Interest | Forex Blog

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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November 4, 2011

Forex Market Outlook 11/4/11

Filed under: Forex News — Tags: currency market, dow, forex market, interest, interest-rates-, jpy, live, mike conlon, rate-decision, trend, unemployment — admin @ 7:01 am

Today is “jobs Friday” as we are awaiting the Non-Farm Payrolls report which is expected to show that the economy added 100K jobs, 125K in the private sector and the unemployment rate to remain steady at 9.1%. These are hardly attractive numbers, yet anything remotely close to these will be seen as positive by the markets.

What might be a decent (but unfortunate) prognostication of our jobs figures is the Canadian employment report that came out earlier this morning. Canada produced dismal numbers, showing that they lost 54K jobs when they were expected to have added 15K, and the unemployment rate moved higher to 7.3% vs. an expected 7.1%. This is certainly not good at a time when global recession fears are increasing. Take a look at the chart of the day to see how the market reacted to the Loonie.

The only positive about “jobs Friday” is that it momentarily takes our attention away from the Euro zone debacle. Yesterday as I noted in an update, new ECB chief Draghi reduced interest rates by 25bp in his first official act, preferring to battle economic woes through rate policy rather than quantitative easing.

However it was his speech following the announcement that caused the Euro to tank as he said that the Euro was definitely facing a “mild recession” which could be construed that he sees big problems on the horizon. This assertion could be confirmed by the release of Euro zone PMI figures that all came in lower than expected. In addition Germany, the stalwart economy of the Euro zone, showed that factory orders fell 4.3% vs. an expectation of a gain of .1%. This pushed the YoY figure down to 2.4% from an expected 7.5%. That’s a pretty big miss.

This sentiment is also not lost on the RBA in Australia, who just reduced their growth targets after lowering interest rates earlier this week.

While the economic landscape may be deteriorating, the G-20 is doing its part to hold things together. The undressing of Papandreou caused him to back away from the referendum on the debt deal, but he and his government still face the confidence vote later today. There is all kinds of speculation about what may occur, from his resignation regardless of vote to a new transitory coalition being formed.

One thing though that is certain after all of this political quagmire: Greece does not want to leave the Euro zone. While I have been calling his moves “idiotic” over the past few days, they may turn out to be pretty shrewd after all is said and done. While the game of chicken he played was rather crazy, he essentially is making Greeks decide what it is they really want. While no one over there likes the austerity that is required to remain in the Euro zone, the alternative is far worse. It probably would have been better though had he given EU leaders advance notice of his intentions.

**Update** Non-Farm Payrolls just came in showing a gain of 80K, 104K in the private sector but the unemployment rate ticked lower to 9%. The market is reacting somewhat favorably to these figures as I mentioned that it just needed to be close this morning. Whether or not this is enough to sustain a rally into the close is another story entirely.

For it may be difficult to take risk into the weekend ahead of the Greek confidence vote as the scenario is unlikely and even if Papandreou wins, there’s no telling what may happen over the weekend, including his resignation.

With a recent weak Dollar and interest rate reductions around the globe, inflation fears are starting to increase. Gold shot up yesterday on the Euro rate reduction and may be invoking some of its inflationary hedge properties rather than its risk vehicle status.

With the overhang of risk in the markets emanating from both the Euro debt crisis and the US debt debate, my opinion is that markets are trading lower on fear alone. With the flush of cash moving around the globe, we would be a lot higher if not for these crises.

The US debt commission has largely escaped notice but lets not forget that they have a dead-line of roughly two weeks to get a deal done and if they can’t come to an agreement, automatic cuts kick in and another potential credit downgrade could be forthcoming.

So my bias is definitely to the upside, though I will proceed cautiously as one never knows what politicians may do. If you don’t believe me, look no further than Greece.

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October 24, 2011

Forex Market Outlook 10/24/11

Filed under: Forex News — Tags: bank, cad, currency-pairs, economic, economy, europe, interest, marketplace, new zealand, news, practice account, trades, usd — admin @ 7:06 am

It is often said that the waiting is the hardest part, and that is exactly where we are in the global market dynamic with the Euro debt crisis continuing to linger. This past weekend’s Summit has come and gone without producing anything more than the continued conjecture that has been plaguing the markets. Supposedly this Wednesday will be the day that produces the final resolution, though I am skeptical that this will be the end.

There are short, medium, and long-term issues that need to be worked out and to think that this will all be solved by Wednesday is silly at this point. This is after all, the 13^th emergency summit in the last two months! The immediate problem is Greece and their sovereign debt issues and so far the answer seems to be asking private bondholders to take up to 60% losses on their holdings and not calling it a default. This then causes the intermediate term problem of bank losses and now requires re-capitalization. The EFSF right now remains at 440 Billion euros and is seemingly far too small to handle all of the potential problems. There has been no credible talk of how to increase that fund.

Finally, this brings us to the long-term issues of how to stop the contagion of this crisis spreading to the other debt-ridden countries, most notably Spain and Italy. The moral hazard created by potentially retiring Greek debt without a re-structuring opens the door for other nations to seek the same terms. Meanwhile, credit ratings will continue to fall (now France is looking at a downgrade) which will in turn increase the cost to service debt. The ECB has not gone to the printing press just yet, as its mandate of maintaining low inflation is still tantamount and German remembrance of the Weimar Republic and its hyperinflation is something they never want the chance to repeat.

So Wednesday will be the day of reckoning, and so far the markets have been moving to the upside despite the risk that still persists. Perhaps the market just wants to hear that there is a plan, regardless of the details. My feeling though is that Wednesday will disappoint and that the markets have been in “buy the rumor” mode so we may see “sell the news” on Wednesday. Stay tuned.

In addition, PMI figures in Europe came in worse than expected across the board showing signs of an economic slowdown, though New Orders figures were higher. This reversed some risk appetite the market had been experiencing in the Asian session, as Chinese PMI figures showed the fastest manufacturing growth in nearly 4 months which was also better than expected. Japanese exports also improved and came in better than expected.

This week is also marked by interest rate decisions in Canada, New Zealand, and Japan. While none are expected to change policy, the Japan rate decision could get interesting as the Yen has been strengthening vs. US and is now at the 76 level which many believe may be the level where the BOJ will intervene. While they most likely won’t act before Wednesday’s Euro debt summit, the rate decision the following day could produce fireworks if the deem the global situation to be stable.

Meanwhile, US stock earnings continue to come in better than expected and it seems as though markets want to go higher if this pesky Euro debt crisis would just go away. My guess is that even though markets have been moving higher, Wednesday’s announcement may prove disappointing which could cause some short-term selling which in my opinion may be a long-term buying opportunity.

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October 19, 2011

Double Top In Aussie (AUD)?

Filed under: Forex News — Tags: aussie, australia, australian, chart of the day, high-the-aussie, interest, markets, policy-meeting, right-at-the, the-interest, top stories — admin @ 7:48 am

The Australian dollar (AUD) is a desired currency for the the interest that is currently paid and is a favorite of carry-traders when risk appetite is high. Conversly, when risk aversion is high the Aussie usually gets sold off despite the underlying fundamentals of the Australian economy.

The chaft below shows that we have a potential double-top candle formation on the AUD/USD pair occuring right at the R1 daily pivot resistance level. This could mean that a sell-off is coming. While the markets have been hopeful that the Euro debt crisis will soon come to an end, this doesn’t appear likely in the near-term.

In addition, the RBA revealed in the release of their rate policy meeting minutes that they were comfortable with current inflation figures so the next move in Australia could be to lower rates. In this regard, we could see the Aussie move lower, possible back to the S2 daily pivot support just ahead of parity (1.00) with USD.

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October 7, 2011

Forex Market Outlook 10/07/11

Filed under: Forex News — Tags: account, bank, china, fear, forex market, fundamental, interest, loonie, lower, markets, party, within-the-next — admin @ 7:05 am

All eyes are on this month’s Non-Farm Payrolls report which is expected to show a gain of 60K, with a private sector gain of around 90K. Unemployment is expected to remain at 9.1%. While this is one of the most important data releases, the overall risk themes in the marketplace have held markets back. Economic data has been mildly weak of late, which I think is a positive given the risk environment.

One sign that we may see better numbers is the earlier employment report out of Canada, who reported a gain of 61K jobs vs. an expected 15K and the unemployment rate ticked down to 7.1% from 7.3%.

**Update** NFP has come in showing a gain of 103K jobs, better than the expected 60K estimate. Private sector jobs added was 137K, better than the 90K expected. Last month’s NFP was revised higher to show 57K jobs added vs. the reported 0. Unemployment rate remains steady at 9.1%.

The markets have used this opportunity to increase risk appetite, though today’s better than expected numbers may reduce the chance of QE3 from Bernanke and the Fed. While overall that would be a good thing, the markets may be slightly disappointed in that prospect.

There is an interesting dynamic taking place in the US economy and the “Wall St. Occupation” protests may be the sign that we have hit bottom. We know about the gridlock in Washington DC and the Euro debt crisis, but markets have been looking to move higher for some time. This may be a situation where the markets can no longer wait around for politicians to get their acts together so business may take the bull by the horns and run with it.

While this number does not change the economic malaise we are feeling overnight, it a step in the right direction. Should we get some sound economic policies here in the US, then we might actually see some improvement in confidence which in turn would help the economy recover. Not higher taxes, not more government spending, not more free Fed money. Confidence.

Meanwhile confidence has increased that Euro zone leaders may be getting it together as they are finally discussing the potential re-capitalization of banks. European bank exposure to sovereign debt is a major problem and the UK bank exposure was likely a reason that the BOE chose to increase QE to add further liquidity if the problems in the Europe got worse.

This prompted Moody’s to downgrade the UK banks (they’re always late to the party, aren’t they) and yet the Pound has rallied off of yesterday’s knee-jerk reaction the saw the Pound sell-off. As a mentioned yesterday, I thought the market got it wrong initially and indeed I was right. So risk appetite trumped QE in the UK and the markets are moving higher. PPI figures also came in slightly higher than expected showing signs that inflation is still a problem, but the BOE may be willing to deal with issue as the economy recovers.

Lost in the mix of what has been taking place in Europe, the Japanese interest rate decision came out last night to little fan-fare as it produced no change in policy. While this is exactly what was expected, there has been some hope that the BOJ might intervene in their currency as recent Yen strength could be extremely detrimental to Japanese exports and thus the economy. Last night’s meeting might seem like an obvious place to launch intervention, but my feeling is that the BOJ has been trying to do the unexpected. So if any intervention is coming, it would most likely occur on Sunday night when the Asian markets open.

Outside of this, the attention should return to the Euro debt crisis. There is hope that some sort of agreement can be reached within the next few weeks. While there is still risk in the markets, today’s report can give us hope that better times may be coming.

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September 26, 2011

Forex Market Outlook 9/26/11

Filed under: Forex News — Tags: account, aud, china, currency market, europe, expectation, forex trading, greece, interest, lower, market, morning-as-hope, yen — admin @ 6:51 am

So the Euro lives to fight another day and though we are no closer to hearing a solution to the debt crisis, a relief rally is taking place this morning as there is thanks that the EU didn’t implode. Last week’s massive selling has paused for now and EU leaders have bought some time. This weekend’s IMF meeting produced very little except the notion that the IMF may need additional funding. Not good.

So what can the EU do to survive? Well there are many actions being bandied about that have different consequences. As I mentioned last week, the majority of these actions would be seemingly Euro-negative in the short-term, but positive for the survival of the shared currency. Though one never knows how the market will react.

Calls for the expansion of the EFSF bailout fund by leveraging the ECB balance sheet was brought up by US Treasury Secretary Geithner, who was met with a cool reception last week. S&P suggests that this could negatively affect European credit ratings.

Chancellor Merkel has called for a “firewall” to be built around Greece to prevent contagion from spreading to the other countries with sovereign debt issues which suggests that perhaps a future Greek default may not be out of the question. This however would instill a confidence crisis in the Euro and I think it would only be a matter of time before others chose that path as well.

The ECB could also lower interest rates at the next meeting, though the impact of such a move would be very minor in the grand scheme of things. They are said to be considering some covered bond purchases which would inject liquidity into the market and help ease monetary conditions.

Regardless of which course of action if any are pursued, there is a G-20 meeting scheduled in 6 weeks which is bound to put enormous pressure on EU leaders if a solution is not reached beforehand.

Despite all of the negativity surrounding the Euro zone and its impact on global markets, German confidence figures came in better than expected and markets are trading higher this morning as hope for a solution has improved.

In other news, New Zealand’s trade balance figures came in worse than expected, posting a deficit nearly twice than the expectation. This caused some early selling though the Kiwi has reversed as risk sentiment has improved throughout the morning.

Other than US new home sales figures due out later this morning, the docket is fairly devoid of news. This week is somewhat random in the news that is expected and all of the pieces could add up to a much bigger declining economic picture. With the focus on the Euro zone debt crisis still playing on center-stage, it will be the unexpected news that will move markets more forcefully than that which we are expecting.

Gold has been seeing some massive selling of late, as the market is moving to cash to raise liquidity ahead of any potential crisis. While the European banks have seen gains this morning, selling in this sector may resume at any time.

Oil has also pulled back as the global economy is seen as slowing, though it too has rebounded today. US equity markets are set to open higher and if they can hold on to the early gains, then we may see a bottoming process which would provide some support for risk assets.

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September 21, 2011

Forex Market Outlook 9/21/11

Filed under: Forex News — Tags: euro, interest, market, time, top stories, trade, trader, trades, yen — admin @ 7:08 am

Today, all eyes and ears on the FOMC meeting today at 2:15EST where the market is expecting that Bernanke and the Fed will unveil “Operation Twist”, which a Fed scheme to lower long term interest rates and “twist” the yield curve.

Essentially the plan entails the Fed re-investing money that is already on its balance sheet in long-term rather than short-term maturities, thereby increasing demand and driving prices higher which in the bond market cause yields to fall. This is not technically an expansion of the balance sheet and is not further easing, so the supply of Dollars in the system should remain steady.

It is unclear what type of market response this is going to elicit, as an argument can be made for either Dollar strength or Dollar weakness. On the one hand, because the action does not increase the money supply and in the immediate term it may cause the Dollar to strengthen as those hoping for further accommodation are disappointed. On the other hand, the Dollar could weaken as money flees the bond market and moves into stocks and commodities and the correlative effects of such action could cause Dollar selling.

And then there is another option entirely, whereby the Fed does something other than what the market is expecting, or does nothing at all. Though the latter is highly unlikely. Regardless of what this meeting produces, there is bound to be some positioning ahead of the game and could cause volatility if the unexpected occurs.

Meanwhile in the Euro zone, the saga continues without a definitive outcome for yet another day. Word is that Greece is making “significant progress” toward receiving that second tranche of bailout money though it remains unclear what will happen afterward even if Greece does enough in the eyes of the Troika to warrant the payment. Interest rates are still ridiculously high and there is no way under the current conditions that Greece can ever pay back its debt.

Across the pond in the UK, the release of the BOE rate policy meeting minutes was indeed dovish, but perhaps not as dovish as the market was expecting. While they voted unanimously to keep current rates and bond purchases unchanged, no one has flipped toward calling for further easing just yet. Another thing to note is that if they do take action to be more accommodative, their first move will be to increase quantitative easing and not lower rates. They are also concerned about UK bank exposure to the Euro debt crisis.

The only other news out there comes from Canada, who saw their CPI data come in higher than expected. Headline inflation increased to 3.1% vs. the expected 2.9%, with the core figure increasing 1.9% vs. an expected 1.6%. Despite higher inflation, the Loonie is trading lower vs. USD and is headed back toward parity as general risk aversion in the markets this morning is out-weighing their fundamental data. Also to note is that these numbers are not out of line with what the rest of the world is seeing.

So keep an eye out for the FOMC announcement later today, which could produce fireworks or could be a complete dud. In these situations, I tend to step aside and wait until after the news hits to see the market reaction. Sometimes there are opportunities, and other times not so much.

And don’t forget about what is going on in the Euro zone with Greece, as the longer this plays out, the more impatient the market becomes. Uncertainty drives fear in the marketplace, sometimes more so than negative outcomes. This is not to say that a negative outcome for Greece is “better” for the markets, just that it provides more clarity.

So again, in these uncertain times, keep your trading to the shorter-term until clarity emerges as we are likely to remain volatile for some time!

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September 7, 2011

Forex Market Outlook 9/7/11

Filed under: Forex News — Tags: cad, dow, embark-on-some, gbp, interest, morning, new zealand, paving-the-way, problems-have, stock — admin @ 7:42 am

Well it looks like the Euro has navigated one of the potholes that was causing anxiety in the market as the courts in Germany ruled that indeed Germany could participate in the bailouts of the periphery countries. While this means that Euro lives to fight another day, it does not change the overall problems that plague it from a debt perspective.

Tomorrow will bring the ECB interest rate decision and I can’t imagine a scenario that would be positive for the Euro from an interest rate perspective. Having raised interest rates recently, it would look foolish to embark on some sort of quantitative easing program. But the Euro problems are isolated in so far as there are specific countries that need different measures, so it is hard to make policy that will benefit all.

Tomorrow will also bring the BOE rate decision in the UK, though there is no expectation for a change of policy. However, lower home price figures and declining industrial production figures show that the UK economy is contracting and it remains uncertain if the BOE will be more accommodative to reverse those trends. My feeling is that CPI will need to come back some before that any further easing can take place.

In the overnight session, the BOJ kept interest rates unchanged and made no major policy decisions. This is no surprise to anyone.

Later this morning the Bank of Canada will release its interest rate decision which is also expected to produce no change.

So the market is in risk-taking mode this morning, with stocks and oil higher, and gold selling off significantly after the Euro hurdle has been cleared. US stocks rebounded yesterday from lows off of the Euro debt crisis and had “respectable” losses.

The market ranges have been expanding of late so this is an opportune time for the shorter-term traders to have some fun. If you are a longer-term player, it is probably advisable to wait and see how things play out.

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August 30, 2011

Euro Falls on Lowered Expectation of Rate Hike

Filed under: OANDA News — Tags: 21st-agreement, claude-trichet, eur, has-abandoned, interest, july, raise-interest, rate-increases, released-early — admin @ 7:16 am

The euro declined in trading in Europe today on growing speculation that the European Central Bank has abandoned plans to raise interest rates until the economy improves. Yesterday, ECB President Jean-Claude Trichet told the European Parliament’s economic committee that “risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released early September.”

The markets immediately interpreted the comments as an indication that the ECB is reconsidering its earlier position of further interest rate increases before the end of the year. Trichet also used the occasion to admonished Eurozone officials to act more quickly to approve the July 21st agreement to provide a second bailout package to Greece.

Source: Bloomberg

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S&P Cuts Eurozone Growth Forecast

Filed under: OANDA News — Tags: 21st-agreement, avoided-given, eurozone, has-abandoned, interest, latest-update, made-the-news, over-the-coming, raise-interest, rate-increases, ratings, released-early — admin @ 7:01 am

Standard & Poor’s – the ratings agency that made the news when it recently downgraded the U.S. credit rating – has cut its earlier growth projection for the Eurozone economy. Despite the reduced outlook, S&P said it does not forecast a recession for the region.

In it’s latest update, S&P reduced Eurozone growth for 2011 to 1.7 percent from 1.9 percent. For 2012, S&P lowered its outlook to 1.5 percent from 1.8 percent.

“We continue to believe that a genuine double dip will be avoided given the still existing avenues for growth, although we recognize that downside risks are significant,” noted the S&P report. “In particular, we will closely monitor trends in consumer demand over the coming quarters.”

Source: Reuters

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