Written by Enda Curran - Wall Street Journal
SYDNEY--Australia's Prime Minister Julia Gillard added pressure on the central bank to cut rates in a speech to be delivered Wednesday saying that managing the strong Aussie dollar is beyond the control of the government.
"We cannot control a number of factors that have kept our dollar strong, like the weakness in the global economy, the close-to-zero interest rates of many nations and the increasing view that Australia is something of a safe haven," Ms. Gillard will say, according to extracts of a speech she is scheduled to deliver later Wednesday in Canberra.
Her remarks will add to pressure on the Reserve Bank of Australia, or RBA, to again cut rates in an effort to ease the strength of the currency, which is making Australian exports less competitive and hurting areas of the economy such as manufacturing and retail. The RBA is scheduled to meet on Feb. 5 to decide on rates after 1.75 percentage of cuts since November 2011 failed to dampen demand for the Aussie dollar. Rates in Australia remain high by international standards for developed nations at 3.00%.
Ms. Gillard's remarks are out of step with some members of the bank's board who argue that more aggressive action needs to be taken to moderate the currency. In an exclusive interview with Dow Jones Newswires last week, RBA board member Heather Ridout said that the economy needs more "active management" from policymakers to offset the impact of the strong currency.
In the speech, Ms. Gillard says there was likely to be little immediate respite for local businesses from the strong exchange rate.
The article is located here
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Tuesday, January 29, 2013
Monday, January 28, 2013
Forex Trading: Arbitrage
The USD continued to gain or consolidate against most of the major currencies. Notably, GBP/USD and NZD/USD have been under pressure since the market opened Sunday night (currently down 84 and 54 pips respectively.) The Euro has been trading sideways against the U.S. Dollar as the demand for Euros in terms of GBPs has been propping the Euro side of the equation up. [Remember the concept of arbitrage: if EUR/GBP moves up by relatively the same amount that GBP/USD moves down, then EUR/USD will remain constant (in practical terms this means consolidation.) ΔEUR/GBP+ΔGBP/USD=ΔEUR/USD] There are computerized automated systems all over the world that are in and out of trades in milliseconds and profit from performing arbitrage to keep this equation in balance. Once you understand the concept of arbitrage, it's easier to identify which side of the equation is driving price action.
In fact, you don't even need to look at a EUR/USD chart to see how price action is unfolding! You can tell how price is moving on a chart of EUR/USD simply by watching the EUR/GBP and GBP/USD charts.
So when will EUR/USD move and in what direction? For the last couple of trading days there seems to be both broad strength (broad = key!) in the U.S. Dollar and the Euro across the board. I'll be looking for one of them to start exhibiting weakness against the other major currencies (GBP, AUD, NZD, CAD), and then I'll know whether its the USD or the Euro I want to short against the other.
In fact, you don't even need to look at a EUR/USD chart to see how price action is unfolding! You can tell how price is moving on a chart of EUR/USD simply by watching the EUR/GBP and GBP/USD charts.
So when will EUR/USD move and in what direction? For the last couple of trading days there seems to be both broad strength (broad = key!) in the U.S. Dollar and the Euro across the board. I'll be looking for one of them to start exhibiting weakness against the other major currencies (GBP, AUD, NZD, CAD), and then I'll know whether its the USD or the Euro I want to short against the other.
Thursday, January 24, 2013
Forex Trading - Market Update
The Aussie and Kiwi continued falling today as the bloodbath in Apple's stock continued and the S&P briefly broke a couple points above the psychologically important 1500 figure and then got hammered back down and closed unch.
AUD/USD
There appeared to be two main drivers to the Aussie weakness today. First, there was strength in the Euro across the board. The EUR/AUD cross was up approximately 185 pips on the day, putting downward pressure on AUD/USD (closed 105 pips down on the day.) Second, the weekly U.S. unemployment number beat the consensus estimate by a wide margin - for the 2nd print in a row. Actual: 330K, Est: 359, Previous: 335. This has caused some market participants to adjust the predictions for the next NFP report and unemployment rate print on Friday, February 1st. This in turn affects speculation about when QE might end. Remember, a lower then expected unemployment print means that our stimulus addicted market will get its last fix sooner then expected. To understand what that means for the currency markets think about the effects that QE has previously had and simply reverse them: a weaker USD and higher commodity prices (stronger AUD, NZD, CAD.)
Additional factors from Monday included the lower than expected CPI reading and the RBA's Treasurer saying that another rate cut was possible. China's HSBC manufacturing PMI came in better than previous on Wednesday (actual 51.9, previous 51.5) but market participants were expecting it to come in better, so it didn't have much of an impact.
EUR/USD
Remains locked in its trading range of 1.3400 - 1.3250, and seems to have been driven up today more from the arbitrage affect of strong demand for EUR/JPY than from fundamental demand for EUR/USD. The SNB seems to have temporarily stopped selling Francs to buy Euros, but the franc pairs deserved to be watched closely in case SNB's Jordan gives his traders the green light again.
USD/CAD
Appears poised for a continued move to the upside if the Canadian CPI number tomorrow comes in lower then expected. The US New Home Sales number is also coming out at 10:00 AM EST and usually has a decent impact on the CAD as well. (Canada exports a lot of the raw materials used in construction and manufacturing). The CAD is already significantly weak after a surprise dovish stance from the BOC on Wednesday, and took a slight breather today as the Aussie ripped down today so it has decent potential to the upside on Friday.
AUD/USD
There appeared to be two main drivers to the Aussie weakness today. First, there was strength in the Euro across the board. The EUR/AUD cross was up approximately 185 pips on the day, putting downward pressure on AUD/USD (closed 105 pips down on the day.) Second, the weekly U.S. unemployment number beat the consensus estimate by a wide margin - for the 2nd print in a row. Actual: 330K, Est: 359, Previous: 335. This has caused some market participants to adjust the predictions for the next NFP report and unemployment rate print on Friday, February 1st. This in turn affects speculation about when QE might end. Remember, a lower then expected unemployment print means that our stimulus addicted market will get its last fix sooner then expected. To understand what that means for the currency markets think about the effects that QE has previously had and simply reverse them: a weaker USD and higher commodity prices (stronger AUD, NZD, CAD.)
Additional factors from Monday included the lower than expected CPI reading and the RBA's Treasurer saying that another rate cut was possible. China's HSBC manufacturing PMI came in better than previous on Wednesday (actual 51.9, previous 51.5) but market participants were expecting it to come in better, so it didn't have much of an impact.
EUR/USD
Remains locked in its trading range of 1.3400 - 1.3250, and seems to have been driven up today more from the arbitrage affect of strong demand for EUR/JPY than from fundamental demand for EUR/USD. The SNB seems to have temporarily stopped selling Francs to buy Euros, but the franc pairs deserved to be watched closely in case SNB's Jordan gives his traders the green light again.
USD/CAD
Appears poised for a continued move to the upside if the Canadian CPI number tomorrow comes in lower then expected. The US New Home Sales number is also coming out at 10:00 AM EST and usually has a decent impact on the CAD as well. (Canada exports a lot of the raw materials used in construction and manufacturing). The CAD is already significantly weak after a surprise dovish stance from the BOC on Wednesday, and took a slight breather today as the Aussie ripped down today so it has decent potential to the upside on Friday.
Wednesday, January 23, 2013
Forex Trading - Market Update
The HSBC Flash Manufacturing PMI reading out of China came in better than generally expected at 51.9, with a previous print of 51.5. There was little initial reaction. However, at 9:00 P.M. on the dot risk took off like a rocket, which coincidentally was somewhat quelled an hour later by North Korea threatening to launch an actual rocket.
EUR/USD & GBP/USD still remain stuck in their respective ranges (1.3400 - 1.3250 and 1.5900 - 1.5800), but exhibited signs of weakness today as the IMF cut both the Eurozone's and the U.K.'s growth forecast. If EUR/USD drops to 1.3250, our target is 1.3150 based on the price inefficiency. If the Euro does break down tomorrow morning over the PMI numbers due to be released (here) then it's reasonable to expect EUR/GBP to follow it down, and give some support to GBP/USD. (Perhaps a bounce off of the .50 fib at 1.5790?) Also, if you're trading EUR/USD make sure you keep an eye out for government intervention in the EUR/CHF and EUR/JPY.
As we stated in yesterday's blog post, the best high yielding currency to go long in a 'risk on' play would probably be the Kiwi. Sure enough, AUD/NZD continues to barrel to fresh lows instilling strength in NZD/USD and keeping downwards pressure on AUD/USD. The first major piece of event risk that should impact the AUD/USD tomorrow is the German PMI at 3:30 A.M. If that print is bad, European equities could start to dump (especially after the downgraded growth forecasts today.) That could in turn bleed over into the U.S. stock market session. Speaking of stocks, keep an eye on Apple (you can check the futures here.) It's unknown what effect the massive dumpathon in AAPL is going to have on U.S. stocks at 9:30 A.M. tomorrow; but I imagine it won't be pretty. The futures don't look good at the moment (track them here) and the gap lower could cause margin calls. Lastly, keep in mind that the 8:30 A.M. weekly U.S. unemployment number could generate another "omg QE is ending" moment if it comes in much better than expected.
EUR/USD & GBP/USD still remain stuck in their respective ranges (1.3400 - 1.3250 and 1.5900 - 1.5800), but exhibited signs of weakness today as the IMF cut both the Eurozone's and the U.K.'s growth forecast. If EUR/USD drops to 1.3250, our target is 1.3150 based on the price inefficiency. If the Euro does break down tomorrow morning over the PMI numbers due to be released (here) then it's reasonable to expect EUR/GBP to follow it down, and give some support to GBP/USD. (Perhaps a bounce off of the .50 fib at 1.5790?) Also, if you're trading EUR/USD make sure you keep an eye out for government intervention in the EUR/CHF and EUR/JPY.
As we stated in yesterday's blog post, the best high yielding currency to go long in a 'risk on' play would probably be the Kiwi. Sure enough, AUD/NZD continues to barrel to fresh lows instilling strength in NZD/USD and keeping downwards pressure on AUD/USD. The first major piece of event risk that should impact the AUD/USD tomorrow is the German PMI at 3:30 A.M. If that print is bad, European equities could start to dump (especially after the downgraded growth forecasts today.) That could in turn bleed over into the U.S. stock market session. Speaking of stocks, keep an eye on Apple (you can check the futures here.) It's unknown what effect the massive dumpathon in AAPL is going to have on U.S. stocks at 9:30 A.M. tomorrow; but I imagine it won't be pretty. The futures don't look good at the moment (track them here) and the gap lower could cause margin calls. Lastly, keep in mind that the 8:30 A.M. weekly U.S. unemployment number could generate another "omg QE is ending" moment if it comes in much better than expected.
Tuesday, January 22, 2013
Forex Trading - Market Update
Market Update
The U.S. stock market made fresh five year highs today as the uptrend in price action continues. Unless a meaningful catalyst arises which sparks a sell off, the market should continue grinding higher. There are plenty of potential catalysts out there, but it's dangerous to trade them before they come to fruition.
Currencies
Australian CPI has come in lower than expected: Actual 0.2%, Expected 0.4%, Previous 1.4%. That should make AUD/USD the best currency pair to short if the market turns lower. Alternatively, NZD/USD should be the most attractive pair to go long if the market goes higher. Stops have accumulated above the swing highs on the daily charts in both of these currency pairs, so if the market begins to explode to the upside it would be dangerous to short these pairs before the stops get wiped out. Also, it pays to keep an eye on USD/JPY and the Japanese stock market. If Japanese stocks begin selling off, risk appetite in Asia should be dampened quickly leading to selling pressure on the Aussie and Kiwi. (Remember, there almost as many retail FX traders in Japan then in the rest of the world combined! They can have a significant impact on price!)
Potential Catalysts This Week
- U.S. political strife. The House Republicans are scheduled to vote their "no budget, no pay" bill through tomorrow. If Harry Reid says the bill has no chance of passing the Senate, traders may begin to price in gridlock.
- Earnings. (Apple reports tomorrow.)
- Chinese or German Flash Manufacturing PMI. (The print would have to be very bad.)
- US unemployment claims: Last week's print was 34K better than estimated. If we see another really good print the market could focus on the 6.5% unemployment rate tied to the end of QE.
- A possible flare up in the dispute between China and Japan over the Senkaku islands.
The U.S. stock market made fresh five year highs today as the uptrend in price action continues. Unless a meaningful catalyst arises which sparks a sell off, the market should continue grinding higher. There are plenty of potential catalysts out there, but it's dangerous to trade them before they come to fruition.
Currencies
Australian CPI has come in lower than expected: Actual 0.2%, Expected 0.4%, Previous 1.4%. That should make AUD/USD the best currency pair to short if the market turns lower. Alternatively, NZD/USD should be the most attractive pair to go long if the market goes higher. Stops have accumulated above the swing highs on the daily charts in both of these currency pairs, so if the market begins to explode to the upside it would be dangerous to short these pairs before the stops get wiped out. Also, it pays to keep an eye on USD/JPY and the Japanese stock market. If Japanese stocks begin selling off, risk appetite in Asia should be dampened quickly leading to selling pressure on the Aussie and Kiwi. (Remember, there almost as many retail FX traders in Japan then in the rest of the world combined! They can have a significant impact on price!)
Potential Catalysts This Week
- U.S. political strife. The House Republicans are scheduled to vote their "no budget, no pay" bill through tomorrow. If Harry Reid says the bill has no chance of passing the Senate, traders may begin to price in gridlock.
- Earnings. (Apple reports tomorrow.)
- Chinese or German Flash Manufacturing PMI. (The print would have to be very bad.)
- US unemployment claims: Last week's print was 34K better than estimated. If we see another really good print the market could focus on the 6.5% unemployment rate tied to the end of QE.
- A possible flare up in the dispute between China and Japan over the Senkaku islands.
Bank of Japan Votes to Expedite Japan's Economic Collapse
In a move derived from an attempt to win political points and the ignorance of monetary history, members of the Bank of Japan decided to embark on an open ended asset purchasing program and adopt a 2% inflation target. The vote was 7-2 in favor of the measures, as apparently a minority on the council realized that actually reaching a 2% inflation level would cause a rise in interest rates and make the process of refinancing their debt completely unsustainable. Also, there's the small issue of the entire Japanese banking system collapsing as banks are the primary holders of JGBs.
Monday, January 21, 2013
Why the Euro is Going Lower - Round 2
In my last article located here, I had shorted EUR/USD with a stop at 1.3375. As usual when getting stopped out, I asked myself what had gone wrong. My conclusion was that price action can easily give misleading signals when multiple central banks are intervening in the market and distorting prices. (Points finger at the BOJ and SNB.)
I still like EUR/USD lower to 1.3150. After I got stopped out, I analyzed the situation and re-shorted the Euro at 1.3370 and now have my stop loss in front of my entry so that I won't lose money if various central banks around the world decide they want to continue buying European government bonds and price rips up towards Ashraf Laidi's 1.3500 EUR/USD party.
What To Watch For
I'll be keeping a close eye on the following currency pairs:
EUR/CHF - Will the SNB continue selling francs?
USD/JPY - If this pair continues to climb then it's a positive for equities (Japanese stocks rip higher and the effect bleeds over into the other stock markets.)
EUR/JPY - If USD/JPY goes higher than what's everyone's favorite yen cross? So far it's been EUR/JPY. When you have such a parabolic move in a particular currency pair such as the Yen, arbitrage plays a very distinct role. >> (check out EUR/USD, EUR/JPY, and USD/JPY going back to 11/14/2012)
Why the Euro is going lower - Round 2
My three fundamental reasons behind originally shorting the Euro:
1. There's far too much complacency in the market. I don't see an obvious reason for the correction; but with equity markets pushing record highs, the VIX plunging to lows, and general sentiment being complacency, I think the most amount of people would get hurt by the markets falling - therefore I consider it likely. The negative effect on risk appetite should cause EUR/USD to fall.
2. I thought the hyperactive traders buying Euros and selling francs over at the SNB would take it down a notch. Not so. EUR/CHF spiked up from 1.2370 on 1/17 to 1.2570 on 1/18, a 200 pip rise corresponding with EUR/USD's re-test of 1.3400. It just so happens that when a central bank begins devaluing their currency with a passion, it can give price action a parabolic shape.
3. Issues of a Cypriot bailout make media headlines. Again. The spread between the German and Spanish 10 yr bonds has narrowed substantially in 2012. I believe mean reversion in the near term is likely, as investor continue to pile into European stocks and bonds on the trumpeted declaration that the Eurozone is saved.
Alternative Scenario
The uptrend continues and the Euro rips higher. Be careful.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). You can open a live trading account with us here.
I still like EUR/USD lower to 1.3150. After I got stopped out, I analyzed the situation and re-shorted the Euro at 1.3370 and now have my stop loss in front of my entry so that I won't lose money if various central banks around the world decide they want to continue buying European government bonds and price rips up towards Ashraf Laidi's 1.3500 EUR/USD party.
What To Watch For
I'll be keeping a close eye on the following currency pairs:
EUR/CHF - Will the SNB continue selling francs?
USD/JPY - If this pair continues to climb then it's a positive for equities (Japanese stocks rip higher and the effect bleeds over into the other stock markets.)
EUR/JPY - If USD/JPY goes higher than what's everyone's favorite yen cross? So far it's been EUR/JPY. When you have such a parabolic move in a particular currency pair such as the Yen, arbitrage plays a very distinct role. >> (check out EUR/USD, EUR/JPY, and USD/JPY going back to 11/14/2012)
Why the Euro is going lower - Round 2
My three fundamental reasons behind originally shorting the Euro:
1. There's far too much complacency in the market. I don't see an obvious reason for the correction; but with equity markets pushing record highs, the VIX plunging to lows, and general sentiment being complacency, I think the most amount of people would get hurt by the markets falling - therefore I consider it likely. The negative effect on risk appetite should cause EUR/USD to fall.
2. I thought the hyperactive traders buying Euros and selling francs over at the SNB would take it down a notch. Not so. EUR/CHF spiked up from 1.2370 on 1/17 to 1.2570 on 1/18, a 200 pip rise corresponding with EUR/USD's re-test of 1.3400. It just so happens that when a central bank begins devaluing their currency with a passion, it can give price action a parabolic shape.
3. Issues of a Cypriot bailout make media headlines. Again. The spread between the German and Spanish 10 yr bonds has narrowed substantially in 2012. I believe mean reversion in the near term is likely, as investor continue to pile into European stocks and bonds on the trumpeted declaration that the Eurozone is saved.
Alternative Scenario
The uptrend continues and the Euro rips higher. Be careful.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). You can open a live trading account with us here.
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