Data | Forex Blog

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.

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December 23, 2011

Forex Market Outlook 12/23/11

Filed under: Forex News — Tags: a-break-from, a-dirty-word, a-little-higher, a-low-hurdle, a-tight-range, data, december, europe, happy-holidays, top stories — admin @ 6:47 am

Happy Holidays to all as the markets are preparing for a break from the action so volume is likely to be weak today. Japanese markets are actually closed today, with US markets closed on Monday. There is still some news that has hit the wire abroad, and we are waiting on some data here in the US.

Markets today are generally drifting higher, though without conviction. It is likely that today will hold the range regardless of the data released as investors look forward to trying to push this “mini Santa Claus rally” higher next week. And next week represents the last four trading days of the year so we could see a push higher if we can avoid any major economic disasters. The fact that politicians are done for the holidays removes one such potential fly in the ointment.

Stocks are higher to start the morning in both Europe and in the US, and oil looks pegged just under $100, with gold holding above $1600.

Overnight in Europe, French PPI data came in higher than expected, though French GDP came in slightly lower than expected. Europe is currently having the inflation/deflation debate and no one is quite sure what they are experiencing. Talk from the ECB today revealed that policy makers believe that quantitative easing (QE) should not be a dirty word, especially if Europe starts to see deflation.

Yet oil is higher, money seems to be flowing and I think it is going to be hard to avoid inflation. I saw a report today that stated that historically, gas prices move $.93 higher on average from the December holidays to the following year’s peak. This sounds completely negative to me, which means there is less money to be spent on other areas of the economy. 2012 could be a massive economic roller-coaster ride.

In the UK, there really is no debate about inflation—they have it—yet they are still concerned about weakening economic data. Well the BOE finally got some in the form of a lower index of services figure released earlier this morning. The monthly figure showed a decline of .7% vs. an expectation of a decline of .1%. This is significant because services make up some 70% of the UK economy. So the Pound is slightly lower this morning, but again, currencies are trading in a tight range this morning so not a big deal at this point.

The US dollar has been slightly lower as the correlative effects of higher stocks and mild risk appetite is keeping markets above water so far this morning, but that could change with the release of data here in the US. We are waiting on personal income and Spending figures, durable goods orders, and new home sales.

North of the border in Canada, GDP figures are expected to post a .1% monthly gain which is lower than last month’s .2%, bringing the YoY number down to 2.7%. This seems like a low hurdle to clear so we could see a surprise to the upside.

** Just in** US durable goods orders were up 3.8% vs. an expectation of 2%, but the ex transportation figures came in slightly lower than expected at .3% vs. .4%. However personal spending and personal income figures came in worse than expected, both showing gains of .1%. Incomes were expected to have risen .4% and spending was expected to have risen .3%.

This is a net negative and stock futures have given back some early gains but are still positive. I would not be surprised to see markets close unchanged today.

In Canada, monthly GDP came in unchanged vs. an expectation of a gain of .1%. The YoY number of 2.7% hit the nail on the head. Perhaps the bar was a little higher than I had previously suspected.

Nevertheless, these figures have had little impact on the forex market, which are likely to remain in a tight range. I will not be trading today as today is a churn and burn kind of day.

Happy Holidays to all and I’ll be back next Tuesday!

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December 19, 2011

Forex Market Outlook 12/19/11

Filed under: Forex News — Tags: australia, central, crisis, data, find-the-global, housing, japan, markets, rate, release, spain, week — admin @ 7:26 am

The big news of the weekend is the death of N. Korea’s crazy leader Kim Jong Il, which has provided a minor bit of uncertainty in the Pac Rim as it is expected that his son will succeed him. The goes to show that uncertainty is sometimes worse from a market perspective than the removal of a bad situation. I would though have thought that markets would have rejoiced and rallied, but uncertainty rules.

However the markets have bounced back from early selling in Asia and look to open higher here in the US, with both stocks and commodities trading higher. There is still a lot of risk emanating from the Euro zone, and the potential for credit downgrades is looming.

In Spain, bad loans were up as the Spanish banking system attempts to withstand the fallout from the housing bust there and maintain stability despite unemployment that is over 20%, the highest in Europe. This comes after word form ECB chief Draghi maintained that the ECB would not step up their bond purchases, electing to adhere to the Central bank’s mandate rather than favoring practicality.

Later today, Euro leaders will conduct a conference call where they attempt to hammer out the details of the fiscal pact they agreed to at their last meeting. This unlikely to be the final word on the matter and Euro leaders have contributed to the economic demist they are seeing by dragging their feet and not responding to the crisis more swiftly.

Meanwhile they have been swift in asking others for money, particularly the IMF. EU leaders are calling for an additional $261 billion from the IMF and are asking the UK for $50 billion. Good luck with that. The Euro has been vacillating around the 1.30 level vs. USD, which is surprisingly strong given the state of affairs in Europe.

This is a holiday-shortened week so volume may decline as we approach the weekend. News this week from the EU includes German PPI and economic sentiment figures tomorrow, though there is not much else from a data perspective. This is not to say that there won’t be any news, but I will more likely be of an unexpected nature.

There is more news due out from the UK, including the release of the rate policy meeting minutes on Wednesday and GDP figures on Thursday. This could be supportive of the Pound if the BOE decides to take a wait and see approach or if GDP comes in better than expected. The data in the UK has been relatively strong in my opinion, though the markets are a discounting mechanism so surprises could happen to the upside.

In Japan, the rate policy meeting on Thursday is expected to produce no change as the Yen has virtually stopped trading vs. USD. There has not been a lot of volatility in this pair, which is just fine by the BOJ. But, there could be some Yen movement if problems emerge from N. Korea.

From the commodity currency bloc, the release of the RBA meeting minutes in Australia tomorrow, followed by Canadian CPI data on Wednesday and GDP figures on Friday, and rounded out by GDP figures in New Zealand could have an effect on the risk trade. Gold is sitting at $1600 with oil just above $94.

Lastly here in the US, the news releases are heavier toward the end of the week highlighted by the release of GDP figures on Thursday and some ancillary releases packed in. Markets are hoping to escape for the holidays with little fanfare and many are looking forward to putting this year behind us.

While the data here in the US has largely been positive, it is hard to buck the feelings of malaise that overhang the markets and the economy in general. There is absolutely no confidence that things are going to improve, and people are just waiting for the next shoe to drop. This is no way to run an economy as fear trumps sanity and then things don’t improve. Combine this with EU leaders essentially holding the world hostage through their non-actions, and we find the global economy floundering.

Will this continue into next year? Unfortunately, I think so.

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December 16, 2011

USD/CAD (Loonie) Approaching Resistance!

Filed under: Forex News — Tags: been-weakening, chart of the day, data, fairly-positive, into-the-end, loonie, price, shuffle, the-largest, unique, with-the-price — admin @ 8:04 am

Lost in the shuffle of the risk themes in the forex market due to the Euro debt crisis, the Canadian dollar has been weakening despite some fairly positive economic news. While the US dollar has been strengthening vs. the Euro, the data in the US has been largely positive which bodes well for US demand.

This could help Canada immensely, as the US is the largest importer of Canadian goods. But one of the unique features of the Loonie is that it maintains a tight correlation with the price of oil, as the US is the largest importer of Canadian oil. So as the price of oil has been retreating due to global risk aversion, an improving US economy could lift demand for black gold.

If the risk trade increases into the end of the year, then global stocks and commodities would move higher with the US dollar weakening.

I’m looking to sell USD/CAD as it moves closer to 1.04, with a stop just above the recent highs at 1.0425.

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December 15, 2011

Forex Market Outlook 12/15/11

Filed under: Forex News — Tags: a-5-month-low, a-wait-and, chinese, data, earlier-the-ecb, euro, european, market, markets, morning, mostly-positive, opportunity, price, situation — admin @ 6:59 am

The markets rebounded yesterday from early losses after the European session closed yet still closed lower as a reminder of the risk in the marketplace. As European nations scramble to get their budgets under control, there is a essentially a “race against time” taking place as credit downgrades are looming and bond vigilantes are selling causing rates to rise. The longer it takes to restore market confidence (if that is even possible at this point), the worse it is going to become.

But Germany continues to balk at the idea of Euro bonds or any solution that requires more of them. Yet they continue to thrive despite the overall economic malaise Europe is facing, as evidenced by this morning’s better than expected PMI figures, with manufacturing coming in at 48.1 vs. an expected 47.5 and services coming in at 52.7 vs. an expected 50.

Meanwhile there are daily rumors about banks needing bailouts, countries on the rink of default, and governments struggling to meet fiscal objectives. As the Euro declines, it is only going to get better for German manufacturing, perhaps at the expense of the indebted nations. Also reported this morning was in-line CPI data, though as I mentioned earlier the ECB is less concerned with inflation at this point as Draghi has been loosening monetary policy.

Speaking of monetary policy, the SNB left Swiss rates steady at 0% and did not take the opportunity to move the target exchange of the franc higher vs. Euro. They are taking a decidedly “wait and see” approach despite the deflation they are seeing and lower than expected industrial production figures, which decline 1.4% vs. an expected .9% decline. The SNB is trying to maintain currency weakness with verbal actions and not concrete ones so they may be tested again if the Euro debt crisis worsens.

In the UK retail sales figures were a mixed bag as monthly retail sales figures came in lower than expected at a decline of .7% vs. a decline of .4%, yet the YoY number came in higher than expected at .5% vs. an expected .3%. The 1-year inflation expectation came in slightly lower than expected at 4.1% vs. 4.2% though this is still way outside of the BOE target of 2% and the narrative is that government austerity will cause prices to fall despite the easy money policies of the BOE.

In Japan, the Tankan manufacturing survey came in near 2009 lows as the fear of global recession has turned the Japanese outlook negative. This caused Japanese stocks to trade lower, providing an inverse correlative effect of strengthening the Yen. Yet Chinese PMI figures came in better than expected, giving a lift to both the Aussie and the Kiwi.

So the markets have rebounded heading into the US open as economic data hitting the tape all appears to be positive. Initial jobless claims figures came in at 366K which is the best number I can remember in some time. PPI data came in slightly higher than expected at .3% vs. an expected .2% though this is still fairly low in the grand scheme of things. The Empire manufacturing reading came in nearly 3x better than expected posting a 9.6 vs. an expected reading of 3. Later this morning industrial production figures and the Philly Fed reading will round out the news.

So the data is mostly positive and US stock futures have risen as a result, with the Dollar weakening vs. all others. What has been interesting of late is the price of gold, which is now trading at a 5-month low under $1600. This may be indicative of the market view that deflation may be a bigger problem going forward then anyone is expecting.

While this may be true to a certain extent, my belief is that CPI data is flawed and favors the banks over the individual. What I mean by that is that what we actually have is “biflation”, a condition whereby you have rising prices for things that are necessities like food and energy, and asset price deflation where prices for things like houses decline. The overall aggregate of these number cancels one another out and shows low inflation or possibly deflationary figures, yet people struggle to get by as stuff just costs more.

I don’t need a government report to tell me what my monthly food and energy bills are and my own eyes tell me those costs are higher. Yet the Fed isn’t about to budge on interest rates because the alternative is more disastrous without the ability for politicians here to solve problems.

The US economy is performing well despite all of the domestic and international headwinds keeping risk levels at elevated levels, but we could do so much better if governments can get their fiscal houses in order.

Remember, the forex market is a relational market so you are attempting to buy the currencies of those that are performing well by selling the currency of those that aren’t. That is what makes this market the most intriguing and important market in the world, as it gives you global exposure to the best growth stories and allows you to invest in governments that are functioning and have the best policies.

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December 12, 2011

Forex Market Outlook 12/12/11

Filed under: Forex News — Tags: a-classic-risk, central, data, difficulties, feels-the-extra, like-the-market, market, monetary, point-as-draghi, possibility, question-though, the-situation-, uncertainty, week — admin @ 6:56 am

Well it looks like the market chickens have come home to roost and have finally come around to the fact that the euro is in trouble. While the obvious problems inherent in its composition have been highlighted through the debt crisis, market optimism for a solution has been doused after last week’s summit.

Risk in the marketplace is likely to persist and those hoping for the “Santa Claus Rally” may be disappointed. Correlative effects of the euro/dollar/stocks and commodities may make it very difficult for risk assets to advance heading into the end of the year. European countries are on negative credit watch from the various ratings agencies, and the recent reduction of interest rates by the ECB may make the euro even less desirable.

This morning markets are lower across the board and the US dollar and Japanese yen are strengthening as risk appetite has abated, led by lower stocks and commodity prices. This is a classic risk aversion scenario as markets are waiting for the next round of good economic news. So where will this news come from this week?

There is not a lot of market moving news on tap this week with CPI data due out from various countries. The problem with these data releases though is that we just saw the rate decisions from the Central banks last week so even if CPI and inflation come in higher, no one, I repeat no one is looking to raise interest rates to stem it.

One interesting place to watch inflation though will be in the UK, where inflation is expected to fall from 5% to 4.8%. This release comes out tomorrow. Also keep an eye on the UK employment figures on Wednesday, and the BOE inflation projections due out on Thursday. There has in my opinion been a disconnect between what the data has been showing and what the BOE has been seeing/forecasting.

The Swiss franc has been weakening ahead of Thursday’s rate policy meeting. There is some speculation in the market that the SNB will move the target rate vs. euro to 1.25 or even 1.30 from the current 1.20, or the possibility of making interest rates negative in an attempt to weaken the franc.

I’m not really sure what economic data from the euro zone can reverse current sentiment about the prospects for the shared currency at this point. Thursday’s CPI is a non-issue at this point as Draghi just lowered rates and Friday’s central banker’s conference could produce something interesting. When in comes to the euro, it is more important this week to stay on top of the news that is not scheduled than what is on the docket. Unfortunately this is harder to do, as one does not know when unexpected news will hit. Credit downgrades or supplemental information to the debt deal could be that news. So stay on your toes euro traders!

Perhaps the biggest news for the euro and the markets in general this week will not come from that side of the pond but rather from the US. Tuesday’s FOMC rate policy meeting could produce fireworks if Bernanke feels the extra need to juice the markets through his statement. This could imply increased talk of further monetary easing which could be the only catalyst to lift markets short of the Europeans coming up with a credible solution for the debt crisis. So fund managers may have to wait until next year to book gains as the risk is just too great at this point to try to “window dress” their funds.

Tomorrow’s advance retail sales figures here in the US may be a pleasant surprise after all of the decent holiday sales reports we’ve been seeing, but I have a hard time believing that this level of activity will continue into the new year. Friday’s CPI report doesn’t matter because Bernanke wants inflation. Period. He is not an elected politician so he doesn’t care what people think. His view is that those who can afford to pay more will and the rest will get by on government handouts

Part of the “problem” in the US that no one addresses is that stuff just costs too much. It’s pretty simple, really. The reality is that declining prices from these levels should not be seen as deflation but rather dis-inflation. With oil just shy of $100, real interest rates negative, and food prices near all-time highs, it is not surprising to see that we are in economic trouble.

Yet the Fed will continue to “support” the current economy, but in actuality it is supporting their banker buddies. Meanwhile, the rest of us will suffer.

So do yourself a favor: if you are not involved in the forex market, find out how you can get involved. Take advantage of monetary and fiscal policies around the globe and not be a slave to the uncertain regimes because of geography!

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December 6, 2011

AUD and CAD take different routes

Filed under: OANDA News — Tags: a-carry-gain-, aud, australia, chf, currency, data, dean's fx, gbp, governor-carney, loonie, market, other dollars, past, unemployment — 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

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December 2, 2011

Will NFP derail any of the good done this week?

Filed under: OANDA News — Tags: a-game-onto, a-huff-over, a-solid-number, aud, country, data, dean's fx, december, enforcement, eur, jpy, product-out-the — admin @ 4:02 am

Another exhausting week and we still have not been served up the grandaddy of all fundamental indicators, NFP. Keeping taps on who said what or who promised what is a game onto itself. Merkel has not changed her tune, fiscal union and the ECB is on the table-anything different not worth listening too. Sarkozy, in a huff over his country AAA situation, is jumping into the Germans bed and requires both countries to push for closer economic ties among euro nations and tougher enforcement of budget rules to counter “the regional debt crisis”. With Draghi signaling that the ECB is willing to do its part and fight the euro-crisis is helping improve market sentiment a tad this morning. Any strengthening of rules on government fiscal budgets would certainly allow the ECB to respond more aggressively to credit market and economic stress in Europe. This would allow them to be more proactive, rather than the typical Eurocratic reactive that we have come to know. Big picture, are European leaders moving closer towards agreeing to steps toward fiscal union in the run-up to the December 9 summit? Is this the bazooka?

Will NFP derail all the good done this week? US employment is expected to stay on track. “Punters” are betting that the headline print improved from last month’s release. The market is forecasting a +160k reading and +175k for private payrolls with expectations slightly higher following the strong ADP number. The reaction to a solid number will probably be less vigorous than what we had in mind a few weeks ago. This month is in its infancy and there is much less recession fear priced in than say the end of October. This scenario will allow ‘less scope for upside data surprises to bolster risk sentiment or offset negative news from Europe’.

As usual, the market will get a North American employment tease release from Canada ahead of NFP. Last week, Stats Canada announced that they have decided to shift the timing of inflation and job reporting in Canada to coincide with US releases in April next year. Until then, according to the norm, the data is released and the loonie has to wait 90-minutes, until NFP, before it can react. The consensus forecast is that employment rose +20.0k last month, unlike the previous month where employment fell sharply, supporting a rate cut. However, stronger North American fundamentals since then has capped some of these recession fears.

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November 29, 2011

Forex Market Outlook 11/29/11

Filed under: Forex News — Tags: account, data, euro, fear, interest, interest-rates-, invest, loonie, trades — admin @ 6:57 am

This morning has started out with the same vigor as yesterday’s market posting early gains on the news of a successful Italian bond auction and riding what looks to at least initially be two days of gains in a row. Global stocks and commodities are higher to start the day, with US dollar weakness.

In Italy, 3-year notes had a bid to cover of roughly 1.5x meaning that there was good demand for the debt contrasted with last week’s German auction that was only 65% subscribed. It should be noted that the yield on the Italian debt was close to 8%, which is a Euro-era high and nearly twice what it was as early as 2 months ago.

What does this tell us? Well, a couple of things. For starters, it shows that the markets have some confidence that Italy will not default and that there may be an increased pace of getting the plans in place to combat this crisis. If the market feels that they can pick up some short-term debt at high yields before credible actions begin to reduce those yields, then that’s a pretty good trade.

But it also tells us that Germany may have some funding problems going forward, as the market deems yields too low to justify the “safe haven” of the Bund, which may not actually be that safe when Germany’s exposure to the rest of Euro zone debt is taken into consideration. In other words, why receive 2% in Germany when you can receive 8% in Italy for nearly the same outcome. If Italy goes down, it would likely take Germany down as well so it’s better to be compensated at a higher level.

Today begins a two-day meeting of EU Finance Ministers that is expected to produce an agreement on how to leverage the ESFS and the actions that will be permitted at the ECB. After pressure from the Obama administration, the need to act for Europe is now.

On the data front, economic confidence figures in the Euro zone came in lower than expected, but wasn’t that expected? So overall, the Euro is pulling back from earlier highs and our chart of the day from yesterday is still in tact, with EUR/USD having held that 1.3430 level.

Overnight in Japan, retail trade figures came in better than expected, showing a gain of 1.9% vs. an expected gain of .7% and household spending decreased just .4% which is better than the decrease of 1.5% that was expected. Perhaps that had to do with the jobless rate which came in worse than expected, showing 4.5% vs. an expected 4.2% which incidentally is half of what the US jobless rate is. Friday’s NFP numbers here should confirm the continued bad news of 9% unemployment unless discouraged worker have left the workforce.

In the UK, home prices came in higher than expected showing that inflation may remain stubbornly high despite the protestations of the BOE who claim that prices will magically fall back to their 2% target within the next year from the current 5% they are experiencing. While this expectation is the justification for monetary easing, the hard data suggests otherwise. Mortgage approvals came in higher than expected.

And lastly here in the US, home price figures will be do out later this morning are expected to show modest declines and consumer confidence figures are expected to show gains from last month but are still near historic lows. I suppose the news of the better than expected “Black Friday” sales and yesterdays “Cyber Monday” sales which also came in better than expected (up 18% from last year) belie those figures. Or it could just be boredom.

Fitch ratings agency finally acted on the Super committee’s failure on debt reduction and moved the US outlook to negative, which means that there is now a 50% of a US credit downgrade within 2 years. Yay for politics!

Meanwhile the markets are giving back earlier gains but are likely to rebound if we can get through the remainder of the Euro session without any negative news from the Finance Ministers meeting. So it looks like we’ll continue to trade the range, albeit a larger one.

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November 17, 2011

Forex Market Outlook 11/17/11

Filed under: Forex News — Tags: aud, currency, data, economy, euro, fundamental, housing, interest-rate, kiwi, pound, usd — admin @ 6:59 am

All eyes continue to focus on Europe and the rising yield situation as it unfolds and pushes the cost to finance debt to record levels. Italy and Spain have seen record yields as of late, and now the attention is starting to turn toward France, the EU’s second largest economy. Spain also downgraded their GDP outlook.

This has prompted a bit of a battle between France and Germany with the former wanting a much greater participation from the ECB in this whole debt debacle. The idea is that the ECB would become the “buyer of last resort” which theoretically should stabilize the market and allow yields to come down. This action would be similar to the “bazooka” that the US Fed claimed to be ready to use, essentially scaring off the potential bond vigilantes.

However the EU situation is different and because they have let it drag on for so long the credibility of such an action would be in question. And this is where the ECB in general runs into problems. Even if they said that they would be the buyer of last resort, the market would most assuredly test that resolve and it is likely that a worse situation would unfold even if they did follow through with it. To say that this is not a good situation is an understatement.

Italy and Greece though look prepared to institute the austerity measures they must undertake, as Papademus in Greece has received initial support. In Italy, PM Monti has also declared himself the Finance Minister, thereby eliminating a potential conflict. So its Monti or bust!

On the data front, the most important numbers have come from the UK. Consumer confidence figures came in way lower than expected with a reading of 36 vs. and expectation of 43 which itself was lower than last month’s 46. But yet the retail sales figures came in gangbusters showing a gain of .9% vs. an expectation of a decline of .2%.

Perhaps this disconnect can be explained by the fears that are instilled by the government despite the decent economic data that is released. The government keeps harping on how bad the economy is to justify their easy money position and explain 5% inflation, but I think the economic data tells a different story. Right now, the UK is doing exactly what should be done around the globe by reducing government spending. The inevitable dip in GDP due to that action should be welcomed and not feared. Are you listening, Bernanke?

Here in the US, the data was largely positive with initial jobless claims coming in at 388K vs. the expected 395K. Building permits also rose 10.9% vs. an expected 2.4% with the expected 603K exceeded by the reported 653K. Housing starts also came in better than expected, with 628K reported vs. the 610 K expected. Later this morning the Philly Fed Index will be released and there will be some Fedspeak from one of the Fed minions.

So the number here in the US while not great are improving, and it will be interesting to see if Bernanke can justify further Fed monetary easing with the improving data. Obviously the risk in the EU could cause a liquidity dry-up so he may have to resort to that line of reasoning.

Nevertheless the markets are in slight risk-aversion mode, having improved some since the data releases earlier this morning. Yesterday’s move higher in oil to $103 is being explained as the un-wind of crack-spread trades, although I find the timing of the move curious with yesterday’s release of CPI data.

With oil prices above $100 it will be much harder for Bernanke to mask the true inflation we see in the economy unless housing prices continue to tank further. My general feeling is that the only thing holding back the markets right now is the Euro debt crisis and we would be seeing some massive inflation (in everything but housing) if they truly solved the problem.

But for now nothing appears to be close to light at the end of the tunnel so I prefer to keep my trades to the short-term and take advantage of the volatility, rather than trying to avoid it.

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