A Federal Reserve official said on Monday that the U.S. economy still faced "significant weaknesses" and urged policymakers to allow large financial institutions to fail if needed.
"We still have significant weaknesses to work through in the economy in the U.S. and coupled with a rapidly rising level ... (of) debt and enormous moral hazard issues, we have a great deal of work ahead of us," said Kansas City Fed President Thomas Hoenig.
Data showed last week that U.S. consumer sentiment had soured in early November on grim job prospects while a larger-than-expected trade deficit had analysts scaling back estimates for third-quarter U.S. growth.
Turning to regulatory issues, Hoenig said that all financial institutions needed to be allowed to fail, no matter their size.
"As we look at reform and the way forward I think the most important think we need to do is to make first of all an accurate assessment of fundamental weaknesses in our financial system and then begin to create better foundations," he said.
Hoenig was speaking at a central bank event in Abu Dhabi, the capital of the United Arab Emirates.
AP
"Our institutions must be allowed to fail no matter what their size or political influence," he said.
U.S. regulatory agencies have been embarrassed by flaws in financial oversight that failed to prevent a financial crisis that has triggered a painful recession, cost millions of jobs, and required hundreds of billions of taxpayer bailout money for banks.
The Fed has drawn sharp criticism from some lawmakers for its handling of the financial crisis, particularly its controversial decisions to extend emergency loans to large firms such as insurer AIG, which it did not directly supervise.
"Our reluctance to deal with 'too big too fail' provides these largest institutions with important advantages over any competitors who are not seen as important," Hoenig said.
Hoenig also put the spotlight on credit ratings agencies, saying policymakers needed to examine fee structures and incentives, calling into question how the agencies earned fees from the companies they were supposed to rate in an objective manner.
"Even if we put regulatory restrictions on the rating agencies trying to make them behave, incentives overwhelm (the additional safeguards). Incentives always overwhelm," he said.
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Spot gold hit a record high above $1,126 an ounce on Monday when massive buying in U.S. gold futures boosted bullion's appeal, but the precious metal later fell from its peak as follow-through buying failed to materialise.
Investors maintained their appetite for gold as a hedge against currencies as the U.S. dollar drifted lower in Asia, extending falls from late last week.
Underlining views that a global economic imbalance is being reflected in the weakening dollar, the head of the International Monetary Fund said a stronger Chinese yuan is part of the reforms that Beijing needs to implement to increase domestic consumption.
Financial markets are expected to see increased rhetoric on currencies this week from both China and visiting U.S. President Barack Obama.
News on Monday that commodities funds manager Blackrock Investment [BLK 233.10 1.85 (+0.8%) ] expected central banks to be net gold buyers in 2009 also helped gold's rise, now that the precious metal is more sensitive to bullish news than bearish news, traders said.
Spot gold was at $1,123.20 an ounce at, up 0.4 percent from New York's notional close of $1,118.50. It earlier rose as high as $1,126.30, an all-time high.
Gold has renewed record highs for 7 days out of the past 10 sessions, during which it has risen more than 6 percent. The previous record was $1,122.85 marked on Thursday.
U.S. gold futures for December delivery stood at $1,124.10 an ounce, up 0.7 percent from Friday's settlement. The contract in early Asian trade reached a new record high of $1,127.90.
"Buying soon after Asia's opening proved to be temporary," said Yuichi Ikemizu, Tokyo branch manager for Standard Bank, referring to buy orders in substantial lots in early in Asia for
December gold futures at $1,127.90 per ounce.
"But the existence of bullish players who bought in such an aggressive manner itself showed how strong the market's momentum is," he said.
Volatility in gold prices is expected to stay relatively high in coming days as substantial amounts of open positions remain in U.S. December $1,200 call options, whose expiry is due later this month.
Buying call options has been one strategy for gaining exposure to gold.
Spot platinum tracked gold's gains and rose 0.4 percent to $1,395.00 an ounce from New York's notional close of $1,390. It earlier hit a 14-month high of $1,398.00.
On Friday platinum broke through above $1,390 for the first time since September 2008 after news that Impala Platinum Holdings forecast output from Rustenburg, its main mining area, would fall by 100,000 ounces this financial year to 850,000 ounces, due to closures over safety and a two-week strike.
Impala Platinum is the world's No. 2 producer of the metal used to clean vehicle exhaust fumes and make jewellery.
Spot silver was up 1 percent at $17.59 per ounce.
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TOKYO (MarketWatch) -- Japanese gross domestic product for the July-September quarter rose much more than economists had expected, government data released Monday showed. GDP rose 4.8% in real terms on an annualized basis, compared to a consensus forecast of 2.2% by economists surveyed by Dow Jones Newswires. GDP rose 1.2% from the April-June quarter, compared with an expectation for 0.6% growth, boosted by the government's stimulus steps. The data showed that corporate capital investment rose for the first time in six quarters, up 1.6%
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TOKYO (MarketWatch) -- The euro gained more ground against the dollar in Asia Monday as signs of strong demand for commodities including gold added to hopes that the world's economy is recovering, prompting traders to buy high-risk currencies.
Meanwhile the release in the session of unexpectedly strong Japanese gross domestic product data for the third quarter had no clear impact on the currency markets, which were focused more on stock and commodities prices as well as coming U.S. events.
The euro climbed to an intraday high of $1.4973 on EBS, about half a U.S. cent higher compared with late Friday in New York. Its appreciation comes as spot gold rose to a fresh record of $1,127 a troy ounce during Asian hours, prompting speculators to unwind bets against currencies that are considered riskier than the U.S. unit but pay the buyers more interest, such as the Australian dollar and sterling as well as the euro.
"Gains in gold prices lifted demand for currencies of commodities-exporting nations like the Aussie against the U.S. dollar," said Osao Iizuka, chief foreign-exchange trader at the Sumitomo Trust & Banking Co. "Then the selling of the U.S. dollar spread across other currencies, causing the euro to gain ground against it."
Until the U.S. Thanksgiving holiday on Nov. 26, around which time the volume of global currency trades often starts shrinking as U.S. players go on vacation, the euro could rise to $1.5300 amid a continuing broad downtrend in the greenback, Iizuka said. A fall below $1.4700 is unlikely over that period, he added.
Japan's government, meanwhile, said the nation's GDP grew a price-adjusted 1.2% in July-September from the prior quarter, or a 4.8% increase on an annualized basis. The result beat the 0.6% on-quarter growth and 2.2% annualized rise expected by economists polled by Dow Jones Newswires.
But the yen got little boost from the data partly because "market participants weren't sure about how they were supposed to respond" to them, said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital.
While robust Japanese data should favor the yen in theory, they could also hurt it in the current market environment in which investors often interpret strong data from major economies as a sign of global recovery that should make it less risky to buy higher-yielding currencies, Ogawa said.
Traders were also paying more attention to potentially market-moving events later in the global day, including a planned speech by Federal Reserve Chairman Ben Bernanke, dealers said. U.S. retail sales data for October are also due, with economists polled by Dow Jones expecting a 0.9% on-month gain in overall sales figures.
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TOKYO (MarketWatch) -- The dollar slipped Monday, a day after China's chief banking regulator criticized loose U.S. monetary policy as leading to increased speculation.
"The continuous depreciation in the dollar, and the U.S. government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," Liu Mingkang, chairman of the China Banking Regulatory Commission, said Sunday in Beijing at the International Finance Forum, according to news reports.
Low U.S. interest rates and a weaker greenback have "seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies," Liu said.
The dollar bought 89.45 yen, down from 89.72 yen in late North American trading on Friday. The euro bought $1.4956, up from $1.4903 late Friday.
China has kept its tightly controlled currency, the yuan, almost unchanged against the U.S. dollar for more than a year, in a move that gives Chinese exports a competitive advantage in U.S. markets.
Last week, China's central bank made a rare change of wording on its exchange-rate policy that was seen as a hint Beijing may let the yuan appreciate.
The People's Bank of China said in its quarterly policy report released Wednesday that it will consider "changes in international capital flows and the trends of major currencies" in managing the exchange rate. Read more on People's Bank of China currency statement.
U.S. President Barack Obama is on his first official visit to China this week to discuss a range of contentious issues, but is unlikely to push China too hard on currencies or anything else.
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Weekly chart- Wedge formation, the range is getting narrower.
Daily chart - Please keep an eye on the gap fill level of $73.5......If we adhere to the theory that the EUR/USD trades in tandem with oil then we expect it to fall too if this gap is closed.
It is important to use multiple time frames in order to find the best support/resistance levels. Often what looks to be a bullish level on a smaller time frame may not necessarily be a bullish pattern on the larger time frame. The same theory holds true for moving averages on different time frames.For example, the SPY below was putting in a bullish pattern on the 5 and 10 minute charts. However, IntheMoneyStocks.com traders identified the 200 moving average on the 60 minute chart as resistance. The SPY seemed to halt right at the 60 minute 200 moving average and begin a small pullback from that level. Intra-day this was a very nice pullback. Use the moving averages on multiple time frames to capitalize intra day.
Based upon recent price action there are signs of exhaustion in the currency and equity markets as the 1.50 level in the EUR/USD and 1100 level in the S&P 500 appear to be insurmountable barriers. However with little U.S. economic data on the calendar this past week, traders had few reasons to press the dollar to new lows. Instead, most of the currency pairs consolidated with some profit taking seen on dollar short positions. Yet dollars bears have not given up as indicated by the lower close on Friday. All of that could change next week as the economic calendar heats up with a tremendous amount of data from across the globe and speeches by Fed officials. The major currency pairs are prime for a breakout and there is certainly sufficient catalyst to trigger one. The only question is, will these event risks kill the rally or pave the way for more gains.
What Could Kill the Rally in High Yielding Currencies?
Of all the big economic releases and speeches this week, the most important will be the U.S. retail sales report and speech by Fed Chairman Ben Bernanke on Monday. If October retail sales are very weak or Bernanke talks up the dollar, the rally in equities and high yielding currencies could come to a screeching halt. However we believe that the chances of this happening are slim. First, comments on the dollar are typically made by the Treasury Secretary and not the Federal Reserve Chairman and secondly, if anything Bernanke favors a weaker dollar in this low inflation environment. The focus then turns to what he says about the economy and monetary policy. According to the last FOMC statement, there have been no meaningful improvements in the outlook for the U.S. economy since the previous meeting. Asset prices have moved higher but that does not necessarily imply a stronger outlook for U.S. companies. Recent comments from other Fed officials remain relatively downbeat as growing unemployment caps optimism. Most likely Bernanke will remind us that the recovery is still vulnerable and therefore interest rates need to remain low for a very long and therefore implementing an exit strategy now is inappropriate. If Bernanke retains this tone, then the dollar carry trade should remain intact. As for retail sales, we have good reasons to believe that consumer spending could surprise to the upside. Both Redbook and the International Council of Shopping Centers (ICSC) reported a sharp rise in retail sales last month while similar results were reported by individual retailers. Good spending numbers would suggest that the economy is moving in the right direction even though the labor market is weak. Aside from these events, inflation, housing and manufacturing sector reports are also due for release from the U.S. along with the Treasury International Capital flow report. Eight Federal Reserve Presidents are scheduled to speak on a variety of topics while Treasury Secretary Geithner will be testifying to the Senate Foreign Relations Committee on Tuesday. Don’t forget that President Obama will be in Asia until next Thursday. Watch for any market moving comments, particularly during the Asia-Pacific Economic Cooperation forum (APEC), but most likely there will not be any dramatic breakthroughs on currency.
Forex Positioning and Economic Data
The latest data from the CFTC (COT report) confirms that profit taking is occurring in the U.S. dollar. In the week ending November 9, futures traders reduced their net long Aussie, Kiwi and Canadian dollar positions. They continued to cut their short pound positions and bought more euros, Swiss Franc and Japanese Yen. Meanwhile this morning’s economic reports were relatively disappointing with the trade deficit jumping by 18 percent to $36.5B in September, the widest gap since the beginning of the year. Consumer confidence also plunged as the University of Michigan Consumer Sentiment survey dropped to the lowest level since July. The sell-off in the U.S. dollar on Friday suggests that fundamentals are mattering once again and it is in this context that we head into the new trading week.
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keep watching this trend line............I would wait for a negation of higher highs or a double top before opening up a short. This graph certainly looks bullish from a technical point of view as it is trading above its downward sloping trend line.
Often many traders listen to what comes from one of the financial networks and they try and react after they hear a news report. Usually the news is already baked into the cake and the market is usually going to move contra to the news. Today the market had a negative Michigan sentiment report and many people became very bearish after the report. We instructed our traders to just pay attention to the U.S. Dollar as that is what the market is currently trading off of. Simply put the market is trading inversely to the dollar as it has been since march 2009. The lesson today is simply to forget the news and trade the chart. The rest will fall into place after that.
