Forex Blog

October 11, 2011

Forex Market Outlook 10/11/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:26 am

This morning all eyes are on the tiny nation of Slovakia who is wielding enormous power in that they are voting on whether or not to ratify the expansion of the EFSF in the Euro zone as part of the July 21st agreement.  There must be unanimous agreement among all 17 Euro nations or the process could be derailed.  While the market is expecting this vote to pass, there is some trepidation until it is a done deal.

So the markets have started the morning in mild risk-aversion mode after yesterday’s tremendous move higher in stocks and commodities.  The S&P 500 had its largest daily gain in nearly 2 months on a light-volume session due to the Columbus Day holiday here in the US with the bond market closed.

Today kicks off the start of earnings season here in the US for corporations so the markets will be keeping an eye on how corporations are doing and what their outlook is for the immediate future.   This is important for the forex market because the correlation of stocks and their role in the “risk trade” to currencies could be the driver of global markets in the near-term.

The Euro debt crisis is still looming in the background but the announcement that a complete resolution will be forthcoming in early November has put fears on hold for at least the next couple of weeks.

Economic data due out this week will contribute to the overall market picture but there is no single piece of market-moving news that will reverse risk themes.  That’s not to say we won’t see volatility in individual currencies, but rather that this week will be dominated by equities and corporate earnings and the Euro debt saga.

Early this morning, the UK reported lower than expected, industrial and manufacturing production figures, though the misses were slight by about .1%.  While we know that the economy is contracting, but it is hanging in there pretty well at this point considering the government austerity.  There is also a note out that the BOE may be abandoning a part of the additional QE it announced last week due to the high prices of bonds they want to purchase.  UK employment figures are due out tomorrow.

In Japan, the BOJ economic report showed that they see signs of the economy improving and consumer confidence figures came in better than expected.  The minutes from their most recent rate policy meeting will be released tomorrow and it could show their concern about Yen strength and their willingness to act (intervene) to weaken it.

Speaking of meeting minutes, the Fed minutes from last week’s FOMC meeting will also be out today and may show Bernanke’s willingness to ease monetary policy further if economic conditions worsen.  This could give stocks an additional boost ahead of the earnings releases which have already seen the bar lowered by analyst and the market alike.  This means that it will be easier to meet and/or exceed expectations, which could strengthen the risk tradeThere are many in the market who are expecting a major move in equities to the upside to close out the year which could be indicative of the resolution of the Euro debt crisis and the potential end to political gridlock in Washington DC.

Sadly, Washington DC may remain broken until the next elections in 2012 and tonight’s vote on the President’s jobs bill will likely result in non-passage as most see it as doubling-down on bad policy and throwing good money after bad.  While these short-term solutions may feel good in the immediate term, the long-term effects are lacking.

And this is part of the overall problem that the administration doesn’t understand—that people and businesses are not going to make long-term decisions on short-term placebos intended to get them re-elected!  You can only use other people’s money to buy votes for so long so when the money runs out, the game is over.  Unless you create a new game—such as class warfare—that we are seeing today in these Wall St. occupation protests.

While I believe the despair and anger in this country is warranted in many respects, it is misdirected.  While the banks haven’t done anyone any favors, Washington DC is the far bigger culprit and the people should take an introspective look as they are the ones who voted this mess into office.

Regardless, markets will go up and markets will go down, so continue to trade and rise above the malaise!

May 19, 2011

Japanese Recession!

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 6:41 am

Last night, Japan reported GDP figures that came in worse than expected, showing a quarterly decline of .9% vs. an expectation of a .5% decline, pushing the YoY figure to a negative 3.7% vs. the expectation of a negative 1.9%. By definition, this puts Japan in recession as the effects of the natural disaster there added insult to injury.

However, the rebuilding that will take place as a result of the disaster may help add to GDP in the coming quarters and Japan has become accustomed to tepid economic growth over the last 20 years so the market reaction has been muted so far.

Speaking of GDP, I mentioned yesterday that the BOE minutes showed that the Central bank didn’t want to raise rates with declining GDP figures, but if those declines are the result of the lack of government spending (one of 4 GDP components) then that should be seen as a good thing and should have little affect on monetary policy.

The reason I say this is because UK retail sales figures came in better than expected, showing signs of life in the UK consumer.

Yesterday’s release of the FOMC meeting minutes showed that the Fed is in no hurry to exit QE2 so the market took that as a sign that all systems are go and stocks and commodities pushed higher to end the day. Oil is back to over $100 and gold is hovering around $1500.

Now the supply/demand debate is starting to enter the commodity space, as adverse weather and flooding are reducing supplies of commodities thereby driving prices higher, but this belies the impact of US monetary policy.

Later this morning we will get existing home sales as well as initial jobless claims which are expected to be back in the low 400s. At this point, economic prospects are beginning to look weaker and the effect of QE2 has created higher food and energy costs and raised stock prices but little else. Thanks, Bubble Ben! I’d ask where Obama is in all of this but I think its probably better that he is not involved.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as increased risk appetite is driving markets early, and consumer inflation expectations came in lower than last month’s reading. An important point to remember is that it is the expectation of inflation, and not so much the figure itself, that is the driver of consumer behavior.

Kiwi (NZD): The Kiwi is also higher as budget projections show that the NZ economy will return to surplus in 4 years after the costs of the earthquake are factored in, as government spending cuts attempt to reign in debt levels.

Loonie (CAD): The Loonie is trading higher as oil prices are back to over $100 and the release of the BOC review will show what the Central bank thinks of the state of the economy. Tomorrow’s CPI data release and retail sales figures may provide further clarity on the inflation situation. (Click chart to enlarge)

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Euro (EUR): The Euro is taking a break from the action today as DSK has officially resigned as Head of the IMF. Now the search for a new chief begins, and in the meantime ECB honcho Trichet will be speaking on the state of the Euro zone economy. Expect the Euro to trade on anti-Dollar sentiment.

Pound (GBP): The Pound is mostly higher as retail sales figures came in better than expected. Sales ex auto fuel came in showing an increase of 2.7% vs. an expectation of 2.2%. If the UK consumer is still breathing in the face of the rampant inflation they are experiencing and not just spending on necessities, then declining GDP due to government austerity should be viewed as a good thing and not used as an excuse to keep rates low for a long time.

Dollar (USD): Well it looks like the Fed is not willing to let the US economy attempt to stand on its own two feet just yet. In no hurry to exit QE2, today’s existing home sales figures will shed light on whether or not the true problem in the US—the housing market—is starting to recover. Initial jobless claims are going to be back in the 400s, and I’m still uncertain how the Fed is supposed to help employment anyway.

Yen (JPY): The Yen is weaker across the board after GDP figures came in worse than expected showing that Japan is indeed in recession. While this not a surprise and therefore the market reaction subdued, I’m not quite certain what it is going to take for Japan to be able to turn this situation around, outside of further monetary easing. The Japanese rate policy decision is due out tomorrow. (Click chart to enlarge)

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If a global economic slowdown is due to governments reduced spending, then I am all for it! However, keeping rates low and encouraging higher prices in this type of economic climate doesn’t help the average person.

While the supply/demand debate does have some merit when it comes to commodity prices, I am still convinced that it is Fed policy that is pushing prices higher. I believe that demand is fairly constant whether oil is at $50, $75, or $100.

China is paying with what it considers “monopoly money”, as the massive Dollar reserves they have accumulated mean they will buy at any price. It is the average consumer, however that cannot compete in that environment so higher prices effect them more.

In addition, when true supply issues arise, the fact that prices are already high leaves little room for error. It’s like going to an auction and bidding on something that you really want, but realizing that a billionaire wants it as well. You may as well give up on the spot, as there is no way you are going to win.

Unfortunately, this is the economic story unfolding today.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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August 27, 2010

All Eyes On Jackson!

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 12:55 pm

As in Jackson Hole, WY, where the annual KC Fed Meeting is taking place and where Fed Chairman Bernanke is due to speak at 10AM EST. So the markets have been trading in a bit of a range going into that meeting and the revised US GDP figures, which are due out at 8:30 AM EST.

Earlier in the UK, revised GDP figures came in slightly higher than expected and growing the most since 2001, as construction spending was higher. However, there is some thought that this is due largely in part to government spending, which is due to expire as austerity measures go into effect.

Overnight in Japan, CPI data showed that prices fell for the 17th straight month and bond prices fell as speculation of currency intervention and further quantitative easing is markedly higher. Japanese PM Kan weighed in on the situation, saying that the government is prepared to take “bold action”. Surprisingly, the unemployment rate ticked down to 5.2% from 5.3% expectations.

So we’ve been seeing some risk taking this morning as Yen weakness has encouraged yield seeking, which also pushed the Nikkei average higher overnight though European stocks are flat to start the US session, as are commodities. So it looks like we are going to play the waiting game until 10, with a possible hiccup at 8:30 if US GDP figures deviate too much from expectations.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as Yen weakness has encouraged some reluctant risk taking and benefiting from higher Asian equity markets.

Kiwi (NZD): The Kiwi is also higher for the same reasons as the Aussie, yet is performing better than it’s neighboring currency as the Kiwi had been most oversold to start the week on lower than expected inflation projections.

Loonie (CAD): The Loonie is mostly lower as the market as it looks like the market is predicting doom and gloom for the US economy. Because of Canada’s close ties to the US, the market reads US economic weakness as Canadian market weakness, rightly or wrongly. (Click chart to enlarge)

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Euro (EUR): The Euro is mixed this morning as the market is waiting for Bernanke’s speech on the state of the US economy. There is a stark contrast between the Euro zone and US policy over how to best return to global growth and this could be highlighted by market reaction. (Click chart to enlarge)

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Pound (GBP): The pound is mostly lower despite better than expected revised GDP figures. The market believes that the driver of that growth was mostly likely government spending which is due to expire as austerity kicks in. A RICS survey showed that rents were higher which could foreshadow rising inflation.

Dollar (USD): Revised GDP figures came in showing a gain of 1.6% which was better than the expectation of 1.4% but down from the last reading of 2.4%. This has encouraged some major risk taking as markets have woken up from its range-bound action.

Yen (JPY): The Yen is now selling off further as better than expected GDP figures have brought about risk taking. Factor in prior Yen weakness due to increased intervention chatter and continued deflation and it all adds up to a weaker Yen. (Click chart to enlarge)

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One of the nice things about writing at the start of the US session is that I get to document market action as it occurs live. What started off the morning as mild risk taking due to Yen weakness has totally turned into major risk taking as the US GDP figures show there’s still some life in the US economy.

However, not to play Debbie Downer, but Bernanke will be speaking later this morning and the tone of his speech could affect the markets. I highly doubt that he will intentionally spook the markets, but one never knows for certain.

But for now, the market appears to have shrugged off this week’s horrible housing data and is content to party some more. Hopefully Big Ben doesn’t take the punchbowl away!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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August 17, 2010

Prices Stabilizing?

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 1:56 pm

This morning in the UK, CPI figures came in as expected with the headline number coming in at 3.1%, down .1% from the previous month.  While this is still outside of the target range, the BOE is hoping for a gradual fall that will allow them to leave monetary policy unchanged.  The BOE has a dual mandate to keep inflation in check and encourage employment.

Here in the US, our own PPI figures came in as expected as well, with the headline number coming in showing the first increase in nearly 4 months.  Prices increased .2% for the month vs. last month’s decline of .5%, showing that deflationary forces may be protracted—at least for now.

In the Euro zone mixed readings of economic sentiment came in, with German investor confidence weakening more than expected to a 16-month low of 14 vs. an expectation of 20.  However, the current situation survey increased to 44.3 vs. an expectation of a gain to 24.  All in all this shows a positive outlook for the German economy, as reflected in the German stock markets gains this morning.

In Australia, minutes from the RBA’s rate policy meeting show that they are “comfortable” with current interest rates and are prepared to see if the heightened concerns over the global economic uncertainty are warranted.

In the forex market:

Aussie (AUD):   The Aussie is mostly higher this morning as the resumption of risk appetite has returned to the market.  While the RBA minutes did not provide evidence that a further rate hike may be coming, they will be keeping an eye on potential inflation which they expect to be tame as global concerns increase.

Kiwi (NZD):   The Kiwi is higher on risk appetite, as the docket for news for NZ is light this week.   PPI figures and consumer confidence figures are due out later this week.

Loonie (CAD):   The Loonie is higher across the board as manufacturing shipments increased .1% vs. an expectation of a decline of .5%, providing a lift to the business outlook.  In addition, oil prices are higher this morning to 76, and the Loonie has been beaten up as of late because of Canada’s close ties to the US economy.

Euro (EUR):  The Euro is higher this morning as its current account deficit showed a surplus of 1.0B vs. last month’s deficit of 17.9B.  In addition, mixed confidence figures from Germany are seen as largely positive, as an improved outlook for the EU economy is likely.  However, don’t expect the ECB to move on rates any time soon, as there is still sovereign debt risk aplenty.  Borrowing costs in Spain and Ireland decreased as concerns over their budgets have decreased.

Pound (GBP):   The Pound is mostly lower despite risk appetite this morning, as CPI data came in as expected at 3.1%.  While inflation is still currently above the government target of 3%, the BOE is hoping that prices will fall, allowing them to keep accommodative policy in place.

Dollar (USD):   The Dollar is lower as would be expected under a “normal” risk-taking scenario this morning.  Building Permits and Housing starts came in lower than expected, while PPI data showed a gain of .2% meeting expectations.  In addition, a conference on housing is taking place which will mostly produce no solution to the problems that plague the housing market.  Two of the biggest problems, both Fannie Mae and Freddie Mac, escaped mention in the Financial Regulation bill, drawing the ire of those who believe that these entities were the cause of the housing debacle.

Yen (JPY):  The Yen is weaker against all but the Pound, as risk appetite is encouraging carry trades.  However, as the Yen hovers near 15-year highs vs. the Dollar, expect the intervention talk to heat up.

So the numbers here in the US still look weak, but they were not horrible.  PPI increases for the first time in 4 months show that prices may be stabilizing which will keep the deflationistas at bay for another day.

In the UK, in-line CPI data means that the BOE most likely has time with its current monetary policy to play out, as the Pound bulls were hoping for a higher CPI reading which would most likely cause speculation of a return to normalized policy increase.  Tomorrow, the minutes from the rate policy meeting will be released, and it will be interesting to see if any sentiment has changed as inflation has remained above the government target for the third quarter in a row.

The Euro zone appears to be stabilizing as well, as budget concerns in the countries with debt problems have subsided, and the German economy still appears to be rocking.

The commodity currencies will continue to trade on risk themes, as near-term rate hikes are most likely out of the question.  The “wait and see” approach appears to be the course that they will follow.

And lastly, speculation over Japanese intervention in the Yen will heat up with any further Yen appreciation.  Risk aversion will most likely be the driver as carry trades are unwound—but will the BOJ succumb to government pressure?

Stay tuned!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here!  Don’t miss out on the world’s fastest growing market!

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