Forex Blog

December 16, 2011

Week in FX Europe Dec 11-16

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 10:31 am

Last week’s Euro summit is not sitting well with the market. From the first trading session this week, investors were given the green light to push this currency down to an 11-month low. Rating Agencies continue applying pressure in the background, threatening to downgrade one or all of the Euro-zone members. The absence of the ECB as the “lender of last resort” is hurting risk appetite. Because we are in December, it’s difficult for many participants to strap on massive risk positions in a low-liquidity and volatile environment. This month and year may be winding down, but the heat on the Euro-zone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside.

Below are some other highlights of the week:


EUROPE

  • EUR: Moody’s reiterates that it would review the ratings of all European sovereigns in Q1, joining S&P in noting rising vulnerability without taking the formal step of placing the ratings on review.
  • Moody’s: Placed eight Spanish banks on review for possible downgrade, citing domestic economic weakness and an ailing commercial real estate market. These reasons are only ever going to become more dominant with the threat of the Euro-zone dipping into recession come the New Year.
  • EUR: It was not a surprise to see that the EU summit and ECB meeting last week has left the euro very vulnerable.
  • ECB: They delivered a set of measures aimed at improving banking sector liquidity, and made progress on moving towards a more perfect “fiscal union”. It is suggested that the measures will stop short of ensuring market access for the larger peripheral sovereigns at sustainable rates.
  • ECB: They also rejected the notion that fiscal agreement would pave the way for more aggressive bond purchases. This week’s absence has been duly noted, allowing bond yields to push higher without any obvious aggressive ECB response.
  • ITL: On Monday Italy successfully auctioned 1-year bills, with a +5.95% yield and 1.92 bid-to-cover ratio.
  • EU: German ZEW survey surprised positively (-53.8 vs. -55.2), but remains at very depressed levels.
  • EU: The EFSF saw strong demand at its 3-month bill auction, and Spain successfully sold 12 and 18-month bills. Market should not be concerned because of the shortness of maturity.
  • UK: Inflation slowed to +4.8%, y/y, in November from +5.0%, and in line with expectations. Core-inflation moderated to +3.2%, y/y, from +3.4% and a touch below the consensus forecast for +3.3%. With monthly gains in core prices remaining firm will pose a risk to further easing by the BoE. However, given weak growth the market is leaning towards an expansion of QE in February.
  • SEK: Inflation printed +2.8%, y/y, a tad above expectations of +2.7%, but moderating from +2.9% in October. Core-inflation remained stable at +1.1%, y/y, again a tad above the consensus for +1.0%. With core-inflation printing below the Riksbank forecast for two consecutive months supportive market expectation of a cut at the next meeting.
  • SGD: Their employment outlook weakened sharply for Q1 2012. Net employment expectations fell to +16% from +31% in Q4. However, this is still consistent with an increase in employment, albeit at a slower pace, and is in line the government’s outlook for only 1-3% GDP growth in 2012.
  • EU: In mid-week, Germany sold +4.18b 2-year notes and paid the lowest yield (+0.25%) for 2-year product since the inception of the EUR. The bid-to-cover was 1.4 versus a four auction average of 1.1. The Italians on the other hand, in contrast, paid a Euro era record yield of +6.47% to sell +EUR3b five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the region’s debt crisis. The country has done little to ally fears over its ability to continue to raise funds at sustainable levels. It’s estimated that they need +EUR220b’s worth of bonds next year.
  • EU: The Euro-zone factory output data disappointed, falling on the month (-0.1%) and registering its weakest annual gain in nearly two-years. Production rose +1.3%, y/y, the weakest increase in two-years and well below street estimates of +2.1%. Weakness in the Euros manufacturing base reinforces the regions concerns on the health of their economy.
  • UK: Labor market data came in slightly better than expected. While the ILO unemployment rate is stable at +8.3% in October, the jobless claims increased by +3k only. These numbers point to somewhat better job market conditions and a more resilient economy than other indicators would suggest. However, capital markets expect an expansion of the QE program in February.
  • EU: Spain sold +€6b of 5’s and 10-year debt, well-above the +€3.5b indicative maximum on offer. This was the second oversubscribed auction of Spanish paper this week.
  • EUR: Euro area PMI surveys surprised to the upside, despite expectations for a further drop. The manufacturing PMI rose to 46.9 from 46.4, the first increase in eight-months. Services PMI increased to 48.3 from 47.5. However, with the financial distress and resulting tight credit conditions should limit any further rebounds. Analysts continue to suggest further easing from the ECB will be necessary.
  • EU: Euro-zone inflation came in an unrevised +3.0%, y/y, last month. Core-inflation was stable at +1.6%. In its monthly bulletin, the ECB again highlighted substantial downside risks to the economic outlook. Projections now show inflation dropping below +2% next year and to +1.5% in 2013. This is certainly inline with more rate cuts.
  • GBP: UK retail sales ex- fuel fell -0.7%, m/m, in November, worse than the -0.4% forecasted. Coupled with positive revisions to previous months, the annual growth rate is +0.5%, y/y, above the consensus for +0.3%.
  • CHF: The SNB left EUR/CHF floor at 1.20. Their statement was a carbon copy to the September statement. Inflation forecasts were revised lower. The 2012 inflation forecast was left unchanged at -0.3% while the 2013 inflation forecast was marginally revised by -0.1% to -0.4%. Hilderbrand projects GDP Growth to be at +0.5%, y/y, next year. They are attributing the negative growth risks to “their country’s close relations with the euro area; Switzerland’s economic prospects are highly dependent on how the crisis develops”.
  • IMF Lagarde: Crisis escalating and requires assistance from countries outside the EU.
  • HUF: The currency is underperforming on the news that the IMF mission chief cut short a visit to Hungary due to disagreements on central bank law and on pension funds.

Dollar to make the Turn ahead

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 10:30 am

The EUR certainly hogged most of the headline this week. It seems investors appear most bullish on the USD and JPY and overwhelmingly bearish on the EUR and AUD. US data continues to pleasantly surprise even with the Euro-zone believed to be entering or has entered its own recession. The FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure it’s now a guessing game “when” QE3 is required!

Below are some other highlights of the week:


AMERICAS

  • USD: US retail sales disappointed. Sales rose +0.2% in November, compared with the +0.6% expected. Ex-autos, sales rallied +0.2% versus +0.5%. Despite the previous months being revised a tad higher the overall print was a disappointment.
  • USD: The FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure it’s now a guessing game “when” QE3 is required!
  • US: On Thursday, PPI, Empire State manufacturing and initial weekly job claims offered real encouragement on the health of the US economy.
  • US: Jobless claims continue to trend lower (initial +366k, continuing claims +3.603m) and reinforce the recent generally positive tone to US data. The market remains weary that firings maybe ebbing, or is it because hiring is about to accelerate? Initial claims were at this level three and a half years-ago.
  • US: Empire Manufacturing surprised higher and the details were firmer. New orders resumed growth this month; however, it’s too early to call this a “new” trend. The unfilled order backlog continues to get worked off and the reason why shipments are gaining.
  • US: Wholesale prices rose slightly in November amid higher food costs, but the underlying rate of increase in PPI remained tame, indicating little inflationary pressure. PPI rose a seasonally adjusted +0.3%.
  • US: Philly Manufacturing (10.3 vs. 3.6) continued to expand this month. In the details, employment stayed positive, but slowed a tad m/m. However, there were big gains in prices received, similar to the Empire report. “Optimism about the future is on the rise”.
  • CAD: Canadian Capacity accelerated (81.3 vs. 79.9) to its highest level in four-years. Capacity use was closed off faster than expected in Q3 and the prior quarter was revised higher. Canada is still operating at a lower rate than its peak in 2000 (87%). Despite this, the BoC has been clear that a move toward “neutralizing rates will lag behind closing off spare capacity in part given global risks affecting the 2012 outlook”.
  • USD: Consumer prices held flat in November (+0.0% vs. -0.1%) as a drop in energy costs offsets a slight rise in food prices and other items, underscoring weak demand.
  • CAD: Overseas interest in Canadian assets dropped to +c$2.03b vs. +c$7.35b last.
  • CAD: New Job insurance claims rose +4.2% in October, although long term jobless benefit claimants fell -1% in October and -20.3% on the year.

Yen is a Chosen One

Filed under: OANDA News — Tags: , , , , , , — admin @ 10:29 am

As we round out the year there are only a few currencies that investors are gravitating towards, and one of them is the yen. The Aussie seems to have become afflicted by its strong association with China and her ‘softer’ data. The EUR is a story onto itself, a currency few are willing to handle. The Swiss has a central bank, the SNB, which investors believe they have successfully fine tuned the second guessing of both Hildebrand’s fiscal and monetary policies. The truth, even the SNB seems to be afraid of its own shadow. A “ceiling to be or not to be” is hurting the short Swiss positions at the moment. The SNB and BoJ have a tough battle ahead. Both Central banks have tried to think outside the box on how to dissuade investors from hoarding their respective currencies during times of economic stress.

Below are some other highlights of the week:


ASIA

  • AUD: Housing finance unexpectedly rose (+0.7%), but the details were weak, the value of loans for investment fell -5.5%, mom, while owner-occupied home loans value fell -1.2%, mom. The trade surplus also fell to a seven-month low of +$1.6b in October. Higher beta currencies remain under pressure.
  • CNY: Last weekend, Chinese data showed that their export growth fell to +13.8%, y/y, in November from +15.9%. On the flip side, import growth slowed but is still a robust +22.1% on the year. This has pushed the 12-month rolling trade surplus down to $154b from $163b in October.
  • CNY: China’s President Hu over the weekend vowed to pursue a more balanced trade account with emphasis on increasing imports.
  • The INR has come under pressure this morning on two news reports. The first indicated that the Indian government is backtracking from retail liberalization, and the second involved an admission from the commerce secretary that the value of exports has been overstated by slightly more than $1bn a month over the past eight months, adding to concern about the widening balance-of-payments deficit. We estimate that this cuts January-October export growth from 49%yoy to 44%yoy and increases the trade deficit by about 0.4% of GDP to about 5.4%.
  • INR: India’s IP fell -5%, y/y, in October from +2%, and much lower than consensus of -0.7%. Growth is clearly slowing.
  • AUD: The NAB Australia business confidence index was unchanged at 2 in November. Business conditions improved to 1 from -1, likely due to the RBA cut in November.
  • PHP: Philippine exports growth rose to -14.6%, y/y, in October from -27.4%, better than the consensus forecast of -16.5%. Analysts note that the improvement in exports and seasonally strong remittance flows should support the PHP heading into year-end. Remittance flows will be missed in Q1.
  • INR: Indian WPI inflation fell to 9.1%yoy in November from 9.7%yoy in October, just slightly higher than the consensus forecast of 9.0%yoy. We doubt this will be sufficient to lead the RBI to begin cutting policy rates at Friday’s policy meeting despite the sharp slowing in growth. With the trade deficit deteriorating, the rupee is likely to remain vulnerable to developments in Europe.
  • CNY: The HSBC China flash PMI rose +1.3pts this month to 49 and in line with the seasonal trends. This would suggest that growth continues to slow but may not be heading into a “hard landing”.
  • SGD: Retail sales rose a much higher-than-expected +8.5%, y/y, in October versus the consensus forecast of +1.3%. Analysts note that the latest government measures to cool the property markets and target slower GDP growth are likely to have an impact on inflation further down the line.
  • JPY: The BoJ tankan report showed that business sentiment amongst large manufacturers fell to-4, worse than the expected-2. The effects of a high yen and a slowdown in overseas economies continue to weigh on Japanese sentiment. This is the first dip from the index into negative territory since the earthquake.
  • INR: The currency is benefiting from the RBI’s measures to stem rupee weakness. Central Bankers kept rates unchanged and introduced measures to stem speculation in the INR. The tone in the policy statement has become more dovish.
  • IDR: Fitch raised Indonesia’s sovereign rating to Investment Grade, moving ratings to BBB- from BB+. The market had been expecting this.

December 14, 2011

Sell EURs and Shut Your Eyes?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 4:32 am

This month and year may be winding down, but the heat on the Euro-zone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside. Historically, the risk reward of holding large positions this time of year tends not to be worth it. The aggravation and headaches of trying to comprehend some of the currency moves, which tend to be driven by lack of liquidity, year-end positioning and the turn, usually dissuades most from having larger positions. Mind you, this negative EUR run has technical ‘stamina’ and traders are required ‘to pay to play,’ otherwise we will end up talking about the ‘opportunity cost’ or the big one that got away!

All week investors have been concerned about the demand for periphery sovereign debt. This morning the market took down German and Italian product and is waiting for the Spanish issue tomorrow. The Germans sold +4.18b 2-year notes and paid the lowest yield (+0.25%) for 2-year product since the inception of the EUR. The bid-to-cover was 1.4 versus a four auction average of 1.1. The Italians on the other hand, in contrast, paid a Euro era record yield of +6.47% to sell +EUR3b five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the region’s debt crisis. The country has done little to ally fears over its ability to continue to raise funds at sustainable levels. It’s estimated that they need +EUR220b’s worth of bonds next year. Tomorrow, the market has Spain to deal with, and their auction is not expected to yield any different results.

The Euro “high” returns have heralded fresh EUR sales this morning. Currently, option related bids are supporting the figure (1.30), however, further weakness cannot be ruled out with stop-loss hunting expected to be triggered below. This mornings Euro-zone factory output data disappointed, falling on the month (-0.1%) and registering its weakest annual gain in nearly two-years. Production rose +1.3%, y/y, the weakest increase in two-years and well below street estimates of +2.1%. Weakness in the Euro’s manufacturing base reinforces the regions concerns on the health of their economy. The auction results did provide some temporary EUR support, however, sustaining these gains remain a tough ask as selling strength is market preferred.

Yesterdays FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure its now a guessing game “when” QE3 is required!

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CAD and AUD at the mercy of Euro Rhetoric

November 14, 2011

Forex Market Outlook 11/14/11

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 6:47 am

Once again our attention is on Europe as new regimes are coming into power in both Greece and Italy.  This completes the change in all four S. European countries, with Portugal’s leader having resigned months ago and Spain’s leader electing not to run for office again.  Now the challenge will be to get them all to agree and implement the austerity measures required to participate in the terms of the bailout.

This has been a somewhat strange turn of events as the story being floated now is that these indebted nations want more Euro zone participation, and not less.  So now they are talking about how to form better controls in the hope of allaying market fears.  But in reality, if they really wanted to allay market fears, they would let the ECB stand as the buyer of last resort in the same manner in which the Fed stemmed our crisis 2 years ago.  Good luck with that one though.

So the two new governments are stepping into place and are being formed, but there is still some risk in the marketplace until it becomes a “done-deal”.  While the markets are hopeful in the competency of the new leaders, the proof is in the pudding as they say.

In the meantime Italy had a bond offering that was successful, but the yield was the highest they’ve had to pay in over a decade.  This sent stocks lower and the markets into mild risk aversion mode this morning.

This week is marked by a lot of consumer price data due out from around the globe; however don’t expect any Central bank to do anything about inflation if it comes in higher than expected.  This is precisely what they are hoping to encourage, despite its limited ability to help economies grow.

Overnight, Japan reported GDP figures that came in higher than expected and was the first expansion they have seen in over 4 quarters, though it must be noted that the majority of these gains are as a result of the re-building efforts from the natural disaster and companies producing more to catch up on losses.  In other words, don’t expect this type of activity to continue going forward, though this is definitely a positive development.  The Bank of Japan interest rate policy decision is due mid-week though don’t expect any changes.  The Yen is strengthening on the GDP data as well as general risk aversion this morning.

The data in the UK will be interesting this week as CPI has been stubbornly high and the BOE just increased their asset purchase program by 25 billion pounds.  The data is due out tomorrow, and will be followed on Wednesday by the BOE inflation report.  Wednesday also will bring the UK unemployment report which is expected to tick slightly higher, and Thursday is retail sales figures which are expected to show declines.  I think the UK is heading for a stagflationary environment if the BOE doesn’t act to reduce inflation.

In the US, while PPI and CPI data will also be out later this week, I think the most important number of the week will be tomorrow’s Advance Retail Sales figures.  The market is expecting a gain of .3% and this figure may really show the health of the US consumer and whether or not that segment of the economy is starting to pick up.  The inflation data is meaningless to me as we know the Fed’s next move will be to ease further through QE3 whenever that comes, though there will be some market volatility on the release.

This week is really more about confidence from the Euro zone than anything else.  If CPI data comes in lower than it will buy Central bankers time to allow easy money to continue to work its way through their respective economies.  If it comes in higher, it is unlikely that public reaction will be enough to do anything about it.  Then next month’s data will likely show the effects of the $100/barrel price of oil we are seeing today.

Don’t be fooled into thinking that Central banks will respond to the data and do what’s best for the masses as inflation is a pretty one-way bet right now.

November 13, 2011

Trading Week Outlook: Nov. 14 – Nov. 18

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 10:42 am

Nov. 12, 2011 (Allthingsforex.com) – In case the market decides to pay attention not only to headlines from Italy and Greece but also to economic data, the week ahead will offer plenty of insights on inflation and economic conditions in some of the world’s largest economies.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Sun., Nov. 13, 6:50 pm, ET.

After registering its third recession in a decade and contracting by 0.9% q/q in Q1 and 0.5% q/q in Q2, the preliminary GDP estimate for the third quarter of 2011 is forecast to show the Japanese economy returning to growth by up to 1.5% q/q in Q3 2011. More upbeat GDP report and safe-haven flows should keep the yen supported in spite of the desire of the Japanese authorities to see their currency weaken.

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Nov. 15, 4:30 am, ET.

The September spike in inflationary pressures to 5.2% y/y could be followed by a slight pullback to 5.1% y/y in October. Stubbornly high inflation, however, has not prevented the Bank of England from continuing its accommodative monetary policy and doing more quantitative easing.

3.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Nov. 15, 5:00 am, ET.

More signs of deteriorating conditions in the Euro-zone’s economy might come from the third quarter GDP estimate with forecasts pointing to only 0.2% q/q growth- same as the 0.2% q/q reading in Q2 2011. The GDP report will be released at the same time as the German ZEW economic sentiment index which is also expected to be weak with the index dropping to -52.1 in October from -48.3 in October.

4.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Tues., Nov. 15, 8:30 am, ET.

A lot is riding on this report as consumer spending is a major part of the U.S. economy, but retail sales might not demonstrate a lot of strength with a smaller increase by 0.2% m/m in October from 1.1% in September. However, the slowdown could be temporary as sales at retail establishments would likely see a boost in the upcoming months due to the holiday shopping season.

5.    JPY- Bank of Japan Interest Rate Announcement, Wed., Nov. 16, around 12:00 am, ET.

With the U.S. dollar slowly but surely erasing a big chunk of its post-intervention gains against the yen, it would be interesting to find out if the Bank of Japan is ready to stand against the tide of persistent yen strength. This is provided that they haven’t intervened by the time the meeting takes place, as another intervention remains a likely event.

6.    GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Nov. 16, 4:30 am, ET.

The U.K. employment data followed an hour later by the Bank of England inflation report could become a couple of back-to-back risk events for the pound. Forecasts point to an increase in the amount of jobless claims by up to 20,000 in October from 17,500 in September, while the unemployment rate inches higher to 8.2% from a previous reading of 8.1%.

7.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation, Wed., Nov. 16, 5:00 am, ET.

The European Central Bank’s preferred inflation gauge is forecast to stay unchanged at 3.0% y/y in October- same as the 3.0% y/y reading in September, but month-over-month the index is expected to pull back with a smaller 0.3% m/m increase in October from 0.8% in the previous month. Shifting monetary policy from maintaining price stability to pro-growth on the threat of a double dip in the economy could spell further ECB rate cuts.

8.    GBP- Bank of England Inflation Report, the bank’s official assessment and outlook on inflation, Wed., Nov. 16, 5:30 am, ET.

As the latest PPI report showed inflationary pressures coming off their recent highs, if the Bank of England offers a dovish outlook on inflation, there will be no urgency for the bank to start tightening monetary policy anytime soon. Lower inflation expectations and risk aversion could lead to some unwinding of long GBP positions.

9.    USD- U.S. CPI- Consumer Price Index, the main measure of inflation, Wed., Nov. 16, 8:30 am, ET.

Consumer prices in the United States could remain a non-issue for the Fed with forecasts expecting a flat 0% m/m reading in October from 0.3% m/m in September. Only a significant drop in unemployment and consistent improvement in the U.S. job and housing markets could change the Fed’s mind and its promise to keep rates “exceptionally low”. Until then, QE3 would not be completely out of the picture.

10.    USD- U.S. Housing Starts, a leading indicator of housing market activity measuring construction of new residential properties, Thurs., Nov. 17, 8:30 am, ET.

Losing momentum after the jump to 658K in September, the U.S. housing starts are forecast to decline to 610K in October, while the building permits flatten in the 600K range.  

September 21, 2011

Loonie (USD/CAD) Likely To Weaken Further!

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:58 am

The Loonie (CAD) has already touched parity with USD earlier this morning and is likely to weaken further as higher CPI data in Canada has been dismissed in favor of risk aversion due to a slowing global economy and the Euro debt crisis.  While inflation may be elevated and higher than expected, it is not out of line with what other regions are seeing around the globe, with the headline figure coming in at 3.1%.  It is extremely unlikely that the BOC will move on rates considering the health of the global economy.

Part of the reason for the weakening of the Loonie is that the global economy is slowing which in turn reduces the demand for oil, which has a high correlation to the value of the Loonie.  In addition, if the US Fed follows through with “Operation Twist” at today’s FOMC announcement, that is unlikely to weaken the US dollar significantly in the short-term.

If the US Dollar gains, then oil and the Loonie are likely to move lower.  While there is triple-top resistance on the chart below at parity for USD/CAD, three times is usually a charm and I expect the Loonie to break through that resistance and trade up to its daily R4 pivot resistance level at 1.01 in the near term.

July 8, 2011

Jobs Disaster!

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:37 am

All eyes were on the US Non-Farm Payrolls Report and boy did it disappoint! After yesterday’s ADP employment change, the market consensus rose to the 100-125K range for new jobs added. The report came in showing a paltry 18K and the unemployment rate went higher to 9.2%.

This is the most dismal report I may have ever witnessed, with expectations gaining that perhaps the economy was going to navigate the quagmire that is bad government policy. It is could not be more clear that government needs to get the heck out of the way of business and create a climate of confidence and stability. The difference between “soft-patch” and potential for “double-dip” is starting to become more apparent, and Obama’s speech later this morning about the report should be his last.

Lead, follow, or get out of the way is the mantra I’ve learned to live by, and if self-serving politicians can’t comply than maybe it is time to move on. This also changes drastically the debate over the debt-ceiling and the political worming around the issue is going to be sickening. This also puts further Fed monetary easing back on the table, as they do their “best” to counter-act horrible fiscal and government policies.

Obviously the markets have sold-off after this figure, and the caution to start the morning was rightly justified. Nevertheless, we are in a situation where the Dollar has sold-off and the Euro has strengthened despite the risk in the markets. Yen and Swiss franc are the beneficiaries of the safe haven play, as the market is disgusted with the US dollar right now.

In the forex market:

Aussie (AUD): The Aussie is mixed to lower as the market tries to discern whether the real risk in the market place is whether or not to own US dollars.

Kiwi (NZD): Extreme volatility exists in the Kiwi for the same reasons as the Aussie, though minus the benefit of the higher Australian interest rate.

Loonie (CAD): The morning started off looking pretty good for the Loonie after the Canadian employment report showed that some 28K jobs were added to the economy vs. an expectation of 15K, nearly doubling the expectation. However the Loonie took a nose-dive when it became apparent that a weaker US economy will affect Canada more negatively. (Click chart to enlarge)

usdcad0708.JPG

Euro (EUR): The Euro took off on the NFP report but is giving back gains as the correlations come back into play. Earlier in the morning, Germany reported a greater than expected trade surplus on higher exports. The IMF is expected to approve the bailout payment to Greece today. (Click chart to enlarge)

eurusd0708.JPG

Pound (GBP): The Pound also has rocketed higher as it is not the Dollar, and earlier this morning mixed PPI data showed the prices are still rising, albeit slowly so there may be stronger calls for the BOE to act if inflation rises dramatically.

Swissie (CHF): The Swissie also popped after the NFP as it is a more desirable safe-haven than the US dollar. Earlier this morning, the Swiss unemployment rate came in at 3%. While Switzerland is a much smaller economy than the US, their economic might cannot be denied.

Dollar (USD): The markets are showing their displeasure with the current trajectory we are on and I’m tired of pulling punches, not that I ever have. This administration needs to go—now. Playing games on twitter and trying to be cool is no longer working and we need a change of leadership that can act with pragmatism and not ideology. Overspending, uncertainty, higher taxes, regulation, unclear healthcare mandates are all causing businesses to ride out this failed liberal economic reign of terror.

Yen (JPY): The Yen is higher across the board as the most-desired safe haven going into the weekend. The current account total came in better than expected, as did two measures of economic confidence.

This failed experiment should be over and done with. As I look at my current tax bills and contemplate my future tax bills, I have to ask: what the heck am I paying for? I would much prefer to raise a private fund to support Sasha and Malia’s world travels, and give Obama a sit-com where he can be on TV as much as he wants and a life-time membership to a fancy golf course so he never has to pay greens fees again!

But just go… and I mean now! If you are one of the lucky 18K who found a job last month, congratulations! The US economy is now adding fewer jobs than Canada, and the US dollar is less desirable than the currency of a region that could possibly have 20% of its members default!

So like a bad gambler, I’m sure the next move is going to be to double-down, to raise the debt ceiling, more Fed easing, maybe get some temporary tax relief (which will have to paid for later through higher taxes) and any other band-aid type approach that will slow but not stop the bleeding.

Its time we bring a real doctor into the ER to revive the health of the US economy, and not just a guy who plays one on TV.

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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July 7, 2011

Rate Decisions, Employment Loom Over Markets!

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:45 am

This morning, rate policy meetings in both the EU and UK have gone as expected, with the ECB raising interest rates 25 bp and the BOE leaving rates unchanged. This illustrates the dynamic between the economies and how each Central bank is responding to both domestic and global conditions.

While the ECB may be facing the greater challenge with Greece, Portugal, et al.; the commitment to fighting inflation and providing relief to its citizens in the face of potential problems is commendable. Meanwhile, the BOE has taken the US approach and has burdened its citizens with higher prices so that the government can bail itself out of the years of bad decisions it has made.

The other side of today’s data is employment which is a gauge of the health of economies. While initial jobless claims are expected to come in at the usual 420K, tomorrow’s NFP report will show actual job creation. Today’s ADP employment change figures may give a clue on what to expect tomorrow.

One place creating jobs right now is Australia, whose unemployment rate of 4.9% is pretty good considering the size of the economy.

So today has started with risk appetite higher, as nothing unexpected has occurred (yet) this morning.

In the forex market:

Aussie (AUD): The Aussie is higher after the economy added 24.5K jobs vs. an expectation of 15K and the unemployment rate remained steady at 4.9%. In addition, full-time employment went up and part-time employment went down, perhaps suggesting that employers are growing more confident.

Kiwi (NZD): The Kiwi is higher on risk appetite and I’m still trying to figure out when the postponed GDP report will be released.

Loonie (CAD): The Loonie is moving higher as oil prices and risk appetite have both increased this morning ahead of this morning’s home price index reading as well as a PMI report.

Euro (EUR): The ECB did as expected, raising interest rates .25% and German industrial production figures came in better than expected, posting a monthly gain of 1.2% vs. an expectation of .8%. If they can just figure out how to solve the debt crisis, the EU economy appears to be pretty strong. That, however, is a big “if”.

Pound (GBP): The Pound is mixed after the BOE left rate policy unchanged, and tomorrow’s GDP estimate may be the reason why they are unwilling to fight inflation. Mixed data points also came in with industrial production figures decreasing more than expected at -.8% vs. -.5%, but with manufacturing production figures beating expectations posting 2.8% vs. 2.1%. (Click chart to enlarge)

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Swissie (CHF): The Swissie is mostly lower after CPI data came in slightly lower than expected showing price gains of .6% vs. the expected .7%. Thus safe haven demand is reduced today. (Click chart to enlarge)

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Dollar (USD): The release of the ADP employment change has sent the markets much higher this morning as it came in much better than expected showing job gains of 157K vs. an expected 70K gain. Initial jobless claims came in slightly better than expected at 417K, but the market may be revising its predictions for tomorrow’s NFP.

Yen (JPY): The Yen is weaker across the board as risk appetite has increased thanks to the ADP jobs report. Tonight, Japanese trade balance figures should show a larger deficit as the supply chain disruptions have affected exports.

The ECB is proving that the show can go on with higher interest rates despite the looming debt problems they have in the region. While it is unfortunate that they and Euro zone leaders did not handle the Greek debt crisis as well as they could have given the time they had, if they can come up with a viable solution, the EU economy looks pretty good right here.

Contrast that with the US economy, where the Fed is absolutely terrified of raising rates and is content to let citizens suffer through inflation. While today’s ADP report is highly encouraging, we have a long way to go here in the US to return to financial health.

Extremely accommodative monetary policy has to end soon and the business climate must change in order to get things moving again. We have to return to normalized conditions so that businesses can plan for the immediate future and not be afraid of government policy decisions that may be driven by the whims of the populace and whatever feels good today.

Tomorrow’s NFP report will be a big one if a number like today’s ADP is produced. Expectations have been low so far and the public perception of government is near an all-time low. The debt ceiling debate is just one hurdle in a series that needs to be overcome, but the road to recovery is through employment gains and politicians should be doing everything they can to encourage and not hinder it.

But for now, continue to invest in those countries that are showing strength, by selling those that exhibit weakness!

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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Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, forextrading, free, fxedu, gbp, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

July 6, 2011

Is Now The Time To Raise Rates?

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:45 am

That’s the question some are starting to ask now as the market has fully priced in a 25 bp rate hike from the ECB for the Euro zone tomorrow. This comes after yesterday’s downgrade of Portugal’s debt to junk status by Moody’s who are concerned that another bailout may be required.

This also comes after the issues of how to solve the longer-term Greek debt crisis are going to unfold and how a solution is going to be reached without creating a credit event. So far every plan that has been floated has been seen as creating a credit event. Despite these problems, German factory orders came in much better than expected, posting an increase of 12.2% vs. an expectation of 9.5%.

The BOE is also set to decide on interest rates, and though they are expected to remain unchanged, home prices came in last month showing a gain of 1.2% vs. an expected no-change which could add to the inflationary pressure the central bank is ignoring.

A little earlier this morning, China raised interest rates another 25bp in an attempt to slow down their economy, which put immediate pressure on the oil market and risk appetite in general.

Here in the US, job cuts figures increased, meaning there were more plans to fire rather than hire, and Friday’s NFP report will show whether or not there is any hope on the employment front. Reduced numbers are likely to mean that the Fed will maintain current easy monetary policy. ISM Services figures round out the morning.

In the forex market:

Aussie (AUD): The Aussie is mostly lower after the Chinese rate hike and general risk aversion in the market after the Portuguese debt downgrade. Australia’s employment reports are due out tomorrow and dovish comments from the RBA the other day could further pressure the Aussie lower. (Click chart to enlarge)

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Kiwi (NZD): The NZ GDP report that was supposed to be out has been postponed and at this point I don’t have any further information about when it will be forthcoming. So the Kiwi is lower on risk themes today.

Loonie (CAD): The Loonie is also lower as oil prices have pulled back and later this morning Canada will release its building permits figures which are expected to show a gain of 5% after last month’s dismal decline in excess of 20%.

Euro (EUR): The Euro is mostly lower after the Portuguese downgrade despite better than expected German factory orders and ahead of the ECB rate decision tomorrow. Should the ECB decide to not raise rates, then there could be a big sell-off. (Click chart to enlarge)

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Pound (GBP): The Pound is also lower this morning ahead of tomorrow’s BOE rate decision despite higher home prices as the market is convinced that the BOE will be on hold for some time when it comes to rate hikes. As government austerity continues to add pressure to a declining economy, inflationary fears may be the only bullet left.

Swissie (CHF): The Swissie is mostly higher on risk aversion ahead of tomorrow’s CPI data and Friday’s employment report. Inflation is expected to have declined last month, which could mean that the SNB won’t have to act on rates anytime soon.

Dollar (USD): The Dollar is higher this morning on risk aversion despite the jobs cuts report which is expected to show an increase. The important figure to watch is Friday’s NFP, though the business appears to be unconvinced that the climate is getting better. The debt ceiling debate could help resolve some of these issues if a sensible compromise is reached.

Yen (JPY): The Yen is stronger across the board as carry trades are un-wound because of risk aversion.

The mandate at the ECB is not a dual mandate like it is here in the US. The sole mission of the ECB is to maintain price stability through interest rate policy. This means it needs to keep inflation in check. So they have to look at the strongest economies in the region with regard to how prices are affecting economic growth.

So even though many countries are going through painful austerity measures, it is probably a good thing that prices are not rising as the added costs would affect these countries more directly.

So why is it that the US government, particularly the Fed, so intent on causing inflation here through low interest rates? The answer is the housing market, the health of US banks, and our debt obligations abroad. If the Fed can sucker enough people into buying things now for fear that prices will be going much higher in the future, then they can essentially manufacture economic activity.

This unfortunately is not working, as the banks are not playing along and lending money as they fear further declines in prices due to reduced economic activity and potentially higher interest rates that our creditors may demand.

It is all too apparent that we are heading for what the Fed is trying to avoid, and as interest rates get raised in other regions around the globe, that’s where the money is going to flow. The history books and economic textbooks were written when the US was the only game in town. But that no longer is the case.

So put your money in places where it will work for you by investing in 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!

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