Well, it turns out that that the economic situation may be worse than expected in Greece as budget deficits came in at 13.6% of GDP, higher than the forecast of 12.9%. While this is not a good number, turns out it is not even the worst in the region. Ireland’s budget deficit is at 14.3%. So why all of the hoopla about Greece if Ireland is in worse shape?
Well, the Irish were pro-active in instituting austerity measures and its citizens are not striking in the streets. So it seems an almost certainty that Greece will be tapping into the rescue plan, now the devil is in the details. As can be expected, the Euro is lower across the board and invoking some risk aversion today.
However, we have some fairly good news out of Australia and New Zealand, and those currencies are hanging in there and actually showing gains despite the risk aversion.
US jobless claims missed estimates marginally, but are lower than last month in a sign that they are moving in the right direction, albeit slowly.
In the forex market:
Aussie (AUD): The Aussie is slightly lower this morning as the market is beginning to price in another interest rate hike. The wild-card here is what is going to happen with China, as the IMF is now jumping into the mix and calling for Yuan appreciation.
Loonie (CAD): The Loonie is slightly lower, taking its cues from oil which is down this morning to just below $83. A reading of leading indicators came in better than expected, and the market is expecting that the BOC will move on rates sooner but at a slower pace, despite the “conditional commitment” to keep rates unchanged until July.
Kiwi (NZD): The Kiwi is higher this morning as consumer confidence figures remain unchanged in a sign that hopes of an economic rebound have not been abandoned just yet. In addition, the Finance Minister came out in a statement that said the economy is recovering “slightly more strongly” than the last reading in December which could put the prospect of rate hikes back into the mix. The IMF also upped its growth estimates to 2.9% from a previous estimate of 2.1%.
Euro (EUR): Expect the Euro to trade lower until the exact terms of the Greek bailout hit the market. If anyone cares, EU manufacturing numbers came in slightly better than expected, showing signs that all hope is not lost in the EU. But the obvious elephant in the room is the Greek bailout so a wait and see approach is appropriate until a resolution is announced.
Pound (GBP): The Pound is giving back some recent gains as public borrowing jumps to its highest levels ever. Retail sales figures came in slightly lower than expected, but not enough to warrant a major move. Mortgage approvals were higher, indicating that the housing may be beginning to stabilize. And lastly, business optimism figures came in better than expected so all in all this news is a wash. So when in doubt, call it a “technical pullback”. The sentiment is still positive for the Pound, outside of general risk aversion.
Dollar (USD): The Dollar is mostly higher, especially vs. the Euro and Pound but trading lower than Yen as risk aversion is prevalent to start the day. Initial jobless claims missed estimates slightly, and the market is waiting for existing home sales later this morning. PPI figures came in and rose higher than expected to .7% although only slightly higher. At this point growth appears to be outpacing inflation so it looks like the Fed won’t have to move on rates any time soon.
Yen (JPY): The Yen is higher this morning as risk aversion is causing some carry trades to be taken off the table, though not in a major way. The IMF came out and said it expects deflation to persist and that Japan may need to take additional accommodative measures. So expect Yen weakness in the long-term and use short-term risk aversion as a way to establish carry trades. Provided a major risk event doesn’t occur such as a Euro collapse.
Another day, another dollar as the saying goes. Until all of the cards are on the table regarding Greece, expect the Euro to trade lower. Especially if contagion to the other PIIGS countries looks probable. The lower the Euro goes, expect risk-aversion to get stronger.
This means we could see near-term Dollar and Yen strength, despite the “good” economic stories coming from the commodity currencies. Carry traders use risk events to buy higher yielding currencies on pullbacks.
If you think about it, the interest rate differentials act as almost like a stop-loss mechanism. For example, if you enter into a carry trade and buy AUD/JPY you stand to earn 4.15% interest (4.25%- .1% interest rates) on roll-over day (Wednesdays). This means you could sustain a loss of less than 4.15% on a long position of this pair and still make money! This is a simplistic example for illustrative purposes only, but you get the idea.
This is why the forex market has become so popular as there are many different ways to make money!
Isn’t it time you found about more about this market?
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, cad, carr, carry trade, China, commodity, course, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, existing, fed, forex, forex market, free, fx, fxedu, gbp, home, idea, Il, interest, interest rate, interest rates, ISM, Japan, jpy, Kiwi, live, loonie, lower, make money, market, Mike Conlon, money, new zealand, news, nzd, oil, pair, piigs, pound, practice, practice account, retail sales, RSI, sentiment, short, ssi, technical, time, trader, trades, USD, Yen