Forex Blog

January 16, 2012

EUR move Exaggerated?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 4:27 am

The market needs an extended break to digest what was dumped on her late Friday and Martin Luther King Day in the US gives us that opportunity. The decision by S&P to downgrade the sovereign ratings of nine euro-zone nations continues to weight on risk sentiment across all asset classes. Thus far, the market believes that the one notch downgrade in France’s rating to AA+ should not snowball into widespread selling of French product. That theory has been tested this morning with the French Treasury coming to market with +EUR8.7b of 84-day-357-day T-bills. The issues drew strong investor demand in Frances first bill auction of 2012 with short-term yields rising only slightly from record lows reached in its last auction of 2011.

The biggest fallout from the rating agency’s actions will be the potential effect it could have on the EFSF. If the EFSF rating is downgraded, analysts estimate that the lending capacity would be reduced to +EUR150b. The German MoF is “in no doubt that the EFSF can fulfill tasks with the current volume.” The S&P’s chop has left Portugal with a rating of BB negative outlook, and has taken the country from a pool of investment grade assets to speculative grade, joining Greece and Cyprus. It seems logical to assume that if Greece cannot pull-off another PSI and move closer to default, then it will only be matter of time before Portugal is on ‘her shoulder.’ Policy makers unwilling to commit further funds are going to have a difficult time convincing investors that PSI for Greece will be the last.

Big picture, unless Draghi and company change its tune on QE or Merkel her views on Eurobonds then it will not be long before the market again is talking about another bailout for Portugal and an earlier focus on that country’s PSI situation.

FX moves seem to belie sovereign yields at the moment. Despite rates punching above their weight, there is a perception that the EUR has weakened too much following the rating announcements last week. The downgrades do not have much of a surprise element in it and the EUR has still managed to drop 1.5-big figures. In times past, and with FX anticipating a downgrade, the single currency typically weakened -0.3%. Is this currency move exaggerated? Perhaps it is the new norm to be seen across all asset classes?

Again, this morning selling EUR’s on rallies is preferred, giving the market a bearish consistency in all asset classes. With the US on holiday and in some corners a perception of an oversold market should lead to some further consolidation in the currency markets short term.

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January 12, 2012

Will the US embrace EURs new found confidence?

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:19 am

The EUR’s low (1.2663) print of yesterday is but a distant memory in this monotonous trading range. Especially after this mornings successfully strong Spanish bond and Italian bill auction. Until know, the market had been fueled by French rating rumor troubles over the past couple of trading sessions. All denied of course, however, the half hearted participation rate has made for a number of dull trading days. This weeks focus really starts today with the highly anticipated Spanish and Italian issues. The market gets to see how interested investors are in investing in theses two economies with so much to lose. Will Premier Monti and Prime Minister Rajoy get the recognition for their austerity efforts?

Thus far, the yield on the Italian 10-year bond has remained near the psychological +7% level that prompted Greece, Ireland and Portugal to seek bailouts. In contrast, Spanish debt has fared better with the 10-year issue hovering close to the +5% watermark. Despite a worse than expected outcome for Spain’s 2011 fiscal deficit and ongoing concerns over banks’ bad debts, Spanish yields have improved on stronger sentiment across the region. This has been proven this morning with Spain delivering a strong auction.

Spanish treasury successfully auctioned +EUR9.98b of government bonds, double the amount it had planned. The average yield in the auction came in below secondary market levels, a sign of strong demand. This has also helped to push German Bunds down to healthier levels, encouraging the exiting of some risk averse positions. Not to be left out in the cold, Italy sold 1-year bills at +2.735%, vs. +5.952% on December 12. In total, Italy successfully sold +EUR12b T-bills, meeting its target, and at the same time seeing its borrowing costs plunge in the country’s first debt sale of the year and in the process helping sentiment give a lift to the single currency. On the data front, Italy is also helping the EUR to test this weeks highs. This morning’s Industrial Production release was slightly higher (+0.3% vs. -0.5% seasonally adjusted) than expected in November, and this despite the euro-zone third largest economy having already entered a recession. Its not surprising that the rise was led by the energy sector.

Market focus now turns towards the ECB. Policy makers are not expected to announce new measures or easing beyond what was launched last month. Some of the changes to collateral requirements are not yet in effect, its probably prudent for Draghi and company to at least assess the impact of the next three-year LTRO (long term refinancing operation) before adding new measures. Will North America embrace EUR’s new found confidence?

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January 10, 2012

Forex Market Outlook 1/10/12

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:47 am

Traders will have a hard time trying to find a down market today with the exception of JPY and USD as the market has taken a decidedly pro-risk tone this morning, which is a welcome relief to some.  Both global stocks and commodities are trading much higher to start the US session.  There are a few different factors driving this sentiment and it is this confluence that is driving markets higher.

So what’s going on this morning?  For starters, the market is regaining confidence in the Euro zone and the ability of its leaders to tackle the debt crisis.  2012 is likely going to be a different year for EU leaders who appear to be out in front of the crisis unlike last year when they dragged their feet and let the politics play out in public forums which erased any credibility they had maintained up to that point.  Yesterday’s meeting between Sarkozy and Merkel was viewed as positive and the news that they may accelerate payments to the bailout fund is welcome.

Today Merkel is meeting with Lagarde of the IMF and there is renewed hope that they will further the mission of tackling the debt crisis.  So far they are winning the PR battle and have kept the bond vigilantes away for now, though there is a lot of bond issuances due out over the course of the next month so they are not out of the woods just yet.  But yields are coming down for EU debt, though Italy’s 10-year is still above 7% which is problematic.  Another good piece of news is that Fitch stated they would not downgrade France so long as the debt crisis doesn’t worsen.

However, news about the current Greek debt crisis has been met with mixed reviews.  It now looks like bondholders may have to take a haircut of greater than 50% which could bring some noise to the markets as investors balk and would prefer default in order to be paid out on their CDS. This will be the story to watch going forward, as well as if this has any impact on future investment in other sovereign debt issues.

News out of the Euro zone showed that French Industrial Production figures came in better than expected showing positive gains vs. expected declines across the board.

In the UK, home prices fell less than expected and the market is looking forward to Thursday’s rate decision where the BOE is still expected to make no change.

Today is a slow day for economic data but one of the big drivers of the markets will be US corporate stock earnings.  Last night earnings season kicked often with Alcoa (AA) posting better than expected results and a host of other equities look to beat expectations despite slowing profit growth.  The correlative effect of higher stock prices still holds some weight and is a major driver of risk sentiment.

Another driver of risk sentiment is oil prices, rightly or wrongly.  I have always contended that higher oil prices should be bad for risk sentiment and not contributing to risk appetite but I am just one voice out of many.   Oil has been higher this morning to $103, mainly because of Iran’s sabre-rattling, which is threatening the supply of oil to the global market.

Overnight, China reported a much better than expected trade surplus as reduced imports pushed the balance higher as exports remained steady.  The trade surplus of nearly 16B was almost twice what was expected so China needs to step up their importing if they don’t want to continue to draw ire over their currency peg.

There is no news of any significance due out in the US today but there is some Fed speak later today that could have a market impact, though unlikely.  In today’s Twitter age, the Fed folks have really learned not to speak out of school and their remarks are carefully vetted ahead of time.  So they will stick to the party line and will go un-noticed.

If things continue on this trajectory, then we could see further risk appetite if corporate earnings continue to be positive.  The private sector appears to be in good shape at this point but government health is likely to be the topic going forward.  2012 is an election year so expect the powers that be to try to pull out all of the stops to juice the numbers to make it seem like they have been doing a good job.

Despite our ability to persevere, I can tell you that things could be a whole lot better.  Don’t fall for the counter-factual argument that things could be worse, because the opposite also holds true, that things could be better.  If business gains confidence from the government, not from the economic results, then we could be on the path to recovery.

January 6, 2012

Forex Market Outlook 1/6/12

Filed under: Forex News — Tags: , , , , , , , , — admin @ 6:16 am

Today is jobs Friday with the all-important Non-Farm Payrolls report due out later this morning.  The official expectation is that we will see an addition of 155K jobs, though based on recent data releases, I’m hearing that the “whisper number” may be a lot higher.

For those of you unfamiliar with the “whisper number”, it is essentially a figure that market insiders are expecting which is usually higher than the official expectations.  This usually occurs because of new information that comes out between when the estimates are released and the actual release of the figure.  Yesterday’s ADP report came in much better than expected and other economic data reports here in the US have been positive, creating a hope that this figure will blow out expectations much like the ADP number.

What I am hearing is that the whisper number for this report is 185K, with some expecting a print above 200K.  Why is this important?  Because the markets are a discounting mechanism so a lot of these expectations are already baked into the cake.  So sometimes a better than expected number might not be good enough if it doesn’t eclipse the whisper number.  For a example, a print of 165K would be 10K better than the expectation, but 20K below the whisper so the initial reaction could be very positive, but then we could see a quick reversal and the markets sell-off.  This is often referred to as a “bull trap” and can create heavy volatility, which is often what we see after these releases anyway.

So how does one trade this figure?  My advice is usually to wait until after the number is released and then wait for either a pullback from the initial move to get in with the new trend, or wait for a reversal and take the opposite position once the initial frenzy is done.  Easier said then done, I know, but getting into positions ahead of the figure is just gambling.  The example I used above is just one possible scenario and by no means is a recommendation for action if those should be the number that are released.

So what else has been happening in the markets this morning?   Well the news continues to worsen in the Euro zone though thankfully it is not related to the debt crisis directly.  Unfortunately though, the news is that the fundamental data is getting worse pointing to a recession in Europe.  Economic sentiment figures are at a two-year low, and German factory orders came in worse than expected, showing a decline of 4.3% vs. an expected decline of 1.2%.  In addition, Euro zone retail sales figures also came in lower than expected, posting a decline of 2.5% vs. an expected decline of .9%.  The unemployment rate came in as expected at 10.3%.  Not good at all.

This comes ahead of next week’s meeting between Merkel and Sarkozy on Jan 9th to discuss the new fiscal cooperation, and before major bond auctions in Spain and Italy at the end of next week.  So it could get ugly.

With all of this negativity, one would expect the markets to be in major risk-aversion mode, but to start the US session this is not the case.  Both stocks and commodities are higher, including European stocks, and the Euro has bounced back from earlier 16-month lows, though it is fast approaching that level again.

The other news is that Swiss CPI data came in lower than expected showing continued deflation, though it hasn’t budged the franc much.  The SNB has maintained its target range fairly well and is still at levels that may be too low to support price stability.

In Canada, the unemployment rate ticked higher to 7.5% vs. the expected 7.4%.  This has caused the Loonie to tank vs. USD despite the fact that higher oil prices have been driving Loonie strength.  This could reverse yet again, if a better than expected NFP figure is reported.

So the official NFP number is for a gain of 155K jobs, and the unemployment rate is expected to tick higher to 8.7%, so don’t be concerned if that occurs.  Keep an eye out for that whisper number though, as sometimes what is seemingly good can be disappointing!

January 5, 2012

Forex Market Outlook 1/5/12

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 6:51 am

It is becoming apparent that the Euro debt crisis is winning the sentiment battle so far this year as concerns over bond auctions in various nations have the markets on edge.  The economic data story was mixed overnight, which steered the markets toward risk aversion.

This means that we have early Dollar strength and Euro weakness, with lower stocks and commodities and risk currencies.  However, as the Euro is making 15-month lows vs. the Dollar and 11-year lows vs. the Yen, the S&P 500 is holding up fairly well.  So it is possible that the normal risk-on/ risk-off correlations we discuss are beginning to break down, and markets are definitely bifurcated based on which trading session is dominant.

Case in point, yesterday the markets were lower for the majority of the morning as the US session opened, but once the European market closed stocks ended up finishing the day positive.  This is indicative of the fact that the risk in the market is coming from Europe which is no surprise, but it almost seems as though the market here was just waiting for Europe to close in order to begin the party.  So pay attention to the time-zone implications of trading in the markets and how they react as each session closes.

Overnight, Asian markets began the sell-off after Australian trade balance figures came in lower than expected as exports to China were lower by 16%.  Speaking of China, they also lowered the reference rate for the Yuan, marking the biggest decline since November.  The performance of Services index in Australia came in at 49, which was better than last month but still showing contraction rather than expansion.

But perhaps the biggest news of the morning so far was the French bond auction that saw yields rise on a bid-to-cover that was lower than average.  There is great concern that France will receive a credit downgrade from their AAA status, which is likely a reason for lower demand.  It seems to me that countries that are not Germany are going to have further problems issuing debt.  While the bond vigilantes may not be aggressively shorting issues at this time, demand is weak so that may be a benign way of pushing yields higher.  In other words, why would investors buy today if they believe yields will be going higher?    Because Euro leaders have not come to a complete solution, this is likely going to drag on for some time.

In addition to these funding problems, the Greek PM stated that Greece may face an economic collapse as early as March and the Italy’s PM said that the EFSF is woefully under-funded.  Add in some lower Industrial New Orders figures and slightly higher PPI, and the situation is starting to worsen in Europe.

Here in the US, employment data is starting to filter in over today and tomorrow and so far the numbers look great.  The big news of the morning is the ADP employment change, which showed a gain of 325K jobs vs. an expectation of 175K jobs.  This is a blowout number and could be the start of real employment gains.  The Challenger Jobs Cuts figures were also positive after being negative last month.

The initial jobless clams figures came in as expected showing 372K newly unemployed so this number is improving, albeit slowly.  US stock futures have improved off of their lows of the morning on these employment numbers so it is possible that the market pattern I discussed above could occur again today.

However, while we cannot extrapolate better Non-Farm Payrolls at tomorrow’s release, these numbers are a great start and it is likely that expectations for NFP have been revised higher.  I discussed the other day though how these numbers could be distorted due to seasonal hiring and end of the year book-balancing, but this is the type of data that we need to see to continue to improve the economy.

The power struggle between the negative Euro debt crisis and the positive US economic data will continue to be the story going forward until more clarity emerges.  For example, this December ADP number is the highest of 2011, but December’s number has been the highest of the year for the last 3 years in a row.  The numbers then begin to slowly decline throughout the following year.

If this is the pattern that we follow this year then things may not be improving as we hope.  But if we begin to show improvement next month and going forward, then we may be able to catch an economic tailwind that can overshadow the problems in Europe.  If not, then it could be more of the same for 2012.  Stay tuned!

FX requires EUR Fixed Income to trade?

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 4:20 am

Fundamentals could not get the ball rolling, that was left to rumors of a ‘larger’ German bank requiring capital. Dollars and Yen continue to grind stronger allowing the EUR to print a 15-month low on funding stress issues in Euro-land. What Euro financial institution does not require capital? Not helping investors mood were comments from the Greek Prime Minister Papademos. He stated that slashing incomes are the only way for his country to remain in the EU and receive more financing from international creditors to avert an economic collapse. As they say, it’s difficult to get ‘blood from a stone’.

Over the next two weeks FX traders will hopefully have become experts in the FI income sector. It is there that the front line action will occur. There are a few important issues coming to the market that will be testing investors appetite for risk. The demand for varying issues will be highlight the “faith” being put into the various economies. Yesterday’s German Bund auction, a solid product in market theory, received a somewhat lackluster response to the issue. This certainly is not an encouraging response for Italian and Spanish debt auctions next week. Both of these economies are in the investors ‘crosshairs’. We can expect the back-room staff, the ECB and company, to create a positive atmosphere around troubling issues. This morning they were in buying Spanish product. Remember, all of this trading in various markets and market prices is about perception. Dealers are required to create it and traders deal on it! Expect the ECB to be buying government bonds as part of its SMP, where it intervenes in the secondary bond market to ensure depth and liquidity.

This morning France was on the agenda. With Sarkozy publicly concerned about his country retaining its AAA rating status, the issue of +8b euros of debt today was the country’s first test this year of investor appetite for its bonds. The result, France sold +4.02b euros of benchmark 10-year bonds at an average yield of +3.29% from +3.18%. The 10-year sector, usually the benchmark indicator, debt bid-to-cover ratio fell to 1.64 from 3.05. Despite being somewhat well received for other remaining maturities, Frances cost of borrowing has increased, providing another reason to want to own less of the EUR. Last tally, with Italy and Spain amongst countries in the coming weeks to sell debt that may reach EUR+262b’s worth in the first quarter, rising funding costs will not make saving the 13-year old currency any easier.

The market will now focus on North American employment data, with NFP out tomorrow. This morning’s ADP report will provide a preview of tomorrows print (the correlation between the two prints has been tentative at best of late). It seems that market consensus is looking at an +178k ADP result, which approximates a +170k private payrolls print. The non-manufacturing ISM is also released and is expected to rise off November’s two-year low of 52, with seasonal effects in the employment component contributing. Jobless claims will also be a focus, though the holiday period complicates interpretation of this data into year-end. Will the stronger data provide support for US growth proxy currencies like the CAD and AUD? In theory they should, however, strong risk conviction has been fleeting at best and a surer bet would have participants wait until tomorrows job release for direction.

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January 4, 2012

Forex Market Outlook 1/4/12

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:27 am

Well we knew it couldn’t be that easy and yesterday’s move to the upside for risk appetite has been quelled slightly this morning.  In other words, we are pulling back from the highs as the market has taken its foot off of the gas—for now.   This is not surprising as there will likely be volatility as the market digests new information and decides which way it wants to go to start the year.  There is seemingly to me a bias to the upside, so that gains can be booked early as the year unfolds.

There are two basic economic stories that we are following this year: the Euro debt crisis and global growth.  Global growth can be measured by the scheduled economic releases we receive on a daily basis, but the Euro debt crisis is going to be more prolonged and will be more market-driven so will be much harder to gauge.

That is what we are seeing this morning after a German bond auction came in with slightly lower demand than average, and the EFSF plans to auction off bonds tomorrow to help support the bailouts.  In the meantime, consumer spending in France declined as higher unemployment created uncertainty.  The Euro zone CPI estimate was lowered from 3% to 2.8%, which may give the ECB some room to potentially cut interest rates again.

And this is going to be the issue all year long.  Essentially the ECB and the various bailout funds are in a race against time to get debt refunded before interest rates move too high to make the debt service impossible.  This is why the markets were so disappointed last year with the lack of solutions coming out of the EU as while nearly everyone enjoyed the benefits of the union, no one wants to help out when the chips are down.

If the Euro zone leaders came out with a “bazooka-like” program like the one here in the US when we had our banking crisis, then the bond vigilantes would be too scared to force higher yields.  But the lack of conviction in the EU has allowed the market to control where rates are going and this is potentially disastrous for the debt-laden countries.

So the debt crisis will likely be the elephant in the room for some time until something comes to a head, which may not be great for global economic hegemony.  There is an overwhelming feeling that the Euro zone will slide into recession at some point this year and the impact on the overall global economy is unknown.

In the short-run, the economic data continues to come in better than expected which is positive but highly uncertain if this is a trend reversal or merely just a blip.  One of the catalysts for this improvement has been easy monetary policy from Central banks around the globe, most notably from the US Fed.

Yesterday, the minutes from the most recent FOMC meeting were released and the push for further “transparency” was made.  We learned two basic things from the release yesterday, the first being that the Fed is now going to release its forecast for the Fed funds rate which is basically going to take some the impact away from the actual FOMC rate decision by essentially telling us exactly what they are thinking.  It will be interesting to see if that pre-announcement induces the same sort of volatility that the actual announcement does.  The second thing we learned is that some members of the committee are still favoring further monetary easing if appropriate, which given recent history could mean throwing additional money at the slightest perceived economic downturn.

Later this morning US factory orders are expected to rise 1.9% to four-month highs.  This is definitely possible after yesterday’s ISM manufacturing numbers came in better than expected.  So the data is improving and Friday’s NFP number may also surprise to the upside, though I discussed the fallibility of the January figure in yesterday’s article.

A familiar pattern is starting to emerge, with risk appetite starting out early in the year and then the hope that the markets can hold on to gains as the year unfolds.  There will be many turns and bumps along the road this year for certain, so it is important to stay on top of the market moving news that can affect global economic sentiment.

January 3, 2012

Risk to hurt record long dollar positions?

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 4:05 am

We are back. Back to half-truths, a little despair and hope. The Euro agenda has not changed, leaders are out to save their beleaguered union, their currency and years of hard grafting. The US will spend the next 10-months deciding who has the honor of leading their once proud economy. China, again, will have to charter its country towards a soft landing; the rest of us are relying on this! If either of the regional policy leaders do not get their objectives-in-tow, then the global house of cards is in danger of tumbling down.

Despite a shortened trading week, European leaders will return to work looking to buy time for the Spanish and Italian governments to take control over their debt and rescue the EUR from fragmentation. The highlight of the remaining four trading sessions will be the employment situation in North America, to be reported on Friday.

The first half of this year is expected to be dominated by European leaders struggling to hold the EU together, threatened by credit downgrades, emerging splits in the union and a looming recession that could compound rising debt. The hurdles and obstacles are daunting, this will allow capital markets and investors to nervously push the EUR on some of the crosses to new record lows.

So far, risky assets have started the year strong, with the USD selling off. A rebound in China’s manufacturing and services PMI’s last month have added to the positive tone.The antipodean currencies have climbed for a fourth consecutive day this morning against the dollar amid signs of increased manufacturing output around the world. Last night, Aussie manufacturing expanded for the first time in six-months (50.2), further proof that the global economy is strengthening after German, Chinese and UK factory output reports beat economist estimates already this week.

This morning, the EUR is again testing close to the mid-1.30’s. Thus far, Eastern European sales have failed to cap the topside and have triggered the running of some stop-losses. Will sustaining these gains prove troublesome above the option expiry levels? The EUR remains high on investors radar and is expected to underperform against the risk sensitive currencies (CAD,AUD,NOK and SEK) over the coming days as fiscal uncertainty in Spain and Italy cloud investment judgment. Obviously, further risk rally will hinge on the US data today. Positive readings from ISM, construction spending and FOMC minutes should kick-start a new risk rally leg for the ‘interest rate’ sensitive currencies. Remember, the market is very long dollars after the “turn”, the squeeze is preferable!

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December 27, 2011

Forex Market Outlook 12/27/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:01 am

Welcome back from the holiday weekend!  The markets are looking to get back on track this morning but have started rather slowly but there is little event risk on the docket by way of fundamental data reports.  This is set up to be a light volume week, which sometimes can mean volatility.

So I’m going to touch on the highlights for the week but I am not expecting a major break out of the recent ranges we have been seeing and there is nothing on the economic calendar that would suggest there could be some type of major move.  Many in the market are looking to put 2011 in the rearview mirror and start fresh in 2012.

The big news today is actually due out later this morning in the US as we are waiting for consumer confidence figures and the Case/Shiller home price index.  By and large, home prices have been declining at a lower rate so it looks like the market is in a bottoming out process—for now.  One of the biggest threats to home prices is rising interest rates, but we are not seeing rising rates, the Fed appears to be ready to leave rates low for an extended period of time, and recent data showed that demand for US debt is near all-time highs despite the ridiculously low interest rate we offer.

Consumer confidence has been riding high of late and the spending over the holidays was some 5% higher than recent years, which indicates that perhaps the US consumer is beginning to get healthy again.  As confidence rises, more economic participation takes place which helps grease the skids for the economy to get moving again.  While there are many headwinds that should affect the consumer like high unemployment, uncertain tax policies, and dysfunction in government, if confidence returns it could actually be stronger than most realize.

The only other real news out of the US this week is on Thursday with initial jobless claims and pending home sales figures.  The initial jobless claims figures have been moving in the right direction and are now firmly out of the 400Ks and in the high 300Ks.  This is good news for employment and next week’s Non-Farm Payrolls report should give us a god idea of whether this is because the job market is really improving.

Other news out this week is coming tomorrow in Japan, with the release of CPI data, the jobless rate, retail trade, and industrial production figures.  While Japanese data typically doesn’t move the market in a material way unless the number are totally divergent from the expectation, there is a wild-card in the mix and that is the BOJ.  As we approach year-end, the Yen was one of the top-performing major currencies this year and is currently up some 4% vs. USD despite all of the threats of intervention from the Central bank.  This comes in addition to two actual interventions at which time the BOJ sold Yen to weaken the currency.  Where do you think the Yen would be without he interventions?  Exactly, probably a lot higher.  So it will be interesting to see what the BOJ does going forward and tomorrow’s data points could be indicative of further action.

And of course we can’t forget Europe and we’re waiting to see the results of Italy’s bond auctions that are set to take place over the next two days. Italy is looking to issue some 20 billion euros and yields are back up over 7% as of this morning. On Friday, German CPI data and retail sales figures will show how Europe’s strongest economy is faring and as long as Germany continues to thrive, their politicians may be more apt to be agreeable.

So this week is likely to continue to be sideways activity so forex traders should use their short-term and range-bound trading techniques. If you are not familiar with how to trades these types of markets, contact us immediately to find out what you should do in these markets.  Trading is easy when everything goes up or down, but the true professionals are the ones who can thrive in any environment.

December 22, 2011

Forex Market Outlook 12/22/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:54 am

As we near the upcoming holidays and the abbreviated market schedule, the forex market is falling back to its predictable ranges.  Yesterday’s news of the ECB bank lending program is still being digested and while the overall impact is still largely unknown, I can’t imagine that banks in Europe were better off without the program so by default this was a positive development.

Yet the market gurus continue to pour over the “what if” scenarios and fear of the unknown has created uncertainty, which the market hates worse than bad news.  So yesterday’s sell-off that started in the Euro session abated in the US market and allowed the Asian session to follow through and rally to the upside last night.

Markets have since given back some of those gains as there has been little news out of the Euro zone this morning, though Italy is holding a confidence vote in their Senate about the austerity measures, and a joint speech will be given by Draghi and King after a meeting of the European Systemic Risk Board in Frankfurt today.

There was slightly better than expected news out of the UK as the final GDP revision showed at quarterly gain of .6% vs. an expected .5%, though the YoY number came in as expected at .5%.  While yesterday’s release of the rate policy meeting minutes showed the possibility for continued bond purchases, an increase does not appear to be need on the immediate horizon.  The data in the UK has been largely better than expected and the resiliency of the UK economy is starting to emerge.

Yesterday in New Zealand, the GDP was not as positive as in the UK as the quarterly figure came in better than expected at.8% vs. .6%, but the YoY figure missed the 2.2% expectation coming in at 1.9%.  The temporary economic gains were attributed to the hosting of the Rugby World Cup so this accounts for the discrepancy between the quarterly and year-over-year numbers.  The Kiwi traded lower but has since rebounded with risk appetite.

And we are seeing risk appetite this morning before the start of the US session as we have an action-packed morning of data as the holiday shortened trading sessions into the end of the year have squeezed the releases into fewer days.

Later this morning we will get: GDP figures, initial jobless claims, personal consumption, Michigan consumer confidence, and leading indicators.   While the data has been largely positive over the past month, keep an eye on the initial jobless claims figures, which came in much better than expected last week at 366K.  This was a big jump from the usual 400K we had been seeing for what seemed like forever, so it will be interesting to see if this is the start of a new trend of if that number was a “one-off”.  The expectation for this morning is for 378K.

Yesterday’s retail sales figures in Canada came in much better than expected and combined with higher oil prices have helped the Loonie to rally vs. USD to near 1.02.  Check out my chart of the day from last week for a technical discussion of the Loonie.

**Just in** US GDP figures came in worse than expected at 1.8% vs. an expected 2%, but initial jobless claims came in better than expected printing 364K vs. the 378K expectation.  Personal consumption came in lower than expected at 1.7% vs. an expectation of 2.3%.

This news is mostly a wash to slightly negative, with futures giving back some early market gains.  It will be interesting to see if US markets can stay positive today or if early risk aversion ahead of the holiday break takes place.

My guess is that we continue to hold and trade the range so my trading will be short-term as it has been of late.  There is nothing out there at this point that would cause me to think anything different from any other recent day.  The markets are likely in cruise control mode until the end of the year, though don’t count out end of the year window dressing to give the markets an upward bias.

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