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Forex Daily News | Forex Articles | Forex Information
Wednesday, 24 November 2010 12:59

Markets Close Higher Amid Upbeat Economic Data

Contributed By: DailyFx

U.S. Session Key Developments

* Reuters/University of Michigan Consumer Sentiment Index Outpaces Expectations
* American’s Personal Income Grows at Faster Pace

Markets Close Higher Amid Upbeat Economic Data

U.S. Markets closed higher on the back of retail stocks ahead of black Friday and the upcoming holiday season. Markets today erased almost all of Tuesday’s sharp declines as the latest economic data painted an improving picture for US growth. Today’s market gains were led by consumer discretionary and technology stocks, after the latest data showed consumers are beginning to become more upbeat.

The Reuters/University of Michigan consumer sentiment index’s rose to 71.6 in November, substantially outpacing expectations. The consumer sentiment numbers came shortly after data showed the labor market is slowly recovering, as the number of US workers filing new claims for jobless benefits fell by more than expected last week to the lowest levels since July 2008. Also, Americans’ personal income grew at a faster pace than they have for much of the year and consumer spending expanded. However, orders for durable goods marked the sharpest drop in almost two years, and new home sales fell for the fourth time in the last six months.

DJIA 30 / 11,187.28 / +150.91 / +1.37%

The DJIA closed higher as 9 out of 10 sectors closed in the green. The benchmark gauge was led higher by the Industrial and basic material sector with 2.12 and 1.96 percent gains, respectively. The Dow was higher today after upbeat economic reports and easing European sovereign debt concerns as Ireland is close to finalizing a bailout. Amazon jumped to a fresh all-time high, soaring 5.4 percent ahead of the upcoming holiday.

S&P 500 / 1,198.35 / +17.62 / +1.49%

The S&P 500 gained back some ground after experiencing a substantial decline early in the week. Jewlery retailer Tiffany added to the enthusiasm over retail spending, jumping 5 percent after reporting a 27 percent increase in earnings. Coach added 3.8 percent, and Polo Ralph Lauren gained 2.8 percent. UBS traded relatively flat after the trustee recovering money for victims of Bernard Madoff’s Ponzi scheme accused UBS of actively participating in the fraud and sought 2 billion dollars from the bank.

NASDAQ / 2,543.12 / +48.17 / +1.93%

The NASDAQ experienced the largest gain among the three major US benchmark gauges. Oracle jumped 2.2 percent after a jury ruled that German software group SAP must pay the company $1.3 billion because of intellectual-property theft. SAP was off 1.2 percent as a result of the verdict.

Published in Forex News

Contributed By: DailyFx

Gold: Reversal In the Horizon as the Bullion Comes Under Pressure

Fundamental Forecast for Gold: Bearish

* Gold Resistance at 1388
* Gold Advance to be Short Lived
* Gold – Forex Correlations Break Down on Korean Conflict

Gold halted its two week decline but this week’s advance may be short lived as the yellow metal comes under pressure, while the dollar index looks poised to continue its northern journey after breaking above its descending channel dating back to June. Going forward, gold bears will closely monitor key support at the $1340/oz area. Though upside momentum is slowing, market participants should not rule out another push higher in the bullion as concerns regarding the sovereign debt crisis in the Euro-Zone lingers.

According to a survey by Bloomberg news, 73 percent of the investors and traders surveyed said that they expect the yellow metal to advance next week. This assumption can be accredited to fears that the crisis in Ireland will spread to its neighbors like Ebola despite the fact that Ireland accepted an EU-IMF bailout. On average, the greenback and gold are inversely correlated, but the possibilities of the two moving in tandem have increased as traders will seek an alternative to the euro in light of additional concerns surrounding the Euro-Zone’s troubles. Furthermore, concerns in Asia may lead the buck and precious metal to rise in parallel. As of late, Reuters reported that North Korea said the peninsula is inching closer to war due to South Korea – U.S. military drills.

At the same time, traders should not overlook the inverse correlation between Gold and the U.S. dollar due to the fact that the greenback has recently broken above descending channel dating back to June and hinting at additional gains. Furthermore, market participants should note the high correlation between the AUDUSD and the precious metal, which stands at 0.62. It is worth noting this fact because the AUDUSD is displaying a head and shoulders pattern, which may lead the pair to push lower in the upcoming days. All things held equal, gold should follow the aussie’s course and begin to sell off. Not to overlook, this week’s calendar is filled with event risks that could serve as the breakout catalyst for the metal. U.S. consumer confidence is scheduled to be released on Tuesday, while the market moving U.S. non-farm payrolls will be announced on Friday. With regards to the latter, economists are forecasting payrolls to rise 145K in November after climbing 151K the month prior. A reading better than expected may push the dollar index higher, and lead price action in gold towards the opposite direction. At the same time, the European Central Bank interest rate decision is also on tap.

Taking a look at price action, the precious metal is beginning to display the begging formations of head and shoulders pattern. Meanwhile, the MACD has yet to reverse course after crossing to the downside last week. Indeed, downside risks are capped by the 50-day moving average. A break and a close below this level may lead the pair towards the $1300/oz area.

Published in Forex News

Contributed By: DailyFx

 British Pound: Euro-Zone Debt Concerns to Dictate GBP Price Action

Fundamental Forecast for British Pound: Bearish

* British Pound Pares Decline on Comments From BoE
* British Pound Losses May Continue as Traders Seek Safety

The British pound pushed lower against the U.S. dollar this week and will likely continue its southern journey in the near term as debt fears in the Euro-Zone continue to rattle the markets. At the same time, a shift in investor sentiment may be in the horizon, which does not bode well the pound. With a light economic docket in the U.K. in terms of event risks, market participants should not rule out additional losses in the currency as risk aversion will likely be the main driver this week due to War concerns in Korea and debt contagion fears in the 16 member euro area.

The British pound has been under immense pressure as of late due to Ireland’s woes. Increased concerns surrounding Irish woes have rattled the U.K.markets due to the fact that banks in the region have a larger exposure to the Irish financial system than any other country. Indeed, Ireland announced that it has accepted an EU-IMF bailout. However, the exact figures have yet to be released, and so long as concerns in the bloc remain, Great Britain will likely fell the impacts of any market reaction. Going forward, market participants will shift the spotlight to Portugal and Spain. Taking a look at the fundamental developments from last week’s session, the only notable event was the economic activity report. Figures rose 0.8 percent in the third quarter, which was in line with economists’ expectations. Next week, GBP traders will face nationwide house prices, net consumer credit, and the M4 money supply. The housing index is of great importance due to the fact that it can precurse broader inflationary pressures. At the same time, PMI services, construction, and manufacturing are all on tap and will provide market participants with a gauge regarding future outlook. On another note, the docket in the world’s largest economy is filled with event risks, specifically the market moving non-farm payrolls report. A better than expected report may fuel momentum in the U.S. dollar as the currency reverses course from its southern voyage.

Taking a look at price action, the GBPUSD has broken below its rising trend line dating back to the middle of May, which is indicative of further losses. At the same time, the MACD continues to point to additional downside risks, while our speculative sentiment index stands at an extreme of 2.48, and signals for declines in the near term. All in all, remain short the British pound this week as technical indicators continue to point to downside risks. Gains should be capped by the 1.5950 area.

Published in Forex News

Contributed By: DailyFx

 Fundamental Forecast for Japanese Yen: Neutral

* Yen to Fall vs US Dollar as Yields Continue Post-QE Correction
* Japan’s Trade Balance Surplus Widens as Import Growth Softens
* Speculative Sentiment Hints USDJPY Gains to be Short-Lived

The Federal Reserve’s reboot of quantitative easing (QE)earlier this month remains the driving force behind Yen price action, albeit in two distinct ways, hinting the Japanese currency is poised to rise against most of its major counterparts while trading lower against the US Dollar.

Ben Bernanke and company delivered just about what the markets had priced since policymakers initially floated the idea of renewed stimulus at the Jackson Hole central bankers’ summit in August, robbing the subsequent four-month rally across the spectrum of risky assets of the impetus to continue and opening the door for profit-taking. Over recent weeks, this underlying tendency toward risk aversion has found added fuel in a toxic mix of geopolitical and sovereign risk as North Korea shelled its southern neighbor while the Euro Zone continued to struggle with festering debt problems on its periphery.

More of the same is likely ahead after KCNA – North Korea’s official news agency – said “escalated confrontation” would lead to war on Friday, adding it was “ready to give a shower of dreadful fire and blow up thebulwark of the enemies.” Meanwhile, bad news continued to flow out of Ireland where the ruling Fianna Fáil party lost a key by-election in Donegal South-West, narrowing its majority in the lower house of parliament (the Dáil) from three to two seats and threatening the passage of its budget on December 7.All this coupledwith the specter of a slowing growth in China– the world’s second-largest economy and Japan’s top export market – after reserve ratios rise 50bps on Mondayhints the path of least resistance points lower for the spectrum of risky assets, spurring an unwinding of carry traders funded cheaply in Yen and boosting the currency against most of its higher-yielding counterparts.

Sizing up the Japanese unit against the Dollar amounts to a different matter, however. Indeed, the very same QE expectations that drove risky assets higher since August had also weighed heavily on US bond yields. This drove USDJPY lower as a narrowing in the US-Japan yield spread in favor of the Yen pushed traders to diversify into carry trade positions using the greenback as a funding currency. With QE now in place, this yield spread has staged an analogous correction to that seen in risky assets, rising by a whopping 11.3 basis points (58.1 percent) since the beginning of the month and pushing USDJPY to end last week at the highest level in two months. This dynamic is poised to remain in force as the broad-based unwinding of QE-linked bets continues, pushing the Yen lower against the Dollar even as it scores gains elsewhere.

Published in Forex News
Saturday, 27 November 2010 12:23

Euro Remains Vulnerable as Focus Turns to Portugal

Contributed By: DailyFx

 Euro Remains Vulnerable as Focus Turns to Portugal

Fundamental Forecast for Euro: Bearish

- Irish Bailout Fails To Ease Concerns

- European Manufacturing and Service Sectors Sees Accelerating Expansion

- German Business Confidence Surges

The Euro continues to tumble despite the final touches being put on a bailout package for Ireland, as contagion fears have heightened. The E.U. is expected to finalize a plan to provide 85 billion Euros to help support the Irish banking sector and the country’s fiscal needs. The funds will come from the European Financial Stability Mechanism (EFSM), the European Financial Stability Facility (EFSF) and the IMF. The troubles in Ireland have been a weighing factor and although there was some brief support from the country’s acceptance of aid, concerns quickly turned to who would be next. Meanwhile, European fundamentals continue to show a sustaining recovery as both the manufacturing and services sectors expanded at a faster pace. German investor confidence also spike higher in November, despite the re-emergence of the debt crisis. Therefore, if European leaders can find a solution that will ease market concerns we could see a rebound in the Euro based on existing growth.

Markets have now turned their focus toward Portugal which is making the task of getting ahead of the crisis difficult for the E.U. leadership. Rumors have surfaced that pressure is being placed on Portuguese officials to make steps toward accepting their own aid package, which they have refuted. Nevertheless, markets continue to shy away from the regions debt and if that continues then the problems may not go away until they feel that all the troubled countries are properly capitalized and can meet their short-term needs. Considering that it may take more than one round of help to fully restore investor confidence, we could see the region’s debt issues remain a weighing factor on the single currency.

European Central Bank Governing Council member Axel Weber said Wednesday that the EFSF should be enough to cure markets fears of member insolvency, and if it isn’t, more money will be provided. The tough talk from the head of the German Deutsche Bundesbank will be a key in restoring confidence, as a full commitment from the region’s largest economy to the process has been questioned. The main story line for the week will be how this saga plays out which could make the upcoming ECB rate decision a potential market mover as the central bank’s reaction to the region’s troubles could shape the outlook for future monetary authority. Signs that policy makers are slowing their efforts to remove liquidity from markets will push out the horizon for a rate hike, adding to Euro weakness. Despite the overwhelming bearish case, a resolution in Ireland, steps toward solving Portugal’s issues and a strong US labor report could reignite risk appetite, potentially proving short-term EUR/USD support.

Published in Forex News

Contributed By: DailyFx

 * Dollar Rally to Eight Month High on European Fears and Korean Troubles May be Soon to Stall
* Euro Traders Show Little Relief in Irish Bailout as Fear of Contagion Spreads to Spain
* British Pound Suffers a Critical Break against the Dollar as GDP Revisions Come into View
* Canadian Dollar Suffers Against Safe Havens, Rallies Against Fellow Risky Currencies
* Japanese Yen Charges Volatility against the Dollar but Direction Still Lacking
* New Zealand Dollar Finds Confirmation from Moody’s but Doubt from the Market

Dollar Rally to Eight Month High on European Fears and Korean Troubles May be Soon to Stall

Traditionally, major trends do not develop before speculative liquidity is scheduled to evaporate or before the release of major event risk. This is a custom that is typically observed by traders who are more interested in self-preservation rather than breaking any unspoken decorum. The risk that a serious reversal in risk could send positions hurtling against them or a drop in speculative participation warps volatility is usually enough to keep market participants on the fence. Yet, we can see that the market isn’t falling back to these habits with risk aversion picking up its pace. Though we are less than 24 hours away from the US market packing it up for extended holiday weekend, we have seen benchmark assets mark critical breaks across the board. From the FX market, this drive is well-reflected in the performance of the US dollar. The trade-weighted Dollar Index rallied 1.3 percent – its best performance since October 19th – to an eight-week high. The same meaningful performance was reproduced in EURUSD’s dive below 1.35, GBPUSD’s break of a multi-month rising trend channel and reversal progress for AUDUSD and NZDUSD. For a more rudimentary gauge of risk appetite, it is worth noting that both the S&P 500 and Dow Jones Industrial Average produced their biggest declines in a week and threatened bigger reversals. That said, both indexes have held up critical support levels (1,175 and 11,000 respectively) that could prevent the adoption of a larger trend in risk aversion. It will be important to watch these levels tomorrow.

For fundamental activity Tuesday; the dollar and broader financial markets were once again deferring to the bigger themes rather than any specific event risk. Carrying over its influence from the previous session, risk appetite was once again the primary driver for the day. For lasting influence, European financial concerns were once against crowding out headlines. A figure was agreed upon for Ireland’s bailout; but clearly, the investment community’s fears run deeper than just this one EU member. With a second country being forced to seek aid by the market; a big step has been taken so that a once-isolated threat with Greece’s troubles now has a regional tone. Officials are now struggling to stem the bleeding, which first sending investment capital from Europe to the US (among other destinations) and the threat of crisis is depressing sentiment globally. On the one hand, this has the sense of being a natural loss of confidence which is leading to the critical drain on liquidity; but the speculative effort is growing at the same time. Short positions on European government debt is lamented for its very real-world financial and economic impact; but passing regulation on this point is not something that would be easy. And, though it is not needed, geopolitical tensions have further supplemented the threat of financial instability. With South and North Korea trading fire early Tuesday, economic and political ties threaten to drag the US and China into a very messy situation. It is very likely that officials will try to force a clean resolution to this situation; but it is best to keep on our toes.

Moving from the thematic fundamental concerns to concerns that are a little more tangible; the FOMC minutes was just one highlight on a stocked economic docket. As expected, there was a discord on the future of policy amongst Governors; but more interesting was the increase on the 2011 jobless forecast (8.9 to 9.1 percent) and negative revision on the GDP outlook (3.0 to 3.6 percent). This gives a better benchmark than the GDP and existing home sales updates on the day. Tomorrow’s round of data is dense but questionable for actual market-moving impact.

Euro Traders Show Little Relief in Irish Bailout as Fear of Contagion Spreads to Spain

There was a range of notable, scheduled event risk on the euro’s docket Tuesday including the second reading of German 3Q GDP (revised higher, Euro Zone PMI figures (rose for the first time in four months) and German GfK consumer confidence (hitting a three-year high). However, this data only furthers concerns over the disparity between the region’s best performers (Germany) and its worst performers. The EU and IMF sketched an 85 billion euro rescue figure for the ailing member; but Standard & Poor’s downgrade was more representative of the market’s assessment. It is very concerning to see Greece fear it won’t get an extension on repaying its loans and Spanish yields hitting record highs.

British Pound Suffers a Critical Break against the Dollar as GDP Revisions Come into View

The British pound has performed well against the euro. However, against the dollar and yen, we see the currency align itself in the risk scheme. With heavy exposure to Ireland, the UK is leveraging the weight already set by its own austerity measures. In the event that these broader concerns ease up; scheduled event risk could once again weigh in. Revisions to the 3Q GDP figures can carry notable surprises.

Canadian Dollar Suffers Against Safe Havens, Rallies Against Fellow Risky Currencies

Though policy officials and data have worked hard to play down the Canadian dollar’s association to high-yield currency; it nonetheless plays the part of a risky currency. So, whereas the Canadian dollar would find strength against fellow risky currencies on a 0.6 percent rise in retail sales and 2.4 percent clip on CPI; it once again stumbled against the dollar and yen as risk trends swept over the market.

Japanese Yen Charges Volatility against the Dollar but Direction Still Lacking

We have defined the argument against the Japanese yen and dollar playing the role of safe haven. However, in a market where all value and market functions are relative; a plunge in risk appetite is going to override stimulus efforts by the BoJ and troubled credit markets. That said, USDJPY has held off from marking a clear path. Watch this pair specifically to see which currency holds the rank of key safe haven.

New Zealand Dollar Finds Confirmation from Moody’s but Doubt from the Market

The New Zealand was one of the biggest losers through Tuesday thanks to the combination of the sovereign downgrade and the general deterioration in risk trends. However, without follow through on these larger trends, follow through on individual assets like NZDUSD will stall. Aside from the S&P 500 holding its ground (for now), we saw Moody’s respond to ratings questions by saying the country was “relatively strong.”

Published in Forex News
Wednesday, 24 November 2010 12:56

Currency Markets Heat Up in Thanksgiving Holiday Week

Markets always have a way of heating up in Thanksgiving week and this year is no different, with currencies coming under some serious pressure over the past few sessions as risk aversion themes take hold. Clearly, the dominant and primary driver of price action has stemmed from the Eurozone, with market participants unable to ignore the threat and fear of contagion from Ireland into some of the other local economies. Comments from Germany’s Merkel did not help matters after saying that the Euro faced an exceptionally serious situation, while intensified pressures from the Irish opposition party on PM Cowen added more fuel to the fire to ultimately result in a major liquidation of Euro longs.

Geopolitics have also been playing a role, with the latest North Korean actions (in which the country shelled a South Korean island) prompting additional safe haven buying across the board. Global equities have been hit hard on these developments and it is also no surprise to see the higher yielding antipodean currencies stand out as relative underperformers. Although currencies have recovered a bit on Wednesday, with the Australian Dollar leading the way in early trade, it is well worth noting that Australian construction data came in significantly weaker than expected and given the current market environment, selling the Australian Dollar into rallies would be our preferred strategy. To add further strength to this bearish Aussie argument, we must also not forget another major theme in the markets right now which is efforts by China to rein in inflation by tightening policy. These actions will only act to slow down growth which will also have a negative impact on an Australian economy heavily reliant on China growth for its own prosperity. As such, we expected to see the Aud/Usd market very well offered on rallies into the 0.9850-0.9900 area.

Looking ahead, German IFO data (business climate – 107.5 expected, current assessment – 110.4 expected, expectations – 104.7 expected) is due at 9:00GMT, followed by UK GDP (0.8% expected) at 9:30GMT. Eurozone industrial new orders (-2.5% expected) cap things off for the session at 10:00GMT. US equity futures and commodity prices are recovering a bit into the European open, but at this point the price action can only be classed as corrective.
Published in Forex News

Contributed By: DailyFx

 Talking Points

* Japanese Yen: Benefits From Risk Aversion
* British Pound: Mortgage Lending Weakens
* Euro: Manufacturing, Services Expand At Faster Pace
* U.S. Dollar: Preliminary 3Q GDP, Existing Home Sales on Tap

Continued efforts by European policy makers to talk down the risks for contagion failed to restore investor confidence on Wednesday as the EUR/USD slipped to a low of 1.3284 during the overnight trade, and the single-currency may continue to push lower throughout the remainder of the week as the EU struggles to address the root cause of the debt crisis. A spokesman for the European Commission said restructuring Ireland’s banking system will be a “fundamental part” of the bailout package as policy makers aim to promote financial stability, and went onto say that the aid will include “strict” conditions as the EU aims to strengthen the financial system. At the same time, European Central Bank board member Yves Mersch said contagion is not “affecting” the entire region or the single-currency during an interview with CNBC, and went onto say that the bank’s bond-purchase program was less active than it was six-months ago as financial conditions improve.

Meanwhile, the economic docket showed business confidence in Germany rose to a record high in November, with the IFO survey advancing to 109.3 from a revised 107.7 in the previous month, while the gauge for future expectations increased to 106.3 from 105.2 in October to mark the highest reading since the series began in 1991. A separate report showed industrial new orders in the Euro-Zone tumbled 3.8% in September to exceed forecasts for a 2.5% drop, and the slowdown in global trade is likely to bear down on the recovery given the ongoing slack within the domestic economy. As a result, we are likely to see the Governing Council maintain the expansion in monetary policy throughout the remainder of the year as it aims to encourage a sustainable recovery, but the risks for contagion could lead the central bank to hold a dovish outlook for future policy as market participants speculate Portugal and Spain to request aid in the coming months. As the euro shows little reaction to the fundamental developments, the bearish momentum behind the single-currency may gather pace in the days ahead, and the exchange rate may work its way back to the 200-Day moving average at 1.3134 as it continues to search for support.

The British Pound pared the overnight decline as Bank of England board member Andrew Sentance held a hawkish tone during a speech in Belfast, and speculation for a rate hike may materialize going into 2011 as inflation continues to hold above the government’s 3% limit for price growth. Mr. Sentance said that the U.K. economy is strong enough to withstand a gradual rise in borrowing costs, and argued that the downside risks for growth have receded as the central bank continues to support the real economy. As a result, the MPC board member argued that tightening monetary policy sooner rather than later would help to balance the risks for the region, and said the central bank’s credibility could be put at risk if they hold the benchmark interest rate low for too long. Given the three-way split within the BoE, there could be a growing division amongst the policy makers as the economic outlook remains clouded with uncertainties, and speculation surrounding the outlook for monetary policy is likely to play an increased role in driving price action for the British Pound as the central bank expects the recovery to gather pace going forward. As the GBP/USD breaks out of the upward trend from May, the exchange rate may consolidate in the days ahead as price action continues to hold above 32.8% Fibonacci retracement from the 2009 low to high around 1.5700.

The greenback lost ground against most of its major counterparts on Wednesday following a slight rebound in risk appetite, but the rise in market sentiment is likely to be short lived given the uncertainties surrounding the European debt crisis. Nevertheless, the economic docket is expected to show demands for U.S. durable goods expand 0.1% in October after surging 3.3% in the previous month, while personal incomes is forecasted to rise 0.5% during the same period after contracting 0.1% in the month prior. At the same time, new home sales is projected to increase 1.6% in October to an annualized pace of 312K, but there could be little reaction to the slew of data as market liquidity tapers off ahead of the Thanksgiving holiday.

Published in Forex News

Contributed By: DailyFx

* Euro Selling Subsists through Correction in Risk Trends, Fundamental Gravity Increasing
* British Pound Steady in the Face of GDP Figures that Hint at Trouble Ahead
* Japanese Yen Pairs Nicely with Risk Trends as the Carry Influence Leverages Correlation
* Australian Dollar’s Risk-based Rally Unencumbered by Disappointing Growth Data
* Canadian Dollar: Is a Drop in 3Q Canadian Bank Profits More Important than Crude Prices?

Dollar Steady in its Bullish Bearing Despite a notable Rally from the S&P 500

Risk appetite marked a sharp recovery through Wednesday’s trading session – or did it? Looking to our preferred investor sentiment barometer, we see that the S&P 500 put in for a remarkable rally that nearly fully retraced the losses of the previous day. This advance was further complemented by a surge in oil and drop in for the Japanese yen (the traditional carry funding currency). Yet, we see that the US dollar was ultimately little changed on the day. In fact, the on-again-off-again safe haven and funding currency would actually push for a positive performance through the end of the trading day. Looking at the Dollar Index, the greenback put in for a third consecutive advance - the best series for this particular view of the currency since the initial and aggressive reversal post-FOMC. Amongst the majors, EURUSD would edge down towards 1.33, GBPUSD was ultimately little moved and USDJPY would push back up to the top of its recent congestion pattern north of 83. How do we reconcile this? First of all, it is important to note that the dollar posted substantial declines against its Australian, Canadian and New Zealand counterparts. What’s more, a positive risk bearing would fit the bullish drift on USDJPY. Altogether, this seems like a sign of unique (uncorrelated) stability for the world’s largest reserve currency while sentiment trends have in fact recovered.

However, we should be critical of today’s upswing in risk appetite. A meaningful recovery in sentiment does not fit the general bearing of fundamentals and speculative interests this past week. Looking at the range of issues that face investor sentiment, all the major concerns are still there. European instability is just as tangible today as it was Tuesday when the fixed income markets were reeling from the failure of the announced Irish bailout to encourage confidence in the region’s financial health. In fact, today we see concern that Europe’s troubles run deeper than just one or two irresponsible members has gained further traction. Calls from the group’s best performing member (Germany) for investors in these governments’ debt can do that. It is perhaps this fear that one of the world’s largest collective economies and markets is heading towards a more pained period that adds to the dollar’s stability today and its marked appreciation these past weeks. As the primary liquid and regulated alternative to Europe’s markets, the American markets naturally catch much of the outflow of capital. That said, the suggestion that risk appetite was actually putting in for a strong climb through the day is itself dubious. Sure, there was a marked advance from the S&P 500 and other risk-based assets; but this upswing hasn’t offset any of the prevailing bear trends. More likely, we are seeing the effort to pull these markets back from the frontier of larger bear trends ahead of the US liquidity drain in the second half of the week with the Thanksgiving holiday.

As for data, today’s event risk was generally very disappointing. For a look at the consumer, we see that while personal income would rise more than expected (0.5 percent), the more important spending number for October would miss slightly. Further down the scale of disappointing, we see that durable goods orders dropped sharply by 3.3 percent. What’s more, the more stable ex-transport figure would also drop 2.7 percent and non-defense orders excluding aircraft (a proxy for business investment) would stumble 4.5 percent. Most notable is the 8.1 percent plunge in new home sales. We may have more pressing issues at the moment; but the threat of a second round US housing crisis is very real. Keep an eye on this as well as Chinese efforts to curb its market’s expansion.

Euro Selling Subsists through Correction in Risk Trends, Fundamental Gravity Increasing

Though risk appetite was on generally up on the day; the euro really wouldn’t see fit to improve its standing. The shared currency was down against the dollar and more significantly so against the less risk-sensitive currencies. It would seem an unusual outcome for those looking just at the data that was up for release – German business sentiment actually hit a record high in November. However, this only exaggerates the divergence in performance for the region’s best performers and its worst performers. While Irish, Portuguese and even Spanish yields surge; we see German Chancellor Merkel once again call for a permanent bailout solution for bond investors to share in future losses.

British Pound Steady in the Face of GDP Figures that Hint at Trouble Ahead

Though the pound is still showing sympathy in performance to the euro and Ireland specifically, that factor was offering the currency relatively little guidance Wednesday. Instead, what was far more interesting was the second read of 3Q GDP figures. Though the market offered little reaction, the fact that personal consumption was revised down to a 0.3 percent contraction sets up trouble ahead with government cuts.

Japanese Yen Pairs Nicely with Risk Trends as the Carry Influence Leverages Correlation

Is the Japanese yen an actual safe haven currency? If we are comparing the currency to many of its Asian counterparts, the argument could be made that it is; but for the global currency trader, the currency is more prominently a funding currency in the carry trade. Knowing this, a sharp rebound in fickle sentiment trends actually amplifies yen selling. Watch this play between risk and carry factors. They aren’t the same thing.

Australian Dollar’s Risk-based Rally Unencumbered by Disappointing Growth Data

The Aussie dollar rallied against most of its lower yielding and safe haven counterparts Wednesday. This rally however is likely to be only as strong as the equity markets’ performance. And, if we are to take that performance as a benchmark, the liquidity issue of the next 48 hours can be problematic. In the meantime, we note that the leading indicators index dropped 0.1 percent.

Canadian Dollar: Is a Drop in 3Q Canadian Bank Profits More Important than Crude Prices?

I often here talk about the correlation between crude oil and the performance of the Canadian dollar. It is true that the commodity is an important export of Canada; but does this factor actually overwhelm concerns like risk appetite trends, yield forecasts and stimulus? No. In reality, the correlation comes via the Canadian dollar’s association to risk trends which, like crude, is positive.

Published in Forex News

Contributed By: DailyFx

The rally in equities on Wednesday has helped to inspire some fresh buying back into risk trades, with the higher yielding commodity bloc currencies standing out as the big winners. The Canadian Dollar is by far the biggest gainer in recent trade with the Loonie finding some relative strength on the back of the news of Russia’s intent to boost Cad reserves over the coming months.

Price action in the major currencies has been less compelling however, with the Euro in particular still at risk due to the ongoing debt crisis within the region, while the Pound rallies on resumption of risk buying have also been limited on concerns over UK loan exposure to Ireland. Swissie and Yen price action remains more consolidative than anything else.

On the data front, Japanese trade data came in narrower than expected, while exports data was also subdued. Meanwhile, Australian capital expenditures were much stronger than expected and helped to fuel some additional bids in the antipodean. Elsewhere, geopolitical risk remains on the radar, wit North Korea warning that it would launch more attacks on South Korea if provoked.

On the technical side of things, one of the most interesting charts right now is the Aud/Cad daily chart, with the market now confirming a major head & shoulders top following Thursday’s break of neckline support by 0.9900. This should now open a drop back towards a measured move objective by 0.9600 over the coming days. And with the market by cyclical highs on a longer-term basis, we could very well see setbacks extend well beyond the shorter-term 0.9600 objective. Ultimately, only back above the right shoulder by 1.0110 would negate bearish outlook.

We would remind everyone that trade is expected to be much lighter for the remainder of the week given the Thanksgiving day holiday in the US, and as such, the best strategy is most probably to stay on the sidelines. Lighter trade certainly does not mean less volatile trade, and volatility in light trade is not always welcome. More often than not, this type of volatility is characterized by whipsaw moves that make it nearly impossible to trade. The other possibility is that the markets go nowhere which is also not ideal for trading, unless of course you are selling volatility or buying double-no-touch options……….but we digress.

Looking ahead, the economic calendar for the remainder of the day is rather light, with Swiss employment data is due at 8:15GMT, followed by UK CBI reported sales at 11:00GMT. On the official circuit, BOE King, Tucker, Dale, Posen, and Sentance attend the Treasury hearing at 10:00GMT. Global equities are tracking higher in response to the US close on Wednesday, while commodities are marginally offered.

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Interview with Matthew Sheppard

Senior Forex Advisor at XForex


1. What is your name and position?

Hello, my name is Matthew Sheppard and I am a senior forex advisor at XForex.

2. What is your experience and professional background?

In the last 6 years I had filled several positions in financial institutions such as a stock broker, a foreign exchange desk manager, a financial consultant and in my recent role I serve as a senior Forex advisor for XForex which is an online forex company.

3. What type of clients you deal with?

We deal with clients on all levels from the beginning stages to the more advanced trading levels.

4. Does most of your business activity come from the online or offline world?

Because of our high presence on the web, most of our business comes from the online world.

5. Why should a trader pick XForex from all forex brokers?

Aside from all the benefits that XForex offer like commission-free trading, 24/7 online support, high leverage (200:1), XForex offers educational and learning trading experience that you won’t find anywhere else..

Our team of experts and financial trainers provide personal assistance and guide clients to financial success. We provide daily analysis and market reviews to our clients giving them a better understanding of the market and helping them trade profitably.

6. From your experience, what advice would you give a person who wants to enter the forex world?

My advice to the beginning trader entering the Forex world is as follows:
  • Learn the market and understand what you’re getting into.
  • Research and find the broker that suits your needs and wants. Look for a good offering but more importantly customer service, don’t go for the low rates offer without being certain they have a good customer service department. From my extensive experience in the Forex world your key to success will be your client-broker relationship. I can honestly say that at XForex they put an emphasis on servicing clients, which is so important.
  • Invest smartly and calculate your risks.
  • Always know when to get out of a trade.

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