Budget Cuts!
By Mike Conlon | June 22, 2010
The British pound is lower this morning as the UK budget showed a commitment to a balanced budget and a reduction in spending of close to 30 billion pounds annually. This should come as no surprise to the market, yet the Pound is lower as the UK attempts to cut its deficit.
This coincides with some concerns in the market over European bank funding problems which are causing some risk aversion in the market this morning. In addition, yesterday’s enthusiastic response to the Chinese announcement to allow the Yuan to float was short-lived as the US stock market finished the session lower, and futures are pointing to a lower open this morning as well.
Consumer prices were higher in Canada, and there was a note out this morning saying that central banks around the globe are starting to diversify away from the Euro and into the Aussie and Loonie. This could potentially affect their status as “risk assets” as the market is starting to realize that these are strong economies.
So we could see some mixed trading going forward, as the risk-on, risk-off mentality works its way out of the market and these currencies begin to trade on their own fundamentals. Japanese yen will still see gains during risky times as it is still the primary funder of carry-trades, but it will be interesting to see if traders actually unwind the carry trades or add to them going forward.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning on risk-aversion, though it appears to be bouncing off its lows from the Euro session. Demand for the Aussie is higher because of the news from its largest trading partner, China. In addition, the news about central banks diversifying away from the Euro to the Aussie have slightly out-weighed risk themes.
Kiwi (NZD): The Kiwi is affected more by risk aversion this morning than the Aussie, as the NZ economy is not deemed large or strong enough to receive diversified funds from central banks that are moving out of Euros.
Loonie (CAD): The Loonie is higher across the board as CPI figures came in .1% higher than expected to 1.4%. This shows that Canadian economy is still chugging along and that the potential for rate hikes is still on the table. This makes the Loonie a destination for funds from central banks diversifying away from the Euro, with the added benefit of potential rate hikes.
Euro (EUR): The Euro is lower this morning despite the fact that German business confidence was higher. An ECB council member said that some banks are facing funding problems. This comes in advance of the European bank stress tests which are due out sometime next month and could be the next landmine that sends the Euro lower. Banks in Spain may borrow 10 billion euro from its bank-rescue fund.
Pound (GBP): The Pound is also lower as the UK announced its emergency budget which showed a commitment to deficit reduction by reducing spending and setting the table for tax hikes down the road. This has heightened the fear of double-dip recession in the UK, but these announced measures have likely saved the UK top-credit rating from downgrades, which would make it more expensive for them to borrow.
Dollar (USD): The Dollar is mostly lower this morning despite some of the risk in the market. The Chinese decision to allow the Yuan to float more freely and be tied to a basket of currencies and not the US dollar alone is likely causing some selling. Existing home sales are due out later this morning and could provide a snapshot of the housing market ahead of the FOMC meeting.
Yen (JPY): The Yen is higher on risk aversion due largely in part to the Euro debt crisis. In addition, Prime Minister Kan pledged to balance the Japanese budget in 10 years and to reduce bond sales to gain investor confidence. This is quite the task as Japan has the world’s largest budget deficit, so reduced spending and tax changes may be seen as welcome by the markets.
Just when things start to quiet down, the Euro debt crisis comes screaming back into the room and reminds investors that the EU problems have not been solved. Bank funding problems and the upcoming stress tests may show an ugly picture of the financial health of the Euro zone.
Meanwhile, while everyone yesterday lauded the Chinese announcement to allow the Yuan to float more freely, the realization that they now want to use a basket of currencies to peg to (including the potentially sinking ship Euro) is just another way to manipulate their currency to attempt to keep it low.
Canada and Australia could be major beneficiaries of both the Chinese and Euro zone news. Commodity prices have pulled back this morning, but both of these countries have strong economies and that is reflected in their currency gains this morning.
Stay tuned, this may not be a lazy summer after all!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Getting Better!
By Mike Conlon | June 14, 2010
Global recovery appears to be gaining traction, as regions around the globe are reporting increases in economic data consistent with growth. As we’ve made it through another weekend without any European debt landmines exploding, the market is in risk-taking mode this morning.
Industrial production figures in the Euro zone came in better than expected driving world stock markets higher. Oil prices are back to the $75 level as improved outlooks for recovery are beginning to take hold.
Japan started it monetary policy meeting this week, and are expected to announce no change to its interest rate tomorrow.
Global financial regulation is now at the forefront as governments around the globe consider how to best tackle the financial markets and the mistakes of the past.
This is a light week for news, but we’ll get some CPI data from both the UK and the US which should give an indication of where we stand with regard to inflation.
In the forex market:
Aussie (AUD): The Aussie is higher on increased risk appetite as the lack of potential Euro zone related negative news has pushed world stock markets higher. Minutes from the RBA policy meeting will be released tomorrow, which should provide an inside view as to future rate policy. Expect the Aussie to trade on risk themes as there is a lack of news expected from down under this week.
Loonie (CAD): The Loonie is also higher on risk-taking getting a bid from increased oil prices which is back trading above the $75 level. The Loonie is heading back toward parity with USD, trading at its highest levels in nearly a month to 1.0275 vs. the Dollar.
Kiwi (NZD): The Kiwi is also higher on risk-taking despite the fact that retail sales figures came in showing a decline of .3%, which was slightly worse than expected. Nevertheless, the RBNZ is expected to continue to raise rates throughout the year. However, RBNZ honcho Bollard said that a higher Kiwi is not helping the NZ trade balance. The Kiwi has gained roughly 7.5% on the Dollar in the past year.
Euro (EUR): The Euro is higher to 1.225 vs. USD this morning as another weekend free of negative news has buoyed the common currency higher. Industrial production figures came in much better than expected, increasing .8% vs. an expectation of .5%. As I’ve mentioned time and time again, a lower Euro is going to be good for Euro zone exports provided they can shore up their banking system and prevent the debt crisis from getting worse. This still poses the largest risk and impediment to world economic recovery.
Pound (GBP): The pound is on the move higher this morning on risk appetite as the market is increasing its bets that a UK rate hike may be forthcoming sooner than later. The CBI came out with a report predicting faster economic growth and a narrower than expected budget deficit which may spur inflation causing the BOE to raise rates. British CPI figures are due out tomorrow which could push the Pound higher if inflation is viewed as gaining. Jobless claims are due out on Wednesday.
Dollar (USD): The Dollar is lower on risk appetite, as traders are seeking yield and abandoning the safe haven currency. PPI figures are due out on Wednesday, followed by CPI figures on Thursday.
Yen (JPY): The Yen is lower on risk appetite as carry trades are re-established after a non-eventful weekend in the Euro zone. A familiar pattern is developing, where traders take risk off before the weekend and then re-establish carry trades if there is no further bad news. In addition, Japanese stocks are higher as manufacturers said that the business climate has improved paving the way for further business spending to expand upon the already-flourishing export led recovery.
The number one driver of fear in the markets is the debt situation in the Euro zone. As a reader of this blog, this should come as no surprise to you. Every day that goes by without a major issue is one in which the markets will gain confidence in recovery.
We are seeing some good signs of global growth; however all of this can be derailed with one negative report from the Euro zone. The debt crisis has not gone away and the Euro zone banking system is still very fragile. Economic numbers should improve as a lower Euro will be good for business in the region.
Meanwhile, the economic data will continue to pour in. Low interest rates around the globe may need to rise if inflation starts to heat up. Debt reduction plans and reduced spending must be balanced with sound monetary policy. Central bankers walk a fine line between trying to encourage economic growth and reducing deficits.
But for now, the market appears to be content with this balance today. So ride the wave but be prepared to bail at the first sign of trouble!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Big Ben Is Back!
By Mike Conlon | June 8, 2010
Just when you started wondering where are esteemed Fed Chairman has been, Bernanke gave a speech last evening that helped buoy the markets higher. Bernanke re-affirmed that indeed recovery is intact here in the US; though moderate given the depth of the recession. These comments helped send futures higher, and encouraged risk-taking in the forex market.
Across the pond, Fitch ratings agency came out with comments on the UK saying that the UK fiscal challenge is “formidable”. Perhaps this could be viewed as adding “fuel to the fire”, as these comments came a day after the new British PM said basically the same thing. There is speculation in the market that perhaps a UK credit downgrade is looming. The UK emergency budget is due out on June 22 and that should paint a clearer picture.
Meanwhile, the German trade surplus narrowed, though industrial output increased .9%, besting expectations.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking, despite the fact that business confidence fell for the third straight month. Part of this can be attributed to the government’s proposed 40% tax on mining companies as well as Euro zone conditions.
Loonie (CAD): The Loonie is higher as well, catching a slight bid from higher oil prices, despite a housing starts number that came in worse than expected. The number came in at 189K vs. an expectation of 202K.
Kiwi (NZD): The Kiwi is higher ahead of tomorrow’s interest rate policy meeting which the market is expecting will bring at 25bp rate hike, raising the official cash rate to 2.75% from a record-low 2.5%. Inflation is expected to pick up which would outweigh any fallout from the Euro debt crisis. However, as mentioned yesterday, most every country is looking for a weaker currency to export their way to prosperity, so a rate hike may induce carry trades which would push the Kiwi higher.
Euro (EUR): The Euro is higher as there is some risk-taking in the market, though lower vs. the commodity currencies. At this point we all know about the conditions in the Euro zone, so any lack of market-moving news will allow the Euro to drift higher, though without conviction.
Pound (GBP): The Pound is lower this morning on the Fitch news, despite the fact that retail sales rose .8% compared to a decline of 2.3%. The UK emergency budget will be released on June 22nd, and will provide further clarity to extent of budget cuts the UK may be enacting.
Dollar (USD): The Dollar is mostly lower this morning, as risk appetite has picked up partly because of Bernanke’s comments last night. Tomorrow will bring the Fed’s Beige Book economic report which should be similar to the comments made last evening.
Yen (JPY): The Yen is lower as carry trades have increased due to heightened risk-appetite. In addition, new PM Kan takes over officially and his new cabinet is seen as one that favors budget cuts and a weaker Yen.
There’s not a lot of fundamental data out this week so much of the movement we’re going to see will be based on various comments coming from around the globe. As a result, the markets can move somewhat erratically, as officials attempt to jaw-bone their various currencies.
Most of the comments due out will not provide official numbers, so sometimes they need to be taken with a grain of salt.
However, you can see how comments from a ratings agency can affect a currency like the Pound, just like a quick speech at Washington event can improve markets as well.
Let’s face it, most of these government types are economic cheerleaders; however they all favor a lower currency to encourage exports. So I expect much of the “news” we hear to counter-balance each other out, and some sideways trading to occur as we go into the summer slowdown.
That is, until you hear something from the Euro zone. Because at this point, the less we hear from them, the better!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Euro Declines, Canada Hikes!
By Mike Conlon | June 1, 2010
Now that the debt crisis in the Euro zone appears to have stabilized, the market now turns its attention to EU economic fundamentals. The outlook for the Euro is negative, as governments adopting austerity plans means that GDP growth will like stall and contract. The bounce we saw last week in the Euro was the result of short-covering as the Euro fell too far, too fast. In addition to the weakening fundamental data, political uncertainty in Germany has risen as its President unexpectedly quit. The Euro made new lows against the dollar at 1.211 in the overnight session.
Over the long weekend, news out of Australia showed that the economy there may be slowing and the RBA declined to further tighten interest rates by holding the rate steady.
In an opposite move, Canadian GDP came in better than expected yesterday the Bank of Canada’s rate decision is due out any minute.
The British pound is higher as manufacturing growth remained at 15 year highs, and housing prices rebounded showing signs of economic growth.
In addition, an apparent “fat-finger” error in the Nikkei futures market sent the index lower, though it has rebounded off of erroneous lows. World stock markets are lower, as are the US equity futures. Oil is down as well, though gold is higher as it is viewed as a store of wealth.
The market is in risk-aversion mode, though the open of the US exchanges after the long weekend could change that sentiment.
In the forex market:
Aussie (AUD): The Aussie is lower as the RBA declined to hike interest rates, citing Euro zone uncertainty and a potential economic slowdown in China as threats to economic growth. In addition, building permits were down some 15%, but retail sales came in much better than expected. This shows that investors are treading cautiously down under, as housing prices may be a bit over-blown. So consumers are directing their dollars to smaller ticket items, preferring to hold off on larger investments.
Loonie (CAD): The Loonie is lower on risk-aversion and lower oil prices, as the market waits for the BOC rate decision to be announced. Speculation has the BOC raising rates .25% to .5%, after yesterday’s GDP report showed a gain of 6.1% vs. an expectation of 5.9%. As Canada’s largest trading is the US (the only country NOT enacting austerity measures to combat excessive debt), the Canadian economy appears to be ready to out-perform. *Edit: Rates were increased as expected to .5%, yet the Loonie is lower as the market may have been expecting more.
Kiwi (NZD): The Kiwi is lower on risk aversion, and a slowing European and Chinese economy could stall growth in the region. Also, New Zealand’s own austerity measures could contribute to economic weakness if they attempt to reign in their public debt. Business confidence figures were lower as well.
Euro (EUR): The Euro is lower as well, after the German President Koehler unexpectedly quit, further weakening Chancellor Merkel’s political alliance. Retail sales in Germany were lower, and unemployment came in lower than expected, showing signs that a weaker Euro will be good for German exports. However, unemployment in the EU overall was higher, highlighting the disparity between Germany and the rest of the EU. Meanwhile, French PPI came in higher than expected. It seems as though EU residents are preparing for the worst, and scaling back as negative economic data has a “chicken and egg” effect in the region. The long-term trend of the Euro is still down, and while a lower Euro will help exports and tourism to bring cash to the region, it is going to get worse before it gets better. Now if the banks can just hang on.
Pound (GBP): The Pound is higher across the board, as house prices had their largest annual increase in nearly 3 years. In addition, UK PMI figures showed that manufacturing expanded at its highest level in over 15 years, and money flows are leaving the Euro to invest in the Pound as the economic outlook is far better in the UK which could mean a normalization of monetary policy later in the year.
Dollar (USD): The US dollar is bid vs. the commodity currencies as risk aversion is the theme to start the trading week in the US after the long holiday weekend. Stock futures are off of their lows, and we could see a rebound today if the ISM manufacturing figures come in better than expected. This has become a familiar “pattern”, as fear in the Euro zone and Asia start the session in risk-aversion mode, which flips to risk-taking if all appears well here in the US.
Yen (JPY): The Yen is also higher on risk themes, and also received a bid as a “fat finger” mistake in the Nikkei futures markets sent the index lower. The Yen trades somewhat inversely to the Nikkei, so it started off higher. Regional instability from a potential Korean conflict could cause volatility in the Yen if it escalates.
Long weekends in the US markets can sometimes have disastrous results as trading does not cease in other areas of the world. Risk and fear can cause markets to react violently, as correlations between the markets move back toward their natural order.
This weekend, the market was fairly lucky in that while there was some negative news, there was nothing earth-shattering that would cause a panic.
In the forex market, we are now seeing shifts in the balance of power, as some nations strengthen while others weaken. If the Euro debt crisis can be contained, then expect traders to revert back to the fundamentals as we enter the summer trading season.
While the summer session is normally slower, I’m not certain that will be the case this year. With the markets on high alert and fear still rampant in the market, expect volatility to remain high.
And that’s just what we as traders want!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Survived the Weekend!
By Mike Conlon | May 17, 2010
One of the biggest fears in the marketplace is holding positions over the weekend as news may come out that may affect an investment and there is nothing investors can do about it until that specific market reopens. This is why many professionals “hedge” their risk by investing in un-correlated asset classes. The forex market is one such market.
As we have seen, the Euro debt crisis not only affects currencies, but it can also affect world stock and commodities markets. Overnight, the Asian stock markets were down as investors rushed to the safety of the Yen and Dollar, as oil prices slid briefly below $70.
While cheaper oil may not sound like a bad thing for consumers, it has historically been used as a proxy for economic growth rates. So when oil is down, the markets are expecting economic slowdowns.
Starting tomorrow, we get a bunch of CPI figures from different regions around the globe that will show where we are in the inflation/deflation debate. It is interesting to note that even though global economies are inter-twined, they can and do experience different degrees of inflation or deflation. So these reports could have a material impact on the forex market this week. Stay tuned!
In the forex market:
Aussie (AUD): The Aussie is lower this morning as the Australian stock market tumbled the most in almost a year on EU debt concerns as most of the Pac Rim markets were lower overnight. Risk aversion was the theme in the overnight session, but risk seems to have rebounded some after the European stock markets opened.
Loonie (CAD): The Loonie is lower on risk aversion, though it has rebounded with the price of oil which traded briefly under $70 overnight. The hope around the world is that the European debt crisis will not spread outside of the EU. Canadian CPI and retail sales figures are due out on Friday, which could foreshadow what the BOC is going to do with rates in June.
Kiwi (NZD): The Kiwi is the biggest loser this morning as the Pac Rim countries were sold earlier on risk aversion. In addition, the NZ government said it would spend $1 billion dollars to repair homes. While not a game-changing development, this helped add to notion of risk aversion.
Euro (EUR): The Euro has bounced back from 4-year lows as it was sold off overnight on risk aversion. As I’ve mentioned before, a lower Euro is going to be good the EU economies, and the market finally caught on and pushed Euro Bourses higher, which then in turn helped stabilize the common currency. CPI figures are due out this week, but expect the debt crises to dwarf the readings. There is also talk (finally) about instituting some sort of fiscal regulation to go along with the monetary regulation in the region. It was this disconnect which largely led to the debt crisis they are facing today.
Pound (GBP): The Pound fell to a 13-month month low vs. USD as UK budget woes are heating up. New British PM Cameron said that they discovered “very bad” spending decisions made by the previous government, which will lead to more austerity and spending cuts than previously thought as well as higher taxes. While this will weigh heavily on the Pound in the short-run, it will help UK manufacturing in the long run.
Dollar (USD): The Dollar is higher, getting a bid from risk aversion despite the Empire Manufacturing number which came in much worse than expected. While this number cannot be viewed alone, it does give insight into how economic recovery is going here in the US. It appears as though recovery at this point may be more demand-driven; we’ll have to see if the US consumer can maintain hungry for goods and services. CPI data due out on Wednesday.
Yen (JPY): Yen started out in the overnight session much higher as there was major selling in the Asian markets overnight. However, it looks like we have survived the weekend and both European and US markets are set to move higher. This is causing some yen weakness as risk appetite appears to be returning. Japanese machine orders were higher, which bodes well for sentiment surrounding economic recovery. In addition, we’re going to get Japanese GDP figures on Wednesday, and their interest rate policy decision on Friday. Don’t expect much variance from the expectations.
With every passing day that the Euro zone doesn’t collapse, the markets regain more confidence. The blue-print for EU recovery is actually pretty simple: enact massive budget cuts despite popular opposition, allow the Euro to depreciate, keep nations from defaulting, and wait for your economic cycle to return.
Having a stronger currency has afforded members of the EU an opportunity to amass goods and services over the last few years. Now that the party is over, it’s time to cut back. This is classic story of the ant and the grasshopper, where there were too many grasshoppers (spenders) and not enough ants (savers). If the EU can pull together and make the tough decisions necessary to return to financial health, then they will see progress maybe not today, but definitely tomorrow.
Especially if world powers band together to tackle the next major crisis or impediment to global recovery: China. The Chinese currency peg as allowed them to prosper on the back of every other nation in the world. This has upset the “natural economic balance” that the free market provides, effectively stealing gains from other regions around the globe. This has caused a massive misplacement of capital as the Chinese attempt to do in 20 years what has taken the rest of the world 100 years.
So due to the EU debt crisis, China is on borrowed time. They should begin to prepare themselves for currency appreciation once the EU is on stable footing. The unfair currency peg has allowed China to amass humungous surpluses, which will be partially offset if they are forced to re-value. Stay tuned!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Rate Hike!
By Mike Conlon | May 4, 2010
The RBA increased the interest rate in Australia as expected to 4.5%. However, dovish language for future hikes has sent the Aussie lower as rate hikes were fully priced in. Risk aversion is compounding the Aussie’s decline as continued fears out of the Euro zone have sent markets lower.
The Euro has breached the 1.31 level and hit its lowest point vs. the US dollar in nearly a year. Fear of contagion to the other PIIGS regions is increasing as the market is cautiously waiting for a plan in the event that there is another crisis. Now that the EU has gone down “bailout road”, the expectation is that the Greece will not be the last straw.
European equity markets are lower, as are commodities and US stock futures giving strength to the Dollar and Yen. In addition, an expected slow-down in China is expected to decrease world demand as China attempts to slow down inflation by doing anything BUT allowing its Yuan to appreciate.
In the meantime, Japan remains closed for the week and will be sitting this one out as the Golden Week holidays are celebrated.
In the forex market:
Aussie (AUD): The RBA raised rates as was expected, yet in the policy meeting signaled that they will likely pause next month. Inflation is expected to rise to the higher end of the “band” that they attempt to target, but the market has detected no sense of urgency. In addition, the Chinese PMI report came out showing that Chinese manufacturing was at its lowest in six months sending the Shanghai Composite to six-month lows as well. This could reduce demand for Aussie products and thus affect the economy.
Loonie (CAD): The Loonie is lower this morning as risk-aversion is prevalent and oil is back to trading below 85. With no news on tap until Friday’s employment reports, expect the Loonie to closely mirror oil prices and trade on risk themes.
Kiwi (NZD): The Kiwi is lower for the same reasons that the Aussie is, but in addition, wage inflation occurred at its slowest pace in nearly 9 years. China is New Zealand’s second largest export market, so a slowdown in China would be detrimental to NZ exports.
Euro (EUR): The Euro is below 1.31 for the first time in nearly a year as fears over the debt crisis have heightened. Part of the problem is the “band-aid” approach the EU has taken, and the market is concerned about future debt problems in the region. When you think about it, this makes sense. With all of the back and forth and negotiating that has taken place over Greece, what happens if Spain needs a bailout? They are a much larger economy than Greece and a much greater risk to the Euro. If the market senses that there is no solution in place, expect yields in Spain to rise until the ECB needs to step in and do something. Say what you want about Hank Paulson’s “bazooka” when dealing with our bank bailouts; I’m sure the EU would love to have such a weapon to combat their debt crises rather than quibbling over pea-shooters.
Pound (GBP): The May 6th elections are two days away and the Pound is weaker as the fear of “hung Parliament” is increasing. In addition, UK stocks are lower led by British Petroleum who has a major disaster on its hands due to the Gulf oil spill. In addition PMI came in slightly better than expected, though mortgage lending was slightly less.
Dollar (USD): The Dollar is higher on risk aversion as its safe harbor status is driving demand. Yesterday, US ISM manufacturing figures came in better than expected showing signs that the US economy may be improving. Pending home sales are due out later this morning which could add to Dollar strength if they come in better than expected.
Yen (JPY): Japan is closed for Golden Week so business activity is light so expect the Yen to trade on risk themes.
As I’m sure you are aware by now, the forex market is a “relational” market in that what happens in one area affects all others. Not only can a currency be driven by its own fundamental strength, but also by others’ weakness.
With the uncertainty surround the UK elections and the Euro debt crises, there is certainly reason to be risk-averse. China’s intentional slowing of its economy and not allowing its Yuan to appreciate could be an important fundamental factor in world demand going forward. If demand slows and US recovery does not pick up, then we could see further impediments to economic recovery.
All of this adds up to the flight to safety trade which could mean Dollar strength and equity and commodity market weakness.
If you are someone who is heavily invested in world markets, it would behoove you to check out the forex market in order to hedge your risk in un-correlated assets. Isn’t time you sought the portfolio protection you need?
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Tuesday Tipping Point?
By Mike Conlon | April 13, 2010
This morning the Euro is slightly lower despite a successful Greek auction of short-term debt. The over-subscribed auction saw more debt offered than was expected, and the interest to be paid on said debt was also higher than Greece would have liked. However, the EU bailout announced yesterday has given some investors confidence and only time will tell how this situation plays out. But for now, Greece survives another day.
The Pound is higher this morning despite the fact that the RICS survey is showing lower home prices. The good news is that that the UK trade balance came in better than expected showing signs that economic recovery may be progressing.
The Dollar is lower as the US trade balance figures were slightly worse than expected but showing signs that a rebounding consumer may be feeling more confident in the economy.
In the forex market:
Aussie (AUD): The Aussie is higher this morning as mild risk-taking is taking place, though it looks as though that could reverse by the end of the day. Business confidence figures came in slightly lower than expected but well within an acceptable range and near its highest level in 8 years.
Loonie (CAD): The Loonie is slightly lower this morning on oil prices which are back to the 83.50 range as world demand is beginning to slow, despite the mild risk-taking. Overnight swap rates are showing that there is an increased probability that the BOC will raise interest rates at the June 1 meeting. The Loonie is just above parity with USD.
Kiwi (NZD): The Kiwi is trading mostly higher against all but the Yen as NZ Credit Card spending levels rose the most in almost 2 years. This bodes well for consumer spending which had been lagging and shows that economic growth may accelerate throughout the year.
Euro (EUR): The Euro is still mostly lower, though sitting right near the 1.36 level vs. USD. CPI figures from Germany showed that inflation is largely in-line with expectations, and the ECB commitment to keep rates low is adding pressure to the single currency. As mentioned above, the Greek debt auction could be considered a success, though if the market keeps demanding higher rates than this could pose a problem down the road.
Pound (GBP): The Pound is mostly higher as the British Retail Consortium showed that consumer spending rose 6.6% in March in a sign that confidence over the UK’s economic prospects may be rising as consumers “vote with their Sterling”. In addition, the UK trade deficit narrowed as exports increased, no doubt buoyed by the weaker Pound.
Dollar (USD): The Dollar is lower this morning as the US trade deficit widened more than expected. Alcoa kicked off stock market earnings season last night with a less-than exciting report that has left the market slightly disappointed. In addition, President Obama’s meeting with the Chinese President Hu did not go as well as expected and while the door is still open for China’s removal of its USD peg, China will continue to do what it wants.
Yen (JPY): The yen is higher this morning as Japanese stocks are down for the first time in 3 days as producer prices fell at the slowest pace in over a year, showing signs that deflation may be slowing and that inflation may be right around the corner. Chinese demand for raw materials and commodities may cause Japanese profits to erode going forward.
Part of today’s forex action will be determined by how the US equity markets fare today. While the futures are lower going into the open on disappointing earnings out of Alcoa (AA), this is but one stock and one stock does not a market make.
The forex market seems content to sell dollars today so this could set up nicely for either a stock market reversal higher, or some risk aversion commodity currency selling. I think today will be the former as news from around the globe is positive enough today to out-weigh negative earnings from one stock. But you never know!
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Pound Down, Housing On Tap!
By Mike Conlon | March 23, 2010
In what I deemed a “light” week for economic news, the big news of the morning is the UK CPI figures. Prices in the UK were slightly lower than expected, with CPI coming in at 3% vs. an expectation of 3.1%. While it is good that there is seemingly no inflation, this could put pressure on the BOE to maintain accommodating measures.
Also this morning we are expecting a slew of US housing data. While no one is expecting this data to improve overnight, any sign that the housing market may be stabilizing is a good thing.
This morning, there is some US dollar strength and mild risk-aversion in the market, as the US stock market rebounded yesterday led by healthcare stocks in the US on the heels of the passage of Obamacare. There is still much debate over the economic impact of this bill; so expect some market volatility if new features come to light.
In currencies:
Aussie (AUD): Not much happening down under from a news perspective; however it is interesting to note that even though the Aussie is paying the highest interest of the currencies I cover here, it is now sliding down the risk ladder and becoming “less risky”.
Kiwi (NZD): The Kiwi is mixed this morning as mild risk aversion is battling a report that shows that economists have raised their GDP forecast for New Zealand. Tomorrow New Zealand is going to report its current account balance, which could show that the economy is picking up steam.
Loonie (CAD): The Loonie is slightly higher this morning in a case of “less bad is good”. With virtually no news on tap for this week, expect the Loonie to move back and forth based on risk themes and bad news from other currencies. The economy in Canada seems to be chugging along and investors are betting that Canada will be the next country to move on rate hikes.
Euro (EUR): Were it not for the Pound, the Euro would be down across the board. The general consensus is that there will not be agreement over aid to Greece at this week’s summit, stoking further fears of structural Euro weakness. And while Greece will be able to get the funding to meet its debt obligations, the question will be at what cost and whether or not it is feasible.
Pound (GBP): To stimulate or not to stimulate, that is the question. The UK is in a precarious position as CPI figures show that prices are declining slightly, raising fears that deflation and not inflation may be the more insidious problem. On Thursday, retail sales figures are due which will show the strength and resolve (or lack thereof) of the British people. Should these figures disappoint, then we could see further Pound weakness in addition to it being down across the board today. At this moment, it is still above 1.50 vs. USD. So if economic activity does not pick up in the UK, then further stimulus may be needed which would add to the already-exploding UK debt which would be Pound negative.
Dollar (USD): The Dollar is stronger this morning primarily on Euro weakness. US housing numbers are coming out later this morning and are not expected to show much improvement. This should give the Fed one more reason to maintain ZIRP for some time. So even though rates are highly unlikely to move in the US for the foreseeable future, the Dollar should continue to benefit from the flight to safety trade.
Yen (JPY): The Yen is lower this morning as carry trades are in effect despite the risk fears in the marketplace. With no sign to the end of deflation in sight, BOJ members are still divided on their views of the economy. In the meantime, Japanese households are sending money overseas in search of yields at the fastest pace since 2007, before the credit crisis. The US dollar looks poised to strengthen vs. Yen, perhaps to the tune of 10%.
As I have mentioned before, one does not need to be the most beautiful to win a beauty contest. Being the least ugly can also win you first prize! And that’s the beauty of the currency market—that it’s a comparison market where sometimes the least ugly can win.
So while economic outlooks across the globe can vary and can seem suspect from time to time, remember that in the New Economy less bad is good!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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France to the Rescue?
By Mike Conlon | March 8, 2010
Bet you never thought you’d hear that unless it was the punch-line to some joke. All kidding aside, this past weekend French President Sarkozy gave Greece his support and claimed that if Greece was allowed to fail, then the Euro would be “pointless”.
I’m not sure how this is going to sit with Germany, who I’m sure don’t appreciate France undermining its stance. For all the talk of Greece leaving the Euro zone, what if Germany was the one to up and go? I don’t see this as a likely scenario and see this as more of “good cop, bad cop” tag-team effort to keep the Euro from losing further value. At the end of the day, German banks have huge exposure to Greece so it is definitely not in their interests to see Greece fail. As of right now, for all the fear of monetary bailouts, the only thing on the table right now is allowing Greece to piggy-back on the good credit of Germany. Meanwhile the EU is working to create a lender of last resort and limit credit default swaps to help prevent another potential catastrophe.
This is a pretty light week for news, which usually puts me on edge to “expect the unexpected”. Barring any unexpected negative news, I expect to see a continuation of last Friday’s market action as moderate risk-taking should have the upper hand.
In the currencies:
Aussie (AUD): There is no real news for the Aussie this week until Thursday, when they report their unemployment figures. Right now the Aussie is still the dominant currency and destination for carry trades. We’ll get a better idea of how the Aussie is going to fare going into Thursday but for now I expect the Aussie to move higher on risk-taking themes and commodity prices. The Aussie should hold short-term support at .91 vs. USD.
Kiwi (NZD): The big news of the week for New Zealand is the interest rate decision due out on Wednesday. The Kiwi is higher this morning as home prices have advanced for the fifth straight month in what some traders may feel is the onset of inflation. Personally, I don’t see a rate hike coming at this meeting so we’ll have to see how the market reacts but for now I expect the Kiwi to trade higher into the meeting on expectations of a rate hike and moderate risk-taking with the potential for those gains to be erased if the hike doesn’t happen. Stay tuned.
Loonie (CAD): The Loonie continues to “receive love” from the market as more and more people are starting to catch on to the economic story in Canada. A report out this weekend claimed that the Loonie to could surpass the Aussie as the majority of options bets placed on the Aussie/Loonie pair are for the Loonie to strengthen. While the Loonie may do better in the short-run as traders begin to expect a series of rate hikes, don’t lose sight of the impact of the interest rate differentials, as the Aussie is currently yielding 4% and the Loonie is yielding .25%.
Euro (EUR): As mentioned the Euro got a boost from Sarkozy’s comments this weekend, but is trading marginally lower than the commodity currencies. Financial stability is the name of the game for the Euro and I expect it to trade sideways for a while as the drama unfolds. This is not the final word on Greece so I expect we’ll see it trade range-bound between 1.345 and 1.38 vs. USD depending on the “he said, she said” between Merkel and Sarkozy. Not to mention German CPI, which is due out on Wednesday.
Pound (GBP): The Pound is down against all but the Dollar and Yen, as mild-risk taking is the flavor of the morning. On Wednesday we’re going to get the estimate of Feb. GDP and the Industrial production and manufacturing figures. Should those numbers come in weaker than expected than we could see the Pound re-test last week’s lows.
Dollar (USD): The major thing to look at this week is going to be Friday’s retail sales figures. This is going to give a clue as to the behavior of the US Consumer, and well as the confidence figure due out the same day. The US consumer represents some 70% of GDP so if these numbers are better than expected than it could compel further risk-taking and dollar weakness. Leading up to those numbers, we have a couple of Fed speakers out to entertain us with their jaw-boning of the dollar. Remember, forget what they say, and watch what they do!
Yen (JPY): Japanese GDP is due out on Wednesday but frankly, the Yen is going to trade on risk themes this week. Still considered the top funding currency for carry trades, I can’t foresee a situation that would cause this to change barring an interest rate hike which is unthinkable.
So, for a week with surprisingly little news, it seems kind of busy. Watch out for the British GDP figures on Wednesday to be a key point, and this could be the week when the Loonie jumps the Kiwi on the risk scale.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Greek Revival?
By Mike Conlon | March 3, 2010
No I’m not talking architecture this morning; I’m talking about the austerity measures Greece is proposing to undertake in order to satisfy the French and the Germans. Now if they can just keep their citizens from rioting in the streets they might just be able to pull this off. Meanwhile, the Euro is higher to 1.365 vs. USD.
Also higher this morning is the British pound, which is bucking a 6-day slide. Sort of like God, on the seventh day it rested! The Canadian dollar is higher in a continuation of yesterday’s news.
So this morning is sort of a mixed bag. More news driven than risk-oriented, it will be interesting to see if the currencies fall back in line.
In currencies:
Aussie (AUD): Australian GDP came in this morning a little bit higher year over year, though not gangbusters as we may have been lead to believe. While the economy has been moving along nicely and is well-positioned for growth, the lack of explosive growth means that we could see a pause to near-term rate hikes. The forex market can be so greedy at times! The Aussie is mixed this morning.
Kiwi (NZD): The kiwi is down today across the board and is trading near a 10-year low to the Aussie. It looks as though the market is attempting to re-define the Kiwi’s place in the “risk totem pole”. Nevertheless, the Kiwi economy is still on track and they do provide 2.5% interest, making it a good destination for carry trades. I think the market realizes that the economies of Australia and New Zealand are quite different, and the Loonie looks poised to replace the Kiwi, as traders speculate that rate hikes may be coming sooner in Canada then in New Zealand. This makes the Kiwi/Loonie pair the largest loser of the morning, down some 1.15%.
Loonie (CAD): The Loonie is benefitting this morning from yesterdays interest rate decision as the market is now starting to believe that Canada may be the next to raise interest rates. The Loonie is up across the board this morning.
Euro (EUR): The Euro is higher against all but the Loonie and Pound, as proposed Greek austerity measure are giving hope that the debt problem won’t spiral out of control. This is coming ahead of the Euro zone GDP report and interest rate decision due out tomorrow. Rates are not expected to change and any surprise to the upside on GDP would be viewed as positive by the market.
Pound (GBP): The Pound is higher this morning after consumer confidence figures came in better than expected. I’m not so sure why they are so confident but to each their own. Tomorrow is the BOE’s decision on interest rates and quantitative easing. Deficit reduction is a major priority in the UK so it will be interesting to see if they need to continue to stimulate the economy at the expense of increasing debt. Stay tuned!
Dollar (USD): The Dollar is down against all but the Kiwi as job cuts have fallen to their lowest levels since 2006. All this means is that employers plan on firing less people. They are still not in “hiring mode” so the “jobless recovery” continues as political uncertainty and Friday’s Non-Farm Payrolls report loom heavily over the market.
Yen (JPY): The Yen is mixed this morning, giving back some gains against the European currencies yet higher vs. the Aussie and Kiwi. As no real risk themes are presenting themselves today, the yen is benefiting from a little bit of carry trade unwind and it looks like some of that carry trade money is going toward the Loonie. No real news out of the region today besides a reading of higher worker earnings, which could help push domestic demand.
The markets aren’t always dominated by risk themes so it is really important to pay attention to the overall economic news for the most widely traded currencies. Slight changes can have large effects in individual currencies which can “break out” of the usual order. In these situations, there is great opportunity as sometimes the market is slow to catch on. My trumpeting of the Loonie over the last few weeks is one such example.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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