Market Surfing!
By Mike Conlon | July 27, 2010
Now may be the time to “ride the wave” in the markets as the major news of the summer, the Euro bank stress tests, were received positively by the market. Yesterday I commented on the credibility of those tests, and reminded readers to follow the market rather than impose their own view.
So far this morning the market is in risk-taking mode, as CPI data will begin to be released tomorrow in the Euro zone and Australia. Higher readings may show that policy adjustments may need to take place, especially in Australia.
Adding to Euro strength is the news from the Basel committee on Banking Supervision who announced they would be seeking new measures to shore up the global banking system.
In the UK, a CBI report showed that household spending increased at its fastest pace in nearly 3 years, lending support to the view that economic recovery is taking place.
This morning, US consumer confidence figures and home prices are due out, and yesterday’s housing sales figures were bad historically, yet the market reacted favorably because they were higher than expected. The market also seemed to overlook the revised figures from last month, which showed a much lower figure.
In the forex market:
Aussie (AUD): The Aussie is higher as risk appetite has increased due to a positive economic outlook in the markets. CPI data is due out tomorrow and should those figures come in higher than expected, the market may expect a further rate hike at the next RBA rate policy meeting.
Kiwi (NZD): The Kiwi is also higher on risk themes going into the RBNZ rate policy meeting tomorrow night. The expectation is for a rate hike of 25bp to 3%, but pay attention to the policy statement as the Kiwi is closing in on 2010 highs.
Loonie (CAD): The Loonie is also higher as oil has surged to 79.50 in addition to general risk appetite. There is no real news on the docket until Friday, when Canada reports GDP figures.
Euro (EUR): The Euro is also mostly higher, trading largely as expected according to our risk ladder. Consumer confidence figures and import prices were higher in Germany, showing continued strength in the Euro zone’s largest economy. This shows a renewed outlook for growth but don’t expect tomorrow’s CPI data to affect monetary policy just yet, as the ECB cannot start raising rates until after the sovereign debt issues of the countries in trouble are rectified.
Pound (GBP): The Pound is higher across the board as CBI reported sales data showed that household spending increased at the fastest pace in nearly 3 years. This CBI gauge showed a reading of 33 vs. an expectation of 3. So it beat handily and the market has responded accordingly as economic growth prospects have advanced.
Dollar (USD): The Dollar is lower as a “normal” risk-appetite scenario is taking place this morning. The home price index came in showing a slight increase which is a good sign in that prices aren’t still falling. However, with the end of the homebuyer tax credit, this may not be the case going forward and as always, the economic prospects here in the US will come down to jobs growth.
Yen (JPY): The Yen is lower across the board as risk appetite has increased the demand for carry trades. Recent Yen strength vs. the Dollar has heightened the awareness of possible intervention, but the BOJ appears (for now) to let the market dictate prices. Japanese employment and CPI data are due out on Thursday night.
So if the market tells you it wants to go up, you should listen. Many times traders (myself included) try to interpret market news and data and then make predictions of what they think should happen. A better way to approach the markets is to follow trends that you see on the charts, and then act accordingly. Try to find low-risk entry points based on technical support and resistance, and then hop on and enjoy the ride.
The news we have been receiving as of late has largely been positive and has emboldened risk appetite. While there are bound to be hiccups along the way; use them to your advantage by buying pullbacks or selling rallies.
The global economy is still fragile, but every passing day that does not bring bad news should be viewed as a positive for risk appetite. Money has to flow somewhere, and if you can catch it just right, you may be in for a great ride!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, cad, canada, carr, carry trade, charts, course, currenc, currency, currency market, currency trading, data, dollar, dow, ECB, economic, economy, EUR, Euro, forex, forex market, free, fx, fxedu, gbp, home, Il, index, intervention, Japan, jpy, Kiwi, live, loonie, lower, meeting, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, rate, release, sales, ssi, technical, time, trade, trader, trades, trend, USD, Yen
Topics: What To Look At In The Market | No Comments »
Moderate Growth Ahead!
By Mike Conlon | June 24, 2010
Yesterday’s FOMC meeting came and went as expected, and Bernanke acknowledged that the pace of growth is going to be moderate going forward, backing off from last meeting’s stance that recovery was accelerating. Bernanke cited European debt conditions as being not supportive of growth, and of course he left interest rates unchanged as expected and kept the “extended period” language.
In addition to the FOMC news, US new home sales tanked and were off 33%, confirming the previous day’s data that the housing market is getting worse and not better.
Concerns over Greek debt are heating up as the cost to insure said debt is at an all-time high. Outside of general feelings about the global economy, I’m not certain what has changed in Greece to cause this rise.
What this adds up to is risk-aversion in the market, and Japanese yen and the Swiss Franc are benefiting.
Overnight, New Zealand released GDP that showed growth for a fourth straight quarter and matched analyst expectations. The Kiwi is lower, as the market may have been expecting a bigger number and had pushed the Kiwi too high, too fast.
So there’s no real earth-shattering news in the market today, but rather an overall feeling that economic conditions may be worsening and not getting better.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion, but overnight a political coup took place where the Prime Minister Rudd stepped down after losing support of his colleagues. Julia Gillard became Australia’s first female Prime Minister as Rudd lost public opinion largely in part to the proposed mining tax he wanted to impose. Mining is a cash-cow for Australia, and this move was seen as anti-business.
Kiwi (NZD): The Kiwi is lower this morning despite the prospect of another rate hike in July as a result of seeing its fourth straight quarter of growth. The market was hoping the GDP figure would beat analyst expectations, but it “merely” came in as expected at .6%. The Kiwi was the biggest gainer yesterday, so this is a case of market anticipation falling flat. Nevertheless, this is still positive for the Kiwi.
Loonie (CAD): The Loonie is lower this morning as well, taking its cues from oil prices which have “retreated” to $76 and overall risk aversion in the market due to the notion that the pace of global economic recovery may be slowing.
Euro (EUR): Concerns over European debt are heating up as European stocks fall for the third day in a row. Perhaps the market is expecting the US to lead us to recovery, and yesterday’s FOMC statement made it pretty clear that may not be the case. I can’t see anything specific that would lead me to believe that anything today is different than last week. Then again, I don’t have insight into the inner-workings of European banks. The Swiss franc has been seeing massive inflows of capital as investors move out of the Euro, and it’s gotten to the point where it may be financially untenable for the SNB to try to intervene again.
Pound (GBP): The pound is higher against all but Yen, as the market “needs” somewhere to park its capital. This is a vote of confidence for the UK budget plans and BOE policy statement which show that the UK may be in the best position to tackle their debt and see growth at the same time. The Pound is back to 1.5 vs. USD.
Dollar (USD): Oh the dollar. It’s catching a bid from risk-aversion, but it’s clearly no beauty-prize winner either. Yesterday’s FOMC meeting and new home sales figures all but take a rate hike off the table for 2010. This morning, jobless claims are lower than the previous week, but still in ridiculously bad territory. Durable goods orders rose ex-transportation, but overall they shrank, though less than expected. Bottom line: the US economy is still weak. Until policies are instituted that will incent companies to create jobs, our slide into Japan-style stagflation is imminent.
Yen (JPY): The Yen is higher across the board on risk-aversion. Japanese stocks are lower as concerns over Europe may hurt Japanese exports, which have been driving economic recovery.
Unfortunately for the world, the US still rules the roost. We started the economic crisis, and now we’re pro-longing it. Yet bad behavior has been replaced by bad policy; and we are slowly sliding into the economic abyss as politicians compete for the next vote.
Meanwhile, banks have been bailed out, executives have paid themselves enormous bonuses, and they sit on the money and don’t lend for fear that regulatory and other economic factors will make it a losing proposition. Or they can’t lend, because they have too many toxic assets sitting on their books and are anticipating the next wave of deflation that will put more home-borrowers under water.
The “solution” to the housing crisis was the tax credit, and it’s just been reported that 14,000 unscrupulous folks bilked the government out of some $25 million, including 240 death row inmates. Government efficiency at its finest! What’s a few million anyway? We’re TRILLIONS in the hole already, and we’ll just keep spending.
Oh yeah, but at least we’re not the EU! Have treasury put that on the dollar bill!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, Bernanke, BOE, cad, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, Europe, fear, financial, forex, forex market, franc, free, fx, fxedu, gbp, home, housing market, Il, interest, interest rate, interest rates, intervene, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, money, new zealand, news, nzd, oil, pound, practice, practice account, release, RSI, sales, ssi, stock, stocks, Swiss, time, Treasury, USD, Yen
Topics: What To Look At In The Market | No Comments »
Budget Cuts!
By Mike Conlon | June 22, 2010
The British pound is lower this morning as the UK budget showed a commitment to a balanced budget and a reduction in spending of close to 30 billion pounds annually. This should come as no surprise to the market, yet the Pound is lower as the UK attempts to cut its deficit.
This coincides with some concerns in the market over European bank funding problems which are causing some risk aversion in the market this morning. In addition, yesterday’s enthusiastic response to the Chinese announcement to allow the Yuan to float was short-lived as the US stock market finished the session lower, and futures are pointing to a lower open this morning as well.
Consumer prices were higher in Canada, and there was a note out this morning saying that central banks around the globe are starting to diversify away from the Euro and into the Aussie and Loonie. This could potentially affect their status as “risk assets” as the market is starting to realize that these are strong economies.
So we could see some mixed trading going forward, as the risk-on, risk-off mentality works its way out of the market and these currencies begin to trade on their own fundamentals. Japanese yen will still see gains during risky times as it is still the primary funder of carry-trades, but it will be interesting to see if traders actually unwind the carry trades or add to them going forward.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning on risk-aversion, though it appears to be bouncing off its lows from the Euro session. Demand for the Aussie is higher because of the news from its largest trading partner, China. In addition, the news about central banks diversifying away from the Euro to the Aussie have slightly out-weighed risk themes.
Kiwi (NZD): The Kiwi is affected more by risk aversion this morning than the Aussie, as the NZ economy is not deemed large or strong enough to receive diversified funds from central banks that are moving out of Euros.
Loonie (CAD): The Loonie is higher across the board as CPI figures came in .1% higher than expected to 1.4%. This shows that Canadian economy is still chugging along and that the potential for rate hikes is still on the table. This makes the Loonie a destination for funds from central banks diversifying away from the Euro, with the added benefit of potential rate hikes.
Euro (EUR): The Euro is lower this morning despite the fact that German business confidence was higher. An ECB council member said that some banks are facing funding problems. This comes in advance of the European bank stress tests which are due out sometime next month and could be the next landmine that sends the Euro lower. Banks in Spain may borrow 10 billion euro from its bank-rescue fund.
Pound (GBP): The Pound is also lower as the UK announced its emergency budget which showed a commitment to deficit reduction by reducing spending and setting the table for tax hikes down the road. This has heightened the fear of double-dip recession in the UK, but these announced measures have likely saved the UK top-credit rating from downgrades, which would make it more expensive for them to borrow.
Dollar (USD): The Dollar is mostly lower this morning despite some of the risk in the market. The Chinese decision to allow the Yuan to float more freely and be tied to a basket of currencies and not the US dollar alone is likely causing some selling. Existing home sales are due out later this morning and could provide a snapshot of the housing market ahead of the FOMC meeting.
Yen (JPY): The Yen is higher on risk aversion due largely in part to the Euro debt crisis. In addition, Prime Minister Kan pledged to balance the Japanese budget in 10 years and to reduce bond sales to gain investor confidence. This is quite the task as Japan has the world’s largest budget deficit, so reduced spending and tax changes may be seen as welcome by the markets.
Just when things start to quiet down, the Euro debt crisis comes screaming back into the room and reminds investors that the EU problems have not been solved. Bank funding problems and the upcoming stress tests may show an ugly picture of the financial health of the Euro zone.
Meanwhile, while everyone yesterday lauded the Chinese announcement to allow the Yuan to float more freely, the realization that they now want to use a basket of currencies to peg to (including the potentially sinking ship Euro) is just another way to manipulate their currency to attempt to keep it low.
Canada and Australia could be major beneficiaries of both the Chinese and Euro zone news. Commodity prices have pulled back this morning, but both of these countries have strong economies and that is reflected in their currency gains this morning.
Stay tuned, this may not be a lazy summer after 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!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, British, cad, canada, carr, carry trade, central bank, China, commodity, course, crisis, currenc, currencies, currency, currency market, currency trading, decision, dollar, dow, ECB, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fundamental, fx, fxedu, gbp, home, housing market, Il, interest, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, mie, Mike Conlon, news, nzd, pound, practice, practice account, rate, recession, RSI, sales, setting, short, ssi, stock, time, trade, trader, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »
Jobs Disappoint!
By Mike Conlon | June 4, 2010
US Non-Farm Payrolls came in at a less than expected 431K vs. an expectation of 520K. While this does reflect job growth from last month’s gain of 220K, the number is disappointing as census workers were included in this reading. This shows that job growth in the private sector is not happening as quickly as the market would like to see and offers proof that we may be in a “jobless recovery”.
In addition, news out of the Euro zone is that Hungary may need a bailout as default may be imminent. This could set off a chain reaction which causes the bailout facility to be accessed by other countries with similar problems.
What this adds up to is major risk aversion, as traders will not want to go into the weekend long risk assets in the event of further complications in the Euro zone. US stock market futures are down significantly, as is oil, trading back to 72.5.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on risk aversion coming from the Euro zone. However, sales of gold to Europe have increased dramatically as the Euro zone debt crisis induced a flight to safe-haven assets.
Loonie (CAD): The Loonie is also lower on risk-aversion, despite a better than expected employment report. Data showed an addition of 25K jobs vs. an expectation of a 15K gain. The unemployment rate remained unchanged at 8.1%.
Kiwi (NZD): The Kiwi is lower as well for the same reasons as the Aussie.
Euro (EUR): Well it was just a matter of time before the debt crisis reared its ugly head again. To think that the problems plaguing the Euro zone were solved with the announcement of the bailout facility would have been naïve. Hungary’s announcement that it is in a “grave situation” as a result of the previous governments lies and manipulated figures which gave a false picture of its economy. Euro zone GDP figures came in as expected, but this reading from the previous quarter may not paint a proper picture of the state of overall Euro zone economic health.
Pound (GBP): The Pound is mixed; trading higher against risk currencies but lower vs. Dollar and Yen. The Halifax report showed that home prices fell for a second straight month; however this report appears to be conflicting with other reports on home prices. The takeaway here is that housing prices are likely to remain flat.
Dollar (USD): Well what can I say about this employment number that’s positive? Truthfully, not much. The majority of job gains reported in this month’s NFP were temporary jobs created by the government in the form of census workers. I suppose I am doing my part to “help” the economy by hiding from these people, thereby attempting to offset spending as population is under-reported giving the government one less reason to spend my hard-earned tax dollars. In addition, the longer it takes to track me down, the longer one of these workers may be employed! It’s a win-win for everybody. But seriously, I try not to rail on politics but this is a disaster on so many levels. Massive deficits, tax hikes coming down the pike, and the private sector unwilling to create jobs out of FEAR that their taxes will be going up to pay for massive entitlement plans are going to be the economic death of this great nation. But the Dollar is higher on risk-aversion, so that means that the masses can be placated by still being able to afford cheap foreign stuff, while government fat cats finance new beach houses (yes you Al Gore) paid for by my yet to be born grand-children. A sad day for Amerika.
Yen (JPY): The Yen is higher on risk aversion and the unwinding of carry trades.
When bad economic policies are put in place by cowardly government figures, bad things will happen. The government has been the largest creator of jobs for some time, and most of these are unproductive, and do not contribute to economic growth. I have nothing against government workers, and I believe everyone who wants a job should have one.
But the insidious transfer of wealth from the private sector to public sector weakens our economic strength. I’m tired of hearing about the “failed economic policies” of the past and the need for “change”.
These policies are NOT failed; they were under-regulated. The same people trumpeting this mantra are also some of the same people responsible for those policies. Excessively low interest rates and the housing bubble are the root cause of our economic problems, not free market principles.
The sooner people start to wake up and understand this, the sooner we’ll be able to get out of this mess. Of course you have to pull them away from their cheap plasma TV to care for more than half a minute.
Nevertheless, the forex market trades on and there are tremendous gains to be made by those brave enough to understand what is going on and how to profit from it.
Are you one of those people? If not, become one!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, cad, carr, carry trade, course, crisis, currenc, currencies, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, Europe, fear, forex, forex market, free, fx, fxedu, gbp, gold, home, Il, interest, interest rate, interest rates, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, news, nfp, nzd, oil, payrolls, pound, practice, practice account, RSI, sales, ssi, stock, time, trade, trader, trades, unemployment, USD, wealth, Yen
Topics: What To Look At In The Market | No Comments »
Inside Day!
By Mike Conlon | June 2, 2010
Today I’m calling the early market action an “inside day”. While potentially not technically true, today represents a pause in market action from the overall down trend. So today looks like a mild risk-taking event but in reality it’s more of a pause than anything.
From the “when the going gets tough the tough get around to resigning… dept”.: Japanese Prime Minister Hatoyama called it quits after only nine months of ineffectiveness. I have to say, there is something about Japanese humility that strikes a chord with me; perhaps US leaders might take a note.
Other than that, the world didn’t destruct overnight, giving traders a reason to try to put risk back on the table.
Today is not a big news day, as Australian GDP came in a tad better than expected, and Euro zone PPI came in a bit higher as well.
Taking cues from the “no news is good news” mantra, risk trades appear to be happening.
In the forex market:
Aussie (AUD): Australian GDP expanded for the fifth straight quarter coming in at an expected .5%. The economic story down under is a good one, only derailed by Euro weakness and a potential Chinese slowdown. If things start to settle down and global risk abates, a rate hike may be forthcoming at the July meeting.
Loonie (CAD): Yesterday’s news of the rate hike was largely expected and somewhat disappointing as risk aversion ended up winning the tug of war. The BOC put the proverbial kibosh on further rate hikes citing global instability (Euro) as the main driver of policy.
Kiwi (NZD): The Kiwi is receiving a bid today for 2 main reasons: Yen weakness after the Prime Minister’s resignation and the fact that Canada raised rates yesterday. While traders may be speculating that a rate hike in NZ is forthcoming at the June 10th policy meeting; I think it is highly unlikely based on the fundamentals and risk themes globally.
Euro (EUR): Thankfully, there is not a ton of news coming from the Euro zone. PPI figures came in a little hotter than expected, but inflation may be the pill to be swallowed as EU banks attempt to fix themselves and avert a debt crisis. The trend is still down for the Euro.
Pound (GBP): The Pound is showing some strength as it is becoming more apparent that the UK, despite its flaws, is still a better place to invest than the Euro zone. Mortgage approvals were higher, showing signs that recovery may be happening.
Dollar (USD): Traders are selling the Dollar today as the lack of world risk is encouraging yield-seeking behavior. Home sales figures are due out today but regardless of the outcome, short-term recovery appears to have gained some traction.
Yen (JPY): The big news out of Japan is that the Prime Minister Hatoyama resigned. Only slightly less important is that speculation over his successor has placed Finance Minister Kan at the head of the pack. Kan is known for his weak yen stance, which may be helping Yen selling today.
I love days like today where there is nothing in the news that could interrupt what I call the “natural” course of action. Basically, currency behavior is predictable.
As of late, the forex market has been moving at warp speed as every tiny detail is analyzed and as result becomes meaningful. Overall market trends appear to be stable, and the market is pausing to re-evaluate its stance.
Every day that the market can get by without negative news is good for global stability.
And while I enjoy the frantic pace of the market most days, a rest is appreciated as well.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, cad, canada, course, crisis, currenc, currency, currency market, currency trading, dollar, dow, economic, EUR, Euro, forex, forex market, free, fundamental, fx, fxedu, gbp, home, Il, invest, Japan, jpy, Kiwi, live, loonie, market, meeting, Mike Conlon, news, nzd, pound, practice, practice account, rate, RSI, sales, short, ssi, technical, time, trade, trader, trades, trend, USD, Yen
Topics: What To Look At In The Market | No Comments »
A Perfect Storm!
By Mike Conlon | May 25, 2010
World financial markets are facing a “perfect storm” as a combination of geo-political and financial uncertainty is driving risk-aversion. The first issue is coming from the Euro zone as Spain seeks to shore up its banking system. A series of banking mergers aimed at pairing weak banks with stronger ones has caused investors to fear that indeed contagion from the debt crisis has taken place.
Secondly, news out of Asia that N. Korea may have been responsible for the sinking of a S. Korean vessel has heightened political tensions in the region. Whether or not there will be consequences remains to be seen but N. Korea has been known to make idle threats which are intended to destabilize the status quo.
Lastly, news out China that Secretaries Geithner and Clinton are making headway with the Chinese regarding Yuan revaluation may be picking up has brought further uncertainty to the marketplace as there is no telling what the lasting effect may be IF such actions were taken.
This all adds up to MAJOR risk-aversion in the markets in a continuation of yesterday’s selloffs and flight to safety. Libor rates (the rates at which banks lend to one another) have increased to levels last seen during the initial banking crisis here in the US from 2008. Both Asian and European stock markets have sold off to the tune of 2.5-3%, and both gold and oil are trading lower.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion. While the economy in Australia has been strong, the unwinding of carry trades has punished the Aussie dragging it down to 10-month lows. Should China effectively attempt to slowdown its over-heating economy, the economic situation in Australia could change dramatically for the worse.
Loonie (CAD): The Loonie is also lower this morning, taking cues from oil prices which are below $68. Economists are still predicting a rate hike at next week’s rate policy meeting, though global economic uncertainty may derail that plan. However, since the Loonie has been beaten up by risk-aversion, this may actually be a good time to sneak in a rate hike that won’t strengthen the currency too much.
Kiwi (NZD): Same deal for the Kiwi; risk aversion dragging it lower. The RBNZ reported its 2-year inflation outlook that was largely in line with expectations.
Euro (EUR): First Greece, now Spain. The moves taking place in Spain’s banking system have put investors on high alert, though it must be noted that Spain has not sought out any assistance as of yet. File this under the, “where there’s smoke there’s fire” sentiment. In the meantime, Industrial orders in the Euro zone were higher showing signs that they are benefitting from a weaker Euro. Stay tuned.
Pound (GBP): UK GDP figures came in largely in line with expectations, indicating that the UK economy grew .3% in the last quarter on the back of the highest manufacturing gains seen in 4 years. The Pound is still vulnerable to any fallout from the Euro debt crisis, but BOE policy-maker Posen said that the UK was at a low risk of experiencing the type of economic stagnation that plagued Japan in there “lost decade”.
Dollar (USD): The Dollar is higher as the rush to the flight to quality is in full effect. Yesterday, existing home sales came in better than expected, but it was not enough to reverse losses. Later this morning, we are going to get consumer confidence and the home price index which will show whether or not a consumer-led recovery may be taking place.
Yen (JPY): The Yen is the best performer this morning as the un-wind of carry trades has increased demand. In addition, a sell-off in Japanese equities has also increased yen demand as the yen experiences a similar correlation to its stock markets as in the US. As tensions heat up in the region due to N. Korea, people forget that almost a year ago, N. Korea fired off nuclear test missiles in the direction of Japan. They are a major destabilizing force in the region and the former policies of trying to appease and placate them may have run its course. The yen is fast approaching its 2010 high vs. USD, just above 88.
I call what is taking place in the markets right now the “perfect storm” because there is much uncertainty due to events that can’t be quantified. It is one thing when there is bad economic data for a region or two; however when there are political threats that could potentially cause a war, all bets are off.
And while N. Korea has been known to posture and bluff its position in order to gain, this time it could be different. No one wants to see military action in the region, but N. Korea is such a wild card that no one knows what to expect.
In addition, world recovery has pretty much been driven by Chinese demand and should they slow down, it could affect the nations which have been experiencing economic recovery.
Oh yeah, don’t forget about potential sovereign debt contagion in Spain, which could potentially be a MUCH larger problem than what was seen with Greece.
Meanwhile, everyone rushes to the safety of the US dollar and Japanese yen and both countries government bonds as it is better to earn almost no interest than to lose out entirely.
Are we having fun yet?
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, alert, AUD, Aussie, Australia, bank, BOE, cad, carr, carry trade, China, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fx, fxedu, gbp, Geithner, gold, home, Il, index, interest, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, missile, news, nzd, oil, pair, pound, practice, practice account, rate, RSI, sales, sentiment, ssi, stock, time, trade, trades, USD, Yen
Topics: What To Look At In The Market | 2 Comments »
Is Spain Next?
By Mike Conlon | May 24, 2010
Over the weekend, the Euro debt crisis took an unexpected turn for the worse as the Spanish central bank took over a savings bank after a planned merger had failed. While in and of itself this is not a big deal, viewing it through the context of overall EU financial health has made the bounce in the Euro short-lived. The Euro is lower again to start the week, as last week’s short-covering rally has been reversed and the longer-term trend for the common currency is still down.
There’s not a ton of market-moving news on tap this week, with GDP figures due out from the UK tomorrow and the US on Thursday. Other than that, there are some smaller events that will provide color to the overall economic picture which will either help re-affirm or correct market sentiment.
Perhaps the biggest news is that US Treasury Secretary Geithner is in China and is advocating that China adopt a more free-floating currency. Because of the Yuan peg to the US dollar, China has been allowed to experience very rapid growth through artificial means that have allowed their goods to remain cheaper around the globe. However, with the crisis in Europe looming, US dollar strength could cause Chinese Yuan strength via the Dollar if the Euro continues its slide. With European austerity measure taking place (Germany included); this could slow world demand which would slow China’s growth as well.
So while there have been some “clues” that perhaps China is ready to make changes to Yuan policy, I’m not certain it will take place if their economy slows due to slower exports as a result of a strong dollar buoyed by risk-aversion and global austerity.
This all adds up to risk-aversion in the market today in a continuation of the major trends, but it’s possible that we could see a reversal as US markets open for the week.
In the forex market:
Aussie (AUD): The Aussie is lower on risk-aversion as fears out of the EU and a potential slowdown in China are reducing demand for higher-yielding assets. The Aussie is the worst performer this month, down some 10% vs. the US dollar as risk aversion has dominated the marketplace.
Loonie (CAD): The Loonie, on the other hand, is showing strength this morning as oil is back in the $70 range, showing signs that we may get a reversal this morning. The Loonie is not really a carry trade destination as it doesn’t provide the yield differential of the Aussie or Kiwi; however it is affected by commodity prices (particularly oil). The Canadian rate decision is due out in early June so there still is some speculation that they could be the next to hike.
Kiwi (NZD): The Kiwi is lower for the same reasons as the Aussie, getting hit a bit harder as it does not have as great a rate differential as the Aussie. Same risk, less reward. However, should the markets begin to stabilize, then we could see the Kiwi move faster to the upside.
Euro (EUR): The Euro is lower as the bank of Spain took over a regional lender causing investors to question whether or not the debt crisis is spreading. There has been a major property bubble in Spain so many banks are holding bad debt which could come to the surface if Spain needs to access the bailout money to stabilize its banks. In addition, Germany has adopted its own austerity measures, essentially trying to lead by example. Considering that the market is looking for any excuse to sell the Euro, expect the longer-term downtrend to continue. The Euro is lower across the board.
Pound (GBP): The Pound is lower this morning going into tomorrow’s GDP reading as the UK is walking a fine line between trying to grow its economy without incurring inflation, and cutting its public debt. The new government announced 6 billion Pounds in spending cuts in hope of sending a “shock-wave” through government departments. While not an enviable position to be in (although EU members may disagree), the government feels these actions are necessary to avoid its own sovereign debt crisis.
Dollar (USD): The Dollar has been higher on risk themes, and US existing home sales are due out later this morning. Consumer confidence figures are due on Tuesday, followed by US GDP on Thursday. These figures will show whether or not the US economy has been jump-started enough to sustain recovery in light of the EU debt crisis and could send fears of further problems down the road. Expect the Dollar receive support through flight to safety trades if risk-aversion remains high.
Yen (JPY): The government in Japan said that the economy is picking up steadily leaving its assessment unchanged for a second month in a policy statement today from its monthly economic report. However, growth in Japan has been driven by world demand and stimulus measures, so it is not a self-sustained recovery. Like the Dollar, expect the Yen to trade on risk themes until at least Thursday, when a slew of economic data points are due out.
Will overnight risk be counter-acted by the US markets today? Stock markets are opening lower, though commodities are trading higher. Risk in the overnight session can sometimes be overcome by decent news from the US. Existing home sales could be that number if they come in better than expected.
So while the overall mood of the market has been risk-aversion for some time, any pockets of economic strength could help stabilize the situation and perhaps show signs of recovery.
Until that time, expect continued selling of the Euro which will have an effect over all other markets as historical correlations begin to break down.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, bad debt, bank, cad, carr, carry trade, central bank, China, commodities, commodity, course, crisis, currenc, currency, currency market, currency trading, data, decision, dollar, dow, downtrend, economic, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fx, fxedu, gbp, Geithner, home, Il, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, money, news, nzd, oil, pound, practice, practice account, rate, rate decision, RSI, sales, sentiment, short, ssi, stock, time, trades, Treasury, USD, Yen
Topics: What To Look At In The Market | 1 Comment »
Sell in May, Go Away!
By Mike Conlon | May 5, 2010
“Sell in May, Go Away” is an old Wall St. adage that seems to be proving why it has become a popular investing strategy over the course of time. I can’t think of a time when it has been more prescient; in light of the market sell-offs taking place. Yesterday, world stock markets sold off big time, as did commodities prompting the flight to safety trade and the safe haven dash for the US dollar.
There is a lot of risk and fear in the markets right now, as the Euro zone debt crisis is not inspiring confidence. Notice that this crisis is no longer just about Greece, as contagion appears to be ready to complicate matters in the EU.
In addition, China’s intentional slowing of its economy may be a major drag on world demand, which is not good for growth world-wide. This is having a negative impact on commodity prices, which is generally a positive for businesses and consumers alike, but it is taking down the commodity currencies in the process and causing the unwinding of carry trades as investor rush for the door.
On a positive note, the UK elections will be over tomorrow and that may take one risk element out of the equation.
World stock markets are lower again this morning, as are US stock futures and commodities heading into the market open. At this point there is very little that can be done to change the market mood from risk-aversion, and this could be the sell-off that many doomsday economists have been predicting.
So today is an obvious risk aversion day.
In the forex market:
Aussie (AUD): The Aussie has gotten clobbered over the past few days and is rapid approaching .90 vs. USD. Despite good economic prospects at the moment, a reduction in Chinese demand would hurt the Australian economy the most. Despite the doom and gloom, building approvals came in much higher than expected, showing signs that the Australian economy may be more resilient than the market expects. A government pledge to tax mining companies at 40% isn’t seen as positive for business, however. This is one of Australia’s most profitable sectors.
Loonie (CAD): The loonie is lower as expected as well. The Loonie’s high correlation to oil prices has helped drag it lower, as oil has fallen from above 86 to start the week to 81.5 today. No news out of Canada until this Friday’s employment reports, which if not improved, could give the BOC reason to delay their expected rate hike.
Kiwi (NZD): The Kiwi is also lower, as China is New Zealand second largest market for exports. Tomorrow’s employment reports will show whether or not the economy is improving despite the risk-aversion in the markets.
Euro (EUR): I have never in my life seen a bigger mis-management of a crisis than what is taking place in the EU. Sovereign debt is obviously a major problem world-wide, and the inability of individual countries to debase their currency to help themselves is reflective of MAJOR structural problems with the Euro. When a unified government reacts to a crisis swiftly and with confidence, speculators back off as it is usually a fruitless endeavor to try to bet against a government. When a government fails to inspire confidence, the market smells blood in the water which then makes it much harder to deal with the original problem in the first place. This all comes before the German meeting to decide on the Greek bailout which could send the Euro over a cliff if this thing is not dealt with properly and with confidence. Much, much more to come. The Euro is at 1.28 and change and falling like a rock.
Pound (GBP): The Pound is actually showing some life and is positive against all but USD and Yen as risk themes are too much to overcome. The most recent polls suggest that the Conservative Party will be the victor in tomorrow’s elections and that they will be able to put together a coalition government which will avoid the dreaded “hung Parliament”. The Conservative Party has vowed to reduce the deficit more than the other two parties, and this could be a sign of the new paradigm taking place world-wide. Reckless spending has to be reigned in, and I hope that our idiots in Washington DC take note if indeed the Conservatives win.
Dollar (USD): The Dollar is higher on the flight to safety trade, and pending home sales were higher yesterday showing signs that the economy is recovering. What is Europe’s loss may be the US’s gain, as the Dollar is known as the “anti-dollar”.
Yen (JPY): Japan is still closed for the Golden Week holiday, but that hasn’t stopped Yen appreciation as carry trades are being unwound at breakneck speed. They could be in for a very rude awaking when their stock market reopens, especially if the EU doesn’t combat its debt crisis in a meaningful way.
Wow. All I can say is wow. Right now, the confluence of events taking place in the world is adding up to the perfect storm. There is virtually no leadership in politics anymore, and this couldn’t be more true than what’s happening in Europe.
I would not be surprised at all to see a break-up of the Euro going forward. The structural flaws are too many, and populist revolts are preventing politicians from showing some spine. Riots in Greece are typical and not unexpected, and already the streets are being filled with tear gas.
It’s ugly out there. Very ugly. I’m not certain what the EU can do now to prevent a death spiral. The inability to act may have damaged the Euro irreparably.
If you are still in stocks, I’d advise you to use serious risk management, including protective stops.
And if you’re not in the forex market yet, I implore you to get involved. Buying the Dollar could hedge your other investments against potential catastrophic losses.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, cad, canada, carr, carry trade, China, closed, commodities, commodity, course, crisis, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, Europe, fear, flu, forex, forex market, free, fx, fxedu, gbp, gold, holiday, home, Il, invest, investor, IRA, Japan, jpy, Kiwi, life, live, loonie, lot, lower, market, meeting, Mike Conlon, new zealand, news, nzd, oil, pound, practice, practice account, rate, RSI, sales, ssi, stock, stocks, strategy, time, trade, trades, USD, Yen
Topics: What To Look At In The Market | 2 Comments »
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!
Tags: account, AUD, Aussie, Australia, bank, British, cad, China, closed, commodities, commodity, course, crisis, currenc, currency, currency market, currency trading, dollar, dow, ECB, economic, economy, EUR, Euro, Europe, fear, forex, forex market, free, fundamental, fx, fxedu, gbp, gold, holiday, home, Il, interest, interest rate, invest, ISM, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, new zealand, news, nzd, oil, Paulson, piigs, pound, practice, practice account, RSI, sales, ssi, stock, stocks, time, trade, USD, Yen
Topics: What To Look At In The Market | No Comments »
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!
Tags: account, article, AUD, Aussie, Australia, bank, blog, BOE, cad, carr, carry trade, charts, commodities, commodity, course, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, Europe, fear, financial, forex, forex market, free, fx, fxedu, gbp, gold, home, housing market, Il, index, interest, interest rate, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, meeting, Mike Conlon, minutes, news, nzd, oil, piigs, pound, practice, practice account, sales, ssi, stock, stocks, time, trade, trader, trades, USD, Yen
Topics: What To Look At In The Market | No Comments »