Growth By Contraction!
By Mike Conlon | September 2, 2010
In what seemingly is a contradiction, Europe is proving that you can grow by shrinking. If you don’t believe that’s possible, look no further than the EU GDP figures reported this morning. GDP figures came in showing growth of 1.9% vs. an expectation of 1.7%. But wait a second, isn’t the EU enacting austerity measures?
Yes, they are enacting austerity measures but they are not experiencing the crisis of confidence that we have here in the US. This allows for more active participation in the economy, as fears have been removed about the future of policy. In other words, they are taking their medicine. In addition, the ECB left rates unchanged at 1% which was no surprise to anyone and will most likely remain in “crisis mode” until next year.
Conversely, here in the US companies are still afraid to hire employees as they are fearful over the economy and government policy. With no end to the spending in sight, the “extend and pretend” policies and looming deficits and taxes and regulation and healthcare (oh my) make even the boldest of businessmen appear more scared than the cowardly lion!
As a result, Initial Jobless Claims came in slightly better than expected, showing new claims of 472K vs. an expectation of 475K. Home sales figures are due out later this morning and my guess is that this figure is not going to be encouraging either.
In the UK, housing prices came in lower than expected which may help inflation come back down and allow the BOE to maintain accommodative policy measures throughout the austerity measures.
So this morning’s currency market action is a bit of a mixed bag, as the market can’t decide if the fundamentals support risk-taking.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as the trade balance figures came in worse than expected. The Australian trade surplus shrank to A$ 1.89B vs. an expectation of A$3.1B. This comes a day after better than expected GDP figures were reported yesterday.
Kiwi (NZD): The Kiwi is actually higher this morning on—ready for it—higher powdered milk prices!! If I had any sort of journalistic integrity I wouldn’t even mention this but the higher Kiwi seems like an anomaly to me so I’m going to go with it. If I had to guess what is going on, I would blame stealth Chinese currency diversification. (Click chart to enlarge)
Loonie (CAD): The Loonie is lower as crude oil prices have pulled back to 73.25 and the market prepares for tomorrow’s US Non-Farm Payrolls report. Canada is particularly sensitive to US economic data as the US is its largest trading partner.
Euro (EUR): The Euro is mixed this morning as the GDP figures and steady monetary policy are encouraging despite the known debt problems and commitment to austerity. Just goes to show sound economic policy goes a long way to helping in recovery. (Click chart to enlarge)
Pound (GBP): The Pound is mostly lower as home prices fell signaling that inflation may again fall below the BOE upper band of 3%. This may allow the BOE to maintain accommodative policy as austerity measures help tackle the deficit.
Dollar (USD): I’m starting to sound like a broken record here so I’m not even going to say it. I’m just waiting for tomorrow’s NFP figures which they market will use as a true gauge of whether or not jobs are being added to the economy. Government models and proclamations of jobs “created or saved” ring hollow. The proof is in the pudding, as they say.
Yen (JPY): The Yen is showing strength again, as the market is going to test Japanese policy-makers over intervention. The Nikkei was higher overnight so the inverse correlation of Yen to the Nikkei is not holding up today. As the rhetoric heats up, what will Japan do? (Click chart to enlarge)
It is becoming more and more apparent that things in the US are not getting better. While they may not be getting worse (yet), I think we may be in a holding pattern until the November elections where hopefully the “bums get thrown out”.
There has been much talk recently that a lot of the damage has already been done and that political gridlock may not be seen by the market as a good thing. My guess is that any change in leadership at this point is going to be viewed as positive, and if we can actually change the collision course our economy is on people might actually be able to get back to work and help the economy grow again.
Until then, expect fear to rule the markets and tomorrow’s NFP number could be the continuation of last month’s fear driven market action.
I never thought I’d say this as an American but perhaps we should be taking economic direction from the Europeans! For their realistic assessment of how to recover while not popular is the right thing to do.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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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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China Surpasses Japan!
By Mike Conlon | August 16, 2010
Overnight, Japan reported less-than expected GDP figures which allowed China to leap-frog into second place in global economic strength. Japanese GDP came in at .4% vs. an expectation of 2.3%, which was a major disappointment. This sent the Nikkei lower and the Yen higher, as risk aversion is mild but continuing from last week.
In the EU, CPI figures came in mostly in line with expectations, with July CPI falling .3% vs. an expectation of a .4% decline, and the headline figure matched expectations at an increase of 1.7% annualized.
Home prices in the UK fell 1.7% this month according to Rightmove, and the market is waiting for Wednesday’s minutes from the rate policy meeting which may show that the BOE is prepared to continue with accommodative policy to support the economy.
In the US, the Empire Manufacturing figures came in less-than expected, but higher than last month. This months’ reading was at 7.10 vs. an expectation of 8.0, but higher than last month’s 5.08.
Dollar weakness is the theme of the morning, as recent reports that China has been favoring the Euro may be behind the move higher from its June lows. As the world’s second largest economy, China will have a major impact on the global recovery.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning, trading higher among the other commodity currencies and the Dollar, but lower vs. Yen, Euro, and Pound. Tomorrow the RBA will release the minutes from its rate policy meeting which will provide further insight into the health of the Australian economy. (Click chart to enlarge)
Kiwi (NZD): The Performance of Services Index fell to 50.5 vs. the previous month’s reading of 55.1, showing that the sector was expanding at its slowest pace in nearly 10 months. The Kiwi is lower as a result, also feeling the effects of Yen strength and mild risk aversion.
Loonie (CAD): This is a light week for news out of Canada, with Friday’s CPI data to be the headliner. Expect the Loonie to trade on oil prices and US sentiment this week, as a slowing US economy will affect Canadian exports and thus economic growth.
Euro (EUR): Euro zone CPI data came in this morning mostly as expected, and shows signs that the economy while slowing is still moving forward. Recent Euro strength from the June lows is being attributed to Chinese demand and general displeasure with the US dollar. (Click chart to enlarge)
Pound (GBP): The pound is mixed this morning as home prices came in lower, and the minutes from the rate policy meeting are due out on Wednesday. In addition, CPI data and retail sales figures will be out tomorrow which will contribute to Pound sentiment surrounding BOE monetary policy.
Dollar (USD): The Dollar is weaker this morning as US economic status is coming under fire from abroad. Concerns over massive deficits have led China to invest more heavily in Europe, and the viability of the path the US is following is being questioned.
Yen (JPY): The yen is higher across the board, as GDP figures came in worse than expected. The intervention chatter is starting to heat up as Yen strength vs. the US dollar is returning toward last week’s 15-year highs; however it is questionable as to how effective this would be. A higher Yen will affect demand for Japanese exports, which could negatively impact stock prices going forward. (Click chart to enlarge)
It should come as no surprise that the global economy is beginning to falter as little by little, policy makers are removing the stimulative measures designed to stabilize their economies. Falling GDP in Japan is just one of these signs.
Announced austerity measures in the UK and Euro zone have been met with market approval, which the US policy of “extend and pretend” continues to garner criticism. And when I talk about market approval, I really mean China.
The Chinese have amassed huge currency reserves due to their peg to the US dollar, among other factors which have tilted the global economic balance in their favor. Rightly or wrongly, China has established itself as the major player going forward.
As various data points come in around the globe, remember to follow the money. That is, do what China does. If they are not enamored with US policy, then you shouldn’t be either. As the newly-minted No. 2 economy on the planet, it will only be a matter of time before they really begin to flex their muscle.
So the US had better take notice, if they haven’t already. Because the new No. 2 won’t be satisfied until they become No.1, using whatever means necessary.
Of course it doesn’t help that current US policy re-enforces the Chinese position.
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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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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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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Portugal Downgrade!
By Mike Conlon | July 13, 2010
In the European session, Moody’s ratings agency downgraded Portugal two notches to A1 but maintained a “stable” outlook while citing weak growth prospects. ECB President Trichet maintained that monetary policy is appropriate in an attempt to assuage the market. Meanwhile, investor confidence figures in Germany weakened, as did wholesale prices.
In the UK, higher than expected CPI figures showed that inflation may not be subsiding as the BOE had expected which halted the Pound’s 3-day decline as expectations for normalized monetary policy have picked up for the second half of 2010. In addition, home prices expanded to the highest reading since 2007, adding further support for the normalized monetary policy view.
Earnings season in US kicked off yesterday after the bell and generally speaking have been viewed as positive. Stock index futures are higher in the pre-market, so we are seeing some Dollar weakness generally in line with risk-taking.
In the forex market:
Aussie (AUD): Overnight, Australian business was unchanged as businesses reported improving sentiment. However, there is some pressure on the Aussie as concerns over a slowing Chinese economy have increased.
Kiwi (NZD): The Kiwi is rebounding from earlier lows due to Chinese slowdown concerns as the market is anticipating higher CPI data later this week.
Loonie (CAD): The Loonie is higher this morning as both US corporate earnings and commodities are higher. The Loonie will be in focus this week as Canada stands to benefit from good earnings in the US more so than the Aussie and Kiwi as the US is the largest importer of Canadian goods and services.
Euro (EUR): The Euro is lower this morning on the Portuguese debt downgrade, though Greece had a successful bond auction which has pared losses. Both German and Euro zone economic sentiment figures came in less than expected, showing a deteriorating outlook for the economy. Wholesale prices in Germany were also lower, with the index showing a decline of .2% for the month vs. an expectation of a .2% rise, also taking the year-over-year figure down to 5.1% from an expectation of 5.5%.
Pound (GBP): The UK reported CPI data showing a 3.2% gain, less than the BOE was hoping and still above its target limit of 3%. The BOE has a dual mandate to keep inflation in check and encourage employment, so it may have its hands full trying to balance economic growth and taming inflation. Nevertheless, the market sees this as reason to support the view that the BOE may return to normalized monetary policy in the second half of 2010. In addition, house prices rose 11% to the highest levels in almost 3 years.
Dollar (USD): The Dollar I slower this morning as corporate earnings season has started and the initial reports are positive for the economy. Stock futures and commodities are higher in the pre-market, and the inverse correlation of the Dollar to the equity markets appears to be intact this morning and risk appetite is increasing.
Yen (JPY): The Yen started the morning higher but is giving back gains as the US market becomes the focal point of the trading day. Risk due to the debt downgrade in Portugal had provided the Yen with a bid, but that appears to be reversing. This took the Nikkei lower, despite the fact that Japanese consumer confidence advance for the sixth straight month.
The two major themes in the world market right now are US corporate earnings and the continued EU debt crisis. While US earnings have started out on a positive note, the downgrade of Portuguese debt has counter-acted the positive sentiment.
It is important to note that certain news carries more weight in different market sessions. For example, the earnings news was initially viewed as positive in the overnight session….until the debt downgrade reversed sentiment in the European session. Now that the US session is about to begin, the market has returned its focus to the positive news in the US.
This is a familiar pattern that we see time and time again. Since the majority of the risk in the marketplace stems from the Euro session, there will be times when seemingly good news can be derailed by bad news only to be outweighed by the good news again as the US session begins.
This can provide traders with numerous opportunities to get into positions based on the opening of the US session! For those who prefer to hold trades overnight, you really need to be careful with stop placement as the potential for swings from risk taking to risk aversion are increased as each trading session opens.
So today will be interesting to see which news today is more favored by the market. My guess is the good news wins!
If you are not familiar with the different trading sessions and how they affect the forex 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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O Canada!
By Mike Conlon | July 9, 2010
This morning, Canadian employment figures came in and showed a drop in the unemployment rate from 8.1% to 7.9% on strong jobs growth. The Canadian economy added 93K jobs vs. an expectation of 20K. This belies the good economic story going on in Canada despite the fact that they rely on the US to import their goods and services. Should the US economy slow down, it could affect Canadian GDP negatively.
In the European session, ECB President Trichet made the “we’re not out of the woods yet” comment, saying that there is still question over the health of the EU banking system and that serious changes need to be implemented to get better control over the deficits. The bank stress tests are due in about two weeks.
In the UK, PPI figures came in lower than expected, showing signs that the BOE may be correct in their assessment that inflation would be subside. The minutes from the rate policy meeting will be released on July 21st, and is expected to show a continued dovish stance.
Lastly, we’re seeing Dollar strength this morning despite the fact that risk-aversion is mild. This is probably more of a technical bounce and the function of traders not wanting to hold risk assets over the weekend. US stock earnings season kicks off on Monday.
In the forex market:
Aussie (AUD): The Aussie is lower this morning after posting its best week of gains in nearly 9 months. Bets that a further rate hike in 2010 have increased as a result of the best surge in employment they have seen in nearly 4 years.
Kiwi (NZD): The Kiwi is also lower, trading in sympathy with the Aussie.
Loonie (CAD): The Loonie is the best performer this morning as employment gains bested analyst expectations by a wide margin. There is a good growth story going on in Canada, as they benefit from commodity gains and as long as their largest trading partner to the south (US) keeps spending. In addition, housing starts came in largely in line with expectations.
Euro (EUR): The Euro is lower this morning as the market prepares for the bank stress tests. There is much speculation in the market about what the results will be, and what measures will need to be taken to insure financial health. One such solution would be that the banks may need to raise additional capital. German CPI figures came in as expected, showing signs of some price stability. There are also rumors floating about that the ECB may need to take a more dovish stance with the Euro, which could mean increased quantitative easing or possible rate cuts, though the latter seems unlikely at this point.
Pound (GBP): The Pound is lower as well, as PPI figures fell for the first time in nearly 2 years, easing inflation pressures in the economy. The UK had been seeing inflation outside of government targets, but it appears that it may be coming back to their preferred range. In addition, the UK trade deficit widened as a .2% gain in exports was negated by a 2.4% gain in imports.
Dollar (USD): The Dollar is higher against all but the Loonie, as the market moves toward the safe haven of the Dollar going into the weekend. In addition, the Dollar has been beaten up this week as risk-taking has been the primary driver. Reports are coming out that economists are paring back their expectations for growth in US, but see no signs of the dreaded double dip at this point despite the recent patch of negative economic news. US earnings season also kicks off on Monday, so this could be adding to market fears should corporate profits be down.
Yen (JPY): The Yen is starting out lower this morning, as the Nikkei was able to hold on to gains in the overnight session. There is some mild risk-aversion in the market today, and the Yen is higher than the European currencies.
So today is a bit of a mixed bag. Neither risk-taking nor risk-aversion can be seen as a dominant theme. Good news out of Canada has put the focus back on the N. American currencies, with the European ones lagging.
US corporate earnings will be the big story next week, and if those reports are positive, it could buoy market sentiment higher. While the stock market health does not equal overall economic health, it will act as a good economic barometer and could provide hope that the employment picture may be about to get better.
If those earnings reports are largely negative, then that may open a whole new can of worms as the market is already aware of the general state of the economy. In addition, if Washington DC policies continue to threaten business, then it could be a long time before companies begin to hire employees again, if they are reporting good gains.
Either way, there is still risk in the market. If we can successfully get through next week, the European bank stress tests will pose the next major threat.
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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Volatility Rules!
By Mike Conlon | July 8, 2010
Yesterday, the markets started off in risk-taking mode and that quickly reversed to post huge gains as the market flipped to risk-taking. As I mentioned yesterday, there was no real reason to induce risk-aversion as the there was no news driving fear. That proved to be prescient. This goes to show how the 24-hour nature of the currency market can provide opportunities as different markets gauge risk.
Overnight, the BOE left rates unchanged and did not expand its asset purchase program reflecting a view that their economy may be stabilizing.
The ECB also left rates unchanged, but did begin its own asset purchase program to try to help ease pressure on its banking system.
In Australia, employment figures came in much better than expected showing signs that the economy is not slowing down and bringing back the chance that the RBA could move on rates again this year.
In the forex market:
Aussie (AUD): Overnight, the Australian unemployment rate fell to 5.1% as the economy added 46K jobs vs. an expectation of 15K. This has sent the Aussie higher and has encouraged risk-taking, as the market is increasing its bet that the RBA may have to resume interest rate hikes. The fear of a potential Chinese slowdown had left the market betting that the RBA was finished for the year.
Kiwi (NZD): The Kiwi is higher trading along with the Aussie as risk-taking is continuing from yesterday’s gains.
Loonie (CAD): The Loonie is also higher on risk-taking ahead of tomorrow’s employment report in Canada. Oil is catching a bid and is higher as the demand for risk assets has increased.
Euro (EUR): The Euro is mixed this morning keeping in line with risk-taking. The ECB left rates unchanged at 1%, and showed that it is willing to buy government debt to shore up the banking system. However, there is a sense that the ECB may need to expand those purchases going forward. German industrial production figures came in much better than expected, providing a bright spot to economic health.
Pound (GBP): The Pound is trading lower against all but the Yen, as the BOE left rates unchanged at .5% which the market had been expected. They also left their asset purchase program unchanged, and there may be slight disappointment that it hasn’t expanded. In addition, industrial and manufacturing production figures came in slightly lower and home prices were also lower, showing signs that inflation may be shrinking as the BOE had hoped.
Dollar (USD): The Dollar is lower against all but the Pound and Yen, as initial jobless claims figures came in slightly better than expected. Initial claims were 454K vs. and expectation of 460K, which may be showing that the US is losing jobs at a slower pace.
Yen (JPY): The Yen is lower across the board as risk-taking is continuing from yesterday. In addition, Japan’s current account balance decreased revealing that domestic demand may be picking up. This is seen as positive as it could help fight the deflation they have been experiencing.
As you can tell by now, there is A LOT of volatility in the market and frankly, I couldn’t be happier. Volatility provides opportunities for traders to profit from changes in sentiment worldwide.
Right now this is most definitely a trader’s market, as the short-term movement is out-pacing longer term position-taking. There is still fear in the marketplace and many hurdles to get over to return to global economic stability. I don’t know where the market will be in 6 months from now; let alone 2 days from now!
What I do know is that there will be ample opportunities for me to make money in the forex market as different news events drive sentiment between risk-taking and risk-aversion. My stocks may be flat, and bonds paying no interest, but there are always ways to profit from forex!
Isn’t it time you got involved to find out for yourself why the forex market is the fastest growing financial market in the world?
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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Hungry for Risk!
By Mike Conlon | July 6, 2010
After last week’s sell-off in world markets, investors are feeling more confident about economic prospects as the US markets return from the holiday weekend. Bank stress tests in Europe are intended to show transparency, and EU leaders are “banking on” hopes that the balance sheets are not as bad as previously thought.
Overnight, the RBA left interest rates unchanged in Australia, but signs that inflation (particularly home prices) may be rising is giving the Aussie a boost this morning.
World stock markets are higher this morning, as stock earnings season is almost upon us. There is a common notion that stocks may offer the best chance for growth despite the fact that world economies are putting on the brakes and trying to curb spending.
There is no major news on tap for the US in this shortened week, but we’ll get GDP figures from the Euro zone, as well as the UK rate decision on Thursday.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that the RBA left interest rates unchanged. The RBA did say that consumer spending and business investment are expanding, and they may be in the middle of a housing bubble due to housing shortages. This could foreshadow further rate hikes to come.
Kiwi (NZD): The Kiwi is also higher as risk appetite is back to start the week, despite the fact that business confidence figures have fallen as domestic demand slowed. Nevertheless, the market is betting that the next rate hikes will come from New Zealand, as they attempt to thwart inflation. However, the RBNZ has been cautious as economic growth and inflation may not accelerate as quickly as expected.
Loonie (CAD): The Loonie is also higher as oil prices are higher for the first time in 6 days as risk appetite is returning to the market. Canada’s employment report on Friday will show whether or not the economy is improving, but speculators have pared back expectations of a rate hike at the next policy meeting.
Euro (EUR): The Euro is also higher as comments from various officials regarding the bank stress tests have allayed market fears—for now. EU GDP figures are due out tomorrow, with CPI figures to follow on Friday. The market is expecting tepid growth despite the austerity measures various governments are undertaking to get deficits under control.
Pound (GBP): The Pound is mixed this morning trading lower vs. the risk currencies but higher against USD and Yen. The UK rate policy decision is due on Thursday, and no change is expected. The market is still reacting favorably to the UK budget cuts, however only time will tell if the economy is strong enough to support such measures.
Dollar (USD): The Dollar is mostly lower this morning (but up against Yen) in a week that is light on news out of the US. Comments from various Fed officials will likely be insignificant, and US stock earnings season kicks off next week.
Yen (JPY): The Yen is lower this morning on a classic risk-taking day as carry traders look to re-establish positions. Japanese stocks rallied overnight as a rally in Chinese stocks gave the market direction.
Most of the news that the market has received lately has been negative, yet so far the markets have been behaving resiliently. With not much news on the docket this week, the market will have time to adjust to the notion that we may be seeing slower, but steadier growth.
Next week will kick off earnings of US companies, and they are likely to be positive despite the economic slowdown. Right now, there is uncertainty as to where is the best place for investors to park their money, with fixed income investments paying little to no interest.
That is one of the reasons why the currency market has become one of the fastest growing markets for investors, as it provides alternate opportunities and a chance to benefit from global economic conditions.
Investors have been reaping the benefits that the currency market has provided for some time; isn’t time you join them? There is no time like the present; and if world economic conditions continue to behave as they have recently, the currency market should continue to flourish.
There is always a bull market somewhere in currencies; the trick is knowing where!
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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