Money | Forex Blog

January 4, 2012

Dollar Could See Buying Pressure as Euro Debt Crisis Worsens

Filed under: OANDA News — Tags: difficult-year-, economic exposure, eur, greece, money, previous, the-broadest, three-quarters, wraps, yearning-for — admin @ 7:15 am

That sound you hear is the collective sigh of relief as we put the wraps on yet another difficult year.The respite may be brief, however, and by the time 2012 comes to a close, we could well be yearning for the good ol’ days of 2011.

Compared to this time last year, the U.S. economy is ending 2011 on a reasonably positive note. Gross domestic product — the broadest measure of the nation’s economy — expanded in each of the first three quarters of the year reaching 1.8% growth in the third quarter.

Source: CNN Money

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Easing Inflation Points to Possible ECB Rate Cut

Filed under: OANDA News — Tags: 3-0-percent, december, economic exposure, eur, european, greece, money, percent-off-the, previous, slow-as-the, statistics, the-headline, wraps, yearning-for — admin @ 6:52 am

The latest release from Eurostat – the European Union’s Statistics Office – suggests inflation eased slightly in December from the 3.0 percent recorded for the same month one year previously. Analysts feel that inflation could continue to decline giving rise to a growing expectation of a cut to European interest rates in the first quarter of the year.

“Assuming that the oil price does not rise again, we see this component knocking about 1 percent off the headline rate in 2012,” said Ben May, economist at Capital Economics. “Food inflation should also slow as the effects of past rises in agricultural commodity prices fade.”

Source: Reuters

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September 29, 2011

Facing Facts: Greek Default Inevitable

Filed under: OANDA News — Tags: a-great-need, a-similar-fate-, a-wide-rage, country, economic exposure, eur, fact, government, greece, italy, money, possibility — admin @ 2:50 pm

Publically, Eurozone officials continue to pledge their full support for Greece and refuse to acknowledge the possibility that Greece may never be in a position to repay its debt obligations. Private conversations, however, likely take on a much different tone.

The markets certainly have little faith in Greece’s ability to survive as a solvent entity. The current yield on 2-year Greek bonds is rapidly approaching 50 percent which is hardly a vote of confidence. For many, the focus at this point should simply be to shelter the remaining Eurozone members from a similar fate.

In order to convince Eurozone officials to come to Greece’s rescue in the first place, the Greek government agreed to implement a wide rage of “austerity” measures to address the country’s chronic deficit habit. Comprehensive spending cuts and the introduction of new taxes and revenue-generating schemes are part of the plan to close the budget gap.

Naturally, the government’s deficit fighting plans have not been well received by the citizens of Greece. Athens has been the scene of mass protests bordering on all-out rioting and while it was never very likely the government would meet its austerity targets, public opposition has all but ensured the goals will remain unfulfilled.

What is lost in the rhetoric is the fact that the next emergency payment of 8 billion euros is due within days but payment is contingent on meeting the austerity targets. If the payment is suspended, Greece will effectively run out of money by the middle of the month and will not be able to meet its next round of debt payments.

Few expect the money to be withheld but this constant threat of insolvency is simply not tenable; worse still, it is highly destructive to global markets. Harvard Economist Martin Feldstein went on record earlier this week to state the case for allowing Greece to default.

“The only way out is for Greece to default on its sovereign debt”, Feldstein wrote in an article published Wednesday. “When it does, it must write down the principle value of that debt by at least 50 percent.”

In other words, if a default is indeed unavoidable, let’s get it over with and do what we can to minimize the ill effects.

This means protecting European banks from the massive losses these institutions would face in the event of a Greek debt write-down. Forcing the financial system to take the brunt of the default could trigger further Eurozone insolvencies as credit availability would plummet. For countries including Spain and Italy, there is still a great need for access to stable and affordable credit as both struggle to address their own deficit issues.

By putting an end to the hostage scenario global markets have been subjected to for well over a year now, we can start to heal infected balance sheets and restore investor confidence. Few believe Greece can avoid a default so let’s face the fact and concentrate on minimizing collateral damage.

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September 14, 2011

Cracks Appear in Merkel’s Coalition as Debt Crisis Worsens

Filed under: OANDA News — Tags: deficit-target, european, german, greece, greek, likelihood, money, party — admin @ 1:56 pm

Fears that Greece is heading towards an inevitable default have increased significantly in the past two weeks. And now it appears that as the likelihood of a default increases, the fate of Greece has driven a wedge between the two main parties in Germany’s coalition government headed by Chancellor Angela Merkel.

On Tuesday, comments made by German Vice Chancellor Philip Roesler who heads the Free Democratic Party painted Merkel into a corner. Merkel, whose Christian Democratic Party leads the government only through the support of the FDP, was forced into damage control when Roesler brought up the possibility of Greece defaulting and being forced out of the Eurozone.

“To stabilize the euro, there can no longer be any taboos,” Roesler wrote in an article for the German Newspaper Die Welt. “That includes, if necessary, an orderly bankruptcy of Greece if the necessary instruments are available.”

Merkel immediately went on the offensive to reassure markets already in panic following Monday’s deep sell-off. Merkel pledged that she personally, and the government as a collective, are in agreement that “everything must be done to keep the euro area together”.

Merkel went on to suggest that the loss of Greece would lead to a “domino effect” that would soon engulf other debt-ridden countries within the region.

Greece Expected to Miss Deficit Target

One of the main conditions Greece agreed to in exchange for emergency funding was to reduce its 2011 deficit by 7.6 percent. Progress on this objective is currently being reviewed by representatives of the “troika” comprised of the European Union, the International Monetary Fund, and the European Central Bank. The preliminary results of this audit are not encouraging.

The latest evaluation is that Greece will fail to meet its deficit reduction target. According to the auditors, this failure is due partly to a lack of effort on the part of the government, but also because the Greek economy contracted more than had been anticipated. The weaker growth resulted in lower revenues leaving a wider-than-expected budget shortfall.

The big question now of course is will the government’s apparent failure to meet its deficit goal affect the next financial aid payment of 8 billion euros (US$10.9 billion)?

At this time, most analysts believe Greece will still receive the next tranche as scheduled but it will surely come with a stronger warning that Greece must take its deficit reduction goals more seriously.

In addition to the deficit shortcomings, Greek officials will also be taken to task over their lackluster efforts to privatize a series of government-owned agencies. Again, in exchange for emergency funding from its Eurozone neighbors, Athens was expected to sell a series of government-owned agencies and use the money to reduce the operational deficit.

The scheme is expected to raise 1.7 billion euros (US$2.3 billion) by the end of the month, and another 5 billion euros (US$6.8 billion) prior to the new year. Publically, the government claims it is optimistic that it will meet these targets but the troika remains unconvinced.

It is commendable that Merkel acted so quickly to defuse the comments of her Vice Chancellor but in the end, this may prove to be little more than window-dressing. Greece is clearly not on track to contain its deficit and the likelihood of a default – no matter what Merkel says – is higher today than it was just two weeks ago.

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July 6, 2011

Is Now The Time To Raise Rates?

Filed under: Forex News — Tags: a-will-release, aussie, business, china, chinese, climate, health, home, housing, information, jobs, money, morning — admin @ 7:45 am

That’s the question some are starting to ask now as the market has fully priced in a 25 bp rate hike from the ECB for the Euro zone tomorrow. This comes after yesterday’s downgrade of Portugal’s debt to junk status by Moody’s who are concerned that another bailout may be required.

This also comes after the issues of how to solve the longer-term Greek debt crisis are going to unfold and how a solution is going to be reached without creating a credit event. So far every plan that has been floated has been seen as creating a credit event. Despite these problems, German factory orders came in much better than expected, posting an increase of 12.2% vs. an expectation of 9.5%.

The BOE is also set to decide on interest rates, and though they are expected to remain unchanged, home prices came in last month showing a gain of 1.2% vs. an expected no-change which could add to the inflationary pressure the central bank is ignoring.

A little earlier this morning, China raised interest rates another 25bp in an attempt to slow down their economy, which put immediate pressure on the oil market and risk appetite in general.

Here in the US, job cuts figures increased, meaning there were more plans to fire rather than hire, and Friday’s NFP report will show whether or not there is any hope on the employment front. Reduced numbers are likely to mean that the Fed will maintain current easy monetary policy. ISM Services figures round out the morning.

In the forex market:

Aussie (AUD): The Aussie is mostly lower after the Chinese rate hike and general risk aversion in the market after the Portuguese debt downgrade. Australia’s employment reports are due out tomorrow and dovish comments from the RBA the other day could further pressure the Aussie lower. (Click chart to enlarge)

Kiwi (NZD): The NZ GDP report that was supposed to be out has been postponed and at this point I don’t have any further information about when it will be forthcoming. So the Kiwi is lower on risk themes today.

Loonie (CAD): The Loonie is also lower as oil prices have pulled back and later this morning Canada will release its building permits figures which are expected to show a gain of 5% after last month’s dismal decline in excess of 20%.

Euro (EUR): The Euro is mostly lower after the Portuguese downgrade despite better than expected German factory orders and ahead of the ECB rate decision tomorrow. Should the ECB decide to not raise rates, then there could be a big sell-off. (Click chart to enlarge)

Pound (GBP): The Pound is also lower this morning ahead of tomorrow’s BOE rate decision despite higher home prices as the market is convinced that the BOE will be on hold for some time when it comes to rate hikes. As government austerity continues to add pressure to a declining economy, inflationary fears may be the only bullet left.

Swissie (CHF): The Swissie is mostly higher on risk aversion ahead of tomorrow’s CPI data and Friday’s employment report. Inflation is expected to have declined last month, which could mean that the SNB won’t have to act on rates anytime soon.

Dollar (USD): The Dollar is higher this morning on risk aversion despite the jobs cuts report which is expected to show an increase. The important figure to watch is Friday’s NFP, though the business appears to be unconvinced that the climate is getting better. The debt ceiling debate could help resolve some of these issues if a sensible compromise is reached.

Yen (JPY): The Yen is stronger across the board as carry trades are un-wound because of risk aversion.

The mandate at the ECB is not a dual mandate like it is here in the US. The sole mission of the ECB is to maintain price stability through interest rate policy. This means it needs to keep inflation in check. So they have to look at the strongest economies in the region with regard to how prices are affecting economic growth.

So even though many countries are going through painful austerity measures, it is probably a good thing that prices are not rising as the added costs would affect these countries more directly.

So why is it that the US government, particularly the Fed, so intent on causing inflation here through low interest rates? The answer is the housing market, the health of US banks, and our debt obligations abroad. If the Fed can sucker enough people into buying things now for fear that prices will be going much higher in the future, then they can essentially manufacture economic activity.

This unfortunately is not working, as the banks are not playing along and lending money as they fear further declines in prices due to reduced economic activity and potentially higher interest rates that our creditors may demand.

It is all too apparent that we are heading for what the Fed is trying to avoid, and as interest rates get raised in other regions around the globe, that’s where the money is going to flow. The history books and economic textbooks were written when the US was the only game in town. But that no longer is the case.

So put your money in places where it will work for you by investing in the forex market!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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June 24, 2011

Market Rollercoaster!

Filed under: Forex News — Tags: commodities, correlations, forex, fxedu, interest, live, marketplace, money, reduce-the-size, stock, trades — admin @ 7:30 am

Wow, what a wild ride yesterday was in the global market place! We had a bit of everything: gloom and doom, government manipulation, weakening economic data, crisis resolution, fear, anger, and hope. Where else can you get this type of excitement?Here’s a quick recap of what happened over the past few days: Dollar was strengthening after the FOMC said that QE2 would end, taking down global stocks and commodities. The EIA then said that the US would release 30 million barrels of oil from our strategic reserve, driving oil prices lower and sending correlated markets such as stocks lower. Later in the day it was announced that Greece had accepted a 5-year austerity plan and will be receiving money form the EU and IMF as part of a new bailout (though the actual vote is next week), so the markets rebounded only to finish slightly lower.

Frankly, I am outraged by the oil thing but not surprised. While yes I am in favor of lower oil (gasoline) prices, I am not in favor of achieving them by weakening our emergency reserves. What happens if a situation arises where we need that oil? It’s like raiding your emergency savings account to go on vacation. Politics at its worse.

Meanwhile in the Euro zone, it looks like the Greece austerity deal will go through next week, despite the protestations of nearly 75% of Greek citizens polled.

Here in the US, durable goods orders came in better than expected, posting a gain of 1.9% vs. an expectation of 1.5%, which is a welcome better-than-expected data point.

So the markets are starting the day in mild risk taking mode with stocks set to open higher, though oil prices are lower.

In the forex market:

Aussie (AUD): The Aussie is higher across the board after Asian stocks were higher overnight on risk taking after yesterday’s comeback in US stocks.

Kiwi (NZD): The Kiwi is strengthening as risk trades are being re-established after the Greek debt crisis announcement.

Loonie (CAD): The Loonie is mixed as risk appetite and lower oil prices fight to see which aspect will dominate trading today.

Euro (EUR): The Euro is off of its previous highs and has pulled back some as they are not out of the woods yet. While yesterday’s news of the agreement is extremely positive, the vote hasn’t actually taken place yet. German IFO expectations figures came in better than expected. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower as rate expectations for the UK have been lowered and there is considerable concern about the exposure that UK banks have to the Euro zone.

Swissie (CHF): The franc is stronger across the board today despite the mild risk taking in the markets to start the day. The safe haven aspects of the Swissie may still be desirable until after the Greek austerity plan is officially voted on and accepted. (Click chart to enlarge)

Dollar (USD): The Dollar is weakening on slight risk appetite after US durable goods orders came in better than expected. It will be interesting to see if the Dollar will continue to weaken without the aid of the Fed, or if it can co-exist in higher stock market environment if the correlations break down.

Yen (JPY): The Yen is showing some surprising strength despite the higher Asian stock market returns overnight. While there is still risk in the marketplace that appears to be coming from the EU and UK specifically, cautious buying persists.

Wild market action indeed! Whether you agree with what is going on in the marketplace or not is of no consequence. What is important is that you have a plan to protect yourself from unexpected events that can cause major volatility.

If summer volume decreases, then volatility could definitely pick up. This is exciting for forex traders because volatility equals potential. There are still many different global events that will carry trading well into the next few months, and there is still great risk and opportunity.

However, this doesn’t change this mess that is known as the US economy. It appears as though election cycle politics are in full-effect so it is doubtful that anything meaningful will get done. The debate over the US debt ceiling may come into play as ideology gets left behind in favor of pragmatism, but don’t expect wholesale changes overnight.

The business climate is still an abomination, with the new healthcare bill, regulations, potential for tax increases, and a reluctance to reduce the size of government and debt all factoring in to keep businesses from hiring. The fact that there is actually debate over the fact that the current path we are on is disastrous is both scary and sad.

So invest your money in countries on the right path, and stay away form those destined for doom. The best way I know of to do this is through the forex market!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

Tags: account, AUD, Aussie, bank, blog, cad, carr, CHF, commodities, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, fear, fed, forex, forex market, forextrading, free, fx, fxedu, gbp, Il, interest, invest, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, RSI, ssi, stock, stocks, Swiss, time, trade, trader, trades, USD, Yen

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May 13, 2011

Market Feels Vulnerable Long EUR

Filed under: OANDA News — Tags: a-rising-dollar, china, dean's fx, energy, europe, jpy, money, price, week — admin @ 4:14 am

The Euro-zone is growing nicely (+0.8%). The morning’s data should reinforce ECB tightening expectations and the markets’ comfort with Spain’s continued ability to decouple from the smaller periphery debt markets.

The solid French and German reading drove the strength, while the story was all negative in the peripheries, with Portugal the biggest surprise, entering a technical recession in the first quarter. Naturally, the market was interested in how the austerity measures would have an impact on Greece’s growth, it recorded a +0.8% expansion on the quarter.

Big picture, the Chinese reserve ratio hike and the continued uncertainty over a bailout for Greece are weighing on risk sentiment. At theses levels, the percentage traders have been buying back some EUR as profit ahead of the weekend, but, they are running into an Asian selling wall.

The US$ is weaker in the O/N trading session. Currently, it is lower against 10 of the 16 most actively traded currencies in a ‘orderly’ session.

Yesterday’s US retail headline appears solid (+0.5%), but the details do reveal some weaknesses. Analysts note that higher prices appear to be the reason for another consecutive gain in nominal retail sales last month. The proof should be in the pudding when the St. Louis Fed releases the price-adjusted results later this month.

However, the details of the report suggest that the US consumer is starting to pull back on discretionary spending because of higher energy and food prices diluting their disposable incomes. Digging deeper, sales (ex-gas component) posted a modest +0.2%, m/m, gain as headline strength was very narrowly based in food and gasoline stations sales (+2.7%, m/m). Revisions contributed to the market miss on expectations, headline sales were revised up strongly from +0.4% to +0.9% while core-sales rose from +0.8% to 1.2%. The largest monthly gains were in the food and beverages and gas stations and because of their strong weighting they contributed heavily to the headline gain.  

Last month’s US PPI increase of +0.8% was very much in line with market expectations. The core (+0.3%) was marginally higher and the breakdown reads consistently with the uptick in inflationary pressures. It’s proof that the Fed cannot become complacent, even if the rise in energy prices is beginning to look like it has peaked. The new core trend of +0.3% for this year is a clear acceleration from last years +0.2% level. It is worth noting that food saw only a modest gain (+0.3% vs. +0.2%), which means that it was energy that pushed the headline higher, with a rise of +2.6%. Gas slowed to +3.6% from +5.7% in March, but natural gas spiked by +3.5% after easing -1.2% in the same period. Crude and intermediate data also looks firm at the core level, up by +2.6% and +1.1%. Analysts also note that the recent declines in oil prices should see some easing in PPI energy prices. Excluding energy, there is a pickup in inflationary pressures and should lead to new Fed debate.

Weekly claims in the States fell-44k to +434k and inline with market expectations. Despite falling back towards trend levels, it still remains elevated. Next week’s claims will cover May’s payroll survey week, and it’s fair to say with no significant change to the elevated trend we should expect some slowing in payroll growth. Despite the anomaly reasons given for last week’s spike, the two-week trend suggests some underlying deterioration with the underlying pace comfortably above the +400k mark. Digging deeper, continuing claims disappointed with a +5k rise to +3.756m, the-32k in emergency claims outweighed a +15k rise in extended benefits. The overall tone does not suggest a strong employment environment.
 
The USD is lower against the EUR +0.45%, CHF+0.05% and JPY +0.49% and higher against GBP -0.04%. The commodity currencies are stronger this morning, CAD +0.07% and AUD +0.15%.

The pressure on commodities continues to undermine the loonies’ progress. The order boards are very thin with corporate buyers backing up their bids. Yesterday’s weaker than expected new home price index unchanged in March after four previous gains provided little support fundamentally.

Despite the Canadian Finance Minister stating that ‘Canada’s strong currency reflects confidence in its economy’, nervous weak longs are been forced to liquidate as risk off trading dominates this fragile market.

Last week, the CAD retreated from a three-year high as commodities plunged on concerns for Greece’s continued Euro membership, pushing investors to seek temporary sanctuary in the world’s go to safe heaven currency, the dollar, and this despite another stellar jobs report north of the forty-ninth parallel (+58k and +7.6%). The fundamentals and technicals for the loonie have not changed. Investors remain better buyers of the currency on dollar rallies (0.9626).

The Aussie dollar is finding it difficult to find traction as investors sell on rallies with dealers pricing in the bet that Governor Glenn Stevens is poised to keep borrowing costs unchanged for the longest stretch in four years after further weak fundamental data this week.

Dealers have cut the pricing for RBA rate hikes over the next 12-months by-11bp to+30bp. This week, total employment fell-22.1k last month, with the+49.1k fall in full-time employment more than offsetting the+26.9k rebound in part-time employment. The unemployment rate was unchanged at+4.9% as the participation rate fell-0.2 bps to+65.6%. This is only the third-monthly decline out of the previous 20-months. Its worth remembering that other Australian fundamental indicators ‘point to sustained employment growth and pressure on the unemployment rate to fall further’.

Aussie yields are still the highest in the G10 and do look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on these pullbacks for the time being (1.0682).

Crude is higher in the O/N session ($100.10 +$1.13c). Oil prices remain vulnerable, and have fallen this week after a surprisingly strong weekly inventory report, mixed with a cooling Chinese economy coming into focus. Yesterday, the PBoC raised banks’ reserve requirements for a fifth time this year to restrain inflation, underlining the risk that tightening measures will cause a slowdown in the world’s second-biggest economy.

This week US crude stocks rose +3.78m, much higher than the +1.4m barrels build up expected. Not to be left behind, gas inventories rose +1.28m barrels versus a forecast for a-200k barrel drop. This much larger build has grown because of gas demand being down year-over-year as higher prices at the pump cut into demand ahead of the US peak driving season. Fundamentally, investors should expect further slippage of prices to generate stronger demand and reduce inventories from current levels.

Higher oil prices have been denting demand growth and it’s this drop-off, combined with the overall retreat in commodities, and a rising dollar that has forced this drastic easing of oil prices this month. The IEA indicated this week that they have cut global demand as this years price rally begins to weigh on consumption. They have reduced its estimates for world consumption by-190k barrels a day.

The dollars rebound this week has eroded the allure of gold for alternative investment purposes. With global equities under pressure from China’s inflationary stance, is bearish for commodities as investors are pressurized to taking profit with gold to compensate for losses with other assets. Last week, gold happened to give up +4.2% of its value.

The fear that European officials may not grant Greece any further aid, forcing them to restructure their debt as the only alternative (code for default), had risk aversion strategies impeding the yellow metal’s recent rally. Technically, price action indicates that the worst of the liquidation may not be over.

Until now, the uncertain macro-economic and political environment has been encouraging investors to want to own their piece of the commodity. Unofficially, the yellow metal has become the currency of choice because of the heightened currency volatility and on the back of a questionable dollar value.

The metals bull-run is far from over with speculators continuing to look to buy gold on these deeper pullbacks, however, with inflation expectations dipping this month has the weaker ‘long’s’ remaining on the back foot and second guessing their outright positions ($1,513 +$6.30c).

The Nikkei closed at 9,648 down-68. The DAX index in Europe was at 7,497 up+53; the FTSE (UK) currently is 5,997 up+53. The early call for the open of key US indices is higher. The US 10-year backed up 5bp yesterday (3.21%) and is little changed in the O/N session.

Dealers cheapened up the curve nicely ahead of the $16b 30-year auction, even with risk aversion trading strategies trying to dominate. It was not a solid auction, yielding 4.38%, 2.7bp behind the curve, with 2.43 times subscribed versus a 4-auction average of 2.76. Indirect bidders took +33% of the supply, below the +43% average, and direct bidders took +42%. Post auction saw solid demand for product with the new issue trading in the money.

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April 15, 2011

Happy Tax Day!

Filed under: Forex News — Tags: a-higher-rate, account, currenc, currency, forex, forextrading, ireland, irish, money, taxes, time, trade — admin @ 1:13 pm

OK, not really. Do you know where your money goes? Well I certainly don’t, and while I am not happy about having to write a big check, at least this means that my trading has been successful. Many Americans are in the same boat, and are disappointed by the lack of stewardship coming from our politicians.

Today the House will vote on the Republican budget plan, but it is DOA in the Senate so let the negotiations begin. Major reform is necessary but very unlikely to take place. I would advocate some sort of polling system, where taxpayers could “allocate” their tax dollars to areas that they feel are important. Take the corrupt politicians out of the equation.

One place where they don’t have to worry budget deficits is China, who reported overnight 9.7% GDP growth. This is an amazing figure considering the state of the global economy, however the reported 5.4% CPI data shows that inflation is still a problem there, which could mean further rate hikes which could potentially slow economic growth for the periphery that depends on Chinese growth. Perhaps it has something to do with the $3 Trillion dollars in currency reserves that China holds, all thanks to their currency peg.

In the Euro zone, Irish debt was downgraded, Greek debt may need to be restructured, and CPI came in a little hotter than expected.

Meanwhile the US Fed continues to deny that inflation exists here in the US, and today’s CPI data will likely prove their point. I guess if the price of things that nobody cares about continues to go down, then it is acceptable to have $4 gasoline. The intellectually dishonesty is sickening frankly.

So stock are set to open lower, and commodities have pulled back some as there is risk aversion to start the day.

In the forex market:

Aussie (AUD): The Aussie is lower as China is the largest importer of Australian raw materials and if the Chinese raise rates to slow inflation than that could affect Aussie exports negatively. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is actually trading mostly higher as the expectation of rate hikes and a higher rate differential after the emergency cuts the RBNZ made to provide relief from the earthquake, may have stoked inflation.

Loonie (CAD): The Loonie is mostly lower as commodities are pulling back on the threat of a potential Chinese slowdown. It has long been rumored that China is the driver behind the recent oil price spike. More US Fed subterfuge if you ask me.

Euro (EUR): The Euro is lower across the board as the Irish debt downgrade and the possible Greek debt restructuring is being the debt crisis back into to focus. Ignoring this won’t make it go away, so some concrete plans could allay market fears, especially if the ECB is going to continue to raise rates.

Pound (GBP): The Pound is also lower as the UK’s close ties to Ireland are helping to weigh on Sterling. With no news out of the UK today, British prospects are looking up when compared to the others.

Dollar (USD): The Dollar is mostly higher on risk aversion and CPI data came in slightly higher than expected, showing inflation at 2.7%. I don’t want to get into the headline vs. core debate, but it is clear that the Fed is intentionally trying to avoid the reality. Stagflation, here we come!

Yen (JPY): The Yen is strengthening as carry-trades are being unwound due to the threat of a potential Chinese slowdown. (Click chart to enlarge)

When both monetary and fiscal policy in a country is deplorable, it makes no sense to invest there. Yes, I am talking about the USA. Politicians can debate the ideology back and forth, but at the end of the day the lack of leadership is truly striking.

Enter the Fed, who will some claim to just be stupid and not malevolent with regard to the way that they do things. In the meantime, hardworking Americans will continue to do their patriotic duty and send in their taxes, so politician/celebrities can fly around on private jets and make policies that nobody wants or needs.

So Happy Tax Day! I hope you are having as much fun as I am!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, forextrading, free, gbp, Il, jpy, market, nzd, practice, ssi, time, trade, USD, Yen

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April 4, 2011

Time To Raise Rates?

Filed under: Forex News — Tags: a-bit-higher, a-credible-plan, citizens-as-the, eur, fxedu, interest, jpy, market, money, perhaps-the-ecb, rate, usd, year — admin @ 12:16 pm

This is the question that will be asked and answered this week as there are rate policy meetings happening around the globe which will have varying results. It is no secret that commodities prices are higher (particularly oil) and that inflation is making the rounds through economies around the globe thanks to Big Ben and the US Fed and the money pump they are providing.

First up is Australia tomorrow, who is expected to leave rates unchanged at 4.75%, the highest of the actively traded pairs I follow. The question though is whether or not we will see another rate hike this year, and much of that will be determined by how stable the global economy is once (if) the Fed turns off the faucet.

Next is the UK followed closely by the EU on Thursday in what is turning out to be a “tale of two central banks”. In the UK, it is expected that rates will remain steady and there will be no change to the asset purchase plan, despite the reported inflation they are seeing above 4%.

In the EU, it is expected that there will be a rate hike of 25bp to 1.25% as the ECB is trying to get out ahead of inflation. The problem of course is what this will do to funding costs of the periphery and debt-laden countries that are still struggling to get their economies back on track. Without a credible plan for debt-relief, this could push the situation closer to the breaking point.

Meanwhile as mentioned above, commodities are still flying higher with oil trading above $108, and the risk from the Libyan civil war and the Japanese nuclear crisis has abated but not gone away.

In the forex market:

Aussie (AUD): The Aussie has been putting in new high after new high but Tuesday’s rate decision could provide some weakening if dovish comments accompany the statement. Right now the question is if we might see another rate hike this year, not when. Employment figures are due out on Wednesday.

Kiwi (NZD): It is a pretty quiet week for the Kiwi so expect it trade on risk themes and on anti-Dollar sentiment.

Loonie (CAD): The Loonie keeps putting new highs vs. USD, settling just above .96 before selling off a bit. Higher oil prices have been supporting a higher Loonie, though Friday’s employment report may give some insight into the fundamental economic story in Canada. (Click chart to enlarge)

Euro (EUR): The market appears to be singularly focused on the ECB rate decision this week as it is a questionable tactic given the state of affairs with regard to the debt-mired countries. Should the ECB embark on a tightening cycle without a credible plan in place to deal with the debt problem then we could see fireworks in the near future.

Pound (GBP): The Pound has started the morning mostly higher after better than expected PMI construction figures were reported. GDP figures are due on Wednesday, but the BOE has seemingly brushed off the economic data in favor of extreme caution with regard to raising rates. Unlike the ECB, the BOE is not expected to raise rates, which could serve as the catalyst for a weaker Pound if there are no accompanying hawkish comments. (Click chart to enlarge)

Dollar (USD): The Dollar continues to be the currency “whipping boy” as the market finally gets that the Fed is serious in their attempts to weaken the Dollar and stoke inflation. Fed minutes will be released on Tuesday which will likely confirm this sentiment.

Yen (JPY): The Yen is actually a bit higher to start the week, though Yen weakness is the on-going theme from a longer-term view. While the nuclear crisis is still not contained, it appears to have not gotten worse which could be seen as a positive.

This week will be interesting to see how different regions around the globe are dealing with the inflation caused by the US Fed and Bernanke. It appears as though the BOE has a lot more confidence that Big Ben will be able to temper inflation than the ECB does.

On the surface, the UK economy appears to have fewer problems than the Euro zone, yet the ECB is more vigilant with regard to rates. While inflation has already crept up in the UK, the ECB may be looking to nip it in the bud before it occurs.

It is no secret that citizens of the EU are feeling the pressure of weakened economies, so perhaps the ECB move is a welcome relief and a sign that governments will not be allowed to inflate their debt away on the back of its citizens as the US and UK are so desperately trying to accomplish.

The fact that there is no credible plan in place with how to deal with the PIIGS and their debt is concerning however; but maybe this is by design and intended. If there is still considerable risk in the Euro zone, then perhaps the Euro won’t rise as fast as it might under a normal tightening cycle.

At least that’s what I hope is going on!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency trading, dollar, economy, EUR, Euro, forex, forextrading, free, fx, fxedu, gbp, Il, interest, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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March 11, 2011

Japanese Devastation!

Filed under: Forex News — Tags: article, course, dow, forex, forex market, fundamental, invest, kiwi, loonie, mike conlon, money, news, rate, time — admin @ 2:10 pm

Overnight Japan was rocked with an 8.9 magnitude earthquake AND a tsunami that has caused major destruction in the island nation. This is an extremely large earthquake for a country that is used to earthquakes; and this has caused tsunami warnings as far away as the West coast of the US.

This has induced some risk aversion, with oil prices pulling back to just above $100, and causing major strength in the Japanese yen as investors flee the equity markets. It is times like these when both the individual fundamentals and technicals can be thrown out the window as all bets are off. It is rumored that the BOJ will be holding an emergency meeting and will announce some type of monetary stimulus to help aid the economy, though that may be short-lived.

The death toll is rising and there is no telling what the aftermath of these natural disasters may hold.

How different currencies are reacting to this situation is indicative of some of the fundamental drivers, however.

The Pound is weaker across the board as PPI data came in lower than expected perhaps providing some relief form inflation. This would allow the BOE to maintain current accommodative policy.

The Loonie is also lower as crude oil has pulled back and the Canadian employment report showed a gain of 15K jobs vs. an expectation of 26K and the unemployment rate came in higher than expected to 7.8%.

US retail sales figures and confidence numbers are due out later this morning. Sales are expected to increase 1% and confidence is expected to come in slightly lower than last month.

In the forex market:

Aussie (AUD): The Aussie is mostly lower on risk taking this morning though there is some life in the currency as Chinese economic data came in slightly better than expected.

Kiwi (NZD): The Kiwi is actually higher against all but the Yen as the market is taking the long- term view that further rate reductions will not be forthcoming in New Zealand. It is also receiving money flows from the Loonie.

Loonie (CAD): The Loonie is lower across the board as oil prices have now dipped below $100 and the employment report came in worse than expected. (Click chart to enlarge)

Euro (EUR): The Euro is also lower as German CPI data came in as expected but apparently a showdown is in the making between Germany and the debt-laden countries of the Euro zone over the terms of the rescue package. This situation is far from over.

Pound (GBP): The Pound is also lower on PPI data which showed some relief from inflation by coming in less than expectations. Perhaps the BOE plan of waiting out the inflation may be working.

Dollar (USD): The Dollar is mostly higher on risk aversion and retail sales figures did indeed come in as expected at 1%, a 4-month high. Lost in all of the news about Japan is the Euro debt crisis and the situation in Libya and the potential contagion. Risk is still high despite equities markets trudging higher as there is no better investment alternative.

Yen (JPY): The Yen is higher across the board as money is re-patriated to Japan and demand will remain high once the rebuilding process begins. While it is difficult to know what the economic impact will be at this time, don’t be surprised to see the BOJ act swiftly to make money more readily available. (Click chart to enlarge)

Natural disasters such as this one remind us of our own humanity. Just in the time it has taken me to write this article, the death toll has risen to 300+.

From an economic standpoint, sometimes these events can change trends that were beginning to emerge or delay movement that we may have been expecting. Japan as a country is used to dealing with earthquakes so hopefully the devastation can be mitigated through their experience.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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