Race to the Bottom, 2.0
By Mike Conlon | August 24, 2010
Risk aversion is clearly the theme this morning in the markets as heightened fears of economic slowdown are weighing heavily on world markets. While economic data as of late hasn’t been horrible, it is the constant fear-mongering from government and banking types that keep the markets on edge.
Case in point: Some British policy-maker (who I’ve never heard of before) came out and stated that the UK faces a “real risk” of a second recession. Really? Any more so than any other region around the globe? Or is this a case of someone, somewhere that wants to see a lower Pound to encourage exports?
Let’s face it; wouldn’t every region around the globe prefer to see their currency lower to encourage exports? Thus we are nearing the “race to the bottom, 2.0.” This morning’s risk aversion has pushed the Japanese yen to 15-year highs, and the rhetoric about intervention is now coming directly from the horse’s mouth. Japanese PM Kan stated that “steep currency moves are undesirable” and is looking for joint action from the G-7. It is becoming more apparent that Japan may not have the ability to effectively intervene in their currency alone, as the Swiss National Bank found out recently.
Meanwhile, in New Zealand, 2 –year inflation expectations came in lower for the first time in over a year, prompting expectations that the RBNZ will not raise rates again at the September meeting.
In the Euro zone, the German economy showed it expanded at a 2.2% pace as final 2Q GDP figures were released. The German economy is almost single-handedly keeping the Euro zone economy afloat.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion this morning as global market selling has caused the un-wind of carry trades as investors flee yield in favor of safe haven assets.
Kiwi (NZD): The Kiwi is lower on risk-aversion and also because they reported a decrease in the 2-year inflation expectation for the first time in almost a year. The figure showed an expectation of 2.6%, down from the previous reading of 2.8%. It is now highly doubtful that the RBNZ will raise rates in September, especially in light of recent global market fears.
Loonie (CAD): The Loonie is the worst performer this morning, as it has been hit with the triple-whammy of lower oil prices (around 72), bad retail sales figures, and overall risk aversion. Retail sales figures came in at .1% vs. an expectation of .4% showing signs that the Canadian economy is slowing. It doesn’t help that Canada is so reliant upon the US to import from them. (Click chart to enlarge)
Euro (EUR): The Euro is mostly lower on risk aversion, despite the fact that the German economy reported final 2Q GDP figures showing growth of 2.2%. While under normal circumstances this would be considered very good; today is looking more and more like an ugly day overall.
Pound (GBP): Thank you Mr. No Name policy guy for jaw-boning the Pound lower, thereby causing further fear in the markets. The Pound is at 1-month lows to the Dollar, trading just under 1.54. (Click chart to enlarge)
Dollar (USD): The Dollar is higher due to the flight to safety trade and look for it to continue to gain after the existing home sales figures come in which are bound to be dismal. I’m sure the spin cycle will be on high, but make no mistake economic conditions here in the US are deteriorating.
Yen (JPY): The Yen is trading at 15-year highs against the Dollar, as risk aversion is causing the un-wind of carry trades. The jaw-boning is picking up in Japan, but is this going to be a case of too little, too late? Questions abound over whether or not the BOJ can do anything about Yen strength as risk themes may be too large for them to go it alone. This shows the fragile shape of the Japanese economy, and PM Kan’s call for joint action from the G-7 nations may be the final nail in the coffin. (Click chart to enlarge)
It is no secret that everyone would like to have a lower currency value to help their exports which encourages manufacturing and provides employment. The reality is that it is not possible. Thus we see the “race to the bottom, 2.0”, as various reports cause fear-mongering.
As risk aversion picks up steam, it is becoming harder and harder for Japan to slow down the Yen’s ascent. While intervention may have worked in the past, in today’s market it is not as easy to accomplish. They may need to sit through some pain and wait until the world regains confidence in the global economy.
While it is no secret that the global economy will be slowing as governments remove stimulus, the crisis we are in right now is one of confidence. Financial and government types, while out to further their own interests; should be more cognizant of the impact of their rhetoric globally.
While fears of a global double-dip recession are heightened, this is nowhere near as bad as the banking crisis of 2008. When there is fear in the markets, there is also opportunity. For those who know what they’re doing.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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What’s Ahead for the Fed?
By Mike Conlon | August 10, 2010
All eyes today are going to be glued on the FOMC policy meeting today where the Fed is expected to keep rates at .25% for an “extended period”. However, more attention will be paid to the policy statement which is expected to show concern about a decline in the economy.
There is an expectation in the marketplace that the Fed will announce that they are going to reinvest proceeds from mortgage bond holdings into new securities. Further asset purchase plans could also be announced, which would be further quantitative easing designed to stimulate the US economy.
Thus there is discrepancy in the market as to whether or not this would be received as positive or negative for the Dollar. The market is starting the morning in risk-aversion mode, with Dollar strength across the board. Further quantitative easing has been dubbed as “QE2”, could send the markets higher and increase risk appetite as the prevailing thought is that looser money will make its way into other areas of the economy. However, this would also signal that economic recovery is very fragile, which would be seen as a negative and could induce further risk aversion.
One of the problems seen in the US economy is a lack of demand, so there is some concern that monetary easing may not be enough to combat the problem. The idea is that if money is cheap enough people will want to borrow, and potentially use that money to fund major asset purchases (such as housing). However, consumer psychology is very fragile as concerns about employment have trumped the desire to spend. All of the easing in the world won’t fix this situation. So if the Fed does ease further, look for stocks and commodities to move higher, as home prices and other assets continue to fall.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion. Business confidence figures came in at a 1-year low. Tomorrow Australia reports consumer confidence figures and on Thursday unemployment figures. There is also concern in the market about a potential Chinese slowdown, as the Chinese reported lower exports and slower property price gains. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is also lower for many of the same reasons as the Aussie, but slightly more so because the NZ economy is not as robust as Australia.
Loonie (CAD): The Loonie is also lower as oil prices have slipped back to the 80 mark on signs that the global economy is slowing. In addition, the new housing price index came in slightly lower and housing starts fell to a 7-month low, though slightly better than expectations.
Euro (EUR): The Euro is mixed this morning trading higher against the Pound and risk currencies. CPI figures in Germany came in as expected, though French industrial production and manufacturing figures were lower.
Pound (GBP): The pound is lower as a UK housing gauge showed its first price drop in a year as demand for housing weakened. This comes ahead of the BOE inflation report due out tomorrow, which would support the idea that inflation is going to fall back to the target range, which could reduce the likelihood of a return to normalized monetary policy. (Click chart to enlarge)
Dollar (USD): Dollar strength this morning is coming about for two reasons: risk aversion prior to the FOMC statement, and because the market has actually reduced speculation about quantitative easing. There is one thing we can be certain of; that there will be major volatility surrounding the statement, which is due out at 2:15 EST.
Yen (JPY): Then is showing strength today as both risk aversion and a lower Nikkei has increased demand. In addition, the Bank of Japan left interest rates unchanged and the government assessment of the economy was that it was improving despite a higher Yen. As a result, speculation over monetary easing or intervention has lessened. (Click chart to enlarge)
Today could be a very important day for both the US and global economy as the results of the FOMC could set the course for future growth going forward. Part of the fear in the market is that we are facing deflation; and Bernanke the student of the Great Depression is going to do everything he can to try to combat it.
The problem is, all the easing in the world may not encourage demand if people are fearful about the path the US economy is on. Many consider this to be “Japan 2.0”. The Japanese have been battling deflation for years and all of the money that they pumped into their banking system never made it out the door as there was little demand and no confidence to spend.
There is going to be MAJOR volatility surrounding the Fed announcement, so traders should be careful and wait for the dust to settle before getting into position. I personally will be out of the market until after the decision, as I prefer to see what is going to happen rather than try to guess.
My advice is that you should do the same.
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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Record Low Rates Persist!
By Mike Conlon | August 5, 2010
Earlier this morning, both the ECB and the BOE left interest rates unchanged. While this move was largely anticipated, comments from the ECB show that economic progress is being made; evidenced by better than expected factory orders in Germany.
Here in the US, Initial Jobless Claims came in at 479K vs. an expectation of 455K showing signs that the employment picture is still weak and worsening. Tomorrow’s Non Farm Payrolls Report will be the rubber match and the ultimate decider of economic condition of the US.
Speaking of bad employment figures, last night New Zealand reported a worse than expected unemployment rate, sending the Kiwi lower as the worst performer this morning.
So this morning is a bit of a mixed bag, with fundamental data driving the marketplace more so than risk themes. There is significant US dollar weakness, yet Canadian dollar strength. The Japanese yen is also showing strength, as is the Euro.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on a lack of risk appetite as its neighbor NZ reported dreadful employment figures.
Kiwi (NZD): The Kiwi is the worst performer this morning as worse than expected jobless figures have soured speculation that further rate hikes may be forthcoming. The unemployment rate went up to 6.8% vs. an expectation of 6.2%, showing signs that the economy in NZ may be cooling. (click chart to enlarge)
Loonie (CAD): The Loonie is surprisingly strong this morning as risk appetite has diminished and oil prices have fallen back to around $82. However, building permits advanced to 6.5% vs. an expectation of a 1.8% gain, reflecting a more positive outlook. Loonie strength this morning is most probably money flowing from the Kiwi as a future NZ rate hike is all but off of the table.
Euro (EUR): The Euro is mostly higher after the ECB left rates unchanged. However, positive comments from ECB President Trichet have increased demand for the Euro, as has anti-Dollar sentiment.
Pound (GBP): The Pound is now lower across the board as more traditional risk aversion is creeping its way into the market this morning. The BOE left rates and its asset purchase program unchanged, and there is increasing speculation that a rate hike may be coming sooner than later.
Dollar (USD): The Dollar is weaker this morning on the heels of the Initial Jobless Claims report which showed an increase of 479K vs. an expectation of 455K, which is a 3-month high. Tomorrow’s NFP report is expected to show a loss of 65K jobs, and the unemployment rate is expected to tick higher to 9.6%. Worse than expected figures could send the market into major risk aversion going into the weekend. The Dollar is gaining strength though as risk themes come further into focus.
Yen (JPY): The Yen is stronger this morning as the market slips into a more traditional risk aversion mode. There is major concern about possible intervention in the currency should it continue to strengthen, however Finance Minister Noda has shunned such discussion. (click chart to enlarge)
The employment picture in the US looks bad and there is no sign that it is getting better. Current economic uncertainty over government policy has left businesses content to do more with less. This is unfortunate as there are many able-bodied and willing workers out there who are victims of big government ideology.
Future tax hikes, regulation, costs, and general anti-business climate have caused many Americans to realize their greatest fear, that they may have to rely on the government to get by.
Meanwhile, countries around the globe have decided to take their medicine and cut back on spending, thereby reducing the uncertainty over the business climate and actually encouraging economic progress.
Just a few months ago, everyone was calling for the Euro to collapse and now the economic prospects look (dare I say it) better than those of the US. The marketplace is sending a loud and clear message which is backed up by the data that currently the US is in danger of going over the cliff.
If we continue to let this happen, then we have no one to blame but ourselves. So keep an eye out for tomorrow’s NFP which is sure to be a market-mover. Remember that volatility is a trader’s friend but be sure to remember to trade what you see and not what you think will happen.
In other words, don’t guess. React.
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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“Slowing” Growth!
By Mike Conlon | July 15, 2010
Overnight, the Chinese reported less than expected GDP figures; however before you worry about the Chinese economy, note that growth slowed to 10.3%. That’s right, growth above 10%. By contrast, most other global economies are struggling to reach 3% growth.
In addition, in Japan the BOJ left rates unchanged at .1%, citing forecasts that growth will slow as fiscal stimulus is removed worldwide, thereby affecting global demand.
Across the pond, both the Euro and Pound are trading higher vs. the Dollar as dollar weakness due to continued positive corporate earnings led by JP Morgan are reducing demand for the greenback. In addition, better than expected demand for a Spanish debt issue and lack of bad news has buoyed the Euro to 1.285.
The Aussie and the Kiwi are also lower this morning, as fears of a Chinese slowdown reduce expectations for exports. However, 10% growth still looks pretty good to me.
Lastly, the Fed statement yesterday here in the US showed a commitment to maintain rates for as long as is deemed necessary. This is reducing demand for the Dollar ahead of US PPI and CPI figures which are due out today and tomorrow respectively.
In the forex market:
Aussie (AUD): The Aussie is lower on fears that a Chinese slowdown may soften demand for Australian commodities, despite the fact that demand for safe haven currencies has subsided.
Kiwi (NZD): The Kiwi is also lower for the same reason as the Aussie; however the NZ manufacturing index expanded at a faster than expected pace. Tomorrow NZ will report CPI data which will show whether inflation is tame or not and may influence the market’s expectation of a rate hike.
Loonie (CAD): The Loonie is lower on concerns about demand for commodities, despite the fact that oil is trading marginally higher. The BOC rate decision is due out next Wednesday, which may bring a rate hike should policy makers fear that inflation may come in higher.
Euro (EUR): The Euro is higher across the board, as the lack of bad news has emboldened traders as a series of successful debt auctions have provided confidence to the marketplace. In addition, the ECB maintained that interest rates are appropriate and they expect to see moderate growth.
Pound (GBP): The Pound is also mostly higher this morning and reached a high of 1.537 vs. USD as Chancellor Osborne said he does not expect banks to need additional support and cited austerity measures as a main reason. However, the BOE has still maintained a dovish outlook for future policy.
Dollar (USD): The Dollar is lower today as PPI figures came in at -.5% vs. an expectation of -.1%. This shows that prices are declining faster and may, in conjunction with tomorrow’s CPI data, show that deflation is firmly in hand. Initial jobless claims came in less than expected, with 429K new claims vs. an expectation of 450K. Corporate earnings have been good so far, but may not be enough to hold up stocks as the futures are giving back earlier gains.
Yen (JPY): The Yen is surprisingly strong this morning as it looks like US data may be moving the market toward risk-aversion. The BOJ policy meeting still showed a cautious outlook and recent Yen strength could pose a threat to Japanese exports, the leading driver of economic growth.
While Chinese growth may be “slowing”, it is hard to argue that 10% is nothing short of remarkable. However, when one considers that it is Chinese growth that is driving the world economy right now, there is concern that a lack of global demand could cause further reductions.
In the US, it looks like deflation is winning the battle as the government’s attempts to maintain higher prices may have been misguided. While deflation is a problem, let’s consider for a moment that Japan has been experiencing it for the last 20 years.
While I am hoping that policy-makers can avoid a Japan-style economic malaise, I have my doubts currently. The government is just about out of magic bullets to help maintain prices as interest rates cannot get much lower.
The problem with the economy right now is not that there is a lack of demand, but rather an over-supply of homes, goods, and services. As the economy reached the asset bubble that became known as the Great Recession, government policy to attempt to keep prices high only served to help bank balance sheets. While this may have prevented a total collapse of the financial system (still up for debate), now is the time to pursue pro-business policies that will help bring new money to the US economy to increase demand as supply clears.
On the plus side, at least it was “only” 429K losing jobs last time, it could have been much worse. So let’s just hope that China will continue to grow, as it looks like the US may be done for a while. Dollar weakness is evidence of this.
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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US Earnings On Tap!
By Mike Conlon | July 12, 2010
This week starts earnings season for US companies and, rightly or wrongly, will help show whether or not economic progress is occurring. We’ve witnessed the disconnect between corporate profits and the “real economy”—namely jobs—and good corporate earnings will give the unemployed hope that hiring may be soon to follow.
In the UK, GDP figures came in as expected showing slightly positive growth for the quarter, and there was an article over the weekend claiming that the UK’s proposed bank requirements would lead to a double-dip recession.
In the Euro zone, potential fears of bank solvency issues were balanced out by German economic strength measured by employment and industrial production figures. A lower Euro had helped German exports and if the banks can “pass” the stress tests without setting off a chain reaction, then the Euro could stabilize near these levels.
In Japan, the ruling party lost control of the upper house in elections, providing political uncertainty and causing the Yen to sell-off overnight. However, overall risk aversion has brought strength back to the Yen.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion, despite the fact that home loans rose for the first time in 8 months. However, futures are showing that traders are decreasing their bets for an Aussie rise vs. the Dollar. US corporate earnings will be the major driving force this week, with better numbers encouraging risk appetite.
Kiwi (NZD): The Kiwi is also lower on risk fears despite the fact that the NZ budget deficit came in narrower than expected. Home prices came in slightly lower, but still posting gains of 5.2%. Inflation figures are due out later this week.
Loonie (CAD): Not a lot of news for the Loonie this week but expect it to be extra sensitive to US corporate earnings this week. The US is largest importer of Canadian goods and services.
Euro (EUR): The Euro is also lower as the policy makers are already calling for better capitalization of the banks before the results of the stress tests are released. It is no secret that banks would be better off with more capital; the problem is whether or not increased capital requirements will hamper growth. Germany is showing that its economy is still strong, and that may be enough to out-weigh the negativity surrounding the Euro.
Pound (GBP): The pound is lower as DGP figures showed .3% growth in the first quarter; however the current account deficit is at its widest margin since 2007. Economists are expecting better growth in the 2nd quarter, before the impact of fiscal tightening takes place. The Pound traded below 1.50 earlier but has since rebounded higher.
Dollar (USD): The Dollar is seeing some strength this morning as risk aversion is present at the start of the US session. US CPI and PPI figures are due out later this week, but all eyes will be on the US corporate earnings reports. Good earnings will provide hope that hiring may be around the corner, but at the end of the day we may still be in the “tale of 2 economies”, with companies thriving while the unemployed are crying. Bad corporate earnings could send the markets reeling, so expect volatility in the short-term.
Yen (JPY): Overnight, the ruling party lost control of the upper house of government, providing political uncertainty and the fear that Japan may have trouble attempting to tackle its deficit. The Yen was lower, but is now seeing strength on risk aversion. The Bank of Japan Monetary policy meeting is taking place this week but don’t expect them to move on rates. Japan will trade this week on risk themes.
So the market and the US government are counting on good corporate earnings to provide confidence that the economic picture may be improving. With higher profits, the likely conclusion is that companies will begin hiring again which will hopefully help lower unemployment.
However, this may not necessarily be the case. Companies are fearful of the current economic climate as potential new rules, regulations, and taxes spur hesitation. Companies will be very cautious when looking to expand and could be quite content with their present situation.
Whether or not this is the case remains to be seen as the market expects good earnings. Should the numbers be average or even bad, then that could open up a whole new can of worms.
So expect volatility this week, and be ready to profit from short-term fluctuations should the situation present itself.
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 | July 9, 2010
This morning, Canadian employment figures came in and showed a drop in the unemployment rate from 8.1% to 7.9% on strong jobs growth. The Canadian economy added 93K jobs vs. an expectation of 20K. This belies the good economic story going on in Canada despite the fact that they rely on the US to import their goods and services. Should the US economy slow down, it could affect Canadian GDP negatively.
In the European session, ECB President Trichet made the “we’re not out of the woods yet” comment, saying that there is still question over the health of the EU banking system and that serious changes need to be implemented to get better control over the deficits. The bank stress tests are due in about two weeks.
In the UK, PPI figures came in lower than expected, showing signs that the BOE may be correct in their assessment that inflation would be subside. The minutes from the rate policy meeting will be released on July 21st, and is expected to show a continued dovish stance.
Lastly, we’re seeing Dollar strength this morning despite the fact that risk-aversion is mild. This is probably more of a technical bounce and the function of traders not wanting to hold risk assets over the weekend. US stock earnings season kicks off on Monday.
In the forex market:
Aussie (AUD): The Aussie is lower this morning after posting its best week of gains in nearly 9 months. Bets that a further rate hike in 2010 have increased as a result of the best surge in employment they have seen in nearly 4 years.
Kiwi (NZD): The Kiwi is also lower, trading in sympathy with the Aussie.
Loonie (CAD): The Loonie is the best performer this morning as employment gains bested analyst expectations by a wide margin. There is a good growth story going on in Canada, as they benefit from commodity gains and as long as their largest trading partner to the south (US) keeps spending. In addition, housing starts came in largely in line with expectations.
Euro (EUR): The Euro is lower this morning as the market prepares for the bank stress tests. There is much speculation in the market about what the results will be, and what measures will need to be taken to insure financial health. One such solution would be that the banks may need to raise additional capital. German CPI figures came in as expected, showing signs of some price stability. There are also rumors floating about that the ECB may need to take a more dovish stance with the Euro, which could mean increased quantitative easing or possible rate cuts, though the latter seems unlikely at this point.
Pound (GBP): The Pound is lower as well, as PPI figures fell for the first time in nearly 2 years, easing inflation pressures in the economy. The UK had been seeing inflation outside of government targets, but it appears that it may be coming back to their preferred range. In addition, the UK trade deficit widened as a .2% gain in exports was negated by a 2.4% gain in imports.
Dollar (USD): The Dollar is higher against all but the Loonie, as the market moves toward the safe haven of the Dollar going into the weekend. In addition, the Dollar has been beaten up this week as risk-taking has been the primary driver. Reports are coming out that economists are paring back their expectations for growth in US, but see no signs of the dreaded double dip at this point despite the recent patch of negative economic news. US earnings season also kicks off on Monday, so this could be adding to market fears should corporate profits be down.
Yen (JPY): The Yen is starting out lower this morning, as the Nikkei was able to hold on to gains in the overnight session. There is some mild risk-aversion in the market today, and the Yen is higher than the European currencies.
So today is a bit of a mixed bag. Neither risk-taking nor risk-aversion can be seen as a dominant theme. Good news out of Canada has put the focus back on the N. American currencies, with the European ones lagging.
US corporate earnings will be the big story next week, and if those reports are positive, it could buoy market sentiment higher. While the stock market health does not equal overall economic health, it will act as a good economic barometer and could provide hope that the employment picture may be about to get better.
If those earnings reports are largely negative, then that may open a whole new can of worms as the market is already aware of the general state of the economy. In addition, if Washington DC policies continue to threaten business, then it could be a long time before companies begin to hire employees again, if they are reporting good gains.
Either way, there is still risk in the market. If we can successfully get through next week, the European bank stress tests will pose the next major threat.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Volatility Rules!
By Mike Conlon | July 8, 2010
Yesterday, the markets started off in risk-taking mode and that quickly reversed to post huge gains as the market flipped to risk-taking. As I mentioned yesterday, there was no real reason to induce risk-aversion as the there was no news driving fear. That proved to be prescient. This goes to show how the 24-hour nature of the currency market can provide opportunities as different markets gauge risk.
Overnight, the BOE left rates unchanged and did not expand its asset purchase program reflecting a view that their economy may be stabilizing.
The ECB also left rates unchanged, but did begin its own asset purchase program to try to help ease pressure on its banking system.
In Australia, employment figures came in much better than expected showing signs that the economy is not slowing down and bringing back the chance that the RBA could move on rates again this year.
In the forex market:
Aussie (AUD): Overnight, the Australian unemployment rate fell to 5.1% as the economy added 46K jobs vs. an expectation of 15K. This has sent the Aussie higher and has encouraged risk-taking, as the market is increasing its bet that the RBA may have to resume interest rate hikes. The fear of a potential Chinese slowdown had left the market betting that the RBA was finished for the year.
Kiwi (NZD): The Kiwi is higher trading along with the Aussie as risk-taking is continuing from yesterday’s gains.
Loonie (CAD): The Loonie is also higher on risk-taking ahead of tomorrow’s employment report in Canada. Oil is catching a bid and is higher as the demand for risk assets has increased.
Euro (EUR): The Euro is mixed this morning keeping in line with risk-taking. The ECB left rates unchanged at 1%, and showed that it is willing to buy government debt to shore up the banking system. However, there is a sense that the ECB may need to expand those purchases going forward. German industrial production figures came in much better than expected, providing a bright spot to economic health.
Pound (GBP): The Pound is trading lower against all but the Yen, as the BOE left rates unchanged at .5% which the market had been expected. They also left their asset purchase program unchanged, and there may be slight disappointment that it hasn’t expanded. In addition, industrial and manufacturing production figures came in slightly lower and home prices were also lower, showing signs that inflation may be shrinking as the BOE had hoped.
Dollar (USD): The Dollar is lower against all but the Pound and Yen, as initial jobless claims figures came in slightly better than expected. Initial claims were 454K vs. and expectation of 460K, which may be showing that the US is losing jobs at a slower pace.
Yen (JPY): The Yen is lower across the board as risk-taking is continuing from yesterday. In addition, Japan’s current account balance decreased revealing that domestic demand may be picking up. This is seen as positive as it could help fight the deflation they have been experiencing.
As you can tell by now, there is A LOT of volatility in the market and frankly, I couldn’t be happier. Volatility provides opportunities for traders to profit from changes in sentiment worldwide.
Right now this is most definitely a trader’s market, as the short-term movement is out-pacing longer term position-taking. There is still fear in the marketplace and many hurdles to get over to return to global economic stability. I don’t know where the market will be in 6 months from now; let alone 2 days from now!
What I do know is that there will be ample opportunities for me to make money in the forex market as different news events drive sentiment between risk-taking and risk-aversion. My stocks may be flat, and bonds paying no interest, but there are always ways to profit from forex!
Isn’t it time you got involved to find out for yourself why the forex market is the fastest growing financial market in the world?
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Hungry for Risk!
By Mike Conlon | July 6, 2010
After last week’s sell-off in world markets, investors are feeling more confident about economic prospects as the US markets return from the holiday weekend. Bank stress tests in Europe are intended to show transparency, and EU leaders are “banking on” hopes that the balance sheets are not as bad as previously thought.
Overnight, the RBA left interest rates unchanged in Australia, but signs that inflation (particularly home prices) may be rising is giving the Aussie a boost this morning.
World stock markets are higher this morning, as stock earnings season is almost upon us. There is a common notion that stocks may offer the best chance for growth despite the fact that world economies are putting on the brakes and trying to curb spending.
There is no major news on tap for the US in this shortened week, but we’ll get GDP figures from the Euro zone, as well as the UK rate decision on Thursday.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that the RBA left interest rates unchanged. The RBA did say that consumer spending and business investment are expanding, and they may be in the middle of a housing bubble due to housing shortages. This could foreshadow further rate hikes to come.
Kiwi (NZD): The Kiwi is also higher as risk appetite is back to start the week, despite the fact that business confidence figures have fallen as domestic demand slowed. Nevertheless, the market is betting that the next rate hikes will come from New Zealand, as they attempt to thwart inflation. However, the RBNZ has been cautious as economic growth and inflation may not accelerate as quickly as expected.
Loonie (CAD): The Loonie is also higher as oil prices are higher for the first time in 6 days as risk appetite is returning to the market. Canada’s employment report on Friday will show whether or not the economy is improving, but speculators have pared back expectations of a rate hike at the next policy meeting.
Euro (EUR): The Euro is also higher as comments from various officials regarding the bank stress tests have allayed market fears—for now. EU GDP figures are due out tomorrow, with CPI figures to follow on Friday. The market is expecting tepid growth despite the austerity measures various governments are undertaking to get deficits under control.
Pound (GBP): The Pound is mixed this morning trading lower vs. the risk currencies but higher against USD and Yen. The UK rate policy decision is due on Thursday, and no change is expected. The market is still reacting favorably to the UK budget cuts, however only time will tell if the economy is strong enough to support such measures.
Dollar (USD): The Dollar is mostly lower this morning (but up against Yen) in a week that is light on news out of the US. Comments from various Fed officials will likely be insignificant, and US stock earnings season kicks off next week.
Yen (JPY): The Yen is lower this morning on a classic risk-taking day as carry traders look to re-establish positions. Japanese stocks rallied overnight as a rally in Chinese stocks gave the market direction.
Most of the news that the market has received lately has been negative, yet so far the markets have been behaving resiliently. With not much news on the docket this week, the market will have time to adjust to the notion that we may be seeing slower, but steadier growth.
Next week will kick off earnings of US companies, and they are likely to be positive despite the economic slowdown. Right now, there is uncertainty as to where is the best place for investors to park their money, with fixed income investments paying little to no interest.
That is one of the reasons why the currency market has become one of the fastest growing markets for investors, as it provides alternate opportunities and a chance to benefit from global economic conditions.
Investors have been reaping the benefits that the currency market has provided for some time; isn’t time you join them? There is no time like the present; and if world economic conditions continue to behave as they have recently, the currency market should continue to flourish.
There is always a bull market somewhere in currencies; the trick is knowing where!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Dependence Day?
By Mike Conlon | July 2, 2010
Going into this Fourth of July weekend, I can’t help but think about the state of the US economy and how we have become so dependent on government to fix society’s ills. This morning, the US Non-Farm Payrolls report came out and it showed that we had an overall jobs decline of 125K, but an increase in private sector hiring to 83K, which was better than last month but less than expectations. In addition, the unemployment rate fell to 9.5%, but this was more a function of people leaving the work force than economic and jobs growth.
Part of the reason we see these distorted numbers is because of the decline of census workers, but private sector job growth has been tepid at best. This is all a function of the current economic climate in Washington DC, and government policy which businesses deem as uncertain. Without private sector growth, the economy could be in danger of sliding into double dip recession.
In other news, PPI figures in Europe came in as expected, and Moody’s ratings agency re-affirmed the UK’s AAA rating.
In the forex market:
Aussie (AUD): The Aussie has been volatile and is now higher as the market reacts to the NFP number. In addition, the PM is backing away from the mining tax as Australia prepares for a potential economic slowdown.
Kiwi (NZD): The Kiwi is also higher on risk taking, and is the best performer this morning as New Zealand is seen as potentially the next to raise interest rates.
Loonie (CAD): The Loonie is lower as traders are paring back speculation that Canada will raise rates this month. Tepid Canadian GDP figures in addition to the potential US economic slowdown could affect the Canadian economy as the US is the largest importer of Canadian goods. Also to note is that oil is trading lower to roughly 72.50.
Euro (EUR): The Euro is higher against all but the Kiwi, as continued confidence that the banking situation may not be as bad as expected is gaining traction. In addition, the market is speaking loud and clear that it favors the EU plan of economic austerity to the US plan of spend, extend, and pretend. In addition, Euro zone unemployment came in slightly better than expected at 10%, and PPI figures came in higher at 3.1%, showing that wholesale inflation is the highest it’s been in 19 months. However, don’t expect the ECB to move on rates anytime soon.
Pound (GBP): The pound is higher as Moody’s reaffirmed the UK’s AAA rating citing the deficit reduction plan as positive.
Dollar (USD): The Dollar is mostly lower, as economic prospects in the US are diminishing. Until we get policy that will encourage business and not harm it, we are going to have high unemployment for some time. Now that unemployment benefits have not been extended, more people will have to get off of the dole and get a job, even if it’s far less than they desired. This potential political backlash could cost the incumbent party in November if the economy continues to worsen.
Yen (JPY): The Yen is lower on risk appetite as the market is deeming the NFP number “acceptable”, as the worst-case scenario fears were averted.
There really is no other way to say other than the US is on the wrong path and the continued spend, extend, and pretend policies of this administration are going to harm the US for some time.
Whether you believe in the free markets or not is of no consequence; as no one can deny that private business is the largest employer of workers. If you create a hostile environment for business, they’re not going to hire. Period.
Go ahead and raise taxes on business, they’ll move elsewhere thereby removing even more jobs. Anyone who believes that higher taxes aren’t coming down the pike lives in fantasy land. With out of control spending taking place on a daily basis, this isn’t going to end well.
I hate to write this so close to July 4th, the day on which our forefathers said ‘no more’ to the unfair policies that were imposed upon them. However, it seems cruelly ironic that as our forefathers roll over in their graves; their successors are trying to emulate the same policies that they rejected 234 years ago.
So Happy 4th of July to all…. as this may be one of the last truly Independence days if we continue down this path. By the time the dust settles, we may be saying, “Happy Dependence Day” as we all line up for our government checks and government cheese.
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, course, currenc, currency, currency market, currency trading, dollar, dow, ECB, economic, economy, EUR, Euro, Europe, fear, forex, forex market, free, fx, fxedu, gbp, Il, interest, interest rate, interest rates, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, new zealand, news, nfa, nfp, nzd, oil, payrolls, pound, practice, practice account, recession, ssi, time, trade, trader, unemployment, USD, Yen
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Less Money Needed!
By Mike Conlon | June 30, 2010
There was encouraging news overnight as the ECB said it would lend banks less than analysts had predicted, showing signs that the European banking system may not be in as weak a state as the market thinks. In addition, German unemployment changed less than expected and the unemployment rate remained steady showing signs of economic stability. Euro zone CPI figures fell back to 1.4%, slightly better than analyst expectations.
In the UK, consumer confidence figures fell to 6-month lows as residents prepare for budget cuts, and BOE policy-maker Adam Posen said that UK recovery is tentative and could risk sliding back into recession. Look for continued loose monetary policy unless inflation figures really heat up.
In the US, the ADP employment change came in less than expected and could serve as a harbinger of Friday’s Non-Farm Payrolls report.
In Australia, bank lending and house price gains showed that the economy has been resilient in the face of rate hikes but whether that trend continues remains to be seen.
Canadian GDP figures came in flat, showing neither growth nor contraction but missing analyst expectations of a .2% gain.
So today is a bit of a mixed bag, with earlier risk-taking on the European bank news giving back some gains. Stocks are mixed to slightly lower with commodities relatively flat. Today is the last day of the second quarter, so we could see some window dressing which could mean volatility in stocks.
In the forex market:
Aussie (AUD): The Aussie is giving back some gains after bank lending and home price figures showed how strong the Australian economy has held up despite the RBA’s rate hikes to cool the economy. While the trading day started off in risk-taking mode, the Aussie may decline if we flip to risk aversion.
Kiwi (NZD): The Kiwi is lower this morning as the RBNZ said in its annual Statement of Intent that it will continue to remove economic stimulus as the NZ economy recovers. Part of this statement has been construed as backing away from tighter monetary policy, citing global economic conditions.
Loonie (CAD): A bit of a reversal for the Loonie this morning as well, as risk-taking waned and GDP figures came in lower than expected. GDP stalled after gaining for 7 straight months as retail sales declined as the government removed temporary tax relief measures.
Euro (EUR): The Euro is higher across the board this morning as the ECB said it will lend less to banks to cover their debt payments than the market was expecting. This shows that the financial health of European banks may not be as bad as expected and that they are largely able to meet debt obligations. There has been major fear about the sovereign debt exposure of these banks, and this announcement took that fear down a notch.
Pound (GBP): The Pound is lower this morning as comments from the BOE said that recovery is tentative and consumer confidence figures fell to 6-month lows as budget concerns weighed heavily. However, house price figures rose to 2-year highs in a sign that the property market may be stabilizing.
Dollar (USD): The Dollar is mixed as the ADP employment change showed a gain of 13K vs. an expectation of 60K jobs gained. Friday’s Non-Farm Payrolls report will really show how far along we are in the employment picture and economic health, but this worse-than-expected figure may be foreshadowing.
Yen (JPY): The Yen is showing some strength against all but the Euro as risk aversion appears to winning the morning battle. Yen started the trading lower as Asian stocks continued to sell-off, but then reversed on the Euro bank news, only to reverse again on the ADP jobs report.
Yesterday’s sell-off may have been an over-reaction to negative sentiment in the market but the important thing to remember is that global economies are still fragile. As various governments remove stimulus, economies will now be forced to stand on their own.
In the US, it’s all about jobs, jobs, jobs. As long as people are unemployed and unable or unwilling to spend, economic recovery is going to be fragile. Part of the problem is that we don’t have policies in place that encourage private sector growth, as looming tax hikes to support out of control spending weigh heavily on private business.
So this most recent scare is all about confidence. It is obvious that people don’t have confidence in their government’s ability to improve conditions. It doesn’t matter what the policy is, there is NO confidence right now.
However, there are pockets of economic strength around the globe and those who are employed are experiencing a MUCH different economy than those who aren’t. Some are beginning to say that this is the “new normal”; where we will have economic growth AND high unemployment. I beg to differ.
I understand that emergency stimulus measures were necessary to prevent us from going over the cliff but enough is enough. The sooner the government removes the training wheels from the economy, the sooner citizens will learn how to ride again. Because at this point, the US government is holding us back, and not letting us move forward. Friday’s NFP will either confirm or deny this assertion, and the market will respond accordingly.
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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