Article by AlgosysFx Forex Trading Solutions
A risk-off environment is foreseen to strengthen the US dollar opposite the Australian dollar to begin the trading week as soft US corporate earnings, a weak Japanese trade report and a downgraded assessment of the Australian economy added to the global doom.
Poor corporate earnings results pounded US stocks last Friday, forcing the Dow Jones industrial average to record its worst day in four months by falling more than 200 points, as widespread worries about companies’ abilities to keep producing better profits drove the market lower. Thomson Reuters estimates that through Thursday, with 115 companies in the S&P 500 reporting, earnings have dropped 3.7 percent in the September quarter compared with a year earlier. Financial analysts had previously forecast that earnings would fall compared to a year earlier, and that would be the first such decline in three years.
Disappointing outcomes from IBM, Microsoft, McDonald’s and General Electric mainly soured sentiment last Friday. IBM pointed to the European debt crisis and slowing business spending when it posted weaker revenue than expected. Meanwhile, dropping PC sales and European troubles took a toll on Microsoft’s net income, with its stock losing 86 cents or 3 percent. A strong dollar hurt McDonald’s international sales, which account for two-thirds of its business. As such, the S7P lost 1.7 percent while the Nasdaq composite index posted a 2.2 percent dip. Such sentiment is presumed to continue dictating trades today.
Grim news for the global economy continued to pile on earlier today after the Japanese Ministry of Finance reported earlier today that Japanese exports fell by a substantial 10.3 percent in September from a year earlier. The decline was the fourth consecutive fall, ominously suggesting that Japan’s ongoing territorial dispute with China is taking its toll on the economy. Exports to China, the top destination for its shipments, dipped by 14.1 percent to record its largest decline since January this year, while exports to Europe fell 21.1 percent.
Meanwhile, demand for the Australian dollar is foreseen to drop after the Australian government’s announcement of Billions of Dollars in new savings to help keep its promised budget surplus on track will likely pile further pressure on the RBA to cut interest rates further. The $16.4 Billion in new savings over four years will likely take additional momentum out of the Australian economy at a time when the mining boom is easing. Concerns of further economic weakening are deemed to prompt the RBA to lower interest rates in the coming month. Considering all these, a short position is advised for the AUD/USD today.
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