Getting Pounded!
By Mike Conlon | March 1, 2010
The British pound has blown threw psychological support levels at 1.50 vs. USD this morning as polls in the UK show the minority party holding a slight lead in the upcoming elections. It is the biggest loser this morning and is at a 10-month low. I identified this potential trade last Tuesday, saying that the Pound could be near 1.50 in “no time flat”.
There is a lot of news out this week, with various readings from the UK contributing to Pound weakness today, as well as Canadian GDP due out later this morning. If Canadian GDP comes in better than expected, then look for the market to bet that rates will be advancing sooner than later this year.
In addition, we are going to get interest rate decisions from Australia, Canada, and the Euro zone, as well as first Friday’s Non-Farm Payrolls report here in the US, which is ALWAYS a market-mover. If overall global risk can be shown to be contained to a few areas, then expect to see some risk-taking this week.
In currencies:
Aussie (AUD): The Aussie is higher this morning as corporate profits came in higher for the first time in 5 months and manufacturing expanded at its fastest pace since 2007, ahead of tomorrow’s interest rate decision. It is widely expected that the RBA will raise rates at the meeting, though the market is trading cautiously this morning. The Aussie is at a 25-year high vs. the British pound, making this pair the largest gainer of the morning.
Kiwi (NZD): The Kiwi is mixed this morning, as the N.Z. economy may have lost some momentum as retail spending and the housing market have slowed in 2010. This may give the Reserve Bank reason to pause on rate hikes until GDP growth is definitive. It is widely expected that rates will higher than the current 2.5% by June.
Loonie (CAD): Congrats to Canada for winning Olympic gold in hockey yesterday over the US and for putting on one of the more memorable Olympic games in recent history. Canada is also going to report GDP figures this morning and a higher reading may suggest higher rates. Tomorrow will be the Bank of Canada interest rate decision, and while they are not expected to raise rates from the .25%, they could issue stronger language foreshadowing a hike to come.
Euro (EUR): The Euro is hovering right around 1.35 vs. the US dollar and is down against all currencies but the Pound, trading at .906 at the moment. The unemployment figures came in showing an official 9.9% unemployment rate which will all but guarantee that the ECB will not be raising rates at Thursday’s policy meeting. However, even with subdued economic growth prospects, benign interest rate policy, and possible defaults, the Euro zone may STILL be in better shape than the UK and we could see Euro-Pound parity soon.
Pound (GBP): In addition to the impact that a change in government might have on the UK economy, mortgage approvals dropped to an 8-month low. The UK may be heading for the dreaded double-dip recession as their housing-market recovery may be losing momentum. On Wednesday the UK will report consumer confidence figures which are expected to be low in light on conditions, and Thursday will bring the decision on interest rates (expected to remain unchanged) and the BOE decision on Asset Purchases which could put further pressure on the Pound if continued and expanded. The Pound is currently at 1.493 vs. USD.
Dollar (USD): The Dollar is mixed this morning as the market digests all of the weekend news and is looking ahead to this week’s action. The US ISM Manufacturing Index is due out this morning, which will show if we are seeing any type of economic expansion. Aside from that, we are seeing mild risk-taking this morning, though problems with the Euro and Pound are causing the dollar to advance.
Yen (JPY): The Yen is lower this morning as the battle between the Bank of Japan and the government over quantitative easing continues. Tonight, Japan will be reporting their unemployment figures, which are expected to show 5.5% unemployment. We could see some yen weakness on the Australian rate decision as carry-traders become emboldened if the RBA raises rates.
Oil is back over $80/barrel and gold is roughly 1118/oz.
The Euro zone must be thrilled with the problems in the UK which hopefully will shift focus away from their problems and on to the Brits. While some are likening the situation in the UK to that of Greece, it should be noted that these two economies couldn’t be more dissimilar. The UK has many more options than the Euro zone regarding how to grow the economy, so while we may see some temporary Pound weakness, the UK economy is still in better shape than the Euro zone.
But always remember; trade what you see, and not what you think you know!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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Greek Comedy or Tragedy?
By Mike Conlon | February 25, 2010
Overnight, the ratings agencies added fuel to the fire in the Euro zone by claiming that further downgrades of Greek debt could be forthcoming. In addition, the market is catching on to the fact that in the UK, the debt situation is on par with that of Greece, making it vulnerable as well. Because the UK is not governed by Euro zone policy, they have been flying under the debt radar as there are no other member states to complain about their economy.
Combine this with disappointing European consumer confidence figures and rising unemployment in Germany, and you have a potentially explosive situation.
What this all adds up to is risk-aversion, which means that we’re seeing Japanese yen and US dollar strength, to go commodity currency weakness. Equity markets are lower across the globe and both gold and oil are trading lower.
In the currency market:
Aussie (AUD): The Aussie is down this morning on risk-aversion despite the fact that business investment rose 5.5% on China demand. This bodes well for the Australian economy and has increased the chances that the RBA will hike rates again next week, marking the fourth time in 6 months they have raised. However, global risk themes are heavy today and the un-wind of carry trades has the Aussie down 2.5% vs. the Japanese yen.
Kiwi (NZD): The Kiwi is down today as well on risk even though business confidence surged to a 10-year high in February, further fueling economic recovery. Now either residents of New Zealand are completely “off their rockers” or there actually is a good growth and recovery story going on there. I’m going to go with the former. As long as the entire global financial system doesn’t collapse, I’m looking to buy Kiwi on pullbacks. It will however be a challenge to overcome global risk themes.
Loonie (CAD): Well I guess everyone’s not quite as enamored with the Loonie as I am as futures trades are indicating that the Bank of Canada may be less aggressive with its interest rate policy in light of the weakening global recovery. In addition, the Olympics end this weekend and there is usually an “economic hangover” as the stimulus provided by this one-time event is effectively removed from the Canadian economy. With oil prices lower and general risk-aversion, the Loonie is now at a two-week low. I still like the Loonie to strengthen later in the year, but we may need to deal with some global risk first. Today the Loonie buys 93.5 US cents.
Euro (EUR): The Euro is down today on German unemployment and economic sentiment, yet is higher against the commodity currencies as risk-aversion is dominating the market today. We know about Greece and I mentioned the possible downgrades above which could move them closer to default, if the Euro zone actually allows that to happen. The Euro is fast approaching 1.34 vs. USD.
Pound (GBP): The Pound is lower this morning, as deficit fears and political uncertainty are shedding light on the dire economic situation in the UK. The delicate balance between reigning in spending and stunting economic growth may too much handle going into upcoming elections. The Pound is at a 9-month low to the Dollar trading at 1.5275. There was a note out yesterday that the Pound could reach parity with the Euro if economic conditions worsen.
Dollar (USD): Thank you risk-aversion is what the US dollar is saying this morning, as unemployment came in higher than expected. The durable goods numbers came in higher, which is positive for manufacturing. However, the economic picture is still not rosy here in the US. The Dollar is higher against all but the Yen.
Yen (JPY): Demand for Yen is much higher today as carry trades are un-wound due to global fears about economic recovery. The Yen has been strengthening as of late, and it will be interesting to see what the Bank of Japan does to prevent this from getting out of hand. The Japanese are no strangers to intervention in their currency; and they will not be making any moves on interest rates anytime soon. A strong yen hurts Japanese exports, which in turn will hurt economic recovery.
Stock markets are down across the globe, gold is trading at 1093 and oil to 77.75, down roughly 2.75%.
It was only a matter of time before all of the risky elements floating around the market converged and today might be that day. While there is definite fear in the marketplace, there are some growth stories out there. So be patient, and remember that in general, you want to own the currencies of strong economies, and sell those of weaker ones.
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Be Careful What You Wish For!
By Mike Conlon | February 24, 2010
Today, Fed Chairman Ben Bernanke will begin 2 days of testimony on Capitol Hill regarding monetary policy. On the heels of one of the worst Consumer Confidence numbers in recent memory it will be somewhat difficult to weed through all of the political wrangling and double-talk that is bound to arise from self-serving Congress-people. That aside, pay attention to 2 things: 1) his recommendation for how to stimulate jobs growth—incidentally this is akin to Congress asking Bernanke to their job for them; and 2) any change to the language that he will keep rates at a record low for an “extended period”. At some point, he will have to move on rates and last week’s move on the discount rate may be a harbinger of things to come.
In other news, German GDP came in flat as in they had no growth—which is actually positive in that their GDP is not negative from the previous quarter and meeting analyst expectations. Asian markets were down big overnight, taking their cues from yesterday’s US stock market sell-off. Commodities are lower yet I’m seeing general US dollar weakness. So today is a mixed bag yet again.
In currencies:
Aussie (AUD): The Aussie is mixed this morning as wage growth slowed at the slowest pace in close to 10 years, up .6% vs. analyst expectations of .8%. The RBA is monitoring this figure closely to see if inflation pressures are mounting. With Chinese demand expected to pick up and Australia to benefit greatly, the RBA is not afraid to raise rates if necessary.
Kiwi (NZD): The Kiwi is down this morning in a case of “less-good” news than some of the other regions around the globe. Tomorrow we will get a reading on New Zealand business confidence so that could hint at the consumer spending numbers and GDP which will also give a clue as to inflation. While the Kiwi is “along for the ride” with the Aussie and is a destination for carry trades, its economy is not nearly as strong as its neighbor to the west.
Loonie (CAD): The Loonie is higher this morning due to “Olympic Fever” and investors starting to catch on to the economic story in Canada. Canada flies under the radar a little bit and sometimes gets too caught up in the US economy and oil correlation. Incidentally, oil is off of its lows of the morning and is just barely negative.
Euro (EUR): The Euro is bouncing back nicely from oversold conditions and is taking a break from all of the selling we’ve seen as of late. German GDP figures came in as expected, thereby not providing cannon fodder for short-sellers. Tomorrow is the real test for Germany though, as unemployment figures are due out. Unless risk-aversion comes into play later today, I expect to see the Euro remain positive.
Pound (GBP): Political uncertainties in addition to economic struggles are plaguing the Pound as of late. A UBS report claims that the market is worried that the conservatives in government will push for deficit reduction pre-maturely before the British economy is in full-blown recovery mode, thereby adding additional pressure to Sterling. In the meantime, additional bond buying has not been ruled out by the BOE—yet!
Dollar (USD): The Dollar is mixed this morning, showing neither major gains nor losses vs. other currencies. New home sales are due out this morning but at this point unless the number is ridiculously bad I can’t see it having any impact on the market. Bernanke will be testifying for the next 2 days so expect the Dollar to trade cautiously unless Big Ben says something to upset the market.
Yen (JPY): The Yen is seeing a bit on strength as of late, showing four days on gains in a row vs. USD. Recently, the government spat with the Bank of Japan may be on to something as the former claims that the latter isn’t doing enough to prevent Yen strength. As an exporting nation, we know that the Japanese want just the opposite—Yen weakness.
In overnight trading, the Asian markets were down, following the sell-off here in the US. European markets are currently higher on the German GDP news, and stock futures are higher here in the US.
It looks like oil has climbed back to near flat from being down earlier trading at just a smidge under $78, and gold is lower trading at roughly 1095, higher than its lows of the morning but now under $1100.
Look for light trading in the forex market as all ears are glued to the Bernanke testimony. As painful as it may be to listen to politicians make fools of themselves, this could be an important if indeed there is going to be a policy shift. My gut tells me it won’t be.
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!
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Flip Flopping on Risk!
By Mike Conlon | February 23, 2010
This morning has seen some “flip-flopping” on risk themes as the overnight session was trading on risk aversion due in part to some economic figures out of the Euro zone. However, those themes had pulled back and we actually saw some risk-taking, only to set-up for risk-aversion again! Can you say volatile?
The back and forth nature of the forex market is what traders thrive on. As of right now, we are seeing some Japanese yen strength, but not all of the risk aversion plays one might expect to see. While the Kiwi is noticeably weak, the Aussie is holding up against all but the yen. This looks like its setting up to be a back and forth day, as the market attempts to re-align itself according to risk themes. I will probably play today short-term, and wait to see what the market reaction is to the US Consumer Confidence figures due out at 10 AM EST.
While I can’t imagine that they will be “good”, one never knows how the market will react. Also to note is that the US Housing Price Index will also be out a little earlier, giving a glimpse into the whole inflation/deflation debate. Combine that with the political landscape here in the US and the malaise surrounding it; and the market could be in for a wild ride today is this could be a recipe for disaster.
In currencies:
Aussie (AUD): The Aussie is holding up surprisingly well this morning despite the general risk-aversion themes we’ve seen this morning. This is more of a case of being “less-bad” than actually good. With problems in Europe (Aussie nearing 10-year highs vs. the Euro) and the UK, investors may start catching on to the fact that owning Aussie over Euro and Pound is LESS risky regardless of what the correlations say. In my opinion, the Aussie is THE place to be for both risk-taking (commodity plays) as well as risk-aversion. Now if the market would just begin to see it. In the meantime, I will continue to buy dips.
Kiwi (NZD): While lumped in with the Aussie and Loonie as commodity currencies and known as a “risk-taking” vehicle, the Kiwi is not nearly as strong as the Aussie yet sometimes benefits from Aussie strength. Until economic conditions improve in New Zealand or rate hikes seem imminent, the Kiwi will continue to trade on risk themes as it is not strong enough on its own to “buck trends”.
Loonie (CAD): I’ve been seeing a lot more of Canada lately (probably because my wife makes me watch ice-dancing in the Olympics) but I’m starting to come around to being positive on the Loonie. Despite record low interest rates and its close ties to the US, the Canadian economy is strong and recovering much faster than the US. Because of the Loonie’s tight correlation to oil, it will continue to trade as a proxy for the commodity as the market determines whether or not recovery will drive further demand for oil. The Loonie is lower this morning.
Euro (EUR): Is anyone surprised that Business Confidence figure in Germany are down this morning? No? Me neither. In fact, this prompted German Chancellor Merkel to lash out the banks that “created the problem” for speculating in the Euro—driving it lower naturally. It looks like she’s at stage 3 (anger) in the seven stages of grief. It’s starting to look more and more like the Euro zone actually knew about the derivatives that helped Greece obfuscate its debt to the point that it was allowed to gain entry to the Euro zone. In my eyes this is akin to going to a “jackets required” restaurant jacket-less, then taking off with the loaner they give you, rather than just being denied access in the first place. Any way you slice it, the trend for the Euro is clearly down.
Pound (GBP): The Pound is lower this morning as speculation abounds that the UK will continue its bond purchase program to help keep their currency lower to stimulate their economy. People forget that the UK is still an industrial power and a BOE Deputy Governor reminded the markets of that fact when he said that a “weaker currency will boost exports”. Should the current situation continue, the Pound could be near 1.50 vs. the US dollar in no time flat. This would also represent the 61.8% Fibonacci retracement that technical analysts love so much.
Dollar (USD): Home prices in the US are expected to rise for the seventh straight month, though incrementally and down over 3% from the previous year. Should the figures meet the expectation, then expect risk-taking to pick up as this would be a sign that inflation is nowhere to be found and confirming that interest rates will most probably remain unchanged for a long time. Consumer confidence is out at 10AM, if anyone is confident in this environment, then they need to have their head examined!
Yen (JPY): The Yen is higher on risk-aversion this morning despite the fact that the Japanese government and the Bank of Japan are in dispute over what is to be done to combat the deflation they are experiencing. Not surprisingly, government wants more liquidity to encourage inflation, and the BOJ wants fiscal discipline and reduced deficits. Sound familiar?
In overnight markets, the Nikkei was down while the Hang Seng was higher. In current trading, the European markets are lower though off of their lows. US stock futures are lower, and oil is down roughly 1.25% to 79.3, with gold following suit down to 1111 and change.
With the problems facing Europe, rampant deflation in Japan, and trouble in the UK, the markets may be re-assessing which currencies are actually “risky”. In fact, the reason why I introduce the currencies in this blog in the order that I do is based on the “hierarchy” of the risk themes. As the economic recovery picture becomes clearer, I would not be surprised to see this pecking order change in the not-so-distant future.
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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Fed Surprise!
By Mike Conlon | February 19, 2010
Just when you thought the markets were starting to calm down and that the news out of the Euro zone was beginning to fade, the US Fed dropped a bombshell on world markets last night at 4:30 PM EST, just after the US stock market closed. The Fed announced to everyone’s surprise that they would be raising the rate at the Fed discount window 25bp to .75%, effectively charging banks more for Fed borrowing.
The markets immediate reaction was to buy dollars and cover dollar shorts, and stock futures tanked. Asian equity markets were down big last night and Europe looks to be bouncing back from earlier lows.
This move was the dominant theme in the overnight market, as retail sales figures in the UK and Canada are taking a back seat, as is the US CPI report which came in less than expected showing that inflation may still be at bay.
The two major things to take away from this move are: 1) the Fed is stressing that this move is not to tighten credit on consumers and businesses, but is merely trying to remove some over the overly-accommodative measures they have taken, and 2) investors need to be wary of the fact that the Fed may continue with these “sneaky” off-hours moves to try to avoid inter-day market Armageddon. It will be interesting to see how the market reacts to this move once trading begins today.
In currencies:
Aussie (AUD): The Aussie is down this morning as it is the currency that is most likely to be affected by this move, all other factors being equal. While I wouldn’t classify today as a risk-taking or aversion day, this is the third day in a row that the Aussie is down against USD.
Kiwi (NZD): Like the Aussie, the Kiwi is down 3 in a row. In addition to being affected by the discount rate hike, New Zealand has just reported the widest budget cash deficit in almost 9 years on lower tax receipts and increased government spending.
Loonie (CAD): The Loonie is lower this morning on lower commodity prices and the US discount rate hike. Also, Canadian retail sales figures came in slightly less than expected, but were at least positive. This could be a sign that economic growth is not as strong as investors may think, and everyone is anticipating the inevitable “Olympic Hangover” as the one-time economic windfall goes away.
Euro (EUR): The Euro is at nine-month low to the Dollar after the discount rate hike in addition to all of the problems coming from the Euro zone. Now speculation is heating up that perhaps Italy used the same sort of derivative maneuver to conceal debt that allowed them to enter the EU as well as Greece. There’s a lot of tension and in-fighting right now among EU members. This could put further pressure on the Euro in weeks to come.
Pound (GBP): The Pound is also at a nine-month low to the Dollar as fiscal concerns continue that the UK may need to continue accommodative measure to revive their economy. Retail sales figures came in at a disappointing -1.2% vs. and expectation of -.5%, showing further economic weakness.
Dollar (USD): It is going to be interesting to see how the market reacts to the discount rate hike today. Personally, I think that this move shows that the Fed is trying to get the market to believe that economic recovery is taking place. This move is sort of a red herring, which induced a knee-jerk reaction from the market as soon as everyone hears “rate hike”. This move does not affect the Fed Funds Rate so it shouldn’t affect either businesses or consumers. So by the end of the day I expect that we’ll see some risk-taking as economic strength in the US is good for world economies and inflation is lower as reported by the CPI.
Yen (JPY): The yen is higher on risk-aversion, however I think the market may “have it wrong” as its gotten used to the risk-on, risk-off mentality. Let’s see if the Yen gives back some gains by day’s end.
In overnight markets, the Hang Seng and Nikkei were down over 2% and European markets have reversed prior losses and are trading higher. US futures are still negative, but trading well off their lows in the overnight session. Oil has reversed earlier losses and is trading around 79.5, and gold is back to around 1115.
When I saw the charts last night immediately following the Fed move, my initial reaction was similar to that of much of the market—sell everything, buy dollars and yen. However, as I thought about the implications of the move, I’m actually quite impressed with the timing of the move and think the Fed did a great job implementing this. And I haven’t been a big fan of the Fed as of late! In my view, this is positive for world markets.
Also, watch out for volatility as today is options expiration.
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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To Inflate or Not to Inflate?
By Mike Conlon | February 18, 2010
There are a few different economic figures coming out in different regions around the globe that all have one thing in common: prices. Prices are important to economic forecasters and finance ministers as it gives them a gauge of where their particular country is in relation to inflation. Most Central Banks around the world are mandated to control their economy’s inflation, so when these numbers come out, the market usually perks up.
This morning, we had an interest rate decision in Japan, Consumer Price Index reported in Canada, and Producer Prices Index reported here in the US. In Japan, the BOJ held interest rates steady at .1%, which was no surprise to anyone, but Canadian CPI and US PPI came in a little hotter than expected. This could signal some potential interest rate hikes here in N. America, thought the economic recovery is still fragile so it is a fine line policy makers are walking. So far this morning is showing mild risk-aversion tendencies, though that could change once the US stock markets open.
In world currencies:
Aussie (AUD): The Aussie is lower this morning on risk aversion as data from the US shows signs that the economy is heating up and that accommodative measures may be removed. There is no further news specific to Australia on tap for this week.
Kiwi (NZD): New Zealand consumer confidence came in lower this morning than last month’s reading, though the Kiwi economy is still viewed as strong. With commodities lower this morning and risk aversion, the Kiwi is down across the board.
Loonie (CAD): The Loonie is showing strength this morning as Canada reported CPI that was 1.9% higher than a year ago. This was a little higher than the expectation, but more importantly is showing economic strength which may cause the Bank of Canada to move on rates sooner than expected.
Euro (EUR): The Euro is pulling back this morning as the debate over Greece lingers over the Euro zone and is becoming a game of “pin the blame on somebody”.
Pound (GBP): The Pound is markedly lower this morning as a report came out that last month the UK ran a deficit of 4.3 billion pounds, when economists were forecasting a 2.6 billion pound surplus. This comes on the heels of yesterday’s negative employment report which contributes to the belief that economic recovery in the UK may be further away than previously thought. The Pound is down across the board.
Dollar (USD): The Dollar is higher this morning as US PPI came in higher than expected, prompting the inflation hawks to start chirping. But Initial Jobless Claims also came in higher than expected; thereby negating the thought the Fed will need to move on interest rates. The dollar is beginning to give back some of its earlier gains on the employment number, though I’m not sure how the market can see this as positive. Stock market futures are lower, as are oil and gold, though well off of their morning lows.
Yen (JPY): As expected, Japan did not change its view of interest rates remaining at .1% which is no surprise to anyone. Japan is battling some serious deflation, so any sort of inflation there would be welcome.
In overnight markets, the Nikkei was higher though the Hang Seng was lower. Europe is mixed as well with the FTSE higher on the UK deficit report, but Germany and France marginally lower. US stock futures are lower as are gold and oil though they’ve given back gains and today looks like its reverse from risk aversion to risk taking.
With the numbers reported today, it sometimes baffles me that higher unemployment and potential inflation is “good” for the market and encourages risk taking. It looks like the market is betting that the US is going to be content to let inflation occur in order to continue the monetary stimulus it believes is leading to economic recovery. However, the employment figures tell us otherwise. How this is going to play out down the road is anyone’s guess but in my mind it ain’t gonna be pretty.
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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Risk Appetite Returns!
By Mike Conlon | February 16, 2010
The markets are back to “normal” after some being closed for various holidays. Risk appetite is the play today, as the Euro is rebounding against the dollar on thoughts that the Euro may have slid “too far, too fast”. Also, news out of Australia from the Reserve Bank minutes hinted that further rate hikes were in order should the Australian economy extend its recovery.
Also to note is that commodity prices are higher as which is consistent with an increase in risk appetite.
On to the currencies:
Aussie (AUD): The Aussie is higher on new from the RBA minutes. Analyst expectations are for the Aussie to gain to .91 vs. USD by the end of March. Should the economy continue to expand, then further rate hikes could be in order. The current benchmark rate is at 3.75%, making the Aussie a popular destination for carry trades.
Kiwi (NZD): The Kiwi is moving in tandem with its South Pacific partner the Aussie. While growth has not been as robust in New Zealand, the Kiwi will also benefit from increased commodity prices and a higher benchmark interest rate as well. That rate is currently 2.5%.
Loonie (CAD): The Loonie is trading higher this morning on the risk trade as well as the fact that oil is back over $75. Canada is in the spotlight right now as host of the 2010 winter Olympics as sometimes they get lost in the shuffle in the risk trade hierarchy. The Loonie is up to 1.043 vs. USD this morning, its highest level this month.
Euro (EUR): The Euro is higher against all but the commodity currencies, paring back some of its losses from the previous week. There is tough talk coming from the EU finance ministers regarding Greece, as news has surfaced that Greece may have used derivatives to “fudge the numbers” in order to gain entry to the EU. The fact that Goldman Sachs was involved should come as a shock to no one. Also contributing to the Euro gains this morning is the reading from the German Sentiment Index this morning which was lower than previously reported, but ahead of analyst expectations which net-net is positive for the Euro.
Pound (GBP): The Pound is lower this morning across the board as consumer prices rose 3.5% from a year earlier. A deviation of more than 1% from the target rate of inflation (2%) requires a letter from BOE Governor King as to how he intends to get back to the goal rate. Inflation volatility is to be expected, and this reading was not a surprise to analysts. This could put more Quantitative Easing back on the table for the UK, which would be Pound negative.
Dollar (USD): The Dollar is down this morning as risk-taking is the flavor of the day and stock futures and commodities are higher. The dollar is down 1% vs. the Kiwi and Aussie.
Yen (JPY): As is expected on a risk-taking day, the Yen is down against all but the Pound as the threat of deflation keeps rate hikes off of the table and provides the fuel for carry trades in Aussie and Kiwi despite the good GDP numbers from yesterday.
In overnight markets, the Nikkei closed higher but the Hang Seng closed lower. European markets are higher as are US stock market futures. Oil is back over $75.25 (+1.5%) and gold is up to around 1115 (+1.38%).
As you can see, there is always something happening in the currency market that can influence sentiment and thus market direction. Following the news is extremely important in understanding how market participants view world events.
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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.
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Quiet Start to the Week!
By Mike Conlon | February 8, 2010
This week is starting out kind of quiet, perhaps recovering from Super Bowl hangovers and the carnage from the end of last week. There’s no real earth-shattering news on tap until the end of the week, when all eyes will be on Europe. This is exactly what the markets need; a chance to rest and re-evaluate. I’m seeing some mild risk-taking and US dollar weakness this morning.
On to the currencies:
Aussie (AUD): No real news on tap until the end of the week when Australia reports its employment figures. Look for the Aussie to trade solely on risk themes and commodity prices this week. The Aussie is up across the board.
Kiwi (NZD): Expect the Kiwi to trade in similar fashion to the Aussie. New Zealand’s economy is still “fragile”, according Reserve Bank Governor Bollard in response to last week’s unemployment figures. There will be some figures coming out later this week that may help gauge inflation, but don’t expect any major moves outside of risk themes.
Loonie (CAD): Canadian housing starts came in better than expected this morning, but expect the Loonie to trade more on US themes and commodity (particularly oil prices) this week. No other news this week.
Euro (EUR): By now if you’re not aware of the pending debt crisis in Greece, then you’ve had your head in the sand for some time! Seriously, reports coming out of Greece suggest labor strikes as unions are dead-set against the government’s debt reduction plans. In the past, these strikes have become violent which could further highlight the problems and decrease confidence. On tap this week is Germany’s Consumer Price Index and at the end of the week we get Euro zone GDP figures. The trends on the chart clearly look down and we could see the Euro test 1.35 vs. USD. Stay tuned!
Pound (GBP): The Pound is down again after surveys showed the opposition party’s lead over the incumbent party narrowing, which would result in an election to be held in June. Furthermore, British GDP and the BOE quarterly inflation report are on tap, which could show weaker than expected growth. The pound is just under 1.56 vs. USD.
Dollar (USD): The Dollar is weak this morning, paring back after gains last week from risk-aversion themes. Toward the end of the week retail sales will be reported which should be a gauge of how recovery is going. The consumer in the US represents some 70% of GDP so weaker sales could foreshadow slower growth. Friday is the UM Consumer confidence number.
Yen (JPY): The yen is weak today mainly on risk-taking and a pullback from strength last week. Economic slowdowns are predicted as problems in the Euro zone hurt exports and the Toyota recalls hurting the economy in general.
After last week’s scare, expect the market to trade some sideways as market capitulation digests the news. Barring any major economic “disasters”, expect traders to dip their toes back into the risk trade very slowly. However, if stocks continue to sell of today, then we could be in for more dollar strength.
Overnight, Asian markets are down while they are trading higher in Europe. US market futures are down, and oil is up slightly to 71.25, with a better rebound in gold, up 1.25% to 1065.
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Carnage to Continue?
By Mike Conlon | February 5, 2010
In the wake of yesterday’s market carnage, all eyes were on this morning’s US Non-Farm Payrolls (NFP) report. The market was praying for a decent number to justify a move to the upside, as yesterday was the biggest one day drop we’ve seen in some time. World markets got crushed to the tune of 2.5% on average, and commodities sold off as well. As I correctly called yesterday morning, “Ugly with a capital U”.
So the markets were grasping for any positive news to reverse this down-trend and they “may” have found it in this morning’s NFP report. The NFP, which measures job loss, came in at -20K. Expectations for this number were all over the place but the fact that there wasn’t job growth would normally be seen as negative. However, the ray of hope in this report is that the unemployment rate dropped to 9.7% for the month, down from 10%. Now I’m no mathematician, but it seems highly suspect to me that the unemployment rate can go down, even as we see continued job losses. But whatever, in early trading it looks the market is going to “take the ball and run with it” as futures have bounced off of their lows. It would not shock me to see the market wake up at some point and realize it didn’t get what it is looking for. Today may be a continuation of Thursday’s bloodbath.
Here’s how the currencies are doing this morning:
Aussie (AUD): The Aussie was up in early action this morning paring back some of yesterday’s losses, as the initial reaction to the NFP was positive, encouraging some risk-taking. Whether this can hold throughout the day is another story. With all of the fear and uncertainty out there, investors may flee to safety over the weekend. Contributing to Aussie strength was the RBA’s Quarterly Monetary Policy Statement that stated that “economic growth will continue to accelerate, even if the policymakers are forced to raise the benchmark interest rate by ¾ of a point.
Kiwi (NZD): The Kiwi is up this morning vs. the Dollar and Yen, as mild risk-taking is still the theme at this point in the morning. No major news out of New Zealand.
Loonie (CAD): It’s a good morning in Canada today, as the Canadian economy gained 43K jobs last month, reducing the unemployment rate to 8.3%. This makes the Canadian dollar this morning’s big winner, as it is also benefiting from mild risk-taking and the bounce in oil. It is up across the board this morning, most notably against the Japanese yen.
Euro (EUR): Yesterday was a tough day for the Euro, as the flight to safety trade sent the common currency to a 6-month low near 1.365 vs. the dollar. The Euro is also known as the “anti-dollar”, so it gets hit particularly hard when there is major risk aversion. Throw in the problems with the PIIGS countries, and it’s no wonder ECB President Trichet was out this morning trying to defend the Euro and instill confidence that the potential contagion from the Greek “tragedy” will not spread throughout the region. It looks like the Euro may re-test that low as it currently sits near that low.
Pound (GBP): The pound is down this morning against all but the yen on the risk aversion theme.
Dollar (USD): The dollar had a huge rally yesterday and is mixed this morning, down against the commodity currencies but up against the Euro, Pound, and Yen. We could continue to see some near-term dollar strength, as heightened sensitivity to risk is occurring around the globe and market trends are pointing in that direction.
Yen (JPY): The yen is also mixed this morning, following the same themes as the US dollar, though down against USD.
In world markets, the Asian stock market got clobbered and closed down.
European stock indices are currently down as are the US markets, although it looks like we may have a reversal here in the US as the media monkeys try to put as much lipstick as possible on that NFP pig!
Gold and oil are flat, waiting for stocks to decide which way they want to go. Commodities were down roughly 3% yesterday.
As you can see, there still is MAJOR fear out there as economic recovery is not taking place as quickly as anyone would like. What I really want to stress here is that on a day like yesterday, when nearly EVERYTHING was down, the only 2 places to park your money that went up were in the currency market. If you had bought dollars or yen yesterday, you were a happy camper while everyone else was crying in their coffee.
Isn’t it time you see what this market is all about?
To learn more about how you can make gains even when nearly EVERYTHING is going down, be sure to check out our affordable currency trading courses.
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