Forex Blog

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)

audusd0706.JPG

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)

eurusd0706.JPG

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!

none

March 17, 2011

Wild Ride For Yen!

Filed under: Forex News — Tags: , , , , , , , — admin @ 1:00 pm

Yesterday’s market was quite the roller-coaster ride as it appears to be a headline-driven market and one that relies less on the fundamentals. Various comments form around the globe regarding the Japanese nuclear crisis have sent both fear and hope rippling through the marketplace.

Ill-advised comments from an EU nuclear expert regarding the state of the situation sent markets tumbling yesterday, only to rebound somewhat when the comments were clarified. However, the pent of fear in the market was waiting to burst and this occurred yesterday afternoon when Japan opened for trading.

We are only going to look at one chart today, that of USD/JPY and the carnage that took place as the Yen strengthened mightily vs. the Dollar and other currencies, reaching post-WWII highs. In fact, my charts don’t go back that far. (Click chart to enlarge)

usdjpy0316.JPG

The Yen re-patriation trade and the un-wind of carry trades has essentially re-priced risk in the marketplace, and fear that the nuclear crisis is getting worse and not better is preparing the global economy for the worst. In fact, the US has issued its own travel advisory to ex-pats abroad, essentially telling them to leave the country.

The 80 level on USD/JPY was essentially support and when that was broken it triggered all kinds of stop losses plus momentum-driven sell programs which created trading action that was wild to say the least. Now the market is focused on this nuclear crisis and the global economic ramifications and threats it poses to stability.

This is clearly the dominant theme in the marketplace, and shall remain to be until more clarity emerges. The markets have rebounded somewhat this morning, with equities and commodities trading higher.

In the forex market:

Aussie (AUD): The Aussie is mixed this morning as it has rebounded some from yesterday’s sell-off, though it is still trading lower against the Yen. No further news due this week for the Aussie.

Kiwi (NZD): The Kiwi is lower across the board despite the pop higher in commodities prices as Consumer Confidence figures tumbled to a reading of 97.9 from last month’s reading of 108.3.

Loonie (CAD): The Loonie is higher this morning as commodities prices especially oil have rebounded ahead of tomorrow’s release of the CPI data. Now Canada does not use the same metrics as the US (essentially stripping out everything that is a necessity) so we may get a more realistic reading of inflation.

Euro (EUR): There is little news out of the Euro zone this morning but Switzerland left their rates unchanged which has weakened the Franc (CHF) despite the inflation they have been seeing. Safe haven money flows to the CHF have pushed it to all-time highs. The Euro is also trading above former resistance vs. USD at 1.40, and PPI figures are due out tomorrow.

Pound (GBP): The Pound is also higher on Dollar weakness as there is no significant news left for the UK this week.

Dollar (USD): The underlying weakness to the Dollar is telling despite the risk in the markets. While QE2 keeps pressure on the greenback, and decent economic data this morning points to a slow and protracted recovery, risk is still very heightened. CPI data came in slightly higher than expected, and initial jobless claims were slightly better than expected, showing that only 385K lost jobs last week.

Yen (JPY): Wow is all I can say about the Yen. I haven’t seen action like that for some time. The BOJ keeps pumping liquidity into the system yet the Yen is not weakening. The obvious news is the nuclear crisis, and let’s all pray for the best.

With headline risk ruling the markets, it is hard to initiate longer-term positions as sentiment changes from one hour to the next. As I mentioned yesterday, it is very tough trying to get a handle on what’s going on across the globe.

Today is St. Patrick’s Day so perhaps the “luck of the Irish” is needed to make it through this situation with as little negative impact as possible. All eyes are obviously on Japan, with the hope that this nuclear crisis can be contained. For the safety of the Japanese people, and for the health of the global economy. So be nimble in the markets, as rapidly changing events can be the difference between gains and losses.

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!

?

?

?

?

none

February 9, 2011

Bernanke to Support the EURO

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 11:07 am

A rally on risk related assets continues to trigger some flows out of safe heaven instruments despite weaker data out of Germany and a Chinese rate hike. Even Fed member Lacker comments yesterday stating that the Fed should reconsider its bond buying program as the economy gets stronger could not aid the dollar. With Euro-group president Juncker expecting Euro-zone leaders to have resolved a comprehensive debt plan to deal with their periphery problems by next month has even appeased the contrarian. Helicopter Ben testifies today on Capitol Hill. The near term risk for the dollar will be a material shift in rhetoric. A clouded US employment landscape and low inflation will leave the dove tone in play. The speech will reiterate the FOMC’s commitment to its $600b QE2 program. There should be limited market reaction to the speech, perhaps a relief move in US Treasuries, following this week’s selloff. Obviously, a pullback in US yields is again supportive for the EUR.

The US$ is mixed the O/N trading session. Currently, it is higher against 9 of the 16 most actively traded currencies in a ‘whippy’ O/N session.

Forex heatmap

Risk appetite remains in affect after investors downplayed the larger than expected drop in German industrial production yesterday and after the PBOC saying that they would hike deposit and lending rates by +25bps. Obviously, their aim is to curb rapid growth and inflation and prevent an asset bubble being created. Interest rate differentials continue to be the lead driver of trading this month. If China wants to slow their economy down, interest rate hikes are not the preferred tool, direct credit controls are. Tightening rates is more of a liquidity measure and something that risk investors have acknowledge by asset class movements.

The USD$ is lower against the EUR +0.14% and GBP +0.05% and higher against CHF -0.08% and JPY-0.22%. The commodity currencies are mixed this morning, CAD +0.10% and AUD -0.36%. The detail of the Canadian housing starts report yesterday (+170.4k) was weaker than the headline miss, with strength (+0.8%, m/m) being fully concentrated in the rural segment (+20.5% vs. -18.4%). Analysts note that the Canadian housing market, which happened to lead the country out of the recession, is expected to moderate throughout this year and act as a drag on the economy. It’s worth noting that last months headline was revised downwards (+169k vs. +171.5k). The loonie did not take its cue from the soft data, but from China announcing their third rate hike since October. Investors are concerned that China’s demand for oil will slow their appetite for commodity driven and interest rate sensitive currencies. The loonie has taken the path of least resistance and that’s lower, temporarily at least. This weeks buying interest, influenced by the strong jobs report last Friday, have moved up their selling interest levels as the currency underperforms against most of its major trading partners. Concerns about an over valued currency, according to Governor Carney, waning government capital spending, a cooling housing market, and moderating retail sales will eventually combine to limit overall GDP growth this year. These are all stellar reasons for BOC to be concerned, as a ‘persistent strength in the currency is a threat to economic expansion’. With strong risk appetite in vogue, the loonie continues to have cautious buyers on dollar rallies despite the Chinese effect (0.9942).

Perceptions about the health of the Chinese economy can often dictate strength in AUD because their economy and currency is heavily reliant on exporting raw materials to China. The Chinese rate hike has had the expected knee jerk effect on the currency. The AUD has come under pressure in the O/N session, with hedge fund selling being flagged as the key factor, ahead of the job’s report down-under which is expected to show the country having its longest stretch of jobs growth in three-years. Analysts expect employers to add +18k jobs last month, and the unemployment rate to remain unchanged at +5%, the lowest in two-years. The RBA has kept rates on hold the last two meetings after tightening for seven times in a calendar year. In it’s quarterly policy statement last week Governor Stevens stated the ‘the modest rate of increase in household indebtedness suggests that household behavior remains cautious’ and that ‘there are a few factors, including the recovery in household net worth over the past 18 months and the improvement in the labor market, that would suggest that growth in household consumption is unlikely to remain as low as over the past couple of years’. It’s difficult to sell AUD, but the PBOC decision to hike rates another +25bp yesterday will pressurize regional currency’s that have strong trading ties with China. Weak longs will be in trouble ahead of the jobs data (1.0114).

Crude is higher in the O/N session ($87.54 +0.50c). Oil continues to piggyback its weekly lows, as political tension in Egypt eased and on expectations that larger US stockpiles will signal that fuel demand may be faltering with the world’s biggest consumer. Now that China has raised rates again the market is questions the country future appetite for commodities. The hike is an effort to cool down the economy or putting it another way, an effort to cool down energy and industrial metal consumption. Oil’s inability to break through key technical resistance above has also provided pressure. Last weeks EIA report revealed another build up in inventory. Crude stocks grew by +2.6m to +343.2m barrels, which are +4.3% above year-ago levels. Gas grew by +6.2m barrels, or +2.7%, to +236.2m barrels. That was +3.6% above year-ago levels. The four-week gas demand was +0.6% higher than last year, averaging nearly +8.7m barrels a day. Refineries ran at +84.5% of total capacity, a rise of +2.7%. Fundamentally there is far more oil in storage, more fuel capacity and more idle oil wells to limit a much stronger market rally. The market will now focus on this morning’s inventory reports.

Despite losing some of that geopolitical risk premium support on expectations that Egypt’s president may be getting closer to his resignation, gold, the commodity that every investor hated last month has found strong support on these pull backs. Prices have climbed to a two-week high on demand for a hedge against rising consumer prices after China increased borrowing costs yesterday on expectations that their inflation has expanded at the fastest pace in two and half years. The commodity is being used as a store of value. Last year the commodity appreciated +30%. So far this year, natural physical buying has been less than modest with the commodity off to its worst start in 14-years. Has the commodity peaked or is it simply a short-term correction? The commodity is attracting technical buyers after rallying above its 20-day moving average. On deeper pullbacks, the metal should remain better bid on speculation that currency volatility will boost demand for a safe heaven investment once the Euro contagion fears raise its ugly head again over the coming weeks during the Euro-periphery refunding season ($1,363 -30c)

The Nikkei closed at 10,617 down-18. The DAX index in Europe was at 7,337 up+14; the FTSE (UK) currently is 6,071 down-19. The early call for the open of key US indices is lower. The US 10-year backed up 3bp yesterday (3.71%) and is little changed in the O/N session. Treasuries fell for a seventh consecutive day, its longest losing streak in three months, ahead of this weeks auctioned supply. Analysts note that ‘a concession has been built in and the curve is steepening very fast and all parts of the curve have seen a substantial backup since the last auctions of these issues’. Investors seek compensation for the prospect of accelerating inflation and on speculation the US may struggle to fund its deficit. Higher yields benefit the dollar but will upset Bernanke. Yesterday’s three-year $32b auction was rather soft, stopping +0.5bps back of the WI’s 1.349%. Non-dealers took just +38% (25-month low) and the auction had a 3.01 bid-to-cover ratio compared to a six-auction average of 3.12. The market will now be worried about today’s 10’s and tomorrows long-bond auction.

January 19, 2011

Euro Champ, Dollar Chump!

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 3:02 pm

The Euro has been higher against the Dollar 7 of the last 8 days as the Dollar has put in an 8-week low as a result of the sluggish US economy.  This morning the US reported declining housing starts which missed analyst forecasts, though there was an increase in mortgage applications and building permits.

This highlights the difference in market sentiment in that the early Dollar strength this year was more a function of concern over the Euro debt crisis and less about the perceived strength of the US economy.

In the UK, fewer people made jobless claims, though the unemployment rate remained steady and as expected at 7.9%

Overnight in Australia, consumer confidence figures came in worse than expected though that should not be a surprise to anyone as the floods that have ravaged Brisbane would cause even the most optimistic to have caution.

Tonight is the first China state dinner at the White House as President Obama attempts to repair a fractured relationship with China.  Man, would love to be a fly on the wall for this one!    Regardless of the outcome, expect little to change as a result.  But it makes for a good headline.

US stock futures are lower to start the day, and trading in European markets is lower as well, though commodities are higher.  So today is a bit of a mixed bag.

In the forex market:

Aussie (AUD):   The Aussie is mixed this morning, trading higher against the N. American currencies but lower against the rest.   Consumer confidence figures fell from 111 to 104.6, the lowest reading in nearly 6 months.  Lower confidence can be attributed to the flooding.

Kiwi (NZD):   The Kiwi is mostly higher going into tonight’s CPI data release.  Prices are expected to have risen significantly, which could put the possibility of another rate hike back on the table.

Loonie (CAD):   The Loonie is lower across the board as a continuation of yesterday’s dovish comments by the BOC has induced further selling.  Oil prices are higher however, so it will be interesting to see if the positive correlation between the Loonie and oil holds up today, or if there is a mean reversion trade out there.  (Click chart to enlarge)

usdcad0119.JPG

Euro (EUR):  The Euro is higher across the board as it is rallying on anti-Dollar sentiment.  There is little economic data out to day for the Euro zone and as I mentioned yesterday little take away from the meeting of finance ministers with regard to the Euro debt crisis.  (Click chart to enlarge)

eurusd011911.JPG

Pound (GBP):   The Pound is mostly weaker this morning despite the fact that jobless claims came in lower than expected for the third month in a row.  This data is positive for the UK economy, though it may be under pressure after yesterday’s soaring inflation data.  While under normal circumstances rising inflation would be currency-positive for the country experiencing it, the UK faces the dual challenge of a reduction in spending and higher prices which could produce the dreaded stagflation.

Dollar (USD):    The Dollar is weaker against all but the Loonie as the sluggish economy here makes other currencies more attractive.  Housing starts fell to 529K, lower than the expected 550K and tomorrow’s existing home sales figures may show a declining housing market.  The weak Dollar is encouraging higher commodities prices though, but US stocks are still lower so there may be a possible reversal there.

Yen (JPY):   The Yen is stronger against all but the Euro as Dollar weakness has encouraged safe haven money flows.  A potential economic slowdown in China could help Japanese exports going forward so this may be a play on Chinese GDP figures that are due out tomorrow.

As is evidenced by today’s market, Dollar weakness is still a major driver of world markets and the correlative effects of the Dollar on commodities may be back en vogue.  Existing home sales and initial jobless claims tomorrow will provide a clearer picture of the health of the US economy.

Absent any further complications in the Euro zone, then we could see some continued Dollar weakness.

Tomorrow will also bring economic data from China, as they will report their GDP figures as well as some PPI and CPI data.  Should there be a material slow-down, then that could affect both the Aussie and Kiwi to the downside.

However if China keeps humming along, then it could further increase risk appetite.  Stay tuned!

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!

none

August 18, 2010

Raise Rates Now!

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 1:52 pm

Or so exclaimed BOE policy maker Andrew Sentence, as the lone dissenter of the UK Monetary Policy Committee.  The minutes from the rate policy meeting were released and were surprisingly hawkish, as the committee was “surprised” by recent economic strength and the fact that inflation has remained above the government target of 3%.   The market will be closely watching economic data coming out of the UK in the ensuing weeks for signs that UK economic strength may bring about a rate hike at the next meeting.

Otherwise, today is largely devoid of market-moving news.  Yesterday the US stock market rallied after last week’s sell-off on the back of good corporate earnings and decent economic data.  The Nikkei followed suit overnight, but the Yen broke from its usual inverse correlation, and is actually sporting strength this morning.  So a pullback or pause after yesterday’s rally would not be uncommon, but there is little news that would cause a sentiment shift.

There are also some rumblings in the market about German economic strength as an exporting nation and how they are becoming similar to China in that they have an economic trade surplus.  While this alone isn’t a bad thing, the call for German domestic demand to increase may be falling on deaf ears.  I discussed the idea of “Chermany” in a previous blog article; that Germany has an “unfair” advantage due to weaker countries in the EU which hold the Euro low, similar to China’s Yuan peg.  You can read the article here.

In the forex market:

Aussie (AUD):  The Aussie is lower as the Westpac index of leading indicators came in lower than expected, for the third month in a row.  While this shows a sign of potential economic slowing; this may be exactly what Australia is hoping for.  In addition, speculation that Japan will not intervene in its currency is gaining traction.  (Click chart to enlarge)

Kiwi (NZD):   The Kiwi is higher this morning, despite the mixed Yen strength and is likely the result of money flows leaving the Aussie in favor of the Kiwi.

Loonie (CAD):   The Loonie is also higher this morning despite lower oil prices due to Aussie weakness and ahead of Canadian CPI data due out on Friday.  A higher than expected reading could increase speculation about forthcoming rate hikes.

Euro (EUR):   The Euro is mostly lower despite the fact that construction output figures rose for the first time in nearly 6-months.  The idea of “Chermany” is starting to make the rounds but at this point I think the EU is content to allow Germany to grow unfettered to counter-balance the rest of the Euro zone weakness.  Spain and Ireland both had successful bond auctions yesterday.

Pound (GBP):   The Pound is the big winner this morning as the minutes from the rate policy meeting showed a surprisingly hawkish tone.  Should economic data continue to be strong, the BOE may be forced to make monetary policy less accommodative. (Click chart to enlarge)

Dollar (USD):   The Dollar is mostly lower in absence of any major news.  The overall sentiment surrounding the Dollar is negative; however pockets of risk-aversion will likely keep it from freefall.  In addition, tomorrow’s Philly Fed survey and initial jobless claims figures will provide further info into the health of the US economy which, in my eyes, is decidedly weak.

Yen (JPY):   The yen is showing some strength today as speculation surrounding currency intervention is waning, despite the calls from a lawmaker to immediately intervene and weaken the currency to 95 to the Dollar.  (Click chart to enlarge)

Today is one of those days where the lack of market-moving news allows big position players to operate freely.  Also expect the performance of the US stock markets to affect the dollar as the trading day continues.  The stock markets have opened lower despite decent corporate earnings today, which is more than likely a technical pull-back than a shift in sentiment.

As sentiment shifts around the globe from region to region, follow the money.  Aussie is being sold because economic growth looks tepid going forward.  Pound is being bought because the of a hawkish monetary policy meeting.  Yen is being bought as intervention fears are subsiding, and Dollar is being sold because the US economy stinks.

So while there is still risk in the markets, there are always places to park your dough.  The key is identifying who has the best prospects for growth, and that’s what I try to find for you each and every day!

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!

none

August 16, 2010

China Surpasses Japan!

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 1:58 pm

Overnight, Japan reported less-than expected GDP figures which allowed China to leap-frog into second place in global economic strength.  Japanese GDP came in at .4% vs. an expectation of 2.3%, which was a major disappointment.  This sent the Nikkei lower and the Yen higher, as risk aversion is mild but continuing from last week.

In the EU, CPI figures came in mostly in line with expectations, with July CPI falling .3% vs. an expectation of a .4% decline, and the headline figure matched expectations at an increase of 1.7% annualized.

Home prices in the UK fell 1.7% this month according to Rightmove, and the market is waiting for Wednesday’s minutes from the rate policy meeting which may show that the BOE is prepared to continue with accommodative policy to support the economy.

In the US, the Empire Manufacturing figures came in less-than expected, but higher than last month.  This months’ reading was at 7.10 vs. an expectation of 8.0, but higher than last month’s 5.08.

Dollar weakness is the theme of the morning, as recent reports that China has been favoring the Euro may be behind the move higher from its June lows.  As the world’s second largest economy, China will have a major impact on the global recovery.

In the forex market:

Aussie (AUD):   The Aussie is mixed this morning, trading higher among the other commodity currencies and the Dollar, but lower vs. Yen, Euro, and Pound.   Tomorrow the RBA will release the minutes from its rate policy meeting which will provide further insight into the health of the Australian economy.  (Click chart to enlarge)

audusd0816.JPG

Kiwi (NZD):  The Performance of Services Index fell to 50.5 vs. the previous month’s reading of 55.1, showing that the sector was expanding at its slowest pace in nearly 10 months.  The Kiwi is lower as a result, also feeling the effects of Yen strength and mild risk aversion.

Loonie (CAD):  This is a light week for news out of Canada, with Friday’s CPI data to be the headliner.  Expect the Loonie to trade on oil prices and US sentiment this week, as a slowing US economy will affect Canadian exports and thus economic growth.

Euro (EUR):  Euro zone CPI data came in this morning mostly as expected, and shows signs that the economy while slowing is still moving forward.  Recent Euro strength from the June lows is being attributed to Chinese demand and general displeasure with the US dollar. (Click chart to enlarge)

eurusd0816.JPG

Pound (GBP):  The pound is mixed this morning as home prices came in lower, and the minutes from the rate policy meeting are due out on Wednesday.  In addition, CPI data and retail sales figures will be out tomorrow which will contribute to Pound sentiment surrounding BOE monetary policy.

Dollar (USD):   The Dollar is weaker this morning as US economic status is coming under fire from abroad.  Concerns over massive deficits have led China to invest more heavily in Europe, and the viability of the path the US is following is being questioned.

Yen (JPY):   The yen is higher across the board, as GDP figures came in worse than expected.   The intervention chatter is starting to heat up as Yen strength vs. the US dollar is returning toward last week’s 15-year highs; however it is questionable as to how effective this would be.   A higher Yen will affect demand for Japanese exports, which could negatively impact stock prices going forward. (Click chart to enlarge)

usdjpy0816.JPG

It should come as no surprise that the global economy is beginning to falter as little by little, policy makers are removing the stimulative measures designed to stabilize their economies.  Falling GDP in Japan is just one of these signs.

Announced austerity measures in the UK and Euro zone have been met with market approval, which the US policy of “extend and pretend” continues to garner criticism.  And when I talk about market approval, I really mean China.

The Chinese have amassed huge currency reserves due to their peg to the US dollar, among other factors which have tilted the global economic balance in their favor.  Rightly or wrongly, China has established itself as the major player going forward.

As various data points come in around the globe, remember to follow the money.  That is, do what China does.  If they are not enamored with US policy, then you shouldn’t be either.  As the newly-minted No. 2 economy on the planet, it will only be a matter of time before they really begin to flex their muscle.
So the US had better take notice, if they haven’t already.  Because the new No. 2 won’t be satisfied until they become No.1, using whatever means necessary.

Of course it doesn’t help that current US policy re-enforces the Chinese position.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here!  Don’t miss out on the world’s fastest growing market!

Tags: account, AUD, Aussie, Australia, blog, BOE, cad, canada, China, commodity, course, currenc, currencies, currency, currency market, currency trading, data, dollar, economic, economy, EUR, Euro, Europe, forex, forex market, forextrading, free, fx, fxedu, gbp, home, Il, index, invest, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, rate, retail sales, RSI, sentiment, ssi, stock, time, trade, USD, Yen

July 23, 2010

June 30, 2010

European Banks Borrow Less Than Expected

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 1:35 pm

The European Central Bank said today that it is making up to 131.9 billion euros ($161.5 billion) in loans available to European banks for the next three months. This is considerably less than expected and suggests that banks are in better financial shape than thought originally.

Banks tomorrow need to repay 442 billion euros in 12-month funds, the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis last year. Demand for the three-month cash today was a litmus test for the health of Europe’s banking system, economists said.

Demand was “surprisingly low and certainly a lot less than markets expected,” said Nick Kounis, chief European economist at Fortis Bank NV in Amsterdam. “It suggests that while there are certainly stresses in the system in some regions, it’s not as bad across the board as many people thought.”

Source: Bloomberg

Canada’s GDP Remains Unchanged

Filed under: OANDA News — Tags: , , , , , , , — admin @ 1:22 pm

Statistics Canada reported that after seven straight monthly increases, GDP remained unchanged in April. Retail trade fell during the month, but these losses were offset by increases in mining, wholesale trade, the public sector and construction.

Source: The Canadian Press

March 23, 2010

Greek ‘a la carte’ not for Trichet

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 4:05 am

Clarity of the ‘health bill’ tried pressurizing the dollar index or was it the pending SNB intervention? Not sure, but traders positions have been overextended in ‘long dollars’ and even this morning actions have investors comfortable with that. Markets hate uncertainties, hence the intraday volatility. It’s surprising that the EU disagreement is not providing more of the same. With the EU at odds on specifics and a timetable for a plan to aid Greece should promote the relative safety of US government debt. On a macro level, there is more pressure on EU countries to implement austerity measures that will keep interest rates low and provide further pressure on EUR. Unlike the Fed, who seems to be in a ‘semi comfortable position’? Trichet fighting for a united Europe will have the support of the ‘doves’. Bernanke’s commencing of a ‘tightening cycle’ is surely shorter than Europe’s? This is more ammo for a weaker EUR.

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

For the first time this week Capital Market get’s to chew on some US data, existing home sales. It has been an interesting week thus far, with the fall out of a surprising rate hike by India, EU’s domestic ‘cat-fighting’ and more public debates than the ‘original’ US health care warranted shaping market sentiment. Now that the Obama’s health care bill has finally made it through the House and the Senate, maybe we will see CNN give more airtime to ‘the’ administration calling for a ‘swift revaluation of the Chinese currency’. The Chinese Commerce Minister, Deming has said that ‘the currency is a sovereign issue and should not be an issue to be discussed between two countries. We think the Renminbi is not undervalued, but if the US treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do ‘nothing’. We will also respond if this means litigation under the global legal framework. It’s probably not a good idea for ‘the’ administration to make their grievances public just yet. But they are pushing for it!

The USD$ is higher against the EUR -0.30%, GBP -0.28%, CHF -0.21 % and JPY -0.02%. The commodity currencies are weaker this morning, CAD -0.22% and AUD -0.27%. For a third consecutive day the loonie managed to pare some of its recent gains, as both equities and commodities found it difficult to decide what they wanted to do. The intraday volatile trading ranges in the majors is been pushed by weak s/l on both sides of the market. Initial risk aversion trading strategies dominated most of yesterday’s session. However, US Health Bill clarity managed to drag health and drug company’s equity prices higher, overshadowing the global concerns of higher interest rates and flight to surety. Fundamentally, after stellar reporting this month it’s difficult to continue to argue that ‘emergency’ rates in Canada are still warranted (+0.25%). Last week the currency attempted to flirt with parity and registered its strongest print in 20-months. The over saturated and one directional trade forced day traders to book profits. This reprieve or any reprieve will be seen as an opportunity to only add to longer term investors positions. The market now believes that there will be a forceful move on rates sooner rather than later. With the Fed ‘keeping’ low interest rates for an ‘extended’ period of time should support most growth currencies. Trader’s opinions have, up until now, varied on the timing of a hike. July Bax’s currently are pricing in a +98% chance of the BOC tightening, while some analysts are calling for a +50% hike. Despite the trend remaining your friend, the market should be looking for better levels to own the domestic currency.

Concerns that China will take additional steps to cool its economy have the potential to dampen demand for raw- material exports from Australia. This is exactly what is happening after the surprise Indian rate hike. The AUD has slid for a fourth-consecutive day as lower commodity and equity prices has pared demand for higher-yielding assets. With rumors that China is about to raise interest rates to prevent asset bubbles occurring has the AUD bulls trading cautiously. Prior to these rumors, it seemed the stars were lining up for a stronger AUD. Expectations for low interest rates in the US and Japan was fueling risk appetite. The market expects the RBA to hike with a ‘gradual approach’. Continue to expect better buying on deeper pull backs (0.9164).

Crude is lower in the O/N session ($81.21 down -21c). With the lack of US data for guidance yesterday, crude remains questionable, albeit in a volatile trading range. India’s surprising rate hike has investors wondering if other governments around the world will follow suite. This is heightening concerns of sustainable global growth. Technically the market remains optimistic, while fundamentally weak demand has us not so. In reality, US demand is better y/y, but we are still some ways from calling it as ‘tight’ demand. The bullish print last week was fuelled by the weaker than expected weekly inventory headlines. The report recorded a bigger than forecasted decline in supplies of gas and distillate fuels. Gas inventories fell -1.71m barrels to +227.3m last week vs. an expected decline of only -1.2m. Distillate supplies (which include heating oil and diesel) fared no better, decreasing -1.49m barrels to +148.1m. Stockpiles were forecasted to drop by -1.35m. On the flip side, inventories of crude rose +1.01m barrels to +344m. The market had anticipated an increase of +1.15m barrels, basically as expected. Other factors have also been raining on the ‘bears’ party. OPEC decided to keep its production limits unchanged ‘amid signs that a worldwide glut of crude is disappearing along with the recession’. Various analysts’ reports are now predicting that ‘demand for oil will recover this year, requiring additional supply’. Technical analysts have not been dissuaded from achieving their $90 a barrel by year end. For now, the dollar’s rise is providing a commodity price ‘headwind’. Natural dollar resistance may restore some equilibrium.

With a vengeance, the bears kicked back over the last couple of trading sessions. Gold has plummeted since the end of last week, causing havoc to technical charts. Of course, the dollar has been a factor for the commodities demise and so too has India. That country alone is the largest consumer of gold and with short term rates being hiked last Friday, the market now sees short-term paper competing with gold for investment. Russia continues to add the commodity to its reserves. Last month, they added another +6.2 tonnes of the ‘yellow metal’. On paper, investors could take this as support for the commodity. However, some of the strong support factor may be diluted as gold was ‘added’ by taking delivery from Russian mines and not purchased outright on the international market. Fundamentally it is expected that the commodity will find some traction as investors seek an alternative to an ‘on going weakening’ of the EUR and low interest rates. Analysts believe that with this ‘low rate environment combined with continued gold ETF interest and reduced Cbank sales’ should provide ‘strong’ support for gold over the next 18-months. The dollar’s direction remains the strongest indicator to wanting the metal or not ($1,103).

The Nikkei closed at 10,774 down -51. The DAX index in Europe was at 6,012 up +25; the FTSE (UK) currently is 5,682 up +38. The early call for the open of key US indices is higher. The US 10-year backed up 1bp yesterday (3.67%) and is little changed in the O/N session. Treasury prices stayed close to home despite ‘the strong’ fundamental data of last week. The longer term trade is for a flatter curve (+270bp) and higher short term rates (0.25%), however, once the auctions are over this week, the market will again start to focus on the end of MBS buying by the Fed and the next set of auctions (long-end). Investors should not be surprised to see the 2’s/10s spread back up a wee bit from here. Bond traders, to date, have been unwinding ‘steepener’ positions and putting on flatteners as the Fed is ‘still willing to err on the side of keeping rates low’. This week’s refunding requirements is expected to put further pressure on the curve as both traders and investors prepare to take down $118b worth of product (2’s $44b, 5’s $42b and 7’s $32b). Look for better levels to own product.

« Newer Posts — Older Posts »

Powered by Efacilitators Hosting