May 13th, 2010 20:29:59 GMT

ForexLive US wrap-up: EUR ends on the lows, again

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  • ECB’s Gonzalez-Paramo: Details on sterilization of bond buys next week.
  • US weekly jobless claims fall to 444,000; slightly higher than expected
  • Portugal unveils deficit reduction package, about 50/50 tax hikes and spending cuts. Deficit projected at 7.3% this year, 4.6% next year.
  • Deutsche Bank CEO Ackermann says he doubts Greece can pay debts.
  • US sells $16 bln in 30-year bonds at 4.43%, bid-to-cover 2.60
  • S&P 500 falls 1.2%, DAX rises 1.2%; gold eases to $1232; oil falls $1.75 to $73.85

EUR/USD traded with a heavy tone throughout the session spending most of the day capped in the 1.2590 area. Talk of Chinese bids were heard in the 1.2540/50 area and much of the day was spent ranging between 1.2540 and 90, no surprise.

Prices turned lower late in the session as US equities accelerated intraday losses and the euro ended on its lows, around 1.2530. Less than a week after a “trillion dollar” package to save the euro, the euro trades 20 pips above spike lows made during a 10% crash in the S&P a week ago today.

Cable had a rough day as well. It broke the range of its recent base at the 1.4720 level and fell back all the way to 1.4610 where it met Asian demand. Poor UK trade figures were the fundamental excuse used for today’s slde.

USD/JPY spent the session in narrow 92.60/92.95 ranges. Traders reported heavy offers being lowered to the 93.00 area after overnight weakness in USD/JPY.

Attempted to rally in Europe and again in the US but was unable to hold gains near 0.9025. We end not far from session lows at 0.8960.

5 Comments

May 13th, 2010 20:05:28 GMT

New York Fed: US Monetary Authorities Did Not Intervene in Q1

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NEW YORK (MNI) – This is the following is the statement released
Thursday by the Federal Reserve Bank of New York:

The U.S. monetary authorities did not intervene in the foreign
exchange markets during the January – March quarter, the Federal Reserve
Bank of New York said today in its quarterly report to the U.S.
Congress.

During the three months that ended March 31, 2010, the dollar
appreciated 6.1 percent against the euro and 0.5 percent against the
yen. In this period, the dollar’s trade-weighted exchange value
appreciated 1.8 percent as measured by the Federal Reserve Board’s major
currencies index.

The report was presented by Brian P. Sack, executive vice president
of the Federal Reserve Bank of New York and the Federal Open Market
Committee’s manager for the System Open Market Account, on behalf of the
Treasury and the Federal Reserve System.

** Market News International New York Newsroom: 212-669-6430 **

[TOPICS: M$$FX$,M$U$$$,MMUFE$,MGU$$$]

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May 13th, 2010 20:03:50 GMT

ECB borrows $9.2 bln via Fed swap line this week

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The NY Fed reports that of all the swap lines reactivated with global central banks earlier this week, only one was used, by the ECB.

Presumably the ECB borrowed the $9.2 bln to lend to European commercial banks.

EUR/USD sits at 1.2530 session lows.

4 Comments

May 13th, 2010 19:50:30 GMT

Cable bids surface in 1.4610/20 area

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Traders say Asian buyers have been spotted in the 1.4610/20 area. We are testing the support level at 1.4616 as we write, the 76.4% retracement of the 1.4480/1.5050 rally.

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May 13th, 2010 19:20:34 GMT

Stocks losses acclerating late

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EUR/USD has fallen close to session lows with about 40 minutes left of cash trading on Wall Street. This is the time when markets tend to get directional, so we may be in for a bout of late-day risk aversion.

China has been a rumored buyer of EUR/USD on dips today and trend lows are down at 1.2510, not far from present levels. Expect the downside to be a slog with pretty solid efforts to keep EUR/USD from falling off the table near-term.

EUR/USD trades at 1.2547 and the S&P is down 1.1%.

4 Comments

May 13th, 2010 19:15:25 GMT

US Dodd: Still Talking On Derivatives;Sees Final Vote Next Wk

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–Senate Banking Committee Chief Says Talks Continue on Derivatives
–Hoping For Final Vote ‘Early Part of Next Week’
–Sessions Bankruptcy Amend Would Return Too Big To Fail

By John Shaw

WASHINGTON (MNI) – Senate Banking Committee Chairman Chris Dodd
said Democratic leaders are still trying to sort through how to
schedule votes on a raft of pending amendments, adding that final Senate
action on financial regulatory reform is likely to occur next week.

In comments to reporters after meeting with Senate Democrats to
give them an update on regulatory reform, Dodd said there are still a
lot of moving parts.

But he added that he would like a final Senate vote in “the early
part of next week.” Other senators have indicated the final Senate vote
could occur in the later part of the week.

Dodd acknowledged that a number of senators continue to discuss how
the bill’s derivatives section could be adjusted.

“People have been talking about it,” Dodd said, but added that he
has not been part of the talks.

There has been a lot of pressure by Republicans and some Democrats
to challenge the bill’s proposal to require banks to jettison their
derivatives business.

Dodd said he strongly opposes an amendment by Republican Sen. Jeff
Sessions that would create a bankruptcy process for failing non-bank
financial institutions.

Dodd said Session’s language was deeply flawed and would have the
effect of retaining “Too Big To Fail.”

The Senate is voting on that amendment now.

The underlying Senate regulatory reform bill, largely drafted by
Dodd, establishes a new independent Consumer Protection Bureau at the
Federal Reserve Board, creates a process to liquidate failed financial
firms, sets up a council of regulators to oversee systemic risk in the
economy, establishes a regulatory structure for over-the-counter
derivatives, requires hedge funds that manage over $100 million to
register with the SEC and creates a new office within Treasury to
monitor the insurance industry.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

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May 13th, 2010 19:00:34 GMT

Cable resumes slide

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Cable, for once, did not manage to squeeze out all the short-term specs and has resumed its slide, putting many back in the money.

We’re back down within shouting distance of session lows at 1.4630, now at 1.4630.

technically, minor support is at 1.4615, the 76.4% retracement of the 1.4480/1.5050 rally. 1.4400 is the measured move objective from the double-top, spotted earlier.

9 Comments

May 13th, 2010 18:45:44 GMT

Bernanke: Urging Banks To Redefine Small Biz Lending Process

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By Natalie Pompilio

PHILADELPHIA (MNI) – Federal Reserve Chairman Ben Bernanke Thursday
said the Fed is encouraging small business growth by urging banks to
redefine their lending processes.

“We are extremely sensitive to the issue of whether or not federal
reserve banking examinations are in any way inducing banks in any way to
be in some sense too conservative and too restrictive to lending to
small businesses,” he said.

“There needs to be an appropriate balance,” Bernanke added.

“We don’t want to go back to 2005 or 2006, when loans were being
made on too little collateral but — we don’t want to go to the other
extreme either. We’re encouraging our examiners and our banks to strike
the appropriate balance.”

During a brief question and answer session — 20 minutes — held as
part of the “Reinventing Older Communities” conference in Philadelphia,
Bernanke said the contraction of the banking system has made it a tough
time for small businesses.

Small and new businesses, he said, are great job engines and need
to be encouraged. That is why the Fed is getting feedback on how loans
are being made around the country.

The central bank’s Senior Loan Officer Survey published May 3
showed that while most large banks eased lending conditions, the
beneficiaries were primarily larger companies. For small firms, the
survey found that banks continued to tighten loan terms, such as the
spread of loan rates above banks’ cost of funds.

“One of the key issues as we go forward is to create jobs in this
recovery,” Bernanke said, “and one of the keys to that is overcoming the
constraints on credit that small business is facing.”

Bernanke also noted that 25% of the population in the United States
is “unbanked” — “an ugly word,” he noted — or “underbanked,” that is
not using mainstream banking methods. These people distrust banks or
uninformed, he said.

One way to encourage banks to reach out to this population,
Bernanke said, is through remittances, so immigrants who want to send
funds home can do it through a mainstream bank instead of a private
company that charges high fees. Maybe, he said, that would encourage
those people to open a checking account.

“It’s in the interest of the financial firms to reach out,” he
said. “These folks, they and their children will be important customers
for a long time to come.”

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MK$$$$,M$$CR$]

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May 13th, 2010 18:05:08 GMT

Fed Kocherlakota: FOMC Hike When Approp; 3 Wks, 3 Mos, 3 Yrs

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By Steven K. Beckner

(MNI) – Minneapolis Federal Reserve President Narayana Kocherlakota
Thursday emphasized the conditionality of the Federal Open Market
Committee’s statement that it is like to keep the federal funds rate
“exceptionally low … for an extended period.”

He said the FOMC will raise the funds rates when it is
“appropriate” to do so, whether that means “three weeks, three months or
three years.”

But Kocherlakota made clear he doesn’t think that near-term
monetary tightening is likely, citing factors that could retard economic
growth and projecting continued high levels of unemployment and low
inflation.

Although the most recent employment data suggest that the labor
market is “starting to function better” Kocherlakota said he would still
be surprised if the unemployment rate falls below 9% from April’s 9.9%
by the end of this year or below 8% by the end of next year.

Kocherlakota, who will be an FOMC voter next year, said he would
have voted for the “extended period” language at the April meeting if he
had been able to. He said most — if not all Fed presidents — believe
current economic conditions warrant a near zero federal funds rate.

He also said there is a consensus on the need to reduce the Fed
balance sheet and return it to all Treasury securities, but he said
mortgage-backed securities can only be sold “slowly” and “carefully” to
avoid driving up mortgage rates. He said there are likely to still be
MBS in the Fed’s portfolio as late as 2020.

Kocherlakota read the FOMC’s policy statement in remarks prepared
for delivery to the Eau Claire Area Chamber of Commerce Altoona,
Wisconsin: “The Committee will maintain the target range for the federal
funds rate at 0 to 1/4 percent and continues to anticipate that economic
conditions, including low rates of resource utilization, subdued
inflation trends, and stable inflation expectations, are likely to
warrant exceptionally low levels of the federal funds rate for an
extended period.”

“What do we learn from this sentence?” he asked, before answering
his own question.

“Right now, the unemployment rate is 9.9% and measured inflation is
low (below 2 percent last quarter),” he said. “Inflationary expectations
are also low … expected inflation over the next five years is also
less than 2%.”

“In its statement, the FOMC is saying: We’re keeping interest rates
low to keep unemployment from going any higher, and we feel safe in
doing so because there seems to be little threat of inflation.”

Kocherlakota said “most or maybe even all of the members of the
FOMC and the other presidents agree that current conditions necessitate
interest rates near zero.”

“However, the sentence goes on to forecast that these kinds of
economic conditions are likely to continue for “an extended period,” he
continued. “There has been some public disagreement about this forecast,
and it is one reason given by the president of the Federal Reserve Bank
of Kansas City for his dissenting from the statement at the last three
meetings.”

Had he been a voter, Kocherlakota said he “would have voted in
favor of the FOMC statement in April.”

But he added, “I do think that readers of the FOMC statement should
pay very careful attention to its explicit conditionality.”

“The statement says that the committee will raise interest rates if
economic conditions change appropriately-whether that’s in three weeks,
three months, or three years,” he explained.

As for shrinking the $2.3 trillion Fed balance sheet, Kocherlakota
said the FOMC has been unanimous in wanting to “return to a much smaller
all-Treasury portfolio in the long run.”

He said, “I worry that a large balance sheet could trigger
inflation.”

As for why the FOMC wants to get out of MBSs, he said “there are
many reasons for this view, but one is certainly that we don’t want to
be seen as a long-term prop for the housing sector.”

“But what does ‘long-term’ mean?” he asked. “Many of the MBSs that
we hold won’t mature for 30 years!”

Kocherlakota said “prepayment will reduce the size of our
portfolio,” but estimated that “even 20 years out, the Fed is likely to
have something like 250 billion dollars of MBS holdings.” So, he said,
“if we want to normalize our balance sheet sometime in the next two
decades, we will need to sell some of our MBS holdings.”

“Doing so is challenging,” he said. “We want to be careful not to
cause large jumps in long-term interest rates, and especially not in
mortgage rates. But I believe that we can do so, as long as we commit to
a sufficiently slow pace of sales.”

“I’m optimistic that we can get MBSs off our balance sheet by 2020
at the very latest,” he added.

Kocherlakota prefaced his policy remarks with comments about the
economy that were only modestly optimistic.

“The recovery is well under way,” he said, but “my projected
recovery does not have the V shape that we would prefer to see. My
forecast for GDP growth is pushed downward by uncertainty along several
key dimensions.”

“First, the increase in the public debt in the United States may
well lead to an increase in future tax rates,” he said. “These increases
will retard investment and dampen GDP growth.”

Second, he cited continued contraction of bank lending, which he
attributed to “ongoing regulatory uncertainty” and “by ongoing asset
quality concerns.” Third, he said “the fiscal and financial situation in
Europe may well lead European growth to continue to be restrained over
the next year or two.”

Although the unemployment rate rose two tenths to 9.9% in April,
Kocherlakota pointed out that this was due to a return of many
discouraged jobseekers to the labor market and noted that non-farm
payrolls rose 290,000. Together, these data “actually indicate that the
labor market is starting to function better.”

However, “I believe that the (jobs) recovery will be slower than we
would like,” he went on. “I would be surprised if unemployment were to
fall below 9% before the end of 2010 or below 8% by the end of 2011 …
. The growth in productivity has allowed firms to expand production
without commensurate increases in hiring.”

Meanwhile, Kocherlakota said he expects annualized PCE inflation to
stay about 1.5% during the rest of this year. And he said inflation
expectations over the next five years, as measured by yields on Treasury
Inflation Protected Securities (TIPS) “are also under 2%.”

Kocherlakota said fiscal policy could well have a bearing on
inflation.

“Over the past two and a half years, the amount of federal debt in
the hands of the private sector has increased by over 50%,” he said.
“This extra debt can only be paid in one of two ways. First, Congress
can cut spending or raise taxes. Second, the Fed can print extra money
to pay off extra obligations and thereby create inflation.”

Defending and explaining the renewal of reciprocal currency swaps
with other central banks, he said, “We opened these lines to allow these
central banks-especially the European ones-to ease funding pressure in
dollar interbank lending markets.”

“We didn’t do so out of any special love for Europe – we’re
American policymakers, and we make decisions to keep the American
economy strong,” he continued. “But the liquidity problems in European
markets were showing signs of creating dangerous illiquidity problems in
our own country’s financial markets. We knew that the swap lines would
be a useful step in heading off that process.”

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,M$$BR$,MN$MO$,MAU0B$]

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