Hello September!
By Mike Conlon | September 1, 2010
The markets this morning are clearly relieved to be done with the month of August which was a doozy for equities and commodities. On this first day of September, risk appetite has returned to the market as US stock futures are higher on the heels of Asian and European stock market gains.
Much of the catalyst for this is due to Australian GDP figures which came in better than expected, and Chinese PMI figures which showed gains for the first time in 3 months. This shows that China still has upward growth, though it is moderating. This also bodes well for Australia, who supplies China with the raw materials it needs to sustain its growth.
In the Euro zone PMI figures showed slight gains, while in the UK, PMI figures came in worse than expected as austerity takes hold.
In the US, the ADP Employment change showed a loss of 10K jobs vs. an expectation of a gain of 15K. This caused a slight sell-off on the news announcement, but the market has quickly blown off this reading and is awaiting the US ISM manufacturing figures which are expected to show a decline from last month.
Nevertheless, the market is in classic risk-taking mode, led by the commodity currencies and marked by Yen and Dollar weakness.
In the forex market:
Aussie (AUD): Overnight, Australian GDP figures showed that the economy rose at the fastest pace in nearly 3 years, reporting growth of 1.2% vs. vs. an expectation of .9%, and YoY growth of 3.3% vs. an expectation of 2.8%. Adding to Aussie strength was the Chinese PMI report which showed a return to manufacturing growth. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is following the Aussie higher as risk appetite and yield-seeking money flows provide demand. There is no major news out for the Kiwi for the rest of the week so expect it trade on risk themes.
Loonie (CAD): Crude oil is higher this morning as risk appetite is driving higher commodity and stock market prices and the Loonie is along for the ride. However, traders are paring back bets of a further rate hike as GDP figures reported yesterday came in worse than expected.
Euro (EUR): The Euro is higher this morning as PMI figures came is slightly better than expected showing that there is still some life in the EU economy. However, retail sales figures in Germany came in lower than expected but this is not enough to cause a change in sentiment this morning. In addition, Portugal had another successful debt offering, as demand hasn’t waned. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning as is usual under risk-taking scenarios. However, PMI figures came in worse than expected, missing analyst expectations and showing a decline from last month. Austerity measures in the UK may contribute to further Pound weakness going forward. (Click chart to enlarge)
Dollar (USD): The Dollar is weaker across the board as demand for the Greenback is low due to risk taking in the market and the ADP jobs report. US ISM manufacturing figures are due out at 10AM EST and a decline is expected. The ADP figure is the first of the 3 jobs reports due out this week, with initial jobless claims out tomorrow, and the all-important Non-Farm Payrolls report due out on Friday.
Yen (JPY): The Yen is mostly lower this morning as risk appetite has encouraged yield seeking through carry trades. However, the Yen is still showing strength against the Dollar, returning very close to the 15-year high put in last week. It appears as though the market is going to test the resolve of the Japanese policy makers to see if intervention is really in the cards.
As is indicative this morning, it’s not always about the US economy. While the numbers here look pretty bleak, there are pockets of strength around the globe. Right now, the only thing keeping the Dollar afloat is risk aversion, and most of the “bad news” is from US self-inflicted wounds.
Yesterday’s Fed Minutes showed that further quantitative easing may be off the table for now, which the market views as a good thing. As other economies around the globe work to slash deficits, adding to the US deficit would be seen as negative and could have had the opposite effect.
This week is important for the US economy as it’s all about jobs. I can’t harp on this enough. And this goes hand-in-hand with US government policies. A report yesterday showed that banks have eased lending standards yet demand for new loans was weak. This is all because of the uncertainty surrounding current policy and the likely affects of more regulation, taxes, and the healthcare overhaul.
Meanwhile those that can’t find work are left out to dry, with their only hope that more government cheese will keep them afloat. If this isn’t a recipe for disaster, I don’t know what is.
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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Yen in Focus!
By Mike Conlon | August 30, 2010
CURRENCY WEEKLY OUTLOOK
by Abe Cofnas
FOCUS ON USDJPY
The theatre of action for this week is first and foremost the USDJPY. What happens there will be a major landmark of global market direction. The Yen is clearly a barometer of risk aversion versus risk appetite. Japanese economic weakness, while clearly a function of a multi-decade consumer risk aversion and economic stagnation is also a barometer of global risk aversion. Japanese growth is nearly 0% GDP and a strong Yen is no help at all. We have witnessed a lot of chatter about intervention by the Bank of Japan. In any case, whether the intervention will be real action or simply verbal “jawboning” this week trading the USDJPY pair will provide a lot of action. Let’s take a closer look.
The 4 hour USDJPY chart tells us a great deal about the nature of the price action. We see that the USDJPY pair has an ability to go to extremes. It went to a lower and Extreme Lower Bollinger Band at 83.6 last week, and then reversed to an upper Extreme Upper Bollinger Band at 85.89. This pair is swinging! This suggests being agnostic as to intraday direction and trade the breaks of the Fib levels.
It’s important to keep a very tight watch on this pair, because the event risks are very high with any statements coming from the BOJ or the Finance Minister can cause a large movement. (Click chart to enlarge)
The 15 minute chart is instructive and quite spectacular. Observe an almost perfect upside down V. The symmetry is apparent - the time it took to go up is equal to the time it took to come down! Traders need to watch for a confirmation of a break of the downtrend. Fundamental traders will want to hold a long position in the Yen and that could be put on the break of the down trend line, however, be prepared for whiplash! It could go further down if any news is disappointing. (Click charts to enlarge)
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- For Now!
By Mike Conlon | August 26, 2010
This morning global stock markets are higher, rebounding from 7-week lows. This has encouraged a bit of risk taking, but the question remains: how long will it last?
US weekly initial jobless claims came in at 473K, besting analyst expectations of 485K and better than last week’s reading of 504K. While one week does not make a trend, the fact that this figure was not worse than expected is seen as positive.
In the UK, CBI reported sales figures came in at 35, handily beating the expectation of 18 and showing signs that the UK is economy is still on solid ground.
In the Euro zone, Ireland issued short term debt at rates lower than their last offering, shrugging off the S&P debt downgrade from 2 days ago and bolstering the view that the market has not given up hope of recovery. The offering was over-subscribed, showing high demand for the debt issuance.
So this morning we are seeing some risk appetite return to the market, with commodities and stocks higher on a day that is light on news.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on risk appetite despite the fact that private investment declined 4% vs. an expected gain of 2.3%. The elections appear to be dead-locked at this time, which many are viewing as a positive for stocks, especially the miner who may avoid the mining tax as a result. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is the biggest gainer this morning as oversold conditions due to the inflation report may have been overblown. The Kiwi has sold off the most in recent trading.
Loonie (CAD): The Loonie is also higher due to risk taking as oil prices have rebounded to 73.50. In addition, if US jobless claims continue to improve, then a more positive outlook for the US economy would be positive for the Loonie.
Euro (EUR): The Euro is also higher has Irish debt costs actually were lower despite S&P’s best efforts to push them higher. In addition, loan growth in the EU is picking up at the fastest pace in nearly a year in a sign that both households and business may be feeling more confident.
Pound (GBP): The Pound is also higher on the back of the CBI sales figures and going into tomorrow’s GDP report. The UK economy appears to be rebounding, yet sentiment surrounding the UK austerity measures has left the market confused about economic prospects going forward. (Click chart to enlarge)
Dollar (USD): The Dollar is weaker this morning against all but the Yen in a classic risk taking scenario. Stock futures are higher as initial jobless claims figures came in better than expected. There is a slew of data out for the US tomorrow, and provided the data doesn’t come in way worse than the already lowered expectations, should continue to bring about some risk appetite.
Yen (JPY): The Yen is lower across the board and rebounding some after the intervention talk has begun to heat up. Today’s risk taking and higher Nikkei has provided relief for the safe haven of the Yen. CPI data is due out tomorrow and expected to show continued deflation, which shouldn’t have much of an impact on the market one way or another. (Click chart to enlarge)
Today is a welcome respite from the selling that has occurred earlier this week. With very little market moving news out today, risk appetite has increased. However, we’re not out of the woods yet. As the market becomes accustomed to slower growth, we’re going to experience these swings between risk taking and risk aversion.
Today feels like a slow day, as perhaps traders are finally going to take some time away to enjoy what’s left of the summer. So “no news is good news” and that appears to be the theme for the day.
Just remember to be cautious, as one day does not a trend make.
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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Here We Go Again?
By Mike Conlon | August 25, 2010
Yesterday, S&P downgraded Ireland’s sovereign debt which sent bond yields higher for the troubled Euro zone nation. However, German business confidence figures came in better than expected which has counter-balanced the regions prospects and is providing a bid for the Euro.
Here in the US, Durable goods orders came in worse than expected and yesterday’s dismal existing home sales figures shows signs that the US economy may be floundering. This has caused speculation of further Fed quantitative easing to heat up as policy makers attempt to revive the US economy.
In Japan, the official jaw-boning has begun as Prime Minister Noda said he was prepared to take “appropriate action” to combat “one-sided” currency fluctuation.
Overnight, equity markets are lower, and the US stock futures are lower going into the open. Oil has retreated to 71.50, and gold is higher as investors seek safe haven assets.
In the forex market:
Aussie (AUD): The Aussie is higher this morning despite the uncertainty surrounding the elections Down Under. As the votes are being tabulated, right now it appears to be a dead heat. Yen weakness has provided the Aussie with a bid, and completed construction work figures came in better than expected.
Kiwi (NZD): The Kiwi is lower on risk aversion following yesterday’s reduction in the expectation for inflation, despite overall Yen weakness.
Loonie (CAD): The Loonie is also lower as its high correlation to oil prices has reduced demand and general risk aversion and US economic weakness reduces its prospects for economic growth. Yesterday’s retail sales figures are still in the back of trader’s minds.
Euro (EUR): The Euro is mostly higher to start the US session despite the Irish debt downgrade. German business confidence figures came in better than expected to its highest reading since 2007. This has caused yield spreads between German bonds and those of the PIIGS nations to rise. While the PIIGS haven’t had trouble with debt offerings, higher yields could impact their ability to service that debt. (Click chart to enlarge)
Pound (GBP): The Pound is mostly higher with no news on the docket to affect it one way or another. UK Treasury Minister Hoban defended the government’s austerity measures in a BBC interview, and today’s price action could be a technical bounce after 3 days of declines. (Click chart to enlarge)
Dollar (USD): The Dollar is trading higher vs. the commodity currencies and Yen as the US economy appears to be weakening. Durable goods orders came in at -3.8% vs. an expectation of .5% which highlights the effect of the withdrawal of the “stimulus” funds on the economy.
Yen (JPY): The Yen is lower as the jawboning has increased in Japan. Speculation of intervention in the currency has increased as the Yen pulls back from 15-year highs. In addition, export growth slowed as a result of the combination of reduced world demand and the higher Yen, yet it came in slightly higher than expectations. Keep your eyes on this one!
It looks like extend and pretend may be coming to an end. As the US “stimulus” plan comes to end, the economic data is starting to show that private demand is just not there. This is mostly likely a result of government “crowding out” private business as the money came from government coffers.
However, because policy is not in place to encourage private business, unemployment remains high which reduces consumer demand which in turn causes economic growth to stagnate. Uncertainty over financial regulation, tax policy, and health care has left business content to drive profits through reduction and not expansion.
So one would think that it’s time to change these policies, right? Wrong. The answer that is being talked about is either additional stimulus or further quantitative easing! Talk about making a bad situation worse.
It is going to be interesting to see how this plays out and whether the elections here in the US bring about change in policy. Until then, be prepared for the pain.
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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Raise Rates Now!
By Mike Conlon | August 18, 2010
Or so exclaimed BOE policy maker Andrew Sentence, as the lone dissenter of the UK Monetary Policy Committee. The minutes from the rate policy meeting were released and were surprisingly hawkish, as the committee was “surprised” by recent economic strength and the fact that inflation has remained above the government target of 3%. The market will be closely watching economic data coming out of the UK in the ensuing weeks for signs that UK economic strength may bring about a rate hike at the next meeting.
Otherwise, today is largely devoid of market-moving news. Yesterday the US stock market rallied after last week’s sell-off on the back of good corporate earnings and decent economic data. The Nikkei followed suit overnight, but the Yen broke from its usual inverse correlation, and is actually sporting strength this morning. So a pullback or pause after yesterday’s rally would not be uncommon, but there is little news that would cause a sentiment shift.
There are also some rumblings in the market about German economic strength as an exporting nation and how they are becoming similar to China in that they have an economic trade surplus. While this alone isn’t a bad thing, the call for German domestic demand to increase may be falling on deaf ears. I discussed the idea of “Chermany” in a previous blog article; that Germany has an “unfair” advantage due to weaker countries in the EU which hold the Euro low, similar to China’s Yuan peg. You can read the article here.
In the forex market:
Aussie (AUD): The Aussie is lower as the Westpac index of leading indicators came in lower than expected, for the third month in a row. While this shows a sign of potential economic slowing; this may be exactly what Australia is hoping for. In addition, speculation that Japan will not intervene in its currency is gaining traction. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is higher this morning, despite the mixed Yen strength and is likely the result of money flows leaving the Aussie in favor of the Kiwi.
Loonie (CAD): The Loonie is also higher this morning despite lower oil prices due to Aussie weakness and ahead of Canadian CPI data due out on Friday. A higher than expected reading could increase speculation about forthcoming rate hikes.
Euro (EUR): The Euro is mostly lower despite the fact that construction output figures rose for the first time in nearly 6-months. The idea of “Chermany” is starting to make the rounds but at this point I think the EU is content to allow Germany to grow unfettered to counter-balance the rest of the Euro zone weakness. Spain and Ireland both had successful bond auctions yesterday.
Pound (GBP): The Pound is the big winner this morning as the minutes from the rate policy meeting showed a surprisingly hawkish tone. Should economic data continue to be strong, the BOE may be forced to make monetary policy less accommodative. (Click chart to enlarge)
Dollar (USD): The Dollar is mostly lower in absence of any major news. The overall sentiment surrounding the Dollar is negative; however pockets of risk-aversion will likely keep it from freefall. In addition, tomorrow’s Philly Fed survey and initial jobless claims figures will provide further info into the health of the US economy which, in my eyes, is decidedly weak.
Yen (JPY): The yen is showing some strength today as speculation surrounding currency intervention is waning, despite the calls from a lawmaker to immediately intervene and weaken the currency to 95 to the Dollar. (Click chart to enlarge)
Today is one of those days where the lack of market-moving news allows big position players to operate freely. Also expect the performance of the US stock markets to affect the dollar as the trading day continues. The stock markets have opened lower despite decent corporate earnings today, which is more than likely a technical pull-back than a shift in sentiment.
As sentiment shifts around the globe from region to region, follow the money. Aussie is being sold because economic growth looks tepid going forward. Pound is being bought because the of a hawkish monetary policy meeting. Yen is being bought as intervention fears are subsiding, and Dollar is being sold because the US economy stinks.
So while there is still risk in the markets, there are always places to park your dough. The key is identifying who has the best prospects for growth, and that’s what I try to find for you each and every day!
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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China Surpasses Japan!
By Mike Conlon | August 16, 2010
Overnight, Japan reported less-than expected GDP figures which allowed China to leap-frog into second place in global economic strength. Japanese GDP came in at .4% vs. an expectation of 2.3%, which was a major disappointment. This sent the Nikkei lower and the Yen higher, as risk aversion is mild but continuing from last week.
In the EU, CPI figures came in mostly in line with expectations, with July CPI falling .3% vs. an expectation of a .4% decline, and the headline figure matched expectations at an increase of 1.7% annualized.
Home prices in the UK fell 1.7% this month according to Rightmove, and the market is waiting for Wednesday’s minutes from the rate policy meeting which may show that the BOE is prepared to continue with accommodative policy to support the economy.
In the US, the Empire Manufacturing figures came in less-than expected, but higher than last month. This months’ reading was at 7.10 vs. an expectation of 8.0, but higher than last month’s 5.08.
Dollar weakness is the theme of the morning, as recent reports that China has been favoring the Euro may be behind the move higher from its June lows. As the world’s second largest economy, China will have a major impact on the global recovery.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning, trading higher among the other commodity currencies and the Dollar, but lower vs. Yen, Euro, and Pound. Tomorrow the RBA will release the minutes from its rate policy meeting which will provide further insight into the health of the Australian economy. (Click chart to enlarge)
Kiwi (NZD): The Performance of Services Index fell to 50.5 vs. the previous month’s reading of 55.1, showing that the sector was expanding at its slowest pace in nearly 10 months. The Kiwi is lower as a result, also feeling the effects of Yen strength and mild risk aversion.
Loonie (CAD): This is a light week for news out of Canada, with Friday’s CPI data to be the headliner. Expect the Loonie to trade on oil prices and US sentiment this week, as a slowing US economy will affect Canadian exports and thus economic growth.
Euro (EUR): Euro zone CPI data came in this morning mostly as expected, and shows signs that the economy while slowing is still moving forward. Recent Euro strength from the June lows is being attributed to Chinese demand and general displeasure with the US dollar. (Click chart to enlarge)
Pound (GBP): The pound is mixed this morning as home prices came in lower, and the minutes from the rate policy meeting are due out on Wednesday. In addition, CPI data and retail sales figures will be out tomorrow which will contribute to Pound sentiment surrounding BOE monetary policy.
Dollar (USD): The Dollar is weaker this morning as US economic status is coming under fire from abroad. Concerns over massive deficits have led China to invest more heavily in Europe, and the viability of the path the US is following is being questioned.
Yen (JPY): The yen is higher across the board, as GDP figures came in worse than expected. The intervention chatter is starting to heat up as Yen strength vs. the US dollar is returning toward last week’s 15-year highs; however it is questionable as to how effective this would be. A higher Yen will affect demand for Japanese exports, which could negatively impact stock prices going forward. (Click chart to enlarge)
It should come as no surprise that the global economy is beginning to falter as little by little, policy makers are removing the stimulative measures designed to stabilize their economies. Falling GDP in Japan is just one of these signs.
Announced austerity measures in the UK and Euro zone have been met with market approval, which the US policy of “extend and pretend” continues to garner criticism. And when I talk about market approval, I really mean China.
The Chinese have amassed huge currency reserves due to their peg to the US dollar, among other factors which have tilted the global economic balance in their favor. Rightly or wrongly, China has established itself as the major player going forward.
As various data points come in around the globe, remember to follow the money. That is, do what China does. If they are not enamored with US policy, then you shouldn’t be either. As the newly-minted No. 2 economy on the planet, it will only be a matter of time before they really begin to flex their muscle.
So the US had better take notice, if they haven’t already. Because the new No. 2 won’t be satisfied until they become No.1, using whatever means necessary.
Of course it doesn’t help that current US policy re-enforces the Chinese position.
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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Down But Not Out!
By Mike Conlon | August 13, 2010
Data reports out today have caused the “gloom and doom” crowd to pause today, as positive sentiment is starting to filter back in. GDP reports out of the Euro zone came in better than expected, led by Germany’s increase of 4.1% vs. an expectation of 2.4%.
In addition, CPI figures in the US came in as expected at 1.2%, and retail sales figures came in slightly lower than expected to advance .4%. I think the major take away from the US data is that it wasn’t negative, and there are still signs of life in the US economy.
Whether or not this will encourage risk appetite going into the weekend is another story. The markets look a bit tired here, with investors content that the bleeding has stopped. For now.
Consumer confidence figures are due out later this morning, which will whether or not sentiment is improving.
Overnight, New Zealand reported better than expected retail sales figures.
In the forex market:
Aussie (AUD): The Aussie is higher on slight risk-taking as the positive economic data this morning and rhetoric surrounding a potential Japanese currency intervention.
Kiwi (NZD): The Kiwi is also higher as retail sales figures came in higher, besting expectations by a wide margin. Analyst estimates were for a gain of .3%, and the report showed a gain of 1.3%. However, housing prices fell 1.2%, paring back gains on the Kiwi. The jump in domestic demand is encouraging for NZ, but unlikely to change sentiment surrounding a rate hike at the next policy meeting.
Loonie (CAD): The Loonie is also higher as oil prices have rebounded slightly from recent selling to just under $76. Auto sales in Canada came in better than expected boosting confidence that the Canadian consumer is not dead.
Euro (EUR): The Euro is mostly lower this morning as German GDP figures helped boost overall GDP figures in the Euro zone. GDP came in a 4.1% vs. an expectation of 2.6%, likely the result of increased exports due to a lower Euro. This helped boost overall Euro zone GDP figures to 1.7%, vs. an expectation of 1.4%. However, there is increased concern coming from Greece and Spain, where the debt problems have returned to focus. This may be a case of not wanting to be long the Euro going into the weekend.
Pound (GBP): The Pound is following risk themes this morning, trading lower against the commodity currencies but higher vs. Dollar and Yen. There was no real news for the Pound this morning, but next week the UK will report CPI data, as well as release the minutes from their most recent rate policy meeting.
Dollar (USD): The Dollar is selling off this morning as slight risk taking has reduced demand for the greenback. The Dollar has been on a tear as of late, so reduced demand due to “OK” economic data has brought about a welcome pause.
Yen (JPY): The Yen is lower against all but the Euro, as intervention speculation is beginning to heat up. In addition, the Nikkei closed higher overnight, after experiencing a few days of losses. The major question will be whether or not the BOJ will succumb to political pressure to weaken the Yen’s recent strength, which put in a new 15-year high vs. the Dollar.
Well if it isn’t bad, it must be good. At least that’s the sentiment today surrounding the forex market. Potential risks from the Euro zone due to debt concerns have been balanced by good GDP data.
How long this will last is anyone’s guess, as the Euro has bounced significantly from its June lows. Euro investors are taking the “better safe than sorry” approach today as we head into the weekend.
Japanese GDP figures are due out at the beginning of next week, and if they come in weaker, could induce more speculation of currency intervention.
So the market is taking a much needed breather today, having dodged potential landmines from US data. I’m about to do the same.
Have a great 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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Is the UK OK?
By Mike Conlon | August 11, 2010
Earlier this morning, the BOE came out with their quarterly inflation report and predicted that inflation will slow below the bank’s target rate. They also said that they are expecting slower growth and that they are prepared to add further stimulus if necessary.
Meanwhile, the UK economy reported that it added jobs at the fastest pace in over 21 years, handily beating jobless claim estimates. In addition, average weekly earnings came in slightly higher than expected.
So it’s the UK economy is questionable right now, as data is not supportive of the weaker view of the economy, but the BOE may be hedging its bets in the event they experience a major downturn.
So far this morning we are seeing major risk aversion, with world stock markets lower, US equity futures lower, and both Dollar and Yen strength. This comes on the heels of the FOMC meeting yesterday, which the market initially read as positive as it pared losses and finished down marginally after having been much lower.
But as I said yesterday, it would be difficult to predict the market reaction to the Fed announcement, with competing views jockeying for position. So while yesterday appeared to be favorable, today is showing just the opposite. Global growth is slowing, and more negative economic forecasts from Central Bankers could induce a further round of risk aversion.
Adding to the mix was a report that Chinese industrial growth slowed even further, and inflation spiked to its highest levels this year.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion and slower Chinese growth despite the fact that consumer confidence figures came in at 7-month highs. The sentiment index gained 5.4% after the RBA left rates unchanged as inflation remains in check. The Australian employment report comes out tomorrow.
Kiwi (NZD): The Kiwi is lower on risk aversion as well, with no major news on the docket until Thursday’s housing price index and retail sales figures.
Loonie (CAD): The Loonie is also lower this morning, being hit by the double whammy of risk aversion and lower oil prices, breaking the 80 dollar mark down to 79.50. In addition, the trade deficit widened as exports declined, most probably a function of a slowing economy here in the US.
Euro (EUR): The Euro is also lower as its status as the “anti-dollar” is in full force this morning. There is no major news on the docket today for the Euro; however Friday will bring the Euro zone GDP report which will show the status of the economy. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning trading as would be expected in a full blown risk aversion scenario. The BOE cut growth forecasts, but employment figures came in better than expected. (Click chart to enlarge)
Dollar (USD): The Dollar is enjoying its status as the world’s reserve currency this morning, showing strength despite the fact that world markets have reacted negatively to yesterday’s Fed announcement. US trade balance figures came in worse than expected, but that should come as no surprise.
Yen (JPY): The Yen is the big winner this morning as is typical under risk aversion scenarios. The USD/JPY pair broke the “line in the sand” of 85, and it will be interesting to see if the BOJ does anything to halt Yen strength. We did get comments from the Japanese Finance Minister, who said that they would closely monitor “one-sided” yen moves. (Click chart to enlarge)
It what may seem like a cruel irony to some, the US reports a slowing economy and potential further easing, and the Dollar is “rewarded”. While additional liquidity may make its way into the economy, overall negative sentiment may not turn around.
I mentioned yesterday that we could be looking at “Japan 2.0” which is now looking more and more like a reality. As everyone around the globe scrambles to act in their own best interests, there are going to be clear winners and losers. However, as forex traders we must be prepared to follow the market regardless of how things look.
Things can change quickly very quickly in financial markets, so it is important to keep an open mind and 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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Bye-Bye Dollar!
By Mike Conlon | August 6, 2010
This morning’s much anticipated Non Farm Payrolls report disappointed the market which sent the US dollar careening lower. While the unemployment rate held steady at 9.5%, this is probably more of a function of discouraged workers leaving the workforce. For the month of July, the US economy lost 131K jobs, nearly twice the expectation of a 65K loss.
In addition, the revisions to last month’s data came in nearly twice as bad as reported in what is becoming a familiar pattern. But the US isn’t the only country with bad employment figures today.
In Canada, the unemployment rate rose .1% to 8% as the Canadian economy lost 9.3K jobs, which is the first loss in 2010.
This report sent equity index futures and commodities lower, as well as the US dollar. Under a “normal” risk-aversion scenario, one might expect Dollar strength. However, there may be a “silver lining” in this jobs report, as the creation of private sector jobs came in higher.
So what started out as risk aversion, may be flipping around to risk appetite due to Dollar weakness.
In the forex market:
Aussie (AUD): The Aussie is actually higher after the initial downturn due to risk aversion, but now Dollar weakness is driving the market. (click chart to enlarge)
Kiwi (NZD): The Kiwi is taking back some of yesterday’s losses after their bad employment figures. Money that flowed from the Kiwi to the Loonie is slowly making its way back. (click chart to enlarge)
Loonie (CAD): The Loonie is the biggest loser this morning as they lost jobs last month for the first time all year. As seen in the above chart, the Loonie benefited yesterday from Kiwi weakness, but is now giving it all back as the situation looks weaker in North America. Adding to Loonie weakness is lower oil prices, though it is rebounding as I write.
Euro (EUR): The Euro started the morning session somewhat weaker but quickly grabbed a bid on the NFP report and is now higher. German industrial production figures came in lower than expected, but that news quickly took a back seat to Dollar weakness.
Pound (GBP): The pound is trading much like the Euro this morning after the UK reported their own weaker industrial production figures.
Dollar (USD): If it weren’t for the Loonie, the Dollar would be the worst performer this morning. Keep in mind that as the US economy weakens, so will the Canadian economy as the US is the largest importer of Canadian goods and services. NFP data was disappointing, but the silver lining I mentioned above could provide hope.
Yen (JPY): The Yen is the strongest pair today as risk aversion and Dollar weakness is driving the markets. USD/JPY is approaching the 85 “line in the sand” level—the place most think will encourage intervention.
As you can tell, the jobs reports in the US and around the globe are important drivers of economic growth and the picture is beginning to look more bleak as uncertainty over government decisions has induced hesitancy.
Until we adopt pro-business policies here in the US, it’s going to get worse. Just as the Treasury Secretary “predicted” the other day. This is akin to jumping off a building and stating, “this might hurt”.
However, there is still some good economic news around the globe, and in the end, the fiscally responsible will be rewarded. If the US doesn’t want to be the recipient of it, so be it.
Thankfully, the forex market allows me to move money quickly to those regions that deserve it!
Tags: AUD, Aussie, blog, cad, dollar, dow, economic, economy, EUR, Euro, forex, forex market, forextrading, gbp, Il, jpy, Kiwi, loonie, lower, news, nzd, oil, pair, pound, rate, ssi, time, USD, Yen
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A Trader’s Paradise!
By Mike Conlon | August 3, 2010
Wow, what a last few days I missed as I was away on vacation! I want to thank Abe Cofnas for providing his keen market insights as I was away, and look for future contributions from Abe as well as his newsletter, which we’ll be offering shortly.
As I sat on the plane yesterday and watched the market action—apparently direct TV is the newest and greatest feature on airplanes—I couldn’t help be saddened as I was missing the action. Sometimes, ignorance is bliss.
Nevertheless, the market has been flying, led by risk appetite and both stocks and commodities. Today however, we are seeing a bit of pullback as weak economic data in the US has overshadowed the recent market gains.
Weaker than expected pending home sales as well as personal spending and income data have induced risk aversion this morning, but that may be reversing as dollar weakness has been en vogue as of late.
Overnight, the RBA kept rates steady in Australia at 4.5% and retail sales figures came in slightly lower than expected showing signs that growth may be slowing “down under”.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on risk-aversion after the RBA left rates unchanged at 4.5%, as inflation appears to be largely in check. Building approvals and retail sales figures came in less than expected, adding further evidence that the economy may be slowing.
Kiwi (NZD): The Kiwi is mixed this morning despite the risk aversion in the market. Wages increased for the first time in nearly 2 years, showing signs that wage inflation and economic activity may be picking up. This comes after last week’s interest rate hike to 3%.
Loonie (CAD): The Loonie is lower despite oil prices that are higher to 81.75. The Loonie is lower as US economic data shows weakening conditions; and the fact that Canada is tied to US economic performance isn’t helping the Loonie.
Euro (EUR): The Euro is mostly higher, trading north of 1.32 presently. This comes despite the fact that PPI figures fell short of expectations. However, the fact that these figures were positive (.3% vs. an expected .4%) shows that there is still some economic life in Europe despite the austerity measures. Speaking of, Greece passed its first budget deficit test.
Pound (GBP): The Pound has been on a tear as of late, posting its largest winning streak in nearly 18 years! Comments from a former BOE deputy said that the would likely keep quantitative easing in place throughout the year but will then embark on series of rapid rate hikes if recovery holds. The Pound tested 1.60 earlier this morning, reaching a high of 1.5967 vs. USD.
Dollar (USD): The Dollar has been just about as weak as possible as of late and is only higher against some currencies due to risk aversion. Pending home sales figures came in WAY worse than expected showing a decrease of 2.6% vs. an expected increase of 4%. Consumer spending and income levels did not increase last month, and factory orders came in less than expected showing a decline of 1.2%.
Yen (JPY): The Yen is the biggest gainer of the morning primarily because of Dollar weakness. The Nikkei was higher which is a little bit counter to recent trading as we would normally expect Yen weakness, but because the Dollar is so weak the Yen is catching a bid. USD/JPY broke through support at 86. Expect the intervention talk to heat up if this pair approaches closer to 85.
As I mentioned last week before I left on vacation, stocks have been moving higher because there really is nowhere else to invest for most mainstream investors. However, those that trade the forex market know otherwise.
While the economic data here in the US appears to be weaker, the Dollar appears to be taking it on the chin. The market is clearly stating that they do not believe in the current and future situation in the US, evidenced by recent Yen, Pound, and Euro strength.
The only thing keeping the Dollar from falling lower is the threat of the flight to safety trade from risk aversion, though it may be the case that the fear is shifting back to the US economy.
Regardless of what is happening, the forex market truly is a trader’s paradise, as the opportunities for gains abound!
Isn’t it time you learned what all the fuss is about? Take a look at our currency trading courses here!
Want to follow these events in a free, real-time practice account? Sign up here!
While the US government may not presently care what happens to the value of your hard-earned dollars, you certainly should!
Tags: account, AUD, Aussie, cad, course, currenc, currencies, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, fx, fxedu, gbp, Il, interest, jpy, market, news, nzd, practice, ssi, time, trade, USD, Yen
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