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Forex Gump is my incognito name. My real name is Feras Gimp. When I was a kid, my parents would make me hunt and gather food. So every day, I would go fish at a nearby lake and gather corn from the fields. This process took me all day and left no time for me to play. Play time actually didn’t... More
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  • G7 Gives Two Thumbs Up To The BOJ

    G7 summits aren't usually known to be eventful. In fact, they can be quite boring at times! Finance ministers usually just talk about things happening in the global economy and rarely come up with anything new.

    However, this wasn't the case in the G7 summit held this past weekend. The meeting of the world's top nations actually produced quite a bit of volatility in the forex markets. Just take a look at the many weekend gaps that formed on the charts and you'll see exactly what I mean!

    In a surprising turn of events, G7 finance ministers gave the rising U.S. dollar and falling Japanese yen their nod of approval. They seem to have no problem with the Bank of Japan (BOJ)'s super-easy monetary policy, saying that it's a-okay in their books since it's aimed at boosting the economy rather than directly weakening the yen.

    But in every party is a party pooper. In the G7 summit, this role was played by Wolfgang Schäuble, Germany's finance minister. He was the only participant who thought twice about giving Japan the green light, as he feels that "the relatively high levels of liquidity" in the markets could pose risks to the global economy.

    One can't help but wonder if Schäuble is merely protecting his own interests. After all, Germany is second only to China in global exports. It stands to suffer in the wake of a weaker yen, as it competes with Japan in many of its top exports (motor vehicles and machinery).

    (click to enlarge)

    As a result, USD/JPY finally made a clean break above the 100.00 barrier. As you can see in the weekly chart, it is currently edging close to the 102.00 major psychological handle - a level it hasn't reached since October 2008.

    I don't know about you, but the G7 finance ministers seem to have given the green light that market participants have long been waiting for, paving the way for further yen weakness. They basically showed the market that they have a united front, which completely dissipated the fears of the "brewing" currency war. Hopefully, the G7 officials are right, and the BOJ's actions will eventually lead to a stronger and healthier Japanese economy.

    May 15 4:19 PM | Link | Comment!
  • CAD: The Go-To Currency Amid This War?

    A currency war happens when governments competitively devalue their respective currencies. And ladies, gentlemen, alien robot, and monster, we are currently in the middle of one.

    Some of the world's major economies have been struggling, whether its a battle with rising employment rates, weakening exports, or keeping stagflation's ugly head from appearing. Consequently, this has convinced central banks all over the world to implement measures that weaken their currencies, in one way or another, to help encourage foreign investment, making exports more competitive, or to keep the price of goods and services balanced.

    I know this isn't exactly shocking news. The Fed announced QE3 in September 2012, British central bankers have been engaging in asset purchases for a while now, and the SNB announced its peg on EUR/CHF last year.

    However, a few more central banks joined in on the fun and have recently pulled off a few tactics too.

    This year, it all started when the BOJ unleashed its aggressive monetary easing policy under BOJ Governor Kuroda. A month or so after, the ECB also eased its monetary policy by cutting its benchmark rate by 25 basis points. It was soon followed by the RBA which slashed rates below 3.00% for the first time in history to 2.75%. Meanwhile, the RBNZ admitted that it's been secretly selling the Kiwi, marking the central bank's first intervention since 2007.

    (click to enlarge)

    So what now?

    It doesn't take Superman's X-ray vision to see that among the central banks listed, the BOC is the only one that isn't on the devaluation bandwagon. I couldn't help but think that maybe it's time to buy the Loonie.

    What do you think?

    Of course, I don't want to get ahead of myself and bet the farm on the comdoll. After all, Mark Carney will soon turn over his baton and Steve Poloz will become the next BOC Governor. For all we know, the new head honcho could turn out to be more dovish than Carney if domestic data starts to turn for the worse. It's also worth considering that it may only be a matter of time until the BOC reacts to the ongoing currency war and cuts rates to maintain or boost its export competitiveness too.

    Still, I think it's worth everyone's while to remember that the BOC is one of the few major central banks that is not doing anything directly nor indirectly to weaken its currency.

    Well, at least, not yet.

    May 15 4:07 PM | Link | Comment!
  • BOE: All's Good In Britain

    Equipped with fresh positive economic data, the Bank of England's (NYSE:BOE) Monetary Policy Committee decided to hold interest rates at 0.50% and make no changes to its 375 billion GBP asset purchase program. According to the policymakers, the U.K.'s fundamentals are improving, so there's really no reason to... well, rock the boat. As the old adage goes, "If it ain't broke, don't fix it!"

    It all makes sense too. Expanding the quantitative easing program would only give minimal benefits to the economy but greatly increase the risk of higher inflation. The U.K.'s current inflation rate stands at 2.8%, 0.8% higher than its official inflation target of 2.0%. Besides that, analysts are saying that the certainty surrounding future monetary policy is giving a lot of confidence to businesses and households.

    Granted it's still too early for the central bank to proclaim that sustainable recovery is happening, but the recent string of good economic data gives little reason for those who resisted further stimulus measures to change their stances.

    As I've mentioned a few days ago, the country's GDP report for the first quarter showed that the economy grew 0.3%, which was notably higher than the 0.1% increase the market had initially expected. Moreover, the positive figure established that the U.K. didn't fall into another technical recession.

    Leading indicators are also pointing to further growth. Below is a brief summary of the most recent PMI readings:

     ActualForecastPrevious
    Manufacturing49.848.648.6
    Services52.952.552.4
    Construction49.448.147.2

    Even though both manufacturing and construction are still below 50.0 (the level that divides growth from expansion), they both came in much better than forecast. They were also significant improvements from the previous month's readings. The services sector, meanwhile, is healthily growing.

    If there's any threat to the U.K.'s recovery, it will come from the outside rather than internally. The euro zone, which is the U.K.'s biggest export market, is expected to contract by 0.3% this year. This could negatively affect demand for U.K.'s exports and hurt the economy's growth.

    Assuming good data continues to come in, the BOE will likely keep the current monetary policy in place until Mervyn King gets replaced by a potentially more dovish Mark Carney in July. That being said, next month's meeting (June) will probably be another non-event for the foreign exchange market.

    May 15 4:06 PM | Link | Comment!
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