Forex Blog

October 23, 2012

Yen Crosses: RSI Divergence seen on AUD/JPY

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 1:57 am

EUR/JPY H4

http://forexblog.oanda.com/mserve/EURJPY_231012.PNG

Is this a bullish break out or are we falling back into trading range between 103-104, or perhaps into a larger oscillating cycle between 100 – 104? Using RSI as reference, we know that 30 period RSI is heading lower before hitting the Overbought level of 70. Comparing historical data, we can see that price is heading higher while current RSI peak is lower than the previous peak found in Mid September. Though not a textbook example of RSI divergence, price may not be as bearish as indicated by current RSI levels.
GBP/JPY H4

http://forexblog.oanda.com/mserve/GBPJPY_231012.PNG

128.0 remain a strong resistance against recent bullish movements. A fall in current price levels could bring range between 124 – 127 back into focus.

AUD/JPY H4

http://forexblog.oanda.com/mserve/AUDJPY_231012.PNG

A better example of RSI divergence compared to EUR/JPY: Price was in a downtrend, and retraced back accordingly. Retracement not able to hit previous peak’s level, but RSI showing a higher peak compared to before. This is an indication that prices are rallying much faster as compared to before but yet this strong momentum is deemed not enough to push to previous record high.

Bottomline:

Yen crosses have gained bullish momentum significantly as speculation about BOJ intervention increased. Even when Fin Min Jojima said that they’re not requesting 20 Trillion Yen warchest from the Government, reaction online appears to interpret that as an indication that the amount is going to be bigger, and not smaller. As such, Yen could still weaken further this week, however, going by historical experience, we’ve seen BOJ failed time and time again to weaken Yen as safe haven flow continued to enter Japan. Will this time be any different?

November 21, 2011

November 14, 2011

Forex Market Outlook 11/14/11

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

Once again our attention is on Europe as new regimes are coming into power in both Greece and Italy.  This completes the change in all four S. European countries, with Portugal’s leader having resigned months ago and Spain’s leader electing not to run for office again.  Now the challenge will be to get them all to agree and implement the austerity measures required to participate in the terms of the bailout.

This has been a somewhat strange turn of events as the story being floated now is that these indebted nations want more Euro zone participation, and not less.  So now they are talking about how to form better controls in the hope of allaying market fears.  But in reality, if they really wanted to allay market fears, they would let the ECB stand as the buyer of last resort in the same manner in which the Fed stemmed our crisis 2 years ago.  Good luck with that one though.

So the two new governments are stepping into place and are being formed, but there is still some risk in the marketplace until it becomes a “done-deal”.  While the markets are hopeful in the competency of the new leaders, the proof is in the pudding as they say.

In the meantime Italy had a bond offering that was successful, but the yield was the highest they’ve had to pay in over a decade.  This sent stocks lower and the markets into mild risk aversion mode this morning.

This week is marked by a lot of consumer price data due out from around the globe; however don’t expect any Central bank to do anything about inflation if it comes in higher than expected.  This is precisely what they are hoping to encourage, despite its limited ability to help economies grow.

Overnight, Japan reported GDP figures that came in higher than expected and was the first expansion they have seen in over 4 quarters, though it must be noted that the majority of these gains are as a result of the re-building efforts from the natural disaster and companies producing more to catch up on losses.  In other words, don’t expect this type of activity to continue going forward, though this is definitely a positive development.  The Bank of Japan interest rate policy decision is due mid-week though don’t expect any changes.  The Yen is strengthening on the GDP data as well as general risk aversion this morning.

The data in the UK will be interesting this week as CPI has been stubbornly high and the BOE just increased their asset purchase program by 25 billion pounds.  The data is due out tomorrow, and will be followed on Wednesday by the BOE inflation report.  Wednesday also will bring the UK unemployment report which is expected to tick slightly higher, and Thursday is retail sales figures which are expected to show declines.  I think the UK is heading for a stagflationary environment if the BOE doesn’t act to reduce inflation.

In the US, while PPI and CPI data will also be out later this week, I think the most important number of the week will be tomorrow’s Advance Retail Sales figures.  The market is expecting a gain of .3% and this figure may really show the health of the US consumer and whether or not that segment of the economy is starting to pick up.  The inflation data is meaningless to me as we know the Fed’s next move will be to ease further through QE3 whenever that comes, though there will be some market volatility on the release.

This week is really more about confidence from the Euro zone than anything else.  If CPI data comes in lower than it will buy Central bankers time to allow easy money to continue to work its way through their respective economies.  If it comes in higher, it is unlikely that public reaction will be enough to do anything about it.  Then next month’s data will likely show the effects of the $100/barrel price of oil we are seeing today.

Don’t be fooled into thinking that Central banks will respond to the data and do what’s best for the masses as inflation is a pretty one-way bet right now.

October 25, 2011

October 13, 2011

Forex Market Outlook 10/13/11

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

Yesterday’s release of the FOMC meeting minutes was a complete dud and market hopes that the Fed was close to QE3 went unrealized.  Part of that hope came from Bernanke’s speech to the Joint Economic Committee earlier this month, but it seems as though that mention of further easing was intended to keep the markets from falling off a cliff.

Yet they are no closer to QE3 then previously thought, so the “free money trade” will have to wait for another day or for the economy to worsen dramatically, which is not out of the realm of possibility if the EU fails to meet their deadline on the debt crisis resolution.  The clock is ticking.

News out of Europe this morning showed that German CPI was slightly higher than expected though not enough of a gain to cause the ECB concern.  What was more of a concern though was the ECB’s monthly report for October which was largely negative.  Citing “moderate to lower growth”, reduced outlooks, and the like, the ECB essentially confirmed what we already know.  

What was more concerting to the market though was a report out of China that showed that their gains in exports declined more than expected, showing a gain of only 17.4% vs. an expected 20.5%.  While they will cry that the strengthening Yuan is hurting them, no one else will shed a tear as their trade surplus came in at $14.5B, which contrasted with the US trade deficit of 45.6B makes them look silly.  The Senate passed the Bill to impose tariffs on China if they don’t move to revalue their currency, which could ignite a trade war and is likely not going to help the global economy recover.  I’ve discussed an alternate solution to tariffs in this morning’s video.

However there was some good news for those with risk appetite, as Australia added 20.4K jobs to their economy vs. an expected 10K, which helped push their unemployment rate down to 5.2% from the expected and previous 5.3%.  While the Aussie has pulled back on general risk aversion, the slight decline may reverse throughout the day.

Additionally, the Bank of Japan released the minutes from their rate policy meeting which called for additional monetary easing to attempt to weaken the Yen.  Citing problems in Europe to global economic stability, prolonged Yen strength will harm exports though recent economic data in Japan has been better than expected.

Here in the US, initial jobless claims figures came in as expected, with 404K newly unemployed.  400K has been the “norm” which is unfortunate as we are not adding enough jobs to move the needle.  Perhaps the passage of the Free Trade Agreements that have been sitting around for over 4 years will help, but structural reform is more likely needed.

Since the President’s “jobs” bill was rejected by the Senate, we are likely going to have to wait for the debt “super committee” to attempt to reduce our deficit and provide confidence to the markets.  This is a big task and much like the Euro commission that is charged with finding the resolution to the Euro debt crisis, essentially puts us in a holding pattern until then.

So I’m going to focus on corporate earnings here in the US, which if the majority come in better than expected, could revive risk appetite in the markets.  The general mood surrounding the markets seems to positive, though that could be derailed by the Europe failing to resolve by their self-imposed dead-line, or more of the same Washington DC gridlock.

The inverse correlation between the S&P 500 and  the US dollar is still pretty high, so the risk trades are still intact and could be driven by stocks rather than perceived global economic risk in the near-term.

October 12, 2011

Forex Market Outlook 10/12/11

This morning has started with risk appetite driving markets higher, with Dollar and Yen weakness acting as either a by-product or catalyst of the move.  Regardless of who or what is leading the charge, a sense of calm is starting to return to the markets and they looked poised for a 4th quarter rally into the end of the year.

Positive sentiment surrounding the resolution of the debt crisis has not been derailed by Slovakia delaying their vote on the EFSF expansion agreed to in principle on July 21st as the market believes that the Franco-Prussian solution which Sarkozy and Merkel have promised is coming in early November will like supercede that package.  The “Troika” has already agreed to Greece receiving the next tranche of money despite the uncertainty surrounding the vote of whether Greece has done enough to receive it, with the hope that whatever is offered in early November is enough to wipe the whole slate clean.

So the pressure is on to come up with a resolution that not only deals with the problem but is also something that is agreeable to all of the Euro zone members as well as the markets in general.  Call me skeptical but I’m not certain if such a solution exists.  Today a plan to re-capitalize European banks will be proffered which is a step in the right direction.

Meanwhile in the UK, policy-maker Posen has claimed that the BOE is prepared to ease further and the unemployment rate has ticked higher to 8.1% from 7.9% and an 8% expectation, yet the Pound is trading higher and hit our last week’s target of 1.57 vs. USD and then some.  GDP estimates came in better than expected for September calling for .5% for last month vs. .2% for the previous month.  Also to note is that even though the official unemployment rate rose, the number of new jobless claims came in lower than expected at 17.5K vs. an expected 24K.

Both the Aussie and the Kiwi are tracking higher with the former trading back above parity vs. USD.  Related home sales and price figures show that there is moderate growth, and Australian consumer confidence figures came in better than expected.  Australian employment figures are due out tomorrow.

Also adding to the risk trade is the machine orders figures that were reported by Japan that came in much better than expected, showing a monthly gain of 11% vs. an expected 3.9%.  This has helped rally the Nikkei and caused some Yen selling and tonight’s release of the BOJ meeting minutes may show how close they are to intervening in the currency which could provide for additional risk taking.

Speaking of meeting minutes, the release of the September FOMC will be out later today and will definitely show how close Bernanke and Co. are to QE3.  While he floated the idea at the JEC briefing earlier this month, it may have been in response to tanking markets and not any serious policy discussion.  If on the other hand they are close to QE3, then this could push markets higher on the free-money trade.

US corporate earnings season is upon us and was kicked off by worse than expected numbers out of Alcoa, yet the S&P 500 has rallied to above 1200.  The bar has been set so low for many of these companies that the beats should be more than the misses.

Also to note is that the Senate did not pass Obama’s “jobs bill” which was a more of political statement than a credible plan.  This means that more money is not added to the deficit and taxes are not raised in the near-term, and we are likely to have to wait for the deficit reduction committee to take action before anything gets done.

Yet the mood surrounding the markets appears to be positive and I think we will definitely see that 4th quarter rally that investors desire.  Business can only sit on the sidelines for so long and if they start to believe that there may be a change in Washington DC in the next election cycle to more pro-business policies, then they may start to invest.

While I don’t think this will solve our unemployment problem in the near-term, if we can get the needle moving in the right direction then that could instill some confidence which is ultimately what this economy is sorely lacking.

So keep an eye out for the Fed release later today as it has the ability to create volatility as the market dissects the Feds intentions.  Any hint at the “free money” trade could send markets even higher!

August 22, 2011

Forex Market Outlook 8/22/11

August 17, 2011

Forex Market Outlook 8/17/11

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

August 12, 2011

Market Outlook 8/12/11

The markets appear to be somewhat tame this morning considering the massive volatility we have been seeing over the past week.  Mid-triple digit moves on the Dow Jones Industrial Average have marked one of the craziest times in the market that I can remember—and this includes the go-go days of the internet boom/bust!

We know about the major risks in the marketplace, starting with the US downgrade, then moving back to the European sovereign debt crisis, followed by the rumors of problems with the European banks, and capped off by the slowing global economic picture. 

Despite these problems, the markets are set to move higher after yesterday’s rally in the US.  European stocks are also higher after a number of countries in the Euro zone enacted a ban on short-selling, trying to prevent an attack on the banks that may have exposure to sovereign debt.  In addition, GDP in France contracted more than expected and Industrial Production figures in the Euro zone declined as well, posting a gain of 2.9% vs. an expected 4.2%.

Here in the US, Advanced retail sales figures came in as expected, showing gains of .5% in a sign that the US consumer might not be dead just yet.  Michigan consumer confidence figures will be out later this morning.

So the markets appear to be in risk-taking mode this morning, with stocks and oil higher and gold trading lower.  Demand for safe-haven currencies has abated, so the Swissie and the Yen are lower as well.  Rumors of “mini-interventions” by both Central banks have the markets believing that those entities are active in the markets and are not tipping their hands as to what they are doing.

After the wild ride we’ve experienced this week, a bit of slowdown is welcome.  But don’t be lulled into thinking that risk has lessened in the marketplace.  In fact, I would say it has increased a bit as the global slowdown is accelerating and the drastic measures taken in Europe to ban short-selling may mean that problem with bank capitalization may be more tenuous than previously believed.

If you are taking positions long into the weekend, be sure to use proper risk management.

August 3, 2011

Forex Outlook 8/3/11

Filed under: Forex News — Tags: , , , , , , , , — admin @ 7:02 am

Talk about a disappointment! Yesterday, the markets tanked after the US Senate approved the debt-ceiling deal in a sign that once again, Washington can’t do anything right. All that was accomplished was essentially kicking the can down the road (yeah I said it) so that we can resume this debate in a few months.

Meanwhile, the Senate hasn’t produced a budget in 2 years, and it’s a shame that we have to go to the brink of disaster to get politicians to do their job. So the uncertainty persists, as the global economy contracts and this three-ring circus we call government hasn’t done a darn thing to help job creation and has in fact only done things to hinder it. This is confirmed by this morning’s Challenger jobs cuts which are increasing, though the ADP employment change came in slightly better than expected. It’s beginning to look and feel like we are on the next leg down, as the Dollar weakens because the markets may be starting to believe that QE3, 4, 5 etc. may be forthcoming from the Fed to try to keep the economy afloat as politicians continue to do their best to sink it.

As markets tanked yesterday, there was a major move into gold and the Swiss franc pushing both to new all-time highs. The move in the franc was so dramatic that this morning, the Swiss National Bank (SNB) popped a surprise interest rate cut on the market essentially saying enough is enough. This is a warning shot across the bow of speculators who have been pushing the franc higher, as a formal intervention may be on the horizon. This has weakened the franc temporarily, but may not be enough to reduce demand.

Gold is soaring to new nominal highs in the $1670 range, and the other safe-haven currency, the Japanese yen has avoided some of the demand as the BOJ is warning of intervention which could be coming shortly.Tomorrow the rate decisions from the BOE and ECB are expected to produce no change, but don’t be surprised if the BOJ decides to try to weaken the yen through either words of actions.

Friday’s Non-Farm Payrolls report may need to produce a better-than-expected number to allay market fears, otherwise the economic death spiral may begin.

It’s a sad, sad state of affairs here in the US as there is no confidence in this administration that things will get better. Things looks so bad here for the Dollar that even the Euro is attractive, despite the bond vigilante attack on both Italian and Spanish debt which could push one of those countries to seek a bailout.

While the US has barely avoided a credit downgrade from the ratings agencies, that tune could change very quickly. The volatility that has occurred as a result of all of this uncertainty is a trader’s dream, but an investor’s nightmare. So keep your trades to the short-term and wait for the dust to settle.

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