Nikkei | Forex Blog

March 15, 2011

Beware The Ides of March!

Filed under: Forex News — Tags: board, data, fallout, financial, fomc, japan, japanese, julius-caesar, markets, nikkei, point — admin @ 12:34 pm

Thus was the warning given to Julius Caesar prior to his being killed on that very day. Today is the Ides of March, and a death has occurred. Only it is the financial markets that have taken the place of Caesar, as there is a massive sell-off taking place. And while I don’t fancy myself the soothsayer, I have been warning about the risk in the markets for some time.

Today news out of Japan is that there are radiation leaks from the nuclear reactors that were affected by the earthquake and tsunami, which could have an even greater negative impact of the economy. As a result, the Nikkei was down 10% overnight, inducing some major risk aversion. This also has dragged European stock markets lower, ranging anywhere from 2.5% to 4.5% lower so far today. US stocks are also set to open significantly lower, and both oil and gold have pulled back.

So this is definitely the type of day where the risk themes have out-weighed the fundamental data, not that the data is that great to begin with. In the Euro zone, CPI data has come in slightly lower than expected and German confidence figures are also lower than expected. This may give the ECB a reason to keep interest rates steady at its next policy meeting.

But all is not lost today, as “Bubble Ben” and the FOMC could save the day. With QE2 coming to an end shortly, I was wondering if today would be the day where he starts to prepare the market for when the punch bowl of free cash is taken away. However with today’s action already pushing markets extremely lower and strengthening the Dollar, it is extremely doubtful that he will invoke that tone.

In the forex market:

Aussie (AUD): The Aussie is lower across the board as risk aversion and its positive correlation to the MSCI Pac Rim index has dragged it lower. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is trading similarly to the Aussie, though it does make as extreme a high or low as its antipodean neighbor.

Loonie (CAD): The Loonie is also lower, as oil prices have pulled back to 97.50 as a result of the uncertainty of the Japanese nuclear situation. The ripple effects are now enveloping the global economy which could mean a lack of demand going forward.

Euro (EUR): The Euro is mixed, trading higher vs. the commodity currencies but lower against the safe havens. German ZEW confidence figures came in lower than expected, but today is about the fallout from Japan.

Pound (GBP): The Pound is also lower as home price figures came in worse than expected, which means it is extremely doubtful that the BOE will raise rates at the next meeting given what is going on in the global economy. (Click chart to enlarge)

Dollar (USD): The Dollar is higher today as the flight to safety trade is in full effect. While there are some ancillary data points due out tomorrow, the big news is the FOMC meeting at 2:15 EST. As a result of today’s sell-off, Bernanke will do all in his power to convince the markets that monetary policy will remain accommodative, perhaps even longer than QE2 is set to expire. Unfortunately that is the problem with blowing bubbles—they have to pop sooner or later.

Yen (JPY): The Yen is strengthening across the board despite the Bank of Japan efforts to pump money into the system. As overseas assets are re-patriated to Japan, demand for Yen goes up. In addition, as selling in the Nikkei picks up (down 16% in the last 2 days—the largest 2-day drop in nearly 25 years), the Yen also strengthens.

The problem with creating bubbles through weak monetary policy is that when disaster strikes, there is nowhere left to go. It is hard to be even more accommodative then “Bubble Ben” has already been, so any tightening of policy at this point would be disastrous.

The ripple effects and the fallout from this catastrophe are unknown at this point, so the “sell now, ask questions later” mentality is the prevailing theme. Yen strength appears to be a short-term phenomenon that could reverse if the BOJ gets serious about injecting liquidity into the economy Bernanke-style.

So be careful around the FOMC meeting, as volatility is sure to ensue and let’s hope that Bernanke’s comments have the effect that’s intended.

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!

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November 30, 2010

Scared Money!

Filed under: Forex News — Tags: account, dow, forextrading, home, interest-rate, jpy, nikkei, pound, rsi, time — admin @ 3:11 pm

Another day, another worry. At least that’s what is on the mind of investors as market risk has further induced the flight to safety trade. In addition to Euro zone debt default contagion and the Korean conflict, today we get added fears of a Chinese economic slowdown as well.

The worry from China is that inflation has increased so much that China will have to raise interest rates and tighten credit conditions. Should money flows slow significantly than economic grow could stagnate which would further pressure the global economy.

Bond vigilantes have now turned their attention to the debt of the remaining PIIGS countries as yields are being pushed higher. The Euro has continued its sell-off and is now trading below 1.30 vs. USD.

However news out of the Euro zone isn’t totally negative, as German unemployment rate held steady on smaller than expected job loss figures. Euro zone CPI data came in as expected.

North of our border, Canada reported a negative monthly GDP figure, posting a .1% contraction vs. an expected .1% gain. This helped push the annualized GDP down to 1% vs. an expected 1.5%.

Overnight in Japan, the jobless rate increased slightly to 5.1% vs. an expected 5%. This helped send the Nikkei lower in addition to the Chinese slowdown fears and increased demand for Yen.

The other safe haven plays (US dollar, Swiss franc, and gold) are all higher as well.

In the forex market:

Aussie (AUD): The Aussie is lower as a potential Chinese slowdown will affect Australia greatly as China is the leading importer of Australian exports. Tomorrow’s GDP report likely will show a bit of a slowdown as higher borrowing costs and a stronger Aussie may have hurt exports.

Kiwi (NZD): The Kiwi is also lower on risk aversion and last night NZ reported that building permits declined 2% vs. an expected gain of 1.4%. A Chinese slowdown also hurts NZ.

Loonie (CAD): The Loonie is lower across the board as lower than expected GDP figures (see above) lessen the chance for a further BOC rate hike. There was some speculation that Canada would be the next to hike, but given global economic conditions, I don’t think anyone (except maybe China) will be hiking rates any time soon. (Click chart to enlarge)

Euro (EUR): The Euro is also lower across the board as the bond market is not letting up on the other countries that are potentially facing debt problems. Unless the ECB does something to thwart these bond attacks, then both Spain and Portugal could be forced into taking bailouts. The “prize” right now is Spain, but the market will settle for Portugal if Germany decides to step up. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower as well as risk in the Euro zone is dragging the Pound down. Consumer confidence figures came in lower than expected and at this point I don’t think the UK is too upset that the Pound is selling off. However, UK bank exposure to Euro zone sovereign debt could become an issue.

Dollar (USD): Congrats to the Dollar, which is getting prettier by the day. As bad as the US economy is, the Dollar’s role as a safe haven currency trumps negative data such as home prices, which show slight declines vs. expected gains. Consumer confidence figures are due out later this morning.

Yen (JPY): The Yen is showing strength today as potential problems in the Pac Rim have re-established the Yen as a safe haven. The unemployment rate ticked up slightly and the inverse correlative affects of the Nikkei selling off have increased demand for Yen.

It appears as though the era of “extend and pretend” may be coming to an end. Today marks the first meeting between the President Obama and the opposition party, who is now the majority in the House of Representatives. Differences over how to handle the economy will be a major issue going forward and we may see an end to the profligate spending that has mired the US in debt worse than the entire Euro zone combined.

Not only has the euro zone come to terms with the idea of having to “take their medicine”, but Germany appears to be force-feeding those countries facing problems.

The UK has already put in place austerity measures so Pound weakness due to Euro zone problems is a welcome relief for the BOE.

Even China may get into the act and look to halt inflation by raising rates; though I wonder how much longer the government will be able to keep the dam from bursting. There is major trouble brewing over there and eventually market forces could prevail.

What, me worry? Nah, I’ll just keep trading!

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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September 2, 2010

Growth By Contraction!

Filed under: Forex News — Tags: aussie, dow, economy, eur, europe, forextrading, initial-jobless, mike conlon, morning, nikkei, time, yen — admin @ 2:06 pm

In what seemingly is a contradiction, Europe is proving that you can grow by shrinking. If you don’t believe that’s possible, look no further than the EU GDP figures reported this morning. GDP figures came in showing growth of 1.9% vs. an expectation of 1.7%. But wait a second, isn’t the EU enacting austerity measures?

Yes, they are enacting austerity measures but they are not experiencing the crisis of confidence that we have here in the US. This allows for more active participation in the economy, as fears have been removed about the future of policy. In other words, they are taking their medicine. In addition, the ECB left rates unchanged at 1% which was no surprise to anyone and will most likely remain in “crisis mode” until next year.

Conversely, here in the US companies are still afraid to hire employees as they are fearful over the economy and government policy. With no end to the spending in sight, the “extend and pretend” policies and looming deficits and taxes and regulation and healthcare (oh my) make even the boldest of businessmen appear more scared than the cowardly lion!

As a result, Initial Jobless Claims came in slightly better than expected, showing new claims of 472K vs. an expectation of 475K. Home sales figures are due out later this morning and my guess is that this figure is not going to be encouraging either.

In the UK, housing prices came in lower than expected which may help inflation come back down and allow the BOE to maintain accommodative policy measures throughout the austerity measures.

So this morning’s currency market action is a bit of a mixed bag, as the market can’t decide if the fundamentals support risk-taking.

In the forex market:

Aussie (AUD): The Aussie is lower this morning as the trade balance figures came in worse than expected. The Australian trade surplus shrank to A$ 1.89B vs. an expectation of A$3.1B. This comes a day after better than expected GDP figures were reported yesterday.

Kiwi (NZD): The Kiwi is actually higher this morning on—ready for it—higher powdered milk prices!! If I had any sort of journalistic integrity I wouldn’t even mention this but the higher Kiwi seems like an anomaly to me so I’m going to go with it. If I had to guess what is going on, I would blame stealth Chinese currency diversification. (Click chart to enlarge)

Loonie (CAD): The Loonie is lower as crude oil prices have pulled back to 73.25 and the market prepares for tomorrow’s US Non-Farm Payrolls report. Canada is particularly sensitive to US economic data as the US is its largest trading partner.

Euro (EUR): The Euro is mixed this morning as the GDP figures and steady monetary policy are encouraging despite the known debt problems and commitment to austerity. Just goes to show sound economic policy goes a long way to helping in recovery. (Click chart to enlarge)

Pound (GBP): The Pound is mostly lower as home prices fell signaling that inflation may again fall below the BOE upper band of 3%. This may allow the BOE to maintain accommodative policy as austerity measures help tackle the deficit.

Dollar (USD): I’m starting to sound like a broken record here so I’m not even going to say it. I’m just waiting for tomorrow’s NFP figures which they market will use as a true gauge of whether or not jobs are being added to the economy. Government models and proclamations of jobs “created or saved” ring hollow. The proof is in the pudding, as they say.

Yen (JPY): The Yen is showing strength again, as the market is going to test Japanese policy-makers over intervention. The Nikkei was higher overnight so the inverse correlation of Yen to the Nikkei is not holding up today. As the rhetoric heats up, what will Japan do? (Click chart to enlarge)

It is becoming more and more apparent that things in the US are not getting better. While they may not be getting worse (yet), I think we may be in a holding pattern until the November elections where hopefully the “bums get thrown out”.

There has been much talk recently that a lot of the damage has already been done and that political gridlock may not be seen by the market as a good thing. My guess is that any change in leadership at this point is going to be viewed as positive, and if we can actually change the collision course our economy is on people might actually be able to get back to work and help the economy grow again.

Until then, expect fear to rule the markets and tomorrow’s NFP number could be the continuation of last month’s fear driven market action.

I never thought I’d say this as an American but perhaps we should be taking economic direction from the Europeans! For their realistic assessment of how to recover while not popular is the right thing to do.

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, fx, fxedu, gbp, Il, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen

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August 31, 2010

A Japanese Conundrum!

Filed under: Forex News — Tags: a-good-thing, a-policy-shift-, innovation, japan, japanese, nikkei, outsourcing, reduce-deficits, unemployment, weaken-the-yen — admin @ 1:45 pm

In the overnight markets, the Nikkei average fell some 3.6% to close at its lowest level in more than a year. This came as a result of the emergency Japanese monetary policy meeting that failed to produce measures that would cause Yen weakening. There has been much speculation over intervention in the currency, which hasn’t been done since 2004.

Part of the reason why intervention seems so daunting a task is that the Japanese may not have enough monetary muscle to intervene in the currency and the recent lessons learned from the Swiss attempt to intervene (which resulted in big losses) may be fresh in their mind.

But today I’m going to bring up an alternative idea, one that I haven’t heard discussed very often. What if Yen appreciation turned out to be a good thing for Japan? Now before you parrot the usual rhetoric about Japan being an export-based economy and a strong currency makes their exports less competitive (both true statements), maybe it’s time for a policy shift.

Japan has been mired in the “Lost Decade” with rampant deflation which has left the economy floundering for some time. There have been periods where there has been a weak Yen, yet the same condition persisted. Part of the problem in Japan is that there is very little domestic demand, as its citizens’ savings rates are among the highest in the world. Unemployment is surprisingly low (5.2%) given the economic conditions, yet the consumer spending is not there.

What if a stronger Yen encouraged Japanese business to out-source some its labor to lesser developed countries to maintain corporate profitability? This would undoubtedly cause higher unemployment in Japan, but could spark further innovation and new industry which could potentially take care of the employment gap. With ridiculously low interest rates, start up businesses could have a leg up in the global economy by being able to borrow more cheaply.

This could also encourage spending by Japanese consumers, as their new found “wealth” allows them to buy goods and services more cheaply. With stronger Yen chasing more goods and services, this could actually help cause inflation which would be a welcome condition.

While the outsourcing of labor has clearly been one of the issues that has plagued the US, the Japanese could use the lessons from the errors made here in the US to create policies that will help them reduce deficits and maintain growth. An overhaul of tax policy to encourage spending could restore economic balance and make Japan’s economy less reliant on other world economies ability to consume.

For if the rest of the sensible world is pursuing austerity measures to reduce deficits (and the only non-sensible one, the US, is forced to reluctantly change its spending habits), then the Japanese economy would be able to better withstand threats to its economy by having domestic demand return.

Because what it is certain is that the policies of the past have not helped the Japanese economy improve. Maybe it is time for some new thinking. While these changes wouldn’t happen overnight, the shift in sentiment could be seen as a step in the right direction.

Or they could maintain current policy which invariably will lead to currency intervention, which could be too much for them to handle alone. While they may be looking for “coordinated action”, no other economy is going to willingly contribute to weaken the Yen at the expense of their own currency. Particularly the US. And China.

This could induce major losses contributing to further debt and hastening the pace that the Yen strengthens, in direct opposition to their intentions.
If they want the Yen to weaken, I would advise them to say the opposite. “A strong Yen is desirable by the Japanese economy as we are shifting economic policy to encourage domestic demand and spending.”

Then watch the massive sell-off begin!

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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