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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Jobs In Focus!
By Mike Conlon | August 4, 2010
This morning, the markets were still reeling a bit from yesterday’s pullback, but the ADP employment change figures came in showing a gain of 42K jobs vs. an expectation of a 33K gain. This caused the market to flip, and risk-appetite appears to be increasing as we head into the stock market open here in the US.
This comes after an interview yesterday with Treasury Secretary Geithner, where in an obvious CYA move, stated that the employment picture may get worse before it gets better. He is due to speak again later today.
Overnight, PMI figures in the UK and the Euro zone came in slightly less than expected, ahead of tomorrow’s interest rate policy meetings for each. Neither is expected to move on rates, though the UK may be more ready to return to normalized policy.
Home prices in the both the UK and Australia came in higher than expected showing signs that prices may be heading higher which could be an early warning sign of inflation. The RBA will be releasing its quarterly monetary policy statement tomorrow as well.
Lastly, the market is waiting for Friday’s Non Farm payrolls report, which will be a truer measure of jobs growth here in the US. Initial jobless claims come in tomorrow, followed by NFP on Friday.
In the forex market:
Aussie (AUD): The Aussie is higher this morning as home price figures and trade balance figures came in better than expected. In addition, the ADP jobs report helped buoy risk appetite.
Kiwi (NZD): The Kiwi started the morning lower on Asian stock market weakness overnight, but is retracing losses as risk appetite is increasing this morning. Tomorrow NZ will report its unemployment rate, which will show the health of the economy.
Loonie (CAD): The Loonie is mostly higher on risk appetite as well, and Friday’s jobs report is expected to show seven straight months of jobs growth. In addition, oil is hovering around 82.50, near recent highs.
Euro (EUR): The Euro is slightly lower after PMI figures and retail sales numbers came in slightly lower than expected. This comes ahead of tomorrow’s interest rate policy meeting, which is expected to yield no change. On a positive note, Portugal got off a debt issuance without a problem.
Pound (GBP): The Pound is also lower to start the day as PMI figures came in lower than expected. However home prices came in higher than expected, which could cause the BOE to relax statements about stimulus and begin to foreshadow a return to normalized monetary policy. The market is not expecting a rate change.
Dollar (USD): The Dollar is mostly lower as risk appetite is increasing after the ADP jobs report showed a better than expected gain. This helped turn equity futures from negative to positive, and perhaps the resumption of risk-taking may occur going into Friday’s NFP number.
Yen (JPY): The Yen started the morning showing strength as the Nikkei and other Asian stock markets sold off after yesterday’s pullback in US stocks. However, the Yen is giving back gains as risk taking and demand for carry trades picks up.
This week, it’s all about jobs. In fact, it is ALWAYS going to be about jobs. If people aren’t working, then they aren’t spending which ultimately will drag the economy lower. Reports of the profligate and wasteful spending of the stimulus program intended to keep unemployment below 8%– how giving monkey’s cocaine will help people get jobs—have showed to be an unmitigated disaster.
In addition, corporations with plenty of cash in the bank are doing nothing with it at this point as the uncertainty over current economic policies and taxes prevents action. Meanwhile, our Treasury Secretary all but admits that the jobs figures could get even worse; even though he claims recovery (read article) is taking place!
Talk about speaking out of both sides of his mouth! Yet this should come as no surprise to anyone as this has become par for the course. Friday’s NFP figures will show how far along we are in recovery, and I’m sure there is already spin put in place to respond to any possible reading.
Either way, don’t be surprised to hear that he told us so! Gee, thanks Tim!
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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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Less Money Needed!
By Mike Conlon | June 30, 2010
There was encouraging news overnight as the ECB said it would lend banks less than analysts had predicted, showing signs that the European banking system may not be in as weak a state as the market thinks. In addition, German unemployment changed less than expected and the unemployment rate remained steady showing signs of economic stability. Euro zone CPI figures fell back to 1.4%, slightly better than analyst expectations.
In the UK, consumer confidence figures fell to 6-month lows as residents prepare for budget cuts, and BOE policy-maker Adam Posen said that UK recovery is tentative and could risk sliding back into recession. Look for continued loose monetary policy unless inflation figures really heat up.
In the US, the ADP employment change came in less than expected and could serve as a harbinger of Friday’s Non-Farm Payrolls report.
In Australia, bank lending and house price gains showed that the economy has been resilient in the face of rate hikes but whether that trend continues remains to be seen.
Canadian GDP figures came in flat, showing neither growth nor contraction but missing analyst expectations of a .2% gain.
So today is a bit of a mixed bag, with earlier risk-taking on the European bank news giving back some gains. Stocks are mixed to slightly lower with commodities relatively flat. Today is the last day of the second quarter, so we could see some window dressing which could mean volatility in stocks.
In the forex market:
Aussie (AUD): The Aussie is giving back some gains after bank lending and home price figures showed how strong the Australian economy has held up despite the RBA’s rate hikes to cool the economy. While the trading day started off in risk-taking mode, the Aussie may decline if we flip to risk aversion.
Kiwi (NZD): The Kiwi is lower this morning as the RBNZ said in its annual Statement of Intent that it will continue to remove economic stimulus as the NZ economy recovers. Part of this statement has been construed as backing away from tighter monetary policy, citing global economic conditions.
Loonie (CAD): A bit of a reversal for the Loonie this morning as well, as risk-taking waned and GDP figures came in lower than expected. GDP stalled after gaining for 7 straight months as retail sales declined as the government removed temporary tax relief measures.
Euro (EUR): The Euro is higher across the board this morning as the ECB said it will lend less to banks to cover their debt payments than the market was expecting. This shows that the financial health of European banks may not be as bad as expected and that they are largely able to meet debt obligations. There has been major fear about the sovereign debt exposure of these banks, and this announcement took that fear down a notch.
Pound (GBP): The Pound is lower this morning as comments from the BOE said that recovery is tentative and consumer confidence figures fell to 6-month lows as budget concerns weighed heavily. However, house price figures rose to 2-year highs in a sign that the property market may be stabilizing.
Dollar (USD): The Dollar is mixed as the ADP employment change showed a gain of 13K vs. an expectation of 60K jobs gained. Friday’s Non-Farm Payrolls report will really show how far along we are in the employment picture and economic health, but this worse-than-expected figure may be foreshadowing.
Yen (JPY): The Yen is showing some strength against all but the Euro as risk aversion appears to winning the morning battle. Yen started the trading lower as Asian stocks continued to sell-off, but then reversed on the Euro bank news, only to reverse again on the ADP jobs report.
Yesterday’s sell-off may have been an over-reaction to negative sentiment in the market but the important thing to remember is that global economies are still fragile. As various governments remove stimulus, economies will now be forced to stand on their own.
In the US, it’s all about jobs, jobs, jobs. As long as people are unemployed and unable or unwilling to spend, economic recovery is going to be fragile. Part of the problem is that we don’t have policies in place that encourage private sector growth, as looming tax hikes to support out of control spending weigh heavily on private business.
So this most recent scare is all about confidence. It is obvious that people don’t have confidence in their government’s ability to improve conditions. It doesn’t matter what the policy is, there is NO confidence right now.
However, there are pockets of economic strength around the globe and those who are employed are experiencing a MUCH different economy than those who aren’t. Some are beginning to say that this is the “new normal”; where we will have economic growth AND high unemployment. I beg to differ.
I understand that emergency stimulus measures were necessary to prevent us from going over the cliff but enough is enough. The sooner the government removes the training wheels from the economy, the sooner citizens will learn how to ride again. Because at this point, the US government is holding us back, and not letting us move forward. Friday’s NFP will either confirm or deny this assertion, and the market will respond accordingly.
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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Jobs Disappoint!
By Mike Conlon | June 4, 2010
US Non-Farm Payrolls came in at a less than expected 431K vs. an expectation of 520K. While this does reflect job growth from last month’s gain of 220K, the number is disappointing as census workers were included in this reading. This shows that job growth in the private sector is not happening as quickly as the market would like to see and offers proof that we may be in a “jobless recovery”.
In addition, news out of the Euro zone is that Hungary may need a bailout as default may be imminent. This could set off a chain reaction which causes the bailout facility to be accessed by other countries with similar problems.
What this adds up to is major risk aversion, as traders will not want to go into the weekend long risk assets in the event of further complications in the Euro zone. US stock market futures are down significantly, as is oil, trading back to 72.5.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on risk aversion coming from the Euro zone. However, sales of gold to Europe have increased dramatically as the Euro zone debt crisis induced a flight to safe-haven assets.
Loonie (CAD): The Loonie is also lower on risk-aversion, despite a better than expected employment report. Data showed an addition of 25K jobs vs. an expectation of a 15K gain. The unemployment rate remained unchanged at 8.1%.
Kiwi (NZD): The Kiwi is lower as well for the same reasons as the Aussie.
Euro (EUR): Well it was just a matter of time before the debt crisis reared its ugly head again. To think that the problems plaguing the Euro zone were solved with the announcement of the bailout facility would have been naïve. Hungary’s announcement that it is in a “grave situation” as a result of the previous governments lies and manipulated figures which gave a false picture of its economy. Euro zone GDP figures came in as expected, but this reading from the previous quarter may not paint a proper picture of the state of overall Euro zone economic health.
Pound (GBP): The Pound is mixed; trading higher against risk currencies but lower vs. Dollar and Yen. The Halifax report showed that home prices fell for a second straight month; however this report appears to be conflicting with other reports on home prices. The takeaway here is that housing prices are likely to remain flat.
Dollar (USD): Well what can I say about this employment number that’s positive? Truthfully, not much. The majority of job gains reported in this month’s NFP were temporary jobs created by the government in the form of census workers. I suppose I am doing my part to “help” the economy by hiding from these people, thereby attempting to offset spending as population is under-reported giving the government one less reason to spend my hard-earned tax dollars. In addition, the longer it takes to track me down, the longer one of these workers may be employed! It’s a win-win for everybody. But seriously, I try not to rail on politics but this is a disaster on so many levels. Massive deficits, tax hikes coming down the pike, and the private sector unwilling to create jobs out of FEAR that their taxes will be going up to pay for massive entitlement plans are going to be the economic death of this great nation. But the Dollar is higher on risk-aversion, so that means that the masses can be placated by still being able to afford cheap foreign stuff, while government fat cats finance new beach houses (yes you Al Gore) paid for by my yet to be born grand-children. A sad day for Amerika.
Yen (JPY): The Yen is higher on risk aversion and the unwinding of carry trades.
When bad economic policies are put in place by cowardly government figures, bad things will happen. The government has been the largest creator of jobs for some time, and most of these are unproductive, and do not contribute to economic growth. I have nothing against government workers, and I believe everyone who wants a job should have one.
But the insidious transfer of wealth from the private sector to public sector weakens our economic strength. I’m tired of hearing about the “failed economic policies” of the past and the need for “change”.
These policies are NOT failed; they were under-regulated. The same people trumpeting this mantra are also some of the same people responsible for those policies. Excessively low interest rates and the housing bubble are the root cause of our economic problems, not free market principles.
The sooner people start to wake up and understand this, the sooner we’ll be able to get out of this mess. Of course you have to pull them away from their cheap plasma TV to care for more than half a minute.
Nevertheless, the forex market trades on and there are tremendous gains to be made by those brave enough to understand what is going on and how to profit from it.
Are you one of those people? If not, become one!
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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Stock Markets Soar!
By Mike Conlon | June 3, 2010
So much for yesterday being an “inside day”. The US stock market made a major afternoon move to the upside, all but rendering my assessment from yesterday useless. This set the stage for other world stock markets with both Asian and European indices higher this morning as well. Commodities followed suit, with oil reaching 74 and change before pulling back to the 73 level in this morning’s trade.
As a result, the commodity currencies predictably had a nice run-up as well, with Dollar and Yen weakness. This activity has continued into the morning, though US employment figures came in positive but worse than expected. Tomorrow’s Non-Farm Payrolls report will provide a better picture of how economic recovery is going here in the US.
In addition, the Euro zone will be reporting its GDP figures, which could send the Euro lower on a resumption of the overall downtrend.
In the forex market:
Aussie (AUD): The Aussie is higher on risk appetite and stock market gains, and Australia reported export growth at the highest level in almost 30 years. Chinese demand helped Australia report a trade surplus for the first time in nearly a year. Expectations were for a trade deficit.
Loonie (CAD): The Loonie is somewhat lower this morning taking its cues from oil prices, which have pulled back from yesterday’s highs. Canada’s finance minister said that Canada is “coming to a time when exit strategies from stimulus can start to be implemented.”
Kiwi (NZD): The Kiwi is also higher on risk taking, and the market is betting that the RBNZ will raise interest rates at its June 10th policy meeting. Using interest rate swaps data, that chance appears to be about 80%. Chinese purchases of NZ goods rose some 40%. However, the RBNZ would prefer to keep rates low to rebalance the NZ economy.
Euro (EUR): The Euro is mixed this morning ahead of tomorrow’s GDP report. Retail sales figures came in worse than expected at -1.2%, showing signs of a weaker economy. In addition, manufacturing activity expanded at a slower pace than last month.
Pound (GBP): The Pound is mixed as well this morning, after the UK reported that home prices rose to the highest level in nearly 2 years. However, expect the BOE to try to keep a dovish stance to prevent Pound appreciation if inflation data falls back to the 2% target range.
Dollar (USD): The Dollar is mixed as well this morning, as the ADP employment report came in a little lighter than expected, as did initial jobless claims. While it is a good sign that employment is not getting worse, the market is getting impatient as gains need to occur in order to instill confidence that the US economy is improving. Tomorrow’s NFP report could be the catalyst.
Yen (JPY): The Yen is also weak as the Asian stock markets rebounded taking its cues from yesterday’s US stock market rally. Funding for carry trades helped contribute to Yen weakness. Capital spending decreased as Japanese businesses pare back as the export-led recovery has not sufficiently stoked domestic demand.
As mentioned above, the jobs numbers here in the US may reverse the early risk-taking we have seen so far this morning. At some point the data is going to have to start coming in better than expected to really provide confidence that economic recovery in taking place.
While the economies of New Zealand and Australia appear strong, the Euro zone appears weak. One of the biggest drivers of world growth is China, and it will be interesting to see what happens if they try to slow the pace of their economic growth.
While things have been quiet in the Euro zone as of late, don’t be lulled into a false sense of security as there still are major risks in the economy.
So for now, trade what you see and not what you want to happen!
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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A Recipe for Disaster!
By Mike Conlon | May 7, 2010
With concerns over the Euro and the Greek debt crisis, yesterday’s market action became the “perfect storm” as there was a systematic breakdown in trading technology which sent the markets reeling. The Dow Jones Industrial Average dropped nearly 800 points in less than 10 minutes.
There were major moves in the currency market as well, as investors fled risky assets in favor of US bonds and the dollar. This helped contribute to what looked like a death spiral, as problems with trading technology caused some stocks to trade at erroneous levels, dragging the indexes lower and causing automated trading systems to take action which also exacerbated the problem.
There is still major risk in the marketplace; primarily coming from the Euro zone which some believe is fighting for survival. This morning, the German Parliament approved the Greek bailout, but the ECB still has a long way to go to figure out how to deal with contagion to the rest of the EU. Now the concern has turned to Spain, which may require a bailout as well as borrowing costs have increased dramatically thereby making it harder to service their debt. Unless a comprehensive plan is proposed, we could see continued problems for the Euro. The G-7 is having an emergency conference call to discuss a solution.
In addition, the UK elections took place and the result is the dreaded “hung Parliament”. However, Moody’s did not use this event to downgrade the UK credit rating, and the possibility exists that the government will be able to work together despite the political differences.
On what would normally be the biggest news of the day, the US Non-Farm Payrolls (NFP) report came out this morning and showed a gain of 290K jobs, which was better than expected. However, the unemployment rate ticked higher to 9.9%, showing signs that recovery is fragile.
In Canada, employment grew by 108K and the unemployment rate ticked down to 8.1% showing signs that recovery may be stronger than here in the US.
Lastly, the Yen is lower as the Bank of Japan pumped nearly 22 billion dollars of liquidity into its financial system in response to the Euro crisis.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on yen weakness and is receiving support from a technical bounce as yesterday’s carnage sent the Aussie much lower. Right now there is a ton of risk in the market so at this point I’m not certain I would be looking to establish long trades here.
Loonie (CAD): The Loonie is the big winner today as better than expected employment numbers came in showing signs of economic recovery.
Kiwi (NZD): The Kiwi is trading on risk themes exclusively and getting a technical bounce similar to the Aussie. This is not to be confused with risk appetite, as this is more likely due to yen weakness and short-covering.
Euro (EUR): The Euro has bounced back from yesterday’s carnage as there is hope that the EU can come to some sort of a resolution on how to deal with the sovereign debt problems of its members. Today the first step was taken as German Parliament approved the Greek bailout, but now the larger looming issue of how to reduce borrowing costs for other nations experiencing similar problems is center-stage. They’re not out of the woods yet.
Pound (GBP): Fears of political gridlock due to the “hung Parliament” in the UK has sent the Pound lower, though the UK did manage to maintain its AAA credit rating from Moody’s. However, there is hope that what we are seeing from the EU will serve as a warning of what can happen in the UK if Parliament doesn’t work together.
Dollar (USD): The Dollar is mixed this morning as the NFP report came in better than expected but unemployment ticked higher. The Dollar is giving back some of yesterday’s gains from the flight to safety trade, but there is still major risk in the market.
Yen (JPY): The Yen is much lower this morning as the Bank of Japan added liquidity to the market to the tune of nearly 22 billion dollars. The Yen had major gains yesterday as carry trades we un-wound at break-neck speeds and demand for yen was high prompting this move from the BOJ.
In all my years of trading the markets, I have never quite seen anything like what took place yesterday. When technology fails, it can set off a chain reaction that affects every market. Due to the correlations between market instruments, a breakdown in one area can cause action in others and that’s exactly what took place.
Combine this with the uncertainty due to the risk coming from the Euro zone and you have the perfect recipe for disaster. With such extreme volatility in the markets, a lot of money can be made or lost very quickly. When situations like this arise, I advise to stay on the sidelines or only use risk capital that you are prepared to lose.
Until normalcy can return to the marketplace and confidence is restored, expect major volatility. Trade extremely cautiously if at all.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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What a Mess!
By Mike Conlon | May 3, 2010
The impact of the gigantic oil spill in the Gulf region of the US is impacting oil prices to the upside as traders are actually using potential supply and demand issues to rule their decision-making. Well actually, it’s more like never let a good crisis go to waste.
In the Euro zone, the potential for the bailout of Greece not gaining support is weighing heavily on the Euro. The plan calls for increased austerity measures, as well as EU and IMF monetary support to the tune of $110 Billion Euro.
Purchasing Manager Indexes are coming in higher from around the globe showing signs that economic recovery may be taking hold, and the Dollar is stronger as consumer spending was higher though personal incomes rose less than expected. This also contributes to higher oil prices as demand picks up as manufacturing increases.
Elections are taking place this week in the UK and Germany, and the EU will meet on Friday to discuss approval of the Greek bailout.
In the forex market:
Aussie (AUD): The Aussie is higher against all but the Loonie, as commodity prices are pushing the markets higher. The market is in a general risk-taking mood despite the uncertainty over acceptance of the Greek bailout. Home prices rose faster than expected down-under, and tomorrow’s decision on interest rates is expected to show another increase to 4.5%.
Loonie (CAD): The Loonie is higher on oil prices as the market is anticipating a supply problem down the road due to the Gulf oil spill. There is no major news on tap in Canada until Friday when employment figures are due. Expect the Loonie to trade on risk themes this week.
Kiwi (NZD): The Kiwi is higher as the NZ Treasury Dept. put out a forecast that the economic growth rate was probably about .8%, showing positive economic signs. In addition, NZ PMI figures expanded at the fastest pace in nearly two years, and commodity prices were slightly higher. This bodes well for Kiwi strength, in addition to the overall risk appetite in the market.
Euro (EUR): So the final figure is $110 Billion Euro to bailout Greece and keep contagion from occurring throughout the Euro zone. Chancellor Merkel is patting herself on the back for holding steadfast and requiring further Greek Budget cuts. Yet the Euro is lower, as it is not entirely clear that the bailout package will be approved by the other EU members and the austerity measures agreed to are bound to cause strikes (riots) in Greece. In addition, the ECB agreed to accept Greek paper as collateral, thereby negating the effect of the rating agencies whose own competency has been questioned. A meeting is scheduled on Friday for approval, so stay tuned!
Pound (GBP): The Pound is mixed this morning as a report came out that home prices in the UK are expected to rise 5% as a result of record-low interest rates despite the uncertainty surrounding this Thursday’s elections. Expect some volatility going into the elections as the potential for a “hung parliament” weighs heavily on investors.
Dollar (USD): The Dollar is higher against all but the commodity currencies as consumer spending was higher posting its best reading in nearly 6 months, though personal incomes didn’t follow suit nearly as fast. ISM Manufacturing numbers are due out later this morning and a better than expected reading could support the economic growth story. However, the real story in the US this week will be Friday’s Non-Farm Payrolls (NFP) report which will show whether or not recovery is taking place as everyone is focused on jobs, jobs, jobs.
Yen (JPY): There’s no news this week out of Japan that is expected to move the market, so expect the Yen to trade as a proxy for risk, as traders increase or decrease risk appetite and also on commodity prices. Oil prices are expected to rise as PMI figures around the globe signal an increased demand for oil and also the potential supply shock due to the Gulf oil spill.
As we get closer to the summertime, expect commodity prices to move higher as global demand picks up as economic recovery takes hold. As a result, the commodity currencies could move higher as record low interest rates in the US could be the catalyst for commodity inflation.
Unless the jobs picture begins to improve, the Fed will maintain record low rates to encourage growth which is bound to foster inflation as well. This Friday’s NFP will be the first sign, but commodity currencies could also get a additional boost with another rate hike in Australia tomorrow.
And lastly, keep an eye on the Euro zone and the Greek situation. Any further hesitation to ratify a bailout could cause further losses in the Euro, and any chirping from any of the other PIIGS nations to reach for a piece of the “bailout pie” could show that contagion has occurred.
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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Holiday Hangover?
By Mike Conlon | April 6, 2010
Yours truly wasn’t the only one feeling the ill-effects of the Easter holiday, as both European and Australian markets were closed yesterday. However, with the holidays behind us, the forex market has wasted no time in digesting news which has sent the market into risk-aversion mode.
We did start the morning higher as the RBA raised rates in Australia to 4.25% for the fifth time in six months. And earlier this morning, the Loonie reached parity with the US dollar before pulling back. Last Friday’s NFP report was sort of a dud, as the closure of stock markets helped to reduce volume. While the number of jobs gained is encouraging, the US government still has a long way to go as the fiscal stimulus is over and the jobs “created” by the census are short-term in nature.
Meanwhile, oil and gold have traded higher to 86.5 and 1127 respectively, showing signs that commodity inflation may be ready for another run if US rates continue to stay extraordinarily low. The Dow Jones came close to breaching 11K, only to be turned back 25 points short.
And lastly, the continued news out of Europe and the UK has caused weakness in their respective currencies and will continue to weigh heavily until there is resolution.
In the forex market:
Aussie (AUD): The Kiwi is higher this morning against all but the Yen which is showing technical strength despite the risk-aversion mood the market is in this morning. The RBA raised rates to 4.25%, as they feel that both housing and commodity inflation is starting to rise. The return to “normal levels” is tantamount to the RBA as Australia is showing a balanced economy despite the ongoing worries of a slow US economic recovery and a potential China slowdown.
Loonie (CAD): For those who have followed this blog closely, you will notice that I have replaced the Kiwi with the Loonie in the “ladder of strength” as I believe the Loonie is set to further out-perform the Kiwi in the near future. Earlier this morning, the Loonie reached parity with USD as oil prices advanced beyond 86.5 and as Australian rates were hiked. The only news of significance for the Loonie this week is Friday’s unemployment report.
Kiwi (NZD): The Kiwi got bumped down a notch as they could only ride the Aussie’s coattails for so long. Business confidence has slowed in New Zealand as weak consumer demand has reduced hiring and curbed corporate profits. New Zealand appears to be in no rush to raise rates, which could hold steady well into the second half of the year.
Euro (EUR): The Euro is lower this morning as renewed fears over Greece’s ability to raise enough capital to service its debt have arisen again. In addition, tomorrow the Euro zone will report its GDP figures and will have its rate policy meeting on Thursday which is expected to remain unchanged.
Pound (GBP): The pound is lower this morning as the date for the spring election has been set for May 6th, and renewed fears of a “hung Parliament” have resurfaced as uncertainty over whether or not a political majority will be elected. It is widely feared that a hung Parliament will not have the political will to reduce UK deficits which have been weighing heavily on UK economic recovery. In addition, the UK will have its GDP estimates on Thursday, as well as the BOE interest rate policy meeting which is expected to leave rates unchanged.
Dollar (USD): The dollar is showing some strength this morning as risk-aversion plays and European weakness are dominating the morning. This week are going to get a lot of Fed chatter, as the FOMC policy meeting minutes are due out today, followed by a bevy of speeches from various Fed governors on Wednesday. This could give some insight into “Fed logic”, which many liken to “jumbo shrimp”– that is—an oxymoron. But don’t count on it.
Yen (JPY): The yen is higher across the board this morning as it is pulling back from recent weakness as risk-aversion is slowing the market. The Japanese interest rate decision is due out tomorrow and is all but certain to remain unchanged. However, signs that economic recovery is taking place are overshadowed by rampant deflation, and the ongoing battle between the BOJ and the government is bound to produce no “winners”.
Outside of the Aussie rate hike, not much to get excited about today as far as economic news is concerned. There is still considerable risk in the market place and now politics is starting to really become a drag on individual economies.
Those economies that have the political will necessary to take appropriate actions will be rewarded, and those who let politics gets in the way of returning to sound fiscal and monetary policy will be punished. Because at the end of the day, it is fiscal policy that can be controlled; more so than monetary policy.
As a result of the economic crisis, monetary policy has become reactive as opposed to proactive as the whims of politicians may have been toxic. Only time will tell who are the winners and losers. Until that picture becomes clearer, I am inclined to err of the side of caution.
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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A Good Friday?
By Mike Conlon | April 2, 2010
All eyes are on this morning’s Non-Farm Payrolls report which is due out at 8:30AM EST. Stockholders anxiously await this figure as their market is closed today so those that didn’t hedge against potential downside risk may be a bit nervous going into this number and subsequently this weekend.
The NFP report is expected to show a gain of 184K jobs; however I read somewhere that some 70K of those jobs were due to hiring by the government for the census, which by all accounts is temporary. So there is a lot of uncertainty about what the market needs to see to form the opinion that the UD economy is recovering. Regardless, of what the number is, expect mucho volatility surrounding it.
In other news, the Swiss Franc made headlines yesterday as a major amount of selling hit the market near the close in Europe. While not confirmed by the Swiss National Bank (SNB), speculation is that the government intervened in the currency to weaken it and keep it from appreciating to further record highs. I don’t talk about the Franc much here, but the Swiss have been known to do this in the past as recent Euro weakness has caused Franc strength. The sell-off was good for roughly 350 pips vs. the Euro, a tidy profit if one were on the right side of the trade.
So this morning we are seeing dollar strength, and without the other markets trading to provide correlations and historical trends, the forex market is on its own today. So expect trading to be dominated by risk themes and little else today.
In the forex market:
Aussie (AUD): The Aussie is slightly lower as the market as traders pare back positions heading into NFP. The AUD/USD will be extremely volatile as it best represents the risk on, risk off trade.
Kiwi (NZD): The same deal for the Kiwi as the Aussie, though slightly more at risk as the Kiwi attempts to shake off the IMF’s claim form yesterday that it is over-valued by 10-25%.
Loonie (CAD): Will today be the day that the Loonie reaches parity with the US dollar? It came within 65 pips of doing so yesterday, and is currently sitting just over a penny away.
Euro (EUR): The Euro is just hanging in there above 1.35 vs. USD and is benefiting from the “no news is good news” mantra today.
Pound (GBP): The Pound has been on a tear as of late as exports have improved causing stocks to move higher. In addition, advance polls show that the Conservatives are leading right now, giving a glimmer of hope that fiscal responsibility may return to the UK.
Dollar (USD): I’ve already mentioned the Dollar above and the expectations, but my feeling is that initially we are going to see dollar strength, followed by dollar weakness brought on by a better than expected number. While I don’t like to guess at these things and I’m not trading this event, I must admit I’m totally confounded by this report. So I’m just gonna sit on my hands and watch the action from the sidelines.
Yen (JPY): The Yen has been weakening as appetite for risk and yield-seeking has been ferocious. This suits the Japanese just fine as a weak yen is good for exports.
So unless you have nerves of steel, I suggest you grab a bag of popcorn and sit back and watch this event unfold. (I realize its 8:30 AM and no one eats popcorn then, but I do have a European following and as they say with regard to other pastimes, “it’s always noon somewhere!”
I’m going to try to do the video live for the release of the number and am hoping that the increased craziness surrounding it doesn’t invoke technical difficulties.
Happy Good Friday and Easter weekend to those that celebrate it!
To learn more about how you can get started in the forex market, be sure to check out our currency trading courses!
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