Month: August 2011

Despite recent calls of an American economy in sharp decline, employment data from the past few weeks has surprised many with bullishness. July’s ADP and NFP employment reports, released last week, both showed drastic increases in job creation, with ADP’s private sector data showing 14 consecutive months of growth. Today’s weekly unemployment claims figure seems to be continuing this trend with only 395,000 people filing for unemployment benefits, beating forecasts by approximately 10,000 claims.

The release of the US Unemployment Claims report does not tend to generate much interest to longer-term traders given its weekly frequency and murky correlation to currency strength. But the overall trend of job creation in the US these past few weeks has transformed these reports into a beacon of hope among market analysts who see nothing but bears approaching.

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Aug. 11 (Bloomberg) — Lorraine Tan, director of Asia equity research at Standard & Poor’s, talks about global stocks and economies. Tan, who also discusses Federal Reserve monetary policy, speaks in Hong Kong with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

The trade balance data from both the United States and Canada this morning is beginning to confirm fears that investors are turning away from North American goods and services. The trade balance measures the difference between imports and exports and tends to generate a direct impact on currency strengths due to its direct correlation with currency demand.

Canada’s trade deficit grew 1.6B this past month, as the spike in oil prices through July dragged on the country’s exporting ability. The housing surge in Canada could eventually offset this data as more investors turn up for Canadian assets, but for now the nation appears a little worse for wear. The US trade balance revealed an even deeper gap. The deficit there rose 53.1B when it was forecast by economists to increase by only 47.9B. What impact this will have on the embattled US dollar (USD) is not yet known.

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Some of the worst news to strike the Australian economy this month was released this morning at 2:30 GMT. The Australian Bureau of Statistics published two significant reports on employment today, each highlighting a sharp downturn in job growth and increasing numbers of unemployed.

The Employment Change figure showed a net loss of approximately 100 jobs in July, the first contraction in job growth since April. The official unemployment rate in Australia also climbed 0.2% to 5.1% this month, the highest it has been since December 2010. The bearish news from Australia’s housing and jobs sectors are generating significant pressure on the value of the Australian dollar (AUD) this week, and doesn’t appear to be abating anytime soon.

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The euro is lower going into the US open as volatility is currently at extreme levels while many forex traders continue to take a cautious stance buying safe haven currencies. Speculation that France would be the next AAA to lose its top rating proved false but the denial by the rating agencies has not spared the French banking sector and this continues to push the euro lower below the 1.42 level. The CHF has come off of its lows but it may be at the expense of the Japanese yen which is trading near pre-intervention levels.

The euro continues be out of favor today versus the USD and the JPY but is up against the Swiss franc. The major rating agencies denied France is on the verge of losing its AAA rating though the market reports were enough to cause President Sarkozy to recall ministers from vacations and issue a statement affirming France’s commitment to reducing its budget deficit. Despite the French response French banks in particular are hardest hit with the European Stoxx 600 Bank down 2.1% today after falling 7% yesterday to trade at its lowest level since April 2009. The ECB is reportedly purchasing both Spanish and Italian bonds in the secondary market and have so far succeeded in keeping sovereign yields below 6% in the 10-year bonds. As a result of the European financial pressures the EUR/USD is testing yesterday’s lows near 1. 4120. A break here and forex traders will target the 1.4050 level. The rising trend line from the June 2010 looks to be the line in the sand for the pair and comes in at 1.3860. Resistance is found at 1.4275.

Concern of further action by the SNB to weaken the CHF has the USD/CHF trading at a two day high. To weaken the CHF the SNB is weighting options from as aggressive as a peg to the euro or a 1% tax on Swiss deposits. The EUR/CHF is holding its own near the 1.0500 level despite the overall euro weakness. However, any gains in the CHF will likely offer forex traders better levels at which to enter into the long term trend of a strengthening CHF.

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By Mike P. Kulej

China is making business headlines everywhere we look. It has the largest population, the fastest growing economy, the biggest export/import imbalance, most imposing foreign reserves. And, by many accounts, the most undervalued currency, which is, in part, the reason behind Chinese meteoric rise as on of world’s dominant markets.

There is some confusion as to the correct name of Chinese currency. There seem to be two different names used interchangeably. One is the Yuan, while the other is Renminbi. Yuan is the measure of account, while Renminbi (RMB) is the correct name of the currency, meaning “people’s money”. Even in Forex circles there is no conformity, as the term Chinese Yaun (CNY), is still commonly used. Little wonder just about everybody is confused.

This currency is not a freely “floating” one. Since 1997 until 2005, China maintained a peg of 8.27 to a dollar. In eyes of many economists and politicians, that was a chief reason for Chinese staggering trade imbalance, estimated to be over 1 Trillion dollars. The People’s Bank of China was under enormous international pressure to let Renminbi float. In 2005 the bank moved the peg to 8.11 USD.

Eventually People’s Bank of China (PBC) moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the U.S. dollar against the RMB in the inter-bank foreign exchange market would be allowed to float within a narrow band of 0.3% around the central parity published by the People’s Bank of China (PBC); in a later announcement published on May 18, 2007, the band was extended to 0.5%.[19] The PRC has stated that the basket is dominated by the U.S. Dollar, Euro, Japanese yen and South Korean Won, with a smaller proportion made up of the British Pound, Thai Bath, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar.

As of this writing (late July 2008), RMB is quoted at 6.82 USD. This represents a 21% appreciation since the removal of peg. Large move in currency terms. Despite this fact, many studies indicate that RMB is still severely undervalued, and is expected to rise in value over coming months and years, against the entire basket of tracking currencies.

How can a trader take advantage of this appreciation? There is number of possibilities. The easiest is to enter Chinese equities market through any ETF exposed to China. There are many of them, with varied level of both exposure and play. While this approach is the simplest one, it is also the least direct one when pure currency movement is sought. Not the best option for Forex trader.

Another financial vehicle to consider is a Market Vector Currency Exchange-Traded Note, a form of ETF. Morgan Stanley issued Chinese Renminbi/USD ETN, which trades under the ticker symbol CNY. This instrument is supposed to shadow the currency fluctuation and trade like a stock. It can be purchased through any stock broker. Just like all of this type of products, it lacks the the advantages of spot Forex market, namely 24 hour trading and scalable leverage.

Most appealing option to a Forex trader is to trade Renminbi in a spot market. Fortunately, this possibility exists, but is offered by very few brokers. You might have to look around a little. There are some shortcomings to this option. The spread is very wide, making day trading prohibitively expensive, to the point of not being practical. Some periods during trading day lack liquidity, making it very difficult to get in or out of the market. If your intention is to take advantage of long term expected appreciation, you can easily use this option for “buy and hold”.

General long term predictions for Renminbi are calling for significant gain against the earlier mentioned basket of currencies. While it might very likely be true, one musn’t forget that China is still a developing country by western standards. Her financial markets will go through many peaks and valleys, some of which will surely be prolonged. Renminbi is no exception and is certain to experience large corrections.

About the Author

Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on www.spectrumforex.com. Spectrum Forex LLC offers numerous services to individual traders. He also publishes trading blog www.fxmadness.com. With questions and comments e-mail him at [email protected].

Aug. 11 (Bloomberg) — Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Forexpros – The U.S. dollar was lower against most of its major counterparts on Thursday, as risk sentiment improved after France’s top-tier credit rating was affirmed by the major rating agencies.

During European morning trade, the greenback was down against the euro, with EUR/USD climbing 0.4% to hit 1.4235.

Concerns over the health of major French lenders, particularly Societe Generale, as well as rumors of an imminent French sovereign debt downgrade rattled investors’ confidence on Wednesday, leading to sharp losses in Europe and on Wall Street.

Rating agencies Moody’s, Standard & Poor’s and Fitch’s later reaffirmed France’s top-tier AAA credit rating and said its outlook was stable.

The greenback was also lower against the pound, with GBP/USD edging 0.12% higher to hit 1.6155.

Later in the day, U.K. Chancellor of the Exchequer George Osborne was to address parliament, following the recent turmoil in financial markets and the Bank of England’s downgrade of its U.K. growth forecast on Wednesday.

Meanwhile, the greenback was down against the yen, with USD/JPY slumping 0.42% to hit 76.53, hovering close to a four-month low.

The greenback spiked higher against the yen earlier before falling back, sparking speculation that the Bank of Japan stepped in to curb the yen’s recent sharp gains.

However, an official from the country’s Ministry of Finance declined to comment on the sudden movement in the pair and whether the government was intervening in the market.

Elsewhere, the greenback was sharply higher against the Swiss franc, with USD/CHF surging 1.67% to hit 0.7387 after Swiss National Bank Deputy President Thomas Jordan said that the SNB could peg the franc for the first time in more than three decades to stem recent gains.

But the greenback was lower against the risk-sensitive Canadian, Australian and New Zealand dollars, with USD/CAD falling 0.58% to hit 0.9892, AUD/USD jumping 0.87% to hit 1.0266 and NZD/USD gaining 0.94% to hit 0.8188.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.28% to hit 74.64.

Later in the day, the U.S. was to release official data on its trade balance, as well as a government report on initial jobless claims and natural gas stockpiles.

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By ForexYard

The plummeting value of the USD was offset yesterday after the Fed announced Tuesday that it would hold interest rates near zero for the next two years. So far, this adjustment by the Fed has been enough to stave off a massive downturn in global stock markets like the one seen Monday.

Economic News

USD – USD Holds Ground on Low Interest Rate Statement

The US dollar (USD) was seen trading sideways at yesterday’s close after a day of mixed news from the global economy. The plummeting value of the USD was offset yesterday after the Fed announced Tuesday that it would hold interest rates near zero for the next two years. So far, this adjustment by the Fed has been enough to stave off a massive downturn in global stock markets like the one seen Monday.

Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was behaving with more balance than many analysts had anticipated. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.

With a moderate news day expected from the US and Canada, traders will be witnessing the release of this week’s unemployment claims report and trade balance data. Following yesterday’s better-than-expected federal budget balance and wholesale inventories, today’s data should help generate some volatility as investors assess risk appetite. Should it also support optimism, traders may return mildly to riskier assets and away from the USD.

EUR – EUR Mixed as Data Confounds

The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading sideways in late trading as shifts back into the greenback, due to bolstering brought on by statements by the Federal Reserve over interest rates, caused several market participants to opt for US Treasuries instead of riskier assets.

The largely bearish reports out of Europe yesterday have appeared to confirm many fears felt by traders who were anticipating a string of pessimism. Debt concerns remain a priority in the euro zone’s periphery, and the holiday season in Europe is generating significant uncertainty as European leaders take leave amid a tremendous crisis.

On tap today, traders will witness the release of a less significant report on the German Wholesale Price Index (WPI). Many analysts are now looking to Germany to shore up much of the euro zone’s economic strength, with added responsibility falling to one of the few nations which has experienced very little economic distress. Should today’s report show a weakening in Germany, traders may flee the region in larger numbers.

AUD – Australian Employment Data Expecting Decline

The Australian dollar (AUD) was weighed down yesterday, as market reports showed contraction across the boards. Piling atop recent reports on Australia’s shrinking housing sector, the publication of Australian retail sales and its national trade balance showed a broadening contraction striking several sectors of Australia’s economy. Job advertisements have also slumped heavily this past month. Many are anticipating a bearish figure from today’s employment data, which gives more weight to the notion of a bearish AUD towards this week’s closing.

Australia’s economy has been much worse in its performance than it was expected to be just one month ago. Investors were once piling into the Aussie en masse as its lucrative potential shone through. As housing has slumped, and as monetary adjustments take place in China, Japan and New Zealand, the Australian economy now finds itself bearing the brunt of the blows coming down on the Pacific. Should this bombardment continue, the AUD will likely remain in its current bearish channel.

Oil – Crude Prices Lower as Ratings Downgrades Dampen Demand

Crude Oil prices fell mildly lower Wednesday as the downgrade of US debt by S&P pulled demand for oil significantly lower. Data releases out of Europe and the US last week are also driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

The impact has been a decline in oil values from over $100 a barrel last week to a current price near $88. An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady, with gradual losses priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week’s end.

Technical News

EUR/USD

An opening gap higher on Monday morning took the pair above its current downward sloping channel that contained the EUR/USD since late July. Selling into EUR/USD gains may be the right play as the pair has been unable to hold a bid above the 1.45 level. Initial resistance comes in at 1.4540 though a break above the June high of 1.4700 would likely reverse the negative technical tone. To the downside support comes in initially at last Friday’s low of 1.4050 followed by the 200-day moving average at 1.3940 and the rising trend line from June 2010 which comes in at 1.3840.

GBP/USD

Cable looks to be supported after moving lower and receiving a bounce at 1.6220. This level holds the 55-day moving average and a 38% retracement from the mid- July low to the late July high. Resistance is found at 1.6475 followed by 1.6550. A break here and sterling could test the April high of 1.6750. 1.6220 is initial support followed by the 200-day moving average at 1.6085, 1.6000, and the July low of 1.5780.

USD/JPY

The spike higher in the value of the USD/JPY due to Japanese government intervention was short lived as the 80 yen level was eagerly sold into. The pair has retraced 68% of its move from the August low to the post intervention high and may continue to move lower. A previously broken trend line from the late July move lower may be supportive but most likely only a short term pit stop on the way back to the all-time low at 76.25. Resistance is found at 79.50 and the post intervention high of 80.22. An additional round of FX intervention could take the pair to the long term trend line off of the 2007 high which comes in at 82.00.

USD/CHF

Even measures undertaken by the Swiss National Bank to weaken the Swiss franc have failed to give the USD/CHF a bid. On Monday morning the pair gapped lower to a new all-time low. Momentum is steadily falling and traders may want to continue to hold their shorts. Initial resistance stands at 0.7800 followed by 0.8080 and the downward sloping trend line from the February low at 0.8270.

The Wild Card

USD/CAD

The spike higher to parity found resistance at the falling trend line from the May 2010 high which comes in at 1.0030. Forex traders may have an opportunity to enter back into the long term downtrend with a protective stop above the trend line and a target back to the July low at 0.9400.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.