Saturday, July 17, 2010

Market Makers Focus on the Positive Keeping Risk Appetite Strong


Forex Special


Monday, July 12, 2010

Slow news day left nothing more than a pullback against the USD as the market awaits some news that gives them the thumbs up to trade again.
The Euro was lifted to new highs on Sunday’s positive outlook for the week, but quickly returned to last week’s levels at 1.2620 and then lower through the NY session. It seems that the Euro Zone’s efforts to put the onus for financial recovery first on the banks may stymie the Euro’s growth for the medium-term as stress tests will take time and the outcome is uncertain. Long term it could pay off for the stretched Union since the more that the banks can pay for their own debt and damage the fewer state funds will be required to insure solvency.
The Cable left its weakened a tad on news that Britain’s Gross Domestic Product (GDP) numbers came in steady at .3% in their MoM data but dipped a tad in the YoY report, from .2% to -.2%.
Without much else on the calendar, the market remains in a holding pattern. Though it seems likely that some USD strengthening is in order after last week’s selloff.
Next Monday:
  • AUD Reserve Bank News

Tuesday, July 13, 2010:

The market seemed to ignore Portugal’s downgrade by Moody and ignore bad jobs reports and focus on the strong equities markets and the strong T-bills auction in Greece bringing a lot of quick and emotional strength to the Euro during early NY Session.
The Pound, the Kiwi and the Yen all strengthened on that bit of positive news as well, though none nearly as strong as the Euro.
The British Pound did have some reason of its own to experience some strength in that their Consumer Price Index (CPI) fell again this month from .2% to .1%. With all eyes on inflation and inflation control, this natural check to inflation has relieved the Bank of England (BoE) of some of the pressure to raise interest rates too soon.
The biggest note to self in today’s reaction to news is that the JPY didn’t follow the usual pattern of weakening on increased risk appetite. Instead it has strengthened. This decoupling could mean the end of the carry trade for a long, long, long time. It could also mean big, big trouble for the Japanese economy which relies on a weakened currency to propel their export driven currency and is quickly running out of intervention options. Not a good combination for Japan.
Recent New Zealand reports of an increase of both Credit Card Sales and Visitor Arrivals has predictably led to an increase in their Retail Sales boosting May’s numbers from -.3% to .4%. Good news for the Kiwi as it stands to gain a lot of attention and money from a global marketplace that is looking to diversify into commodity currencies.
Next Tuesday:
  • EUR Germany’s Producer Prices
  • CAD BoC Rate Decision
  • NZD Visitor Arrivals

Wednesday, July 14, 2010

More good news for the GBP today as their employment numbers have been reported to show that not as many jobs were lost in June as in May. While it seems to be the kind of news that is merely “less bad” it is still movement in the right direction and being coupled with yesterday’s decrease in CPI numbers may give Britons some breathing room and move to further inject market confidence into foreign exchange.
The Euro stays somewhat steady after a quick rise above resistance during the early NY session. Buying sentiment seems to be waning as directional movements are getting smaller and losing momentum. The market has a lot of good news/bad news to weigh out of the EZ and it seems to be moving very cautiously into the wounded, but healing currency.
The US has reported some positive advance numbers for Retail Sales as well as a decrease in the Import Price Index, MoM from -.6% to -1.3%, YoY from 8.6% to 4.5%, which should go a long way toward negating the poor Trade Balance numbers that came out Tuesday. The US is doing more importing than exporting right now – bad news for the long haul – but if they’re going to do it, it is better for manufacturing expenses and CPI that the import prices have decreased.
What is problematic for the USD, however, is the Fed’s outlook for long-term interest rates remaining near the zero mark as risks to recovery have remained intact, despite positive GDP and Employment in the first half of the year. This shift in outlook is definitely discouraging as the mid-year was the goal for the Fed to begin backing out of stimulus injections and looking for growth measures.
The JPY got whipped around today as Japan’s budget plan has been called into question by the IMF as being too vague. Interestingly Prime Minister Kan first proposed a sales tax increase over any budget cuts. While that proposal did get shut down in parliament it does show a reluctant on the administrations part to rein in spending on a grander scale. This could mean longer term hardship for the Japanese economy whose gross debt is already 215% of their GDP.
Next Wednesday:
  • NZD Credit Card Spending
  • GBP BoE Minutes
  • CAD Wholesale Sales

Thursday, July 15, 2010

Risk appetite stays strong as US and equities earnings are beating estimates and European treasury instruments are selling well.
The Euro strengthened further on another surprise treasury auction, this time out of Spain. To have two of the worst hit economies in the EU do so well has gone a long way toward keeping the market’s big buck in play. The Pound, Kiwi and Yen seemed to ride the Euro’s coattails throughout the NY session as well.
It seems that BP’s small progress on the oil spill created a bit of a bump in the GBP as well, providing more buying momentum that just risk acceptance.
The Kiwi also had its own inherent reason to strengthen as New Zealand saw a decline in Consumer Price Index (CPI), QoQ from .4% to .3% and YoY from 2% to 1.8%. Good news for such a Retail driven economy.
The USD had mixed new. On the positive side the Producer prices have pulled back making manufacturing more affordable, on the negative side a couple precursors to GDP health have continued the pullback from last month. The Empire State Manufacturing Survey, the Philadelphia Fed Manufacturing Survey and the Industrial Production numbers all lost points in most recent reports.
Also…still an interesting note that the JPY strengthened on increased risk appetite once again. Not its usual course of action when the market is feeling positive.
Next Thursday:
  • EUR Germany’s Services PMI
  • GBP Retail Sales
  • CAD Retail Sales
  • USD Employment

Friday, July 16, 2010

Big surprise in today’s news was a larger pullback in the EU’s trade balance than expected. A pullback from 1.6B to .8B was expected in May however numbers plummeted to -3B. This comes as a big surprise since it has been assumed that a weak Euro that makes their exports more affordable worldwide would help keep a better, albeit not ideal, balance in place. The Euro experienced a very sharp selloff in response to the news.
Adding further fuel to the fire is a small rise in the US’s CPI, putting some inflationary pressure back on the USD. Also of note out of the US is the Senate’s approval of financial reform. Shakeups in general tend to decrease risk appetite and that seems to be the case today as well as the USD makes abrupt gains on the news.
Interestingly, the Yen continues to strengthen as well.
The Loonie saw a slight rise in their Leading Indicators moving from .9% to 1% in June. This number has hovered near 1% all year so that’s not a real reason to buy the CAD. However, should we see an increase in Retail and Wholesale Sales it is likely that the three positive elements could point to good GDP for Canada.
This report has been generated prior to NY Session’s close. Please visit www.Triffx.com for an updated report at the end of the day.
Next Friday:
  • GBP GDP
  • CAD CPI

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