are labelled as different wave degrees in the Elliott Wave Principle. Only much later were fractals recognized by scientists.

In the financial markets we know that "every action creates an equal and opposite reaction" as a price movement up or down must be followed by a contrary movement. Price action is divided into trends and corrections or sideways movements. Trends show the main direction of prices while corrections move against the trend. Elliott labelled these "impulsive" and "corrective" waves.

Theory Interpretation
The Elliott Wave Theory is interpreted as follows:
Every action is followed by a reaction.
Five waves move in the direction of the main trend followed by three corrective waves (a 5-3 move).
A 5-3 move completes a cycle.
This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.
The underlying 5-3 pattern remains constant, though the time span of each may vary.

Theory Gained Popularity in the 1970s
In the 1970s, this wave principle gained popularity through the work of Frost and Prechter. They published a legendary book on the Elliott Wave entitled "The Elliott Wave Principle – The Key to Stock Market Profits". In this book, the authors predicted the bull market of the 1970s, and Robert Prechter called the crash of 1987. (For related reading, see Digging Deeper Into Bull And Bear Markets and The Greatest Market Crashes.)

The corrective wave formation normally has three distinct price movements - two in the direction of the main correction (A and C) and one against it (B). Waves 2 and 4 in the above picture are corrections. These waves have the following structure:

Note that waves A and C move in the direction of the shorter-term trend, and therefore are impulsive and composed of five waves, which are shown in the picture above.
An impulse-wave formation, followed by a corrective wave, form an Elliott wave degree consisting of trends and countertrends. Although the patterns pictured above are bullish, the same applies for bear markets where the main trend is down.

Series of Wave Categories
The Elliott Wave Theory assigns a series of categories to the waves from largest to smallest. They are:
Grand Supercycle
To use the theory in everyday trading, the trader determines the main wave, or supercycle, goes long and then sells or shorts the position as the pattern runs out of steam and a reversal is imminent.

Reference: Investopedia