Euro Trashed!
By Mike Conlon | April 28, 2010
I sometimes feel like a broken record when I go on and on about risk in the marketplace, but in my opinion this is the most important factor to consider. Many days worth of gains can be wiped out in one session, and that’s exactly what we saw happen yesterday.
It is no great secret that there are problems in the EU with regard to the Greek debt crisis. The mis-management of the situation by the EU has been particularly deplorable. And just yesterday, at roughly 11AM, S&P downgraded both Greek and Portuguese debt to junk status, adding further fuel to the fire. This sent the stock markets considerably lower, and the flight to safety trade strengthened the Dollar and Yen.
So while there are individual economic data that are reported for the various regions, this Euro crisis is clearly the elephant in the room. Today, the FOMC decision on interest rates is due out, but don’t expect any change to either the benchmark rate or the language surrounding it.
Today the market has seemed to have shaken off yesterday’s news and is bouncing higher, though gains may be short-lived as risk fears increase with every passing day of a Euro non-resolution.
In the forex market:
Aussie (AUD): The Aussie is higher this morning as inflation has picked up down under. The CPI figures show that prices climbed .9% last quarter, slightly higher than analyst expectations. The year-over year figure was also slightly higher to 2.9%, prompting analysts to increase their view that yet another rate hike may be forthcoming at next week’s policy meeting.
Loonie (CAD): The Loonie is also higher this morning on slight risk-taking and a rebound of commodity prices despite the fact that Bank of Canada Governor Carney said that “nothing is pre-ordained” with regard to a Canadian rate hike. This is a basic attempt to jaw-bone the Loonie lower, as a stronger currency poses a risk to economic recovery.
Kiwi (NZD): The Kiwi is higher on risk-taking ahead of the interest rate policy decision due out tomorrow in the overnight session. While rates are expected to remain stable, be aware of any clues that may signal a rate hike sooner than the market is currently expecting. In addition, NZ business confidence figures came in better than expected adding to Kiwi strength.
Euro (EUR): Oh the Euro! So the Euro breached 1.32 yesterday on the debt downgrades to junk status, and no resolution is in sight. The major impediment right now is that German delay tactics; and the market is pressuring action by selling the Euro and demanding higher yields to loan to troubled EU members. Part of the problem is that elections are taking place in Germany, and bailing out Greece would not be seen as popular. Meanwhile, the Greeks are striking to protest austerity measures which could slash salaries by 30-50%. Regardless of what happens in the near-term, this does not look good.
Pound (GBP): The Pound is lower this morning as a BOE policy-maker described the UK economy as being in a “fragile state”. This comes in advance of next week’s elections which frankly can’t get here soon enough. What was once thought of a strictly a battle between the Conservatives and the Labor Party has rapidly turned into a three horse race as the Liberal Democrats have charged onto the scene and are making the most headway. This all but guarantees a “hung Parliament”, but concerns over the UK budget deficit reduction plans and how it will affect economic recovery remain at the forefront.
Dollar (USD): Today’s FOMC meeting is expected to produce no change. Recent pockets of decent economic data show that the economy is improving, but at what rate? The pace of recovery is important because the longer it takes, the harder it is to gain the momentum necessary to grow and create jobs. Bernanke testified yesterday that the US has to do something about its budget deficit besides making phantom projections that we can grow our way out of it. The Goldman Sachs hearings yesterday only added to the view that elected officials are almost completely incompetent.
Yen (JPY): The Yen is weaker on the resumption of carry trades and that retail sales figures came in higher than expected, rising at the fastest pace in nearly 13 years. This is important because it shows signs that domestic demand may be improving in Japan, which had for years been known as a country of savers. This is just one data point that demonstrates that economic recovery may be taking place, after years of stagnation.
One of the great things about the forex market is that it is a relational market. By that I mean that regardless of how good or how bad a particular currency may seem, it will always trade with respect to other world currencies.
If the Euro were a stock right now, there’s a good chance it would be halted by the exchange to restore balance. If it was a commodity, it would probably be “limit down”. And yet here the Euro is, showing gains against the Dollar, Pound, and Yen despite all of the risk surrounding the region.
What this means is that there is good volatility which in turn means good opportunity. This can be seen day in and day out as the market vacillates between risk taking and risk aversion. It’s not that the market has forgotten about the risk related to the Euro, but rather knowing that a currency does not trade in a vacuum. In this regard there is money to be made from either point of view. The important things to remember are to be aware of the time frame you are trading in; and always use proven risk management techniques.
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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Not So Fast!
By Mike Conlon | March 31, 2010
Earlier this morning, the market was in a good mood as a Greek Plan to issue bonds in Dollars was widely accepted which may help them reach their goal to raise capital to fund debt. In addition, news out of Ireland that they will raise private capital to help their banks after “appalling lending” was also met with approval as it would keep the Irish banks out of government control and thus adding to Irish debt.
Canadian GDP came in better than expected, beating the estimate by .1% signaling that Canada may be the next country to raise rates.
On the negative side, Australian retail sales came in worse than expected, which could temper speculation that the RBA will hike rates again next week.
And then the ADP jobs report came in here in the US, showing that 23K private sector jobs were lost vs. an expectation of a GAIN of 40K. This could foreshadow Friday’s NFP report which is also expected to show job growth.
In the forex market:
Aussie (AUD): The Aussie is down this morning as retail sales unexpected fell 1.4% vs. an expected gain of .3%. In addition, building permits fell 3.3% vs. an expectation of a gain of 2.1%. This illustrates that domestic demand in Australia is diminishing as previous rate hikes may be taking hold. The RBA is meeting next week with its decision on rate hikes, and this could mean a pause.
Kiwi (NZD): The Kiwi is down in sympathy with the Aussie as signs that domestic demand in the region may be slowing. Nevertheless, commodities are higher which is providing some support for the Kiwi, as well as the news out of the Euro zone that debt challenges may be met.
Loonie (CAD): The Loonie is higher as Canadian GDP came in at .6% showing the best gain in nearly three years. In addition, oil is higher which also benefits the Loonie. It is widely expected that Canada may be the next to hike rates, and Friday’s NFP report will be significant for the Loonie as it will show how economic recovery in the US, Canada’s largest trading partner, is doing.
Euro (EUR): The Euro has positive momentum as news regarding the debt problems of its members (particularly Greece and Ireland) has been met with approval by the market. Also, to note is that French PPI came in as expected so inflation seems tame, but German unemployment figures showed a loss of 31K vs. an expected gain, showing signs that the Euro zone’s strongest economy may be weakening just a bit. Nevertheless the news is positive for the Euro this morning, as reflected by its gains. The Euro is above 1.35 vs. USD.
Pound (GBP): The Pound is also higher this morning in a continuation of yesterday’s move as a result of better than expected GDP and housing prices. The Pound has been beaten up as of late with debt fears surfacing; however confidence is rising that the elections will produce a government which is attentive to servicing UK debt.
Dollar (USD): The Dollar is mixed this morning, showing gains vs. Pacific region currencies, but losses against the rest. The ADP jobs report came out showing private sector losses vs. gains (see above) which while negative for the US economy, also mean that rates may be allowed to remain at extraordinarily low levels. The Dollar initially gained on the news in a flight to safety, but may be reversing that initial move.
Yen (JPY): The Yen is lower against all but the Aussie and Kiwi, as we may be seeing some unwinding of carry trade positions. With news out of the Euro zone, today “should be” a risk-taking day with the exception that the usual beneficiaries are not favored today due to economic concerns.
So today is the day were acceptance of Euro zone plans to combat debt have helped global economic stability, which should generally show risk-taking. I expect that the Aussie and Kiwi may shake off the news out of Australia and to possibly show gains by the end of the day.
While the ADP report was discouraging here in the US, the market is inclined to disregard this news in favor of better stories abroad. Now if this was the NFP figure, the story might be different. However, the market is getting used to the idea of a jobless recovery here in the US, as government spending has all but replaced output normally provided by employment.
If NFP does show the job growth that our government has “sold their soul” to try to get; then it could be “game on” for risk-taking. As inflation “seems” tame here in the US, we could see a slow but protracted decline of the Dollar as yield seekers send money elsewhere.
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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Weekly Outlook from InnerFX 12/07
By Mike Conlon | December 7, 2009
EURUSD
Despite several attempts to breach higher last week, the euro failed to hold gains as the dollar rallied across the board on Friday, as a result of better than expected unemployment figures. The 270 points decline of Friday has cleared half of euro’s gains accumulated during the previous two months, hence December started by favoring the dollar bulls. Is this the time of a prolonged correction? Could be… but I maintain my positive view on EUR against the buck, for now, treating such declines as potential opportunities to re-initiate EUR long positions. Speaking of current market conditions – short-term sentiment is slightly bearish due to recent rejection into the 1.5150 region along with Friday’s collapse below the 1.49 handle, back into the key support region around 1.4850. A rising trend line support coming from July’s low at 1.3830 has been reached and limited intra-day losses but in case of the decline’s resumption within the coming trading sessions, we should focus towards the next support levels – into the 1.4700/30 and 1.4600 regions. In case of a recovery, which at this moment seem more plausible to me, I expect the 1.5000 mark, along with 1.5050, to provide a minor barrier – a lot weaker than before (during October and November). A sustained breach above the 1.5 handle would also turn momentum positive, signaling that the correction is over. Also keep an eye on the S&P500 as important levels are still intact into the upside – the 1113 barrier which is still intact, despite several attempts to breach higher along with false breaks/spikes to as high as 1119. Another key barrier is the median retracement of the long-term decline from 1576 to 666.75 which is set at 1121. Due to the solid correlation between EURUSD and S&P500: no sustained break above 1113 -> no breach above the 1.5100/50 region, simple as that.
(click all charts to enlarge)
Gold
The superior band of the uptrend channel (seen in the chart below) is, once again, providing support on current pullback. In case of a break lower, next downside barriers into the 1126 and 1100 regions may limit losses. Short-term sentiment shows some bearish signs but it was about time to look for a correction – because it can’t just climb to record highs forever, right? However, if the correction continues – below 1100, bulls should start to worry. On a medium term basis – uptrend is intact and extended dips will favor further buying.
GBPUSD
In my previous article, when cable was trying to recover some ground pushing on the 1.6600 handle from below, I pointed out that more selling towards 1.64 was likely – further weakness emerging, as expected, and cable printed session lows around 1.6420 before closing the week .36% lower. Downside remains favored for now, and a break above 1.6700 is needed to confirm the positive bias. Recent hesitation into the 1.6700 zone confirms the indecision of both bulls and bears and the 1.6270-1.6700 range will probably remain valid for now. However, the said 1.6270/00 support region may limit extended losses and provide a reversal point, as that’s quite an important level.
NZDUSD
Former support provided by the rising trend line coming from .6475 of July has provided a stable resistance on last upside attempts into the .7280/00 region. A break was needed to resume uptrend but selling into rallies favored the current decline which extended to as low as .7130 on Friday. Although NZD’s losses have been relatively smaller comparing to EUR (-0.86% vs. -1.37%), there are no signs of uptrend’s recovery yet. Below current market levels, important support is formed around .7050 by the 61.8% fibonacci retracement of .6685 – .7635. We’ll see how it reacts if current decline continues.
Happy trading!
Tags: analysis, article, blog, buck, charts, decision, dollar, dow, EUR, Euro, forex, forextrading, gbp, gold, Il, lot, market, momentum, nzd, sentiment, ssi, time, trend, unemployment, uptrend, USD
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GBP/AUD Trade Follow-Up!
By Mike Conlon | October 20, 2009
I just wanted to give readers a heads up on this trade that I called out last week. To give you a little background, I don’t typically like to say that I am doing this or that, but rather like to point out “possible trades” with “theoretical results.” Whether I am actually in the trade or not is immaterial for discussion purposes on this blog, as I don’t want to be seen as recommending specific trades, but rather as just trying to point out some tidbits that may be unconventional to some.
The reason I say this (and have disclaimers LOL) is because right after I posted this initial trade idea, I got a call from a good friend of mine who asked me in no uncertain terms, “Are you Nuts?” When I asked what he meant he gave me the usual response of don’t fight the trend, the fundamentals don’t add up, the Aussie is benefiting from the carry trade, BOE trying to keep GBP low through further threats of more QE, etc. And while I was aware of all of these factors before I picked this trade, something told me I should investigate this a little further.
Perhaps it was yesterdays sell-off of this pair that had me second guessing myself, but I realized that when dealing with trend-reversals rarely do they happen and then go strait up. So I decided to do some multi-time frame analysis.
Now you may be asking yourself, why don’t you use technical indicators? Well, I do, but do after the fact as confirmation to see if it matches up with what I’m seeing from the price action on the chart. What I’d rather do is begin looking at shorter time-frames to see if any discernible patterns are emerging.
Voila! I dropped down 1 time-frame (which for me is the 4-hour chart) and noticed what I thought to be a possible cup & handle formation. This is a very bullish pattern if it completes properly. Let’s look at the chart (click to enlarge):
Now you’ll have to forgive my awful chart-drawing skills, but as you can see, there is a very rudimentary c&h formation in progress. Should this pair breakout above the “brim” of the cup at around 1.785, then we could see some momentum to the upside.
To come up with a target price, I added the height of the cup to the breakout price of the handle and came up with roughly 500 pips. But because I am already in this trade (half position- I took some profits), I don’t need to take any action at this point. But if this should breakout above the handle, then one could play the break-out by buying just above that price level.
So while at this point the fundamentals still don’t add up for this trade, stranger things have happened. Its amazing to watch how the technicals sometimes predict fundamental action. Whether or not it will in this case is anyone’s guess. But that is what trading is about, not trying to guess where the market is going, but rather trying to increase your odds that a particular action may take place and having sufficient risk management in place if it doesn’t occur.
So keep an eye on this pair to see if this formation “activates”, and if so, listen to the news to see if anything material has taken place. Or you can just check back here… as I will be sure to update.
Good trading to all!
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The “Risk Seekers” return to the market today!
By Sean Hyman | June 18, 2009
The risk seekers finally re-emerge! Today, the biggest percentage gainers are NZD/JPY (up 2.12% on the day), AUD/JPY (+1.85%), NZD/USD (+1.52%), AUD/USD (+1.14%). So the theme of the day is: commodity dollars vs. the dollar and yen. Now that these pairs have had a significant pull back and consolidation…see if they can breakout into new recent highs. If so, you might consider breakout entries to the upside and see if this thing “has wings”.
Tags: AUD, blog, breakout, commodity, currency, dollar, forex, fxedu, Hyman, jpy, momentum, mywealth, nzd, pair, percentage gainers, Sean, Sean Hyman, USD, Yen
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Why the Canadian dollar is so “Loonie”!
By Sean Hyman | June 9, 2009
They say they call the Canadian currency the “Loonie” because of their bird called the “Common Loon”.
However, while that’s technically correct, I think that it’s called the “Loonie” because it’s kind of “bi-polar”. Ha-ha!
You see there are two major “pulls” on the Canadian economy. One of them is the “pull” that commodities have on their economy. On the other hand, the other “pull” is based off of how their biggest trading partner is doing: the
The tough thing to determine when trading the Canadian dollar is when the focus is on the commodities side and when the focus is on the
As you know, the
You can see this easily on the visual below. Click on the charts to enlarge them.
You can see by the GDP chart above, as the
However, on the other hand, the Loonie can also do well when commodities do well. So how does one figure out this currency?!? I’ll tell you how I do it by the chart below.
If you have to say which side of the equation has more strength, I say it’s the side that assesses how the
In 2006 and most of 2007, commodities (like oil) and U.S. stocks (like the S&P 500) were going up…and the Canadian dollar (FXC) “ate this up”.
Note: As FXC goes up, you would want to be short the USD/CAD pair in the forex market to have the equivalent direction.
However, towards the end of 2007, you know what happened to
That’s why I say, when
HOWEVER, even if commodities continue to head higher… IF
By the way, if the central bankers have it right…and we’re past the worst and “green shoots” are starting to pop up once again, then one should be a buyer of the Loonie once again. And this is exactly why investors have poured back into it. Because BOTH stocks and commodities have stabilized.
As long as that theme continues, then shorting the USD/CAD pair will be just fine. If, for some reason,
Sean Hyman
Tags: blog, cad, canada, charts, commodities, currency, dollar, dow, economy, forex, forex market, forextrading, fx, invest, investor, momentum, oil, pair, recession, Sean Hyman, ssi, stock, stocks, technical, time, trade, U.S., USD
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The Flavor of the day: the New Zealand dollar! What are traders spitting out? Euros!
By Sean Hyman | May 19, 2009
Today the NZD/USD is up 1.20% and NZD/JPY is right behind it, up 1.15%.
NZD/USD is up, even more than anything else is down (percentage wise). So look for momentum there (intraday). You could get some sizable short term pops out of this pair this morning.
Go where the momentum is…..or I could say it this way….go where the fish are biting.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, dow, EUR, Euro, forex, forextrading, gbp, jpy, momentum, nzd, pair, Sean Hyman, USD
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One of those days for the Intra-day trader to stand aside. Here’s why…
By Sean Hyman | May 6, 2009
Today, the biggest gainer on the day is AUD/USD up only 0.80%. So the biggest gainer on the day isn’t even up a full percentage point.
The largest loser on the day is EUR/AUD which is down 1%. That’s nothing for that volatile pair. So while there is mild Aussie strength on the day, there is no “big momentum” on the day.
Intra-day traders need “momentum” aka “movement” because they have to be “right” and essentially “right now”!
Therefore, on “dull days”, it’s best to stand aside. You will generally find that you preserve profits gained from previous days when you do this.
Note: Since the U.S. Dollar Index recently broke its uptrend, look for the EUR/USD and AUD/USD to have sizable upside days in the near future, relative to its “down days” overall.
The euro is the biggest component (over 57%) in the U.S. Dollar index, so it stands a huge chance at being a huge beneficiary. Also, the euro is the next most liquid currency outside of the dollar. Therefore, it’s the next logical place to go and why it gets the nickname of “the anti-dollar”.
The Aussie dollar has a huge advantage too because its fundamental data has held up much better than other countries…and it also has the highest interest rate out there…of any industrialized nation. Therefore, that gives it a huge “leg up” going forward too.
So once the momentum does come back (probably after tomorrow’s interest rate decision on the euro and pound), you will want to look to these two currency pairs to see how they are faring.
Also, remember that NFP (Non-Farm Payroll) report, comes out on Friday. Get started with a demo account today: http://www.fxedu.com/practice-forex-account
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Tags: AUD, Aussie, blog, currency, currency pairs, dollar, dow, EUR, Euro, forex, forextrading, fundamental, index, interest, interest rate, momentum, movement, nfp, pair, pound, Sean Hyman, ssi, trade, trader, trend, U.S., uptrend, USD
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Daytrading:Know when to Hold’em…Know when to Fold’em!
By Sean Hyman | April 23, 2009
So far, today is one of those days where the movements are mild so far (except in the exotic currencies: USD/ZAR and EUR/TRY which are the biggest % gainers on the day).
Nothing is either gaining or falling rapidly today. Daytraders typically need momentum and breakouts and days like today (unless it changes all of the sudden) are not conducive to that.
Now, if someone is a range trader and they play ranges, picking something in the “middle of the pack” like AUD/CAD, CHF/JPY, etc.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, breakout, cad, CHF, currencies, EUR, forex, forextrading, jpy, momentum, movement, Sean Hyman, trade, trader, USD
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