Fundamental | Forex Blog

October 20, 2011

Forex Market Outlook 10/20/11

Filed under: Forex News — Tags: because-the-boe, cad, economic, fundamental, loonie, new zealand, nzd, sentiment, trend, uncertainty — admin @ 7:01 am

This morning all eyes are on Athens where the Greek rioters are protesting against further austerity measures which are to be voted to ensure that Greece is taking the steps necessary to continue the bailout discussion. The Troika will be reporting the economic state of affairs in Greece but so far the sentiment has been that that was Greece has done is insufficient to date.

Yet there is some positive news coming regarding the EFSF, though at this stage they are just rumors and not confirmed. Supposedly, the EFSF will be able to buy bonds on the secondary market provided there are no bank solvency issues. What this means is that they can be a “constant bid” to attempt to keep rates lower and then they can re-package and flip them or hold to maturity or whatever. However, the size of the fund is still in question and whether or not they will leverage that remains to be seen.

Producer prices in Germany came in slightly higher than expected, and the German government GDP forecast showed a growth rate of 1%, much lower than the 2.9% they have experienced.

In other news that just hit the wire, in Libya Momar Gaddafi is being reported dead.

Earlier in the UK, retail sales figures came in much better than expected, showing a monthly gain of .7% vs. an expectation of .2%. This could be a function of higher price expectations because the BOE is seen as being inflationary. But I must say, so far the BOE has been wrong in many of their economic assessments and should inflation persist, the UK economy could come to a grinding halt.

Here in the US, Initial jobless claims came in at the usual 400K, and later this morning we will get existing home sales figures, the leading indicators, and the Philly Fed. Throw in a little Fed speak and there is just enough to inspire some volatility.

We are very range-bound at these levels as the Euro debt crisis continues to maintain a stranglehold on these markets and the anxiety increases with every TV report of another Greek rioter lobbing a Molotov cocktail.

Yet US stock earnings have been coming in positively despite the economic climate as corporations are lean and mean and sitting on mountains of cash, yet the market uncertainty thanks to the political gamesmanship in Washington is keeping them from hiring. While lack of demand is always cited as the “cause”, it is actually the effect of bad policy and not the other way around.

The super-committee that is charged with deficit reduction here in the US is likely going to be ineffective so it will be more of the same. However, these problems seem minor compared to what is taking place in Europe and this weekends meeting may produce progress toward resolution, or it may not.

Meanwhile, my short gold trade triggered yesterday as the Bear Flag pattern completed, with an initial price target of $1500, and then $1440.

Tomorrow could be a risk aversion kind of day, so today we may see some cautious risk taking, though today is likely to be an “inside day” producing neither new recent highs or lows.

At this point the rumor mill is in high gear so there could be mid-day volatility based upon unconfirmed reports. This market is more conducive toward short-term trading at this point, as the uncertainty is still high and risk at a premium.

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October 19, 2011

Forex Market Outlook 10/19/11

Filed under: Forex News — Tags: aussie, commodities, currency trading, economic, forex market, fundamental, loonie, trader, trades, trend — admin @ 7:15 am

Yesterday’s market turn-around exemplifies the type of market action we may continue to see until the Euro debt crisis is finally resolved to the satisfaction of the world. Yes, I said the world. Markets yesterday were selling off on lowered expectations that this weekend’s European summit would produce that resolution, but a rumor hit the tape from a newspaper in Euro that said that France and Germany had agreed to expand the size of the ESFS to 2 trillion euros, much larger than had been previously agreed upon.

This sent markets screaming higher into the close as it was risk-on again and the correlations not only held up but also lead the way. This kicked the weaker economic data to the back again as the hope of a credible deal left markets wanting more. Moody’s attempted to rain on the risk appetite parade by downgrading Spain again but the markets will have none of it. Riots in Greece make the Occupy Wall St. crowd look like rank amateurs as the new austerity measures are announced.

So we have the carry-over affects this morning taking place, and better than expected economic data from today’s docket has confirmed the move. US corporate stock earnings are starting to look better, though Apple missed earnings for the first time in 4 years last night. The markets seemingly want to go higher if not for the specter of risk hanging over them in the form of the Euro debt crisis.

In the UK, the BOE released the minutes to their most recent rate policy meeting which showed a unanimous vote to expand their QE program by 75 billion pounds, even though yesterday’s inflation data pushed above 5% for the first time in 3 years. BOE policy-makers believe this to be a temporary spike, but that remains to be seen. Especially if a Euro debt resolution allows markets (including commodities) to fly again.

Here in the US, CPI data came in as expected and slightly lower which some might find surprising after yesterdays higher than expected PPI data. Core CPI came in at 2% vs. an expected 2.1% and the headline number came in at 3.9% as expected. Indeed the Fed is dodging bullets as the money-pump continues. My feeling is that it is just a matter of time before inflation rears its ugly head and when it does it will be fast and furious.

But the best news of the morning may be the housing starts figures which show a gain of 15% vs. an expected 3.3%. Recent lousy weather may have distorted those figures as housing starts were delayed, but nevertheless it is an impressive number. Building permits came in lower than expected, posting a decline of 5% vs. an expected decline of 2.4%.

It will be interesting to see how the rest of the day plays out as stocks here in the US are set to open higher and risk appetite is also increased. However, a closer inspection of the numbers and rumors may prove to warrant a more reserved position as perhaps the market is getting a bit ahead of itself.

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October 13, 2011

Forex Market Outlook 10/13/11

Filed under: Forex News — Tags: aud, bank, commodity, dollar, economic, europe, forex trading, fundamental, gold, increased, japan, senate, stock, yen — admin @ 6:51 am

Yesterday’s release of the FOMC meeting minutes was a complete dud and market hopes that the Fed was close to QE3 went unrealized. Part of that hope came from Bernanke’s speech to the Joint Economic Committee earlier this month, but it seems as though that mention of further easing was intended to keep the markets from falling off a cliff.

Yet they are no closer to QE3 then previously thought, so the “free money trade” will have to wait for another day or for the economy to worsen dramatically, which is not out of the realm of possibility if the EU fails to meet their deadline on the debt crisis resolution. The clock is ticking.

News out of Europe this morning showed that German CPI was slightly higher than expected though not enough of a gain to cause the ECB concern. What was more of a concern though was the ECB’s monthly report for October which was largely negative. Citing “moderate to lower growth”, reduced outlooks, and the like, the ECB essentially confirmed what we already know.

What was more concerting to the market though was a report out of China that showed that their gains in exports declined more than expected, showing a gain of only 17.4% vs. an expected 20.5%. While they will cry that the strengthening Yuan is hurting them, no one else will shed a tear as their trade surplus came in at $14.5B, which contrasted with the US trade deficit of 45.6B makes them look silly. The Senate passed the Bill to impose tariffs on China if they don’t move to revalue their currency, which could ignite a trade war and is likely not going to help the global economy recover. I’ve discussed an alternate solution to tariffs in this morning’s video.

However there was some good news for those with risk appetite, as Australia added 20.4K jobs to their economy vs. an expected 10K, which helped push their unemployment rate down to 5.2% from the expected and previous 5.3%. While the Aussie has pulled back on general risk aversion, the slight decline may reverse throughout the day.

Additionally, the Bank of Japan released the minutes from their rate policy meeting which called for additional monetary easing to attempt to weaken the Yen. Citing problems in Europe to global economic stability, prolonged Yen strength will harm exports though recent economic data in Japan has been better than expected.

Here in the US, initial jobless claims figures came in as expected, with 404K newly unemployed. 400K has been the “norm” which is unfortunate as we are not adding enough jobs to move the needle. Perhaps the passage of the Free Trade Agreements that have been sitting around for over 4 years will help, but structural reform is more likely needed.

Since the President’s “jobs” bill was rejected by the Senate, we are likely going to have to wait for the debt “super committee” to attempt to reduce our deficit and provide confidence to the markets. This is a big task and much like the Euro commission that is charged with finding the resolution to the Euro debt crisis, essentially puts us in a holding pattern until then.

So I’m going to focus on corporate earnings here in the US, which if the majority come in better than expected, could revive risk appetite in the markets. The general mood surrounding the markets seems to positive, though that could be derailed by the Europe failing to resolve by their self-imposed dead-line, or more of the same Washington DC gridlock.

The inverse correlation between the S&P 500 and the US dollar is still pretty high, so the risk trades are still intact and could be driven by stocks rather than perceived global economic risk in the near-term.

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October 12, 2011

Forex Market Outlook 10/12/11

Filed under: Forex News — Tags: currency trading, currency-pairs, fear, free, fundamental, japan, lower, markets, new zealand, practice, rsi, stock, vote — admin @ 7:21 am

This morning has started with risk appetite driving markets higher, with Dollar and Yen weakness acting as either a by-product or catalyst of the move. Regardless of who or what is leading the charge, a sense of calm is starting to return to the markets and they looked poised for a 4^th quarter rally into the end of the year.

Positive sentiment surrounding the resolution of the debt crisis has not been derailed by Slovakia delaying their vote on the EFSF expansion agreed to in principle on July 21^st as the market believes that the Franco-Prussian solution which Sarkozy and Merkel have promised is coming in early November will like supercede that package. The “Troika” has already agreed to Greece receiving the next tranche of money despite the uncertainty surrounding the vote of whether Greece has done enough to receive it, with the hope that whatever is offered in early November is enough to wipe the whole slate clean.

So the pressure is on to come up with a resolution that not only deals with the problem but is also something that is agreeable to all of the Euro zone members as well as the markets in general. Call me skeptical but I’m not certain if such a solution exists. Today a plan to re-capitalize European banks will be proffered which is a step in the right direction.

Meanwhile in the UK, policy-maker Posen has claimed that the BOE is prepared to ease further and the unemployment rate has ticked higher to 8.1% from 7.9% and an 8% expectation, yet the Pound is trading higher and hit our last week’s target of 1.57 vs. USD and then some. GDP estimates came in better than expected for September calling for .5% for last month vs. .2% for the previous month. Also to note is that even though the official unemployment rate rose, the number of new jobless claims came in lower than expected at 17.5K vs. an expected 24K.

Both the Aussie and the Kiwi are tracking higher with the former trading back above parity vs. USD. Related home sales and price figures show that there is moderate growth, and Australian consumer confidence figures came in better than expected. Australian employment figures are due out tomorrow.

Also adding to the risk trade is the machine orders figures that were reported by Japan that came in much better than expected, showing a monthly gain of 11% vs. an expected 3.9%. This has helped rally the Nikkei and caused some Yen selling and tonight’s release of the BOJ meeting minutes may show how close they are to intervening in the currency which could provide for additional risk taking.

Speaking of meeting minutes, the release of the September FOMC will be out later today and will definitely show how close Bernanke and Co. are to QE3. While he floated the idea at the JEC briefing earlier this month, it may have been in response to tanking markets and not any serious policy discussion. If on the other hand they are close to QE3, then this could push markets higher on the free-money trade.

US corporate earnings season is upon us and was kicked off by worse than expected numbers out of Alcoa, yet the S&P 500 has rallied to above 1200. The bar has been set so low for many of these companies that the beats should be more than the misses.

Also to note is that the Senate did not pass Obama’s “jobs bill” which was a more of political statement than a credible plan. This means that more money is not added to the deficit and taxes are not raised in the near-term, and we are likely to have to wait for the deficit reduction committee to take action before anything gets done.

Yet the mood surrounding the markets appears to be positive and I think we will definitely see that 4^th quarter rally that investors desire. Business can only sit on the sidelines for so long and if they start to believe that there may be a change in Washington DC in the next election cycle to more pro-business policies, then they may start to invest.

While I don’t think this will solve our unemployment problem in the near-term, if we can get the needle moving in the right direction then that could instill some confidence which is ultimately what this economy is sorely lacking.

So keep an eye out for the Fed release later today as it has the ability to create volatility as the market dissects the Feds intentions. Any hint at the “free money” trade could send markets even higher!

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October 7, 2011

Forex Market Outlook 10/07/11

Filed under: Forex News — Tags: account, bank, china, fear, forex market, fundamental, interest, loonie, lower, markets, party, within-the-next — admin @ 7:05 am

All eyes are on this month’s Non-Farm Payrolls report which is expected to show a gain of 60K, with a private sector gain of around 90K. Unemployment is expected to remain at 9.1%. While this is one of the most important data releases, the overall risk themes in the marketplace have held markets back. Economic data has been mildly weak of late, which I think is a positive given the risk environment.

One sign that we may see better numbers is the earlier employment report out of Canada, who reported a gain of 61K jobs vs. an expected 15K and the unemployment rate ticked down to 7.1% from 7.3%.

**Update** NFP has come in showing a gain of 103K jobs, better than the expected 60K estimate. Private sector jobs added was 137K, better than the 90K expected. Last month’s NFP was revised higher to show 57K jobs added vs. the reported 0. Unemployment rate remains steady at 9.1%.

The markets have used this opportunity to increase risk appetite, though today’s better than expected numbers may reduce the chance of QE3 from Bernanke and the Fed. While overall that would be a good thing, the markets may be slightly disappointed in that prospect.

There is an interesting dynamic taking place in the US economy and the “Wall St. Occupation” protests may be the sign that we have hit bottom. We know about the gridlock in Washington DC and the Euro debt crisis, but markets have been looking to move higher for some time. This may be a situation where the markets can no longer wait around for politicians to get their acts together so business may take the bull by the horns and run with it.

While this number does not change the economic malaise we are feeling overnight, it a step in the right direction. Should we get some sound economic policies here in the US, then we might actually see some improvement in confidence which in turn would help the economy recover. Not higher taxes, not more government spending, not more free Fed money. Confidence.

Meanwhile confidence has increased that Euro zone leaders may be getting it together as they are finally discussing the potential re-capitalization of banks. European bank exposure to sovereign debt is a major problem and the UK bank exposure was likely a reason that the BOE chose to increase QE to add further liquidity if the problems in the Europe got worse.

This prompted Moody’s to downgrade the UK banks (they’re always late to the party, aren’t they) and yet the Pound has rallied off of yesterday’s knee-jerk reaction the saw the Pound sell-off. As a mentioned yesterday, I thought the market got it wrong initially and indeed I was right. So risk appetite trumped QE in the UK and the markets are moving higher. PPI figures also came in slightly higher than expected showing signs that inflation is still a problem, but the BOE may be willing to deal with issue as the economy recovers.

Lost in the mix of what has been taking place in Europe, the Japanese interest rate decision came out last night to little fan-fare as it produced no change in policy. While this is exactly what was expected, there has been some hope that the BOJ might intervene in their currency as recent Yen strength could be extremely detrimental to Japanese exports and thus the economy. Last night’s meeting might seem like an obvious place to launch intervention, but my feeling is that the BOJ has been trying to do the unexpected. So if any intervention is coming, it would most likely occur on Sunday night when the Asian markets open.

Outside of this, the attention should return to the Euro debt crisis. There is hope that some sort of agreement can be reached within the next few weeks. While there is still risk in the markets, today’s report can give us hope that better times may be coming.

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October 6, 2011

Forex Market Outlook 10/06/11

Filed under: Forex News — Tags: commodity, currency trading, economy, england, fear, fundamental, nzd, top stories, usd, yen — admin @ 7:11 am

So far the news of the morning is that the Bank of England increased the size of its asset purchase program by 75 billion, pushing the total bond buying to 275 billion. While they kept interest rates unchanged, this sent the Pound plummeting lower 200 pips. The Central Bank cited severe strains in the funding market and maintained that inflation would undershoot the 2% inflation target in the medium term.

I suppose it would be more helpful if they identified what the medium term is, as inflation has stubbornly remained above 4% much to their chagrin. So I’m not certain how they think it will subside, and it appears as though they are content to let their citizens suffer through higher prices.

The ECB rate decision also came out and produced no change to official ECB rate policy, so now the market is waiting on the ECB press conference where Jean-Claude Trichet will speak for the last time as head of the ECB. The markets are hoping that he will offer some sort of hope that EU leaders are nearing a solution for the debt crisis. The ECB needs to go into “cheerleader mode” between now and when a solution is actually offered, but most think the perpetuation of “can-kicking” will continue. There is a meeting of EU leaders and a G-20 meeting on tap in the next few weeks.

Other than those two major events, the negative economic data from these two regions had little effect as UK home prices fell more than expected and German factory orders showed a decline vs. an expected no-change.

Initial jobless claims here in the US came in slightly better than expected, but still over 400K. While it is a good thing that it is not moving in the wrong direction, it is certainly not getting significantly better.

Tomorrow’s Non-Farm Payrolls report will give us a better idea of where the economy is headed but I think more importantly it will let us know when or if Bernanke will be adding more monetary easing to the economy.

Between now and then, the Bank of Japan will have its rate decision in the overnight session and while they are not expected to change policy, don’t be surprised if they try to jaw-bone the Yen lower as it is above 10-year highs vs. Euro and Pound.

So far Trichet hasn’t said anything to disrupt the markets any further today, and the Dollar strength that we saw earlier on the Pound and Euro sell-off is abating, which is helping equity markets move higher.

There is going to have to a point where the “risk on, risk off” trade decouples and the correlations break down as US dollar strength should not be an automatic sell in risk assets, especially if that strength occurs because of individual currency weakness.

Today’s action reminds us that these correlations are still in effect and the fact that the BOE wants to encourage inflation through a weakening of the Pound should have little effect on US stocks. Yet the markets have become so entrenched in the risk trade that it has a hard time differentiating between event risk and individual currency risk.

The market is never wrong; however in this case it is. While we know about the global economic slowdown, stock valuations right now are very compelling, especially those with high dividend yields. While the Euro debt crisis poses a major threat to global economic stability, an event like the BOE increasing quantitative easing should not.

Yet markets have this “all or nothing” mentality where a rising tide lifts all ships or the baby gets thrown out with the bathwater. How’s that for coming market metaphors?

But seriously, we may see some further market selling as the US session unfolds, but I believe that it is not warranted (unless Trichet says something dumb) as tomorrow’s NFP is likely to increase the chances that Bernanke will act.

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September 29, 2011

Forex Market Outlook 9/29/11

Filed under: Forex News — Tags: australia, commodities, currency market, expectation, fundamental, improved-on-the, practice account, push-the-german, trend — admin @ 7:19 am

This morning, all eyes were on Germany which voted to expand the scope of the EFSF, laying the groundwork for the Greek bailout to continue and effectively buying more time for EU leaders to figure out a plan to resolve the crisis.

This has been dragging on the global economy for some time now and has discouraged investment and capital formation from taking place. And while this vote is not the end all be all and just one vote in series of others that need to take place, leaders are hopeful that the EFSF can be ratified by mid-October.

So to turn our focus away from the debt crisis for a moment, there was actually some economic data that came out today that surprisingly shows a bit of economic resilience. In Germany, unemployment figures fell by 26K vs. the expectation of a decline of 8K which helped push the German unemployment rate down to 6.9% from last month’s 7%. And while five different measures of Euro zone confidence all came in worse than expected, it must be noted that things typically need to get better before business and consumers start believing.

Here in the US initial jobless claims came in better than expected, with 390K newly unemployed vs. the expected 420K. While not a dramatic turn-around, at least it halts the declining figures we have seen of late.

US GDP Annualized figures came in slightly better than expected showing a gain of 1.3% vs. the expectation of 1.2%. The GDP price index also came in a higher than expected, showing a gain of 2.5% vs. 2.4% which means that inflation is steady to rising slightly. Personal consumption figures also came in better than expected, posting a gain of .7% vs. .4%. This perhaps might be the most positive reading, as the US economy needs the consumer to come back in order for it to flourish. Though this could also be a function of the “back to school” phenomenon.

Later this morning we will get pending home sales which if improved, could round out a pretty positive morning for the US economy in light of recent events. August home sales were expected to have declined 2.1%.

In the UK, mortgage approvals came in better than expected with 52.4K approvals vs. the expected 49.7K. This is either a result of improved sentiment or the fear of inflation but either way it is producing positive economic activity. The UK sometimes gets lost in the shuffle when we look at the problems in the Euro zone.

The markets are rallying this morning as risk appetite has improved on the German vote as well as the better than expected economic data. But the markets are still pretty range-bound at the moment, so we are seeing cases of “buy the rumor, sell the news”. The Euro was actually higher earlier this morning before the vote as the anticipation of it passing held more promise than the actual vote itself.

Even with this vote passed, the problems are far from over and the market can turn quickly if it loses confidence in the EU resolve to save the union. The global economy has not recovered just yet, even though there is some decent economic data. In fact, estimates are calling for a slowdown in China, who reports PMI figures tomorrow.

So don’t be fooled into believing that everything is peachy-keen just yet, as the global economy still has a long way to go.

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August 17, 2011

Forex Market Outlook 8/17/11

Filed under: Forex News — Tags: china, course, decision, euro, europe, fundamental, gbp, gold, headline, oil, rsi, stock, trade, with-the-value — admin @ 6:51 am

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August 12, 2011

Market Outlook 8/12/11

Filed under: Forex News — Tags: commodities, currency-pairs, dollar, fundamental, interest-rates-, loonie, nzd, rsi, sentiment, the-marketplace — admin @ 6:59 am

The markets appear to be somewhat tame this morning considering the massive volatility we have been seeing over the past week. Mid-triple digit moves on the Dow Jones Industrial Average have marked one of the craziest times in the market that I can remember—and this includes the go-go days of the internet boom/bust!

We know about the major risks in the marketplace, starting with the US downgrade, then moving back to the European sovereign debt crisis, followed by the rumors of problems with the European banks, and capped off by the slowing global economic picture.

Despite these problems, the markets are set to move higher after yesterday’s rally in the US. European stocks are also higher after a number of countries in the Euro zone enacted a ban on short-selling, trying to prevent an attack on the banks that may have exposure to sovereign debt. In addition, GDP in France contracted more than expected and Industrial Production figures in the Euro zone declined as well, posting a gain of 2.9% vs. an expected 4.2%.

Here in the US, Advanced retail sales figures came in as expected, showing gains of .5% in a sign that the US consumer might not be dead just yet. Michigan consumer confidence figures will be out later this morning.

So the markets appear to be in risk-taking mode this morning, with stocks and oil higher and gold trading lower. Demand for safe-haven currencies has abated, so the Swissie and the Yen are lower as well. Rumors of “mini-interventions” by both Central banks have the markets believing that those entities are active in the markets and are not tipping their hands as to what they are doing.

After the wild ride we’ve experienced this week, a bit of slowdown is welcome. But don’t be lulled into thinking that risk has lessened in the marketplace. In fact, I would say it has increased a bit as the global slowdown is accelerating and the drastic measures taken in Europe to ban short-selling may mean that problem with bank capitalization may be more tenuous than previously believed.

If you are taking positions long into the weekend, be sure to use proper risk management.

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August 11, 2011

Market Outlook 8/11/11

Filed under: Forex News — Tags: china, fundamental, gbp, interest, japan, kiwi, new zealand, trader — admin @ 6:11 am

The markets are undergoing a major reversal this morning as equities were higher to start the morning in Europe and in the US but that has now turned negative and looks like risk-aversion is back on the table.

The focus has shifted back to the European banks this morning and the ECB monthly report came out earlier this morning and said that downside growth risks may have intensified and economic uncertainty is “particularly high”. This obviously does not bode well for the European economy in light of the attacks the European banks are facing.

While French bank Soc Gen has repeatedly denied it is in trouble and facing liquidity problems, the markets have a short memory as Lehman issued denials as well right up until the day it collapsed. I have no knowledge of this situation but must treat it as a “where there’s smoke, there’s fire scenario” as it could become a self-fulfilling prophesy if there is a run on the bank.

Today’s early forex action has been interesting from the safe-havens, as SNB officials are floating rumors that they may attempt to peg the Swiss franc to the Euro in an effort to keep it from appreciating any further. In Japan, a curious move at the European open of Yen crosses may have been the BOJ actively selling Yen in the market, though not a formal intervention. A Japanese MOF official declined comment when asked about it. (See chart of the day below).

Overnight, the unemployment rate in Australia was higher to 5.1% from 4.9% as there was an unexpected net loss of jobs when 10K jobs were expected to be added. Nevertheless, the Aussie traded higher in early action.

US initial jobless claims are due out later this morning, with the usual 400K expected to lose jobs.

Market volatility has been intense over the past week as the ranges have been expanded and the moves somewhat violent. This can at times throw the technicals for a loop and the market can behave irrationally for some time. Case in point; yesterday gold traded briefly above $1800, an all-time nominal high. The CME just imposed higher margin requirements to stem the rapid appreciation of the precious metals by speculative buyers.

There is still great risk in the marketplace so the individual fundamentals are largely meaningless. This means we are in a constant risk-on/risk-off environment where the markets can be easily spooked by rumors or announcements.

So trade cautiously and always use proper risk management techniques!

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