Forex Blog - Forex News & Currency Analysis

USD, GBP devaluation panic continues - CHF the main benefactor. Japan’s MoF threatening intervention as USDJPY scrapes to new lows. German IFO number on tap today. GBP weakening vs. EUR more pronounced than when pound forced out of ERM in 1992.Currencies followed up with force on the new theme of currency devaluation risks after the US Fed’s Bernanke declared all-out-war on deflation with Tuesday’s dramatic new FOMC statement. GBP is also feeling the brunt of the selling pressure on this theme as chatter is developing over their potential for an eventual move into the netherworld of alternative monetary expansionism once the zero bound is attained by the BOE. It appears that the deleveraging trade has faded for now - some are even calling it complete (we’re not so sure….). The focus now is clearly on the idea that the policy intent of the more activist central banks - with the Fed and the BOE in the vanguard - is to avoid deflation at all costs and hopefully even create a bit of inflation to avert the fearsome specter of debt deflation in an insanely overleveraged economy.

Watch out for the German IFO number today. In this ridiculously thin market, which has already severely aggravated the EURUSD move, this number could generate plenty of volatility. Also keep an eye on UK Retail Sales, which are likely awful. The EURGBP rally has accelerated out of control on the same basic theme as we described for the USD. The BOE’s Gieve and Bean have been out saying that zero interest rates are possible. The Woolworths chain in the UK has announced that it will be closing all of its more than 800 stores by January 4, and tens of thousands will lose their jobs.

The only currency outperforming the EUR at the moment is the Swiss Franc, which went ballistic versus the USD and GBP and even made significant ground against the EUR. This adds up to a USDCHF sell-off that created a historic move for the week - and it’s only Thursday today. We suspect that the move was driven by positioning more than any fundamental trigger event.

Major Headlines

• Japanese FinMin Nakagawa says he will “take necessary steps if needed” to limit the newfound JPY strength. USDJPY retracing from the 13-year lows.
• Bank of Norway cut rates 175 bps. to 3.00%. Much more than expected. EURNOK staying around 9.50.
• US stocks retreating slightly. Losses led by Basic Materials despite commodities about unchanged. Except oil, which dropped to below 40 for the first time since 2004. OPEC cuts daily production by 2.46M barrels, much more than expected. But market pricing in bigger drop in demand and that individual OPEC members will break quotas.
• US 10-year Treasury Yield dipping to 2.07%. 30-Year to 2.58%. The support from monetization is being priced-in

 “In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent.”

 ”…The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.”