Forex Blog

January 12, 2012

Forex Market Outlook 1/12/12

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

Well it looks like we’re dodging bullets in the financial markets today as just about every possible risk event came in with a positive result for risk appetite so that’s exactly what we are seeing today. Yesterday I mentioned the volatility of the markets and how yesterday’s down day was really nothing more than fear as there was little new information to change sentiment.

This has set today up for a risk-taking day, with stocks and commodities higher and the Dollar and Yen lower.  There was a lot of news today that could have derailed the markets today and continued the slow slide lower, but so far the news has been good.

Let’s start with the interest rates decisions, first in the UK.  The BOE this morning left both interest rates and the asset purchase plan unchanged as the market was expecting.  While there is no accompanying statement today, there was just the slightest chance they could have been more accommodative as the UK economy is starting to flounder, and there was absolutely no chance of tightening so the market is seeing the no-change as a positive.  Industrial production figures came in lower than expected.  We will find out in about two weeks time at the release of the meeting minutes how unanimous that vote was.

In the EU, the ECB also left rates unchanged and received the same response as the BOE decision, though now the Euro is starting to sell-off a bit ahead of Draghi’s speech later this morning.  While there was a greater chance of the ECB being more accommodative than the BOE, neither bank budged.  It will be interesting to hear what Draghi has to say today as clearly the Euro debt crisis is weighing heavily on the European economy and most economist think that the EU is facing recession, if they aren’t in one already.

However, Draghi and Europe received some excellent news on the debt crisis though as both Spain and Italy both had successful bond auctions that saw their interest rates cut nearly in half, as demand for this debt was huge.  Spain in fact got off nearly twice as much as they were expecting.  These bond auctions are going to be risk events going forward so every time there is a new one, the markets will be on pins and needles trying to figure out what the yields will be and whether or not they are feasible for the issuing country to service.

But Draghi today will likely address the overall EU economy and how to get banks lending again rather than just setting up carry trades between the ECB and the LTRO.   However, if yields can continue to move in the right direction than that makes the ECB chief’s job that much easier.  The fact that CPI data came in mostly lower than expected will also provide some temporary relief, but the ECB is going to have to be vigilant against deflation.

Overnight, China set the stage for risk appetite as their CPI data came in slightly higher than expected at 4.1% but lower than last year’s 4.2%.  At this level, China does not need to tighten monetary policy so in other words it is game on again.  This benefited the Aussie dollar, and in fact it traded exactly as I thought it might and posted on Monday.

However, risk appetite is starting to abate as the US data is coming in this morning worse than expected.  Advance retail sales figures have come in worse than expected showing a gain of .1% vs. the expectation of .3%, and the initial jobless claims also came in worse than expected showing 399K newly unemployed vs. the expectation of 375K and perilously close to the 400-handle the economy has been trying to shed.

So markets are pulling back from earlier highs though it will be interesting to see if this trend continues for the rest of the day.  My feeling is that if the market is happy with European debt this morning, then it should be positive for the markets overall.  While some of the US data may be showing weakness, overall the numbers have been positive though much of that may be because of the increased demand from the holiday season.

Draghi’s speech today should be supportive of the EU economy and recent stock earnings have been good so far.  Gold has been rallying in the wake of a lower Euro though overall risk appetite has been mixed.  So my hope today is that the markets can shake off this temporary weakness this morning and return to the early morning trend of risk appetite.

Forex Market Outlook 1/12/12

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

Well it looks like we’re dodging bullets in the financial markets today as just about every possible risk event came in with a positive result for risk appetite so that’s exactly what we are seeing today. Yesterday I mentioned the volatility of the markets and how yesterday’s down day was really nothing more than fear as there was little new information to change sentiment.

This has set today up for a risk-taking day, with stocks and commodities higher and the Dollar and Yen lower.  There was a lot of news today that could have derailed the markets today and continued the slow slide lower, but so far the news has been good.

Let’s start with the interest rates decisions, first in the UK.  The BOE this morning left both interest rates and the asset purchase plan unchanged as the market was expecting.  While there is no accompanying statement today, there was just the slightest chance they could have been more accommodative as the UK economy is starting to flounder, and there was absolutely no chance of tightening so the market is seeing the no-change as a positive.  Industrial production figures came in lower than expected.  We will find out in about two weeks time at the release of the meeting minutes how unanimous that vote was.

In the EU, the ECB also left rates unchanged and received the same response as the BOE decision, though now the Euro is starting to sell-off a bit ahead of Draghi’s speech later this morning.  While there was a greater chance of the ECB being more accommodative than the BOE, neither bank budged.  It will be interesting to hear what Draghi has to say today as clearly the Euro debt crisis is weighing heavily on the European economy and most economist think that the EU is facing recession, if they aren’t in one already.

However, Draghi and Europe received some excellent news on the debt crisis though as both Spain and Italy both had successful bond auctions that saw their interest rates cut nearly in half, as demand for this debt was huge.  Spain in fact got off nearly twice as much as they were expecting.  These bond auctions are going to be risk events going forward so every time there is a new one, the markets will be on pins and needles trying to figure out what the yields will be and whether or not they are feasible for the issuing country to service.

But Draghi today will likely address the overall EU economy and how to get banks lending again rather than just setting up carry trades between the ECB and the LTRO.   However, if yields can continue to move in the right direction than that makes the ECB chief’s job that much easier.  The fact that CPI data came in mostly lower than expected will also provide some temporary relief, but the ECB is going to have to be vigilant against deflation.

Overnight, China set the stage for risk appetite as their CPI data came in slightly higher than expected at 4.1% but lower than last year’s 4.2%.  At this level, China does not need to tighten monetary policy so in other words it is game on again.  This benefited the Aussie dollar, and in fact it traded exactly as I thought it might and posted on Monday.

However, risk appetite is starting to abate as the US data is coming in this morning worse than expected.  Advance retail sales figures have come in worse than expected showing a gain of .1% vs. the expectation of .3%, and the initial jobless claims also came in worse than expected showing 399K newly unemployed vs. the expectation of 375K and perilously close to the 400-handle the economy has been trying to shed.

So markets are pulling back from earlier highs though it will be interesting to see if this trend continues for the rest of the day.  My feeling is that if the market is happy with European debt this morning, then it should be positive for the markets overall.  While some of the US data may be showing weakness, overall the numbers have been positive though much of that may be because of the increased demand from the holiday season.

Draghi’s speech today should be supportive of the EU economy and recent stock earnings have been good so far.  Gold has been rallying in the wake of a lower Euro though overall risk appetite has been mixed.  So my hope today is that the markets can shake off this temporary weakness this morning and return to the early morning trend of risk appetite.

December 13, 2011

Forex Market Outlook 12/13/11

Filed under: Forex News — Tags: , , , , , , , , — admin @ 6:59 am

The markets are in a much better mood this morning after yesterday’s sell-off in risk assets.  While stocks held up a little bit better than expected, US dollar strength pushed other currencies lower and gold fell to 7-week lows.   Stocks and commodities are higher this morning, as European yields appear to be falling which makes borrowing costs lower for the beleaguered region.

While Moody’s has put European credit on negative review, at this point none of the ratings agencies has made an official downgrade.  Spain was able to issue notes that were close to a full percentage point lower than just one month ago.  The EFSF was also able to issue short-term paper and it’s offering was 3x over-subscribed showing great demand.

This appears on the surface to be positive so it will be important to see that fiscal agreements are adhered to going forward to keep the bond vigilantes away.  If the debt-strapped countries can continue to service their debts and get some relief on the cost to do so, then the Euro zone has a much better chance of survival.  Of course the trick will be how to simultaneously get governments to cut spending AND avoid an economic recession.  Lower interest rates thanks to Draghi are a step in the right direction, though he needs to be sensitive to possible inflation.

Today’s FOMC meeting will be interesting as it is likely that the Fed will attempt to steer the markets toward optimism by stating a position that is helpful to the Euro zone.  What exactly that is remains questionable at this point but they are likely to remain accommodative for an extended period.  At what point inflation expectations start to rise is anyone’s guess but this can also be detrimental to economic health despite the Fed’s view to the contrary.

US advanced retail sales are likely to have a big impact this morning as the US economy has been slowly gaining traction in “stealth mode” and the recent economic data has come in better than expected.  The early reports from the holiday shopping season have been better than expected, though it is questionable whether or not the consumer can maintain such levels of consumption going forward.

Overnight, the economic data reported was largely positive as well, with both the ZEW German and Euro zone economic sentiment figures coming in better than expected.  Confidence should improve in the Euro zone if a lower valued Euro can help contribute to economic growth.

In the UK, home prices fell less than expected which shows that the housing market may be stabilizing and inflation in the UK did indeed fall from 5% to 4.8%, as expected.  The retail price index also came in as expected.  The BOE has been begging or inflation to come down despite their easy money policies and perhaps that stubborn inflation is starting to fall in line with their expectations.

**This just in: US advance retail sales figures came in worse than expected, showing a gain of .2% vs. the expectation of .6%.  Bear in mind that this figure is for November, so perhaps people have been saving all of their shopping for the December holiday shopping season.

Futures are giving back some early gains but not to the point where it would reverse sentiment though these sales figures are clearly a disappointment.  Today’s FOMC meeting could be critical for investor confidence, though they are not going to save the world today.

Overall risk in the market has not abated, though every day we can move in a positive direction will help confidence going forward.   There will likely be a point where market correlations will begin to break down as some of the risk themes become more specific and we move away from this “risk on, risk off” environment.

However until that happens, keep it to the short-term.  My feeling is next year will provide an opportunity to pick individual winners and losers.

October 18, 2011

Forex Market Outlook 10/18/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:04 am

With the overhang of the realization that indeed Euro zone leaders will not have a resolution in place by next week like the G-20 leaders asked for, it is now questionable what exactly Merkozy were referring to when they claimed to be able to have something ready by early November.  Is their timetable still in play?  From where I sit, it doesn’t seem likely.

So the markets have turned their attention to global economic data and at this point it isn’t pretty.  Overnight, China reported GDP figures that came in less than expected but nevertheless were impressive, showing growth of 9.1% vs. an expected 9.3%.  This was worrisome for the markets as this was the slowest pace China has grown in nearly two years, but some encouraging signs are that domestic demand is picking up as retail sales figures were higher than expected, as were industrial production figures.

This put pressure on both the Aussie and Kiwi as the RBA also said that they could envision a rate reduction as inflation there is “less concerning”.  However, the RBNZ governor said that rates may need to move higher in New Zealand as the economic activity generated from the rebuilding from the earthquakes may no longer require stimulus.  

This sent markets into risk aversion mode right away and that sentiment was carried into the European session as German economic confidence figures came in at 3 year lows.  In addition, France’s credit rating is in jeopardy if the Euro debt resolution puts too much strain on the French economy though the pace that these negotiations are taking place may not make this a worry any time soon.

What we are seeing though is the signs of inflation creeping up around the globe, most visibly in the UK who reported CPI of 5.2% inflation vs. the expectation of 4.9%.  I thought that expectation figure yesterday had to be wrong, but boy was I mistaken. To be clear, the BOE has an inflation target of 2%, which means it is running more than twice their mandate.  I’m sure the UK citizens love this as the economy slows down.  Stagflation anyone?

As bad as the UK seems, there may be a bigger stagflationary problem and that is occurring right here in the US.  This morning PPI data came in hotter than expected, posting a headline figure of 6.9% vs. the expected 6.5%, with the core figure showing 2.5% vs. an expected 2.4%.  This may mean that tomorrow’s CPI data could be hotter than expected and that we are experiencing inflation, despite declines in housing prices.  Were it not for the drag of the housing market, inflation might be much, much higher.

Yet the markets know that Bernanke is going to do nothing about higher costs because that is EXACTLY what he is hoping will occur.  Meanwhile, misguided protesters will continue to direct their anger toward Wall St. and not Washington DC even though US bank earnings are coming in way lower than expected. 

But I suppose it is easier to point the finger at those who actually show up for work, as Washington DC is in full-on election mode right now which means that virtually nothing will get accomplished which at this stage of the game may be a blessing in disguise.  The debt “super-committee” will likely do the bare minimum and kick the can further down the road and the blame-game politics we’ve come to endure will only grow as more and more people donate to the campaigns of these fools who have caused the economic malaise we are experiencing.

Maybe the Occupy Wall St. movement will help reduce the unemployment rate as fewer people show up to pick up their checks, though the auto-apply feature comes in pretty handy especially when you are not looking for work as you are supposed to be.

Bernanke will be speaking later today and will likely shift the focus back on the Euro zone, which is an entirely different mode of blame politics.   We’ll be told that if the Europe can just get their act together then things will be alright.

Do you believe this?  Me neither.

September 29, 2011

September 26, 2011

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)

usdcad0519.JPG

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)

usdjpy0519.JPG

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!

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!

?

?

?

none

March 30, 2011

Jobs Preview!

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 1:38 pm

This morning the ADP employment change figures came out showing a gain of 201K jobs which was slightly lower than the expectation of 208K. This seems to be good enough for the markets to continue to plow higher to start the morning, ahead of Friday’s all-important Non-Farm Payrolls Report.

The weak Dollar story continues to drive markets and the market is willing to suspend its disbelief that anything can derail the move higher. This includes risk.

One potential risk event is the slow but sure deterioration of Euro fundamentals, yet the market’s blind eye to the problems resurfacing only masks what is taking place. S&P joined the downgrade party and lowered ratings on Portuguese debt, though this went largely unnoticed. Also, the Irish bank stress tests could show that the government may need to take control over all banks. Yet the market’s singular focus on the potential for a rate hike shows little appreciation for risk.

Let’s also not forget the Japanese nuclear crisis and the Libyan civil war as potential risk events.

Overnight, Asian equity markets were up big-time, following the lead of yesterday’s US stock market gains. Commodities are mostly flat, after yesterday’s reversal in oil prices. Yen weakness continues.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as the risk appetite appears to be strong to start the US session. Yesterday, the Aussie put in a new all-time high vs. USD. (Click chart to enlarge)

audusd0330.JPG

Kiwi (NZD): The Kiwi is also higher across the board catching a lift from the rebound in the MSCI Pacific Equity Index despite a report that showed building permits declined nearly 10%. While this is likely to be the result of the earthquake, expect this number to pick up in the ensuing months.

Loonie (CAD): The Loonie is also higher across the board as oil prices are fairly steady around $105. The Canadian raw materials price index came in higher than expected showing that inflation may be creeping higher.

Euro (EUR): The Euro is mostly lower though not as low as one might expect given the risk specific to the Euro zone. Downgrades, stress tests, and high yields should all be reason for concern, yet in the global currency beauty contest the Euro is slightly more attractive than USD. (Click chart to enlarge)

eurusd0330.JPG

Pound (GBP): The Pound is mostly higher after the index of services reading came in and showed a gain vs. last month’s decline. In addition, the CBI reported sales figure came in much better than expected, showing signs of life for the UK consumer.

Dollar (USD): The Dollar is mixed, trading lower vs. the commodity bloc but slightly higher against the rest. The ADP jobs figures were good but not great, though expectations were higher. Friday’s NFP will let us know where we really stand in the jobs picture and the reported unemployment rate will be interesting if enough people have dropped out of the workforce to warrant a lower number.

Yen (JPY): the Yen continues to weaken with G-7 support and the correlative effects of higher stock prices. Industrial production figures came in better than expected last month, showing that the Japanese economy may have been improving prior to the earthquake.

This Friday’s NFP number will very important as it will show whether of not the employment picture is starting to show meaningful improvement. Everyone knows that QE2 is going to end soon so if the economy can’t stand on its own two feet then we may be in for major trouble.

The selling that is bound to ensue after the Fed removes the punch bowl could be exacerbated if some of these risk events start to unfold negatively. It seems as though the “wait and see” approach to the global economy leaves too much room for error, and my hope is that we see enough improvement in jobs to support economic growth.

But just remember, hope is not an investment strategy!

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!

none

March 16, 2011

Fed Hints Further Stimulus Not Necessary

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 1:25 pm

Noting that the US economy is on “firmer footing” and an improved employment outlook, the tone of yesterday’s Federal Open Market Committee statement was decidedly optimistic in comparison with recent messages. Some analysts are reading this as a hint that the Fed feels additional stimulus spending will not be necessary.

“Certainly, this is the most optimistic Fed officials have sounded since asset purchases began in November and, at a minimum, that’s consistent with the expectation there will be no third round of purchases,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York.

Source: Bloomberg

March 2, 2011

NFP Expected to Show Private Sector Adding Jobs

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 7:56 pm

In light of Wednesday’s survey from payroll services company ADP suggesting that 217,000 jobs were created in January, estimates for the upcoming Non-Farm Payroll report have been revised upwards to 190,000 new positions. While not always the case, the ADP survey is considered a harbinger for the NFP report next scheduled for release this Friday. If the NFP does indeed follow the lead of the ADP survey, this could be the strongest indication yet that the unemployment rate may be falling faster than predicted just a few months ago by both the White House and the Federal Reserves.

Despite the upbeat news on the employment front, Fed Chairman Ben Bernanke was still cautioning officials that the U.S. faces a long, uphill climb to recover the positions lost during the recession. As recently as March 1st, the Chairman told a Senate Committee that “it could be several years before the unemployment has returned to a more normal level”.

“Following the loss of about 8.75 million jobs from early 2008 through 2009, private-sector employment expanded by only a little more than 1 million during 2010, a gain barely sufficient to accommodate the inflow of recent graduates and other entrants to the labor force.

“We do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms’ hiring plans.”

The truth of the matter is that even though the U.S. economy appears to be adding jobs at an accelerated pace, the unemployment rate itself could actually increase even as laid-off workers return to the workforce. In January, the unemployment rate fell to 9.0 percent from 9.8 percent the month before, but predictions for February – despite the expectation of nearly 200,000 new jobs – is for the unemployment rate to increase. This is because the participation rate is also expected to rise.

The participation rate is the percentage of people in the country currently employed, plus all unemployed workers actively seeking employment. It is from this group that the unemployment rate is calculated and while this ensures that retired workers and those not interested or required to work are not included in the computation, it also excludes unemployed workers too discouraged to bother searching for employment. It is this latter group that analysts suspect could come into play.

At 64.2 percent, January’s participation rate was the lowest in nearly thirty years; however, with the employment market on an apparent upswing, analysts believe the improving situation could persuade discouraged workers to once again take up the job search. In fact, some researchers suggest that by mid-year the unemployment rate could return to the ten percent mark as the participation rate increases faster than the pace of new job creation.

Older Posts »

Powered by Efacilitators Hosting