What is Chermany?
By Mike Conlon | March 18, 2010
Remember this word: Chermany. It is the new, hip lingo for speaking about China and Germany. What do these two have in common, you may ask? These are the top 2 largest exporters of manufactured goods in the world. As you might expect, this means that they have trade surpluses and thus are in positions of great strength on the world economic scene. Because of this, rightly or wrongly, Chermany feels like they can dictate terms to the rest of the world.
So it should come as no surprise that Germany is leading the charge to obstruct bailout plans to Greece in the drama that has been unfolding. In the latest act, Germany is saying Greece should seek economic aid from the IMF, and not the EU. This undermines previous efforts made to assure the marketplace that this situation is under control. As a result, mild risk aversion is the early-morning theme.
The other side to this new term is China. While I don’t focus on China too often as we can’t trade in their currency, their importance on the world stage cannot be understated. China has “pegged” their currency to the US dollar in an effort to keep it from floating freely in the market like almost every other currency out there. Many would say that this is blatant currency manipulation, and has been one of the major reasons why they have accrued such an economic surplus. Because they have been allowed to operate under these conditions for some time, their ill-gotten wealth has now emboldened them to continue with this policy, regardless of its impact on world economics. The US is now trying to turn up the heat on China, and whether or not anything comes of this remains to be seen. Stay tuned.
In currencies:
Aussie (AUD): The Aussie is lower this morning on risk aversion and on concerns that China will take steps to slow down their economy. Because China is a major importer of Australian raw materials, this could have an impact on the Aussie going forward.
Kiwi (NZD): The Kiwi is higher this morning, bucking risk aversion and quite frankly I’m not sure what’s going on here. They came out with Consumer Confidence figures in the overnight session, but I can’t get a good reading on whether or not those figures were significantly better or not. Regardless, the market seems to like the Kiwi, as it’s up across the board.
Loonie (CAD): The Loonie is slightly higher this morning, and near flat with Yen and the US dollar. They are down-playing concerns of Dollar/Loonie parity as this seems to be a foregone conclusion. There was some concern that the government may try to intervene, however this does not appear to be the case.
Euro (EUR): The Euro is lower today in response to German resistance to the Greek bailout. The rest of the EU thought they had measures in place, only to find out that Germany was not on board. Chancellor Merkel mentioned the other day that “expulsion” should be an option for countries that don’t comply with EU membership stipulations.
Pound (GBP): The Pound is lower this morning as good news that the budget deficit for February was less-than-expected was trumped by disappointing mortgage approvals. In addition, the political rhetoric is starting to heat up which is contributing to the fears of a “hung Parliament”.
Dollar (USD): The Dollar started the morning higher on risk aversion but now looks like it this may reverse after the CPI and initial jobless claims figures came out. As I mentioned yesterday with the PPI figures, today’s CPI figures show lower-than-expected gains which is basically buying time for the Fed to keep rates low for that “extended period” they love so much. As long as the Euro doesn’t implode, I expect risk-taking may occur by the end of the day.
Yen (JPY): Word today is that the measures the BOJ took yesterday in doubling the monetary easing program may have little effect on deflation. As I mentioned yesterday, just because the amount of money available for loan increases, does not mean it will be lent out. If demand decreases, then prices typically fall. We are seeing this exact same situation here in the US housing market.
The world economy is a cycle of “give and take”. What is starting to become apparent is that countries that benefit from low currency value whether through manipulation (China) or through inclusion in a monetary union (Germany) need to be wary that by effectively “cornering” the manufacturing market, they are setting up untenable situations that can only end badly.
It will be interesting to see if the market forces Chermany to take action, or if they try to “take their toys and go home”. Either way, world economic recovery hangs in the balance.
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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Topics: What To Look At In The Market | 1 Comment »
Greek Revival?
By Mike Conlon | March 3, 2010
No I’m not talking architecture this morning; I’m talking about the austerity measures Greece is proposing to undertake in order to satisfy the French and the Germans. Now if they can just keep their citizens from rioting in the streets they might just be able to pull this off. Meanwhile, the Euro is higher to 1.365 vs. USD.
Also higher this morning is the British pound, which is bucking a 6-day slide. Sort of like God, on the seventh day it rested! The Canadian dollar is higher in a continuation of yesterday’s news.
So this morning is sort of a mixed bag. More news driven than risk-oriented, it will be interesting to see if the currencies fall back in line.
In currencies:
Aussie (AUD): Australian GDP came in this morning a little bit higher year over year, though not gangbusters as we may have been lead to believe. While the economy has been moving along nicely and is well-positioned for growth, the lack of explosive growth means that we could see a pause to near-term rate hikes. The forex market can be so greedy at times! The Aussie is mixed this morning.
Kiwi (NZD): The kiwi is down today across the board and is trading near a 10-year low to the Aussie. It looks as though the market is attempting to re-define the Kiwi’s place in the “risk totem pole”. Nevertheless, the Kiwi economy is still on track and they do provide 2.5% interest, making it a good destination for carry trades. I think the market realizes that the economies of Australia and New Zealand are quite different, and the Loonie looks poised to replace the Kiwi, as traders speculate that rate hikes may be coming sooner in Canada then in New Zealand. This makes the Kiwi/Loonie pair the largest loser of the morning, down some 1.15%.
Loonie (CAD): The Loonie is benefitting this morning from yesterdays interest rate decision as the market is now starting to believe that Canada may be the next to raise interest rates. The Loonie is up across the board this morning.
Euro (EUR): The Euro is higher against all but the Loonie and Pound, as proposed Greek austerity measure are giving hope that the debt problem won’t spiral out of control. This is coming ahead of the Euro zone GDP report and interest rate decision due out tomorrow. Rates are not expected to change and any surprise to the upside on GDP would be viewed as positive by the market.
Pound (GBP): The Pound is higher this morning after consumer confidence figures came in better than expected. I’m not so sure why they are so confident but to each their own. Tomorrow is the BOE’s decision on interest rates and quantitative easing. Deficit reduction is a major priority in the UK so it will be interesting to see if they need to continue to stimulate the economy at the expense of increasing debt. Stay tuned!
Dollar (USD): The Dollar is down against all but the Kiwi as job cuts have fallen to their lowest levels since 2006. All this means is that employers plan on firing less people. They are still not in “hiring mode” so the “jobless recovery” continues as political uncertainty and Friday’s Non-Farm Payrolls report loom heavily over the market.
Yen (JPY): The Yen is mixed this morning, giving back some gains against the European currencies yet higher vs. the Aussie and Kiwi. As no real risk themes are presenting themselves today, the yen is benefiting from a little bit of carry trade unwind and it looks like some of that carry trade money is going toward the Loonie. No real news out of the region today besides a reading of higher worker earnings, which could help push domestic demand.
The markets aren’t always dominated by risk themes so it is really important to pay attention to the overall economic news for the most widely traded currencies. Slight changes can have large effects in individual currencies which can “break out” of the usual order. In these situations, there is great opportunity as sometimes the market is slow to catch on. My trumpeting of the Loonie over the last few weeks is one such example.
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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Weekly Outlook from InnerFX 12/07
By Mike Conlon | December 7, 2009
EURUSD
Despite several attempts to breach higher last week, the euro failed to hold gains as the dollar rallied across the board on Friday, as a result of better than expected unemployment figures. The 270 points decline of Friday has cleared half of euro’s gains accumulated during the previous two months, hence December started by favoring the dollar bulls. Is this the time of a prolonged correction? Could be… but I maintain my positive view on EUR against the buck, for now, treating such declines as potential opportunities to re-initiate EUR long positions. Speaking of current market conditions – short-term sentiment is slightly bearish due to recent rejection into the 1.5150 region along with Friday’s collapse below the 1.49 handle, back into the key support region around 1.4850. A rising trend line support coming from July’s low at 1.3830 has been reached and limited intra-day losses but in case of the decline’s resumption within the coming trading sessions, we should focus towards the next support levels – into the 1.4700/30 and 1.4600 regions. In case of a recovery, which at this moment seem more plausible to me, I expect the 1.5000 mark, along with 1.5050, to provide a minor barrier – a lot weaker than before (during October and November). A sustained breach above the 1.5 handle would also turn momentum positive, signaling that the correction is over. Also keep an eye on the S&P500 as important levels are still intact into the upside – the 1113 barrier which is still intact, despite several attempts to breach higher along with false breaks/spikes to as high as 1119. Another key barrier is the median retracement of the long-term decline from 1576 to 666.75 which is set at 1121. Due to the solid correlation between EURUSD and S&P500: no sustained break above 1113 -> no breach above the 1.5100/50 region, simple as that.
(click all charts to enlarge)
Gold
The superior band of the uptrend channel (seen in the chart below) is, once again, providing support on current pullback. In case of a break lower, next downside barriers into the 1126 and 1100 regions may limit losses. Short-term sentiment shows some bearish signs but it was about time to look for a correction – because it can’t just climb to record highs forever, right? However, if the correction continues – below 1100, bulls should start to worry. On a medium term basis – uptrend is intact and extended dips will favor further buying.
GBPUSD
In my previous article, when cable was trying to recover some ground pushing on the 1.6600 handle from below, I pointed out that more selling towards 1.64 was likely – further weakness emerging, as expected, and cable printed session lows around 1.6420 before closing the week .36% lower. Downside remains favored for now, and a break above 1.6700 is needed to confirm the positive bias. Recent hesitation into the 1.6700 zone confirms the indecision of both bulls and bears and the 1.6270-1.6700 range will probably remain valid for now. However, the said 1.6270/00 support region may limit extended losses and provide a reversal point, as that’s quite an important level.
NZDUSD
Former support provided by the rising trend line coming from .6475 of July has provided a stable resistance on last upside attempts into the .7280/00 region. A break was needed to resume uptrend but selling into rallies favored the current decline which extended to as low as .7130 on Friday. Although NZD’s losses have been relatively smaller comparing to EUR (-0.86% vs. -1.37%), there are no signs of uptrend’s recovery yet. Below current market levels, important support is formed around .7050 by the 61.8% fibonacci retracement of .6685 – .7635. We’ll see how it reacts if current decline continues.
Happy trading!
Tags: analysis, article, blog, buck, charts, decision, dollar, dow, EUR, Euro, forex, forextrading, gbp, gold, Il, lot, market, momentum, nzd, sentiment, ssi, time, trend, unemployment, uptrend, USD
Topics: What To Look At In The Market | 1 Comment »
Central Banker Bollard gives the “Green Light” to New Zealand’s Economic Recovery!
By Sean Hyman | July 14, 2009
Last night, New Zealand’s central banker stated that “early signs of a global recovery have emerged” and that “New Zealand looks likely to start recovering ahead of the pack”.
How’s that for an “economic green light”? Pretty good, huh…
More specifically, he stated that their economy will start growing in the final quarter of this year. He’s still likely to keep their interest rates low until late 2010 though (because the economy needs further stimulus).
Bollard also expressed his interest in a weaker NZD dollar, however, I’m not so sure he’s going to get that wish granted with a speech like last night’s speech.
Sentiment improves when economic growth resumes. On top of that, New Zealand still has the 2nd highest interest rate of any industrialized nation, so the “carry traders” may still bid up his currency while at the same time selling the U.S. buck or yen!
A recent Westpac report expects that their economy will grow 2.6% next year (more than twice the pace it forecast in April). Again, another “big plus” for the carry traders that live the Kiwi dollar (NZD).
So far, the New Zealand dollar has gained a whopping 17% on the U.S. dollar in the past 6 months. With reports like this from Westpac and Bollard, that trend is more likely to continue than to abate!
So while Bollard calls recent gains in the New Zealand dollar “unhelpful”…he may find that it becomes even more “unhelpful” in the weeks/months to come!
As things get “booming” again, it looks like he could increase the minimum capital requirements of banks to reign in excessive lending by making them hold more money in reserves. So he will be able to pull in the reigns a bit when the time comes…but possibly not enough to deter more Kiwi buying!
Sean Hyman
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Summer Trading Technique!
By Sean Hyman | June 29, 2009
In the summer, all financial markets havea tendency to die down and become more calm. Why? Because the very biggest of traders tend to take long summer vacations. In fact, many of the biggest traders may be out the entire summer (in stocks, forex, etc.). They will leave only “junior traders” on their trading desks which don’t have the authority to throw around the big bucks.Therefore, the markets in the summer (FX included) tends to be somewhat range bound. Therefore, I’d suggest taking this approach. Buy fundamentally strong currencies on pull backs and earn their higher yields daily while playing only the “long” side of the range. That way, if you get a breakout in the direction of the major uptrend, you’re still in the game and never counter to it. So being a buyer of AUD/USD or AUD/JPY for instance, on its pull backs could be a way to play this.
Tags: AUD, breakout, buck, currencies, dow, financial, forex, fundamental, fx, jpy, market, stock, stocks, trade, trader, trading, trend, uptrend, USD
Topics: What To Look At In The Market | 1 Comment »
China “dogs” the Dollar by once again calling for a “Super-Sovereign” World Reserve Currency!
By Sean Hyman | June 26, 2009
Well, China is at it again. They’re calling for a “super-sovereign” world reserve currency. Lately, they’ve invested more in IMF bonds, IMF SDRs (Special Drawing Rights), etc. They’ve even been diversifying into commodities and commodity companies too. All of these things are bad news for the greenback! Therefore, it’s taking it on the chin once again this morning. The Aussie dollar has been one of the biggest beneficiaries (since they produce/mine so many commodities that China uses). So those that are long AUD/USD this morning have been helped this morning as the buck gets slammed!
Tags: AUD, Aussie, blog, buck, China, commodities, commodity, currency, dollar, forex, greenback, Hyman, invest, news, Sean, Sean Hyman, ssi, USD
Topics: What To Look At In The Market | 2 Comments »
When Support becomes Resistance!
By Mike Conlon | June 24, 2009
In my previous note today I mentioned that this morning was down for the Euro. As I was going through my charts I noticed something significant on EUR/USD. Earlier this month, I pointed out a technical pattern on this currency pair known as a “head and shoulders” pattern. The premise of the pattern is that when you draw the neckline it acts as support and if that support is breached it can become a pretty good short trade. Turned out to be a pretty good trade.
Now here we are, a couple of weeks later, and what was formerly short-term support has now become resistance! Let’s have a look… (click charts to enlarge)
As you can see from the charts, the area right around the neckline that had formerly been support has now become resistance and has held on two different occasions. This occurs often and is something that technical traders should be aware of. Short-term traders who like to trade “the range” can enter short positions below resistance with a stop placed just above.
Get ready for the FOMC announcement, just about an hour away!
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Anatomy of a Trade!
By Mike Conlon | June 5, 2009
Yesterday I talked about common trading patterns and why they are important to know. I also talked about looking at the news and why that is so important. Today is a perfect example of this. As you may have learned from Sean Hyman’s blog below, today is NFP day! Without rehashing the details of what this means (read Sean’s blog below), let’s take a look at the trade set-up I identified yesterday.
(click charts to enlarge)
The chart on the left is yesterday’s chart of EUR/USD identifying the head and shoulders pattern with the neckline at 1.4127. I mentioned that if the the body *not the wick* of the candle broke the neckline, then that would be a good short opportunity. Well take a look at the chart on the right!
The body did in fact break the neckline at 1.4127 and I entered a short position. As you can see from the chart, there was quite a bit of activity during the release of the NFP and once the market digested the number, it picked the direction it wanted to go. I am now comfortably sitting in a nice short trade with over 100 pips of profit! I am trailing my stop and will probably get out of this trade before the close today as I do not want to be in a position over the weekend.
To learn more about how you can identify winning trades like this one, check out the currency course or visit www.fxedu.com.
Tags: account, buck, commodities, demo, dollar, dow, EUR, Euro, fx, fxedu, interest, interest rate, interest rates, live, money, pair, practice, practice account, recession, ssi, trading, U.S., USD
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Another bullish sign for Australia as it held rates steady last night at 3%!
By Sean Hyman | June 2, 2009
Australia just impresses me. After all, they hadn’t had a recession for the 18 previous years to this present one…and it took an entire global slowdown in order to even pull them into a shallow recession. Almost everyone else had to bring their interest rates back towards zero while Australia (and New Zealand) were able to hold rates much higher than any other industrialized nation. AUD/USD is the top gainer on the day today. EUR/USD and NZD/USD follow it. So you can see there’s more “dollar selling” going on as money flees the defensive play of the buck for “greener pastures” of the Aussie, Kiwi and euro! (By the way, China stated yesterday that U.S. Treasuries weren’t the only game in town. They stated they could buy the euro and other commodities. Wow! That’s a very “anti-dollar” statement that could help all of the pairs moving higher today!). Get a demo or live account, here today: http://www.fxedu.com/
Just click on “Practice Account” or “Live Trading Account”.
Tags: account, AUD, Aussie, Australia, buck, China, commodities, demo, dollar, dow, EUR, Euro, fx, fxedu, interest, interest rate, interest rates, Kiwi, live, money, new zealand, nzd, pair, practice, practice account, recession, ssi, trading, U.S., USD
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The Theme Continues: Commodity dollars rising vs. the Buck!
By Sean Hyman | May 29, 2009
Commodity currencies continue to gang up on the buck as the recession becomes shallower and commodities pick up as more global growth and demand starts to pick back up.
Also, investors are betting on inflation coming in the future and are positioning themselves ahead of time. To do that in currencies, there’s no better picks than these commodity currencies vs. the buck. It’s a “double whammy”.
The dollar gets pummeled when commodities and inflation rise while at the same time the Aussie, New Zealand and Canadian dollars get the “wind to their backs” when this happens.
So the AUD/USD and NZD/USD long and USD/CAD short get “blessed” doubly during these times like we’re experiencing now.
Recently, some of the moves that have taken my account to new highs have been plays on the Aussie dollar vs. the U.S. dollar and yen (being long AUD/USD and AUD/JPY).
Australia is one of the clear fundamental winners even amongst the commodity currencies. The trends have been clear and they’ve been strong.
Of course there will be pull backs along the way, and they could be volatile and violent. However, look for the uptrend to resume each time these huge pull backs happen.
Sean Hyman
Tags: account, AUD, Aussie, blog, buck, cad, commodities, commodity, course, currencies, dollar, forex, forextrading, fundamental, invest, investor, jpy, lower, new zealand, nzd, recession, Sean Hyman, ssi, time, trend, U.S., uptrend, USD, Yen
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