Expectation | Forex Blog

February 25, 2011

Dollar Done?

Filed under: Forex News — Tags: a-4th-quarter, a-common-source, a-respite-from, congress, dollar, egypt, expectation, flight, handle-as-saudi, loonie, market, metrics, week, world — admin @ 2:34 pm

With recent turmoil in world markets, one of the “surefire” things we would normally assume under such risk aversion did not take place. In the past, when world economic markets have been faced with adversity and risk, the US dollar was one of the most sought after investments.Because the US dollar is the world’s de facto reserve currency, people want to own Dollars when risk increases, as many times those Dollars will be moved into US Treasury bonds.

This has not occurred this week, as the Dollar has been primarily lower despite higher oil prices and stock market losses. In fact, as I mentioned yesterday, the primary beneficiaries of the flight to safety trade this week were the Swiss franc, the Japanese yen, and gold.

Meanwhile, oil has pulled back from trading a 100 handle as Saudi Arabia is going to raise the supply of oil they send to market to make up the losses from Libya, but again, I think $100 oil is here to stay for a while. The story with oil is not really about supply shocks, but rather with the weak US dollar.

In the UK, GDP figures came in slightly lower than expected, showing a 4th quarter decline of .6% vs. the expectation of a decline of .5%, pushing the YoY figure down to 1.5% vs. an expectation of 1.7%. The Pound is weaker across the board as a result.

Here in the US, revised GDP figures showed an increase of 2.8% vs. the expectation of 3.2%, and personal consumption figures came in slightly higher than expected at .5%. While this still shows good growth, the lower figure has to change assumptions about budget deficits, which means that deficit is actually higher than is being reported. Oops.

So lower oil prices today have encouraged some early risk-taking, as stock markets and commodity currencies are higher.

In the forex market:

Aussie (AUD): The Aussie is higher following the MSCI Pac Index higher as yield differentials and general Dollar weakness have increased demand.

Kiwi (NZD): The Kiwi is also higher in the wake of the earthquake despite the market pricing in a rate reduction at the next rate policy meeting. This would normally be a negative, but the positive interest carry and weak US dollar make it still more attractive.

Loonie (CAD): The Loonie is mixed this morning, as lower oil prices and lower US GDP figures highlight the difference among the commodity currencies.

Euro (EUR): The Euro is lower as it has actually been trading more closely linked to oil prices than the Loonie. In addition, German CPI data showed an increase in prices which combined with hawkish rhetoric from the ECB could mean rate hikes will happen soon. (Click chart to enlarge)

Pound (GBP): The Pound is lower across the board as GDP figures came in lower than expectations. In addition, business investment was also lower, as was a consumer confidence survey. How the BOE will react is anyone’s guess at this point. (Click chart to enlarge)

Dollar (USD): GDP revisions came in lower than expected, and later this morning consumer confidence figures are due. In addition, there is a lot of Fed speak on the docket, with policy-makers trying to justify current policy as weak dollars are driving inflation.

Yen (JPY): The yen is mixed as the demand for safe haven assets has decreased, though it is trading higher vs. USD, EUR, GBP, and CAD. Stocks in Asia were higher overnight, as oil prices began to reverse.

It is amazing to see the confluence of events that is taking place around the globe in the form of protests. Libya, Egypt, Tunisia, Wisconsin….

Whoa, Wisconsin? I’m not trying to put on my tin-foil hat just yet and claim conspiracy, but these events can be linked to a common source—weak US fundamentals and the need for loose monetary policy to accommodate it.

While I have been harping on inflation all week and will probably continue to do so until the Fed does something to change policy, it will be interesting to see the reactions both here and abroad. While the Fed may be able to manage core inflation, they may not be able to manage the inflation expectations that in turn could become a self-fulfilling prophesy.

This is exactly the type of build-up that could lead to over-reactions that the textbook that the Fed uses doesn’t account for. So while getting a respite from higher oil prices is nice today, it does not mean that risk has left the market.

In fact, going into the weekend I am very concerned about risk, as who knows what might occur. I would not be surprised to see some flight to safety by the end of the day, though nothing surprises me any longer!

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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November 3, 2010

One Down, One To Go!

Filed under: Forex News — Tags: course, dollar, elections, expectation, government, however, kiwi, market, markets, people, should-the-fomc, world — admin @ 1:58 pm

Yesterday’s elections have come and gone without any major surprises which have provided the markets with confidence as the balance of power has shifted in the House of Representatives which represents some opposition to the current direction the government has taken. Checks and balances are an important part of a functioning government and now that some of the anti-business sentiment has been removed from the market, we may begin to see a turn-around assuming elected officials intend to listen to the People and put aside their partisan bickering.

However, we are not out of the woods yet. More important than yesterday’s elections is today’s FOMC meeting, where the Fed will embark on further monetary easing, the size of which is unknown. However, the most common expectation I have heard is that the market is expecting a total of around $500 billion, spread out over the course of 5 or 6 months. If we start with this as the expectation, then there are two scenarios where the Dollar may strengthen: if the actual figure is less than that amount, or if the actual amount is in-line with that amount. However, should the number come in larger than expected, then we could see additional Dollar weakness which has been the case over the course of the last 2 months. These are the short-term implications and there is bound to be increased volatility surrounding the release of the decision.

The long-term ramifications of QE2 may be quite different though. With the expectation that the change in political landscape will impact government spending, the focus now will be on jobs. Friday’s NFP report will be too soon to see if the elections have any impact, but because this has always been about confidence there should be a reasonable expectation that those figures will improve going forward.

So the market has started the day with continued risk appetite as both stocks and commodities are higher. Whether or not this lasts today will remain to be seen. There is noticeable weakness coming from the Aussie, as there is a sentiment that the RBA may have over-reached with its latest rate hike.

In the forex market:

Aussie (AUD): The Aussie is mostly lower as building approvals came in much lower than expected. There is also speculation that the RBA may have been too aggressive with its recent rate hike as the expected inflation as a result of QE2 may be priced in already. Of course if QE2 comes in larger than expected, then the Aussie could reverse in a heartbeat.

Kiwi (NZD): With the Aussie subdued, the Kiwi is leading the pack today as general risk appetite is pushing markets higher. With no news to speak of, the Kiwi will trade opposite the Dollar today.

Loonie (CAD): The Loonie is also higher as oil is trading just below $85. There is a sense that QE2 will push commodities higher regardless of size, as inflation if not seen here, may be felt around the globe. The Loonie is near a 2-week high. (Click chart to enlarge)

Euro (EUR): The Euro is slightly lower vs. the Dollar but still above the 1.40 level as the FOMC has diverted attention away from the Euro debt problems. For now. Tomorrow the ECB will have its rate policy meeting and while no change is expected, the statement will be important going forward.

Pound (GBP): The Pound is tracking higher as the BOE rate policy meeting is expected to produce no change in policy. However, should the FOMC meeting come in much larger than expected, than the BOE may become reactionary.

Dollar (USD): The Dollar is lower as would be expected when the market assumes that the Fed is going to flood the market with an additional $500 billion. I’ve laid out the possible scenarios above for what may happen leading to the FOMC. Expect volatility. The ADP employment change showed better than expected jobs growth.

Yen (JPY): The Yen is lower across the board as risk appetite has induced Yen selling. The Yen has moved higher vs. USD at around the same time as the ADP report. I wonder if it had any “help” from the BOJ? (Click chart to enlarge)

Yesterday’s elections were a step in the right direction to getting government spending under control. However we still have a long way to go to get back to economic health. While QE2 is going to have an impact on the Dollar, it’s not going to be the end of the world.

Getting back to financial responsibility is paramount to a healthy economy and hopefully politicians can put their differences aside to accomplish that goal.

So keep an eye out for the volatility which is bound to pick up both before and after the 2:15EST FOMC announcement, and be sure to trade cautiously!

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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October 29, 2010

Trick Or Treat?

Filed under: Forex News — Tags: a-12-year-high-, a-positive-for, aussie, dollar, expectation, figures-came, loonie, markets, morning, morning-as-risk, overnight, unlike-the-euro — admin @ 1:58 pm

This morning’s US GDP figures came in as expected, giving the market no reason to think that QE2 may be either at the larger or smaller end of the range of speculation. Earlier in the morning, the Dollar was strong as the expectation may have been that the GDP figure would beat expectations as had happened in the UK. No such luck.

So for now, it looks like it’s full steam ahead, as the Dollar has been giving back earlier gains and is about to go negative. Contributing to Dollar strength and risk aversion in the market was the overnight news that deflation in Japan is still rampant, and household spending figures came in much worse than expected. This will mostly likely be attributed to a stronger Yen that has derailed exports, and several companies missed earnings estimates sending the Nikkei down 1.75% overnight.

In the EU, a summit in Brussels produced a mechanism to permanently deal with debt crises, which contributed to higher yields for Greek debt. In addition, German retail sales figures came in much lower than expected, declining 2.3% vs. the expectation of a .5% rise.

In the UK, mortgage approvals rose faster than expected, as did consumer credit figures.

In the forex market:

Aussie (AUD): The Aussie is lower on risk aversion and the interest rate outlook which is expected to keep rates steady at next week’s rate policy meeting. In addition, lower Asian equities have reduced demand for Aussie carry trades.

Kiwi (NZD): The Kiwi is actually higher as the Aussie’s loss is the Kiwi’s gain. Overnight, NZ reported better than expected exports, and even though the trade balance figures were less than expected, they still bested last month’s readings.

Loonie (CAD): The Loonie is holding up surprisingly well as their monthly GDP figures came in as expected at .3%. Even though risk aversion and lower stock index futures and commodities are driving markets lower, the Loonie is benefiting from weaker fundamentals everywhere else.

Euro (EUR): The Euro is weaker as the Euro zone unemployment rate came in at 10.1% as expected, but at a 12-year high. In addition, European CPI estimates came in hotter than expected at 1.9%. If both inflation and unemployment are rising in the EU, the ECB could be in a pickle as to what to do about rate policy.

Pound (GBP): Unlike the Euro zone, things appear to be just jolly in the UK—at least for now. Overnight, consumer confidence figures came in better than expected, as both mortgage approvals and consumer credit expanded at a better than expected pace. (Click chart to enlarge)

Dollar (USD): The Dollar is mixed this morning as risk aversion and individual currency fundamentals are battling for market supremacy. Aussie and Euro weakness are trumping risk themes, even though stocks are set to open lower. GDP figures came in as expected at 2%, and personal consumption figures came in better than expected which could be a positive for the economy.

Yen (JPY): The Yen is showing strength again and the market is testing the resolve of the BOJ as to whether or not they will intervene in the currency again. Industrial production figures came in lower than expected, as did household spending figures. CPI data showed deflation slightly higher than expected, and the recent strength of the Yen is most likely to be blamed for said data. I think the BOJ is trying to hold on until the FOMC meeting next week, but a test of 80 vs. USD is likely to invoke some sort of action. (Click chart to enlarge)

So today is a total mixed bag, with Kiwi, Pound, and Yen strength, followed by Aussie and Euro weakness. Today the Dollar is taking a backseat to its counterparts, as the risk picture is unclear at this moment.

However, the US GDP figures provided neither relief nor concern regarding next week’s FOMC and the launch of QE2. The question is still unclear as to the size of it. Nevertheless, Central banks stand ready to act to attempt to counteract the negative effects of QE2, especially if it causes the Dollar to weaken considerable.

Right now, the Dollar is near recent extremes against many currencies, with USD/JPY near 80, AUD/USD and USD/CAD near parity, GBP/USD approaching 1.60, and EUR/USD just below 1.40. Just from a psychological perspective, it seems as though these levels have become areas of support and resistance which has painted a technical picture of the markets.

When I look at these levels I want to believe that the Dollar will not go below some of them, yet I’m having a hard time believing that the Fed might act responsibly. Meanwhile, the markets are setting up as if hyperinflation is just around the corner.

The Fed needs to become aware of the unintended consequences of its actions, and this is most likely going to go down as one of the all-time blunders.

If this doesn’t scare you before Halloween, I don’t what will!

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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August 26, 2010

Risk Appetite Returns- For Now!

Filed under: Forex News — Tags: a-classic-risk, aud, cad, course, currenc, expectation, kiwi, market, morning-on-risk, practice account, ssi, summer, time — admin @ 1:38 pm

This morning global stock markets are higher, rebounding from 7-week lows. This has encouraged a bit of risk taking, but the question remains: how long will it last?

US weekly initial jobless claims came in at 473K, besting analyst expectations of 485K and better than last week’s reading of 504K. While one week does not make a trend, the fact that this figure was not worse than expected is seen as positive.

In the UK, CBI reported sales figures came in at 35, handily beating the expectation of 18 and showing signs that the UK is economy is still on solid ground.

In the Euro zone, Ireland issued short term debt at rates lower than their last offering, shrugging off the S&P debt downgrade from 2 days ago and bolstering the view that the market has not given up hope of recovery. The offering was over-subscribed, showing high demand for the debt issuance.

So this morning we are seeing some risk appetite return to the market, with commodities and stocks higher on a day that is light on news.

In the forex market:

Aussie (AUD): The Aussie is higher this morning on risk appetite despite the fact that private investment declined 4% vs. an expected gain of 2.3%. The elections appear to be dead-locked at this time, which many are viewing as a positive for stocks, especially the miner who may avoid the mining tax as a result. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is the biggest gainer this morning as oversold conditions due to the inflation report may have been overblown. The Kiwi has sold off the most in recent trading.

Loonie (CAD): The Loonie is also higher due to risk taking as oil prices have rebounded to 73.50. In addition, if US jobless claims continue to improve, then a more positive outlook for the US economy would be positive for the Loonie.

Euro (EUR): The Euro is also higher has Irish debt costs actually were lower despite S&P’s best efforts to push them higher. In addition, loan growth in the EU is picking up at the fastest pace in nearly a year in a sign that both households and business may be feeling more confident.

Pound (GBP): The Pound is also higher on the back of the CBI sales figures and going into tomorrow’s GDP report. The UK economy appears to be rebounding, yet sentiment surrounding the UK austerity measures has left the market confused about economic prospects going forward. (Click chart to enlarge)

Dollar (USD): The Dollar is weaker this morning against all but the Yen in a classic risk taking scenario. Stock futures are higher as initial jobless claims figures came in better than expected. There is a slew of data out for the US tomorrow, and provided the data doesn’t come in way worse than the already lowered expectations, should continue to bring about some risk appetite.

Yen (JPY): The Yen is lower across the board and rebounding some after the intervention talk has begun to heat up. Today’s risk taking and higher Nikkei has provided relief for the safe haven of the Yen. CPI data is due out tomorrow and expected to show continued deflation, which shouldn’t have much of an impact on the market one way or another. (Click chart to enlarge)

Today is a welcome respite from the selling that has occurred earlier this week. With very little market moving news out today, risk appetite has increased. However, we’re not out of the woods yet. As the market becomes accustomed to slower growth, we’re going to experience these swings between risk taking and risk aversion.

Today feels like a slow day, as perhaps traders are finally going to take some time away to enjoy what’s left of the summer. So “no news is good news” and that appears to be the theme for the day.

Just remember to be cautious, as one day does not a trend make.

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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August 25, 2010

Here We Go Again?

Filed under: Forex News — Tags: aud, bbc, business-as-the, course, currenc, elections, expectation, mike conlon, nzd, practice, ssi, trade, while-the-piigs, yen — admin @ 1:49 pm

Yesterday, S&P downgraded Ireland’s sovereign debt which sent bond yields higher for the troubled Euro zone nation. However, German business confidence figures came in better than expected which has counter-balanced the regions prospects and is providing a bid for the Euro.

Here in the US, Durable goods orders came in worse than expected and yesterday’s dismal existing home sales figures shows signs that the US economy may be floundering. This has caused speculation of further Fed quantitative easing to heat up as policy makers attempt to revive the US economy.

In Japan, the official jaw-boning has begun as Prime Minister Noda said he was prepared to take “appropriate action” to combat “one-sided” currency fluctuation.

Overnight, equity markets are lower, and the US stock futures are lower going into the open. Oil has retreated to 71.50, and gold is higher as investors seek safe haven assets.

In the forex market:

Aussie (AUD): The Aussie is higher this morning despite the uncertainty surrounding the elections Down Under. As the votes are being tabulated, right now it appears to be a dead heat. Yen weakness has provided the Aussie with a bid, and completed construction work figures came in better than expected.

Kiwi (NZD): The Kiwi is lower on risk aversion following yesterday’s reduction in the expectation for inflation, despite overall Yen weakness.

Loonie (CAD): The Loonie is also lower as its high correlation to oil prices has reduced demand and general risk aversion and US economic weakness reduces its prospects for economic growth. Yesterday’s retail sales figures are still in the back of trader’s minds.

Euro (EUR): The Euro is mostly higher to start the US session despite the Irish debt downgrade. German business confidence figures came in better than expected to its highest reading since 2007. This has caused yield spreads between German bonds and those of the PIIGS nations to rise. While the PIIGS haven’t had trouble with debt offerings, higher yields could impact their ability to service that debt. (Click chart to enlarge)

Pound (GBP): The Pound is mostly higher with no news on the docket to affect it one way or another. UK Treasury Minister Hoban defended the government’s austerity measures in a BBC interview, and today’s price action could be a technical bounce after 3 days of declines. (Click chart to enlarge)

Dollar (USD): The Dollar is trading higher vs. the commodity currencies and Yen as the US economy appears to be weakening. Durable goods orders came in at -3.8% vs. an expectation of .5% which highlights the effect of the withdrawal of the “stimulus” funds on the economy.

Yen (JPY): The Yen is lower as the jawboning has increased in Japan. Speculation of intervention in the currency has increased as the Yen pulls back from 15-year highs. In addition, export growth slowed as a result of the combination of reduced world demand and the higher Yen, yet it came in slightly higher than expectations. Keep your eyes on this one!

It looks like extend and pretend may be coming to an end. As the US “stimulus” plan comes to end, the economic data is starting to show that private demand is just not there. This is mostly likely a result of government “crowding out” private business as the money came from government coffers.

However, because policy is not in place to encourage private business, unemployment remains high which reduces consumer demand which in turn causes economic growth to stagnate. Uncertainty over financial regulation, tax policy, and health care has left business content to drive profits through reduction and not expansion.

So one would think that it’s time to change these policies, right? Wrong. The answer that is being talked about is either additional stimulus or further quantitative easing! Talk about making a bad situation worse.

It is going to be interesting to see how this plays out and whether the elections here in the US bring about change in policy. Until then, be prepared for the pain.

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!

Tags: account, AUD, Aussie, blog, cad, course, currenc, currencies, currency, dollar, dow, EUR, Euro, forex, fx, fxedu, gbp, Il, interest, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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