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  • East Vs. West!

    By Mike Conlon | September 17, 2010


    This morning, both the US and the Euro zone reported less than expected CPI and PPI data respectively, showing that while inflation is positive is still underwhelming the market.  It is apparent that all of the accommodative monetary policy around the globe is not causing runaway price increases, and may be setting up for a soft landing.

    Meanwhile, the war of words continues between China and the US, with the former making veiled threats about US dollar instability affecting the US recovery and at the same time justifying their stance for currency stability.  Now the congress critters are joining the act, loathe missing out on an opportunity to get in front of the camera.

    Japan is also catching heat from their intervention, and frankly I don’t think they care what anyone else thinks at this point.  Everyone is out for themselves and global cooperation is a farce.  So it is now being confirmed that the intervention is “unsterilized”, which was different from the last unsuccessful attempt in 2004, as the Japanese are just simply printing money.

    Wait until Big Ben tries to counteract this move with further quantitative easing of his own.  I wonder if his “QE2” will end up more like the titanic, sinking the US economy.

    The morning started with markets higher, though it appears to be giving back earlier gains.  In addition, today is “triple witching” which can bring volatility.

    In the forex market:

    Aussie (NYSEARCA:AUD):   The Aussie is higher on risk taking on a day that is devoid of news Down Under.

    Kiwi (NZD):   The Kiwi is also higher on risk taking, as gains in Asian stocks boosted demand for carry trades.  This comes even after the RBNZ left rates changed the other day.

    Loonie (NYSEARCA:CAD):   The Loonie is mostly lower despite some risk appetite as oil prices are lower and US CPI data came in less than expected showing that Canada’s largest trading partners’ economy is slowing, in contrast to the Aussie and Kiwi.  (Click chart to enlarge)


    Euro (EUR):   The Euro is lower this morning as German PPI figures came in lower than expected, and chatter about the Irish banking system is picking up thereby putting the debt issue to the forefront.  While this is not enough to encourage risk aversion, it should be noted that construction outputs were also lower foreshadowing an economic slowdown.

    Pound (GBP):   The Pound is mixed this morning, trading lower against risk currencies and pulling back from earlier gains.  Next week, the minutes from the rate policy meeting will be released which will show if there are any other dissenters beside the lone board member calling for rate hikes.  (Click chart to enlarge)


    Dollar (NYSEARCA:USD):    The Dollar is lower this morning, as CPI data came in less than expected but still showing slight gains of .3%.  The Michigan Consumer confidence data is due out just before 10 AM EST so it will serve as a gauge of sentiment.

    Yen (JPY):   The Yen is weaker against all but the Loonie and Dollar, as today’s currency action is highlighted by geography.  Today the East a beast and the West ain’t the best!  Intervention seems to still be in the minds of traders who while tempted to test the resolve of Japan, haven’t done so yet.

    This is all setting up like a bad Rocky movie, with an East vs. West flavor to the currency market.  With no major news to move the markets, there’s lots of chatter coming from both sides of the Pacific.

    Today is triple witching for the markets, which means that we get options, index futures, and index futures options expiring so there could be some wackiness in the US equity market which could then move currencies if the correlations hold up.

    My guess is that correlations are starting to break down with Yen intervention being the major anomaly.  In addition, gold is at all-time highs around 1280–without inflation!

    Now is a time to be cautious in the markets, as uncertainty abounds!

    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!

    Disclosure: none
    Sep 17 11:16 AM | Link | Comment!
  • The Heat Is On!

    By Mike Conlon | September 16, 2010


    The potential trade war brewing between China and the US is starting to heat up as yesterday Treasury Secretary Geithner said that the US isn’t satisfied with the pace of Chinese Yuan appreciation.  This has been a major sticking point as a weak Chinese Yuan due to government control has allowed the trade balance to become so unbalanced that both US and global prosperity has been threatened.

    Meanwhile, the Chinese maintain their stance regardless of what other nations may think, and continue to use veiled threats about dumping Treasury bonds which could disrupt bond markets and the ability of the US to borrow.  China doesn’t like anyone telling them how to run their economy, and quite frankly the US is in no position to do so after the shambles that has been created here.

    However, it does not mean that we are wrong about China’s need to allow their currency to float just like every currency of every major economy around the globe.  It is going to take multi-national cooperation to get this accomplished, and countries must forgo their desire to buy cheap Chinese goods.  I don’t think the US can win a one on one trade war with China, as they have been allowed to amass capital for too long as a result of dubious policies.

    This could be the major wild card in the global economic balance, and unless something is done we will all continue down this unsustainable path.

    In the forex market:

    Aussie (NYSEARCA:AUD):   The Aussie is lower as risk aversion due to global economic uncertainty.  However, an RBA policy-maker said that the Australian economy is operating near full capacity and are near “full employment”.  This could bring about inflationary pressures if consumer spending picks up from “restrained levels”, which could encourage further rate hikes.

    Kiwi (NZD):  The Kiwi is lower today getting hit by the double whammy of risk aversion and that the RBNZ left interest rates unchanged at 3%, citing the earthquake as a disruption to economic activity.  Further dovish remarks have reduced the possibility of rate hikes.  (Click chart to enlarge)


    Loonie (NYSEARCA:CAD):  The Loonie is lower on risk aversion as oil prices have retreated to the 74.75 range and a flatter yield curve is predicting slower growth for Canada.

    Euro (EUR):  The Euro is higher despite the risk aversion and relative dollar strength as money flows are leaving Yen due to intervention and making their way to the Euro.  In addition, Euro zone trade balance figures came in much better than expected showing a surplus.  Also to note, the Swiss National Bank held rates steady as a higher valued Franc due to safe haven money flows has threatened their exports.  (Click chart to enlarge)


    Pound (GBP):   The Pound is mixed this morning as retail sales figures came in much worse than expected, showing losses vs. expected gains.  However, the Pound is not getting beaten up too badly, as it is probably also the recipient of some Yen money flows.

    Dollar (NYSEARCA:USD):    The Dollar is showing some initial strength consistent with risk aversion, however it may be giving back some gains as US Initial Jobless claims came in better than expected at 450K, and US PPI data showed a gain of .4% which was higher than the .3% estimate.  This can be classified as “less bad” news, so that may embolden the market to put on some risk.

    Yen (JPY):   The Yen is seeing some strength today after yesterday’s epic move thanks to intervention.  This is likely a technical pullback and profit taking and some risk aversion mixed in as PM Kan maintained that they were prepared to continue intervention if need be.  (Click chart to enlarge)


    The playing field in the global economy is not level thanks to Chinese currency manipulation.  China must allow its currency to float.  While this will not solve the “ills” that plague the US and thus global economy, it will be a step in the right direction.

    Nevertheless the US has shot all credibility as we have created a financial mess here, so international cooperation is going to be necessary to help restore balance.  Meanwhile, Japan stands by ready to further intervene and from what I am hearing will probably be successful as they are just simply printing Yen.

    So the global recovery appears to be happening, just at a much slower pace then everyone would like.  Those countries that behaved badly (ahem US) should be prepared to take their medicine and then move forward.

    While having more balanced trade with China will certainly help the US, there has to be a reduction in spending to help get deficits under control.  Otherwise, we will see economic deterioration going forward.

    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!

    Disclosure: npne
    Sep 16 10:20 AM | Link | Comment!
  • Intervention!

    By Mike Conlon | September 15, 2010


    Japanese yen, you have affected my life negatively in the following ways….

    Wait a second, that’s not true at all!  All kidding aside, as I mentioned in yesterday’s blog, PM Kan was being tested by the markets as to his resolve to intervene in the rising Yen.  And last night they did just that, unilaterally selling Yen in an undisclosed amount and intervening for the first time since 2004.

    This has caused some major Yen weakness, which is lower against all of the majors by as much as 3%.  A stronger Yen was seen as negative for Japanese exports, which would eventually hurt Japan’s competitiveness and thus strangle economic growth.

    But now the fun may be just getting started.  It will be very interesting to see if the Yen bulls re-group and try to push Yen higher again, or if the US Fed decides that another round of quantitative easing is necessary to “help” the US economy.

    This intervention has pushed Asian equity markets higher, though there appears to be no follow through in Europe or the US.  So today is a bit of an odd day for currencies, as mild risk aversion is causing US dollar strength, yet there is obvious Yen weakness.

    In the forex market:

    Aussie (NYSEARCA:AUD):   The Aussie is trading higher vs. the Yen but tracking lower against the rest in what would otherwise be a classic risk aversion scenario.  Consumer confidence figures fell for the first time in 3 months, which could give the RBA reason to hold off on rate hikes throughout the rest of the year.  (Click chart to enlarge)


    Kiwi (NZD):   The Kiwi is trading similarly to the Aussie ahead of tonight’s RBNZ rate decision, which is expected to show no change from the current 3%.  Recent economic data plus the earthquake may have slowed GDP growth for the quarter.

    Loonie (NYSEARCA:CAD):   The Loonie is also mostly lower as manufacturing sales figures came in worse than expected, showing a decline of .9% vs. an expectation of a rise of .2%.  In addition, oil has pulled back to a 75 handle as economic uncertainty has increased.

    Euro (EUR):  In the Euro zone, CPI figures came in mostly in line with expectations showing that inflation is slowing but still gaining despite the austerity measures happening in certain countries.   While it’s no secret that economies are slowing, the key will be whether or not they can continue to recover, albeit more slowly.

    Pound (GBP):  Jobless claims in the UK came in higher than expected showing a 2.3K gain in claims vs. an expectation of a 3K reduction.  However, BOE chief King spoke in favor of a “credible deficit-cutting plan” as a key to maintaining accommodative monetary policy.  Despite recent CPI data, it is unlikely the BOE will move on rates this year.  (Click chart to enlarge)


    Dollar (NYSEARCA:USD):   The Dollar is seeing strength this morning as Yen intervention has pushed cash to the greenback.   Mortgage applications were down 8.9% and the Empire Manufacturing figures came in lower than expected.  So the economic picture here in the US doesn’t look rosy, but risk aversion this morning has had the doubling effect now that Yen is not a safe haven destination as intervention is taking place.

    Yen (JPY):  Intervention.  Say no more.  The question now is whether or not the US will increase its own quantitative easing or if the forex market wants to see how committed Japan is to maintaining a weaker Yen.  The recent lessons (and losses) of the Swiss National Bank (SNB) may still be fresh in both traders’ and policy-makers’ minds.   (Click chart to enlarge)


    Ask and you shall receive.  I said just yesterday that I thought re-confirmed PM Kan would surprise the market by intervening and it looks like no time was wasted in letting that happen.

    But what does this mean for other markets?  My guess is that we see some of the usual correlations break down a bit as the market determines the best place for money to flow.

    In the meantime, Japan must prepare for “attacks” on its line in the sand, as traders will most likely continue to test Yen levels as risk themes heat up.  The global economy appears to be slowing as deficit reduction and reduced consumer demand is a prevalent theme.

    Also to consider is what will happen with the Chinese currency, as the US is going to put additional pressure on China to allow its currency to appreciate.  This could be the wild-card in the global economic recovery.

    Any way you slice it, volatility is on the rise which should make for some exciting trading!

    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!

    Disclosure: none
    Sep 15 10:05 AM | Link | Comment!
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