Lower | Forex Blog

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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October 12, 2011

Forex Market Outlook 10/12/11

Filed under: Forex News — Tags: currency trading, currency-pairs, fear, free, fundamental, japan, lower, markets, new zealand, practice, rsi, stock, vote — admin @ 7:21 am

This morning has started with risk appetite driving markets higher, with Dollar and Yen weakness acting as either a by-product or catalyst of the move. Regardless of who or what is leading the charge, a sense of calm is starting to return to the markets and they looked poised for a 4^th quarter rally into the end of the year.

Positive sentiment surrounding the resolution of the debt crisis has not been derailed by Slovakia delaying their vote on the EFSF expansion agreed to in principle on July 21^st as the market believes that the Franco-Prussian solution which Sarkozy and Merkel have promised is coming in early November will like supercede that package. The “Troika” has already agreed to Greece receiving the next tranche of money despite the uncertainty surrounding the vote of whether Greece has done enough to receive it, with the hope that whatever is offered in early November is enough to wipe the whole slate clean.

So the pressure is on to come up with a resolution that not only deals with the problem but is also something that is agreeable to all of the Euro zone members as well as the markets in general. Call me skeptical but I’m not certain if such a solution exists. Today a plan to re-capitalize European banks will be proffered which is a step in the right direction.

Meanwhile in the UK, policy-maker Posen has claimed that the BOE is prepared to ease further and the unemployment rate has ticked higher to 8.1% from 7.9% and an 8% expectation, yet the Pound is trading higher and hit our last week’s target of 1.57 vs. USD and then some. GDP estimates came in better than expected for September calling for .5% for last month vs. .2% for the previous month. Also to note is that even though the official unemployment rate rose, the number of new jobless claims came in lower than expected at 17.5K vs. an expected 24K.

Both the Aussie and the Kiwi are tracking higher with the former trading back above parity vs. USD. Related home sales and price figures show that there is moderate growth, and Australian consumer confidence figures came in better than expected. Australian employment figures are due out tomorrow.

Also adding to the risk trade is the machine orders figures that were reported by Japan that came in much better than expected, showing a monthly gain of 11% vs. an expected 3.9%. This has helped rally the Nikkei and caused some Yen selling and tonight’s release of the BOJ meeting minutes may show how close they are to intervening in the currency which could provide for additional risk taking.

Speaking of meeting minutes, the release of the September FOMC will be out later today and will definitely show how close Bernanke and Co. are to QE3. While he floated the idea at the JEC briefing earlier this month, it may have been in response to tanking markets and not any serious policy discussion. If on the other hand they are close to QE3, then this could push markets higher on the free-money trade.

US corporate earnings season is upon us and was kicked off by worse than expected numbers out of Alcoa, yet the S&P 500 has rallied to above 1200. The bar has been set so low for many of these companies that the beats should be more than the misses.

Also to note is that the Senate did not pass Obama’s “jobs bill” which was a more of political statement than a credible plan. This means that more money is not added to the deficit and taxes are not raised in the near-term, and we are likely to have to wait for the deficit reduction committee to take action before anything gets done.

Yet the mood surrounding the markets appears to be positive and I think we will definitely see that 4^th quarter rally that investors desire. Business can only sit on the sidelines for so long and if they start to believe that there may be a change in Washington DC in the next election cycle to more pro-business policies, then they may start to invest.

While I don’t think this will solve our unemployment problem in the near-term, if we can get the needle moving in the right direction then that could instill some confidence which is ultimately what this economy is sorely lacking.

So keep an eye out for the Fed release later today as it has the ability to create volatility as the market dissects the Feds intentions. Any hint at the “free money” trade could send markets even higher!

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October 10, 2011

Forex Market Outlook 10/10/11

Filed under: Forex News — Tags: account, aud, business, china, currency, currency market, live, lower, market, nzd, pound, practice, sentiment, usd — admin @ 7:21 am

This morning confidence has returned to the markets and we are starting out in risk-taking mode with global stocks and commodities higher to start the US session. News out of the Euro zone that a Merkel-Sarkozy meeting over the weekend solidified agreement on what they are going to do about the debt crisis and the problems plaguing the shared currency—yet no concrete plans were laid out. Again. What they did do is set a deadline for a deal at the end of the month, essentially buying themselves more time.

But we’ve seen this all before. A plan to make a plan. Market credibility is important at this stage of the game and if the two can’t deliver then this could ugly pretty quickly. One of the major points mentioned though was an agreement that the European banks need to be re-capitalized to increase liquidity and offset potential losses due to sovereign debt exposure.

This however begs the question of how the Greek debt issue will be handled, and it seems as though they may require a further haircut from private investors, as I mentioned last week. Other questions to ask are whether or not any restructuring would constitute a default and trigger credit default swap payments and will the potential losses create a world-wide panic? So it seems as though they are starting to prepare for a negative scenario. While the markets appreciate the unified statement that a plan will be forthcoming, the devil is always in the details and the to-be-agreed-upon measures may be negative.

Meanwhile, they still haven’t fully ratified the July 21^st agreement which is now seen as thoroughly insufficient, though it is expected to be approved this week.

News coming out this week is what I would consider “second tier”, highlighted by Euro zone CPI, Australian employment figures, and US advance retail sales.

The markets seemingly would like to take risk as we have seen increased sell over the last few months and the Euro debt crisis has been the major impediment to risk appetite. While the global economic picture is not terribly rosy, you have to remember that markets are forward-looking so its not so much about what is going on right now but what may happen in the near future.

This is exemplified by the debate over economic direction here in the US and while things haven’t been great, I get the feeling that activity is ready to explode if we can just get the politicians out of the way. While the business climate is negative right now, these are the times that you have to invest whether you are a business or an individual as you want to be in to catch the upturn when/if it happens.

There is also news coming out of China this week that may give a perspective on how the biggest engine of global economic growth is faring and should they seem to be flat to slightly better than it could set the stage for a 4^th quarter rally.

So the data this week needs to be examined as parts of the whole and though there may be some volatility, it is important to get the overall picture. Data has been pretty good in my estimation despite investor sentiment and considering the massive selling we’ve seen of late, one might expect that the global economy would be a lot worse.

But it isn’t. While things aren’t great, they’re not horrible either. Unemployment is high, but there are pockets of strength. The longer this economic malaise continues to drag out, the impatience with the lack of productivity will increase and businesses sitting on so much cash might have to deploy capital for lack of anything better to do. Even in this ugly business climate with regulatory and tax uncertainty, and the overhang of further crises in the Euro zone.

If these two issues can be put to rest and the markets re-gain some confidence, then we could see some dramatic moves to the upside.

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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 23, 2011

Forex Market Outlook 9/23/11

Filed under: Forex News — Tags: boj, crisis, eur, europe, intervention, japan, lower, rate-decision, road — admin @ 7:11 am

Yesterday’s painful selling looks to continue at this point as it is highly unlikely that investors want to go into the weekend long risk as the Euro debt crisis still looms heavily over the global marketplace. Greece has been having trouble coming up with the austerity required to receive the additional bailout funds (not surprising) and rumors are that the Finance Minister may be losing the political will to follow through with the cuts.

This presents an obvious problem, as the outcome is uncertain as to what it might do to the EMU in general. Fears of contagion to the other countries, most notably Italy could take down the shared currency. So far there has been no credible progress toward a solution and longer the can gets kicked down the road, the closer to the end it goes.

Well folks, we are nearing the end of the road. And the markets have been appropriately reflecting the risk inherent in these problems. Excessive debt is ruining Western countries and with out the will to halt the spending, we will go bust sooner than later.

I can’t see a scenario right now that is Euro positive, even if they solve this crisis. Any “solution” must involve either debt forgiveness or a major expansion of money supply, both of which are negative for the Euro. A Greek default is also negative, so I’m not certain what is keeping the Euro at these levels except for the fact that the long-term outlook for the US dollar is negative.

But not to worry, the G-20 has come to the rescue! They issued a statement that they are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy.” That was good for a bounce that lasted a few hours, before the selling resumed. Ineffective as usual.

The Pound is actually faring a bit better than the rest as mortgage approvals came in better than expected. While the economy in the UK is not great, they are not facing the type of headwinds that the Euro zone is and their early response to deficit reduction may position them better than the rest.

The Japanese yen has been strengthening on risk aversion, making new highs vs. Euro and Pound and coming perilously close to the 76 level vs. USD that inspired earlier BOJ intervention. While the talk of intervention has picked up recently, the potential financial tsunami that a collapsing Euro might be could be ample reason to step aside for now until more certainty emerges.

Other than that, there’s not a whole lot going on today from a data release perspective. Markets are bouncing off of their morning lows and it’s possible that short-covering could halt the aggressive selling we’ve seen over the last 3 days. However, I don’t expect a lot of outright long positions to be established today, as Euro zone risk is too great to fully commit at this time.

Both gold and oil are lower on the declining global economic picture and the declining values are good for the economy in my opinion, contrary to what others might think. The free money faucet provided by the US Fed as artificially pumped up prices which has contributed to inflation. With unemployment still stubbornly above 9%, higher costs act as an additional tax on the public which further weakens demand.

Politicians both here in the US and in Europe needs to get off their butts and put their ideologies aside to come up with responsible plans to fix the global economy. The days of kicking the can down the road are over, as there is not much road left.

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September 22, 2011

Forex Market Outlook 9/22/11

Filed under: Forex News — Tags: a-bottoming-out, above-the-2011, dow, economy, europe, forex market, fxedu, interest-rate, kiwi, lower, twist, unemployment — admin @ 7:13 am

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

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

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

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

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

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

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

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

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

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

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

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

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

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September 15, 2011

Forex Market Outlook 9/15/11

Filed under: Forex News — Tags: forex market, invest, jpy, lower, mike conlon, news, spain, time, trader — admin @ 7:18 am

The markets this morning are feeling a lot better about the investing climate after both Germany and France asserted their support for Greece as a member of the Euro zone. While these statements of confidence are, for lack of a better word “nice”, they do nothing toward fixing the problems Greece is facing.

Euro zone inaction has helped put Greece in an almost untenable position of having to deal with rising yields in the face of austerity measures and without a comprehensive plan to give them some breathing room, it is just a matter of time before they suffocate. Rumors that a Eurobond offering could materialize proved unfounded and essentially nothing has changed from earlier in the week.

Yet this all of the markets need to return to risk appetite, as investors are dipping their toe back into risky assets. It will be interesting to see if the markets will continue in this mode for the rest of today’s session.

Yesterday, the RBNZ in New Zealand left interest rates unchanged at 2.5% citing a weak global economy as the reasoning and said that they are in no rush to hike rates at this time. Nevertheless, the Kiwi traded higher on the rising tide of risk appetite in the Asian session as stocks were higher.

Earlier this morning, the SNB also kept rates unchanged at 0% after last month’s cut and re-iterated their commitment to weakening the Swiss franc as the target vs. Euro at 1.20 is still in tact. Industrial production figures came in better than expected, posting a gain of 3.6% vs. an expectation of 3%.

In the Euro zone, CPI data came in as expected with the core number at 1.2% and the headline figures at 2.5%, which means that the ECB can shelve inflation worries for now, though any action based on these figures and not the overall debt crisis would be ludicrous at this point. Spain was able to get off a successful bond auction.

In the UK, retail sales figures came in slightly better than expected, though the numbers are still weak. This is a “win” for the UK in that the numbers are not worse than expected and even though the data has been worsening, it is doing so at a slower pace. BOE accommodative policy has partially offset government austerity measures, though inflation remains high.

Here in the US, CPI data came in largely as expected with the core figure showing .2%. However, the headline figures were higher than expected showing .4% vs. an also expected .2%. Initial jobless claims came in higher than expected at 428K and while not too aberrant from previous readings, is ticking in the wrong direction. Empire manufacturing number came in worse than expected as well.

With these figures, the markets are giving back some earlier gains and gold is now trading below $1800 to roughly $1780 as USD is strengthening. Stock futures in the US are also pulling back as the correlative effects of a stronger Dollar are taking some risk off of the table.

Bernanke is speaking somewhere this morning and that could produce volatility if he doesn’t stick to the playbook.

As the numbers slowly get worse, the markets are lacking confidence in our political leaders to right the ship. As we continue to double-down on bad economic policy, there is no catalyst to get things moving again.

Increases in government spending though more borrowing and higher taxes is merely re-distribution of a shrinking pie, and while I also believe that the income disparity here in the US is alarming, we need to put people back to work by whatever means necessary.

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August 23, 2011

Forex Market Outlook 8/23/11

Filed under: Forex News — Tags: account, carry trade, decision, gbp, interest, invest, kiwi, loonie, lower, trade — admin @ 7:25 am

This morning resembles yesterday’s market action, though market bulls are hoping the outcome is different. Stocks are higher to start the morning and we are once again in mild risk-taking mode, though off of earlier highs.

Yesterday stocks in the US gave up early gains and gold pushed higher yet again to above $1900. The majority of the risk in the marketplace is coming from the EU sovereign debt crisis and the slowing US economy and the US Fed reaction to it.

Dollar weakness has been driving markets higher this morning as Friday’s speech by Bernanke has left the market guessing what policy changes, if any, he’ll make. This is part of the problem with current US economic policy. What started out as Fed retreat for policy-makers to discuss ideas, has been turned into a platform to issue policy. And the market is going to be hanging on every word as though it were gospel, which is bound to induce volatility.

How did we get to this point? The lack of leadership out of Washington DC has caused this economic uncertainty and has left Bernanke out on an island to attempt to deal with the problem alone. And while I do not agree with Dollar destruction as an economic policy, I do understand that he is doing all he can to compensate for the lack of prudent fiscal policy.

So it should not be surprising that the Euro is trading higher vs. USD, despite the European debt crisis. While the politics in the EU has not produced a credible solution for dealing with the debt issues, the ECB has been taking the appropriate actions to attempt of stem the wave of contagion.

This has left confidence in the dumpster in Europe, which is reflected in this morning’s release of the ZEW economic confidence figures which all came in lower than expected. However, there was a bright spot this morning and that came from European PMI figures, which came in better than expected. This shows that economic activity is still moving forward despite all of the economic issues.

PMI figures in China also came in better than expected which demonstrates that perhaps China isn’t contracting as fast as some might believe.

US new home sales figures are due out later this morning but don’t expect much in the way of improving market confidence.

It will be interesting to see if US equities can hold on to today’s early gains unlike yesterday and as we move closer to Friday’s Fed meeting. There is a lot riding on Bernanke’s speech and I’m not certain he can produce anything that is going to cause market confidence to rise.

We are at the point where the politics surrounding another potential round of easing is being hotly debated, as is the effectiveness of the last round, QE2. Another round of easing means that economic conditions are deteriorating faster than they had hoped.

So expect the volatility to continue, until we can get some clarity from the Fed on what the next move may be. Further uncertainty could send the markets into a tailspin, so it is a fine line Bernanke is walking.

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July 21, 2011

All Eyes On Europe!

Filed under: Forex News — Tags: cad, china, commodity, course, europe, fear, fxedu, greece, live, lower, new zealand, practice account, sentiment — admin @ 7:36 am

Today’s meeting of Euro zone Finance Ministers, bankers, and power brokers is intended to produce a solution to the debt crisis that plagues not only Europe but the global economy as well. While the immediate problem is Greece, the larger and more pressing problem is how do they prevent contagion to Spain and Italy.

While there are many different proposals floating about, the bottom line is that the politically expedient needs to be cast aside in favor of a solution. Apparently France and Germany have come to an agreement in principle, with the details to be released later today. Bear in mind that even if they do come out with a resolution (which is unlikely to be complete by today), the market may not like the terms.

Here in the US, the news yesterday that we may be close to a debt ceiling deal has taken an about-face and there is so much confusion and obfuscation surrounding these talks that it is fruitless to try to forecast when or if a deal may be forthcoming.

Overnight in the UK, consumer confidence and retail sales figures came in better than expected, though lower expectations mean that it is easier to clear the hurdle. Nevertheless, this is an encouraging sign for the UK as the government austerity kicks in.

Euro zone and Chinese PMI figures came in weaker than expected, showing signs that the global economy is starting to slow. Yet the market is rebounding and has flipped from risk-aversion to risk-taking mode as optimism over the Euro debt deal is starting to increase.

In the forex market:

Aussie (AUD): The Aussie has bounced off its lows of the morning after the market took lower than expected Chinese PMI figures as a sign that Australia’s exports may decrease as demand in China slows. However, risk sentiment has picked up so the Aussie is nearing resistance at 1.08 vs. USD. (Click chart to enlarge)

Kiwi (NZD): The Kiwi reached an all-time high vs. USD at .86 as hopes of a rate hike in lieu of an expanding economy have the markets enamored with the growth story.

Loonie (CAD): The Loonie is mostly higher as risk appetite has increased and oil prices have rebounded to just below $99. Tomorrow is the release of both CPI and retail sales data which may show further economic strength which could lead to increased rate hike bets.

Euro (EUR): While PMI figures were down, the Euro is up and trading above 1.43 vs. USD as the market is hopeful that a solution for the debt crisis is coming. I wonder if this will be a case of “buy the rumor, sell the news” for the Euro today. (Click chart to enlarge)

Pound (GBP): The Pound is also higher as consumer confidence figures came in better than expected, though lower than last month’s reading, posting a 51 vs. 49. In addition, retail sales figures came in better than expected, rising .2% vs. an expectation of no change.

Swissie (CHF): The Swissie is mostly lower as demand for safe-haven asset has decreased with the risk-taking in the market. Declining trade balance figures show the effects of a stronger franc on the economy.

Dollar (USD): The Dollar is weaker across the board as risk appetite has increased due to the dual-action of the potential Euro debt resolution and the fact that the economic data here, namely initial jobless claims, continues to be weak. This means that the market could be expecting QE3 from Bernanke and the Fed.

Yen (JPY): The Yen is weaker vs. all but the Dollar and this relationship needs to be watched closely it could be a catalyst for BOJ currency intervention. Trade balance figures came in better than expected which means that Japanese exports are improving as the recovery from the natural disaster takes effect.

So the markets will continue to wait for the news out of the Euro zone meeting in Brussels today and there could be major volatility surrounding the release of their statement as the market weighs on every word.

While the markets have been flying so far this morning, I am going to exercise caution as I’m just not as positive as others. Buy the rumor, sell the news has always been a trading mantra I’ve adhered to, so it will be interesting to say what is going to happen later today.

But for now I’m content to take profits, and looking to re-establish positions as the news is released.

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