Hungry for Risk!
By Mike Conlon | July 6, 2010
After last week’s sell-off in world markets, investors are feeling more confident about economic prospects as the US markets return from the holiday weekend. Bank stress tests in Europe are intended to show transparency, and EU leaders are “banking on” hopes that the balance sheets are not as bad as previously thought.
Overnight, the RBA left interest rates unchanged in Australia, but signs that inflation (particularly home prices) may be rising is giving the Aussie a boost this morning.
World stock markets are higher this morning, as stock earnings season is almost upon us. There is a common notion that stocks may offer the best chance for growth despite the fact that world economies are putting on the brakes and trying to curb spending.
There is no major news on tap for the US in this shortened week, but we’ll get GDP figures from the Euro zone, as well as the UK rate decision on Thursday.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that the RBA left interest rates unchanged. The RBA did say that consumer spending and business investment are expanding, and they may be in the middle of a housing bubble due to housing shortages. This could foreshadow further rate hikes to come.
Kiwi (NZD): The Kiwi is also higher as risk appetite is back to start the week, despite the fact that business confidence figures have fallen as domestic demand slowed. Nevertheless, the market is betting that the next rate hikes will come from New Zealand, as they attempt to thwart inflation. However, the RBNZ has been cautious as economic growth and inflation may not accelerate as quickly as expected.
Loonie (CAD): The Loonie is also higher as oil prices are higher for the first time in 6 days as risk appetite is returning to the market. Canada’s employment report on Friday will show whether or not the economy is improving, but speculators have pared back expectations of a rate hike at the next policy meeting.
Euro (EUR): The Euro is also higher as comments from various officials regarding the bank stress tests have allayed market fears—for now. EU GDP figures are due out tomorrow, with CPI figures to follow on Friday. The market is expecting tepid growth despite the austerity measures various governments are undertaking to get deficits under control.
Pound (GBP): The Pound is mixed this morning trading lower vs. the risk currencies but higher against USD and Yen. The UK rate policy decision is due on Thursday, and no change is expected. The market is still reacting favorably to the UK budget cuts, however only time will tell if the economy is strong enough to support such measures.
Dollar (USD): The Dollar is mostly lower this morning (but up against Yen) in a week that is light on news out of the US. Comments from various Fed officials will likely be insignificant, and US stock earnings season kicks off next week.
Yen (JPY): The Yen is lower this morning on a classic risk-taking day as carry traders look to re-establish positions. Japanese stocks rallied overnight as a rally in Chinese stocks gave the market direction.
Most of the news that the market has received lately has been negative, yet so far the markets have been behaving resiliently. With not much news on the docket this week, the market will have time to adjust to the notion that we may be seeing slower, but steadier growth.
Next week will kick off earnings of US companies, and they are likely to be positive despite the economic slowdown. Right now, there is uncertainty as to where is the best place for investors to park their money, with fixed income investments paying little to no interest.
That is one of the reasons why the currency market has become one of the fastest growing markets for investors, as it provides alternate opportunities and a chance to benefit from global economic conditions.
Investors have been reaping the benefits that the currency market has provided for some time; isn’t time you join them? There is no time like the present; and if world economic conditions continue to behave as they have recently, the currency market should continue to flourish.
There is always a bull market somewhere in currencies; the trick is knowing where!
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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Be Careful What You Wish For!
By Mike Conlon | June 25, 2010
Overnight, the US Congress unexpectedly came to a deal and has agreed on bill regarding financial reform and regulation. The uncertainty surrounding this bill has been weighing on the markets, as it was unclear what the outcome might be.
As news trickles out of the 2000+ page document and what it means for the banks and the market in general, at least the uncertainty has been removed. Uncertainty= volatility. Now, whether or not this bill will actually accomplish what it is intended to remains to be seen. What my experience tells me is that no matter what is in the bill; Wall St. has already prepared for likely scenarios and has already devised ways to circumvent regulation. In addition, enacting legislation of this magnitude always comes at a cost, and the brunt of that cost is likely to be paid for by consumers, and not the banks themselves. Banks will simply pass through the new cost so that executives can still buy beach houses. If you don’t believe this will happen, take a look at bank stocks that are trading higher in the pre-market.
This comes ahead of this weekend’s G-20 meeting, where the US will push other nations to consider enacting similar reform.
Economic data is out showing that US GDP grew 2.7%, vs. an expectation of 3% and personal consumption figures were at 3% vs. an expectation of 3.5%. This falls in line with what the Fed said the other day that we are seeing growth, albeit moderate.
Overnight, Japanese CPI figures came in at -.9% vs. -1.1% showing signs that deflation may be subsiding.
The market started out in risk taking mode, but it appears that may be reversing.
In the forex market:
Aussie (AUD): New Australian PM Gillard has backed away from the mining tax that was the eventual downfall of her predecessor and is open to discussion and negotiation. The tax was largely seen as anti-investment in one of Australia’s biggest industries.
Kiwi (NZD): The Kiwi is lower despite a widening trade balance surplus but the market is concerned about a potential Chinese slowdown which could hamper demand for exports. However, this figure fell short of expectations (814M vs. 850M).
Loonie (CAD): The Loonie is higher this morning as its major trading partner (the US) appears to be the only country not entertaining the idea of reduced spending. Unlike the other commodity currencies which are more tied to China, expect the Loonie to benefit as long as the US maintains its spending spree.
Euro (EUR): The Euro is lower continuing the trend of heightened fear from the debt crisis. Today marks the fourth day in a row that European stocks are lower as we head into the G-20 weekend.
Pound (GBP): The Pound is mixed this morning and it will be interesting to see what (if anything) comes out of the G-20 meeting. The UK “tax and axe” strategy is diametrically opposed to the US strategy of “spend, extend, and pretend”.
Dollar (USD): The Dollar is somewhat mixed today as the market figures out exactly what this new financial regulation means. In addition, GDP figures were lower than expectations, but showed that growth, while moderate, is occurring.
Yen (JPY): The Yen is higher this morning, as CPI data showed that deflation came in less than expected. In addition, minutes from the rate policy meeting showed that there was actually talk of inflation. The Nikkei was down overnight, and speculation that the G-20 will not come to a consensus over global economic policy has strengthened demand for the safe-haven of the Yen.
All of my years on Wall St. have taught me one thing: that politicians in Washington DC cannot compete with the brainpower of Wall St. Today, champagne is flowing as the uncertainty over the worst-case scenario from financial regulation has been lifted. True, this isn’t a “home-run” for Wall St.; but I can tell you that they have been prepared for EVERY possible scenario to come out of this and already have plans in place to line their pockets at the expense of the general public.
While regulation is good in theory, it always brings about unintended consequences and in the end it is always the consumer that gets hurt. Now that this is out of the way, the G-20 meeting will be the focus of the weekend but don’t expect anything of substance to come out of it.
The major problem here in the US is jobs. Period. Next week’s Non-Farm Payrolls report will show if we are gaining any jobs in the private sector. If this is a bad number, look out below.
So there is potential for risk over the weekend, but my guess is the G-20 will be a non-event.
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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Greek Tragedy, Act II!
By Mike Conlon | April 8, 2010
Credit spreads are at the widest levels since the inception of the Euro as skepticism over Greek austerity is causing borrowing costs to skyrocket to the point where they may become unworkable. This has greatly heightened fears of Greek default, which in turn has put pressure on the Euro this morning.
In addition, the ECB predictably left interest rates unchanged at 1% in the wake of yesterday’s stagnating GDP report. ECB Prez Trichet is going to speak later and whether or not he dodges the Greek issue will be interesting to see.
In the UK, the BOE left both its asset purchase plan and interest rate unchanged going into the May elections as economic recovery is still on shaky ground and fears of the “double dip” persist.
All of this adds up to risk-aversion this morning and the different currency pairs are behaving as expected.
In the forex market:
Aussie (AUD): Australia added 19.6 K jobs last month and its unemployment rate held steady at 5.3%, almost half that of the US and Europe, giving support to the RBA decision to raise interest rates earlier this week. The economy appears to be chugging along in Australia as exports have been rising due to Chinese demand and the fact that Australia was largely able to sidestep the economic problems which are plaguing other world markets. Nevertheless, the Aussie is lower vs. Yen and USD on risk aversion.
Loonie (CAD): The Loonie is lower this morning as oil prices are lower as risk aversion is the theme of the morning. The Loonie is above parity with USD but still hovering. Canada will report its unemployment change tomorrow which if better than expected, could push the Loonie back to parity regardless of risk themes.
Kiwi (NZD): The Kiwi is just kicking about, trading lower on risk themes and commodity prices. No news on the Kiwi.
Euro (EUR): I feel like this story had been beaten to death already and without any positive news regarding backstops for Greece, the Euro will trade lower. A lower Euro is obviously good for exports (Germany), but default would be a catastrophe for the Euro which may bring structural issues to the forefront.
Pound (GBP): UK manufacturing surged to its highest level in almost 2 years, besting estimates two-fold. This is a good sign for the UK economy, which undoubtedly has benefited from a lower Pound. Despite this good news, the pound is lower as the BOE left the interest rate and QE program unchanged, and additional polls are showing that the Labor Party is gaining on the Conservative Party, which could lead to neither party holding a majority. It’s interesting to see that it is BAD news in the UK to have political gridlock, while it is actually favored here in the US. Go figure.
Dollar (USD): “Initial jobless claims increase unexpectedly” (AP). True headline. I mean really, is this really unexpected? We have a situation here in the US where Congress is spending like drunken sailors, our President is constantly speaking about everything under the sun EXCEPT jobs, and landmines keep trickling out of this new healthcare bill which shows that it will cost employers more and not less to implement. And people are “surprised” that jobless claims are higher? The Dollar is higher on risk-aversion. Nuff said!
Yen (JPY): Japanese machine orders fell vs. an expectation that there would be a gain as a result of increased overseas demand for Japanese exports. The Japanese are typically more cautious in their spending habits, so it may not be surprising that they are waiting to see more recovery in other global economies. So Japanese stocks are down and the Yen is higher as demand for Yen is higher due to risk-aversion and the un-wind of carry trades.
One of the great advantages to the forex market is that certain economic themes can play out over the course of a few days, thereby creating excellent short-term trends which can be played until the theme changes. This typically occurs by the reporting of some contrary news which causes the theme to reverse.
So at times I may seem like a broken record when news like the problems in Greece or UK elections are still in effect; but what that effectively does is drive that currency in the same direction until a situation is changed or some equal and opposite news outweighs the original driver of that currency.
This is the main reason why the forex market tends to trend better than all other markets, as governments cannot typically “turn on a dime” to reverse an undesirable trend.
So what are you waiting for?
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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The “Calm” Before the Storm!
By Mike Conlon | April 1, 2010
Today will be an interesting day for the markets as the US stock market is closed tomorrow for Good Friday. Traders may be positioning themselves ahead of the Non Farm Payrolls number due out tomorrow, which is expected to show a gain of 184K jobs vs. a loss of 36K last month. As I have mentioned ad nauseum, this number is of extreme importance as the market will use this figure to determine whether the US is beginning economic expansion, or still in decline.
In other regions, the Pound is higher on better than expected UK manufacturing numbers, and the New Zealand dollar is lower after an IMF report stated that the Kiwi was “over-valued”.
Today we are expecting the US ISM manufacturing number, which will signal how far along we are in economic recovery.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on renewed optimism over global recovery and risk-taking despite the fact that the trade deficit widened more than expected. Also adding to pressure on the Aussie was that manufacturing growth slowed last month, which may further contribute to sentiment that the RBA may hold on rates next week. However with oil above $84 a barrel, there is no doubt that commodity inflation is picking up. Futures and swaps are showing a 65% chance that the RBA will raise rates next week, though that figure is bound to change after NFP tomorrow.
Kiwi (NZD): The Kiwi is lower this morning despite risk appetite after an IMF report that reported that the Kiwi may be overvalued by “10-25%”. They also said that New Zealand should make spending cuts to return to economic surplus sooner. However it should be noted that part of this assessment was based upon an assumption that the US may tighten, which unfortunately may be economic fantasy.
Loonie (CAD): The Loonie is screaming this morning with oil above $84 a barrel and NFP on tap. The Loonie is only 100 pips away from parity with USD, and could get there tomorrow with a good NFP reading. No other news out of Canada. And frankly the Bank of Canada is happy for that.
Euro (EUR): The Euro is mixed this morning as German retail sales figures came in worse than expected in a sign that the Euro zone’s strongest economy may be weakening. In addition, the “rescue plan” for Greece appears to not be working as its primary function was to reduce Greece’s borrowing costs which as of today, is not happening.
Pound (GBP): The Pound keeps trucking along as signs are showing that the UK economy is improving. The UK Factory Index rose to a 15-year high as exports improved dramatically, no doubt in part of recent Pound weakness. In addition, the conservative party is increasing its lead at the election polls which many believe will bring the UK back to fiscal responsibility.
Dollar (USD): The Dollar is lower today as risk appetite is higher going into the 10 AM ISM Manufacturing number and in advance of tomorrow’s NFP. Should the number come in above analyst expectations of 184K, then we could see some major risk-taking (dollar weakness). If the number comes in positive but below analyst expectations, then we could see some mild-risk taking (mixed dollar). Should the number come in negative, we could see some MAJOR risk-aversion (dollar strength). Part of the problem is that the stock market is closed tomorrow and won’t reopen until Monday. A bad reaction could push equity futures lower over the weekend which could in turn cause a lower (much) open on Monday. So that is the basic scenario. However, with oil above $84 and possibly going higher, commodity inflation may force the Fed to move on rates sooner than later which could cause some dollar strength. Regardless of which way the number goes, expect to see some major movement.
Yen (JPY): The Yen is mostly lower today as the Japanese Tankan index sentiment rose to its highest levels since 2008. This index represents manufacturing confidence as exports have been stronger than expected. So the familiar story of Japanese stocks up, yen down as investors seek yield through carry trades is in full effect.
Tomorrow’s NFP is a unique situation for a couple of reasons. With stock markets closed for Good Friday, and the number expected to be positive for the first time in who knows how long (sorry too lazy to look up—but you get the idea) this could be THE pivot point in world markets.
Now I’m not trying to be Debbie Downer here, but my experience in the markets has taught me that sometimes when things look too rosy in the markets, that just might be the case. This situation could set up to be the “perfect storm” if the numbers don’t come in as expected. I feel like there might be not enough pessimism in the marketplace despite all of the inherent risks facing the market.
March can be a tricky month for stocks, and we’ve seen some of the more spectacular moves down occur (2008, 2009 come to mind). In addition, today is April Fool’s Day which brings out my superstitious nature. Now I’m not saying that the NFP number will be bad tomorrow, however I’ll be sitting this one out and content to let the market do what it does.
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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Topics: What To Look At In The Market | 1 Comment »
An RSI trick to get you more signals when the traditional settings just won’t do it!
By Sean Hyman | July 3, 2009
Many times, in stronger trends…the traditional RSI setting just won’t cut it (14 periods). It won’t even come close to the overbought/oversold levels of 30/70.
[B]However, if you tweak your RSI settings to where they are set to 9 periods…then you will find that the RSI gets wider swings which will trigger more RSI signals at or very close to the 30/70 levels when the 14 period didn’t even come close.[/B]
See my chart and you’ll see what I mean. Copy/Paste this link into a new browser and you’ll be able to see the chart. http://www.forextradingblog.com/wp-content/uploads/2009/07/rsi-14-9.JPG
[B]Note:[/B] In downtrends, it’s best to ONLY take sell signals for your entries. In an uptrend, it’s best to ONLY take buy signals for your entry signals.
I’ve circled many of the signals below that triggered on the 9 period RSI that didn’t trigger on the 14 period RSI setting. This would allow for a lot more potential trading opportunities on this chart with that one small “tweak”.
Try it out, mainly when your 14 period RSI isn’t generating enough signals often enough. See if you like it.
Sean Hyman
Tags: currency, dow, downtrend, forex, Hyman, lot, RSI, Sean, Sean Hyman, setting, time, tip, trading, trick, uptrend
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