Nzd | Forex Blog

January 26, 2012

Market Outlook for January 26, 2012

Filed under: Forex News — Tags: fundamentally, higher, information, japan, jpy, north, nzd, price, seen-the-high, sold-off-across, survey-market, time, usd — admin @ 8:36 am

Recap of the Latest Global News

After the U.S. Dollar sold off across the board late in North American trading yesterday, it appeared that some relief was on the horizon, with the Greenback clawing back in early Asian trading on Thursday. This was merely a short-term correction, and by the time European markets opened up, the higher yielding currencies continued to surge.

Ahead of yesterday, the U.S. Dollar was primed for a strong year; after the ill-advised policy decision, one that does little more than buy time for banks to shore up their balance sheets, the U.S. Dollar is poised to be one of the worst performing majors in 2012. The implications of the Fed’s decision go beyond this year, however. Now, with low rates indicated for the next two years, the groundwork for the American Lost Decade – no different than Japan’s – has been laid.

Of interest has been the price action displayed by gold, which has surged through the $1700 per ounce mark and maintained its gains ahead of trading in New York. To me, this is a clear indication that market participants are worried about the U.S. Dollar losing its value substantially over the next few months. The key to watch would be the short-end of the U.S. Treasury yield curve: if these rates turn negative, the demand for precious metals will pick up.

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December 4, 2011

Trading Week Outlook: Dec. 5 – Dec. 9

Filed under: Forex News — Tags: analysis, australia, bank, chf, contributors, crisis, euro, euro-zone, european, gbp, nzd, outlook, research, time, usd — admin @ 8:07 am

Dec. 3, 2011 (Allthingsforex.com) – With the European Central Bank interest rate announcement and the EU Summit on the horizon, the trading week ahead could prove crucial for the future fate of the euro and the debt crisis-stricken euro-area.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Mon., Dec. 5, 10:00 am, ET.

In light of the stronger-than-expected manufacturing index, the U.S. services industry activity is also forecast to expand for another month with an index reading of 54.0 in November from 52.9 in October.

2. AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Dec. 5, 10:30 pm, ET.

The latest economic data from “down under” proved that the Australian “miracle economy” is not immune from the global slowdown, which coupled with easing inflationary pressures has raised the odds of another 25bps rate cut by the Reserve Bank of Australia to 4.25% from the current 4.50% level. A rate cut combined with risk aversion could become the formula for Australian dollar weakness.

3. CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Tues., Dec. 6, 3:15 am, ET.

Deflation has once again become a threat as the Swiss inflation gauge unexpectedly dropped below zero in October. With forecasts pointing to another decline at -0.3% y/y in November and the government “examining feasibility” on measures to deal with the strong currency, the Swiss National Bank might be forced into stepping up its efforts to weaken the franc. Although the next move by the central bank is still a bit of a “mystery”, the odds that we could witness a historic decision by the SNB to raise the EUR/CHF floor from 1.20 up to 1.25, or even to 1.30, are rising exponentially.

4. EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Dec. 6, 5:00 am, ET.

The revised reading of the Q3 GDP is expected to confirm that the Euro-zone economy is losing steam, growing by only 0.2% q/q in the third quarter, same as the 0.2% q/q reading in the second quarter of 2011, and less than the 0.8% q/q increase in Q1 2011.

5. CAD- Bank of Canada Interest Rate Announcement, Tues., Dec. 6, 9:00 am, ET.

Acknowledging that the global economy has “slowed markedly” with “significantly less favorable external environment affecting Canada”, the Bank of Canada is not expected to make any changes to its existing accommodative monetary policy and would be likely to keep the benchmark interest rate at the current 1.0% level.

6. AUD- Australia GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Dec. 6, 7:30 pm, ET.

Despite of the anticipated rate cut by the Reserve Bank of Australia, the Q3 GDP might lend some support to the Aussie with forecasts pointing to a stronger 2.3% y/y growth in the third quarter of 2011, compared with 1.4% y/y in Q2 2010. On the other hand, quarter-on-quarter growth is forecast to be unchanged at 1.2% q/q in Q3, same as the 1.2% q/q growth in the second quarter.

7. NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Dec. 7, 3:00 pm, ET.

Becoming the most surprisingly hawkish of all major central banks, it would be interesting to find out if the Reserve Bank of New Zealand might change its position as a result of the global slowdown. The bank is expected to keep rates at the current 2.50% level for another month, but the Kiwi dollar could get a boost from any hints that the bank is still not steering away from a future rate hike.

8. GBP- Bank of England Interest Rate Announcement, Thurs., Dec. 8, 7:00 am, ET.

With the largest U.K. trading partner, the Euro-zone, slowing and the EU debt crisis far from over, the odds are rising that the Bank of England’s policy makers could be prompted to increase the size of the Asset Purchase Program beyond the current 275 billon pounds; however, they might decide to wait until 2012 to do so. In the meantime, the likely outcome of the MPC meeting would be to keep the benchmark rate at its record low 0.5% level and to leave the door open to additional quantitative easing if conditions deteriorate. As a result, the GBP should continue to be confined in its current $1.50’s range, unless the EU debt crisis take a turn for the worst and massive risk aversion sends the sterling into the $1.40’s against the U.S. dollar.

9. EUR- European Central Bank Interest Rate Announcement, Thurs., Dec. 8, 7:45 am, ET.

As many economists lower their Euro-zone growth forecasts and the ECB President warns about the potential for a “mild recession” on the horizon, it shouldn’t be a surprise to see the European Central Bank producing another 25bps rate cut at the upcoming meeting in an effort to avoid a double dip. Navigating through a sea of uncertainty, while at the same time trying to fend off political pressure to become the “lender of last resort”, the ECB might end up giving up the resistance and turning the printing presses on if the EU debt crisis escalates with borrowing costs rising to unsustainable levels. It is hard to see such scenario as a EUR positive…

10. EUR- EU Summit of leaders of the 27 countries in the European Union, Fri., Dec. 9, all day event.

The outcomes of the EU summits in the last couple of years have a common thread- they all tend to remind us of Naked Eyes’ hit from 1983, as the markets around the world expect to see comprehensive solutions to contain the euro-area sovereign debt crisis but all they get are “promises, promises”. Will it be the same this time? Despite of the previous summit’s glimpse of hope that EU leaders have finally realized the seriousness of the situation after about 2 years since the beginning of the crisis, there are many murky details in the recently proposed strategies, some of them named “yesterday’s solutions” by Financial Times. The list of unanswered questions includes: how will EFSF be leveraged; can politicians effectively persuade the ECB to stand as a “lender of last resort”, or will that role be given to the IMF, or a newly-created European Monetary Fund; will EU members be willing to “sacrifice sovereignty in exchange for providing the economic and monetary union with a structural credibility”? Ahead of the last summit, “better late than never” optimism helped the euro register its biggest rally since March, 2009. Although another “hope rally” in the days leading to this summit would be sure to give the single currency a boost, the pressures on the euro could quickly mount if EU leaders fail to deliver the concrete and bold measures needed to win the debt crisis battle.

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November 30, 2011

Forex Market Outlook 11/30/11

Filed under: Forex News — Tags: account, bank, fear, forex, fundamental, fxedu, inflation-with, interest, lower, merely-provides, nzd, oil, trade — admin @ 6:59 am

Wow what a morning! I was about to tell you about all of the mundane things that have happened so far overnight and what to expect later today—and then the markets got hit with the unexpected.

Central banks around the globe including the: Fed, BOE, ECB, BOC, and the BOJ, essentially made a formal, coordinated intervention in the currency markets by reducing existing swap lines by 50 basis points. This move is intended to free up liquidity to help prevent the Euro and global debt crisis form becoming a liquidity crisis (shortage of cash) to help countries service their debt.

This means that more cash is available and immediately the US dollar (as the world’s reserve currency) weakened, to the tune of 200 pips vs. Euro, 200 pips vs. Aussie, 120 pips vs. Pound. This is an incredible move and I’m sorry for those of you that were short risk in this market—especially if you don’t use protective stops!

Yesterday’s target of 1.0250 from the chart of the day on AUD/USD was easily met and in fact left money on the table. But 250 pips in a day is very welcome!

Yesterday’s EU Finance Ministers meeting produced little except that they are trying to drag the IMF into a larger role to cover the EFSF and they have agreed to back Euro zone bonds at 30%, essentially meaning that if default occurs investors would lose “only” 70% of their investment. Gee, thanks! Meanwhile yields continue to rise in the periphery countries, though the German 1-year note now has a negative yield!

Things are moving along in Germany, as their unemployment rate ticked slight lower than expected to 6.9%, though overall unemployment in the Euro zone is at 10.3%, slightly higher than expected.

The other big news of the morning was that China had reduced their lending reserve requirements for the first time in 3 years, essentially making lending easier for the banks. This should act as a catalyst for global demand, and the markets moved higher on the news. Of course this action was trumped by dramatic move we saw later in the morning.

Both stocks and global equities are up big-time on this news, with oil leading the charge at around 101.50. Take a look at my video from earlier this morning prior to the news, it will show you the dramatic difference.

Here in the US, the ADP employment change came in much better than expected, showing that 206K jobs were added vs. an expected 130K. Some may try to extrapolate this figure to a gain in NFP on Friday, but the two are uncorrelated.

Later this morning we will get pending home sales figures which are expected to show a slight gain. Housing figures have been weak very recently and this lagging indicator will likely be irrelevant after the moves we’ve seen already today. And later today we will also get the release of the Fed beige book survey though we have recently heard that QE3 may be on the table, today’s action may put that on hold for a while. Until the money dries up again, that is.

Canada will be reporting GDP figures later this morning which are expected to show a monthly gain of .3%, pushing the YoY to 2,7% from last month’s reading of 2.4%.

I cannot begin to describe the dramatic nature of this coordinated move from earlier this morning. Part of the “problem” with all of this market transparency is that big players can usually get in front of the proposed action and sometimes negate the intended effects. So they have to spring the news when no one expects it.

That’s not to say that I always agree with actions that intervene with free markets, however when global problems are perhaps much bigger than people know, preventing economic Armageddon is appreciated. I don’t claim to know the extent of the problems in Europe or what the potential of a failure might be except to say that it would be bad.

This morning’s action essentially buys more time for those that are in trouble to get their houses in order and fix the problems that ail them. For today’s action solves the pending global liquidity problem, but it does not solve the solvency and debt problems.

The Euro zone and banks with exposure to the Euro debt need to use this opportunity to come up with real solutions otherwise we have just kicked the can down the road a little more. Expect inflation to pick up in a major way in at least commodities prices, with the outcome uncertain.

Volatility is still very high, so be careful with your trading. Always use stop losses, and expect the unexpected!

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November 9, 2011

Forex Market Outlook 11/9/11

Filed under: Forex News — Tags: a-wake-up-call, aussie, fxedu, invest, live, news, nzd, problem, situation, some-support, trader — admin @ 7:32 am

There’s really only one story to discuss today and that is Italy. Italian bond yields are soaring and I mean soaring and the market reaction is not pretty. In a story of “be careful what you wish for”, Italian Premier Berlusconi is said to be stepping down next week but today’s crisis may actually reverse those wants and return him to power.

Since the announcement that he would step down after austerity measures were implemented, bond yields jumped to above 7% for the first time in the Euro-era. This is an unsustainable level and the uncertainty over the new Italian government is weighing heavily on the market.

Stocks are lower in Europe and in the US, as are commodities. Risk aversion is high right now as Italy is the third 3^rd largest Euro zone economy, as well as the world’s 8^th largest. It is clearly too big to fail and it is doubtful whether or not it could be saved.

As bond yields rise, it becomes harder for them to service their debt and creates market dislocations as everyone runs for the exit.

Making matters worse, there is no news on the docket that could potentially save us today, with the exception of a Bernanke speech later this morning. I wouldn’t be surprised at this point if his speech today is not the one he started out with earlier this morning.

And that is the problem with contagion; at first it was Greece and now it is Italy. As the size and scope of the indebted nations gets bigger, the larger the problem occurs. And guess who is up next?

The United States. That’s right, the good ol’ US of A. The budget super-committee is working right now to attempt to fix our problems and if this is not a wake-up call, then nothing ever will be. The only thing keeping US yields low right now is the threat of Bernanke and the Fed tanking interest rates and the Dollar much lower.

While it will be a difficult task to do that, the potential of QE3 may mean negative real interest rates which could be disastrous for the markets.

For the sake of global harmony, let’s hope that the situation in Italy comes to a close rapidly. Just don’t be surprised if Berlusconi is the one who comes out on top!

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November 2, 2011

Forex Market Outlook 11/2/11

Filed under: Forex News — Tags: carry trade, china, commodities, currency-pairs, dow, fundamental, nzd, pound, world — admin @ 7:12 am

How does one get invited to that ultra-ritzy resort town of Cannes, France? Apparently by upsetting G-20 leaders as you potentially re-neg on a deal that may be the most important economic event of the past year. Yet that’s where Greek PM Papandreou will be as he has been “summoned” to the G-20 meeting to explain what the heck is going on in Greece.

For the record, Greece is not part of the G-20 so his presence is unwelcome to say the least. Both European and G-20 leaders have been blind-sided by the referendum vote in Greece and it has the potential to derail all of the wheeling and dealing that has taken place over the last month as the Euro debt resolution was announced. Picture this—say you owe a lot of money and your creditor agrees to reduce the amount you owe by 50%. What to you do? You take it of course and say ‘thank you’. What you don’t do is say let me get back to you.

Yet that’s exactly what Greece has done, which is essentially a slap in the face to Euro zone leaders and by proxy, the rest of the world. If Greece does not back away from this action or mitigate its impact, then the rest of the world may suffer. Don’t be surprised if this referendum turns into an “opinion poll” which has little consequence. Yet this may go down as one of the biggest idiotic blunders in the history of geo-politics.

Despite this SNAFU, the markets are up-beat to start the day as anticipation of today’s FOMC meeting may give markets hope that there is more free money on the horizon. It is unlikely to produce any change to policy, as the last change dubbed “Operation Twist” hasn’t had enough time to work. But, Bernanke may officially open the door for QE3 if he deems the economic environment to be worsening. So far, the Fed has been way behind the curve and their economic forecasts and estimates have largely missed the mark. This can be problematic when you consider that they use these estimates to make policy.

In the meantime, economic data is trickling in and is mixed. In Germany, PMI manufacturing figures came in better than expected, but the unemployment rate ticked higher to 7% from an expected 6.9%. Italian PMI figures were a lot worse than expected.

Tomorrow the ECB is having its first rate policy meeting with their new chief Draghi at the helm. Will this produce a change of policy? Market expectations are that there will be no change, but if they fear a weakening they could be prompted to cut rates. This is one of those times that a rate cut might make sense, so I’m a bit surprised more people aren’t talking about it. A rate reduction in Australia just took place, so we could begin to see the start of some ratcheting down.

But the most important data to round out the rest of the week is on unemployment figures, with New Zealand reporting later tonight and Canada reporting on Friday. Today marks the first day of the US employment reports with Friday’s Non-Farm Payrolls report being the most important of the bunch.

This morning, the Challenger jobs cuts figures came in better than expected, as did the ADP employment change figures. The ADP report shows private payrolls changes and today’s report of 110K net new jobs was better than the expected 100K.

However, one cannot make a direct correlation between today’s ADP number and Friday’s NFP. Friday’s figure is the official government report and takes into account both government and private payrolls. So it will be interesting to see what that figure is, as it is one of the most significant economic barometers we have. Expectations are for a gain of 95K with unemployment rate to remain stubbornly high at 9.1%.

For now, the markets are content to drift higher and hope for some Fed love later today and are also hopeful that the G-20 summons for the Greek PM will remove the uncertainty surrounding the deal. Should Bernanke fail to produce or should the G-20 fail to change Greece’s intended course of action, then we could slip back into risk aversion mode in a heartbeat.

As a result of these uncertain prospects, I am content to keep the trading to short-term and am not looking for the home-run trade.

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October 27, 2011

Forex Market Outlook 10/27/11

Filed under: Forex News — Tags: announcement, australia, currencies, economic, europe, forex market, japan, news, nzd, rate-decision, with-continued, yen — admin @ 7:17 am

Well the Euro debt crisis is finally over, or is it? So what happens next? That folks, is the million dollar question but first we should take a look at the events of the last 24-hours and what was revealed as the definitive resolution.

Yesterday there was some market volatility and initial risk aversion as the rumors were making the rounds and we were expecting the announcement to take place some time near the end of yesterday’s trading session. When it appeared as thought this process would be delayed into late last night, the markets reversed and risk appetite increased in anticipation of the announcement.

The announcement finally came late last night and here are the highlights of the plan of action:

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October 22, 2011

Trading Week Outlook: Oct. 24 – Oct. 28

Filed under: Forex News — Tags: australia, bank, consumer-price, crisis, Forex News, fundamental outlook, gbp, market outlook, markets, nzd, reserve, show — admin @ 8:17 am

Oct. 22, 2011 (Allthingsforex.com) – The week ahead will bring a sequence of monetary policy announcements by three central banks and a long slate of important economic reports from the world’s largest economy, but once again the EU Summit will steal the show as traders ponder if the EU leaders will be capable of solving the debt crisis or if they will continue to postpone the “day of reckoning”.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. NZD- New Zealand CPI- Consumer Price Index, the main measure of inflation preferred by the Reserve Bank of New Zealand, Mon., Oct. 24, 5:45 pm, ET.

Two days ahead of the Reserve Bank of New Zealand’s monetary policy meeting, the quarterly CPI report could add to the reduced odds of a rate hike in the near term, with inflationary pressures forecast to subside to 0.8% q/q in Q3 from 1.0% q/q in Q2 2011.

2. CAD- Bank of Canada Interest Rate Announcement, Tues., Oct. 25, 9:00 am, ET.

Despite of the rise in the Canadian CPI to 3.2% y/y, the index is still below the March peak at 3.7% y/y and since growth is the main agenda of the Bank of Canada, at this point the bank would be likely to refrain from tightening, keeping rates at the current 1.0% level.

3. USD- U.S. Consumer Confidence Index of consumers’ outlook on present and future economic conditions, Tues., Oct. 25, 10:00 am, ET.

The consumer sentiment data could start the week’s list of what is expected to be more optimistic U.S. economic reports with the index forecast to increase to 46.0 in October from 45.4 in September.

4. AUD- Australia CPI- Consumer Price Index, the main measure of inflation preferred by the Reserve Bank of Australia, Tues., Oct. 25, 8:30 pm, ET.

In its latest meeting minutes, the Reserve Bank of Australia stated that the “inflation outlook appeared less concerning” and if the CPI report confirms these expectations, the market could begin to push further expectations of a RBA rate hike. The Australian inflation gauge is forecast to pull back to 0.7% q/q in Q3 2011 from 0.9% q/q in the second quarter.

5. EUR- EU Summit of leaders of the 27 countries in the European Union, Wed., Oct. 26, tentative, all day event.

All eyes will be centered on the EU Summit when the markets around the world expect to see the promised “comprehensive strategy on the euro-area sovereign debt crisis”. This additional summit, which follows the one from October 23, is scheduled to take place by October 26 because EU leaders needed more time to finalize their new plans on how to prevent further contagion, recapitalize banks, expand EFSF, and conclude discussions on the next bailout installment for Greece. “Better late than never” optimism that EU leaders have finally realized the seriousness of the situation after about 2 years since the beginning of the crisis, has helped investor sentiment and risk appetite, with the euro registering its biggest rally since March, 2009. A lot is riding on this summit and if the EU leaders deliver anything short of spectacular, disappointment and risk aversion could quickly set back in, renewing the pressure on the single currency.

6. USD- U.S. New Home Sales, an important gauge of housing market conditions measuring the number of newly constructed homes with a committed sale during the previous month, Wed., Oct. 26, 10:00 am, ET.

Although not at all impressive, in the “new normal” market environment even a rise of 5,000 might be considered as a positive sign, as the new home sales are expected to register a small increase to 300K in September from 295K in August.

7. NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Oct. 26, 4:00 pm, ET.

The Reserve Bank of New Zealand would probably steer further away from monetary policy tightening, following the direction set by all other major central banks as they all recently refocused on helping economic growth. The benchmark rate is expected to be left unchanged at 2.50%.

8. JPY- Bank of Japan Interest Rate Announcement, Thur., Oct. 27, around 12:00 am, ET.

With the yen registering new record highs against the U.S. dollar, it would be interesting to see what the Bank of Japan has to say and do about the persistent strength of their currency. This is provided that they haven’t intervened by the time the meeting takes place, as intervention is becoming a likely event, especially if the dollar breaks even lower.

9. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Oct. 27, 8:30 am, ET.

The preliminary estimate of the U.S. Q3 GDP could instill some optimism with the U.S. economy forecast to regain momentum and grow by 2.0% q/a in the third quarter, compared with 1.3% q/a in Q2 2011.

10. USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Federal Reserve, Fri., Oct. 28, 8:30 am, ET.

Expected to be another potentially positive U.S. economic report, the consumer spending is forecast to register an increase by 0.6% m/m in September from 0.2% m/m in August and personal income to rise by 0.4% m/m from -0.1% m/m in the previous month, while the Fed’s preferred inflation gauge, the core PCE Index, is expected to show inflationary pressures remaining flat at 0.1% m/m in September, same as the 0.1% m/m reading in August.

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October 20, 2011

Forex Market Outlook 10/20/11

Filed under: Forex News — Tags: because-the-boe, cad, economic, fundamental, loonie, new zealand, nzd, sentiment, trend, uncertainty — admin @ 7:01 am

This morning all eyes are on Athens where the Greek rioters are protesting against further austerity measures which are to be voted to ensure that Greece is taking the steps necessary to continue the bailout discussion. The Troika will be reporting the economic state of affairs in Greece but so far the sentiment has been that that was Greece has done is insufficient to date.

Yet there is some positive news coming regarding the EFSF, though at this stage they are just rumors and not confirmed. Supposedly, the EFSF will be able to buy bonds on the secondary market provided there are no bank solvency issues. What this means is that they can be a “constant bid” to attempt to keep rates lower and then they can re-package and flip them or hold to maturity or whatever. However, the size of the fund is still in question and whether or not they will leverage that remains to be seen.

Producer prices in Germany came in slightly higher than expected, and the German government GDP forecast showed a growth rate of 1%, much lower than the 2.9% they have experienced.

In other news that just hit the wire, in Libya Momar Gaddafi is being reported dead.

Earlier in the UK, retail sales figures came in much better than expected, showing a monthly gain of .7% vs. an expectation of .2%. This could be a function of higher price expectations because the BOE is seen as being inflationary. But I must say, so far the BOE has been wrong in many of their economic assessments and should inflation persist, the UK economy could come to a grinding halt.

Here in the US, Initial jobless claims came in at the usual 400K, and later this morning we will get existing home sales figures, the leading indicators, and the Philly Fed. Throw in a little Fed speak and there is just enough to inspire some volatility.

We are very range-bound at these levels as the Euro debt crisis continues to maintain a stranglehold on these markets and the anxiety increases with every TV report of another Greek rioter lobbing a Molotov cocktail.

Yet US stock earnings have been coming in positively despite the economic climate as corporations are lean and mean and sitting on mountains of cash, yet the market uncertainty thanks to the political gamesmanship in Washington is keeping them from hiring. While lack of demand is always cited as the “cause”, it is actually the effect of bad policy and not the other way around.

The super-committee that is charged with deficit reduction here in the US is likely going to be ineffective so it will be more of the same. However, these problems seem minor compared to what is taking place in Europe and this weekends meeting may produce progress toward resolution, or it may not.

Meanwhile, my short gold trade triggered yesterday as the Bear Flag pattern completed, with an initial price target of $1500, and then $1440.

Tomorrow could be a risk aversion kind of day, so today we may see some cautious risk taking, though today is likely to be an “inside day” producing neither new recent highs or lows.

At this point the rumor mill is in high gear so there could be mid-day volatility based upon unconfirmed reports. This market is more conducive toward short-term trading at this point, as the uncertainty is still high and risk at a premium.

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October 10, 2011

Forex Market Outlook 10/10/11

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

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

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

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

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

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

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

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

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

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

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

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

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October 6, 2011

Forex Market Outlook 10/06/11

Filed under: Forex News — Tags: commodity, currency trading, economy, england, fear, fundamental, nzd, top stories, usd, yen — admin @ 7:11 am

So far the news of the morning is that the Bank of England increased the size of its asset purchase program by 75 billion, pushing the total bond buying to 275 billion. While they kept interest rates unchanged, this sent the Pound plummeting lower 200 pips. The Central Bank cited severe strains in the funding market and maintained that inflation would undershoot the 2% inflation target in the medium term.

I suppose it would be more helpful if they identified what the medium term is, as inflation has stubbornly remained above 4% much to their chagrin. So I’m not certain how they think it will subside, and it appears as though they are content to let their citizens suffer through higher prices.

The ECB rate decision also came out and produced no change to official ECB rate policy, so now the market is waiting on the ECB press conference where Jean-Claude Trichet will speak for the last time as head of the ECB. The markets are hoping that he will offer some sort of hope that EU leaders are nearing a solution for the debt crisis. The ECB needs to go into “cheerleader mode” between now and when a solution is actually offered, but most think the perpetuation of “can-kicking” will continue. There is a meeting of EU leaders and a G-20 meeting on tap in the next few weeks.

Other than those two major events, the negative economic data from these two regions had little effect as UK home prices fell more than expected and German factory orders showed a decline vs. an expected no-change.

Initial jobless claims here in the US came in slightly better than expected, but still over 400K. While it is a good thing that it is not moving in the wrong direction, it is certainly not getting significantly better.

Tomorrow’s Non-Farm Payrolls report will give us a better idea of where the economy is headed but I think more importantly it will let us know when or if Bernanke will be adding more monetary easing to the economy.

Between now and then, the Bank of Japan will have its rate decision in the overnight session and while they are not expected to change policy, don’t be surprised if they try to jaw-bone the Yen lower as it is above 10-year highs vs. Euro and Pound.

So far Trichet hasn’t said anything to disrupt the markets any further today, and the Dollar strength that we saw earlier on the Pound and Euro sell-off is abating, which is helping equity markets move higher.

There is going to have to a point where the “risk on, risk off” trade decouples and the correlations break down as US dollar strength should not be an automatic sell in risk assets, especially if that strength occurs because of individual currency weakness.

Today’s action reminds us that these correlations are still in effect and the fact that the BOE wants to encourage inflation through a weakening of the Pound should have little effect on US stocks. Yet the markets have become so entrenched in the risk trade that it has a hard time differentiating between event risk and individual currency risk.

The market is never wrong; however in this case it is. While we know about the global economic slowdown, stock valuations right now are very compelling, especially those with high dividend yields. While the Euro debt crisis poses a major threat to global economic stability, an event like the BOE increasing quantitative easing should not.

Yet markets have this “all or nothing” mentality where a rising tide lifts all ships or the baby gets thrown out with the bathwater. How’s that for coming market metaphors?

But seriously, we may see some further market selling as the US session unfolds, but I believe that it is not warranted (unless Trichet says something dumb) as tomorrow’s NFP is likely to increase the chances that Bernanke will act.

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