Forex Blog

January 16, 2012

Compass Directions Monday, 16 January 2012

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:11 am

Standard and Poor’s has cut France’s AAA credit rating and the credit rating of eight other eurozone nations. S&P’s Managing Director of European Sovereign ratings has said that European leaders are divided and are falling behind in their response to the debt crisis. Austria also lost its AAA rating while Italy, Portugal, Spain and Cyprus had their ratings cut by two notches. The cut in credit ratings may reduce the ability of the bailout fund to raise capital to finance aid and exacerbate the region’s troubles. The EUR fell to its lowest levels since August 2010 at 1.2624 today and, not surprisingly, is the worst performing currency so far this year. The common currency is still well above its average of 1.2050 since its inception and clearly has much more room to fall. Pimco’s Bill Gross hasn’t helped with the sentiment in Europe by saying that a default in Greece is imminent.

The elephant in the room, China, may also cause dismay in the markets this week as GDP may rise at its slowest pace since the second quarter of 2009 amid increasing signs that that the world’s second largest economy is slowing with exports rising the least in two years and inflation easing to a 15 month low. Furthermore, the International Monetary Fund is due to release its revised global projections this week which are expected to show zero growth in Europe and a significant reduction in the fund’s most recent estimate of 4% for the global growth in 2012. The Australian dollar opens the week down recovering the 1.03 level in Europe after trading as low as 1.0250 during the Asian session.

Asian equity markets recorded a poor start to the week as the move by S&P to strip France of its top credit rating weighed on investor sentiment. The Nikkei fell 1.43% to 8,378 while the Hang Seng lost 1% to close at 19,012. However, the underlying trend in US corporate earnings remains good as the US Citigroup Economic Surprise Index, a measure of how much reports exceed or miss economists experts rose to a 10 month high this month. Today, the US is on holiday. Early in Europe, the markets are relatively flat as the markets await the results of the latest bond auction in France where it will look to raise as much as EUR 8.7 billion. Tomorrow, the EFSF will look to raise EUR 1.5 billion.

Commodity prices recovered from the falls experienced last week. WTI crude prices rose by more than 0.7% to $99.40 as Iran said that a blockade of crude supplies through the Strait of Hormuz would cause a shock to the markets that “no country” could handle. This followed warnings from Iran’s OPEC Governor that any embargo of Iranian oil would be a “dangerous political game. Precious metals rose with gold gaining 1% to $1,646 while silver finished 1.4% higher at $29.92. Soft commodities were mostly closed for trading while copper gained 1%.

AUD/USD performed extremely well for the last 4 weeks since finding its support level at 0.9860 on Dec 15. However given Friday’s ratings downgrade of the Eurozone nations, the Aussie may use this as an excuse to retrace back towards 1.0230 in the very short term (50% retracement from 1.1079 to 0.9386).  Immediate resistance is seen at 1.0380 with short term stops above this level.  If this happens and momentum continues we may see 1.0432 as a good opportunity to go short.  Until Tuesday’s key GDP out of China, AUD/USD may range trade between 1.0348 and 1.0230.  In the meantime note the symmetrical triangular formation taking place – breakout trades may be fruitful with tight stop losses.

As noted above EUR/USD has an average rate of 1.2050 since its inception so Euro may still have a few more hundred pips on the downside to go supported by negative fundamentals and that’s not hard to find.  Our view is to sell on rallies with tight stops above the resistance trend line.  For the immediate future R1 and R2 is seen at 1.2680 and 1.2720 respectively.  For the strong hearted, support may be seen at 1.2586 (21 Aug 2010) to form a double-bottom but you may have to bite the bullet with that trade.  With the US market celebrating Martin Luther King Jr’s birthday and as the market awaits for more reasons to sell the Euro we may see the range for the US time zone to be 1.2580 – 1.2680.

GBP/USD has been declining consecutively for the last 4 weeks and one wonders where it will stop, at least for the short term. If last week is anything to go by this could be at 1.5230.  Again with the US session not in play due to the holiday GBP/USD may take a breather today to range trade between 1.5230 – 1.5330.  On an hourly chart Cable seems to claw back well after initial sell off which suggests that players are not giving up on the Pound as yet.  However on the daily chart, it seems more prudent to sell on rallies…just like its neighbour.

USD/JPY looks solid at 76.60 due to intervention threats by Japan and the top side limited by events of the world.  Perhaps opportunity could be gain by going with the flow and trading like a beginner.  Until new information is known and if we must trade this pair, look at support at 76.50-76.60 and resistance at 77.20.  Perhaps like many patient traders staying on the sideline may be a good idea for this pair for the moment and look for break outs on the downside instead (even with the threat of intervention).

January 13, 2012

Week in FX Europe Jan 8-13

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 10:12 am

The Spanish Bond and Italian Bill auctions were well received this week and gave the single currency hope for at least 24-hours. However, this morning’s final Italian issues of the week have provided the market an ideal opportunity and excuse to sell the currency again. Dealers have been talking about the limited upside of the single currency and that the risk reward favors shorting the EUR. Analysts have been revising their first quarter and year end projections down to an average of 1.22 and 1.15 respectively. So far in 2012 the EUR has weakened against all G10 and major EM currencies. This weakening has been a function of ECB easing and stronger global data, which have boosted risk sensitive currencies across the board. Now we must ask ourselves, can this downward trend outright and on the crosses continue? The ECB’s easing policy has provided a massive liquidity injection (LTRO), lowered the cost of shorting the currency and encouraged the funding of risk trades using the EUR.

Below are some other highlights of the week:


EUROPE

  • EUR: Merkel and Sarkozy turned up the pressure on Greece and institutional creditors; warning that a loan backed by EU and IMF is on hold until Greece enacts budget reforms and concludes talks over reducing its debt load.
  • GER: sold +EUR3.9b t-bills at a negative yield (-0.122%) for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region. Investors are prepared to pay when lending in exchange for the assurance of getting their capital returned.
  • EUR: Mainland data continues to under perform. German November, IP was down -0.6%, m/m, below the -0.5% consensus following weak orders data last week.
  • CHF: Retail Sales rose +1.8%, y/y, in November, well above the consensus forecast for +0.2%. Including the stronger PMI print last week points to “a somewhat less negative growth affect from the stronger currency.” Lack of a deflationary shock will have policymakers keeping the 1.2 floor in place awhile longer yet.
  • CZK: Czech inflation fell slightly to +2.4%, y/y, from +2.5%, below the consensus for a stable reading. The market expects this to “tame the recently more concerned language from the central bank”.
  • FRF: French manufacturing production for November unexpectedly posed a +1.3%, m/m, gain. The October release was also revised higher, to +0.2% from flat. The BoF business sentiment indicator rose to 96 from 95-better data may suggest that the “fears of recession across the region are not materializing.”
  • Fitch rating agency has indicated that a French downgraded is unlikely this year.
  • EUR: Reports indicate that progress is being made towards a private sector participation agreement.
  • SEK: IP dropped -1.9%, m/m/ in November, much worse than the -0.8% expected. The annual growth rate stands at +0.2%, y/y, down from +4.5%. Digging deeper, orders were less encouraging, down -4.8% on the month following a -2.3% drop in October. The manufacturing intensive Swedish economy is becoming more affected by growth concerns in core Europe, making the SEK more vulnerable.
  • NOK: CPI surprised weak at +0.2%, y/y, down from +1.2% in November and below the consensus expectations for +0.5%. Electricity prices were the main downward driver. Analysts note that the inflation reading is much weaker than forecasted by the Norges Bank and would suggest another rate cut.
  • EU: Parliament group objects to a new draft of euro fiscal treaty; it needs more democratic controls and should do more to promote growth.
  • EU Said to Weigh Iran Oil Embargo Exemptions for Member States.
  • ITL: The Social Democrat Party Calls For an exit From EUR and EU.
  • FRF: Rumor denied by French Treasury that the country was to be downgraded within a tight time range.
  • FITCH: Rating agency calls for ECB to step up SMP program and increase its sovereign debt purchases in order to prevent a ‘cataclysmic’ collapse of the currency.
  • GER: Germany auctioned +EUR4b of five-year debt on Wednesday. The new 2/2017’s OBL auction received solid bidding. A total of +EUR9b bids were received, well above the average of +EUR6.8b at the last three-issues, resulting in a cover of 2.84 times.
  • GBP: UK trade deficit widened to -£8.6b in November. With the negative trade balance remaining disappointingly wide suggests a slog to rebalance the UK economy.
  • EUR: German GDP grew +3%, y/y, in 2011, implying a small GDP contraction of -0.1, y/y, in the fourth quarter. Germany is not the European “Atlas”!
  • EUR: Strong demand at auction for Spanish bonds and Italian bills. The Spanish treasury successfully auctioned +EUR9.98b of government bonds, double the amount it had planned. Italy sold 1-year bills at +2.735%, vs. +5.952% on December 12. In total, Italy successfully sold +EUR12b T-bills, meeting its target, and at the same time seeing its borrowing costs plunge in the country’s first debt sale of the year.
  • ECB: After keeping rates on hold, Draghi expressed his satisfaction that the auctions support the view that the provision of 3-year liquidity via LTRO’s is improving the financing backdrop for the peripheral sovereigns. With no indication of a rate change gave the single currency a boost.
  • ECB Press conference: Monetary policy to remain accommodative with policy makers ready to act.
  • ECB: Substantial downside risks to economic outlook persists.
  • ECB: Price developments to remain in line with price stability mandate.
  • ECB: Euro austerity measures are weighing on the output of the region.
  • ECB: Aim is to anchor inflation at or close to +2% over the medium term-it’s required to make its contribution to economic growth and job creation in the region. December inflation was at +2.8%.
  • BoE: they kept rates on hold at +0.5% and kept its target for its asset purchase program at +GBP275m.
  • EUR: Significant risks remain ahead with the Greek PSI talks and the completion of the haircut by months end.
  • EUR: Regional data continue to come in better than feared. The Euro-zones November IP fell -0.1%, m/m. It was better than the -0.3% forecasted. However, negative revisions to the October reading leave growth momentum poor.
  • ITL: Their IP grew +0.3%, m/m beating all expectations of -0.5%.
  • GBP: UK data continue to point to a weak 4Q GDP number. Their IP surprised weak in November, falling -0.7%, below the consensus forecast for -0.1%, m/m. However, manufacturing production happened to be less disappointing, falling -0.2%, m/m.
  • SEK: Inflation decreased to +2.3%, y/y, in December from +2.8%. The core-inflation registered a substantial fall to +0.5% from +1.1% and it is now at its lowest levels in nearly seven-years. Low inflation and weak growth point to a risk of a more dovish Riksbank.
  • ITL: Italian bond auction disappointed after their strong Bill issue. 3-year product saw a relatively poor bid-to-cover ratio of 1.2 times, while the 6-year came in at 1.6. Demand was greater for a smaller +4.25% coupon issue and a total of +EUR4.75b were allotted across all auctions.
  • S&P Rating: Several euro zone countries could face imminent downgrade by S&P as early as today
  • EU: Euro-zone posted an unexpected trade surplus surprise. The market had been forecasting a deficit of-EUR1b; however, the region registered a surplus of +EUR1b. A surge in exports helped the Euro-zone post this major surplus.
  • EU:IIF Says Greece Talks ‘Paused’ After No ‘Constructive’ Response

January 11, 2012

German Debt Well Received No Effect on EUR

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 4:20 am

European currency markets are range bound with investors weighing up decent European data and mixed economic news, along with the prospect of key, market moving developments tomorrow including sovereign issues by Italy and Spain and an ECB rate announcement. The EUR is being held captive by market offers in the early 1.28’s and bids in the 1.2730’s. So far January is in danger of recording the slowest opening period for currency volatility for a New Year on record!

Germany auctioned +EUR4b of five-year debt earlier this morning while Spain and Italy will offer as much as +EUR17b in the remainder of the week. The new 2/2017’s OBL auction received solid bidding. A total of +EUR9b bids were received, well above the average of +EUR6.8b at the last three-issues. The resulting cover of 2.84 times is thus about twice the average an is the strongest in eight years. It’s no wonder we saw negative German bill yields earlier in the week! It seems that the market does not believe in an ECB rate move Thursday after last months launching of various new policy measures. The central bank is expected to stay on hold until March with no new announcements on ECB bond buying. Draghi and company are only expected to launch QE when there are “clear signs of deflation risk.”

Germany’s economy grew in line with expectations last year, as robust domestic consumption and exports offset the “affect of the Euro-zones ongoing debt crisis.” Despite finishing out the last quarter with a weak close, contracting a supposedly -0.25%, the Euro-zone’s largest economy grew +3% in price adjusted terms in 2011, following growth of +3.7% in 2010 and a -5.1% contraction in 2009. Germany is no “Atlas,” the Euro-zone remains in danger of heading into a mild recession.

In North America, the markets will shift their focus to the details of the Fed Beige Book and on speeches by Atlanta Fed President Lockhart (voter) and Philadelphia Fed President Plosser. So far this week Fed speakers, Williams and Pianalto, have given the impression that further QE operations are possible if US data turns softer again and that there is little inclination to even consider tightening among the committee despite the recent improvement in data. Lack of movement this week has been a tough pill to swallow, however, investors remain in the game.

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January 9, 2012

Forex Market Outlook 1/9/12

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 6:45 am

Well we made it through another weekend after Friday’s sell-off in risk currencies despite the fact that the Non-Farm Payrolls (NFP) came in much better than expected.  In Friday’s discussion, I mentioned that even if the numbers exceed the official estimates there could be disappointment.  To be honest, the number was extraordinary and the market sold off anyway.  This means that it was very unlikely that any number could have satisfied the market and the Euro debt crisis is still the dominant economic story.

For further proof of this, look no further than the fact that another record was set for banks leaving money on deposit with the ECB, which is a sign of fear.  Another measure of this fear is that German short-term debt no has a negative interest rate.  In other words, there is so much demand for German paper that people are willing to pay to lend them money, and not receive interest.  This last happened here in the US back in 2008 during our banking crisis so the similarities are telling.

Enter Merkozy to the rescue!  Today’s meeting between the French and German leaders is intended to hammer out the details of the fiscal rules that they agreed to last month and what further actions need to be taken in order to save the Euro.  Among these topics are the potential to increase the size of the bailout facility and how big of a haircut Greek bondholders may be required to take.  This could exceed the 50% losses that have already been discussed.

Meanwhile, the ECB is going to have their interest rate decision on Thursday and the speculation that Monti may try to emulate Bernanke’s maneuvers is starting to pick up, as there is some thought that further monetary accommodation could be necessary to stave off a liquidity crisis.  This doesn’t seem likely at this point and perhaps they will wait until the news out of the Merkozy meeting which they claim is going well at this point.

There is not a lot of news coming out of the US this week on the data front, but we are going into stock earnings season, which could have an effect on the US dollar if the correlations remain in tact.  But recently, it seems as though the correlations have been breaking down a bit so the impact could be lessened.

The Japanese markets were closed overnight for a holiday, and in the Euro zone German trade balance figures came in much better than expected on stronger exports, though industrial production figures came in worse than expected.  Later this week we will get the German Real GDP growth report on Wednesday, followed by CPI data and the rate policy decision on Thursday.

The Bank of England will also be releasing their rate policy but are not expected to have made a change.  Recall that the ECB decision also comes with an accompanying statement, whereas the BOE decision does not.

In Switzerland, the unemployment rate ticked slightly higher than expected to 3.3% from an expected 3.2% and retail sales figures came in better than expected showing a gain of 1.8% vs. the expectation of a .2% gain.  This comes in the midst of a minor scandal involving the currency trading prowess of the SNB honcho Hildebrand’s wife, which is reminiscent of Hillary Clinton’s commodities trading activity.  While this is likely much ado about nothing, there could be changes coming at the SNB.

Lastly, the Fed has the “dog and pony” show this week with a lot of Fed speak from various officials in different venues essentially trying to allay fears but you never know when one wrong statement can send the markets spinning.

And of course let’s not forget the noise coming out of Iran and the potential oil supply disruptions that they threaten but likely won’t act on.  Should the scene over there escalate then we could see oil spike higher.

So the markets are flat to slightly higher this morning, with US dollar weakness and the Euro bouncing off of lows that saw the Euro trade a 1.26 handle vs. USD.  If the Merkozy meeting produces positive results than this could quell the markets for a bit as the focus shifts to corporate earnings and the potential good economic story taking place here in the US.  So it may be risk-on again until the weekend where investors may want to lighten the load.

January 6, 2012

Yen and Aussie have their own Battle

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 9:45 am

Finance Minister Azumi says Japan is closely watching the EUR’s decline versus the Yen. Currently, the market is seeing more Yen intervention dangers if the declines accelerate much further. Today’s move is putting pressure on the BoJ/MoF to try and curb their currency strength. The market should not expect the recent US criticism of Japanese intervention policy to influence any of Japan’s decisions. A stone throw away and we have the AUD starting to look like “more” than just a commodity currency. Its strong performance against the EUR indicates that Aussie can be seen as a key alternative as more investors shy away from EUR looking for yield and growth alternatives.

Below are some other highlights of the week:


Asia

  • CNY: Manufacturing PMI rose +1.3pts to 50.3 last month. Analysts believe this as a “relatively weak print given mildly supportive seasonal patterns in December”. Manufacturers tend to push production higher ahead of their Chinese New Year long holidays. Data does not seem to be easing the anxiety about a hard landing. On the flip side, non-manufacturing PMI rebounded to 56 in December from 49.7 in November; and suggests that the services sector is holding up relatively well.
  • SGD: Advanced estimate for Singapore’s Q4 GDP showed a +4.9%, q/q. An annualized fall, largely in line with the consensus forecast. However, the government revised down Q3 growth to +1.5%, q/q.
  • INR: The finance ministry announced an easing of restrictions on qualified foreign investor (QFI) direct investment in Indian equities. QFI’s will be allowed to invest directly in the equity market in two weeks time.
  • THB: Thai inflation for December came in at +3.5%, y/y, well below market expectations for +4.0%. The market believes that the Thai Central Bank intervened this week.
  • AUD: Aussie trade surplus fell to AUD1.4b in November, weaker than the AUD1.7b consensus. Both import and export momentum has slowed. The October trade balance was revised lower to AUD1.4bn from AUD1.6bn. Their largest trading partner, China saw imports from Australia on a three-month/three-month basis slow from the October peak of +28% to +9% in November (Analysts think it could be due to a lagged effect).
  • PHP: The country’s inflation eased more than expected, supporting the case for a rate cut. The inflation rate slowed to an 11-month low in December of +4.2%, much below the +4.7%.Market expects the central bank to cut its policy rate by -25bps in Q1.

December 29, 2011

2011 Top MarketPulse FX Stories

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 1:46 pm

2011 was a year of momentous social, political, natural and economic turmoil the world over. The word “crisis” appeared again and again in headlines. While protests raged and governments collapsed, several unimaginable natural disasters gave poignant reminder that, in the grand scheme of things, human life is frail but the human condition resilient.

We wanted to share with you a few of the standouts from our blog over the past year. Here are some of our most popular postings based on number of views, starting with the earliest and moving forward chronologically.

Interest Rate Outlook for 2011
With a new year upon us, currency traders are once again turning to the old crystal ball in an attempt to predict interest rate actions for the major economies. While there are many storylines to watch as 2011 unfolds, two narratives in particular are expected to garner the most attention – the long-awaited recovery in the US, and the ongoing credit crisis in the Eurozone.

Dollar not Sick it’s Terminal
This week the dollar has had the classic opportunity to rally aggressively. Global risk appetite has subsided, commodity currencies have fallen and investors were willing to take profit. Instead, we have witnessed only a feeble attempt to rise. The dollar is more than sick, it’s terminal. Expect the fears of a debt default and reserve diversification to weigh heavily on the global ‘reserve’ currency. Investors are demanding higher yield to account for that risk and QE2 has done a good job in keeping them artificially low. Asian Cbanks are keen to diversify their dollar denominated reserves into other currencies like the EUR, CAD or other higher yielding currencies.

Time to load up on the EURO again
The EUR has held despite this week’s theatrics. Greek restructuring is apparently off the table, for now at least. In translation, the ‘strong advice and preference of the ECB has prevailed’ over Euro politicians grandstanding. There are even some tentative signs in Greece that a compromise is attainable between the government and opposition. However, this does not mean there will be no restructuring later on. Politicians and policy makers seem to be deluding themselves, systemic risk is real and may eventually be uncontrollable. For now, rather than painting over, they prefer whitewashing the problem.

EURO Panic Attack is Only a Step Away
The big dollar has traded surprisingly poorly despite the lukewarm news on Greece and global equities just about finding their feet in the overnight session. Any negative news from the ‘vote’ or the EU Leaders Summit later in the week will trigger a strong wave of selling and risk aversion driving markets into a new selloff. The panic attack is only a step away.

Sell EURs and Shut Your Eyes?
This month and year may be winding down, but the heat on the Eurozone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside. Historically, the risk reward of holding large positions this time of year tends not to be worth it. The aggravation and headaches of trying to comprehend some of the currency moves, which tend to be driven by lack of liquidity, year-end positioning and the turn, usually dissuades most from having larger positions. Mind you, this negative EUR run has technical ‘stamina’ and traders are required ‘to pay to play,’ otherwise we will end up talking about the ‘opportunity cost’ or the big one that got away!

Where to sell the EUR again?
Even with Euro risk sentiment remaining on the back foot, the Euro periphery bond deals are getting done, but at a price. Now that there are more sales coming down the pipe, more concessions will be expected. The market was not that impressed with Italy yesterday, however, she came and delivered. It’s her 2012 issues we should be more worried about. Already this morning, Spanish bond yields managed to hold steady before the country’s final debt sale of this year; while with no sign of the debt crisis easing, Bunds remained supported by investors seeking safer liquid assets ahead of year-end.

Here are two standout postings on infographics and currency tools, which continued to be especially popular with our readers:

U.S. Debt Ceiling: Infographic
The U.S. debt has become a ferocious beast with an insatiable appetite. In 2010, mandatory spending grew nearly 15 percent over the previous year and totaled $2.17 trillion. Interest on the national debt– also a mandatory expenditure – cost American taxpayers $164 billion that year. Discretionary spending was also up significantly in 2010, increasing almost 14 percent over the previous year to $1.38 trillion.

Forex Correlation Heatmap and Correlation Table
Some currency pairs tend to move together in the same direction. Other currency pairs tend to move in opposite directions. Understanding how currency pairs tend to move relative to one another can be used in a number of different ways. It can be used to analyze how diversified your Forex portfolio is and, indirectly, your risk profile. It can also be used to understand how to enter into hedging trades.

As 2011 comes to an end, the team at MarketPulse FX would like to wish you a Happy 2012. We hope you continue your trading journey with great success.

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December 27, 2011

Forex Market Outlook 12/27/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:01 am

Welcome back from the holiday weekend!  The markets are looking to get back on track this morning but have started rather slowly but there is little event risk on the docket by way of fundamental data reports.  This is set up to be a light volume week, which sometimes can mean volatility.

So I’m going to touch on the highlights for the week but I am not expecting a major break out of the recent ranges we have been seeing and there is nothing on the economic calendar that would suggest there could be some type of major move.  Many in the market are looking to put 2011 in the rearview mirror and start fresh in 2012.

The big news today is actually due out later this morning in the US as we are waiting for consumer confidence figures and the Case/Shiller home price index.  By and large, home prices have been declining at a lower rate so it looks like the market is in a bottoming out process—for now.  One of the biggest threats to home prices is rising interest rates, but we are not seeing rising rates, the Fed appears to be ready to leave rates low for an extended period of time, and recent data showed that demand for US debt is near all-time highs despite the ridiculously low interest rate we offer.

Consumer confidence has been riding high of late and the spending over the holidays was some 5% higher than recent years, which indicates that perhaps the US consumer is beginning to get healthy again.  As confidence rises, more economic participation takes place which helps grease the skids for the economy to get moving again.  While there are many headwinds that should affect the consumer like high unemployment, uncertain tax policies, and dysfunction in government, if confidence returns it could actually be stronger than most realize.

The only other real news out of the US this week is on Thursday with initial jobless claims and pending home sales figures.  The initial jobless claims figures have been moving in the right direction and are now firmly out of the 400Ks and in the high 300Ks.  This is good news for employment and next week’s Non-Farm Payrolls report should give us a god idea of whether this is because the job market is really improving.

Other news out this week is coming tomorrow in Japan, with the release of CPI data, the jobless rate, retail trade, and industrial production figures.  While Japanese data typically doesn’t move the market in a material way unless the number are totally divergent from the expectation, there is a wild-card in the mix and that is the BOJ.  As we approach year-end, the Yen was one of the top-performing major currencies this year and is currently up some 4% vs. USD despite all of the threats of intervention from the Central bank.  This comes in addition to two actual interventions at which time the BOJ sold Yen to weaken the currency.  Where do you think the Yen would be without he interventions?  Exactly, probably a lot higher.  So it will be interesting to see what the BOJ does going forward and tomorrow’s data points could be indicative of further action.

And of course we can’t forget Europe and we’re waiting to see the results of Italy’s bond auctions that are set to take place over the next two days. Italy is looking to issue some 20 billion euros and yields are back up over 7% as of this morning. On Friday, German CPI data and retail sales figures will show how Europe’s strongest economy is faring and as long as Germany continues to thrive, their politicians may be more apt to be agreeable.

So this week is likely to continue to be sideways activity so forex traders should use their short-term and range-bound trading techniques. If you are not familiar with how to trades these types of markets, contact us immediately to find out what you should do in these markets.  Trading is easy when everything goes up or down, but the true professionals are the ones who can thrive in any environment.

December 19, 2011

Forex Market Outlook 12/19/11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 7:26 am

The big news of the weekend is the death of N. Korea’s crazy leader Kim Jong Il, which has provided a minor bit of uncertainty in the Pac Rim as it is expected that his son will succeed him.  The goes to show that uncertainty is sometimes worse from a market perspective than the removal of a bad situation.  I would though have thought that markets would have rejoiced and rallied, but uncertainty rules.

However the markets have bounced back from early selling in Asia and look to open higher here in the US, with both stocks and commodities trading higher.  There is still a lot of risk emanating from the Euro zone, and the potential for credit downgrades is looming.

In Spain, bad loans were up as the Spanish banking system attempts to withstand the fallout from the housing bust there and maintain stability despite unemployment that is over 20%, the highest in Europe.  This comes after word form ECB chief Draghi maintained that the ECB would not step up their bond purchases, electing to adhere to the Central bank’s mandate rather than favoring practicality.

Later today, Euro leaders will conduct a conference call where they attempt to hammer out the details of the fiscal pact they agreed to at their last meeting.  This unlikely to be the final word on the matter and Euro leaders have contributed to the economic demist they are seeing by dragging their feet and not responding to the crisis more swiftly.

Meanwhile they have been swift in asking others for money, particularly the IMF.  EU leaders are calling for an additional $261 billion from the IMF and are asking the UK for $50 billion.  Good luck with that.  The Euro has been vacillating around the 1.30 level vs. USD, which is surprisingly strong given the state of affairs in Europe.

This is a holiday-shortened week so volume may decline as we approach the weekend.  News this week from the EU includes German PPI and economic sentiment figures tomorrow, though there is not much else from a data perspective.  This is not to say that there won’t be any news, but I will more likely be of an unexpected nature.

There is more news due out from the UK, including the release of the rate policy meeting minutes on Wednesday and GDP figures on Thursday.  This could be supportive of the Pound if the BOE decides to take a wait and see approach or if GDP comes in better than expected.  The data in the UK has been relatively strong in my opinion, though the markets are a discounting mechanism so surprises could happen to the upside.

In Japan, the rate policy meeting on Thursday is expected to produce no change as the Yen has virtually stopped trading vs. USD.  There has not been a lot of volatility in this pair, which is just fine by the BOJ.  But, there could be some Yen movement if problems emerge from N. Korea.

From the commodity currency bloc, the release of the RBA meeting minutes in Australia tomorrow, followed by Canadian CPI data on Wednesday and GDP figures on Friday, and rounded out by GDP figures in New Zealand could have an effect on the risk trade.  Gold is sitting at $1600 with oil just above $94.

Lastly here in the US, the news releases are heavier toward the end of the week highlighted by the release of GDP figures on Thursday and some ancillary releases packed in.  Markets are hoping to escape for the holidays with little fanfare and many are looking forward to putting this year behind us.

While the data here in the US has largely been positive, it is hard to buck the feelings of malaise that overhang the markets and the economy in general. There is absolutely no confidence that things are going to improve, and people are just waiting for the next shoe to drop.  This is no way to run an economy as fear trumps sanity and then things don’t improve.  Combine this with EU leaders essentially holding the world hostage through their non-actions, and we find the global economy floundering.

Will this continue into next year?  Unfortunately, I think so.

December 12, 2011

Forex Market Outlook 12/12/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:56 am

Well it looks like the market chickens have come home to roost and have finally come around to the fact that the euro is in trouble.  While the obvious problems inherent in its composition have been highlighted through the debt crisis, market optimism for a solution has been doused after last week’s summit.

Risk in the marketplace is likely to persist and those hoping for the “Santa Claus Rally” may be disappointed.  Correlative effects of the euro/dollar/stocks and commodities may make it very difficult for risk assets to advance heading into the end of the year.  European countries are on negative credit watch from the various ratings agencies, and the recent reduction of interest rates by the ECB may make the euro even less desirable.

This morning markets are lower across the board and the US dollar and Japanese yen are strengthening as risk appetite has abated, led by lower stocks and commodity prices.  This is a classic risk aversion scenario as markets are waiting for the next round of good economic news.  So where will this news come from this week?

There is not a lot of market moving news on tap this week with CPI data due out from various countries.  The problem with these data releases though is that we just saw the rate decisions from the Central banks last week so even if CPI and inflation come in higher, no one, I repeat no one is looking to raise interest rates to stem it.

One interesting place to watch inflation though will be in the UK, where inflation is expected to fall from 5% to 4.8%.  This release comes out tomorrow.  Also keep an eye on the UK employment figures on Wednesday, and the BOE inflation projections due out on Thursday.  There has in my opinion been a disconnect between what the data has been showing and what the BOE has been seeing/forecasting.

The Swiss franc has been weakening ahead of Thursday’s rate policy meeting.  There is some speculation in the market that the SNB will move the target rate vs. euro to 1.25 or even 1.30 from the current 1.20, or the possibility of making interest rates negative in an attempt to weaken the franc.

I’m not really sure what economic data from the euro zone can reverse current sentiment about the prospects for the shared currency at this point.  Thursday’s CPI is a non-issue at this point as Draghi just lowered rates and Friday’s central banker’s conference could produce something interesting.  When in comes to the euro, it is more important this week to stay on top of the news that is not scheduled than what is on the docket.  Unfortunately this is harder to do, as one does not know when unexpected news will hit.  Credit downgrades or supplemental information to the debt deal could be that news.  So stay on your toes euro traders!

Perhaps the biggest news for the euro and the markets in general this week will not come from that side of the pond but rather from the US.  Tuesday’s FOMC rate policy meeting could produce fireworks if Bernanke feels the extra need to juice the markets through his statement.  This could imply increased talk of further monetary easing which could be the only catalyst to lift markets short of the Europeans coming up with a credible solution for the debt crisis.  So fund managers may have to wait until next year to book gains as the risk is just too great at this point to try to “window dress” their funds.

Tomorrow’s advance retail sales figures here in the US may be a pleasant surprise after all of the decent holiday sales reports we’ve been seeing, but I have a hard time believing that this level of activity will continue into the new year.  Friday’s CPI report doesn’t matter because Bernanke wants inflation.  Period.  He is not an elected politician so he doesn’t care what people think. His view is that those who can afford to pay more will and the rest will get by on government handouts

Part of the “problem” in the US that no one addresses is that stuff just costs too much.  It’s pretty simple, really.  The reality is that declining prices from these levels should not be seen as deflation but rather dis-inflation.  With oil just shy of $100, real interest rates negative, and food prices near all-time highs, it is not surprising to see that we are in economic trouble.

Yet the Fed will continue to “support” the current economy, but in actuality it is supporting their banker buddies.  Meanwhile, the rest of us will suffer.

So do yourself a favor:  if you are not involved in the forex market, find out how you can get involved.  Take advantage of monetary and fiscal policies around the globe and not be a slave to the uncertain regimes because of geography!

December 5, 2011

EU Leaders pressure Treasuries

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 11:02 am

With Merkel and Sarkozy meeting in Paris has US treasuries under pressure. The respective leaders want to rewrite the EU treaty allowing a new one to contain a debt turmoil clause, reducing refuge demand. The long end of the US curve is leading the losses, with 10’s and 30-years backing up +7bps. Even with Italy announcing an austerity plan to cut the euro region’s second-biggest debt has the market believing that we are seeing stronger coordinated efforts to stop the Euro-contagion.

This coordinate effort is having a large impact on EU periphery debt. Spanish 10-year product is trading at a seven-week low while Italian 10’s are trading at their highest price (inverse relationship) in four months after Prime Minister Monti announced +EUR30b of measures to cut the nation’s debt load. With Italian yield falling further away from the psychological +7% level, has the Btp/Bund spread tightening to as little as +3.94% for 10’s (the least since the end of October). EU leaders are scheduled to meet at the end of the week to address the region’s debt crisis after the failure of their fourth rescue blueprint intensified.

Treasuries briefly pared their losses after the ISM non-manufacturing index fell to 52 in November from 52.9 a month earlier. Current weekly surveys maintain their bearish bias towards US product. Last weeks flight out of risk assets showed more investors adding US debt to their portfolios. The market expects yields to be squeezed higher until we get a clear indication from EU leaders this week what the course of action will be taken.

The Nikkei closed at 8,695 up +52. The DAX index in Europe was at 6,106 up +25; the FTSE (UK) closed at 5,567 up +16. US indices remained in positive territory with the Dow currently trading at 12,168 up +149.

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