Akcieatrhy (Akcieatrhy.cz)
Markets  |  January 16, 2013 14:34:43

Dollar and currencies in 2013


Discussion of 'Monetary cliff "along with New Year's hangover is already behind us, so it is advisable to start taking 2013 seriously. It is just doomed? Will the euro shine? How will the Asian currencies and currencies of emerging nations? Will gold continue to decline? Dollar ends in red?

First, look back at last year.

• Supporting the topic last year, could be summarized in one sentence: "Central banks are hoping for the best, but plan worst" universal fear of the result of the fall of the eurozone that printers major currencies drove nonstop. This development benefited mainly smaller currencies of emerging Asian markets, the so-called commodity currencies. Their central banks did not feel the need for a way to insure its currency.

• In 2010, when the euro was approaching the border of 1.18 against the dollar, the euro, we were quite optimistic because of the spread in the European bond market. Then, in the fall of 2011, we began to worry, due to insufficient resolution of the European crisis. It is difficult to assess the value of the company, if you do not know what is the management goal. It is difficult to assess the development of currency when politicians have no plan. In the spring of 2012 were our concern about the fate of the euro due to the largest total absence of any plan to rescue the euro. The head of the European Central Bank (ECB) Mario Draghi heard widespread concern and started pressing for European politicians to find a solution to fix deadlines, claimed responsibility. After his speech, "we will do whatever is necessary", we published an article, with the idea that the fall of the euro is at an end.Reactions to the article were negative both by professional investors and traders from small, which we reinforced the view that the price does not follow the crowd and buy something that is too expensive.

• In the first half of the year, we took to the commodity currencies. Printing presses in major economies rode hard and over time. Over time we became more cautious with it as there have been improvements. Each commodity currency has its own dynamics, and also has its Achilles' heel. In the case of the Australian dollar, we were concerned about the two-tier domestic economy (not the whole of Australia benefited from the commodity growth) and also from the slowdown in economic growth of China.

• We have watched with interest the new changes in the Chinese leadership. The year 2012 could be a transition to a much more dynamic changes than in the past.

• Back to the USA. He wasted another year in an attempt to put the house in order. Fiscal cliff was a diversion, because we need to put reforms leading to keep the deficit funny name. Europe has its own patent for kicking the can down the road. However, the U.S. is due to their deficit more vulnerable because investors for financing the U.S. deficit require higher and higher compensation (ie higher interest rates).

• Japan: The Japanese government was more dysfunctional, less piers spend and the less able to exert pressure on the central bank. Add to this the surplus on the current account, and all of these "bad news" was good news for the Japanese Yen. Countries with current account surpluses need inflow from abroad to finance government deficits incurred as a result of poor economic growth.Weak economic growth, although it does not attract foreign investors, but also for the currency does not mean any harm. Conversely, countries with high current account deficits tend to implement policies that promote economic growth and attract capital from abroad. However, after the 2012 elections, it seems that Japan will have a strong government and its actions will follow with interest.

Outlook for 2013:

Although we believe that the cash market can well predict the future development with fundamental macro analysis, the reader should bear in mind that the market situation may evolve, how they discover new information. It is therefore important to monitor developments, and if there is a new situation, you must create a new analysis or by analyzing new data to modify old.The outlook for 2013 will be continuously improved and adjusted in line with current trends.

• We believe that only the truly doomed. So, from the initial questions can remove the question mark. Prime Minister Abe and his government entered the scene, so we watch, settle with major problems:

by Abe's government will now occupy the top three positions in the Japanese central bank (Bank of Japan), the chairperson and two other governors retire. The latter to the Board of Governors hold moderate views. Japanese culture generally prefers negotiation rather than radical action. However, maybe it was the time when the moderate attitudes are gone. (Despite his moderate reputation, increased in 2008, the Bank of Japan its balance in many areas. Of all the central banks only Bank of Australia was restrained).

the Japanese current account slowly slips into deficit, which means that the importance of debt increases. Debt service costs begin to rise, resulting in that the ratio of deficit to GDP of 200% will become unsustainable.

Abe's government is about as blind. Abe believes that what Japan needs most is spending. What concerns the Japanese yen, so that it gets it maybe more than you want Abe.

Is there a Japanese just really so bad? Trading against the yen in the past was painful, and many do not remember. We expect the yen during the year several wild recessions. It seems to us that just looks like the Nasdaq in 2000. Not technically, but there is the potential for a significant decline, which can start without any delay.

• Euro in 2013 can shine. Boredom is lovely. Sure, there's plenty of problems, but the euro has turned into a completely different currency, although it still treats him as having an infectious disease. Fed, Bank of England and Bank of Japan are still involved in improving the balance sheet, which here is called the term "printing money", when assets are purchased by central banks for money arising from the air by pressing the buttons on the keyboard. In contrast, the ECB, the possibility exists that the balance sheet to shrink, as some banks have announced that they want to return part of the three-billion-dollar eurodluhu who bought the ECB. There are opinions that the ECB should print money bags and activate the buying sovereign debt of peripheral Eurozone countries (Outright Monetary Transaction).We must realize that OMT redemptions must be made of ice, probably offering interest on deposit with the ECB. This would result in the reduction of interest rates in the euro area and the OTM program would cause massive stimulus. However, we believe that the stimulus should be less inflationary effect than the effect of central banks elsewhere in the world. Although it is no longer taboo, believe in the positive development of the euro, but a certain wariness is in place, so we remain moderately positive.

• British pound. Bank of England (BoE) has since the summer of a new governor. It consists of a former head of the Bank of Canada (BoC), Carney. His first public speech after appointment dealt with nominal GDP targeting. Carney will be able to replace several existing council members BoE, which is good news because the club already retired pensioners needs to change.Not so good news concerns the British pound as the cost of debt servicing British ten-year bonds exceeded those of the French. Further developments will be closely monitored.

• Canadian dollar. As head of BOC, Carney was inclined oratorical intervene to weaken the currency, when it seemed stronger. If his current appointed representative Macklem, the BoC is at the forefront of discovering the real hawk. We expect the Canadian dollar positive development, but we will closely monitor further developments. Indeed, there are some contradictory tendencies, but Canada has solved very well.

Commoditycurrency. The commodity currencies are partially optimistic against the Australian dollar. (China is performing better than expected, monetary policy is more compacted than is reflected in the price). Likewise, we maintain goodwill and New Zealand dollar (utuženější monetary policy, better-than-expected economic growth). The Brazilian real is slightly dangerous, masochistic raid due to speculators seeking adrenaline excitement.

• Norwegian Crown. The development of the Norwegian crown looks positive (Adds to the above rock star, but with higher volatility). The Swedish krona remain cautious (price per performance is not ideal, even when things do not go perfectly, even in Sweden).

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• China: new state leadership announced that the main priority will be to maintain the liquidity of the Chinese currency. This is great news not only can attract investors from abroad, but it is important with regard to the creation of a vibrant domestic bond market. In relation to China, we are much more optimistic than others.

• Korea, Taiwan Maljsie: full of positives, currency benefited from the domestic situation and development of the major foreign economies. If we wanted to choose a favorite, we chose the Korean won. However, it should be borne in mind that it is the most volatile of these currencies.

• Singapore: Singapore dollar we continue in popularity. A year ago we started using it as a safe currency in substitution for the euro (rather than the U.S. dollar). Currency may well lag behind the rise of the euro, but lower risk profile is the currency of potentially valuable part of a diversified basket of currencies.

Gold . We expect that in 2013 the gold market volatility increased. This may be regarded as good news, because the trend traders remain holed up in ports. We own gold since the crisis in 2008. Not because of the potential contagion from Europe, but because it is in too much debt worldwide. We believe that inflation will play a key role in the way they want developed countries to deal with its massive debt.Cultural differences and different dynamics also play a role.

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And how will the U.S. dollar? Most of the above discussion applies to the U.S. dollar, so the dollar deserves its own analysis:

• Investors in the U.S. should fear growth. In the spring of 2012 we witnessed a sell-off in the bond market, despite the fact that several economic indicators monitored leapt into the positive region. Bernanke wants to keep debt service costs low, but can only control the size of the yield curve. Therefore, we believe that favors employment growth against inflation. He wants to prevent massive oversold dollar bonds, and until we manage to start up and locked in economic growth. Growth is negative for the dollar because the bond markets could get to the stage of decline. Affection foreign investors to U.S. bonds could start to disappear, just as it was in the past when the early and middle stages of economic growth caused a decrease in the bond market.

• Good luck if Bernanke increase during 15 minutes rate. In 60 minutes the show said that it could still do it. Of course he could, but due to the fact that the economy is much zaúvěrovaná would each compaction rate a ripple effect. In the best case we obtain a fluctuating monetary policy, but the Fed has promised that in 2013 it will be on the agenda.

• In both cases, the expected increase in volatility in the bond markets. Remember why the bubble burst in the real estate market? Due to the increase in volatility. When there is an increase in volatility, extremely zapákovaní trend traders begin to pant as he runs up the hill. Over the last twenty years, investments in U.S. Treasury bonds considered the best investment, so I spilled a huge amount of money.Certainly we do not want foreign lenders to sell their bonds, because it would be cruel awakening. I just need to return to historical levels of volatility. Why is this important in the discussion of the dollar? Because if there were oversold bonds, would increase the interest and the cost of financing the national debt.

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