Forex Blog

September 28, 2011

Forex Market Outlook 9/28/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 6:52 am

Sometimes it feels like Groundhog Day in the forex market as we focus on the same thing over and over again.  So it should come as no surprise that again we are focused on the Euro debt crisis as there is very little other news to sway market sentiment.

Perhaps it will be best if examine the recent events and what they mean for the markets.  Yesterday, Greece was able to pass the vote that raised property taxes as was required by the deal that was made back on July 21st as part of their austerity measures.

But now there is some concern that figures that were used to hammer out that deal have now changed, which means that there could be some opposition to the already-agreed-to plan.  What’s more, the votes to ratify the EFSF are just taking place now in each of the individual countries of the Euro zone, to be able to ratify the previous deal.

The vote to ratify the EFSF deal has already been delayed and is just a formality if all of the countries agree to ratify.  But why has it taken so long to put it to a vote?  This really should be a done deal by now, that is, if they really want to rescue Greece.  If you do X, you get Y. 

But now there are fears that some countries are balking and the constant delaying has kept markets on edge.  I agree with President Obama when he said that Euro inaction is “scaring the markets”.  Of course this elicited a pushback response about the fiscal situation in the US, which of course is true, however it doesn’t justify Europe’s behavior throughout this mess.

So the markets are waiting for the “Troika” (ECB, IMF, EC) to come back with their findings in order to potentially move forward.  One of the additional impediments is that there will be multiple votes over the course of this process and any on slip-up could put Greece in default.  This is one of the reasons why the CDS (Credit Default Swap) market has the odds of a Greek default at over 90%.

So what can the Euro zone do?  Well the idea of expanding the EFSF by levering the balance sheet up has been dismissed as “stupid” by a German official as it could incur a credit downgrade.  So much for Geithner’s suggestions to help.

Contagion is the obvious issue that plagues the Euro zone right now.  If they could let Greece go without causing similar problems in the other countries with debt issues then I think they would in a heart-beat as Greece is actually a pretty small percentage of the region.   Which is also why Merkel’s comments about “building a firewall” around Greece the other day were telling as perhaps there may be more of a push to that end.

Surprisingly, the markets have been faring pretty well the last two days, though yesterday’s afternoon sell-off in stocks here in the US and the subsequent follow-through in Asian markets caused some overnight risk aversion.  We have clearly been trading on risk themes in the market and the correlations of currencies have been pretty strong of late.

It’s essentially Dollar and Yen strength on risk aversion, everything else strong on risk appetite.  The risk appetite we’ve been seeing this week has been pretty strong, though some are dismissing it as a bit of a relief rally.  We have seen expanded to declining range-bound activity in the markets, and this makes sense when we consider that it is the same things over and over again that are ruling market sentiment.

This means increased volatility as the markets proceed with caution, knowing that at any given moment, news can break from the Euro zone which could impact market sentiment.  Therefore, it is very important to keep yourself informed about the news and its potential impact, as it has the ability to disrupt trades if you’re not paying attention.

September 13, 2011

Forex Market Outlook 9/13/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:51 am

Well I’m just back from the FXCM currency trading expo in Las Vegas and man, did we have a lot to talk about there!  The markets essentially collapsed last Friday and heightened fears have been ruling trading action ever since.

Yesterday the markets here in the US opened much lower after tanking in the Asian and European sessions, as European banks are now being attacked as the market believes they are misreporting their exposure to European sovereign debt.  Why is this an issue?  Because the market believes via the bond market that there is a 98% chance that Greece is going to default!

The problems in the Euro zone are starting to accelerate, likely more quickly than leaders’ ability to solve the problems.  Considering they have had almost 2 years and have done little, this makes sense.  Italy is attempting to take matters into their own hands, and a vote in Parliament over an austerity package is expected today.  The market also bounced yesterday when it was revealed that they were meeting with the Chinese to find a buyer for their debt.

It is a sad day now that the US is losing its sphere of influence and world economies are turning to China and not the US for help.  Perhaps that is because they have seen the disaster that Washington DC has become and would rather side with a quasi-communist country for economic help. 

Case in point:  the details of the President’s “jobs” program were revealed and it is just more of the same.  Higher taxes, more government spending.  That’s really it.  He is trying to set up the debate for 2012 and the only job he is interested in creating is his own in Washington DC after the next election.   It’s time to fire this guy, so that the rest of America can get back to work!

On the data front, UK inflation came in slightly higher than expected, though no one is expecting the BOE to tighten any time soon.  In fact, their next move may be to ease further, though likely not through interest rates.

In the US, small business confidence is near all-time lows.

So the markets in the US are opening flat to slightly lower, and it is doubtful that any major risk-taking is going to occur until we something from the EU that can be deemed positive.

August 26, 2011

Forex Market Outlook 8/26/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:32 am

Today is the day the markets have been waiting for some time, as Bernanke’s speech from the Jackson Hole Symposium is the most heavily-anticipated economic forecast in memory.  We have obviously seem economic weakness and the Fed alone has been trying to tackle the issues that plague us as the fiscal side of the ledger has gone unattended due to a lack of leadership and political gridlock in Washington DC.

Speaking of political leadership, the Japanese Prime Minister Noda resigned last night after criticism of his handling of the natural disaster made him ineffectual.  (Could you ever imagine a US politician doing this?  Me neither!)

We received a glimpse of this dreary picture earlier this morning as GDP figures came in slightly lower than expected, showing 1% growth vs. the expected 1.1%.  Personal consumption figures came in higher than expected, showing an increase of .4% vs. the expected .2%.  This all adds up to slowing growth, though this is the type of report that brings relief as it could have been a lot worse.

Earlier this morning, the UK reported GDP figures that came in as expected, showing quarterly growth of .2% and a YoY figure of .7%.  This also is declining growth which has the BOE policy-makers concerned and may produce some further monetary easing if conditions get worse.  However, further easing could push inflation higher than the already high 4.4%, which is more than twice the Central bank’s target rate.

But back to Bernanke, what will he say today?  How will the markets react?  With the insane amount of volatility we have experienced of late, the response is likely to be knee-jerk and should produce wide swings.

There are essentially two schools of thought on this matter:  he will either hint at further easing, or he will not.  At this point, no one is expecting him to launch “QE3” though he could put forth that possibility.

If he chooses the first option and sets the table for further easing, he could do so by laying out the potential policy tools he could use.  Whether its further bond buying, buying mortgages, targeting the longer duration bonds or some other measure the market reaction would likely be to sell the Dollar and jump into just about anything else.

But from a longer-term perspective, this could be offset by the problems we are seeing in the Euro zone which have gone unnoticed as the focus has been on today’s speech.  Greek 2-year yields are at all-time highs and it is unclear if the vote to expand the EFSF will pass in its current form.  The German stock index (DAX) is down nearly 20% this month alone!

With the specter of further easing, commodities and stocks are likely to be the beneficiary and the impact to the real economy could be little at best.  This could also induce higher inflation, which would choke economic activity as well.

If Bernanke says nothing today that is new from a policy perspective, then the markets are likely to be disappointed and we could see some Dollar strength right out of the gate.  Though the long-term impact is uncertain, I believe that stocks (particularly ones with high dividends) will be in favor as there really is nowhere else to put your money.  The initial flight to safety trade could go on straight through the Euro vote on the EFSF as that would be the major risk in the marketplace.

Next week the politicians will be back and we’re expected to hear from Obama about his jobs plan, which was apparently too involved to reveal prior to his vacation so the country has to wait another week.  Expect to also hear the rhetoric for increased government spending and not reduction to take place, as the stalemate and gridlock hopefully don’t drive us off the proverbial economic cliff.

So what will I be in prior to this speech?  Nothing.  As a trader, I prefer no to try to guess what is going to happen but rather to take a wait and see approach and look for potential low risk opportunities that may be created by volatility.  So trade cautiously, as volatility can be your friend but can also be your worst enemy if you get stuck in the wrong trade!

August 18, 2011

Forex Market Outlook 8/18/11

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

Well it looks like there is some major selling in the global equities markets today as fears of a global slowdown have induced risk-aversion.  Gold is back over $1800 and is re-testing the all-time nominal highs, yet the currency market seems fairly tame by comparison.

Part of the reason seems to be the fear of intervention from the safe haven currencies, namely the Swiss franc and the Japanese yen.  As markets have sold-off, money has poured into these currencies, as well as gold and US treasuries.  The US dollar is strengthening, but also has the dampening effect of the Fed’s policy that they are going to keep rates at these extraordinarily low levels.

The problems in the Euro zone are not going away and the Merkel-Sarkozy meeting did little to assure markets and a lot to disrupt.  The idea they floated of imposing a financial transaction tax will most likely cause money to start seeking alternatives as further taxes and regulation inhibit capital formation and not foster it.

Adding to the global economic slowdown story is the UK, who reported declining retail sales figures of -.2% vs. an expectation of a gain of .1%.  As a result, stocks in Europe are down some 3%.

The hope that US economic data would save the day have been thwarted as Initial Jobless Claims once again came back in over 400K for the 18th time in the last 19 weeks.  CPI data did not help either, as the expected declines did not materialize and in fact ticked higher, showing that we are most likely heading for a stagflationary environment.

Headline CPI came in showing a gain of .5% vs. an expectation of .2% which kept the YoY headline figure at 3.6%, the same as last month and above the expected 3.3%.  This figure can be somewhat confounding to some as the “normal” expectation is that the fed would consider raising rates to combat higher inflation—but Bernanke just told us last week he’s not budging on rates until mid-2013! 

With the threat of higher taxes coming from the government and higher inflation (which essentially is a tax on all), it is not surprising that there is not a lot of consumer confidence at this point.  Bernanke has essentially painted himself into a corner and the idea that consumers are going to come back is laughable.

Later this morning, existing home sales and the Philly Fed are due out but I can’t see how these data points, even if better than expected, can reverse market sentiment.

Meanwhile, our great leaders here in the US are all vacationing, and I hope it rains wherever they are.  President Obama announced that he would release his new plan to create jobs—right after he gets back from vacation!  I’m guessing this vexing problem of unemployment and a floundering economy is not going to affect his golf game. Frankly I’m tired of hearing from all of these buffoons in Washington anyway.  So perhaps we would all be better off if they all took a permanent vacation!

Today will be interesting to see if the US stock market can reverse, and if the correlative effects carry over to the currency market.  The situation looks bleak from a global perspective, so trade cautiously!

August 8, 2011

Market Outlook 8/8/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:42 am

This morning the markets are responding reasonably well after Friday’s S&P downgrade of the US.  The beleaguered ratings agency, who some say was largely responsibly for the banking crisis of 2008 dropped the US from AAA to AA as they forewarned if serious deficit reduction wasn’t agreed to in the debt ceiling debate.

While stocks and oil are much lower to start the day, gold has surged to new nominal all-time highs at $1715.  The currency market sees this as “much ado about nothing” as it is trading orderly and looks like just another volatile day.

Because indeed, this much ado about nothing.  There is a 0% chance that the US will default on its obligations as the Fed has the ability to turn on the printing press and print money to satisfy our creditors.  However, this could be a question of valuation as the Dollar would be worth far less in that situation.

And that is one of the issues that some aren’t taking into consideration, that not only is it important that we are able to repay our debts, but that we are able to do so with something of value.  Currency risk and political risk are all factors that need to be considered, and I think this is a great wake-up call for those in Washington DC who wish to continue to do business as usual.

Meanwhile in the Euro zone, the ECB has agreed to step up its purchases of Italian and Spanish debt, essentially trying to keep yields low so that debt can be repaid.  While there is still risk in the marketplace, the global slowdown is a far bigger risk than the US potentially defaulting.With no other news on the docket today, all eyes will be looking toward the FOMC meeting tomorrow which is bound to address this new development.  Many in the market believe that this will lead to another round of quantitative easing (QE3), though its effectiveness at this juncture is uncertain.  Some argue that the temporary kick we got from it was ineffective as the markets right now are back to pre-QE2 levels.

So there is risk aversion in the markets today, with the Dollar strengthening in what some might see as a counter-intuitive move.  However this could become a case of sell the rumor, buy the news as this really is nothing more than egg on the face of Washington DC politicians who are conveniently on vacation until the end of the month.  Get it together people!

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August 5, 2011

Market Outlook 8/5/11

Filed under: Forex News — Tags: , , , , , , , — admin @ 7:47 am

Well it looks like we dodged a bullet this morning with the US Non-Farm Payrolls report that showed jobs growth of 118K vs. an expectation of 85K.  The unemployment rate ticked lower to 9.1% even though all of the recent data was pointing to a lower number.

Those of you who read my commentary know that when things appear to be at the worst, that is usually when you get an upside surprise!  Check out today’s Forex In Four video (at the 6-minute mark) where I explain how this works and why I went on record expected 125K jobs prior to the release.

So why are we dodging bullets, this far into the “recovery”?  Well the markets have been down 8 out of the last 9 days, with the crescendo hopefully taking place yesterday with the Dow down some 500 points.  This is a direct result of a slowing global economy, and the debt crisis still taking place in the Euro zone.

Yesterday after the ECB rate policy decision, they decide to do an about-face and go from a previously hawkish to dovish stance as both Spain and Italy are under attack by the bond market as yields continue to move higher which will eventually move to unsustainable levels and will require a bailout if something isn’t done to prevent this.  This sent the markets into a mini death-spiral.

And this is also emblematic of the ECB’s lack of attention to this problem over the last year.  As yields were being driven higher on the “3 little pigs”, the ECB did nothing until the problems got out of hand.  Now that Spain and Italy are in the cross-hairs, it may be too late to act and will assuredly cost more to deal with now as opposed to being preemptive.  It is very telling that laissez-faire comes from the French. 

So the markets are clearly relieved today though it will be interesting to see if this is enough to stem the tide of the Euro zone debt crisis, or if the market is looking for QE3 from the Fed.  Regardless, it may be tough for investors to take risk assets over the weekend, despite the massive selling we’ve seen of late.

The volatility in this markets sets up perfectly for short-term trading, and that’s what I will continue to do!

July 21, 2011

July 18, 2011

No Stress Relief!

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 6:49 am

Last Friday’s Euro Bank Stress Tests have come and gone and have the left the markets feeling unsatisfied as fears have not been assuaged. The major problem of how a sovereign default would affect these banks has been largely ignored, which means that the tests are ineffective.

Meanwhile, we are no further along in the debt ceiling talks here in the US, which adds additional uncertainty to the mix and makes for a risk-averse investing environment. As we would expect in a risk-averse environment, gold is reaching new nominal all-time highs, trading over $1600, as the additional threat of QE3 has the inflation hawks squawking.

The Swiss franc, US dollar, and Japanese yen are all higher as well, with oil and the commodity currencies trading lower, as well as stock markets around the globe.

Two countries moving in seemingly different directions with regard to inflation are New Zealand and the UK. In New Zealand, CPI data came in hotter than expected, showing inflation of 5.3% vs. an expectation of 5.1%, and in the UK, home prices fell 1.6% last month.This means that there is the possibility that the RBNZ may have to “normalize” interest rates (hike), while the BOE is content to do nothing. If QE3 pops up here in the US though, look out!In the forex market:

Aussie (AUD): The Aussie is mostly lower on risk aversion as world markets are lower to start the day ahead of tomorrow’s release of the RBA rate policy meeting minutes. The market expects the next move in Australia to be a rate reduction, rather than a hike at this point in time.

Kiwi (NZD): The Kiwi is mostly lower though seeing some strength as CPI data came in hotter than expected. In addition, the Performance of Services figure also came in better than last month showing signs that the NZ economy is improving and that a return to “normalized” rates may be necessary to thwart inflation after the RBNZ lowered more recently in response to the devastating earthquakes.

Loonie (CAD): Tomorrow’s rate policy decision is expected to produce no change to interest rates, leaving them steady at 1%. Wednesday’s monetary policy report could give some further clarity, but expect the Loonie to trade on risk themes and with oil prices, as well as US economic data. CPI data is due out on Friday.

Euro (EUR): While there is some ancillary data due out this week on manufacturing, we all know that the market will be focused on the bond yields of the periphery countries and whether contagion spreads to Spain and Italy in a big way.

Pound (GBP): The Pound is mostly lower after house prices came in lower than expected, but the big news this week will be the release of the BOE rate policy meeting minutes which will show if they have any concern about inflation at all, or if they will continue to allow austerity alone to hopefully bring prices lower. Retail sales figures on Thursday will show how citizens are responding to the economic times. (Click chart to enlarge)

gbpusd0718.JPG

Swissie (CHF): The Swissie continues to be the safe haven currency of choice for the moment, and new highs vs. the Euro at 1.14 have already induced the calls for parity and SNB intervention. Economic expectations figures are due out on Thursday. (Click chart to enlarge)

usdchf0718.JPG

Dollar (USD): The Dollar is higher on risk aversion though overall sentiment is for weakness with the debt ceiling debate and the possibility of QE3 on the table. There is a slew of housing data due out this week which is likely to show continued weakness, but US corporate stock earning have been coming in better than expected which could balance out the weaker economic data.

Yen (JPY): Congrats to Japan for winning the women’s World Cup, though that happiness may be short-lived if the Yen continues to strengthen. Expect the Yen to continue to trade as a proxy for risk, and for BOJ officials to try to jawbone it lower if given the chance.

This week is apparently setting up as just more of the same. Euro bank stress tests from last week were essentially a joke, and the US is no closer to a debt ceiling resolution as the clock continues to tick.

Meanwhile, corporate stock earnings here in the US have been pretty good to start out and with week monetary policy in place markets could rally if either the US or Euro zone can get their house in order.

While no one is expecting a solution to either problem to happen overnight, meaningful progress needs to be made to show the markets that solutions do indeed exist and that they may actually happen despite the political climate.

Otherwise, these politicians will be fighting over smoking embers as the whole system will come crashing down!

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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November 24, 2010

Happy Thanksgiving!

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 3:37 pm

Happy Thanksgiving!

 

On the eve of Thanksgiving it is important to look back and to reflect on our blessings.  As I will be out for the holiday tomorrow, it is important to know that while the US markets are closed, the forex market will continue to trade.  This reduction in volume could cause volatility, especially if the risk themes that have dominated the market of late persist.

Though that does not appear to be the case this morning, as positive economic data has rallied the markets after yesterday’s sell-off.  In addition, the Irish austerity plan will be out this morning that will show how they intend to cut spending to handle their debt issues.

The “good” news on the economic data front was that only 409K people lost jobs last month, beating expectations and creeping toward a number in the 300s.  However at this pace it may be a LONG time before we see meaningful improvement.  But I guess this is something to be thankful for. 

Something to not be thankful for is for new homes sales, which came in way lower than expected, posting a decline of 8.1% vs. an expected gain of 1.6%.

This all adds up to a risk-taking scenario with stocks and commodities rebounding from yesterday, as more economic clarity calms fears.

In the forex market:

Aussie (AUD):  The Aussie is higher across the board economic fear subsists and risk appetite returns to the market.  (Click chart to enlarge)

 audusd1124.JPG

Kiwi (NZD):  The Kiwi is also higher which is good news, however the fate of the NZ miners appears to not be as miraculous as that of the Chileans.  This is the worst mining tragedy in NZ in nearly 100 years.

Loonie (CAD):  The Loonie is higher as well as risk has subsided and oil prices have rebounded.  Encouraging economic data from the US also bodes well for Canada.

Euro (EUR):  The Euro has traded back from just under 1.33 vs. USD and is now positive on the morning.  German IFO sentiment figures came in better than expected, though industrial orders in the region missed expectations.  The big news is that the Irish austerity plan will be unveiled today which is necessary for them to receive the economic bailout.  (Click chart to enlarge)

 eurusd1124.JPG

Pound (GBP):  The Pound is mixed as GDP figures came in as expected posting a quarterly gain of .8%  which pushed the YoY figure to 2.8% growth.

Dollar (USD):  The Dollar is weaker as risk appetite has increased ahead of Thanksgiving.  Better than expected initial jobless claims trumped a weaker than expected durable goods orders number, which showed a decline of 3.3% vs. an expected gain of .1%.  The new home sales figures were not as positive but the market doesn’t care as it takes a break from risk-aversion.

Yen (JPY):  The Yen is lower across the board as yield seeking returns and carry trades are re-established after recent un-winds.

There is a lot to be thankful for in the markets today and it sometimes is too easy to be negative in light of recent events.  So today I am content to sit back and enjoy, as things could be a lot worse.

Happy Thanksgiving to all!

And watch out for the volatility!

August 10, 2010

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