USD:
The USD struggled to find any footing on Monday as it lost ground to most of the major currencies. The U.S. equity market turned in another lackluster performance on Wall Street. However the Chicago PMI data produced a solid reading of 50.0 beating expectations. Today the ISM Manufacturing PMI report is on schedule and an outcome of 50.6 is projected, which would be an improvement on the previous number. Also making its way forward will be the Pending Home Sales data which expects to see an increase of 1.7%. The data this week will continue to grow in importance as the week progresses from the United States and culminate with the Non Farm Employment Change figures on Friday.
The crux of the matter for the USD has been that it and most of the other major currencies are trading within fairly tight ranges as the marketplace searches for consistency. Arguments abound about the real economy versus the perceived economy. Equity markets mounted gains for the most part during August and this has not gone unnoticed by bears who have continued to ask on what basis are we are seeing share prices do so well. Although growth is seemingly being promised by many a political leader it remains to be seen if this is merely the talk by leadership which is trying to stir optimism into a populace that is filled with caution. The month of September has been historically a brutal month on stocks when questions outweigh answers within investors. After a summer of gains being made on international bourses the question becomes how equities will be able to absorb additional �good� news before it actually takes place. Thus investors may become keen on data, and with the advent of the Non Farm Employment Change numbers on the horizon, this may become the next big focal point to hang their hat on. The USD had a rather tough trading day on Monday and will get a chance to prove it was nothing more than a range movement today.
EUR:
The EUR was pushed a bit higher on rather uninspired trading Monday. The Italian Retail Sales figures were released and produced a disappointing outcome of minus -0.4% compared to the estimate of 0.2%. Today Germany stands next in line regarding Retail Sales numbers and a forecasted gain of 0.7% is projected. Also be on the outlook for the German Unemployment Change figures, a result of 33K is expected. Tomorrow Europe will offer their broad Revised GDP data. The combination of the German numbers today and the European GDP figures tomorrow could serve as an interesting tonic for investors who have been repeatedly told that an economic recovery is around the bend for the European Union. The ECB holds their interest rate meeting on Thursday and press conference, and this could produce some volatility for the EUR in the coming days if things do not go as planned.
GBP:
The U.K. had a banking holiday on Monday and the Sterling had a rather quiet trading day because of this until the Americans entered the marketplace and helped spur on some GBP interest. The U.K. will release its Manufacturing PMI reading today and an outcome of 51.5 is expected. The Halifax HPI, true to form, has been pushed back at least a day and may be reported tomorrow. Net Lending to Individuals will be reported today also. Prime Minister Gordon Brown was quoted yesterday as saying that his government will take an intensive look at excessive bonuses being paid in the financial sector. While this may have no direct bearing on the Sterling today it should be noted that politicians continue to take on a populace stance and this may spook some investors. The GBP held its ground on Monday on a day of little volume and today�s trading may provide a more intensive test for the currency.
JPY:
The JPY held its ground on Monday after continuing to make strong gains against the major currencies the past few trading sessions. The election results in Japan may have spurred on some positive trading within the Japanese equity market but questions remain regarding the new government�s actual policies and how they would implement some of the social packages they have been calling for. Investors may become cautious if the new government tries to alter the landscape too quickly. Even though the JPY has performed well the past week it is still within known ranges compared to the USD and it remains to be seen if it will be able to break out of this pattern.
The real question is [B]when[/B] the Chinese are moving into action.
There will be a review by the chinese government of derivatives hedges sold to China by western banks by the end of this month.
Yesterday, China has given out a warning in regards to these non-performing derivatives hedges.
[B]It has rattled the western banks.[/B]
[U][B]That is the real crux of the matter with the USD.[/B][/U]
And not some manipulated statistics from the Ministry of Truth in Washington.
LOL
via Reuters
[B]Beijing’s derivative default stance rattles banks[/B]
Mon Aug 31, 2009 7:42am EDT
For banks that are hoping to sell more derivatives hedges in China, the world’s fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.
The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance.
But the reported letter opened several important questions that could not immediately be answered.
“If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate’s? And under what was the reason for defaulting?” said a Singapore-based marketing executive with a foreign bank.
The source, whose bank did not receive a letter, said that Air China, China Eastern and shipping giant COSCO – among the Chinese companies that have reported huge derivatives losses since last year – had issued almost identical notices to banks.
“If it’s in the name of the government, the impact will be very negative,” said the source, who declined to be named.
Beijing-based derivatives lawyers said the so-called “legal letter” has no legal standing – SASAC as a shareholder has no business relationship with international banks.
“It’s like the father suddenly told the creditors of his debt-ridden son that his son won’t pay any of his debt,” said a lawyer from the derivatives risks committee of the Beijing Lawyers Association.
It’s also unclear why Chinese state firms, which have complained that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products, did not seek redress through the courts.
“If that is the case, these firms should seek through legal measures to safeguard their rights, instead of turning to the authorities for political interference,” said a different lawyer.
SASAC took over the job of overseeing SOEs’ derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives…
The Chinese have allowed their banks to default on commodity positions, yesterday.
China is a predominant buyer from Sojabeans over Precious Metals to Crude Oil.
As I posted yesterday in this thread…it is only a matter of time when this will be allowed to FOREX positions involving all majors but with a pre-dominant effect on the USD.
[U][B]This is what will influence and shake up FOREX markets in the month ahead and not the babble out of Washington.[/B][/U]
via Reuters
[B]China Allows Banks to Default on Commodity Positions[/B]
U.S. gold and soybean markets fell on Monday following a weekend report that China�s state companies may default on commodity derivative contracts with banks providing over-the-counter hedging services.
Traders in other commodities markets in the United States were cautious, underscoring China�s predominance as a buyer in global markets from metals to grain to oil after it played a key role in rallying prices to record highs last year.
In a measure of the country�s influence over the global economy, U.S. stocks fell after the Shanghai Composite index .SSEC fell nearly 7 percent to a three-month low on fears Beijing is trying to moderate growth and choke off speculation in its stock market by tightening bank lending.
Commodities markets were chilled by a report in Caijing magazine quoting an unnamed industry source as saying [B][U]Chinese state-owned companies will be allowed to default on commodity derivative contracts. The report provoked anger and dismay among investment banks that feared a damaging precedent.[/U][/B]
China�s regulator of state owned enterprises, the Assets Supervision and Administration Commission (SASAC), has told six foreign banks that SOEs reserved the right to default on contracts, the magazine said in an article published on Saturday.
A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.
�A Chinese agency said they reserve the right to walk away from bad derivatives contracts and that stirred up a lot of worry not only about the stock market but soybeans as well,� said Paul Haugens, vice president at Newedge USA.
China, the world�s top importer of soybeans, has been an aggressive buyer of U.S. supplies, helping drive prices higher as stockpiles fell to the lowest level in over three decades.
US SOY, GOLD MARKETS FALL, COTTON RECOVERS
Chicago Board of Trade soybean futures for November delivery SX9 fell 31-1/2 cents, or 3 percent, to $9.79-1/2.
December gold GCZ9 fell $5.30 to $953.50 an ounce at the New York Mercantile Exchange�s COMEX division. U.S. cotton futures fell in early trading due to the news, but closed higher on month-end position squaring.
�Historically, it is not so unusual for China to either renegotiate or abandon some deals that have been made. Some traders who have been around for a while are certainly aware of that possibility,� said Bill O�Neill, managing partner at New Jersey-based LOGIC Advisors.
Spokespersons at Goldman Sachs (GS.N), UBS (UBSN.VX), JPMorgan (JPM.N) and Morgan Stanley declined to comment, along with the Securities Industry and Financial Markets Association and International Swaps and Derivatives Association Inc.
The reported letter to the six banks follows an order from SASAC in July that required all state companies trading in derivatives to make quarterly reports about their investments, including details of holdings and performance.
�I won�t be surprised if more state firms emerged with big derivatives trading losses. Or else SASAC won�t come out with such a radical move,� a Hong Kong-based derivatives analyst said.
�As far as I know, there are another number of state firms bogged down in such losses besides those surfaced ones,� said the analyst, who declined to be named due to the sensitivity of the issue.
�ABNORMAL PRACTICE�
A SASAC media official said he was waiting for the �relevant department�s� official comment before clarifying the situation with the media.
The report deals another blow to investment banks hoping to sell more derivatives hedges in China, the world�s fastest-expanding major economy and top commodities consumer.
�It�s a handful of companies who are being encouraged by regulators to renegotiate. It�s outrageous, but it�s China so everyone is treading very carefully,� said a banking source.
Beijing-based derivatives lawyers said the so-called �legal letter� has no legal standing � SASAC as a shareholder of SOEs has no business relationship with international banks.
�This can also lead to market chaos. For example, a foreign bank can tell its Chinese clients that it can reserve the right to default on contracts that will bring losses to the bank,� said a lawyer from the derivatives risks committee of the Beijing Lawyers Association.
No bank names were reported in the Caijing report. The SASAC media officer also declined to specify any.
Chinese state firms, especially those that have suffered big losses in derivatives trading, have been complaining that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products.
According to this message from a well informed Jim Sinclair the Chinese have pulled the plug and
[B]going to cancel all unilateral OTC Derivative Loss Debts Held By State[/B]
Now when you look at the candlestick patterns on the gold chart since 8:00 EST this morning you can see how the Bullion Banks desperately trying to cap Gold in order to prevent an outbreak over $1000/oz.
At this minute we are looking @975.08 and a Doji LOL
via JSMineset
[B]
China Moves To Unilaterally Cancel OTC Derivative Loss Debts Held By State[/B]
Posted: Sep 02 2009 By: Jim Sinclair Post Edited: September 2, 2009 at 11:03 am
Dear CIGAs,
Reported Chinese actions to unilaterally cancel OTC derivative loss debts held by state corporations whereby they purchased hedge contracts written by major American OTC derivative manufacturers and distributors is legally a unilateral novation. A novation declares an item to be invalid. Invalid means not valid. A contract which is not valid infers a form of a fraudulent contract.
Actions by the Chinese tend to follow and can be understood by learning the tenets of the teachings of Sun Tzu.
Had the West acted exactly this way rather than financing them to pay the winners when the hedge fund, Long-Term Capital, failed on OTC derivatives, there would have been financial problems but this event today would only be a modest recession and not a catastrophic depression.
MOPE has blacked this event out while titanic pressure is being brought on the US to fall into line and pay off the winners in New York.
What happened here will pave the road of the future.
[B]This is the most important economic event since the fall or shove into bankruptcy of Lehman.[/B]
Few understand.
Gee…the Bullion Banks are not getting the price of gold down LOL
Must have been too many cancellation from the Chinese in paper gold instruments. LOL
This is great stuff to watch. 
Gold is creeping up a $ at the time. 
Above $980 and the USDX needs to take a leg down below 77.49.
If this were going to happen it would give the USD pairs a real rattle. All what’s needed after that is some more bad news from the Chinese or some [B]event[/B] and we are set for some fascinating trading action on FOREX LOL
[B]
The all time low on the USDX is 70.79.[/B]
Remember…[B]Gold is a currency[/B] and that has become obvious today. You just need to look at that FIAT paper crap called USD and how it hardly moved whereas Gold moved 2.55% until this minute. And that’s with all that Bullion Bank capping going on. LOL
The Chinese mean business…!
They have started to push gold and silver investments to the masses in China. There is a clear signal being sent to the US with their FIAT paper crap called USD.
I don’t know how many people are realising and understand all these developements and the impact that will have on FOREX and the USD in particular.
This whole thing called USDX is only built on [B]confidence[/B]. If [B]confidence[/B] is lost in the USD and the rest of the FIAT currencies that make up the USDX we will see developements on FOREX you would not believe. Those currency charts will look nothing like they look now.
And to make matters worse HongKong is pulling out it’s Goldreserves from storage facilities in London to store them in HongKong. HongKong is part of China.
Mineweb - GOLD ANALYSIS - China pushes silver and gold investment to the masses
Hong Kong recalls gold reserves from London - MarketWatch
[B]All these developements are a sign of confidence lost in the manufactured paper instruments of the western world.[/B]
What will they look like? Big up & down moves, or barely any movement, or…??
Glad you understand these things…Thanks
The G8 nations, who make up the USDX with it’s respective currencies, have in times of crisis always intervened=manipulated on FOREX in a co-ordinated fashion. They have done so in October 2008 after Lehman collapsed and in March 2008 after Bear Stearns collapsed.
[B]There is a red line the G8 Nations draw in the USDX. And that red line is the area between .71 and .72.[/B]
Broken down that would translate to about…
1.13 - 1.15 USDCHF pair
1.155 - 1.16 EURUSD pair
2.05 - 2.10 GBPUSD pair
about 118.00 USDJPY pair
When these areas are reached G8 nations will unleash their interventions in a co-ordinated way.
It would translate to parabolic moves of 400 - 500 pips on a 15 min chart in a space of 30 minutes with [B]NO[/B] regards to S&R lines or any other TA.
The G8 nation intention is motivated through psychology. And that is to crush the USD shorts at all costs, somehow get a rally going and try to keep up the appearance of confidence in their FIAT currencies.
If that fails…and I believe it will because the 23 year SMA on the US bonds charts is just about to be broken by price…the G8 nations will go it on their own. And that would be the last call for the USD because below .70 on the USDX is nothing but free fall into the .60 area and then down to .52.
I think your USDX translations are off quite a bit. If EUR/USD was trading at 1.1600 and USD/JPY at 118.00, I think the USDX would be way way way above .71, those are very USD bullish prices relative to where we are now!
Usually I refrain from posting but I do read this wonderful forum. This time I cannot resist. With all do respect to this Senior poster I must say that China is one of the largest buyers of US debt. Unless political motive overcomes profit motives they will not participate in sinking the dollar. That would be financially self defeating. They also represent only one economic power, although arguably the largest in Asia, and their actions alone will not bring down the entire system. While an orderly move from the dollar as the world base currency is possible, I remain of the view that such a move is not likely anytime soon. The USDX is a reflection of the World sentiment regarding the World base currency. There is no question that this index has been on a steady decline but we are experiencing a World Wide recession. Once this recession lifts things should, in my humble opinion, return to normal.
The only reason I wrote this post was to counter the heavily negative view that we are on the cusp of some World financial disaster and more specifically the death of the dollar. Data can be run as you have to forecast this sort of an event but I personally do not believe this doomsday outlook.
China will not sink the dollar.
Infinite QE is sinking the dollar. And that is what worries the Chinese the most. The more USD paper is created through QE the less purchasing power each USD bill posesses. [B]It’s called inflation.[/B]
China is not alone. China is part of the BRIC Nations who have demanded for years that monetary reform in regards to the world base currency is implemented. To no avail.
If we are experiencing a World Wide recession…
Why would the western central banks except Canada implement QE…? QE is nothing short of monetising near worthless financial paper instruments until infinity.
The Chinese have asked the US…
How is the US planning to exit QE…?
Does the US have a Plan B…?
What is th US going to do about their blown out budget deficits…?
The Chinese did not get an answer from the US…!
It was never my intention to imply that we are on the cusp of some World financial disaster.
That time was in October 2008 and thank god it didn’t happend because former US Treasury chief H. Paulson did the right thing at the right time by guaranteeing all money market deposits and pushed the bail-out package trough congress.
QE will prevent some World financial disaster. Because central banks will simply generate all the paper neccessary in order to keep the global system of paper going.
We are not seeing the death of ther dollar. What we are about to witness is a gradual loss of [B]confidence[/B] in all global FIAT currencies and more specifically the USD because of QE. Similar to the time of the Lehman collapse unfolding.
I don’t know what will happen but something will happen unless QE is abandoned by the G8 nations except Canada because the BoC did not implement QE and the global financial system is reformed. Continuing with QE leads only to one result and that is [B]hyperinflation[/B].
That’s not doomsday talk neither negative talk. It is simply the final consequence of QE if QE is continued.
Given your further explanation I cannot disagree with your learned positions. I believe I was referring to the tone inferred more than the substance. You have clarified your position as a rational concern. The printing of money to excess is fundamentally inflationary. There have been other times in history when the U.S. as well as other countries have engaged in this practice but perhaps not to this current extent. I have not seen the U.S. governments plan to deal with this growing problem. They have attempted to stop the recession and jolt the economy forward by applying a quick fix with long term consequences. How this will play out remains to be seen but I am not ready to declare the patient dead while the doctors are still working.
In this article below the Chinese have voiced their concerns again. It is of note that a length of time has been mentioned by the Chinese until they expect the dollar to fall hard.
Quote:
[I]“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard.”[/I]
;End Quote
I leave it up to anybodies own interpretation what that actually means “the dollar will fall hard”.
EURUSD is trading @1.4337 right now with the USDX @77.98
1.4337 minus 1.1600 = 0.1737 = [B]approx. -13%[/B]
What the G20 Nations in tandem with US Treasury and FED have done is to place their bets on [B]reflation[/B]. The “tool” that’s been used is Quantitative Easing or QE.
According to this Bloomberg article from yesterday the G20 reflation bet seems to start paying off.
Anything-But-Treasuries Credit Gaining After AIG Ruin (Update2) - Bloomberg.com
Funds that have been hoarded by the banks finding it’s way slowly back into the economy through increased credit.
That does not solve the underlying problem of insolvent banks and monetary inflation but at least money starts to circulate again and returns money markets behaviour to normal.
If the G20 nations, FED and US Treasury for that matter can find a way to decrease the inflated money supply through QE without killing off the real economy in the US and other G20 nations I would think the Chinese will be the first with a happy smile on their face and saying thank you…well done…
But because QE has never been implemented before there is considerable risk that the draining of liqidity aka inflated money supply might not be as easy as thought by the FED.
China won’t sink the dollar, but it won’t help the dollar like it has previously. And the BRICs probably will follow as they are all asking for an international currency and now starting to move words to action.
China is going to purchase $50 billion worth of Special Drawing Rights from the IMF. Who is next? Brazil, Russia, India? Less demand globally for the dollar? Long-term short of the USD?
They are asking…but there is no action and there will be no action. LOL
Because there is no practical altenative to the USD. But that dosn’t mean that it will stay like this. As soon as there is a a practical alternative whether with or without USD things will change very quickly in regards to the USD.
Even the US Armee admitted to that.
Beg your pardon but China is purchasing fixed term notes from the IMF and get’s paid a fixed interest rate.
These notes are newly issued bonds from the IMF and [B]not[/B] SDR’s.
The $50 billion from China are then used by the IMF to increase the allocated SDR’s to each IMF member.
Obama to Make A “Major Address on the Financial Crisis” On Monday…
via Agence France-Presse
[B]Discours “majeur” d’Obama sur la crise financi�re lundi[/B]
Publi� le 10 septembre 2009 � 20h44
(translation into English) by Jesse
U.S. President Barack Obama will deliver a speech on this coming Monday, described as “major” by the White House, on the financial crisis, one year after the collapse of Lehman Brothers and ten days before the G20 summit, his administration announced Thursday.
It will address the strong measures that his administration has taken to move the economy from the abyss, its commitment to reducing the role of government after their recent interventions in the financial sector, and the need for the United States and the international community to prevent the repetition of such a crisis…
The developed countries and major emerging economies are striving to overcome their differences and agree on measures to prevent a repetition of financial crises, and also to appease those who are outraged by the excesses of the financial sector.
The G20 leaders will be in Pittsburgh on 24-25 September. Mr. Obama intends to advance the proposal for new “rules of conduct” in finance.
With the prospect of the end of the recession, Mr. Obama will also put the fight against unemployment at the center of their discussions.
Thanks everyone:)