Currency Trading | Forex Blog

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.

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November 14, 2011

Forex Market Outlook 11/14/11

Filed under: Forex News — Tags: a-bond-offering, account, currency trading, data, euro, expand-monetary, interest, market — admin @ 6:47 am

Once again our attention is on Europe as new regimes are coming into power in both Greece and Italy. This completes the change in all four S. European countries, with Portugal’s leader having resigned months ago and Spain’s leader electing not to run for office again. Now the challenge will be to get them all to agree and implement the austerity measures required to participate in the terms of the bailout.

This has been a somewhat strange turn of events as the story being floated now is that these indebted nations want more Euro zone participation, and not less. So now they are talking about how to form better controls in the hope of allaying market fears. But in reality, if they really wanted to allay market fears, they would let the ECB stand as the buyer of last resort in the same manner in which the Fed stemmed our crisis 2 years ago. Good luck with that one though.

So the two new governments are stepping into place and are being formed, but there is still some risk in the marketplace until it becomes a “done-deal”. While the markets are hopeful in the competency of the new leaders, the proof is in the pudding as they say.

In the meantime Italy had a bond offering that was successful, but the yield was the highest they’ve had to pay in over a decade. This sent stocks lower and the markets into mild risk aversion mode this morning.

This week is marked by a lot of consumer price data due out from around the globe; however don’t expect any Central bank to do anything about inflation if it comes in higher than expected. This is precisely what they are hoping to encourage, despite its limited ability to help economies grow.

Overnight, Japan reported GDP figures that came in higher than expected and was the first expansion they have seen in over 4 quarters, though it must be noted that the majority of these gains are as a result of the re-building efforts from the natural disaster and companies producing more to catch up on losses. In other words, don’t expect this type of activity to continue going forward, though this is definitely a positive development. The Bank of Japan interest rate policy decision is due mid-week though don’t expect any changes. The Yen is strengthening on the GDP data as well as general risk aversion this morning.

The data in the UK will be interesting this week as CPI has been stubbornly high and the BOE just increased their asset purchase program by 25 billion pounds. The data is due out tomorrow, and will be followed on Wednesday by the BOE inflation report. Wednesday also will bring the UK unemployment report which is expected to tick slightly higher, and Thursday is retail sales figures which are expected to show declines. I think the UK is heading for a stagflationary environment if the BOE doesn’t act to reduce inflation.

In the US, while PPI and CPI data will also be out later this week, I think the most important number of the week will be tomorrow’s Advance Retail Sales figures. The market is expecting a gain of .3% and this figure may really show the health of the US consumer and whether or not that segment of the economy is starting to pick up. The inflation data is meaningless to me as we know the Fed’s next move will be to ease further through QE3 whenever that comes, though there will be some market volatility on the release.

This week is really more about confidence from the Euro zone than anything else. If CPI data comes in lower than it will buy Central bankers time to allow easy money to continue to work its way through their respective economies. If it comes in higher, it is unlikely that public reaction will be enough to do anything about it. Then next month’s data will likely show the effects of the $100/barrel price of oil we are seeing today.

Don’t be fooled into thinking that Central banks will respond to the data and do what’s best for the masses as inflation is a pretty one-way bet right now.

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November 13, 2011

Trading Week Outlook: Nov. 14 – Nov. 18

Filed under: Forex News — Tags: a-likely-event-, account, currency trading, data, england, eur, euro-zone, Forex News, holiday, picture — admin @ 10:42 am

Nov. 12, 2011 (Allthingsforex.com) – In case the market decides to pay attention not only to headlines from Italy and Greece but also to economic data, the week ahead will offer plenty of insights on inflation and economic conditions in some of the world’s largest economies.

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. JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Sun., Nov. 13, 6:50 pm, ET.

After registering its third recession in a decade and contracting by 0.9% q/q in Q1 and 0.5% q/q in Q2, the preliminary GDP estimate for the third quarter of 2011 is forecast to show the Japanese economy returning to growth by up to 1.5% q/q in Q3 2011. More upbeat GDP report and safe-haven flows should keep the yen supported in spite of the desire of the Japanese authorities to see their currency weaken.

2. GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Nov. 15, 4:30 am, ET.

The September spike in inflationary pressures to 5.2% y/y could be followed by a slight pullback to 5.1% y/y in October. Stubbornly high inflation, however, has not prevented the Bank of England from continuing its accommodative monetary policy and doing more quantitative easing.

3. EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Nov. 15, 5:00 am, ET.

More signs of deteriorating conditions in the Euro-zone’s economy might come from the third quarter GDP estimate with forecasts pointing to only 0.2% q/q growth- same as the 0.2% q/q reading in Q2 2011. The GDP report will be released at the same time as the German ZEW economic sentiment index which is also expected to be weak with the index dropping to -52.1 in October from -48.3 in October.

4. USD- U.S. Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Tues., Nov. 15, 8:30 am, ET.

A lot is riding on this report as consumer spending is a major part of the U.S. economy, but retail sales might not demonstrate a lot of strength with a smaller increase by 0.2% m/m in October from 1.1% in September. However, the slowdown could be temporary as sales at retail establishments would likely see a boost in the upcoming months due to the holiday shopping season.

5. JPY- Bank of Japan Interest Rate Announcement, Wed., Nov. 16, around 12:00 am, ET.

With the U.S. dollar slowly but surely erasing a big chunk of its post-intervention gains against the yen, it would be interesting to find out if the Bank of Japan is ready to stand against the tide of persistent yen strength. This is provided that they haven’t intervened by the time the meeting takes place, as another intervention remains a likely event.

6. GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Nov. 16, 4:30 am, ET.

The U.K. employment data followed an hour later by the Bank of England inflation report could become a couple of back-to-back risk events for the pound. Forecasts point to an increase in the amount of jobless claims by up to 20,000 in October from 17,500 in September, while the unemployment rate inches higher to 8.2% from a previous reading of 8.1%.

7. EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation, Wed., Nov. 16, 5:00 am, ET.

The European Central Bank’s preferred inflation gauge is forecast to stay unchanged at 3.0% y/y in October- same as the 3.0% y/y reading in September, but month-over-month the index is expected to pull back with a smaller 0.3% m/m increase in October from 0.8% in the previous month. Shifting monetary policy from maintaining price stability to pro-growth on the threat of a double dip in the economy could spell further ECB rate cuts.

8. GBP- Bank of England Inflation Report, the bank’s official assessment and outlook on inflation, Wed., Nov. 16, 5:30 am, ET.

As the latest PPI report showed inflationary pressures coming off their recent highs, if the Bank of England offers a dovish outlook on inflation, there will be no urgency for the bank to start tightening monetary policy anytime soon. Lower inflation expectations and risk aversion could lead to some unwinding of long GBP positions.

9. USD- U.S. CPI- Consumer Price Index, the main measure of inflation, Wed., Nov. 16, 8:30 am, ET.

Consumer prices in the United States could remain a non-issue for the Fed with forecasts expecting a flat 0% m/m reading in October from 0.3% m/m in September. Only a significant drop in unemployment and consistent improvement in the U.S. job and housing markets could change the Fed’s mind and its promise to keep rates “exceptionally low”. Until then, QE3 would not be completely out of the picture.

10. USD- U.S. Housing Starts, a leading indicator of housing market activity measuring construction of new residential properties, Thurs., Nov. 17, 8:30 am, ET.

Losing momentum after the jump to 658K in September, the U.S. housing starts are forecast to decline to 610K in October, while the building permits flatten in the 600K range.

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October 26, 2011

Forex Market Outlook 10/26/11

Filed under: Forex News — Tags: account, announcement, correlations, currency trading, euro, europe, interest-rates-, trader, usd — admin @ 7:10 am

Today is the day of reckoning for the Euro as the market is expecting the final resolution to the Euro debt crisis. At this point it is still uncertain at exactly what time the details of the plan will be released so stay on your toes today and pay attention to the news!

Yesterday’s risk aversion and subsequent sell-off non-withstanding, the markets have been moving markedly higher since early October and it looks like we have put in a bit of a “V-bottom”, which I identified in yesterday’s chart of the day. It will be interesting to see if the market can sustain this rally in the face of the Euro announcement.

There are many rumors circling around the details of the plan so I will throw a few out there that I am hearing but take them with a grain of salt as they may be utterly worthless when the plan is announced.

For starters, Greek private bondholders will be taking a “voluntary” 50% haircut on their holdings, meaning losses. How this doesn’t constitute a technical default is beyond the scope of my limited understanding, but If I held bonds and CDS, I would push for default and not voluntarily agree to losses as I can get paid out 100% from the insurance. This may take a while to play out and I am as intrigued as anyone to see how it goes.

Next, the size of the EFSF is rumored to be in the $1 trillion dollar range, though it is uncertain if this comes as a combination of the current EFSF and the ESM (two separate facilities) or if they plan to leverage up the fund through the ECB. Banks will need to be re-capitalized to stem the losses from the haircut on the Greek bonds, and will need to be shored up if contagion occurs.

The idea of an SPV, or special purpose vehicle, is being floated that will allow private investors to invest with some sort of guarantee or backstop from the funds. This may be a way to funnel more IMF aid into the equation.

Lastly, there needs to be increased fiscal austerity, most notably now from Italy as they are the region’s 3^rd largest economy and are currently being vilified as the next potential domino to fall. It is amazing to me that no one even talks about Portugal or Ireland any longer.

So what is my outlook? I think that the markets will rise on the announcement, perhaps dramatically, only to begin to fall once the details are released. I think EUR/USD can get above 1.40 today, but resistance up at 1.413 may hold so if the3 situation presented itself, I would probably be looking to short the pair in the high 1.40s with the hope that it could move down to 1.375 where at that point I would be a longer-term buyer.

Other news out there today is that CPI data in Australia came in lower than expected, reducing expectations for further rate hikes and actually putting rate reductions into play. While the RBA will likely hold for a bit to see how this all shakes out, they will be keeping a keen eye on inflation. Later tonight, the RBNZ will be out with New Zealand’s rate decision and a change is unlikely considering their lower CPI data reported yesterday.

Here in the US, durable goods orders fell less than expected which is a positive I suppose, but yesterday’s consumer confidence figures were absolutely atrocious. However it is important to note the discrepancy between what people say and what they actually do. Later this morning, new home sales will be out.

But all eyes and ears will be waiting for the Euro announcement. The markets appear poised to move higher as stock market returns have been flat for the year so if you’re a big-time money manager, you essentially have one quarter to make it happen and earn some cash or even keep your job. In addition, I think global inflation has been somewhat masked by the cloud of uncertainty of the euro debt crisis and we have seen recent big-time gains in commodities, most notably in oil and gold which are back above $90 and $1700 respectively.

The idea that QE3 may be on the table is likely contributing to Dollar weakness, but all of these other factors are important as well. US corporate earnings have largely been better than expected which means that companies gain make money in a downbeat economy and despite barriers created by bad government policies and potential higher taxes.

With a declining US dollar and next to nothing bond yields, the stock market is likely going to be the market of choice for investors to close out the year so I expect the correlations in the forex market to continue to keep up. The Dollar weakness theme is evidenced by a strengthening Japanese yen, which is at new all-time highs of 75.75. While Japanese officials are crying, there may be very little they can do about it.

So stay on your toes today and be quick to react. Don’t try to be a hero in front of these markets, as there is no telling what may happen. Good Luck!

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October 19, 2011

Forex Market Outlook 10/19/11

Filed under: Forex News — Tags: aussie, commodities, currency trading, economic, forex market, fundamental, loonie, trader, trades, trend — admin @ 7:15 am

Yesterday’s market turn-around exemplifies the type of market action we may continue to see until the Euro debt crisis is finally resolved to the satisfaction of the world. Yes, I said the world. Markets yesterday were selling off on lowered expectations that this weekend’s European summit would produce that resolution, but a rumor hit the tape from a newspaper in Euro that said that France and Germany had agreed to expand the size of the ESFS to 2 trillion euros, much larger than had been previously agreed upon.

This sent markets screaming higher into the close as it was risk-on again and the correlations not only held up but also lead the way. This kicked the weaker economic data to the back again as the hope of a credible deal left markets wanting more. Moody’s attempted to rain on the risk appetite parade by downgrading Spain again but the markets will have none of it. Riots in Greece make the Occupy Wall St. crowd look like rank amateurs as the new austerity measures are announced.

So we have the carry-over affects this morning taking place, and better than expected economic data from today’s docket has confirmed the move. US corporate stock earnings are starting to look better, though Apple missed earnings for the first time in 4 years last night. The markets seemingly want to go higher if not for the specter of risk hanging over them in the form of the Euro debt crisis.

In the UK, the BOE released the minutes to their most recent rate policy meeting which showed a unanimous vote to expand their QE program by 75 billion pounds, even though yesterday’s inflation data pushed above 5% for the first time in 3 years. BOE policy-makers believe this to be a temporary spike, but that remains to be seen. Especially if a Euro debt resolution allows markets (including commodities) to fly again.

Here in the US, CPI data came in as expected and slightly lower which some might find surprising after yesterdays higher than expected PPI data. Core CPI came in at 2% vs. an expected 2.1% and the headline number came in at 3.9% as expected. Indeed the Fed is dodging bullets as the money-pump continues. My feeling is that it is just a matter of time before inflation rears its ugly head and when it does it will be fast and furious.

But the best news of the morning may be the housing starts figures which show a gain of 15% vs. an expected 3.3%. Recent lousy weather may have distorted those figures as housing starts were delayed, but nevertheless it is an impressive number. Building permits came in lower than expected, posting a decline of 5% vs. an expected decline of 2.4%.

It will be interesting to see how the rest of the day plays out as stocks here in the US are set to open higher and risk appetite is also increased. However, a closer inspection of the numbers and rumors may prove to warrant a more reserved position as perhaps the market is getting a bit ahead of itself.

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October 12, 2011

Forex Market Outlook 10/12/11

Filed under: Forex News — Tags: currency trading, currency-pairs, fear, free, fundamental, japan, lower, markets, new zealand, practice, rsi, stock, vote — admin @ 7:21 am

This morning has started with risk appetite driving markets higher, with Dollar and Yen weakness acting as either a by-product or catalyst of the move. Regardless of who or what is leading the charge, a sense of calm is starting to return to the markets and they looked poised for a 4^th quarter rally into the end of the year.

Positive sentiment surrounding the resolution of the debt crisis has not been derailed by Slovakia delaying their vote on the EFSF expansion agreed to in principle on July 21^st as the market believes that the Franco-Prussian solution which Sarkozy and Merkel have promised is coming in early November will like supercede that package. The “Troika” has already agreed to Greece receiving the next tranche of money despite the uncertainty surrounding the vote of whether Greece has done enough to receive it, with the hope that whatever is offered in early November is enough to wipe the whole slate clean.

So the pressure is on to come up with a resolution that not only deals with the problem but is also something that is agreeable to all of the Euro zone members as well as the markets in general. Call me skeptical but I’m not certain if such a solution exists. Today a plan to re-capitalize European banks will be proffered which is a step in the right direction.

Meanwhile in the UK, policy-maker Posen has claimed that the BOE is prepared to ease further and the unemployment rate has ticked higher to 8.1% from 7.9% and an 8% expectation, yet the Pound is trading higher and hit our last week’s target of 1.57 vs. USD and then some. GDP estimates came in better than expected for September calling for .5% for last month vs. .2% for the previous month. Also to note is that even though the official unemployment rate rose, the number of new jobless claims came in lower than expected at 17.5K vs. an expected 24K.

Both the Aussie and the Kiwi are tracking higher with the former trading back above parity vs. USD. Related home sales and price figures show that there is moderate growth, and Australian consumer confidence figures came in better than expected. Australian employment figures are due out tomorrow.

Also adding to the risk trade is the machine orders figures that were reported by Japan that came in much better than expected, showing a monthly gain of 11% vs. an expected 3.9%. This has helped rally the Nikkei and caused some Yen selling and tonight’s release of the BOJ meeting minutes may show how close they are to intervening in the currency which could provide for additional risk taking.

Speaking of meeting minutes, the release of the September FOMC will be out later today and will definitely show how close Bernanke and Co. are to QE3. While he floated the idea at the JEC briefing earlier this month, it may have been in response to tanking markets and not any serious policy discussion. If on the other hand they are close to QE3, then this could push markets higher on the free-money trade.

US corporate earnings season is upon us and was kicked off by worse than expected numbers out of Alcoa, yet the S&P 500 has rallied to above 1200. The bar has been set so low for many of these companies that the beats should be more than the misses.

Also to note is that the Senate did not pass Obama’s “jobs bill” which was a more of political statement than a credible plan. This means that more money is not added to the deficit and taxes are not raised in the near-term, and we are likely to have to wait for the deficit reduction committee to take action before anything gets done.

Yet the mood surrounding the markets appears to be positive and I think we will definitely see that 4^th quarter rally that investors desire. Business can only sit on the sidelines for so long and if they start to believe that there may be a change in Washington DC in the next election cycle to more pro-business policies, then they may start to invest.

While I don’t think this will solve our unemployment problem in the near-term, if we can get the needle moving in the right direction then that could instill some confidence which is ultimately what this economy is sorely lacking.

So keep an eye out for the Fed release later today as it has the ability to create volatility as the market dissects the Feds intentions. Any hint at the “free money” trade could send markets even higher!

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October 6, 2011

Forex Market Outlook 10/06/11

Filed under: Forex News — Tags: commodity, currency trading, economy, england, fear, fundamental, nzd, top stories, usd, yen — admin @ 7:11 am

So far the news of the morning is that the Bank of England increased the size of its asset purchase program by 75 billion, pushing the total bond buying to 275 billion. While they kept interest rates unchanged, this sent the Pound plummeting lower 200 pips. The Central Bank cited severe strains in the funding market and maintained that inflation would undershoot the 2% inflation target in the medium term.

I suppose it would be more helpful if they identified what the medium term is, as inflation has stubbornly remained above 4% much to their chagrin. So I’m not certain how they think it will subside, and it appears as though they are content to let their citizens suffer through higher prices.

The ECB rate decision also came out and produced no change to official ECB rate policy, so now the market is waiting on the ECB press conference where Jean-Claude Trichet will speak for the last time as head of the ECB. The markets are hoping that he will offer some sort of hope that EU leaders are nearing a solution for the debt crisis. The ECB needs to go into “cheerleader mode” between now and when a solution is actually offered, but most think the perpetuation of “can-kicking” will continue. There is a meeting of EU leaders and a G-20 meeting on tap in the next few weeks.

Other than those two major events, the negative economic data from these two regions had little effect as UK home prices fell more than expected and German factory orders showed a decline vs. an expected no-change.

Initial jobless claims here in the US came in slightly better than expected, but still over 400K. While it is a good thing that it is not moving in the wrong direction, it is certainly not getting significantly better.

Tomorrow’s Non-Farm Payrolls report will give us a better idea of where the economy is headed but I think more importantly it will let us know when or if Bernanke will be adding more monetary easing to the economy.

Between now and then, the Bank of Japan will have its rate decision in the overnight session and while they are not expected to change policy, don’t be surprised if they try to jaw-bone the Yen lower as it is above 10-year highs vs. Euro and Pound.

So far Trichet hasn’t said anything to disrupt the markets any further today, and the Dollar strength that we saw earlier on the Pound and Euro sell-off is abating, which is helping equity markets move higher.

There is going to have to a point where the “risk on, risk off” trade decouples and the correlations break down as US dollar strength should not be an automatic sell in risk assets, especially if that strength occurs because of individual currency weakness.

Today’s action reminds us that these correlations are still in effect and the fact that the BOE wants to encourage inflation through a weakening of the Pound should have little effect on US stocks. Yet the markets have become so entrenched in the risk trade that it has a hard time differentiating between event risk and individual currency risk.

The market is never wrong; however in this case it is. While we know about the global economic slowdown, stock valuations right now are very compelling, especially those with high dividend yields. While the Euro debt crisis poses a major threat to global economic stability, an event like the BOE increasing quantitative easing should not.

Yet markets have this “all or nothing” mentality where a rising tide lifts all ships or the baby gets thrown out with the bathwater. How’s that for coming market metaphors?

But seriously, we may see some further market selling as the US session unfolds, but I believe that it is not warranted (unless Trichet says something dumb) as tomorrow’s NFP is likely to increase the chances that Bernanke will act.

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October 3, 2011

Forex Market Outlook 10/3/11

Filed under: Forex News — Tags: china, currency trading, economy, finance, greece, loonie, practice, sentiment, stock, unemployment — admin @ 7:29 am

The start of the 4^th quarter is not looking so rosy this morning as a continuation of last week’s selling has risk aversion heightened to start off the week. And though it has abated a bit, it is possible that we can see a market turn-around as the US session begins as this has become a little bit of a familiar pattern.

There is a lot of fundamental news out this week that will share the spotlight with the Euro debt crisis, including Central bank rate decisions, employment figures and manufacturing numbers. It’s probably best to describe the news that is significant in each region, followed by its overall impact in the market in general.

For starters, in the Euro zone EU Finance Ministers are meeting today to discuss the Greek bailout and debt crisis and possible solutions. While no one is expecting anything different from what we have seen of late, if Greece does receive the next tranche of bailout money, then what? There is still no credible plan moving forward and this is bound to play out over the ensuing months. Greece has made the necessary cuts to receive the funds, now it is up to the voting powers to follow through with the agreed upon measures.

PMI figures came in for various regions in the Euro zone and were better than expected, and Wednesday will bring PPI data that may show the level of expectations for inflation. Thursday will be the ECB interest rate policy decision and while there is little expectation that they will reduce the rate, there is speculation that they may increase bond purchase in a form of quantitative easing.

In the UK, home price figures continue to fall though PMI figures came in better than expected. Wednesday’s GDP figures could keep the BOE at bay if they come in better than expected. The BOE rate decision also on Thursday is not expected to reduce the rate either, but like the ECB, there could be some further bond purchases introduced. As the data continues to weaken, the BOE may feel the need to act even though inflation is fairly high.

The RBA interest rate decision on Tuesday is expected to produce no change, though they may remain dovish and show flexibility to go either way should global economic conditions warrant a change. Keep an eye on PMI figures coming from China, as a slowdown there will affect Australia. And of course watch the overall market risk themes.

Lost in the mix of this week’s data is Friday’s Non-Farm Payrolls (NFP) here in the US. The unemployment rate is expected to hold steady at 9.1% and the number of jobs added is at 50K. Personal Incomes declined last week so a weak jobs report will not help the economy and could add further risk to the markets. The US dollar has been the top performer of late so there could be continued strength if risk appetite deteriorates further. Wednesday’s ADP employment change may be a harbinger of Friday’s NFP, but be aware that there is no correlation between the two figures.

The Japanese rate decision is also due out on Thursday, and don’t expect any formal change to policy. The Tankan business sentiment surveys came in better than expected, though they have not returned to pre-tsunami levels. Should the Yen continue to strengthen on risk aversion, the BOJ may be inclined to intervene. The key level to watch is USD/JPY at 76 and it should be noted that they said last week that they have expanded their “intervention warchest”.

While last week was pretty light on news, this week is equally heavy. We are bound to see increased volatility as the various data points to different economic outcomes. This all happens with the specter of the Euro debt crisis hanging over the market and ready to reverse any positive news should we get any.

Should Greece receive the next tranche of bailout funding, it will be important to hear what the next steps will be. Without a credible plan going forward, this may just continue the market uncertainty for some time. And should they not receive the next round of funding, then lookout below! So there is clearly great risk in the market, with a downside bias winning at this point.

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September 28, 2011

Forex Market Outlook 9/28/11

Filed under: Forex News — Tags: australia, cad, carry trade, credit-default, currency, currency market, currency trading, default-at-over, fear, interest-rates-, invest, loonie, president, rate-decision, trader — admin @ 6:52 am

Sometimes it feels like Groundhog Day in the forex market as we focus on the same thing over and over again. So it should come as no surprise that again we are focused on the Euro debt crisis as there is very little other news to sway market sentiment.

Perhaps it will be best if examine the recent events and what they mean for the markets. Yesterday, Greece was able to pass the vote that raised property taxes as was required by the deal that was made back on July 21^st as part of their austerity measures.

But now there is some concern that figures that were used to hammer out that deal have now changed, which means that there could be some opposition to the already-agreed-to plan. What’s more, the votes to ratify the EFSF are just taking place now in each of the individual countries of the Euro zone, to be able to ratify the previous deal.

The vote to ratify the EFSF deal has already been delayed and is just a formality if all of the countries agree to ratify. But why has it taken so long to put it to a vote? This really should be a done deal by now, that is, if they really want to rescue Greece. If you do X, you get Y.

But now there are fears that some countries are balking and the constant delaying has kept markets on edge. I agree with President Obama when he said that Euro inaction is “scaring the markets”. Of course this elicited a pushback response about the fiscal situation in the US, which of course is true, however it doesn’t justify Europe’s behavior throughout this mess.

So the markets are waiting for the “Troika” (ECB, IMF, EC) to come back with their findings in order to potentially move forward. One of the additional impediments is that there will be multiple votes over the course of this process and any on slip-up could put Greece in default. This is one of the reasons why the CDS (Credit Default Swap) market has the odds of a Greek default at over 90%.

So what can the Euro zone do? Well the idea of expanding the EFSF by levering the balance sheet up has been dismissed as “stupid” by a German official as it could incur a credit downgrade. So much for Geithner’s suggestions to help.

Contagion is the obvious issue that plagues the Euro zone right now. If they could let Greece go without causing similar problems in the other countries with debt issues then I think they would in a heart-beat as Greece is actually a pretty small percentage of the region. Which is also why Merkel’s comments about “building a firewall” around Greece the other day were telling as perhaps there may be more of a push to that end.

Surprisingly, the markets have been faring pretty well the last two days, though yesterday’s afternoon sell-off in stocks here in the US and the subsequent follow-through in Asian markets caused some overnight risk aversion. We have clearly been trading on risk themes in the market and the correlations of currencies have been pretty strong of late.

It’s essentially Dollar and Yen strength on risk aversion, everything else strong on risk appetite. The risk appetite we’ve been seeing this week has been pretty strong, though some are dismissing it as a bit of a relief rally. We have seen expanded to declining range-bound activity in the markets, and this makes sense when we consider that it is the same things over and over again that are ruling market sentiment.

This means increased volatility as the markets proceed with caution, knowing that at any given moment, news can break from the Euro zone which could impact market sentiment. Therefore, it is very important to keep yourself informed about the news and its potential impact, as it has the ability to disrupt trades if you’re not paying attention.

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September 16, 2011

Forex Market Outlook 9/16/11

Filed under: Forex News — Tags: aud, china, commodities, course, currency trading, eur, european, invest, japan, jpy, markets, politicians, pound, rate-decision — admin @ 6:57 am

Once again the Euro zone is in focus as the meeting of European finance ministers and bankers is taking place in Poland. However, there is one notable guest of “honor”, our own US Treasury Secretary Geithner.

Yesterday he made his presence felt as it was announced that the US Fed would provide unlimited Dollar liquidity to the European banks, essentially helping them re-capitalize as there was strong indication that many were about to face a liquidity crisis. This sent the Euro screaming higher, as EUR/USD gained about 200 pips in less than half an hour!

However, the market quickly determined that despite this shot in the arm, the patient is still not well. The Euro is selling off this morning, as there are still problems with the various regions of the Euro zone agreeing to comprehensive plan for Greece and what they need to do to receive the next round of bailouts.

So Geithner is there attempting to smooth things over and to help the process, though his effectiveness is still undetermined. The uncertainty that is still emanating from the Euro debt crisis is a major impediment to the global economy and is the major risk in the markets at this point.

However, there are additional impediments still out there, most notably declining economic figures that reflect a global economic slowdown.

While there is little significant news due out today, there is risk aversion to start the morning, despite higher stocks in both Asia and Europe. Gold has retreated after yesterday’s liquidity announcement, as it was fairly obvious that it has been trading more as a de facto currency and less as a hedge against inflation.

University of Michigan confidence figures are due out later this morning and I don’t think anyone expects them to be positive with the gridlock in Washington and the declining economic landscape.

Overnight, New Zealand consumer confidence figures came in worse than expected and declined from last month, though the Kiwi was able to rally with the Pac Rim Index.

The Pound is trading lower as the market is seeing the declining economic data in the UK and is starting to believe that further quantitative easing will be forthcoming from the BOE.

Other than these developments, the focus is really on the outcome of the European finance meeting and whether of not they can make strides toward an agreement. No one is expecting a solution in the next few days, but the politics have been difficult to overcome, to say the least.

Someone needs to step up to the plate over there and agree to do what may not be so popular, so that world markets and thus economies can improve. When risk is high in the marketplace, investors move money to “safe havens” which is essentially the same as stashing it under the mattress as it is not a productive use of capital.

While the Euro zone is not entirely to blame for the global economic malaise, the US needs to also step up and realize that without pro-business policies, the pie will continue to shrink. And when the pie shrinks, politicians go for the money grab and attempt to increase their take through higher taxes.

They then attempt to “invest” that money which if recent history is any indication, will be an abject failure. The recent $500 million “loan” to the bankrupt green energy company Solyndra is one such display of why politicians should not be able to pick winners and losers.

So hopefully we can get the politicians out of the way so Americans can get back to work and we can start to see economic health again. Otherwise, we will continue to worsen and may dig a hole so large that we may not be able to recover. And if things keep continuing this way, I’m going to start to think that is exactly what they want to occur.

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