Dollar falls 3% vs. yen on central bank inaction – Currencies

NEW YORK (MarketWatch) — The U.S. dollar plunged nearly 3% against the Japanese yen on Tuesday after Japan’s central bank offered no new easing moves in its latest policy decision.

The Japanese yen USDJPY +0.1548% gained ground after the Bank of Japan disappointed some market participants who had wanted it to extend the duration on its ultra-low-interest loans to banks.

Emerging markets stocks and currencies were hit hard on Tuesday.

The dollar fell 2.6% to ¥96.22 in recent trade after hitting an intraday low of ¥95.56 earlier, according to FactSet data. The greenback hasn’t ended the day below ¥96 in more than two months, the data show.

The reaction to the Bank of Japan’s unchanged policy was felt across markets as Japanese, European and U.S stocks fell and Treasurys fluctuated. It is another indication of how central bank action has begun to dictate daily movements across markets as investors begin anticipating a potential tapering of quantitative easing in the U.S.

The dollar is still up nearly 11% against the yen this year but has come off significantly from its late-May highs above ¥103, which it made on expectations the Federal Reserve would soon begin paring back its aggressive bond-buying operations.

While profit-taking might drive the dollar-yen lower in the short term, Japan still has an aggressive monetary policy which should weigh on the yen in the long term, said Camilla Sutton, chief FX strategist at Scotiabank. She has an year-end target of ¥105 for the dollar.

Separately, U.S. wholesale inventories rose 0.2% in April and data showed positive signs for the jobs market.

The ICE dollar index DXY +0.08% — which tracks the greenback against six rivals — fell to 81.128 from 81.667 late Monday, while the WSJ Dollar Index XX:BUXX +0.02% — which uses a slightly wider comparison basket — dropped to 73.08 from 73.71.

The euro rose against the dollar EURUSD -0.0225% , trading at $1.3305 recently, higher than $1.3254, and the British pound GBPUSD -0.0072% rose to $1.5634 from $1.5571. Germany’s constitutional court is debating whether the European Central Bank’s Outright Monetary Transactions — a yet-to-be-used program to buy bonds from struggling euro-bloc nations — is allowable under German law.

The dollar continued to gain against commodity currencies on Tuesday.

“The dominant story is really the weakness you’re seeing in commodity currencies that is part of this selloff in risky currencies more broadly, that’s been led by the emerging world,” said Alan Ruskin, a currency strategist at Deutsche Bank in New York.

The New Zealand dollar NZDUSD +0.6304% fell to 78.80 U.S. cents from 78.86 U.S. cents.

Slowing growth in China — illustrated by a slate of recent lackluster data including a decline in export growth -— is of special concern to Australia, which counts China as its largest trading partner.

The Australian dollar AUDUSD +0.3021% fell to 94.46 U.S. cents from late Monday’s 94.59 U.S. cents. A National Australia Bank survey out Tuesday showed business sentiment remained negative in May.

The Aussie has marched steadily lower in recent weeks, after having lost parity with the U.S. dollar in mid-May. But Crédit Agricole strategists said Tuesday that the currency is oversold and could soon rebound.

“Going forward, we expect [the Australian dollar’s] downside to become increasingly limited from current levels and advise against speculating on much more downside,” they wrote, citing improving risk sentiment as a factor in the currency’s favor. The also said the Aussie could benefit from dashed hopes surrounding the Reserve Bank of Australia (RBA).

“Market expectations for two more interest-rate cuts by the RBA over the coming 12 months may prove excessive, unless domestic growth conditions weaken considerably further,” they said.

The Colombian peso also fell along with emerging-market currencies. Turkey’s central bank on Tuesday said it would sell U.S. dollars in auctions as part of an attempt to stabilize the lira. Prior to central-back action, Turkey’s lira had declined amid ongoing protests in Istanbul.

Seo

Won Falls to One-Month Low on Fed Policy Risk; Bonds Decline

South Korea’s won fell to a one-month low on concern U.S. policy makers will reduce monetary stimulus that has fueled demand for emerging-market assets. Government bonds fell.

The dollar strengthened against all major peers and Treasury yields rose to the highest in two months after Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank may taper monthly bond purchases if it’s confident of sustained gains in the U.S. economy. South Korea’s economy is still going through a “slump” and a sliding yen is hurting the nation’s exports, Finance Minister Hyun Oh Seok said today.

The won dropped 0.7 percent to 1,121.71 per dollar as of 10:44 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,124.01, the lowest level since April 22. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 42 basis points, or 0.42 percentage point, to 8.95 percent, the data show.

“Bernanke’s comments were a signal for investors to pull out of riskier assets,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “The won may trade near the 1,120 per dollar level as some exporters may sell dollars.”

The Fed could “take a step down in our pace of purchases” from $85 billion a month in the “next few meetings,” Bernanke said yesterday in a testimony to the Joint Economic Committee of Congress in Washington. He defended the central bank’s record stimulus program, telling lawmakers that ending it prematurely would endanger a recovery hampered by high unemployment and government spending cuts.

Dollar, Yen

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 84.438. The yen weakened 0.2 percent to 103.37 per dollar.

The won has fallen 5.1 percent versus the dollar and gained 14 percent against the yen this year. That makes it harder for South Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas.

“The fact that the won is not a key currency exposes the Korean economy to foreign-exchange risks,” Finance Minister Hyun said at a forum in Seoul. The yen’s slide against the dollar has had a “considerable impact on our exports,” he said.

The yield on South Korea’s 2.75 percent government bonds due March 2018 rose four basis points to 2.74 percent, according to prices from Korea Exchange Inc.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51

To contact the editor responsible for this story: James Regan at jregan19

Are You Bullish Grains

In a previous report, I wondered why US grain producers are calling and writing about old crop corn and soybeans and why they seem totally unconcerned new crop grains on the futures market have been heading lower. When I ask about new crop futures and cash prices, it still surprises me how very few have an idea what is happening to their local cash markets and why basis is extremely wide.

As I write, Thursday May 16, the spread between July corn and December corn is close to $1.20 with December under July. The difference for cash corn is the difference between night and day for old crop grain and new crop. Across the Midwest, it is common to see July cash bids 40 cents/bushel over the July futures. For December 2013 cash corn bids, it is common to see cash bids minus 40 cents/bushel under December. It means July corn is near $6.80/bushel for corn held in storage and for corn being planted, a corn price for fall delivery around $4.80/bushel.

Of course, bids by river terminal markets and close to processors are better and bids far from terminal markets may be wider, but the point is if a producer is holding old crop, they are likely to get a price for July corn near $6.80/bushel or better and for new crop, a price if futures are around $5.30/bushel, cash prices are $4.90 give or take a few cents. It is time to face what is going on.

Supposedly, US farmers have very little old crop grain to sell and we know very little new crop has been sold. If farmers remain concerned about old crop grain, does it mean there is more old crop yet to be moved? Does it mean producers believe new crop will rally and cash basis will narrow? OR does it mean, there is a lot of hope new crop will rally and ignoring cash markets and falling futures are a method to make the cash to future spreads narrow for new crop.

If farmers in Brazil hold 20% to 25%, of their corn and soybeans, Argentine farmers store 45% and US farmers refrain from contracting, will buyers this fall pay higher prices?

Unfortunately, it probably means there is a lot of hope. Calls and emails from producers run far more to the bullish side than bearish. The calls I received from readers in March were concerned subsoil moisture levels were too low. Now the same people are claiming late planted corn and cold weather in April and May will reduce yields. The farmers calling know better. They know the heat units during the summer and moisture throughout the summer make the crop.

Also… very few bullish traders are looking at the rally in the US Dollar Index and the falling Australian Dollar, Euro and Brazilian Real and a Japanese Yen falling almost 21%. For the past 2 ½ years, US agriculture could depend on Japan, Mexico and China. Why don’t bullish traders want to look at trade agreements Egypt, China, and Japan have made with FSU countries. Few bullish traders look at cancellations of soybeans. Exports for new crop compared to the previous three years of strong exports are dropping.

To insure new crop wheat sales this summer, Russia brought old crop wheat out of reserves over the past few weeks to meet demand and to keep buyers. They are working to keep buyers. Foreign buyers do not have incentives to buy US commodities and storing crops when crops around the world are available is not bullish.

I get a big kick out of all the assumed bullish talk with shipping delays from Brazil and how Argentine farmers have only marketed or contracted 45% to 50% of crops. The longer it takes to move grain in South America, the more bearish it will be for US new crops. Is there some reasoning that grain in Brazil and Argentina will remain in storage? Currently and from now on, it really makes no difference if shipments are slow from Brazil. Even if it has been taking more than 50 days for Brazilian grain to reach China, with the shipping lag over the past two months, it now means grain shipped two months ago is reaching destinations. If it was the reason as some believe, May grain futures rallied, it won’t be a justifiable reason for July to squeeze August soybeans or July corn and wheat squeezing September futures. What was once delayed, will now take more months to move.

The truth is US grains are too expensive compared to worldwide grains. The US Dollar Index is making a new move to the upside. If I was teaching technical trading, the June 2013 US Dollar Index chart would have to be a chart used. As one client wrote me, “It is picture perfect.” A strong dollar is not bullish for exporting US commodities. A strong US Dollar allows the US companies to buy commodities from foreign buyers. Beef imports from Brazil and Australia are being ground up going to fast food chains and onto grocery shelves. US hog and poultry firms are taking shipments of grain from South America and Canada.

US DOLLAR INDEX 2:00 PM CENTRAL May 16, 2013 CHART by eSIGNAL

US Dollar Index

When markets rally, buy put options, or sell futures. It can’t be easier. If you aren’t convinced grains
and livestock will fall, sell futures and buy call options.

If you can’t decide what to do, I have two very good suggestions. Print the chart of the US Dollar Index and call me. And if you would like my specific recommendations and a trial for my reports I send to clients, send your email and phone number. I can be reached at: 1.913.787.6804 and chris.lehner@archerfinancials.com.

Our online application process makes opening an account at Archer Financial Services much easier than shuffling through hard copies of paper and having to depend on the US Mail for timely delivery. Go to our interactive New Account application at https://newaccount.admis.com/OnlineApp.aspx?office=969 for Chris Lehner.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.

B. regards

Felix (Kyung) Seo