Growth By Contraction!
By Mike Conlon | September 2, 2010
In what seemingly is a contradiction, Europe is proving that you can grow by shrinking. If you don’t believe that’s possible, look no further than the EU GDP figures reported this morning. GDP figures came in showing growth of 1.9% vs. an expectation of 1.7%. But wait a second, isn’t the EU enacting austerity measures?
Yes, they are enacting austerity measures but they are not experiencing the crisis of confidence that we have here in the US. This allows for more active participation in the economy, as fears have been removed about the future of policy. In other words, they are taking their medicine. In addition, the ECB left rates unchanged at 1% which was no surprise to anyone and will most likely remain in “crisis mode” until next year.
Conversely, here in the US companies are still afraid to hire employees as they are fearful over the economy and government policy. With no end to the spending in sight, the “extend and pretend” policies and looming deficits and taxes and regulation and healthcare (oh my) make even the boldest of businessmen appear more scared than the cowardly lion!
As a result, Initial Jobless Claims came in slightly better than expected, showing new claims of 472K vs. an expectation of 475K. Home sales figures are due out later this morning and my guess is that this figure is not going to be encouraging either.
In the UK, housing prices came in lower than expected which may help inflation come back down and allow the BOE to maintain accommodative policy measures throughout the austerity measures.
So this morning’s currency market action is a bit of a mixed bag, as the market can’t decide if the fundamentals support risk-taking.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as the trade balance figures came in worse than expected. The Australian trade surplus shrank to A$ 1.89B vs. an expectation of A$3.1B. This comes a day after better than expected GDP figures were reported yesterday.
Kiwi (NZD): The Kiwi is actually higher this morning on—ready for it—higher powdered milk prices!! If I had any sort of journalistic integrity I wouldn’t even mention this but the higher Kiwi seems like an anomaly to me so I’m going to go with it. If I had to guess what is going on, I would blame stealth Chinese currency diversification. (Click chart to enlarge)
Loonie (CAD): The Loonie is lower as crude oil prices have pulled back to 73.25 and the market prepares for tomorrow’s US Non-Farm Payrolls report. Canada is particularly sensitive to US economic data as the US is its largest trading partner.
Euro (EUR): The Euro is mixed this morning as the GDP figures and steady monetary policy are encouraging despite the known debt problems and commitment to austerity. Just goes to show sound economic policy goes a long way to helping in recovery. (Click chart to enlarge)
Pound (GBP): The Pound is mostly lower as home prices fell signaling that inflation may again fall below the BOE upper band of 3%. This may allow the BOE to maintain accommodative policy as austerity measures help tackle the deficit.
Dollar (USD): I’m starting to sound like a broken record here so I’m not even going to say it. I’m just waiting for tomorrow’s NFP figures which they market will use as a true gauge of whether or not jobs are being added to the economy. Government models and proclamations of jobs “created or saved” ring hollow. The proof is in the pudding, as they say.
Yen (JPY): The Yen is showing strength again, as the market is going to test Japanese policy-makers over intervention. The Nikkei was higher overnight so the inverse correlation of Yen to the Nikkei is not holding up today. As the rhetoric heats up, what will Japan do? (Click chart to enlarge)
It is becoming more and more apparent that things in the US are not getting better. While they may not be getting worse (yet), I think we may be in a holding pattern until the November elections where hopefully the “bums get thrown out”.
There has been much talk recently that a lot of the damage has already been done and that political gridlock may not be seen by the market as a good thing. My guess is that any change in leadership at this point is going to be viewed as positive, and if we can actually change the collision course our economy is on people might actually be able to get back to work and help the economy grow again.
Until then, expect fear to rule the markets and tomorrow’s NFP number could be the continuation of last month’s fear driven market action.
I never thought I’d say this as an American but perhaps we should be taking economic direction from the Europeans! For their realistic assessment of how to recover while not popular is the right thing to do.
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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Record Low Rates Persist!
By Mike Conlon | August 5, 2010
Earlier this morning, both the ECB and the BOE left interest rates unchanged. While this move was largely anticipated, comments from the ECB show that economic progress is being made; evidenced by better than expected factory orders in Germany.
Here in the US, Initial Jobless Claims came in at 479K vs. an expectation of 455K showing signs that the employment picture is still weak and worsening. Tomorrow’s Non Farm Payrolls Report will be the rubber match and the ultimate decider of economic condition of the US.
Speaking of bad employment figures, last night New Zealand reported a worse than expected unemployment rate, sending the Kiwi lower as the worst performer this morning.
So this morning is a bit of a mixed bag, with fundamental data driving the marketplace more so than risk themes. There is significant US dollar weakness, yet Canadian dollar strength. The Japanese yen is also showing strength, as is the Euro.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on a lack of risk appetite as its neighbor NZ reported dreadful employment figures.
Kiwi (NZD): The Kiwi is the worst performer this morning as worse than expected jobless figures have soured speculation that further rate hikes may be forthcoming. The unemployment rate went up to 6.8% vs. an expectation of 6.2%, showing signs that the economy in NZ may be cooling. (click chart to enlarge)
Loonie (CAD): The Loonie is surprisingly strong this morning as risk appetite has diminished and oil prices have fallen back to around $82. However, building permits advanced to 6.5% vs. an expectation of a 1.8% gain, reflecting a more positive outlook. Loonie strength this morning is most probably money flowing from the Kiwi as a future NZ rate hike is all but off of the table.
Euro (EUR): The Euro is mostly higher after the ECB left rates unchanged. However, positive comments from ECB President Trichet have increased demand for the Euro, as has anti-Dollar sentiment.
Pound (GBP): The Pound is now lower across the board as more traditional risk aversion is creeping its way into the market this morning. The BOE left rates and its asset purchase program unchanged, and there is increasing speculation that a rate hike may be coming sooner than later.
Dollar (USD): The Dollar is weaker this morning on the heels of the Initial Jobless Claims report which showed an increase of 479K vs. an expectation of 455K, which is a 3-month high. Tomorrow’s NFP report is expected to show a loss of 65K jobs, and the unemployment rate is expected to tick higher to 9.6%. Worse than expected figures could send the market into major risk aversion going into the weekend. The Dollar is gaining strength though as risk themes come further into focus.
Yen (JPY): The Yen is stronger this morning as the market slips into a more traditional risk aversion mode. There is major concern about possible intervention in the currency should it continue to strengthen, however Finance Minister Noda has shunned such discussion. (click chart to enlarge)
The employment picture in the US looks bad and there is no sign that it is getting better. Current economic uncertainty over government policy has left businesses content to do more with less. This is unfortunate as there are many able-bodied and willing workers out there who are victims of big government ideology.
Future tax hikes, regulation, costs, and general anti-business climate have caused many Americans to realize their greatest fear, that they may have to rely on the government to get by.
Meanwhile, countries around the globe have decided to take their medicine and cut back on spending, thereby reducing the uncertainty over the business climate and actually encouraging economic progress.
Just a few months ago, everyone was calling for the Euro to collapse and now the economic prospects look (dare I say it) better than those of the US. The marketplace is sending a loud and clear message which is backed up by the data that currently the US is in danger of going over the cliff.
If we continue to let this happen, then we have no one to blame but ourselves. So keep an eye out for tomorrow’s NFP which is sure to be a market-mover. Remember that volatility is a trader’s friend but be sure to remember to trade what you see and not what you think will happen.
In other words, don’t guess. React.
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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Market Surfing!
By Mike Conlon | July 27, 2010
Now may be the time to “ride the wave” in the markets as the major news of the summer, the Euro bank stress tests, were received positively by the market. Yesterday I commented on the credibility of those tests, and reminded readers to follow the market rather than impose their own view.
So far this morning the market is in risk-taking mode, as CPI data will begin to be released tomorrow in the Euro zone and Australia. Higher readings may show that policy adjustments may need to take place, especially in Australia.
Adding to Euro strength is the news from the Basel committee on Banking Supervision who announced they would be seeking new measures to shore up the global banking system.
In the UK, a CBI report showed that household spending increased at its fastest pace in nearly 3 years, lending support to the view that economic recovery is taking place.
This morning, US consumer confidence figures and home prices are due out, and yesterday’s housing sales figures were bad historically, yet the market reacted favorably because they were higher than expected. The market also seemed to overlook the revised figures from last month, which showed a much lower figure.
In the forex market:
Aussie (AUD): The Aussie is higher as risk appetite has increased due to a positive economic outlook in the markets. CPI data is due out tomorrow and should those figures come in higher than expected, the market may expect a further rate hike at the next RBA rate policy meeting.
Kiwi (NZD): The Kiwi is also higher on risk themes going into the RBNZ rate policy meeting tomorrow night. The expectation is for a rate hike of 25bp to 3%, but pay attention to the policy statement as the Kiwi is closing in on 2010 highs.
Loonie (CAD): The Loonie is also higher as oil has surged to 79.50 in addition to general risk appetite. There is no real news on the docket until Friday, when Canada reports GDP figures.
Euro (EUR): The Euro is also mostly higher, trading largely as expected according to our risk ladder. Consumer confidence figures and import prices were higher in Germany, showing continued strength in the Euro zone’s largest economy. This shows a renewed outlook for growth but don’t expect tomorrow’s CPI data to affect monetary policy just yet, as the ECB cannot start raising rates until after the sovereign debt issues of the countries in trouble are rectified.
Pound (GBP): The Pound is higher across the board as CBI reported sales data showed that household spending increased at the fastest pace in nearly 3 years. This CBI gauge showed a reading of 33 vs. an expectation of 3. So it beat handily and the market has responded accordingly as economic growth prospects have advanced.
Dollar (USD): The Dollar is lower as a “normal” risk-appetite scenario is taking place this morning. The home price index came in showing a slight increase which is a good sign in that prices aren’t still falling. However, with the end of the homebuyer tax credit, this may not be the case going forward and as always, the economic prospects here in the US will come down to jobs growth.
Yen (JPY): The Yen is lower across the board as risk appetite has increased the demand for carry trades. Recent Yen strength vs. the Dollar has heightened the awareness of possible intervention, but the BOJ appears (for now) to let the market dictate prices. Japanese employment and CPI data are due out on Thursday night.
So if the market tells you it wants to go up, you should listen. Many times traders (myself included) try to interpret market news and data and then make predictions of what they think should happen. A better way to approach the markets is to follow trends that you see on the charts, and then act accordingly. Try to find low-risk entry points based on technical support and resistance, and then hop on and enjoy the ride.
The news we have been receiving as of late has largely been positive and has emboldened risk appetite. While there are bound to be hiccups along the way; use them to your advantage by buying pullbacks or selling rallies.
The global economy is still fragile, but every passing day that does not bring bad news should be viewed as a positive for risk appetite. Money has to flow somewhere, and if you can catch it just right, you may be in for a great ride!
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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Who’s Stressed?
By Mike Conlon | July 21, 2010
Well apparently it’s not the ECB. However the market is a bit more concerned about the results of the bank stress tests which are due out on Friday. The Euro is lower this morning as ECB President Trichet is having a “behind closed doors” meeting with the banks in question today, presumably to get everyone on the same page when the results are released.
This is causing a mild bout of risk-aversion, as there is some concern that perhaps they are working on how to “spin” the results, which may not be as rosy as they have been saying. Or it could just be much ado about nothing.
Earlier today, the Bank of England released the minutes of its policy rate policy meeting which showed a heightened concern about UK inflation. This provided the Pound with a bit of a bounce, but it gave back gains as the ECB meeting came more into focus.
Fed Chairman Bernanke is going to speak later today and is expected to maintain a dovish interest rate stance, which could put further pressure on USD/JPY as the Dollar weakens vs. the Yen.
In the forex market:
Aussie (AUD): The Aussie is mostly lower this morning as mild risk-aversion is causing some selling in all pairs but the Euro and Pound. CPI data due out will provide more clarity into whether or not the RBA will consider a rate hike next month, assuming the European banks “pass” the stress tests.
Kiwi (NZD): The Kiwi is actually sporting some strength this morning despite the mild risk aversion as year over year credit card spending increased for the third month in a row. While I’m not necessarily sure this is a good thing—the Kiwi is higher against USD.
Loonie (CAD): The Loonie is higher this morning after yesterday’s rate hike despite the dovish comments from the BOC which initially sent the Loonie lower yesterday. In addition, oil is higher to around 78.50, providing a bid to the Loonie.
Euro (EUR): The Euro is lower across the board in advance of the stress tests as today’s ECB meeting is causing some traders concern. Today’s meeting is most likely to just provide a unified response to the stress tests as they don’t want anyone going “rogue”. So while some might feel this is because the results may be less than desired, I feel it is more of a coordinated action plan which unfortunately is necessary as the slightest misconstrued comment could send the markets reeling.
Pound (GBP): The Pound is giving back some earlier gains and has gone mostly negative as the market is focused on the ECB meeting taking place. This is causing some risk-aversion to start the day despite the fact the BOE policy meeting minutes showed that there is a heightened concern for inflation. At this point, they are not sure how higher taxes and austerity measures are going to affect prices going forward, but a policy adjustment may be in order if CPI data remains above the target range.
Dollar (USD): The Dollar is mixed today in advance of Bernanke’s speech later today which is all but guaranteed to remain dovish regarding interest rate policy. The Dollar is catching a bit of a safe-haven bid; though it is lower vs. the Loonie and Kiwi as the birds are showing strength this morning.
Yen (JPY): The Yen is showing strength across the board going into the Euro bank stress tests as demand for carry trades has weakened.
We were bound to see some Euro weakness going into the stress tests as the market is unsure of what to expect. While all of the chatter leading up to the meeting has been positive, there is still reason for concern.
Today’s private meeting has led some in the market to believe that they are attempting to “spin” the news, however I think it’s probably more of forming a plan to provide one clear, concise message.
The Euro has seen good gains over the last 6 weeks as we no longer hear chatter about Euro-Dollar parity. It is no secret that A LOT of banks have problems, both in the Euro zone and elsewhere, so this really should be a non-event.
Nevertheless, in todays media-centric gotta have every detail every second society, these tests will picked over with a fine-tooth comb and a microscope.
So it will be interesting to see if both the Euro and Pound can turn it around today after the ECB meeting concludes (with no negative news releases). Stocks markets are higher across the board, and Bernanke will likely contribute to further Dollar weakness today.
Keep an eye on Japan for potential intervention as continued Dollar weakness vs. the Yen is highly undesirable.
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!
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Japanese Intervention?
By Mike Conlon | July 20, 2010
This morning, the Japanese yen is lower despite the fact that US corporate earnings are lower this morning, sending stock futures lower. Under a “normal” risk-aversion scenario, we would be seeing Yen strength, however there is some speculation in the marketplace that Japan is getting ready to intervene in its currency as recent Yen strength has been an impediment to exports and thus economic growth.
US corporate earnings are starting to show declining revenues, which is not a positive sign for economic growth. While stock investors may be mesmerized by profit beating estimates, one must consider that profit is being driven by cost-cutting and not expansion. This does not bode well for jobs growth.
The Aussie and Kiwi are higher as Chinese stocks were higher overnight. There is also speculation that China will relax tightening measures.
The Euro is mostly lower to start the US session, as is the Pound. German Producer Prices came in higher than expected, yet the ECB will maintain its asset purchase program as a “security measure”. The results of the bank stress tests are due on Friday.
Lastly, the Canadian rate decision is due out later this morning. The market is expecting a 25 bp hike to .75%, though recent global economic weakness could cause a retreat from a hawkish stance.
In the forex market:
Aussie (AUD): Minutes from the RBA board meeting showed that the Central Bank will wait for the results of the European Bank stress test as well as inflation data to determine whether or not to raise rates at the next meeting. The Aussie is higher this morning despite the risk aversion in the market this morning.
Kiwi (NZD): The Kiwi is higher as Chinese stocks were also higher overnight as there is increased chatter that the Chinese will back off the tightening measures which were intended to slow the rate of growth. If this should occur, then demand for NZ good will increase. However, the commodity currencies are giving back some gains as risk-aversion is apparent to start the US session.
Loonie (CAD): The Loonie is mixed this morning as the BOC rate decision came in with a 25 bp rate hike to .75%, as expected. However it looks like the initial reaction was somewhat negative to the news, as a potential dovish stance going forward may be weighing on investors.
Euro (EUR): The Euro is lower across the board as German PPI figures came in hotter than expected at a .6% monthly increase vs. an expectation of .2%. The results of the bank stress tests are due out on Friday so the market may be jittery despite the positive comments the ECB has been providing. I’m always a skeptic by nature, so put me in the camp that thinks this might not be as rosy as we are being led to believe.
Pound (GBP): Mortgage approvals fell last month as tighter lending standards have discouraged demand as consumer confidence plummeted last month. In addition, CBI business optimism figures came in less than expected as the UK gets ready for announced cut-backs to deal with the ballooning deficit.
Dollar (USD): The Dollar is also mixed today as it is seeing strength vs. all but the Kiwi and Aussie. US housing starts came in less than expected showing a decline of 5% vs. an expected decline of 2.7%. The Dollar is higher against the Yen as speculation of a BOJ intervention is starting to pick up.
Yen (JPY): The Yen is showing some weakness this morning as speculation is that Japanese authorities will attempt to weaken the Yen after it climbed to 7-month highs. A stronger Yen hurts Japanese exports as goods become more expensive. The Japanese have been known to intervene in the past, though they may want to proceed with caution as the market has been driving Yen close to all-time highs.
This morning is a bit of a mixed bad as we see the different pairs trading by region and not necessarily on risk themes.
There is clear weakness today in the Europe, as both the Euro and Pound are lower. The Aussie and Kiwi are higher on higher Chinese stocks and the possibility of weakening policy.
The Dollar is trading somewhat higher, as it is trading inversely to stock markets futures which are lower due to declining corporate revenues.
So at the end of the day, we are definitely in for a global economic slow-down. Results of the European banks stress tests will guide policy around the globe as systemic risk will out-weigh economic conditions in the near-term.
However going forward, some countries may be in better shape to weather any potential economic storms.
So I will continue to remain cautious until Friday and keep my trading short-term.
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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“Slowing” Growth!
By Mike Conlon | July 15, 2010
Overnight, the Chinese reported less than expected GDP figures; however before you worry about the Chinese economy, note that growth slowed to 10.3%. That’s right, growth above 10%. By contrast, most other global economies are struggling to reach 3% growth.
In addition, in Japan the BOJ left rates unchanged at .1%, citing forecasts that growth will slow as fiscal stimulus is removed worldwide, thereby affecting global demand.
Across the pond, both the Euro and Pound are trading higher vs. the Dollar as dollar weakness due to continued positive corporate earnings led by JP Morgan are reducing demand for the greenback. In addition, better than expected demand for a Spanish debt issue and lack of bad news has buoyed the Euro to 1.285.
The Aussie and the Kiwi are also lower this morning, as fears of a Chinese slowdown reduce expectations for exports. However, 10% growth still looks pretty good to me.
Lastly, the Fed statement yesterday here in the US showed a commitment to maintain rates for as long as is deemed necessary. This is reducing demand for the Dollar ahead of US PPI and CPI figures which are due out today and tomorrow respectively.
In the forex market:
Aussie (AUD): The Aussie is lower on fears that a Chinese slowdown may soften demand for Australian commodities, despite the fact that demand for safe haven currencies has subsided.
Kiwi (NZD): The Kiwi is also lower for the same reason as the Aussie; however the NZ manufacturing index expanded at a faster than expected pace. Tomorrow NZ will report CPI data which will show whether inflation is tame or not and may influence the market’s expectation of a rate hike.
Loonie (CAD): The Loonie is lower on concerns about demand for commodities, despite the fact that oil is trading marginally higher. The BOC rate decision is due out next Wednesday, which may bring a rate hike should policy makers fear that inflation may come in higher.
Euro (EUR): The Euro is higher across the board, as the lack of bad news has emboldened traders as a series of successful debt auctions have provided confidence to the marketplace. In addition, the ECB maintained that interest rates are appropriate and they expect to see moderate growth.
Pound (GBP): The Pound is also mostly higher this morning and reached a high of 1.537 vs. USD as Chancellor Osborne said he does not expect banks to need additional support and cited austerity measures as a main reason. However, the BOE has still maintained a dovish outlook for future policy.
Dollar (USD): The Dollar is lower today as PPI figures came in at -.5% vs. an expectation of -.1%. This shows that prices are declining faster and may, in conjunction with tomorrow’s CPI data, show that deflation is firmly in hand. Initial jobless claims came in less than expected, with 429K new claims vs. an expectation of 450K. Corporate earnings have been good so far, but may not be enough to hold up stocks as the futures are giving back earlier gains.
Yen (JPY): The Yen is surprisingly strong this morning as it looks like US data may be moving the market toward risk-aversion. The BOJ policy meeting still showed a cautious outlook and recent Yen strength could pose a threat to Japanese exports, the leading driver of economic growth.
While Chinese growth may be “slowing”, it is hard to argue that 10% is nothing short of remarkable. However, when one considers that it is Chinese growth that is driving the world economy right now, there is concern that a lack of global demand could cause further reductions.
In the US, it looks like deflation is winning the battle as the government’s attempts to maintain higher prices may have been misguided. While deflation is a problem, let’s consider for a moment that Japan has been experiencing it for the last 20 years.
While I am hoping that policy-makers can avoid a Japan-style economic malaise, I have my doubts currently. The government is just about out of magic bullets to help maintain prices as interest rates cannot get much lower.
The problem with the economy right now is not that there is a lack of demand, but rather an over-supply of homes, goods, and services. As the economy reached the asset bubble that became known as the Great Recession, government policy to attempt to keep prices high only served to help bank balance sheets. While this may have prevented a total collapse of the financial system (still up for debate), now is the time to pursue pro-business policies that will help bring new money to the US economy to increase demand as supply clears.
On the plus side, at least it was “only” 429K losing jobs last time, it could have been much worse. So let’s just hope that China will continue to grow, as it looks like the US may be done for a while. Dollar weakness is evidence of this.
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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Portugal Downgrade!
By Mike Conlon | July 13, 2010
In the European session, Moody’s ratings agency downgraded Portugal two notches to A1 but maintained a “stable” outlook while citing weak growth prospects. ECB President Trichet maintained that monetary policy is appropriate in an attempt to assuage the market. Meanwhile, investor confidence figures in Germany weakened, as did wholesale prices.
In the UK, higher than expected CPI figures showed that inflation may not be subsiding as the BOE had expected which halted the Pound’s 3-day decline as expectations for normalized monetary policy have picked up for the second half of 2010. In addition, home prices expanded to the highest reading since 2007, adding further support for the normalized monetary policy view.
Earnings season in US kicked off yesterday after the bell and generally speaking have been viewed as positive. Stock index futures are higher in the pre-market, so we are seeing some Dollar weakness generally in line with risk-taking.
In the forex market:
Aussie (AUD): Overnight, Australian business was unchanged as businesses reported improving sentiment. However, there is some pressure on the Aussie as concerns over a slowing Chinese economy have increased.
Kiwi (NZD): The Kiwi is rebounding from earlier lows due to Chinese slowdown concerns as the market is anticipating higher CPI data later this week.
Loonie (CAD): The Loonie is higher this morning as both US corporate earnings and commodities are higher. The Loonie will be in focus this week as Canada stands to benefit from good earnings in the US more so than the Aussie and Kiwi as the US is the largest importer of Canadian goods and services.
Euro (EUR): The Euro is lower this morning on the Portuguese debt downgrade, though Greece had a successful bond auction which has pared losses. Both German and Euro zone economic sentiment figures came in less than expected, showing a deteriorating outlook for the economy. Wholesale prices in Germany were also lower, with the index showing a decline of .2% for the month vs. an expectation of a .2% rise, also taking the year-over-year figure down to 5.1% from an expectation of 5.5%.
Pound (GBP): The UK reported CPI data showing a 3.2% gain, less than the BOE was hoping and still above its target limit of 3%. The BOE has a dual mandate to keep inflation in check and encourage employment, so it may have its hands full trying to balance economic growth and taming inflation. Nevertheless, the market sees this as reason to support the view that the BOE may return to normalized monetary policy in the second half of 2010. In addition, house prices rose 11% to the highest levels in almost 3 years.
Dollar (USD): The Dollar I slower this morning as corporate earnings season has started and the initial reports are positive for the economy. Stock futures and commodities are higher in the pre-market, and the inverse correlation of the Dollar to the equity markets appears to be intact this morning and risk appetite is increasing.
Yen (JPY): The Yen started the morning higher but is giving back gains as the US market becomes the focal point of the trading day. Risk due to the debt downgrade in Portugal had provided the Yen with a bid, but that appears to be reversing. This took the Nikkei lower, despite the fact that Japanese consumer confidence advance for the sixth straight month.
The two major themes in the world market right now are US corporate earnings and the continued EU debt crisis. While US earnings have started out on a positive note, the downgrade of Portuguese debt has counter-acted the positive sentiment.
It is important to note that certain news carries more weight in different market sessions. For example, the earnings news was initially viewed as positive in the overnight session….until the debt downgrade reversed sentiment in the European session. Now that the US session is about to begin, the market has returned its focus to the positive news in the US.
This is a familiar pattern that we see time and time again. Since the majority of the risk in the marketplace stems from the Euro session, there will be times when seemingly good news can be derailed by bad news only to be outweighed by the good news again as the US session begins.
This can provide traders with numerous opportunities to get into positions based on the opening of the US session! For those who prefer to hold trades overnight, you really need to be careful with stop placement as the potential for swings from risk taking to risk aversion are increased as each trading session opens.
So today will be interesting to see which news today is more favored by the market. My guess is the good news wins!
If you are not familiar with the different trading sessions and how they affect the forex 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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O Canada!
By Mike Conlon | July 9, 2010
This morning, Canadian employment figures came in and showed a drop in the unemployment rate from 8.1% to 7.9% on strong jobs growth. The Canadian economy added 93K jobs vs. an expectation of 20K. This belies the good economic story going on in Canada despite the fact that they rely on the US to import their goods and services. Should the US economy slow down, it could affect Canadian GDP negatively.
In the European session, ECB President Trichet made the “we’re not out of the woods yet” comment, saying that there is still question over the health of the EU banking system and that serious changes need to be implemented to get better control over the deficits. The bank stress tests are due in about two weeks.
In the UK, PPI figures came in lower than expected, showing signs that the BOE may be correct in their assessment that inflation would be subside. The minutes from the rate policy meeting will be released on July 21st, and is expected to show a continued dovish stance.
Lastly, we’re seeing Dollar strength this morning despite the fact that risk-aversion is mild. This is probably more of a technical bounce and the function of traders not wanting to hold risk assets over the weekend. US stock earnings season kicks off on Monday.
In the forex market:
Aussie (AUD): The Aussie is lower this morning after posting its best week of gains in nearly 9 months. Bets that a further rate hike in 2010 have increased as a result of the best surge in employment they have seen in nearly 4 years.
Kiwi (NZD): The Kiwi is also lower, trading in sympathy with the Aussie.
Loonie (CAD): The Loonie is the best performer this morning as employment gains bested analyst expectations by a wide margin. There is a good growth story going on in Canada, as they benefit from commodity gains and as long as their largest trading partner to the south (US) keeps spending. In addition, housing starts came in largely in line with expectations.
Euro (EUR): The Euro is lower this morning as the market prepares for the bank stress tests. There is much speculation in the market about what the results will be, and what measures will need to be taken to insure financial health. One such solution would be that the banks may need to raise additional capital. German CPI figures came in as expected, showing signs of some price stability. There are also rumors floating about that the ECB may need to take a more dovish stance with the Euro, which could mean increased quantitative easing or possible rate cuts, though the latter seems unlikely at this point.
Pound (GBP): The Pound is lower as well, as PPI figures fell for the first time in nearly 2 years, easing inflation pressures in the economy. The UK had been seeing inflation outside of government targets, but it appears that it may be coming back to their preferred range. In addition, the UK trade deficit widened as a .2% gain in exports was negated by a 2.4% gain in imports.
Dollar (USD): The Dollar is higher against all but the Loonie, as the market moves toward the safe haven of the Dollar going into the weekend. In addition, the Dollar has been beaten up this week as risk-taking has been the primary driver. Reports are coming out that economists are paring back their expectations for growth in US, but see no signs of the dreaded double dip at this point despite the recent patch of negative economic news. US earnings season also kicks off on Monday, so this could be adding to market fears should corporate profits be down.
Yen (JPY): The Yen is starting out lower this morning, as the Nikkei was able to hold on to gains in the overnight session. There is some mild risk-aversion in the market today, and the Yen is higher than the European currencies.
So today is a bit of a mixed bag. Neither risk-taking nor risk-aversion can be seen as a dominant theme. Good news out of Canada has put the focus back on the N. American currencies, with the European ones lagging.
US corporate earnings will be the big story next week, and if those reports are positive, it could buoy market sentiment higher. While the stock market health does not equal overall economic health, it will act as a good economic barometer and could provide hope that the employment picture may be about to get better.
If those earnings reports are largely negative, then that may open a whole new can of worms as the market is already aware of the general state of the economy. In addition, if Washington DC policies continue to threaten business, then it could be a long time before companies begin to hire employees again, if they are reporting good gains.
Either way, there is still risk in the market. If we can successfully get through next week, the European bank stress tests will pose the next major threat.
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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Volatility Rules!
By Mike Conlon | July 8, 2010
Yesterday, the markets started off in risk-taking mode and that quickly reversed to post huge gains as the market flipped to risk-taking. As I mentioned yesterday, there was no real reason to induce risk-aversion as the there was no news driving fear. That proved to be prescient. This goes to show how the 24-hour nature of the currency market can provide opportunities as different markets gauge risk.
Overnight, the BOE left rates unchanged and did not expand its asset purchase program reflecting a view that their economy may be stabilizing.
The ECB also left rates unchanged, but did begin its own asset purchase program to try to help ease pressure on its banking system.
In Australia, employment figures came in much better than expected showing signs that the economy is not slowing down and bringing back the chance that the RBA could move on rates again this year.
In the forex market:
Aussie (AUD): Overnight, the Australian unemployment rate fell to 5.1% as the economy added 46K jobs vs. an expectation of 15K. This has sent the Aussie higher and has encouraged risk-taking, as the market is increasing its bet that the RBA may have to resume interest rate hikes. The fear of a potential Chinese slowdown had left the market betting that the RBA was finished for the year.
Kiwi (NZD): The Kiwi is higher trading along with the Aussie as risk-taking is continuing from yesterday’s gains.
Loonie (CAD): The Loonie is also higher on risk-taking ahead of tomorrow’s employment report in Canada. Oil is catching a bid and is higher as the demand for risk assets has increased.
Euro (EUR): The Euro is mixed this morning keeping in line with risk-taking. The ECB left rates unchanged at 1%, and showed that it is willing to buy government debt to shore up the banking system. However, there is a sense that the ECB may need to expand those purchases going forward. German industrial production figures came in much better than expected, providing a bright spot to economic health.
Pound (GBP): The Pound is trading lower against all but the Yen, as the BOE left rates unchanged at .5% which the market had been expected. They also left their asset purchase program unchanged, and there may be slight disappointment that it hasn’t expanded. In addition, industrial and manufacturing production figures came in slightly lower and home prices were also lower, showing signs that inflation may be shrinking as the BOE had hoped.
Dollar (USD): The Dollar is lower against all but the Pound and Yen, as initial jobless claims figures came in slightly better than expected. Initial claims were 454K vs. and expectation of 460K, which may be showing that the US is losing jobs at a slower pace.
Yen (JPY): The Yen is lower across the board as risk-taking is continuing from yesterday. In addition, Japan’s current account balance decreased revealing that domestic demand may be picking up. This is seen as positive as it could help fight the deflation they have been experiencing.
As you can tell by now, there is A LOT of volatility in the market and frankly, I couldn’t be happier. Volatility provides opportunities for traders to profit from changes in sentiment worldwide.
Right now this is most definitely a trader’s market, as the short-term movement is out-pacing longer term position-taking. There is still fear in the marketplace and many hurdles to get over to return to global economic stability. I don’t know where the market will be in 6 months from now; let alone 2 days from now!
What I do know is that there will be ample opportunities for me to make money in the forex market as different news events drive sentiment between risk-taking and risk-aversion. My stocks may be flat, and bonds paying no interest, but there are always ways to profit from forex!
Isn’t it time you got involved to find out for yourself why the forex market is the fastest growing financial market in the world?
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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Dependence Day?
By Mike Conlon | July 2, 2010
Going into this Fourth of July weekend, I can’t help but think about the state of the US economy and how we have become so dependent on government to fix society’s ills. This morning, the US Non-Farm Payrolls report came out and it showed that we had an overall jobs decline of 125K, but an increase in private sector hiring to 83K, which was better than last month but less than expectations. In addition, the unemployment rate fell to 9.5%, but this was more a function of people leaving the work force than economic and jobs growth.
Part of the reason we see these distorted numbers is because of the decline of census workers, but private sector job growth has been tepid at best. This is all a function of the current economic climate in Washington DC, and government policy which businesses deem as uncertain. Without private sector growth, the economy could be in danger of sliding into double dip recession.
In other news, PPI figures in Europe came in as expected, and Moody’s ratings agency re-affirmed the UK’s AAA rating.
In the forex market:
Aussie (AUD): The Aussie has been volatile and is now higher as the market reacts to the NFP number. In addition, the PM is backing away from the mining tax as Australia prepares for a potential economic slowdown.
Kiwi (NZD): The Kiwi is also higher on risk taking, and is the best performer this morning as New Zealand is seen as potentially the next to raise interest rates.
Loonie (CAD): The Loonie is lower as traders are paring back speculation that Canada will raise rates this month. Tepid Canadian GDP figures in addition to the potential US economic slowdown could affect the Canadian economy as the US is the largest importer of Canadian goods. Also to note is that oil is trading lower to roughly 72.50.
Euro (EUR): The Euro is higher against all but the Kiwi, as continued confidence that the banking situation may not be as bad as expected is gaining traction. In addition, the market is speaking loud and clear that it favors the EU plan of economic austerity to the US plan of spend, extend, and pretend. In addition, Euro zone unemployment came in slightly better than expected at 10%, and PPI figures came in higher at 3.1%, showing that wholesale inflation is the highest it’s been in 19 months. However, don’t expect the ECB to move on rates anytime soon.
Pound (GBP): The pound is higher as Moody’s reaffirmed the UK’s AAA rating citing the deficit reduction plan as positive.
Dollar (USD): The Dollar is mostly lower, as economic prospects in the US are diminishing. Until we get policy that will encourage business and not harm it, we are going to have high unemployment for some time. Now that unemployment benefits have not been extended, more people will have to get off of the dole and get a job, even if it’s far less than they desired. This potential political backlash could cost the incumbent party in November if the economy continues to worsen.
Yen (JPY): The Yen is lower on risk appetite as the market is deeming the NFP number “acceptable”, as the worst-case scenario fears were averted.
There really is no other way to say other than the US is on the wrong path and the continued spend, extend, and pretend policies of this administration are going to harm the US for some time.
Whether you believe in the free markets or not is of no consequence; as no one can deny that private business is the largest employer of workers. If you create a hostile environment for business, they’re not going to hire. Period.
Go ahead and raise taxes on business, they’ll move elsewhere thereby removing even more jobs. Anyone who believes that higher taxes aren’t coming down the pike lives in fantasy land. With out of control spending taking place on a daily basis, this isn’t going to end well.
I hate to write this so close to July 4th, the day on which our forefathers said ‘no more’ to the unfair policies that were imposed upon them. However, it seems cruelly ironic that as our forefathers roll over in their graves; their successors are trying to emulate the same policies that they rejected 234 years ago.
So Happy 4th of July to all…. as this may be one of the last truly Independence days if we continue down this path. By the time the dust settles, we may be saying, “Happy Dependence Day” as we all line up for our government checks and government cheese.
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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