High-Yield Currencies Benefit

Just touched down in Singapore, back from my travels in Hong Kong and Macau. It's 2:15am now, but I'll try to write a very quick blog post! I've been getting much of my daily financial markets news from the CNBC in the hotel room. I know that EUR/USD is still lingering near the highs and yen crosses are going bullish too. Stock markets worldwide are rallying

bullishly, with the Dow surging to a record high above 14,000, as many investors speculate the worst may be over for banks and construction companies wounded by US subprime losses.

Former Federal Reserve Chairman Alan Greenspan said the credit slump may be ending. This current development brings about positive sentiment to yen crosses, high-yielding currencies and stocks.

The British Pound rose to a 2-month high versus the USD as traders seek risk once more. The pair looks determined to test 2.0650 sometime soon.

UK house-price growth stalled in September and banks approved the fewest mortgages in four months in August. Goes to show that when Greenspan is optimistic, traders and investors will follow suit too!

Latest data shows manufacturing in the US grew at the slowest pace in six months in September. ISM's factory index fell to 52 in September, less than expected, from 52.9 the previous month, suggestingthat the economy is slowing without tipping into recession.

ECB President Trichet repeated that markets are still undergoing a significant correction and re-pricing of risk, with high levels of volatility and turbulence a threat to money markets especially.

Waves Recede On Monday

August went by as quickly as it came. The Japanese Yen was a broad winner against high-yield currencies such as NZD, GBP, CAD, AUD, EUR and USD. In August, all the major yen-crosses fell as investors lost appetite in carry trades and stock markets wobbled. It has been a hair-rising ride in forex, stock and bond markets. The Dow slipped 0.2% last week
but ended August ahead 1.1% (it is now up 7.2% this year).

S&P500 was down 0.4% on the week but up 1.3% in August.

Think September will be a smoother month? Two words will swirl around in the September air, especially for the first 2 weeks leading up to the Fed FOMC meeting on September 18.

Volatility and Risk.

The level of volatility and risk will remain on the high side due to lingering uncertainty over whether or not the Fed will cut the benchmark rate before or during the Sept 18 meeting.

Last Friday's highly anticipated speech by Bernanke didn't make things easier for investors and players. There are still question marks.

According to research firm Thomson Financial, September has traditionally been a down month for US stocks. Over the last 20 years, the Dow has fallen an average of 1.3% in September - the worst performance of any month. The last three Septembers, however, all produced gains, topped by last year's 2.5% gain for the month.

This coming week has a full data release calendar, with the most important indicators being August's NFP (seen up 120,000 and jobless rate at 4.6%) and ISM manufacturing. Several central banks will also announce their rate decisions.

Americans and Canadians get a day off on Monday for Labour Day.

Are your trading funds safe

One of the top questions you should ask yourself when trading forex is this: Are you trading through a broker that is situated in a country that requires brokers to segregate clients' funds according to the country's financial regulations? If you haven't given that a thought, now is the time to do so! Some brokers may say that they keep clients' money in segregated accounts,

but how can you ascertain that especially that particular country does not make it compulsory for brokers?

Countries such as Singapore, Canada, UK require brokers or dealers to segregate clients' accounts, so that in the event of a broker's bankruptcy, clients would be considered secured creditors and receive priority in bankruptcy proceedings.

Forex regulations in these countries are different from those in the US.

Recently, the FXCM Group announced that accounts with FXCM UK are fully segregated in accordance with UK financial regulations. The FXCM Group is offering this option through its UK affiliate because funds held by US-registered Forex Dealer Members are not segregated. If a Forex Dealer Member becomes insolvent, clients do not automatically receive priority status in bankruptcy proceedings.

For your info, FXCM UK is now accepting accounts from over 100 countries including the United States.

FX Markets Today

Volatility Never Tasted Better

Depressed consumer confidence in the overall health of the economy helped lean on stock trading yesterday. Fuel and heating costs are affecting the pocketbook of U.S. workers, but the good news is jobs are plentiful and wages are keeping step with living expenses. On the flip side, consumers appear uncertain about increasing energy costs and the possibility of sharp increases in food costs affecting nest eggs and investments. Cheery predictions of an economic rebound from Fed Reserve members is not enough to combat the fact that growth stymied to a .06% pace, and was at a standstill in Q1 for this year.

With global concerns over inflation, the Dollar jumped at the chance to make sharp gains against the Pound and the Euro yesterday. There's an overall sense of impending panic by traders that central banks world wide will try to keep-hold on the reins of control through tightening policy and knee-jerk rate adjustments. Stop hunting was in play for the EUR/USD overnight, as the market broke to the 1.3330's and is sustaining above 1.3350. Support may be hard to find in the Euro, as all the major currencies continue to whip-saw on fundamentals. Comments from U.S. Fed Reserve board member Moskow and more international trade data will surely provide volatility until the close. Technicals favor short positions in the near future.

US Dollar continues to look slightly bearish

Among the four currency majors, Cable (GBP/USD) has been the biggest mover of the day, while the others have been trapped in range-bound action in the forex market. At the moment, the US dollar does not have a lot going for those who are bullish on its prospects. US manufacturing activity grew more slowly than expected in March, amid accelerating price pressures. Manufacturing index for March moved to 50.9 (52.0 expected), from 52.3 in February and 49.3 in January. Adding to...


the bearish sentiment is the IMF's (International Monetary Fund) data that foreign central banks reduced their USD composition to 64.7% of reserves in Q4 from 65.8% the previous quarter.


Beneficiaries of these reduced USD levels are the Euro (up to 25.8% in Q4 from 25.1% last), Pound (4.4% from 4.3%) and Yen (up to 3.2% to 3.1%).


From now till Friday, we'll most likely see a smaller degree of volatility in the majors, except for Cable as the Bank of England is scheduled to announce its rate decision this Thursday.

USD/CHF's nearest support is around 1.2070-80, then 1.2030-50. Nearest resistance is around 1.2190-2200, then 1.2240, then 1.2260-80.

EUR/USD's nearest ceiling still remains around 1.3400-10. Above here, 1.3460-70, then 1.3380-1.3400 are next possible topside obstacles. Support is around 1.3330, then 1.3280-1.3300.

Currencies in range-bound conditions

The forex market has been rather subdued today, with most currency pairs moving in range-bound conditions. There is this sense of great uncertainty in the financial markets right now, including stock markets worldwide, and this nervousness stems from the House-of-Cards situation in the US. Aside from that, inflation is the other issue, and based on the just-released US producer prices, it seems that inflation is still a risk in the US. US wholesale prices...

spiked higher in February for the third time in four months due to big jumps in food and energy, but prices rose even excluding these volatile factors. The producer price index rose 1.3% (0.6% expected) and the core PPI increased 0.4% (0.2% expected) - twice the previous month's gain.

All these suggest that price pressures are still on an upward path.

Meanwhile, the Swiss central bank raised interest rates today for the sixth time since late 2005. The benchmark three-month Libor target rate is raised from 2% to 2.25%. The bank also raised its inflation forecast for this year and next.

However, the near-term direction of USD/CHF will largely depend on the outlook of the US economy rather than the inflation outlook of Switzerland.

Forex traders look forward to inflation data

Today newspapers and TV channels continue to discuss the possibility of a meltdown in US financial markets. Even though the US current account deficit narrowed sharply at the end of 2006 (there was a deficit of $195.8 billion for Q4, versus a revised $229.4 billion shortfall in Q3, which is about $5 billion narrower than has been expected for Q4), that may not do much to help the USD. Technically, the US dollar is still struggling to hang on, but current USD sentiment is quite bearish in the forex market. Forex traders are now...

eagerly awaiting inflation data on Thursday and Friday.

The state of the US sub-prime lending sector continues to steal the limelight.

The OPEC voiced its concerns today in Vienna about the impact of US housing market woes on global economy. "There is very much concern about whether problems in the US housing market become more widespread," an official said. "This issue with the US subprime market could get bigger and have a bigger macroeconomic impact."

USD/CHF bounced around 60 pips off expected support around 1.2140 today, and looks quite vulnerable again at the moment. Nearest resistance is around 1.2200, then 1.2240, then 1.2260, then 1.2280-1.2315. If it breaks successfully below 1.2140, it may target 1.2085-1.2110, then 1.2060, then 1.2030.

Note that the Swiss National Bank is expected to raise rates tomorrow.