The US PMI headline came in at 54.1, less than the expected 54.5 but in line with the global manufacturing growth. Along with a growth of 1.5% in Construction spending it send a neutral message for forex traders as the numbers were close to the expected figures with no surprises to make a case for a stronger or weaker USD.
February 1, 2012
January 17, 2012
Falling Consumer Prices Lifts Euro Rate Cut Speculation
A greater-than-expected decline in consumer prices in the Eurozone for the month of December has given rise to an increase in speculation for further interest rate cuts. Inflation in the 17 countries sharing the euro was 2.7 percent in December on an annual basis, revised down from an earlier estimate of 2.8 percent for the month, the European Union’s statistics office Eurostat said.
“The pressure is abating although the risks from energy are still there,” said Fabio Fois, an economist at Barclay’s Capital. “We think the ECB could bring rates as low as 0.5 percent in March,” he said.
Source: Reuters
January 16, 2012
Debt Downgrade Jeopardizes Eurozone Recovery
Friday’s sovereign credit rating downgrade by Standard & Poor’s brings a new sense of urgency to the European debt crisis. The move also shines a spotlight on the region’s abysmal adherence to the Eurozone’s fiscal management rules as leaders prepare for yet another European summit on the debt crisis slated for January 30th.
Greek officials will actually get a head start on the summit as they are schedule to meet on January 18th following a series of unsuccessful discussions last week to reach an agreement with the country’s largest creditors. Last fall it appeared that a deal had been arranged that would see Greece’s largest creditors receive 50 percent of the face value on Greek debt. This arrangement was expected to reduce Greece’s deficit to 120 percent of GDP by the end of the next decade, but the deal now appears to be in question. Talks between the banks and the Greek government are scheduled to resume on January 18th.
Failure to come to terms on the debt discount places the release of the next tranche of emergency funding to Greece at risk. Greece has more than 14 billion euros ($17.8 billion) in debt due to mature over the next two months and if unable to meet the obligation, Greece would have no option but to enter into a full and uncontrolled default. Few expect it to come to this, however, as a calamitous default of this nature would spread debt contagion throughout much of the Eurozone at a rate beyond the region’s capacity to maintain.
Europe’s Largest Economies Suffer Credit Downgrade
In actual fact, few were surprised when Standard & Poor’s slashed credit ratings for a total of nine Eurozone countries late last Friday. Of the region’s top five economies, France and Austria both lost their coveted triple-A ratings leaving only Germany at the top tier. Italy and Spain were further downgraded to below investment grade status.
Citing deteriorating economic prospects and the anemic attempts so far to meet austerity targets and reduce deficits, S&P also placed the countries on a “negative” credit outlook leaving the door open to additional downgrades.
Following the official notice of the demotion, European officials rushed to minimize the impact of the historic downgrade. German Chancellor Angela Merkel said she believed the credit action would prove to be positive as it would urge member states to agree to a “financial compact” to help salvage the union and the euro.
Markets were less optimistic and the first full day of trading following the downgrade was mixed. European stocks were up slightly near the end of the day, while markets were off by the mid-way point in the North American trading day. Still, the real test is expected to come tomorrow when Spain will attempt to raise about 6 billion euros ($7.6 billion) in short and mid-term bonds, with another 4 billion euros ($7.6 billion) in long bonds.
“The rating downgrade is definitely going to create headwind for the Spanish bond auction,” Christian Lenk, analyst at DZ Bank, told the Financial Times Deutschland. He said he didn’t believe that the country could “repeat last Thursday’s auction result,” in which it was able to sell twice as many bonds as envisaged at lower interest rates than before.
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January 11, 2012
Fitch Warns of “Cataclysmic” Euro Collapse
Fitch Ratings said today that the European Central Bank must increase its debt buying to support Italy and prevent a “cataclysmic” collapse of the euro. Speaking at an investors event, David Riley, the head of sovereign ratings for Fitch, said the collapse of Italy would almost assuredly mean the end of the Eurozone.
“It is hard to believe the euro will survive if Italy does not make it through,” Riley said, adding that while many saw Italy as too politically and economically important to be allowed to fail, “one might also argue that it is too big to rescue.”
Source: Reuters
January 4, 2012
Easing Inflation Points to Possible ECB Rate Cut
The latest release from Eurostat – the European Union’s Statistics Office – suggests inflation eased slightly in December from the 3.0 percent recorded for the same month one year previously. Analysts feel that inflation could continue to decline giving rise to a growing expectation of a cut to European interest rates in the first quarter of the year.
“Assuming that the oil price does not rise again, we see this component knocking about 1 percent off the headline rate in 2012,” said Ben May, economist at Capital Economics. “Food inflation should also slow as the effects of past rises in agricultural commodity prices fade.”
Source: Reuters
December 27, 2011
Short-Term Trading Tactic- British Pound (GBP)
As forex traders, we are constantly looking for any edge we can get in the marketplace. Using the charts is one way that traders look for predictive behavior in the price action of any currency pair. But sometimes, there are more simplistic tactics that can provide equal results.
Case in point, today’s action on GBP/USD. This is one of the most simplistic “plays” in the market and can sometimes provide low-risk opportunities. Today’s market action is called “No news is good news”. This was one of the first tactics I learned when I made the transition to forex and it can be used over and over again.
Earlier this morning, the British pound rose some 80 pips from yesterday’s low volume session. One might think that there was some “good news” driving the Pound higher, or perhaps there was some bad news about the other currency in the pair. Since the US market hadn’t opened yet, one might naturally conclude that there was good news in the UK then.
Not only was there not good news, there was NO news at all as the UK markets are closed today. But the forex market trades 24-hours around the clock. Without the possibility of bad news, the market saw the opportunity as good news and therefore pushed the Pound higher. In other words, with the threat of negativity removed, you could have had an easier move higher!
Sometimes we see this type of action with the changing of the trading sessions. Have you ever noticed, especially lately, that the markets seem to drift higher once the European market closes? This happens because the risk coming from Europe is great right now so if we make it through a European session without negative news, the market sees it as a positive!
Of course it is still import to use support and resistance levels, and in the Pound earlier today that support level was at 1.56 providing a low-risk, high return short-term trade. So trade the path to least resistance and you may see moves similar to this one today!
December 22, 2011
December 21, 2011
Eurozone Banks Take Advantage of ECB Loan Offering
Eurozone banks have rushed to take out cheap three-year loans offered by the European Central Bank, borrowing 489bn euros ($643bn; £375bn). The central bank had originally hoped to lend up to 450bn euros to stop another credit crunch crippling the banking system.
“The very heavy take-up of the ECB’s three-year, long-term refinancing operation provides some encouragement that banks’ liquidity needs are being amply met,” said Jonathan Loynes at Capital Economics.
“But while this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain sceptical of the idea that the operation will ease the sovereign debt crisis too as banks use the funds to purchase large volumes of peripheral government bonds.”
‘Positive number’
Source: BBC News
December 15, 2011
Forex Market Outlook 12/15/11
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.