Forex Blog

December 5, 2011

Forex Market Outlook 12/5/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:42 am

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

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

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

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

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

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

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

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

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

December 2, 2011

Forex Market Outlook 12/2/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:29 am

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

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

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

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

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

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

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

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

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

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

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

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

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

November 25, 2011

Forex Market Outlook 11/25/11

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

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

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

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

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

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

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

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

November 11, 2011

October 31, 2011

Forex Market Outlook 10/31/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:04 am

This Halloween is turning out to be more trick than treat as the market digests the events of the past week, particularly the Euro debt resolution.  This week is starting out in risk aversion mode with US dollar strength and stock market and commodities weakness.

One of the “tricks” from over the weekend was the unilateral currency intervention by the Ministry of Finance in Japan, who took action to weaken the Yen citing excessive speculation and one-sided moves that don’t reflect the underlying economic fundamentals.  This has caused the Yen to fall some 4% vs. USD and is the third intervention this year undertaken by the Japanese.  It must be noted, however, that this intervention was taken by the government itself and not the Bank of Japan.

So this week has started out with a bang in what is going to be a heavy week for economic data around the globe.  A G-20 meeting, Central bank decisions, GDP figures, and employment numbers all can move markets so this week is likely to see some volatility which is great for the shorter-term traders.  Let’s start with the highlights region by region from around the globe and discuss the potential data moving events taking place this week. 

In Australia, tomorrow’s RBA rate policy decision will be significant if they lower rates by 25bp as some are expecting, though the overall consensus is still for no change.  This means that the statement will likely be dovish as inflation concerns are less important than the global growth story.  This announcement will be preceded by Chinese PMI manufacturing figures which may be more impactful as it gives a gauge of Chinese growth which ultimately is a proxy for the Australian economy. 

In New Zealand, building permits plunged by some 17% although gains of 2% were expected and Wednesday’s unemployment rate is expected to improve to 6.4%.

In the Euro zone, there are still many questions to be answered with regard to the details of the resolution and now it looks like banks want to use accounting gimmicks to re-capitalize rather than raise private funding.  CPI data came in slightly higher than expected, showing inflation at 3% vs. the 2.9% expectation.  This is unlikely to impact Thursday’s rate decision, though the ECB may attempt to come off hawkish to prove they are sticking with their mandate.  German retail sales figures came in lower than expected and their unemployment figures are due out on Wednesday.

The Pound is lower as home price figures came in lower than expected and tomorrow’s GDP figures are expected to showing slow growth, though it must be noted that the decline in government spending may be responsible.  Various PMI figures are spread out along the week so these may be better barometers of the health of UK business and industry.

In Canada, GDP figures came in better than expected this morning, showing a YoY figure of 2.4% vs. the expectation of 2.2% with the quarterly figure higher by .1%.  Raw materials and producer prices were also higher so there may be signs that inflation is starting to pick up.  Friday’s employment report is expected to show 15K jobs added and the unemployment rate to remain steady at 7.1%.

And finally here in the US, this Friday’s NFP is expected to show a gain of 95K jobs and the unemployment rate to remain steady at 9.1%, though those estimates can change in the ensuing days.  Wednesday’s FOMC meeting may be significant if Bernanke hints at further monetary easing or QE3.  While corporate earnings have been good, unemployment has been stubbornly high and the Fed chief just can’t help himself and see the need to tinker with policy as if it makes a difference.  At this point he is likely pushing on a string and money can’t get much cheaper—its up to fiscal policy now to determine the fate of the economy and whether or not confidence will be instilled.

The deficit super-committee is charged with finding an answer and at this point the prospects don’t look good.  Add in a G-20 meeting this week which may show how much IMF involvement (read US taxpayer) is included in the Euro debt deal and we will see some volatility.

October 28, 2011

October 27, 2011

Forex Market Outlook 10/27/11

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 7:17 am

Well the Euro debt crisis is finally over, or is it?  So what happens next?  That folks, is the million dollar question but first we should take a look at the events of the last 24-hours and what was revealed as the definitive resolution.

Yesterday there was some market volatility and initial risk aversion as the rumors were making the rounds and we were expecting the announcement to take place some time near the end of yesterday’s trading session.  When it appeared as thought this process would be delayed into late last night, the markets reversed and risk appetite increased in anticipation of the announcement.

The announcement finally came late last night and here are the highlights of the plan of action:

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 6, 2011

Forex Market Outlook 10/06/11

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

So far the news of the morning is that the Bank of England increased the size of its asset purchase program by 75 billion, pushing the total bond buying to 275 billion.  While they kept interest rates unchanged, this sent the Pound plummeting lower 200 pips.  The Central Bank cited severe strains in the funding market and maintained that inflation would undershoot the 2% inflation target in the medium term.

I suppose it would be more helpful if they identified what the medium term is, as inflation has stubbornly remained above 4% much to their chagrin.  So I’m not certain how they think it will subside, and it appears as though they are content to let their citizens suffer through higher prices.

The ECB rate decision also came out and produced no change to official ECB rate policy, so now the market is waiting on the ECB press conference where Jean-Claude Trichet will speak for the last time as head of the ECB.  The markets are hoping that he will offer some sort of hope that EU leaders are nearing a solution for the debt crisis.  The ECB needs to go into “cheerleader mode” between now and when a solution is actually offered, but most think the perpetuation of “can-kicking” will continue.  There is a meeting of EU leaders and a G-20 meeting on tap in the next few weeks.

Other than those two major events, the negative economic data from these two regions had little effect as UK home prices fell more than expected and German factory orders showed a decline vs. an expected no-change.

Initial jobless claims here in the US came in slightly better than expected, but still over 400K.  While it is a good thing that it is not moving in the wrong direction, it is certainly not getting significantly better. 

Tomorrow’s Non-Farm Payrolls report will give us a better idea of where the economy is headed but I think more importantly it will let us know when or if Bernanke will be adding more monetary easing to the economy.

Between now and then, the Bank of Japan will have its rate decision in the overnight session and while they are not expected to change policy, don’t be surprised if they try to jaw-bone the Yen lower as it is above 10-year highs vs. Euro and Pound.

So far Trichet hasn’t said anything to disrupt the markets any further today, and the Dollar strength that we saw earlier on the Pound and Euro sell-off is abating, which is helping equity markets move higher.

There is going to have to a point where the “risk on, risk off” trade decouples and the correlations break down as US dollar strength should not be an automatic sell in risk assets, especially if that strength occurs because of individual currency weakness.

Today’s action reminds us that these correlations are still in effect and the fact that the BOE wants to encourage inflation through a weakening of the Pound should have little effect on US stocks.  Yet the markets have become so entrenched in the risk trade that it has a hard time differentiating between event risk and individual currency risk.

The market is never wrong; however in this case it is.  While we know about the global economic slowdown, stock valuations right now are very compelling, especially those with high dividend yields.  While the Euro debt crisis poses a major threat to global economic stability, an event like the BOE increasing quantitative easing should not.

Yet markets have this “all or nothing” mentality where a rising tide lifts all ships or the baby gets thrown out with the bathwater.  How’s that for coming market metaphors?

But seriously, we may see some further market selling as the US session unfolds, but I believe that it is not warranted (unless Trichet says something dumb) as tomorrow’s NFP is likely to increase the chances that Bernanke will act.

October 4, 2011

EUR/JPY At 10-Year Lows!

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:36 am

EUR/JPY is trading at 10-year lows as risk aversion coming from the Euro debt crisis has caused extreme Yen strength prompting the new Japanese Fianance Minister to call for the Greek Bailout to be “transparent”.  While he might believe this to be a good thing, my own personal feelings are that transparency would not be helpful.

Nevertheless, the Euro continues to fall as the lack of certainty induces fear in the market place.  Looking at this monthly chart below, it could be argued that perhaps there could be further weakness in this pair if there is a spike down on any negative news regarding the debt crisis.  My feeling that we have not had that “crescendo moment” make it hard for me to envision a reversal at this point.

There is little Japan can do at this point in the way of intervention unless they are willing to accept the extreme risk of intervention by buying Euros.  Should EU leaders not be able to solve the crisis, then the losses from owning the Euro could be massive.  So like every other economy that is held hostage by Euro zone non-action, all they can do is apply political pressure and hope for the best.  This unfortunately hasn’t seemed to work so far.

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