Fundamentals Do Matter!
By Mike Conlon | March 10, 2010
Now that the fears of global collapse have abated—for now—the markets have returned to heavier scrutiny on the fundamental numbers being reported in various countries. It is times like these that remind traders that indeed the fundamentals do matter. The longer the global economy can sustain itself without Armageddon taking place, the more and more traders will focus on specific stories and not overall risk themes.
So, while one might look at this morning’s action and be inclined to say that today is risk-taking because commodity currencies are higher, a more appropriate reaction would be that are actually both good and bad stories out there which are driving individual currency pairs.
More specifically, in currencies:
Aussie (AUD): One of the good economic stories out there is coming out of Australia which has had good gains as of late. Tomorrow they will be reporting their employment figures, which are expected to gain for the sixth straight month. In fact, the economy is buzzing along so well there that there is no an expectation that they may raise the benchmark interest rate again next month. The Aussie is in a clear uptrend and I expect it to test 2010 highs very soon.
Kiwi (NZD): The Kiwi is also another good economic story, though not as strong as the Aussie. While the interest rate decision due out tomorrow is expected to be unchanged, overall Asian recovery will benefit the Kiwi. The most important take-away from the rate decision will be the language used to give a clue as to a timeframe for further hikes. And should they surprise the market with a rate hike (highly unlikely), then lookout above!
Loonie (CAD): The Loonie is just kind of hanging out today, with no real news on tap in Canada. Oil is higher so the Loonie is up; and also riding the coattails of the Aussie and Kiwi. The only anomaly is USD/CAD, as there is dollar strength this morning.
Euro (EUR): The Euro is mixed this morning. On the one hand, now that the risk of a Greek default is mitigated, the focus is back on the fundamentals in the Euro zone. On the other, news out of Germany is that German exports are down, but German CPI is up. Traders are using this opportunity to cover some EUR/USD shorts, but otherwise the Euro is down vs. the commodities and up vs. the rest. I expect EUR/USD to be range-bound for a bit.
Pound (GBP): Another tough day for the Pound, which would be down across the board if not for the Yen. The Industrial production figures and manufacturing came in negative, marking the first decline since last August. This is likely to keep rates low in the UK for an extended period. Meanwhile, the BOE’s Adam Posen stated that he hopes their bond purchase plan “has done it” with regard to stimulating the economy but he didn’t rule out further quantitative easing.
Dollar (USD): There’s a bit of optimism about the dollar this morning as economic recovery appears to be going faster in the US than in Europe and Japan. As risk of a global collapse is lessening, traders are looking more toward the fundamentals. So the expectation is that we may see a rate hike in the US sooner than in Europe or Japan. However, don’t be surprised to see Dollar weakness should commodity inflation pick up.
Yen (JPY): The Yen is down across the board this morning in advance of the Japanese GDP report due out tomorrow as fears of deflation are warranted. Combine this with good news from the commodity currencies, higher commodity prices, and “risk-taking” and you have a recipe for Yen weakness. Carry traders are gaining more confidence and the Yen is the funding currency of choice.
As you can see, when global economic conditions become more stable, market fundamentals return to center-stage. Under “normal” conditions, currencies from the best economies will flourish, while those not doing as well will be sold.
And that’s the basic idea behind forex trading; that you want to own the strong currencies and sell the weak ones, hopefully picking up interest along the way!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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France to the Rescue?
By Mike Conlon | March 8, 2010
Bet you never thought you’d hear that unless it was the punch-line to some joke. All kidding aside, this past weekend French President Sarkozy gave Greece his support and claimed that if Greece was allowed to fail, then the Euro would be “pointless”.
I’m not sure how this is going to sit with Germany, who I’m sure don’t appreciate France undermining its stance. For all the talk of Greece leaving the Euro zone, what if Germany was the one to up and go? I don’t see this as a likely scenario and see this as more of “good cop, bad cop” tag-team effort to keep the Euro from losing further value. At the end of the day, German banks have huge exposure to Greece so it is definitely not in their interests to see Greece fail. As of right now, for all the fear of monetary bailouts, the only thing on the table right now is allowing Greece to piggy-back on the good credit of Germany. Meanwhile the EU is working to create a lender of last resort and limit credit default swaps to help prevent another potential catastrophe.
This is a pretty light week for news, which usually puts me on edge to “expect the unexpected”. Barring any unexpected negative news, I expect to see a continuation of last Friday’s market action as moderate risk-taking should have the upper hand.
In the currencies:
Aussie (AUD): There is no real news for the Aussie this week until Thursday, when they report their unemployment figures. Right now the Aussie is still the dominant currency and destination for carry trades. We’ll get a better idea of how the Aussie is going to fare going into Thursday but for now I expect the Aussie to move higher on risk-taking themes and commodity prices. The Aussie should hold short-term support at .91 vs. USD.
Kiwi (NZD): The big news of the week for New Zealand is the interest rate decision due out on Wednesday. The Kiwi is higher this morning as home prices have advanced for the fifth straight month in what some traders may feel is the onset of inflation. Personally, I don’t see a rate hike coming at this meeting so we’ll have to see how the market reacts but for now I expect the Kiwi to trade higher into the meeting on expectations of a rate hike and moderate risk-taking with the potential for those gains to be erased if the hike doesn’t happen. Stay tuned.
Loonie (CAD): The Loonie continues to “receive love” from the market as more and more people are starting to catch on to the economic story in Canada. A report out this weekend claimed that the Loonie to could surpass the Aussie as the majority of options bets placed on the Aussie/Loonie pair are for the Loonie to strengthen. While the Loonie may do better in the short-run as traders begin to expect a series of rate hikes, don’t lose sight of the impact of the interest rate differentials, as the Aussie is currently yielding 4% and the Loonie is yielding .25%.
Euro (EUR): As mentioned the Euro got a boost from Sarkozy’s comments this weekend, but is trading marginally lower than the commodity currencies. Financial stability is the name of the game for the Euro and I expect it to trade sideways for a while as the drama unfolds. This is not the final word on Greece so I expect we’ll see it trade range-bound between 1.345 and 1.38 vs. USD depending on the “he said, she said” between Merkel and Sarkozy. Not to mention German CPI, which is due out on Wednesday.
Pound (GBP): The Pound is down against all but the Dollar and Yen, as mild-risk taking is the flavor of the morning. On Wednesday we’re going to get the estimate of Feb. GDP and the Industrial production and manufacturing figures. Should those numbers come in weaker than expected than we could see the Pound re-test last week’s lows.
Dollar (USD): The major thing to look at this week is going to be Friday’s retail sales figures. This is going to give a clue as to the behavior of the US Consumer, and well as the confidence figure due out the same day. The US consumer represents some 70% of GDP so if these numbers are better than expected than it could compel further risk-taking and dollar weakness. Leading up to those numbers, we have a couple of Fed speakers out to entertain us with their jaw-boning of the dollar. Remember, forget what they say, and watch what they do!
Yen (JPY): Japanese GDP is due out on Wednesday but frankly, the Yen is going to trade on risk themes this week. Still considered the top funding currency for carry trades, I can’t foresee a situation that would cause this to change barring an interest rate hike which is unthinkable.
So, for a week with surprisingly little news, it seems kind of busy. Watch out for the British GDP figures on Wednesday to be a key point, and this could be the week when the Loonie jumps the Kiwi on the risk scale.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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Employment Gains!
By Mike Conlon | March 5, 2010
In a scene out of the movie, Trading Places, all eyes were on the US Non-Farm Payrolls report this morning. In today’s version of the Frozen Concentrated Orange Juice crop report, the number game in at -36K jobs lost, vs. an expectation of -65K. The unemployment rate also held steady at 9.7%. So what does this mean for the market today? Well right now there is so much market volatility that it’s hard to get a good read.
This should be positive for risk-taking today as the number was just good enough to show economic progress, but not great enough to bring about talk of US interest rate hikes. However, anything can happen on NFP day so traders need to be on their toes! Just take a look at any chart at 8:30EST to see what I mean.
In currencies:
Aussie (AUD): No real news for the Aussie today as it is higher on risk themes and had a nice pop on the NFP report.
Kiwi (NZD): Same deal for the Kiwi as the Aussie, though it’s bouncing much higher as it has been a bit over-sold the last few days. Between Kiwi strength and Yen weakness, that pair is the largest gainer, up 2.18%.
Loonie (CAD): The Loonie is also higher, as the market has decided that risk-taking is the flavor of the day as the market digests the impact of the NFP report. Oil is also higher to just over 81, adding to Loonie gains.
Euro (EUR): What more can be said about the Euro at this point? The Greek crisis is center-stage, with Greek austerity measures angering its citizens, and the potential bailout and contingency plans upsetting the Germans. Quite the balancing act going on there. The Euro is down against all but the Yen.
Pound (GBP): Producer prices came in higher in the UK, and commodity prices are suggesting that they may be experiencing the start of inflation. The increase of 4.1% came in higher than the target rate of 3%, so it will be interesting to see how the BOE handles this situation. The Pound is mixed this morning.
Dollar (USD): I discussed the NFP report above but whether or not the risk-taking theme that has been pushed forward by the forex market continues will remain to be seen. Stocks are expected to see an initial bounce as the futures are higher. However, there is no improvement in the unemployment rate, so market bears may use this opportunity to establish shorts on signs that the economy may be stabilizing but is not improving.
Yen (JPY): The yen is weaker for the second day in a row as it appears as though the market believes the Bank of Japan will boost credit easing. So it appears as though the government may be winning the battle against the Bank of Japan which should weaken the Yen and make it even more attractive as the funding currency of choice for carry traders. It is down across the board this morning.
So while it appears that the market is in a risk-taking mood so far, don’t be so certain that it won’t change its tune by the end of the day. At some point, we are going to have to see actual good news, and not more “less bad”. Unemployment is still extraordinarily high, which will translate over to reduced consumer spending, which makes up some 70% of US GDP.
In my opinion, it would be a fool’s folly to continue to buy stocks and commodities on interest rate policies alone and not fundamentals. At some point this will catch up to the market. It always does.
Good weekend to all!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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Greek Revival?
By Mike Conlon | March 3, 2010
No I’m not talking architecture this morning; I’m talking about the austerity measures Greece is proposing to undertake in order to satisfy the French and the Germans. Now if they can just keep their citizens from rioting in the streets they might just be able to pull this off. Meanwhile, the Euro is higher to 1.365 vs. USD.
Also higher this morning is the British pound, which is bucking a 6-day slide. Sort of like God, on the seventh day it rested! The Canadian dollar is higher in a continuation of yesterday’s news.
So this morning is sort of a mixed bag. More news driven than risk-oriented, it will be interesting to see if the currencies fall back in line.
In currencies:
Aussie (AUD): Australian GDP came in this morning a little bit higher year over year, though not gangbusters as we may have been lead to believe. While the economy has been moving along nicely and is well-positioned for growth, the lack of explosive growth means that we could see a pause to near-term rate hikes. The forex market can be so greedy at times! The Aussie is mixed this morning.
Kiwi (NZD): The kiwi is down today across the board and is trading near a 10-year low to the Aussie. It looks as though the market is attempting to re-define the Kiwi’s place in the “risk totem pole”. Nevertheless, the Kiwi economy is still on track and they do provide 2.5% interest, making it a good destination for carry trades. I think the market realizes that the economies of Australia and New Zealand are quite different, and the Loonie looks poised to replace the Kiwi, as traders speculate that rate hikes may be coming sooner in Canada then in New Zealand. This makes the Kiwi/Loonie pair the largest loser of the morning, down some 1.15%.
Loonie (CAD): The Loonie is benefitting this morning from yesterdays interest rate decision as the market is now starting to believe that Canada may be the next to raise interest rates. The Loonie is up across the board this morning.
Euro (EUR): The Euro is higher against all but the Loonie and Pound, as proposed Greek austerity measure are giving hope that the debt problem won’t spiral out of control. This is coming ahead of the Euro zone GDP report and interest rate decision due out tomorrow. Rates are not expected to change and any surprise to the upside on GDP would be viewed as positive by the market.
Pound (GBP): The Pound is higher this morning after consumer confidence figures came in better than expected. I’m not so sure why they are so confident but to each their own. Tomorrow is the BOE’s decision on interest rates and quantitative easing. Deficit reduction is a major priority in the UK so it will be interesting to see if they need to continue to stimulate the economy at the expense of increasing debt. Stay tuned!
Dollar (USD): The Dollar is down against all but the Kiwi as job cuts have fallen to their lowest levels since 2006. All this means is that employers plan on firing less people. They are still not in “hiring mode” so the “jobless recovery” continues as political uncertainty and Friday’s Non-Farm Payrolls report loom heavily over the market.
Yen (JPY): The Yen is mixed this morning, giving back some gains against the European currencies yet higher vs. the Aussie and Kiwi. As no real risk themes are presenting themselves today, the yen is benefiting from a little bit of carry trade unwind and it looks like some of that carry trade money is going toward the Loonie. No real news out of the region today besides a reading of higher worker earnings, which could help push domestic demand.
The markets aren’t always dominated by risk themes so it is really important to pay attention to the overall economic news for the most widely traded currencies. Slight changes can have large effects in individual currencies which can “break out” of the usual order. In these situations, there is great opportunity as sometimes the market is slow to catch on. My trumpeting of the Loonie over the last few weeks is one such example.
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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RBA Leaves Rates Unchanged!
By Mike Conlon | February 2, 2010
So this morning is a risk-aversion day in the currency markets, however equity futures in the US are up slightly this morning, as are gold and oil. At some point today, I expect some sort of mean reversion.
Here’s a look at the currencies:
Aussie (AUD): As mentioned, the Aussie is down this morning as the RBA left rates unchanged. There was also a comment made about sovereign debt concerns that is also weighing on the Aussie. It’s currently the biggest loser on the morning, down 1% vs. the US dollar and 1.3% vs. the Japanese yen.
Kiwi (NZD): The Kiwi is down this morning trading in sympathy with the Aussie, and there was also news that wages in New Zealand rose at their slowest pace in 9 years. This demonstrates that the labor market is weak and is a sign that rate hikes may be off the table for some time.
Loonie (CAD): The Loonie is down this morning as a result of risk-aversion, though it has been trading higher recently as oil prices have been moving higher. There’s no real market making news on the Loonie until the end of this week when they report the unemployment change on Friday, so look to oil prices to give clues about where the Loonie may go.
Euro (EUR): The Euro is up slightly this morning as it’s taking a much needed break from the pounding it’s been taking. By now you are familiar with all of the negative news from the region regarding the PIIGS countries, so today, no news is good news. The trend though is still clearly down.
Pound (GBP): The pound is lower this morning as market sentiment over the health of the UK economy is still negative. The pound tested 1.59 vs. the US dollar and is near a three-month low.
Dollar (USD): US home sales figures come out at 10AM EST and could serve as a barometer to the health of the economic recovery in the US. Coming on the heels of the biggest federal budget EVER proposed, there are increased worries that the administration’s plans, “just don’t add up” and that proposed tax hikes on businesses and the wealthy will further stall jobs growth.
Yen (JPY): The yen is higher this morning as the global risk-aversion theme is taking place. This may leave the BOJ in a conundrum as their attempts to weaken the yen to improve exports could be undermined by global risk aversion themes. Stay tuned on this one.
Overnight, Asian equity markets were up and European markets are up as well, though off their highs of the day. US stock futures are slightly higher, though I suspect that this existing home sales data at 10 may be the catalyst for a stock market reversal if they come in worse than expected.
Currently, oil is up almost a full percent to over 75, and gold is trading just higher than 1100 to 1113.
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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Global Recovery Under Way?
By Mike Conlon | February 1, 2010
All eyes are on the US ISM Manufacturing number due out this morning at 10AM EST. The market is hoping to see a rise in this number as that would indicate business activity is picking up. So far this morning, we are seeing mild risk-taking as the Euro has rebounded from 4 days of selling.
US stock market futures are up as are gold and oil.
Let’s examine how this is affecting world currencies:
Aussie (AUD): The Aussie is currently trading down this morning despite the risk-taking tone this morning as traders are gearing up for the RBA rate decision due out overnight. The market is expecting a 25 basis point hike to 4%, but this could trigger a bearish scenario. If they do raise rates, it is extremely likely that they will take another rate hike off of the table going forward. There is also a chance that they don’t raise rates this time, as news that China is paring back economic stimulus could affect the Australian economy.
Kiwi (NZD): The Kiwi is up slightly this morning benefitting from the risk trade.
Loonie (CAD): The Loonie is up this morning as oil prices recover and stabilize as well as a general risk-taking mood this morning. The market is waiting for confirmation from the ISM data so it trading in a tight range until that release. The Loonie should strengthen today if the number comes in better than expected.
Euro (EUR): The Euro is the biggest gainer this morning as it rebounds from 4 days of weakening. The market is gaining confidence that the plan to manage the debt crisis in Greece is acceptable and plausible which generally ties in to the risk-taking trade this morning. Over the last four days, the thought that Euro could serve as an alternative to the US dollar as a reserve currency was largely debunked as Central banks pulled cash out of the Euro at a record pace.
Pound (GBP): The pound is down this morning against all but the Japanese yen as housing prices slid in the UK and banks granted fewer mortgage applications last month. The Bank of England rate decision is on tap next week but traders are more interested to see if they continue with their quantitative easing program.
Dollar (USD): The US dollar is down this morning as part of the risk-taking trade. Stock market futures are up as are commodities and all eyes are on the ISM Manufacturing number. There are some figures out this morning that show that US personal incomes are up slightly, and personal spending is higher than the prior reading but missing expectations by just .1%.
Yen (JPY): The yen is down across the board this morning as the BOJ’s top economist said that Japan’s economy is far from “achieving self-sustaining growth” as their export led recovery failed to induce consumer spending. This also falls in line with ministers calls last week for a weaker yen.
As we can see the big news of the day is ISM Manufacturing number which will be viewed as a proxy for global economic recovery. The only currency that is trading “out of the ordinary” is the Aussie, as the market prepares for the rate decision.
In global markets, stocks in Asia closed generally higher and Europe is higher at the moment. US stock markets futures are higher pre-open and oil is up to 73.47, with gold slightly higher to 1088.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Fastest Growth since 2003!
By Mike Conlon | January 29, 2010
This morning, the US Q4 GDP figures came in at a better than expected 5.7%, the fastest growth since 2003. While this is seemingly good news for the US economy as it marks the 2nd straight quarter of growth providing further evidence that we moved forward from recession.
However, we’re not out of the woods just yet. There are still global concerns weighing heavily upon the markets, such as the Greek debt problem in the Euro Zone, as well as China’s restrictions on lending.
This morning’s currency action is rather neutral, as it can’t be described as either risk-taking or risk-aversion.
Here’s how world currencies are trading this morning:
Aussie (AUD): Gains in the Aussie have slowed down as the global slowdown, particularly in China, is expected to slow growth in Australia. This morning is a mixed bag for the Aussie, as it’s higher vs. the Japanese yen and British pound, but down vs. the US dollar and Euro.
Kiwi (NZD): The Kiwi is trading higher across the board and is showing the highest percent gain vs. the yen this morning, up 1%. They just reported a budget deficit for the first time in 9 years, as tax receipts have slowed and government spending picked up last year.
Loonie (CAD): Canadian GDP came in this morning at .4%, a smidge higher than expectations. Canada is showing slow but steady growth, which is a positive for the economy. The Loonie has been weakening against the US dollar as global risk appetite has abated and oil prices are down almost $6 this year.
Euro (EUR): The Euro is trading higher against the yen and the pound, but down against the rest this morning. Consumer prices rose 1% showing that inflation is starting to pick up in the region. Also to note is that fears over the Greek debt crisis are weakening as region considers all of its options.
Pound (GBP): The pound is down this morning against all but the yen, experiencing a technical pull back from its recent strength. Housing prices were up the most in 5 months and consumer confidence is improving. BOE policy-maker Andrew Sentance cautioned that the recovery can continue, “especially if interest rates remain low.”
Dollar (USD): The dollar is showing strength today after the GDP figures that were reported this morning. The fastest growth since 2003 is stoking thoughts that inflation may be closer than the Fed thinks.
Yen (JPY): The Japanese yen is down across the board today as the CPI index showed that deflation is still very prevalent in the Japanese economy. Finance Minister Kan called for the Bank of Japan to take a powerful approach to combat falling prices and a strengthen yen.
The stock markets closed down in Asia, but are currently higher in Europe and the US. Gold is down slightly and oil is up this morning.
So today is a bit of a mixed bag. Keep an eye on the correlations to watch for break-downs or irregularities to see if there are reversals or reversion to mean. Today seems like it will be a range-bound day going into the weekend.
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Its All About Jobs!
By Mike Conlon | January 28, 2010
This morning, it looks like risk appetite has returned to the forex market after yesterday’s FOMC meeting has been fully digested. The only thing “unexpected” from the meeting was that the decision was not unanimous, as KC Fed Chief Thomas Hoenig dissented and raised concerns about possible inflation. While this view will most probably be discounted for “an extended period” to use Fed parlance, it is interesting to see someone break from the pack.
Also, additional problems from the Euro zone have increased downward pressure on the common currency, as Portugal has now joined the mix and is showing up on the watch lists as their fiscal budget is drawing attention from the ratings agencies. In light of these problems, the market is still in a risk-taking mood.
The other big news came from last night’s Presidential State of the Union Address, where the President issued a renewed commitment to fixing the employment problem here in the US and pledging to help put Americans back to work which overall is positive for economic growth. Whether or not the follow through occurs is another story, but for now, the markets are satisfied.
Here’s a look at the currencies:
Aussie (AUD): Benefitting in early trade from risk appetite, the Aussie traded as high as 90.45 vs. the US dollar. In addition, commodity prices are higher as well. There is much debate over whether or not another rate hike will be in order at the next policy meeting as inflation concerns abound. Watch out for a mid-morning reversal if equity markets sell-off.
Kiwi (NZD): Yesterday, the New Zealand Central Bank left interest rates unchanged at 2.5% as inflation is likely to stay in its target range. However, the bank is expected to move on rates sometime before mid-year. Also up this morning, but off of its highs.
Loonie (CAD): With oil prices holding above $74 (for now), the Loonie is showing decent gains this morning against the risk averse currencies. The Loonie is showing some strength today vs. the US dollar, as it bounced back against technical resistance at 1.065.
Euro (EUR): The Euro is down this morning after having broken support at 1.40 vs. the US dollar. While EC economic sentiment was up this morning vs. an expected decline, the news that the first of the PIIGS countries, Portugal, may be following Greece’s lead down the road to fiscal uncertainty. S&P is saying that Portugal’s current budget leaves the country economically “frail”. Remember that when trading often times support becomes resistance so keep that 1.40 level in mind.
Pound (GBP): The Pound is strong again this morning, extending yesterday’s gains. The prevailing thought is that interest rate hikes may be on the table for the foreseeable future.
US Dollar (USD): The dollar is down today against the commodity currencies as risk appetite has returned. US durable goods orders came in lower than expected, and initial jobless claims came in slightly more than expected. This lends credence to the FOMC stance that rates should remain low for “an extended period”, much to KC Fed Chief Hoenig’s chagrin.
Yen (JPY): The yen is down against all but the Euro currencies, as the bottom rung on the risk-taking ladder. The uptick in risk appetite as a result of the State of the Union Address last night has helped propel Asian stock markets higher last night and the yen lower.
In world markets, the Asian stock markets closed higher than 1.5% from the previous day but stocks in Europe are mostly lower with news out of the Euro Zone. US stock markets are down, and gold and oil are higher, to 1093 and 74.12 respectively.
What’s important to take away from all of this news is that no single instrument trades in a “bubble” and that news from around the globe can affect any market. By having and maintaining an understanding of global events, investors and traders can better position themselves.
To learn more about how these markets are ALL inter-related, be sure to check out our extremely affordable currency trading courses!
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FOMC Day Fun!
By Mike Conlon | January 27, 2010
This morning, the broader currency markets are trading in a slight range, with the Japanese yen (JPY) and the British pound (GBP) showing gains against the US dollar. There is a mild risk-aversion theme this morning as all eyes are on the US FOMC policy meeting today at 2:15 EST.
As far as news-worthy currency events go, this may be the one which has the largest impact on the market. It is almost 100% certain that the Fed will not be raising rates from .25%, however the market will be looking for clues for any change in language that may suggest a shift in policy.
The markets here in the US have been on edge recently, as political pressure and rhetoric have picked up because of what many see as a rejection of the current administration’s policies. This has caused some in Congress to pull their support for Fed Chairman Bernanke, whose term is up at the end of January.
Let’s take a look at how specific currencies are faring so far:
Aussie (AUD): Earlier today the Australian Consumer Price Index (CPI) number came in at .5% for Q4 and at 2.1% YoY, which was slightly higher than expectations. This sent the Aussie initially higher and above .90 against the US dollar, though it’s now trading below on the move to risk aversion and fears that the moratorium in Chinese lending may affect the Australian economy.
Kiwi (NZD): The Kiwi is trading down on the risk aversion theme, most notably against the Japanese yen around .5% on the morning. The Reserve Bank of New Zealand is coming out with its rate decision later today and is expected to maintain rates at 2.5%, which is a record low. This could weigh heavily on the Kiwi as the market has priced in a 50 basis point rise by mid-year.
Loonie (CAD): The Loonie is trading near a 5-week low as world markets and commodities have sold off recently and the flight to safety trade has been in effect. One of the major factors affecting the Loonie is the price of oil, which is off some $10 from recent highs.
Euro (EUR): The Euro is off slightly this morning, as it attempts to shake off the problems it’s been having related to the debt crisis in Greece. European stock indices are down today, as comments from ECB council member Weber said that the bank may take additional steps to withdraw liquidity from its banking system. With today’s FOMC decision on tap, the Euro could test 1.40 which has been an area of psychological support for some time.
Pound (GBP): Reports are out this morning that the quantitative easing measures that the Bank of England has taken may be working. Although UK GDP came in lighter than expected, it did come in positive which is a step in the right direction. BOE policy-maker Sentance warned that the bank may need to act quickly if the recovery strengthens and inflation picks up. The pound is up to 1.62 vs. the US dollar.
US Dollar (USD): The dollar is weak against the pound and the yen this morning, but otherwise is up slightly against the commodity currencies and the Euro. The market is waiting on the FOMC decision and more importantly if there is a change is language which may give hints about a change in policy. Keep an ear out for a continuation of the “extended period” language. The dollar has been gaining recently, as risk-aversion has heightened around the globe.
Yen (JPY): The Japanese yen is at a 5-week high vs. the dollar, as the Japanese yen benefits the most from the risk-aversion trade. With interest rates at .1% and not moving any time soon, the carry trade is back on with the yen as the funding currency of choice. Also to note is that Japanese exports have risen for the first time since mid-2008, a sign that economic recovery may be taking place.
In world markets, stocks are down in Asia and Europe and the MSCI world stock index is experiencing its largest losing streak in almost a year as concerns that developed economies may be preparing to scale back which affects emerging markets. In the US, the stock markets are down slightly as are gold and oil, which are trading below 1100 and 75 respectively.
Look for a reversal today if the Fed does as expected and maintains uniformity of language with its previous rate decisions. The world markets are looking for some vote of confidence that will allow risk-taking to resume again. Despite all of the political wrangling coming out of Washington, if Bernanke can project confidence that the recovery in the US in taking place, then it may signal game on again!
To learn more about how these events affect the currency markets, be sure to check out our currency trading courses!
To follow these events in a free, real-time practice account, click here!
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