Forex Blog

December 2, 2011

Forex Market Outlook 12/2/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:29 am

It’s that time of the month again—jobs Friday and so far the markets have high expectations that the NFP report is going to come in better than expected.  130K jobs are expected to have been added to the economy and the unemployment rate is expected to have remained steady at 9%.

So markets are up higher in anticipation of this release as there is hope that we are turning a corner as an economy.  The problem I usually have is that when markets get ahead of themselves early on, there is usually some type of disappointment.  But I don’t want to think the worst as it would be a welcome relief to see more jobs added.  So I think this could be one time when the market has it right.

Also contributing to higher stock and commodities markets this morning is news out of the Euro zone that despite Merkel’s reluctance to issue a Euro bond, she left the door open by saying that a fiscal union would need to occur first.  So in other words, as slight as the possibility is, there is a chance.

PPI data in the EU came in slightly lower than expected so this adds to the belief that the ECB may lower interest rates yet again. New ECB honcho Draghi wasted no time cutting rates upon taking over the Central bank so if inflation stays muted, then that could be the next move.

But inflation does not appear to be muted, with oil prices back to $101.50 and gold back to the $1750 area as a sign that inflationary fears are becoming more real.

The British pound is also higher this morning, most on risk-taking but also because PMI construction data came in better than expected, posting a reading of 52.3 vs. an expected 52.

A lot has been happening in Switzerland lately and I have been largely ignoring them as I hate active central banks like the SNB.  This morning, retail sales figures came in worse than expected showing a decline of .2% vs. an expected no change.  This falls in line with yesterday’s GDP report which missed by a wide margin showing 1.3% YoY vs. an expected 1.8%.

But that’s not all.  Yesterday afternoon a rumor was floated that the SNB could move to negative interest rates.  Essentially, they would be charging you to keep money in francs vs. paying interest as way to try to weaken the franc and encourage economic activity.  Take a look at today’s chart of the day and you’ll see why I don’t like the currencies run by active central banks!

On the employment front, data released in Canada surprised and halted its rise toward parity temporarily as the Canadian economy lost 18.6K jobs vs. an expectation that they would add 20K.  The unemployment rate ticked higher to 7.4% from 7.3% and the Loonie weakened as a result.  However, a good NFP number here could reverse that move as it would be game on for risk appetite.

While the market has great anticipation of the NFP release and is expecting a good number, we must not lose sight of the risk that still exists in the marketplace.  Geo-political risk is heightening in places like Iran and Egypt, and of course we are not even close to a resolution in the Euro zone.

Yet the markets seem like they want to move higher and maintain this “Santa Claus Rally” into the end of the year so that money managers can close out with gains on the books.  Because otherwise it’s been a tough year.

I honestly have no clue as to where this NFP number might be as I am so conflicted this AM so I won’t hazard a guess.  Part of me says that the number will disappoint because expectations (and market behavior) are so high, but the other part tells me that things have been getting better despite the political environment here in the US.

Either way I always trade this number the same way: by waiting for the release and then entering a position based on the market reaction to the results.  Positioning one’s self ahead of this number is just a guessing game and could have disastrous results as the volatility is usually extreme.

November 17, 2011

Forex Market Outlook 11/17/11

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 6:59 am

All eyes continue to focus on Europe and the rising yield situation as it unfolds and pushes the cost to finance debt to record levels.  Italy and Spain have seen record yields as of late, and now the attention is starting to turn toward France, the EU’s second largest economy.  Spain also downgraded their GDP outlook.

This has prompted a bit of a battle between France and Germany with the former wanting a much greater participation from the ECB in this whole debt debacle.  The idea is that the ECB would become the “buyer of last resort” which theoretically should stabilize the market and allow yields to come down.  This action would be similar to the “bazooka” that the US Fed claimed to be ready to use, essentially scaring off the potential bond vigilantes.

However the EU situation is different and because they have let it drag on for so long the credibility of such an action would be in question.   And this is where the ECB in general runs into problems.  Even if they said that they would be the buyer of last resort, the market would most assuredly test that resolve and it is likely that a worse situation would unfold even if they did follow through with it.  To say that this is not a good situation is an understatement.

Italy and Greece though look prepared to institute the austerity measures they must undertake, as Papademus in Greece has received initial support.  In Italy, PM Monti has also declared himself the Finance Minister, thereby eliminating a potential conflict.  So its Monti or bust!

On the data front, the most important numbers have come from the UK.  Consumer confidence figures came in way lower than expected with a reading of 36 vs. and expectation of 43 which itself was lower than last month’s 46.  But yet the retail sales figures came in gangbusters showing a gain of .9% vs. an expectation of a decline of .2%. 

Perhaps this disconnect can be explained by the fears that are instilled by the government despite the decent economic data that is released.  The government keeps harping on how bad the economy is to justify their easy money position and explain 5% inflation, but I think the economic data tells a different story.   Right now, the UK is doing exactly what should be done around the globe by reducing government spending.  The inevitable dip in GDP due to that action should be welcomed and not feared.  Are you listening, Bernanke?

Here in the US, the data was largely positive with initial jobless claims coming in at 388K vs. the expected 395K.  Building permits also rose 10.9% vs. an expected 2.4% with the expected 603K exceeded by the reported 653K.  Housing starts also came in better than expected, with 628K reported vs. the 610 K expected.  Later this morning the Philly Fed Index will be released and there will be some Fedspeak from one of the Fed minions.

So the number here in the US while not great are improving, and it will be interesting to see if Bernanke can justify further Fed monetary easing with the improving data.  Obviously the risk in the EU could cause a liquidity dry-up so he may have to resort to that line of reasoning.

Nevertheless the markets are in slight risk-aversion mode, having improved some since the data releases earlier this morning.  Yesterday’s move higher in oil to $103 is being explained as the un-wind of crack-spread trades, although I find the timing of the move curious with yesterday’s release of CPI data.

With oil prices above $100 it will be much harder for Bernanke to mask the true inflation we see in the economy unless housing prices continue to tank further.  My general feeling is that the only thing holding back the markets right now is the Euro debt crisis and we would be seeing some massive inflation (in everything but housing) if they truly solved the problem.

But for now nothing appears to be close to light at the end of the tunnel so I prefer to keep my trades to the short-term and take advantage of the volatility, rather than trying to avoid it.

October 30, 2011

Trading Week Outlook: Oct. 31 – Nov. 4

Filed under: Forex News — Tags: , , , , , , , — admin @ 8:37 am

Oct. 30, 2011 (Allthingsforex.com) – With many unknowns still lingering after the rally fueled by the EU Summit’s new plan to contain the sovereign debt crisis, the first trading week of November could prove crucial for the fate of the financial markets, the euro and the U.S. dollar as the G20, the Fed and the European Central Bank convene to chart the direction of their future policies.

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.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Mon., Oct. 31, 6:00 am, ET.

Following the surprising spike in inflationary pressures to 3.0% y/y in September from 2.5% y/y in the summer months, the Euro-zone’s main inflation gauge is forecast to show consumer prices holding up near the 3.0% y/y level with a preliminary estimate of 2.9% y/y in October. The inflation spike came only a week before the European Central Bank’s October meeting and was one of the factors keeping the central bank from cutting rates then. However, if inflation slows along with the Euro-zone’s economy, the odds of an ECB rate cut will increase exponentially.

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Oct. 31, 11:30 pm, ET.

Last week’s unexpectedly hawkish Reserve Bank of New Zealand stance shocked the markets as New Zealand’s central bank begged to differ from all other major central banks which have made it clear that they are steering further away from tightening in an effort to stimulate growth. Although the Reserve Bank of Australia would be likely to keep the benchmark rate at the current 4.75% level, even the slightest hint of a similar to the Reserve Bank of New Zealand’s view that rates might need to be adjusted higher at some point in the future, could serve as a catalyst for further strengthening of the Australian dollar. On the other hand, a dovish Reserve Bank of Australia statement, opening the door to rate cuts, would be a major risk factor for the higher-yielding commodity currency “down under”.

3.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Nov. 1, 4:30 am, ET.

Growing by only 0.1% q/q in Q2 2011, the U.K economy is forecast to regain momentum by up to 0.4% q/q in the third quarter of 2011. The GBP could enjoy a bit of a boost on stronger Q3 growth, provided the recent risk rally continues to distract the market from the fact that the Bank of England expanded its Asset Purchase Program by 75 billion pounds and is in the process of doing more quantitative easing.

4.    USD- U.S. ISM Manufacturing Index, a leading indicator of industrial activity, where a reading above or below 50 is the dividing line between economic expansion and contraction, Tues., Nov. 1, 10:00 am, ET.

The U.S. manufacturing sector index is forecast to gain strength for another month with a reading of 52.2 in October from 51.6 in September, continuing the sequence of cautiously optimistic U.S. economic data ahead of the Fed’s monetary policy announcement.

5.    USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a leading indicator for the outcome of the monthly non-farm payrolls, Wed., Nov. 2, 8:15 am, ET.

In a prelude to Friday’s employment report, payrolls in the private sector of the U.S. economy are expected to register an increase by up to 114K in October compared with the 91K new payrolls added in September.

6.    USD- U.S. FOMC- Federal Open Market Committee Interest Rate Announcement, Wed., Nov. 2, 12:30 pm, ET.

The recent U.S. dollar weakness was fueled not only by the return of risk appetite but also by increased QE3 market speculation. Some members of the FOMC have been “warming up” to the idea of more quantitative easing and even calling for it. Although QE3 is not completely out of the picture yet, the Fed might decide that the prudent thing to do at the moment is to acknowledge the recent signs of improvement in the U.S. economic backdrop and to allow a few more months to asses the impact of “Operation Twist” before they take on additional asset purchases at the expense of the U.S. dollar. If the Fed rules out QE3, the greenback could start correcting some of its recent losses.

7.    EUR- G20 Meeting of finance ministers and central bankers of the world’s twenty most industrialized nations, Thurs., Nov. 3 and Fri., Nov. 4, all day events.

Scheduled to serve as another deadline to work out more details of the EU debt crisis-fighting plans, the G20 meeting participants will examine closely all aspects of the promised comprehensive solutions and will ask for fast implementation, while the EU reps try to pass the tin can asking for contributions to the EFSF bailout fund, which is about 750 billion euro short of its proposed 1 trillion size. The EU leaders hope for a significant Chinese participation in EFSF, but with China making it very clear that they want guarantees and that they should not be viewed as a “source of dumb money”, the G20 meeting will be a spectacle worth watching.

8.    EUR- European Central Bank Interest Rate Announcement, Thurs., Nov. 3, 8:45 am, ET.

With plans to contain the EU debt crisis and the ECB involvement still being discussed, President Trichet leaving and the new President Draghi taking over, the European Central Bank would have the difficult task to navigate through a sea of uncertainty. To add to the difficult situation, the Euro-zone economy is slowing, while inflationary pressures have unexpectedly spiked. What is the central bank to do- cut rates to help the economy avoid a double dip or keep rates high to curb inflation? Considering his past record, Mr. Trichet would have preferred the latter option, but the new ECB President Draghi may have something else in mind. Should the ECB announce, or at least open the door, to an impending rate cut, the EUR could see selling pressures building up quickly, especially if the Fed has ruled out QE3 the day before the ECB meeting.

9.    USD- USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Thurs., Nov. 3, 10:00 am, ET.

Just as the manufacturing sector, the U.S. services industry activity is forecast to expand for another month with an ISM Non-Manufacturing index reading of 53.5 in October from 53.0 in September.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation Report, one of the most important indicators of economic health, measuring the number of new jobs created or lost in the world’s largest economy, Fri., Nov. 4, 8:30 am, ET.

The most important of all U.S. economic data will hit the newswires in the aftermath of the FOMC and the ECB interest rate announcements and in the midst of a G20 meeting. Kick-starting the market’s quest throughout October to find out if the U.S. economy is really as bad as the Fed’s gloomy outlook painted it to be ahead of the FOMC meeting on November 1-2, the previous Non-Farm Payrolls report managed to instill some cautions optimism with the U.S. economy adding 103,000 jobs in September, compared with a sequence of dismal employment reports throughout the summer. The trend of positive job creation is expected to continue with the U.S. economy adding up to 95,000 jobs in October, while the unemployment rate remains unchanged at 9.1%. Consistent improvement in the U.S. economy and labor market, coupled with signs that the EU leaders may be able to put out the fire from the debt crisis, while the ECB cuts rates to help the euro-area economy avoid a double dip, should steer the Fed further away from QE3 and could become the formula for a U.S. dollar relief rally.

October 18, 2011

Forex Market Outlook 10/18/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:04 am

With the overhang of the realization that indeed Euro zone leaders will not have a resolution in place by next week like the G-20 leaders asked for, it is now questionable what exactly Merkozy were referring to when they claimed to be able to have something ready by early November.  Is their timetable still in play?  From where I sit, it doesn’t seem likely.

So the markets have turned their attention to global economic data and at this point it isn’t pretty.  Overnight, China reported GDP figures that came in less than expected but nevertheless were impressive, showing growth of 9.1% vs. an expected 9.3%.  This was worrisome for the markets as this was the slowest pace China has grown in nearly two years, but some encouraging signs are that domestic demand is picking up as retail sales figures were higher than expected, as were industrial production figures.

This put pressure on both the Aussie and Kiwi as the RBA also said that they could envision a rate reduction as inflation there is “less concerning”.  However, the RBNZ governor said that rates may need to move higher in New Zealand as the economic activity generated from the rebuilding from the earthquakes may no longer require stimulus.  

This sent markets into risk aversion mode right away and that sentiment was carried into the European session as German economic confidence figures came in at 3 year lows.  In addition, France’s credit rating is in jeopardy if the Euro debt resolution puts too much strain on the French economy though the pace that these negotiations are taking place may not make this a worry any time soon.

What we are seeing though is the signs of inflation creeping up around the globe, most visibly in the UK who reported CPI of 5.2% inflation vs. the expectation of 4.9%.  I thought that expectation figure yesterday had to be wrong, but boy was I mistaken. To be clear, the BOE has an inflation target of 2%, which means it is running more than twice their mandate.  I’m sure the UK citizens love this as the economy slows down.  Stagflation anyone?

As bad as the UK seems, there may be a bigger stagflationary problem and that is occurring right here in the US.  This morning PPI data came in hotter than expected, posting a headline figure of 6.9% vs. the expected 6.5%, with the core figure showing 2.5% vs. an expected 2.4%.  This may mean that tomorrow’s CPI data could be hotter than expected and that we are experiencing inflation, despite declines in housing prices.  Were it not for the drag of the housing market, inflation might be much, much higher.

Yet the markets know that Bernanke is going to do nothing about higher costs because that is EXACTLY what he is hoping will occur.  Meanwhile, misguided protesters will continue to direct their anger toward Wall St. and not Washington DC even though US bank earnings are coming in way lower than expected. 

But I suppose it is easier to point the finger at those who actually show up for work, as Washington DC is in full-on election mode right now which means that virtually nothing will get accomplished which at this stage of the game may be a blessing in disguise.  The debt “super-committee” will likely do the bare minimum and kick the can further down the road and the blame-game politics we’ve come to endure will only grow as more and more people donate to the campaigns of these fools who have caused the economic malaise we are experiencing.

Maybe the Occupy Wall St. movement will help reduce the unemployment rate as fewer people show up to pick up their checks, though the auto-apply feature comes in pretty handy especially when you are not looking for work as you are supposed to be.

Bernanke will be speaking later today and will likely shift the focus back on the Euro zone, which is an entirely different mode of blame politics.   We’ll be told that if the Europe can just get their act together then things will be alright.

Do you believe this?  Me neither.

October 5, 2011

September 22, 2011

Forex Market Outlook 9/22/11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 7:13 am

The markets have been tanking for the last 18 hours as Bernanke unleashed “Operation Twist” on the marketplace.  Perhaps this should be called “Operation Disaster”.  What he has essentially done is tanked markets in the short-term in favor of potential longer-term gains.  With the Euro debt crisis worsening every day, the timing is less than ideal.

The last time this obscure policy measure was used was in the early 1960’s and though the intended effects are happening—to lower yields on longer-term maturities—the immediate impact has not been well-received by the markets.  At some point all of this Fed tinkering and tweaking is bound to produce a problem and yesterday’s move may be it.

Since yesterday’s announcement, the Euro has fallen nearly 4 cents, or 400 pips in forex parlance.  The Aussie has experienced a similar move and is now trading under parity with USD to .98.  If you follow our “chart of the day” section below, I also called the move on the Loonie and Pound from the last two days.  Monday’s short call on EUR/USD is still in play with a longer-term target of 1.30.

Global stock markets are also retreating, with the Dow Futures off 200+ points today after selling off over 250 points yesterday.  Asian markets were down overnight in the 2-4% range, and European stock markets are down close to 5% across the board.  Oil is also lower to an 81 handle, and gold is off $75 to around $1730. 

So if the twist was intended to induce US Dollar weakness, it is failing miserably and the correlative effects of a strong dollar is taking world markets lower.  I’m sure Bernanke’s intention is to get people out of bonds and into stocks, commodities, and possibly housing to encourage inflation, but in the near-term this has backfired.  Risk aversion has picked up to the point where this policy mistake may not be reversible.

This brings us back to the Euro zone, which is still under pressure to figure out the debt crisis.  The Greece situation is becoming more and more unsustainable as time goes on and a potential default could send world markets spiraling lower out of control.

Lower manufacturing in both China and Europe (for the first time in 2 years) reflect a slowing global economy, but the debt crisis in Europe and the threat of contagion from Greece to other countries is a ticking time-bomb.

Politicians both in Europe and in the US are way out of their depth and lack the ability to make the tough choices necessary to right the ship.  The last few years of extend and pretend has finally come home to roost and the lack of action has brought us to this uncomfortable place.

US initial jobless claims rose slightly but that was to be expected, and at this point there is no economic data that can paint a rosy enough picture to induce risk-taking.  So markets may continue to fall, though where that bottom may be is anyone’s guess.  In the long-term “Operation Twist” should be US dollar negative and eventually money will have to go somewhere, most likely to dividend paying stocks as yields there improve with lower prices.  Or perhaps Bernanke will embark on more quantitative easing.  One of the things to note about the “Twist” is that it did nothing to expand the money supply, but rather just re-shuffled the Fed’s holdings.

And this also does nothing for Main St. here in the US as confidence is near all-time lows and improvement is nowhere in sight.  Until the Fed gets some help form the fiscal side of the ledger, they may be all out of bullets and further action is losing its effectiveness.

These are uncertain times right now and the uncertainty causes fear, which in turn causes risk aversion.  The pressure is on global leaders to find credible solutions to the global economic downturn otherwise we may continue to slide toward further recession or possibly depression. 

Until these solutions emerge in Europe with the debt crisis and in the US with the economy in general, the trend will remain to the downside.  Perhaps a bottoming out process is necessary to get things moving again, but the pain experienced along the way may cause irreparable harm. 

There is ample opportunity in the forex market to take advantage of this volatility, but don’t get caught in losing positions! 

September 6, 2011

Forex Market Outlook 9/6/11

Filed under: Forex News — Tags: , , , , , , , , — admin @ 7:21 am

I suppose it was just a matter of time and the market has been aware that the Swiss National Bank would ultimately desire a weaker currency.  Recent rounds of risk aversion due to the European debt crisis (among other negative economic data) apparently were the last straw, as the SNB moved to weaken the franc by setting the target at 1.20 Euro and saying that they will defend it with unlimited resources.

That’s pretty strong language and the rumors over the last few weeks of this taking place shouldn’t come as a surprise.  This has helped push money flows back to the US dollar and gold, and increased the risk aversion in the markets.

The European debt crisis is still the number one concern to global recovery and yesterday, Chancellor Merkel’s party in Germany lost elections that show the growing discontent among Germans for the bailouts of the periphery countries.  This helped push yields on Greek 10-year debt to over 50% as waning support for the Euro in its current form is starting to grow. 

Nevertheless, the Euro bounced this morning on GDP reports that were largely in-line with expectations, showing economic growth in the region at 1.6% YoY vs. the expected 1.7%.  German factory orders came in lower than expected further contributing to negative economic sentiment. 

So we are in risk aversion mode this morning, with European stock markets moving lower and US equity futures drastically lower to start the day.   This comes after yesterday’s Labor Day holiday in the US where markets were closed.  There is not a lot of economic data due out in the US this week, though there are plenty of risk events on the docket.

President Obama is set to speak about a jobs plan on Thursday that is likely to be a non-event and Bernanke was due to speak but has since been re-scheduled.  Europe also has risk events this week, led by a decision from the German courts over the constitutionality of the European debt bailouts.  In addition, Italy will be meeting to discuss austerity measures designed to reduce their deficit and a G-7 meeting round out the week.

On the rate decision front, the Australian Central bank left rates unchanged at 4.75% and there was some thought that perhaps their next move would be to lower if the global economy begins to slow more significantly.  At the end of the week, China will report some economic data that may influence sentiment.

Overnight, the Bank of Japan will have its rate decision and tomorrow will bring the Bank of Canada.  Both are expecting no change to policy.  Thursday will bring both the Bank of England and the ECB rate decisions and no change is expected there either.  But there is a markedly growing shift toward dovishness as the global economy slows and the “race to the bottom” hastens. 

It could be entirely possible that the BOE may make a move to provide more monetary stimulus to its economy as sentiment has shifted on the BOE at the last meeting.  While the ECB just raised rates recently, it is unlikely that they will move to lower, though quantitative easing could become a part of policy to try to deal with debt crisis.

So there is a lot to navigate this week and so far the markets are erring on the side of caution to start the week.  Lack of risk appetite may cause additional volatility, but all metrics add up to further US dollar strength in the short-term as markets attempt to unwind risk.  Sooner or later we will find a “happy medium”, but traditional market correlations will have to break down first.

The swings and ranges have been friendly to traders, so it is advisable to keep it to the short-term at these levels until some more clarity returns to the marketplace.

August 22, 2011

Forex Market Outlook 8/22/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:32 am

August 19, 2011

Forex Market Outlook 8/19/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:16 am

The global rout is on and has continued in the overnight sessions with stocks in Asian and Europe decidedly lower, though US equity futures are bouncing back from earlier lows.  A crisis of confidence is occurring within the European banking system as a by-product of the European sovereign debt crisis, which is starting to resemble the early days of what happened here in the US in 2008.

Now I’m not saying that the two situations are similar, just that the sentiment is starting to feel the same.  So why isn’t the Euro lower if the global economic crisis du jour is emanating from them?  Because they are not the US dollar!

Right now, the markets are in “pick your poison” mode.  Do they chance buying Euros in the face of a declining Dollar?  Or do they buy Dollars because the EU is extremely weak?

Some of these questions may be answered next week, when Bernanke and the Fed meet in Jackson Hole, WY to deliver the Fed economic outlook.  Many believe that Bernanke will use this stage to launch QE3, another round of quantitative easing.  Should this be the case, the Dollar could weaken considerably which would cause the Euro to rise by proxy.  Should he show restraint next week and abstain from QE3, the Euro could break out of the range it has been trading and fall below 1.40.

There is not a lot of news today and none in the US so a market reversal would be purely on an over-sold bounce.  Gold reached earlier highs of $1875, though it has pulled considerably.  As I mentioned yesterday, I think we are in for a parabolic move in gold, and today’s earlier action is not it.  If we get QE3, then gold could trade in the mid-$2000 range!

The little news that we do have today is that German PPI came in considerably higher, though it is unclear if this will translate over to higher inflation.  This could prompt the ECB to move on interest rates if inflation is deemed too high, though most in the market believe that the ECB needs to start printing its way out of its debt crisis.

In Canada, CPI came in slightly lower than expected, with headline inflation at 2.7% vs. the expected 2.8%.  The Loonie has been weak of late as oil prices reached a 79 handle earlier this morning.

The market is treading lightly around the Swiss franc as rumors are that the SNB is going to charge a deposit tax on those who want to keep their money in francs.  This means that investors will actually have to pay to have francs, rather than receive interest.  The Central bank hopes that this will quiet demand for the safe-haven currency.

The Pound is also higher after public sector borrowing came in much lower than expected revealing a more prudent fiscal dynamic than many other regions around the globe.  It is for this reason that the Pound has been moving higher despite the BOE commitment to keep rates low.  Just goes to show what the markets think of fiscal austerity and responsibility.

And speaking of fiscal responsibility or the lack thereof, the US needs to get its act together pronto and should look at the other regions around the globe that have taken the un-popular steps to turn around their economies.  We have, after all, become a nation of followers and not leaders as exemplified by our trusted politicians in Washington! 

Its time for a change and it all starts with fiscal responsibility.  Otherwise, the US will become a third-rate nation.

August 3, 2011

Forex Outlook 8/3/11

Filed under: Forex News — Tags: , , , , , , , , — admin @ 7:02 am

Talk about a disappointment! Yesterday, the markets tanked after the US Senate approved the debt-ceiling deal in a sign that once again, Washington can’t do anything right. All that was accomplished was essentially kicking the can down the road (yeah I said it) so that we can resume this debate in a few months.

Meanwhile, the Senate hasn’t produced a budget in 2 years, and it’s a shame that we have to go to the brink of disaster to get politicians to do their job. So the uncertainty persists, as the global economy contracts and this three-ring circus we call government hasn’t done a darn thing to help job creation and has in fact only done things to hinder it. This is confirmed by this morning’s Challenger jobs cuts which are increasing, though the ADP employment change came in slightly better than expected. It’s beginning to look and feel like we are on the next leg down, as the Dollar weakens because the markets may be starting to believe that QE3, 4, 5 etc. may be forthcoming from the Fed to try to keep the economy afloat as politicians continue to do their best to sink it.

As markets tanked yesterday, there was a major move into gold and the Swiss franc pushing both to new all-time highs. The move in the franc was so dramatic that this morning, the Swiss National Bank (SNB) popped a surprise interest rate cut on the market essentially saying enough is enough. This is a warning shot across the bow of speculators who have been pushing the franc higher, as a formal intervention may be on the horizon. This has weakened the franc temporarily, but may not be enough to reduce demand.

Gold is soaring to new nominal highs in the $1670 range, and the other safe-haven currency, the Japanese yen has avoided some of the demand as the BOJ is warning of intervention which could be coming shortly.Tomorrow the rate decisions from the BOE and ECB are expected to produce no change, but don’t be surprised if the BOJ decides to try to weaken the yen through either words of actions.

Friday’s Non-Farm Payrolls report may need to produce a better-than-expected number to allay market fears, otherwise the economic death spiral may begin.

It’s a sad, sad state of affairs here in the US as there is no confidence in this administration that things will get better. Things looks so bad here for the Dollar that even the Euro is attractive, despite the bond vigilante attack on both Italian and Spanish debt which could push one of those countries to seek a bailout.

While the US has barely avoided a credit downgrade from the ratings agencies, that tune could change very quickly. The volatility that has occurred as a result of all of this uncertainty is a trader’s dream, but an investor’s nightmare. So keep your trades to the short-term and wait for the dust to settle.

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