Forex rebates on every trade - win or lose!

Choccie: Gordo always sounds to me like Darth Vader. He obviously had presentational training as he become PM to try to cure hime of that weird jaw movement when he pauses for breath. It seems to be returning.

The other creepy thing is seeing him smile. It just ain't natural, like a dog walking on two legs.

08:30 *UK FEB INDUSTRIAL OUTPUT UP MONTHLY 0.3 PCT VS 0.1 PCT DECLINE IN JAN
08:30 *UK FEB MANUFACTURING OUTPUT UP MONTHLY 0.4 PCT VS UPWARDLY REVISED 0.5 IN JAN
08:30 *UK MANUFACTURING EXPORTS ACCOUNT FOR 29 PCT OF FEB OUTPUT, SEVEN-YEAR HIGH

LONDON (Dow Jones)--The dollar has broadly held steady in European hours, despite poor housing data and a gloomy economic assessment from the U.S. Federal Reserve Tuesday.

This relative stability in the currency partly reflects moves by Citigroup Inc. to offload some of its troubled debt - a development that has boosted risk appetite.

But it also offers a hint that dollar selling could be running out of momentum.

"In the short term, we believe that dollar selling attributable to cyclical weakness and credit market concerns may have reached a peak," said Geoffrey Yu, a currencies strategist at UBS in Zurich.

"Although significant challenges remain for the U.S. economy, and other credit-linked markets continue to show significant stress, the market is now scrutinizing cyclical weakness in other (major economies) and modifying currency exposure accordingly," Yu added.

UBS advises selling the euro against the dollar, and predicts that the euro will be around $1.47 in three months, from around $1.57 now.

There have been a number of false starts for a dollar rebound over the past few weeks, and some other analysts remain skeptical that the dollar can reclaim lost ground just yet. Nonetheless, the euro has been tied at around the $1.57 level in European hours, while the dollar has stuck to its recent range against the yen, hovering between Y102.25 and Y102.75.

Overnight, the Bank of Japan met expectations by keeping interest rates on hold at 0.5%. Also as expected, the Japanese parliament approved the appointment of Masaaki Shirakawa as the new BOJ governor, although it rejected the nomination of Hiroshi Watanabe as deputy governor.

Analysts see little chance of a shift in Japanese monetary policy for now. Although Shirakawa is expected to press for higher interest rates over the long term, global growth fears are expected to weigh on rates for now. The new appointment had no clear currency impact, but it does come as a welcome relief to markets, as the BOJ had been lacking a leader since March.

On the data front, sterling grabbed the market's attention for the second consecutive day. Tuesday, the pound fell sharply after data from lender Halifax revealed a surprisingly large 2.5% dip in house prices in March.

Then overnight, further U.K. data revealed the lowest levels of consumer confidence since May 2004, with the Nationwide index falling one point to 77 in March from February.

With a Bank of England interest rate decision looming Thursday, the currency remained under pressure at the start of European trading, and traders reported some flows in the euro at a shade over GBP0.80.

But the pound later strengthened slightly after data showed manufacturing output rose 0.4% in February, taking the annual rise to 1.9%. Economists had expected the monthly rise to be closer to 0.1%, and the annual figure to reach 1.6%.

The euro retreated to GBP0.7970 as sterling popped higher, while the pound edged higher against the dollar too, moving to a session high of $1.9724 from around $1.9685 immediately before the data were released.

In other data releases, figures from the European Union's statistics agency Eurostat showed that economic growth in the euro zone was in line with earlier estimates and with market expectations, at 0.4% in the fourth quarter, from 0.7% in the third quarter.

This slower growth reflects weaker consumer and government spending. But as the data had been widely expected, the impact was muted.

Looking ahead, Federal Reserve Chairman Ben Bernanke speaks on financial literacy at 1330 GMT, while Fed Governor Randall Kroszner will testify to Congress on the economic, mortgage and housing rescue bill at 1400 GMT.

Dallas Fed President Richard Fisher will speak about the economy at 1730 GMT.

Broadly, trading remains muted as traders prepare for interest rate decisions from the Bank of England and the European Central Bank Thursday. At 0956 GMT, the euro was trading slightly higher at $1.5729, from $1.5710 late in New York Tuesday, according to EBS. It was a touch lower against the yen, at Y160.97 from Y161.08.

The dollar was at Y102.35 from Y102.56, while the pound was lower at $1.9698 from $1.9704.

Alistair Darling has defended his forecasts for economic growth despite expectations that the International Monetary Fund will cut predictions for the UK this year to 1.6% later today.

The IMF figure contrasts with the Chancellor's own expectations of 2% growth in 2008, but Darling said the downgrade for the UK had been less severe than for other major economies.

"The IMF has downgraded every country's growth forecasts," he told Radio 4's Today Programme. "It's not surprising. We must not be complacent about what is happening at the moment."

Darling stood by predictions made in his debut Budget speech last month that Britain's economy would grow by between 1.75% and 2.25% this year and by 2.25-2.75% in 2009.

"Britain is better placed than other economies to withstand a slowdown in the global economy," he said.

"I remain optimistic that, provided we stick to the course we have set out and that we keep doing the right things, the economy will continue to grow," he added today.

The IMF is also said to have reduced forecasts for world economic expansion from the 4.1% announced in January to just 3.7%, the slowest pace since 2002.

Last July, the fund said it though the global economy would grow by 5.2% this year despite the US credit crunch.

The US is expected to grow just 0.5% in 2008, down sharply from the 1.5% predicted at the start of the year, followed by 0.6% growth next year.

Expectations for growth in the 15-nation eurozone have been lowered to 1.3% from 1.6%, which the IMF said affords some easing of the European Central Bank's policy stance.

Yesterday, the IMF warned that financial institutions' losses due to the credit crunch could approach $1 trillion.

The tightening of credit markets that began with the collapse of US sub-prime mortgages, but spread to other lending markets and countries, has already resulted in 193bn in losses, the IMF said, adding that this figure could potentially reach $945bn.

There was also gloomy news on housing Tuesday, with UK house prices down 2.5% in March, the biggest monthly fall since September 1992, according to mortgage lender Halifax.

I notice that Libor's off a bit more since yesterday. That might just give Mervyn a bit more to think about, what with the better than expected production numbers earlier.

STERLING

TOM/NEXT 5.10 - 5.20

7 DAY 5.10 - 5.25

1 MTH 5.52 - 5.60

3 MTHS 5.85 - 5.93

6 MTHS 5.82 - 5.90

12 MTHS 5.70 - 5.80

Seymour,

Especially for you, seeing as you enjoyed Mark Mitchell's acid-tongue comment yesterday.

:o)

11:42 GMT, Apr 09 2008 | Posted by Mark Mitchell from London
UAE FX committee, surprise surprise, recommends sticking with Dollar peg


I would like to have been a member of that committee working tirelessly night and day for weeks just to do what the Saudi's tell them to do.

Erm, thanks Hils but I'm not really sure what it means - I've got some pegs on the washing line but and some in the garden shed, I could bring them down to London if it would help the committee and I get paid to be a member ;-)

Seymour,

The article above was from the same journo who penned the sarcastic article about Gordon Brown running scared yesterday.

Along with a couple of cronies in Boston and Sydney, he pens no-nonsense commentary on news stories throughout the trading day, and he's great at producing cynical one-liners.

My warped sense of humour often leaves me chuckling at his comments.

Double post

Is that the Alphaville blog Hils? PS my soh is warped as well - gets me into lots of trouble!!

I was long cable this morning but got stopped out. Grrr.

No, Seymour, they're Thomson journos.

Thanks Hils

EUR USD at turning point or just ready to keep going up? What a lovely run up yesterday afternoon - shame I missed it, haven't time to post a chart.

Back after school holidays and a short break away. Longest time I've not done any trading for ages. Need to start accumulating a pip or two. Hope everyone's had a successful few weeks trading.

I see that EUR/USD back up near its all time highs again. Not looking to short though, who knows how high it will go as no real sign of weakening.

I'm just looking at the charts to see if there are any other opportunities that suite me today.

That header looks interesting Hils, presume the timescales are US?

See the EUR USD couldn't keep it up - for now.

I'm just playing with it now, Seymour, but it's not really working yet as I'd hoped it would.

I'll leave it like that tonight and come back to it tomorrow.

It'll be interesting to receive some feedback in the meantime.

OK Hils, I can see how it works pretty much immediately. I like the idea as I can't always run my charting prog behind everything else I have running, or may be on a different PC. You never rest do you :-)

It was quite good having multiple currencies running like you did at one point but I also like the larger single chart. They are certainly an improvement on the small charts you had there previously. Would be interested in everyone else's opinion.

What a great idea, Hil.
Been having a play already - I even logged off and on to the thread to see what would happen (well, I didn't want to think I might break it).
Say bye bye to those other charts :)

Charts look great Hils,

Definately think daily calendar needs to be in the header as well though.

NEW YORK (Dow Jones)--Low U.S. interest rates won't be enough to make the dollar the prime funding currency for the most notorious of foreign-exchange strategies, the carry trade.

With the Federal Reserve's benchmark lending rate at 2.25% and expected to dip even farther in coming months, talk is emerging of the greenback rivaling the yen and maybe replacing the Swiss franc as a funding currency.

But uncertain market conditions, characterized by rapid swings in exchange rates, speak against large-scale use of dollar loans as the vehicle for speculative investments in higher-yielding assets outside the U.S.

While interest rate differentials are the crux of the carry trade, other factors have to be in place for it to yield a profit. Low volatility in the funding currency is also key, said David Gilmore, a partner at Foreign Exchange Analytics.

That means the dollar's exchange rate and the yield in the target asset have to catch a steady trend. Ideally, the dollar should decline and the value of the target asset should rise to maximize profit.

That's what happened back in the latter half of the 1990s, except the yen was the funding currency because Japanese lending rates were close to zero. Vast sums of yen were borrowed to invest in U.S. paper. With the greenback appreciating at a 20% clip some of those years and U.S. stock markets booming, carry traders realized huge profits.

Or more rightly said, they made a lot of money if they got out in time.

In the autumn of 1998, the yen-financed carry trade crashed with the impact of the Tunguska Event and left an enormous crater in the financial world's landscape. The Russian debt default in August 1998, and the subsequent near-collapse of the Long-Term Capital Management hedge fund, had darkened the outlook for the dollar. The U.S. currency plummeted early in October as the yen rallied after a surge in the Tokyo stock market.


Speculators Scrambled In 1998

Speculators scrambled to unwind dollar positions and buy yen to pay off their Japanese loans. In the equivalent of a going-out-of-business sale, sellers took what they could get as the dollar/yen rate gapped lower. Over a four-day period, the dollar made huge swings between Y135 and Y111.

A lot of hedge funds and other speculators weren't just burned badly between August and November of 1998 - they were vaporized. Some of the survivors who tried to recoup losses by going short on gold the following year went under when the price of the yellow metal suddenly rallied.

For many months after that, carry trades verged on the edge of extinction, living a precarious existence deep in an isolated corner of the financial jungle. There were a few exotic variations that thrived very quietly, but nothing like the dinosaur-sized leveraged positions involving billions upon billions of dollars that existed prior to October 1998.

The carry trade did make a comeback, though. In 2001, the Fed began trimming its benchmark rate, which eventually bottomed out in 2003 at a 45-year low of 1%. In 2002, the dollar started a long-term slide that hasn't yet ended.

Investors with more appetite for risk resumed borrowing low-interest currencies such as the yen and the Swiss franc to finance the purchase of higher-yielding assets. There was a lot of talk back then about the dollar becoming a funding currency, yet it never happened on a broad scale.

Certainly some speculators took out loans in greenbacks to park them in higher-yielding assets, but the possibility of a sudden dollar rally - or a corresponding slide for the target currency - deterred carry trades of the magnitude seen in the late 1990s.

And if markets needed a refresher on how fast carry trades can go bad, they got it in 2006. The February-to-March turmoil in Icelandic markets that year can largely be blamed on the unwinding of carry trade. Speculative players, such as hedge funds, had borrowed mostly in yen but to some degree in dollars, to invest in Iceland.


Iceland A Reminder Of Carry Trade Dangers

Iceland had become a particular favorite of carry traders because its benchmark rates were above 10%, the economy was booming and its currency as well as Icelandic equities were appreciating robustly. But when sentiment turned and the once-daring investors began rushing for the exits all at once, the krona and Icelandic equities had nowhere to go but down.

Fluctuations were severe in the short run. The krona fell by 7% in two days and by more than 15% in a month as financial companies and banks sounded warnings about risk in Iceland. So today, with Icelandic benchmark rates around 15%, that episode serves as a reminder of how quickly things can change.

According to the latest statistics from the Basel-based Bank for International Settlements, the dollar is still on one side of 88% of the world's currency transactions. That makes it very difficult for stable dollar trends to develop and undercuts the utility of the greenback as a funding currency.

Moreover, Gilmore of Foreign Exchange Analytics points to other factors acting against the dollar assuming the mantle of a funding currency. Markets are generally unsettled and that's never a good environment for the carry trade, as reversals can come on rapidly and without warning. Analysts are still debating whether the dollar has finally reached a long-term bottom and will show convincing signs of a turnaround in the near future. That would be fatal for carry trades funded by dollars.

In addition, with all the attention on the credit crisis, U.S. banks may be less than willing to loan money for carry trades. Taken together, there's little indication that the conditions are right for the dollar to assume the role of a funding currency. Investors sitting on piles of greenbacks may choose to place them in non-dollar-denominated assets in hopes of better returns, but that type of strategy doesn't involve a loan, so it's not a carry trade.

Looking better all the time, Hil :)