Fire | Forex Blog

February 2, 2012

Market Outlook for February 2, 2012

Filed under: Forex News — Tags: aud, energy, europe, facebook, financial, fire, gold, greece, guide, jpy, person, personal, possibility, united-kingdom, usd — admin @ 6:42 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 2, 2012

Yesterday, manufacturing strength around the globe from prompted a rally in the markets as investor focus was diverted from the European debt focus. Manufacturing data in the US grew at the fastest rate in seven months while manufacturing in the United Kingdom rose to an eight month high. Gauges of manufacturing in China also improved and manufacturing in Europe contracted less than expected. Manufacturing in China showed a modest expansion beating market expectations of a contraction. The USD weakened across the board and Treasuries stopped a five day rise. with The EUR is trading at 1.3130 while the GBP is currently trading at 1.5830.

Further aiding the positive market sentiment is the expectation that the Greek private sector debt swap deal and the nation’s second financing deal will be completed in the next few days. However, the longer the negotiations drag on, the greater the likelihood of an extended fall in the Euro. The strongest performers yesterday were the risk currencies. The Australian dollar has surged past 1.0700 while the Canadian dollar is once again trading above parity against the USD.

Equity markets powered ahead yesterday spurred by signs of manufacturing strength globally. The S&P 500 closed 0.9% higher at 1,394 with financial and commodity stocks leading the gains. Morgan Stanley rose more than 5% on news that it had won the lead manager role for the upcoming Facebook initial public offering. The appliance maker, Whirlpool, rose almost 20% as it projected higher than expected earnings. Asian stocks gained with the Hang Seng rising 2%. European stocks have lost earlier gains, falling from 6 month highs, as oil producers fell

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February 1, 2012

Market Outlook for February 1, 2012

Filed under: Forex News — Tags: advice, czech, czech-republic, financial, fire, gold, japan, person, possibility, report, top stories, usd — admin @ 6:42 am

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 1, 2012

Yet again markets were gripped by ‘europhoria’ surrounding the latest EU summit and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. After having rallied to above 1.3200 yesterday, the Euro gains evaporated before once again rising in Europe today.

The Dollar Index rose yesterday by 0.2% yesterday as the USD gained across the majors. USDJPY continues to hover dangerously close to post war lows but is still managing to hold above 76.00. The inevitable sabre rattling and war cries from the Bank of Japan will intensify over the next few trading sessions but the question will be is “anyone listening and does anyone care?” In Europe, the dollar is falling as equity markets rise.

Yesterday, equity markets were soft. The S&P 500 closed 0.05% lower for its fourth consecutive loss, albeit small, as economic data failed to meet expectations. Consumer confidence came in lower than expected while the ISM business activity index came in lower than even the most pessimistic forecasts. Exxon Mobil fell more than 2% after reported sales trailed estimates and Amazon will open significantly lower today after profits fell more than 50%. European bourses are higher by almost 2% as manufacturing data from the US to China looks positive.

Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation’s second rescue package, S&P 500 futures are signalling a rise in trade today.

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September 26, 2011

Germany’s Lack of Confidence not hurting EURO, Yet

Filed under: OANDA News — Tags: cad, curve, factors-have, fire, governor, losses-during, morning, policy-makers, sovereign-debt, statement-from, struggles-with — admin @ 4:29 am

The market had expected to hear something more positive this weekend, instead of the acknowledgment of the gravity of the situation that required Europe to face an attempted scolding from Geithner. Investors now seem to believe that a Greek insolvency is inevitable and Europe cannot contain the damage. However, if the ECB could come up with a more credible plan that suggests that they are being aggressive in dealing with a deteriorating financial system, then this market is going to respond very positively. European finance officials this week will examine the cost advantages of creating the rescue fund (ESM) in July 2012, a year ahead of schedule.

German business confidence deteriorated for a third consecutive month this morning (107.5) to hit a 15-month low as firms again lowered their expectations for the next six-months amid the Euro’s deepening debt crisis. On the bright side, it fell less than the market had been expecting and is providing a ray of sunshine!

The dollars is higher against the EUR -0.22% and CHF -0.18% and lower against GBP +0.33% and JPY +0.19%. The commodity currencies are weaker this morning, CAD -0.14% and AUD -0.19%.

The loonie and like minded commodity currency crashed back to earth last week, with mass portfolio liquidation pushing the CAD to revisit its 16-month low outright. The Fed’s significant risk statement has added fuel to the fire making all higher yielding currencies pay. The fear of what the Fed has left to fight ‘no growth’ with, has sent widespread panic through all asset classes.

The CAD ended the week little changed from the previous close as investors waited to see how serious and aggressive the Euro policy makers are going to become after this weekends finance ministers and IMF meetings.Year-to-date, the loonie has lost-3.9% versus its G20 partners and last week’s-5.1% drop was the biggest in three years. The IMF has stated that the global economy is entering a new “dangerous phase’. Presently Canada is experiencing the twin evils of a slowing economy and higher inflation and remains at the mercy of ‘external headwinds’.

After the meetings, Governor Carney said there had been some progress last weekend by European policy makers to stem their debt crisis, and that he believed that Canada should avoid falling back into recession as growth rebounds from a second-quarter contraction. Carney was ‘encouraged’ by euro-area policy makers’ ‘diagnosis of the seriousness of the situation’. The Governor has become more concerned about global growth, especially now that the IMF has revised their growth forecasts. Investors remain better buyers of dollars on dips (1.0307).

The AUD slipped to a nine month low ahead of a German business confidence print this morning. For the growth sensitive currency, the bias remains lower after last weeks purge as the G20 members have failed to pledge to collectively address global risks. Despite domestically having all the strong fundamentals, cash-futures are showing that traders are betting the RBA will lower its key rate by at least-75bp by the end of the year. Last week and for the first time in six-weeks, the AUD traded below parity as all commodity and interest rate sensitive currencies suffered outright. Data from Australia’s largest trading partner, China, indicates that manufacturing may contract for a third month in September is not helping the Aussie cause.

Despite Euro policy makers indicating that they are making some good progress with Greece, periphery yields remain elevated, heightening debt default uncertainty and requiring the paring of higher yielding risk portfolios. Now that the domestic data is coming out a bit negative, there will be some questions ahead on what will happen to the Aussie economy. If anything, the RBA is likely to be on hold for an extended time, allowing investors to sell higher yielding assets on rallies (0.9741).

Crude is lower in the O/N session ($79.55 down-0.30c). Oil has tumbled to a six-week low as the market continues to digest the FOMC’s ‘significant risk’ comments. Weaker manufacturing data out of China and Europe coupled with the fear of Banks having funding issues continue to weigh on commodity prices. Last week’s US inventory report, despite being bullish, had little affect on dragging prices higher. The oil market is on downside momentum now that there is a serious lack of risk appetite.

Last week’s EIA report showed that the US commercial crude oil inventories decreased by -7.3m barrels from the previous week. Analysts expected a-700k barrel decline. At +339m barrels, oil supply’s are above the upper limit of the average range for this time of year. This drawdown has left stocks at the lowest level in nine-months and was the biggest drop since December. Refineries operated at +88.3% of capacity, up +1.3% points from the prior week. On the flip side, gas inventories increased by +3.3m barrels last week and are upper limit of the average range.

Weaker growth as shown by the IMF, which points to lower oil demand, and production in Libya is coming on stream faster than expected will have investors thinking of shorting the market again. Expect investors to run into technically selling on most rallies.

Gold fell another-6% on Friday, completing the worst two days in futures trading in nearly 30-years. Ending the week with a $100 fall was the largest dollar decline on record. The dollar’s rally has cut demand for the metal as an alternative asset after the Fed said it will implement ‘Operation Twist’. The mass liquidation of commodities to raise funds for margin requirements of other assets has dissuade the implementation of any safe heaven investment strategies.

In reality, the continued concerns over euro-zone sovereign debt is likely to drive gold higher in the longer term before policy makers are forced to take more effective action. The Fed’s efforts to drive interest rates lower to support lending should, by default, eventually support commodity prices. For now, liquidation for margin requirements takes precedence ($1,624 down-$24).

The Nikkei closed at 8,374 down-186. The DAX index in Europe was at 5,311 up+115; the FTSE (UK) currently is 5,070 up+4. The early call for the open of key US indices is higher. The US 10-year backed up+7bp on Friday (1.83%) and is little changed in the o/n session.

Bernanke’s “Operation Twist” was able to flatten the curve to new records last week. Long bond prices had their biggest gain in almost three years as investors sought refuge in US debt amid concern the global economy is on the brink of a deep recession. Record low yields were established further out the curve as global policy makers worked over the weekend to curtail a possible Greek default.

The program follows two previous attempts by the Fed to jumpstart the economy by purchasing securities to reduce borrowing costs. The market is also concerned that after this ‘shock and awe’ attempt, policy makers will have little left in their arsenal to take on the ‘no growth’ economy.

It has been seen as an aggressive move by the Fed. Their communiqué last week indicated that there were ‘significant downside risks’ to the US economic outlook, which will continue to provide support for treasuries and flatten the curve even further. The Fed is ‘firing another magic bullet’ and dealers intend to keep ahead of ‘that’ curve.

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June 15, 2011

Quick Turnaround!

Filed under: Forex News — Tags: cad, chinese, dow, eur, fire, free, marketplace, risk, ssi, unemployment — admin @ 6:29 am

Well that was short-lived. All of the relief from yesterday’s Chinese economic reports can basically be thrown out of the window as leaders in the Euro zone can’t seem to get there act together. In what has been become a spectacle that would make Sophocles proud, the Greek debt crisis has appeared on all stages: first starting as a drama, then becoming a tragedy, then a comedy, then back to drama, now approaching tragedy again!

Yesterday’s emergency meeting of leader failed to produce anything and the major outcome that was reported was “bickering”. EU leaders need to come up with a solution by the end of the month in order for Greece to secure an IMF payment which could be withheld if no action is taken. Germany is still insisting on measures that would constitute a default, and no resolution appears close.

It is patently clear that Germany is the obstacle in this process and while bailouts aren’t my cup of tea, if they want to save the Euro then they need to compromise. Germany stands the most to lose in this entire ordeal, so in my opinion they are negotiating from a position of weakness and not strength. Stay tuned for this one!

In the UK jobless claims came in three times higher than expected and wage growth has slowed though the unemployment rate has remained steady at 7.7%.

US CPI data is due out later this morning and is expected to vindicate Bernanke as fuel costs have come down. Yesterday’s regalia of Bernanke and the Fed may have stolen the headlines from the re-opening of “Spiderman” on Broadway as the best staged event of the day!

So the markets have started the day in risk aversion mode, with stocks and commodities lower around the globe. Lost in yesterday’s excitement over tame Chinese CPI is the fact that raised bank reserve requirements in an attempt to slow their economy.

In the forex market:

Aussie (AUD): The Aussie is higher to start the morning despite the risk aversion in the marketplace. Yield-seekers see a positive economy and the RBA honcho’s conflicting comments that inflation was more likely than not could foreshadow a possible rate hike. New dwelling starts rose 3.1% vs. an expectation of a decline of .8%. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is lower across the board despite a much better reading of consumer confidence from last month. Considering that they were dealing with an earthquake last month, this was to be expected. Risk aversion and money flows are putting pressure on the Kiwi.

Loonie (CAD): The Loonie is mixed despite lower oil prices to start the morning. The fate of the Loonie lies somewhat with the US CPI data and what the market response to the release may be.

Euro (EUR): The Euro has given back all of yesterday’s gains and then some. While Euro zone industrial production figures came in better than expected, the problems with the Greek debt crisis are weighing heavily on risk in the markets. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower after jobless claims came in showing an increase of 19.6K vs. an expectation of 6.5K. While the UK economy is definitely slowing, how the avoid stagflation is anyone’s guess.

Swissie (CHF): The Swissie is mixed as its safe-haven properties are counter-balanced by the sentiment that the SNB will not raise interest rates due to recent franc strength. Declining import prices reflect Swissie strength.

Dollar (USD): The Dollar is higher across the board as risk aversion ahead of this morning’s CPI data release and specific Euro weakness are driving demand. Should inflation come in less than expected, pressure for higher rates would abate.

Yen (JPY): The Yen is surprisingly mixed this morning as well, as risk aversion has increased demand, yet not enough to unwind carry trades. With the risk coming from Europe, it appears as though money flows are driving price action. The Nikkei was actually higher last night, the only major market index to post gains.

As you can tell by now, sentiment in the marketplace can shift on a dime and there is still major risk around the globe. Some days the positives are emphasized (like yesterday), while others the negatives shine through.

The problems in Europe are too great and the Greek situation may be a microcosm of what is really taking place. Germany is playing with fire in this situation and ultimately they might end of getting burned before they drag everyone else into the fire.

While the rest of the globe has a “wait and see” attitude at this point, European leaders essentially have 2 weeks to get this figured out. So while the only fireworks expected this summer should occur on July 4th, there may be other “independence” celebrations taking place.

Of course this bound to bring about a lot of pain as well, and certain market volatility. So don’t take time away this summer, as the action may be too great to miss!

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, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, forextrading, free, fx, fxedu, gbp, Il, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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May 10, 2011

Euro Danger!

Filed under: Forex News — Tags: a-great-deal, australia, commodities, course, fire, forextrading, free, greece, jpy, mike conlon, practice, prices-as-there, ssi, trade — admin @ 7:27 am

Where there’s smoke, there is fire and it is no different for the Greece and the Euro zone. The stories that are being floated insinuate everything from Greece leaving the Euro zone, restructuring debt, or receiving further bailouts. At this point it is difficult to determine what is actually going to happen, but one thing is clear: Greece is in need of help.

Yesterday S&P poured gasoline on the fire and downgraded Greece’s credit rating again, and the current rates Greece would have to pay to re-finance are not feasible in the market. So there is heightened structural risk for the single currency.

In the UK, retail sales figures came in better than expected, but the market is looking ahead to tomorrow’s GDP estimate, which is likely to set the bar low so that the BOE can act surprised when it comes in “better than expected”.

China’s trade balance figures came in better than expected with better exports and worse imports. If they cared to have a stronger Yuan as I mentioned yesterday, perhaps they would be willing to buy more of other people’s stuff. Chinese CPI data is due out tomorrow and there is an expectation that they will raise rates again to try to slow growth.

Oil prices are lower to start the day, as the CME raised margin requirements for oil, but stocks and other commodities are trading higher.

In the forex market:

Aussie (AUD): The Aussie is mixed despite better than expected trade balance figures as the potential for a Chinese slowdown could affect Australia greatly.

Kiwi (NZD): The Kiwi is mostly lower after the IMF came out and said that the Kiwi was over-valued by roughly 20%. Thanks guys! (Click chart to enlarge)

Loonie (CAD): The Loonie is mostly higher today despite lower oil prices as the soundness of the Canadian economy is has been highlighted today after last week’s elections which the market perceives as adding to fiscal responsibility.

Euro (EUR): With all that is going on with Greece, it’s easy to lose sight of the fundamental data that still exists. Tomorrow will bring CPI data and Friday will be the GDP report. The Swiss franc is lower today as CPI data came in less than expected.

Pound (GBP): The Pound is mostly lower as the market is expecting tomorrow’s GDP estimates to be reduced, despite today’s better than expected retail sales figures which showed a gain of 5.2% vs. an expectation of 2.5%. How much longer the UK can deny better than expected data is anyone’s guess. (Click chart to enlarge)

Dollar (USD): The Dollar is showing some strength today despite higher stocks and commodities (except oil) prices as there is still some risk from the Euro zone pushing the safe-haven play.

Yen (JPY): The Yen is lower across the board as the Nikkei was higher on better than expected stock earnings which out-weighed Euro debt concerns.

While there is certainly a great deal of risk in the marketplace emanating from Greece and the Euro zone, the market doesn’t seem to be overly concerned about it. While everyone expects some sort of resolution to be forthcoming, the way in which it is handled could have a major impact.

As I mentioned above, there are many different competing financial interests that could be affected by different outcomes, and the ECB should have come up with a credible plan for Greece (and the others) long ago, as no one expected these problems to just disappear.

But without them we would have little to talk about so the outcome will be important going forward. But I don’t expect Greece to leave the Euro zone, nor do I expect to see a major restructuring of debt. What is most likely is that Germany will reluctantly agree to further aid, and the IMF will get Greece more favorable terms.

However until this occurs, it is wise to be cautious.

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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January 14, 2011

Citizens Of The World Unite!

Filed under: Forex News — Tags: australian, check-out-our, currency trading, financial, fire, markets, news, people, price, whether-or-not — admin @ 3:04 pm

Here It Comes!

Over the last few days I have been harping on the inflation and it is starting to rear its ugly head. Yesterday, ECB President Trichet surprised the markets by mentioning the risk it imposes to economic recovery. One would think that the sovereign debt issues he is dealing with would be caution enough, but he took the opportunity to add fuel to the fire with his hawkish comments, sending the Euro higher.

This did not escape the Chinese, however, as they raised bank reserve requirements by 50 basis points in an attempt to curb lending to reduce their money supply to slow down demand. Treasury Secretary Geithner noted yesterday that Yuan appreciation may not be such a big deal anymore, as higher prices in China will reduce demand for their goods, which will reduce their overall current account surplus. On a personal note, I can confirm that indeed prices and domestic demand in China are increasing as businesses that have been working with China are now seeking cheaper alternatives. Keep your eye on India, folks.

Earlier this morning, German CPI data came in as expected but showing signs that inflation may be on the rise which would fall in line with Trichet’s comments. This could cause a rise in Euro zone interest rates, despite the need for cheaper re-fi costs for the PIIGS countries. PPI input data in the UK was also higher, boosting the Pound.

And lastly, CPI data here in the US came in hotter than expected, as the headline number showed a 1.5% rise vs. an expectation of 1.3%. This comes as no surprise as agricultural commodities have been soaring higher, so be prepared to pay more for food and energy unless something is done to combat this problem.

However, equities and commodities markets are lower which highlights China’s influence on those markets as they are the only country that appears to be doing something to attempt to put the brakes on from a monetary policy standpoint. Though allowing their currency to appreciate would go a long way to combat their problem. In time.

In the forex market:

Aussie (AUD): The Aussie is lower across the board as the China’s attempts at a slowdown will affect the Australian economy greatly as China is the largest buyer of Australian exports.

Kiwi (NZD): The Kiwi is also lower for the same reasons as the Aussie, for as Australia goes so does NZ only to a lesser extent.

Loonie (CAD): The Loonie is also lower this morning as a pullback in commodities, particularly oil, is weighing on the currency. However, it is strengthening vs. USD off of the morning lows as it traded close to parity. (Click chart to enlarge)

Euro (EUR): The Euro is mixed this morning, trading higher against the commodity currencies but lower against the rest. After yesterday’s spectacular run higher, the Euro may be experiencing a bit of “buy the rumor, sell the news” as CPI data in Germany was as expected. In addition, Euro zone trade balance figures showed a deficit vs. an expected surplus. (Click chart to enlarge)

Pound (GBP): The Pound is higher across the board as PPI input data came in much higher than expected. If this translates over to higher CPI data (which is to be reported next Tuesday), then the BOE may be under major pressure to do something about monetary policy through either a reduction of bond-buying or a rate hike.

Dollar (USD): The Dollar is giving back earlier gains after the CPI data was reported as the market has no conviction that the Fed will do anything about rates or QE2 anytime soon and would prefer to allow US citizens to pay the extra tax (inflation) on necessities rather than potentially harm the banks and the housing market by normalizing policy. The Lame-stream media is reporting that retail sales rose .6% for the month of December, which makes 6 months in a row, but insiders know that the market was really expecting a rise of .8%. Never ruin a good story for the want of a few facts!

Yen (JPY): The Yen is mixed this morning as various carry trades are unwound and the safe haven status of the Yen is in demand as the potential Chinese slowdown affects demand and risk appetite.

Citizens of the world unite!

Consider this a “capitalist manifesto”. Your government (wherever you are) has sold you down the river to protect the banks and the financial elite. You know, the people who got the world into this financial mess in the first place.

Now they expect you to pay MORE for the basic necessities you require to live. How are they doing this? Through the insidious tax known as inflation. Inflation affects us all equally, but not proportionally.

When prices of food and energy move higher, it becomes harder to make ends meet, especially for working-class folk. Do you think that the CEO of a big bank cares that it costs that the price of milk goes higher, or that the cost to heat one’s home is through the roof. Not at all, its pocket-change to him.

Yet he’s protected by the Fed under the guise of “too big to fail”, so he gets to not only keep his job but pay himself an enormous bonus to boot! Never mind the fact that it was you, the tax-payer, who allowed this charade to continue despite having no say in the matter.

Now they want you to pay even more! This isn’t just a US phenomenon, look at what is happening around the globe. A weak US dollar is driving prices higher and exceptionally low interest rates around the globe have flooded the world economy with too much cash chasing too few goods. Central banksters could reduce this through tightening monetary policy by raising rates, but they are too afraid to harm their bankster buddies!

So what can you do about it? The answer friends, is the forex market. Protect yourself from those who want to harm you by allowing your wealth to disappear through inflation. It’s no coincidence that central bankster is not an elected position!

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 7, 2010

Jobs play second fiddle to devaluation race

Filed under: OANDA News, Uncategorized — Tags: biggest, business, cad, chf, commodity, currency, eur, fire, jobs, market, north, services, usd, week, yellow — admin @ 10:25 am

There is a currency devaluation race whether we like it or not. The blame game has been rather muted up until now. That may change after the G7 finance ministers meeting tomorrow. The measures being taken to weaken currencies are distorting markets and trade and weighing on dealers nerves. The lead to devalue currencies and loosen monetary policy is been driven by export-led growth countries. That been said, the appreciating currencies cannot be happy either. How are they to partake in a currency devaluation race for the sake of national interest? Buy dollars and be accused of currency manipulation? Blame China more loudly? Do what Ben does, talk about implementing QE before it goes out of style. The ECB and BOE communiqué today should be rather interesting. No-one wants to be left behind. They have political agendas to follow after all.

The US$ is weaker in the O/N trading session. Currently it is lower against 15 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Is it a sign of things to come? Yesterday’s ADP report disappointed us with further job losses (-39k vs. +10k) and this despite a mild revision in Aug., where a -10k drop was revised to a +10k gain. The report has managed to reverse a trend that had been in place for the past seven months. After posting monthly gains north of +60k in Apr. and May, ADP has since been loosing steam. Obviously the bigger question is whether the trend has stamina. If so, expect it to start filtering into other reports. The negativity surrounding the report calls into question the strength of tomorrow’s private sector job growth in the NFP report. In reality, the ADP being used as a ‘yardstick’ for NFP remains weak, with an absolute error of +/-100k. Digging deeper, all the weakness in the private sector payroll employment was in the goods-producing sector (-45k), while the services sector added only +6k.Within the goods-producing sector, construction employment declined by -28k and the manufacturing employment fell by-17k (third successive monthly decline). Analysts note that at the composite level small and medium sized companies lost jobs (-14k). Larger corporations fared a tad better and shed-11k positions. On the services side, medium businesses lost-2k individuals, while small and larger entities added +6k and +2k positions.

The USD$ is lower against the EUR +0.25%, GBP +0.19%, CHF +0.29% and JPY +0.61%. The commodity currencies are stronger, CAD +0.05% and AUD +1.16%. Interest differential continue to support growth currencies like the loonie. The currency managed to print a new five month high yesterday vs. its largest trading partner amid speculation that other Cbanks will rely on QE while the BOC remains on hold. The demise of the dollar has the CAD threatening parity and beyond in the medium term. The general economic strength of Canada coupled with the commodities that she possesses provides a bullish backdrop for the currency. On a relative basis the currency has not appreciated as quickly as some of the other majors vs. the dollar ahead of this Friday’s North American employment reports. The currency has rallied just under +6% since its recent lows registered in the middle of Aug. With the markets in ‘risk-seeking mode’, oil straddling $83 and gold registering new record highs daily has put upward pressure on the loonie again. The economic highlight for the remainder of this week will be the jobs report on Friday. Analysts believe the risk is towards a stronger report, which would provide further support for the market to own the CAD on USD rallies. For most of last month the market had begun questioning the ‘true’ strength of the Canadian Economy after the last few data releases came in much softer than expected. As of this week analysts are predicting slower inflation and a ‘more gradual pace of BOC lending rate increases than they did a month ago’. That been said, interest rate differentials is not the primary reason for wanting to own the currency. The ongoing threat of QE2 continues to gives all major currencies a leg up on the ‘historical reserve currency’.

The AUD is another growth, interest sensitive currency on fire like the loonie vs. the dollar. There seems to be a race to parity for these commodity driven currencies. Last night on the back of a stronger employment report down under pushed the AUD to new heights vs. the greenback. Australia’s employers added +49.5k workers and the unemployment rate held at +5.1% in Sept. Month-to-date, the AUD has climbed +8% vs. the buck as data fueled bets that the RBA will raise interest rates before the year ends.
The currency has gained ground against all of its major trading partners as the ‘vix index’ of volatility softened, boosting investor appetite for assets tied to growth. ‘Clearly what happens in the Australian economy is now more dependent upon what happens in China’. Investors are better buyers on deeper pullbacks as the interest rate differential continues to be of appeal for alternative investments (0.9883).

Crude is a tad higher in the O/N session ($83.59 +36c). Oil has printed a five-month high this morning on speculation that steps by Cbanks to promote economic growth will boost the demand for the black-stuff. Also aiding prices is the dollar weakening across the board and boosting the appeal of commodities to investors. The weekly inventory report was mixed, a little bearish for oil and bullish for the products, that said, the focus remains on pending QE strategies been implemented by different governments. Crude supplies climbed +3.09m barrels to +360.9m, leaving stockpiles +13% higher than the five-year average. Analysts had expected weekly inventories to rise by +413k barrels. In contrast, gas stockpiles fell -2.65m barrels to +219.9m. Supplies of distillate fuel (heating oil and diesel) slipped -1.12m barrels to +172.5m. Refiners reduced their operating rates by -2.7% to 83.1%. In fact, the drop in refinery runs has probably caused the drop in fuel supplies. Also of note was the drop in fuel consumption, falling -6.4% to +18.5m barrels a day (the biggest weekly decline in nearly seven years). Gas demand also fell -4.2% to +8.99m barrels a day. Until the report, higher inventory supplies had been the biggest inhibitor for a market advance over the past quarter. The market remains wary that the underlying fundamentals have not changed, but the dollar value continues to support the commodity.

Despite everything, Gold is a commodity in demand even at record highs. Again this morning the yellow metal has recorded a 13th consecutive high on bets that government spending to boost economies will erode the appeal of currencies and increase the demand for metals as alternative asset. Wealthy private investors are even buying it by the ton. There is no confidence in currency prices and with free money it’s making the commodity very attractive. Aiding the crowded, one directional trade, has been the collapse of the dollar vs. its major trading partners. Any time that governments are in the business of printing money then the commodity is bound to do well. Gold has outperformed global equities and treasuries, prompting record investment in gold-backed exchange-traded products. Year-to-date, the yellow metal has managed to climb +22%. A concern about the strength of the dollar coupled with the sustainable growth issues of the US economy has investors seeking protection in an asset with a ‘store of value’. With the Fed on the verge of implementing further QE programs ‘tend to be supportive of asset prices and is fueling concerns about the potential longer-term inflationary affect of such measures’. The opportunity costs of holding gold are low due to falling interest rates, by default, the market should expect better buying of the metal on pull backs ($1,361 +$14).

The Nikkei closed at 9,684 down -6. The DAX index in Europe was at 6,281 down -8; the FTSE (UK) currently is 5,674 -7. The early call for the open of key US indices is lower. The US 10-year eased 7bp yesterday (2.39%) and is little changed in the O/N session. Longer-term debt is the winner on the US curve, leading advances, as traders speculate that the Fed will increase their purchases of debt. Bernanke said earlier this week that the ‘first so-called quantitative-easing round has improved the economy and more purchases would ease financial conditions’. QE2 fundamentally will keep yields low. Yesterday’s weak ADP employment report only added fuel to the fire, increasing speculation that the Fed will be buying more bonds than initially believed. The disappointing report is undermining confidence in the US’s economic recovery. The US yield curve has aggressively and stands at +198bp, remaining better bid on pull backs.

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June 8, 2010

Big Ben Is Back!

Filed under: Forex News — Tags: account, aud, bernanke, british, dow, fire, forex, fxedu, gbp, government, market — admin @ 1:16 pm

Just when you started wondering where are esteemed Fed Chairman has been, Bernanke gave a speech last evening that helped buoy the markets higher. Bernanke re-affirmed that indeed recovery is intact here in the US; though moderate given the depth of the recession. These comments helped send futures higher, and encouraged risk-taking in the forex market.

Across the pond, Fitch ratings agency came out with comments on the UK saying that the UK fiscal challenge is “formidable”. Perhaps this could be viewed as adding “fuel to the fire”, as these comments came a day after the new British PM said basically the same thing. There is speculation in the market that perhaps a UK credit downgrade is looming. The UK emergency budget is due out on June 22 and that should paint a clearer picture.

Meanwhile, the German trade surplus narrowed, though industrial output increased .9%, besting expectations.

In the forex market:

Aussie (AUD): The Aussie is higher on risk-taking, despite the fact that business confidence fell for the third straight month. Part of this can be attributed to the government’s proposed 40% tax on mining companies as well as Euro zone conditions.

Loonie (CAD): The Loonie is higher as well, catching a slight bid from higher oil prices, despite a housing starts number that came in worse than expected. The number came in at 189K vs. an expectation of 202K.

Kiwi (NZD): The Kiwi is higher ahead of tomorrow’s interest rate policy meeting which the market is expecting will bring at 25bp rate hike, raising the official cash rate to 2.75% from a record-low 2.5%. Inflation is expected to pick up which would outweigh any fallout from the Euro debt crisis. However, as mentioned yesterday, most every country is looking for a weaker currency to export their way to prosperity, so a rate hike may induce carry trades which would push the Kiwi higher.

Euro (EUR): The Euro is higher as there is some risk-taking in the market, though lower vs. the commodity currencies. At this point we all know about the conditions in the Euro zone, so any lack of market-moving news will allow the Euro to drift higher, though without conviction.

Pound (GBP): The Pound is lower this morning on the Fitch news, despite the fact that retail sales rose .8% compared to a decline of 2.3%. The UK emergency budget will be released on June 22nd, and will provide further clarity to extent of budget cuts the UK may be enacting.

Dollar (USD): The Dollar is mostly lower this morning, as risk appetite has picked up partly because of Bernanke’s comments last night. Tomorrow will bring the Fed’s Beige Book economic report which should be similar to the comments made last evening.

Yen (JPY): The Yen is lower as carry trades have increased due to heightened risk-appetite. In addition, new PM Kan takes over officially and his new cabinet is seen as one that favors budget cuts and a weaker Yen.

There’s not a lot of fundamental data out this week so much of the movement we’re going to see will be based on various comments coming from around the globe. As a result, the markets can move somewhat erratically, as officials attempt to jaw-bone their various currencies.

Most of the comments due out will not provide official numbers, so sometimes they need to be taken with a grain of salt.

However, you can see how comments from a ratings agency can affect a currency like the Pound, just like a quick speech at Washington event can improve markets as well.

Let’s face it, most of these government types are economic cheerleaders; however they all favor a lower currency to encourage exports. So I expect much of the “news” we hear to counter-balance each other out, and some sideways trading to occur as we go into the summer slowdown.

That is, until you hear something from the Euro zone. Because at this point, the less we hear from them, the better!

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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May 20, 2010

The Great Unwind!

Filed under: Forex News — Tags: a-bad-thing, a-carry-trade, a-proxy-against, a-ripple-effect, financial, fire, global, illustrating, japanese, market, opinion, weekend — admin @ 1:21 pm

I talk often about carry trades in the currency market which go hand in hand with the risk themes that drive daily price action. When there is confidence in the financial markets, investors look to take on risk and seek out higher yielding assets. They can do this by selling the currency of a low interest rate country and buying the currency of a higher interest rate country, thereby capturing interest through yield differentials. This is known as a carry trade.

The currency pair that represents the greatest “carry” among the most actively traded pairs is the AUD/JPY pair which can also be used as a proxy for risk-taking in the market. Currently, the positive carry of this pair is roughly 4.4%, as rates in Australia are at 4.5%, and rates in Japan are .1%. So just by owning this pair, an investor would earn that rate difference. This is a common trade when there is confidence in the financial markets.

Currently, there is little confidence in financial markets, as the EU debt crisis has brought to light many problems in the global marketplace. And unless you have been living under a rock for the past few weeks, this should not come as news to you.

So what we are seeing is major risk-aversion in the markets, and no pair is getting hit harder than the above mentioned as investors unwind a risk-taking position. In addition, global stock markets and commodities are selling off, adding additional fuel to the fire as investors run to the “safety” of the Japanese yen and US dollar.

In the forex market:

Aussie (AUD): The Aussie is the biggest loser this morning, as risk-aversion is causing the un-wind of carry trades. It is currently at an 8 month low vs. the US dollar, as gold prices have sold off to the 1178 level. Gold is often used as a proxy against inflation, which does not appear to be as great a concern as deflation is, as the world prepares for a global slowdown. Concerns about a Chinese slowdown could really derail the world economy, but all eyes are on the Euro crisis for now.

Loonie (CAD): The Loonie is also selling off as commodity prices, particularly oil at 68, are lower across the board. The Loonie does not benefit as much as the Aussie (or Kiwi) from carry trades, as low rates in Canada do not encourage carry trades. The Loonie may be better off in the long run, as the US is its largest trading partner, and the US keeps throwing money at its financial woes instead of adopting austerity measures that the rest of the globe seems to be taking.

Kiwi (NZD): The Kiwi is selling off for the same reasons as the Aussie; however in NZ they just announced that they will be cutting income taxes but raising sales taxes to encourage savings and debt reduction. This will help NZ reduce its foreign debt as financial discipline is needed in the region.

Euro (EUR): The Euro is higher vs. the commodity currencies above on the carry un-wind as well as risk aversion pervades the marketplace. Now this may seem counter-intuitive to some as the major risk in the market is the Euro, which appears to be stabilizing as banter about Euro intervention is thrown about. In somewhat decent news, PPI figures in Germany were higher showing signs that massive deflation has not taken hold. Yet.

Pound (GBP): Retail sales were higher in the UK for the third month in a row, in what may be short-lived gains in consumer sentiment. With the new government looking toward austerity measures and a return to fiscal responsibility, and the BOE pledging to stay the course on monetary policy, the Pound may continue to be weaker vs. the Yen and the Dollar.

Dollar (USD): US jobless claims came in higher than expected though continuing claims fell, most probably the result of discouraged workers losing their benefits. This does not bode well for the US economy which, quite frankly is only seeing strength because everything else looks so bad. US equity futures are lower, though off of their lows of the morning.

Yen (JPY): GDP figures came in worse than expected to 4.9% vs. an expectation of 5.5%. The export led recovery did not encourage consumers to spend, and higher yen values due to risk-aversion could derail exports going forward. Nevertheless the yen is higher on the flight to safety trade, despite the fact that the BOJ may have to do more to combat deflation.

What we are seeing now is a global “ratcheting down” of economic bubbles that ran rampant over the last few years. As different economies around the globe pare back spending and attempt to get their debt under control; economic slowdown is the natural consequence.

This is going to send a ripple effect through the global market place and fears of a global double-dip recession may not only be founded but likely. I believe there is much more pain to be felt in the market place and have little confidence that world leaders can come up with a solution.

Because of the fractured nature of the world economy and competing interests, a solution may be impossible. In my opinion, we are going to start to see either debt defaults or massive money printing which will eventually lead to inflation. But that could be YEARS away.

So for now, think globally, but act prudently locally.

And take advantage of these extraordinary times by trading forex and shoring up your own personal balance sheet!

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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May 19, 2010

German Political OxyMorons!

Filed under: Forex News — Tags: a-bad-thing, crisis, euro, financial, fire, governor, japan, june, market, opinion, weekend — admin @ 1:23 pm

The German people are known for being hard-working, efficient, industrious people. They are not known for their charismatic personalities or ability to excel in politics. While this is not a bad thing, it is coming back to haunt the Euro zone as Germany is making unilateral decisions that affect the financial markets.

Just yesterday, Germany enacted a “naked short-sell” ban on financial stocks and bonds and wants to limit the use of CDS only to those who actually own the bonds. While in and of itself this is not a bad policy, they needed to get the other members of the EU on board with this action. They did not consult the other nations, which consequently raised suspicion in the market that they “had something to hide” and sent the Euro plummeting lower to 1.21 and change.

In what many view as yet another political blunder by Germany in the handling of this crisis, the market has started to realize that this ban will largely ring hollow without the other nations on board, and that this announcement was more about dumb German politics than anything financial related. They really should take a look back to the first few months of Obama’s presidency; the guy was so used to being on TV that every time he spoke the markets tanked! When he finally learned to be quiet, the markets were able to rebound.

Hey Germany, if you want to save the Euro—just shut up already! In any event, we are seeing risk taking in the market as the commodity currencies have sold off, as has the Pound as the UK rate policy meeting minutes came out. The Euro has rebounded from very oversold levels, and US CPI came out slightly negative vs. a slightly positive expectation.

In the forex market:

Aussie (AUD): The Aussie is down big-time this morning, as the German short ban-induced sell-off caused major risk aversion. Other factors contributing to the sell-off are (in no particular order): potential slowdown in China, Greek debt concerns, and lower commodity prices. In addition, consumer confidence levels are at 19-month lows, despite the fact that wages grew at the fastest pace in almost a year.

Loonie (CAD): The Loonie is lower for the same reasons as the Aussie, especially dragged lower by oil prices which are in the $68.5 range. Canadian CPI is due out on Friday, but if risk themes persist an increase around the globe, then no amount of inflation will give the market confidence that the BOC will hike rates at the June meeting. The bottom line is that you cannot raise rates if the threat of a global double-dip recession exists.

Kiwi (NZD): The Kiwi is the biggest loser this morning on risk aversion, but in addition, RBNZ Governor Bollard came out saying that NZ needs to reduce its budget deficit and should forego growth prospects in favor of austerity to rebalance its economy. He also said that a gradual depreciation of the Kiwi would be desirable, so investor sentiment has shifted away from a mid-year rate hike as had been previously expected.

Euro (EUR): Years from now, both economics and poli-sci classes are going to use this EU debt crisis as a case study of what not to do. The announced bailout was supposed to be the final straw, the end of the play. And like a bad movie that just won’t seem to end, Germany keeps giving the markets reason to question the credibility of the Euro which in turn inspires risk aversion and a lack of confidence around the globe. Meanwhile construction output in the region was higher. So the Euro has bounced back, as the market has realized that it was just German stupidity and not a hidden time-bomb. If this keeps up, then the Euro could be finished very quickly.

Pound (GBP): The Pound is lower as but is rebounding a bit as the BOE rate policy meeting minutes were released showing a dovish stance. Policy-makers voted unanimously to leave rates and bond purchase programs unchanged, which falls in line with the potential austerity measures about to be under-taken.

Dollar (USD): The Dollar is higher on risk aversion, but is giving back some gains as the market is moving away from the major threat level induced by Germany. CPI figures came in less than expected showing a decline of .1% vs. an expected gain of .1%. While not a major difference, this really shows that we are still in a deflationary mode even with all of the tremendous government spending which was supposed to prop-up prices.

Yen (JPY): The Yen is higher, especially against the commodity currencies as risk-aversion caused a major unwind of carry trades. In addition, industrial production figure came in better than expected heading into tomorrow’s GDP report which is expected to show positive growth led by exports. This may help Japan take measures to reduce its extraordinary debt.

The only thing I can say regarding the global economy is that there is major risk in the marketplace right now. Countries around the globe are preparing to tighten their belts and are looking to return to fiscal responsibility.

The only real country not on this path is the US, as politics rules and economics drools! So Washington DC is going to continue to re-fill the punch bowl to keep the masses at bay, rather than do what is economically responsible but politically suicidal.

I don’t know how confidence is going to return to the Euro zone and if it will happen anytime soon. A gradual decline of the Euro is OK, but these break-neck moves need to be stopped if the global economy is going to function properly.

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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