Not Dead Yet!
By Mike Conlon | May 12, 2010
So we know all about the debt crisis in the Euro zone and the bailout agreement that was put forth, leaving some in the market to wonder whether or not it was “enough” and to question the structural feasibility of the Euro.
The major question is whether or not the PIIGS countries (particularly Greece) will accept austerity measures to try to get their budget deficits in order. Earlier today, Spain announced new spending cuts designed to show their commitment to austerity. This is a good first step, and Spain will probably have to access the bailout funds. But as I mentioned yesterday, if confidence returns to the EU then borrowing costs will be lower allowing the PIIGS to refinance their debt at lower levels. If they can accept some austerity measures, there is no reason why the Euro can’t survive.
In addition, European GDP figures came in higher than expected showing an expansion of .2%, in a sign that there is still some life in the EU.
Across the channel in the UK, a deal between the Conservatives and Lib Dems has forged a coalition government that has agreed in principle to reduce the UK budget deficit. While this news was deemed positive by the Bank of England, Governor King stressed caution that risks to UK growth have increased.
So there’s some mild risk-taking in the market this morning.
In the forex market:
Aussie (AUD): The Aussie is higher on mild risk taking and gold prices have soared to $1240, which is beneficial to the Australian economy, especially in light of a proposed “windfall profits tax” on mining companies. Employment figures are due out tomorrow.
Loonie (CAD): The Loonie is higher for the fourth straight day as investors are increasing bets that there will be a rate hike in June. The growth story in Canada is still intact and the only thing keeping the Loonie lower is the risk Euro-related risk in the market.
Kiwi (NZD): The Kiwi is slightly higher on risk appetite in the market. Home sales and retail sales figures are due out in the next day or so, which should give a clue on inflation in NZ. This could affect potential rate hikes that the market is expecting mid-year.
Euro (EUR): The Euro has a bid this morning and is higher, as Spain’s spending cuts and EU GDP figures show that there is still life in the region, despite what all of the “doom and gloomers” may have you believe. It’s kind of funny that now that everyone is coming out of the woodwork to talk about the Euro is finished, I’m actually positive on it as a viable currency! Must be my contrarian nature. But that’s not to say I’m positive on its growth prospects (I’m not), but merely that a lower Euro is going to be good in the long run.
Pound (GBP): The Pound is lower this morning as the BOE has jawboned it lower. Governor King came out and said that there are still risks to economic growth, but seemed to be talking out of both sides of his mouth as he also applauded the new government’s plans to reduce the deficit. So while he mentioned that quantitative easing may need to be increased, I don’t think it’s likely. Don’t forget that a lower Pound is better for UK exports, so watch what they do and not what they say.
Dollar (USD): The Dollar is lower as risk appetite is increasing in the market, and though the trade balance numbers came in slightly worse than expected, it is not enough to derail the US economic growth story. Initial jobless claims are due out tomorrow, and Friday we get retail sales figures.
Yen (JPY): The Yen is lower on risk-taking and carry trades. CAD/YEN is the biggest gainer showing signs that market is betting that Canada is the next to raise rates.
As my wife likes to say, “When the party is over, it’s time to go home.” The sooner the Greeks realize this, the better off they will be. Look, everyone in the world would love to retire with full pensions at the age of 52, it just isn’t possible. No one is saying that these guys have to go back to manual labor. Get a fishing boat, take tourists out. With a declining Euro, the PIIGS countries will actually benefit.
Sure there’s going to be anger right now, and we haven’t seen the last of the rioting. But pretty soon the crowd starts to thin out, as the intelligent ones realize they can secure jobs for themselves while the other idiots are out rioting! Before you know it, there’s only 2 guys out there banging the drum, and everyone else has reluctantly gone back to work.
So the punch bowl has been removed. There will be other parties in Greece. The sooner they realize this, the better.
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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Dumb Markets!
By Mike Conlon | May 11, 2010
Yesterday we saw the markets come back with a vengeance as both stocks and risk assets traded higher. The obvious driver of these moves was the EU bailout, but as I mentioned yesterday, the bailouts are going to be negative for the Euro in the long-term. It didn’t take the markets long to realize this, as the Euro is lower and taking other markets with it.
Part of the problem we are seeing is that because the PIIGS countries are going to have to adopt austerity measures, this by nature is going to stunt growth while the debt situations get under control. However, when the US was facing economic crisis, the EU only had to lower interest rates and did not engage in quantitative easing to stabilize its economy. Now granted, they are facing problems today, but I think that stability is more important than growth at this point.
Nevertheless, the market still relies on some of the correlations that have held up over the past couple of years, and my guess is that is going to change. While the Euro is known as the “anti-dollar”, it tends to trade with risk assets. If we use the premise that the Euro is going to go lower based on the dilutive actions taken to administer the bailout, then it likely follows that we’re going to see some Dollar strength.
However, we still are seeing good growth stories around the globe. Sure a weaker Euro will decrease demand for imported goods to the EU, but it will also be much better for Euro exports as now their goods are cheaper around the globe.
So pay attention to how the other markets react to a declining Euro. Right now the markets seem to be playing by the old rules. It may be a while before the market catches on to the new paradigm. So for now trade what you see and not what you think it will be!
In the forex market:
Aussie (AUD): The Aussie is lower this morning as fears that a European economic contraction may weigh heavily on global recovery. However, the economic story is still intact and a global slowdown could halt inflation down under.
Loonie (CAD): The Loonie is holding up fairly well despite the risk aversion in the market as investors are betting on a rate hike next month. Swap rates are higher as homeowners are attempting to lock in fixed-rate mortgages in anticipation.
Kiwi (NZD): The Kiwi is lower as risk aversion in the market is causing demand to weaken. The target date for a rate hike is still mid-year, but that could be pushed out further if inflation subsists due to a lack of Euro or Chinese demand.
Euro (EUR): So stocks are lower in Europe and the US futures are set to open lower as well as there is concern that the bailout plan will not be big enough to halt the debt problems. My take is that this bailout should be sufficient, as spending gets slashed and budgets get reduced throughout the region. As long as this backstop is in place, the troubled nations will receive aid initially and will be able to go out into the markets down the road once more and more confidence is established. While the crisis everyone speaks about is directly related to excessive debt, the real crisis in the EU is one of investor confidence. If this process can be managed skillfully, the confidence will come back. In the meantime, I am expecting the Euro to decline. And watch the flows into gold as an asset class as gold not only acts as a hedge against inflation, but also as a store of wealth. Gold is higher to $1210.
Pound (GBP): The Pound is higher this morning as industrial production figures came in much better than expected. The Pound was initially lower on risk aversion and due to a report that the Lib Democrats in Parliament were in talks to form a coalition government with the Labour party even though the Conservatives won the majority though not by a large enough margin to dominate Parliament.
Dollar (USD): The Dollar started the morning higher on risk aversion but is giving back some ground as the stock market gets set to open. Stock futures are off their lows of the morning and I could see this as a “turn-around” day as the economic story is improving in the US.
Yen (JPY): The Yen is giving back gains as the market is seemingly moving away from risk aversion. Japanese stocks were lower overnight, as fears of a Chinese slowdown may affect earnings going forward.
In my opinion, the bailouts in Europe should be viewed as a good thing and not bad. A lower Euro will not only help manufacturing countries such as Germany and France as their exports will be cheaper, but it will also help the PIIGS countries as tourism will increase.
I live here in the NYC, and for the last couple of years you couldn’t walk down the street without bumping into a European here on a shopping excursion. Even with the price of the airfare, it was still cheaper for them to shop here than at home.
Conversely, the last time I was in Europe, I felt like a pauper and was astounded at some of the dinner bills I racked up. Now, my wife and I are planning our next trips. Things will get worse in the EU before they get better, but in the long run a lower Euro will benefit them greatly.
We all have to make sacrifices in the grand scheme of things, and once the Greeks (and those who acted irresponsibly) realize how they can benefit, the quicker they can return to normalcy.
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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Opa!
By Mike Conlon | May 10, 2010
Let the party continue… Greece lives to party another day, as does the rest of the Euro zone! Over the weekend, the EU finally came to the rescue of the faltering nations of the region by putting together a nearly $1 Trillion (yes that’s trillion with a ‘T’) rescue package to stabilize the Euro and defend the EU. The package consists of both pledges from the solvent EU countries as well as IMF backing. In addition, there will also be access to an emergency funding vehicle, and the ECB will engage in quantitative easing to start buying bonds to provide liquidity.
This is the type of response the market was hoping for, after the bungling of the situation that had taken place until this weekend. As a result, world markets are higher as there is now hope that the Euro will not collapse.
However, as good as this may be for the Euro in the short-term, many are starting to question where exactly all this money is going to come from as nations step up to use this new facility. This could mean a lower Euro in the long-term. Because this move is seen as stabilizing, the markets are seeing some risk appetite this morning as well as some short-covering.
In the forex market:
Aussie (AUD): The Aussie is higher this morning as much of the fear that was in the market due to Euro concerns has abated. A note out by two former policy-makers has stated that perhaps the RBA has raised rates too fast in Australia with global concerns still pervasive. The potential slowdown in China could pose a risk to the Australian economy.
Loonie (CAD): The Loonie is higher this morning as traders are increasing bets that the Bank of Canada will raise rates in June. Lost in the quagmire of last week’s market turmoil, Canada reported a record job growth figure rising the most in 1 month in nearly 35 years! With the Euro zone debt crisis seemingly contained, the good economic story coming out of Canada is back to the fore-front of investor’s minds.
Kiwi (NZD): Like the Loonie, the Kiwi is higher as they too had good employment reports from last week that were overshadowed by the risk aversion in the market stemming from the Euro debt crisis. And even though the RBNZ left rates unchanged at the last policy meeting, mid-year expectations for a rate hike are “in-line with the RBNZ’s current views” according to Governor Bollard.
Euro (EUR): Obviously the big news is the bailout proposed for the region, but there were actually some good economic figures that came out in Germany. Chancellor Merkel’s government lost seats in the weekend election, so perhaps that prompted her to agree to the bailouts knowing that her days may be numbered. In the meantime, the Euro is back to just under 1.30 vs. USD and hopefully this bailout package will be enough to keep the region from falling into an economic death spiral. While the market sees the benefit of this aid package, perhaps enacting this sooner could have kept the Euro from the edge of the cliff. Now it will be interesting, to see to what extent these bailout facilities need to be accessed and where the actual money for said bailouts is going to come from. In my opinion, while the short-term news is positive for the Euro and world markets in general, this is most definitely a negative for the Euro in the long-term.
Pound (GBP): The Pound is higher as the market has deemed that it has better growth prospects than the Euro. Growth in consumer confidence and home-loan approvals in conjunction show that the UK economy is improving as the new government prepares to take over. While the fears of hung Parliament have been realized, the new government appears to be working toward coming to agreements that the UK debt load must be reduced. While there is no coalition in place as of yet, the willingness to work together may be enough to help the economy. In addition, the BOE left rates unchanged.
Dollar (USD): The markets are still jittery after last Thursday’s ridiculous market move that still has professionals scratching their heads as to what actually happened. Congressional hearings are bound to occur to get to the bottom of it. Economic news for the US is light until the end of the week when we get retail sales figures. So expect the dollar to move somewhat opposite of the Euro as the market gains or loses confidence in the EU.
Yen (JPY): Expect the Yen to trade on risk themes after the BOJ injected a major amount of liquidity last week to the market. There was a note out of the BOJ that said the Japanese economy has not been affected by the Euro debt crisis so the economy will continue to chug along, albeit at a snail’s pace.
This Euro zone bailout package was exactly what the market was hoping to hear months ago. While the Euro has received a short-term boost of confidence, the long-term prospects of a weaker Euro seem likely. And for all of the noise coming out of Germany, the stand to benefit the most as a weaker Euro is better for their exports. They are already seeing gains in exports and their current account deficit.
Had the politics been put aside and this deal hammered out months ago, then it is highly probable that borrowing costs could have been contained better throughout the region.
So it is going to take time for the wounds of the Euro debacle to heal, but every day that goes by without crisis is another day of confidence for the Union. If they can create enough confidence for the region, then it may be possible, though unlikely, that the nations in trouble will need to access the bailout facility. Expect austerity to spread throughout the PIIGS nations and for their economies to get worse before they get better.
But hey, at least it’s not financial Armageddon. The EU lives to party another 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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Rate Hike!
By Mike Conlon | May 4, 2010
The RBA increased the interest rate in Australia as expected to 4.5%. However, dovish language for future hikes has sent the Aussie lower as rate hikes were fully priced in. Risk aversion is compounding the Aussie’s decline as continued fears out of the Euro zone have sent markets lower.
The Euro has breached the 1.31 level and hit its lowest point vs. the US dollar in nearly a year. Fear of contagion to the other PIIGS regions is increasing as the market is cautiously waiting for a plan in the event that there is another crisis. Now that the EU has gone down “bailout road”, the expectation is that the Greece will not be the last straw.
European equity markets are lower, as are commodities and US stock futures giving strength to the Dollar and Yen. In addition, an expected slow-down in China is expected to decrease world demand as China attempts to slow down inflation by doing anything BUT allowing its Yuan to appreciate.
In the meantime, Japan remains closed for the week and will be sitting this one out as the Golden Week holidays are celebrated.
In the forex market:
Aussie (AUD): The RBA raised rates as was expected, yet in the policy meeting signaled that they will likely pause next month. Inflation is expected to rise to the higher end of the “band” that they attempt to target, but the market has detected no sense of urgency. In addition, the Chinese PMI report came out showing that Chinese manufacturing was at its lowest in six months sending the Shanghai Composite to six-month lows as well. This could reduce demand for Aussie products and thus affect the economy.
Loonie (CAD): The Loonie is lower this morning as risk-aversion is prevalent and oil is back to trading below 85. With no news on tap until Friday’s employment reports, expect the Loonie to closely mirror oil prices and trade on risk themes.
Kiwi (NZD): The Kiwi is lower for the same reasons that the Aussie is, but in addition, wage inflation occurred at its slowest pace in nearly 9 years. China is New Zealand’s second largest export market, so a slowdown in China would be detrimental to NZ exports.
Euro (EUR): The Euro is below 1.31 for the first time in nearly a year as fears over the debt crisis have heightened. Part of the problem is the “band-aid” approach the EU has taken, and the market is concerned about future debt problems in the region. When you think about it, this makes sense. With all of the back and forth and negotiating that has taken place over Greece, what happens if Spain needs a bailout? They are a much larger economy than Greece and a much greater risk to the Euro. If the market senses that there is no solution in place, expect yields in Spain to rise until the ECB needs to step in and do something. Say what you want about Hank Paulson’s “bazooka” when dealing with our bank bailouts; I’m sure the EU would love to have such a weapon to combat their debt crises rather than quibbling over pea-shooters.
Pound (GBP): The May 6th elections are two days away and the Pound is weaker as the fear of “hung Parliament” is increasing. In addition, UK stocks are lower led by British Petroleum who has a major disaster on its hands due to the Gulf oil spill. In addition PMI came in slightly better than expected, though mortgage lending was slightly less.
Dollar (USD): The Dollar is higher on risk aversion as its safe harbor status is driving demand. Yesterday, US ISM manufacturing figures came in better than expected showing signs that the US economy may be improving. Pending home sales are due out later this morning which could add to Dollar strength if they come in better than expected.
Yen (JPY): Japan is closed for Golden Week so business activity is light so expect the Yen to trade on risk themes.
As I’m sure you are aware by now, the forex market is a “relational” market in that what happens in one area affects all others. Not only can a currency be driven by its own fundamental strength, but also by others’ weakness.
With the uncertainty surround the UK elections and the Euro debt crises, there is certainly reason to be risk-averse. China’s intentional slowing of its economy and not allowing its Yuan to appreciate could be an important fundamental factor in world demand going forward. If demand slows and US recovery does not pick up, then we could see further impediments to economic recovery.
All of this adds up to the flight to safety trade which could mean Dollar strength and equity and commodity market weakness.
If you are someone who is heavily invested in world markets, it would behoove you to check out the forex market in order to hedge your risk in un-correlated assets. Isn’t time you sought the portfolio protection you need?
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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What a Mess!
By Mike Conlon | May 3, 2010
The impact of the gigantic oil spill in the Gulf region of the US is impacting oil prices to the upside as traders are actually using potential supply and demand issues to rule their decision-making. Well actually, it’s more like never let a good crisis go to waste.
In the Euro zone, the potential for the bailout of Greece not gaining support is weighing heavily on the Euro. The plan calls for increased austerity measures, as well as EU and IMF monetary support to the tune of $110 Billion Euro.
Purchasing Manager Indexes are coming in higher from around the globe showing signs that economic recovery may be taking hold, and the Dollar is stronger as consumer spending was higher though personal incomes rose less than expected. This also contributes to higher oil prices as demand picks up as manufacturing increases.
Elections are taking place this week in the UK and Germany, and the EU will meet on Friday to discuss approval of the Greek bailout.
In the forex market:
Aussie (AUD): The Aussie is higher against all but the Loonie, as commodity prices are pushing the markets higher. The market is in a general risk-taking mood despite the uncertainty over acceptance of the Greek bailout. Home prices rose faster than expected down-under, and tomorrow’s decision on interest rates is expected to show another increase to 4.5%.
Loonie (CAD): The Loonie is higher on oil prices as the market is anticipating a supply problem down the road due to the Gulf oil spill. There is no major news on tap in Canada until Friday when employment figures are due. Expect the Loonie to trade on risk themes this week.
Kiwi (NZD): The Kiwi is higher as the NZ Treasury Dept. put out a forecast that the economic growth rate was probably about .8%, showing positive economic signs. In addition, NZ PMI figures expanded at the fastest pace in nearly two years, and commodity prices were slightly higher. This bodes well for Kiwi strength, in addition to the overall risk appetite in the market.
Euro (EUR): So the final figure is $110 Billion Euro to bailout Greece and keep contagion from occurring throughout the Euro zone. Chancellor Merkel is patting herself on the back for holding steadfast and requiring further Greek Budget cuts. Yet the Euro is lower, as it is not entirely clear that the bailout package will be approved by the other EU members and the austerity measures agreed to are bound to cause strikes (riots) in Greece. In addition, the ECB agreed to accept Greek paper as collateral, thereby negating the effect of the rating agencies whose own competency has been questioned. A meeting is scheduled on Friday for approval, so stay tuned!
Pound (GBP): The Pound is mixed this morning as a report came out that home prices in the UK are expected to rise 5% as a result of record-low interest rates despite the uncertainty surrounding this Thursday’s elections. Expect some volatility going into the elections as the potential for a “hung parliament” weighs heavily on investors.
Dollar (USD): The Dollar is higher against all but the commodity currencies as consumer spending was higher posting its best reading in nearly 6 months, though personal incomes didn’t follow suit nearly as fast. ISM Manufacturing numbers are due out later this morning and a better than expected reading could support the economic growth story. However, the real story in the US this week will be Friday’s Non-Farm Payrolls (NFP) report which will show whether or not recovery is taking place as everyone is focused on jobs, jobs, jobs.
Yen (JPY): There’s no news this week out of Japan that is expected to move the market, so expect the Yen to trade as a proxy for risk, as traders increase or decrease risk appetite and also on commodity prices. Oil prices are expected to rise as PMI figures around the globe signal an increased demand for oil and also the potential supply shock due to the Gulf oil spill.
As we get closer to the summertime, expect commodity prices to move higher as global demand picks up as economic recovery takes hold. As a result, the commodity currencies could move higher as record low interest rates in the US could be the catalyst for commodity inflation.
Unless the jobs picture begins to improve, the Fed will maintain record low rates to encourage growth which is bound to foster inflation as well. This Friday’s NFP will be the first sign, but commodity currencies could also get a additional boost with another rate hike in Australia tomorrow.
And lastly, keep an eye on the Euro zone and the Greek situation. Any further hesitation to ratify a bailout could cause further losses in the Euro, and any chirping from any of the other PIIGS nations to reach for a piece of the “bailout pie” could show that contagion has occurred.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Not Good Enough!
By Mike Conlon | April 30, 2010
US GDP figures came in this morning showing an advance of 3.2% annualized, just missing analyst expectations of 3.3%. While there is mild disappointment on the miss, GDP growth of any amount should be seen as positive at this juncture in time. Much of the advance in GDP growth came as a result of personal consumption numbers which were higher than expected, showing that a consumer-led recovery may be underway.
In other news, Canadian GDP figures came in as expected but the market is still concerned that the change in language used by the BOC in this week’s interest rate policy meeting could stall future rate hikes.
In an opposite turn of change of language, the New Zealand central bank Governor left himself “wriggle room”—I always say wiggle but whatever—as the market is increasing its bet that we’ll see a rate hike earlier than the July meeting as was previously forecast.
Meanwhile, deflation is still prevalent in Japan even though household spending and wages are up.
And lastly, Greece austerity measures are predictably causing unrest but it looks like bailout measures will soon be in place. The markets are in risk-taking mode this morning going into the weekend as the next round of news expected out of the EU is thought to be positive as the negative is already “priced in”.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on increased risk-appetite as signs are pointing to a resolution for Greece. A survey of Australia’s trade businesses shows that there is an expectation for a rise in the Aussie dollar going into year end.
Loonie (CAD): The Loonie is lower this morning as the market is paring back expectations of a rate hike based on the backpedalling language that came from the BOC over the last few days. Canadian GDP figures came in as expected so there is some hesitation to push gains in the Loonie despite the risk appetite.
Kiwi (NZD): On the other hand, the RBNZ changed its language to leave “wriggle room” for a potential rate hike at the June meeting as opposed to the expectation of July. This is all incumbent of course on actually having the economic data to support a hike.
Euro (EUR): The Euro is higher this morning as the market is expecting a resolution to the Greek debt crisis to come in soon. Greece has agreed in principle on an austerity package that will satisfy lenders (Germany) and allow a bailout to take place. For those worried about contagion, Spain just officially announced unemployment rates in excess of 20%! Even if the Greece problem gets resolved, there are others lurking in the shadows. Don’t get too excited about the Euro’s prospects just yet.
Pound (GBP): Consumer confidence fell to a 3-month low in the UK heading into next week’s elections, as signs of a slower return to growth is all but expected.
Dollar (USD): The Dollar is lower on risk taking as GDP figures came in slightly less-than-expected but signs that consumer spending is improving is seen as positive. However, Bernanke all but said at the FOMC meeting that the Fed won’t move on rates until they see signs of employment gains, and we’re not quite there yet.
Yen (JPY): In the overnight session, reports have showed that economic recovery is not strong enough yet to fend off deflation, and the Bank of Japan has pledged to help banks lend in order to encourage spending. Consumer prices have fallen for 13 straight months. However, the good news is that spending and wages have increased so there is hope that it will help stimulate the economy. So expect a weaker Yen as BOJ monetary policy and risk-taking could bring about a further increase in carry trades.
So there is some light at the end of the tunnel as good economic figures are starting to pop around the globe. However, the amount of global debt in the marketplace is looming as there are MANY countries that have out of control debt.
So while Greece makes the headlines because they were first, the other PIIGS countries could be next to line up for a bailout. Not to mention the debt levels of the UK and the US. And Japan’s debt as a percentage of GDP is so large that it‘s no longer become a factor.
So you can see the obvious conflict between trying to grow economies and scale back debt to sustainable levels. How this is going to play out is anyone’s guess.
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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It’s Official!
By Mike Conlon | April 23, 2010
Today Greece officially asked the EU and IMF to activate the aid package/bailout to help Greece meet its debt obligations. This now puts the ball in the court of the EU, in its first real test of structural stability. As a result, the Euro is actually higher coming off one-year lows, bouncing just higher off the psychological support at 1.32 vs. USD I identified earlier this week.
Surprisingly, this is not a total risk-aversion day, as we have some mixed currencies which seem to be trading on individual fundamentals. In Canada, inflation figures came in lower than expected prompting the Loonie to be lower; and in Australia the central bank honcho was taking down the Aussie.
GDP figures came in lighter than expected in the UK, and in the US durable goods orders were higher ex transportation. New home sales figures are due out later this morning.
Meanwhile, the G-20 meetings taking place in Washington have been occupied with 2 major world themes—the bailout of Greece and Chinese Yuan appreciation. While the former is now firmly in the hands of the EU and IMF, the latter situation is picking up steam as global support for a stronger Yuan is growing.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as RBA Governor Stevens said that interest rates are “close to average”, causing the market to speculate that they won’t raise interest rates the next time around. Also, Chinese Yuan appreciation has to be on the mind of traders as the any slowing of the Chinese economy will affect Australia the most.
Loonie (CAD): The Loonie is lower this morning as inflation figures came in lower than expected. The CPI figure came in at 1.4% vs. 1.6% the previous month. In addition, retail sales figures came in at .5% which was mildly disappointing. Add in a decline in crude oil prices and you have a recipe for a lower Loonie.
Kiwi (NZD): The Kiwi is higher again this morning in a continuation of yesterday’s statement about economic growth. Despite there being some risk in the market, the Kiwi is up against all but USD.
Euro (EUR): First the good news: German business confidence is near a two-year high. The bad news: Greece is tapping into the bailout plan. But is this news actually bad? Well so far this morning, the market doesn’t think so. In fact, this news helped halt the decline of the Euro and could prove to be positive if the bailout can be successfully implemented. While there still is some major risk on this last point, for now the market believes. Stay tuned.
Pound (GBP): The Pound is mixed this morning as it is lower (but there are other currencies faring worse) on less than expected GDP figures. First quarter GDP came in at .2% vs. an expectation of .4%. This also provides uncertainty going into the May 6th elections, which may cause the Pound to pullback from a decent, recent rally.
Dollar (USD): The US dollar is higher this morning as durable goods orders came in much higher than expected ex-transportation showing signs that economic recovery may be improving. The dollar is also receiving some support from the flight to safety trade as Japanese yen weakness has encouraged buying. New home sales are due later in the morning and a good reading may be reason for a reversal, though with the global risk out there it will be hard for risk-taking to gain traction going into the weekend.
Yen (JPY): The Yen is lower this morning despite the moderate risk themes in the market. As I mentioned the other day, the wishful thinking of the Japanese finance minister to have an inflation target rather than a non-deflation target was misguided, though economic projections may cause the BOJ to cave in and expand stimulus measures.
The market is reacting favorable (for now) to what might finally be the final act in the Greek drama/comedy/tragedy that has had a stranglehold over the Euro for the past few months. The key for the Euro will be for the successful implementation of the bailout while at the same time preventing contagion to the other PIIGS countries that may be waiting in the wings.
Meanwhile, economic news out of individual countries show how quickly the mood can change from a belief that economic recovery may be happening quickly to a more subdued assessment.
And therein lies the beauty of the forex market: that there is always something happening that will cause markets to move. When markets move, there is opportunity. And with opportunity comes potential profits!
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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Too Much Debt!
By Mike Conlon | April 22, 2010
Well, it turns out that that the economic situation may be worse than expected in Greece as budget deficits came in at 13.6% of GDP, higher than the forecast of 12.9%. While this is not a good number, turns out it is not even the worst in the region. Ireland’s budget deficit is at 14.3%. So why all of the hoopla about Greece if Ireland is in worse shape?
Well, the Irish were pro-active in instituting austerity measures and its citizens are not striking in the streets. So it seems an almost certainty that Greece will be tapping into the rescue plan, now the devil is in the details. As can be expected, the Euro is lower across the board and invoking some risk aversion today.
However, we have some fairly good news out of Australia and New Zealand, and those currencies are hanging in there and actually showing gains despite the risk aversion.
US jobless claims missed estimates marginally, but are lower than last month in a sign that they are moving in the right direction, albeit slowly.
In the forex market:
Aussie (AUD): The Aussie is slightly lower this morning as the market is beginning to price in another interest rate hike. The wild-card here is what is going to happen with China, as the IMF is now jumping into the mix and calling for Yuan appreciation.
Loonie (CAD): The Loonie is slightly lower, taking its cues from oil which is down this morning to just below $83. A reading of leading indicators came in better than expected, and the market is expecting that the BOC will move on rates sooner but at a slower pace, despite the “conditional commitment” to keep rates unchanged until July.
Kiwi (NZD): The Kiwi is higher this morning as consumer confidence figures remain unchanged in a sign that hopes of an economic rebound have not been abandoned just yet. In addition, the Finance Minister came out in a statement that said the economy is recovering “slightly more strongly” than the last reading in December which could put the prospect of rate hikes back into the mix. The IMF also upped its growth estimates to 2.9% from a previous estimate of 2.1%.
Euro (EUR): Expect the Euro to trade lower until the exact terms of the Greek bailout hit the market. If anyone cares, EU manufacturing numbers came in slightly better than expected, showing signs that all hope is not lost in the EU. But the obvious elephant in the room is the Greek bailout so a wait and see approach is appropriate until a resolution is announced.
Pound (GBP): The Pound is giving back some recent gains as public borrowing jumps to its highest levels ever. Retail sales figures came in slightly lower than expected, but not enough to warrant a major move. Mortgage approvals were higher, indicating that the housing may be beginning to stabilize. And lastly, business optimism figures came in better than expected so all in all this news is a wash. So when in doubt, call it a “technical pullback”. The sentiment is still positive for the Pound, outside of general risk aversion.
Dollar (USD): The Dollar is mostly higher, especially vs. the Euro and Pound but trading lower than Yen as risk aversion is prevalent to start the day. Initial jobless claims missed estimates slightly, and the market is waiting for existing home sales later this morning. PPI figures came in and rose higher than expected to .7% although only slightly higher. At this point growth appears to be outpacing inflation so it looks like the Fed won’t have to move on rates any time soon.
Yen (JPY): The Yen is higher this morning as risk aversion is causing some carry trades to be taken off the table, though not in a major way. The IMF came out and said it expects deflation to persist and that Japan may need to take additional accommodative measures. So expect Yen weakness in the long-term and use short-term risk aversion as a way to establish carry trades. Provided a major risk event doesn’t occur such as a Euro collapse.
Another day, another dollar as the saying goes. Until all of the cards are on the table regarding Greece, expect the Euro to trade lower. Especially if contagion to the other PIIGS countries looks probable. The lower the Euro goes, expect risk-aversion to get stronger.
This means we could see near-term Dollar and Yen strength, despite the “good” economic stories coming from the commodity currencies. Carry traders use risk events to buy higher yielding currencies on pullbacks.
If you think about it, the interest rate differentials act as almost like a stop-loss mechanism. For example, if you enter into a carry trade and buy AUD/JPY you stand to earn 4.15% interest (4.25%- .1% interest rates) on roll-over day (Wednesdays). This means you could sustain a loss of less than 4.15% on a long position of this pair and still make money! This is a simplistic example for illustrative purposes only, but you get the idea.
This is why the forex market has become so popular as there are many different ways to make money!
Isn’t it time you found about more about this market?
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 Heating Up!
By Mike Conlon | April 19, 2010
This morning is marked by major risk-aversion in the forex market in an extension of Friday’s sell-off. News over the weekend has sent investors running for the safety of the US dollar and Japanese yen as carry trades are un-wound. What’s causing this fear to heat up?
Well, in addition to the usual Greece rumblings and UK election concerns, the major news of the weekend is: Goldman Sachs. On Friday, the SEC charged Goldman Sachs (one of the world’s most prestigious investment banks) with fraud. What is amazing is that just on last Thursday, I mentioned in this blog article that Goldman Sachs was upgrading its outlook for the Canadian dollar and how I saw that as a bad thing for the Loonie as my experience has taught me to do the opposite of what Goldman Sachs says. Sometimes a trader’s intuition is more important than all of the charts and research combined. I don’t take solace in that call.Also, the volcano in Iceland preventing travel is causing financial duress.
Nevertheless, the commodity currencies are lower, as are stocks and commodities world-wide. Whether or not Goldman is guilty of wrong-doing will be answered in due course, but for now the market is selling and will ask questions later.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on risk-aversion as well as reports that Chinese Yuan re-valuation may cause Australia to slow the pace of its interest rate hikes. If Chinese demand cools, than the Australian economy will be affected by decreased exports. There is now talk in the market that the RBA may have raised rates too quickly, as home loan approvals have fallen for 5 straight months.
Loonie (CAD): As I mentioned last Thursday, while I still have a rosy outlook for the Canadian economy, doing the opposite of what Goldman says is one of my rules to live by. The Loonie is lower this morning as commodities are lower, with oil leading the way down 2.5% to $81. There is also news that the BOC may announce this week at its rate policy meetings that it will begin raising rates in June, rather than starting in July but in larger increments. Tomorrow is the interest-rate statement, and Thursday is the monetary policy report.
Kiwi (NZD): The Kiwi is actually higher this morning despite the risk-aversion in the market, as the Performance of Service Index rose to its highest levels in almost 2 years. A surge in hiring drove the this reading higher, which come a day in advance to the NZ Consumer Price Index which is due out tomorrow in the overnight session. Analysts are predicting a .6% rise after a .2% contraction last quarter.
Euro (EUR): A volcano eruption in Iceland from last week is still causing a major log-jam to commerce as flights have been canceled in Europe since last week. However, it is the other volcano waiting to erupt– namely Greece and the rest of the PIIGS countries that have sovereign debt issues that may be the bigger story. Germany’s bonds are now starting to take a hit as their role in the backing of Greece is starting to call their credit-worthiness in to question.
Pound (GBP): The pound is lower once again as concerns over political gridlock due to the May 6th elections are putting pressure on the Pound. This comes on the heels of a report that showed that house prices have advanced 2.6%, the fastest pace in 3 years. This precedes Wednesday’s BOE policy meeting minutes which are expected to show a dovish stance on rates.
Dollar (USD): The Dollar is higher on the flight to safety trade due to risk aversion. The Goldman news could send shockwaves through the market, especially if other firms are hit with similar charges. Thursday marks the big day of news for the US economy, as PPI, home sales, and initial jobless claims are due. Expect the dollar to trade on risk themes and inversely to stocks and commodities this week.
Yen (JPY): The Yen is higher this morning as the un-wind of carry trades due to risk aversion is creating demand for Yen. In addition, Asian stock markets were down overnight, and the Yen will often times trade inversely to the Asian stock markets, much like how the US stock markets and dollar trade. Adding to yen strength is the news that consumer confidence figures came in at their highest levels in almost 3 years as Japan is benefiting from its export-led economic rebound.
As you can see, all it takes is a little bit of risk-aversion to send the markets into a frenzy. While economic figures have been improving world-wide, none of this matters if fear of loss outweighs potential gains in the market.
Global recovery is still on very fragile terms, despite what media and government types may try to have you believe. This Goldman news could be the first of many dominoes that fall as the truth comes to light about what really happened with the housing market, credit derivatives, and just overall greed.
In the meantime, if the various volcanoes, both real and metaphorical, don’t subside soon, Europe could be in real trouble economically.
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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E-Z Economy!
By Mike Conlon | April 7, 2010
The market is showing some mild risk aversion this morning as Euro zone GDP figures came in unchanged, showing neither growth nor contraction. Signs that the EZ economy is slowing should come as no surprise as the mounting debt problems of its members show that austerity measures are intended to reign in government spending and not to provide additional stimulus. The fact that growth is not negative is actually a positive sign in my eyes, though the market disagrees this morning.
The Pound is also lower this morning as service growth came in lighter than expected, in addition to the news that polls show that a “hung Parliament” may become more likely at next month’s election.
Meanwhile, oil is trading below 86 and gold is around 1135, putting mild pressure on the commodity currencies.
The big news, however, is that there is increased speculation that a G-20 attempt to get China to revalue its Yuan may prove more successful than the bilateral approaches that had been tried before. It’s sort of like an intervention, where the drug addict has to hear it from everybody rather than just a few. I suspect we will begin seeing some Yuan strengthening in the near future.
In the forex market:
Aussie (AUD): The Aussie is marginally lower this morning on risk aversion themes after reaching an 18-month high vs. the Japanese yen. It is widely expected that the RBA is not finished with rate hikes this year as economic recovery is strong due to exports which may result in inflation. Tomorrow they will report employment figures.
Loonie (CAD): The Loonie is slightly lower this morning as oil prices are off a bit, but more and more investors are getting hip to the fact that the Loonie is poised for gains this year as it hovers around parity with USD. While yesterday I swapped the Loonie and Kiwi in the “risk hierarchy”, it doesn’t appear as though the market agrees with me. Yet.
Kiwi (NZD): The Kiwi is lower on risk themes as well, though slightly higher against the Loonie. I still think the Canadian economy is poised to do better this year, but the interest rate differentials may prove to be the difference. The Kiwi is setting up nicely as a buy vs. the Loonie based on technical factors.
Euro (EUR): The Euro is lower this morning and looks like it is going to re-test its lows of the year and beyond, especially if it continues receive “bad” economic news. During the financial crisis, the ECB did not lower rates as much as the US and the UK, so the Euro maintained some semblance of strength once global economic recovery started. Now that the other economies around the world appear to be further along, we could see some additional Euro weakness from a growth perspective, as well as any hidden debt “land mines” that could come about from some of the other PIIGS countries.
Pound (GBP): The Pound is lower this morning as services growth came in less than expected, renewing fears that there may be too much optimism about the UK economy. The BOE is expected to maintain interest rates and its bond-purchase in place as it may be too early to withdraw as economic recovery may be too nascent. With the additional concerns regarding the elections next month, fears are that the UK could see the dreaded “double-dip”.
Dollar (USD): The Dollar is higher against all but the Yen as risk themes are driving the market this morning. A few of the Fed governors including Bernanke are expected to speak today which should be nothing more than a CYA session.
Yen (JPY): The Yen is higher this morning as the BOJ kept interest rates unchanged as expected, and is benefiting from the marginal risk aversion we are seeing in the market. The BOJ did not cave in to ever-increasing pressure from the government to stimulate the economy, despite the fact that economic recovery is taking place alongside of deflation. The Japanese have experienced this type of economy for a long time so the BOJ may be content to allow recovery to happen without increased measures.
Problems still persist in the Euro zone and slowing recovery could send money and investment elsewhere. The debt issues present among the PIIGS countries highlighted by Greece are no secret. There is still fear in the marketplace, though that fear is starting to dissipate as more and more “good” economic news begins to outweigh the “bad”.
Because the forex market is inter-relational, there is always one currency benefitting at the expense of another. For some time now, one of the MAJOR economies of the world (China) has not participated in this market, which some believe was a major cause of the financial crisis.
Now that there is increased pressure to allow the Yuan to “re-value” or perhaps even “fluctuate”, there may be another player in the not so distant future that could provide one more outlet for money flow. Keep a careful eye on how this begins to play out. While nothing will change overnight, the prospect of a floating Yuan could bring world economies back closer to equilibrium.
Or the whole thing could blow up and a trade war ensues with China labeled a “currency manipulator” or whatever PC term they are using today. Either way, this is an important story to follow as it will have an effect on world economies and thus the forex market.
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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