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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Chinese Slowdown To Derail Recovery?
By Mike Conlon | July 1, 2010
Overnight, manufacturing growth slowed in China more than expected as the Chinese look to curtail inflation and their housing market. While the market views this as negative, China has been expanding at a break-neck pace and my opinion that slower, more sustainable growth should be welcome.
However, this spotlights the reduction in world demand as economies pare back to combat deficits and economic uncertainty and lack of confidence is causing consumers to reduce consumption.
In the UK, industrial production figures show a slight drop from the previous month, however in Japan, the Tankan manufacturing confidence figures fell less than expected.
Retail sales figures were lower in both Australia and Germany, though German manufacturing numbers were in line with expectations.
In the Euro zone, a successful bond auction from Spain countered yesterday’s news that Moody’s ratings agency was putting Spain’s AAA credit rating under review.
And lastly, in the US, initial jobless claims came in higher than expected, showing 472K vs. an expectation of 460K. This does not bode well for tomorrow’s Non Farm Payrolls report, though it could be setting us up for a surprise to the upside.
So this morning we are seeing US dollar weakness, and Euro and Yen strength.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as retail sales figures and building permits declined giving investors’ reason to believe that Australia may be finished with rate hikes for the rest of the year.
Kiwi (NZD): The Kiwi is lower this morning as the global slowdown and the news out of China is putting pressure on the currency.
Loonie (CAD): The Loonie is lower as oil is down, but it is trading higher vs. the Dollar. Yesterday’s GDP figures caused selling in the Loonie and today Dollar weakness is paring some of those losses.
Euro (EUR): The Euro is higher across the board as a successful bond auction in Spain is giving the market confidence that the banking situation may not be as bad as expected. In about three weeks’ time, the results of the bank stress tests will be in and that will show the true health of Euro zone banks.
Pound (GBP): The pound is mixed this morning, trading back over 1.50 vs. USD despite the fact that manufacturing figures came in slightly lower than last month but in line with expectations. At this point, there is more confidence in the measures the UK is taking with regard to its finances than what is happening in the US, and this is reflected in recent Pound strength vs. the Dollar.
Dollar (USD): The Dollar is lower across the board as jobless claims came in higher than expected showing that the employment picture is not getting better. In addition, uncertainty over the financial regulation bill is causing trepidation, but overall the economy is still moving forward despite the employment picture. According to Alan Greenspan, our former Fed chief, this is a “normal slowdown” within the greater context of recovery.
Yen (JPY): The Yen is showing strength this morning though giving back some earlier gains. The Nikkei was down 2% last night, providing the Yen with a bid. The Chinese slowdown as caused the un-wind of carry trades, and the Yen is trading at a 6-month high vs. the Dollar.
As I mentioned yesterday, the only thing that matters here in the US is jobs. The employment picture is not improving and tomorrow’s Non Farm Payrolls report had better be decent or we could see a sell-off going into the long 4th of July holiday weekend.
I hate to continue to harp on policy here in the US, but there is a distinct divide in the economy. To put it bluntly, you have those that receive government hand-outs and those that eventually pay for it. One group is productive, the other isn’t.
Congressional plans to extend unemployment benefits are one such problem. While I feel badly for those unable to find work, at some point you have to lower your expectations and regroup. Because unemployment benefits are essentially equal to minimum wage, there is a disincentive to get off of the couch and work.
In addition, the financial regulation bill (which in my opinion is absolutely needed), has missed the mark. Two major problems that caused the financial mess have gone largely untouched (Fannie Mae and Freddie Mac).
Instead we’re going to get a bunch of rules and a business climate that is deemed unfriendly to business, which will help perpetuate the cycle of unemployment. Add future tax hikes to the mix and you can see where this is going. When it comes time for investors to decide where to invest their money, are they going to choose countries that are making an effort to return to fiscal responsibility, or the country with a blatant disregard for it?
I know what I would do. Hopefully, you do too!
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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Euro Declines, Canada Hikes!
By Mike Conlon | June 1, 2010
Now that the debt crisis in the Euro zone appears to have stabilized, the market now turns its attention to EU economic fundamentals. The outlook for the Euro is negative, as governments adopting austerity plans means that GDP growth will like stall and contract. The bounce we saw last week in the Euro was the result of short-covering as the Euro fell too far, too fast. In addition to the weakening fundamental data, political uncertainty in Germany has risen as its President unexpectedly quit. The Euro made new lows against the dollar at 1.211 in the overnight session.
Over the long weekend, news out of Australia showed that the economy there may be slowing and the RBA declined to further tighten interest rates by holding the rate steady.
In an opposite move, Canadian GDP came in better than expected yesterday the Bank of Canada’s rate decision is due out any minute.
The British pound is higher as manufacturing growth remained at 15 year highs, and housing prices rebounded showing signs of economic growth.
In addition, an apparent “fat-finger” error in the Nikkei futures market sent the index lower, though it has rebounded off of erroneous lows. World stock markets are lower, as are the US equity futures. Oil is down as well, though gold is higher as it is viewed as a store of wealth.
The market is in risk-aversion mode, though the open of the US exchanges after the long weekend could change that sentiment.
In the forex market:
Aussie (AUD): The Aussie is lower as the RBA declined to hike interest rates, citing Euro zone uncertainty and a potential economic slowdown in China as threats to economic growth. In addition, building permits were down some 15%, but retail sales came in much better than expected. This shows that investors are treading cautiously down under, as housing prices may be a bit over-blown. So consumers are directing their dollars to smaller ticket items, preferring to hold off on larger investments.
Loonie (CAD): The Loonie is lower on risk-aversion and lower oil prices, as the market waits for the BOC rate decision to be announced. Speculation has the BOC raising rates .25% to .5%, after yesterday’s GDP report showed a gain of 6.1% vs. an expectation of 5.9%. As Canada’s largest trading is the US (the only country NOT enacting austerity measures to combat excessive debt), the Canadian economy appears to be ready to out-perform. *Edit: Rates were increased as expected to .5%, yet the Loonie is lower as the market may have been expecting more.
Kiwi (NZD): The Kiwi is lower on risk aversion, and a slowing European and Chinese economy could stall growth in the region. Also, New Zealand’s own austerity measures could contribute to economic weakness if they attempt to reign in their public debt. Business confidence figures were lower as well.
Euro (EUR): The Euro is lower as well, after the German President Koehler unexpectedly quit, further weakening Chancellor Merkel’s political alliance. Retail sales in Germany were lower, and unemployment came in lower than expected, showing signs that a weaker Euro will be good for German exports. However, unemployment in the EU overall was higher, highlighting the disparity between Germany and the rest of the EU. Meanwhile, French PPI came in higher than expected. It seems as though EU residents are preparing for the worst, and scaling back as negative economic data has a “chicken and egg” effect in the region. The long-term trend of the Euro is still down, and while a lower Euro will help exports and tourism to bring cash to the region, it is going to get worse before it gets better. Now if the banks can just hang on.
Pound (GBP): The Pound is higher across the board, as house prices had their largest annual increase in nearly 3 years. In addition, UK PMI figures showed that manufacturing expanded at its highest level in over 15 years, and money flows are leaving the Euro to invest in the Pound as the economic outlook is far better in the UK which could mean a normalization of monetary policy later in the year.
Dollar (USD): The US dollar is bid vs. the commodity currencies as risk aversion is the theme to start the trading week in the US after the long holiday weekend. Stock futures are off of their lows, and we could see a rebound today if the ISM manufacturing figures come in better than expected. This has become a familiar “pattern”, as fear in the Euro zone and Asia start the session in risk-aversion mode, which flips to risk-taking if all appears well here in the US.
Yen (JPY): The Yen is also higher on risk themes, and also received a bid as a “fat finger” mistake in the Nikkei futures markets sent the index lower. The Yen trades somewhat inversely to the Nikkei, so it started off higher. Regional instability from a potential Korean conflict could cause volatility in the Yen if it escalates.
Long weekends in the US markets can sometimes have disastrous results as trading does not cease in other areas of the world. Risk and fear can cause markets to react violently, as correlations between the markets move back toward their natural order.
This weekend, the market was fairly lucky in that while there was some negative news, there was nothing earth-shattering that would cause a panic.
In the forex market, we are now seeing shifts in the balance of power, as some nations strengthen while others weaken. If the Euro debt crisis can be contained, then expect traders to revert back to the fundamentals as we enter the summer trading season.
While the summer session is normally slower, I’m not certain that will be the case this year. With the markets on high alert and fear still rampant in the market, expect volatility to remain high.
And that’s just what we as traders want!
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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Summer Upon Us!
By Mike Conlon | May 28, 2010
For now, the Euro zone debt crisis appears to have been averted. For now. The Euro is higher for the second straight day as short-covering is taking place. As I’ve repeatedly mentioned, every day that the Euro can get by without negative news is a positive for world markets in general. As a result, we’ve seen recent gains in world equity markets and commodities as they rebound from 9-month lows.
However, don’t be lulled into a false sense of confidence as there still is major work ahead for the Euro. The trend is still clearly down, and there is possible resistance in the 1.245 & 1.26 ranges.
This morning, consumer spending figures in the US came in worse than expected, exhibiting signs that the consumer-led recovery may have stalled. Heading into the long weekend here in the US, expect volume to be light as the “summer slowdown” officially kicks off.
So this morning started off as a mild risk-taking day, which could flip to risk-aversion as the market hasn’t forgotten the economic challenges that lie ahead.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as profit-taking and mild risk-aversion appears to be creeping back into the marketplace. The Aussie had a nice pop off its lows just below .81 vs. USD.
Loonie (CAD): The Loonie is also turning lower as the consumer spending figures have helped risk-aversion return before the long weekend. Oil is higher is back to roughly 74.5, after eclipsing 75 in yesterdays run-up.
Kiwi (NZD): The Kiwi is lower as well, taking cues from risk themes. Yesterday’s IMF report that the Kiwi may be overvalued is contributing to the selling, despite the fact that home-building approvals jumped to 8.5%, a two-month high.
Euro (EUR): The Euro had a bid earlier and tested resistance at 1.245 vs. USD, but selling is now taking place as traders clear their books for the long-weekend. Short-covering had pushed the Euro higher earlier, but bear in mind that the likelihood of any ECB action has been greatly reduced as activity in the common currency appears to have stabilized.
Pound (GBP): Consumer confidence in the UK fell to a 5-month low, as the “political honeymoon” may be about to end. Budget cuts in the UK intended to help with the fiscal deficit may mean that the UK is in for protracted growth going forward. The Pound is lower across the board.
Dollar (USD): The dollar is meandering around as consumer spending numbers came in less than expected causing it to receive a bid from mild risk aversion. The Michigan Confidence survey is due out at 10AM, which could help the Dollar find direction.
Yen (JPY): The Yen is lower this morning although mild risk aversion is driving market direction. Overnight, Japan reported an increase in its jobless rate indicating that the export-led recovery may not be translating over as business is still cautious about future global demand. In addition, deflation continued to plague the economy as consumer prices fell 1.6% which means that BOJ will most likely continue accommodative monetary policy as heightened government pressure to do so will like increase.
The return to fundamentals in the market may be increasing as risk drivers abate with every passing day that the Euro doesn’t implode. And while there is still considerable risk in the marketplace, expect today to be a lighter trading day as traders square their books for the long weekend holiday here in the US.
Going forward, as world economies appear to be committed to deficit reduction, expect economic slowdowns to occur in addition to the normal seasonal patterns. The challenge will be trying to contain global deflation, which could bring about another set up problem.
But until that happens, I’m going to be happy to get some sun this weekend and officially kick off summer. It’s been a crazy month, so I advise you to 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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Sell in May, Go Away!
By Mike Conlon | May 5, 2010
“Sell in May, Go Away” is an old Wall St. adage that seems to be proving why it has become a popular investing strategy over the course of time. I can’t think of a time when it has been more prescient; in light of the market sell-offs taking place. Yesterday, world stock markets sold off big time, as did commodities prompting the flight to safety trade and the safe haven dash for the US dollar.
There is a lot of risk and fear in the markets right now, as the Euro zone debt crisis is not inspiring confidence. Notice that this crisis is no longer just about Greece, as contagion appears to be ready to complicate matters in the EU.
In addition, China’s intentional slowing of its economy may be a major drag on world demand, which is not good for growth world-wide. This is having a negative impact on commodity prices, which is generally a positive for businesses and consumers alike, but it is taking down the commodity currencies in the process and causing the unwinding of carry trades as investor rush for the door.
On a positive note, the UK elections will be over tomorrow and that may take one risk element out of the equation.
World stock markets are lower again this morning, as are US stock futures and commodities heading into the market open. At this point there is very little that can be done to change the market mood from risk-aversion, and this could be the sell-off that many doomsday economists have been predicting.
So today is an obvious risk aversion day.
In the forex market:
Aussie (AUD): The Aussie has gotten clobbered over the past few days and is rapid approaching .90 vs. USD. Despite good economic prospects at the moment, a reduction in Chinese demand would hurt the Australian economy the most. Despite the doom and gloom, building approvals came in much higher than expected, showing signs that the Australian economy may be more resilient than the market expects. A government pledge to tax mining companies at 40% isn’t seen as positive for business, however. This is one of Australia’s most profitable sectors.
Loonie (CAD): The loonie is lower as expected as well. The Loonie’s high correlation to oil prices has helped drag it lower, as oil has fallen from above 86 to start the week to 81.5 today. No news out of Canada until this Friday’s employment reports, which if not improved, could give the BOC reason to delay their expected rate hike.
Kiwi (NZD): The Kiwi is also lower, as China is New Zealand second largest market for exports. Tomorrow’s employment reports will show whether or not the economy is improving despite the risk-aversion in the markets.
Euro (EUR): I have never in my life seen a bigger mis-management of a crisis than what is taking place in the EU. Sovereign debt is obviously a major problem world-wide, and the inability of individual countries to debase their currency to help themselves is reflective of MAJOR structural problems with the Euro. When a unified government reacts to a crisis swiftly and with confidence, speculators back off as it is usually a fruitless endeavor to try to bet against a government. When a government fails to inspire confidence, the market smells blood in the water which then makes it much harder to deal with the original problem in the first place. This all comes before the German meeting to decide on the Greek bailout which could send the Euro over a cliff if this thing is not dealt with properly and with confidence. Much, much more to come. The Euro is at 1.28 and change and falling like a rock.
Pound (GBP): The Pound is actually showing some life and is positive against all but USD and Yen as risk themes are too much to overcome. The most recent polls suggest that the Conservative Party will be the victor in tomorrow’s elections and that they will be able to put together a coalition government which will avoid the dreaded “hung Parliament”. The Conservative Party has vowed to reduce the deficit more than the other two parties, and this could be a sign of the new paradigm taking place world-wide. Reckless spending has to be reigned in, and I hope that our idiots in Washington DC take note if indeed the Conservatives win.
Dollar (USD): The Dollar is higher on the flight to safety trade, and pending home sales were higher yesterday showing signs that the economy is recovering. What is Europe’s loss may be the US’s gain, as the Dollar is known as the “anti-dollar”.
Yen (JPY): Japan is still closed for the Golden Week holiday, but that hasn’t stopped Yen appreciation as carry trades are being unwound at breakneck speed. They could be in for a very rude awaking when their stock market reopens, especially if the EU doesn’t combat its debt crisis in a meaningful way.
Wow. All I can say is wow. Right now, the confluence of events taking place in the world is adding up to the perfect storm. There is virtually no leadership in politics anymore, and this couldn’t be more true than what’s happening in Europe.
I would not be surprised at all to see a break-up of the Euro going forward. The structural flaws are too many, and populist revolts are preventing politicians from showing some spine. Riots in Greece are typical and not unexpected, and already the streets are being filled with tear gas.
It’s ugly out there. Very ugly. I’m not certain what the EU can do now to prevent a death spiral. The inability to act may have damaged the Euro irreparably.
If you are still in stocks, I’d advise you to use serious risk management, including protective stops.
And if you’re not in the forex market yet, I implore you to get involved. Buying the Dollar could hedge your other investments against potential catastrophic losses.
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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Rate Hike!
By Mike Conlon | May 4, 2010
The RBA increased the interest rate in Australia as expected to 4.5%. However, dovish language for future hikes has sent the Aussie lower as rate hikes were fully priced in. Risk aversion is compounding the Aussie’s decline as continued fears out of the Euro zone have sent markets lower.
The Euro has breached the 1.31 level and hit its lowest point vs. the US dollar in nearly a year. Fear of contagion to the other PIIGS regions is increasing as the market is cautiously waiting for a plan in the event that there is another crisis. Now that the EU has gone down “bailout road”, the expectation is that the Greece will not be the last straw.
European equity markets are lower, as are commodities and US stock futures giving strength to the Dollar and Yen. In addition, an expected slow-down in China is expected to decrease world demand as China attempts to slow down inflation by doing anything BUT allowing its Yuan to appreciate.
In the meantime, Japan remains closed for the week and will be sitting this one out as the Golden Week holidays are celebrated.
In the forex market:
Aussie (AUD): The RBA raised rates as was expected, yet in the policy meeting signaled that they will likely pause next month. Inflation is expected to rise to the higher end of the “band” that they attempt to target, but the market has detected no sense of urgency. In addition, the Chinese PMI report came out showing that Chinese manufacturing was at its lowest in six months sending the Shanghai Composite to six-month lows as well. This could reduce demand for Aussie products and thus affect the economy.
Loonie (CAD): The Loonie is lower this morning as risk-aversion is prevalent and oil is back to trading below 85. With no news on tap until Friday’s employment reports, expect the Loonie to closely mirror oil prices and trade on risk themes.
Kiwi (NZD): The Kiwi is lower for the same reasons that the Aussie is, but in addition, wage inflation occurred at its slowest pace in nearly 9 years. China is New Zealand’s second largest export market, so a slowdown in China would be detrimental to NZ exports.
Euro (EUR): The Euro is below 1.31 for the first time in nearly a year as fears over the debt crisis have heightened. Part of the problem is the “band-aid” approach the EU has taken, and the market is concerned about future debt problems in the region. When you think about it, this makes sense. With all of the back and forth and negotiating that has taken place over Greece, what happens if Spain needs a bailout? They are a much larger economy than Greece and a much greater risk to the Euro. If the market senses that there is no solution in place, expect yields in Spain to rise until the ECB needs to step in and do something. Say what you want about Hank Paulson’s “bazooka” when dealing with our bank bailouts; I’m sure the EU would love to have such a weapon to combat their debt crises rather than quibbling over pea-shooters.
Pound (GBP): The May 6th elections are two days away and the Pound is weaker as the fear of “hung Parliament” is increasing. In addition, UK stocks are lower led by British Petroleum who has a major disaster on its hands due to the Gulf oil spill. In addition PMI came in slightly better than expected, though mortgage lending was slightly less.
Dollar (USD): The Dollar is higher on risk aversion as its safe harbor status is driving demand. Yesterday, US ISM manufacturing figures came in better than expected showing signs that the US economy may be improving. Pending home sales are due out later this morning which could add to Dollar strength if they come in better than expected.
Yen (JPY): Japan is closed for Golden Week so business activity is light so expect the Yen to trade on risk themes.
As I’m sure you are aware by now, the forex market is a “relational” market in that what happens in one area affects all others. Not only can a currency be driven by its own fundamental strength, but also by others’ weakness.
With the uncertainty surround the UK elections and the Euro debt crises, there is certainly reason to be risk-averse. China’s intentional slowing of its economy and not allowing its Yuan to appreciate could be an important fundamental factor in world demand going forward. If demand slows and US recovery does not pick up, then we could see further impediments to economic recovery.
All of this adds up to the flight to safety trade which could mean Dollar strength and equity and commodity market weakness.
If you are someone who is heavily invested in world markets, it would behoove you to check out the forex market in order to hedge your risk in un-correlated assets. Isn’t time you sought the portfolio protection you need?
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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Holiday Hangover?
By Mike Conlon | April 6, 2010
Yours truly wasn’t the only one feeling the ill-effects of the Easter holiday, as both European and Australian markets were closed yesterday. However, with the holidays behind us, the forex market has wasted no time in digesting news which has sent the market into risk-aversion mode.
We did start the morning higher as the RBA raised rates in Australia to 4.25% for the fifth time in six months. And earlier this morning, the Loonie reached parity with the US dollar before pulling back. Last Friday’s NFP report was sort of a dud, as the closure of stock markets helped to reduce volume. While the number of jobs gained is encouraging, the US government still has a long way to go as the fiscal stimulus is over and the jobs “created” by the census are short-term in nature.
Meanwhile, oil and gold have traded higher to 86.5 and 1127 respectively, showing signs that commodity inflation may be ready for another run if US rates continue to stay extraordinarily low. The Dow Jones came close to breaching 11K, only to be turned back 25 points short.
And lastly, the continued news out of Europe and the UK has caused weakness in their respective currencies and will continue to weigh heavily until there is resolution.
In the forex market:
Aussie (AUD): The Kiwi is higher this morning against all but the Yen which is showing technical strength despite the risk-aversion mood the market is in this morning. The RBA raised rates to 4.25%, as they feel that both housing and commodity inflation is starting to rise. The return to “normal levels” is tantamount to the RBA as Australia is showing a balanced economy despite the ongoing worries of a slow US economic recovery and a potential China slowdown.
Loonie (CAD): For those who have followed this blog closely, you will notice that I have replaced the Kiwi with the Loonie in the “ladder of strength” as I believe the Loonie is set to further out-perform the Kiwi in the near future. Earlier this morning, the Loonie reached parity with USD as oil prices advanced beyond 86.5 and as Australian rates were hiked. The only news of significance for the Loonie this week is Friday’s unemployment report.
Kiwi (NZD): The Kiwi got bumped down a notch as they could only ride the Aussie’s coattails for so long. Business confidence has slowed in New Zealand as weak consumer demand has reduced hiring and curbed corporate profits. New Zealand appears to be in no rush to raise rates, which could hold steady well into the second half of the year.
Euro (EUR): The Euro is lower this morning as renewed fears over Greece’s ability to raise enough capital to service its debt have arisen again. In addition, tomorrow the Euro zone will report its GDP figures and will have its rate policy meeting on Thursday which is expected to remain unchanged.
Pound (GBP): The pound is lower this morning as the date for the spring election has been set for May 6th, and renewed fears of a “hung Parliament” have resurfaced as uncertainty over whether or not a political majority will be elected. It is widely feared that a hung Parliament will not have the political will to reduce UK deficits which have been weighing heavily on UK economic recovery. In addition, the UK will have its GDP estimates on Thursday, as well as the BOE interest rate policy meeting which is expected to leave rates unchanged.
Dollar (USD): The dollar is showing some strength this morning as risk-aversion plays and European weakness are dominating the morning. This week are going to get a lot of Fed chatter, as the FOMC policy meeting minutes are due out today, followed by a bevy of speeches from various Fed governors on Wednesday. This could give some insight into “Fed logic”, which many liken to “jumbo shrimp”– that is—an oxymoron. But don’t count on it.
Yen (JPY): The yen is higher across the board this morning as it is pulling back from recent weakness as risk-aversion is slowing the market. The Japanese interest rate decision is due out tomorrow and is all but certain to remain unchanged. However, signs that economic recovery is taking place are overshadowed by rampant deflation, and the ongoing battle between the BOJ and the government is bound to produce no “winners”.
Outside of the Aussie rate hike, not much to get excited about today as far as economic news is concerned. There is still considerable risk in the market place and now politics is starting to really become a drag on individual economies.
Those economies that have the political will necessary to take appropriate actions will be rewarded, and those who let politics gets in the way of returning to sound fiscal and monetary policy will be punished. Because at the end of the day, it is fiscal policy that can be controlled; more so than monetary policy.
As a result of the economic crisis, monetary policy has become reactive as opposed to proactive as the whims of politicians may have been toxic. Only time will tell who are the winners and losers. Until that picture becomes clearer, I am inclined to err of the side of caution.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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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.
Do you want to be a market participant? Get started today!
To learn about how world events can affect all markets, be sure to check out our currency trading courses!
Tags: account, AUD, Aussie, Australia, bank, BOE, cad, canada, carr, carry trade, closed, commodities, commodity, course, currenc, currencies, currency, currency market, currency trading, dollar, dow, economy, EUR, Euro, Europe, flu, fx, fxedu, gbp, gold, holiday, Il, index, interest, interest rate, jpy, Kiwi, loonie, lower, market, Mike Conlon, minutes, new zealand, news, nzd, oil, pound, sentiment, spot, ssi, stock, time, trade, trades, USD, Yen
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US Retail Sales Numbers Stink!
By Mike Conlon | January 14, 2010
From the “unexpected” category: US retail sales fell .3% in December, vs. analyst expectations that it would GAIN .5%. This is significant in that the December holiday season is one of the busiest times of the year and December is supposed to be a great month for sales. Holidays, end-of-year bargains, etc usually bring the shoppers out in droves. OUCH!
So what happened?
Well its clear that consumers are not confident in their own fiscal health which in turn affects their consumption patterns. With “official” unemployment figures at 10%– the reality is much higher and record housing defaults, its no wonder people are concerned. Not to mention the mounting debt the US is incurring that will have to be paid for at some time in the future. As tax receipts continue to decline, it won’t be long before everyone is called upon to “do their part”. Yep I’m talking about higher taxes.
So why is this disappointing figure so important? Well consumer spending in the US makes up close to 70% of US GDP!
Whoa. So if consumer spending is declining, foreclosures and unemployment are rising, it may be a VERY long time before we see an interest rate hike out of Bernanke and the Fed. And it looks like the markets have picked up on this, as the stock market has shook off this figure and has gone from an initial negative to positive. So that means the dollar is down against all but the Euro (see earlier post) as it is clear that the only thing driving world markets right now is the US zero interest rate policy (ZIRP).
So the risk-taking trade is on so far this morning. It will be interesting to see if stock investors come to their senses at all today– though I doubt that will happen in what’s become the bizarro world of investing!
Trade carefully!
To learn more about how these economic figures can have an impact on all markets, be sure to check out our forex trading courses!
Tags: Bernanke, course, dollar, dow, economic, EUR, Euro, forex, forex trading, fx, fxedu, holiday, Il, interest, interest rate, invest, investor, market, Mike Conlon, retail sales, stock, time, trade, unemployment
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Happy Holidays from FXEDU!
By Mike Conlon | December 24, 2009
In what some might see as an “early Christmas gift”, jobless claims fell more than expected to 452,000, beating analyst expectations of 470,000. This is a positive sign that the US economy is recovering…. but it’s not out of the woods yet. In any event, the news bolsters the economic trends that we’ve seen recently in the markets.
So as we move into year end, I want to extend warm holiday wishes to all of our subscribers and wish you health and happiness during the holiday season!
I’m also going to take this opportunity to tell you about some of the exciting things we’re going to be doing in the new year!
Starting next year, we will be introducing new Expert Advisors (EA) for our members. For those of you who are not familiar with Expert Advisors, they are basically automated trading systems that allow you to take advantage of opportunities in the forex market. These have been developed for us by some of the top trading minds in the business, so be on the lookout for their arrival!
Also, I have a series of interviews lined up with some of the leading experts in the forex market who are going to be sharing their unique insights and views with us!
And lastly, we will be announcing our “end of the year” blowout promotion next week as a thank you to all of our subscribers! If you’re not registered for the blog yet, you can do so now by entering your email address at the top right corner of the website.
As we move closer to the New Year, it is now more important than ever to understand the forex market as the global economy moves forward. Those who take the time to learn about this market will be better positioned to take advantage of the numerous opportunities that present themselves daily.
So make a New Year’s resolution to yourself to learn about the currency market!
Happy Holidays to all!
Tags: blog, currenc, currency, currency market, economic, economy, forex, forex market, holiday, Il, mike conlon, news, time, trading, trend
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