Account | Forex Blog

October 5, 2011

Forex Market Outlook 10/05/11

Filed under: Forex News — Tags: account, avoid-the-topic, currency-pairs, gbp, interest-rate, interest-rates-, invest, mike conlon, number, practice account, trend — admin @ 7:06 am

Was yesterday’s intense rally just a pause in the selling or does this mark a reversal of trend? This is the million dollar question and one that the markets are weighing very carefully. The catalyst for yesterday’s move higher was none other than Fed Chairman Bernanke who stated in his speech to the Joint Economic Committee that further monetary stimulus could be forthcoming.

This gave the markets an immediate shot in the arm and they rallied on those words as the thought of more free Fed money is too good to ignore. Many thought, including myself, that given the politics of further easing he might avoid the topic, but with the recent selling taking place something had to be done. So I applaud him for his courage, though political pressure seems to be waning against complete opposition to further monetary stimulus.

This was enough to push markets higher including the Euro, which had maintained strength until this morning after Moody’s downgraded Italy by three notches and warned that further downgrades of other countries could occur. Couple this with weaker PMI services figures from the Euro zone and declining retail sales figures (-1% vs. an expected -.7%) and the economic picture doesn’t look much better than it did two days ago.

Yet for some reason the markets believe that EU leaders are making serious strides toward a debt crisis resolution this time, all but admitting that they haven’t taken this crisis seriously enough to this point. One positive note was a vote of confidence in Portugal as investors passed on an opportunity to receive early payouts from a bond issue, electing to wait it out.

In the UK, GDP figures came in slightly worse than expected, showing a gain of .1% for the quarter vs. an expectation of .2%, bring the YoY figure down to .6% from the expected .7%. While this does indeed show a declining economic picture, it is unclear if this is enough to cause the BOE to increase asset purchases at tomorrow’s rate decision.

The EU rate decision also tomorrow, though, is another story. The ECB has been reluctant to step up in the wake of the debt crisis and it will be interesting to see what if anything they announce tomorrow. They could use this platform not to change rate policy per se, but rather announce plans for how they plan to combat the debt issue. The difference between the two rate decisions is that the BOE does not issue a statement with their decision, and the ECB does.

Rounding out the news from around the globe, Australian retail sales figures came in better than expected, showing a gain of .6% vs. an expectation of .2%. This has helped push the Aussie higher in conjunction with the Dollar weakness we saw yesterday and the follow-through this morning.

The ADP jobs report came out here in the US this morning and showed an increase of private sector jobs of 91K, vs. an expectation of 75K. While this number bears no significant correlation to Friday’s Non-Farm Payrolls report, it should be noted that although Friday’s NFP is expected to show a gain of around 60K, the number of private sector jobs expected to be added is closer to 100K.

While the markets started the morning in risk-taking mode, it appears as though we are giving back some earlier gains as both stocks and risk assets are selling off a bit. While still in positive territory, it will be interesting to see if this rally can be sustained or if it was just a one-day wonder.

So today may be what we call an “inside day”, where we make neither new highs or lows as we wait for the rate decisions of tomorrow to guide sentiment. And of course any news out of the Euro zone will be dissected, though the usual “no news is good news” mantra may not hold water in this situation. Clarity form the Euro zone is needed, and not obscurity.

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October 4, 2011

Forex Market Outlook 10/4/11

Filed under: Forex News — Tags: account, commodity, currency, euro, forex, markets, rate-decision, top stories — admin @ 6:56 am

Yesterday’s continuation sell-off from last week was a slight deviation from the activity we were expecting as the usual dose of weekend risk aversion and the re-establishment of risk positions to start the week did not take place. In fact, just the opposite occurred as the selling accelerated throughout the US trading session.

Part of the reason for this was news out of the Euro zone from the EU Finance Ministers’ meeting regarding what it will take for Greece to receive the next tranche of bailout money. One of the impediments had been Finland’s insistence upon some sort of collateral agreement to receive their participation and some sort of deal was reached. But there was also talk that the private sector participation may need to increase. Known as a “haircut”, essentially this would mean that the private sector would have to agree to accept greater losses on the debt than had previously been agreed upon at the July meeting. While no definite level has been mentioned, should the haircut increase significantly banks with heavy exposure to European debt could experience big-time losses.

Thus there has been selling in bank stocks and the overall stock market indices which has dragged the Euro even lower and ignited further safe haven risk aversion via the US dollar and gold buying. PPI figures in the Euro zone came in slightly higher than expected so Thursday’s ECB rate decision could produce no change but serve as a platform for Trichet to speak on the debt crisis.

Overnight, the RBA rate decision in Australia produced no change as expected but they did leave the door open to rate reductions if the economy begins to slow significantly or if employment starts to fall. Causing dual stress on the Aussie is the fears of a Chinese slowdown which is evidenced by their lower PMI numbers. On top of this, the US Senate is proposing legislation to combat China’s unfair trade practices of undervaluing their currency which could ignite a trade war between the world’s top two economies. While I believe that something needs to be done about the Chinese currency peg, the timing of this may be disastrous. The Aussie is trading at 1-year lows.

Meanwhile the flight to safety has strengthened the Japanese yen to 10-years highs vs. the Euro and Pound and intervention is unlikely unless the Yen strengthens above 76 vs. USD.

Speaking of the Pound, UK GDP figures are due out tomorrow and bets are increasing that the BOE may increase their bond buying to combat a declining economy. While the numbers have been weakening, I’m not sure they are weak enough to warrant further easing at this point. We shall find out on Thursday.

With major risk aversion causing massive selling, thankfully we have Bernanke to the rescue today—not! He is set to speak to the Joint Economic Committee on the state of the economy and I’m sure he’s going to say, “all is well” or words to that effect, and he may even go so far as to hint at further monetary easing. The problem he has and hasn’t understood from the start of this crisis is that cheap money is not the end all be all but that consumer confidence in our economy and policymakers is tantamount. Confidence is near an all-time low and the psyche of the American consumer—and frankly their ability to consume with declining wages and high unemployment—further adds to the downward economic spiral.

Friday’s employment report is a crapshoot at this point as there is no telling what the number of new jobs added will be. Estimates are for 50K jobs to be added though it is unclear if that will be an acceptable figure to the markets even if it is reached.

We are entering very dangerous economic territory here and the recent history has shown that we may be heading straight for the type of market activity we saw after the US financial collapse in mid-2008. With the Euro debt crisis on the brink of disaster, demand for US dollars to increase bank liquidity further contributes to risk aversion and the correlative effects of taking all other markets lower. Demand for Treasuries and Dollars has been high for the past few weeks and despite “Operation Twist” this may continue for some time.

There is no magic bullet at this point that can immediately fix the problems, but solutions at this point are more welcome than non-action. Everyday that passes without resolution hastens the speed at which the problems accelerate. We feel eerily close to that point, so continue to avoid risk until some clarity emerges.

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September 27, 2011

Forex Market Outlook 9/27/11

Filed under: Forex News — Tags: account, currency market, europe, forex, forex trading, live, market, sentiment, time, usd — admin @ 6:41 am

Yesterday’s market rally has continued this morning after news broke yesterday that indeed EU leaders were making significant progress toward coming up with a solution to the debt crisis.

The current plan being floated is one that resembles the US TARP program (Troubled Asset Relief Program) whereby the ECB creates a special purpose vehicle (SPV) that will buy distressed bonds and sovereign debt from banks and issue debt which can be used to access liquidity from the ECB. The general idea is that the bad bonds will sit on the ECB’s balance sheet allowing European banks to continue operations.

While these plans have been floated before, this one seems to be a bit more credible as more details emerge. International pressure on EU leaders to do something (and do it quickly!) was confirmed by Treasury Secretary Geithner, who has hit the TV circuit over the last few days.

As a result of this news, risk assets are back in favor with Dollar and the other safe havens declining. This week is fairly light on news so this morning’s better than expected German consumer confidence figures had little impact.

It is likely that the US home price figures and consumer confidence figures due out later this morning will have a similar effect. While they are expected to have declined, the markets are more concerned with re-capturing some of last week’s losses than with minor data points that show what we already know—that the US economy and thus the global economy has slowed.

One of the “bright spots” about the Euro debt crisis is that it is receiving much of the blame for what ails the global economy. The prevailing notion is that if this situation can just be rectified, then the global economy can resume growth again.

While this situation has been a major source of risk in the marketplace, it must be noted that it is not the sole cause of the global economic slowdown. This “sideshow” may buy time for politicians here in the US to figure out how to work with one another again and institute some pro-growth policies that can get our economy moving again.

We are stuck in a vicious cycle of high unemployment, which reduces consumer confidence and thus demand, which then in turn causes businesses to reduce output which means that they will cut spending if profits fall significantly. The easiest way for them to cut spending is to cut their workforce, which further perpetuates the cycle.

But things aren’t as bad as they seem, as corporate balance sheets have never been healthier and hiring could resume if businesses could become more confident that we have the right policies to grow the economy.

Unfortunately, right now we do not. Washington DC is broken and the fact the markets have been laser-focused on the Euro debt crisis of late has let these guys off of the hook.

If a credible resolution be reached by Euro zone leaders, then we need business to come back here in the US. It all starts with government getting gout of the way and allowing the “American Pie” to increase in scope and size. We shouldn’t be trying to re-allocate a shrinking pie in the name of “fairness” or whatever else they are calling it.

Until we can shelve the ideology in favor of pragmatism, we will continue to stagnate. So it all starts with the Euro zone, for if they can’t get their act together, then what we do here in the US becomes a moot point.

But for now the markets want to believe that the EU will get it together, which I suppose is better than the alternative. While we are not out of the woods just yet, signs point to better days ahead.

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September 26, 2011

Forex Market Outlook 9/26/11

Filed under: Forex News — Tags: account, aud, china, currency market, europe, expectation, forex trading, greece, interest, lower, market, morning-as-hope, yen — admin @ 6:51 am

So the Euro lives to fight another day and though we are no closer to hearing a solution to the debt crisis, a relief rally is taking place this morning as there is thanks that the EU didn’t implode. Last week’s massive selling has paused for now and EU leaders have bought some time. This weekend’s IMF meeting produced very little except the notion that the IMF may need additional funding. Not good.

So what can the EU do to survive? Well there are many actions being bandied about that have different consequences. As I mentioned last week, the majority of these actions would be seemingly Euro-negative in the short-term, but positive for the survival of the shared currency. Though one never knows how the market will react.

Calls for the expansion of the EFSF bailout fund by leveraging the ECB balance sheet was brought up by US Treasury Secretary Geithner, who was met with a cool reception last week. S&P suggests that this could negatively affect European credit ratings.

Chancellor Merkel has called for a “firewall” to be built around Greece to prevent contagion from spreading to the other countries with sovereign debt issues which suggests that perhaps a future Greek default may not be out of the question. This however would instill a confidence crisis in the Euro and I think it would only be a matter of time before others chose that path as well.

The ECB could also lower interest rates at the next meeting, though the impact of such a move would be very minor in the grand scheme of things. They are said to be considering some covered bond purchases which would inject liquidity into the market and help ease monetary conditions.

Regardless of which course of action if any are pursued, there is a G-20 meeting scheduled in 6 weeks which is bound to put enormous pressure on EU leaders if a solution is not reached beforehand.

Despite all of the negativity surrounding the Euro zone and its impact on global markets, German confidence figures came in better than expected and markets are trading higher this morning as hope for a solution has improved.

In other news, New Zealand’s trade balance figures came in worse than expected, posting a deficit nearly twice than the expectation. This caused some early selling though the Kiwi has reversed as risk sentiment has improved throughout the morning.

Other than US new home sales figures due out later this morning, the docket is fairly devoid of news. This week is somewhat random in the news that is expected and all of the pieces could add up to a much bigger declining economic picture. With the focus on the Euro zone debt crisis still playing on center-stage, it will be the unexpected news that will move markets more forcefully than that which we are expecting.

Gold has been seeing some massive selling of late, as the market is moving to cash to raise liquidity ahead of any potential crisis. While the European banks have seen gains this morning, selling in this sector may resume at any time.

Oil has also pulled back as the global economy is seen as slowing, though it too has rebounded today. US equity markets are set to open higher and if they can hold on to the early gains, then we may see a bottoming process which would provide some support for risk assets.

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September 1, 2011

Forex Market Outlook 9/1/11

Filed under: Forex News — Tags: account, aussie, australia, course, currency trading, decision, france, interest-rates-, jobs, jpy, kiwi, live, market, ratification — admin @ 6:51 am

Europe’s woes are back to center-stage as the markets fear slowing growth and the political wrangling that is taking place over the proposed EFSF deal agreed to in July. For starters, European PMI figures came in lower than expected across the board in Italy, France, Germany, and the Euro zone overall. In addition, the markets will be watching very closely a court decision in Germany that may determine the constitutionality on Germany’s participation in the bailouts, ahead of the ratification meeting at the end of the month.

But it’s not just the Euro zone that is seeing declines, as PMI figures in the UK declined the most in almost two years to a reading of 49. However this reading matched the expectation so much of its impact has already been absorbed. Adding to further Pound weakness is that home prices also declined by .4% and the expectation was for an increase of .4%. This has put pressure on the Pound and is contributing to early risk aversion in the markets.

Chinese PMI also fell near 30-month lows and export orders fell for the first time in two years so an obvious slowdown in China would further add to the declining global economic growth story. This has put a bit of pressure on both the Kiwi and Aussie, though the Aussie is benefiting from better than expected retail sales figures, posting a gain of .5% vs. a .3% gain.

The Swiss franc is also strengthening as I mentioned yesterday that the SNB “forgot” to jaw-bone the Swissie lower. Today they have reported in-line GDP figures showing .4% economic growth, but early risk aversion is adding to buying pressure.

Later this morning, ISM manufacturing figures will be released here in the US which are expected to show a decline from last month’s 50.9 to today’s expectation of 48.5. The bar is set pretty low for this one so an upside surprise could help redeem the markets. Initial jobless claims came in as expected, with the usual 409K newly unemployed.

The markets are actually creeping higher early in the US session as we are off of earlier lows. We are starting to see a familiar pattern emerge, with risk aversion taking place in the European trading session and then that sentiment reversed in the US session, essentially leaving us near flat for the day.

While the forex markets have been trading in expanded ranges, overall market ranges seem to be contracting. This could change tomorrow, on the release of the Non-Farm Payrolls report. The expectation for job gains is at 75K which is also a pretty low number, so a downward miss could cause initial risk-aversion until the markets realize that this might actually be good for the prospect of “QE3” as the Fed attempts to fulfill its dual-mandate of encouraging employment and price stability.

Should we miss to the upside, then the opposite sentiment could occur though I think that if the number is encouraging then it could help move the markets higher, however more slowly than if QE3 becomes the expectation and not the hope.

Next week will also bring the politicians back to town (yay!) and President Obama will give his jobs speech next Thursday, though the majority of America will probably be watching the start of football, as more and more people become disenchanted with the political games we are forced to endure.

So be careful trading into tomorrow’s NFP report which is always a volatile time in the markets!

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August 23, 2011

Forex Market Outlook 8/23/11

Filed under: Forex News — Tags: account, carry trade, decision, gbp, interest, invest, kiwi, loonie, lower, trade — admin @ 7:25 am

This morning resembles yesterday’s market action, though market bulls are hoping the outcome is different. Stocks are higher to start the morning and we are once again in mild risk-taking mode, though off of earlier highs.

Yesterday stocks in the US gave up early gains and gold pushed higher yet again to above $1900. The majority of the risk in the marketplace is coming from the EU sovereign debt crisis and the slowing US economy and the US Fed reaction to it.

Dollar weakness has been driving markets higher this morning as Friday’s speech by Bernanke has left the market guessing what policy changes, if any, he’ll make. This is part of the problem with current US economic policy. What started out as Fed retreat for policy-makers to discuss ideas, has been turned into a platform to issue policy. And the market is going to be hanging on every word as though it were gospel, which is bound to induce volatility.

How did we get to this point? The lack of leadership out of Washington DC has caused this economic uncertainty and has left Bernanke out on an island to attempt to deal with the problem alone. And while I do not agree with Dollar destruction as an economic policy, I do understand that he is doing all he can to compensate for the lack of prudent fiscal policy.

So it should not be surprising that the Euro is trading higher vs. USD, despite the European debt crisis. While the politics in the EU has not produced a credible solution for dealing with the debt issues, the ECB has been taking the appropriate actions to attempt of stem the wave of contagion.

This has left confidence in the dumpster in Europe, which is reflected in this morning’s release of the ZEW economic confidence figures which all came in lower than expected. However, there was a bright spot this morning and that came from European PMI figures, which came in better than expected. This shows that economic activity is still moving forward despite all of the economic issues.

PMI figures in China also came in better than expected which demonstrates that perhaps China isn’t contracting as fast as some might believe.

US new home sales figures are due out later this morning but don’t expect much in the way of improving market confidence.

It will be interesting to see if US equities can hold on to today’s early gains unlike yesterday and as we move closer to Friday’s Fed meeting. There is a lot riding on Bernanke’s speech and I’m not certain he can produce anything that is going to cause market confidence to rise.

We are at the point where the politics surrounding another potential round of easing is being hotly debated, as is the effectiveness of the last round, QE2. Another round of easing means that economic conditions are deteriorating faster than they had hoped.

So expect the volatility to continue, until we can get some clarity from the Fed on what the next move may be. Further uncertainty could send the markets into a tailspin, so it is a fine line Bernanke is walking.

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August 10, 2011

Market Outlook 8/10/11

Filed under: Forex News — Tags: a-chicken-vs-, account, currencies, fomc, fxedu, jpy, news, sentiment, time, trade — admin @ 7:14 am

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August 5, 2011

Forex Outlook 8/5/11

Filed under: Forex News — Tags: account, aud, australia, carry trade, china, commodity, currency, default-on-its, gbp, gold, practice account, rate-decision, sentiment, trend — admin @ 7:23 am

Well it looks like we dodged a bullet this morning with the US Non-Farm Payrolls report that showed jobs growth of 118K vs. an expectation of 85K. The unemployment rate ticked lower to 9.1% even though all of the recent data was pointing to a lower number.

Those of you who read my commentary know that when things appear to be at the worst, that is usually when you get an upside surprise! Check out today’s Forex In Four video (at the 6-minute mark) where I explain how this works and why I went on record expected 125K jobs prior to the release.

So why are we dodging bullets, this far into the “recovery”? Well the markets have been down 8 out of the last 9 days, with the crescendo hopefully taking place yesterday with the Dow down some 500 points. This is a direct result of a slowing global economy, and the debt crisis still taking place in the Euro zone.

Yesterday after the ECB rate policy decision, they decide to do an about-face and go from a previously hawkish to dovish stance as both Spain and Italy are under attack by the bond market as yields continue to move higher which will eventually move to unsustainable levels and will require a bailout if something isn’t done to prevent this. This sent the markets into a mini death-spiral.

And this is also emblematic of the ECB’s lack of attention to this problem over the last year. As yields were being driven higher on the “3 little pigs”, the ECB did nothing until the problems got out of hand. Now that Spain and Italy are in the cross-hairs, it may be too late to act and will assuredly cost more to deal with now as opposed to being preemptive. It is very telling that laissez-faire comes from the French.

So the markets are clearly relieved today though it will be interesting to see if this is enough to stem the tide of the Euro zone debt crisis, or if the market is looking for QE3 from the Fed. Regardless, it may be tough for investors to take risk assets over the weekend, despite the massive selling we’ve seen of late.

The volatility in this markets sets up perfectly for short-term trading, and that’s what I will continue to do!

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July 20, 2011

Get It Done!

Filed under: Forex News — Tags: account, australia, carry trade, decision, europe, fundamental, new zealand, pound, practice, release, trend, week, whether-or-not — admin @ 6:52 am

Markets Call For Debt Deals Now!There is major optimism that tomorrow’s meeting of EU Finance Ministers in Brussels is going to produce a sensible solution to the debt crisis in Europe which means that the politics of doing the unpopular have been cast aside. This could come in the form of the bond buying from the emergency lending facility, which would essentially be quantitative easing to help keep individual countries’ yields low and then allow them to buy back later.

This situation practically mirrors what is going on here in the US with the debt ceiling debate, as the markets will take any solution at this point. While I personally don’t believe it’s a good idea to raise taxes in this economic climate, fixing loopholes is not the same thing. If unemployment gets worse as a result, then let the leaders bear the blame.

But we have been down this road before, where the markets anticipate a deal because they are weary and because it makes perfect sense; and then the politicians defy logic. By the end of this week we should have more clarity, and the risk appetite in the market is reflecting that sentiment.

In the UK, the release of the BOE rate policy meeting minutes confirmed there was no change of stance, though some have noted that there may be lesser resolve for additional bond purchases.

In the US, existing home sales are due out later this morning and yesterdays housing starts numbers surprised to the upside, showing that the housing market may not be dead just yet.

So this all adds up to risk taking this morning, with stocks and oil higher, and gold giving back prices gains as it sheds some of its safe haven status.

In the forex market:

Aussie (AUD): The Aussie is mostly higher on risk themes despite an index of leading indicators number that came in slightly negative, showing a decline of .1%. More pressing was the release of the RBA minutes, which showed that Central bank might not move on rates for some time.

Kiwi (NZD): The Kiwi is also mostly higher ahead of tomorrow’s release of consumer confidence figures. One item that has escaped attention is that the Chinese Yuan has appreciated the most in nearly 17 years (though still less than the weekly swings in Euro), which could be good for NZ exports.

Loonie (CAD): The Loonie continues to approach 2011 highs vs. USD after yesterday’s hawkish statement from the BOC at the rate decision. Today’s release of the monetary policy report may confirm that if not for global instability, rates might be higher. Oil back to $99 is also pushing Loonie.

Euro (EUR): It’s make-or-break time for the Euro this week as the entire globe is looking for a resolution to the debt crisis. The major impediment so far has been German political opposition, but as world opinion moves against them, they may be forced to bite the bullet. While no one expects the solution to emerge tomorrow from the meeting in Brussels, the market is optimistic that significant steps will be taken. (Click chart to enlarge)

Pound (GBP): The Pound is bouncing off of earlier lows as the indeed the BOE confirmed that they are willing to turn a blind eye to inflation (some say up to CPI gains of 5%!) in order to ride out the government austerity. Tomorrow’s retail sales figures will show whether or not the consumer in the UK is active, or if they are heading straight for stagflation. (Click chart to enlarge)

Swissie (CHF): The Swissie has been the most-favored safe haven currency of late so naturally it is giving back some of those gains as risk appetite has increased due to increased market optimism. Tomorrow’s trade balance figures will show whether or not a stronger currency has damaged the trade balance significantly.

Dollar (USD): The market is hoping that yesterday’s news on housing starts carries over to existing home sales figures due out later this morning. However, if the data begins to improve too much, then the market may assume that QE3 is off of the table which may cause some Dollar strength. What is more likely though is that good news will be received well by the stock market, which has been reporting great corporate earnings.

Yen (JPY): The Yen is mostly lower as safe haven demand has lessened. If the global economy can get past these two major debt hurdles, then it could be game on again for significant carry trades.

Markets are a forward-looking and discounting mechanism so gains we are seeing now are in anticipation of these debt problems getting fixed. This in and of itself does not mean that deals have been reached, however.

The politics surrounding all of these deals has been the major impediment so far, so the markets are saying just get it done. Uncertainty at this point is worse than bad policy and while the devil is in the details, the markets will decide later whether or not they approve. Let’s face it, I have very little confidence that any of these deals will be perfect, so just let the chips fall where they may.

If the markets do not see significant progress or agreements in principle to resolve these issues, then we could see this week’s gains vanish. For that is the problem with rising expectations; the letdowns hurt that much more!

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Tags: account, AUD, Aussie, Australia, bank, cad, canada, carry trade, China, commodities, commodity, course, currencies, currency, currency market, currency pairs, currency trading, decision, dollar, dow, economic, economy, EUR, Euro, Europe, fear, forex, forex market, forex trading, fundamental, fx, fxedu, gbp, gold, interest, interest rate, interest rates, invest, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, new zealand, news, nzd, oil, pound, practice, practice account, rate decision, RSI, sentiment, stock, time, trade, trader, trades, trend, unemployment, USD, Yen

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June 14, 2011

Chinese Growth Steady!

Filed under: Forex News — Tags: account, cad, currency, currency trading, current, despite, dollar, earthquakes, economy, japan, market, retail, ssi, usd, yen — admin @ 6:30 am

Overnight, news out of China that CPI figures came in as expected was a welcome relief to the markets. Inflation in China rose 5.5%, and in industrial production figures came in as expected, posting a gain of 14%. Retail sales figures were slightly lower than expected, coming in at a gain 16.9%.

The fear was that if inflation came in higher than expected in China, the Central bank would raise interest rates to try to slow growth. If Chinese growth slows, then the global economy is in BIG trouble. Think about these figures for a moment. Everything is showing double-digit gains, with retail sales figures growing close to 17% YoY. Contrast that with the US advanced retail sales figures due out later this morning which are expected to decline by .5%.

You tell me which economy is more important to the world right now?

Another piece of news that had the potential to move markets was the release of the UK CPI data, which also came in as expected showing headline inflation of 4.5%, with core inflation coming in better than expected at 3.3% vs. an expectation of 3.5%. At this point it is apparent that the BOE is content to allow this extraordinary inflation (by UK standards) to persist with the hope that government austerity will reduce demand and cause prices to fall naturally. Sounds like they are heading more toward stagflation to me.

In Japan, the BOJ rate policy decision left policy unchanged, and there was a minor hope that the BOJ would move to be more accommodative to try to help the recovery.

This all adds up to risk-taking in the markets, with stocks trading higher, though commodities are lower.

In the forex market:

Aussie (AUD): The Aussie is higher as steady Chinese growth means it is unlikely that the government will enact slowdown measures which is good for Australian exports. Business confidence figures were slightly lower than last month, but risk appetite is strong to start the morning.

Kiwi (NZD): The Kiwi is higher on risk appetite, shaking off yesterday’s decline after the earthquakes that just occurred. While expectations for the next rate hike have shifted dramatically, as long as China keeps growing the New Zealand economy should recover.

Loonie (CAD): The Loonie is mostly higher despite lower oil prices which are trading at 96 and change. While there is no major news out this week for Canada, expect the Loonie to trade with US economic data, especially if it is weak.

Euro (EUR): The Euro is trading mostly higher despite yesterday’s S&P downgrade of Greece’s credit rating to CCC from B. To be honest, I didn’t even know that that rating exists! This makes Greece the second lowest-rated country of those with ratings. Nevertheless, the market believes that a resolution is forthcoming by the end of the month.

Pound (GBP): CPI data in the UK came in as expected at 4.5%, as did retail prices though home prices fell slightly. The UK still has a persistent inflation problem and the BOE has chosen to allow it to continue in the face of declining economic data. This sounds like stagflation to me. (Click chart to enlarge)

Swissie (CHF): The franc is weaker across the board after the SECO report lower economic expectations for 2012, citing recent currency strength as an impediment to its exports. While growth has been steady for 2011, don’t look for the SNB to raise interest rates on Thursday as they don’t want to contribute to further strength.

Dollar (USD): The Dollar is weaker on risk appetite as we await the release of the US advance retail sales figures and PPI data later this morning. The expectation for a decline in the retail sales of .5% is alarming and indicative of a lack of confidence in the current direction of the US economy.

Yen (JPY): The Yen is mostly weaker on risk appetite and the BOJ left monetary policy unchanged last night. There was a slight expectation that they would ease policy to help with economic recovery, but it may be too soon for that. My guess is that they would wait until supply chains are repaired and factories are back to full capacity before enacting such measures. It doesn’t make sense to weaken now to encourage exports if companies aren’t ready for it. (Click chart to enlarge)

It’s their time now. China and other emerging markets are playing catch-up with the US and Europe and continue to grow at a rampant pace. The US is becoming less important on the global stage as China continues to grow. It won’t be long before the Chinese are able to exert their influence which may or may not be in-line with US interests.

In a nutshell, China has given us the rope to hang ourselves and we’re just about dead. But as long as China keeps growing, the global economy may not care. Politics in Washington are starting to heat up and it is patently obvious that our current path is wrong and unsustainable.

Whether or not we have the will to succeed in the face of adversity used to be undebatable, but now the question must be asked. Are politicians willing to share in the same sacrifice that they are asking of the general public? My heart tells me yes but my head tells me no, which means unfortunately that the US economy will continue to decline.

So invest in areas that seem to be on the rise, and there is no better way to do this than 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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