January 10, 2012

Aussie (AUD) Approaching Resistance Vs. USD!

Filed under: Forex News — Tags: a-little-deeper, a-should-come, aud, aussie, australia, australian, china, from-the-chart, growth-as-china, however-it-may — admin @ 7:48 am

The Australian dollar (AUD) is probably the best proxy for risk appetite in the forex market as it is one of the most heavily carry-traded pairs because of the high interest rate in Australia. One of the other reasons is because the Aussie dollar is also a de-facto proxy of Chinese growth as China is the largest importer of Australian goods and raw materials.

This week is interesting as there is not a lot of news here in the US, but there is a lot of economic data expected from China. This morning, Chinese trade balance figures came in much better than expected so the risk-on trade carried global stocks higher. But if we look a little deeper into the numbers, the Chinese trade surplus increased because imports decreased. This is potentially bad for Australia despite the fact that China is growing.

There is no economic data of significance due out for Australia this week so the market response to the Chinese data should drive the value of the Aussie, led by Chinese CPI and GDP data.

As you can see from the chart below, 1.04 has acted as resistance in the past so I’m am looking at that resistance to hold on the first attempt to break through, however it may re-approach and eclipse that level if the data should come in better than expected. So the play is to be short AUD/USD just ahead of 1.04 looking for resistance to hold, with the ability to reverse the position should it go down to 1.0275 with an expectation that it will re-test 1.04 at some point soon.

Comments (0)

January 3, 2012

Forex Market Outlook 1/3/12

Filed under: Forex News — Tags: a-daily-basis, aussie, consumer, data, debt, euro, nearly-everyone, top stories, unemployment, words — admin @ 6:08 am

Buy Buy Buy! At least that’s how the New Year is starting out, as the markets are decidedly risk-taking mode after the shortened holiday trading sessions. Global financial markets are set to open higher, led by stocks and commodities. The fact that markets couldn’t rally higher to end the year may bode well for the start of 2012, but will it continue throughout the year?

The short answer is not likely, but I will say that economic conditions appear to be improving albeit slowly and there is still great global risk emanating from the Euro debt crisis. There is also bound to be further political unrest around the globe, and already it has started with Iran who had new economic sanctions imposed upon them by the US over the weekend. This has caused them to increase their threats of shutting down the Straits of Hormuz, which is a major conduit for global oil supplies. This has caused oil prices to shoot up here in the US and it is now trading close to $101.50. Should this situation continue to escalate, we could see much higher oil prices which could have a major affect on inflation.

However the markets are reacting more favorably to positive economic data that has been released so far this morning and looking forward to data here in the US late this morning.

Here’s what we have so far. Chinese Non-Manufacturing PMI data came in much better than expected, posting a gain of 56 vs. last month’s 49.7. Recall that anything over ‘50’ means expansion, below means contraction so this was seen as a big plus for the Chinese economy. This has helped push the Aussie and the Kiwi higher to 3-week highs and the Aussie also was buoyed by its own manufacturing data that also showed expansion vs. last month’s contraction.

This kicked off risk appetite that then followed through to the European session as Germany reported a much better than expected employment report. Unemployment fell by 22K vs. an expectation of 10K and the unemployment rate fell to 6.8% from 6.9%. This is also a positive as the Euro zone needs Germany to continue to thrive in light of the other issues surrounding the region. The debt crisis is going to continue to be the major headwind in the market and I would not be surprised if the Euro zone looked different by the end of the year. Whether or not Greece will leave the economic union will be a major question that will likely need to be answered some time soon.

But for now the markets are content to push higher and meeting between Sarkozy and Merkel next week may provide more clarity on what the expectations are for members going forward.

In the UK, PMI figures came in better than expected at 49.6 vs. an expectation of 47.3, but they were not able to eclipse the magic ‘50’ number to show expansion. This was however seen as a major positive and both the Pound and UK stocks have traded higher.

Later this morning we are expecting the US ISM manufacturing figures, which are expected to show expansion in the 53-range. The market has high hopes for the US economy as the data appears on the surface to be improving so we may find ourselves in a situation where the market now expects the data to beat the expectation.

This Friday will also bring the Non-Farm Payrolls (NFP) report which will show how many jobs the US economy has added. Right now the expectation is for 150K, but my guess is that the market may be expecting closer to 200K as we near the end of the week.

One of the “problems” however with the data we are seeing now has a lot to do with holidays and the change of the fiscal year. This can cause outliers and exaggerated figures, which may not be indicative of the “real” health of the economy. For example, sometimes seasonal hiring and reclassifications can show distorted NFP figures in January so some economists don’t put much emphasis on them. That’s not to say that the markets won’t though as we almost always get major volatility from Friday’s release.

There is also a thought that the better than expected manufacturing numbers we are seeing could be a function of companies replenishing inventories as they get rid of last year’s merchandise to make room for the new. With the better than expected shopping figures from the holiday’s last month, I will be keeping an eye on retail sales figures to start the year to see if the consumer is suffering from exhaustion.

So essentially not much has changed from the end of last year, though with the start of this New Year there is seemingly a sense of optimism that things can get better. Last year was interesting to note that US stocks finished the year flat, yet the Japanese yen was the best performing currency. The latter would normally suggest risk aversion so it’s a credit to US stocks that they were able to hold levels. In other words, stocks could have been much higher without the Euro debt crisis keeping risk at a premium.

There is much to be excited about for 2012 and today’s action is a god start. But let’s not get ahead of ourselves just yet, as this could be a long year.

Comments (0)

December 30, 2011

Forex Market Outlook 12/30/11

Filed under: Forex News — Tags: aussie, based-on-today, economy-starts, euro, form-the-euro, have-started, indebted, japanese, pound, ratcheting-down, swiss-national, the-short-term — admin @ 6:47 am

Let’s just get it over with! That’s what the markets are thinking when looking back at 2011. The S&P 500 stock index is finishing the year essentially flat, posting neither significant gains nor losses. If you are a stock market investor, perhaps you are just thankful to get out with your account in tact. But with Treasury yields near all-time lows, and traditional bank accounts not paying interest, what’s a person to do?

Well those of you reading this are probably already aware of the tremendous opportunities available in the forex market as an alternative to “traditional” investments. 2011 has been a tough year indeed and based on today’s information, next year doesn’t look to be much better.

The obvious overhang in the markets is the Euro debt crisis and the impact of a likely recession in the Euro zone and how it will affect the global economy and global banking system. Meanwhile, European banks are still very nervous so they are parking their cash at the ECB for fear about counter-party risk.

The Italian bond auctions were not well received, though yields were lower. There is an obvious penchant toward shorter-term maturities as there way too much risk to take a long-term view. So this saga may continue to play out not just in Italy but in the other debt-laden countries as well. This means we could see very choppy markets going forward, even if things appear to be getting better.

While there is not a lot of news today, the economic data in the US continues to show improvement, marked by the pending home sales figures yesterday that came in much higher than expected. Markets rebounded yesterday from the prior day’s sell-off, and this morning’s US open look to be positive.

Overnight, Japanese PMI figures came in at 50.2 vs. last month’s 49.1 which means that expansion is taking place. ‘50’ is the magic number for expansion vs. contraction. In China, Manufacturing PMI came in at 48.7 which was better than last month’s 47.7 which shows that contraction is slowing.

These figures helped push both the Aussie and Kiwi higher as did yesterday’s market rise, and the Aussie has traded back to pre-Wednesday levels. Yet the Euro and Pound are still lower, though the former is faring worse than the latter.

The Pound’s strength vs. the Euro is interesting considering that home prices in the UK fell for the first time in 4 months last night showing signs of economic contraction. What was interesting to note is that Wednesday’s sell-off was actually lead by the Pound and not the Euro, despite the fact that it was concerns from the Euro zone that caused the risk aversion. The thought behind that move was that UK bank exposure to the European debt was great and they do not have a seat at the table and would have to bail themselves out if a problem occurred.

The last thing the market is looking at is the release of the balance sheet from the Swiss National bank that will show their potential ability to continue to weaken the franc vs. the Euro as risk continues to emanate due to the debt crisis. If there is weakness in the balance sheet, then traders may try to challenge the SNB intervention.

But that’s really it for 2011. There is no scheduled data due out in the US today so today is likely to be a slow day. Then again, I said that on Wednesday.

Happy New Year to all and I wish you good trading in 2012!

Comments (0)

December 5, 2011

Aussie Dollar (AUD) To Move Higher On RBA Decision?

Filed under: Forex News — Tags: along-despite, aud, aussie, australian, been-chugging, below-support, chart of the day, global-appetite, looking-at-the, problems, rate-reduction-, top stories, were-it-not — admin @ 8:39 am

Tomorrow is the rate policy meeting decision Down Under and market expectations are for a possible 25 bp rate reduction. However, inflation metrics have been moving higher and the Australian economy has been chugging along despite the problems in the Euro zone that could lead to a global recession.

Looking at the chart below, the Aussie (AUD) has been gaining steadily, especially after last week’s swap line reduction to try to provide liquidity to the global banking system. Were it not for the Euro zone crisis, global appetite for risk would be much higher and the Aussie would stand to benefit.

The RBA has been known to take a wait and see approach to rate-setting so perhaps this will be a time when they may do the same. There is good support for the AUD/USD pair at 1.0230 so a non-action by the RBA makes for a good trade that could produce a 2:1 reward/risk.

Therefore, the target for the Aussie is at 1.0425, using a stop just below support at 1.0230.

Comments (0)

Forex Market Outlook 12/5/11

Filed under: Forex News — Tags: a-fiscal-union, aussie, australia, china, decision, euro, forex, fundamental, invest, japan, loonie, number, oil, solve-it-faster, yen — admin @ 7:42 am

This week like many others in recent history is going to be all about the Euro. I’m sure you are all surprised by this; as the Euro zone has been relatively quiet of late. Ha, just kidding. Obviously the Euro zone debt crisis has been the major topic in financial markets and the impediment to market advancement.

Last Friday’s Non-Farm Payrolls report here in the US left something to be desired despite the great headline number showing a .4% decline to 8.6% unemployment from 9%. The problem is that the number of added jobs came in as expected, and the number was largely a reflection of discouraged workers leaving the workforce. While it wasn’t a bad number, it wasn’t all too great either so the markets sold off accordingly ahead of the weekend’s potential for a risk event to occur.

However this morning we are back to risk taking mode with a renewed hope that this week will be the week that EU leaders get it all figured out. Friday’s EU Leaders meeting in Brussels is expected to produce words that show progress toward finding a solution. Note that I didn’t say, “find a solution” as we are likely to get more of the same. But leaders now have to do more to assuage market fears and to slow bond vigilante attacks on the PIIGS countries as higher bond yields will hurt the process and there is no way EU leaders can solve it faster than yields becoming unsustainable.

The market would love to hear that they have found a way to have more of a fiscal union, or to at least a way to provide for better oversight. Also, Germany backing away from an outright refusal to consider Euro bonds could also help in the process. The ECB rate policy meeting on Thursday could produce a 25bp rate reduction, as Draghi has been quick on the trigger and may try to halt a potential recession before one even gets started.

Thursday will also bring the UK rate policy decision and it will be interesting to see if they do anything at this point after increasing the asset purchases last time. The BOE has been ultra-accommodative despite the inflation, and the economic data still continues to produce decent results in comparison to the rest of the world.

There are also interest rate decisions for the commodity bloc, with Australia, New Zealand and Canada expected to make no change to policy.

Global stocks are higher to start the morning, as is oil which has just reached $102. Surprisingly gold is not following suit, which could mean that oil premium is a result of the geo-political climate in the Middle East.

There is also manufacturing and GDP data due out for various countries (check the economic calendar), but by and large the biggest driver of markets this week will be the news out of Europe and if we get any unexpected rate changes from Central banks.

The markets definitely want to go higher from here and the Euro debt crisis is the only thing really holding us back. Friday’s EU meeting will be important as to how we close the week, as will various economic data due out of China including manufacturing, retail sales, and CPI.

Comments (0)

December 2, 2011

Forex Market Outlook 12/2/11

Filed under: Forex News — Tags: aussie, australia, bank, chf, currency trading, fundamental, interest-rate, oil, overall-economy, swiss-national, time, top stories, words, yen — admin @ 6:29 am

It’s that time of the month again—jobs Friday and so far the markets have high expectations that the NFP report is going to come in better than expected. 130K jobs are expected to have been added to the economy and the unemployment rate is expected to have remained steady at 9%.

So markets are up higher in anticipation of this release as there is hope that we are turning a corner as an economy. The problem I usually have is that when markets get ahead of themselves early on, there is usually some type of disappointment. But I don’t want to think the worst as it would be a welcome relief to see more jobs added. So I think this could be one time when the market has it right.

Also contributing to higher stock and commodities markets this morning is news out of the Euro zone that despite Merkel’s reluctance to issue a Euro bond, she left the door open by saying that a fiscal union would need to occur first. So in other words, as slight as the possibility is, there is a chance.

PPI data in the EU came in slightly lower than expected so this adds to the belief that the ECB may lower interest rates yet again. New ECB honcho Draghi wasted no time cutting rates upon taking over the Central bank so if inflation stays muted, then that could be the next move.

But inflation does not appear to be muted, with oil prices back to $101.50 and gold back to the $1750 area as a sign that inflationary fears are becoming more real.

The British pound is also higher this morning, most on risk-taking but also because PMI construction data came in better than expected, posting a reading of 52.3 vs. an expected 52.

A lot has been happening in Switzerland lately and I have been largely ignoring them as I hate active central banks like the SNB. This morning, retail sales figures came in worse than expected showing a decline of .2% vs. an expected no change. This falls in line with yesterday’s GDP report which missed by a wide margin showing 1.3% YoY vs. an expected 1.8%.

But that’s not all. Yesterday afternoon a rumor was floated that the SNB could move to negative interest rates. Essentially, they would be charging you to keep money in francs vs. paying interest as way to try to weaken the franc and encourage economic activity. Take a look at today’s chart of the day and you’ll see why I don’t like the currencies run by active central banks!

On the employment front, data released in Canada surprised and halted its rise toward parity temporarily as the Canadian economy lost 18.6K jobs vs. an expectation that they would add 20K. The unemployment rate ticked higher to 7.4% from 7.3% and the Loonie weakened as a result. However, a good NFP number here could reverse that move as it would be game on for risk appetite.

While the market has great anticipation of the NFP release and is expecting a good number, we must not lose sight of the risk that still exists in the marketplace. Geo-political risk is heightening in places like Iran and Egypt, and of course we are not even close to a resolution in the Euro zone.

Yet the markets seem like they want to move higher and maintain this “Santa Claus Rally” into the end of the year so that money managers can close out with gains on the books. Because otherwise it’s been a tough year.

I honestly have no clue as to where this NFP number might be as I am so conflicted this AM so I won’t hazard a guess. Part of me says that the number will disappoint because expectations (and market behavior) are so high, but the other part tells me that things have been getting better despite the political environment here in the US.

Either way I always trade this number the same way: by waiting for the release and then entering a position based on the market reaction to the results. Positioning one’s self ahead of this number is just a guessing game and could have disastrous results as the volatility is usually extreme.

Comments (0)

November 29, 2011

Aussie (AUD) Back To Parity With USD!

Filed under: Forex News — Tags: aussie, australian, banker-around, been-on-edge, chart of the day, consider-though, dollar-looks, into-the-close, looking-at-the, markets-have, meeting-taking, price-target, receive-on-the, santa-claus — admin @ 7:46 am

The Australian dollar “Aussie” has moved back to parity with USD in a sign of things to come. The markets have been on edge for some time due to the Euro debt crisis but are looking for a “Santa Claus” rally into the close of the year. With the EU Finance Minister meeting taking place today, confidence could be restored quickly.

One thing to consider though when looking at the Aussie is that they are closely tied to China economically and raw materials, which they export. As commodity inflation continues to rise, the Aussie dollar will benefit.

While everyone Central banker around the globe will shout that inflation is not a problem, commodity prices tell a different story. So the Aussie dollar looks poised to rise further , as carry traders buy Aussies for the interest they receive on the “hidden inflation story”.

Potential price target of 1.0250 by the end of the week.

Comments (0)

November 17, 2011

Aussie (AUD) Approaches Parity On Euro Debt Crisis!

Filed under: Forex News — Tags: a-major-breach, aud, aussie, australia, australian, chart of the day, considerable, from-the-chart, from-the-euro, look-out-below, markets, position-on-the, potential, psychological, short-position — admin @ 7:41 am

There is no greater proxy for risk in the forex market than the Australian dollar (AUD) as the interest offered in Australia and its liquidity make it desirable for carry trades. Recent selling in the Aussie vs. USD has pushed it lower to just above parity with USD as the risk emanating from the Euro debt crisis has the markets on edge.

As you can see from the chart below, the Aussie is sitting just above the 50% Fibonacci retracement level on the pull back and this is a critical level as a major breach and close beneath that level could mean additional selling down to the .975 level.

This would coincide with greater risk in the Euro zone as bond yields continue to rise with no credible plan to halt this action. This makes debt financing more expensive for the Euro zone which makes it ultimately harder for them to service their debt.

While I am not advocating a short position on the Aussie, I think the psychological support at parity will hold in the near-term with the potential to bounce higher to 102.50. Not to mention the considerable cost (negative interest carry) that is implied by shorting a high yielding currency. Of course if problems persist in the EU, look out below!

Comments (0)

November 9, 2011

Forex Market Outlook 11/9/11

Filed under: Forex News — Tags: a-wake-up-call, aussie, fxedu, invest, live, news, nzd, problem, situation, some-support, trader — admin @ 7:32 am

There’s really only one story to discuss today and that is Italy. Italian bond yields are soaring and I mean soaring and the market reaction is not pretty. In a story of “be careful what you wish for”, Italian Premier Berlusconi is said to be stepping down next week but today’s crisis may actually reverse those wants and return him to power.

Since the announcement that he would step down after austerity measures were implemented, bond yields jumped to above 7% for the first time in the Euro-era. This is an unsustainable level and the uncertainty over the new Italian government is weighing heavily on the market.

Stocks are lower in Europe and in the US, as are commodities. Risk aversion is high right now as Italy is the third 3^rd largest Euro zone economy, as well as the world’s 8^th largest. It is clearly too big to fail and it is doubtful whether or not it could be saved.

As bond yields rise, it becomes harder for them to service their debt and creates market dislocations as everyone runs for the exit.

Making matters worse, there is no news on the docket that could potentially save us today, with the exception of a Bernanke speech later this morning. I wouldn’t be surprised at this point if his speech today is not the one he started out with earlier this morning.

And that is the problem with contagion; at first it was Greece and now it is Italy. As the size and scope of the indebted nations gets bigger, the larger the problem occurs. And guess who is up next?

The United States. That’s right, the good ol’ US of A. The budget super-committee is working right now to attempt to fix our problems and if this is not a wake-up call, then nothing ever will be. The only thing keeping US yields low right now is the threat of Bernanke and the Fed tanking interest rates and the Dollar much lower.

While it will be a difficult task to do that, the potential of QE3 may mean negative real interest rates which could be disastrous for the markets.

For the sake of global harmony, let’s hope that the situation in Italy comes to a close rapidly. Just don’t be surprised if Berlusconi is the one who comes out on top!

Comments (0)

October 26, 2011

Aussie (AUD) Down On Low Inflation Data!

Filed under: Forex News — Tags: a-high-interest, aud, aussie, from-the-chart, high-interest, interest-carry, investors-and, quarterly, top stories, weighted-median — admin @ 7:58 am

The Australian Dollar (AUD) has pulled back from yesterday’s highs just below 1.05 vs. USD after CPI data came in lower than expected showing that inflation may be tame. The YoY Trimmed Mean index came in at 2.3% vs,. an expected 2.7%, with the Weighted Median figure coming in at 2.6% vs. an also expected 2.7%. The headline figure came in as expected at 3.5%, though the quarterly figures for the above two metrics came in at half their expectations posting gains of .3%.

What this means is that not only will the RBA be on hold for further rate hikes, but the next move they make may be to reduce interest rates. This would make the Aussie dollar less attractive to longer-term investors and carry-traders alike. So does that mean that now is the time to short the Aussie?

Not exactly. The Aussie still has a high interest rate differential above 4% so the negative interest carry (amount of interest you have to pay vs. the amount you receive) could make that position costly. From the chart below, it looks like we could experience a temporary pull-back to perhaps 1.025, which at that point would make it a longer-term buying opportunity.

Comments (0)

Older Posts »