Forex Blog

December 6, 2011

AUD and CAD take different routes

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 11:58 am

Governor Carney did what was expected and kept Canadian rates on hold (+1%) this morning. The accompanying statement was a tad surprising, less dovish than expected. The fact that the Bank mentioned that there was “considerable monetary policy stimuli” in place, coupled with policy makers noting that CPI would run a tad higher than forecast and that they see US growth “slightly more robust than foreseen’ has helped the CAD to outperform most of the other major currencies today.

Fixed Income traders have trimmed future rate expectations. They had almost fully priced in a -25bps rate cut by next June, but this has been pared to +80% after the Bank stood pat and sounded less dovish than expected. Another reason for the firmer tone for the currency is the underlying story of the CAD in demand for safe-haven flows in light of AAA rated countries elsewhere under pressure from S&P. Canada is seen as an investor’s refuge from the Euro crisis without the risk of US budget deficit and political deadlock. The loonie has been the best performer in the past month outright amongst the most-traded currencies. It’s expected that Carney will be the only central bank leader in the G10 to raise interest rates next year. This is on the back of inflation having exceeded the Bank’s+2% target for eleven-months as the economy grows at double the pace of the G-7 nations.

Other data handily beat market expectations. Canadian Ivey PMI was at 59.9 seasonally adjusted last month vs. 54.4, indicating that purchasing activity has again expanded. Disappointing however was the sub-category employment index print of 49.4, indicating that employment was lower than in the previous month. Last week, Canada reported losing -18.6k jobs in October and the unemployment rate ticking up to +7.4%.

Over the past few sessions the loonie remains handcuffed to EUR headlines, tightly trading in its own range. Currently, the currency seems well supported above 1.0220 and with resistance below 1.0100. Expect the currency to trade close to this range until the market gets a clearer picture of Euro intention by weeks end.


Loonie

December 5, 2011

Forex Market Outlook 12/5/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — 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.

December 4, 2011

Trading Week Outlook: Dec. 5 – Dec. 9

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 8:07 am

Dec. 3, 2011 (Allthingsforex.com) – With the European Central Bank interest rate announcement and the EU Summit on the horizon, the trading week ahead could prove crucial for the future fate of the euro and the debt crisis-stricken euro-area.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Mon., Dec. 5, 10:00 am, ET.

In light of the stronger-than-expected manufacturing index, the U.S. services industry activity is also forecast to expand for another month with an index reading of 54.0 in November from 52.9 in October.

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Dec. 5, 10:30 pm, ET.

The latest economic data from “down under” proved that the Australian “miracle economy” is not immune from the global slowdown, which coupled with easing inflationary pressures has raised the odds of another 25bps rate cut by the Reserve Bank of Australia to 4.25% from the current 4.50% level. A rate cut combined with risk aversion could become the formula for Australian dollar weakness.

3.    CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Tues., Dec. 6, 3:15 am, ET.

Deflation has once again become a threat as the Swiss inflation gauge unexpectedly dropped below zero in October. With forecasts pointing to another decline at -0.3% y/y in November and the government “examining feasibility” on measures to deal with the strong currency, the Swiss National Bank might be forced into stepping up its efforts to weaken the franc. Although the next move by the central bank is still a bit of a “mystery”, the odds that we could witness a historic decision by the SNB to raise the EUR/CHF floor from 1.20 up to 1.25, or even to 1.30, are rising exponentially.

4.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Dec. 6, 5:00 am, ET.

The revised reading of the Q3 GDP is expected to confirm that the Euro-zone economy is losing steam, growing by only 0.2% q/q in the third quarter, same as the 0.2% q/q reading in the second quarter of 2011, and less than the 0.8% q/q increase in Q1 2011.

5.    CAD- Bank of Canada Interest Rate Announcement, Tues., Dec. 6, 9:00 am, ET.

Acknowledging that the global economy has “slowed markedly” with “significantly less favorable external environment affecting Canada”, the Bank of Canada is not expected to make any changes to its existing accommodative monetary policy and would be likely to keep the benchmark interest rate at the current 1.0% level.

6.    AUD- Australia GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Dec. 6, 7:30 pm, ET.

Despite of the anticipated rate cut by the Reserve Bank of Australia, the Q3 GDP might lend some support to the Aussie with forecasts pointing to a stronger 2.3% y/y growth in the third quarter of 2011, compared with 1.4% y/y in Q2 2010. On the other hand, quarter-on-quarter growth is forecast to be unchanged at 1.2% q/q in Q3, same as the 1.2% q/q growth in the second quarter.

7.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Dec. 7, 3:00 pm, ET.

Becoming the most surprisingly hawkish of all major central banks, it would be interesting to find out if the Reserve Bank of New Zealand might change its position as a result of the global slowdown. The bank is expected to keep rates at the current 2.50% level for another month, but the Kiwi dollar could get a boost from any hints that the bank is still not steering away from a future rate hike.

8.    GBP- Bank of England Interest Rate Announcement, Thurs., Dec. 8, 7:00 am, ET.

With the largest U.K. trading partner, the Euro-zone, slowing and the EU debt crisis far from over, the odds are rising that the Bank of England’s policy makers could be prompted to increase the size of the Asset Purchase Program beyond the current 275 billon pounds; however, they might decide to wait until 2012 to do so. In the meantime, the likely outcome of the MPC meeting would be to keep the benchmark rate at its record low 0.5% level and to leave the door open to additional quantitative easing if conditions deteriorate. As a result, the GBP should continue to be confined in its current $1.50’s range, unless the EU debt crisis take a turn for the worst and massive risk aversion sends the sterling into the $1.40’s against the U.S. dollar.

9.    EUR- European Central Bank Interest Rate Announcement, Thurs., Dec. 8, 7:45 am, ET.

As many economists lower their Euro-zone growth forecasts and the ECB President warns about the potential for a “mild recession” on the horizon, it shouldn’t be a surprise to see the European Central Bank producing another 25bps rate cut at the upcoming meeting in an effort to avoid a double dip. Navigating through a sea of uncertainty, while at the same time trying to fend off political pressure to become the “lender of last resort”, the ECB might end up giving up the resistance and turning the printing presses on if the EU debt crisis escalates with borrowing costs rising to unsustainable levels. It is hard to see such scenario as a EUR positive…

10.    EUR- EU Summit of leaders of the 27 countries in the European Union, Fri., Dec. 9, all day event.

The outcomes of the EU summits in the last couple of years have a common thread- they all tend to remind us of Naked Eyes’ hit from 1983, as the markets around the world expect to see comprehensive solutions to contain the euro-area sovereign debt crisis but all they get are “promises, promises”. Will it be the same this time? Despite of the previous summit’s glimpse of hope that EU leaders have finally realized the seriousness of the situation after about 2 years since the beginning of the crisis, there are many murky details in the recently proposed strategies, some of them named “yesterday’s solutions” by Financial Times. The list of unanswered questions includes: how will EFSF be leveraged; can politicians effectively persuade the ECB to stand as a “lender of last resort”, or will that role be given to the IMF, or a newly-created European Monetary Fund; will EU members be willing to “sacrifice sovereignty in exchange for providing the economic and monetary union with a structural credibility”? Ahead of the last summit, “better late than never” optimism helped the euro register its biggest rally since March, 2009. Although another “hope rally” in the days leading to this summit would be sure to give the single currency a boost, the pressures on the euro could quickly mount if EU leaders fail to deliver the concrete and bold measures needed to win the debt crisis battle.

December 2, 2011

Forex Market Outlook 12/2/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — 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.

December 1, 2011

Forex Market Outlook 12/1/11

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 6:51 am

Well yesterday’s news did not disappoint, with the markets remaining near highs into the close.  Today will most likely be an “inside day”, providing neither new highs nor lows.  This is to be expected with a move as big as the one we saw yesterday.

But what does this all mean?  Truthfully, not much.  Essentially yesterday’s coordinated action makes inter-bank lending cheaper.  That’s it.  It doesn’t solve the problems of the Euro zone, nor does it change the political dynamic in the US.  These are the things holding us back and markets could do a lot better if there was more political courage in the world.

But there isn’t.  Germany still refuses to acknowledge the tremendous benefit they’ve received through their Euro zone participation and are steadfast in their opposition to helping anyone that doesn’t behave exactly as they do.  There are big changes that need to made in Europe obviously, but the entire world economy is basically being held hostage by the European political process.

The economic data continues to come in as a mixed bag.  Yesterday’s perfect storm showed that there are times when economies look like they are performing well; today, not so much. 

For starters, in Australia retail sales figures came in lower than expected showing a gain of .2% vs. an expected .4%.  Building approvals were also lower.  China’s PMI manufacturing figures came in at a 2-year low, which may be part of the reason why they reduced reserve requirements yesterday.

In the Euro zone PMI manufacturing figures came in as expected but in the UK they were better than expected, which is why the Pound is tracking higher this morning.

Here in the US, initial jobless claims came in worse than expected, but the expectation was for improvement from the pretty standard 400K that has been the average for some time.  Later this morning we will get ISM manufacturing figures which could reverse the mild selling we are seeing this morning.

But for now, the bigger story is the money pump into the financial system that only will serve to buy time for those that are troubled.  Until solutions are found, it will be more of the same.  There is still great risk in the market and it will take a tremendous effort and leap of faith for the Euro zone to solve their debt crisis.

The beginning of the “Santa Claus Rally” that we are seeing now is a welcome event, but don’t get lulled into believing that things are just peachy.  Yesterday’s action occurred because someone, somewhere was in trouble and the threat of global market instability was too great for Central bankers to bear.  And it also goes to show the power that these bankers can wield when things aren’t going exactly as planned. 

For example, nearly everyone is shocked that the Euro is trading at current levels despite the huge mess they are experiencing.  Yet when you compare it to the US dollar and the easy money policies we have, it pales in comparison.

Yesterday was also a reminder that inflation is on the horizon.  The only thing keeping us back from hyper-inflation is the fact that the US housing market continues to flounder.  Case in point:  I was speaking with a friend last night who confided that she was terrified of buying a home despite the fact that she and her husband have good jobs and are financially responsible people.

The uncertainty that hangs over the markets and the lack of confidence surrounding the current environment will continue to hold us back regardless of what the actual data tells us.  Therefore I will continue to trade this market in the short-term, taking advantage of moves like the one that occurred yesterday.

November 22, 2011

Forex Market Outlook 11/22/11

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 7:03 am

It’s a slow day in the marketplace this morning and we’re seeing a bit of a rebound after yesterday’s sell-off.  The “Super-Failure” of the debt reduction committee was extremely disappointing to the markets yesterday, though it always baffles me how the markets could have thought they could succeed in the first place as it was set up to fail.

However the markets got an early pop as the fear of another US credit rating downgrade never materialized as the ratings agencies re-affirmed the current level despite the failure to act.  This basically is setting up for a year-long battle of blame-game politics heading into the 2012 elections.  I just may have to throw away my TV.

Despite the failure though not much has changed for the average American who is slowly seeing their prospects of a better life diminished.  Automatic cuts will be made to the deficit, though they come largely from defense spending and domestic programs, like education.  So now we are less safe and dumber to boot—just awesome!

But seriously, economic conditions slowly continue to deteriorate and the 3Q GDP figure (revised) came in this morning and was revised lower to 2% from an expected 2.5%.  That is a huge miss and indicative that the economy is not getting better but worsening.  Personal consumption figures came in slightly lower than expected at 2.3% vs. 2.4%.

Later today the Fed minutes will be released which should show a continued willingness to ease monetary policy.  With today’s floundering GDP figure, that easing could come much sooner than expected. 

Other news on the docket showed that the budget deficit in the UK came in lower than expected due largely in part to the government austerity measures.  However with that austerity, economic activity has decreased and we will know just how far on Thursday when the UK reports their GDP figures.   Tomorrow though we will get the release of the minutes from the BOE rate policy meeting which will show just how dovish they have become in light of the expectations for economic growth and the stubbornly high 5% inflation they have in the UK.

In Canada, retail sales figures for last month came in better than expected posting a gain of 1% vs. an expectation of .5%. 

And not to forget about our friends in Europe, bond yields continue to rise (especially in Spain where they had to pay double the yield on short-term debt) and there is now concern that France could be close to a credit rating downgrade.  Germany continues to back away from the idea that the ECB needs to become the lender of last resort which may be the only hope the Euro zone has to remain in its current form.

So what started out as a mild risk-taking morning has reversed course and is leaning back toward risk aversion after the horrible GDP figures that were reported here in the US.  Perhaps the Fed minutes can save the day for market bulls later today but it is unlikely that Bernanke can be any more dovish than the market expects him to be. 

With the Thanksgiving holiday a few days away, there is seemingly little in the economy or in the government to be thankful for.  Perhaps the only thing to be thankful for is that 2012 is an election year and we can vote them all out office.

That and that Europe has imploded yet.

November 17, 2011

Aussie (AUD) Approaches Parity On Euro Debt Crisis!

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — 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!

November 10, 2011

Forex Market Outlook 11/10/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:06 am

There is a small sense of relief in the markets today after yesterday’s sell-off due to bond yields rising in Italy to above 7%.  Italy was able to get off their bond auction which shows that they still have the ability to fund themselves, though higher yields will make it much harder for them to service their debt which could eventually lead to them having to tap the EFSF.

However, the EFSF is not big enough to bailout Italy should that become necessary so they need to move quickly to attempt to start reigning in deficits through austerity measures in order to set the economy on the path to fiscal health.  One of the issues yesterday was that there was some fear that Berlusconi would somehow manage to survive and be able to drag out and remain in power though now this is looking highly unlikely and the word is that he will be out by next week.  This begs the question of who will take over and at this point it appears as though Monti is emerging as the potential successor.  

The situation in Italy has masked the situation in Greece as political infighting there dragged out the process of who would succeed Papandreou for four days.  However this morning we have the answer, as Papademos has been tabbed.  It should be noted that he has a tremendous business and banking background having been with the ECB previously. 

So there is definitely a push to have more business and banking experienced politicians coming into power to help navigate the Euro situation and the bailouts and debt crisis. 

This morning there is a lot more economic data then yesterday, and in the Euro zone it wasn’t particularly bad or good.  German CPI data came in slightly higher than expected, and French industrial production figures were lower than expected.  In addition, the ECB released its economic forecast for the region and they lowered forecasts to reflect the slowing economy as a result of the debt crisis.

In the UK, the BOE left interest rates and its asset purchase program unchanged, at .5% and 275 billion respectively.  While they were not expected to move after last month’s increase in the asset purchase program, they will likely take a “wait and see” approach and watch what is happening in Europe.  Their next move though is likely to be on the side of easing if the economy continues to flounder.

In Australia, 10K jobs were added as expected, but the unemployment rate remained steady at 5.2% even though there was an expectation of a tick higher.  This could be the result of much higher than expected Chinese import figures, which grew by 28.7% vs. an expected 22% which helped push the Chinese trade surplus lower than expectations.  Reduced exports were also an issue.  Also to note is that Japan and New Zealand’s consumer confidence figures came in lower than expected which is not surprising given the state of the Euro zone.

And speaking of unemployment, initial jobless claims here in the US came in better than expected showing that only 390K lost jobs last week vs. the usual 400K we have been seeing.  This is a step in the right direction and I hope this trend continues but at this point it is woefully short of what’s needed.

In Switzerland, calls to weaken the franc further are not being heeded by the SNB as businesses are concerned about declining exports and want the floor on the franc raised from 1.20 vs. Euro.  This is unlikely to occur with pressure on the Euro due to the debt crisis and risk in the markets.

But this morning, risk appetite has returned for now as global stocks and commodities are largely higher, though the risk in the Euro zone still remains.  While no on expects Italy to solve their problems overnight, getting a new government in place would be a good start.  With new leaders focused on debt reduction and managing the economies, there may be hope that the market will ease up on the rates demanded to buy their debt, thereby making it easier for them to service it.

At least that’s the hope.

November 5, 2011

Trading Week Outlook: Nov. 7 – Nov. 11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 11:26 am

Nov. 5, 2011 (Allthingsforex.com) – Although much lighter on pivotal economic data, the trading week ahead will not be any less intriguing as headlines from the Euro-zone debt crisis continue to dictate the market’s direction and traders prepare for the next act of the Greek drama, while keeping an eye on the political situation in Italy.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Mon., Nov. 7, 3:15 am, ET.

The Swiss inflation gauge is forecast to increase by 0.3% m/m in October, same as the 0.3% m/m reading in September, while the yearly CPI measure remains near zero, at 0.5% y/y. With the euro breaking lower towards its recently established “floor” against the Swiss franc, the Swiss National Bank might need to refresh the market’s memory of its promise to do whatever it takes to defend the EUR/CHF 1.20 exchange rate level. Moreover, the SNB could even be prompted to raise the floor up to 1.30, especially if the “massively overvalued” franc and the risk of deflation continue to loom over the economy.

2.    EUR- Euro-zone Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Mon., Nov. 7, 5:00 am, ET.

In case the market decides to start paying attention to economic data rather than the headlines from Greece and other EU debt-ridden nations, the weakness in the Euro-zone economy is expected to continue with retail sales forecast to decline for another month by 0.2% m/m from the 0.3% m/m drop in the previous month.

3.    GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Nov. 8, 4:30 am, ET.

With the Manufacturing PMI dipping below 50 into contraction territory, the U.K. industrial production is forecast to register an anemic increase by 0.1% m/m in September, compared with 0.2% m/m in August.

4.    CNY- China CPI- Consumer Price Index, the main measure of inflation, Tues., Nov. 8, 10:00 pm, ET.

Inflationary pressures in China are forecast to stage a larger decline to 5.4% y/y from 6.1% y/y in the previous month. Lower inflation could ease some of the concerns that the Chinese central bank may have lost its grip on inflation and could reduce the odds of more rate hikes by the PBOC. A decision by the Chinese central bank to refrain from raising the benchmark rate further could give the Chinese and the Australian economies a boost, and could lend support to the Australian dollar.

5.    NZD- Reserve Bank of New Zealand Financial Stability Report on economic conditions, inflation and future monetary policy, Wed., Nov. 9, 4:00 pm, ET.

At its latest monetary policy meeting, the Reserve Bank of New Zealand surprised the markets with its hawkish stance on inflation and the potential for rate hikes in the near future. The bank would probably echo the same sentiment in its financial stability report, which could help the New Zealand dollar attract some bids.

6.    AUD- Australia Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Wed., Nov. 9, 8:30 pm, ET.

The Australian labor market is expected to cool off with slower job creation of up to 10,000 new jobs added in October, compared with the 20,400 jobs in September, while the unemployment rate rises to 5.3% from 5.2% in the previous month. If coupled with more risk aversion, a weak jobs report could become a significant risk event for the Aussie dollar.

7.    GBP- Bank of England Interest Rate Announcement, Thurs., Nov. 10, 7:00 am, ET.

When it comes to the Bank of England’s future monetary policy, the unknown is not whether the bank will change the benchmark rate from its record low 0.5% level, but rather if there will be an expansion or a reduction in the bank’s quantitative easing operations. Policy makers recently decided to expand the Asset Purchase Program beyond the 200 billon-pounds ceiling by another 75 billion pounds, however the latest minutes report stated that “depending on developments in the euro area and financial markets, the size of the stimulus could be adjusted in either direction”. Although it still may be a bit of a long shot, if EU leaders succeed to put out the fire from the debt crisis and the U.K. economy strengthens, the size of the Asset Purchase Program could be reduced, and it would not be surprising to see the GBP benefiting from such scenario.

8.    USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Nov. 10, 8:30 am, ET.

Breaching below the 400K mark to 397K, first-time applications for unemployment benefits are forecast to inch higher to 402K, still above 375K- the number estimated by economists to signal significant decline in unemployment.

9.    GBP- U.K. PPI- Producer Price Index, the main measure of wholesale inflation and a leading indicator of consumer price inflation, Fri., Nov. 11, 4:30 am, ET.

Despite of the recent rise in the CPI to 5.2% y/y, producer prices in the U.K. are expected to register a slight pullback with the core PPI forecast to reach 3.7% y/y in October from 3.8% y/y in September.

10.    USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Nov. 11, 9:55 am, ET.

The preliminary consumer sentiment index estimate for November is forecast to bring another month of improvement with a reading of 61.1, compared with 60.9 in October. Should the upcoming U.S. economic reports manage to keep up with the October trend, more optimistic undertones in the U.S. economic data throughout the month of November would help rule out concerns of a double dip and could reduce QE3 odds ahead of the Fed’s next meeting on December 13.       

November 1, 2011

Forex Market Outlook 11/1/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:13 am

Do you remember last week when I said that with regard to the Euro debt crisis resolution, the devil is in the details?   Well it looks like that prognostication was prescient as new information is coming to light.  At the time I noted that while the plan sounded good, how they would actually enact it would be more important.  Now there is sentiment that the process could be derailed as unforeseen issues are starting to materialize.

Case in point; in Greece yesterday the government announced that they would be putting the debt deal to referendum and would be holding a confidence vote for Parliament.  This is dangerous for two reasons, as for starters this unpopular deal could be unwound by a public vote and then secondly, the majority who voted for it could be replaced by those who are against it thereby rendering it ineffective.   While this is a nice idea by the government to be democratic, it is very bad for the markets as now there is increased uncertainty about the deal.  If politicians put every unpopular decision to referendum, nothing would ever get accomplished.

The second potentially disruptive news from the Euro debt deal is that China is publicly stating that they will not bail out Europe so their participation in the expanded EFSF and the SPV may be limited which would reduce the firepower the Europeans thought they had.  This is not a good thing as bond yields continue to rise, most notably in Italy.

Speaking of China, they reported lower than expected PMI manufacturing figures posting a reading of 50.4 vs. an expected 51.8.  This could mean that China is slowing and if they continue to slow, where will global growth come from?

This feeling was not lost in Australia, as the RBA took action by lowering interest rates by 25 bp citing, you guessed it, slowing global growth and a reduced outlook for inflation.  Australia has a keen insight as to the health of China as China is the largest importer of Australian raw materials so the Aussies get a little bit of an advance warning.

However growth is not slowing everywhere as in the UK, GDP figures came in better than expected posting a gain of .5% for the quarter vs. an expectation of .3%.  While this is definitely not robust growth by any means, the repairing of the UK balance sheet through government austerity may be better in the long run.  PMI figures however came in lower than expected posting a reading of 47.4 vs. an expected 50 with index of services lower as well.

So there is massive risk aversion taking place in the market in a continuation of yesterday’s afternoon sell-off.   Stocks are down around the globe, with the German index off some 4%.  US stocks are set to open markedly lower, and commodities are selling off as well with gold crashing through $1700 and oil retreating below $90.

Japanese yen intervention appears to have had little effect vs. the Euro as it is trading back to pre-intervention levels, though it is maintaining weakness vs. USD just above 78.

US ISM manufacturing figures are due out later this morning though they are unlikely to produce enough gains to reverse this market. 

Today’s selling may make tomorrow’s FOMC meeting interesting as Bernanke yet again attempts to jaw-bone markets higher with his free-money pump.  But will it work this time?  Is the hint of QE3 enough to overcome all of the global turmoil and slowing growth? 

At some point, Bernanke’s rhetoric is going to backfire horribly and it is just a matter of time before the markets realize that free money isn’t the answer.  The global economy is in jeopardy of a major slowdown and every threat of this occurring send the market spiraling lower.

The Euro debt crisis resolution was supposed to calm the markets, not inflame them further so someone needs to tell Greece to get their act together.  Will Bernanke save the day tomorrow or exacerbate the crisis further? 

Stay tuned!

« Newer Posts — Older Posts »

Powered by Efacilitators Hosting