Risky Business!
By Mike Conlon | March 9, 2010
From an outside perspective, some might be shocked at how quickly the market can flip-flop from market euphoria to fear on what seems almost like a daily occurrence. It’s like John Kerry on steroids! I kid, I kid. But on a more serious note, the market can wipe out days of gains in a single session as risk aversion can pop up for any number of reasons. Sometimes it’s justified; at other times it isn’t.
Case in point: this morning. The market had been moving along nicely then all of a sudden decides there’s too much risk in the world economy and then wham!—you get a market sell-off! What has changed so much from last Friday, to yesterday, to today?
Frankly, not much. You see, the financial markets are much like an expedition, venturing slowly into the unknown and then quick to retreat at the first sign of trouble. So what is that trouble today?
Damned if I know. Part of the role of market pundits is to “make sense of the chaos”. Most of the time I find these attempts to be lazy and disingenuous. So the top 5 I’ve heard this morning are (in no particular order): Greece, lower stock earnings, US healthcare legislation, the push for Chinese Yuan appreciation, and UK elections. And if you don’t believe any of these, I’ve got one of my own for you: it’s a technical pullback.
So be wary of attempting to try to “figure” the market out, and be sure to trade what you see and not what you think you know.
In currencies:
Aussie (AUD): The Aussie has pulled back from near its 2010 highs as risk aversion is dominating the morning market action today. However, the sell-off is not as bad as reports came in that Australian businesses are actively looking to hire and the business confidence index came in higher, prompting the market to believe that yet another rate hike may be coming next month.
Kiwi (NZD): The Kiwi isn’t faring as well as the Aussie, as yesterday’s big winner is now one of today’s bigger losers. Tomorrow’s rate decision and language may prove to be more exciting than previously expected, as the expectation is that it is the slimmest of slim chances that they will raise rates.
Loonie (CAD): The Loonie is lower this morning primarily on lower oil prices that are down roughly 1.5%. This snaps 7 days of gains, in what can be viewed as a welcome pause. This appears to be mild risk aversion so the Loonie is mixed.
Euro (EUR): The Euro is lower this morning across the board as stock earnings are lower and the ECB is saying that it potentially could accept lower rated bonds as collateral against new loans. Also the call for regulation on credit default swaps (CDS) and the news of the “lender of last resort” card being played all highlight the problems for the Euro zone. Notice I didn’t say Greece once—oops! Just did.
Pound (GBP): The Pound is lower this morning as reports came in that the UK housing market may be slowing as fewer price gains occurred than what was expected. This comes in advance of the UK GDP estimates due out tomorrow which could set the tone for UK rate policy going forward.
Dollar (USD): The Dollar is higher this morning on risk themes as stock market futures appear to set to open lower, though it not a certainty that they will remain that way all day. Look for some volatility as the markets trade back and forth, and definitely do not a rule out a reversal to the upside for equities which could be dollar-negative.
Yen (JPY): The yen is higher this morning on general risk themes and speculation that Japanese companies are repatriating profits before the end of the Japan fiscal year which is in April. This essentially means that demand for yen is higher as companies sell foreign currencies to buy yen, thereby increasing demand. This could be the reason why the market perceives that today is a risk-aversion day.
As you can see, there can be many reasons why currencies move outside of the normal risk themes which can disguise what may be really going on in the marketplace. When traders see these anomalies, they should be prepared to react. It would not surprise me today to see US dollar weakness, even though then yen may stay strong. Whether or not that is enough to push the US stock market and commodities higher remains to be seen.
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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No Interest Rate Hikes!
By Mike Conlon | March 4, 2010
As expected, neither the BOE nor the ECB raised interest rates today with the ECB citing fiscal problems in Greece and the BOE putting a hold on further quantitative easing to see if previous measures have been enough.
In other news, US initial jobless claims came in as expected, though all eyes are on tomorrow’s Non-Farm Payrolls report. I’m seeing some mild risk aversion this morning, and again am seeing Canadian dollar strength. Commodities are flat after seeing some gains from the previous days.
In currencies:
Aussie (AUD): The Aussie was down earlier but looks like a rebound may happen today, as news of a narrowing trade deficit and an expected US employment report may outweigh concerns out of the UK and Euro zone.
Kiwi (NZD): The Kiwi is lower this morning as it looks like carry traders are dumping the Kiwi in favor of the Loonie in addition to mild risk-aversion.
Loonie (CAD): The Loonie continues to advance as traders speculate that the economic situation in Canada is in good enough to begin raising rates. The Loonie is fast approaching the 1.02 level to USD and we could see parity by mid-year if interest rates begin to rise in Canada.
Euro (EUR): The sale of Greek bonds is going well this morning as higher yields are attracting investors and the issue is over-subscribed. In the meantime, there is equal outrage in both Greece and Germany although the Germans haven’t taken to streets like the Greeks have—yet. What is happening in Greece is a perfect example of what happens when a government grants its citizens entitlements and then has to take them away because they can’t afford it. I hope the US administration is taking note. Interest rates were held steady and the ECB has decided to not remove economic stimulus at this time.
Pound (GBP): Interest rates have been held steady at .5%, which comes as no surprise to the market. The BOE did make it clear that they will not increase bond-buying to help stimulate the economy. It is clear that the UK sees the need for deficit reduction so the BOE is content to play the “wait and see” game to see if earlier measure have taken hold. There is still increased fear that the UK could be headed for a slide back into recession, and the spring elections are also lingering as fears of a “hung parliament” could cause political non-action.
Dollar (USD): Initial jobless claims came this morning as expected and pending home sales are due out later this morning. We could see some volatility as traders position themselves for tomorrow’s NFP report. The Dollar is mixed this morning.
Yen (JPY): The yen is down across the board this morning as there is talk about a potential sales-tax increase coming from Finance Minister Kan. This would be the first increase in over 10 years and could be a sign that the fiscal situation in Japan is worse than expected. However, this may be a ploy to put pressure on the BOJ to increase bond-buying. Any way you slice it, the Japanese would like to have a weak currency to help exports, and the Yen has been on a tear as of late.
So European themes are dominating the market right now; and Japan is trying to keep the Yen from strengthening. Tomorrow’s NFP report is usually the biggest event for the currency market, as this will give clues as to where the US economy is or may be going, and what the economic response is going to be as a result. This could affect the risk outlook for the rest of the month for as the Dollar is the world’s reserve currency.
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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Possible Greek Bailout?
By Mike Conlon | February 9, 2010
So much for trading sideways yesterday. What started out as a quiet start to trading ended up with a continuation of last week’s sell-offs in the stock market, as the Dow closed below 10K for the first time this year. However, both gold and oil were up slightly yesterday, showing signs that some of the correlations that we often speak of may be breaking down.
This morning, markets are trading higher as hope is coming out of the Euro zone that the other European nations may be coming to help Greece in tackling their budget deficit. As you would expect, this is causing some risk-taking this morning.
Let’s look at what this means for the currencies:
Aussie (AUD): In addition to general risk themes this morning, the Aussie is trading higher as comments from the RBA’s Governor Stevens said that keeping rates low “may help cause bubbles and credit booms.” Also to note that Central bankers from around the globe are meeting in Australia to discuss the fallout from the credit crisis and to proceed going forward. It will be interesting to see if anything of substance comes out of this meeting, or is more of just a show.
Kiwi (NZD): The Kiwi is the largest gainer this morning, up 1.4% vs. JPY and 1.15% vs. USD. Higher commodity prices and risk-taking are fueling buying in the Kiwi. The Kiwi was also one of the biggest losers last week so it is also benefiting from some technical buying, as it holds near-tern support at .68 vs. USD.
Loonie (CAD): As mentioned yesterday, the Loonie is going to trade primarily on risk themes and commodity prices and today is the day that higher prices are lifting the Loonie, which is up against all but the Kiwi and Aussie, assuming its position of “3rd rung” on the risk-taking ladder.
Euro (EUR): The Euro is higher this morning on speculation that Greece is going to be bailed out by the rest of the Euro zone countries. Apparently ECB President Jean-Claude Trichet has left the policy meeting taking place in Australia to return home to conduct EU business. This has lead to traders bidding up the Euro in anticipation of a solution being realized. Also the Euro is benefiting from its status as the “anti-dollar”, which is down today.
Pound (GBP): The bound is down this morning on a weak retail sales report that climbed at its slowest pace in almost 15 years. Traders are positioning themselves ahead of the UK inflation report due out tomorrow which could be weaker than expected if the retail sales figures are indicative of slow UK growth, keeping inflation tame and not giving the BOE any reason to raise rates in the near future.
Dollar (USD): The Dollar is giving back some gains after a going on a four-day tear as the risk aversion was the dominant theme last week. The Dollar is down vs. all but the Yen, and could strengthen to 90 vs. JPY is risk themes hold up today.
Yen (JPY): The Yen is the biggest loser this morning as risk appetite is driving carry trades this morning. Should any news come out of the Euro zone regarding a solution for Greece, then we could see some further depreciation as it would be “game on” for further risk-taking.
This morning is going to be a big open as US stock market futures are significantly higher. The Dow could open up some 100 points and oil and gold are also trading higher, with oil at 72.5 and gold at 1075.
In overnight markets, Asia was up primarily with the exception of the Nikkei which was down slightly, and Europe is currently up across the board on Greece bailout hopes.
Should the market hold onto and not give back gains, then I expect to see further dollar and yen weakness.
To learn more about how you can make money in the currency market, be sure to check out our affordable currency trading courses.
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ECB Leaves Rates Unchanged!
By Mike Conlon | January 14, 2010
In what can only be described as “not surprising”, the ECB left their benchmark interest rate unchanged at 1%. As a result, the Euro (EUR) is down across the board today. Also weighing heavily on the Euro is German Chancellor Merkel’s remarks about the debt issue in Greece hurting the strength of the Euro.
As it turns out, Greek debt is more than 4 times the EU’s limit as a percentage of GDP. ECB President Trichet has repeatedly stated that the EU will not bail out individual countries that have been fiscally irresponsible. So all eyes are on the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain) to see if any further problems may arise. While its no secret that these countries are not in good shape, it will be interesting to see who can turn it around and how it impacts the Euro going forward.
The basic “tug-of war” on the Euro is between the structural problems of the Euro Zone countries, and the Euro’s status as the “anti-dollar”. If global stock and commodities markets continue to rise, then the Euro may benefit if the “normal” risk-taking plays continue despite their fiscal problems.
In the meantime, news out of Australia is that their employment figures were much better than expected, putting the possibility of a future rate-hike back on the table, contrary to earlier statements from the RBA. The Aussie (AUD) is showing strength this morning as a result.
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More Problems for the Euro!
By Mike Conlon | December 11, 2009
I wrote earlier in the week in an article titled, Euro Dead Zone, that there is some potentially trouble brewing in the Euro. Part of this is due to structure of that currency, in that it is comprised of different economies at different levels of strength.
Typically, the stronger economies “balance out” the weaker ones, and as I mentioned there are starting to be a lot more weaker than strong. One of the “solutions” that I pointed out is that the ECB might consider a lowering rates to make it more affordable for the weaker countries to gain access to capital. It doesn’t appear that there is going to be inflation there anytime soon.
But today there is another solution being reported on Bloomberg: that perhaps the weak countries, most notably Ireland and Greece, would pull out of the European Monetary Union (EMU). Or they can pray that the IMF will bail them out.
This presents a problem that is two-fold: 1) I can’t imagine that these countries would leave the EMU voluntarily, which would mean that they have become “persona non grata”, namely not welcome or forced out; which would 2) undermine confidence in the Euro as a currency.
And today we are seeing this on the charts. Let’s look at a 4-hour chart of EUR/USD: (click chart to enlarge)
Now while part of this move can be attributed to US dollar strength, I can’t help but think that the Euro is inherently weak due to the competing interests of its members. If they expel the “weak” members every time there is a problem, the Euro is quickly going to turn back into the Deutschmark! As of this writing, EUR/USD is down .68%.
To follow this situation real-time with a free, practice trading account, click here!
Tags: account, article, blog, charts, currenc, currency, dollar, dow, ECB, EUR, Euro, Europe, eurusd, forex, forextrading, free, fx, fxedu, Il, interest, lot, lower, market, mie, Mike Conlon, news, practice, rate, time, USD
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ECB Comments and Risk Taking!
By Mike Conlon | September 8, 2009
In a continuation of Friday’s move out of the US dollar as signs of improved economic conditions are improving, EUR/USD is experiencing a nice move to the upside. Positive comments from ECB President Trichet and the notes out of the G-20 meeting are giving investors confidence that recovery is underway and therefore investors are selling dollars.
The top gainers on the morning are the Swiss franc (+1.14%) and the Euro (+1.01%). Look for this uptrend to continue as risk takers seek higher-yielding currencies.
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Tags: comments, currenc, currencies, dollar, ECB, economic, EUR, Euro, franc, invest, investor, meeting, Swiss, trend, Trichet, uptrend, USD
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Markets become “weighed down” after today’s Employment report!
By Sean Hyman | July 2, 2009
Unemployment in the U.S. now stands at 9.5%. Job losses came in at -467,000 vs. -360k expected. Oil slumped to $67 down recently from $70-$73. The Dow is down 160 points. Most all foreign currencies that I see are down on the day as the defensive plays of the dollar and yen both thrive upon the dour NFP report. So any bright spots out there? Yes, the revision on last month’s NFP came in better than expected by a small margin. Also, the ECB kept rates unchanged rather than lowering rates in the Euro Zone. So those are basically the only two “rays of light” out there this morning so far.
Tags: currenc, currencies, dollar, dow, ECB, EUR, Euro, forex, FXEDU, Hyman, job losses, lower, mywealth, nfp, oil, rate, Sean, Sean Hyman, spot, U.S., unemployment, Yen
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ECB keeps rates at 1% (as expected). NFP & ECB Press Conference @ 8:30 am EST
By Sean Hyman | July 2, 2009
The ECB kept interest rates unchanged at 1% as expected. Now let’s see if Trichet provides anything revolutionary in his press conference at 8:30am EST. Also, the U.S. Non-Farm Payrolls will be coming out at the same time and the U.S. Unemployment rate. So lots to keep track of around 8:30 am EST today!
Tags: ECB, Hyman, interest, interest rate, interest rates, lot, NFP, payrolls, Sean, Sean Hyman, time, Trichet, U.S., unemployment
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