Loonie | Forex Blog

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 18, 2011

Loonie (CAD) Rallies On Higher CPI Data!

Filed under: Forex News — Tags: acted-as-rock, cad, chart of the day, economy, expected-with, further-means, headline, important, inflation, loonie, morning-as-cpi, price, strength, with-the-next — admin @ 7:05 am

The Canadian dollar (Loonie) is higher this morning as CPI data came in hotter than expected with Core inflation coming in at 2.1% vs. an expected 1.9% and the Headline figure at 2.9% vs. 2.8% expectation. While these figures are lower than last month, it should be noted that markets are foward-looking and the idea that prices would come down further means that there may be some room for further strength.

That’s not to say that we think the Bank of Canada will be raising interest rates any time soon, but rather they will be on high alert for higher inflation that may harm the economy.

Another important “feature” of the Loonie is that it has a high correlation with the price of oil so with oil just below $100/barrel, it makes sense that the Loonie would strengthen. From the chart below, you can see that 1.03 acted as rock-solid resistance, with the next move expected to go back to parity vs. USD.

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November 16, 2011

Loonie Outperforms its Risk Peers

Filed under: OANDA News — Tags: a-commodity-and, a-earlier-today, a-has-benefited, aud, cad, china, dean's fx, italy, jpy, loonie, usd, week — admin @ 1:38 pm

Commodity prices are giving the loonie a leg up, allowing the currency to push away from its five months low printed earlier this morning on the back of ballooning Euro-yields. US data this week has beaten all analysts’ expectation and Canada has benefited by associate. The US is Canada’s largest trading partner with +70% of its exports crossing south of the border. Once again the market is viewing the CAD as a commodity and growth play currency “that’s temporarily swayed by risk aversion”. Despite outperforming most of its larger trading partners, the currency is little changed today.

For the time being, the market is back trading a defined and contained trading range, dictated by sovereign interest on top and corporate bids below. With gold prices under pressure, the EUR for sale on rallies, the currency outright will remain vulnerable right hand side as the EURO sovereign crisis enters a questionable and threatening new period for policy makers. A breach of the recent dollar highs should create some room for the dollar to move, despite the loonie outperforming the other risk and growth sensitive currencies (CAD vs. AUD +1.7% this month).

The currency has little “other” data to contend with ahead of the CPI release on Friday. The market does not expect any surprises that could provide the BoC with any concerns regarding their present policy path. The dollar remains better bid on pullbacks (1.0208).

Loonie

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November 8, 2011

Other Dollars get a boost from Gold

Filed under: OANDA News — Tags: a-out-later, a-smaller-gain, chf, currency, eur, jpy, loonie, psychological — admin @ 1:12 pm

The loonie palpitations have been rather limited so far this week. The news that Berlusconi would resign after approval of austerity measures has the currency attempting to break out of its tired weekly range. Market concern that Europe’s sovereign-debt turmoil is worsening has discouraged the demand for higher-yielding assets to date. Growth and interest rate sensitive currencies continue to find fault with any sensational headlines out of Europe. Canadian order books are also aiding this tight range, with sovereign sellers on top and corporate bids below. The weekly flow data this week is showing that the loonie demand has retreated, an indication that the currency valuation may be a tad rich for interested parties at these particular levels, especially when it was announced that Berlusconi had not won an outright majority.

In this morning’s session the currency happened to pare some of the losses on the back of a report showing Canadian housing starts were higher last month than expected (+208k vs. +198k). Volatility (price swings) in the currency out right is little changed this week, one week after reaching the lowest level in more than a month (-6bp to +12.84%). The loonie has dropped -4.6% this year and is the worst performer among the G10. The greenback is down -2.5%.

Carney’s comments last week are very transparent. He is concerned about sustainable growth and the market will have to be cautious in trying to push the currency higher at speed. With corporate buyers lurking below, dealers will have to focus on the risk reward of owning the loonie at these levels (1.0110)

Loonie

Aussie is holding firm, despite softer trade numbers O/N (+2.56b vs. +3.02b). Commercial bids and a market appetite for gold have helped slow sales. Australian employment data this week is forecasted to show the jobless rate rose to +5.3% last month from +5.2%. With Italian PM Berlusconi agreeing to step down once the austerity measures become law has given growth and risk sensitive currencies a timid boost in this afternoon session. Australian housing finance data out later this evening is expected to take a back seat to any European developments and China CPI. Resilient growth from the Chinese economy will be supporting antipodean currencies. In this current environment, the market remains a better seller of the currency on rallies (1.0382).

Aussie

Commodities Stubbornly Bid

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October 20, 2011

Forex Market Outlook 10/20/11

Filed under: Forex News — Tags: because-the-boe, cad, economic, fundamental, loonie, new zealand, nzd, sentiment, trend, uncertainty — admin @ 7:01 am

This morning all eyes are on Athens where the Greek rioters are protesting against further austerity measures which are to be voted to ensure that Greece is taking the steps necessary to continue the bailout discussion. The Troika will be reporting the economic state of affairs in Greece but so far the sentiment has been that that was Greece has done is insufficient to date.

Yet there is some positive news coming regarding the EFSF, though at this stage they are just rumors and not confirmed. Supposedly, the EFSF will be able to buy bonds on the secondary market provided there are no bank solvency issues. What this means is that they can be a “constant bid” to attempt to keep rates lower and then they can re-package and flip them or hold to maturity or whatever. However, the size of the fund is still in question and whether or not they will leverage that remains to be seen.

Producer prices in Germany came in slightly higher than expected, and the German government GDP forecast showed a growth rate of 1%, much lower than the 2.9% they have experienced.

In other news that just hit the wire, in Libya Momar Gaddafi is being reported dead.

Earlier in the UK, retail sales figures came in much better than expected, showing a monthly gain of .7% vs. an expectation of .2%. This could be a function of higher price expectations because the BOE is seen as being inflationary. But I must say, so far the BOE has been wrong in many of their economic assessments and should inflation persist, the UK economy could come to a grinding halt.

Here in the US, Initial jobless claims came in at the usual 400K, and later this morning we will get existing home sales figures, the leading indicators, and the Philly Fed. Throw in a little Fed speak and there is just enough to inspire some volatility.

We are very range-bound at these levels as the Euro debt crisis continues to maintain a stranglehold on these markets and the anxiety increases with every TV report of another Greek rioter lobbing a Molotov cocktail.

Yet US stock earnings have been coming in positively despite the economic climate as corporations are lean and mean and sitting on mountains of cash, yet the market uncertainty thanks to the political gamesmanship in Washington is keeping them from hiring. While lack of demand is always cited as the “cause”, it is actually the effect of bad policy and not the other way around.

The super-committee that is charged with deficit reduction here in the US is likely going to be ineffective so it will be more of the same. However, these problems seem minor compared to what is taking place in Europe and this weekends meeting may produce progress toward resolution, or it may not.

Meanwhile, my short gold trade triggered yesterday as the Bear Flag pattern completed, with an initial price target of $1500, and then $1440.

Tomorrow could be a risk aversion kind of day, so today we may see some cautious risk taking, though today is likely to be an “inside day” producing neither new recent highs or lows.

At this point the rumor mill is in high gear so there could be mid-day volatility based upon unconfirmed reports. This market is more conducive toward short-term trading at this point, as the uncertainty is still high and risk at a premium.

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October 19, 2011

Forex Market Outlook 10/19/11

Filed under: Forex News — Tags: aussie, commodities, currency trading, economic, forex market, fundamental, loonie, trader, trades, trend — admin @ 7:15 am

Yesterday’s market turn-around exemplifies the type of market action we may continue to see until the Euro debt crisis is finally resolved to the satisfaction of the world. Yes, I said the world. Markets yesterday were selling off on lowered expectations that this weekend’s European summit would produce that resolution, but a rumor hit the tape from a newspaper in Euro that said that France and Germany had agreed to expand the size of the ESFS to 2 trillion euros, much larger than had been previously agreed upon.

This sent markets screaming higher into the close as it was risk-on again and the correlations not only held up but also lead the way. This kicked the weaker economic data to the back again as the hope of a credible deal left markets wanting more. Moody’s attempted to rain on the risk appetite parade by downgrading Spain again but the markets will have none of it. Riots in Greece make the Occupy Wall St. crowd look like rank amateurs as the new austerity measures are announced.

So we have the carry-over affects this morning taking place, and better than expected economic data from today’s docket has confirmed the move. US corporate stock earnings are starting to look better, though Apple missed earnings for the first time in 4 years last night. The markets seemingly want to go higher if not for the specter of risk hanging over them in the form of the Euro debt crisis.

In the UK, the BOE released the minutes to their most recent rate policy meeting which showed a unanimous vote to expand their QE program by 75 billion pounds, even though yesterday’s inflation data pushed above 5% for the first time in 3 years. BOE policy-makers believe this to be a temporary spike, but that remains to be seen. Especially if a Euro debt resolution allows markets (including commodities) to fly again.

Here in the US, CPI data came in as expected and slightly lower which some might find surprising after yesterdays higher than expected PPI data. Core CPI came in at 2% vs. an expected 2.1% and the headline number came in at 3.9% as expected. Indeed the Fed is dodging bullets as the money-pump continues. My feeling is that it is just a matter of time before inflation rears its ugly head and when it does it will be fast and furious.

But the best news of the morning may be the housing starts figures which show a gain of 15% vs. an expected 3.3%. Recent lousy weather may have distorted those figures as housing starts were delayed, but nevertheless it is an impressive number. Building permits came in lower than expected, posting a decline of 5% vs. an expected decline of 2.4%.

It will be interesting to see how the rest of the day plays out as stocks here in the US are set to open higher and risk appetite is also increased. However, a closer inspection of the numbers and rumors may prove to warrant a more reserved position as perhaps the market is getting a bit ahead of itself.

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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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October 4, 2011

How Much Lower for EURO?

Filed under: OANDA News — Tags: a-debt-crisis-, cad, china, data, dean's fx, gbp, governor, greece, loonie, market, usd, week, world, yellow — admin @ 4:29 am

The market is getting the feeling that Euro finance ministers are stalling as they move as stealthy as a bull in a china shop in taking control of this crisis. They are beginning to drop hints that bondholders or PSI may be saddled with bigger losses on Greek debt. So far there are no details about a possible recalibration of the ‘voluntary’ debt exchange. A reopening of negotiations for bond write downs will strip away what ever EU credibility is left amongst investors. A return to the PSI agreement reached two-months ago will only speed up a Greek default.

It seem that EU finance ministers argument will be as far as the private sector is concerned, the Euro-zone have experienced changes since the decision was taken on July 21. Capital markets don’t care what the reason will be. Once you lose confidence in a region it becomes far more difficult to regain. To increase the market tension, finance ministers have also pushed back a decision on the release of Greece’s next 8b-EUR loan installment until after October 13.

A few current buzz words being thrown about do not support the EUR, systemic, contagion, credit risk, liquidity, default, ‘twist’, negative growth and intervention has the market wanting to keep selling EUR on rallies.

Out from left field, but probably should not be considered too much of a surprise after Friday’s Chicago PMI print, was yesterday ISM PMI. US Manufacturing unexpectedly accelerated (51.6) in September as production picked up, easing some of the concerns that the world’s largest economy is stalling. Even more encouraging, was to see employment strengthening (53.8), especially ahead of this week’s employment release. This report is in stark contrast to other global PMI releases that generally show a weaker manufacturing sector as they come to grips with global slowing demand.

Manufacturing in the Euro-zone and Australia both retreated whilst the UK and China this week are beginning to show some ‘life’. Even the Japanese Tankan report showed corporate sentiment is on the ‘UP’s’. Digging deeper, the subindex were generally mixed with new-orders unchanged at 49.6, while production increased to 51.2. The inventory index slipped to 52 while the export print pushed higher to 53.5. On the price side, pressures were little changed, edging a tad higher to 56 from 55.5. At the end of the day, manufacturing accounts for about +12% of the US economy. After employment, prices and exports having accelerated in the month, there is still no sign of this recession everyone keeps talking about!

The dollars is higher against the EUR -0.00%, GBP -0.20%, CHF -0.02% and JPY -0.01%. The commodity currencies are mixed this morning, CAD +0.00% and AUD -0.76%.

The loonie was down -2.2% last week, -7.4% on the month and -9% on the quarter. This morning, it has printed new yearly loonie lows. Yesterday, it managed to catch a bid for the first time in four sessions after US manufacturing and construction data beat all expectations. Canada exports approximately +70% of all its goods down south and any data highlighting the positives of the US economy, generally, by rule of thumb, provides a bid for the loonie, but in this case, not for long.

The month and quarter end widow dressing last week had many short term investors seeking shelter and liquidating the remaining of their risk trades ahead of a fundamentally busy week, mixed with Central Bank rate decisions and ending with North American job announcements. During times of stress it’s normally the commodity interest rate currencies, like the loonie, AUD and NZD that underperform. Due to their high sensitivity to risk appetite, ‘Carry’ was one of the worst-performing strategies in September. In particular, the Carry G10 component lost -5.4% in the month.

With riskier assets remaining vulnerable to doubts over the ability of European policy makers to stem a debt crisis that threatens to trigger a global recession, is capable of pushing the loonie through 2010 low levels. Currently, dealers remain better buyers of dollars on pull backs (1.0547).

The AUD has plummeted in the O/N session after the RBA’s hint of rate cuts, despite Governor Stevens leaving key rates unchanged last night at +4.75%. The Bank communique was very cautious on the outlook, leaving the door open for a further rate cut. The RBA concluded its policy statement by describing its current policy stance as appropriate, but nonetheless opened the door to an easing policy change stating that “an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary.” FI dealers increased the pricing for rates cuts at the 1 November meeting by +18bps to +44bps.

It’s not a surprise to understand that the RBA is still being heavily dependent on how the crisis in Europe affects global growth over the next month. An increase in risk and cuts again will be off the table and visa versa. However, similar to other growth and commodity sensitive currencies, the market bias prefers to be better sellers of the AUD on rallies, until the panic flows have abated. Other data shows that Australia’s building approvals surprised higher and rose +11.4%, m/m in August while the trade surplus widened to +AUD $3.1b in August from +AUD $1.8b in July (0.9451).

Crude is lower in the O/N session ($76.48 down-$1.13c). Oil prices tumbled ahead of the US ISM data release yesterday. The surprising print was capable of paring some of early losses, but, not for too long. The commodity last week posted its largest quarterly decline since the 2008 financial crisis, down-17%. The metal has broken some key technically support levels and this deep pull back may be seen as being a tad over extended. Investors remain concerned about the economic outlook in both the US and in Europe. With European policy makers struggling to contain their fiscal crisis, is expected pressurize commodities on rallies all week. The old support levels now become the new key resistance points.

Last week’s EIA report showed a build up of nearly +2m barrels of crude. This is not bullish and coupled with the Euro sovereign crisis will further pressure commodities. Not to be out done, gas stockpiles also rose +791k barrels to +214.9m last week. Supplies of distillate fuel (heating oil and diesel) increased +72k barrels to +157.7m. Refineries operated at +87.8% of capacity, down -0.5% from the prior week.

Weaker growth predicted by the IMF, which points to lower oil demand, will have dealers thinking of shorting the market again. Expect investors to run into technically selling on some of these rallies.

After posting a quarterly gain of +8%, its biggest this year, gold has again rallied as falling global bourses and lingering worries about a debt crisis in Europe encourages investors to want to own the precious metal, however, a firmer dollar is in danger of capping some of those gains. The metal rising in spite of the dollar probably means the commodities safe haven appeal has returned.

In the last two weeks, gold had one of its “steepest corrections in history, weighed down by a sharp margin increase, the fourth hike this year and heavy liquidation by hedge funds in a technically overbought market”. Demand for ‘physical’ gold is again supporting the market, as the Indian festival season helps drive buying in the world’s biggest gold consumer. Retail gold demand traditionally gains pace from August.

All the bullish factors for wanting to own the yellow metal, like dollar debasement economic imbalances and sovereign periphery debt, remain. To try to apply supply and demand logic in a panicked market is near impossible. The Fed’s efforts to drive interest rates lower to support lending should, by default, support commodity prices ($1,671up+$13.40c).

The Nikkei closed at 8,456 down-89. The DAX index in Europe was at 5,229 down-146; the FTSE (UK) currently is 4,973 down-101. The early call for the open of key US indices is lower. The US 10-year eased-11bp yesterday (1.77%) and is little changed this morning.

Treasuries advanced in the third quarter, the most since the financial crisis of 2008 as Europe’s sovereign-debt crisis and a sluggish US economy spurred demand for the world’s safest assets. Yesterday, the Fed bought +2.5b 30-year longer-term debt to support the economy The 2’s/30’s bond spread continues to narrow. Treasury product also gained as finance ministers prepared to discuss boosting the European Financial Stability Facility.

Long dated securities remain under pressure as investors flatten the US yield curve as the Fed begins buying longer-term debt and selling shorter maturities under Operation Twist this week. Investor’s fear that the US unemployment report could again creep higher is also promoting risk aversion, and attracting the buying of treasuries.

In a low growth and deflationary environment coupled with policy maker’s accommodative positions could keep global rates low for years. At last week Treasury auctions, the three issues drew record low yields for 5’s and 7’s and a record demand for 2’s. The market is hoping to be vindicated by Central Bankers rate announcements later this week.

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October 3, 2011

Forex Market Outlook 10/3/11

Filed under: Forex News — Tags: china, currency trading, economy, finance, greece, loonie, practice, sentiment, stock, unemployment — admin @ 7:29 am

The start of the 4^th quarter is not looking so rosy this morning as a continuation of last week’s selling has risk aversion heightened to start off the week. And though it has abated a bit, it is possible that we can see a market turn-around as the US session begins as this has become a little bit of a familiar pattern.

There is a lot of fundamental news out this week that will share the spotlight with the Euro debt crisis, including Central bank rate decisions, employment figures and manufacturing numbers. It’s probably best to describe the news that is significant in each region, followed by its overall impact in the market in general.

For starters, in the Euro zone EU Finance Ministers are meeting today to discuss the Greek bailout and debt crisis and possible solutions. While no one is expecting anything different from what we have seen of late, if Greece does receive the next tranche of bailout money, then what? There is still no credible plan moving forward and this is bound to play out over the ensuing months. Greece has made the necessary cuts to receive the funds, now it is up to the voting powers to follow through with the agreed upon measures.

PMI figures came in for various regions in the Euro zone and were better than expected, and Wednesday will bring PPI data that may show the level of expectations for inflation. Thursday will be the ECB interest rate policy decision and while there is little expectation that they will reduce the rate, there is speculation that they may increase bond purchase in a form of quantitative easing.

In the UK, home price figures continue to fall though PMI figures came in better than expected. Wednesday’s GDP figures could keep the BOE at bay if they come in better than expected. The BOE rate decision also on Thursday is not expected to reduce the rate either, but like the ECB, there could be some further bond purchases introduced. As the data continues to weaken, the BOE may feel the need to act even though inflation is fairly high.

The RBA interest rate decision on Tuesday is expected to produce no change, though they may remain dovish and show flexibility to go either way should global economic conditions warrant a change. Keep an eye on PMI figures coming from China, as a slowdown there will affect Australia. And of course watch the overall market risk themes.

Lost in the mix of this week’s data is Friday’s Non-Farm Payrolls (NFP) here in the US. The unemployment rate is expected to hold steady at 9.1% and the number of jobs added is at 50K. Personal Incomes declined last week so a weak jobs report will not help the economy and could add further risk to the markets. The US dollar has been the top performer of late so there could be continued strength if risk appetite deteriorates further. Wednesday’s ADP employment change may be a harbinger of Friday’s NFP, but be aware that there is no correlation between the two figures.

The Japanese rate decision is also due out on Thursday, and don’t expect any formal change to policy. The Tankan business sentiment surveys came in better than expected, though they have not returned to pre-tsunami levels. Should the Yen continue to strengthen on risk aversion, the BOJ may be inclined to intervene. The key level to watch is USD/JPY at 76 and it should be noted that they said last week that they have expanded their “intervention warchest”.

While last week was pretty light on news, this week is equally heavy. We are bound to see increased volatility as the various data points to different economic outcomes. This all happens with the specter of the Euro debt crisis hanging over the market and ready to reverse any positive news should we get any.

Should Greece receive the next tranche of bailout funding, it will be important to hear what the next steps will be. Without a credible plan going forward, this may just continue the market uncertainty for some time. And should they not receive the next round of funding, then lookout below! So there is clearly great risk in the market, with a downside bias winning at this point.

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September 30, 2011

Forex Market Outlook 9/30/11

Filed under: Forex News — Tags: a-reason-for, currencies, japan, live, loonie, oil, pound, trades — 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.

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