Forex Blog

June 29, 2010

The Party’s Over!

Filed under: Forex News — Tags: , , , , , , , , — admin @ 1:33 pm

This morning we are seeing a slew of consumer confidence figures coming out around the globe which are lower but largely in line with expectations.  The Euro zone debt crisis is continuing to weigh heavily on the markets, and a leading economic index in China had its smallest gain in nearly 5 months, signaling that the Chinese economy may be slowing down.

Later this morning we are expecting consumer confidence figures here in the US as well as housing price figures.  These are expected to come in lower as well, as the removal of the home buying tax credit has caused demand to wane.

Overnight in New Zealand, building permits were lower, and the Japanese jobless rate increased to 5.2%, higher than expected.

This has all contributed to lower equities markets, with US stocks and commodities set to open lower as well.  As a result, we are in risk-aversion mode this morning.  Keep an eye out for the 10AM numbers, as they may be the stock market’s only chance to recover.

Aussie (AUD):  The Aussie is lower as risk aversion is reducing demand for carry trades due to global slowdown concerns, particularly from China.  In addition, the market is looking for the new PM to move quickly on the proposed mining tax, which is seen as “anti-business” and bad for the economy.

Kiwi (NZD):   In addition to risk aversion, the Kiwi is lower as building permits declined 9.6%, the second decline in 3 months.  The Chinese leading index decline is also affecting NZ, as a number of exports go to China as well.

Loonie (CAD): 
  The Loonie is also lower on a classic risk-aversion day, as oil prices retreat on fears of a global slowdown.  Tomorrow will bring the Canadian GDP figures which will show how solid recovery is north of the border.

Euro (EUR):  The Euro is lower this morning, though higher against the commodity currencies.  Fears of the debt crisis have resurfaced, and bank stress tests are to include bank exposure to sovereign debt risk.  This is sure to uncover a land mine or two, and the market is fearful of the size and the scope.  However, business confidence came in higher than expected as a lower valued Euro should encourage exports.

Pound (GBP):  The Pound is lower as well on risk aversion, though it is still above 1.50 vs. USD.  Mortgage approvals came in slightly lower than expected, but expect the Pound to fare better than the Euro as GDP figures are due out tomorrow.

Dollar (USD):   The Dollar is catching a bid from risk-aversion and is higher against all but the Yen.  Consumer confidence figures are due out at 10AM EST and they may be the stock market’s last hope for a turn-around today if the numbers are better than expected.  Home price figures came in slightly better than expected, most likely due to the tax credit.  Today looks ugly for stocks, which should mean continued dollar strength.

Yen (JPY):   The Yen is higher as the rapid unwind of carry trades is driving demand for the Japanese currency despite the fact that industrial production and household spending fell.  In addition, unemployment ticked higher to 5.2% vs. an expectation of 5% in a sign that recovery is clearly slowing down.

Well, we knew it was only a matter of time before this global charade was exposed as unsustainable and now the market is starting to realize that it may be time to pay the piper.  Obama’s pleas at the G-20 fell on deaf ears, and governments outside of the US have decided that it’s better to cut bait than to try to continue to fish.

In other words, countries are trying to cut their losses and get back to economic health.  The only way to do this by taking the “medicine” of financial austerity and debt reduction.  This is going to be one heck of a hangover, as now the party may be finally over.

However, all is not lost and I am not trying to be a doomsday forecaster.  There are definitely pockets of strength in our economy, including corporate America.  All of the lay-offs of the past have allowed corporations to increase profitability, and many are trading at low multiples.

However, it is definitely time for people to wake up.  The eventual fallout and backlash against our big-spending government will only bring about better policy in the future.  Government, no matter what type of social engineering they try, CAN NOT control economic cycles.  The longer they try to pro-long an unnatural order, the worse the pain will be.

Usually the “summer slowdown” takes effect, though this time it may be different.  I expect there to be heightened volatility as the world navigates the treacherous waters of the global economy.   Expect there to be highs and lows, as well as gains and set-backs.

There is no better time than RIGHT NOW to protect yourself from global economic conditions through the forex market!  Don’t be one of the ones left standing when the music stops!

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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January 8, 2010

Non-Farm Payrolls Disappoint!

The US Non-Farm Payrolls Report (NFP) is usually one of the biggest market moving numbers in the currency markets.  Today’s number is no exception.  The report came in for December at -85K, a very disappointing figure.  Estimates were expecting this number to be flat, that we neither gained or lost jobs for the month.  Although I had seen some pretty wild numbers tossed around, anywhere from +/- 200K. The revisions for the prior two months showed a net loss of 1K jobs, a negligible but encouraging figure.

So what does this all mean?  Well in a word: trouble.

The US economy is not adding jobs nearly as quickly as the government had hoped.  With all of the enormous amounts of stimulus spending, we have little to show for it.   As a result of this figure, the US dollar reversed course and immediately began to weaken.  If anyone had any delusions about a US rate hike in the first quarter of the year, they can pretty much forget about it as its now off of the table.  Unless the dollar tanks so badly that Bernanke HAS to do something.

My guess is that we’re going to be looking at Japan 2.0 here in the US, our own version of their “lost decade”.

Just to illustrate the volatility that can occur around this figure, take a look at this chart of EUR/USD: (click chart to enlarge)

eurusd108.JPG

Close to 100 pips in a few minutes!

This could make an interesting year for the US dollar.  There are 2 basic ways that we will see dollar strength this year; either through interest rate hikes or risk aversion plays.   So while this logic may be a bit counter-intuitive to some, it’s going to be very important to take our clues from the other markets to see which theme is playing out.

And of course don’t forget that the dollar can continue to weaken well into this year, the question is going to be that if things don’t get better on the employment front, at what point does that filter through to the other markets?

Only time will tell.

To learn more about how these government figures can affect your savings, be sure to check out our forex trading courses!

Tags: Bernanke, blog, cad, course, currenc, currency, currency market, dollar, economy, EUR, eurusd, forex, forex trading, forextrading, fx, fxedu, Il, interest, interest rate, Japan, Mike Conlon, minutes, nfp, payrolls, pip, pips, time, USD

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