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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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)
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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Is the UK OK?
By Mike Conlon | August 11, 2010
Earlier this morning, the BOE came out with their quarterly inflation report and predicted that inflation will slow below the bank’s target rate. They also said that they are expecting slower growth and that they are prepared to add further stimulus if necessary.
Meanwhile, the UK economy reported that it added jobs at the fastest pace in over 21 years, handily beating jobless claim estimates. In addition, average weekly earnings came in slightly higher than expected.
So it’s the UK economy is questionable right now, as data is not supportive of the weaker view of the economy, but the BOE may be hedging its bets in the event they experience a major downturn.
So far this morning we are seeing major risk aversion, with world stock markets lower, US equity futures lower, and both Dollar and Yen strength. This comes on the heels of the FOMC meeting yesterday, which the market initially read as positive as it pared losses and finished down marginally after having been much lower.
But as I said yesterday, it would be difficult to predict the market reaction to the Fed announcement, with competing views jockeying for position. So while yesterday appeared to be favorable, today is showing just the opposite. Global growth is slowing, and more negative economic forecasts from Central Bankers could induce a further round of risk aversion.
Adding to the mix was a report that Chinese industrial growth slowed even further, and inflation spiked to its highest levels this year.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion and slower Chinese growth despite the fact that consumer confidence figures came in at 7-month highs. The sentiment index gained 5.4% after the RBA left rates unchanged as inflation remains in check. The Australian employment report comes out tomorrow.
Kiwi (NZD): The Kiwi is lower on risk aversion as well, with no major news on the docket until Thursday’s housing price index and retail sales figures.
Loonie (CAD): The Loonie is also lower this morning, being hit by the double whammy of risk aversion and lower oil prices, breaking the 80 dollar mark down to 79.50. In addition, the trade deficit widened as exports declined, most probably a function of a slowing economy here in the US.
Euro (EUR): The Euro is also lower as its status as the “anti-dollar” is in full force this morning. There is no major news on the docket today for the Euro; however Friday will bring the Euro zone GDP report which will show the status of the economy. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning trading as would be expected in a full blown risk aversion scenario. The BOE cut growth forecasts, but employment figures came in better than expected. (Click chart to enlarge)
Dollar (USD): The Dollar is enjoying its status as the world’s reserve currency this morning, showing strength despite the fact that world markets have reacted negatively to yesterday’s Fed announcement. US trade balance figures came in worse than expected, but that should come as no surprise.
Yen (JPY): The Yen is the big winner this morning as is typical under risk aversion scenarios. The USD/JPY pair broke the “line in the sand” of 85, and it will be interesting to see if the BOJ does anything to halt Yen strength. We did get comments from the Japanese Finance Minister, who said that they would closely monitor “one-sided” yen moves. (Click chart to enlarge)
It what may seem like a cruel irony to some, the US reports a slowing economy and potential further easing, and the Dollar is “rewarded”. While additional liquidity may make its way into the economy, overall negative sentiment may not turn around.
I mentioned yesterday that we could be looking at “Japan 2.0” which is now looking more and more like a reality. As everyone around the globe scrambles to act in their own best interests, there are going to be clear winners and losers. However, as forex traders we must be prepared to follow the market regardless of how things look.
Things can change quickly very quickly in financial markets, so it is important to keep an open mind and trade what you see and not what you think you know.
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’s Ahead for the Fed?
By Mike Conlon | August 10, 2010
All eyes today are going to be glued on the FOMC policy meeting today where the Fed is expected to keep rates at .25% for an “extended period”. However, more attention will be paid to the policy statement which is expected to show concern about a decline in the economy.
There is an expectation in the marketplace that the Fed will announce that they are going to reinvest proceeds from mortgage bond holdings into new securities. Further asset purchase plans could also be announced, which would be further quantitative easing designed to stimulate the US economy.
Thus there is discrepancy in the market as to whether or not this would be received as positive or negative for the Dollar. The market is starting the morning in risk-aversion mode, with Dollar strength across the board. Further quantitative easing has been dubbed as “QE2”, could send the markets higher and increase risk appetite as the prevailing thought is that looser money will make its way into other areas of the economy. However, this would also signal that economic recovery is very fragile, which would be seen as a negative and could induce further risk aversion.
One of the problems seen in the US economy is a lack of demand, so there is some concern that monetary easing may not be enough to combat the problem. The idea is that if money is cheap enough people will want to borrow, and potentially use that money to fund major asset purchases (such as housing). However, consumer psychology is very fragile as concerns about employment have trumped the desire to spend. All of the easing in the world won’t fix this situation. So if the Fed does ease further, look for stocks and commodities to move higher, as home prices and other assets continue to fall.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion. Business confidence figures came in at a 1-year low. Tomorrow Australia reports consumer confidence figures and on Thursday unemployment figures. There is also concern in the market about a potential Chinese slowdown, as the Chinese reported lower exports and slower property price gains. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is also lower for many of the same reasons as the Aussie, but slightly more so because the NZ economy is not as robust as Australia.
Loonie (CAD): The Loonie is also lower as oil prices have slipped back to the 80 mark on signs that the global economy is slowing. In addition, the new housing price index came in slightly lower and housing starts fell to a 7-month low, though slightly better than expectations.
Euro (EUR): The Euro is mixed this morning trading higher against the Pound and risk currencies. CPI figures in Germany came in as expected, though French industrial production and manufacturing figures were lower.
Pound (GBP): The pound is lower as a UK housing gauge showed its first price drop in a year as demand for housing weakened. This comes ahead of the BOE inflation report due out tomorrow, which would support the idea that inflation is going to fall back to the target range, which could reduce the likelihood of a return to normalized monetary policy. (Click chart to enlarge)
Dollar (USD): Dollar strength this morning is coming about for two reasons: risk aversion prior to the FOMC statement, and because the market has actually reduced speculation about quantitative easing. There is one thing we can be certain of; that there will be major volatility surrounding the statement, which is due out at 2:15 EST.
Yen (JPY): Then is showing strength today as both risk aversion and a lower Nikkei has increased demand. In addition, the Bank of Japan left interest rates unchanged and the government assessment of the economy was that it was improving despite a higher Yen. As a result, speculation over monetary easing or intervention has lessened. (Click chart to enlarge)
Today could be a very important day for both the US and global economy as the results of the FOMC could set the course for future growth going forward. Part of the fear in the market is that we are facing deflation; and Bernanke the student of the Great Depression is going to do everything he can to try to combat it.
The problem is, all the easing in the world may not encourage demand if people are fearful about the path the US economy is on. Many consider this to be “Japan 2.0”. The Japanese have been battling deflation for years and all of the money that they pumped into their banking system never made it out the door as there was little demand and no confidence to spend.
There is going to be MAJOR volatility surrounding the Fed announcement, so traders should be careful and wait for the dust to settle before getting into position. I personally will be out of the market until after the decision, as I prefer to see what is going to happen rather than try to guess.
My advice is that you should do the same.
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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Market Surfing!
By Mike Conlon | July 27, 2010
Now may be the time to “ride the wave” in the markets as the major news of the summer, the Euro bank stress tests, were received positively by the market. Yesterday I commented on the credibility of those tests, and reminded readers to follow the market rather than impose their own view.
So far this morning the market is in risk-taking mode, as CPI data will begin to be released tomorrow in the Euro zone and Australia. Higher readings may show that policy adjustments may need to take place, especially in Australia.
Adding to Euro strength is the news from the Basel committee on Banking Supervision who announced they would be seeking new measures to shore up the global banking system.
In the UK, a CBI report showed that household spending increased at its fastest pace in nearly 3 years, lending support to the view that economic recovery is taking place.
This morning, US consumer confidence figures and home prices are due out, and yesterday’s housing sales figures were bad historically, yet the market reacted favorably because they were higher than expected. The market also seemed to overlook the revised figures from last month, which showed a much lower figure.
In the forex market:
Aussie (AUD): The Aussie is higher as risk appetite has increased due to a positive economic outlook in the markets. CPI data is due out tomorrow and should those figures come in higher than expected, the market may expect a further rate hike at the next RBA rate policy meeting.
Kiwi (NZD): The Kiwi is also higher on risk themes going into the RBNZ rate policy meeting tomorrow night. The expectation is for a rate hike of 25bp to 3%, but pay attention to the policy statement as the Kiwi is closing in on 2010 highs.
Loonie (CAD): The Loonie is also higher as oil has surged to 79.50 in addition to general risk appetite. There is no real news on the docket until Friday, when Canada reports GDP figures.
Euro (EUR): The Euro is also mostly higher, trading largely as expected according to our risk ladder. Consumer confidence figures and import prices were higher in Germany, showing continued strength in the Euro zone’s largest economy. This shows a renewed outlook for growth but don’t expect tomorrow’s CPI data to affect monetary policy just yet, as the ECB cannot start raising rates until after the sovereign debt issues of the countries in trouble are rectified.
Pound (GBP): The Pound is higher across the board as CBI reported sales data showed that household spending increased at the fastest pace in nearly 3 years. This CBI gauge showed a reading of 33 vs. an expectation of 3. So it beat handily and the market has responded accordingly as economic growth prospects have advanced.
Dollar (USD): The Dollar is lower as a “normal” risk-appetite scenario is taking place this morning. The home price index came in showing a slight increase which is a good sign in that prices aren’t still falling. However, with the end of the homebuyer tax credit, this may not be the case going forward and as always, the economic prospects here in the US will come down to jobs growth.
Yen (JPY): The Yen is lower across the board as risk appetite has increased the demand for carry trades. Recent Yen strength vs. the Dollar has heightened the awareness of possible intervention, but the BOJ appears (for now) to let the market dictate prices. Japanese employment and CPI data are due out on Thursday night.
So if the market tells you it wants to go up, you should listen. Many times traders (myself included) try to interpret market news and data and then make predictions of what they think should happen. A better way to approach the markets is to follow trends that you see on the charts, and then act accordingly. Try to find low-risk entry points based on technical support and resistance, and then hop on and enjoy the ride.
The news we have been receiving as of late has largely been positive and has emboldened risk appetite. While there are bound to be hiccups along the way; use them to your advantage by buying pullbacks or selling rallies.
The global economy is still fragile, but every passing day that does not bring bad news should be viewed as a positive for risk appetite. Money has to flow somewhere, and if you can catch it just right, you may be in for a great ride!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Suspend Your Disbelief!
By Mike Conlon | July 26, 2010
One of the things I mentioned on Friday with regard to the European bank stress tests is that they had to be believable. The results came in on Friday and by and large were viewed as positive by the market. There was some interesting volatility in the forex market, as the news trickled in and was digested.
But the question remains, can we really believe those results? Only 7 of the 91 banks tested need to raise more capital, and none of the banks were deemed likely to fail. This has left many questioning the methods used to test, and the assumptions made to show banking strength.
So what this all really comes down to is whether or not confidence has been restored to the marketplace. Officials have been trumpeting the results and are attempting to move forward from the tests, claiming the exercise a success. Only time will tell if this is the case.
On our side of the pond in the US, we have a similar crisis of confidence taking place. Investors are clearly not enamored with the prospects of the US economy, yet officials here will tell you otherwise. The 10-year Treasury note is currently under 3%, so the talking heads will tell you that it is a “success” that we are able to issue debt with such low rates of interest.
Treasury Secretary Geithner has told us that it is confidence in the US economy that allows this to happen; however, I think otherwise. The fact of the matter is that the US is “the only game in town” at this point, with so many other economies depending on US economic strength or having issues of their own. This is another case of the US winning the “least ugly” prize in the global economic beauty pageant.
How much longer this charade will continue is anyone’s guess; but the little time we have been afforded by European weakness is bound to expire with every passing day that we don’t fix the economic ills that plague the US. But one thing is sure; the Dollar is weaker this morning as everyone has caught on to the ruse.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as PPI figures came in much lower than expected. The PPI gained .3% vs. an expectation of .8%. The true tell-tale will be Wednesday’s CPI figure, which if higher than expected would show the need for further rate hikes going forward. Should the number come in closer to the PPI data, then the chance of further rate hikes would be greatly reduced, which could put pressure on the Aussie.
Kiwi (NZD): The Kiwi is mixed this morning trading higher against the other risk currencies on interest rate differential speculation and US dollar weakness, but lower vs. Yen and Euro. Wednesday evening will bring the RBNZ rate policy meeting and at this point the expectation is for a 25bp hike.
Loonie (CAD): The Loonie is also mixed as oil is lower to 78.25, but still near recent highs. Dollar weakness is not the dragging the Loonie lower as might be expected and Canadian bankruptcies fell 9.2% showing that the economy may be on better footing.
Euro (EUR): The Euro is also mixed as the market is trying to decide what to make of the stress tests. Obvious US dollar weakness has contributed to its strength and should the market decide to move past the stress tests, then CPI and employment figures later this week will come back into focus.
Pound (GBP): The Pound is higher across the board in a continuation of last week’s gains despite the fact that housing price figures fell for the first time in nearly 15 months. This is the sort of news the BOE is hoping for, as rising inflation could equal rate hikes in an uncertain economic climate curtailed by fiscal austerity.
Dollar (USD): The Dollar is lower across the board. Some of it risk appetite, some of it due to lousy economic policy. There isn’t much that could happen here in the US to make me positive on the Dollar, so watch risk around the globe as that may be the only driver of dollar strength as a safe-haven asset.
Yen (JPY): The Yen started out the morning higher but is giving back some gains as risk appetite may be gaining traction. Part of this is Dollar weakness, the part being tacit acceptance of the Euro bank stress tests. Later this week Japan will report CPI data which is expected to show continued deflation. The question will be whether or not deflation is slowing or what, if anything, the BOJ and government intend to do about it.
Part of financial market participation requires a suspension of disbelief and an acceptance that things may not always be as they seem. I tell my mentor clients all of the time: the purpose of investing in markets is to make money, not to always be right.
So while I may disagree with the way things are going or with the “truth” as it is reported, I am always willing to put my personal feelings aside and to join in with market to reach my end goal: making money. It doesn’t make sense to fight the market as “the market can stay irrational longer than you can stay solvent”.
This was one of the first mantras drilled into my head as I began my trading career, and now more than ever do I realize its truth. I hope you do as well.
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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Judgement Day!
By Mike Conlon | July 23, 2010
Today is the release of the much-anticipated results of the European bank stress tests, which are due out at 12 EST. There has been much speculation surrounding the tests, which are intended to provide clarity and transparency into the health of the European banking system.
Much of the recent rhetoric leading up to the tests has been positive; however it will be interesting to see if the market agrees. There is still some risk surrounding the results, as potential red flags still exist. Potential red flags could be the believability of the tests if only a few banks fail, or the new knowledge that more banks may be in trouble if more than expected fail. Either way, the market appreciates transparency, so in the long run this should be a positive.
The Euro has made a nice run higher from its June lows, so a reversal or pullback would not be out of the question entirely.
In the UK, GDP figures came in much better than expected lending credence to the notion that the economy is improving and providing further ammo for a potential reversal of monetary policy. The Pound is higher across the board.
In Canada, CPI figures came in less than expected, which may foreshadow a pause in further rate hikes.
Yesterday, the market went gang-busters with stocks, commodities, and “risk currencies” posting excellent one-day gains.
In the forex market:
Aussie (AUD): The Aussie is higher on mild risk-taking as European debt concerns fade going into the bank stress tests.
Kiwi (NZD): The Kiwi is also higher on risk-appetite, but catching an additional bid from Loonie weakness.
Loonie (CAD): The Loonie is mostly lower as CPI data came in less than expected. Core CPI came in at 1.7% vs. an expectation of 1.9%, and the monthly figure came in at -.1% vs. the expectation of a gain of .1%. This lends evidence that inflation may not be a problem in Canada, which would give reason for a pause in rate hikes going forward.
Euro (EUR): The Euro is slightly lower going into the stress tests despite the fact that German business confidence figures came in higher than expected. The stress tests are due out after the European stock markets close, the intention being that European traders won’t sell-off the stocks of banks that may not pass the test.
Pound (GBP): The Pound is higher across the board this as UK GDP figures came in at 1.6% vs. an expectation of 1.1%, handily beating to the upside. This shows that the UK economy may be gaining traction and may be reason for the BOE to reverse monetary policy.
Dollar (USD): The Dollar is showing a bit of strength to start the day as money flows from the Euro to the Dollar. While this is not a full-on risk aversion play, there is some safe haven demand for the world’s reserve currency.
Yen (JPY): The Yen is lower across the board as demand for carry trades is still intact and also because the Nikkei followed the US stock markets higher, as it is apt to do. Also to consider is the notion that Japanese officials do not want a strong yen so the intervention speculation is heating up. Should the market react negatively to the Euro bank stress tests, then we could see a rush to un-wind carry trades which could provide further Yen strength.
So this is the moment we’ve all been waiting for. It may take a little time for the market to digest the results so there could be heightened volatility both before and after the release.
The key to the stress test is going to be whether or not the market believes the results if they are overly positive, or the market reacts unfavorably to overly-negative results.
At the end of the day, we know that there are potential land-mines out there. Now we will know the extent. While this provides clarity going forward, this may be a case of “be careful what you wish for”.
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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Unusually Uncertain!
By Mike Conlon | July 22, 2010
Those were the comments that were made by Fed Chairman Bernanke at yesterday’s testimony to Congress in describing his current view of the economy. This sent the market into a bit of tizzy, causing a sell-off in stocks and creating Dollar strength.
However this morning the markets are riding higher on the back of good US corporate earnings and better than expected European economic data. While stocks have been volatile lately, investors are starting to come around to realize that stocks may be the only chance they have to see gains in their portfolios as bonds are paying next to nothing.
That is investors who are unaware of the forex market. Those of you who have been following this blog know that the currency market offers added protection against downside risk and allows you to diversify into the economic story of other countries.
In Europe, stronger than expected PMI and industrial new orders data have helped the Euro rebound from yesterday’s lows. This all adds up to risk-taking in the market ahead of tomorrow’s release of the results of the European bank stress tests.
In the UK, retail sales figures came in better than expected and US jobless claims are due out at 8:30 AM EST.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that business confidence figures declined for the third straight month.
Kiwi (NZD): The Kiwi is higher much like the Aussie but has the added benefits of comments from the finance Minister who stated that he is seeing signs of economic rebalancing. The tradables sector expanded 3.4%, negating declining consumer confidence figures which were down 5.2%.
Loonie (CAD): The Loonie is somewhat mixed today as oil is higher following risk taking themes. However the market is a tad hesitant as concerns over US growth could affect Canada more than the other commodity currencies. This is evidenced by Euro strength vs. the Loonie. BOC Governor Carney is due to speak today and there is some speculation that he may back away from the dovish comments which accompanied the most recent rate hike.
Euro (EUR): The Euro is higher this morning as better than expected industrial orders and PMI data show signs of economic growth. This comes a day in advance of the bank stress tests, which is currently expected to project further Euro strength and not weakness. Something interesting to note is that China has been European debt despite the risks which shows that perhaps they favor the European plan of austerity over the US plan of extend and pretend.
Pound (GBP): The Pound is trading as would be expected on a risk taking day. In addition, household spending figures showed an increase of .7% vs. the expectation of .5%, and retail sales ex auto came in at 1% vs. an expectation of .6%. This may cause the BOE to re-think policy if inflation does not fall back below 3%.
Dollar (USD): The Dollar is the whipping boy today as Bernanke basically told the world that the US economy stinks in no uncertain terms. This morning, jobless claims came in higher than expected at 464K vs. and expectation of 445K. Existing home sales and the house price index are due out later this morning but I don’t expect those figures to be encouraging either.
Yen (JPY): The Yen is mostly lower though trading higher against the Dollar, despite the fact that the rhetoric is starting to pick up from various ministers who are concerned about Yen strength. The Japanese are known to intervene in their currency but at this point the market does not care as the US dollar is clearly the least desirable currency.
Well short of calling Bernanke “Captain Obvious”; no kidding that US economic prospects are “uncertain”. However I don’t know why he thinks it is “unusual”. Let’s face it, Bernanke is more of a history buff than forward-thinker, and perhaps his reliance on his study of the Great Depression has led him astray.
World economies couldn’t be more different today than they were some 70 years ago. To think that because the economy is not behaving like you thought it would based on interpretation of an event that occurred so long ago is borderline stupidity.
Here’s some certainty for ya Ben: encourage this administration to stop the profligate spending! Economies around the globe have decided to cut the fat and take their medicine; it’s a shame that US politicians don’t have the same political backbone.
This is akin to saying that it is unhealthy for a person to lose 50 pounds. While this would be true for a 100 pound woman, it most certainly would NOT be for a woman who weighed twice that amount.
And that is the problem that we have in the US today folks—that when politicians look in the mirror, they can’t recognize that we are obese! It’s like reverse economic anorexia!
It’s time to cut the fat here in the US, starting with our politicians and this administration. Trying to maintain an unhealthy weight is, well unhealthy.
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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