« Been There, Done That! | Home | Risk Heating Up! »
Fearful Friday!
By Mike Conlon | April 16, 2010
This morning is starting out with a moderate bias toward risk-aversion. There is no real news in the marketplace that should change this bias going into the weekend. The themes are very familiar, as I pointed out yesterday, and I would be surprised if traders weren’t lightening the load going into the weekend.
Let’s start with the Euro. Greece has requesting a meeting with the EU, IMF, and ECB that will begin on Monday. Many believe that this will begin the process of requesting aid under the terms of the previous agreement. However, Germany is balking and the situation may become untenable as Greek bond yields are soaring through the roof, thereby raising the cost to Greece to receive funding.
In the UK, the first televised debate occurred last night and the consensus winner was….neither the conservative nor labor party candidate. It was actually a third-party candidate, now throwing the notion of political gridlock even further in the mix.
Lastly, Chinese Yuan forwards are higher as the market believes that China may be closer to relaxing it’s currency peg to try to slow down it’s overheating economy. No one is really 100% sure of what this is going to mean for the global economy, so uncertainty abounds.
In the US, Google (GOOG) earnings last night disappointed, but US housing starts came in higher than expected this morning. Consumer confidence figures are due out at around 10AM EST.
So all of this equals risk aversion, and I don’t expect a reversal going into the close today.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion this morning. A potential Chinese slowdown will affect Australian exports. No other news from down under.
Loonie (CAD): The Loonie is lower this morning for the same reasons as the Aussie, and is now trading below parity with USD. Expect the Loonie to hover around parity until either a major risk event occurs in the marketplace prompting a flight to safety, or the BOC hints of a rate hike prior to its next policy meeting.
Kiwi (NZD): All is not lost in New Zealand! The Kiwi is actually higher this morning despite risk-aversion, as housing prices rose 1.7% from last month. However, this blip on the screen of inflation will not be enough to convince the central bank to raise rates, as the NZ economy is still mired in high unemployment and tight credit conditions.
Euro (EUR): The Euro. Wow. All I can say is wow. It didn’t take long at all for Greece to start asking for money and for Germany to already start back-pedaling. I think it’s unfortunate that Greece may not be given a chance to turn its economy around despite the position they have put themselves in. Germany’s holier-than-thou attitude is a major detriment to the entire structure of the EU, despite the fact that Germany was allowed to thrive on the back of the countries like Greece.
Pound (GBP): So now a third-party candidate has emerged in the battle for control over the UK government. At first it was the showdown between incumbent, Labor Party Brown vs. Conservative Party Cameron. Now Liberal Democrat Clegg has emerged as the winner of last night’s first televised debate, further complicating matters. So the Pound is lower and expect it to trade in a range heading into the May elections, all things being equal.
Dollar (USD): US equity futures are lower this morning as are commodities, as Google reported worse than expected earnings last night. The Dollar is higher as the flight to safety trade is in effect, and while housing starts came in better than expected, the market is starting to realize that more housing starts may mean further supply which could further depress prices, especially if these new projects come in under current market rates. Consumer confidence is coming out and if the number is worse than expected, I think we could see a further strengthening of US and weakening of stocks.
Yen (JPY): The Yen is higher as carry trades are being un-wound going into the weekend. Risk aversion affects the Yen as it is the vehicle of choice for most carry trades. The Yen pulled back a bit as a Japanese government official said that the BOJ should shoot for a 2% target inflation rate. It is widely believed that the only way to combat Japanese deflation is through a weaker Yen.
Despite encouraging economic data emerging from various parts of the globe, there is still MAJOR risk in the markets. While the US stock market may be humming along, there is still a major disconnect between Wall St. and Main St. The world is counting on US recovery but this may drag out for a long, long time.
In the meantime, if the Euro collapses because they can’t get their act together, it could set off a chain reaction the likes of which no one has seen before.
And throw China into the mix, which no one knows what they’re going to do, and it all adds up to a Fearful Friday.
Now is not the time for the “hero trade”, and I suggest paring back positions going into the weekend. Better to be safe than sorry.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, bank, cad, carr, carry trade, central bank, China, commodities, course, currenc, currency, currency market, currency trading, data, demo, dollar, dow, ECB, economic, economy, EUR, Euro, fear, forex, forex market, free, fx, fxedu, gbp, Il, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, money, new zealand, news, nzd, pound, practice, practice account, rate, RSI, ssi, stock, stocks, time, trade, trader, trades, unemployment, USD, Yen
Topics: What To Look At In The Market | No Comments »