Risky Business!
By Mike Conlon | March 9, 2010
From an outside perspective, some might be shocked at how quickly the market can flip-flop from market euphoria to fear on what seems almost like a daily occurrence. It’s like John Kerry on steroids! I kid, I kid. But on a more serious note, the market can wipe out days of gains in a single session as risk aversion can pop up for any number of reasons. Sometimes it’s justified; at other times it isn’t.
Case in point: this morning. The market had been moving along nicely then all of a sudden decides there’s too much risk in the world economy and then wham!—you get a market sell-off! What has changed so much from last Friday, to yesterday, to today?
Frankly, not much. You see, the financial markets are much like an expedition, venturing slowly into the unknown and then quick to retreat at the first sign of trouble. So what is that trouble today?
Damned if I know. Part of the role of market pundits is to “make sense of the chaos”. Most of the time I find these attempts to be lazy and disingenuous. So the top 5 I’ve heard this morning are (in no particular order): Greece, lower stock earnings, US healthcare legislation, the push for Chinese Yuan appreciation, and UK elections. And if you don’t believe any of these, I’ve got one of my own for you: it’s a technical pullback.
So be wary of attempting to try to “figure” the market out, and be sure to trade what you see and not what you think you know.
In currencies:
Aussie (AUD): The Aussie has pulled back from near its 2010 highs as risk aversion is dominating the morning market action today. However, the sell-off is not as bad as reports came in that Australian businesses are actively looking to hire and the business confidence index came in higher, prompting the market to believe that yet another rate hike may be coming next month.
Kiwi (NZD): The Kiwi isn’t faring as well as the Aussie, as yesterday’s big winner is now one of today’s bigger losers. Tomorrow’s rate decision and language may prove to be more exciting than previously expected, as the expectation is that it is the slimmest of slim chances that they will raise rates.
Loonie (CAD): The Loonie is lower this morning primarily on lower oil prices that are down roughly 1.5%. This snaps 7 days of gains, in what can be viewed as a welcome pause. This appears to be mild risk aversion so the Loonie is mixed.
Euro (EUR): The Euro is lower this morning across the board as stock earnings are lower and the ECB is saying that it potentially could accept lower rated bonds as collateral against new loans. Also the call for regulation on credit default swaps (CDS) and the news of the “lender of last resort” card being played all highlight the problems for the Euro zone. Notice I didn’t say Greece once—oops! Just did.
Pound (GBP): The Pound is lower this morning as reports came in that the UK housing market may be slowing as fewer price gains occurred than what was expected. This comes in advance of the UK GDP estimates due out tomorrow which could set the tone for UK rate policy going forward.
Dollar (USD): The Dollar is higher this morning on risk themes as stock market futures appear to set to open lower, though it not a certainty that they will remain that way all day. Look for some volatility as the markets trade back and forth, and definitely do not a rule out a reversal to the upside for equities which could be dollar-negative.
Yen (JPY): The yen is higher this morning on general risk themes and speculation that Japanese companies are repatriating profits before the end of the Japan fiscal year which is in April. This essentially means that demand for yen is higher as companies sell foreign currencies to buy yen, thereby increasing demand. This could be the reason why the market perceives that today is a risk-aversion day.
As you can see, there can be many reasons why currencies move outside of the normal risk themes which can disguise what may be really going on in the marketplace. When traders see these anomalies, they should be prepared to react. It would not surprise me today to see US dollar weakness, even though then yen may stay strong. Whether or not that is enough to push the US stock market and commodities higher remains to be seen.
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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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!
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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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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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.
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!
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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.
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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Fastest Growth since 2003!
By Mike Conlon | January 29, 2010
This morning, the US Q4 GDP figures came in at a better than expected 5.7%, the fastest growth since 2003. While this is seemingly good news for the US economy as it marks the 2nd straight quarter of growth providing further evidence that we moved forward from recession.
However, we’re not out of the woods just yet. There are still global concerns weighing heavily upon the markets, such as the Greek debt problem in the Euro Zone, as well as China’s restrictions on lending.
This morning’s currency action is rather neutral, as it can’t be described as either risk-taking or risk-aversion.
Here’s how world currencies are trading this morning:
Aussie (AUD): Gains in the Aussie have slowed down as the global slowdown, particularly in China, is expected to slow growth in Australia. This morning is a mixed bag for the Aussie, as it’s higher vs. the Japanese yen and British pound, but down vs. the US dollar and Euro.
Kiwi (NZD): The Kiwi is trading higher across the board and is showing the highest percent gain vs. the yen this morning, up 1%. They just reported a budget deficit for the first time in 9 years, as tax receipts have slowed and government spending picked up last year.
Loonie (CAD): Canadian GDP came in this morning at .4%, a smidge higher than expectations. Canada is showing slow but steady growth, which is a positive for the economy. The Loonie has been weakening against the US dollar as global risk appetite has abated and oil prices are down almost $6 this year.
Euro (EUR): The Euro is trading higher against the yen and the pound, but down against the rest this morning. Consumer prices rose 1% showing that inflation is starting to pick up in the region. Also to note is that fears over the Greek debt crisis are weakening as region considers all of its options.
Pound (GBP): The pound is down this morning against all but the yen, experiencing a technical pull back from its recent strength. Housing prices were up the most in 5 months and consumer confidence is improving. BOE policy-maker Andrew Sentance cautioned that the recovery can continue, “especially if interest rates remain low.”
Dollar (USD): The dollar is showing strength today after the GDP figures that were reported this morning. The fastest growth since 2003 is stoking thoughts that inflation may be closer than the Fed thinks.
Yen (JPY): The Japanese yen is down across the board today as the CPI index showed that deflation is still very prevalent in the Japanese economy. Finance Minister Kan called for the Bank of Japan to take a powerful approach to combat falling prices and a strengthen yen.
The stock markets closed down in Asia, but are currently higher in Europe and the US. Gold is down slightly and oil is up this morning.
So today is a bit of a mixed bag. Keep an eye on the correlations to watch for break-downs or irregularities to see if there are reversals or reversion to mean. Today seems like it will be a range-bound day going into the weekend.
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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FOMC Day Fun!
By Mike Conlon | January 27, 2010
This morning, the broader currency markets are trading in a slight range, with the Japanese yen (JPY) and the British pound (GBP) showing gains against the US dollar. There is a mild risk-aversion theme this morning as all eyes are on the US FOMC policy meeting today at 2:15 EST.
As far as news-worthy currency events go, this may be the one which has the largest impact on the market. It is almost 100% certain that the Fed will not be raising rates from .25%, however the market will be looking for clues for any change in language that may suggest a shift in policy.
The markets here in the US have been on edge recently, as political pressure and rhetoric have picked up because of what many see as a rejection of the current administration’s policies. This has caused some in Congress to pull their support for Fed Chairman Bernanke, whose term is up at the end of January.
Let’s take a look at how specific currencies are faring so far:
Aussie (AUD): Earlier today the Australian Consumer Price Index (CPI) number came in at .5% for Q4 and at 2.1% YoY, which was slightly higher than expectations. This sent the Aussie initially higher and above .90 against the US dollar, though it’s now trading below on the move to risk aversion and fears that the moratorium in Chinese lending may affect the Australian economy.
Kiwi (NZD): The Kiwi is trading down on the risk aversion theme, most notably against the Japanese yen around .5% on the morning. The Reserve Bank of New Zealand is coming out with its rate decision later today and is expected to maintain rates at 2.5%, which is a record low. This could weigh heavily on the Kiwi as the market has priced in a 50 basis point rise by mid-year.
Loonie (CAD): The Loonie is trading near a 5-week low as world markets and commodities have sold off recently and the flight to safety trade has been in effect. One of the major factors affecting the Loonie is the price of oil, which is off some $10 from recent highs.
Euro (EUR): The Euro is off slightly this morning, as it attempts to shake off the problems it’s been having related to the debt crisis in Greece. European stock indices are down today, as comments from ECB council member Weber said that the bank may take additional steps to withdraw liquidity from its banking system. With today’s FOMC decision on tap, the Euro could test 1.40 which has been an area of psychological support for some time.
Pound (GBP): Reports are out this morning that the quantitative easing measures that the Bank of England has taken may be working. Although UK GDP came in lighter than expected, it did come in positive which is a step in the right direction. BOE policy-maker Sentance warned that the bank may need to act quickly if the recovery strengthens and inflation picks up. The pound is up to 1.62 vs. the US dollar.
US Dollar (USD): The dollar is weak against the pound and the yen this morning, but otherwise is up slightly against the commodity currencies and the Euro. The market is waiting on the FOMC decision and more importantly if there is a change is language which may give hints about a change in policy. Keep an ear out for a continuation of the “extended period” language. The dollar has been gaining recently, as risk-aversion has heightened around the globe.
Yen (JPY): The Japanese yen is at a 5-week high vs. the dollar, as the Japanese yen benefits the most from the risk-aversion trade. With interest rates at .1% and not moving any time soon, the carry trade is back on with the yen as the funding currency of choice. Also to note is that Japanese exports have risen for the first time since mid-2008, a sign that economic recovery may be taking place.
In world markets, stocks are down in Asia and Europe and the MSCI world stock index is experiencing its largest losing streak in almost a year as concerns that developed economies may be preparing to scale back which affects emerging markets. In the US, the stock markets are down slightly as are gold and oil, which are trading below 1100 and 75 respectively.
Look for a reversal today if the Fed does as expected and maintains uniformity of language with its previous rate decisions. The world markets are looking for some vote of confidence that will allow risk-taking to resume again. Despite all of the political wrangling coming out of Washington, if Bernanke can project confidence that the recovery in the US in taking place, then it may signal game on again!
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Busy Week Ahead!
By Mike Conlon | January 25, 2010
Rumors abounded last week that Fed Chairman Ben Bernanke was losing political support for re-confirmation and there was some speculation that he might not get the “nod’. Combine that with president Obama’s populist rhetoric and the markets sold off because of the uncertainty. The one thing I cannot stress enough is that THE MARKETS HATE UNCERTAINTY!
Realizing the consequence of their actions, politicos this weekend conceded that Bernanke will most likely be re-confirmed so it was game on for the markets again. As a result, the theme so far this morning is mild risk-taking. The Aussie (AUD) and Kiwi (NZD) are up, the Japanese yen (JPY) is down.
The yen drop also comes as a result that “people familiar with the situation” claim that the Bank of Japan will expand bond buying to keep the yen from strengthening too much and encourage weakness to help exports.
The British pound (GBP) is also showing strength this morning, as the UK GDP report is expected to show an expansion of .4% in Q4 vs. a previous contraction of .2% in Q3. The pound is also near 5-month highs against the Euro (EUR) which is currently under pressure from problems with the PIIGS countries, particularly Greece.
Also on tap this week is GDP reports from the UK on Tuesday and Annualized GDP from the US on Friday.
Consumer Price Index (CPI) reports from the Euro Zone and Australia on Wednesday and Japan on Thursday.
Interest rate decisions from Japan on Tuesday and the US and New Zealand on Wednesday.
That plus a smattering of consumer confidence numbers from various regions plus the US and President Obama’s State of the Union address should make for a volatile week!
When trading markets that are expected to have a higher degree of volatility, it is important to stay nimble and not “get married” to a position. Remember to cut your losers short and let your winners run!
Happy trading!
To learn more about how to get involved with the fastest growing market in the world– the forex market– be sure to check out our currency trading courses!
To follow these events live in a free, real-time practice account, get started here!
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US CPI Shows Modest Increase!
By Mike Conlon | January 15, 2010
The US Consumer Price Index came out this morning showing a slight increase and not as high as the general expectation, though relatively tame. While this number is not that unexpected or significant, it shows that as of this moment, the greater economic force to combat in the US is deflation, and not inflation.
This all but closes the door on any US rate hikes until at least the beginning of Q3 this year, if they happen at all this year. Normally, I would expect to see some dollar weakness after a number like this, but the flavor of the day is risk-aversion.
Between the problems in the Euro Zone and the Consumer Confidence Numbers coming in a little worse than expected, traders are taking a bit off the table going into the weekend. Because the US stock market is closed on Monday for the observance of Martin Luther King Day, there is a heightened sense of risk for the long weekend.
So we’re seeing US dollar strength, Euro (EUR) and the commodity currencies (Aussie, Kiwi, Loonie) weakness. Also to note is that the stock markets are down roughly 1% on the day, as are oil and gold.
Another factor weighing on the stock market is the earnings report from JP Morgan. While they did report higher overall profits, investors were concerned with their mortgage and credit card loan losses. Should this problem expand to the other banks and become unmanageable, this could derail economic recovery.
However, should we make it through the weekend “unscathed”, namely no systemic breakdowns, then I expect we will see US dollar weakness return as risk-taking returns to the market.
To learn more about the forex market and how you can profit from news events, be sure to check out our currency trading courses!
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