Forex Blog

November 29, 2011

Forex Market Outlook 11/29/11

Filed under: Forex News — Tags: , , , , , , , — 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.

EUR/USD Forex Technical Analysis Update

Filed under: Forex News — Tags: , , , , , , , , , — 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 [...]

November 11, 2011

November 9, 2011

Forex Market Outlook 11/9/11

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

There’s really only one story to discuss today and that is Italy.  Italian bond yields are soaring and I mean soaring and the market reaction is not pretty.  In a story of “be careful what you wish for”, Italian Premier Berlusconi is said to be stepping down next week but today’s crisis may actually reverse those wants and return him to power.

Since the announcement that he would step down after austerity measures were implemented, bond yields jumped to above 7% for the first time in the Euro-era.  This is an unsustainable level and the uncertainty over the new Italian government is weighing heavily on the market.

Stocks are lower in Europe and in the US, as are commodities.  Risk aversion is high right now as Italy is the third 3rd largest Euro zone economy, as well as the world’s 8th largest.  It is clearly too big to fail and it is doubtful whether or not it could be saved.

As bond yields rise, it becomes harder for them to service their debt and creates market dislocations as everyone runs for the exit. 

Making matters worse, there is no news on the docket that could potentially save us today, with the exception of a Bernanke speech later this morning.  I wouldn’t be surprised at this point if his speech today is not the one he started out with earlier this morning.

And that is the problem with contagion; at first it was Greece and now it is Italy.  As the size and scope of the indebted nations gets bigger, the larger the problem occurs.  And guess who is up next?

The United States.  That’s right, the good ol’ US of A.  The budget super-committee is working right now to attempt to fix our problems and if this is not a wake-up call, then nothing ever will be.  The only thing keeping US yields low right now is the threat of Bernanke and the Fed tanking interest rates and the Dollar much lower.

While it will be a difficult task to do that, the potential of QE3 may mean negative real interest rates which could be disastrous for the markets.

For the sake of global harmony, let’s hope that the situation in Italy comes to a close rapidly.  Just don’t be surprised if Berlusconi is the one who comes out on top!

November 4, 2011

Forex Market Outlook 11/4/11

Filed under: Forex News — Tags: , , , , , , , , , , — 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.

October 21, 2011

Forex Market Outlook 10/21/11

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

The market has been range-bound headed into the weekend, but man, those ranges are pretty big!  I was surprised as I thought we’d see the ranges tighten up but that hasn’t been the case.  Yesterday, the markets made huge moves as various news trickled out regarding the Euro debt crisis.

It is times like these when I tend to be more cautious, as it is difficult to know when news may hit or what its impact may be.  Yesterday, the markets were selling off as risk aversion picked up throughout the early US session, only to completely reverse after “news” came out that the size of the rescue plan is going to be in the magnitude of $1.3 Trillion, with a “T”.  That is encouraging news for the market, as in this case more is better.

But, later that day, news came out that indeed EU leaders needed more time to unveil the plan and that this weekend’s Debt Summit would not produce the resolution but rather next Wednesday will be the day that it is revealed.  While this was initially seen as further stall tactics, the market is willing to give them a few extra days.  They are likely close to a deal, and just need the weekend to sell it to the other members.

Though this creates another set of problems, as any dissension in the ranks could put the markets on edge.  It should be no surprise though that they moved the decision, falling back more in line with what Merkozy originally proposed and not the G-20 timeline.

There’s not a ton of economic data out this morning, with German IFO survey figures coming in better than expected and the UK posting better than expected public finances on lower borrowing.

The big news of the morning came from Canada, where CPI data came in slightly hotter than expected.  Core CPI came in at 2.2% vs. an expected 2%, with the headline figure at 3.2% vs. 3.1%.  The Loonie has strengthened as a result, also being buoyed higher by early risk appetite in the markets.

There is no further news on the docket for today, but there could be more “news” leaked out of the Euro debt debate so there could be volatility.  Not to mention general risk aversion heading into the weekend.

**This just in: USD/JPY tanking here and making a new all-time low at 75.82!  Japanese intervention talk is bound to pick up now as that 76 level was seen as the “line in the sand”.  This could also be the function of USD weakness if they are more involved in the bailouts of Europe.  Stay tuned to this development!  

So the markets are definitely behaving crazily here, so it is always good to remember to use a hard stop and take shorter term trades.  There’s no telling what may happen today or over the weekend, so I’m going to step aside and not try to be a hero over the weekend.  The potential risks do not outweigh the possible rewards.

October 10, 2011

September 30, 2011

Forex Market Outlook 9/30/11

Filed under: Forex News — Tags: , , , , , , , — admin @ 7:24 am

The are many fund managers who are glad to see this quarter come to an end as it has been a rough road for risk assets as the Euro debt crisis has held world markets hostage.  With the persistent fear that things will worsen in the EU and no resolution in sight, long-term growth projections are nearly impossible to forecast.

This all adds up to uncertainty which in turn creates volatility, and the lack of direction is disconcerting to say the least.  Without a clear picture emerging, the longer the uncertainty persists the more difficult it becomes to return to economic health. 

So far the Euro debt crisis is moving along at a glacial pace, with the required votes taking place but not acting fast enough to satisfy the markets.  The problems with Greece are still weighing heavily and the lack of a long-term solution in favor of stop-gap measures keeps the investing climate negative.  The end result of all of this week’s Euro drama is that for now Greece remains on pace to receive the next tranche of bailout money (a meager $8 billion in the grand scheme of things) and the question remains whether this is too little, too late.  Only time will tell.

Meanwhile as we return to the current economic situation (which has taken a back seat to Euro debt drama), the Euro zone reported CPI data that came in much higher than expected, showing 3% inflation vs. the expectation of 2.5%.  This might normally have a positive effect on the Euro as the market would expect the ECB to raise rates, but they are hand-cuffed now by the debt problems.  As time drags on, the situation in the EU is looking more and more untenable.

Adding to the global slowdown story is news that China is slowing as manufacturing PMI data came in flat showing no growth.  While this normally will have a negative effect on the antipodean currencies (it did!), there was added pressure on the New Zealand kiwi as they received a credit downgrade from Fitch and S&P. 

In other news, Japanese industrial production has improved to almost pre-tsunami levels, yet the figures came in lower than expected.  The jobless rate in Japan also fell to 4.3% from an expected 4.7% and consumer prices edged slightly higher.  Both of these are positive data points for Japan, who is struggling to recover with a stronger Yen.

In Canada, GDP figures came in as expected and were slightly higher than the last reading which is significant as they are hanging in there economically despite a slowdown in the US.

Here in the US, personal spending and income figures came in lower than last month’s reading but in-line with reduced expectations.  Later this morning the U of Michigan confidence figures are due out and I can’t imagine a positive reading at this point.

This all adds up to risk aversion in the markets, with the Dollar and Yen strength and stock and commodity markets weakness.   It is difficult to go into the weekend “long risk” as the uncertainty of the Euro debt crisis looms.  A pattern is emerging where the risk appetite increases on Monday and Tuesday, then begins to flip to risk aversion as we head toward the end of the week.  This has been especially true with the high hopes the markets have for a Euro resolution, only to be disappointed again and again.

In these uncertain times, it is important to follow the market and not try to guess what may happen.  Short-term traders have had more success than longer-term investors as the volatility that has been created suits that style better.  If volatility persists, then you may want to consider shortening your horizon.

September 27, 2011

September 13, 2011

Forex Market Outlook 9/13/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:51 am

Well I’m just back from the FXCM currency trading expo in Las Vegas and man, did we have a lot to talk about there!  The markets essentially collapsed last Friday and heightened fears have been ruling trading action ever since.

Yesterday the markets here in the US opened much lower after tanking in the Asian and European sessions, as European banks are now being attacked as the market believes they are misreporting their exposure to European sovereign debt.  Why is this an issue?  Because the market believes via the bond market that there is a 98% chance that Greece is going to default!

The problems in the Euro zone are starting to accelerate, likely more quickly than leaders’ ability to solve the problems.  Considering they have had almost 2 years and have done little, this makes sense.  Italy is attempting to take matters into their own hands, and a vote in Parliament over an austerity package is expected today.  The market also bounced yesterday when it was revealed that they were meeting with the Chinese to find a buyer for their debt.

It is a sad day now that the US is losing its sphere of influence and world economies are turning to China and not the US for help.  Perhaps that is because they have seen the disaster that Washington DC has become and would rather side with a quasi-communist country for economic help. 

Case in point:  the details of the President’s “jobs” program were revealed and it is just more of the same.  Higher taxes, more government spending.  That’s really it.  He is trying to set up the debate for 2012 and the only job he is interested in creating is his own in Washington DC after the next election.   It’s time to fire this guy, so that the rest of America can get back to work!

On the data front, UK inflation came in slightly higher than expected, though no one is expecting the BOE to tighten any time soon.  In fact, their next move may be to ease further, though likely not through interest rates.

In the US, small business confidence is near all-time lows.

So the markets in the US are opening flat to slightly lower, and it is doubtful that any major risk-taking is going to occur until we something from the EU that can be deemed positive.

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