Mike Conlon | Forex Blog

November 16, 2011

Forex Market Outlook 11/16/11

Filed under: Forex News — Tags: a-with-the, carry trade, china, dow, fxedu, heads-as-there, invest, mike conlon, new zealand, rate-decision — admin @ 7:20 am

Buy the dips and sell the rips. That is exactly how one should navigate this forex market as headline risk from the Euro zone is countered by the US need for stock prices to go higher. So the market action of late has been selling in the Euro session and buying in the US.

This has obviously left trend-traders and longer-term investors scratching their heads as there has been great range-bound volatility with no longer-term patterns emerging. In short, take what the market gives you.

What we received overnight out of the UK was more of the same, as the BOE inflation report suggested that further stimulus was needed to ward off the effects of a Euro zone recession and that inflation would be back under 2%– in 2 years time! What will happen in those two long years is anyone’s guess but it should be noted that they reported 5% headline inflation just yesterday.

And also speaking of inflation, the Euro zone reported in-line CPI data with the headline figure at 3% and the core figure of 1.6%, as was expected.

In the US, the headline figure came in lower than expected at 3.5% vs. an expected 3.7% and the core figure was expected at 2.1%. Yet here we are with oil prices back up above $100 (see chart of the day) and all the talk is that we are facing further recession.

Inflation is coming folks despite Central bank efforts to help economic recovery. Stagflation is actually more likely and is exactly what the UK is experiencing right now. The unemployment rate in the UK ticked higher to 8.3% vs. an expected 8.2% as only 5300 jobs were added vs. a pipe-dream hoped for expectation of 21K.

Let’s remember, these data points are backward looking and do not forecast the future, so in the grand scheme of things they are pretty immaterial other than talking points that allow Central bankers to point their policies as not being destructive. One does not need to be a rocket scientist to know that as oil prices go, so goes everything else as the cost to produce and transport are greatly impacted by energy costs.

Perhaps its time to throw another $500 billion at failed solar companies to relieve the pain? But seriously, the problem is the Fed and cheap money policy trying to offset the disaster that is fiscal policy here in the US. Every day the news that the super-committee may fail becomes louder and louder thereby making their failure a foregone conclusion.

Meanwhile, don’t think that I’m going to ignore the European crisis that is now spreading to the banks that own a lot of this bogus sovereign debt. The bond vigilantes are in full-force as I mentioned yesterday and are selling out of this junk causing yields to rise and making financing costs nearly impossible to service.

The failure of the ECB to step in as the buyer of last resort and their daily attempts at meekly purchasing some of the Italian and Spanish debt are pathetic at best. If they want the Euro zone to continue, they need to make a forceful statement that they will step in and buy to provide confidence to otherwise fearful market.

The new governments in both Greece and Italy face political challenges and it will be interesting to see if they can garner enough support to enact the measures that are necessary to save themselves.

In other words, just another ordinary day in the forex market!

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November 15, 2011

Forex Market Outlook 11/15/11

Filed under: Forex News — Tags: aud, decision, economy, europe, gbp, mike conlon, practice account, rate-decision, sentiment, trader — admin @ 6:31 am

Well it looks like its bond yields in Europe that have the markets in a tizzy yet again this morning, with the Italian 10-year note back up above 7%, and a short-term note auction in Spain did not go off as planned as they sold less than the 3.5 billion euros they had hoped, at an interest rate of over 5% vs. 3.6% just last month.

This is troubling indeed as the cost to borrow in Europe is starting to rise again and this comes AFTER the supposed rescue package that was put in place begrudgingly last month. Part of the problem is that the plan appears to be woefully insufficient and it looks like the market wants to test European resolve. The only way that this is going to come to a close is if the ECB agrees to be the “buyer of last resort” for these bonds and that appears highly unlikely.

With new governments transitioning in Greece in Italy, it was a advantageous time for bond vigilantes to flex their muscles.

However, the actually data coming out of Europe is not horrible, with German GDP figures coming in slightly higher than expected and French GDP as expected. However, the German ZEW economic surveys came in a 3-year lows showing investor and business angst in the wake of current conditions.

In the UK, CPI data came in lower than expected but still at elevated levels of 5% vs. an expected 5.1%. Tomorrow’s inflation report from the BOE will show the mindset of the Central bank who appears to be fine with short-term inflation in attempts to grow the economy. The retail price index also came in slightly lower than expected.

In Australia, the release of the RBA rate policy meeting minutes showed that global risk emanating from the Euro debt crisis was the primary driver of the last interest rate cut, and that they are maintaining a mild dovish bias going forward. The “mild easing” was justified in order to keep the Australian economy fluid.

Later this morning here in the US we will get the Advance Retail Sales figures which are expected to show a gain of .3%, which is lower than last months 1.1% but already “baked into the cake”. This is an awfully low bar considering the “recovery” we have been hearing about so I would like to see this number exceed by a decent margin. To truly have economic recovery here in the US, the consumer has to return as they represent some 70% of the economy so it starts with Advance Retail Sales figures.

Also out this morning is PPI data which will likely be ignored by Bernanke and the Fed as they are hell-bent on keeping an easy money policy to help support the floundering economy. Empire manufacturing figures round out the morning but likely will have little impact.

So this morning’s risk aversion and sell-off could be countered by a better-than-expected Advance Retail Sales figure that could reverse market sentiment. However, should the number come in worse than expected, look out below!

Markets are still very jittery and the Euro debt crisis could continue to worsen if there is no credible belief that the individual countries can get their act together with austerity with help from the ECB to keep borrowing costs low.

Until both of these things happen, the Euro zone is still at risk of imploding as the market demands more and more from the beleaguered region. It would help if the US could also get its house in order, though this unfortunately seems like a pipe-dream as well.

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November 10, 2011

Forex Market Outlook 11/10/11

Filed under: Forex News — Tags: a-small-sense, a-tick-higher-, australia, decision, economy, emerging-as-the, fear, forex market, franc, gold, jpy, mike conlon, morning, safety, trend — admin @ 7:06 am

There is a small sense of relief in the markets today after yesterday’s sell-off due to bond yields rising in Italy to above 7%. Italy was able to get off their bond auction which shows that they still have the ability to fund themselves, though higher yields will make it much harder for them to service their debt which could eventually lead to them having to tap the EFSF.

However, the EFSF is not big enough to bailout Italy should that become necessary so they need to move quickly to attempt to start reigning in deficits through austerity measures in order to set the economy on the path to fiscal health. One of the issues yesterday was that there was some fear that Berlusconi would somehow manage to survive and be able to drag out and remain in power though now this is looking highly unlikely and the word is that he will be out by next week. This begs the question of who will take over and at this point it appears as though Monti is emerging as the potential successor.

The situation in Italy has masked the situation in Greece as political infighting there dragged out the process of who would succeed Papandreou for four days. However this morning we have the answer, as Papademos has been tabbed. It should be noted that he has a tremendous business and banking background having been with the ECB previously.

So there is definitely a push to have more business and banking experienced politicians coming into power to help navigate the Euro situation and the bailouts and debt crisis.

This morning there is a lot more economic data then yesterday, and in the Euro zone it wasn’t particularly bad or good. German CPI data came in slightly higher than expected, and French industrial production figures were lower than expected. In addition, the ECB released its economic forecast for the region and they lowered forecasts to reflect the slowing economy as a result of the debt crisis.

In the UK, the BOE left interest rates and its asset purchase program unchanged, at .5% and 275 billion respectively. While they were not expected to move after last month’s increase in the asset purchase program, they will likely take a “wait and see” approach and watch what is happening in Europe. Their next move though is likely to be on the side of easing if the economy continues to flounder.

In Australia, 10K jobs were added as expected, but the unemployment rate remained steady at 5.2% even though there was an expectation of a tick higher. This could be the result of much higher than expected Chinese import figures, which grew by 28.7% vs. an expected 22% which helped push the Chinese trade surplus lower than expectations. Reduced exports were also an issue. Also to note is that Japan and New Zealand’s consumer confidence figures came in lower than expected which is not surprising given the state of the Euro zone.

And speaking of unemployment, initial jobless claims here in the US came in better than expected showing that only 390K lost jobs last week vs. the usual 400K we have been seeing. This is a step in the right direction and I hope this trend continues but at this point it is woefully short of what’s needed.

In Switzerland, calls to weaken the franc further are not being heeded by the SNB as businesses are concerned about declining exports and want the floor on the franc raised from 1.20 vs. Euro. This is unlikely to occur with pressure on the Euro due to the debt crisis and risk in the markets.

But this morning, risk appetite has returned for now as global stocks and commodities are largely higher, though the risk in the Euro zone still remains. While no on expects Italy to solve their problems overnight, getting a new government in place would be a good start. With new leaders focused on debt reduction and managing the economies, there may be hope that the market will ease up on the rates demanded to buy their debt, thereby making it easier for them to service it.

At least that’s the hope.

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November 7, 2011

Forex Market Outlook 11/7/11

Filed under: Forex News — Tags: a-messy-arena, commodity, currencies, decision, interest-rates-, jpy, mike conlon, switzerland, trend, usd — admin @ 6:54 am

Goodbye Greece, hello Italy! That’s pretty much what the markets are saying right now as Greece is in the rearview mirror and now Italy is to the forefront. Over the weekend, Greece PM Papandreou agreed to form a coalition government and to step down from that government when it is formed. In Italy, PM Berlusconi is trying to see whether or not he can hang on to power but it is beginning to look doubtful.

Tomorrow, Italy faces a major vote on its budget and both allies and opponents of Berlusconi are calling for him to step down. His own hubris may get in the way of this being anything but a three-ring circus, but the most important thing to note is that bond yields are rising in Italy as the market is not convinced that they can do enough in the current political environment to slash budgets in order to continue receiving ECB support. Even though he survived a confidence vote a few weeks ago, Berlusconi’s days appear to be numbered.

This is seen as a positive by the markets that feel that Berlusconi has been an impediment to economic health so his departure is preferred. Perhaps then he will be able to release his album of love songs. Seriously. In Greece, the situation may be less eventful but nevertheless risk remains. If a new coalition government is formed, they had better be prepared to institute the terms of the bailout agreement. At times it seemed like Papandreou was the only sensible one there and when he leaves there could be problems.

So the short and long of it is that the euro debt crisis is still very active like a volcano, with the potential to erupt at any time. As contagion starts to affect the larger economies like Italy and Spain, the dominoes could fall very quickly.

On the economic data front, Euro zone retail sales figures came in worse than expected and German Industrial production figures also came in worse than expected, showing signs that Draghi’s “mild recession” call may be spot on. Thursday’s Euro zone CPI report and EC economic growth forecast will highlight the news out of the Euro zone, as will the unfolding drama of Berlusconi trying to hold on to power.

Also, CPI data in Switzerland showed a decline in prices which could be the harbinger of deflationary forces starting to materialize. The unemployment rate remained at 3% as expected, and the Swiss franc is weakening as the SNB contemplates a pre-emptive battle against deflation. Switzerland has been relatively quiet of late after the peg against the Euro was enacted.

There is more data out from the UK this week, highlighted by Wednesday’s GDP estimate and Thursday’s BOE rate policy decision which is expected to produce no change. The Pound has been strengthening as money has been leaving the EU in favor of the UK.

There is also a slew of economic data coming out of China on Wednesday and Thursday which could affect both the Aussie and Kiwi as both of those economies are dependant upon Chinese growth. Australia has employment figures due out on Thursday as well.

In the US, there are no significant data releases to speak of so usually the Fed takes this opportunity to hit the rubber chicken circuit and discuss various economic topics. At the end of the day this will likely amount to nothing but you never know when someone will slip up and say the wrong thing. “Fedspeak” is generally intended to goose markets higher.

Meanwhile commodities, particularly gold, have been trading like safe-haven currencies and have decoupled a bit from the risk trade as they seem like more attractive places to store wealth. Stocks are mixed to start the morning, but I could see risk appetite emerging at some point today.

So there is a lot going on this week, but not much of anything if that makes sense. Berlusconi’s fate will be watched closely by the markets and the quicker he leaves, the better. Italian politics though is a messy arena so expect the markets to remain on edge until clarity emerges.

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November 4, 2011

Forex Market Outlook 11/4/11

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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November 1, 2011

Forex Market Outlook 11/1/11

Filed under: Forex News — Tags: australia, commodities, currency market, decision, dollar, dow, europe, europeans, greece, lower-as-have, mike conlon, oil, sentiment, top stories — admin @ 7:13 am

Do you remember last week when I said that with regard to the Euro debt crisis resolution, the devil is in the details? Well it looks like that prognostication was prescient as new information is coming to light. At the time I noted that while the plan sounded good, how they would actually enact it would be more important. Now there is sentiment that the process could be derailed as unforeseen issues are starting to materialize.

Case in point; in Greece yesterday the government announced that they would be putting the debt deal to referendum and would be holding a confidence vote for Parliament. This is dangerous for two reasons, as for starters this unpopular deal could be unwound by a public vote and then secondly, the majority who voted for it could be replaced by those who are against it thereby rendering it ineffective. While this is a nice idea by the government to be democratic, it is very bad for the markets as now there is increased uncertainty about the deal. If politicians put every unpopular decision to referendum, nothing would ever get accomplished.

The second potentially disruptive news from the Euro debt deal is that China is publicly stating that they will not bail out Europe so their participation in the expanded EFSF and the SPV may be limited which would reduce the firepower the Europeans thought they had. This is not a good thing as bond yields continue to rise, most notably in Italy.

Speaking of China, they reported lower than expected PMI manufacturing figures posting a reading of 50.4 vs. an expected 51.8. This could mean that China is slowing and if they continue to slow, where will global growth come from?

This feeling was not lost in Australia, as the RBA took action by lowering interest rates by 25 bp citing, you guessed it, slowing global growth and a reduced outlook for inflation. Australia has a keen insight as to the health of China as China is the largest importer of Australian raw materials so the Aussies get a little bit of an advance warning.

However growth is not slowing everywhere as in the UK, GDP figures came in better than expected posting a gain of .5% for the quarter vs. an expectation of .3%. While this is definitely not robust growth by any means, the repairing of the UK balance sheet through government austerity may be better in the long run. PMI figures however came in lower than expected posting a reading of 47.4 vs. an expected 50 with index of services lower as well.

So there is massive risk aversion taking place in the market in a continuation of yesterday’s afternoon sell-off. Stocks are down around the globe, with the German index off some 4%. US stocks are set to open markedly lower, and commodities are selling off as well with gold crashing through $1700 and oil retreating below $90.

Japanese yen intervention appears to have had little effect vs. the Euro as it is trading back to pre-intervention levels, though it is maintaining weakness vs. USD just above 78.

US ISM manufacturing figures are due out later this morning though they are unlikely to produce enough gains to reverse this market.

Today’s selling may make tomorrow’s FOMC meeting interesting as Bernanke yet again attempts to jaw-bone markets higher with his free-money pump. But will it work this time? Is the hint of QE3 enough to overcome all of the global turmoil and slowing growth?

At some point, Bernanke’s rhetoric is going to backfire horribly and it is just a matter of time before the markets realize that free money isn’t the answer. The global economy is in jeopardy of a major slowdown and every threat of this occurring send the market spiraling lower.

The Euro debt crisis resolution was supposed to calm the markets, not inflame them further so someone needs to tell Greece to get their act together. Will Bernanke save the day tomorrow or exacerbate the crisis further?

Stay tuned!

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October 5, 2011

Forex Market Outlook 10/05/11

Filed under: Forex News — Tags: account, avoid-the-topic, currency-pairs, gbp, interest-rate, interest-rates-, invest, mike conlon, number, practice account, trend — admin @ 7:06 am

Was yesterday’s intense rally just a pause in the selling or does this mark a reversal of trend? This is the million dollar question and one that the markets are weighing very carefully. The catalyst for yesterday’s move higher was none other than Fed Chairman Bernanke who stated in his speech to the Joint Economic Committee that further monetary stimulus could be forthcoming.

This gave the markets an immediate shot in the arm and they rallied on those words as the thought of more free Fed money is too good to ignore. Many thought, including myself, that given the politics of further easing he might avoid the topic, but with the recent selling taking place something had to be done. So I applaud him for his courage, though political pressure seems to be waning against complete opposition to further monetary stimulus.

This was enough to push markets higher including the Euro, which had maintained strength until this morning after Moody’s downgraded Italy by three notches and warned that further downgrades of other countries could occur. Couple this with weaker PMI services figures from the Euro zone and declining retail sales figures (-1% vs. an expected -.7%) and the economic picture doesn’t look much better than it did two days ago.

Yet for some reason the markets believe that EU leaders are making serious strides toward a debt crisis resolution this time, all but admitting that they haven’t taken this crisis seriously enough to this point. One positive note was a vote of confidence in Portugal as investors passed on an opportunity to receive early payouts from a bond issue, electing to wait it out.

In the UK, GDP figures came in slightly worse than expected, showing a gain of .1% for the quarter vs. an expectation of .2%, bring the YoY figure down to .6% from the expected .7%. While this does indeed show a declining economic picture, it is unclear if this is enough to cause the BOE to increase asset purchases at tomorrow’s rate decision.

The EU rate decision also tomorrow, though, is another story. The ECB has been reluctant to step up in the wake of the debt crisis and it will be interesting to see what if anything they announce tomorrow. They could use this platform not to change rate policy per se, but rather announce plans for how they plan to combat the debt issue. The difference between the two rate decisions is that the BOE does not issue a statement with their decision, and the ECB does.

Rounding out the news from around the globe, Australian retail sales figures came in better than expected, showing a gain of .6% vs. an expectation of .2%. This has helped push the Aussie higher in conjunction with the Dollar weakness we saw yesterday and the follow-through this morning.

The ADP jobs report came out here in the US this morning and showed an increase of private sector jobs of 91K, vs. an expectation of 75K. While this number bears no significant correlation to Friday’s Non-Farm Payrolls report, it should be noted that although Friday’s NFP is expected to show a gain of around 60K, the number of private sector jobs expected to be added is closer to 100K.

While the markets started the morning in risk-taking mode, it appears as though we are giving back some earlier gains as both stocks and risk assets are selling off a bit. While still in positive territory, it will be interesting to see if this rally can be sustained or if it was just a one-day wonder.

So today may be what we call an “inside day”, where we make neither new highs or lows as we wait for the rate decisions of tomorrow to guide sentiment. And of course any news out of the Euro zone will be dissected, though the usual “no news is good news” mantra may not hold water in this situation. Clarity form the Euro zone is needed, and not obscurity.

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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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September 2, 2011

Forex Market Outlook 9/2/11

Filed under: Forex News — Tags: a-storm-brewing, commodities, currencies, currency market, currency trading, interest-rates-, markets, mike conlon, nzd, time, trader, trend — admin @ 7:08 am

Wow, we have just received one of the worst Non-Farm Payrolls reports on record, which showed that ZERO jobs have been created last month. That’s right, ZERO. Nada. Nilch. The expectation was for a gain of 65K jobs, but not a single one was created.

The good news is that the unemployment rate remained steady at 9.1%, though this is likely because of people dropping out of the labor force. The White House just came out with their own economic projections saying that the unemployment rate would stay above 9% for the rest of the year. No shock there.

Next week we get to hear the President’s ideas for job creation and frankly I couldn’t be less interested. This administration has been a total disaster on the economic front and the US is moving closer to double-dip recession with every passing day of ineffectual political leadership.

Obviously markets have tanked with the exception of gold, as the expectation is that Bernanke and the Fed will attempt to come to the rescue again with QE3. However, the markets aren’t ready just yet to come in to buy on that hope, and we will likely see continued volatility.

Meanwhile, the Dollar tanked right out of the gate against just about everything but the Loonie, though it is gaining strength vs. the currencies deemed “risky” like the Aussie, Kiwi and Euro. The Swiss franc, particularly has been gaining strength.

Oil prices are pulling back despite the threat of a supply disruption from a storm brewing in the Gulf of Mexico, and gold has shot up higher to around $1880.

Not much else matters this morning, and it will be interesting to see if the believe in QE3 can reverse some of this sentiment. My hunch is that we will not see much buying activity here, as we are heading into the long, holiday weekend.

Monday’s holiday is ironically Labor Day. Though it may have to be re-named Non-Labor Day!

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August 18, 2011

Forex Market Outlook 8/18/11

Filed under: Forex News — Tags: australia, carry trade, changing-risk, currency market, dollar, fear, inflation, interest-rates-, markets, mike conlon, testing-the-all, unemployment — admin @ 7:04 am

Well it looks like there is some major selling in the global equities markets today as fears of a global slowdown have induced risk-aversion. Gold is back over $1800 and is re-testing the all-time nominal highs, yet the currency market seems fairly tame by comparison.

Part of the reason seems to be the fear of intervention from the safe haven currencies, namely the Swiss franc and the Japanese yen. As markets have sold-off, money has poured into these currencies, as well as gold and US treasuries. The US dollar is strengthening, but also has the dampening effect of the Fed’s policy that they are going to keep rates at these extraordinarily low levels.

The problems in the Euro zone are not going away and the Merkel-Sarkozy meeting did little to assure markets and a lot to disrupt. The idea they floated of imposing a financial transaction tax will most likely cause money to start seeking alternatives as further taxes and regulation inhibit capital formation and not foster it.

Adding to the global economic slowdown story is the UK, who reported declining retail sales figures of -.2% vs. an expectation of a gain of .1%. As a result, stocks in Europe are down some 3%.

The hope that US economic data would save the day have been thwarted as Initial Jobless Claims once again came back in over 400K for the 18^th time in the last 19 weeks. CPI data did not help either, as the expected declines did not materialize and in fact ticked higher, showing that we are most likely heading for a stagflationary environment.

Headline CPI came in showing a gain of .5% vs. an expectation of .2% which kept the YoY headline figure at 3.6%, the same as last month and above the expected 3.3%. This figure can be somewhat confounding to some as the “normal” expectation is that the fed would consider raising rates to combat higher inflation—but Bernanke just told us last week he’s not budging on rates until mid-2013!

With the threat of higher taxes coming from the government and higher inflation (which essentially is a tax on all), it is not surprising that there is not a lot of consumer confidence at this point. Bernanke has essentially painted himself into a corner and the idea that consumers are going to come back is laughable.

Later this morning, existing home sales and the Philly Fed are due out but I can’t see how these data points, even if better than expected, can reverse market sentiment.

Meanwhile, our great leaders here in the US are all vacationing, and I hope it rains wherever they are. President Obama announced that he would release his new plan to create jobs—right after he gets back from vacation! I’m guessing this vexing problem of unemployment and a floundering economy is not going to affect his golf game. Frankly I’m tired of hearing from all of these buffoons in Washington anyway. So perhaps we would all be better off if they all took a permanent vacation!

Today will be interesting to see if the US stock market can reverse, and if the correlative effects carry over to the currency market. The situation looks bleak from a global perspective, so trade cautiously!

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