Japanese Intervention?
By Mike Conlon | July 20, 2010
This morning, the Japanese yen is lower despite the fact that US corporate earnings are lower this morning, sending stock futures lower. Under a “normal” risk-aversion scenario, we would be seeing Yen strength, however there is some speculation in the marketplace that Japan is getting ready to intervene in its currency as recent Yen strength has been an impediment to exports and thus economic growth.
US corporate earnings are starting to show declining revenues, which is not a positive sign for economic growth. While stock investors may be mesmerized by profit beating estimates, one must consider that profit is being driven by cost-cutting and not expansion. This does not bode well for jobs growth.
The Aussie and Kiwi are higher as Chinese stocks were higher overnight. There is also speculation that China will relax tightening measures.
The Euro is mostly lower to start the US session, as is the Pound. German Producer Prices came in higher than expected, yet the ECB will maintain its asset purchase program as a “security measure”. The results of the bank stress tests are due on Friday.
Lastly, the Canadian rate decision is due out later this morning. The market is expecting a 25 bp hike to .75%, though recent global economic weakness could cause a retreat from a hawkish stance.
In the forex market:
Aussie (AUD): Minutes from the RBA board meeting showed that the Central Bank will wait for the results of the European Bank stress test as well as inflation data to determine whether or not to raise rates at the next meeting. The Aussie is higher this morning despite the risk aversion in the market this morning.
Kiwi (NZD): The Kiwi is higher as Chinese stocks were also higher overnight as there is increased chatter that the Chinese will back off the tightening measures which were intended to slow the rate of growth. If this should occur, then demand for NZ good will increase. However, the commodity currencies are giving back some gains as risk-aversion is apparent to start the US session.
Loonie (CAD): The Loonie is mixed this morning as the BOC rate decision came in with a 25 bp rate hike to .75%, as expected. However it looks like the initial reaction was somewhat negative to the news, as a potential dovish stance going forward may be weighing on investors.
Euro (EUR): The Euro is lower across the board as German PPI figures came in hotter than expected at a .6% monthly increase vs. an expectation of .2%. The results of the bank stress tests are due out on Friday so the market may be jittery despite the positive comments the ECB has been providing. I’m always a skeptic by nature, so put me in the camp that thinks this might not be as rosy as we are being led to believe.
Pound (GBP): Mortgage approvals fell last month as tighter lending standards have discouraged demand as consumer confidence plummeted last month. In addition, CBI business optimism figures came in less than expected as the UK gets ready for announced cut-backs to deal with the ballooning deficit.
Dollar (USD): The Dollar is also mixed today as it is seeing strength vs. all but the Kiwi and Aussie. US housing starts came in less than expected showing a decline of 5% vs. an expected decline of 2.7%. The Dollar is higher against the Yen as speculation of a BOJ intervention is starting to pick up.
Yen (JPY): The Yen is showing some weakness this morning as speculation is that Japanese authorities will attempt to weaken the Yen after it climbed to 7-month highs. A stronger Yen hurts Japanese exports as goods become more expensive. The Japanese have been known to intervene in the past, though they may want to proceed with caution as the market has been driving Yen close to all-time highs.
This morning is a bit of a mixed bad as we see the different pairs trading by region and not necessarily on risk themes.
There is clear weakness today in the Europe, as both the Euro and Pound are lower. The Aussie and Kiwi are higher on higher Chinese stocks and the possibility of weakening policy.
The Dollar is trading somewhat higher, as it is trading inversely to stock markets futures which are lower due to declining corporate revenues.
So at the end of the day, we are definitely in for a global economic slow-down. Results of the European banks stress tests will guide policy around the globe as systemic risk will out-weigh economic conditions in the near-term.
However going forward, some countries may be in better shape to weather any potential economic storms.
So I will continue to remain cautious until Friday and keep my trading short-term.
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!
Tags: account, AUD, Aussie, bank, cad, central bank, China, comments, commodity, course, currenc, currencies, currency, currency market, currency trading, data, decision, dollar, dow, ECB, economic, EUR, Euro, Europe, forex, forex market, free, fx, fxedu, gbp, Il, intervene, intervention, invest, investor, ISM, Japan, jpy, Kiwi, live, loonie, lower, meeting, Mike Conlon, minutes, news, nzd, pair, pairs, pound, practice, practice account, rate, rate decision, RSI, short, ssi, stock, stocks, time, USD, Yen
Topics: What To Look At In The Market | No Comments »
Budget Cuts!
By Mike Conlon | June 22, 2010
The British pound is lower this morning as the UK budget showed a commitment to a balanced budget and a reduction in spending of close to 30 billion pounds annually. This should come as no surprise to the market, yet the Pound is lower as the UK attempts to cut its deficit.
This coincides with some concerns in the market over European bank funding problems which are causing some risk aversion in the market this morning. In addition, yesterday’s enthusiastic response to the Chinese announcement to allow the Yuan to float was short-lived as the US stock market finished the session lower, and futures are pointing to a lower open this morning as well.
Consumer prices were higher in Canada, and there was a note out this morning saying that central banks around the globe are starting to diversify away from the Euro and into the Aussie and Loonie. This could potentially affect their status as “risk assets” as the market is starting to realize that these are strong economies.
So we could see some mixed trading going forward, as the risk-on, risk-off mentality works its way out of the market and these currencies begin to trade on their own fundamentals. Japanese yen will still see gains during risky times as it is still the primary funder of carry-trades, but it will be interesting to see if traders actually unwind the carry trades or add to them going forward.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning on risk-aversion, though it appears to be bouncing off its lows from the Euro session. Demand for the Aussie is higher because of the news from its largest trading partner, China. In addition, the news about central banks diversifying away from the Euro to the Aussie have slightly out-weighed risk themes.
Kiwi (NZD): The Kiwi is affected more by risk aversion this morning than the Aussie, as the NZ economy is not deemed large or strong enough to receive diversified funds from central banks that are moving out of Euros.
Loonie (CAD): The Loonie is higher across the board as CPI figures came in .1% higher than expected to 1.4%. This shows that Canadian economy is still chugging along and that the potential for rate hikes is still on the table. This makes the Loonie a destination for funds from central banks diversifying away from the Euro, with the added benefit of potential rate hikes.
Euro (EUR): The Euro is lower this morning despite the fact that German business confidence was higher. An ECB council member said that some banks are facing funding problems. This comes in advance of the European bank stress tests which are due out sometime next month and could be the next landmine that sends the Euro lower. Banks in Spain may borrow 10 billion euro from its bank-rescue fund.
Pound (GBP): The Pound is also lower as the UK announced its emergency budget which showed a commitment to deficit reduction by reducing spending and setting the table for tax hikes down the road. This has heightened the fear of double-dip recession in the UK, but these announced measures have likely saved the UK top-credit rating from downgrades, which would make it more expensive for them to borrow.
Dollar (USD): The Dollar is mostly lower this morning despite some of the risk in the market. The Chinese decision to allow the Yuan to float more freely and be tied to a basket of currencies and not the US dollar alone is likely causing some selling. Existing home sales are due out later this morning and could provide a snapshot of the housing market ahead of the FOMC meeting.
Yen (JPY): The Yen is higher on risk aversion due largely in part to the Euro debt crisis. In addition, Prime Minister Kan pledged to balance the Japanese budget in 10 years and to reduce bond sales to gain investor confidence. This is quite the task as Japan has the world’s largest budget deficit, so reduced spending and tax changes may be seen as welcome by the markets.
Just when things start to quiet down, the Euro debt crisis comes screaming back into the room and reminds investors that the EU problems have not been solved. Bank funding problems and the upcoming stress tests may show an ugly picture of the financial health of the Euro zone.
Meanwhile, while everyone yesterday lauded the Chinese announcement to allow the Yuan to float more freely, the realization that they now want to use a basket of currencies to peg to (including the potentially sinking ship Euro) is just another way to manipulate their currency to attempt to keep it low.
Canada and Australia could be major beneficiaries of both the Chinese and Euro zone news. Commodity prices have pulled back this morning, but both of these countries have strong economies and that is reflected in their currency gains this morning.
Stay tuned, this may not be a lazy summer after all!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, British, cad, canada, carr, carry trade, central bank, China, commodity, course, crisis, currenc, currencies, currency, currency market, currency trading, decision, dollar, dow, ECB, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fundamental, fx, fxedu, gbp, home, housing market, Il, interest, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, mie, Mike Conlon, news, nzd, pound, practice, practice account, rate, recession, RSI, sales, setting, short, ssi, stock, time, trade, trader, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »
What Is Biflation?
By Mike Conlon | June 17, 2010
One of the economic terms du jour is biflation, which is a condition marked by both simultaneous inflation and deflation. This is becoming more and more significant as central banks around the globe grapple with how to set policy. Today’s US CPI figure is a perfect example of this.
The US Consumer Price Index showed a decline of .2%, yet the core rate rose .1% which both were in-line with expectations. We are most likely in a condition here in the US where we are going to experience commodity inflation, but housing deflation. It is important to pay attention to how the Fed will react to these figures. For years we heard that there was no inflation, yet every time you went to the gas station, you thought differently. You aren’t crazy; we’re experiencing biflation.
Retail sales figures in the UK advanced, though analysts are attributing it to the rise in sales of flat-screen TVs due to the World Cup. While yes, the Brits are crazy about their team, I think there is probably a little more to the story than just soccer.
The Euro is higher as well after a bond auction in Spain which sold the maximum set for auction. This flies in the face of the rumor about Spain setting up an emergency credit line, as the market devoured this offering showing confidence in the Spain and the Euro zone.
In the forex market:
Aussie (AUD): The Aussie has started lower this morning despite some risk-taking in the market. It is higher vs. USD, but lagging JPY. The latter trade could reverse today and was possibly a function of Asian stocks (particularly the Nikkei) being down today. In addition, the RBA said that they would likely only raise rates one more time this year, giving investors a reason to turn elsewhere.
Kiwi (NZD): So the Aussie’s loss is the Kiwi’s gain, despite consumer confidence figures which fell 3.2%. Nevertheless, the Kiwi is higher on initial risk appetite in the market.
Loonie (CAD): The Loonie is lower this morning taking its cues from oil, as it so often does. Oil is “lower” to $77.25, off yesterday’s highs of just under $78. In addition, Canadian wholesale sales fell .3%, vs. an expectation of a rise of .3%. So the Loonie is weaker across the board despite some of the risk appetite.
Euro (EUR): The Euro is higher this morning as a successful bond auction from Spain put rumors to bed and showed renewed confidence in the Euro zone.
Pound (GBP): Retails sales came in better than expected at .5% vs. an expectation of .1%, which is being attributed to World Cup soccer. However, I believe the economic story in the UK is a good one, as recovery and confidence in the new government is bolstering growth. In addition, the BOE said that they would most likely raise rates before selling bonds when they remove economic stimulus.
Dollar (USD): The Dollar is weaker this morning as CPI fell, but was in line with expectations. In addition, initial jobless claims came in higher than expected, posting a gain of 472K vs. an expectation of 450K. However, stock futures are higher as the market is becoming more conditioned to biflation, and increased jobless claims are almost an afterthought.
Yen (JPY): The Yen is mixed this morning, starting higher because the Nikkei was lower, but giving back gains as risk appetite is increasing. However, US dollar weakness vs. the Yen is apparent as the focus is off of North America (USD, CAD) this morning.
This morning is a bit of a mixed bag, with the market taking its cues from Europe and selling North America. Good news in the Euro zone and the UK are propelling those currencies higher, and stocks are initially higher here in the US as the market shrugs off deflationary numbers and a bad unemployment report.
The reason the CPI data doesn’t seem as important is because the market is getting used to the notion of biflation. I used to discuss this issue as the “tale of two economies”, but I suppose this term just tidies things up. However it will become important to both consumers and investors alike as this condition becomes more apparent.
However, I suspect we could see a US stock market sell-off today, as the market isn’t quite sure what to make of this.
Until then, take advantage of the market volatility!
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!
Tags: account, AUD, Aussie, bank, BOE, cad, central bank, commodity, course, currenc, currencies, currency, currency market, currency trading, data, dollar, dow, economic, EUR, Euro, Europe, fed, forex, forex market, free, fx, fxedu, gbp, Il, index, invest, investor, jpy, Kiwi, live, loonie, lower, market, market volatility, mie, Mike Conlon, news, nzd, oil, pound, practice, practice account, rate, retail sales, setting, ssi, station, stock, stocks, time, trade, unemployment, USD, Yen
Topics: What To Look At In The Market | No Comments »
Greek Junk!
By Mike Conlon | June 15, 2010
Yesterday, Moody’s ratings agency cut Greece’s credit rating from investment grade to junk, citing the economic risks the nation is facing. This derailed yesterday’s rally, and reversed some of the gains just as the Euro session closed. However, defenders are quick to point out that this news has already been factored in by the market and that conditions in Greece have improved since the data used to make the downgrade.
So it looks like the Euro has dodged a bullet—for now. In addition, German economic sentiment came in well below expectations showing signs that the picture is not as rosy as today’s market would have you believe. However, the Euro is higher vs. the Dollar and European stock markets are higher despite what some would consider heightened risk.
In the UK, CPI data declined for the first time in 3 months though housing prices ticked higher showing mixed results in the inflation picture.
Overnight at the Japanese rate policy meeting, BOJ officials unveiled a 33 billion stimulus program despite the comments that the export-led recovery is starting to spread to private domestic demand.
So this morning is a bit of a mixed bag, with stock markets higher, USD lower, but Yen and Euro higher. It will be interesting to see if these markets fall back in line with their usual correlations, or continue on their own path.
In the forex market:
Aussie (AUD): Overnight, minutes from the Australian central bank showed that concern over the European debt crisis may cause the bank to pause from future rate hikes. The RBA has “flexibility”, as previous rate hikes have appeared to have quelled inflation. In addition, in what some may view as counter-intuitive, an RBA Governor said that he would welcome slower Chinese growth, as it would allow the Australian economy to grow at a more moderate pace.
Loonie (CAD): The Loonie is higher this morning as oil has gained to $75.75 due to an increase in demand and a potential supply shock due to the gulf oil spill. In addition, there is a report out that corporations are diversifying away from the Euro and are issue bonds in Loonies, which could be a driver of demand.
Kiwi (NZD): From the not-so-fast department, the Kiwi is lower across the board after 4 days of gains following its rate hike. Overnight, home prices came in lower than expected, falling 1.4%. This may give the RBNZ a reason to pause rate hikes and to move slowly. The RBNZ would like to see a weaker Kiwi to help exports, and this housing figure may be a harbinger that inflation is tame in NZ.
Euro (EUR): So it looks like the Euro is brushing off the Greek credit downgrade as it is trading higher this morning. In addition to the downgrade, German business sentiment came in way below expectations, yet the Euro is higher. There are rumblings around the market of other potential downgrades and measures that other countries should be taking. In my mind this is heightened risk, but the market isn’t seeing that way. Remember to trade what you see and not what you think you know!
Pound (GBP): The Pound is mixed this morning as inflation data slowed for the first time in 3 months. CPI figures came in at 3.4% vs. an expectation of 3.5%. This is higher than the government target figures of 3%, though economists are predicting a decline back below the upper band of the range by mid-year. However, housing prices also rose as demand picked up the most since January. While there is a lot of talk that inflation in the UK is “contained”, only time will tell if this is the case.
Dollar (USD): Stock markets appear to be driving the forex market today, as higher equities prices are reducing the demand for dollars. Empire manufacturing figures came in slightly less than expected but showing growth nevertheless, and import prices came in lower, probably due to recent dollar strength.
Yen (JPY): The Yen is surprisingly strong this morning as risk appetite appears to be happening this morning. Perhaps there is hesitation that carry trades may not be due to advance due to interest rate pauses in Australia and New Zealand. In addition, the BOJ signaled they would be instituting a $33 billion stimulus program to encourage business lending.
So today is kind of an “odd” day, as the currencies are trading more on their own fundamentals and not so much on risk themes. Today is seemingly a risk-taking day, though the demand for carry trades has been reduced due to Yen strength and possible interest rate pauses from the commodity currencies.
The Loonie is catching a bid as oil trades higher and Canada becomes a destination for capital-raising as an alternative to the Euro zone.
The UK is telling us there is no inflation, but the market may be thinking otherwise.
And lastly, the Euro is defying gravity and shrugging off credit downgrades. Perhaps these credit ratings agencies are losing their own credibility, or the market needs to see more from a risk perspective in order to sell-off the Euro. Either way, there is still risk in the market and the market may want to “see” problems occur than “hear” about them.
So don’t fall for the game of “show and tell”—and trade what you see and not what everyone wants you to 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!
Tags: account, AUD, Aussie, Australia, bank, cad, canada, carr, carry trade, central bank, closed, comments, commodity, course, crisis, currenc, currencies, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, Europe, forex, forex market, free, fundamental, fx, fxedu, gbp, home, Il, interest, interest rate, invest, Japan, jpy, Kiwi, live, loonie, lot, lower, market, meeting, Mike Conlon, minutes, new zealand, news, nzd, oil, pound, practice, practice account, RSI, sentiment, ssi, stock, time, trade, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »
Getting Better!
By Mike Conlon | June 14, 2010
Global recovery appears to be gaining traction, as regions around the globe are reporting increases in economic data consistent with growth. As we’ve made it through another weekend without any European debt landmines exploding, the market is in risk-taking mode this morning.
Industrial production figures in the Euro zone came in better than expected driving world stock markets higher. Oil prices are back to the $75 level as improved outlooks for recovery are beginning to take hold.
Japan started it monetary policy meeting this week, and are expected to announce no change to its interest rate tomorrow.
Global financial regulation is now at the forefront as governments around the globe consider how to best tackle the financial markets and the mistakes of the past.
This is a light week for news, but we’ll get some CPI data from both the UK and the US which should give an indication of where we stand with regard to inflation.
In the forex market:
Aussie (AUD): The Aussie is higher on increased risk appetite as the lack of potential Euro zone related negative news has pushed world stock markets higher. Minutes from the RBA policy meeting will be released tomorrow, which should provide an inside view as to future rate policy. Expect the Aussie to trade on risk themes as there is a lack of news expected from down under this week.
Loonie (CAD): The Loonie is also higher on risk-taking getting a bid from increased oil prices which is back trading above the $75 level. The Loonie is heading back toward parity with USD, trading at its highest levels in nearly a month to 1.0275 vs. the Dollar.
Kiwi (NZD): The Kiwi is also higher on risk-taking despite the fact that retail sales figures came in showing a decline of .3%, which was slightly worse than expected. Nevertheless, the RBNZ is expected to continue to raise rates throughout the year. However, RBNZ honcho Bollard said that a higher Kiwi is not helping the NZ trade balance. The Kiwi has gained roughly 7.5% on the Dollar in the past year.
Euro (EUR): The Euro is higher to 1.225 vs. USD this morning as another weekend free of negative news has buoyed the common currency higher. Industrial production figures came in much better than expected, increasing .8% vs. an expectation of .5%. As I’ve mentioned time and time again, a lower Euro is going to be good for Euro zone exports provided they can shore up their banking system and prevent the debt crisis from getting worse. This still poses the largest risk and impediment to world economic recovery.
Pound (GBP): The pound is on the move higher this morning on risk appetite as the market is increasing its bets that a UK rate hike may be forthcoming sooner than later. The CBI came out with a report predicting faster economic growth and a narrower than expected budget deficit which may spur inflation causing the BOE to raise rates. British CPI figures are due out tomorrow which could push the Pound higher if inflation is viewed as gaining. Jobless claims are due out on Wednesday.
Dollar (USD): The Dollar is lower on risk appetite, as traders are seeking yield and abandoning the safe haven currency. PPI figures are due out on Wednesday, followed by CPI figures on Thursday.
Yen (JPY): The Yen is lower on risk appetite as carry trades are re-established after a non-eventful weekend in the Euro zone. A familiar pattern is developing, where traders take risk off before the weekend and then re-establish carry trades if there is no further bad news. In addition, Japanese stocks are higher as manufacturers said that the business climate has improved paving the way for further business spending to expand upon the already-flourishing export led recovery.
The number one driver of fear in the markets is the debt situation in the Euro zone. As a reader of this blog, this should come as no surprise to you. Every day that goes by without a major issue is one in which the markets will gain confidence in recovery.
We are seeing some good signs of global growth; however all of this can be derailed with one negative report from the Euro zone. The debt crisis has not gone away and the Euro zone banking system is still very fragile. Economic numbers should improve as a lower Euro will be good for business in the region.
Meanwhile, the economic data will continue to pour in. Low interest rates around the globe may need to rise if inflation starts to heat up. Debt reduction plans and reduced spending must be balanced with sound monetary policy. Central bankers walk a fine line between trying to encourage economic growth and reducing deficits.
But for now, the market appears to be content with this balance today. So ride the wave but be prepared to bail at the first sign of trouble!
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!
Tags: account, AUD, Aussie, bank, blog, BOE, British, cad, carr, carry trade, central bank, central bankers, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, EUR, Euro, Europe, fear, financial, forex, forex market, free, fx, fxedu, gbp, Il, interest, interest rate, interest rates, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, minutes, news, nzd, oil, pound, practice, practice account, release, retail sales, ssi, stock, stocks, time, trade, trader, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »
Is Spain Next?
By Mike Conlon | May 24, 2010
Over the weekend, the Euro debt crisis took an unexpected turn for the worse as the Spanish central bank took over a savings bank after a planned merger had failed. While in and of itself this is not a big deal, viewing it through the context of overall EU financial health has made the bounce in the Euro short-lived. The Euro is lower again to start the week, as last week’s short-covering rally has been reversed and the longer-term trend for the common currency is still down.
There’s not a ton of market-moving news on tap this week, with GDP figures due out from the UK tomorrow and the US on Thursday. Other than that, there are some smaller events that will provide color to the overall economic picture which will either help re-affirm or correct market sentiment.
Perhaps the biggest news is that US Treasury Secretary Geithner is in China and is advocating that China adopt a more free-floating currency. Because of the Yuan peg to the US dollar, China has been allowed to experience very rapid growth through artificial means that have allowed their goods to remain cheaper around the globe. However, with the crisis in Europe looming, US dollar strength could cause Chinese Yuan strength via the Dollar if the Euro continues its slide. With European austerity measure taking place (Germany included); this could slow world demand which would slow China’s growth as well.
So while there have been some “clues” that perhaps China is ready to make changes to Yuan policy, I’m not certain it will take place if their economy slows due to slower exports as a result of a strong dollar buoyed by risk-aversion and global austerity.
This all adds up to risk-aversion in the market today in a continuation of the major trends, but it’s possible that we could see a reversal as US markets open for the week.
In the forex market:
Aussie (AUD): The Aussie is lower on risk-aversion as fears out of the EU and a potential slowdown in China are reducing demand for higher-yielding assets. The Aussie is the worst performer this month, down some 10% vs. the US dollar as risk aversion has dominated the marketplace.
Loonie (CAD): The Loonie, on the other hand, is showing strength this morning as oil is back in the $70 range, showing signs that we may get a reversal this morning. The Loonie is not really a carry trade destination as it doesn’t provide the yield differential of the Aussie or Kiwi; however it is affected by commodity prices (particularly oil). The Canadian rate decision is due out in early June so there still is some speculation that they could be the next to hike.
Kiwi (NZD): The Kiwi is lower for the same reasons as the Aussie, getting hit a bit harder as it does not have as great a rate differential as the Aussie. Same risk, less reward. However, should the markets begin to stabilize, then we could see the Kiwi move faster to the upside.
Euro (EUR): The Euro is lower as the bank of Spain took over a regional lender causing investors to question whether or not the debt crisis is spreading. There has been a major property bubble in Spain so many banks are holding bad debt which could come to the surface if Spain needs to access the bailout money to stabilize its banks. In addition, Germany has adopted its own austerity measures, essentially trying to lead by example. Considering that the market is looking for any excuse to sell the Euro, expect the longer-term downtrend to continue. The Euro is lower across the board.
Pound (GBP): The Pound is lower this morning going into tomorrow’s GDP reading as the UK is walking a fine line between trying to grow its economy without incurring inflation, and cutting its public debt. The new government announced 6 billion Pounds in spending cuts in hope of sending a “shock-wave” through government departments. While not an enviable position to be in (although EU members may disagree), the government feels these actions are necessary to avoid its own sovereign debt crisis.
Dollar (USD): The Dollar has been higher on risk themes, and US existing home sales are due out later this morning. Consumer confidence figures are due on Tuesday, followed by US GDP on Thursday. These figures will show whether or not the US economy has been jump-started enough to sustain recovery in light of the EU debt crisis and could send fears of further problems down the road. Expect the Dollar receive support through flight to safety trades if risk-aversion remains high.
Yen (JPY): The government in Japan said that the economy is picking up steadily leaving its assessment unchanged for a second month in a policy statement today from its monthly economic report. However, growth in Japan has been driven by world demand and stimulus measures, so it is not a self-sustained recovery. Like the Dollar, expect the Yen to trade on risk themes until at least Thursday, when a slew of economic data points are due out.
Will overnight risk be counter-acted by the US markets today? Stock markets are opening lower, though commodities are trading higher. Risk in the overnight session can sometimes be overcome by decent news from the US. Existing home sales could be that number if they come in better than expected.
So while the overall mood of the market has been risk-aversion for some time, any pockets of economic strength could help stabilize the situation and perhaps show signs of recovery.
Until that time, expect continued selling of the Euro which will have an effect over all other markets as historical correlations begin to break down.
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!
Tags: account, AUD, Aussie, bad debt, bank, cad, carr, carry trade, central bank, China, commodities, commodity, course, crisis, currenc, currency, currency market, currency trading, data, decision, dollar, dow, downtrend, economic, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fx, fxedu, gbp, Geithner, home, Il, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, rate, rate decision, RSI, sales, sentiment, short, ssi, stock, time, trades, Treasury, USD, Yen
Topics: What To Look At In The Market | 1 Comment »
Possible Intervention?
By Mike Conlon | May 21, 2010
Talk is heating up around the globe that Central Bank interventions could be forthcoming in order to stabilize the currency markets. Currently, the Swiss National Bank (SNB) has been active in trying to maintain prices for the Franc vs. the Euro, and now the market is jittery that a meeting today of Euro zone finance ministers could produce a similar result. In addition, the BOJ has been known to intervene in its currency in the past, and there is speculation that Australia may be set to intervene as well.
This is effectively a form of market manipulation, but can be very profitable for investors who are on the right side of the trade. In this regard, should interventions occur, investors would want to be long the Euro and Aussie, and short the Yen and Swiss franc. Intervention is already occurring in Switzerland so this trade may be over, but what is important to know is which way policy makers want the currency in question to go.
In addition, German law-makers in the lower house have approved the Euro rescue package, as it is also in Germany’s self-interest to make sure that the Euro doesn’t collapse.
So what we’re seeing this morning is continued short-covering from yesterday afternoon and speculators starting to dip their toes back in cautiously to riskier assets. Traders do not want to be caught short over the weekend, especially if coordinated action is taken.
In the forex market:
Aussie (AUD): The Aussie is higher on short covering after aggressively declining for 5 days in a row. Speculation of possible intervention has led the market to cover their short trades, so don’t mistake today’s action for risk-taking, though early investors may be starting to test the waters to the long side.
Loonie (CAD): The Loonie is higher this morning as retail sales figures rose the fastest in nearly 5 years, and CPI figures came in slightly higher than expected, showing signs that economic growth is heating up in Canada. While a June rate hike is still expected for June, much of it will be predicated upon whether or not the Euro can stabilize and whether risk has been reduced in the market.
Kiwi (NZD): Consumer confidence rose 3.4% in NZ, showing signs of economic life in the country. In addition, income tax cuts are expected to encourage workers to stay home which will be positive for domestic economic growth. The Kiwi is higher on short-covering as well.
Euro (EUR): The Euro touched one-week highs in the overnight session, as German law-makers approved the Euro rescue plan. The looming threat of intervention has helped push it higher as traders don’t want to be trapped short over the weekend. In addition, German GDP figures came in as expected, showing a gain of .2% for Q1 after being flat the previous quarter.
Pound (GBP): The pound is also higher as it has been beaten up with the Euro over the last few sessions. Expect the Pound to trade somewhat sideways as investors weigh UK policy vs. the threat of continued Euro problems.
Dollar (USD): The Dollar is weaker this morning as short-covering is taking place. Expect the Dollar to continue to trade on risk themes, though note that today is not a risk-taking day as both commodities and US stock futures are lower so far this morning. Global austerity measures could affect US stock growth as demand wanes world-wide. Especially with blue-chip and technology companies that have large exposure to the EU. In addition, financial reform bills passed in Congress are adding fuel to the fire.
Yen (JPY): The Yen is trading lower on short-covering rallies as well, and overnight, the BOJ left rates unchanged at .1%. In what I would consider as something of an anomaly, the Yen is trading higher against the Dollar further illustrating that this is not a pure risk-taking day. While the Yen is still far away from levels that the BOJ would consider in order to intervene, they have been known to act in the past.
Because today is a Friday, the market is taking a respite as fear has ruled this week and the potential for central bank interventions have caused uncertainty. Right now we are at an inflection point; where markets could go one way or another and which way that will be is anyone’s guess.
So in the meantime, I advise taking cues from the market and take profits if you have them, and wait for next week’s action to initiate new trades. More than one trader has “blown up” by coming in Monday morning to a bit of nastiness in the form of central bank intervention. And while it is unlikely that this will happen, the threat is enough to cause caution.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, cad, canada, central bank, commodities, course, currenc, currency, currency market, currency trading, dollar, economic, EUR, Euro, fear, financial, forex, forex market, franc, free, fx, fxedu, gbp, home, Il, interest, intervene, intervention, invest, investor, jpy, Kiwi, life, live, loonie, lower, meeting, Mike Conlon, nzd, pound, practice, practice account, rate, retail sales, short, ssi, stock, Swiss, Switzerland, time, trade, trader, trades, USD, Yen
Topics: What To Look At In The Market | 1 Comment »
What Inflation?
By Mike Conlon | May 18, 2010
This week marks the time of the month that the inflationists come out in full-force as a slew of CPI data is forthcoming from around the globe. Today, data from the EU and the UK show that consumer prices are moving slightly higher, though there are no signs that policy-makers are ready to move on rates in either of those regions any time soon.
In fact, both of these governments are hoping to encourage some inflation to get their economies moving again. The problem with inflation is that it is a stealth tax on consumers. Nevertheless governments LOVE inflation as it allow them to repay debt with less valuable currency.
Today in the US, PPI figures came in less than expected and tomorrow brings the US CPI data, followed by Canada’s reading on Friday. At this point, with all of the global economic uncertainty in the markets, combating inflation is becoming a more distant thought on the minds of policy makers. Outside of an extraordinarily high reading in either country, I don’t expect it to influence policy one way or the other. Although the market is anticipating a rate hike in Canada in June so that number could hold some more weight.
So today we are seeing some mild risk appetite, though the Aussie is lower as a result of the minutes from its rate policy meeting, and in the EU, Greece received its first bailout payment of roughly $18 billion.
In the forex market:
Aussie (AUD): The Aussie is lower as the minutes of its rate policy meeting were released overnight showing that monetary policy is “well placed” after previous hikes according to the RBA. Right now, the major debate for world economies is weighing the threat of inflation vs. the EU debt crisis. I suspect central banks may err on the side of caution and stronger economies may put up with inflation until they are convinced that the EU is economically stable. This greatly reduces the chance of a rate hike at the next meeting in June. The Aussie is near three-month lows vs. USD.
Loonie (CAD): The Loonie is higher today on risk appetite as well as the fact that the price of oil has halted its previous decline. Oil traded higher to just over $72 after a two-week sell-off, but is now at 71.75. The market still favors a rate hike in Canada, and Friday’s CPI figure will either confirm or refute that view. The inflation vs. debt crisis is on the mind of central bankers, but Canada has extremely low rates, some 4% less than Australia so they have more room to hike.
Kiwi (NZD): Producer Input Prices came in higher than expected at 1.3% showing signs that higher costs may suggest that the mid-year rate hike is still on target. The Kiwi is the biggest gainer this morning.
Euro (EUR): German economic sentiment figures came in lower than expected as the Greek debt crisis caused consternation in the largest manufacturing country in the EU. In addition, CPI came in at a .5% increase vs. a .4% expectation showing signs that inflation may be held in check. Right now, inflation is the last thing on the minds of ECB policy makers as the far greater threat of sovereign default reigns supreme. The Euro is mostly higher.
Pound (GBP): The Pound is also slightly higher as CPI figures came in higher than expected at .6% vs. an expectation of .4%. Again, like the EU, debt service is currently trumping the threat of inflation in the UK, and BOE Governor King downplayed the surge as “temporary” as the UK is about to embark on its own budget cutting measures.
Dollar (USD): The Dollar is low on risk-taking as well as the fact that US PPI figures showed a decrease of .1% vs. an expectation of an increase of .1%. In addition, while US housing starts were higher, building permits were much lower than expected showing signs that the housing market may still be on shaky ground. It appears as though the expiration of the first-time homebuyer credit may be responsible for the pick-up in starts, though the lower building permits show a lack of future construction.
Yen (JPY): The Yen is lower on risk appetite despite the fact that consumer sentiment rose to its highest levels since 2007. This comes as a result of the export-led recovery which seems to be taking place. However, low interest rates still keep the Yen as a safe haven currency and the primary funder of carry trades. This Friday’s interest rate decision shouldn’t change that. Thursday brings the GDP figures which are expected to be in line with estimates.
Governments and central banks LOVE inflation because it allows them to repay debts with a less valuable currency. This is known as “inflating the debt away”. And with all of the debt floating around out there, you can see why they are trying to encourage it. However, for consumers, inflation acts as a stealth tax as the cost of everything goes higher. That’s why here in the US, they give you the reading “ex food and energy” to falsely show what’ going on in the economy. After all, who cares if milk prices or electricity prices are going higher if the cost of the new iPad is going lower!
Well, this is a simplistic and somewhat skeptical view of central banks and government, but if you really think about it, it makes sense. So that’s why in the UK they are talking down inflation as “temporary”.
Here in the US, they don’t need to talk down inflation as signs of deflation still persist despite all of the government and US Fed-led attempts to keep prices higher.
What this tells me is that we are still on fragile economic footing and that central bankers have no plans to raise rates anytime soon. So keep an eye on your currency and a keen eye on prices of things you use daily, as you can no longer count on the government to do that for you!
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!
Tags: account, AUD, Aussie, Australia, bank, BOE, cad, canada, carr, carry trade, central bank, central bankers, course, crisis, currenc, currency, currency market, currency trading, data, decision, dollar, dow, ECB, economic, economy, EUR, Euro, fed, flu, forex, forex market, free, fx, fxedu, gbp, home, housing market, Il, interest, interest rate, interest rates, IRA, jpy, Kiwi, live, loonie, lower, market, meeting, mie, Mike Conlon, minutes, nzd, oil, pound, practice, practice account, rate decision, release, RSI, sentiment, ssi, steal, time, trade, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »
Expand or Contract?
By Mike Conlon | May 13, 2010
Many countries and economies around the globe are facing record budget deficits and there is much debate as to whether it is better to expand or contract these deficits. On the one hand, reducing deficits improves balance sheets and makes debt easier to service, but on the other hand it brings fear of the dreaded “double-dip” recession.
Here in the US, the obvious tactic is to expand balance sheets as deficit reduction would potentially induce deflation, which could cause another run on the banks which are mired in this housing mess. However, abroad the central bank focus is more on combating inflation, and other banks are nearly as exposed to bad housing bets as are US banks.
While global banks do have their own issues, the general thought is that is that as economies promote fiscal responsibility, monetary policy needs to be more accommodative to attempt to prevent a slide back into double-dip territory.
And that’s what is happening in both the Euro and Pound as deficit reduction plans are starting to come together. So the market is starting to realize that accommodative policy will be necessary.
Job gains in Australia were better than expected, and initial jobless claims here in the US were slightly worse than expected. All of this is adding up to mild risk-aversion in the market as the Euro is now trading at a 1.25 handle.
In the forex market:
Aussie (AUD): Employment gains “Down Under” exceeded expectations prompting speculation that yet another RBA rate hike may be coming soon. The economy gained 33.7K jobs vs. an expectation of 22.5K. The threat of a potential China slowdown has been weighing on the Aussie, as has been general risk-aversion which is what is happening this morning.
Loonie (CAD): The Loonie is hanging in there but is lower as oil prices are off this morning. Speculation is still high that a rate hike may be coming in June, if the global market can dodge major risk events until then.
Kiwi (NZD): The Kiwi is also being weighed down by risk aversion even though a report showed that manufacturing activity expanded at the fastest pace in 5 years. Retail sales figures are due out tomorrow and are expected to show the fastest gains in nearly 9 months.
Euro (EUR): Yep, the Euro is lower again today, as the market is starting to catch on to the fact that austerity measures around the region may require more accommodative monetary policy to make up for the reduction in supply and demand. And while there is concern over the size of the bailout, let’s not forget that it’s not like all of this money is required at once, but rather it was established to help the countries in trouble get better borrowing rates and provide an emergency backstop. Investors are concerned that austerity measures won’t work… but only time will tell. For the record, the unemployment rate in Greece is only slightly higher than here in the US.
Pound (GBP): The new coalition government formed is wasting no time putting forth plans for budget deficit reduction with the blessings of BOE Governor King. As with the Euro, reductions in fiscal policy may require increases in accommodative monetary policy. Frankly, a weaker Pound helps UK exports which help bring capital to the region. They key is going to be reducing without inducing recession. They have their work cut out for them.
Dollar (USD): The Dollar is higher on risk aversion as initial jobless claims came in slightly worse than expected. Fed Chairman Bernanke is due to speak at 2:30 EST so be wary of any market volatility. Tomorrow we get retail sales figures and confidence numbers which could show a shift in sentiment regarding the US economy.
Yen (JPY): There is Yen strength this morning on risk aversion and a current account reading shows surpluses widening as demand for Japanese exports has increased. This bodes well for the economy though concerns about huge deficits still weigh heavily on rates.
There is more than one way to skin a cat, as the saying goes and the global market place is putting that saying to the test. While the US believes expanding deficits is the way to go in combating its economic woes, countries on the other side of the Atlantic are taking the opposite approach.
While the US is the world’s largest economy and is unique, it goes to show that there are different ways to accomplish the same thing. At the end of the day, accommodative monetary policy is going to be needed out of the “big 3”—EU, UK, US- so the race to the bottom is back en vogue again.
As I have outlined earlier in the week, a weaker Pound and Euro is not necessarily a bad thing for those countries. As long as the structural issues are kept intact and there are no defaults, then we can expect to see weakness from the contracting economies.
Meanwhile, the commodity currencies keep chugging along in much better shape economically, yet held hostage to the whims of risk themes.
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!
Tags: account, AUD, Aussie, Australia, bank, Bernanke, BOE, cad, central bank, China, commodity, course, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, fear, fed, forex, forex market, free, fx, fxedu, gbp, Il, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, market volatility, mie, Mike Conlon, money, nzd, oil, pound, practice, practice account, rate, recession, retail sales, RSI, sentiment, ssi, time, unemployment, USD, Yen
Topics: What To Look At In The Market | No Comments »
Not Good Enough!
By Mike Conlon | April 30, 2010
US GDP figures came in this morning showing an advance of 3.2% annualized, just missing analyst expectations of 3.3%. While there is mild disappointment on the miss, GDP growth of any amount should be seen as positive at this juncture in time. Much of the advance in GDP growth came as a result of personal consumption numbers which were higher than expected, showing that a consumer-led recovery may be underway.
In other news, Canadian GDP figures came in as expected but the market is still concerned that the change in language used by the BOC in this week’s interest rate policy meeting could stall future rate hikes.
In an opposite turn of change of language, the New Zealand central bank Governor left himself “wriggle room”—I always say wiggle but whatever—as the market is increasing its bet that we’ll see a rate hike earlier than the July meeting as was previously forecast.
Meanwhile, deflation is still prevalent in Japan even though household spending and wages are up.
And lastly, Greece austerity measures are predictably causing unrest but it looks like bailout measures will soon be in place. The markets are in risk-taking mode this morning going into the weekend as the next round of news expected out of the EU is thought to be positive as the negative is already “priced in”.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on increased risk-appetite as signs are pointing to a resolution for Greece. A survey of Australia’s trade businesses shows that there is an expectation for a rise in the Aussie dollar going into year end.
Loonie (CAD): The Loonie is lower this morning as the market is paring back expectations of a rate hike based on the backpedalling language that came from the BOC over the last few days. Canadian GDP figures came in as expected so there is some hesitation to push gains in the Loonie despite the risk appetite.
Kiwi (NZD): On the other hand, the RBNZ changed its language to leave “wriggle room” for a potential rate hike at the June meeting as opposed to the expectation of July. This is all incumbent of course on actually having the economic data to support a hike.
Euro (EUR): The Euro is higher this morning as the market is expecting a resolution to the Greek debt crisis to come in soon. Greece has agreed in principle on an austerity package that will satisfy lenders (Germany) and allow a bailout to take place. For those worried about contagion, Spain just officially announced unemployment rates in excess of 20%! Even if the Greece problem gets resolved, there are others lurking in the shadows. Don’t get too excited about the Euro’s prospects just yet.
Pound (GBP): Consumer confidence fell to a 3-month low in the UK heading into next week’s elections, as signs of a slower return to growth is all but expected.
Dollar (USD): The Dollar is lower on risk taking as GDP figures came in slightly less-than-expected but signs that consumer spending is improving is seen as positive. However, Bernanke all but said at the FOMC meeting that the Fed won’t move on rates until they see signs of employment gains, and we’re not quite there yet.
Yen (JPY): In the overnight session, reports have showed that economic recovery is not strong enough yet to fend off deflation, and the Bank of Japan has pledged to help banks lend in order to encourage spending. Consumer prices have fallen for 13 straight months. However, the good news is that spending and wages have increased so there is hope that it will help stimulate the economy. So expect a weaker Yen as BOJ monetary policy and risk-taking could bring about a further increase in carry trades.
So there is some light at the end of the tunnel as good economic figures are starting to pop around the globe. However, the amount of global debt in the marketplace is looming as there are MANY countries that have out of control debt.
So while Greece makes the headlines because they were first, the other PIIGS countries could be next to line up for a bailout. Not to mention the debt levels of the UK and the US. And Japan’s debt as a percentage of GDP is so large that it‘s no longer become a factor.
So you can see the obvious conflict between trying to grow economies and scale back debt to sustainable levels. How this is going to play out is anyone’s guess.
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!
Tags: account, AUD, Aussie, Australia, bank, Bernanke, cad, carr, carry trade, central bank, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, fed, forex, forex market, free, fx, fxedu, gbp, Il, interest, interest rate, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, mie, Mike Conlon, new zealand, news, nzd, piigs, pound, practice, practice account, ssi, time, trade, trades, unemployment, USD, Yen
Topics: What To Look At In The Market | No Comments »