Retail Sales Improve!
By Mike Conlon | March 12, 2010
All eyes were on the US retail sales figures, as the US consumer represents some two-thirds of US GDP. There was speculation that bad weather would affect this number, causing it to be lower than expected. Well, that hedge turned out to be unnecessary, as there was a negative expectation of -.2%. The number came in much better than expected, at + .3%, which is positive growth as opposed to a negative expectation. So expect stocks to rally higher, but be wary of the correlation of “stocks up, dollar down” as some in the market may feel that this could have a material impact on US interest rate policy.
In other news, Canadian employment figures came in better than expected and Japanese Finance Minister Kan used the dreaded “I” word—as in intervention, which readers of this blog know is not totally unexpected.
In currencies this morning:
Aussie (AUD): The Aussie is higher this morning as investors are seeking yield as economic conditions appear to be improving, particularly in the US. No real news but the Aussie has made one attempt at .92 vs. USD and could challenge 2010’s high of .932 in short order.
Kiwi (NZD): Retail sales figure came in at a better-than-expected .8%, showing signs that domestic demand in New Zealand is improving. This bodes well for their economic story but we shouldn’t expect any rate hikes until mid-year as the policy meeting told us earlier this week. However, should inflation start to pick up, we could see a surprise hike earlier than expected.
Loonie (CAD): Good news out of Canada as the jobless rate fell to a 10-month low, falling to 8.2%. The Loonie is higher across the board as hopes that economic recovery is taking hold. According to an RBC analyst, the Bank of Canada is, “running out of arguments against keeping rates low”. The Loonie currently buys 98.35 US cents, and the Loonie could be at parity with the Dollar for the first time since July 2008.
Euro (EUR): The Euro is mostly higher this morning, as European Industrial outputs expanded 1.7%, the largest gain in almost 20 years. The Euro challenged 1.38 vs. USD and EU President Junker argued that the Euro zone needs new tools to be able to combat future crises.
Pound (GBP): The Pound is higher this morning, extending yesterday’s rebound. Reports are that the sell-off in the Pound has been excessive, as house prices in the UK rose at the fastest pace in 7 years, showing that the economic recovery may be taking affect. The Pound is at 1.514 vs. USD.
Dollar (USD): The Dollar is lower vs. all but the Yen as retail sales figures came in MUCH better than expected, as I mentioned above. Consumer confidence figures are due out at 10AM EST, but don’t expect that to have a material impact on today’s action. Other reports are that President Obama wants to nominate Janet Yellen as Fed Vice Chair. Yellen is known to be dovish, meaning that she is not an inflation hawk. This could mean extended zero interest rate policy as the government attempts to inflate their way out of debt on the backs of consumers, who will be forced to pay higher prices for everything. Stay tuned.
Yen (JPY): As I’ve mentioned before, Japan is not adverse to using intervention as a tool to keep Yen from strengthening, and earlier today Finance Minister Kan confirmed this. It is likely that yen will weaken as the government hopes to stimulate exports to improve their economy. It will be interesting to see how this plays out and if the Bank of Japan has enough muscle to fend off risk-aversion plays should global economic recovery falter.
As you can see, there can be different market responses to good economic news. One could make a cogent argument for either Dollar strength or weakness based on today’s sales figures. Inflation hawks will claim this means that the Fed should be raising rates; while doves say the economy is still too fragile and investors should seek yield elsewhere.
Regardless of which way the Dollar moves and its affect on other currencies, this is good news for the US economy.
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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Which Way to Go?
By Mike Conlon | March 11, 2010
As I mentioned yesterday, the currencies are now seemingly beginning to shed the risk on, risk off labels and are starting to trade more on individual fundamentals. While I don’t want to completely abandon risk themes, I’m not going to be so quick to dismiss market movement as risk-taking or risk-aversion.
That makes it a little easier when we have mornings such as today which are a bit of a mixed bag. I just watched the Aussie go from slightly positive to slightly negative; and the Pound and Euro are higher.
In news that is important to the global economy, inflation in China reached a 16-month high which should cause monetary tightening. This means that there could a decrease in global demand.
As I am typing this, the US Initial Jobless Claims numbers came out and while the news was expected to have a benign market impact; it has flipped the market into risk aversion mode. Maybe those fundamentals aren’t that important after all.
Let’s take a look at the individual currencies:
Aussie (AUD): The Aussie started the morning in positive territory but then slipped to negative as risk aversion is starting to steer the market action. There was “disappointing” news earlier as Australia reported the slowest amount of job gains in 6 months and unemployment stayed steady at 5.3%. This may give the RBA a little bit of wiggle room at the next interest rate meeting and they may not have to raise rates. I think it’s slightly amusing that this news can be viewed as negative, as just about every other economy would do anything to have such a “problem”.
Kiwi (NZD): The Kiwi on the other hand started the morning negative and has stayed there now that risk aversion has been added to the mix. The central bank left rates unchanged at 2.5% as was expected, but quashed hopes of a rate hike before mid-year. Apparently falling housing prices and weak consumer spending are contributing to a slower than expected economic recovery.
Loonie (CAD): The Loonie is down this morning on what I’m going to deem the “reverse Midas touch”. Apparently the Bank of Canada appointed a Ben Bernanke disciple as deputy governor to potentially change the way the central bank looks at interest rate policy. As of right now, the bank has a mandate which attempts to keep inflation at 2%, but they may want to change to a new system that targets prices rather than inflation. All the market is seeing at this point is that Canada may get wrapped up in the nonsense that is US interest rate policy and that doesn’t bode well for higher rates. Add that to lower oil prices, down slightly from yesterday’s move to above $82, and risk aversion.
Euro (EUR): The Euro is mixed this morning as Greek labor strikes (riots) are causing a backlash against austerity measures. In the meantime, the ECB maintains a cautious outlook and reiterated that interest rates are at appropriate levels.
Pound (GBP): The Pound is higher this morning halting a three-day slide and is trading back to 1.50 vs. USD. This much needed rest from selling came about as the Bank of England’s quarterly inflation attitudes survey showed that consumer price expectations rose to 2.5%, its highest reading since 2008.
Dollar (USD): The Dollar is higher this morning after the 8:30AM Initial Jobless Claims report which came in higher than the expectation. While the number 462K vs. the 460K expectation is not that significant, the market was clearly expecting a better figure and this provides pause to the notion that the US economy is in full recovery mode. Stocks in Europe sold off on this number as traders ran to the safety of dollar and yen.
Yen (JPY): Japanese GDP was revised lower to show growth rose at 3.8%, slower than the 4.6% reported in preliminary figures last month. The Yen is higher on, yep; you guessed it, risk aversion.
As you can see from today’s entry, things in the forex can change pretty quickly. That’s why is ultra-important to be aware of news events. I should have known better than to tempt the risk gods.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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Employment Gains!
By Mike Conlon | March 5, 2010
In a scene out of the movie, Trading Places, all eyes were on the US Non-Farm Payrolls report this morning. In today’s version of the Frozen Concentrated Orange Juice crop report, the number game in at -36K jobs lost, vs. an expectation of -65K. The unemployment rate also held steady at 9.7%. So what does this mean for the market today? Well right now there is so much market volatility that it’s hard to get a good read.
This should be positive for risk-taking today as the number was just good enough to show economic progress, but not great enough to bring about talk of US interest rate hikes. However, anything can happen on NFP day so traders need to be on their toes! Just take a look at any chart at 8:30EST to see what I mean.
In currencies:
Aussie (AUD): No real news for the Aussie today as it is higher on risk themes and had a nice pop on the NFP report.
Kiwi (NZD): Same deal for the Kiwi as the Aussie, though it’s bouncing much higher as it has been a bit over-sold the last few days. Between Kiwi strength and Yen weakness, that pair is the largest gainer, up 2.18%.
Loonie (CAD): The Loonie is also higher, as the market has decided that risk-taking is the flavor of the day as the market digests the impact of the NFP report. Oil is also higher to just over 81, adding to Loonie gains.
Euro (EUR): What more can be said about the Euro at this point? The Greek crisis is center-stage, with Greek austerity measures angering its citizens, and the potential bailout and contingency plans upsetting the Germans. Quite the balancing act going on there. The Euro is down against all but the Yen.
Pound (GBP): Producer prices came in higher in the UK, and commodity prices are suggesting that they may be experiencing the start of inflation. The increase of 4.1% came in higher than the target rate of 3%, so it will be interesting to see how the BOE handles this situation. The Pound is mixed this morning.
Dollar (USD): I discussed the NFP report above but whether or not the risk-taking theme that has been pushed forward by the forex market continues will remain to be seen. Stocks are expected to see an initial bounce as the futures are higher. However, there is no improvement in the unemployment rate, so market bears may use this opportunity to establish shorts on signs that the economy may be stabilizing but is not improving.
Yen (JPY): The yen is weaker for the second day in a row as it appears as though the market believes the Bank of Japan will boost credit easing. So it appears as though the government may be winning the battle against the Bank of Japan which should weaken the Yen and make it even more attractive as the funding currency of choice for carry traders. It is down across the board this morning.
So while it appears that the market is in a risk-taking mood so far, don’t be so certain that it won’t change its tune by the end of the day. At some point, we are going to have to see actual good news, and not more “less bad”. Unemployment is still extraordinarily high, which will translate over to reduced consumer spending, which makes up some 70% of US GDP.
In my opinion, it would be a fool’s folly to continue to buy stocks and commodities on interest rate policies alone and not fundamentals. At some point this will catch up to the market. It always does.
Good weekend to all!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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US Earnings Increase World Confidence!
By Mike Conlon | February 17, 2010
US stock futures are higher this morning in the wake of a flurry of good corporate earnings reports. Of course many will tell you that “it’s easy to make money when you fire all of your employees”, but regardless of how the money was made, it bodes well for world economic growth.
This has buoyed forward further stock gains in a continuation of yesterdays market action. As a result, we are seeing further risk-taking in the markets, with world stock markets and commodities higher, and the US dollar and Japanese yen lower. Whether or not the market can hold on to these gains remains to be seen.
In world currencies:
Aussie (AUD): Predictably, the Aussie is trading higher this morning, particularly against the yen as higher risk takers seek yield. Notes from the RBA meeting referenced higher rates were only a matter of time and that they were close to pulling the trigger at the last policy meeting. Thus traders have increased their bets that this rate hike could take place in March.
Kiwi (NZD): The Kiwi is also higher on risk-taking and higher commodity prices, though the economy in New Zealand is not as strong as its neighbor Australia. Rates are seen as being stable until the second half of the year, so expect the Kiwi to continue to fluctuate on the market risk themes. New Zealand will be reporting its consumer confidence numbers tomorrow so this could give some insight into retail sales and possible inflation or lack thereof.
Loonie (CAD): The Loonie keeps chugging along near its highest level this month, helped higher by oil prices over $77 and an overall good economic picture. However, Canada eased pressure on potential rate hikes by tightening mortgage requirements, trying to prevent a housing bubble through regulation rather than interest rate hikes. If Canada can stave off further housing gains, they may be able to contain inflation without having to move on rates.
Euro (EUR): The Euro is mostly down this morning, trading higher vs. only the Japanese yen. I could continue to beat this Greece theme to death but the market will be moving in and out of confidence in the common currency as more and more “news” comes out. There is still great structural risk to the Euro, and fears of contagion to the other PIIGS countries always keep investors on their toes.
Pound (GBP): The Pound is mixed this morning, as the BOE voted unanimously to suspend its Bond-Purchase (QE) program on optimism that inflation will return to their 2% target rate. Recall that just yesterday, inflation came in hotter than expected at 3.5%. The British are famous for their “wait and see” approach and conservative measures. In the meantime, unemployment jumped to its highest level in 13 years, against an expected decline.
Dollar (USD): The dollar is showing strength this morning despite the stock futures and commodities markets trading higher. I expect some sort of “reversion to mean” to mean to take place today, with either stocks or the dollar pulling back, or a combination of both. US housing starts came in higher than expected this morning, showing that the economic recovery may be getting stronger and increased demand for housing may be picking up.
Yen (JPY): The Yen is at a 2-week low, trading at over 91 per US dollar, further cementing itself as the fuel for carry trades. The yen is down across the board ahead of tomorrow’s interest rate decision, where policy makers are expected to keep rates at .1%.
In overnight markets, Asia was up big with the Nikkei leading the way up 2.72%. European stock markets are also currently higher, all nearly posting better than 1% gains at the moment. In commodities, oil is just under $77 and gold is around $1118.
Overall, today is a bit of a mixed bag, with US dollar strength competing with the stock market for investor dollars. While risk-taking seems to be en vogue today, this could change at any point in time. While there is no real news that should derail this theme today, anything is possible.
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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Quiet Start to the Week!
By Mike Conlon | February 8, 2010
This week is starting out kind of quiet, perhaps recovering from Super Bowl hangovers and the carnage from the end of last week. There’s no real earth-shattering news on tap until the end of the week, when all eyes will be on Europe. This is exactly what the markets need; a chance to rest and re-evaluate. I’m seeing some mild risk-taking and US dollar weakness this morning.
On to the currencies:
Aussie (AUD): No real news on tap until the end of the week when Australia reports its employment figures. Look for the Aussie to trade solely on risk themes and commodity prices this week. The Aussie is up across the board.
Kiwi (NZD): Expect the Kiwi to trade in similar fashion to the Aussie. New Zealand’s economy is still “fragile”, according Reserve Bank Governor Bollard in response to last week’s unemployment figures. There will be some figures coming out later this week that may help gauge inflation, but don’t expect any major moves outside of risk themes.
Loonie (CAD): Canadian housing starts came in better than expected this morning, but expect the Loonie to trade more on US themes and commodity (particularly oil prices) this week. No other news this week.
Euro (EUR): By now if you’re not aware of the pending debt crisis in Greece, then you’ve had your head in the sand for some time! Seriously, reports coming out of Greece suggest labor strikes as unions are dead-set against the government’s debt reduction plans. In the past, these strikes have become violent which could further highlight the problems and decrease confidence. On tap this week is Germany’s Consumer Price Index and at the end of the week we get Euro zone GDP figures. The trends on the chart clearly look down and we could see the Euro test 1.35 vs. USD. Stay tuned!
Pound (GBP): The Pound is down again after surveys showed the opposition party’s lead over the incumbent party narrowing, which would result in an election to be held in June. Furthermore, British GDP and the BOE quarterly inflation report are on tap, which could show weaker than expected growth. The pound is just under 1.56 vs. USD.
Dollar (USD): The Dollar is weak this morning, paring back after gains last week from risk-aversion themes. Toward the end of the week retail sales will be reported which should be a gauge of how recovery is going. The consumer in the US represents some 70% of GDP so weaker sales could foreshadow slower growth. Friday is the UM Consumer confidence number.
Yen (JPY): The yen is weak today mainly on risk-taking and a pullback from strength last week. Economic slowdowns are predicted as problems in the Euro zone hurt exports and the Toyota recalls hurting the economy in general.
After last week’s scare, expect the market to trade some sideways as market capitulation digests the news. Barring any major economic “disasters”, expect traders to dip their toes back into the risk trade very slowly. However, if stocks continue to sell of today, then we could be in for more dollar strength.
Overnight, Asian markets are down while they are trading higher in Europe. US market futures are down, and oil is up slightly to 71.25, with a better rebound in gold, up 1.25% to 1065.
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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Carnage to Continue?
By Mike Conlon | February 5, 2010
In the wake of yesterday’s market carnage, all eyes were on this morning’s US Non-Farm Payrolls (NFP) report. The market was praying for a decent number to justify a move to the upside, as yesterday was the biggest one day drop we’ve seen in some time. World markets got crushed to the tune of 2.5% on average, and commodities sold off as well. As I correctly called yesterday morning, “Ugly with a capital U”.
So the markets were grasping for any positive news to reverse this down-trend and they “may” have found it in this morning’s NFP report. The NFP, which measures job loss, came in at -20K. Expectations for this number were all over the place but the fact that there wasn’t job growth would normally be seen as negative. However, the ray of hope in this report is that the unemployment rate dropped to 9.7% for the month, down from 10%. Now I’m no mathematician, but it seems highly suspect to me that the unemployment rate can go down, even as we see continued job losses. But whatever, in early trading it looks the market is going to “take the ball and run with it” as futures have bounced off of their lows. It would not shock me to see the market wake up at some point and realize it didn’t get what it is looking for. Today may be a continuation of Thursday’s bloodbath.
Here’s how the currencies are doing this morning:
Aussie (AUD): The Aussie was up in early action this morning paring back some of yesterday’s losses, as the initial reaction to the NFP was positive, encouraging some risk-taking. Whether this can hold throughout the day is another story. With all of the fear and uncertainty out there, investors may flee to safety over the weekend. Contributing to Aussie strength was the RBA’s Quarterly Monetary Policy Statement that stated that “economic growth will continue to accelerate, even if the policymakers are forced to raise the benchmark interest rate by ¾ of a point.
Kiwi (NZD): The Kiwi is up this morning vs. the Dollar and Yen, as mild risk-taking is still the theme at this point in the morning. No major news out of New Zealand.
Loonie (CAD): It’s a good morning in Canada today, as the Canadian economy gained 43K jobs last month, reducing the unemployment rate to 8.3%. This makes the Canadian dollar this morning’s big winner, as it is also benefiting from mild risk-taking and the bounce in oil. It is up across the board this morning, most notably against the Japanese yen.
Euro (EUR): Yesterday was a tough day for the Euro, as the flight to safety trade sent the common currency to a 6-month low near 1.365 vs. the dollar. The Euro is also known as the “anti-dollar”, so it gets hit particularly hard when there is major risk aversion. Throw in the problems with the PIIGS countries, and it’s no wonder ECB President Trichet was out this morning trying to defend the Euro and instill confidence that the potential contagion from the Greek “tragedy” will not spread throughout the region. It looks like the Euro may re-test that low as it currently sits near that low.
Pound (GBP): The pound is down this morning against all but the yen on the risk aversion theme.
Dollar (USD): The dollar had a huge rally yesterday and is mixed this morning, down against the commodity currencies but up against the Euro, Pound, and Yen. We could continue to see some near-term dollar strength, as heightened sensitivity to risk is occurring around the globe and market trends are pointing in that direction.
Yen (JPY): The yen is also mixed this morning, following the same themes as the US dollar, though down against USD.
In world markets, the Asian stock market got clobbered and closed down.
European stock indices are currently down as are the US markets, although it looks like we may have a reversal here in the US as the media monkeys try to put as much lipstick as possible on that NFP pig!
Gold and oil are flat, waiting for stocks to decide which way they want to go. Commodities were down roughly 3% yesterday.
As you can see, there still is MAJOR fear out there as economic recovery is not taking place as quickly as anyone would like. What I really want to stress here is that on a day like yesterday, when nearly EVERYTHING was down, the only 2 places to park your money that went up were in the currency market. If you had bought dollars or yen yesterday, you were a happy camper while everyone else was crying in their coffee.
Isn’t it time you see what this market is all about?
To learn more about how you can make gains even when nearly EVERYTHING is going down, be sure to check out our affordable currency trading courses.
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No Recovery in Sight!
By Mike Conlon | February 4, 2010
US Initial Jobless Claims came in worse than expected this morning, rising to 480K, the highest level seen in three weeks. Analysts were expecting a slight decrease, so that makes this number “unexpected”. (As a side note, how sick and tired are you of hearing about “unexpected“economic reports as reported by media outlets?) Also to note this morning is that both the UK and the Euro zone left rates unchanged, which was not “unexpected”. So needless to say, this morning is a risk-aversion day.
Here’s the rundown of world currencies:
Aussie (AUD): The Aussie is down this morning as expected. The major news for the Aussie will be made overnight as the RBA will come out with its quarterly monetary policy statement. There was a bit of new this morning that retail sales figures in Australia were down (MoM) to -.7%, showing a negative figure as consumers are starting to become more interest-rate sensitive.
Kiwi (NZD): The Kiwi is getting smacked this morning with the double whammy, losing value due to risk-aversion but also contributing was their unemployment report. Unemployment in New Zealand rose to 7.3%, the highest level in over 10 years, dampening hopes for any rate hikes in the near future.
Loonie (CAD): Building permits in Canada increased in December, showing signs that there may be hope for economic growth. However, the Loonie is down this morning, suffering from its correlation to oil and the general risk-aversion theme.
Euro (EUR): The Euro is down this morning against all but the Aussie and Kiwi, assuming its rightful place in the risk pecking order. The ECB voted to keep interest rates unchanged at a record low 1%, as concern about Greece stills weighs heavily on the common currency. There is a fine line the Euro zone countries are walking, attempting to encourage growth while at the same time reduce deficits and rein in budget shortfalls.
Pound (GBP): The BOE also kept rates unchanged at .5% and has also announced plans to not expand its bond purchase program (QE) for the first time since the program was initiated last march. The UK is trying to balance the threat of inflation at the expense of economic growth. It is also important to know that general elections are coming up in May and the “throw the bums out” mentality has made its way to the other side of the pond and is not only popular in the US. So the BOE is also taking potential political change into account.
Dollar (USD): I’ve already touched on the bad news about initial jobless claims, and tomorrow’s Non-Farm Payrolls Report (NFP) is weighing heavily on the US economy. Readers of this blog know that of course that means the dollar is up, as the flight to safety trade takes hold. Lost in the mix are pretty decent earnings reports coming out of the stock market, though as a most likely result of cost-cutting and firing workers. See the irony here?
Yen (JPY): Lastly, the Japanese yen is the big winner this morning, benefiting from the risk-aversion trade. Because of its status as the reserve currency for the carry trades, when risk aversion takes place, demand for yen goes up as traders flee riskier currencies.
As I scan the different news wires, I can’t help but notice that I haven’t seen one piece of encouraging news out there that would lead me to believe that economic recovery is gaining traction. The only silver lining I found, decent corporate earnings, is a joke compared to what’s going on out there.
At the US market open, stocks are down. Europe is down currently and Asia closed down overnight. Not to be Debbie Downer here but today could be ugly with a capital ‘U’. Oil is down to 76 and change, and gold is down testing 1100.
Remember, in order to benefit from a strengthening dollar, you have to sell a different currency and buy dollars to make gains! Just having dollars in your bank account does you no good except potentially influence your purchasing power. The only way to take advantage of these moves is through the forex market. When you’re sitting there looking at a red screen (because everything is down) and have no idea where to put your money, the forex market can give you a safe haven.
Isn’t it time you looked at this today? To get set up for a free, real-time practice account, click here.
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Global Recovery Under Way?
By Mike Conlon | February 1, 2010
All eyes are on the US ISM Manufacturing number due out this morning at 10AM EST. The market is hoping to see a rise in this number as that would indicate business activity is picking up. So far this morning, we are seeing mild risk-taking as the Euro has rebounded from 4 days of selling.
US stock market futures are up as are gold and oil.
Let’s examine how this is affecting world currencies:
Aussie (AUD): The Aussie is currently trading down this morning despite the risk-taking tone this morning as traders are gearing up for the RBA rate decision due out overnight. The market is expecting a 25 basis point hike to 4%, but this could trigger a bearish scenario. If they do raise rates, it is extremely likely that they will take another rate hike off of the table going forward. There is also a chance that they don’t raise rates this time, as news that China is paring back economic stimulus could affect the Australian economy.
Kiwi (NZD): The Kiwi is up slightly this morning benefitting from the risk trade.
Loonie (CAD): The Loonie is up this morning as oil prices recover and stabilize as well as a general risk-taking mood this morning. The market is waiting for confirmation from the ISM data so it trading in a tight range until that release. The Loonie should strengthen today if the number comes in better than expected.
Euro (EUR): The Euro is the biggest gainer this morning as it rebounds from 4 days of weakening. The market is gaining confidence that the plan to manage the debt crisis in Greece is acceptable and plausible which generally ties in to the risk-taking trade this morning. Over the last four days, the thought that Euro could serve as an alternative to the US dollar as a reserve currency was largely debunked as Central banks pulled cash out of the Euro at a record pace.
Pound (GBP): The pound is down this morning against all but the Japanese yen as housing prices slid in the UK and banks granted fewer mortgage applications last month. The Bank of England rate decision is on tap next week but traders are more interested to see if they continue with their quantitative easing program.
Dollar (USD): The US dollar is down this morning as part of the risk-taking trade. Stock market futures are up as are commodities and all eyes are on the ISM Manufacturing number. There are some figures out this morning that show that US personal incomes are up slightly, and personal spending is higher than the prior reading but missing expectations by just .1%.
Yen (JPY): The yen is down across the board this morning as the BOJ’s top economist said that Japan’s economy is far from “achieving self-sustaining growth” as their export led recovery failed to induce consumer spending. This also falls in line with ministers calls last week for a weaker yen.
As we can see the big news of the day is ISM Manufacturing number which will be viewed as a proxy for global economic recovery. The only currency that is trading “out of the ordinary” is the Aussie, as the market prepares for the rate decision.
In global markets, stocks in Asia closed generally higher and Europe is higher at the moment. US stock markets futures are higher pre-open and oil is up to 73.47, with gold slightly higher to 1088.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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Its All About Jobs!
By Mike Conlon | January 28, 2010
This morning, it looks like risk appetite has returned to the forex market after yesterday’s FOMC meeting has been fully digested. The only thing “unexpected” from the meeting was that the decision was not unanimous, as KC Fed Chief Thomas Hoenig dissented and raised concerns about possible inflation. While this view will most probably be discounted for “an extended period” to use Fed parlance, it is interesting to see someone break from the pack.
Also, additional problems from the Euro zone have increased downward pressure on the common currency, as Portugal has now joined the mix and is showing up on the watch lists as their fiscal budget is drawing attention from the ratings agencies. In light of these problems, the market is still in a risk-taking mood.
The other big news came from last night’s Presidential State of the Union Address, where the President issued a renewed commitment to fixing the employment problem here in the US and pledging to help put Americans back to work which overall is positive for economic growth. Whether or not the follow through occurs is another story, but for now, the markets are satisfied.
Here’s a look at the currencies:
Aussie (AUD): Benefitting in early trade from risk appetite, the Aussie traded as high as 90.45 vs. the US dollar. In addition, commodity prices are higher as well. There is much debate over whether or not another rate hike will be in order at the next policy meeting as inflation concerns abound. Watch out for a mid-morning reversal if equity markets sell-off.
Kiwi (NZD): Yesterday, the New Zealand Central Bank left interest rates unchanged at 2.5% as inflation is likely to stay in its target range. However, the bank is expected to move on rates sometime before mid-year. Also up this morning, but off of its highs.
Loonie (CAD): With oil prices holding above $74 (for now), the Loonie is showing decent gains this morning against the risk averse currencies. The Loonie is showing some strength today vs. the US dollar, as it bounced back against technical resistance at 1.065.
Euro (EUR): The Euro is down this morning after having broken support at 1.40 vs. the US dollar. While EC economic sentiment was up this morning vs. an expected decline, the news that the first of the PIIGS countries, Portugal, may be following Greece’s lead down the road to fiscal uncertainty. S&P is saying that Portugal’s current budget leaves the country economically “frail”. Remember that when trading often times support becomes resistance so keep that 1.40 level in mind.
Pound (GBP): The Pound is strong again this morning, extending yesterday’s gains. The prevailing thought is that interest rate hikes may be on the table for the foreseeable future.
US Dollar (USD): The dollar is down today against the commodity currencies as risk appetite has returned. US durable goods orders came in lower than expected, and initial jobless claims came in slightly more than expected. This lends credence to the FOMC stance that rates should remain low for “an extended period”, much to KC Fed Chief Hoenig’s chagrin.
Yen (JPY): The yen is down against all but the Euro currencies, as the bottom rung on the risk-taking ladder. The uptick in risk appetite as a result of the State of the Union Address last night has helped propel Asian stock markets higher last night and the yen lower.
In world markets, the Asian stock markets closed higher than 1.5% from the previous day but stocks in Europe are mostly lower with news out of the Euro Zone. US stock markets are down, and gold and oil are higher, to 1093 and 74.12 respectively.
What’s important to take away from all of this news is that no single instrument trades in a “bubble” and that news from around the globe can affect any market. By having and maintaining an understanding of global events, investors and traders can better position themselves.
To learn more about how these markets are ALL inter-related, be sure to check out our extremely affordable currency trading courses!
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FOMC Day Fun!
By Mike Conlon | January 27, 2010
This morning, the broader currency markets are trading in a slight range, with the Japanese yen (JPY) and the British pound (GBP) showing gains against the US dollar. There is a mild risk-aversion theme this morning as all eyes are on the US FOMC policy meeting today at 2:15 EST.
As far as news-worthy currency events go, this may be the one which has the largest impact on the market. It is almost 100% certain that the Fed will not be raising rates from .25%, however the market will be looking for clues for any change in language that may suggest a shift in policy.
The markets here in the US have been on edge recently, as political pressure and rhetoric have picked up because of what many see as a rejection of the current administration’s policies. This has caused some in Congress to pull their support for Fed Chairman Bernanke, whose term is up at the end of January.
Let’s take a look at how specific currencies are faring so far:
Aussie (AUD): Earlier today the Australian Consumer Price Index (CPI) number came in at .5% for Q4 and at 2.1% YoY, which was slightly higher than expectations. This sent the Aussie initially higher and above .90 against the US dollar, though it’s now trading below on the move to risk aversion and fears that the moratorium in Chinese lending may affect the Australian economy.
Kiwi (NZD): The Kiwi is trading down on the risk aversion theme, most notably against the Japanese yen around .5% on the morning. The Reserve Bank of New Zealand is coming out with its rate decision later today and is expected to maintain rates at 2.5%, which is a record low. This could weigh heavily on the Kiwi as the market has priced in a 50 basis point rise by mid-year.
Loonie (CAD): The Loonie is trading near a 5-week low as world markets and commodities have sold off recently and the flight to safety trade has been in effect. One of the major factors affecting the Loonie is the price of oil, which is off some $10 from recent highs.
Euro (EUR): The Euro is off slightly this morning, as it attempts to shake off the problems it’s been having related to the debt crisis in Greece. European stock indices are down today, as comments from ECB council member Weber said that the bank may take additional steps to withdraw liquidity from its banking system. With today’s FOMC decision on tap, the Euro could test 1.40 which has been an area of psychological support for some time.
Pound (GBP): Reports are out this morning that the quantitative easing measures that the Bank of England has taken may be working. Although UK GDP came in lighter than expected, it did come in positive which is a step in the right direction. BOE policy-maker Sentance warned that the bank may need to act quickly if the recovery strengthens and inflation picks up. The pound is up to 1.62 vs. the US dollar.
US Dollar (USD): The dollar is weak against the pound and the yen this morning, but otherwise is up slightly against the commodity currencies and the Euro. The market is waiting on the FOMC decision and more importantly if there is a change is language which may give hints about a change in policy. Keep an ear out for a continuation of the “extended period” language. The dollar has been gaining recently, as risk-aversion has heightened around the globe.
Yen (JPY): The Japanese yen is at a 5-week high vs. the dollar, as the Japanese yen benefits the most from the risk-aversion trade. With interest rates at .1% and not moving any time soon, the carry trade is back on with the yen as the funding currency of choice. Also to note is that Japanese exports have risen for the first time since mid-2008, a sign that economic recovery may be taking place.
In world markets, stocks are down in Asia and Europe and the MSCI world stock index is experiencing its largest losing streak in almost a year as concerns that developed economies may be preparing to scale back which affects emerging markets. In the US, the stock markets are down slightly as are gold and oil, which are trading below 1100 and 75 respectively.
Look for a reversal today if the Fed does as expected and maintains uniformity of language with its previous rate decisions. The world markets are looking for some vote of confidence that will allow risk-taking to resume again. Despite all of the political wrangling coming out of Washington, if Bernanke can project confidence that the recovery in the US in taking place, then it may signal game on again!
To learn more about how these events affect the currency markets, be sure to check out our currency trading courses!
To follow these events in a free, real-time practice account, click here!
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