Interest | Forex Blog

January 17, 2012

Falling Consumer Prices Lifts Euro Rate Cut Speculation

Filed under: OANDA News — Tags: 0-5-percent-, annual-basis, capital, december, eur, euro, european, eurozone, fabio-fois, forex round up, interest, month, rates-as-low, risks, think-the-ecb — admin @ 7:21 am

A greater-than-expected decline in consumer prices in the Eurozone for the month of December has given rise to an increase in speculation for further interest rate cuts. Inflation in the 17 countries sharing the euro was 2.7 percent in December on an annual basis, revised down from an earlier estimate of 2.8 percent for the month, the European Union’s statistics office Eurostat said.

“The pressure is abating although the risks from energy are still there,” said Fabio Fois, an economist at Barclay’s Capital. “We think the ECB could bring rates as low as 0.5 percent in March,” he said.

Source: Reuters

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December 6, 2011

Forex Market Outlook 12/06/11

Filed under: Forex News — Tags: cad, economy, establishment, fxedu, interest, invest, japan, morning, practice, sentiment — admin @ 6:42 am

Well it looks like S&P is at it again, reversing yesterday’s promising start to the US trading session by putting 15 Euro zone countries on negative credit watch, including France and Germany based on the potential non-actions of the EU leaders summit at the end of the week. This is similar to the actions they took against the US with issuing the warning shot, though they did actually follow through with the downgrade based on Washington political ineptitude.

However this could be more problematic for the Euro zone as yields had been declining which would help them in debt service relief. This comes on the heels of the Merkozy announcement yesterday which is attempting to provide a stronger European fiscal union by requiring countries to have a balanced budget, then imposing sanctions against those who don’t comply. They are also looking to speed up the establishment of the ESM, in addition to a change in the Basel rules over what type of assets banks can hold.

None of this is ground-breaking stuff and the S&P downgrade is essentially saying that they need to do more. Apparently they haven’t been watching the scene unfold over there and the pace at which things get done. US Treasury Secretary Geithner is over there this week to try to force action. My sense is that this meeting like the others will be more of the same.

The data in the Euro zone did look promising though, as GDP figures came in as expected showing a gain of 1.4%. More importantly, German factory orders came in much better than expected posting a quarterly gain of 5.2% vs. an expected .9%. The ECB rate decision on Thursday is expected to reveal a 25bp reduction to 1%.

Contrary to my speculation yesterday (see chart of the day) the RBA reduced interest rates 25bp to 4.25% citing global recession concerns and the problems in the Euro zone. Australian GDP figures are due out tomorrow, followed by employment figures on Thursday.

Later this morning, the Bank of Canada will release its rate policy decision and are expected to remain steady at 1%.

In Switzerland, CPI data showed a decline in prices of .5%, the most in nearly 2 years and lower than the consensus estimate of a decline of .3%. This is worrisome for the SNB who have struggled to weaken the Swiss franc to help with exports so they are considering further action, including lower the target area vs. Euro from 1.20 to 1.30 or even going so far as to make interest rates negative. Should the problems in the Euro zone exacerbate, they may be fighting an uphill battle.

As a result, we are seeing some Japanese yen strength which has received some money flows from the other safe havens on risk aversion and unwind of carry trades from the Australian interest rate reduction.

Not much happening in the UK today, with home prices coming in lower than expected. The pound has been trading in a “middle ground” somewhere between the Euro risk appetite and the Swissie risk aversion. Industrial and manufacturing production figures will be out tomorrow, followed by the BOE rate decision on Thursday where no change is expected.

There is little news expected out of the US for the rest of the week so all eyes are on Europe. This morning’s mild risk appetite has just flipped to risk aversion so we are seeing some early selling after some overnight gains. If we can make it through the first half of the US session without some Euro negativity, then we could see a late-day rally.

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December 1, 2011

Forex Market Outlook 12/1/11

Filed under: Forex News — Tags: australia, cad, carry trade, china, course, interest, power, practice, rate-decision, top stories, unemployment — admin @ 6:51 am

Well yesterday’s news did not disappoint, with the markets remaining near highs into the close. Today will most likely be an “inside day”, providing neither new highs nor lows. This is to be expected with a move as big as the one we saw yesterday.

But what does this all mean? Truthfully, not much. Essentially yesterday’s coordinated action makes inter-bank lending cheaper. That’s it. It doesn’t solve the problems of the Euro zone, nor does it change the political dynamic in the US. These are the things holding us back and markets could do a lot better if there was more political courage in the world.

But there isn’t. Germany still refuses to acknowledge the tremendous benefit they’ve received through their Euro zone participation and are steadfast in their opposition to helping anyone that doesn’t behave exactly as they do. There are big changes that need to made in Europe obviously, but the entire world economy is basically being held hostage by the European political process.

The economic data continues to come in as a mixed bag. Yesterday’s perfect storm showed that there are times when economies look like they are performing well; today, not so much.

For starters, in Australia retail sales figures came in lower than expected showing a gain of .2% vs. an expected .4%. Building approvals were also lower. China’s PMI manufacturing figures came in at a 2-year low, which may be part of the reason why they reduced reserve requirements yesterday.

In the Euro zone PMI manufacturing figures came in as expected but in the UK they were better than expected, which is why the Pound is tracking higher this morning.

Here in the US, initial jobless claims came in worse than expected, but the expectation was for improvement from the pretty standard 400K that has been the average for some time. Later this morning we will get ISM manufacturing figures which could reverse the mild selling we are seeing this morning.

But for now, the bigger story is the money pump into the financial system that only will serve to buy time for those that are troubled. Until solutions are found, it will be more of the same. There is still great risk in the market and it will take a tremendous effort and leap of faith for the Euro zone to solve their debt crisis.

The beginning of the “Santa Claus Rally” that we are seeing now is a welcome event, but don’t get lulled into believing that things are just peachy. Yesterday’s action occurred because someone, somewhere was in trouble and the threat of global market instability was too great for Central bankers to bear. And it also goes to show the power that these bankers can wield when things aren’t going exactly as planned.

For example, nearly everyone is shocked that the Euro is trading at current levels despite the huge mess they are experiencing. Yet when you compare it to the US dollar and the easy money policies we have, it pales in comparison.

Yesterday was also a reminder that inflation is on the horizon. The only thing keeping us back from hyper-inflation is the fact that the US housing market continues to flounder. Case in point: I was speaking with a friend last night who confided that she was terrified of buying a home despite the fact that she and her husband have good jobs and are financially responsible people.

The uncertainty that hangs over the markets and the lack of confidence surrounding the current environment will continue to hold us back regardless of what the actual data tells us. Therefore I will continue to trade this market in the short-term, taking advantage of moves like the one that occurred yesterday.

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November 30, 2011

Forex Market Outlook 11/30/11

Filed under: Forex News — Tags: account, bank, fear, forex, fundamental, fxedu, inflation-with, interest, lower, merely-provides, nzd, oil, trade — admin @ 6:59 am

Wow what a morning! I was about to tell you about all of the mundane things that have happened so far overnight and what to expect later today—and then the markets got hit with the unexpected.

Central banks around the globe including the: Fed, BOE, ECB, BOC, and the BOJ, essentially made a formal, coordinated intervention in the currency markets by reducing existing swap lines by 50 basis points. This move is intended to free up liquidity to help prevent the Euro and global debt crisis form becoming a liquidity crisis (shortage of cash) to help countries service their debt.

This means that more cash is available and immediately the US dollar (as the world’s reserve currency) weakened, to the tune of 200 pips vs. Euro, 200 pips vs. Aussie, 120 pips vs. Pound. This is an incredible move and I’m sorry for those of you that were short risk in this market—especially if you don’t use protective stops!

Yesterday’s target of 1.0250 from the chart of the day on AUD/USD was easily met and in fact left money on the table. But 250 pips in a day is very welcome!

Yesterday’s EU Finance Ministers meeting produced little except that they are trying to drag the IMF into a larger role to cover the EFSF and they have agreed to back Euro zone bonds at 30%, essentially meaning that if default occurs investors would lose “only” 70% of their investment. Gee, thanks! Meanwhile yields continue to rise in the periphery countries, though the German 1-year note now has a negative yield!

Things are moving along in Germany, as their unemployment rate ticked slight lower than expected to 6.9%, though overall unemployment in the Euro zone is at 10.3%, slightly higher than expected.

The other big news of the morning was that China had reduced their lending reserve requirements for the first time in 3 years, essentially making lending easier for the banks. This should act as a catalyst for global demand, and the markets moved higher on the news. Of course this action was trumped by dramatic move we saw later in the morning.

Both stocks and global equities are up big-time on this news, with oil leading the charge at around 101.50. Take a look at my video from earlier this morning prior to the news, it will show you the dramatic difference.

Here in the US, the ADP employment change came in much better than expected, showing that 206K jobs were added vs. an expected 130K. Some may try to extrapolate this figure to a gain in NFP on Friday, but the two are uncorrelated.

Later this morning we will get pending home sales figures which are expected to show a slight gain. Housing figures have been weak very recently and this lagging indicator will likely be irrelevant after the moves we’ve seen already today. And later today we will also get the release of the Fed beige book survey though we have recently heard that QE3 may be on the table, today’s action may put that on hold for a while. Until the money dries up again, that is.

Canada will be reporting GDP figures later this morning which are expected to show a monthly gain of .3%, pushing the YoY to 2,7% from last month’s reading of 2.4%.

I cannot begin to describe the dramatic nature of this coordinated move from earlier this morning. Part of the “problem” with all of this market transparency is that big players can usually get in front of the proposed action and sometimes negate the intended effects. So they have to spring the news when no one expects it.

That’s not to say that I always agree with actions that intervene with free markets, however when global problems are perhaps much bigger than people know, preventing economic Armageddon is appreciated. I don’t claim to know the extent of the problems in Europe or what the potential of a failure might be except to say that it would be bad.

This morning’s action essentially buys more time for those that are in trouble to get their houses in order and fix the problems that ail them. For today’s action solves the pending global liquidity problem, but it does not solve the solvency and debt problems.

The Euro zone and banks with exposure to the Euro debt need to use this opportunity to come up with real solutions otherwise we have just kicked the can down the road a little more. Expect inflation to pick up in a major way in at least commodities prices, with the outcome uncertain.

Volatility is still very high, so be careful with your trading. Always use stop losses, and expect the unexpected!

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November 29, 2011

Aussie (AUD) Back To Parity With USD!

Filed under: Forex News — Tags: aud, been-on-edge, carry-traders, consider-though, dollar-looks, finance, interest, looking-at-the, markets-have, price-target, rise-further — admin @ 7:46 am

The Australian dollar “Aussie” has moved back to parity with USD in a sign of things to come. The markets have been on edge for some time due to the Euro debt crisis but are looking for a “Santa Claus” rally into the close of the year. With the EU Finance Minister meeting taking place today, confidence could be restored quickly.

One thing to consider though when looking at the Aussie is that they are closely tied to China economically and raw materials, which they export. As commodity inflation continues to rise, the Aussie dollar will benefit.

While everyone Central banker around the globe will shout that inflation is not a problem, commodity prices tell a different story. So the Aussie dollar looks poised to rise further , as carry traders buy Aussies for the interest they receive on the “hidden inflation story”.

Potential price target of 1.0250 by the end of the week.

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Forex Market Outlook 11/29/11

Filed under: Forex News — Tags: account, data, euro, fear, interest, interest-rates-, invest, loonie, trades — admin @ 6:57 am

This morning has started out with the same vigor as yesterday’s market posting early gains on the news of a successful Italian bond auction and riding what looks to at least initially be two days of gains in a row. Global stocks and commodities are higher to start the day, with US dollar weakness.

In Italy, 3-year notes had a bid to cover of roughly 1.5x meaning that there was good demand for the debt contrasted with last week’s German auction that was only 65% subscribed. It should be noted that the yield on the Italian debt was close to 8%, which is a Euro-era high and nearly twice what it was as early as 2 months ago.

What does this tell us? Well, a couple of things. For starters, it shows that the markets have some confidence that Italy will not default and that there may be an increased pace of getting the plans in place to combat this crisis. If the market feels that they can pick up some short-term debt at high yields before credible actions begin to reduce those yields, then that’s a pretty good trade.

But it also tells us that Germany may have some funding problems going forward, as the market deems yields too low to justify the “safe haven” of the Bund, which may not actually be that safe when Germany’s exposure to the rest of Euro zone debt is taken into consideration. In other words, why receive 2% in Germany when you can receive 8% in Italy for nearly the same outcome. If Italy goes down, it would likely take Germany down as well so it’s better to be compensated at a higher level.

Today begins a two-day meeting of EU Finance Ministers that is expected to produce an agreement on how to leverage the ESFS and the actions that will be permitted at the ECB. After pressure from the Obama administration, the need to act for Europe is now.

On the data front, economic confidence figures in the Euro zone came in lower than expected, but wasn’t that expected? So overall, the Euro is pulling back from earlier highs and our chart of the day from yesterday is still in tact, with EUR/USD having held that 1.3430 level.

Overnight in Japan, retail trade figures came in better than expected, showing a gain of 1.9% vs. an expected gain of .7% and household spending decreased just .4% which is better than the decrease of 1.5% that was expected. Perhaps that had to do with the jobless rate which came in worse than expected, showing 4.5% vs. an expected 4.2% which incidentally is half of what the US jobless rate is. Friday’s NFP numbers here should confirm the continued bad news of 9% unemployment unless discouraged worker have left the workforce.

In the UK, home prices came in higher than expected showing that inflation may remain stubbornly high despite the protestations of the BOE who claim that prices will magically fall back to their 2% target within the next year from the current 5% they are experiencing. While this expectation is the justification for monetary easing, the hard data suggests otherwise. Mortgage approvals came in higher than expected.

And lastly here in the US, home price figures will be do out later this morning are expected to show modest declines and consumer confidence figures are expected to show gains from last month but are still near historic lows. I suppose the news of the better than expected “Black Friday” sales and yesterdays “Cyber Monday” sales which also came in better than expected (up 18% from last year) belie those figures. Or it could just be boredom.

Fitch ratings agency finally acted on the Super committee’s failure on debt reduction and moved the US outlook to negative, which means that there is now a 50% of a US credit downgrade within 2 years. Yay for politics!

Meanwhile the markets are giving back earlier gains but are likely to rebound if we can get through the remainder of the Euro session without any negative news from the Finance Ministers meeting. So it looks like we’ll continue to trade the range, albeit a larger one.

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EUR/USD Forex Technical Analysis Update

Filed under: Forex News — Tags: account, below-1-4250, coming-into, fear, interest, loonie, previous, support-levels, the-previous, the-weekly, top stories, weekly, yearly — admin @ 2:25 am

The EUR/USD is coming into some significant long term support levels that are showing very clearly on the weekly charts. After failing at the previous highs just below 1.4250, prices have reversed sharply and are quickly approaching the yearly lows at 1.3130. There is very little to suggest that this level will hold, given the [...]

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November 22, 2011

Forex Market Outlook 11/22/11

Filed under: Forex News — Tags: australia, china, commodity, forex market, france, interest, loonie, pound, practice, top stories, trade — admin @ 7:03 am

It’s a slow day in the marketplace this morning and we’re seeing a bit of a rebound after yesterday’s sell-off. The “Super-Failure” of the debt reduction committee was extremely disappointing to the markets yesterday, though it always baffles me how the markets could have thought they could succeed in the first place as it was set up to fail.

However the markets got an early pop as the fear of another US credit rating downgrade never materialized as the ratings agencies re-affirmed the current level despite the failure to act. This basically is setting up for a year-long battle of blame-game politics heading into the 2012 elections. I just may have to throw away my TV.

Despite the failure though not much has changed for the average American who is slowly seeing their prospects of a better life diminished. Automatic cuts will be made to the deficit, though they come largely from defense spending and domestic programs, like education. So now we are less safe and dumber to boot—just awesome!

But seriously, economic conditions slowly continue to deteriorate and the 3Q GDP figure (revised) came in this morning and was revised lower to 2% from an expected 2.5%. That is a huge miss and indicative that the economy is not getting better but worsening. Personal consumption figures came in slightly lower than expected at 2.3% vs. 2.4%.

Later today the Fed minutes will be released which should show a continued willingness to ease monetary policy. With today’s floundering GDP figure, that easing could come much sooner than expected.

Other news on the docket showed that the budget deficit in the UK came in lower than expected due largely in part to the government austerity measures. However with that austerity, economic activity has decreased and we will know just how far on Thursday when the UK reports their GDP figures. Tomorrow though we will get the release of the minutes from the BOE rate policy meeting which will show just how dovish they have become in light of the expectations for economic growth and the stubbornly high 5% inflation they have in the UK.

In Canada, retail sales figures for last month came in better than expected posting a gain of 1% vs. an expectation of .5%.

And not to forget about our friends in Europe, bond yields continue to rise (especially in Spain where they had to pay double the yield on short-term debt) and there is now concern that France could be close to a credit rating downgrade. Germany continues to back away from the idea that the ECB needs to become the lender of last resort which may be the only hope the Euro zone has to remain in its current form.

So what started out as a mild risk-taking morning has reversed course and is leaning back toward risk aversion after the horrible GDP figures that were reported here in the US. Perhaps the Fed minutes can save the day for market bulls later today but it is unlikely that Bernanke can be any more dovish than the market expects him to be.

With the Thanksgiving holiday a few days away, there is seemingly little in the economy or in the government to be thankful for. Perhaps the only thing to be thankful for is that 2012 is an election year and we can vote them all out office.

That and that Europe has imploded yet.

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November 21, 2011

Forex Market Outlook 11/21/11

Filed under: Forex News — Tags: a-call-for, account, bank, both-the-euro, chart of the day, course, currency-pairs, forex, forex trading, interest, kiwi, ratings, realization, rsi, sentiment — admin @ 6:59 am

Markets are selling off this morning as the realization that the debt “super-committee” was nothing more than a “super-sham” intended to set the stage for the unbearably ugly political battle we are about to see unfold over the course of the next year. While the most optimistic of us had high hopes that they might be able to rise to the occasion and come up with solutions, the most pessimistic are saying, “told you so” this morning.

However all is not lost now that the abject failure of this doomed idea has materialized, as there will be automatic deficit reductions of $1.2 trillion. The problem is that it these automatic cuts will not be made responsibly as it will hurt those who can afford it the least and will weaken our national defense in the process. Thanks a lot.

Apparently Spain is a more reasonable place and they have elected a new conservative government who immediately are getting a baptism of fire but are saying all of the right things to start. It is obvious that major reforms are needed in Spain and they appear committed to deficit reduction but this may be a losing proposition if the ECB does not do something about the rising yields in the region.

This is setting up an inter-Euro battle as the markets are calling for a TARP-like solution where the ECB becomes a buyer of last resort and keeps the bond vigilantes from driving yields higher. As borrowing costs go up it makes it harder for countries to service debt whether they undertake massive austerity or not. Both Germany and the ECB itself are dead-set against this type of solution which may be the only way the Euro in its current form can survive.

Meanwhile there is some economic data due out this week and most if it is shoved forward to the next two days as the US markets are closed on Thursday for the Thanksgiving holiday. The economic data is weakening around the globe and now China is getting into the act saying that we are facing a prolonged global recession ahead.

To give a quick run-down of what’s happened earlier today and then what to expect later this week will probably be the most effective way to highlight this week’s action. The big news from earlier this morning was that Japanese exports came in lower than expected and UK home prices fell more than expected. These figures fall in line with the stalling global growth story so it will be important to see how Central banks respond.

The release of the BOE rate policy meeting will be out on Wednesday so we will see how committed they are to further monetary easing even after they increased their asset purchase program at the last meeting despite CPI readings in the 5% range. The Bank of Japan could also be close to intervening again in its currency as recent strength has it back to levels close to highs from which earlier interventions were enacted.

Existing home sales in the US are due out later this morning and expected to have declined, and there are a bunch of ECB leaders speaking today as well.

Tomorrow will bring the release of the FOMC meeting minutes, as well as US personal consumption figures and US GDP estimates. Canadian retail sales figures and EU consumer confidence round out the day.

Wednesday is packed with the aforementioned Central bank minutes releases, as well as Euro zone PMI and industrial orders figures. US data releases include: durable goods orders, personal income and spending, initial jobless claims, and U Michigan consumer confidence figures. Essentially these figures that are usually spread out along the week have been moved up for the holiday.

On Thursday, German GDP figures highlight the docket, with very little to be released on Friday.

Frankly I am a little surprised at the market reaction to the “super-failure” (as I am calling it) as I can’t believe that anyone thought this would work in the first place. The concern is that the ratings agencies will downgrade the US yet again but we saw what happened the last time we got a downgrade—that yields in the US went LOWER as a result as the flight to safety trade kicked in.

I suppose the EU dragging its feet could also be an issue but the landslide election in Spain gives me hope that they people of Europe are starting to come around to the reality that things need to change. Once they accept it and move on, they may be able to recover.

In other words, just another week in the forex market!

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November 14, 2011

Forex Market Outlook 11/14/11

Filed under: Forex News — Tags: a-bond-offering, account, currency trading, data, euro, expand-monetary, interest, market — 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.

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