December 5, 2011

Forex Market Outlook 12/5/11

Filed under: Forex News — Tags: a-fiscal-union, aussie, australia, china, decision, euro, forex, fundamental, invest, japan, loonie, number, oil, solve-it-faster, yen — admin @ 7:42 am

This week like many others in recent history is going to be all about the Euro. I’m sure you are all surprised by this; as the Euro zone has been relatively quiet of late. Ha, just kidding. Obviously the Euro zone debt crisis has been the major topic in financial markets and the impediment to market advancement.

Last Friday’s Non-Farm Payrolls report here in the US left something to be desired despite the great headline number showing a .4% decline to 8.6% unemployment from 9%. The problem is that the number of added jobs came in as expected, and the number was largely a reflection of discouraged workers leaving the workforce. While it wasn’t a bad number, it wasn’t all too great either so the markets sold off accordingly ahead of the weekend’s potential for a risk event to occur.

However this morning we are back to risk taking mode with a renewed hope that this week will be the week that EU leaders get it all figured out. Friday’s EU Leaders meeting in Brussels is expected to produce words that show progress toward finding a solution. Note that I didn’t say, “find a solution” as we are likely to get more of the same. But leaders now have to do more to assuage market fears and to slow bond vigilante attacks on the PIIGS countries as higher bond yields will hurt the process and there is no way EU leaders can solve it faster than yields becoming unsustainable.

The market would love to hear that they have found a way to have more of a fiscal union, or to at least a way to provide for better oversight. Also, Germany backing away from an outright refusal to consider Euro bonds could also help in the process. The ECB rate policy meeting on Thursday could produce a 25bp rate reduction, as Draghi has been quick on the trigger and may try to halt a potential recession before one even gets started.

Thursday will also bring the UK rate policy decision and it will be interesting to see if they do anything at this point after increasing the asset purchases last time. The BOE has been ultra-accommodative despite the inflation, and the economic data still continues to produce decent results in comparison to the rest of the world.

There are also interest rate decisions for the commodity bloc, with Australia, New Zealand and Canada expected to make no change to policy.

Global stocks are higher to start the morning, as is oil which has just reached $102. Surprisingly gold is not following suit, which could mean that oil premium is a result of the geo-political climate in the Middle East.

There is also manufacturing and GDP data due out for various countries (check the economic calendar), but by and large the biggest driver of markets this week will be the news out of Europe and if we get any unexpected rate changes from Central banks.

The markets definitely want to go higher from here and the Euro debt crisis is the only thing really holding us back. Friday’s EU meeting will be important as to how we close the week, as will various economic data due out of China including manufacturing, retail sales, and CPI.

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December 2, 2011

Forex Market Outlook 12/2/11

Filed under: Forex News — Tags: aussie, australia, bank, chf, currency trading, fundamental, interest-rate, oil, overall-economy, swiss-national, time, top stories, words, yen — admin @ 6:29 am

It’s that time of the month again—jobs Friday and so far the markets have high expectations that the NFP report is going to come in better than expected. 130K jobs are expected to have been added to the economy and the unemployment rate is expected to have remained steady at 9%.

So markets are up higher in anticipation of this release as there is hope that we are turning a corner as an economy. The problem I usually have is that when markets get ahead of themselves early on, there is usually some type of disappointment. But I don’t want to think the worst as it would be a welcome relief to see more jobs added. So I think this could be one time when the market has it right.

Also contributing to higher stock and commodities markets this morning is news out of the Euro zone that despite Merkel’s reluctance to issue a Euro bond, she left the door open by saying that a fiscal union would need to occur first. So in other words, as slight as the possibility is, there is a chance.

PPI data in the EU came in slightly lower than expected so this adds to the belief that the ECB may lower interest rates yet again. New ECB honcho Draghi wasted no time cutting rates upon taking over the Central bank so if inflation stays muted, then that could be the next move.

But inflation does not appear to be muted, with oil prices back to $101.50 and gold back to the $1750 area as a sign that inflationary fears are becoming more real.

The British pound is also higher this morning, most on risk-taking but also because PMI construction data came in better than expected, posting a reading of 52.3 vs. an expected 52.

A lot has been happening in Switzerland lately and I have been largely ignoring them as I hate active central banks like the SNB. This morning, retail sales figures came in worse than expected showing a decline of .2% vs. an expected no change. This falls in line with yesterday’s GDP report which missed by a wide margin showing 1.3% YoY vs. an expected 1.8%.

But that’s not all. Yesterday afternoon a rumor was floated that the SNB could move to negative interest rates. Essentially, they would be charging you to keep money in francs vs. paying interest as way to try to weaken the franc and encourage economic activity. Take a look at today’s chart of the day and you’ll see why I don’t like the currencies run by active central banks!

On the employment front, data released in Canada surprised and halted its rise toward parity temporarily as the Canadian economy lost 18.6K jobs vs. an expectation that they would add 20K. The unemployment rate ticked higher to 7.4% from 7.3% and the Loonie weakened as a result. However, a good NFP number here could reverse that move as it would be game on for risk appetite.

While the market has great anticipation of the NFP release and is expecting a good number, we must not lose sight of the risk that still exists in the marketplace. Geo-political risk is heightening in places like Iran and Egypt, and of course we are not even close to a resolution in the Euro zone.

Yet the markets seem like they want to move higher and maintain this “Santa Claus Rally” into the end of the year so that money managers can close out with gains on the books. Because otherwise it’s been a tough year.

I honestly have no clue as to where this NFP number might be as I am so conflicted this AM so I won’t hazard a guess. Part of me says that the number will disappoint because expectations (and market behavior) are so high, but the other part tells me that things have been getting better despite the political environment here in the US.

Either way I always trade this number the same way: by waiting for the release and then entering a position based on the market reaction to the results. Positioning one’s self ahead of this number is just a guessing game and could have disastrous results as the volatility is usually extreme.

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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 25, 2011

Forex Market Outlook 11/25/11

Filed under: Forex News — Tags: a-quick-recap, currency market, currency-pairs, economic, euro, europe, forex, market, not-surprising, oil, practice, time, usd, with-the-short, yen — admin @ 6:56 am

I hope everyone here in the US had a great Thanksgiving yesterday, though the same can’t be said for the markets. We are still in risk aversion mode as the Euro debt crisis continues to plague the global economy so the US dollar has been the favored investment vehicle of choice.

Today is a shortened session here in the US with the stock market open for a half-day session. There is likely to be little action for stocks so the correlative effects of market movements will be minimal. However, it must be noted that with decreased volume there is sometimes increased volatility.

While there is no news due out for the US session, a quick recap of this morning’s news shows that confidence figures in the Euro zone came in worse than expected. While this is not surprising, yesterday’s reports of German GDP and confidence figures were positive. GDP in Germany was 2.5% YoY, as expected. IFO confidence figures all cam e in better than expected which shows that Germany is still moving along, despite the bond auction disaster from earlier this week,

In the UK, GDP figures also came in as expected, showing .5% growth which is not a great figure. It is for this reason that the BOE has been ultra-accommodative despite the high inflation they are experiencing.

Also in the Euro zone, Portugal had their credit rating reduced to junk status, and they have been all but an afterthought as the markets have focused on the Spanish banks and Italy’s government debt.

The picture continues to worsen in the Euro zone and the push for a Euro bond is picking up traction, for those who still want to see the Euro succeed. As this situation drags out, the global economy will continue to suffer and a solution will not be forthcoming overnight.

But we are seeing a bit of a morning bounce here as perhaps some of the selling was overblown. Risk still remains at heightened levels so I’m going to continue with the short-term trading themes until more clarity emerges.

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November 23, 2011

Forex Market Outlook 11/23/11

Filed under: Forex News — Tags: a-releases-due, commodity, currency-pairs, dow, eur, oil, pound, rate-decision — admin @ 6:32 am

Well there’s not much to be thankful for, economically speaking, ahead of tomorrow’s Thanksgiving holiday here in the US. Markets and banks will be closed tomorrow, and Friday will be a half-session, though the forex market will continue to trade, albeit on lighter volume during the US session. So if investors have fears about the global economy or markets in general, now would be a decent time to take some money off of the table.

And that’s exactly what we are seeing this morning as there is some major risk aversion to start the day and fears have picked up, primarily on two major developments. Global stocks and commodities are down to start the day ahead of the increased docket of data releases due out here in the US.

The first bit of bad news came out of China overnight when they reported manufacturing PMI that came in with a 32-month low of 48. Last month’s reading was at 51 and could be a major sign that the global economy is indeed slowing.

The second piece of news came out of Germany, who had a poor showing on a 10-year bund auction which failed to get bids for some 35% of the offering, which sent yields higher for Germany. While they are blaming some sort of technical glitch, the reality is that investors did not step up to the plate to purchase German debt which could have happened for a few reasons. This is being dubbed a “disaster” by market pundits.

First, investors may be trying to lighten the load on the Euro zone region in general. Second, they may feel they already have enough exposure to Germany via their stake in the ECB and all of the other Euro zone debt which they are essentially on the hook for a big portion of; lastly, investors may be sending a message to Germany that they will hold out in protest unless Germany steps up to back the ECB in further asset purchases or re-considers the Euro-bond solution to the debt crisis.

Whatever the reasoning, global markets are sending a message to Germany that they won’t buy their debt (at the lower rates of course) unless they will increase their participation in the rescue programs.

In addition to this, Euro zone industrial production figures came in way worse than expected, though various PMI figures were mixed. This takes the wind out of the sails of yesterday’s news that the IMF was expanding a lending facility to the Euro zone and that the Fed meeting minutes showed a readiness to expand monetary policy yet again, causing a late-morning rally.

This morning is action packed here in the US on the data front, as essentially 3 days worth of data is being released this morning. In a situation such as this, it is usually best to step aside for a few minutes and let the markets figure out what the aggregate sentiment is based on the data.

So here is the laundry list of what will be released later this morning: Durable goods orders, Personal income, Personal spending, Initial jobless claims, and U Michigan confidence figures. Usually this data would play out over the next three days but has all been jammed into today because of the Thanksgiving holiday.

In other news, the BOE released the minutes from their rate policy meeting and were unanimous for the first time in a while with their decision to maintain the current policy, though some noted that they would be willing to become more accommodative should a fall-out from Europe happen. They expect that somehow inflation is going to magically fall to below their 2% target by the end of next year from the current 5%. Good luck with that one!

Tomorrow’s release of GDP in the UK is expected to show a paltry .5% growth and may change some tunes at the BOE, but my guess is that like most of the economic data we have been seeing from the UK will surprise to the upside, allowing for a break from further easing for a while. Tomorrow will also bring the release of German GDP figures as well.

So again, it’s not a pretty picture going into essentially what is a long weekend here in the US and the fear out-trumps the risk at this point. Should we make it through the weekend with no further “problems”, then next week could be risk on again.

As for now, I am going to enjoy the Thanksgiving holiday with family as I still have some things to be thankful for. Although the global economy is offering little hope at this point, things could definitely be worse! I’ll be back on Friday with a recap.

Happy Thanksgiving!

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November 16, 2011

Oil Spikes Higher To Over $100!

Filed under: Forex News — Tags: aversion-trade, chart of the day, contained-and, dollar, form-the-dollar, gain-traction-, game, oil, price, reports-showed, taking-place, tangible-assets, using-the-red — admin @ 7:30 am

This morning’s CPI reports showed that last quarter’s inflation was contained and as expected, yet that news helped propel oil prices to over $100. The chart below shows the price spike that occurred at exactly those announcements at 8:30AM EST.

Why would that happen? The answer is that inflation, particularly in commodites is coming. The Fed’s easy money policy and cheap interest rates are hurting consumers and this game of investing in tangible assets to get away form the Dollar in risk averse scenarios is starting to gain traction.

Under “normal” conditions, oil would sell-off as part of the risk aversion trade and the fact that there would be less demand for oil should economies begin to contract. Well that scenario seems likely at this point, especially with what is taking place in the Euro zone and yet oil soars.

The market is using the red herring of problems in Iran but at the end of the day its Bernanke and the Fed.

Thanks a lot, Ben.

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November 1, 2011

Forex Market Outlook 11/1/11

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

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

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

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

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

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

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

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

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

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

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

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

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

Stay tuned!

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October 28, 2011

Forex Market Outlook 10/28/11

Filed under: Forex News — Tags: a-released-here, commodities, currency-pairs, economic, europe, forex market, fundamental, ireland, monetary, oil, practice account, top stories, trades, while-the-boj, yen — admin @ 7:05 am

Yesterday’s meteoric ride higher in risk assets is emblematic of the overall state of the global economy in that it is government and not business that is holding us back. With the “resolution” of the Euro debt crisis having been established, let’s not forget that the debt problem is not going to go away, but rather now they have a coherent plan to deal with it. That is, until something happens.

Part of the problem with the plan laid out yesterday is that it did not address the debt problems in the other four periphery countries and while Greece may live to see another day, the people of Italy, Ireland, Portugal, and Spain may take issue that they did not receive debt forgiveness. So this situation is far from over, and it will be interesting to see what happens when the it comes time to actually follow through on these plans if necessary.

So the major risk appetite from yesterday has abated some today as we some profit-taking in the markets ahead of the weekend. Risk assets are slightly lower to start the morning, but not enough to show a reversal of sentiment. Moves like yesterday’s are rarely one-day phenomena so it seems likely that barring some extremely bad news, markets particularly US stocks should move higher. The Dow climbed above 12000 and corporate earnings have continued to impress.

This rise in stocks yesterday was both accompanied and caused by US dollar selling, as the Dollar experienced a broad-based sell-off and commodities were higher as well. Economic data has been slightly better of late, but it will be interesting to see if this is sustainable with the potential inflation on the horizon.

There was no significant news out of Europe this morning, but overnight in Japan the jobless rate came in much better than expected, posting a 4.1% figure vs. an expectation of 4.5%. Household spending also decreased by less than expected, and CPI data showed continued deflation. Industrial production figures however were worse than expected.

So the story in Japan is one of an improving economic picture despite the recent Yen strength which is at an all-time high vs. USD.

Economic data released here in the US missed expectations slightly with Personal Income showing a .1% gain vs. the expected .3%, though personal spending increased .6% as was expected. Later this morning the U of Michigan consumer confidence figure will be released and is unlikely to bet expectations.

Today is setting up to be an inside day which is not surprising given yesterday’s massive move. Essentially this means that we won’t be making new highs or new lows. These types of pauses are generally necessary as it gives the markets time to fully digest the impact of the change in sentiment and determine if the move is warranted.

In this case I think it is, not because the economic fundamentals looks so good, but because there really is no place else to go. With bonds paying little interest, the value of the Dollar declining, and global growth uncertain, stocks are a pretty good place to be. The rationale behind it is that companies can maneuver more quickly than governments and can maintain earnings but cutting spending if need be. With valuations fairly low historically, dividend yields are higher making stocks an attractive bet.

But what’s even a better bet are the commodity currencies in my opinion as dividends are paid quarterly in stocks; in currencies interest is paid daily. So you don’t have to try to pick individual winners like in stocks or get locked up for months waiting for dividends. You can get in and out in a moments notice and get your interest daily.

In addition, if the Dollar continues to weaken with the threats of QE3 on the horizon, then other currencies are going to look more attractive. That’s what makes the currency market the market of choice for these uncertain times!

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September 30, 2011

Forex Market Outlook 9/30/11

Filed under: Forex News — Tags: a-reason-for, currencies, japan, live, loonie, oil, pound, trades — admin @ 7:24 am

The are many fund managers who are glad to see this quarter come to an end as it has been a rough road for risk assets as the Euro debt crisis has held world markets hostage. With the persistent fear that things will worsen in the EU and no resolution in sight, long-term growth projections are nearly impossible to forecast.

This all adds up to uncertainty which in turn creates volatility, and the lack of direction is disconcerting to say the least. Without a clear picture emerging, the longer the uncertainty persists the more difficult it becomes to return to economic health.

So far the Euro debt crisis is moving along at a glacial pace, with the required votes taking place but not acting fast enough to satisfy the markets. The problems with Greece are still weighing heavily and the lack of a long-term solution in favor of stop-gap measures keeps the investing climate negative. The end result of all of this week’s Euro drama is that for now Greece remains on pace to receive the next tranche of bailout money (a meager $8 billion in the grand scheme of things) and the question remains whether this is too little, too late. Only time will tell.

Meanwhile as we return to the current economic situation (which has taken a back seat to Euro debt drama), the Euro zone reported CPI data that came in much higher than expected, showing 3% inflation vs. the expectation of 2.5%. This might normally have a positive effect on the Euro as the market would expect the ECB to raise rates, but they are hand-cuffed now by the debt problems. As time drags on, the situation in the EU is looking more and more untenable.

Adding to the global slowdown story is news that China is slowing as manufacturing PMI data came in flat showing no growth. While this normally will have a negative effect on the antipodean currencies (it did!), there was added pressure on the New Zealand kiwi as they received a credit downgrade from Fitch and S&P.

In other news, Japanese industrial production has improved to almost pre-tsunami levels, yet the figures came in lower than expected. The jobless rate in Japan also fell to 4.3% from an expected 4.7% and consumer prices edged slightly higher. Both of these are positive data points for Japan, who is struggling to recover with a stronger Yen.

In Canada, GDP figures came in as expected and were slightly higher than the last reading which is significant as they are hanging in there economically despite a slowdown in the US.

Here in the US, personal spending and income figures came in lower than last month’s reading but in-line with reduced expectations. Later this morning the U of Michigan confidence figures are due out and I can’t imagine a positive reading at this point.

This all adds up to risk aversion in the markets, with the Dollar and Yen strength and stock and commodity markets weakness. It is difficult to go into the weekend “long risk” as the uncertainty of the Euro debt crisis looms. A pattern is emerging where the risk appetite increases on Monday and Tuesday, then begins to flip to risk aversion as we head toward the end of the week. This has been especially true with the high hopes the markets have for a Euro resolution, only to be disappointed again and again.

In these uncertain times, it is important to follow the market and not try to guess what may happen. Short-term traders have had more success than longer-term investors as the volatility that has been created suits that style better. If volatility persists, then you may want to consider shortening your horizon.