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!
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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!
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Possible Greek Bailout?
By Mike Conlon | February 9, 2010
So much for trading sideways yesterday. What started out as a quiet start to trading ended up with a continuation of last week’s sell-offs in the stock market, as the Dow closed below 10K for the first time this year. However, both gold and oil were up slightly yesterday, showing signs that some of the correlations that we often speak of may be breaking down.
This morning, markets are trading higher as hope is coming out of the Euro zone that the other European nations may be coming to help Greece in tackling their budget deficit. As you would expect, this is causing some risk-taking this morning.
Let’s look at what this means for the currencies:
Aussie (AUD): In addition to general risk themes this morning, the Aussie is trading higher as comments from the RBA’s Governor Stevens said that keeping rates low “may help cause bubbles and credit booms.” Also to note that Central bankers from around the globe are meeting in Australia to discuss the fallout from the credit crisis and to proceed going forward. It will be interesting to see if anything of substance comes out of this meeting, or is more of just a show.
Kiwi (NZD): The Kiwi is the largest gainer this morning, up 1.4% vs. JPY and 1.15% vs. USD. Higher commodity prices and risk-taking are fueling buying in the Kiwi. The Kiwi was also one of the biggest losers last week so it is also benefiting from some technical buying, as it holds near-tern support at .68 vs. USD.
Loonie (CAD): As mentioned yesterday, the Loonie is going to trade primarily on risk themes and commodity prices and today is the day that higher prices are lifting the Loonie, which is up against all but the Kiwi and Aussie, assuming its position of “3rd rung” on the risk-taking ladder.
Euro (EUR): The Euro is higher this morning on speculation that Greece is going to be bailed out by the rest of the Euro zone countries. Apparently ECB President Jean-Claude Trichet has left the policy meeting taking place in Australia to return home to conduct EU business. This has lead to traders bidding up the Euro in anticipation of a solution being realized. Also the Euro is benefiting from its status as the “anti-dollar”, which is down today.
Pound (GBP): The bound is down this morning on a weak retail sales report that climbed at its slowest pace in almost 15 years. Traders are positioning themselves ahead of the UK inflation report due out tomorrow which could be weaker than expected if the retail sales figures are indicative of slow UK growth, keeping inflation tame and not giving the BOE any reason to raise rates in the near future.
Dollar (USD): The Dollar is giving back some gains after a going on a four-day tear as the risk aversion was the dominant theme last week. The Dollar is down vs. all but the Yen, and could strengthen to 90 vs. JPY is risk themes hold up today.
Yen (JPY): The Yen is the biggest loser this morning as risk appetite is driving carry trades this morning. Should any news come out of the Euro zone regarding a solution for Greece, then we could see some further depreciation as it would be “game on” for further risk-taking.
This morning is going to be a big open as US stock market futures are significantly higher. The Dow could open up some 100 points and oil and gold are also trading higher, with oil at 72.5 and gold at 1075.
In overnight markets, Asia was up primarily with the exception of the Nikkei which was down slightly, and Europe is currently up across the board on Greece bailout hopes.
Should the market hold onto and not give back gains, then I expect to see further dollar and yen weakness.
To learn more about how you can make money in the currency market, be sure to check out our affordable currency trading courses.
To follow world events live and see how they affect the various currencies, get a free, real-time practice account here.
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Bloomberg Forecasters Agree with my EUR/CHF position!
By Sean Hyman | July 20, 2009
Today I just wanted to share a piece of a Bloomberg.com article with you that backs up my view in “selling francs” along with the central bank when you buy the EUR/CHF pair.
Here’s what they had to say about it:
July 20 (Bloomberg) — Switzerland’s central bankers are breaking the will of foreign-exchange traders with their first solo currency-market interventions since 1992. Less than a month after betting the Swiss National Bank’s franc sales would fail to halt its rise, investors are the least bullish since 2007, options prices show. This year’s five most- accurate franc forecasters in Bloomberg surveys see the currency trading between 1.50 and 1.55 per euro by Dec. 31, the range it has been in since after the bank started intervening March 12. “The SNB has won its battles, and they’ve given no indication that they are ready to end this policy,” said Jessica Hoversen, an analyst in Chicago for futures broker MF Global Ltd. She advises buying euros and selling the franc when it approaches the 200-day moving average. The currency traded at 1.5196 per euro as of 11:16 a.m. in London; the 200-day average was 1.5104. By holding back the franc, policy makers led by Chairman Jean-Pierre Roth, 63, are trying to prevent deflation from worsening the steepest recession since 1992 and restore investor confidence.
Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
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Sean Hymanwww.forextradingblog.com
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Dollar Weakness and Yen Strength is the “Theme of the Day” so far!
By Sean Hyman | June 16, 2009
Typically lately, the dollar and yen rise and fall somewhat together (as they have both served as “defensive plays”). However, today, the dollar is weak…but the yen is still strong. It could be on Japan’s vote of confidence in their economy going foward. However, remember this… in good economic times for both Japan and the U.S. (and for the rest of the world for that part)…usually does the best when the dollar and yen are falling. While there will be small periods of time when an occasional news announcement will favor the dollar or yen, overall if we’re coming out of the global recession like the central bankers believe, then the dollar and yen will decline overall. If so, you can use these rallying points as a great place to short the dollar and yen as they return to weakness.
Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Sean Hyman
www.forextradingblog.com
Tags: bank, central bank, central bankers, currencies, currency, dollar, economic, economy, forex, Hyman, Japan, news, recession, Sean, Sean Hyman, time, U.S., Yen
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G-8: Thinking of reversing $2 Trillion in Stimulus!
By Sean Hyman | June 15, 2009
This past weekend, the G-8 (Group of Eight - 8 largest industrialized nations) met and started the talks that will eventually reverse the $2 trillion in global stimulus. Of course, they aren’t about to start this process yet since it was just their Finance Ministers at this meeting…but they were setting up the process for when their central bankers will gather in early July (10th - 12th). Why is this important? Because if these central bankers are comfortable enough in talking about reversing the stimulus, then it means that they really think that the global economy is close to being able to stand on its own two feet once again. If this is the case, it will end up helping riskier currencies in the long run (AUD, NZD, CAD, GBP, etc.) and will hurt the defensive currencies that benefited when the world was falling off of a cliff (USD, JPY, CHF). Now this effect will not be immediate. In fact, the dollar and yen are gaining a bit as of this writing. But after a good pull back, look for the trend to return towards “risk seeking” and not back into the defensive mode as we had before. My top picks, of course: AUD/USD and AUD/JPY to benefit the most…as the G-8 acknowledged the rise in commodities as the global economy is recovering.
Tags: AUD, bank, cad, central bank, central bankers, CHF, commodities, course, currencies, currency, dollar, economy, fxedu, gbp, Group of Eight, Hyman, jpy, meeting, nzd, Sean, Sean Hyman, trend, USD, Yen
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Note: Don’t forget about the G-8 Meeting starting Today too!
By Sean Hyman | June 12, 2009
Just a note….remember, there’s a G-8 meeting starting today. I haven’t heard a lot mentioned about this too much…so I thought I’d make my readers aware. Have a good weekend!
Tags: article, blog, central bank, central bankers, currency, Fed, Federal Reserve, forex, G7, G8, Group of 8, Group of Eight, Hyman, lot, meeting, Sean, Sean Hyman
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