UK Telegraph article by Pritchard-Evans on Oil and China

Pritchard Evans on China and Oil - good read

Paulson says discussed global currencies with ECB’s Trichet - TFN

( TF ) 07/01 18:28
Paulson says discussed global currencies with ECB’s Trichet

- FRANKFURT (Thomson Financial) - U.S. Treasury Secretary Henry Paulson said he discussed the world’s currencies and rising oil and food prices with European Central Bank President Jean-Claude Trichet, though he declined to comment on any possible interest rate hikes coming from the ECB.

‘We talked about currencies, not just the dollar and euro but currencies on a global basis, you know, Asia,’ Paulson said.

Asked about their discussions on inflation facing Europe, Paulson said it is impossible to talk about economic issues without talking about inflation.

‘And when you talk about inflation you are very quickly talking about food and you are talking about oil. It is just that simple,’ he said, adding that the two discussed energy prices in detail.

But he maintained his arms length stance from the central bank, which is expected to raise its key interest rate by a quarter point to 4.25% on Thursday.

‘I’ve got no comment on monetary policy,’ Paulson told a small group of reporters who met with him immediately following his meeting with Trichet.

‘Whether it is (US Federal Reserve Board Chairman) Ben Bernanke or Jean-Claude Trichet, if there is one thing I respect it is an independent central bank setting monetary policy. And I understand that independence and I respect that independence,’ Paulson said.

Paulson is in the midst of a five-day trip to Europe, where he has met with Russian and German officials. Later in the day, Paulson was to fly to London, where he is scheduled to meet with British officials, including Prime Minister Gordon Brown.

The Treasury chief said the U.S. and the EU have a common set of goals as they work through the current credit crisis.

‘In terms of working together on a broad range of regulatory issues and financial issues, which is really more in my lane (than monetary policy), I am all about communications and sharing information to protect the system and as our economies are integrated and our capital markets are integrated,’ Paulson said.

Blather, babble and dither

Mid-morning NY price level update and comments

Interim Data Update and Comments
Mkt   High   Low    Last   Chg   Rng   Vty   MBI   DIF
EUR   15818  15723  15762    12    95   0.60 111    -1
GBP   20007  19887  19931    -1   120   0.60 109     0
JPY   10638  10523  10587   -17   115   1.09  93    -3

At 1030 post-ISM (see Jamie Coleman - TFN FX Hub comments below) USD has rebounded
from early lows. This is a classic case - as Jamie points out- of the mkt seeing
what it wants to see. 

In other words "accentuate the negative and eliminate the positive.

So be it. The ECB see its glass half full the Fed half empty.

Take your ISM and shove it is the the reaction to the data thus far. A short-lived dollar rally to 1.5738 was soon snuffed out as the equity rally on Wall Street had no legs what so ever. A dead-cat bounce was about all we’ve seen thus far with stocks still in the red. Dealers are dismayed by the lousy employment figures within the ISM report and the big jump in prices paid. Slow growth and high inflation remain the default option for this market.

If EUR/USD can get up a head of steam above 1.5800 this time around, expect another concerted run at the 1.5850 level. Central bank offers will be expected along the way, however. Stops are eyed below the 1.5720 level near-term. EUR/USD trades at 1.5770.

“The Celtic Tiger turns into the Celtic Snail” TFN FX Hub

Hot on the heels of yesterday’s news that Q1 growth in Ireland fell by 0.2 % and this morning’s fall in the Irish PMI to 44.7, is the collapse in Irish Consumer Sentiment to 42.2 in June from 48.8 in May, a new all time low. While the ECB remains poised to step on the monetary brakes the PIGS economies are starting to exhibit not just slowing growth tendencies, but examples of outright recessionary readings. The focus of the ECB and the markets on just the German economy continues. I’ve just been reading a research piece saying that most of the Eurozone data this morning was good, highlighting the better than expected German Retail Sales and Unemployment figures. They also go on to say that the fact that the Eurozone PMI was revised up to 49.2 from the flash estimate of 49.1 was also good news for the Eurozone economy. This beggars belief. The fact that data from Spain, Italy and France was uniformly bad seems to have gone unnoticed by the compilers of this research piece, but one thing is for sure, when and not if, the ECB tightens on Thursday, economists should be revising both their growth and their inflation forecasts down for the Eurozone.

Mark Mitchell - London

Sarkozy calls euro 30% overvalued against the dollar

France is about to take the helm of the EU presidency and M. Sarkozy is not wasting any time. He begins his reign by declaring the currency 30% overvalued. You go, Nick!

Sarkozy continued that the ECB should look at growth, not just inflation and that a doubling or even trippling of interest rates would not affect the oil price. Today’s inflation is due to the commodities surge, he says. Looks like the French presidency will be a bit more combative than the last. Who had it? Slovakia? Slovenia?

EUR/USD trades at 1.5745, only down marginally after the headline. US stocks are paring gains and oil is rebounding again, keeping dips shallow. Support is at 1.5730 intraday. ” Jamie Coleman TFN/FXHUB

Let the games begin, I see a contentious 6 months ahead.

Mid-day/Late London price levels and comments

Mkt    Last   Change MBI  DIF
EUR        15751    -22   112    0
CHF        10200      8    92   -2
JPY        10616     -8    92   -6
GBP        19912    -18   111    3
EJY        16724    -33   101  -10
CL         14025      4   107   -1
DJ         11410     53    78   -3  

No comments. Month and quarter end ahead of BoE and ECB rate announcements
and weekend G8 with US holiday conditions beginning anytime and full US market
closure Friday? 

Sounds like a crap shoot to me. 

(1145 EDT prices).

Early NY price update and comments

Mkt    Last   Change MBI  DIF
EUR        15788     15   112    0
CHF        10174    -18    92   -2
JPY        10537    -87    85  -10
GBP        19917    -13   111    3
EJY        16636   -121    99  -12
DJ         11322    -35    78   -3
CL         14316    352   115    5  

After a wave of heavy USD selling that took EUR to an o/n high of 15836
and JPY to 10499 the tide began to recede about 0700 (when this price
snapshot was taken) and EUR and GBP had sold down further since. 

CL meanwhile has hit yet another record level on book talking by analysts
and OPEC gloaters calling $170 "in the bag". Also have seen a report by an
oil/energy trading insider commenting funds and other leveraged accts are
"licking their chops" anticpating the Congressional recess ahead of the
July 4th holiday and ensuing summer recess for the political conventions season.

Oh joy!

Footnote: DJ futures are massively IT/OS and have traded lower for the past 6
trading days and 9 of the past 10.

Footnote(2):

The Eur/usd reversal in fortunes has been attributed to heavy selling by a German name which has pressurised the pair and tripped some stops in the 1.5775/80 area. J

. TFN

Early afternoon NY price snapshot and comments

Mkt    Last   Change MBI  DIF
EUR        15775     17   114    3
CHF        10180    -53    85   -8
JPY        10614    -54    91   -9
GBP        19943     67   112    6
EJY        16743    -64   108   -8
CL         14158    194   115    5
RB         35609    366   106    0
DJ         11362   -100    76   -6  

Friday funnies underway in earnest now. GBP had led
the way as EZ trading wounddown for the week and now
into the NY afternoon doldrums EUR has popped up again
ostensibly following energy futures higher attempting
to surpass its early morning (NY time) high of 15782. 

Rebuffed thus far but we still have pit closes for CL and
forex futures to come later in the afternoon as well as index
futures closes even later. 

Any bets on EUR and GBP making new daily highs after 1500 ET?

CHF I/ST OS, JPY ST/OS and EJY, although trying to gain leadership
from EUR still ST/OS. Note DJ futures are seriously IT/OS.

Interesting item from TFN re: coming week

FOCUS Beleaguered dollar faces tough week ahead

- LONDON (Thomson Financial) - The U.S. dollar has been on the backfoot since the Federal Reserve’s interest-rate setting meeting on Wednesday, but events next week could conspire to send the currency tumbling towards fresh all-time lows against the euro.

As expected, the Fed left benchmark U.S. interest rates unchanged Wednesday, but the fact that the accompanying statement failed to deliver the tough talk on inflation that many had been looking for caused market players to scale back their forecasts for near-term rate hikes.

The U.S. dollar has moved sharply lower as a result, with the euro hitting an 18-day high of $1.5782 and the pound an eight-week high of $1.9901.

But things could be set to get worse next week, which may turn out to have ‘the perfect ingredients for a volatile week in the foreign exchange markets’ that could see the dollar lose ground rapidly, according to Bank of New York Mellon analyst Neil Mellor.

Firstly, attention next week will focus on the latest interest rate decision from the European Central Bank on Thursday. If, as is widely anticipated, the ECB opts to raise rates, this will further extend interest rate differentials with the U.S. in a market that is already increasingly convinced that the Fed is neither willing nor able to raise rates itself.

There is also the prospect of further evidence of a weakening U.S. economy, with Chicago PMI, the manufacturing and services ISM figures and jobs data all having the potential to paint a very bleak picture indeed.

Add low volumes into the mix, and the dollar could see some serious volatility.

Not only does next week include the July 4 holiday in the U.S. as well as the start of a new quarter, but it is also ‘the precursor to a six-to-eight week period traditionally characterised by low market volumes’, Mellor pointed out.

‘Having failed to break-back above its lows of last December, the U.S. dollar index is now flirting precariously with its six-month uptrend; and with the market yet to be convinced of the Fed’s new hawkish credentials, an appropriate catalyst could therefore see the index lurch towards its all-time lows recorded back in March,’ he said.

If the week’s U.S. economic data proves insufficient for this purpose, then the ECB’s rate decision on Thursday could well do the job, he believes.

Even in the event that the ECB leaves rates unchanged, however, the U.S. dollar’s resultant reprieve is likely to be very short-lived.

Analysts now believe we have entered a vicious circle which does not bode well for the dollar.

A scaling back of U.S. rate expectations has pushed the dollar lower, allowing oil prices to rise still further from their already exorbitant levels, increasing fears about stagflation and sending stock markets tumbling.

‘A dangerous dynamic has re-emerged across markets,’ said Steve Pearson, chief currency strategist at HBOS.

‘Rising energy prices, alongside on-going pressure on many major financial firms, are driving stockmarket weakness. Stockmarket weakness suppresses U.S. short-rate expectations still further. The cycle reinforces itself. Coincident with this also driven by falling short rate expectations is a weaker U.S. dollar,’ he said.

If the ECB does raise rates, however, the euro could be sent spiralling towards fresh all-time dollar highs that could seriously put into question the U.S. government’s recent repetition of its ’strong dollar’ policy.

‘Our presumption is that the ECB will raise interest rates and should euro/dollar be propelled towards fresh all-time highs as a result, we would then discover just how serious the U.S. Treasury is about its re-launched ’strong dollar’ policy,’ Mellor said.

Item seems a general attitude that nothing but nothing can be USD positive and equally that absolutely nothing can be EUR negative. If one FOMC voter dissents it is taken as a signal of divisiveness however if one ECB member dissents he/she is wuickly pummeled by fellow ECB’ers belittling the opinion.

I guess fx traders prefer “Stepford Bankers” to independence to think as speak as one feels. Very democratic that ECB!

0600 NY pre-opening price update and comments

Mkt    Last   Change MBI  DIF
EUR        15761      3   114    3
CHF        10194    -39    91   -4
JPY        10627    -41    91   -9
GBP        19870     -6   105    1
EJY        16751    -56   108   -8
CL         14101    137   108    1
RB         35361    118   106    0
HO         39241    146   100    2  

At 0600 ET markets shaped up as little changed for EUR and GBP but
CHF, JPY and EJY under further pressure from the talk of Russia reserve
redistribution. YEN crosses in particular heavy with JPY and EJY both
ST/OS at current levels.

Needless to say mindless piling on continues in energy futures as we wait
for pit trading to resume in NY. Forget EZ slowdowns and US recession just
buy 'em and keep buying and they, Crude Oil (CL) in particular, will continue
to go up and make us happy.

Greater fool theory hard at work.