Judgement Day!
By Mike Conlon | July 23, 2010
Today is the release of the much-anticipated results of the European bank stress tests, which are due out at 12 EST. There has been much speculation surrounding the tests, which are intended to provide clarity and transparency into the health of the European banking system.
Much of the recent rhetoric leading up to the tests has been positive; however it will be interesting to see if the market agrees. There is still some risk surrounding the results, as potential red flags still exist. Potential red flags could be the believability of the tests if only a few banks fail, or the new knowledge that more banks may be in trouble if more than expected fail. Either way, the market appreciates transparency, so in the long run this should be a positive.
The Euro has made a nice run higher from its June lows, so a reversal or pullback would not be out of the question entirely.
In the UK, GDP figures came in much better than expected lending credence to the notion that the economy is improving and providing further ammo for a potential reversal of monetary policy. The Pound is higher across the board.
In Canada, CPI figures came in less than expected, which may foreshadow a pause in further rate hikes.
Yesterday, the market went gang-busters with stocks, commodities, and “risk currencies” posting excellent one-day gains.
In the forex market:
Aussie (AUD): The Aussie is higher on mild risk-taking as European debt concerns fade going into the bank stress tests.
Kiwi (NZD): The Kiwi is also higher on risk-appetite, but catching an additional bid from Loonie weakness.
Loonie (CAD): The Loonie is mostly lower as CPI data came in less than expected. Core CPI came in at 1.7% vs. an expectation of 1.9%, and the monthly figure came in at -.1% vs. the expectation of a gain of .1%. This lends evidence that inflation may not be a problem in Canada, which would give reason for a pause in rate hikes going forward.
Euro (EUR): The Euro is slightly lower going into the stress tests despite the fact that German business confidence figures came in higher than expected. The stress tests are due out after the European stock markets close, the intention being that European traders won’t sell-off the stocks of banks that may not pass the test.
Pound (GBP): The Pound is higher across the board this as UK GDP figures came in at 1.6% vs. an expectation of 1.1%, handily beating to the upside. This shows that the UK economy may be gaining traction and may be reason for the BOE to reverse monetary policy.
Dollar (USD): The Dollar is showing a bit of strength to start the day as money flows from the Euro to the Dollar. While this is not a full-on risk aversion play, there is some safe haven demand for the world’s reserve currency.
Yen (JPY): The Yen is lower across the board as demand for carry trades is still intact and also because the Nikkei followed the US stock markets higher, as it is apt to do. Also to consider is the notion that Japanese officials do not want a strong yen so the intervention speculation is heating up. Should the market react negatively to the Euro bank stress tests, then we could see a rush to un-wind carry trades which could provide further Yen strength.
So this is the moment we’ve all been waiting for. It may take a little time for the market to digest the results so there could be heightened volatility both before and after the release.
The key to the stress test is going to be whether or not the market believes the results if they are overly positive, or the market reacts unfavorably to overly-negative results.
At the end of the day, we know that there are potential land-mines out there. Now we will know the extent. While this provides clarity going forward, this may be a case of “be careful what you wish for”.
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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Dependence Day?
By Mike Conlon | July 2, 2010
Going into this Fourth of July weekend, I can’t help but think about the state of the US economy and how we have become so dependent on government to fix society’s ills. This morning, the US Non-Farm Payrolls report came out and it showed that we had an overall jobs decline of 125K, but an increase in private sector hiring to 83K, which was better than last month but less than expectations. In addition, the unemployment rate fell to 9.5%, but this was more a function of people leaving the work force than economic and jobs growth.
Part of the reason we see these distorted numbers is because of the decline of census workers, but private sector job growth has been tepid at best. This is all a function of the current economic climate in Washington DC, and government policy which businesses deem as uncertain. Without private sector growth, the economy could be in danger of sliding into double dip recession.
In other news, PPI figures in Europe came in as expected, and Moody’s ratings agency re-affirmed the UK’s AAA rating.
In the forex market:
Aussie (AUD): The Aussie has been volatile and is now higher as the market reacts to the NFP number. In addition, the PM is backing away from the mining tax as Australia prepares for a potential economic slowdown.
Kiwi (NZD): The Kiwi is also higher on risk taking, and is the best performer this morning as New Zealand is seen as potentially the next to raise interest rates.
Loonie (CAD): The Loonie is lower as traders are paring back speculation that Canada will raise rates this month. Tepid Canadian GDP figures in addition to the potential US economic slowdown could affect the Canadian economy as the US is the largest importer of Canadian goods. Also to note is that oil is trading lower to roughly 72.50.
Euro (EUR): The Euro is higher against all but the Kiwi, as continued confidence that the banking situation may not be as bad as expected is gaining traction. In addition, the market is speaking loud and clear that it favors the EU plan of economic austerity to the US plan of spend, extend, and pretend. In addition, Euro zone unemployment came in slightly better than expected at 10%, and PPI figures came in higher at 3.1%, showing that wholesale inflation is the highest it’s been in 19 months. However, don’t expect the ECB to move on rates anytime soon.
Pound (GBP): The pound is higher as Moody’s reaffirmed the UK’s AAA rating citing the deficit reduction plan as positive.
Dollar (USD): The Dollar is mostly lower, as economic prospects in the US are diminishing. Until we get policy that will encourage business and not harm it, we are going to have high unemployment for some time. Now that unemployment benefits have not been extended, more people will have to get off of the dole and get a job, even if it’s far less than they desired. This potential political backlash could cost the incumbent party in November if the economy continues to worsen.
Yen (JPY): The Yen is lower on risk appetite as the market is deeming the NFP number “acceptable”, as the worst-case scenario fears were averted.
There really is no other way to say other than the US is on the wrong path and the continued spend, extend, and pretend policies of this administration are going to harm the US for some time.
Whether you believe in the free markets or not is of no consequence; as no one can deny that private business is the largest employer of workers. If you create a hostile environment for business, they’re not going to hire. Period.
Go ahead and raise taxes on business, they’ll move elsewhere thereby removing even more jobs. Anyone who believes that higher taxes aren’t coming down the pike lives in fantasy land. With out of control spending taking place on a daily basis, this isn’t going to end well.
I hate to write this so close to July 4th, the day on which our forefathers said ‘no more’ to the unfair policies that were imposed upon them. However, it seems cruelly ironic that as our forefathers roll over in their graves; their successors are trying to emulate the same policies that they rejected 234 years ago.
So Happy 4th of July to all…. as this may be one of the last truly Independence days if we continue down this path. By the time the dust settles, we may be saying, “Happy Dependence Day” as we all line up for our government checks and government cheese.
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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Be Careful What You Wish For!
By Mike Conlon | June 25, 2010
Overnight, the US Congress unexpectedly came to a deal and has agreed on bill regarding financial reform and regulation. The uncertainty surrounding this bill has been weighing on the markets, as it was unclear what the outcome might be.
As news trickles out of the 2000+ page document and what it means for the banks and the market in general, at least the uncertainty has been removed. Uncertainty= volatility. Now, whether or not this bill will actually accomplish what it is intended to remains to be seen. What my experience tells me is that no matter what is in the bill; Wall St. has already prepared for likely scenarios and has already devised ways to circumvent regulation. In addition, enacting legislation of this magnitude always comes at a cost, and the brunt of that cost is likely to be paid for by consumers, and not the banks themselves. Banks will simply pass through the new cost so that executives can still buy beach houses. If you don’t believe this will happen, take a look at bank stocks that are trading higher in the pre-market.
This comes ahead of this weekend’s G-20 meeting, where the US will push other nations to consider enacting similar reform.
Economic data is out showing that US GDP grew 2.7%, vs. an expectation of 3% and personal consumption figures were at 3% vs. an expectation of 3.5%. This falls in line with what the Fed said the other day that we are seeing growth, albeit moderate.
Overnight, Japanese CPI figures came in at -.9% vs. -1.1% showing signs that deflation may be subsiding.
The market started out in risk taking mode, but it appears that may be reversing.
In the forex market:
Aussie (AUD): New Australian PM Gillard has backed away from the mining tax that was the eventual downfall of her predecessor and is open to discussion and negotiation. The tax was largely seen as anti-investment in one of Australia’s biggest industries.
Kiwi (NZD): The Kiwi is lower despite a widening trade balance surplus but the market is concerned about a potential Chinese slowdown which could hamper demand for exports. However, this figure fell short of expectations (814M vs. 850M).
Loonie (CAD): The Loonie is higher this morning as its major trading partner (the US) appears to be the only country not entertaining the idea of reduced spending. Unlike the other commodity currencies which are more tied to China, expect the Loonie to benefit as long as the US maintains its spending spree.
Euro (EUR): The Euro is lower continuing the trend of heightened fear from the debt crisis. Today marks the fourth day in a row that European stocks are lower as we head into the G-20 weekend.
Pound (GBP): The Pound is mixed this morning and it will be interesting to see what (if anything) comes out of the G-20 meeting. The UK “tax and axe” strategy is diametrically opposed to the US strategy of “spend, extend, and pretend”.
Dollar (USD): The Dollar is somewhat mixed today as the market figures out exactly what this new financial regulation means. In addition, GDP figures were lower than expectations, but showed that growth, while moderate, is occurring.
Yen (JPY): The Yen is higher this morning, as CPI data showed that deflation came in less than expected. In addition, minutes from the rate policy meeting showed that there was actually talk of inflation. The Nikkei was down overnight, and speculation that the G-20 will not come to a consensus over global economic policy has strengthened demand for the safe-haven of the Yen.
All of my years on Wall St. have taught me one thing: that politicians in Washington DC cannot compete with the brainpower of Wall St. Today, champagne is flowing as the uncertainty over the worst-case scenario from financial regulation has been lifted. True, this isn’t a “home-run” for Wall St.; but I can tell you that they have been prepared for EVERY possible scenario to come out of this and already have plans in place to line their pockets at the expense of the general public.
While regulation is good in theory, it always brings about unintended consequences and in the end it is always the consumer that gets hurt. Now that this is out of the way, the G-20 meeting will be the focus of the weekend but don’t expect anything of substance to come out of it.
The major problem here in the US is jobs. Period. Next week’s Non-Farm Payrolls report will show if we are gaining any jobs in the private sector. If this is a bad number, look out below.
So there is potential for risk over the weekend, but my guess is the G-20 will be a non-event.
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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Survived the Weekend!
By Mike Conlon | May 17, 2010
One of the biggest fears in the marketplace is holding positions over the weekend as news may come out that may affect an investment and there is nothing investors can do about it until that specific market reopens. This is why many professionals “hedge” their risk by investing in un-correlated asset classes. The forex market is one such market.
As we have seen, the Euro debt crisis not only affects currencies, but it can also affect world stock and commodities markets. Overnight, the Asian stock markets were down as investors rushed to the safety of the Yen and Dollar, as oil prices slid briefly below $70.
While cheaper oil may not sound like a bad thing for consumers, it has historically been used as a proxy for economic growth rates. So when oil is down, the markets are expecting economic slowdowns.
Starting tomorrow, we get a bunch of CPI figures from different regions around the globe that will show where we are in the inflation/deflation debate. It is interesting to note that even though global economies are inter-twined, they can and do experience different degrees of inflation or deflation. So these reports could have a material impact on the forex market this week. Stay tuned!
In the forex market:
Aussie (AUD): The Aussie is lower this morning as the Australian stock market tumbled the most in almost a year on EU debt concerns as most of the Pac Rim markets were lower overnight. Risk aversion was the theme in the overnight session, but risk seems to have rebounded some after the European stock markets opened.
Loonie (CAD): The Loonie is lower on risk aversion, though it has rebounded with the price of oil which traded briefly under $70 overnight. The hope around the world is that the European debt crisis will not spread outside of the EU. Canadian CPI and retail sales figures are due out on Friday, which could foreshadow what the BOC is going to do with rates in June.
Kiwi (NZD): The Kiwi is the biggest loser this morning as the Pac Rim countries were sold earlier on risk aversion. In addition, the NZ government said it would spend $1 billion dollars to repair homes. While not a game-changing development, this helped add to notion of risk aversion.
Euro (EUR): The Euro has bounced back from 4-year lows as it was sold off overnight on risk aversion. As I’ve mentioned before, a lower Euro is going to be good the EU economies, and the market finally caught on and pushed Euro Bourses higher, which then in turn helped stabilize the common currency. CPI figures are due out this week, but expect the debt crises to dwarf the readings. There is also talk (finally) about instituting some sort of fiscal regulation to go along with the monetary regulation in the region. It was this disconnect which largely led to the debt crisis they are facing today.
Pound (GBP): The Pound fell to a 13-month month low vs. USD as UK budget woes are heating up. New British PM Cameron said that they discovered “very bad” spending decisions made by the previous government, which will lead to more austerity and spending cuts than previously thought as well as higher taxes. While this will weigh heavily on the Pound in the short-run, it will help UK manufacturing in the long run.
Dollar (USD): The Dollar is higher, getting a bid from risk aversion despite the Empire Manufacturing number which came in much worse than expected. While this number cannot be viewed alone, it does give insight into how economic recovery is going here in the US. It appears as though recovery at this point may be more demand-driven; we’ll have to see if the US consumer can maintain hungry for goods and services. CPI data due out on Wednesday.
Yen (JPY): Yen started out in the overnight session much higher as there was major selling in the Asian markets overnight. However, it looks like we have survived the weekend and both European and US markets are set to move higher. This is causing some yen weakness as risk appetite appears to be returning. Japanese machine orders were higher, which bodes well for sentiment surrounding economic recovery. In addition, we’re going to get Japanese GDP figures on Wednesday, and their interest rate policy decision on Friday. Don’t expect much variance from the expectations.
With every passing day that the Euro zone doesn’t collapse, the markets regain more confidence. The blue-print for EU recovery is actually pretty simple: enact massive budget cuts despite popular opposition, allow the Euro to depreciate, keep nations from defaulting, and wait for your economic cycle to return.
Having a stronger currency has afforded members of the EU an opportunity to amass goods and services over the last few years. Now that the party is over, it’s time to cut back. This is classic story of the ant and the grasshopper, where there were too many grasshoppers (spenders) and not enough ants (savers). If the EU can pull together and make the tough decisions necessary to return to financial health, then they will see progress maybe not today, but definitely tomorrow.
Especially if world powers band together to tackle the next major crisis or impediment to global recovery: China. The Chinese currency peg as allowed them to prosper on the back of every other nation in the world. This has upset the “natural economic balance” that the free market provides, effectively stealing gains from other regions around the globe. This has caused a massive misplacement of capital as the Chinese attempt to do in 20 years what has taken the rest of the world 100 years.
So due to the EU debt crisis, China is on borrowed time. They should begin to prepare themselves for currency appreciation once the EU is on stable footing. The unfair currency peg has allowed China to amass humungous surpluses, which will be partially offset if they are forced to re-value. Stay tuned!
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!
Tags: account, AUD, Aussie, Australia, British, cad, China, commodities, course, crisis, currenc, currencies, currency, currency market, currency trading, data, decision, dollar, dow, economic, EUR, Euro, Europe, fear, financial, forex, forex market, free, gbp, home, Il, interest, interest rate, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, mie, Mike Conlon, news, nfa, nzd, oil, pair, pound, practice, practice account, retail sales, RSI, sentiment, short, simple, ssi, steal, stock, time, trade, USD, Yen
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Gross Move to Cash!
By Mike Conlon | December 18, 2009
Bill Gross, whom you’ve probably seen on CNBC or the like of PIMCO is known on the street as the “bond king“. He is undoubtedly one of the most astute bond investors on the planet. So you could consider him the EF Hutton of bond investing– when he talks, people listen”!
So I’m a little surprised that when it was reported that he increased his dollar holdings to its highest levels since the pre-Lehman Bros collapse last year, it wasn’t deemed more news-worthy. This is significant because what this tells the market is that Gross is anticipating an increase in interest rates, as he moves out of bond holdings and into cash.
Remember that when bond yields go up, prices go down. I have hinted around about the different reasons why the US dollar can strengthen this year without Fed rate increases. Should the Fed move rates sooner than later then that could be the dollar “double whammy”!
However, to take advantage of potential dollar strength, you need to take action in the forex market to realize gains.
If you are unfamiliar with forex trading, make this a New Years resolution to remember. Check out currency trading courses and find out why the forex market is the fastest growing market in the world.
Tags: bill gross, course, currenc, currency, currency trading, dollar, dow, fed, forex, forex market, fx, fxedu, Il, interest, interest rates, invest, investor, Mike Conlon, news, nfa, rate
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Nothing Big Today– Thankfully!
By Mike Conlon | October 7, 2009
As of 11AM EST, there are no major currency moves to speak of. Thankfully. Volatility has picked up and US dollar weakness has been a major theme. With gold rising to 1050/oz, the doomsday crew and conspiracy theorists are out in full force, suggesting that this could be the end for the US dollar.
It has become apparent to me that the Fed and Bernanke need to do something (raise rates even a token 25 bp) to defend the dollar, even at the risk of a housing price decline. While this move may not be popular here in the US, it would be welcomed by the rest of the world.
Because as of right now, it looks like the US dollar could get a whole lot worse. And my experience has taught me that its when things look the bleakest that we should be the most optimistic. So I’m hopeful that the Fed will move soon.
So USD is up marginally today, most probably due to short-covering or what looks like the infamous “dead-cat bounce”.
Also to not is that USD/JPY tested 88 in the over-night session. Many believe that the breach of that level would cause the Japanese to intervene.
Stay tuned– because it looks like the fun is just about to get started!
Wanna get started in currency trading? Take a lesson here.
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Tags: account, Bernanke, course, currenc, currency, currency trading, demo, demo account, dollar, fed, free, fx, fxedu, gold, Il, intervene, IRA, Japan, jpy, lot, nfa, rate, short, ssi, time, USD
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NFA Proposed Forex Rules E-Mail
By Marc Prosser | September 6, 2007
A lot of my competitors, other forex brokers, are mad at me for sending an e-mail with the subject line “Is your forex broker headed for trouble?” about the proposed new NFA FDM requirements.The CEO of one forex broker called the e-mail “HIGHLY QUESTIONABLE”, however, he failed to say why.
The e-mail is 100% factually correct.
The e-mail raises an important issue which is being widely discussed in forex forums.
The e-mail explores the potential impact the proposed rules may have on many forex firms.
I think my competitors don’t like the fact that I provided the market with valuable information, which is helping people make intelligent choices about their broker. Instead of dealing with the fundamental issue of their firm’s financial strength, they want to attack me.Go ahead, you’re only providing more attention to my message.
Tags: forex broker, forex industry, forex industry news, forex trading, fxcm, nfa, nfa rules
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