Trade | Forex Blog

January 27, 2012

A Yen to Lead

Filed under: OANDA News — Tags: aud, chf, dean's fx, eur, october-sales, retail-sales, trade, week in fx — admin @ 11:49 am

Other regional data and policy innovation has mostly been positive for the Asian region this week. The Fed’s surprise extension of its commitment not to raise US rates for another 18-month’s, until late 2014, “should be the key to medium-term development”. Yen is expected to be the natural beneficiary of the latest dovish rhetoric by Bernanke and company and monetary easing by other G10 members. The lack of attractive yield opportunities complicates Japans current account recycling efforts. The stronger than expected Euro area flash PMI’s this month should be Asia’s strongest macro support (it suggests that the regions exports have ‘bottomed out’). Analysts historically use this indicator as a bellwether for Asian currency appreciation.

Below are some other highlights of the week:

ASIA

CNY: Chinese New Year of the Dragon begins.
AUD: Because of the Chinese Holidays, markets down-under were vulnerable to illiquid pockets this week.
AUD: The IMF has warned that Aussie banks might need “tougher capital requirements.”
JPY: It was no surprise that the BoJ cut growth forecasts at this weeks monetary meeting, while maintaining the policy rate (+0.05%) and leaving the QE program unchanged. Policy makers have revised down the country’s growth outlook for 2011 (from +0.3%, y/y, to -0.4%) and 2012 (from +2.2%, y/y to +2.0%) attributing the slowdown to the overseas economies and the retroactive revision of GDP stats.
JPY: Their inflation metrics remain unchanged, believing that the global financial markets, US balance sheet adjustments and price stability in the emerging economy, all represent risks to Japanese growth. What about the yen? It’s a currency that is likely to continue to “benefit from policy convergence and risk aversion.”
INR: The RBI held the repo rate unchanged at +8.5% (as expected), however, they unexpectedly lowered the cash reserve ratio to +5.5% from +6.0% (It’s first ease in nearly three-years). Analysts expect this to add approximately +INR320b into the economy.
INR: The RBI also revised this years growth forecast lower to +7% from +7.6%.
AUD: Australia headline CPI was flat in Q4 (forecasted for a +0.2%, q/q rise) due to a sharp fall in fruit prices. The RBA’s trimmed mean measure of CPI inflation was +0.6%, q/q, and the weighted median was +0.5%. Both are running at +2.6%, y/y, after some upward revisions to Q3 numbers. However, with core prices in the middle of RBA’s +2-3% target band suggests further easing is not required just yet. The market expects the RBA to cut rates +25bps because of Euro woes.
JPY: Japan’s December’s trade deficit rose to -JPY567b, pushing the 2011 trade balance into a deficit of JPY2.5trn (the first annual trade deficit in 20-years). Analysts expect this trend to continue for 2012. Euro uncertainties and global central banks monetary easing will continue to make it hard for any current account surplus to be recycled offshore. With repatriation of overseas assets remaining strong, the currency should remain under pressure longer term.
PHP: Philippine imports remained at a high, +$4.9b in November, pushing the trade deficit -$0.7b wider to -$1.6b. Remittances continue to support the PHP and a current account surplus. Expect policy makers to remain reluctant to allow their currency outperform in the region.
SGD: Singapore CPI inflation was at +5.5%, y/y in December, in line with the consensus forecast. Inflation is expected to remain high through the next one to two quarters. This scenario would suggest that the MAS to maintain the SGD on its current mild appreciation path.
FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
KWN: With EM Central Banks more active in reducing the appreciation of their own currencies, the BoK is supposedly restricting KRW appreciation to about five won per day.
NZD: RBNZ remains on hold at +2.5%, as widely expected. No rate move is priced in until Q4.
KRW: GDP growth slowed to +3.4%, y/y, in Q4 vs. +3.5%. The underlying details were soft, with domestic demand and investment continuing to be weak. Net export growth also slowed.
SGD: In Singapore IP rose +12.6%, y/y, in December, much higher than the consensus forecast of 6.4%yoy. The MAS is expected to keep the SGD on an appreciating trend.
KWN: Korea’s manufacturing business survey rallied +2pts to 81 in January, and still below the expansionary level of 100. Analysts expect the index to rise in line with the recovery in global PMI’s. This would suggest stronger export growth and support for the won.
NZD: New Zealand recorded a trade surplus of +0.3b in December, this after four consecutives months in the red. This was achieved on the back of increased dairy exports. In December exports rose +13% while imports fell +1.6%. For 2011, the trade surplus was largely flat at around +1.1b. Expect further Kiwi appreciation to hurt exports. Governor Bollard at the RBNZ said he is comfortable with the current market pricing of no rates hike for the year ahead.

Comments (0)

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!

Comments (0)

November 22, 2011

Forex Market Outlook 11/22/11

Filed under: Forex News — Tags: australia, china, commodity, forex market, france, interest, loonie, pound, practice, top stories, trade — admin @ 7:03 am

It’s a slow day in the marketplace this morning and we’re seeing a bit of a rebound after yesterday’s sell-off. The “Super-Failure” of the debt reduction committee was extremely disappointing to the markets yesterday, though it always baffles me how the markets could have thought they could succeed in the first place as it was set up to fail.

However the markets got an early pop as the fear of another US credit rating downgrade never materialized as the ratings agencies re-affirmed the current level despite the failure to act. This basically is setting up for a year-long battle of blame-game politics heading into the 2012 elections. I just may have to throw away my TV.

Despite the failure though not much has changed for the average American who is slowly seeing their prospects of a better life diminished. Automatic cuts will be made to the deficit, though they come largely from defense spending and domestic programs, like education. So now we are less safe and dumber to boot—just awesome!

But seriously, economic conditions slowly continue to deteriorate and the 3Q GDP figure (revised) came in this morning and was revised lower to 2% from an expected 2.5%. That is a huge miss and indicative that the economy is not getting better but worsening. Personal consumption figures came in slightly lower than expected at 2.3% vs. 2.4%.

Later today the Fed minutes will be released which should show a continued willingness to ease monetary policy. With today’s floundering GDP figure, that easing could come much sooner than expected.

Other news on the docket showed that the budget deficit in the UK came in lower than expected due largely in part to the government austerity measures. However with that austerity, economic activity has decreased and we will know just how far on Thursday when the UK reports their GDP figures. Tomorrow though we will get the release of the minutes from the BOE rate policy meeting which will show just how dovish they have become in light of the expectations for economic growth and the stubbornly high 5% inflation they have in the UK.

In Canada, retail sales figures for last month came in better than expected posting a gain of 1% vs. an expectation of .5%.

And not to forget about our friends in Europe, bond yields continue to rise (especially in Spain where they had to pay double the yield on short-term debt) and there is now concern that France could be close to a credit rating downgrade. Germany continues to back away from the idea that the ECB needs to become the lender of last resort which may be the only hope the Euro zone has to remain in its current form.

So what started out as a mild risk-taking morning has reversed course and is leaning back toward risk aversion after the horrible GDP figures that were reported here in the US. Perhaps the Fed minutes can save the day for market bulls later today but it is unlikely that Bernanke can be any more dovish than the market expects him to be.

With the Thanksgiving holiday a few days away, there is seemingly little in the economy or in the government to be thankful for. Perhaps the only thing to be thankful for is that 2012 is an election year and we can vote them all out office.

That and that Europe has imploded yet.

Comments (0)

November 14, 2011

Forex Market Outlook 11/14/11

Filed under: Forex News — Tags: a-narrow-range, aud, cad, crisis, currency-pairs, health, marketplace, markets, rsi, trade, trades — 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.

Comments (0)

November 8, 2011

Forex Market Outlook 11/8/11

Filed under: Forex News — Tags: a-fairly-tight, aud, currencies, fundamental, kiwi, range, top stories, trade, trader — admin @ 6:38 am

Today is one of those days where there is seemingly nothing happening, with little economic data released but one major event holding the market’s attention. The budget acceptance vote in Italy is now being viewed as a proxy for Berlusconi’s power in Italy and the potential for political theatrics at this vote could bring about a no confidence vote for the Premier.

Essentially what is taking place today is the Italian Parliament is voting on whether to accept the budget for 2010 (last year) and while it is expected to pass, some members may abstain from the vote in an attempt to show their displeasure with Berlusconi. If this occurs and the abstention is great, then there will be pressure for a no confidence vote which could lead to his resignation. This is the ideal scenario for the market, as they would prefer to see a technocrat in office who can navigate the economy and bring Italy back to fiscal health.

However, Italian politics is such that this could be a drawn out process. It must be noted that Berlusconi has a media empire and controls several newspapers, so he has a much louder voice than most. It will be interesting to see what comes about, but recent rises in Italian bond yields may make it more expensive for the government to service its debt if the political uncertainty continues.

Things are going a lot nicer in Greece, where PM Papandreou has reportedly said his goodbyes as they are close to forming a unity government intended to enact the measures laid in the debt crisis deal. Speaking of that deal, it is expected to be operational by next month, provided these governments can get their houses in order though timelines have known be extended in Europe.

On the data front, the Aussie was lower overnight as the Australian trade surplus came in lower than expected, though it is rebounding on risk appetite this morning. Stocks and commodities are higher to start the day, though in general the currency markets have been trading in a tight range.

The British pound has also been moving higher as it benefits form money flows leaving the Euro. Both industrial and manufacturing production figures in the UK came in as or slightly better than expected which is acceptable at this point given the state of their economy. Later this morning, an unofficial GDP estimate will be released.

As soon as the Swiss franc starts to weaken on its own (see yesterday’s chart of the day), the market takes notice and starts to buy it again! Consumer confidence figures came in worse than expected but the big news was a statement from the SNB that claimed that they would manipulate the currency for competitive advantages in exporting goods and services. The market has taken this to mean that there will be no further intervention, after yesterday’s calls to move the peg to the Euro up to 1.25 from 1.20.

In the US not much is happening today, with some Fedspeak due out later today. This will likely produce little in the way of market reaction as it is insignificant in the grand scheme of things.

Meanwhile the debt debate here in the US continues forward and the media is grasping at the slightest indication of any news. It is times like these when the markets can become jittery, as unexpected releases could produce market movement.

Right now the currency market is trading a fairly tight range, so I prefer to keep my trades to the near-term and attempt of buy ahead of support and sell ahead of resistance, essentially trading the range. The risk at this point to putting on longer-term positions at these levels is too great, so until some clarity emerges I will stick to the shorter-term.

Comments (0)

October 21, 2011

Forex Market Outlook 10/21/11

Filed under: Forex News — Tags: a-new-all-time, currency market, decision, eur, forex trading, fundamental, live, markets-on-edge, trade, unemployment — admin @ 7:16 am

The market has been range-bound headed into the weekend, but man, those ranges are pretty big! I was surprised as I thought we’d see the ranges tighten up but that hasn’t been the case. Yesterday, the markets made huge moves as various news trickled out regarding the Euro debt crisis.

It is times like these when I tend to be more cautious, as it is difficult to know when news may hit or what its impact may be. Yesterday, the markets were selling off as risk aversion picked up throughout the early US session, only to completely reverse after “news” came out that the size of the rescue plan is going to be in the magnitude of $1.3 Trillion, with a “T”. That is encouraging news for the market, as in this case more is better.

But, later that day, news came out that indeed EU leaders needed more time to unveil the plan and that this weekend’s Debt Summit would not produce the resolution but rather next Wednesday will be the day that it is revealed. While this was initially seen as further stall tactics, the market is willing to give them a few extra days. They are likely close to a deal, and just need the weekend to sell it to the other members.

Though this creates another set of problems, as any dissension in the ranks could put the markets on edge. It should be no surprise though that they moved the decision, falling back more in line with what Merkozy originally proposed and not the G-20 timeline.

There’s not a ton of economic data out this morning, with German IFO survey figures coming in better than expected and the UK posting better than expected public finances on lower borrowing.

The big news of the morning came from Canada, where CPI data came in slightly hotter than expected. Core CPI came in at 2.2% vs. an expected 2%, with the headline figure at 3.2% vs. 3.1%. The Loonie has strengthened as a result, also being buoyed higher by early risk appetite in the markets.

There is no further news on the docket for today, but there could be more “news” leaked out of the Euro debt debate so there could be volatility. Not to mention general risk aversion heading into the weekend.

**This just in: USD/JPY tanking here and making a new all-time low at 75.82! Japanese intervention talk is bound to pick up now as that 76 level was seen as the “line in the sand”. This could also be the function of USD weakness if they are more involved in the bailouts of Europe. Stay tuned to this development!

So the markets are definitely behaving crazily here, so it is always good to remember to use a hard stop and take shorter term trades. There’s no telling what may happen today or over the weekend, so I’m going to step aside and not try to be a hero over the weekend. The potential risks do not outweigh the possible rewards.

Comments (0)

September 21, 2011

Forex Market Outlook 9/21/11

Filed under: Forex News — Tags: euro, interest, market, time, top stories, trade, trader, trades, yen — admin @ 7:08 am

Today, all eyes and ears on the FOMC meeting today at 2:15EST where the market is expecting that Bernanke and the Fed will unveil “Operation Twist”, which a Fed scheme to lower long term interest rates and “twist” the yield curve.

Essentially the plan entails the Fed re-investing money that is already on its balance sheet in long-term rather than short-term maturities, thereby increasing demand and driving prices higher which in the bond market cause yields to fall. This is not technically an expansion of the balance sheet and is not further easing, so the supply of Dollars in the system should remain steady.

It is unclear what type of market response this is going to elicit, as an argument can be made for either Dollar strength or Dollar weakness. On the one hand, because the action does not increase the money supply and in the immediate term it may cause the Dollar to strengthen as those hoping for further accommodation are disappointed. On the other hand, the Dollar could weaken as money flees the bond market and moves into stocks and commodities and the correlative effects of such action could cause Dollar selling.

And then there is another option entirely, whereby the Fed does something other than what the market is expecting, or does nothing at all. Though the latter is highly unlikely. Regardless of what this meeting produces, there is bound to be some positioning ahead of the game and could cause volatility if the unexpected occurs.

Meanwhile in the Euro zone, the saga continues without a definitive outcome for yet another day. Word is that Greece is making “significant progress” toward receiving that second tranche of bailout money though it remains unclear what will happen afterward even if Greece does enough in the eyes of the Troika to warrant the payment. Interest rates are still ridiculously high and there is no way under the current conditions that Greece can ever pay back its debt.

Across the pond in the UK, the release of the BOE rate policy meeting minutes was indeed dovish, but perhaps not as dovish as the market was expecting. While they voted unanimously to keep current rates and bond purchases unchanged, no one has flipped toward calling for further easing just yet. Another thing to note is that if they do take action to be more accommodative, their first move will be to increase quantitative easing and not lower rates. They are also concerned about UK bank exposure to the Euro debt crisis.

The only other news out there comes from Canada, who saw their CPI data come in higher than expected. Headline inflation increased to 3.1% vs. the expected 2.9%, with the core figure increasing 1.9% vs. an expected 1.6%. Despite higher inflation, the Loonie is trading lower vs. USD and is headed back toward parity as general risk aversion in the markets this morning is out-weighing their fundamental data. Also to note is that these numbers are not out of line with what the rest of the world is seeing.

So keep an eye out for the FOMC announcement later today, which could produce fireworks or could be a complete dud. In these situations, I tend to step aside and wait until after the news hits to see the market reaction. Sometimes there are opportunities, and other times not so much.

And don’t forget about what is going on in the Euro zone with Greece, as the longer this plays out, the more impatient the market becomes. Uncertainty drives fear in the marketplace, sometimes more so than negative outcomes. This is not to say that a negative outcome for Greece is “better” for the markets, just that it provides more clarity.

So again, in these uncertain times, keep your trading to the shorter-term until clarity emerges as we are likely to remain volatile for some time!

Comments (0)

September 20, 2011

Forex Market Outlook 9/20/11

Filed under: Forex News — Tags: currency-pairs, debt, euro, europe, next, pound, trade, yen — admin @ 7:13 am

Well it looks like the markets this morning are growing tired of the “chicken little” scenario and are looking to put their fear aside and take on some risk. At least that’s what happened in the Euro session after S&P downgraded Italy’s credit rating one notch last night.

Asian markets followed yesterday’s risk aversion and pushed the Euro lower overnight, only to watch it rebound in the European session. News was that Greece was in “productive” talks with the troika in regards to receiving their next tranche of bailout funding. Yet not much has changed for the positive, as there still is no resolution to Greece and remains to be seen whether or not they can avoid a default. Greek citizens have taken back to the streets in protest of the austerity measures required to receive the next bailout, so political will in waning to say the least.

Also to note is that German economic data came in worse than expected, with PPI data showing a monthly decline of .3% vs. an expected no change, pushing the YoY number down to 5.5% vs. the expected 5.8%. While lower prices are not necessarily a bad thing, growing concern of a declining economic picture in concert with the debt crisis is alarming. ZEW economic survey figures were lower than expected across the board which should come as no surprise unless you think Europeans are happy that their monetary union may be on the verge of collapse.

In Switzerland, the SECO economic forecasts came out and growth figures were adjusted lower, citing recent Swiss franc strength as an impediment to exports. Trade balance figures were reduced as indeed exports fell from last month as imports gained.

Overnight in Australia, the RBA released the minutes from its rate policy meeting and stated that they were “well placed” to deal with a global economic slowdown or inflation. This essentially is a neutral stance that gives them the flexibility to either raise or lower depending upon the health of the global economy.

Tomorrow will bring the release of the BOE rate policy meeting minutes and any perceived dovish ness could push the Pound lower.

This comes ahead of tomorrow’s FOMC meeting where the market is expected some sort of further monetary easing. The most popular guess is that “Operation Twist” will be unveiled, whereby the Fed will now purchase Treasuries of longer durations to keep rates low for an even longer period of time. However, the market impact of such a move is unclear at this point, and some are starting to think that the Fed may do little.

It is always a tightrope that Fed walks, and the balance between a fundamentally weak Euro and a declining economic picture is one that must be balanced carefully. The Fed got little help yesterday from the President, whose speech about deficit reduction was more campaign rhetoric than anything credible.

At this point, it is painfully obvious that the President lacks any concrete plans to fix the US economy and is just setting the table for the blame game come the next election in 2012. This means things may get a lot worse before they get better, as the economy flounders toward stagnation.

Housing starts and building permits figures came in lower than last month here in the US, though the latter did come in better than expected.

Until the fiscal side of the ledger improves, there is little the Fed can do so essentially this is a crisis of confidence here in the US, with the President playing the role of “Debbie Downer”.

Unless he can come up with some pro-growth policies and not job-killing, wealth re-distributing ideology, things will continue to worsen. Add in the debt crisis in Europe and now you have a recipe for disaster. Unless the Europeans can get their act together, contagion could put the EMU in survival mode, with the outcome (outside of major risk aversion) unclear.

See what I mean about risk-taking today? Confounding, isn’t it?

Comments (0)

September 8, 2011

Forex Market Outlook 9/8/11

Filed under: Forex News — Tags: australia, china, dollar, government, hint-at-what, nzd, switzerland, trade, trades, trend — admin @ 6:28 am

This morning, rate announcements from both BOE and the ECB produced no change in policy, as was largely expected. However, market reaction to each has been somewhat different. The difference between the two decisions is that the BOE does not issue a policy statement whereas the ECB does. The minutes from the BOE meeting will be released in about two weeks time, which will give a better idea as to what they are thinking regarding future policy, and some in the market are already calling for additional stimulus to offset the declining economy.

The ECB on the other hand is dealing with an entirely different situation with the debt crisis taking center stage. Having already raised interest rates twice this year, it is doubtful that they will reduce the rate any time soon. So the markets are betting that we will see further quantitative easing from the ECB in the form of bond buying from the periphery countries in an attempt to keep yields from rising too quickly.

Trade balance figures in both Germany and France came in lower than expected, and EUR/USD looks poised to test support at 1.40.

The Aussie is also lower but has rebounded from earlier lows after the unemployment rate unexpected jumped from 5.1% to 5.3%. The Australian economy was expected to have added 10K jobs but actually saw a decrease of 9700. One of the things helping to keep the Aussie somewhat stable is that the market sees less of a chance of a rate reduction after Tuesday’s rate decision.

One place where unemployment is not an issue is in Switzerland, where they reported 2.8% unemployment, as expected. It is no surprise that the Swiss franc is desirable with those economic metrics in mind, and is one of the reasons why the SNB set the “line in the sand” at 1.20 vs. Euro.

Also taking the “wait and see” approach to interest rate policy is the Bank of Canada, who yesterday also reported no change to policy. It seems that most Central bankers around the globe see the writing on the wall for a global slowdown so they are not concerned about inflationary pressure at this point. This will also leave them with the ability to reduce in the future should their domestic economies need a shot in the arm.

Later today, the US initial jobless claims are expected to produce another 410K new unemployed and this afternoon Fed Chairman Bernanke is giving a speech that some expect may lay the groundwork for further Fed action to ease monetary policy.

Dubbed “Operation Twist”, the action may be replacing the short-term debt the Fed has been buying with longer-term debt in an attempt to lower long-term yields. Normally, investors receive more interest for locking up their money for longer durations, but it is becoming apparent that Bernanke doesn’t want anyone saving in this countries and would prefer them spending to artificially get the economy moving.

What he is failing to see is that money will find its way to other investments and that investors will “hold their noise” and continue to buy US debt despite the lack of interest. For example, gold has been moving higher throughout the morning.

Later this evening, President Obama will be giving his speech on job creation and it will be interesting to see if he has logical, practical solutions that have the ability to be passed through Congress or if this is going to more political theater that has plagued our government and created a crisis of confidence.

So the markets have started the morning with a slight bias toward risk aversion, though that could change throughout the day and ahead of tonight’s speech.

Comments (0)

August 24, 2011

Forex Market Outlook 8/24/11

Filed under: Forex News — Tags: currency trading, currency-pairs, durable-goods, invest, jackson-hole, japan, loonie, question, trade, usd — admin @ 7:11 am

This morning’s early market action is looking a bit “strange”—for lack of a better word. We have been trading a narrow range after yesterday’s big move in US equities and it is unclear which way the markets want to go.

Asian stocks were decidedly lower overnight on news that Moody’s downgraded Japan’s credit rating and the markets were unhappy with Japan’s response to a strengthening Yen. It was announced that Japan would create a $100 billion facility to help businesses deal with a rising Yen. This is a far cry from intervention that some in the market had been hoping for, but it must be noted that this alone does not take intervention off of the table. Look for the BOJ to be tested in the not-so-distant future.

European stocks, on the other hand were trading higher despite lower than expected IFO business survey figures in Germany, which reached a 1-year low. Also weighing on the Euro is news that the Greek rescue efforts may be met with opposition as Finland is out saying that they would like collateral for loans to Greece. Not a good sign. Yet stocks in Europe are moving higher, most likely the result of renewed confidence in the banking sector that showed that banks did not need to access to funding facilities.

Gold is trading lower but oil is trading higher, and US equity futures just flipped to positive on the release of the US Durable Goods orders which came in better than expected. The expectation was for a gain of 2.3% after last month’s negative number and the actual reported showed a gain of 4%. This is a good number in light of recent negative economic data and was likely the result of Japan coming back on-line after their supply-chain disruptions.

Other than that, the market is trading on risk themes which are moving toward mild risk-taking this morning ahead of Friday’s Jackson Hole speech by Bernanke. Don’t be surprised if this is really “much ado about nothing”. When expectations become so great for anything in life, I usually find it is easy to be disappointed.

So put me in the camp that says that nothing is going to come out of this meeting with regard to a change in policy and any disappointment (and selling) in the markets could be short-lived. Nevertheless, we have to be prepared for the volatility that could lead up to this event though it appears as though the recent ranges have been narrowing so today could end up being an inside day.

Friday will also bring UK GDP figures so it will be interesting to see if any significant change may be perceived as a game-changer for the BOE. They have been content to let inflation rise for fear of declining economic growth so any material change (positive or negative) could affect that policy response.

But for now, the markets are focused on Bernanke on Friday so I don’t expect anything major to happen until then. The ranges that have been established should hold up, though Friday may bring a “coiled spring” breakout if ranges tighten further.

Comments (0)

Older Posts »