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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Hello September!
By Mike Conlon | September 1, 2010
The markets this morning are clearly relieved to be done with the month of August which was a doozy for equities and commodities. On this first day of September, risk appetite has returned to the market as US stock futures are higher on the heels of Asian and European stock market gains.
Much of the catalyst for this is due to Australian GDP figures which came in better than expected, and Chinese PMI figures which showed gains for the first time in 3 months. This shows that China still has upward growth, though it is moderating. This also bodes well for Australia, who supplies China with the raw materials it needs to sustain its growth.
In the Euro zone PMI figures showed slight gains, while in the UK, PMI figures came in worse than expected as austerity takes hold.
In the US, the ADP Employment change showed a loss of 10K jobs vs. an expectation of a gain of 15K. This caused a slight sell-off on the news announcement, but the market has quickly blown off this reading and is awaiting the US ISM manufacturing figures which are expected to show a decline from last month.
Nevertheless, the market is in classic risk-taking mode, led by the commodity currencies and marked by Yen and Dollar weakness.
In the forex market:
Aussie (AUD): Overnight, Australian GDP figures showed that the economy rose at the fastest pace in nearly 3 years, reporting growth of 1.2% vs. vs. an expectation of .9%, and YoY growth of 3.3% vs. an expectation of 2.8%. Adding to Aussie strength was the Chinese PMI report which showed a return to manufacturing growth. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is following the Aussie higher as risk appetite and yield-seeking money flows provide demand. There is no major news out for the Kiwi for the rest of the week so expect it trade on risk themes.
Loonie (CAD): Crude oil is higher this morning as risk appetite is driving higher commodity and stock market prices and the Loonie is along for the ride. However, traders are paring back bets of a further rate hike as GDP figures reported yesterday came in worse than expected.
Euro (EUR): The Euro is higher this morning as PMI figures came is slightly better than expected showing that there is still some life in the EU economy. However, retail sales figures in Germany came in lower than expected but this is not enough to cause a change in sentiment this morning. In addition, Portugal had another successful debt offering, as demand hasn’t waned. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning as is usual under risk-taking scenarios. However, PMI figures came in worse than expected, missing analyst expectations and showing a decline from last month. Austerity measures in the UK may contribute to further Pound weakness going forward. (Click chart to enlarge)
Dollar (USD): The Dollar is weaker across the board as demand for the Greenback is low due to risk taking in the market and the ADP jobs report. US ISM manufacturing figures are due out at 10AM EST and a decline is expected. The ADP figure is the first of the 3 jobs reports due out this week, with initial jobless claims out tomorrow, and the all-important Non-Farm Payrolls report due out on Friday.
Yen (JPY): The Yen is mostly lower this morning as risk appetite has encouraged yield seeking through carry trades. However, the Yen is still showing strength against the Dollar, returning very close to the 15-year high put in last week. It appears as though the market is going to test the resolve of the Japanese policy makers to see if intervention is really in the cards.
As is indicative this morning, it’s not always about the US economy. While the numbers here look pretty bleak, there are pockets of strength around the globe. Right now, the only thing keeping the Dollar afloat is risk aversion, and most of the “bad news” is from US self-inflicted wounds.
Yesterday’s Fed Minutes showed that further quantitative easing may be off the table for now, which the market views as a good thing. As other economies around the globe work to slash deficits, adding to the US deficit would be seen as negative and could have had the opposite effect.
This week is important for the US economy as it’s all about jobs. I can’t harp on this enough. And this goes hand-in-hand with US government policies. A report yesterday showed that banks have eased lending standards yet demand for new loans was weak. This is all because of the uncertainty surrounding current policy and the likely affects of more regulation, taxes, and the healthcare overhaul.
Meanwhile those that can’t find work are left out to dry, with their only hope that more government cheese will keep them afloat. If this isn’t a recipe for disaster, I don’t know what is.
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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Yen in Focus!
By Mike Conlon | August 30, 2010
CURRENCY WEEKLY OUTLOOK
by Abe Cofnas
FOCUS ON USDJPY
The theatre of action for this week is first and foremost the USDJPY. What happens there will be a major landmark of global market direction. The Yen is clearly a barometer of risk aversion versus risk appetite. Japanese economic weakness, while clearly a function of a multi-decade consumer risk aversion and economic stagnation is also a barometer of global risk aversion. Japanese growth is nearly 0% GDP and a strong Yen is no help at all. We have witnessed a lot of chatter about intervention by the Bank of Japan. In any case, whether the intervention will be real action or simply verbal “jawboning” this week trading the USDJPY pair will provide a lot of action. Let’s take a closer look.
The 4 hour USDJPY chart tells us a great deal about the nature of the price action. We see that the USDJPY pair has an ability to go to extremes. It went to a lower and Extreme Lower Bollinger Band at 83.6 last week, and then reversed to an upper Extreme Upper Bollinger Band at 85.89. This pair is swinging! This suggests being agnostic as to intraday direction and trade the breaks of the Fib levels.
It’s important to keep a very tight watch on this pair, because the event risks are very high with any statements coming from the BOJ or the Finance Minister can cause a large movement. (Click chart to enlarge)
The 15 minute chart is instructive and quite spectacular. Observe an almost perfect upside down V. The symmetry is apparent - the time it took to go up is equal to the time it took to come down! Traders need to watch for a confirmation of a break of the downtrend. Fundamental traders will want to hold a long position in the Yen and that could be put on the break of the down trend line, however, be prepared for whiplash! It could go further down if any news is disappointing. (Click charts to enlarge)
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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All Eyes On Jackson!
By Mike Conlon | August 27, 2010
As in Jackson Hole, WY, where the annual KC Fed Meeting is taking place and where Fed Chairman Bernanke is due to speak at 10AM EST. So the markets have been trading in a bit of a range going into that meeting and the revised US GDP figures, which are due out at 8:30 AM EST.
Earlier in the UK, revised GDP figures came in slightly higher than expected and growing the most since 2001, as construction spending was higher. However, there is some thought that this is due largely in part to government spending, which is due to expire as austerity measures go into effect.
Overnight in Japan, CPI data showed that prices fell for the 17th straight month and bond prices fell as speculation of currency intervention and further quantitative easing is markedly higher. Japanese PM Kan weighed in on the situation, saying that the government is prepared to take “bold action”. Surprisingly, the unemployment rate ticked down to 5.2% from 5.3% expectations.
So we’ve been seeing some risk taking this morning as Yen weakness has encouraged yield seeking, which also pushed the Nikkei average higher overnight though European stocks are flat to start the US session, as are commodities. So it looks like we are going to play the waiting game until 10, with a possible hiccup at 8:30 if US GDP figures deviate too much from expectations.
In the forex market:
Aussie (AUD): The Aussie is mostly higher as Yen weakness has encouraged some reluctant risk taking and benefiting from higher Asian equity markets.
Kiwi (NZD): The Kiwi is also higher for the same reasons as the Aussie, yet is performing better than it’s neighboring currency as the Kiwi had been most oversold to start the week on lower than expected inflation projections.
Loonie (CAD): The Loonie is mostly lower as the market as it looks like the market is predicting doom and gloom for the US economy. Because of Canada’s close ties to the US, the market reads US economic weakness as Canadian market weakness, rightly or wrongly. (Click chart to enlarge)
Euro (EUR): The Euro is mixed this morning as the market is waiting for Bernanke’s speech on the state of the US economy. There is a stark contrast between the Euro zone and US policy over how to best return to global growth and this could be highlighted by market reaction. (Click chart to enlarge)
Pound (GBP): The pound is mostly lower despite better than expected revised GDP figures. The market believes that the driver of that growth was mostly likely government spending which is due to expire as austerity kicks in. A RICS survey showed that rents were higher which could foreshadow rising inflation.
Dollar (USD): Revised GDP figures came in showing a gain of 1.6% which was better than the expectation of 1.4% but down from the last reading of 2.4%. This has encouraged some major risk taking as markets have woken up from its range-bound action.
Yen (JPY): The Yen is now selling off further as better than expected GDP figures have brought about risk taking. Factor in prior Yen weakness due to increased intervention chatter and continued deflation and it all adds up to a weaker Yen. (Click chart to enlarge)
One of the nice things about writing at the start of the US session is that I get to document market action as it occurs live. What started off the morning as mild risk taking due to Yen weakness has totally turned into major risk taking as the US GDP figures show there’s still some life in the US economy.
However, not to play Debbie Downer, but Bernanke will be speaking later this morning and the tone of his speech could affect the markets. I highly doubt that he will intentionally spook the markets, but one never knows for certain.
But for now, the market appears to have shrugged off this week’s horrible housing data and is content to party some more. Hopefully Big Ben doesn’t take the punchbowl away!
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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Risk Appetite Returns- For Now!
By Mike Conlon | August 26, 2010
This morning global stock markets are higher, rebounding from 7-week lows. This has encouraged a bit of risk taking, but the question remains: how long will it last?
US weekly initial jobless claims came in at 473K, besting analyst expectations of 485K and better than last week’s reading of 504K. While one week does not make a trend, the fact that this figure was not worse than expected is seen as positive.
In the UK, CBI reported sales figures came in at 35, handily beating the expectation of 18 and showing signs that the UK is economy is still on solid ground.
In the Euro zone, Ireland issued short term debt at rates lower than their last offering, shrugging off the S&P debt downgrade from 2 days ago and bolstering the view that the market has not given up hope of recovery. The offering was over-subscribed, showing high demand for the debt issuance.
So this morning we are seeing some risk appetite return to the market, with commodities and stocks higher on a day that is light on news.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on risk appetite despite the fact that private investment declined 4% vs. an expected gain of 2.3%. The elections appear to be dead-locked at this time, which many are viewing as a positive for stocks, especially the miner who may avoid the mining tax as a result. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is the biggest gainer this morning as oversold conditions due to the inflation report may have been overblown. The Kiwi has sold off the most in recent trading.
Loonie (CAD): The Loonie is also higher due to risk taking as oil prices have rebounded to 73.50. In addition, if US jobless claims continue to improve, then a more positive outlook for the US economy would be positive for the Loonie.
Euro (EUR): The Euro is also higher has Irish debt costs actually were lower despite S&P’s best efforts to push them higher. In addition, loan growth in the EU is picking up at the fastest pace in nearly a year in a sign that both households and business may be feeling more confident.
Pound (GBP): The Pound is also higher on the back of the CBI sales figures and going into tomorrow’s GDP report. The UK economy appears to be rebounding, yet sentiment surrounding the UK austerity measures has left the market confused about economic prospects going forward. (Click chart to enlarge)
Dollar (USD): The Dollar is weaker this morning against all but the Yen in a classic risk taking scenario. Stock futures are higher as initial jobless claims figures came in better than expected. There is a slew of data out for the US tomorrow, and provided the data doesn’t come in way worse than the already lowered expectations, should continue to bring about some risk appetite.
Yen (JPY): The Yen is lower across the board and rebounding some after the intervention talk has begun to heat up. Today’s risk taking and higher Nikkei has provided relief for the safe haven of the Yen. CPI data is due out tomorrow and expected to show continued deflation, which shouldn’t have much of an impact on the market one way or another. (Click chart to enlarge)
Today is a welcome respite from the selling that has occurred earlier this week. With very little market moving news out today, risk appetite has increased. However, we’re not out of the woods yet. As the market becomes accustomed to slower growth, we’re going to experience these swings between risk taking and risk aversion.
Today feels like a slow day, as perhaps traders are finally going to take some time away to enjoy what’s left of the summer. So “no news is good news” and that appears to be the theme for the day.
Just remember to be cautious, as one day does not a trend make.
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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Here We Go Again?
By Mike Conlon | August 25, 2010
Yesterday, S&P downgraded Ireland’s sovereign debt which sent bond yields higher for the troubled Euro zone nation. However, German business confidence figures came in better than expected which has counter-balanced the regions prospects and is providing a bid for the Euro.
Here in the US, Durable goods orders came in worse than expected and yesterday’s dismal existing home sales figures shows signs that the US economy may be floundering. This has caused speculation of further Fed quantitative easing to heat up as policy makers attempt to revive the US economy.
In Japan, the official jaw-boning has begun as Prime Minister Noda said he was prepared to take “appropriate action” to combat “one-sided” currency fluctuation.
Overnight, equity markets are lower, and the US stock futures are lower going into the open. Oil has retreated to 71.50, and gold is higher as investors seek safe haven assets.
In the forex market:
Aussie (AUD): The Aussie is higher this morning despite the uncertainty surrounding the elections Down Under. As the votes are being tabulated, right now it appears to be a dead heat. Yen weakness has provided the Aussie with a bid, and completed construction work figures came in better than expected.
Kiwi (NZD): The Kiwi is lower on risk aversion following yesterday’s reduction in the expectation for inflation, despite overall Yen weakness.
Loonie (CAD): The Loonie is also lower as its high correlation to oil prices has reduced demand and general risk aversion and US economic weakness reduces its prospects for economic growth. Yesterday’s retail sales figures are still in the back of trader’s minds.
Euro (EUR): The Euro is mostly higher to start the US session despite the Irish debt downgrade. German business confidence figures came in better than expected to its highest reading since 2007. This has caused yield spreads between German bonds and those of the PIIGS nations to rise. While the PIIGS haven’t had trouble with debt offerings, higher yields could impact their ability to service that debt. (Click chart to enlarge)
Pound (GBP): The Pound is mostly higher with no news on the docket to affect it one way or another. UK Treasury Minister Hoban defended the government’s austerity measures in a BBC interview, and today’s price action could be a technical bounce after 3 days of declines. (Click chart to enlarge)
Dollar (USD): The Dollar is trading higher vs. the commodity currencies and Yen as the US economy appears to be weakening. Durable goods orders came in at -3.8% vs. an expectation of .5% which highlights the effect of the withdrawal of the “stimulus” funds on the economy.
Yen (JPY): The Yen is lower as the jawboning has increased in Japan. Speculation of intervention in the currency has increased as the Yen pulls back from 15-year highs. In addition, export growth slowed as a result of the combination of reduced world demand and the higher Yen, yet it came in slightly higher than expectations. Keep your eyes on this one!
It looks like extend and pretend may be coming to an end. As the US “stimulus” plan comes to end, the economic data is starting to show that private demand is just not there. This is mostly likely a result of government “crowding out” private business as the money came from government coffers.
However, because policy is not in place to encourage private business, unemployment remains high which reduces consumer demand which in turn causes economic growth to stagnate. Uncertainty over financial regulation, tax policy, and health care has left business content to drive profits through reduction and not expansion.
So one would think that it’s time to change these policies, right? Wrong. The answer that is being talked about is either additional stimulus or further quantitative easing! Talk about making a bad situation worse.
It is going to be interesting to see how this plays out and whether the elections here in the US bring about change in policy. Until then, be prepared for the pain.
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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Race to the Bottom, 2.0
By Mike Conlon | August 24, 2010
Risk aversion is clearly the theme this morning in the markets as heightened fears of economic slowdown are weighing heavily on world markets. While economic data as of late hasn’t been horrible, it is the constant fear-mongering from government and banking types that keep the markets on edge.
Case in point: Some British policy-maker (who I’ve never heard of before) came out and stated that the UK faces a “real risk” of a second recession. Really? Any more so than any other region around the globe? Or is this a case of someone, somewhere that wants to see a lower Pound to encourage exports?
Let’s face it; wouldn’t every region around the globe prefer to see their currency lower to encourage exports? Thus we are nearing the “race to the bottom, 2.0.” This morning’s risk aversion has pushed the Japanese yen to 15-year highs, and the rhetoric about intervention is now coming directly from the horse’s mouth. Japanese PM Kan stated that “steep currency moves are undesirable” and is looking for joint action from the G-7. It is becoming more apparent that Japan may not have the ability to effectively intervene in their currency alone, as the Swiss National Bank found out recently.
Meanwhile, in New Zealand, 2 –year inflation expectations came in lower for the first time in over a year, prompting expectations that the RBNZ will not raise rates again at the September meeting.
In the Euro zone, the German economy showed it expanded at a 2.2% pace as final 2Q GDP figures were released. The German economy is almost single-handedly keeping the Euro zone economy afloat.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion this morning as global market selling has caused the un-wind of carry trades as investors flee yield in favor of safe haven assets.
Kiwi (NZD): The Kiwi is lower on risk-aversion and also because they reported a decrease in the 2-year inflation expectation for the first time in almost a year. The figure showed an expectation of 2.6%, down from the previous reading of 2.8%. It is now highly doubtful that the RBNZ will raise rates in September, especially in light of recent global market fears.
Loonie (CAD): The Loonie is the worst performer this morning, as it has been hit with the triple-whammy of lower oil prices (around 72), bad retail sales figures, and overall risk aversion. Retail sales figures came in at .1% vs. an expectation of .4% showing signs that the Canadian economy is slowing. It doesn’t help that Canada is so reliant upon the US to import from them. (Click chart to enlarge)
Euro (EUR): The Euro is mostly lower on risk aversion, despite the fact that the German economy reported final 2Q GDP figures showing growth of 2.2%. While under normal circumstances this would be considered very good; today is looking more and more like an ugly day overall.
Pound (GBP): Thank you Mr. No Name policy guy for jaw-boning the Pound lower, thereby causing further fear in the markets. The Pound is at 1-month lows to the Dollar, trading just under 1.54. (Click chart to enlarge)
Dollar (USD): The Dollar is higher due to the flight to safety trade and look for it to continue to gain after the existing home sales figures come in which are bound to be dismal. I’m sure the spin cycle will be on high, but make no mistake economic conditions here in the US are deteriorating.
Yen (JPY): The Yen is trading at 15-year highs against the Dollar, as risk aversion is causing the un-wind of carry trades. The jaw-boning is picking up in Japan, but is this going to be a case of too little, too late? Questions abound over whether or not the BOJ can do anything about Yen strength as risk themes may be too large for them to go it alone. This shows the fragile shape of the Japanese economy, and PM Kan’s call for joint action from the G-7 nations may be the final nail in the coffin. (Click chart to enlarge)
It is no secret that everyone would like to have a lower currency value to help their exports which encourages manufacturing and provides employment. The reality is that it is not possible. Thus we see the “race to the bottom, 2.0”, as various reports cause fear-mongering.
As risk aversion picks up steam, it is becoming harder and harder for Japan to slow down the Yen’s ascent. While intervention may have worked in the past, in today’s market it is not as easy to accomplish. They may need to sit through some pain and wait until the world regains confidence in the global economy.
While it is no secret that the global economy will be slowing as governments remove stimulus, the crisis we are in right now is one of confidence. Financial and government types, while out to further their own interests; should be more cognizant of the impact of their rhetoric globally.
While fears of a global double-dip recession are heightened, this is nowhere near as bad as the banking crisis of 2008. When there is fear in the markets, there is also opportunity. For those who know what they’re doing.
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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Three to Watch!
By Mike Conlon | August 23, 2010
WEEKLY OUTLOOK 8/23/10
By Abe Cofnas
THREE CURRENCY PAIRS PROVIDE GOOD TRADING THIS COMING WEEK
USDJPY
The Dollar Yen has been facing major support at the 85 level. While chatter is increasing about Bank of Japan intervention, the geometry of the price action suggests that there will be a lot of oscillation around 85. This represents good short term scalping when it reaches resistance or support. We can also make a good case for taking a Long position and playing a breakout on the long side. If the USDJPY moves it will move strongly. (Click chat to enlarge)
This pair is right at Weekly support. Traders should focus on a confirmed breakdown or failure to break the 1.0250 support. (Click chart to enlarge)
Notice the tight fib range of the weekly AUDNZD pair. It is between the 50% and 61.8% weekly Fib ratios. This is not likely to last. A breakout in either direction is a likely result and offers good trading potential. (Click chart to enlarge)
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How to Play the Bounce!
By Mike Conlon | August 20, 2010
CLASSICAL BOUNCE TRADE SET UP
by Abe Cofnas
This morning I saw a classical set up for a bounce trade and I can’t resist providing it to you.
Using a 15 minute chart on the USDJPY we see two Bollinger Bands. The standard band has a 20 and 2 set up. The additional band, I am calling the Outer Bollinger band has a 13 and 2.618 set up. The set-ups represent two technical metrics. First, the simple moving average. So the standard band as a simple moving average of 20 periods and the Outer band have a simple moving average of 13 periods. The second part of the set-up represents Standard Deviation. Simply put 2 standard deviations means that the price is about 97% of the time between the two bands. The Outer band has a 2.618 Standard Deviation which means that the price is about 99% of the time between the two bands, if you use the 13 moving average.
But let’s get to the meaning of this without too much fuss over the statistics. Tactically, when we see a price point move near or outside both bands, we can conclude its doing something quite extreme. The implication is that the price can’t stay there too long. Either it’s going to keep going up, or reverse. Keep in mind that in currencies, the price probing an extreme is not in itself a reversal signal. It got extreme for a reason! The reason or sentiment has to change for a reversal to occur. But there is a clue, to the set-up as to whether we have a bounce or reversal scenario. The clue is the shape of the Bollinger Bands. If the bands are flat or sideways, it is a good geometry for bounces. Think of a ball bouncing off a floor. A flat floor generates a straight up bounce! (Click chart to enlarge)
Let’s go back to the chart. You can spot bounce points in either direction after the price went outside the first band, rose to probe the second and penetrated the second outer band, but then reversed back in! Traders using one band don’t get the added perspective of two bands!
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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Titanic Economy!
By Mike Conlon | August 19, 2010
It’s not getting any better here in the US, folks. Initial jobless claims reported this morning rose to 500K, the highest reading since last November. As a result the market has flipped from initial risk taking to mild risk aversion this morning, despite Dollar weakness vs. the Majors. Uncertainty abounds in the business community and all of the great new stuff coming out of Washington DC is the direct cause of this anti-business climate.
Meanwhile, growth forecasts in Germany were raised this morning by the Bundesbank from 1.9% to 3% as the German economy is rocking and carrying Europe as a whole. PPI figures in the Euro zone’s largest economy came in higher than expected, coming in at 3.7% (YoY) vs. an expectation of 3.3%.
In the UK, retail sales figures blew out estimates, reporting a .9% increase vs. an expectation of a .2% rise. This contributes to the strength of the UK economy and could foreshadow a return to normalized economic policy sooner than later. In addition, the UK budget deficit came in less than expected.
In the forex market:
Aussie (AUD): The Aussie is trading mostly higher this morning as word on the street is that China will be purchasing assets in commodity rich nations. Despite Dollar weakness due to the lousy jobs report, what looked like initial risk aversion may actually be super-ceded by poor US fundamentals.
Kiwi (NZD): The Kiwi is lower this morning as PPI figures rose figures rose 1.4%, prompting RBNZ Governor Bollard to say that firms should base their pricing on low underlying inflation and not on higher sales taxes. Yeah good luck with that one, buddy.
Loonie (CAD): The Loonie WAS higher going into the initial jobless claims data, but quickly flipped around vs. USD as the prospects of a declining US economy are bound to hurt Canadian exports. Whole sales figures were down .3% vs. an expectation for a rise of .4%. Canadian CPI data is due out tomorrow. (Click chart to enlarge)
Euro (EUR): The Euro is trading higher as anti-Dollar sentiment has created demand for the currency of a region that is actually undertaking sound economic policies. German growth forecasts have been increased, and recent bond offerings from the troubled EU nations have gone off without incident.
Pound (GBP): The Pound is higher as retail sales figures came in much better than expected showing sign that the UK economy is picking up steam. This may cause the BOE to return to normalized monetary policy, despite the planned reductions in government spending. (Click chart to enlarge)
Dollar (USD): The Dollar, much like the overall US economy, is a disaster. Were it not for risk aversion, this thing could be worthless. Initial jobless claims continue to get worse, and cash-rich businesses are not hiring due to uncertainty thanks to Washington DC. I wouldn’t be surprised to see another stimulus package…. These clowns really haven’t a clue.
Yen (JPY): The Yen is higher this morning on risk themes, as money flows from the Dollar. Talk of intervention is waning, as it may be too great a challenge to try to combat both horrible US monetary and fiscal policy.
It may be time to get off the sinking ship. Seriously. If you saw a ship heading straight for an iceberg with the clueless captain too blind to realize the danger, it might be time to go. The US economy, folks, is the Titanic. I try to steer clear of the politics, but it’s unfortunate that a bunch of people who win popularity contests set economic policy here in the US.
Just 3 short months ago, everyone was predicting the collapse of the Euro, yet in less than one quarter they have restored market confidence. Meanwhile, here in the US, there is no confidence.
We were told that the stimulus package was going to reduce unemployment, yet it remains at catastrophically high levels. The only reason the rate is not increasing is because the new amount of jobless claimants is roughly equal to the amount that are no longer eligible to claim! Accounting tricks, gimmicks, and massaging of the numbers has become the flavor of the year. When that doesn’t work, point the finger at someone else.
Well today, I am going to point the finger. Not at any one individual, but rather at the iceberg we are going to hit. If we don’t change course pronto, then we have no one to blame but ourselves.
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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