The big news of the last two days was yesterday’s FOMC where Fed Chairman Bernanke confirmed the end of QE2. I also felt bad for him as he looked like a child who just was informed that there is no Santa Claus as he lowered the Fed’s growth and GDP forecasts, all but admitting that these extraordinary measures haven’t worked.
In a way, I feel bad for him as he is getting NO help on the fiscal side of the equation, and trying to keep the economy afloat with monetary policy alone won’t work. Cue the debate over the debt ceiling, which is due to expire in early August which could put pressure on politicians to finally take action, as doubtful as it may seem. Bernanke will likely be quiet for the rest of the summer, but if things start to deteriorate rapidly, then we could hear rumblings of further easing. So yesterday markets reversed and risk was taken off of the table, with Dollar strength pushing stocks and commodities lower which has continued into this morning. In the Euro zone PMI figures came in worse than expected, though this is a minor inconvenience when considering that the vote on austerity in Greece needs to take place. There are certain conditions Greece must adhere to, including the sale of state-owned assets to satisfy their creditors, namely the ECB and the IMF. As I have mentioned before, this is not a done deal. In addition, ECB honcho Trichet’s comments about the debt crisis are not helping matters. Stocks and commodities are lower to start the day and later this morning we will get initial jobless claims which are expected to show another 415K newly unemployed, and new home sales which are expected to have declined by 4%. It’s not a pretty picture out there folks and until the fiscal side of the equation begins to repair itself through debt reduction and not expansion, we will continue to sink toward the abyss. In the forex market: Aussie (AUD): The Aussie is mostly lower on risk aversion but it hasn’t been as badly sold-off as the Euro as the benefit of the interest rate differential makes it somewhat prohibitive to short as it is still attractive. Kiwi (NZD): The Kiwi is also lower on risk aversion thought the prospect of being the next major economy to raise interest rates leaves it somewhat desirable to those still seeking yield. Loonie (CAD): Curiously, the Loonie is mixed to slightly higher despite oil prices that have sold off more than 3 handles. With US GDP figures revised lower, Canada’s economy is bound to be affected so I’m a little surprised that the Loonie is not much lower. (Click chart to enlarge) Euro (EUR): The anti-Dollar properties of the Euro are dragging it lower in addition to the continued drama of the debt crisis and the possibility of Greece not accepting the austerity measure imposed upon it despite the confidence vote. This could bring about major contagion which as Trichet noted yesterday, could be a major risk event. (Click chart to enlarge) Pound (GBP): The Pound is selling off as well on Dollar strength though mortgage loan applications have gone up signaling that inflation is a real concern in the UK. Swissie (CHF): The Swissie is mostly higher on risk themes and earlier trade balance figures came in much better than expected. Even though exports declined, imports declined by an even greater margin allowing a much bigger surplus. This could however also show that the Swiss economy is shrinking rapidly, which would be negative in the long run. Dollar (USD): The Dollar is stronger across the board as the artificial condition known as QE2 is ending. Initial jobless claims came in worse than expected, though within general expectations. Risk in the markets is causing Dollar strength, not the sentiment that US economy is doing well. Yen (JPY): The Yen is mostly stronger though not as much as we might think under risk aversion scenarios, as the Dollar is favored. It’s starting to look ugly out there again, and the removal of Fed easing may bring about a major slowdown. Oil prices are moving much lower, in a sign that indeed Dollar strength affects the price of oil which in turn influences inflation. Market sell-offs are accelerating, and it appears as though the removal of the Fed crutch before the patient can walk has caused a bigger problem. While under normal circumstances the summer might be a slow time for market activity, I think this time it will be different. There are many potentially hazardous situations that need to be navigated and I am afraid that politicians are asleep at the wheel. Temporary measures produce temporary results. This is akin to bandaging a wound, but not stitching it up first. Of course there is going to be continued bleeding when you take it off, as the problem hasn’t been fixed! So beware of the risk in the marketplace, as this could carry on for some time. Protect yourself and your assets through the forex 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! ?
In a way, I feel bad for him as he is getting NO help on the fiscal side of the equation, and trying to keep the economy afloat with monetary policy alone won’t work. Cue the debate over the debt ceiling, which is due to expire in early August which could put pressure on politicians to finally take action, as doubtful as it may seem. Bernanke will likely be quiet for the rest of the summer, but if things start to deteriorate rapidly, then we could hear rumblings of further easing.
So yesterday markets reversed and risk was taken off of the table, with Dollar strength pushing stocks and commodities lower which has continued into this morning.
In the Euro zone PMI figures came in worse than expected, though this is a minor inconvenience when considering that the vote on austerity in Greece needs to take place. There are certain conditions Greece must adhere to, including the sale of state-owned assets to satisfy their creditors, namely the ECB and the IMF. As I have mentioned before, this is not a done deal.
In addition, ECB honcho Trichet’s comments about the debt crisis are not helping matters.
Stocks and commodities are lower to start the day and later this morning we will get initial jobless claims which are expected to show another 415K newly unemployed, and new home sales which are expected to have declined by 4%. It’s not a pretty picture out there folks and until the fiscal side of the equation begins to repair itself through debt reduction and not expansion, we will continue to sink toward the abyss.
In the forex market:
Aussie (AUD): The Aussie is mostly lower on risk aversion but it hasn’t been as badly sold-off as the Euro as the benefit of the interest rate differential makes it somewhat prohibitive to short as it is still attractive.
Kiwi (NZD): The Kiwi is also lower on risk aversion thought the prospect of being the next major economy to raise interest rates leaves it somewhat desirable to those still seeking yield.
Loonie (CAD): Curiously, the Loonie is mixed to slightly higher despite oil prices that have sold off more than 3 handles. With US GDP figures revised lower, Canada’s economy is bound to be affected so I’m a little surprised that the Loonie is not much lower. (Click chart to enlarge)
Euro (EUR): The anti-Dollar properties of the Euro are dragging it lower in addition to the continued drama of the debt crisis and the possibility of Greece not accepting the austerity measure imposed upon it despite the confidence vote. This could bring about major contagion which as Trichet noted yesterday, could be a major risk event. (Click chart to enlarge)
Pound (GBP): The Pound is selling off as well on Dollar strength though mortgage loan applications have gone up signaling that inflation is a real concern in the UK.
Swissie (CHF): The Swissie is mostly higher on risk themes and earlier trade balance figures came in much better than expected. Even though exports declined, imports declined by an even greater margin allowing a much bigger surplus. This could however also show that the Swiss economy is shrinking rapidly, which would be negative in the long run.
Dollar (USD): The Dollar is stronger across the board as the artificial condition known as QE2 is ending. Initial jobless claims came in worse than expected, though within general expectations. Risk in the markets is causing Dollar strength, not the sentiment that US economy is doing well.
Yen (JPY): The Yen is mostly stronger though not as much as we might think under risk aversion scenarios, as the Dollar is favored.
It’s starting to look ugly out there again, and the removal of Fed easing may bring about a major slowdown. Oil prices are moving much lower, in a sign that indeed Dollar strength affects the price of oil which in turn influences inflation.
Market sell-offs are accelerating, and it appears as though the removal of the Fed crutch before the patient can walk has caused a bigger problem. While under normal circumstances the summer might be a slow time for market activity, I think this time it will be different.
There are many potentially hazardous situations that need to be navigated and I am afraid that politicians are asleep at the wheel. Temporary measures produce temporary results. This is akin to bandaging a wound, but not stitching it up first. Of course there is going to be continued bleeding when you take it off, as the problem hasn’t been fixed!
So beware of the risk in the marketplace, as this could carry on for some time. Protect yourself and your assets through the forex 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!
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