Risk aversion spikes
By Mitul Kotecha, Head of Global Currency Strategy at Crédit Agricole Corporate & Investment Bank
Increased risk aversion overnight in the wake of escalating Middle East tensions gave the USD some support but overall the USD index is gradually drifting towards its early November low around 75.631. The antithesis of USD weakness is strength in most other major currencies.
The USD is being undermined by relatively dovish expectations for US interest rates relative to elsewhere and last night’s semi annual testimony by Fed Chairman Bernanke to the US Senate did nothing to alter this tone, with Bernanke maintaining the emphasis on subdued inflation and elevated unemployment.

Ten Economic and Investment Themes for 2011
By Mike Shedlock
1. US Municipal Bankruptcies Head to Center Stage
Look for Detroit and at least one other city in Michigan to go bankrupt. Also look for increasing discussions regarding bankruptcy from Los Angeles, Miami, Oakland, Houston, and San Diego. Those cities are definitely bankrupt, they just have not admitted it yet. The first major city to go bankrupt will cause a huge stir in the municipal bond market. Best to avoid Munis completely.

2. Sovereign Debt Crisis Hits Europe
The ECB and EU are hoping things return to normal and they can deal with things more calmly in 2013. The markets will not wait. Expect a new Parliament in Ireland to want to renegotiate whatever horrendous deal Prime Minister Brian Cowen agrees to. Portugal and Spain will need bailouts. The surprise play in Europe will be Italy, a country not on anyone’s front burner. Italy will come under intense credit market pressure, and when it does the whole Eurozone comes unglued. Europe’s banks are insolvent and ECB president Jean-Claude Trichet will have a choice, haircuts or massive printing.

Moody’s May Cut Greece to Junk in Four Weeks
by Edward Harrison
Moody’s is going on a rampage regarding the sovereign debt of the Eurozone periphery. They are now reviewing Portugal and Spain for a potential ratings downgrade. That means they are threatening Greece with junk status and also warning that cuts to Portugal may come as well. Spain’s rating outlook remains stable and Ireland are not mentioned.
In their most recent note alerting the market of these actions, Moody’s has defended themselves despite the wide perception that the ratings agencies are perennially behind the curve on downgrades.

Hi everyone

After the dramatic day we all lived yesterday, today is a day for reflection. In my previous post, I gathered some good articles that were trying to explain the causes of the crash.

Most consider that it was a Citi’s mistake, but I would like also to introduce you to the San Fermines Effect.

You are ready to run before the bulls and you see someone running. What do you do? run like hell.

Another guy sees you two running and what does he do? run like hell too… at the end, everyone is running and no one knows why.

Did we had such effect on yesterday’s move too?

Take always San Fermines effect in count

What is it?

The ‘encierro‘ or The Running Of The Bulls is the single most characteristic event of the Fiesta of San Fermin. It is the event which has given the Fiesta world-wide fame and which is broadcast around the world during the fiesta in July. It is held at eight o’clock each morning from the 7th to the 14th of July inclusive. At 15th on morning will be a joke bullrun, the villavesa (coach-bus line) runnnig.

Survivol run
It consists largely of young men (although women may also run) who run in front of the bulls to lead them from their pen up and into the bull-ring. It usually lasts from two to three minutes - although if there are complications due to loose bulls it can last much longer. Even some people may thins the contrary, the participants are not only from Iruñea-Pamplona, but also from other parts and they run very well indeed.

The length of the run is some 800 metres (about half a mile) and you don’t have to sign up anywhere to take part; you just enter into the run and choose the street where you will run and try to do as best as you can.

After a night of “fiesta”, 8 am: “El Encierro”. 6 fighting bulls to be fought in the afternoon in the square by famous bullfighters, 900 metres run on old streets while hundreds of people are ahead of their horns. The excitement is indescribable. There is nothing alike.

What caused the crash?
by Edward Harrison at Credit Writedowns
Here’s what I am hearing. There was a “fat finger” that caused someone to execute a large order for PG, a Dow component at a price in the high 30s when it was trading above 60. Another word out is that someone entered a $16 BILLION trade instead of a $16 million trade – talk about fat fingers. This triggered a lot of stop loss orders in Dow Futures and caused a cascade of losses that at one point reached more than 1000 points on the Dow.

Equity Plunge Yen Connection; Reflections on Ponzi Markets and Program Trading
By Mike Shedlock
Inquiring minds are digging deeper into the mysteries of Thursday’s stock market plunge starting with an intra-day chart of the Yen.

Japanese Yen vs. US$

The Yen rose 4 cents in an hour vs. the US dollar. Wow. Now let’s invert the chart and overlay a chart of the S&P 500 on top of it. 45 minutes before US equities went into a waterfall dive, the Yen went into a skyrocket rally vs. the US dollar (inverted on the above chart).
The Yen and the stock market magically stabilized at exactly the same time, right at the equity bottom.

BIS Quarterly Review, March 2010 - Exchange rates during financial crises
Exchange rate movements during the global financial crisis of 2007-09 were unusual. Unlike in two previous episodes - the Asian crisis of 1997-98 and the crisis following the Russian debt default in 1998 - in 2008 a large number of currencies depreciated sharply even though they were not at the centre of the crisis. Moreover, during 2009, the crisis-related movements reversed strongly for a number of countries. Two factors likely have contributed to these developments. First, during the latest crisis, safe haven  effects went against the typical pattern of crisis-related flows. Second, interest rate differentials explain more of the crisis-related exchange rate movements in 2008-09 than in the past. This probably reflects structural changes in the determinants of exchange rate dynamics such as the increased role of carry-trade activity.
BIS Quarterly Review, March 2010

Some good readings for the long Christmas weekend from a great contributor of FXstreet.com as it is The National Bank of Canada through National Bank Financial Group division

Monthly Fixed Income Monitor - Looking for monetary exit strategies by National Bank of Canada

Economic Monitor - World: Strong Asia-led growth in 2010 by National Bank of Canada

Monthly Equity Monitor - 2010: Recovery year by National Bank of Canada

Francesc

Hi everyone

With some unwilling delay, here you have the U.S Commodity Futures Trading Commission (CFTC) financial data for Futures Commission Merchants (FCM) for the month of September 2009.

http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

Oanda leads the retail industry in terms of excess of net capital with $142mio, followed by Gain Capital, Global Futures & Forex (GFT) and Forex Capital Markets (FXCM).

Minimum Net Capital = $20 million
Advanced Markets $20,582,254 (Excess Net Capital $582,254)
Easy Forex US $20,741,481 (Excess Net Capital $741,481)
Alpari US $20,917,062 (Excess Net Capital $917,062)
Ikon Global Markets $21,934,409 (Excess Net Capital $1,934,409)
MB Trading $22,950,790 (Excess Net Capital $2,950,790)
Forex Club Financial Company $23,265,616 (Excess Net Capital $3,265,616)
Capital Market Services LLC - CMS Forex $24,293,726 (Excess Net Capital $4,293,726)
Peregrine Financial Group Inc - PFG $32,753,161 (Excess Net Capital $12,753,161)
InterbankFX $34,157,710 (Excess Net Capital $14,157,710)
FX Solutions $51,363,406 (Excess Net Capital $31,363,406)
Forex Capital Markets LLC - FXCM $58,476,917 (Excess Net Capital $38,476,917)
Global Futures & Forex Ltd - GFT Forex $72,387,067 (Excess Net Capital $52,387,067)
Gain Capital Group LLC $88,480,392 (Excess Net Capital $68,480,392)
Oanda Corporation $162,232,690 (Excess Net Capital $142,232,690)

Francesc

Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging
Many observers were surprised by the US dollar’s appreciation in late 2008, the sharpest in the period since generalised floating began in 1973. In their feature, Robert McCauley and Patrick McGuire (BIS) argue that a combination of factors contributed to this development. First, the US dollar benefited from the global flight to safety into US Treasury bills. Second, the dollar profited from the reversal of carry trades. Third, a dollar shortage in the international banking market resulted in high dollar interest rates in private markets, which supported the currency. Finally, writedowns of dollar assets left European banks and institutional investors outside the United States overhedged. The resultant squaring of their positions in turn may also have boosted the dollar.
Full Story

Dollar Slump Persisting as Top Analysts See No Bottom
Bloomberg
By Bo Nielsen
Nov. 23 (Bloomberg) — The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.
Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 6.4 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.
Full Story