Friday 23rd February 2018
February 23rd 2018: John Hardy, head of FX Strategy at Saxo Bank says in today’s client note that: “The latest European Central Bank minutes showed a debate on leaving the door open to QE resumption if conditions warranted, ultimately leading to the dropping of this language in the forward guidance. The headlines have seized on the discussion of the volatility of the euro in the minutes and the phrase that this provided “a source of uncertainty that required monitoring". ECB president Draghi offered a stern rebuttal at the most recent ECB meeting to a (likely offhand) statement by US Treasury Secretary Mnuchin that a weak dollar is a benefit to the US economy. The expectations for ECB policy unwinding have gone into neutral over the last couple of weeks, even with the recent recovery in risk appetite, and this kind of language from the ECB, heavy EUR long speculative positioning, and a rather sharp deceleration in the most recent PMIs are making it tough sailing for EUR bulls. Speaking of positioning, the JPY short is shrinking but still very large. Often, when the JPY is on the move, it is directly traceable to something else afloat in the markets, whether from direct signals from the central bank, or large swings in risk appetite or bond yields. But this recent move feels qualitatively different and rather significant, as if the market is changing its mind about its underlying assumptions (that the BoJ will forever be the policy laggard and as long as we aren’t seeing a market meltdown, carry trades versus the JPY are a no-brainer) and this could lead to a broad-based repricing of the G10’s cheapest currency” -

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst, OANDA
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. He covers central banks and global economic and political trends for OANDA. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and financial services marketing from the University of Toronto.

Monday, 03 June 2013 10:09

TPP Nations seek safety of the pack

There is a renewed focus on the Trans Pacific Partnership (TPP) agreement given global economic fundamentals [a eurozone still mired in debt, Japan struggling to emerge from 15 years of deflation and a slowdown in China’s growth economy]. Rising global unemployment should also be added to this toxic mix. An agreement would certainly reduce the friction of tariffs and protectionist trade policies among TPP nations. It’s a case of banding together through difficult economic times for mutual benefit. Will the global economic slowdown push TPP nations to finally reach a trade agreement?  Alfonso Esparza, senior currency strategist, OANDA reports.

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The pound sterling (GBP) continues trending lower toward US$1.50 and recent British retail sales figures are the culprit. Though analysts had expected little to no decline, Great Britain’s April retail sales were 1.3% lower than the previous month. As a result, the GBP continued to lose ground versus the greenback and that was prior to U.S. Federal Reserve Chairman Ben Bernanke testifying before Congress on May 22. Bernanke’s remarks to Congress implied the U.S. has no intention of tapering its quantitative easing (QE) program in the short-term. That prompted the GBP to recover some lost ground, but alas, that rally was short-lived and cable continued its fall. 

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The pound (GBP) continues to slide versus the US dollar (USD) as the American economy shows signs of a sustained recovery. The USD took advantage of solid US employment numbers after the unemployment claims fell to a five-year low. The improved employment outlook has raised speculation that the US Federal Reserve could wind up its quantitative easing (QE) program earlier than expected.

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The pound gained 1.20% versus the US dollar and 1.15% versus the euro on Thursday after British gross domestic product (GDP) figures were released. The UK managed to avoid a triple-dip recession after reversing a reading of −0.3% last quarter to post a 0.3% gain, beating the market’s 0.1% estimate. The GBP reached levels it hasn’t seen since last February. Services and car sales were the main drivers of GDP growth with motor trades registering a 6% boost year-over-year. Manufacturing and construction continue to struggle due to a lack of demand, but the gains in the other sectors were enough for the first quarter to end with positive net growth.

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Friday, 12 April 2013 14:37

Bank of Japan Pushes the Yen Lower

The Bank of Japan (BoJ) captured the attention of the foreign exchange world last week when it started to live up to the expectations of the market. After much anticipation, and lots of preceding rhetoric, Governor Haruhiko Kuroda announced the BoJ’s plan to double its bond buying efforts to reach the 2% inflation target in the allotted two-year window. It was his comments on Prime Minister Shinzo Abe’s inflation goals while still at the Asian Development Bank that might have won him the top job at the Japanese central bank. Earlier this week, the program kicked into gear and the JPY lost 4% versus the USD and 5% versus the GBP. The main beneficiaries have been Japan’s exporters and holders of Japanese stocks with the Nikkei Index reaching new highs on the value of the yen.

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This week central banks in the major economies the world took centre stage. They all had one thing in common. Rates remained untouched. The low rate environment that we have faced for the last two years will continue. There were few changes to QE policies as well. The central banks of The United Kingdom, Canada and Japan share soon to exit Governors. In the case of Japan this last rate announcement will be the last for Governor Shirakawa who resigns later this month. Sir Mervyn King will preside over the Bank of England until July, which marks the start of current Bank of Canada Governor Mark Carney leadership of the Old Lady.

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