Be Careful What You Wish For!
By Mike Conlon | June 25, 2010
Overnight, the US Congress unexpectedly came to a deal and has agreed on bill regarding financial reform and regulation. The uncertainty surrounding this bill has been weighing on the markets, as it was unclear what the outcome might be.
As news trickles out of the 2000+ page document and what it means for the banks and the market in general, at least the uncertainty has been removed. Uncertainty= volatility. Now, whether or not this bill will actually accomplish what it is intended to remains to be seen. What my experience tells me is that no matter what is in the bill; Wall St. has already prepared for likely scenarios and has already devised ways to circumvent regulation. In addition, enacting legislation of this magnitude always comes at a cost, and the brunt of that cost is likely to be paid for by consumers, and not the banks themselves. Banks will simply pass through the new cost so that executives can still buy beach houses. If you don’t believe this will happen, take a look at bank stocks that are trading higher in the pre-market.
This comes ahead of this weekend’s G-20 meeting, where the US will push other nations to consider enacting similar reform.
Economic data is out showing that US GDP grew 2.7%, vs. an expectation of 3% and personal consumption figures were at 3% vs. an expectation of 3.5%. This falls in line with what the Fed said the other day that we are seeing growth, albeit moderate.
Overnight, Japanese CPI figures came in at -.9% vs. -1.1% showing signs that deflation may be subsiding.
The market started out in risk taking mode, but it appears that may be reversing.
In the forex market:
Aussie (AUD): New Australian PM Gillard has backed away from the mining tax that was the eventual downfall of her predecessor and is open to discussion and negotiation. The tax was largely seen as anti-investment in one of Australia’s biggest industries.
Kiwi (NZD): The Kiwi is lower despite a widening trade balance surplus but the market is concerned about a potential Chinese slowdown which could hamper demand for exports. However, this figure fell short of expectations (814M vs. 850M).
Loonie (CAD): The Loonie is higher this morning as its major trading partner (the US) appears to be the only country not entertaining the idea of reduced spending. Unlike the other commodity currencies which are more tied to China, expect the Loonie to benefit as long as the US maintains its spending spree.
Euro (EUR): The Euro is lower continuing the trend of heightened fear from the debt crisis. Today marks the fourth day in a row that European stocks are lower as we head into the G-20 weekend.
Pound (GBP): The Pound is mixed this morning and it will be interesting to see what (if anything) comes out of the G-20 meeting. The UK “tax and axe” strategy is diametrically opposed to the US strategy of “spend, extend, and pretend”.
Dollar (USD): The Dollar is somewhat mixed today as the market figures out exactly what this new financial regulation means. In addition, GDP figures were lower than expectations, but showed that growth, while moderate, is occurring.
Yen (JPY): The Yen is higher this morning, as CPI data showed that deflation came in less than expected. In addition, minutes from the rate policy meeting showed that there was actually talk of inflation. The Nikkei was down overnight, and speculation that the G-20 will not come to a consensus over global economic policy has strengthened demand for the safe-haven of the Yen.
All of my years on Wall St. have taught me one thing: that politicians in Washington DC cannot compete with the brainpower of Wall St. Today, champagne is flowing as the uncertainty over the worst-case scenario from financial regulation has been lifted. True, this isn’t a “home-run” for Wall St.; but I can tell you that they have been prepared for EVERY possible scenario to come out of this and already have plans in place to line their pockets at the expense of the general public.
While regulation is good in theory, it always brings about unintended consequences and in the end it is always the consumer that gets hurt. Now that this is out of the way, the G-20 meeting will be the focus of the weekend but don’t expect anything of substance to come out of it.
The major problem here in the US is jobs. Period. Next week’s Non-Farm Payrolls report will show if we are gaining any jobs in the private sector. If this is a bad number, look out below.
So there is potential for risk over the weekend, but my guess is the G-20 will be a non-event.
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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Scared of the Weekend?
By Mike Conlon | June 18, 2010
In what has become a familiar pattern, Friday selling of risk assets heading into the weekend is taking place as the risk posed by the Euro zone debt crisis is still prevalent. In fact, various policy makers around the globe have expressed concern about the Euro zone, even as the market has been in risk-taking mode as of late.
Today there is a lack of market making news so we’ll turn our attention to more macro themes, one of them being oil prices. It was only a matter of time before fallout from the oil spill in the US began to show up in the markets. The proposed ban on offshore drilling will only reduce supply, thereby causing prices to move higher. The cruel irony is that this would actually benefit BP, the company responsible for this disaster. That means higher prices for consumers.
This is also falls in line with yesterday’s discussion of biflation, where we are likely to see higher commodity prices yet debt-based asset prices go lower.
If the usual correlations hold up, this will benefit the Canadian dollar the most, and the US dollar the least. It’s amazing to think that even in the face of nascent recovery, that oil prices are around $75/barrel. What would it be if we were in full-blown recovery mode? Conspiracy theorists will tell you that high oil prices increase the demand for alternative energy, one of the largest pieces of the Obama agenda. Now I’m not a conspiracy theorist, however I believe in “cui bono”, meaning who stand to benefit the most. You decide for yourself.
So this morning we’re seeing some mild risk aversion, as traders wish to avoid weekend risk from the Euro zone.
In the forex market:
Aussie (AUD): Risk aversion is pushing the Aussie slightly lower going into the weekend. If commodity inflation persists, higher gold prices would benefit the Aussie.
Kiwi (NZD): Same as the Aussie though slightly lower following the “risk ladder”.
Loonie (CAD): The Loonie is lower as oil prices have pulled back as there is concern over the pace of global recovery. In addition the BOC said that there are no “pre-ordained” rate hikes, leaving the door open for a possible pause.
Euro (EUR): The Euro is lower as the ECB head maintained that rates were appropriate in light of the debt situation in the region. However, German PPI figures came in higher than expected, showing signs that inflation may be heating up in the Euro zone’s largest economy.
Pound (GBP): The Pound has given back overnight gains that pushed it to 1,4885 vs. USD. Next Tuesday, the government will release its budget statement that is expected to show a significant deficit and major cost-cutting measure to combat that problem. So far, the market has reacted favorably to the plan as the Pound has had recent gains.
Dollar (USD): The Dollar is slightly higher on risk-aversion, as traders use the safe-haven aspects as a temporary holding vessel.
Yen (JPY): Consumer lending and bank stocks fell on the Nikkei taking the index lower and causing a rise in Yen. In addition, the BOJ is concerned about the Euro zone debt crisis spreading to Japan according to it rate policy meeting’s minutes.
On a day that is light on news, the markets may not tend to move much. As of right now, the market is largely unchanged, with a slight bias toward risk-aversion.
This just goes to show that the daily news events that occur around the globe really do have an impact on the currency and other financial markets. While one doesn’t need to be an expert economist to understand why things move as they do, it is important to know if there is news for a specific currency you like to trade.
And that is the purpose of this blog; to give readers a brief run-down of what’s happening so that they may be aware of potential drivers or obstacles to their favorite currency pair.
So I expect today to be a quiet one, with the start of the summer season picking up as the market slows. In fact, I am on a long vacation weekend myself!
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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Stock Markets Soar!
By Mike Conlon | June 3, 2010
So much for yesterday being an “inside day”. The US stock market made a major afternoon move to the upside, all but rendering my assessment from yesterday useless. This set the stage for other world stock markets with both Asian and European indices higher this morning as well. Commodities followed suit, with oil reaching 74 and change before pulling back to the 73 level in this morning’s trade.
As a result, the commodity currencies predictably had a nice run-up as well, with Dollar and Yen weakness. This activity has continued into the morning, though US employment figures came in positive but worse than expected. Tomorrow’s Non-Farm Payrolls report will provide a better picture of how economic recovery is going here in the US.
In addition, the Euro zone will be reporting its GDP figures, which could send the Euro lower on a resumption of the overall downtrend.
In the forex market:
Aussie (AUD): The Aussie is higher on risk appetite and stock market gains, and Australia reported export growth at the highest level in almost 30 years. Chinese demand helped Australia report a trade surplus for the first time in nearly a year. Expectations were for a trade deficit.
Loonie (CAD): The Loonie is somewhat lower this morning taking its cues from oil prices, which have pulled back from yesterday’s highs. Canada’s finance minister said that Canada is “coming to a time when exit strategies from stimulus can start to be implemented.”
Kiwi (NZD): The Kiwi is also higher on risk taking, and the market is betting that the RBNZ will raise interest rates at its June 10th policy meeting. Using interest rate swaps data, that chance appears to be about 80%. Chinese purchases of NZ goods rose some 40%. However, the RBNZ would prefer to keep rates low to rebalance the NZ economy.
Euro (EUR): The Euro is mixed this morning ahead of tomorrow’s GDP report. Retail sales figures came in worse than expected at -1.2%, showing signs of a weaker economy. In addition, manufacturing activity expanded at a slower pace than last month.
Pound (GBP): The Pound is mixed as well this morning, after the UK reported that home prices rose to the highest level in nearly 2 years. However, expect the BOE to try to keep a dovish stance to prevent Pound appreciation if inflation data falls back to the 2% target range.
Dollar (USD): The Dollar is mixed as well this morning, as the ADP employment report came in a little lighter than expected, as did initial jobless claims. While it is a good sign that employment is not getting worse, the market is getting impatient as gains need to occur in order to instill confidence that the US economy is improving. Tomorrow’s NFP report could be the catalyst.
Yen (JPY): The Yen is also weak as the Asian stock markets rebounded taking its cues from yesterday’s US stock market rally. Funding for carry trades helped contribute to Yen weakness. Capital spending decreased as Japanese businesses pare back as the export-led recovery has not sufficiently stoked domestic demand.
As mentioned above, the jobs numbers here in the US may reverse the early risk-taking we have seen so far this morning. At some point the data is going to have to start coming in better than expected to really provide confidence that economic recovery in taking place.
While the economies of New Zealand and Australia appear strong, the Euro zone appears weak. One of the biggest drivers of world growth is China, and it will be interesting to see what happens if they try to slow the pace of their economic growth.
While things have been quiet in the Euro zone as of late, don’t be lulled into a false sense of security as there still are major risks in the economy.
So for now, trade what you see and not what you want to happen!
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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German Political OxyMorons!
By Mike Conlon | May 19, 2010
The German people are known for being hard-working, efficient, industrious people. They are not known for their charismatic personalities or ability to excel in politics. While this is not a bad thing, it is coming back to haunt the Euro zone as Germany is making unilateral decisions that affect the financial markets.
Just yesterday, Germany enacted a “naked short-sell” ban on financial stocks and bonds and wants to limit the use of CDS only to those who actually own the bonds. While in and of itself this is not a bad policy, they needed to get the other members of the EU on board with this action. They did not consult the other nations, which consequently raised suspicion in the market that they “had something to hide” and sent the Euro plummeting lower to 1.21 and change.
In what many view as yet another political blunder by Germany in the handling of this crisis, the market has started to realize that this ban will largely ring hollow without the other nations on board, and that this announcement was more about dumb German politics than anything financial related. They really should take a look back to the first few months of Obama’s presidency; the guy was so used to being on TV that every time he spoke the markets tanked! When he finally learned to be quiet, the markets were able to rebound.
Hey Germany, if you want to save the Euro—just shut up already! In any event, we are seeing risk taking in the market as the commodity currencies have sold off, as has the Pound as the UK rate policy meeting minutes came out. The Euro has rebounded from very oversold levels, and US CPI came out slightly negative vs. a slightly positive expectation.
In the forex market:
Aussie (AUD): The Aussie is down big-time this morning, as the German short ban-induced sell-off caused major risk aversion. Other factors contributing to the sell-off are (in no particular order): potential slowdown in China, Greek debt concerns, and lower commodity prices. In addition, consumer confidence levels are at 19-month lows, despite the fact that wages grew at the fastest pace in almost a year.
Loonie (CAD): The Loonie is lower for the same reasons as the Aussie, especially dragged lower by oil prices which are in the $68.5 range. Canadian CPI is due out on Friday, but if risk themes persist an increase around the globe, then no amount of inflation will give the market confidence that the BOC will hike rates at the June meeting. The bottom line is that you cannot raise rates if the threat of a global double-dip recession exists.
Kiwi (NZD): The Kiwi is the biggest loser this morning on risk aversion, but in addition, RBNZ Governor Bollard came out saying that NZ needs to reduce its budget deficit and should forego growth prospects in favor of austerity to rebalance its economy. He also said that a gradual depreciation of the Kiwi would be desirable, so investor sentiment has shifted away from a mid-year rate hike as had been previously expected.
Euro (EUR): Years from now, both economics and poli-sci classes are going to use this EU debt crisis as a case study of what not to do. The announced bailout was supposed to be the final straw, the end of the play. And like a bad movie that just won’t seem to end, Germany keeps giving the markets reason to question the credibility of the Euro which in turn inspires risk aversion and a lack of confidence around the globe. Meanwhile construction output in the region was higher. So the Euro has bounced back, as the market has realized that it was just German stupidity and not a hidden time-bomb. If this keeps up, then the Euro could be finished very quickly.
Pound (GBP): The Pound is lower as but is rebounding a bit as the BOE rate policy meeting minutes were released showing a dovish stance. Policy-makers voted unanimously to leave rates and bond purchase programs unchanged, which falls in line with the potential austerity measures about to be under-taken.
Dollar (USD): The Dollar is higher on risk aversion, but is giving back some gains as the market is moving away from the major threat level induced by Germany. CPI figures came in less than expected showing a decline of .1% vs. an expected gain of .1%. While not a major difference, this really shows that we are still in a deflationary mode even with all of the tremendous government spending which was supposed to prop-up prices.
Yen (JPY): The Yen is higher, especially against the commodity currencies as risk-aversion caused a major unwind of carry trades. In addition, industrial production figure came in better than expected heading into tomorrow’s GDP report which is expected to show positive growth led by exports. This may help Japan take measures to reduce its extraordinary debt.
The only thing I can say regarding the global economy is that there is major risk in the marketplace right now. Countries around the globe are preparing to tighten their belts and are looking to return to fiscal responsibility.
The only real country not on this path is the US, as politics rules and economics drools! So Washington DC is going to continue to re-fill the punch bowl to keep the masses at bay, rather than do what is economically responsible but politically suicidal.
I don’t know how confidence is going to return to the Euro zone and if it will happen anytime soon. A gradual decline of the Euro is OK, but these break-neck moves need to be stopped if the global economy is going to function properly.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Topics: What To Look At In The Market | 1 Comment »
Been There, Done That!
By Mike Conlon | April 15, 2010
Jobs Disappointment!
The number of Americans filing for unemployment rose last week, beating estimates by 24K to 484K. Despite all of the “rah rah” cheering from the financial media and the government, the US economy is still not out of the woods yet. In addition, the number of continuing claims rose, as did the number of those receiving emergency assistance through extended benefits.
Across the pond, the Greek tragedy has now turned into a Greek comedy as this bailout situation still won’t go away. Now speculation is that the bailout package won’t be enough, and that the IMF should have a bigger role. This little “game” being played by the EU is getting tiresome, as it seemingly comes to an agreement right before Greece issues bonds, and then everything falls apart after those bonds are issued. It’s obvious that Germany does not want a strengthening Euro, as they are barking the loudest. They are playing a dangerous game of chicken right now and perhaps they would be better served making an agreement and sticking to it.
In addition, as if Iceland wasn’t causing enough economic problems already; a volcanic eruption from there has spread across Europe causing disruption to airline travel. Look for this to be used as an excuse the next time someone reports worse than expected figures.
Also to note is that China’s economic growth surged to 11.9% for the FIRST QUARTER alone. This may put additional pressure on the government to allow the Yuan to appreciate, which could help slow down this massive economic bubble that is occurring there. This could be problematic for world economic recovery if China demand subsides, especially if they have been the primary driver of recovery. Stay tuned.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on mild risk-aversion as well as well as the news that consumers expect inflation to climb to 4.1% over the next year, which would be the highest level seen in 18 months. However, it should also be noted that if this were to be the case, the RBA would undoubtedly raise rates.
Loonie (CAD): The Loonie is also lower this morning on risk aversion, but faring better than the Kiwi and Aussie as oil prices are only slightly down and still above $85. In addition, Goldman Sachs raised their outlook for the Loonie, which could also be providing it with a bid. However, the last bit of news makes me nervous. My forecast is much rosier than Goldman’s, and my experience has taught me to do the OPPOSITE of what Goldman says. Take that last bit of advice with a grain of salt.
Kiwi (NZD): The NZ PMI index came out earlier showing a better than expected reading of 56.3. Anything above 50 is considered expansion; below 50 economic contraction. Mild risk aversion and lower commodity prices are weighing on the Kiwi.
Euro (EUR): How many acts are in this play? The Euro is lower across the board on, you guessed it, the Greek drama taking place. I was a fan of cliff notes in high school, so here’s the abridged version of how this is going to play out: 1. Greece has a problem and needs to issue bonds; 2. EU can’t agree on a solution, Euro sells off; 3. A last minute solution is reached, allowing Greece to issue bonds causing the Euro to rise; 4) Germany, upset with a higher Euro which hurts their exports, starts rattling the cage and complaining causing the Euro to sell off again; 5) wait for the next “solution” to the problem. In other words, rinse and repeat. They just better hope that investors don’t get tired of this routine and decide to skip the next show!
Pound (GBP): The Pound is mixed this morning as a new poll shows the chance of a hung Parliament occurring decreasing as the Conservatives are leading the Labor party. Expect various election polls to influence the Pound going into the elections. Next week will be the minutes of the interest rate policy meeting, though it is highly unlikely that anything will be different going into the elections.
Dollar (USD): The Dollar is higher on risk-aversion as stock futures are lower, and initial jobless claims came in worse than expected. China over-heating and the Greek situation add to the mix. However, the Empire manufacturing index came in much better than expected, showing that the US does still have an economic pulse.
Yen (JPY): The Yen is benefiting from risk-aversion today as demand is higher to the un-wind of carry trades.
“Look kids—Big Ben, Parliament!” I feel like Chevy Chase in the movie “European Vacation” as he is stuck in a rotary and goes crazy because he cannot stop from going round and round. And like the forex market, we’ve seen this all before.
The Germans are not known for their outstanding playwrights; the Greeks are. Perhaps Germany should take a note from another Greek story-teller Aesop, who is attributed with the story, “The Boy Who Cried Wolf”.
For if the market stops believing what is taking place, then it could cost the Euro in the long run.
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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Global Recovery Under Way?
By Mike Conlon | February 1, 2010
All eyes are on the US ISM Manufacturing number due out this morning at 10AM EST. The market is hoping to see a rise in this number as that would indicate business activity is picking up. So far this morning, we are seeing mild risk-taking as the Euro has rebounded from 4 days of selling.
US stock market futures are up as are gold and oil.
Let’s examine how this is affecting world currencies:
Aussie (AUD): The Aussie is currently trading down this morning despite the risk-taking tone this morning as traders are gearing up for the RBA rate decision due out overnight. The market is expecting a 25 basis point hike to 4%, but this could trigger a bearish scenario. If they do raise rates, it is extremely likely that they will take another rate hike off of the table going forward. There is also a chance that they don’t raise rates this time, as news that China is paring back economic stimulus could affect the Australian economy.
Kiwi (NZD): The Kiwi is up slightly this morning benefitting from the risk trade.
Loonie (CAD): The Loonie is up this morning as oil prices recover and stabilize as well as a general risk-taking mood this morning. The market is waiting for confirmation from the ISM data so it trading in a tight range until that release. The Loonie should strengthen today if the number comes in better than expected.
Euro (EUR): The Euro is the biggest gainer this morning as it rebounds from 4 days of weakening. The market is gaining confidence that the plan to manage the debt crisis in Greece is acceptable and plausible which generally ties in to the risk-taking trade this morning. Over the last four days, the thought that Euro could serve as an alternative to the US dollar as a reserve currency was largely debunked as Central banks pulled cash out of the Euro at a record pace.
Pound (GBP): The pound is down this morning against all but the Japanese yen as housing prices slid in the UK and banks granted fewer mortgage applications last month. The Bank of England rate decision is on tap next week but traders are more interested to see if they continue with their quantitative easing program.
Dollar (USD): The US dollar is down this morning as part of the risk-taking trade. Stock market futures are up as are commodities and all eyes are on the ISM Manufacturing number. There are some figures out this morning that show that US personal incomes are up slightly, and personal spending is higher than the prior reading but missing expectations by just .1%.
Yen (JPY): The yen is down across the board this morning as the BOJ’s top economist said that Japan’s economy is far from “achieving self-sustaining growth” as their export led recovery failed to induce consumer spending. This also falls in line with ministers calls last week for a weaker yen.
As we can see the big news of the day is ISM Manufacturing number which will be viewed as a proxy for global economic recovery. The only currency that is trading “out of the ordinary” is the Aussie, as the market prepares for the rate decision.
In global markets, stocks in Asia closed generally higher and Europe is higher at the moment. US stock markets futures are higher pre-open and oil is up to 73.47, with gold slightly higher to 1088.
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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O, Canada!
By Mike Conlon | October 9, 2009
Good news this morning out of Canada regarding their unemployment figures has propelled the Canadian dollar (CAD) to a one year high. The unemployment rate dropped from 8.7% to 8.4% as the Canadian economy unexpectedly added some 30,000 workers. CAD is up across the board, most notably against the Japanese yen (+2.16%), the Kiwi (+1.93%) and the Euro (+1.15%).
Its also up against the US dollar (+.81%) as the dollar has found its own strength with some jaw-boning from Ben Bernanke early this morning. The dollar is up most vs. the yen (+1.32%) as well as the other Majors. This also falls in-line with with my previous commentary on the Yen, that 88 appears to be a short to mid-term bottom. Rumors that the Japanese would intervene at that level are also contributing to Yen weakness today (see CAD and all other crosses).
Questions remain about when the Fed might act, but don’t forget that the currency market is forward-looking, so any indication that Bernanke may be willing to raise rates or remove QE is seen as positive for the US dollar, despite the fact that Big Ben maintained the Fed Mantra “for an extended period” in his statement regarding accommodative policy.
One thing to note about Bernanke’s comments is that he will tighten when the economy “has improved sufficiently”. What this means is anyone guess but as I have stated in other comments, this could be sooner than later.
The other side of the coin is that the US economy is NOT recovering, which could lead to further dollar declines. However, pressure coming from abroad may force Bernanke’s hand sooner than he’d rather move.
So once again all eyes are on Bernanke. Let’s see what happens.
Tags: Bernanke, cad, canada, comments, currenc, currency, currency market, dollar, economy, EUR, Euro, falls, fed, Il, intervene, Japan, Kiwi, Mike Conlon, news, rate, short, unemployment, Yen
Topics: What To Look At In The Market | 1 Comment »
Selling Short vs…well uh, ..just “regular selling”!
By Sean Hyman | June 19, 2009
Regular selling is when you’ve bought first, expecting the pair to rise…and then you sell later on to close out the trade and “lock in” those profits from the gain produced by the upward trend on the chart.
Selling short is when you are going into the market by INITIATING a sell order FIRST,expecting the pair to trend downward and thus gain money in your account equity that way. As the pair falls, your account appreciates in value. Then when you think the downturn is over, you can close out the “short sell” by buying back to cover. This is simply done by clicking on the buy quote and placing a buy for the exact number of lots that you’d shorted.
Just as a sell closes out a regular buy order….so does a buy order close out the sell (sell short) order. So when you initiate a sell to get into the trade (to enter the trade)…you are shorting (selling short).
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
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Medium Term Fundamental Trade: A Case for the Euro!
By Sean Hyman | April 27, 2009
I want to show you how to crawl into the mind of a fundamental trade. As an example, I’d like to show you a recent example of how I go about formulating a longer term fundamental view of the euro (EUR/USD). So let’s take a look below…
For the first time in a long time, I see the start of a fundamental shift for the Euro Zone. It’s not just one thing but actually there are six pieces to this pie as I see it. Let’s take a look at them for a moment.
The talk among the European central bankers is starting to change. For instance, over this past weekend, the ECB’s Wellink is talking about a “floor for the benchmark interest rate”. Others have stated that it may not be a wise move to take interest rates lower.
So for the first time in a while we’re seeing the European central bank members talking about halting the interest rate decreases. That’s a first step in halting the fall of the euro.
Also over this past weekend, the Group of Seven (G-7) nations got together and have released a statement that said, “Economic activity should begin to recover later this year”. Then they went on to say that, “Recent data suggests that the pace of decline in our economies has slowed and some signs of stabilization are emerging”.
This will give investors a sigh of relief and it will encourage them to “come back out of hiding” from within the dollar and yen and to inch back into beaten down currencies that have a huge chance for appreciation. The first place money usually runs to is the euro (nicknamed the anti-dollar). So if money leaves the dollar (and I think it is), then the first stop is the euro.
Now, the next changes that I’ve begun to notice are the recent changes in the sentiment indicators for the Euro Zone (particularly
For instance, the German ZEW economic sentiment indicator came in at -3.5 two months ago but was expected to come in at +1.8. However, it blew out those expectations by coming in at +13.
Another sentiment indicator complimented the ZEW. It’s called the German Ifo report and it is a survey that has to do with the business climate. Two months ago, it came in at 82.2. This past month, it was expected to inch fractionally higher to 82.4. Yet it blew by those expectations and came in at 83.7.
So with the Euro Zone being in such disarray and the sentiment numbers still coming in more bullish than expected, it becomes a huge vote of confidence going forward for the euro.
Then we come to the final pieces of the puzzle which are the recent improvements in both the manufacturing and services numbers for
What does the stabilization of commodities have to do with the euro? The EUR/USD pair is predominately driven by “dollar flows”. So as the dollar falls, the EUR/USD rises and vice versa. As commodities rise, the dollar tends to become weighed down. As commodities fall, it’s like the ankle weights are being taken off of it and it propels higher. So if commodities have completed their fall and they’ve based sideways, it’s only a matter of time before they turn upward and head higher once again. As that happens, the dollar will plummet and the euro will be one of the biggest beneficiaries of the slide off in the dollar.
Therefore, for these six reasons mentioned above, I believe that the euro has put in a floor around the 1.25 level to the dollar and that we will see it start to head higher in the months ahead.
For many, this will be a “hard pill to swallow”. After all, I hardly know of anyone out there talking about the euro going higher in the months ahead. Almost everyone is betting on the rise of the dollar in the months ahead because of how well it has done in the past year. However, the dynamics that blessed the dollar with a good year last year are starting to change….and my readers are tipped off to it ahead of the masses.
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USD/CHF falls almost 300 pips within 20 minutes after Fed announcement on rates!
By Sean Hyman | March 18, 2009
The Fed creams the dollar all with one quick statement. Check out the severity of it below. Traders that were short the dollar made a lot of money today on this trade. Click the chart to enlarge it. 
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