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Written by Kathy Lien, Chief Strategist DailyFX
For the first time in 4 years, non-farm payrolls dropped on a month to month basis.  The July number was also revised down from 92k to 68k.  This is a very bad contraction and gives the Fed no choice but to cut interest rates on September 18.  The choice is now between 25 or 50bp and at this point, a half point cut is a real possibility.Even though Fed officials were hawkish yesterday, they cannot stop ignoring the fact that the subprime and credit crisis has indeed hit the real economy.  Americans are feeling the pain and this will translate into weak consumer spending which will drive speculation for a possible recession.  The most immediate impact of the news is on carry trades and USD/JPY which has fallen more than 100 points after the number. The prospect of slowdown in the US economy is likely to make investors much more risk averse going forward.  The dollar is also lower against the Euro and British pound. The one possible offset to further weakness in USD/JPY could be a sharp rally in the US stock market but even that may not be enough.

A weak number was expected but not one this bad. The laundry list of why non-farm payrolls could have been weak was endless.  The employment component of the service sector ISM report released yesterday dropped back into contractionary territory for the first time since September 2003 to match the lowest level seen since March of that year.  At that time, payrolls increased by a mild 81k in September and dropped by 196k in March.
Source: DailyFX

Written by Boris Schlossberg, Senior Currency Strategist, DailyFX

Talking Points

• Japanese Yen: off the lows after Watanabe comments • Euro:  Recovers slightly from 1.3600 breakdown but EZ retail sales weak • Pound: Services PMI surprises to the upside • Dollar: ADP could be key Plenty of seesaw action today as high yielders first rallied in Asia, then dropped after cautious comments  on sub-prime risk by newly appointed FSA chief Watanbe sent the Nikkei plunging, only to recover once again as European markets opened for business. Japan’s chief financial negotiator Yoshimi Watanabe made headlines today when he stated that he will  monitor credit market losses carefully, which alarmed Asian investors sending the Nikkei sharply lower and lifting the yen in the process.  Many of the high yieders were sold hard on the yen crosses and as a result of the liquidation euro, pound and the commdolars all weakened against the greenback.

However, the start of European trade stabilized the market with the pound particularly boosted by better than forecast PMI services numbers. Services sector activity increased to 57.6 during August- significantly higher than market expectations of 56.5. The PMI service news comes on the heels of better manufacturing PMI data as well suggesting that despite the turmoil in the capital markets and a multi-decade high exchange rate the UK economy continues to fire on all engines.

Today’s data is unlikely to move BOE to hike rates at this week MPC meeting, but does increase the chances of 6% rates before year end. For the time being  BOE chief Mervyn King and company are far more likely to focus on the state of UK money markets which continue to be very jittery with sterling 3 month Libor rates still unusually high as banks remain wary of extending credit. Nevertheless, should capital markets stabilize, UK along with Australia, will offer the strongest prospect of a rate hike this year, amongst industrialized nations as both economies continue to performing above expectations.

Finally in US today, traders will get a preview of Friday’s NFP data via the ADP report. Although the two datasets have diverged in the past, the most recent ADP readings have tracked the BLS report quite well. Most notably ADP accurately forecast the weakness in last months numbers and if it once again suggests a sub-100K print in the NFP’s the pressure on the Fed to lower rates will escalate. That may in turn rally US stocks helping to put the bid back in the high-yielders as risk appetite will return.

Resources To learn more about forex trading, please watch our 20 minute currency trading tutorial, or visit our forex blog for additional trading updates.
Source: DailyFX

Written by Terri Belkas, Currency Analyst DailyFX

Interest rates have a huge impact on forex trading, and currently, central banks have been on edge as volatility in the financial markets may have derailed plans for further monetary policy tightening. Over the course of the next week, a total of four central banks will meet and announce their rate decisions, and the Australian dollar, Canadian dollar, Euro, and British pound could all be subject to a jump in volatility as the RBA, BOC, ECB and BOE all continue to hold a hawkish bias. However, only one bank shows a substantial risk of an imminent hike this week. Who will it be? Also, what will the Federal Reserve’s next move be?The chart below highlights which central banks we consider to have the most severe tightening bias and more importantly, which are the most likely to increase interest rates in the near term. While all of them have demonstrated a hawkish stance lately, certain factors pertinent to their respective economies leave banks, such as the European Central Bank, prone to earlier action.

Federal Reserve: The Rate Decision That Will Be Heard Around the World Rate Announcement: September 18, 2007 at 18:15 GMT Bias: Possible Rate Cut

The US markets have made it very clear that they are begging for a rate cut on September 18th, and the stakes are quite high for the Federal Reserve, as a continued liquidity crunch threatens to severely impair financial operations and economic growth. The Federal Reserve has taken many measures to try to stem some of these pressures, as they lent billions of dollars of temporary reserves to the banking system and also went so far as to cut its discount rate by 50 basis points to 5.75 percent on August 17th in an attempt to help distressed banks borrow money.

Nevertheless, Ben “Helicopter” Bernanke could be coming in with additional assistance for the markets, and he will have the opportunity to discuss his next move with the rest of the FOMC and central bankers from the Bank of England and the Bank of Japan (European Central Bank President Jean-Claude Trichet cancelled his appearance this morning) on August 31st at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming. Currently, Fed fund futures are pricing in a 25 basis point rate cut on September 18th and as many as three rate cuts are expected by year end. However, any commentary by Bernanke that sways investor sentiment on coming monetary policy will shift market expectations and spark major price action. Traders should also keep in mind that Bernanke and other policymakers attending the conference could also be quoted over the course of the weekend events, which may be reflected in the markets on Monday.

Next Week Is Full of Central Bank Decisions – Who Is at Risk of Raising Rates, and Who Isn’t?

Reserve Bank of Australia – No Hike This Month, But Tightening Bias Remains Rate Announcement: September 4, 2007 at 23:30 GMT Bias: No Change

On August 8th, the RBA raised rates 25bp for the first time since last November, lifting the overnight cash rate to an 11-year high of 6.50 percent. The move was widely expected after inflation figures for the second quarter came in stronger-than-estimated at 2.1 percent. The bank’s bias going forward was considered to be hawkish as well after RBA Gov. Glenn Stevens said in his policy statement that “the high CPI outcome for the June quarter indicated a less favorable near-term outlook, with the implication that any further increases in inflation would take place from a higher starting point than previously envisaged.”

Furthermore, with unemployment rates holding at 33-year lows of 4.3 percent and domestic data signaling resilient growth in demand and activity, the RBA may remain concerned that strong economic conditions will put upward pressure on inflation. However, in order to preserve stability, the bank will likely want to gauge the impact of past policy actions before considering hiking again. The next round of CPI data not due out until late-October, but interest rate swaps are currently pricing in a 25 basis point hike before year end, creating the potential for an increase in November. Bank of Canada – Neutral Stance Until 2008 Rate Announcement: September 5, 2007 at 13:00 GMT Bias: No Change

The Bank of Canada sprung no surprises on July 10th when they raised rates by 25 basis points to 4.50 percent, but the central bank was widely perceived to have maintained as a hawkish bias when they said in their post-meeting policy statement that “some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term,” citing “excess demand” in the economy that could lead inflation to peak at 3 percent this year. However, recent volatility in the financial markets, which has taken a particularly harsh toll on Canadian commercial paper markets, has also deferred rate hike expectations until 2008 from previous estimates of a September rate increase. Indeed, Bank of Canada Deputy Governor Pierre Duguay recently said,”given recent events in global credit markets, we need to assess the extent to which the risks around our July projections have shifted.”

Furthermore, economic data doesn’t signal an urgent need for monetary policy tightening, as retail sales for the month of June recently plummeted a greater-than-estimated 0.9 percent. Also, the Bank of Canada’s core CPI measure eased closer to their 2.0 percent inflation target to 2.3 percent, down from 2.5 percent the month prior. On the other hand, the unemployment rate fell to a fresh 33-year low of 6.0 percent in July, creating the potential for increased consumption and tighter capacity. Given these upside inflation risks, the Bank of Canada is anticipated to raise interest rates once again in early 2008. European Central Bank – 25bp Hike Priced In, But Will Trichet Delay It Until October? Rate Announcement: September 6, 2007 at 11:45 GMT Bias: No Change, But Chance of Rate Hike

Though European Central Bank President Jean Claude Trichet and his fellow policy makers were supposed to be on their summer break, the group surprised the market on August 2nd by calling an impromptu press briefing after their monetary policy meeting in Frankfurt. As expected, the bank left rates steady, and the policy brief made sure to repeat the upbeat forecast for growth and projected “upside risks to price stability over the medium term.” Nevertheless, it was the reinsertion of the phrase “strong vigilance” that garnered all of the attention. Since the European Central Bank began raising interest rates, these two words have preceded a rate hike with 100 percent accuracy.

Over the past two weeks, however, Trichet has started to backpedal as volatility in the financial markets has weakened the case for an aggressive policy tightening stance. On August 28th, Trichet commented, “What I said on the second of August was before the market turbulence…the next assessment is to be made on September 6. We will then have to assess all of the elements of…the economy. We will assess the risks…and will take the appropriate steps at that moment.” Though a rate hike by the European Central Bank is certainly not off of the table, Trichet has made it clear that his decision has not been made quite yet, and the status of the financial markets up until the meeting will likely play a large role in whether or not he goes through with a 25 basis point hike to 4.25 percent. Bank of England – Has the Tightening Cycle Come to an End? Rate Announcement: September 6, 2007 at 11:00 GMT Bias: No Change

As expected, the Bank of England’s Monetary Policy Committee announced on August 2nd that it was leaving the nation’s overnight lending rate unchanged at 5.75 percent. The pass came as little surprise to both economists and market participants as the central bank had lifted the overnight cash rate by 25 basis points at its previous gathering on July 5th. Nevertheless, the bank was perceived as remaining unabashedly hawkish, especially following the publication of the Bank of England’s quarterly inflation report, where it warned that inflation risks were “slightly on the upside” and forecasted that without an increase in rates to 6 percent, inflation was likely to continue overshooting its 2 percent target.

This perception of a tightening stance remained until inflation figures for the month of July were released. Headline CPI surprisingly plummeted below the Bank of England’s inflation target to a reading of 1.9 percent from 2.4 percent, effectively negating one of the central bank’s main reasons for tightening monetary policy further. Moreover the MPC minutes reflected a 9-0 for no change in rates at its August meeting, and also showed that most members emphasized they had no firm view on whether rates would need to rise further. As a result, the Bank of England is likely to follow the market’s lead, which is currently pricing no change in interest rates before year-end.

In Case You Are Wondering:  What Are The Rest Of The Central Banks Doing?

Reserve Bank of New Zealand – On Hold Until Further Notice Rate Announcement: September 12, 2007 at 21:00 GMT Bias: No Change

On July 26th, Reserve Bank of New Zealand Governor Alan Bollard announced the bank’s fourth consecutive 25 basis point interest rate hike, which brought the overnight cash rate to a staggering 8.25 percent – the second highest amongst Aaa-rated countries (Iceland’s rates are the highest) and a new nine-year high in its own right. In the bank’s subsequent policy statement, Bollard said, “New Zealanders have been showing early signs of moderating their borrowing,” and provided that this trend continues “the four successive rate increases delivered will be sufficient,” signaling that the tightening cycle may be over.

Though the market and economists were aligned in their expectations of the policy decision, the central bank’s stubbornly hawkish streak has received substantial opposition, as the surge in interest rates helped push the New Zealand dollar to multi-decade and record highs against its major counterparts, incurring much damage to the country’s exporters. Supporting the notion that interest rates have grown excessive are a number of consumer, business and inflation reports. Local firms have arguably suffered the most with the high rates through costs incurred through loans and demand, with sentiment surveys like the quarterly NZIER Business Opinion gauge and the monthly ANZ Business PMI reporting a pessimistic turn en masse. As a result, markets are pricing in steady rates throughout the rest of the year, as expansion could suffer quite heavily with the economy operating in such tight monetary conditions.

Swiss National Bank – Rate Normalization Schedule Intact Rate Announcement: September 13, 2007 at 12:00 GMT Bias: No Change

As expected, the Swiss National Bank voted to raise the target range for the three-month Libor rate 25 basis points to 2.00 – 3.00 percent at the conclusion of its June 14th meeting. The commonly quoted 2.50 percent average marks a six-year high and the seventh increase in the past two years for the benchmark lending rate. While inflation was well below the central bank’s self-imposed 2.0 percent limit, the heady pace of economic expansion over the past few quarters kept the threat of a rebound in price growth at hand.

While headline inflation has remained remarkably tepid at an annualized rate of 0.8 percent, but the import and producer price index recently hit 11 month highs, and these undercurrents have not escaped the vigilant eye of policy officials. In the statement following the announcement of June’s hike, President Roth intensified his hawkish language, leading the investment community to price in further hikes down the line. Furthermore, recent volatility in the financial markets is unlikely to dissuade Roth from normalizing rates, as he said on August 20th, “We hope that volatility stays higher. What we had was not normal, namely, practically no volatility…Markets cannot be a one-way street, or you will get excess.” With a 25 basis point rate increase priced in for the September meeting, traders will likely be proved correct as the Swiss National Bank keeps their rate normalization schedule intact. Bank of Japan – 25bp Priced In Despite Clear Government Opposition Rate Announcement: September 19, 2007 at approximately 4:00 GMT Bias: No Change

For the past six months, the Bank of Japan has kept interest rates unchanged at 0.50 percent - by far the lowest overnight lending rates amongst the industrialized countries. The Bank’s neutral stance has not been entirely surprising as CPI has consistently indicated that the Japanese economy is still in deflation, as Tokyo core CPI (excluding fresh food and energy) recently fell -0.3 percent on an annual basis, marking the sixth consecutive month of contracting prices. Nevertheless, Fukui is widely perceived as remaining determined to secure his legacy of “normalizing” monetary policy after successfully putting an end to zero-interest rate policy (ZIRP) in 2006, despite major resistance from political and fiscal officials. In fact, LDP Secretary General Hidenao Nakagawa – who is under pressure to resign – directly blamed previous BOJ rate hikes for the LDP losses in July’s upper house election, saying that the bank left the government unable to achieve its growth target.

With consumption growth still very tepid, traders only see a 13 percent chance of a rate hike at the bank’s September meeting. However, the interest rate curve is pricing in one rate hike by the end of the year, and it appears that a return to positive price growth is all that is needed for Fukui to feel vindicated in continuing rate normalization this year.

Source: DailyFX

Written by Boris Schlossberg, Senior Currency Strategist, DailyFX

Talking Points

• Japanese Yen: off the lows but demand for carry persists
• Aussie: Continues to be bid as private capital expenditure climbs
• Euro:  Retail PMI bounces above 50 but unemployment indicates peak may have been reached
• Pound: Housing remains strong
• Dollar: GDP on tap
Generally a quiet night in the currency markets but the greenback was boosted by several reports that the Fed may not necessarily cut rates at the upcoming September 18th meeting of the FOMC.  Two famous Fed watchers – Greg Ip of the Wall Street Journal and Bloomberg’s John Berry both suggested that the Fed may stand pat in light of the fact that global markets appear to have stabilized after the US Central Bank cut the discount rate by 50% last Friday.

The assumption that markets will remain stable is a  huge one t make. Nothing will bring back the specter of a rate cut faster than a 1000 point drop in the Dow. Indeed the lack of  Fed cut may precipitate further weakness in equities forcing the Fed’s hand to loosen monetary policy. However, for the time being with the Dow comfortably holding the 13,000 level, the interest rate story may become the new dominant trading theme in the currency market next week.

For the past two weeks, all of FX trading has been governed by one dynamic only – risk or no risk. As carry trade rallied the dollar gained against the yen and lost against all other G10 currencies. As risk aversion swept the market the reverse took place. Tonight for the first time  since turbulence hit the credit markets, the dollar held its own against the yen while gaining on all of it G10 counterparts as interest rate differentials once again came into focus. Indeed, if the Fed holds rates steady while the ECB shies away from a rate hike next week, the greenback may see more strength as the rate spread between the two currencies will not contract any further for the time being.

There is good reason to believe that the ECB may remain stationary in September.  It appears as though EZ growth may have peaked earlier in the year as today’s eco data showed that German unemployment rolls were reduced by smaller than expected –15K.  Conditions in the 13 member region remain expansionary but with growth decelerating  the ECB  may feel pressure to maintain a neutral monetary policy until it sees stronger signs of a pick up in demand.

Meanwhile US sees Q2 GDP revisions which are expected to raise the growth rate above 4%.  The GDP figures however are backward looking and it will be interesting to see how equity markets react to the notion of no rate cut. If stocks hold firm the greenback may see more bids on the assumption that the worst of the credit market volatility is behind us – but we are skeptical that this will indeed be the case as we head into the fall.

I’m happy to announce that today I have introduced a new web design on Mataf.net that better showcases the technical analysis and the trading tools.
I work on this development since 1.5 month. I tried to improve the navigation and the different tools.

I’m sure you’ll appreciate!

Synthesis Bank give a permanent access via your computer to real-time exchange rates (+Gold and Silver), plus news, analyses and advice with the WinningTool.

What and how
The leading Swiss on-line bank gives you the option to personalise a handy tool that allows you to receive exchange rates, market news and daily analyses and advice in real time.

Winning Tools also informs you of the market opening hours.

Many brokers held credits and debits interest on open positions. It could be calculated on overnight positions or in real time.

Interests are calculated with the difference between interest rate of the two currencies you trade. For example if you trade Euro Dollar, the concerned central banks are ECB (European Central Bank) and FED (Federal Reserve). If the ECB’s rate is 2.25% and FED’s rate is 4.25% the difference is -2%. A long (buy) position on Euro Dollar will generate a 2% debit interest on your account, a short position will generate a credit interest of 2%.

I had a Interest rates calculator in the trading tools. The interest is calculated with the duration and the size of your position.

We open a new forum & chat specially designed for traders.

I hope this will help us to discuss about money & risk management, strategies, technical analysis… etc.

http://www.mataf.net/en/forums

Today a short term reverse is expected on Euro Dollar. The price is just bellow the 20 weeks moving average (GBP USD is in the same configuration).

Our trading plan will be :
Short on EUR USD and long on USD CHF. We will protect this trade with a long on GBP USD

Today I’ll follow USD downtrend with a long position on GBP USD and two short positions on USD CHF and USD JPY. I’ll cover those trades with a short position on EUR USD.

If the dollar continues to fall I should make profit on three trades.
If the dollar reverse I will lose on three trades but EUR USD short should cancel the three losses.
If the dollar doesn’t move I could lose on the four trades.

To take my positions I use EUR GBP and correlation