Fxedu | Forex Blog

August 1, 2011

Forex Outlook 8/1/11

Filed under: Forex News — Tags: carry trade, commodities, currency-pairs, forex trading, from-the-rba, fundamental, fxedu, nzd, picture, practice, practice account, stock, unemployment, week — admin @ 6:53 am

I’m back from vacation this week and boy did I pick a good time to get away! Well not really, but it was nice anyway. The insanity that is taking place in Washington DC looks like it may be coming to an end, but let’s remember that while a deal has been reached, it has not been voted through just yet.

There still is some safe-haven rotation going today with Yen and Swiss franc strength, yet gold is pulling back from all-time nominal highs. A “relief rally” is underway in the equity markets with global stocks and oil higher, but after last week’s carnage this was to be expected.

Despite the general sigh of relief in the markets, this does not feel like classic risk appetite has returned to the markets, but rather US dollar weakness, perhaps on the notion that QE3 may be around the corner. Last week’s dismal GDP report and the potential for this week’s Non-Farm Payrolls report to get worse may bring the Fed back into the picture.

This week will also bring rate policy decisions from the RBA in Australia tomorrow, and the ECB, BOE, and BOJ on Thursday. While no change is expected, the BOE will be the only Central bank not issuing an accompanying statement. Inflation expectations have risen, but look to these banks to try their best to avoid looking hawkish. BOJ intervention hopefuls are waiting for action, but it may not be forthcoming.

Volatility still abounds in the markets, and this debt ceiling agreement is not a done-deal just yet.

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July 21, 2011

All Eyes On Europe!

Filed under: Forex News — Tags: cad, china, commodity, course, europe, fear, fxedu, greece, live, lower, new zealand, practice account, sentiment — admin @ 7:36 am

Today’s meeting of Euro zone Finance Ministers, bankers, and power brokers is intended to produce a solution to the debt crisis that plagues not only Europe but the global economy as well. While the immediate problem is Greece, the larger and more pressing problem is how do they prevent contagion to Spain and Italy.

While there are many different proposals floating about, the bottom line is that the politically expedient needs to be cast aside in favor of a solution. Apparently France and Germany have come to an agreement in principle, with the details to be released later today. Bear in mind that even if they do come out with a resolution (which is unlikely to be complete by today), the market may not like the terms.

Here in the US, the news yesterday that we may be close to a debt ceiling deal has taken an about-face and there is so much confusion and obfuscation surrounding these talks that it is fruitless to try to forecast when or if a deal may be forthcoming.

Overnight in the UK, consumer confidence and retail sales figures came in better than expected, though lower expectations mean that it is easier to clear the hurdle. Nevertheless, this is an encouraging sign for the UK as the government austerity kicks in.

Euro zone and Chinese PMI figures came in weaker than expected, showing signs that the global economy is starting to slow. Yet the market is rebounding and has flipped from risk-aversion to risk-taking mode as optimism over the Euro debt deal is starting to increase.

In the forex market:

Aussie (AUD): The Aussie has bounced off its lows of the morning after the market took lower than expected Chinese PMI figures as a sign that Australia’s exports may decrease as demand in China slows. However, risk sentiment has picked up so the Aussie is nearing resistance at 1.08 vs. USD. (Click chart to enlarge)

Kiwi (NZD): The Kiwi reached an all-time high vs. USD at .86 as hopes of a rate hike in lieu of an expanding economy have the markets enamored with the growth story.

Loonie (CAD): The Loonie is mostly higher as risk appetite has increased and oil prices have rebounded to just below $99. Tomorrow is the release of both CPI and retail sales data which may show further economic strength which could lead to increased rate hike bets.

Euro (EUR): While PMI figures were down, the Euro is up and trading above 1.43 vs. USD as the market is hopeful that a solution for the debt crisis is coming. I wonder if this will be a case of “buy the rumor, sell the news” for the Euro today. (Click chart to enlarge)

Pound (GBP): The Pound is also higher as consumer confidence figures came in better than expected, though lower than last month’s reading, posting a 51 vs. 49. In addition, retail sales figures came in better than expected, rising .2% vs. an expectation of no change.

Swissie (CHF): The Swissie is mostly lower as demand for safe-haven asset has decreased with the risk-taking in the market. Declining trade balance figures show the effects of a stronger franc on the economy.

Dollar (USD): The Dollar is weaker across the board as risk appetite has increased due to the dual-action of the potential Euro debt resolution and the fact that the economic data here, namely initial jobless claims, continues to be weak. This means that the market could be expecting QE3 from Bernanke and the Fed.

Yen (JPY): The Yen is weaker vs. all but the Dollar and this relationship needs to be watched closely it could be a catalyst for BOJ currency intervention. Trade balance figures came in better than expected which means that Japanese exports are improving as the recovery from the natural disaster takes effect.

So the markets will continue to wait for the news out of the Euro zone meeting in Brussels today and there could be major volatility surrounding the release of their statement as the market weighs on every word.

While the markets have been flying so far this morning, I am going to exercise caution as I’m just not as positive as others. Buy the rumor, sell the news has always been a trading mantra I’ve adhered to, so it will be interesting to say what is going to happen later today.

But for now I’m content to take profits, and looking to re-establish positions as the news is released.

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, Australia, bank, cad, canada, carry trade, China, commodities, commodity, course, currencies, currency, currency market, currency pairs, currency trading, decision, dollar, dow, economic, economy, EUR, Euro, Europe, fear, forex, forex market, forex trading, fundamental, fx, fxedu, gbp, gold, interest, interest rate, interest rates, invest, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, new zealand, news, nzd, oil, pound, practice, practice account, rate decision, RSI, sentiment, stock, time, trade, trader, trades, trend, unemployment, USD, Yen

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June 24, 2011

Market Rollercoaster!

Filed under: Forex News — Tags: commodities, correlations, forex, fxedu, interest, live, marketplace, money, reduce-the-size, stock, trades — admin @ 7:30 am

Wow, what a wild ride yesterday was in the global market place! We had a bit of everything: gloom and doom, government manipulation, weakening economic data, crisis resolution, fear, anger, and hope. Where else can you get this type of excitement?Here’s a quick recap of what happened over the past few days: Dollar was strengthening after the FOMC said that QE2 would end, taking down global stocks and commodities. The EIA then said that the US would release 30 million barrels of oil from our strategic reserve, driving oil prices lower and sending correlated markets such as stocks lower. Later in the day it was announced that Greece had accepted a 5-year austerity plan and will be receiving money form the EU and IMF as part of a new bailout (though the actual vote is next week), so the markets rebounded only to finish slightly lower.

Frankly, I am outraged by the oil thing but not surprised. While yes I am in favor of lower oil (gasoline) prices, I am not in favor of achieving them by weakening our emergency reserves. What happens if a situation arises where we need that oil? It’s like raiding your emergency savings account to go on vacation. Politics at its worse.

Meanwhile in the Euro zone, it looks like the Greece austerity deal will go through next week, despite the protestations of nearly 75% of Greek citizens polled.

Here in the US, durable goods orders came in better than expected, posting a gain of 1.9% vs. an expectation of 1.5%, which is a welcome better-than-expected data point.

So the markets are starting the day in mild risk taking mode with stocks set to open higher, though oil prices are lower.

In the forex market:

Aussie (AUD): The Aussie is higher across the board after Asian stocks were higher overnight on risk taking after yesterday’s comeback in US stocks.

Kiwi (NZD): The Kiwi is strengthening as risk trades are being re-established after the Greek debt crisis announcement.

Loonie (CAD): The Loonie is mixed as risk appetite and lower oil prices fight to see which aspect will dominate trading today.

Euro (EUR): The Euro is off of its previous highs and has pulled back some as they are not out of the woods yet. While yesterday’s news of the agreement is extremely positive, the vote hasn’t actually taken place yet. German IFO expectations figures came in better than expected. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower as rate expectations for the UK have been lowered and there is considerable concern about the exposure that UK banks have to the Euro zone.

Swissie (CHF): The franc is stronger across the board today despite the mild risk taking in the markets to start the day. The safe haven aspects of the Swissie may still be desirable until after the Greek austerity plan is officially voted on and accepted. (Click chart to enlarge)

Dollar (USD): The Dollar is weakening on slight risk appetite after US durable goods orders came in better than expected. It will be interesting to see if the Dollar will continue to weaken without the aid of the Fed, or if it can co-exist in higher stock market environment if the correlations break down.

Yen (JPY): The Yen is showing some surprising strength despite the higher Asian stock market returns overnight. While there is still risk in the marketplace that appears to be coming from the EU and UK specifically, cautious buying persists.

Wild market action indeed! Whether you agree with what is going on in the marketplace or not is of no consequence. What is important is that you have a plan to protect yourself from unexpected events that can cause major volatility.

If summer volume decreases, then volatility could definitely pick up. This is exciting for forex traders because volatility equals potential. There are still many different global events that will carry trading well into the next few months, and there is still great risk and opportunity.

However, this doesn’t change this mess that is known as the US economy. It appears as though election cycle politics are in full-effect so it is doubtful that anything meaningful will get done. The debate over the US debt ceiling may come into play as ideology gets left behind in favor of pragmatism, but don’t expect wholesale changes overnight.

The business climate is still an abomination, with the new healthcare bill, regulations, potential for tax increases, and a reluctance to reduce the size of government and debt all factoring in to keep businesses from hiring. The fact that there is actually debate over the fact that the current path we are on is disastrous is both scary and sad.

So invest your money in countries on the right path, and stay away form those destined for doom. The best way I know of to do this is through the forex market!

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, bank, blog, cad, carr, CHF, commodities, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, fear, fed, forex, forex market, forextrading, free, fx, fxedu, gbp, Il, interest, invest, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, RSI, ssi, stock, stocks, Swiss, time, trade, trader, trades, USD, Yen

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April 27, 2011

Fed Fun!

Filed under: Forex News — Tags: aud, bernanke, chairman, currency trading, economy, fiscal, fomc, fxedu, intellectual, markets, practice, ssi, transparency, usd — admin @ 12:14 pm

Today all eyes and ears are on the FOMC meeting and the new “format”, where Fed Chairman Bernanke will hold a Q&A session after the release of the interest rate decision. So make not of the time changes, as the rate decision has been moved up to 12:30 EST, with the press conference to follow at 2:15 EST, which was the old rate decision time.

It will be extremely interesting to say the least to see how this goes and whether or not Bernanke is a better salesman than the market believes. It is no secret that QE2 has been wildly unpopular with the public and that indeed it has been responsible for higher commodities prices despite the intellectual dishonesty surrounding that fact.

However, what QE2 has also done is help stabilize asset prices so that the economy did not become over-ridden by deflation. Bernanke is essentially acting alone to help the economy from a monetary policy perspective, as politicians in Washington have done virtually nothing on the fiscal policy side. Considering this, perhaps Bernanke is under-appreciated and the scape-goat in the whole sordid mess.

Overnight in the UK, GDP figures came in as expected with strength in the services sector showing promise that the economy is improving, and all but erasing last quarter’s contraction.

In Australia, CPI data came in hotter than expected and even thought the RBA said they wouldn’t raise rates despite inflation, they may be forced to re-think that policy.

So the markets are in mild risk-taking mode ahead of the FOMC meeting today, with both stocks and commodities higher to start the day.

In the forex market:

Aussie (AUD): The Aussie is higher across the board as CPI data came in hotter than expected, showing a gain of 3.3% vs. an expectation of 3%, with the quarterly figure gaining 1.6% vs. an expected 1.2%. While it is no secret that there is inflation in Australia, this figure may cause the RBA to re-think it stance that it wouldn’t raise despite inflation concerns. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is also higher against all but the Aussie as risk appetite has increased. In addition, both business confidence and activity outlook figures came in better than expected. The RBNZ rate decision is due out later this afternoon.

Loonie (CAD): The Loonie is mostly lower despite higher oil prices as it appears as though rate differential expectations are somewhat muted between the commodity currencies.

Euro (EUR): The Euro is mostly higher as Dollar weakness is driving markets ahead of today’s FOMC. With relatively little news today, the Euro should continue to trade opposite the Dollar.

Pound (GBP): The Pound is higher across the board as GDP figures came in as expected, showing a gain of .5% for the first quarter which essentially negated last quarter’s contraction. The YoY GDP grew at 1.8% as expected, but the highlight of today’s data may have been the increase in the Index of Services which grew at the largest clip in nearly 5 years and represents underlying strength in the UK economy. (Click chart to enlarge)

Dollar (USD): The Dollar is mostly lower ahead of today’s FOMC meeting. While volatility is expected as the market weighs in on every word spoken by Bernanke, he will try to stick to the script as much as possible.

Yen (JPY): The Yen is weaker across the board as retail sales figures came in lower than expected, showing a decline of 7.7% vs. an expected decline of 4.7%. While the effects of the natural disaster are largely to blame, S&P decided to pile on and downgraded the Japanese debt outlook to negative.

Yesterday I wrote about the transparency vs. honesty debate going on today with regard to monetary policy and how Bernanke is basically doing all he can despite no help from the fiscal policy side of the equation.

This doesn’t change the fact that current monetary policy is responsible for commodity inflation not just here but around the globe and that the US economy is not nearly as healthy as some would like you to believe. As better than expected stock earnings continue to pour in, the overall malaise affecting the economy cannot be discounted.

This new format for the Fed could be either a blessing or a disappointment, depending upon how honest the Fed Chairman decides to be. My guess is that while volatility surrounding the press conference is expected, it could end up being much ado about nothing.

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, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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April 19, 2011

S&P Warns US!

Filed under: Forex News — Tags: account, aussie, australia, currency, currency trading, euro, floated-the-end, forex, forextrading, fxedu, market, time — admin @ 11:33 am

That’s us, as well as US meaning the United States. Get your act together!

Yesterday, S&P put out a warning for a possible downgrade of US debt if politicians can’t get together and solves our debt problems. This highlights the growing frustration with those in Washington who would rather have more people “like them” on Facebook than actually deal with what ails us.

Adding fuel to yesterday’s already occurring risk-aversion, the S&P change of outlook may put pressure on politicians to do their job. It must be noted, however, that this was not a downgrade, but rather a change of outlook. While an actual debt downgrade would be catastrophic for the markets, it was interesting to see the early trading action as initially the Dollar was sold off on the announcement as this is clearly bad for the Dollar, only to reverse and cause the Dollar to strengthen further as the market realized that the flight to safety was the only way to go as that situation would be bad for everyone!

So in a sense, the Dollar strengthened because of weakness in the um, well, Dollar. Well that was yesterday, what about today?

Overnight, Asian markets were lower following the decline in the US, and oil continues to sell-off though gold is slightly higher, coming within a few dollars of an all-time nominal high of $1500. US stocks are flat to slightly lower, so it looks like there is some mild risk aversion to start the day.

In Australia, the minutes of the RBA rate policy meeting were released and they confirmed their current interest rate and said they would “look through” higher inflation because of declining growth. So essentially they are saying we know there is inflation but we are going to ignore it until GDP improves.

In Canada, CPI data will be released shortly which is expected to show inflation at 2.8%. Expectations for a rate hike in Canada are high, as they have been on hold for a bit.

In the forex market:

Aussie (AUD): The Aussie is lower as Asian stocks were down overnight in addition to RBA rate policy meeting minutes that basically said they will not be hiking rates any further. Let’s wait and see how those inflation figures come in before rushing to judgment, shall we? (Click chart to enlarge)

Kiwi (NZD): The Kiwi is also lower continuing yesterday’s slide as less than expected CPI data killed any chance of a rate hike at the next meeting.

Loonie (CAD): Canadian CPI data came in much hotter than expected, with the YoY figure showing inflation at 3.3% vs. the expectation of 2.8%, with the monthly figure rising 1.1% vs. an expectation of an increase of .6%. This increases the chance of a rate hike at the next meeting big-time. (Click chart to enlarge)

Euro (EUR): The Euro is mostly higher as slightly better than expected PMI data came in this morning, and the market is backing away from the Greek restructuring story in light of the gasoline provided by S&P yesterday. Expectations for another rate hike are gaining traction.

Pound (GBP): The Pound is also higher with no news on the docket bur a day ahead of the release of the BOE rate policy meeting minutes which could show that concerns over inflation are beginning to increase. Or not.

Dollar (USD): The Dollar is somewhat weaker in snap-back selling after yesterday’s rally higher. Housing starts and building permits figures are due out later this morning, and stories are now being floated the end to QE2 may not actually be an end but an extension through some technical mumbo-jumbo.

Yen (JPY): The Yen is mixed ahead of tonight’s trade balance figures, and overnight Japan came out and offered support for the US Treasury market in the face of the S&P change in outlook. This move is an attempt to help restore confidence in the US, so that the Yen won’t continue to strengthen as the market weighs in on which currency (Yen or Dollar) is the better safe-haven.

Will today be a reversal day and risk appetite return to the market, or has yesterday’s price action scared traders that the jig may be up?

Oil price declines continue and the debate over where to put money for the highest combination of safety and return is open for debate. The Dollar is clearly not a desirable destination, but some may have no choice.

We are so awash in US dollars right now thanks to the Fed, that money is essentially making its way everywhere as yield-seekers try to stay ahead of the curve.

How far these new bubbles can expand is anyone’s guess, but when the inevitable pop comes, look out!

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, EUR, Euro, forex, forextrading, free, fx, fxedu, gbp, Il, interest, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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April 14, 2011

Let The Debate Begin!

Filed under: Forex News — Tags: a-credible-plan, a-declining-oil, a-good-sign, country, currenc, currency, economy, euro, fxedu, yen — admin @ 12:52 pm

Yesterday President Obama came out with a speech regarding the debate that is about to heat up in Washington DC and define the economic course that the US will pursue moving forward. The obvious problem is the US Federal deficit, which is going to bankrupt this country (worse than it already is!) if nothing is done about it.

House Republicans have put forth a comprehensive plan that has both plusses and minuses, and will likely serve as a starting point for negotiations. However, nothing in yesterday’s speech outlined a credible plan to move tackle our problems, so the markets have become fearful of what could happen.

The near-term debate is going to be over what to do about the debt ceiling; if it is not raised or if cut-backs aren’t made, then we could be facing a funding problem. The timing of this essentially coincides with the end of QE2, which has pushed markets higher since its inception at the end of last year.

How the markets will react to both situations is uncertain at this point in time, but the markets are a discounting mechanism so at some point this all needs to be factored in. Perhaps that’s what we’ve been seeing over the last few days of selling.

This morning, both stocks and commodities are lower to start the day as we await the initial jobless claims numbers and the PPI data.

In the forex market:

Aussie (AUD): The Aussie is mostly lower on risk aversion though not by much as it is protected from shorting by its interest rate differential which makes it cost prohibitive to do so.

Kiwi (NZD): The Kiwi moved to a 5-month high after a successful bond auction increased demand for the currency. The Kiwi is tracking slightly higher despite the early risk aversion in the market. (Click chart to enlarge)

Loonie (CAD): The Loonie is mostly lower as its close ties to the US and a declining oil price to start the day have induced selling.

Euro (EUR): There’s no appreciable news out of the Euro zone this morning, so it is trading on its anti-Dollar sentiment which weakened it to start the day though it may reverse as US stocks open. (Click chart to enlarge)

Pound (GBP): The Pound is trading mostly higher after consumer confidence figures came in higher than expected after reaching record lows.

Dollar (USD): The Dollar is mixed as it is receiving the benefit of the flight to safety trade, despite PPI data which just came in at .7% and initial jobless claims that came in higher than expected at 412K. Not a good sign for the economy, but perhaps good for Fed watchers.

Yen (JPY): The Yen is stronger across the board as the Dollar shed some of its safe haven status and the nuclear threat is still a major problem. Yet there are still estimates coming in that predict an economic rebound.

Today’s data in the US shows economic weakness which the Fed is praying may just be an anomaly and a re-start of an economic downturn. The road to stagflation is one the Fed was hoping to avoid, though misguided policies and unintended consequences may be both the cause and the effect.

This bring us back to the fiscal policy debate—if we don’t do something about fiscal policy, then the Fed will attempt to smooth things over with monetary policy. Let’s face it: 100% of the people enjoy a free lunch.

Until we get some real leadership out of Washington DC, we are going to continue to head closer to the cliff at warp speed. I hope you have a parachute!

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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April 7, 2011

Portugal Submits!

Filed under: Forex News — Tags: currency, currency trading, euro, forex, fxedu, loonie, nzd, unemployment, usd, yen — admin @ 12:19 pm

After trying to fight the good fight and delaying what the markets already knew as inevitable, Portugal has asked the EU for a bailout. Borrowing costs have gotten too high for them to be able to service their debt, which would have led to bigger problems down the road.

How do we know that this bailout was inevitable? The Euro is trading only slightly lower in the European session as this has all been priced in already. It doesn’t hurt that the ECB is expected to raise rates later this morning. Now will the markets make a move to try to force Spain to take a bailout, or will this be the last of it?

As I wait for the BOE and ECB rate policy decisions, the Aussie has reached a new all-time high and is trading at just under 1.05 vs. USD after the employment rate showed that the economy added jobs and the unemployment rate slipped under 5%.

In Japan, the markets may have been disappointed with the BOJ response to the crisis over there, as they offered up a meager $12 billion in loans to help in the recovery. They did however lower economic forecasts (as expected) for the first time in 6 months as the Japanese economy faces an uphill battle. Perhaps they needed more time to come up with a credible plan?

As expected, the BOE left rates unchanged, and the ECB raised interest rates 25bp. Stocks and commodities are flat to slightly higher to start the morning.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as the economy added some 38K jobs vs. an expectation of 24K, bringing the unemployment rate down to 4.9% from an expected 5%. These numbers prove that you can move closer to full-employment even with higher interest rates. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is mostly lower as the risk aversion in the market and Japanese yen strength as a result of the BOJ non-action is reducing demand.

Loonie (CAD): The Loonie is mixed this morning, having pulled back for nearly three-year highs vs. USD. Prospects for higher growth and inflation, combined with US dollar weakness and higher oil prices make the Loonie a safe bet at this point.

Euro (EUR): A lot going on in the Euro zone this morning. First, Portugal is officially asking for a bailout as borrowing costs have become too onerous. Secondly, German industrial production came in much better than expected showing signs of economic life. And most importantly, the ECB raised rates 25 bp to 1.25%, as expected. So all this adds up to a slightly lower Euro this morning, with Portugal risk being offset by higher rtes.

Pound (GBP): The BOE on the other hand, decided to leave rates and asset purchases unchanged despite the fact that they are facing worse inflation than the Euro zone. I think they are going to try to wait it out until the end of QE2 here in the US, in hope that rising rates in the US will squash inflation. (Click chart to enlarge)

Dollar (USD): It is no secret that Dollar weakness has been driving markets higher, however now the threat of a government shutdown could dampen the party atmosphere. Initial jobless claims are due out late this morning and are expected to show the usual 385K have lost jobs.

Yen (JPY): The Yen is mostly higher after the BOJ disappointed last night with adding a paltry sum to the mix to help support the disaster recovery. Perhaps they need more time to put a credible plan together, though more accommodative policy may not be necessary as the banks are awash with cash—but they need to start lending. The rebuilding effort should increase borrowing.

Across the pond, it is basically a tale of two economies. The ECB is trying to get out in front of inflation despite the debt problems its members face, and the BOE is content to sit back and let inflation take care of itself.

If the ECB can come up with an agreeable plan for the Portuguese bailout, then this could be the end of the problems. However, if Germany takes a hard-line approach then this could actually exacerbate the issue and could turn market focus to the debt of Spain.

The BOE has probably gotten too cozy with the US Fed and is hoping that the end of QE2 will provide the respite for inflation. What they don’t know is the extent of asset bubbles that we have here in the US and that Bernanke is going to be hard-pressed to raise rates any time soon for fear of another leg down for the housing market which could takes banks along for the ride.

When this ploy doesn’t work in the UK, I expect that they may have to begin raising rates aggressively. Until that time comes though, just hang on to the QE2 ride higher, but be prepared to abandon ship at the first sign of trouble!

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, interest, jpy, market, Mike Conlon, nzd, practice, ssi, time, USD, Yen

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April 6, 2011

Stealth Inflation!

Filed under: Forex News — Tags: china, course, currenc, currencies, dollar, earthquakes, euro, fxedu, gbp, jpy, market, other, rates — admin @ 12:21 pm

Now that the CPI reports have come and gone, it is apparent to market watchers that there is indeed stealth inflation taking place. Aside from Bernanke turning a blind eye to it, the markets are telling us that indeed it exists.

Look no further than the commodities markets, which absent the major headlines, continue to climb on a daily basis. The gold market, for example, is at an all-time high having reached above $1460/oz and oil is fast approaching $110/barell. Not only does this tell us that the expectations for inflation are heightened, but you can also see these commodities pick up a bit of a safe-haven bid as the Japanese yen appears to have lost that safe-haven dynamic.

This has lead many Central banks around the globe to conclude that higher rates are in their best interests, as China raised rates for the fourth time in six months just yesterday, and the ECB appears ready to begin a tightening cycle tomorrow.

The BOE, on the other hand, is not expected to raise rates despite their willful neglect of inflation, though improving economic metrics can provide more confidence that the economy is stabilizing. The problem is that for everyday of good economic data reported, the next day of data is seemingly negative.

Later tonight, the Bank of Japan will have their rate decision, and the market is expecting additional stimulus to help in the crisis they are experiencing form the earthquakes and tsunami.

Nevertheless, stocks are higher to start the day as they are the only game in town for the retail investor thanks to the Fed’s easy money.

In the forex market:

Aussie (AUD): The Aussie is mostly higher on risk appetite as its correlation to gold prices is being exploited, despite having home loans decrease more than expected.

Kiwi (NZD): The Kiwi is posting big gains this morning a day after the Australian rate decision which now has money flows shifting to NZ. The temporary hit they took due to their earthquake is behind then and priced in so now the market appears to be looking forward to the inevitable GDP growth that will accompany the rebuilding process. (Click chart to enlarge)

Loonie (CAD): The Loonie is mostly higher and continues to make new yearly highs vs. USD, now trading below .96. While higher oil prices have been the catalyst so far, the market has focused on the great economic story taking place north of the border.

Euro (EUR): The Euro is higher against all but the commodity bloc as tomorrow’s rate decision is expected to bring a rate hike. In addition, GDP estimates came in as expected, and German factory orders came in much better than expected showing signs that the Euro zone may be ready for higher rates. However, higher rates loom heavily on the debt-laden countries, and how this plays out will be anyone’s guess.

Pound (GBP): One day you’re up, the next down. That’s the story of the Pound which is seemingly getting conflicting economic reports on a day-by-day basis. Today both manufacturing and industrial production figures came in lower than expected ahead of tomorrow’s rate decision that is expected to leave policy unchanged.

Dollar (USD): Yesterday’s release of the FOMC minutes showed what everyone already knows—that the FED is deliberately trying to encourage inflation and is committed to a weak Dollar. The markets responded in kind.

Yen (JPY): Once again the Yen is weaker across the board as tonight’s rate decision is expected to provide additional stimulus to the Japanese economy to help in the recovery from the disasters. Yen is at a 6-month low to the Dollar. (Click chart to enlarge)

With Dollar and Yen weakness driving markets, there really is no reason NOT to be in stocks, commodities, and the higher-yielding currencies. Both Central banks are committed to weakening their respective currencies and whether or not you agree with this policy doesn’t matter—as an investor you have to jump on for the ride.

However, I am going to be quick to jump off of the train at the slightest hint that these policies are changing. The most obvious time for this is the end of QE2, which the market speculates could happen sooner than the pre-determined time (but I don’t think so) in June.

This should encourage a bit of selling heading in to it, but my feeling is that because policy has been so accommodative, it will be possible for stocks to continue to rise as rates and the Dollar does as well. Commodities on the other hand, should fall.

But in the meantime, enjoy the inflation (which technically doesn’t exist) and thank Uncle Ben Bernanke as you fork over more and more cash for necessities like food and gas!

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April 4, 2011

Time To Raise Rates?

Filed under: Forex News — Tags: a-bit-higher, a-credible-plan, citizens-as-the, eur, fxedu, interest, jpy, market, money, perhaps-the-ecb, rate, usd, year — admin @ 12:16 pm

This is the question that will be asked and answered this week as there are rate policy meetings happening around the globe which will have varying results. It is no secret that commodities prices are higher (particularly oil) and that inflation is making the rounds through economies around the globe thanks to Big Ben and the US Fed and the money pump they are providing.

First up is Australia tomorrow, who is expected to leave rates unchanged at 4.75%, the highest of the actively traded pairs I follow. The question though is whether or not we will see another rate hike this year, and much of that will be determined by how stable the global economy is once (if) the Fed turns off the faucet.

Next is the UK followed closely by the EU on Thursday in what is turning out to be a “tale of two central banks”. In the UK, it is expected that rates will remain steady and there will be no change to the asset purchase plan, despite the reported inflation they are seeing above 4%.

In the EU, it is expected that there will be a rate hike of 25bp to 1.25% as the ECB is trying to get out ahead of inflation. The problem of course is what this will do to funding costs of the periphery and debt-laden countries that are still struggling to get their economies back on track. Without a credible plan for debt-relief, this could push the situation closer to the breaking point.

Meanwhile as mentioned above, commodities are still flying higher with oil trading above $108, and the risk from the Libyan civil war and the Japanese nuclear crisis has abated but not gone away.

In the forex market:

Aussie (AUD): The Aussie has been putting in new high after new high but Tuesday’s rate decision could provide some weakening if dovish comments accompany the statement. Right now the question is if we might see another rate hike this year, not when. Employment figures are due out on Wednesday.

Kiwi (NZD): It is a pretty quiet week for the Kiwi so expect it trade on risk themes and on anti-Dollar sentiment.

Loonie (CAD): The Loonie keeps putting new highs vs. USD, settling just above .96 before selling off a bit. Higher oil prices have been supporting a higher Loonie, though Friday’s employment report may give some insight into the fundamental economic story in Canada. (Click chart to enlarge)

Euro (EUR): The market appears to be singularly focused on the ECB rate decision this week as it is a questionable tactic given the state of affairs with regard to the debt-mired countries. Should the ECB embark on a tightening cycle without a credible plan in place to deal with the debt problem then we could see fireworks in the near future.

Pound (GBP): The Pound has started the morning mostly higher after better than expected PMI construction figures were reported. GDP figures are due on Wednesday, but the BOE has seemingly brushed off the economic data in favor of extreme caution with regard to raising rates. Unlike the ECB, the BOE is not expected to raise rates, which could serve as the catalyst for a weaker Pound if there are no accompanying hawkish comments. (Click chart to enlarge)

Dollar (USD): The Dollar continues to be the currency “whipping boy” as the market finally gets that the Fed is serious in their attempts to weaken the Dollar and stoke inflation. Fed minutes will be released on Tuesday which will likely confirm this sentiment.

Yen (JPY): The Yen is actually a bit higher to start the week, though Yen weakness is the on-going theme from a longer-term view. While the nuclear crisis is still not contained, it appears to have not gotten worse which could be seen as a positive.

This week will be interesting to see how different regions around the globe are dealing with the inflation caused by the US Fed and Bernanke. It appears as though the BOE has a lot more confidence that Big Ben will be able to temper inflation than the ECB does.

On the surface, the UK economy appears to have fewer problems than the Euro zone, yet the ECB is more vigilant with regard to rates. While inflation has already crept up in the UK, the ECB may be looking to nip it in the bud before it occurs.

It is no secret that citizens of the EU are feeling the pressure of weakened economies, so perhaps the ECB move is a welcome relief and a sign that governments will not be allowed to inflate their debt away on the back of its citizens as the US and UK are so desperately trying to accomplish.

The fact that there is no credible plan in place with how to deal with the PIIGS and their debt is concerning however; but maybe this is by design and intended. If there is still considerable risk in the Euro zone, then perhaps the Euro won’t rise as fast as it might under a normal tightening cycle.

At least that’s what I hope is going on!

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March 31, 2011

Celtic (Paper) Tiger?

Filed under: Forex News — Tags: crisis, currency trading, forex, fxedu, gbp, market, nzd, portugal, ssi — admin @ 12:42 pm

This morning the Euro has rocketed higher despite the fact that Ireland will release the results of its banks’ stress tests, which could show a more dire situation than previously thought. Once considered a shining light on the economic scene, Ireland has been reduced to the poster-child of the global economic bubble.

Yet the market is willing to push that aside as CPI data in the Euro zone came in slightly higher than expected, and traders are pricing in a rate hike at the next policy meeting in early April. Yet the ECB has a difficult task, as entering into a tightening cycle could prove disastrous for both Spain and Portugal who are fighting higher interest rates that are pushing them closer to a bailout.

Meanwhile here in North America, Canada will report GDP figures later this morning and in the US we will have another round of initial jobless claims data which as long as it stays in the 300s, should be seen as positive.

So this morning there is a bit of risk appetite, with commodities higher. Curiously, US stock futures are not higher so perhaps the market is waiting to see the jobless claims. There is still a lot of risk in the markets, so the slightest perception that things aren’t improving could reverse this recent up trend in a heartbeat.

In the forex market:

Aussie (AUD): The Aussie is mostly higher, reaching a new all-time high vs. USD at 1.036 earlier this morning. Retail sales figures came in slightly better than expected, though building approvals came worse than expected. A monthly gain was expected for building approvals which came in negative.

Kiwi (NZD): The Kiwi is also higher despite negative business confidence figures, though this is to be expected after the earthquake they experienced.

Loonie (CAD): The Loonie is showing strength this morning ahead of the GDP report as oil prices have eclipsed 105 again and risk appetite appears to be healthy to start the morning. (Click chart to enlarge)

Euro (EUR): The Euro is the big winner this morning despite the report expected from the Irish bank stress tests. Meanwhile, Portugal has missed its deficit target moving them one step closer to bailout, though German joblessness is the lowest it has been in nearly 20 years. Inflation though accelerated at its fastest pace in nearly 2 years, and the market is fully expecting a rate hike at the next meeting. This could push yields higher on the debt-laden countries, making it harder for them to service their debt. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower as the UK’s close ties to Ireland put them in a precarious position heading into the bank stress tests.

Dollar (USD): Dollar weakness has been the primary driver of markets of late and the “don’t fight the Fed” mentality has been in full effect. Initial jobless claims are expected to be still in the 300s, though it appears that risk appetite may be waning as the morning progresses. Tomorrow’s NFP will be a major market mover.

Yen (JPY): The Yen is flat to slightly lower, balancing its status as a safe-haven with the weakness inherent from the economic conditions due to the natural disaster.

I’ll keep harping on it—there is still a TON of risk in the markets. I don’t feel that the risk of not gaining interest in the US should out-weigh the potential for another Euro collapse. The debt-stricken countries in the EU have not been provided with relief, and no solution to this crisis has been offered.

The amount of interest these countries have to pay is unsustainable and it is only a matter of time before someone walks away from the table. Germany is still taking a hard-line approach, as internal politics show that the bailouts are unpopular.

Yet they are attempting to force change on some of these regions as pre=conditions for bailout. One such change that they want is for Ireland to raise their corporate tax rate. This is the only thing Ireland has going for them economically so this would be a disaster for their economy.

How this plays out is anyone’s guess, but being Irish myself, I can tell you that they would be more likely to tell Germany to “shove it”, rather than capitulate.

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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