Here We Go Again?
By Mike Conlon | August 25, 2010
Yesterday, S&P downgraded Ireland’s sovereign debt which sent bond yields higher for the troubled Euro zone nation. However, German business confidence figures came in better than expected which has counter-balanced the regions prospects and is providing a bid for the Euro.
Here in the US, Durable goods orders came in worse than expected and yesterday’s dismal existing home sales figures shows signs that the US economy may be floundering. This has caused speculation of further Fed quantitative easing to heat up as policy makers attempt to revive the US economy.
In Japan, the official jaw-boning has begun as Prime Minister Noda said he was prepared to take “appropriate action” to combat “one-sided” currency fluctuation.
Overnight, equity markets are lower, and the US stock futures are lower going into the open. Oil has retreated to 71.50, and gold is higher as investors seek safe haven assets.
In the forex market:
Aussie (AUD): The Aussie is higher this morning despite the uncertainty surrounding the elections Down Under. As the votes are being tabulated, right now it appears to be a dead heat. Yen weakness has provided the Aussie with a bid, and completed construction work figures came in better than expected.
Kiwi (NZD): The Kiwi is lower on risk aversion following yesterday’s reduction in the expectation for inflation, despite overall Yen weakness.
Loonie (CAD): The Loonie is also lower as its high correlation to oil prices has reduced demand and general risk aversion and US economic weakness reduces its prospects for economic growth. Yesterday’s retail sales figures are still in the back of trader’s minds.
Euro (EUR): The Euro is mostly higher to start the US session despite the Irish debt downgrade. German business confidence figures came in better than expected to its highest reading since 2007. This has caused yield spreads between German bonds and those of the PIIGS nations to rise. While the PIIGS haven’t had trouble with debt offerings, higher yields could impact their ability to service that debt. (Click chart to enlarge)
Pound (GBP): The Pound is mostly higher with no news on the docket to affect it one way or another. UK Treasury Minister Hoban defended the government’s austerity measures in a BBC interview, and today’s price action could be a technical bounce after 3 days of declines. (Click chart to enlarge)
Dollar (USD): The Dollar is trading higher vs. the commodity currencies and Yen as the US economy appears to be weakening. Durable goods orders came in at -3.8% vs. an expectation of .5% which highlights the effect of the withdrawal of the “stimulus” funds on the economy.
Yen (JPY): The Yen is lower as the jawboning has increased in Japan. Speculation of intervention in the currency has increased as the Yen pulls back from 15-year highs. In addition, export growth slowed as a result of the combination of reduced world demand and the higher Yen, yet it came in slightly higher than expectations. Keep your eyes on this one!
It looks like extend and pretend may be coming to an end. As the US “stimulus” plan comes to end, the economic data is starting to show that private demand is just not there. This is mostly likely a result of government “crowding out” private business as the money came from government coffers.
However, because policy is not in place to encourage private business, unemployment remains high which reduces consumer demand which in turn causes economic growth to stagnate. Uncertainty over financial regulation, tax policy, and health care has left business content to drive profits through reduction and not expansion.
So one would think that it’s time to change these policies, right? Wrong. The answer that is being talked about is either additional stimulus or further quantitative easing! Talk about making a bad situation worse.
It is going to be interesting to see how this plays out and whether the elections here in the US bring about change in policy. Until then, be prepared for the pain.
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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How to Play the Bounce!
By Mike Conlon | August 20, 2010
CLASSICAL BOUNCE TRADE SET UP
by Abe Cofnas
This morning I saw a classical set up for a bounce trade and I can’t resist providing it to you.
Using a 15 minute chart on the USDJPY we see two Bollinger Bands. The standard band has a 20 and 2 set up. The additional band, I am calling the Outer Bollinger band has a 13 and 2.618 set up. The set-ups represent two technical metrics. First, the simple moving average. So the standard band as a simple moving average of 20 periods and the Outer band have a simple moving average of 13 periods. The second part of the set-up represents Standard Deviation. Simply put 2 standard deviations means that the price is about 97% of the time between the two bands. The Outer band has a 2.618 Standard Deviation which means that the price is about 99% of the time between the two bands, if you use the 13 moving average.
But let’s get to the meaning of this without too much fuss over the statistics. Tactically, when we see a price point move near or outside both bands, we can conclude its doing something quite extreme. The implication is that the price can’t stay there too long. Either it’s going to keep going up, or reverse. Keep in mind that in currencies, the price probing an extreme is not in itself a reversal signal. It got extreme for a reason! The reason or sentiment has to change for a reversal to occur. But there is a clue, to the set-up as to whether we have a bounce or reversal scenario. The clue is the shape of the Bollinger Bands. If the bands are flat or sideways, it is a good geometry for bounces. Think of a ball bouncing off a floor. A flat floor generates a straight up bounce! (Click chart to enlarge)
Let’s go back to the chart. You can spot bounce points in either direction after the price went outside the first band, rose to probe the second and penetrated the second outer band, but then reversed back in! Traders using one band don’t get the added perspective of two bands!
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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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!
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O Canada!
By Mike Conlon | July 9, 2010
This morning, Canadian employment figures came in and showed a drop in the unemployment rate from 8.1% to 7.9% on strong jobs growth. The Canadian economy added 93K jobs vs. an expectation of 20K. This belies the good economic story going on in Canada despite the fact that they rely on the US to import their goods and services. Should the US economy slow down, it could affect Canadian GDP negatively.
In the European session, ECB President Trichet made the “we’re not out of the woods yet” comment, saying that there is still question over the health of the EU banking system and that serious changes need to be implemented to get better control over the deficits. The bank stress tests are due in about two weeks.
In the UK, PPI figures came in lower than expected, showing signs that the BOE may be correct in their assessment that inflation would be subside. The minutes from the rate policy meeting will be released on July 21st, and is expected to show a continued dovish stance.
Lastly, we’re seeing Dollar strength this morning despite the fact that risk-aversion is mild. This is probably more of a technical bounce and the function of traders not wanting to hold risk assets over the weekend. US stock earnings season kicks off on Monday.
In the forex market:
Aussie (AUD): The Aussie is lower this morning after posting its best week of gains in nearly 9 months. Bets that a further rate hike in 2010 have increased as a result of the best surge in employment they have seen in nearly 4 years.
Kiwi (NZD): The Kiwi is also lower, trading in sympathy with the Aussie.
Loonie (CAD): The Loonie is the best performer this morning as employment gains bested analyst expectations by a wide margin. There is a good growth story going on in Canada, as they benefit from commodity gains and as long as their largest trading partner to the south (US) keeps spending. In addition, housing starts came in largely in line with expectations.
Euro (EUR): The Euro is lower this morning as the market prepares for the bank stress tests. There is much speculation in the market about what the results will be, and what measures will need to be taken to insure financial health. One such solution would be that the banks may need to raise additional capital. German CPI figures came in as expected, showing signs of some price stability. There are also rumors floating about that the ECB may need to take a more dovish stance with the Euro, which could mean increased quantitative easing or possible rate cuts, though the latter seems unlikely at this point.
Pound (GBP): The Pound is lower as well, as PPI figures fell for the first time in nearly 2 years, easing inflation pressures in the economy. The UK had been seeing inflation outside of government targets, but it appears that it may be coming back to their preferred range. In addition, the UK trade deficit widened as a .2% gain in exports was negated by a 2.4% gain in imports.
Dollar (USD): The Dollar is higher against all but the Loonie, as the market moves toward the safe haven of the Dollar going into the weekend. In addition, the Dollar has been beaten up this week as risk-taking has been the primary driver. Reports are coming out that economists are paring back their expectations for growth in US, but see no signs of the dreaded double dip at this point despite the recent patch of negative economic news. US earnings season also kicks off on Monday, so this could be adding to market fears should corporate profits be down.
Yen (JPY): The Yen is starting out lower this morning, as the Nikkei was able to hold on to gains in the overnight session. There is some mild risk-aversion in the market today, and the Yen is higher than the European currencies.
So today is a bit of a mixed bag. Neither risk-taking nor risk-aversion can be seen as a dominant theme. Good news out of Canada has put the focus back on the N. American currencies, with the European ones lagging.
US corporate earnings will be the big story next week, and if those reports are positive, it could buoy market sentiment higher. While the stock market health does not equal overall economic health, it will act as a good economic barometer and could provide hope that the employment picture may be about to get better.
If those earnings reports are largely negative, then that may open a whole new can of worms as the market is already aware of the general state of the economy. In addition, if Washington DC policies continue to threaten business, then it could be a long time before companies begin to hire employees again, if they are reporting good gains.
Either way, there is still risk in the market. If we can successfully get through next week, the European bank stress tests will pose the next major threat.
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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Consumers Disappoint!
By Mike Conlon | June 11, 2010
Well so much for that. US retail sales figures disappointed this morning, coming in at a loss of 1.2% vs. an expected gain of .2%. While these numbers show that economic recovery is still fragile here in the US, much of this can be attributed to the lack of hiring by businesses. In addition, this also shows that households are saving more which may not be a bad thing, and much of the decline was in big ticket items as the economy prepares for the retraction of stimulus measures.
Across the pond, the UK reported worse than expected industrial production figures, sending the Pound lower across the board. This further adds to the fears that the UK may be facing a protracted slowdown as they attempt to control their budget deficits.
On a somewhat related note, US Treasury Secretary Geithner has turned up the heat on China. He has come out and said that the Chinese exchange-rate policy (and Yuan peg to the dollar) is preventing a balanced global recovery and causing inflation in China. Official reports showed an increase of 3.1% in consumer prices, the fastest rise in 19 months. In addition, Chinese workers are striking demanding higher wages as inflation heats up.
So this morning we are seeing some mild risk-aversion, as the Friday “unwind” occurs as traders are still hesitant to go into the weekend holding risk assets, with potential Euro landmines the primary fear driver.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on risk aversion and a technical pullback after yesterday’s good economic news from the Pac Rim countries. Uncertainty over whether or not China will do anything to cool inflation has contributed to Aussie selling.
Loonie (CAD): The Loonie is lower on risk aversion, despite the fact that industrial capacity showed the largest increase on record. The Loonie has been higher lately as oil has been higher, though it is pulling back from $75 this morning. Oil will be a major factor going forward, as a potential moratorium on drilling offshore in the US is in the works due to the political backlash of the BP oil spill.
Kiwi (NZD): Despite the risk in the market, the Kiwi is higher across the board due to yesterday’s rate hike, though that could change by session end. Digestion of the economic reports show that NZ could be in for a series of rate hikes through the rest of the year as accelerating growth could push inflation much higher.
Euro (EUR): The Euro is lower also on risk themes, and the “Friday unwind” may be still be causing investors to ditch Euros over the weekend as risk fears still permeate the market. However, policy-makers in Germany raised their economic outlook for GDP higher. Still the looming threat of debt problems keeps investor cautious for now.
Pound (GBP): The pound is lower across the board as manufacturing weakened in the UK and fears that the economy may not be on sound enough footing to handle expected government fiscal belt-tightening. This comes even as a UK survey of consumer’s inflation expectations reached its highest levels in over 6 months. This may be a case of, “the consumer is not always right”.
Dollar (USD): Disappointing US retail sales figures have sent the dollar higher as risk aversion has picked up going into the weekend. However, the decrease wasn’t broad-based. The largest decreases were in building materials stores and auto sales. This comes ahead of the end of the home buyer tax credit, so it probably should have been expected. Households are saving more as the employment picture is still grim, and unless the government does something to encourage private business to start hiring, the retraction may continue.
Yen (JPY): Good gains in the Asian stock markets overnight pushed the Yen lower, though it is rebounding and has gained strength due to the unwind of carry trades as traders dump their risk assets for the weekend in favor of the safe haven the Yen provides. The Dollar and Yen are just about flat today vs. one another.
Today is an example of how bad government policy can distort economic figures and get everyone “drinking the Kool-Aid”. It should come as no surprise that retail sales are down as government stimulus measures are retracted, yet they fall for it every time.
The bottom line is jobs. Period. Not temporary census workers, not more bloated government bureaucracy, but jobs from the private sector. American consumers have finally woken up to the fact that you shouldn’t be spending money you don’t have, especially if you can’t get a job to afford stuff.
That game had gone on for way too long, and it is amazing to me to see some the debt levels people carry.
So what does the government do to help create jobs? Nothing. They hand out government cheese to keep the masses at bay and create a hostile environment for business through the threat of increased regulation and higher taxes. If you were an employer, would you be hiring?
Heck no!!!
And until hiring picks up again, expect the economy to drift downward as consumers lose faith in the recovery. And if consumers, who represent some 70% of US GDP, continue to save and not spend, then we could see a potential deflationary spiral as demand dries up.
This could lead to the dreaded “double-dip”. Not a pretty picture in my eyes. The only double-dip I want to see is in an ice cream cone!
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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Ban The Shorts!
By Mike Conlon | June 9, 2010
Both France and Germany have called on the EU to ban short-selling on certain stocks and government bonds with the intention to curb speculation in the market. While I am never a fan of this type of regulation, there does need to be some sort of “fix” for the market as speculation has gotten a little out of hand.
However, there are always unintended consequences to this type of action, and this could end up hurting their ability to raise capital. This could also hurt the forex market, as Euro-related pairs lack the volume to trade orderly. Nevertheless, there still is a ton of risk related to the Euro, with sovereign debt defaults the primary driver.
In addition, ECB President Trichet helped push the Euro higher with comments on the state of the Euro. As I mentioned yesterday, expect the game of “show and tell” to pick up, with officials telling us how great everything is but showing us little.
Also today, the US Fed Beige Book report comes out, with Bernanke expected to echo his comments from the other night.
In the forex market:
Aussie (AUD): Consumer confidence fell for the 3rd straight month down under, nevertheless the Aussie is higher on risk appetite. Fears of a global slowdown (particularly in China) and the raising of interest rates have added to the sentiment that the economy will slow in Australia.
Loonie (CAD): The Loonie is also higher this morning as oil prices have bounced higher and equity futures are set to open higher on risk-taking in the market.
Kiwi (NZD): The Kiwi is higher ahead of its interest rate policy meeting tomorrow, where the market is anticipating a 75% chance that the RBNZ will raise rates 25bp to 2.75%. Put me in the camp that is betting against the rate hike, as I feel the NZ economy rides on the coattails of Australia, and that the risk in the market may be too great to warrant a hike just yet.
Euro (EUR): The Euro is mixed this morning, trading higher against the safe-haven currencies, but lower against the commodity currencies. Comments from the ECB have helped push the Euro higher slightly, but let’s not forget about the huge risk the Euro poses as they struggle to get their fiscal houses in order.
Pound (GBP): The Pound has a bid this morning after a 4-day decline as investors seems more confident in the UK’s ability to combat their fiscal woes, much more so than the EU. The UK trade balance missed estimates, but narrowed from last month’s reading.
Dollar (USD): Today we get “Fedspeak”, as Bernanke gives his beige book report to Congress. I do not expect any change in language from the Fed Chief, and at this point I’m guessing that we will not see a rate hike this year. The Dollar has been higher this year on the flight to safety trade, and at this point I believe that inflation is a non-issue.
Yen (JPY): The Yen is lower this morning as risk-taking inspired carry trades are taking place ahead of the New Zealand rate decision. Japan will report its own GDP figures tomorrow, which are expected to show moderate but steady growth. In addition, new Finance Minister Noda said he would like to see price gains above 1%, but didn’t make that an “official” inflation target. Japanese deflation has plagued its economy for some time.
As I mentioned yesterday, this is “cheer-leading” week for the various markets, as the lack of hard economic data is supplanted by discussions of various economic situations.
I am always skeptical when it comes to government announcements and prefer to analyze the hard data myself. But with that in mind, you have to pay attention to what they are saying.
As a trader, it is important to trade what you see and not what you think should happen. If Bernanke wants the market to go up, you should play along even if you think the fundamentals don’t match. However, be sure to exit quickly at the first sign of market sentiment change as the market is always right, regardless of what is said.
So pay close attention to the technicals as the various market participants digest the rhetoric.
Do you have a strong grasp of technical analysis?
If not, be sure to check out our affordable 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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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!
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A Recipe for Disaster!
By Mike Conlon | May 7, 2010
With concerns over the Euro and the Greek debt crisis, yesterday’s market action became the “perfect storm” as there was a systematic breakdown in trading technology which sent the markets reeling. The Dow Jones Industrial Average dropped nearly 800 points in less than 10 minutes.
There were major moves in the currency market as well, as investors fled risky assets in favor of US bonds and the dollar. This helped contribute to what looked like a death spiral, as problems with trading technology caused some stocks to trade at erroneous levels, dragging the indexes lower and causing automated trading systems to take action which also exacerbated the problem.
There is still major risk in the marketplace; primarily coming from the Euro zone which some believe is fighting for survival. This morning, the German Parliament approved the Greek bailout, but the ECB still has a long way to go to figure out how to deal with contagion to the rest of the EU. Now the concern has turned to Spain, which may require a bailout as well as borrowing costs have increased dramatically thereby making it harder to service their debt. Unless a comprehensive plan is proposed, we could see continued problems for the Euro. The G-7 is having an emergency conference call to discuss a solution.
In addition, the UK elections took place and the result is the dreaded “hung Parliament”. However, Moody’s did not use this event to downgrade the UK credit rating, and the possibility exists that the government will be able to work together despite the political differences.
On what would normally be the biggest news of the day, the US Non-Farm Payrolls (NFP) report came out this morning and showed a gain of 290K jobs, which was better than expected. However, the unemployment rate ticked higher to 9.9%, showing signs that recovery is fragile.
In Canada, employment grew by 108K and the unemployment rate ticked down to 8.1% showing signs that recovery may be stronger than here in the US.
Lastly, the Yen is lower as the Bank of Japan pumped nearly 22 billion dollars of liquidity into its financial system in response to the Euro crisis.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on yen weakness and is receiving support from a technical bounce as yesterday’s carnage sent the Aussie much lower. Right now there is a ton of risk in the market so at this point I’m not certain I would be looking to establish long trades here.
Loonie (CAD): The Loonie is the big winner today as better than expected employment numbers came in showing signs of economic recovery.
Kiwi (NZD): The Kiwi is trading on risk themes exclusively and getting a technical bounce similar to the Aussie. This is not to be confused with risk appetite, as this is more likely due to yen weakness and short-covering.
Euro (EUR): The Euro has bounced back from yesterday’s carnage as there is hope that the EU can come to some sort of a resolution on how to deal with the sovereign debt problems of its members. Today the first step was taken as German Parliament approved the Greek bailout, but now the larger looming issue of how to reduce borrowing costs for other nations experiencing similar problems is center-stage. They’re not out of the woods yet.
Pound (GBP): Fears of political gridlock due to the “hung Parliament” in the UK has sent the Pound lower, though the UK did manage to maintain its AAA credit rating from Moody’s. However, there is hope that what we are seeing from the EU will serve as a warning of what can happen in the UK if Parliament doesn’t work together.
Dollar (USD): The Dollar is mixed this morning as the NFP report came in better than expected but unemployment ticked higher. The Dollar is giving back some of yesterday’s gains from the flight to safety trade, but there is still major risk in the market.
Yen (JPY): The Yen is much lower this morning as the Bank of Japan added liquidity to the market to the tune of nearly 22 billion dollars. The Yen had major gains yesterday as carry trades we un-wound at break-neck speeds and demand for yen was high prompting this move from the BOJ.
In all my years of trading the markets, I have never quite seen anything like what took place yesterday. When technology fails, it can set off a chain reaction that affects every market. Due to the correlations between market instruments, a breakdown in one area can cause action in others and that’s exactly what took place.
Combine this with the uncertainty due to the risk coming from the Euro zone and you have the perfect recipe for disaster. With such extreme volatility in the markets, a lot of money can be made or lost very quickly. When situations like this arise, I advise to stay on the sidelines or only use risk capital that you are prepared to lose.
Until normalcy can return to the marketplace and confidence is restored, expect major volatility. Trade extremely cautiously if at 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!
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Too Much Debt!
By Mike Conlon | April 22, 2010
Well, it turns out that that the economic situation may be worse than expected in Greece as budget deficits came in at 13.6% of GDP, higher than the forecast of 12.9%. While this is not a good number, turns out it is not even the worst in the region. Ireland’s budget deficit is at 14.3%. So why all of the hoopla about Greece if Ireland is in worse shape?
Well, the Irish were pro-active in instituting austerity measures and its citizens are not striking in the streets. So it seems an almost certainty that Greece will be tapping into the rescue plan, now the devil is in the details. As can be expected, the Euro is lower across the board and invoking some risk aversion today.
However, we have some fairly good news out of Australia and New Zealand, and those currencies are hanging in there and actually showing gains despite the risk aversion.
US jobless claims missed estimates marginally, but are lower than last month in a sign that they are moving in the right direction, albeit slowly.
In the forex market:
Aussie (AUD): The Aussie is slightly lower this morning as the market is beginning to price in another interest rate hike. The wild-card here is what is going to happen with China, as the IMF is now jumping into the mix and calling for Yuan appreciation.
Loonie (CAD): The Loonie is slightly lower, taking its cues from oil which is down this morning to just below $83. A reading of leading indicators came in better than expected, and the market is expecting that the BOC will move on rates sooner but at a slower pace, despite the “conditional commitment” to keep rates unchanged until July.
Kiwi (NZD): The Kiwi is higher this morning as consumer confidence figures remain unchanged in a sign that hopes of an economic rebound have not been abandoned just yet. In addition, the Finance Minister came out in a statement that said the economy is recovering “slightly more strongly” than the last reading in December which could put the prospect of rate hikes back into the mix. The IMF also upped its growth estimates to 2.9% from a previous estimate of 2.1%.
Euro (EUR): Expect the Euro to trade lower until the exact terms of the Greek bailout hit the market. If anyone cares, EU manufacturing numbers came in slightly better than expected, showing signs that all hope is not lost in the EU. But the obvious elephant in the room is the Greek bailout so a wait and see approach is appropriate until a resolution is announced.
Pound (GBP): The Pound is giving back some recent gains as public borrowing jumps to its highest levels ever. Retail sales figures came in slightly lower than expected, but not enough to warrant a major move. Mortgage approvals were higher, indicating that the housing may be beginning to stabilize. And lastly, business optimism figures came in better than expected so all in all this news is a wash. So when in doubt, call it a “technical pullback”. The sentiment is still positive for the Pound, outside of general risk aversion.
Dollar (USD): The Dollar is mostly higher, especially vs. the Euro and Pound but trading lower than Yen as risk aversion is prevalent to start the day. Initial jobless claims missed estimates slightly, and the market is waiting for existing home sales later this morning. PPI figures came in and rose higher than expected to .7% although only slightly higher. At this point growth appears to be outpacing inflation so it looks like the Fed won’t have to move on rates any time soon.
Yen (JPY): The Yen is higher this morning as risk aversion is causing some carry trades to be taken off the table, though not in a major way. The IMF came out and said it expects deflation to persist and that Japan may need to take additional accommodative measures. So expect Yen weakness in the long-term and use short-term risk aversion as a way to establish carry trades. Provided a major risk event doesn’t occur such as a Euro collapse.
Another day, another dollar as the saying goes. Until all of the cards are on the table regarding Greece, expect the Euro to trade lower. Especially if contagion to the other PIIGS countries looks probable. The lower the Euro goes, expect risk-aversion to get stronger.
This means we could see near-term Dollar and Yen strength, despite the “good” economic stories coming from the commodity currencies. Carry traders use risk events to buy higher yielding currencies on pullbacks.
If you think about it, the interest rate differentials act as almost like a stop-loss mechanism. For example, if you enter into a carry trade and buy AUD/JPY you stand to earn 4.15% interest (4.25%- .1% interest rates) on roll-over day (Wednesdays). This means you could sustain a loss of less than 4.15% on a long position of this pair and still make money! This is a simplistic example for illustrative purposes only, but you get the idea.
This is why the forex market has become so popular as there are many different ways to make money!
Isn’t it time you found about more about this market?
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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E-Z Economy!
By Mike Conlon | April 7, 2010
The market is showing some mild risk aversion this morning as Euro zone GDP figures came in unchanged, showing neither growth nor contraction. Signs that the EZ economy is slowing should come as no surprise as the mounting debt problems of its members show that austerity measures are intended to reign in government spending and not to provide additional stimulus. The fact that growth is not negative is actually a positive sign in my eyes, though the market disagrees this morning.
The Pound is also lower this morning as service growth came in lighter than expected, in addition to the news that polls show that a “hung Parliament” may become more likely at next month’s election.
Meanwhile, oil is trading below 86 and gold is around 1135, putting mild pressure on the commodity currencies.
The big news, however, is that there is increased speculation that a G-20 attempt to get China to revalue its Yuan may prove more successful than the bilateral approaches that had been tried before. It’s sort of like an intervention, where the drug addict has to hear it from everybody rather than just a few. I suspect we will begin seeing some Yuan strengthening in the near future.
In the forex market:
Aussie (AUD): The Aussie is marginally lower this morning on risk aversion themes after reaching an 18-month high vs. the Japanese yen. It is widely expected that the RBA is not finished with rate hikes this year as economic recovery is strong due to exports which may result in inflation. Tomorrow they will report employment figures.
Loonie (CAD): The Loonie is slightly lower this morning as oil prices are off a bit, but more and more investors are getting hip to the fact that the Loonie is poised for gains this year as it hovers around parity with USD. While yesterday I swapped the Loonie and Kiwi in the “risk hierarchy”, it doesn’t appear as though the market agrees with me. Yet.
Kiwi (NZD): The Kiwi is lower on risk themes as well, though slightly higher against the Loonie. I still think the Canadian economy is poised to do better this year, but the interest rate differentials may prove to be the difference. The Kiwi is setting up nicely as a buy vs. the Loonie based on technical factors.
Euro (EUR): The Euro is lower this morning and looks like it is going to re-test its lows of the year and beyond, especially if it continues receive “bad” economic news. During the financial crisis, the ECB did not lower rates as much as the US and the UK, so the Euro maintained some semblance of strength once global economic recovery started. Now that the other economies around the world appear to be further along, we could see some additional Euro weakness from a growth perspective, as well as any hidden debt “land mines” that could come about from some of the other PIIGS countries.
Pound (GBP): The Pound is lower this morning as services growth came in less than expected, renewing fears that there may be too much optimism about the UK economy. The BOE is expected to maintain interest rates and its bond-purchase in place as it may be too early to withdraw as economic recovery may be too nascent. With the additional concerns regarding the elections next month, fears are that the UK could see the dreaded “double-dip”.
Dollar (USD): The Dollar is higher against all but the Yen as risk themes are driving the market this morning. A few of the Fed governors including Bernanke are expected to speak today which should be nothing more than a CYA session.
Yen (JPY): The Yen is higher this morning as the BOJ kept interest rates unchanged as expected, and is benefiting from the marginal risk aversion we are seeing in the market. The BOJ did not cave in to ever-increasing pressure from the government to stimulate the economy, despite the fact that economic recovery is taking place alongside of deflation. The Japanese have experienced this type of economy for a long time so the BOJ may be content to allow recovery to happen without increased measures.
Problems still persist in the Euro zone and slowing recovery could send money and investment elsewhere. The debt issues present among the PIIGS countries highlighted by Greece are no secret. There is still fear in the marketplace, though that fear is starting to dissipate as more and more “good” economic news begins to outweigh the “bad”.
Because the forex market is inter-relational, there is always one currency benefitting at the expense of another. For some time now, one of the MAJOR economies of the world (China) has not participated in this market, which some believe was a major cause of the financial crisis.
Now that there is increased pressure to allow the Yuan to “re-value” or perhaps even “fluctuate”, there may be another player in the not so distant future that could provide one more outlet for money flow. Keep a careful eye on how this begins to play out. While nothing will change overnight, the prospect of a floating Yuan could bring world economies back closer to equilibrium.
Or the whole thing could blow up and a trade war ensues with China labeled a “currency manipulator” or whatever PC term they are using today. Either way, this is an important story to follow as it will have an effect on world economies and thus the forex market.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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