No Interest Rate Hikes!
By Mike Conlon | March 4, 2010
As expected, neither the BOE nor the ECB raised interest rates today with the ECB citing fiscal problems in Greece and the BOE putting a hold on further quantitative easing to see if previous measures have been enough.
In other news, US initial jobless claims came in as expected, though all eyes are on tomorrow’s Non-Farm Payrolls report. I’m seeing some mild risk aversion this morning, and again am seeing Canadian dollar strength. Commodities are flat after seeing some gains from the previous days.
In currencies:
Aussie (AUD): The Aussie was down earlier but looks like a rebound may happen today, as news of a narrowing trade deficit and an expected US employment report may outweigh concerns out of the UK and Euro zone.
Kiwi (NZD): The Kiwi is lower this morning as it looks like carry traders are dumping the Kiwi in favor of the Loonie in addition to mild risk-aversion.
Loonie (CAD): The Loonie continues to advance as traders speculate that the economic situation in Canada is in good enough to begin raising rates. The Loonie is fast approaching the 1.02 level to USD and we could see parity by mid-year if interest rates begin to rise in Canada.
Euro (EUR): The sale of Greek bonds is going well this morning as higher yields are attracting investors and the issue is over-subscribed. In the meantime, there is equal outrage in both Greece and Germany although the Germans haven’t taken to streets like the Greeks have—yet. What is happening in Greece is a perfect example of what happens when a government grants its citizens entitlements and then has to take them away because they can’t afford it. I hope the US administration is taking note. Interest rates were held steady and the ECB has decided to not remove economic stimulus at this time.
Pound (GBP): Interest rates have been held steady at .5%, which comes as no surprise to the market. The BOE did make it clear that they will not increase bond-buying to help stimulate the economy. It is clear that the UK sees the need for deficit reduction so the BOE is content to play the “wait and see” game to see if earlier measure have taken hold. There is still increased fear that the UK could be headed for a slide back into recession, and the spring elections are also lingering as fears of a “hung parliament” could cause political non-action.
Dollar (USD): Initial jobless claims came this morning as expected and pending home sales are due out later this morning. We could see some volatility as traders position themselves for tomorrow’s NFP report. The Dollar is mixed this morning.
Yen (JPY): The yen is down across the board this morning as there is talk about a potential sales-tax increase coming from Finance Minister Kan. This would be the first increase in over 10 years and could be a sign that the fiscal situation in Japan is worse than expected. However, this may be a ploy to put pressure on the BOJ to increase bond-buying. Any way you slice it, the Japanese would like to have a weak currency to help exports, and the Yen has been on a tear as of late.
So European themes are dominating the market right now; and Japan is trying to keep the Yen from strengthening. Tomorrow’s NFP report is usually the biggest event for the currency market, as this will give clues as to where the US economy is or may be going, and what the economic response is going to be as a result. This could affect the risk outlook for the rest of the month for as the Dollar is the world’s reserve currency.
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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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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.
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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Chinese Growth Unstoppable?
By Mike Conlon | January 21, 2010
Wow. Chinese GDP has reportedly come in with a 10.7% increase for last QUARTER. This is the highest percent gain in China since 2007, when they were operating in overdrive to prepare for the Beijing Olympics! To put this in perspective, there are still countries out there reporting negative GDP growth!
If this number is for real (some would argue that’s always a question when dealing with China), then its pretty clear that their growth will be leading the globe out of recession. As a result, we are seeing a bit of risk-taking in the market today, with both the Aussie (AUD) and the Kiwi (NZD) benefiting. After all, China does import a lot from those countries so when the goings good in China, its probably going well in Australia and New Zealand as well.
The yen (JPY) is also down the most, as it is resuming its status as the world’s funding currency for carry trades and risk-taking.
Coming out of Europe, the Euro (EUR) is down slightly against the US dollar (USD), having been down lower during the Euro session to its lowest levels in 6 months. However, it is still holding support at 1.40, an important psychological level for the Euro. Rumors are floating that the Euro Zone may offer an emergency loan to Greece, but this is being vehemently denied as that would set a bad precedent for the other PIIGS countries.
The British pound (GBP) is down as well, as the UK budget deficit widened the most in almost 15 years.
So the overall tone today is mild risk-taking, which could also just be a rebound from yesterday’s increased appetite for risk-aversion.
To learn more about how economic events can affect currencies and how you can profit in the forex market, be sure to check out our forex trading courses!
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All Eyes on Kiwi!
By Mike Conlon | December 9, 2009
The biggest gainer so far this morning is the New Zealand dollar (NZD) aka Kiwi. It is up .76% vs. USD and .51% vs. CAD. Part of the reason for this is that at 3pm EST today, New Zealand will have their interest rate decision. It is expected that they will remain at 2.5%, but don’t rule out a hike.
Australia will be announcing their employment figures this evening, which are expected to be robust. The Aussie has maintained strength as the Australia economy has exited recession (if they actually were in one to begin with, which is debatable) and they have been the only major economy to have raised interest rates this year.
There is a tentative link between the New Zealand and Australian economies, though based more on geography than actual output measures. So while a rate hike is improbable, it is not completely off the table.
Let’s take a look at the 4 hour chart of NZD/USD: (click chart to enlarge)
Just looking at the chart, it looks like the pair could trade up to the .7175 level. In the event of a rate hike, I would expect the pair to move swiftly through that level. If there is no hike, then its possible that the pair will resume the trend down.
As of right now, both the Kiwi and the Aussie are bucking the normal risk trade, trading up vs. the USD dollar even though US stocks are down slightly this morning.
With both gold and oil up, I expect we may see a stock market reversal some today if the US dollar remains week.
So keep an eye out for 3pm EST to see what happens with NZD!
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Currency Markets Return to “Normal”!
By Mike Conlon | November 30, 2009
In the wake of the Dubai debt crisis from last week, the currency markets are attempting to return to normal, whatever that is. While the risk to overall markets have been heightened, there doesn’t seem to be a dominant theme either way. It appears as though we are taking a “breather”– that is a pause before the market decides what it wants to do.
Aside from the usual risk taking/ risk aversion trades, there are 2 important pieces of news to be aware of:
1. Canadian dollar (CAD) strength- Canada reported 3rd quarter GDP growth, indicating that they are exiting their recession.
2. British pound (GBP) weakness- British consumer confidence weakened and the BOE has left the door open for further quantitative easing if their economy doesn’t pick up.
So I’m keeping my “eye on Dubai’ (yes I’m a poet and know it!) and looking to see if there is any fall-out or contagion from it. If the situation looks contained, then I would expect the risk taking trades to be back on the table as the long-term trends dictate.
However, I wouldn’t be surprised to see if any more “bad” news comes out this week. No one wants to be seen as piling on, but we could see some dollar strength if there are some hidden time-bombs out there. Better to get them out now then let them fester and explode later.
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Dubai Debt Panic!
By Mike Conlon | November 27, 2009
Well, not exactly a “Happy” Thanksgiving. As Americans like myself were stuffing our faces with turkey and stuffing yesterday, news broke of possible debt crisis in Dubai that may become a strain on the banking system. Stock and commodity futures have sold off heavily across the board, with investors fleeing to the safety of the US dollar and the Japanese yen.
I’ve written at length about the risk aversion trade and this is a perfect example of it. I wrote as recently as Wednesday that the only way the dollar would strengthen is if therewas a major crisis of confidence in the world economic recovery. This event could be it.
There has been a lot of talk about the possible collapse of the commercial real estate market and this possible default in Dubai could signal the start of that market crumbling. If the dominoes do start to fall, then this could easily take back much of the gains investors have seen in stocks, commodities, and currencies as the world slides back intothe dreaded “double-dip” recession. If this problem can be contained, then I would look to resume US dollar shorts.
Over the last 2 days, there have been major moves in the currency markets which have provided tremendous opportunities to those who were able to catch the. As Gordon Gekko said in the movie, “Wall St.”– “money never sleeps”.
And that is exactly why it is so important to have some exposure to the currency markets.
So if you’ve been reading this blog and have been contemplating getting involved in the forex market, I implore you to start today. It is really easy to get a live account set up, get educated, or get a free, practice account.
Don’t wait another day!
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US Dollar Limbo: How Low Can it Go?
By Mike Conlon | November 25, 2009
As I gear up for the holiday invasion and the ensuing gluttony that’s about to transpire, I can’t help but look forward to my next vacation. I’m thinking somewhere tropical, perhaps the Caribbean, enjoying drinks with little umbrellas in them. I lull myself into daydream, counting waves and sunsets as island music fills the air. Yet all is not perfect. And then it hits me like a ton of bricks—the calypso music I’m hearing is being played by none other than our esteemed Fed Chairman Bernanke! He’s wearing a Panama Hat and a blousy Hawaiian shirt, playing a version of the Limbo: how low can you go! Only the participants aren’t drunken tourists, but dancing US dollar bills, each trying to squeeze under a rapidly sinking bar to Bernanke’s amusement! The pleasant daydream has now become a nightmare, as I realize that I can’t afford another Painkiller with the mountain of cash I place on the bar. I awake in a cold sweat. Thankfully it is just a dream. Or is it?
We are all aware of the trying economic times we are experiencing and the fact that we haven’t gone off the cliff (yet) is something that I am thankful for. Now that we seemingly have avoided Depression (again yet), we find ourselves mired in a serious recession and there is great debate about how to get out of it.
One of the prevailing themes and the one espoused by those charged with figuring this out is that the path to prosperity is through dollar destruction. Since the dollar has been tanking thanks to Bernanke’s zero interest rate policy (ZIRP), both the stock market and the commodities markets (particularly gold) have seen tremendous gains (relative to where they were before last fall) as well as other currencies.
This has led to the “tale of two trades”, which I have outlined in previous articles. The irony of this is that in order for the dollar to advance, we need to see inflation so the Fed will raise rates. The fact that we are not seeing inflation but rather serious deflation means that the dollar will continue to fall until it reaches its “breaking point” whether we are out of recession or not.
However, there is another way that the dollar can rise without raising interest rates. It’s called the risk aversion trade and will come back into fashion as investors become more skeptical /less confident in the world and particularly the United States recovery. I wrote recently about how the Fed massages the numbers and jaw-bones the dollar so at this point it shouldn’t come as a shock to anyone.
So if you want a stronger dollar, you have to be prepared to accept worsening conditions. Things like GDP revisions and less-bad-but-not-quite-good-employment figures all keep the dollar from crashing.
So where is the breaking point for the dollar? How low can it go?
Well rather than try to throw out some technical mumbo-jumbo, or attempt to rationalize the irrational, I’m going to leave you with this thought: the Dollar will continue to decline until things look so bad that the US dollar carry trade starts to unwind as the “flight to safety” takes effect; or if conditions actually do improve enough for the Fed to raise rates.
The first scenario is likely to happen more rapidly than the second. The dollar funded carry trade is getting crowded so all its going to take is one timely placed comment or economic number to send everyone running for the door. This will provide a temporary lift and is intended to buy the Fed time for the second scenario to happen.
The second scenario is a bit more involved and likely to cause the economy to “get worse before it gets better”. Sacrifices will need to be made and I hope that we have the political fortitude to do so.
But until that happens, I’ll keep hearing those steel drums in my dreams and seeing those dancing dollars making new lows.
So for this Thanksgiving I’ll be thankful that as of right now, they will still take dollars for my favorite Caribbean drink! Anything else at this point is just gravy.
Happy Thanksgiving to All and be sure to check out our currency trading courses!
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Stock Futures Down, Risk Off the Table!
By Mike Conlon | November 19, 2009
As of this writing (9:15am EST), the US stock market futures are down considerably pre-market, prompting the flight to safety trade. Therefore, Japanese yen (JPY) and US dollar (USD) are up the most from the overnight session, with Yen vs. the Aussie (AUD) +1.6% and Yen vs. the Kiwi (NZD) +2.45%.
Also to note is then yen strength is pushing closer to yearly highs vs. USD currently at 88.73. This is a combination of dollar weakness (thanks Ben!) and stalled economic growth.
Also to note is that the Canadian dollar (CAD) is off this morning, following crude oil’s decline.
And lastly, the bullish triangle pattern in GBP/JPY mentioned yesterday had now confirmed that the pattern has failed. No longs to be initiated.
This day feels like it could be a long one for stock market bulls, riding on the heels of Obama’s comments yesterday that the US risks slipping back into double dip recession. If you remember back to March about his comments about “a good time to buy stocks”, then you just may want to heed his advice.
To learn more about how correlations in the markets work, be sure to check out our currency trading courses!
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USD to Strengthen on Double Dip Concerns?
By Mike Conlon | November 12, 2009
So I’ve kind of been looking around a bit for some sort of technical confirmation that something big may happen in USD to support a “hunch” that I have that the dollar may strengthen. Not seeing anything yet. And this is good. Because its usually opposite of how I tend to trade.
Readers of this blog know that I tend use a combination of fundamental and technical analysis, but normally I’ll find a technical set-up that I like and then do some research to see if there are any possible fundamental reasons that support my conclusions. Well now I’m searching high and low (pun intended) to find a technical set-up to support a hunch.
Not seeing the set-ups that I like. The nice thing about technical analysis is that you can ALWAYS find some sort of pattern or indicator that will confirm one direction or another, but its more important to have the patterns that you KNOW work time and time again.
We all know about the Fed’s commitment to keep rates low and therefore depressing the dollar, but the dollar could benefit from the risk-aversion trade if worries about falling into the dreaded double-dip recession ramp up. One of the main reasons why this fear may pick up is because of the removal of the stimulus programs and the pull back in quantitative easing.
In other words, the economy is going to have to stand on its own two feet. Much like a baby who’s taking his first steps, you’re always concerned about the inevitable fall. And with all of the fear out there, a fall is inevitable. How bad it is going to be is anyone’s guess.
I’ll be watching closely for technical set-ups in the dollar that may foreshadow this move, but will not be acting on the hunch. So, check back to see if I find any, and if you see your own, well you know what to do.
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