forex

Currency trading on the FX market

US dollar is still preferred in forex trading on the currency market right now. Even though there are hopes for a growth agenda in the eurozone, the greenback is still moving higher against the euro in forex trading.

Equities are also heading higher, and oil prices are getting a bit of a boost today. None of this is keeping the greenback down in currency trading. Instead, there is still enough uncertainty that the US dollar has the upper hand. Even against currencies like the Canadian dollar, which are supported by reasonably strong economies, the US dollar has the upper hand.

For now, it's a matter of preference. There is a lot of uncertainty right now, and that means that forex traders want the familiar stability that comes with preferring the US dollar. 

See Also

• US Dollar Forex Trading Forecast Currency market news

Loonie in forex trading

Canadian dollar is pulling back in currency trading on the FX market today, even after better government data. Even though Canadian payroll data saw its best two-month boost in three decades, the loonie is struggling in forex trading.

Indeed, Canadian data is surprising to the upside, but the loonie is still struggling. A lot of that has to do with the fact that what's happening in the eurozone is dominating everything. Even with equities heading mostly higher today, and with oil prices eking out gains, concerns about the eurozone are holding many high beta currencies back.

With the uncertainty in the eurozone, many forex traders prefer the US dollar to other currencies. Even though the Canadian economy has remained relatively stable, it still hasn't been granted safe haven status. Last week's boosts are being overcome by this week's renewed European fears. 

See Also

• Loonie in Forex Trading Currency trading news for forex traders

The market has now taken out some major resistance by 10,100 to open the door for fresh upside and a bullish continuation over the coming weeks. Next key resistance comes in by the 10,300 area, although, with daily studies now overbought, look for opportunities to buy on dips back towards 10,000 where a fresh higher low is now sought out.

Are you a probability literate person? As a Forex trader, you should be. Understanding the probabilities is one of the most important conditions for success in Forex market and in any other financial trading field. Almost all the FX books I read mention mass misconceptions that roam the minds of beginning and even professional …

German employers are finally agreeing to workers’ demands for higher pay after more than a decade of only modest increases.

Despite the initial demands for pay raise by more than 6 percent, the settlements average in the 3-4 percent range this year. This is, according to economists, considerably higher compared to 2010 and 2011, yet not high enough to set off a wage-driven inflation.

Wage increase gives workers a greater share of Germany’s economic revival. The country’s gross domestic product has grown 3 percent or more the past two years. It expanded at a 2.1 perecnt annualized rate last quarter, significantly outpacing the rest of the euro zone members. Germany’s 5.6 percent unemployment rate is about half the euro zone average.

Wage increases in Germany are beneficial for the entire euro zone because, coupled with wage cuts in countries such as Spain, this would make Europe’s troubled economies more competitive. At the same time, German households would have extra money to boost domestic demand and spending abroad, providing a market for suffering economies in Southern Europe.

However, Germany should keep a lid on its wages. The country must maintain its competitive edge with other global economies such as the US and China. Also, since its population is one of the oldest in Europe, wage-driven inflation could potential eat retirees’ fixed incomes.

Source: Wall Street Journal

Chinese Premier Wen Jiabao’s pledge to focus more on bolstering growth spurred speculation the government will step up efforts to combat a slowdown in the world’s second-largest economy.

Wen called for “putting stabilizing growth in a more important position” and didn’t mention concern about inflation in remarks published yesterday by the official Xinhua News Agency. China may announce stimulus actions in the near term, according to a front-page commentary today in the China Securities Journal, which is published by Xinhua.

The shift in language suggests authorities are “seriously concerned about growth” and “ready to introduce further measures,” Bank of America Corp. said in a research note today. The government on May 12 cut banks’ required reserves for the third time in six months following data that showed trade, industrial production and lending were below forecasts in April.

“The April data has been a wake-up call for China,” said Alaistair Chan, a Sydney-based economist at Moody’s Analytics. “There will probably be some stimulus measures through monetary policy, more bank lending and infrastructure projects being brought forward.”

China has allowed the yuan to weaken against the dollar this year after it strengthened 4.7 percent in 2011. The currency rose 0.06 percent today, the most in a month, to 6.3243 at 11:56 a.m. in Shanghai, following a decline of about 0.5 percent in 2012 through May 18. The MSCI Asia Pacific Index of stocks rose 0.5 percent at 12:56 p.m. in Tokyo.

The Xinhua report on Wen’s weekend visit to Wuhan, the capital of Hubei province, was reposted yesterday on the government’s website, attributing the information to the State Council’s general office.

Bloomberg

…

Floor Pivot Points
Pair	3rd Sup	2nd Sup	1st Sup	Pivot	1st Res	2nd Res	3rd Res
EUR/USD	1.2385	1.2513	1.2647	1.2775	1.2909	1.3037	1.3171
GBP/USD	1.5267	1.5499	1.5658	1.5890	1.6049	1.6281	1.6440
USD/JPY	76.89	77.94	78.46	79.51	80.03	81.08

An educational perspective on market reactions over the past week, and a peek forward in to next week.

WHAT’S HOT?

Greece’s Do-Over

Everyone’s favorite founder of democracy, Greece, was at it again this week. Between rumors of a potential coalition government forming, causing a euro rally, to those same rumors being denied, causing a euro decline, the markets have started to become a little cynical. Cynicism begets uncertainty, and uncertainty leads to despair, which is where the euro is headed overall despite a few whimpers that could be classified as rallies. The EUR/USD broke through the 1.29 handle early in the week and didn’t look back as it reached 1.2650 by the end of the week. With the looming potential Greek election do-over in June, this will probably be the norm until one leader gains the upper hand, and Alexis Tsipras (pronounced SEE-pras) just might be that leader. The young (37!), yet charismatic Tsipras seems to have his finger on the pulse of the Greek people, and when all the dust settles, his Syriza political party will most likely be victorious. This does not bode well for the rest of Europe as he wants a restructuring of the Troika deal that was forged by his predecessors.

You would think that a country that only constitutes 2% of the total GDP of the EZ wouldn’t be able to hold much sway, but Greece is holding all the cards. And Tsipras knows it. He has essentially told the EU that if they cut off funding to Greece, he will stop paying off debts. Those debts include payments to the ECB, large German banks, large UK banks, and large French banks. Cutting off Greece would create a giant monetary black hole that the EU would be unlikely to escape, destroying the euro in the process.

So if you were under the impression that Greece was going to go away sooner rather than later, prepare to be disappointed. Syriza is also the party that believes that keeping Greece in the euro is the best option available, and kicking them out is virtually impossible under EU law. The best course of action for the EU at this point might be to bend to the desire of their undesirable member for the benefit of everyone involved in the long run.

FaceBOOM or FaceBUST?

Facebook released their much anticipated IPO on the NASDAQ exchange this morning just as European markets were powering down their servers. It was quite comical watching the financial channels and trolling Twitter as the ballyhooed stock was released much later than envisioned. The talking heads were running out of things to say, but the Twitterverse was rife with snarky and downright hilarious comments about its future. Here are few gems for your viewing pleasure:

UNDER THE RADAR

David Cameron’s QE Green Light

I’m not sure what the British expression would be fore Quantitative Easing (Numerical Tomfoolery?), but its Prime Minister is evidently open to the idea. According to FX360 Director of Currency Research Boris Schlossberg:

“…David Cameron made comments that the BOE could do more to stimulate the UK economy. Traders took those words to mean that UK monetary officials may be free to entertain the prospect of more QE…”

Despite the overwhelming desire of European investors to run to the financial hub of the world (London), the Bank of England might be discouraging that practice by printing more Pound Sterlings. The Swiss Franc is also a dead end currency for Europeans to find safety in due to the 1.20 floor in the EUR/CHF, so they might have no other choice but to run to the waiting arms of the US Dollar.

WINNING TRADE OF THE WEEK

In Tuesday’s Long and Short of It webinar we had a bit of a derivation from the norm. Typically, I will only place one trade per day in my webinars. However, the price action on that particular day presented us with an intriguing opportunity. In typical form from my presentations, I placed a trade before the news event of the day (US Retail Sales) came out, and we were correct in our assumption that the EUR/USD would fall. Unfortunately, in my zeal to manage risk, I brought my stop loss to break even once the market had reached halfway to my profit target. That turned out to be a bad decision as the market came back up to entry before falling well past where I had set the target. Aye carumba!

Not being discouraged, I noticed that GFT’s Foresight AI indicator was signaling a turn in price action soon after its big fall. Eager to show the capability of our proprietary technical indicator, I jumped at the opportunity to scalp the over exaggerated fall for 20 pips back up to the 1.28 handle. The trade progressed as planned, hit the profit target, and then proceeded to fall for the rest of the day.

LOSING TRADE OF THE WEEK

Thursday’s Long and Short of It webinar was one to forget. I assumed that the Philly Fed Manufacturing Index was going to be either slightly worse, better, or at expectations of a 10.0 reading. In all of those situations, traders were most likely going to ignore the data and continue selling risky assets due to the European implosion. Boy was I wrong. Philly Fed produced a number MUCH worse than expectations, printing at -5.8, shocking virtually everyone who was watching. The number was so bad in fact, that it brought back in to discussion the idea of QE3 here in the US. The QE3 rhetoric outweighed the Euro-pocalypse, and risk was turned on at least momentarily. My 20 pip stop loss on an AUD/USD sell was quickly stopped out along with a EUR/USD short I had placed the day before. Luckily, I had moved my stop on the EUR/USD trade to a point where we locked in profit, preventing us from taking a loss on that trade.

This is one of the reasons that I like to place Risk Management on such a high pedestal. Despite all of the knowledge and planning you might have, there is always the possibility that you could be wrong. Using stop losses and risking only a small percentage of the value of your account is vital. If you would like to learn some more about how to manage your risk, take a look at my on demand webinar Volatility & Risk Management.

THE ROAD LESS TRAVELED

Many people seem to be fascinated in the thought of trading the Chinese Yuan or Chinese Reminbi (they are the same thing, by the way), however, might find it very difficult to actually do it. The reason behind this difficulty is because; the value of the Chinese currency is very closely controlled by China. One of the cornerstones of currency trading is that we are trading currencies that are free floating. They can change based on the overall optimism, pessimism, economic policy, ineptitude, etc. of a particular country or economy. If China controls the value of its currency, then it ceases to be free floating.

Many may argue that the markets aren’t free floating anyway. With the BOJ, SNB, ECB, and Fed essentially printing money to try and contain the value of their currencies and force them to certain levels, they really aren’t free floating, now are they? Well, yes and no. They are free floating because we as traders/investors have a choice as to whether we want to try and battle that policy of intervention and quantitative easing or not. The Chinese don’t even give us that option. They just simply won’t let us trade it because that would move the market more than they might want.

So is there an alternative? Absolutely! There are a few currencies out there that mirror the economic health of China. To find them, you might need to think a little outside the box and look to more exotic currencies. So which country’s currency is closely tied to China philosophically, geographically, and economically? How about Hong Kong, Thailand, and Singapore! The HK Dollar, Thai Bhat, and Sing Dollar respectively are a few examples of currencies that are very closely related to the Chinese economy and react either up or down based on what is happening in the second largest economy in the world.

Take great caution though when traveling this less traveled road. Margin requirements are usually a bit higher on less traded currencies. Also, the cost to enter the trade is usually much larger than those that have more liquidity. Remember that when you are placing a trade, there has to be someone else on the other end that is willing to trade with you. If few people are trading a particular instrument, it becomes much more difficult to find a trading partner. So while trading exotic currencies might be a great way to take advantage of Chinese policy; the cost to do so is usually quite high, and the risk gets ratcheted up exponentially.

LOOKING FORWARD

Next week could be a bit of a breather for the currency markets as nothing major is scheduled. Granted, there is a monetary policy decision by the Bank of Japan, but they have pretty much been issuing the same statement for the past 6 months. Since nothing has changed too drastically in Japan recently, they most likely won’t do anything.

Housing numbers, both new and existing, out of the US are going to be released, and if the numbers are bad enough, QE3 could become a topic of conversation again. The European soap opera will continue to attract everyone’s attention, including those of the ratings agencies. As they have shown in the past, they are more than willing to inject their thoughts in to contentious situations.

READER MAILBAG

Q: Really enjoyed your Fibonacci presentation, but had to leave before you finished. It was the best explanation of Fibonacci Levels and how they are derived that I have seen. Do you have that presentation available On-Demand? --Stephen from Australia

NG: I am glad you enjoyed the webinar and that you found it useful! Stephen is referencing my Long and Short of It webinar on Wednesday of last week. Since nothing newsworthy was being released, I decided to give a tutorial on how and why we use Fibonacci analysis the way we do. If you would like to view a recording of that presentation, it can be found on YouTube here.

Q: I thoroughly enjoy your webinar "The Long and Short of It,” and the live analysis for the EURUSD pair. It’s my first exposure to your strategy "Braving the Rapids" and I wish to understand better the setup conditions and criteria. – Kim from Singapore

NG: Braving the Rapids is a guide that I created to teach at least one method of using “The Rapids” trading strategy. Along with the guide, we created a video to demonstrate it in action. The YouTube link can be found here.

Q: I attended your webinar today, but noticed you mostly trade the EUR/USD; will you be placing trades in dollar basket in the future? –Tina from New York

NG: Tina is referring to the USD/BKT that is available here at GFT. While I haven’t placed any trades in this instrument yet, I will most likely in the future. This product is still relatively new, and I haven’t had the opportunity to view its reactions to news events as of yet.

If you would like to be potentially included in the Reader Mailbag, please send your emails to webinars@gftforex.com or send me a message on Twitter (@FXexaminer), or Facebook (FX Examiner). Please provide your name and where you are from for reference, however, anonymous questions are always welcome.

QUOTE OF THE WEEK

“People exaggerate approximately 127% of the time.” –Unknown

PARTING SHOT

One of the reasons we have been mired in an economic bog for the last few years is the failure of governments across the world (not just the USA) to monitor those that were taking advantage of the lackadaisical attitude toward home prices. The thought process was that home prices will continue to go up forever, and the dream of home ownership should be spread to everyone, even those who couldn’t afford it. The error of our ways is being played out before us every day in the form of real and potential defaults by not only home owners, but sovereign nations and banks as well. You would think that anyone in the world now has access to this information and wouldn’t fall in to the same trap again. Then again, maybe not.

China has been lauded as the global savior of Western style spending and consumerism by purchasing not only US debt, but also the debt of Europe. They are also one of the main forces behind the new EFSF bailout for Greece and European banks. However, it appears that the Chinese might be sliding down that slippery slope that we have all been experiencing. During this whole economic downturn, China has been spending money like a lottery winner. They have been building cities, airports, high speed rails, homes, and any other infrastructure that could help the country become more modern.

In the recent past, many Chinese cities that wanted to become the next boomtown were borrowing money based on the future price of developed land, and used that money to develop the land they were borrowing the money on. If the value of that land continued to appreciate, then there wouldn’t be a problem, the borrowed money could be paid back and everyone would be happy. But what would happen if the land value declines? Well, we know the outcome to that story. The Chinese government, realizing the potential powder keg, shut down that operation, but that didn’t stop the cities. They began forming independent companies to essentially do the same thing, working around the federal government.

Now the chickens have come home to roost, and there are a few Chinese cities that have all the amenities of modern life, but no one to live there. Developers are losing money because they have to pay back loans without any income flowing in. Banks are losing money when the developers run out of money and stop paying their loans. Then the Chinese government steps in and provides a bailout. Sound familiar?

In a world in which borrowing money to pay off borrowed money is the soup de jour, things can come crashing down in very short order. If or when the Chinese system starts to crash, the risk trade will probably come crashing down with it.

For more intraday analysis and trade ideas, follow me on twitter (@FXexaminer) and/or Facebook (FX Examiner) and attend our daily Live Market Analysis webinars. Visit your local GFT website under “Getting Started” to sign up.

Check out the latest in currency analysis and commentary, as well as FREE technical trade signals at FX360.com

The collapse of efforts to form a Greek government this week has reinforced, for many, the bullish outlook for the big dollar. The run-up to Greek parliamentary elections on June 17 will be marked by continued concerns about a disorderly exit from monetary union. The market currently sees contagion fears making inroads with other periphery economies. Moody’s downgraded sixteen Spanish banks by one to three notches and they still have another eleven EU members to vet by next month. The market seems comfortable shorting currencies geared to euro area growth as data is consistently signaling weaker activity in Q2. Expect the latest round of financial stress to further damage business confidence with the core economies.

Below are some other highlights of the week:

EUROPE

• Market sentiment continued this week where it left off in risk aversion mode. Fears of a disorderly Greek default and EMU exit remain the main source of market stress. The negotiating of a grand coalition was unsuccessful as the country now heads towards a June election.
• GER: Chancellor Merkel’s CDU party lost more vote share in North Rhine-Westphalia, with the SPD increasing its control of that state. The sitting Chancellor looks under pressure to win next year’s election.
• EU: Mainland data continues to point to a significant deterioration across the euro-zone. EZ IP fell -0.3%, m/m, much worse than the consensus for a +0.4% rise. Not surprisingly, the weakness came from a sharp contraction in energy production after weather related strength in Q1.Analyst’s continue to point to the weak PMI’s which convey a worrying growth outlook in the euro-zone going into Q4.
• GER: German economic expectations have fallen somewhat aggressively this month after rising for five consecutive releases (10.8 vs. 23.4). It obviously reflects the shenanigans occurring in Greece and the French political results. Collectively, both situations seem to be raising doubts about the commitment from some European Governments to fight the periphery regions debt crisis.
• EU: Overall, euro-zone GDP was flat in Q1 according to the flash estimate, better than the consensus expectation for a -0.2%, q/q, contraction. German growth surprised to the upside, rising +0.5%, q/q. Positive German contributions came from domestic consumption and net trade, while investment decreased. Both Dutch and French GDP did not deviate too far from flat. However, in the periphery, the news was less good. The Italian economy appears in a deeper recession with a -0.8% contraction in Q1, while Greece was down -6.2%, y/y and the surprise was Portugal’s GDP falling only -0.1%, q/q. The market seems to believe that the weak peripheral should trump the better news in the core in terms of EUR impact. Will the ECB set policy to maintain peripheral stability?
• GER: Despite being government less, Greece paid the +€430m international bond maturing this week, hoping obviously not to aggravate sentiment given current delicate conditions and be seen as a new trigger for systemic pressures.
• CE3: Their economies reported very weak GDP numbers. CZK GDP contracted -1.0%, q/q, after the country entered a technical recession in the past quarter. This should support the doves thinking. Elsewhere, HUF’s GDP contracted -1.3%, q/q, much worse than the expectations for -0.5%qoq. Expect renewed concerns in mainland Europe and weak growth outlooks to affect the CE3 further.
• GRD: Greek political leaders fail to build a coalition. A caretaker government will oversee next month’s election.
• EU: Merkel and new French President Hollande indicate that they would consider measures to spur economic growth in Greece, as long as voters there commit to the austerity demanded for Greece to stay in the euro.
• GBP: The tone of the BoE latest inflation report was very dovish relative to the hawkish set of minutes. Based on market interest rates and current size of asset purchases, inflation is projected to be below the +2% target at the end of the forecast horizon. Governor King indicated that the will respond if the euro crisis escalates. Are more AP’s on the horizon? Will sterling outperform the EUR and other growth sensitive currencies as a safe haven?
• UK: Jobless claims fell -13.7k last month, while March jobless claims were revised to -5.4k from +3.6k previously. These are first falls in job claims in over a year. The ILO unemployment rate fell to +8.2% for Q1 vs. +8.4%. Since Q4, the UK economy has managed to create +165k jobs. Is the UK economy in that much of a technical recession?
• EU: Euro-zone inflation was +2.6%, y/y, in April, unrevised from the preliminary estimate and slightly down from +2.7% in March. Core-inflation was stable at +1.6%, y/y.
• EU: The ECB announced that they will not lend any more to several Greek banks until their recapitalization is complete, combined with the announcement of new Greek elections for 17 June, happen to offset the overall positive outcome of Spain’s mid-week bond auctions. Spain issued €2.5b to reasonably strong demand.
• GR: Anagiotis Pikrammenos, the head of Greece’s Council of State, will head the caretaker government into next month’s elections.
• EU: Moody’s downgraded Spanish banks on rising loan defaults, a renewed recession, restricted funding access and the reduced ability of the government to support lenders.
• ITL: Following large falls in the previous two months, Italian industrial orders rose +3.5%, m/m, in March, handily beating market expectations.

 

AMERICAS Week in FX ASIA Week in FX

 

 

Canada looks like a safe bet to be the first amongst the G8 members to hike rates. Last month’s inflation figures were a tad stronger than expected, topping Governor Carney’s +2% inflation target. Despite the small breach, no CBank in this stuttering economic environment would be rushing to raise rates. Canada’s outperforming metrics, employment, housing and manufacturing data still have to combat specific external headwinds that scream for extending domestic accommodative policies. The BoC has been very vocal about being adequately ‘flexible’ in its inflation target mandate. The timing of any hike will be ‘weighed carefully against domestic and global economic developments.’ Currently, risk aversion has not been kind to the loonie.

Below are some other highlights of the week:

AMERICAS

• USD: US consumer prices were flat last month (+0.3% vs. +0.3%), ending three-months of price increases as falling gas costs kept inflation at bay. Core-prices have risen +0.2%, m/m, and +2.3%, y/y. The annual rate for the overall and core continue to hover above the Fed’s+2% target. Despite falling gas prices easing overall inflation, rising core could limit the Fed’s ability to stimulate the US economy further, even by additional bond buying.
• USD: Retail sales grew just +0.1% headline and ex-autos, below market expectations of +0.2%. Analysts note the sales print is to some extent a payback after a strong Q1 gain. Last month saw a particular weakness in building materials and gas station receipts on the back of weaker gas prices.
• USD: NY Empire State manufacturing rebounded this month. The business conditions index rallied to 17.09 after falling 14 points to 6.56 in April. Most of the sub-indexes improved like new orders, shipment, labor conditions and the employment index. However, price measures eased this month as did optimism about the future.
• USD: Housing starts beat expectations, rising to +717k vs. +680k. On the flip side building permits dropped back down from +769k to +715k after March’s +62k surge. It remains the second highest monthly reading in just under four-years.
• USD: IP rebounded last month, jumping +1.1%, m/m, further proof of a healthy demand for factory goods. Other data showed that US Capacity utilization also rose to +79.2% from a revised +78.4%. Big picture however, operating rates remain below their long-run average, just above +80%.
• CAD: March Canadian manufacturing shipments gained +1.9%, beating expectations of a +0.4% monthly rise. The gain was led by an increase in sales from petroleum and coal products.
• USD: The weekly EIA reported crude inventories were up +2.1m barrels just above weekly expectations of +1.5m.
• CAD: Foreigners reduced their Canadian security holding for the second consecutive month (-$2b). On the flip side, Canadians bought the largest amount of foreign product in five-years last month (+$6.3b, with US equities accounting for +60%).
• CAD: Canadian manufacturing shipments rallied in March, up +1.9% vs. +0.4% expectations.
• CAD: Wholesale trade climbed +0.4% to +$49b in March, mostly on the back of motor vehicles and the parts sector. Sales volumes were also unchanged on the month.
• CAD: BoC quarterly review stated that “delay or front loading of fiscal consolidation may cut global GDP 7-8% by 2015. Monetary policy may be needed to support financial stability in exceptional circumstances” In translation, Governor Carney has little concern for the Euro meltdown and is flexible for liquidity injections if required.
• USD: Level of US initial jobless claims remained unchanged, w/w, at a seasonally adjusted level of +370k. The four-week moving average falls to the lowest level in more than a month (-4.7k to +375k). The data suggests that last month’s spike is likely due to seasonal factors. The May employment report is likely to confirm the slower trend in hiring that emerged in March.
• USD: The Conference board’s leading economic indicators index slid -0.1% last month, the first drop in eight-months. Negative contributions came from last month’s contraction in building permits and a jump in initial claims. The broad softness in this month’s data implies weak growth in the latter half of Q2.
• USD: Philly Fed truly disappointed and missed all market expectations, falling from +8.5 to -5.8, the worst print in eight month. The negatives came from new orders, a big plunge in the employment and the future activity index.
• CAD: Canadian April CPI (nsa) +0.4%, m/m and +2%, y/y; core +0.4% and +2.1% y/y. The market was looking for a headline print of +0.3% and +0.2% respectively. This has the hawks wondering when Governor Carney will pull the trigger. Despite probably being the first G8 country that is going to actually hike rates, the market is beginning to price in no hike this year after a disappointing Canadian GDP print in February, and because of the continued euro-zone turmoil.

 

EUROPE Week in FX

ASIA Week in FX

 

 

Asian bourses have ended trading hitting four-month lows as weaker US data added to rising worries over Europe. Commodities and their currency sensitive pairings are not immune to the surround sound of contagion fears. Gold has been able to dig itself out of Mondays bear market trap, ending on a high, and in the black. The same cannot be said for the Aussie, usually a strong yellow metal supporter, is seen as a higher risk because of the country’s overall commodity price exposure and high exchange rate. The RBA’s dovish stance is reducing the AUD’s yield spread advantage, adding to the impact of fears of a hard landing in China. The continued aversion to risk is pushing down high-yield currencies. Euro political concern and weaker US data is having an exaggerated effect on the currency outright. The Aussie rate markets continue to rally, pushing 2-year government yields down as the OIS market move to price in a high probability that the RBA delivers a -50bp cut on June 5.

Below are some other highlights of the week:

ASIA

• CNY: The PBoC lowered their Required Reserve Ratio by -50bps to +20% last weekend. This will allow authorities to release approximately +CNY500b of liquidity into the banking system and “help smooth liquidity imbalances.” Analysts are not ruling out any further cuts this year as China shift to supporting growth rather than boosting it. Guilty by association has the antipodean currencies currently struggling outright as weaker than expected Chinese data of late has added to this market unease.
• NZD: Kiwi retail sales fell -1.5%, q/q, in Q1. This follows two quarters of Rugby World Cup-boosted sales (thankfully the All-Blacks won) at the end of 2011. However, antipodean currencies remain vulnerable to Chinese data reporting.
• AUD: Aussie home loans rose +0.3%, m/m, in March, following a -2.5% decline in the previous month. The RBA’s role is to promote balanced growth; however, they acknowledge that growth in some sectors of the economy will remain below the average experienced over the last couple of decades. Market continues to price in a dovish CBank.
• INR: India’s WPI inflation rose to +7.2%, y/y last month from +6.9% in March. It is worth noting that core prices fell -0.1%, m/m, on a seasonally adjusted basis with most of the rise in the headline driven by food. The higher inflation print increases the risk that the RBI may keep rates on hold at the next meeting in June.
• AUD: The RBA minutes noted that it was “desirable for interest rates to move below the levels that prevailed in December, and a 50bp cut was required, taking into account higher bank funding costs and less mortgage pass-through.” This still allows them room to ease even further. If the global economy deteriorates next quarter, a similar cut will be on the table.
• NZD: Non-resident bond holdings rose to +62.1% last month from +60.9% in March.
• CNY: China’s Foreign Direct Investment has fallen for the sixth straight month, recording a -0.7%, y/y, decline in April after a -6.1% drop in the previous month.
• KRW: South Korea’s import price index rose last month at its slowest pace in more than two-years, gaining +1.7%, y/y, compared with a +3.5% rise in March. The export price index was up +2%, y/y, after being unchanged in March.
• NZD: Analyst’s note that Kiwi whole milk powder prices dropped -8.9% in the latest Fonterra auctions. Fonterra is the world’s biggest milk exporter. Year-to-date, prices have fallen -30%. A weaker commodity price always leaves the Kiwi vulnerable.
• AUD: Aussie Westpac Consumer Confidence Index recorded a modest gain of +0.8% to 95.3 in May, compared with a -1.6% decline last month.
• JPY: Japan’s machinery orders fell -2.8%, m/m, in March, following a revised +2.8% increase in February.
• JPY: The Japanese economy expanded faster than estimated in Q1, boosted by reconstruction spending. Q1 GDP rose +4.1%, q/q annualized, while Q4 GDP growth was revised higher to +0.1% from -0.7% previously.
• JPY: Housing loans grew +2.4%, y/y, in Q1, accelerating from the +2.2% rise recorded in Q4.
• KRW: Korea’s department store sales fell the most in 3-months in April, declining -3.4%, y/y, compared with a +1.6% rise in the previous month. South Korea announced that it is “prepared to take prompt action to stabilize markets should it be needed as Europe’s sovereign debt crisis deepens.”
• AUD: Aussie average weekly earnings rose +1.1%, q/q, in February.
• NZD: Kiwi ANZ job advertisements fell -2% in April, following a revised -0.9% decline in March.
• AUD: Aussie rate markets continue to rally, pushing 2-year government yields down -22bp as the OIS market move to price in a high probability that the RBA delivers a -50bp cut on June 5.
• JPY: The Japanese government has raised its assessment of the economy for the first time in nine-months. This certainly will not help the fallout of yen appreciation. Finance minister Azumi said that he is watching the value closely and is cautious on yen strength.
• CNY: China reported that average property prices in 70 cities covered in a government survey declined on a year-on-year basis in April. This was the second consecutive monthly decline, as developers continued to cut prices to boost sales amid a two-year-old government campaign to cool the property sector.

 

AMERICAS Week in FX

EUROPE Week in FX

 

 

The market has now taken out some major resistance by 10,100 to open the door for fresh upside and a bullish continuation over the coming weeks. Next key resistance comes in by the 10,300 area, although, with daily studies now overbought, look for opportunities to buy on dips back towards 10,000 where a fresh higher low is now sought out.

Currency trading with the greenback

US dollar is faltering in forex trading on the currency market today, heading lower as risk appetite makes its appearance. The upcoming Facebook IPO is boosting the demand for riskier assets, and many investors are ignoring Europe for the time being.

With commodities on the rise, and with investors looking at equities, it is little surprise that the US dollar is lower. On top of that, greenback is feeling downward pressure from the latest data. Jobs data and factory data have both been disappointing, and that has some speculating that the Fed will introduce more economic stimulus.

Compared to other currencies, like the loonie, the US dollar looks weak indeed. However, once the Facebook frenzy has passed, and forex traders have the chance to focus on the eurozone once more, chances are that the US dollar will resume some of its strength. 

See Also

• Economic News and Forex Trading Currency trading news

By Joel Kruger, Technical Strategist for DailyFX.com

• Panic, fear and uncertainty take hold of markets
• Euro looking to establish below 2012 lows from January
• Yen starts to find renewed bids on flight to safety status
• Eurozone political turmoil fuels intensified risk off trade
• Rating agency downgrades and Greek political developments weigh

The risk liquidation continues into Friday, and markets to this point have shown no real interest in any form of a bounce. The US Dollar and Yen have been the prime beneficiaries on their flight to safety status, while the Swiss Franc is still not participating given the aggressive SNB intervention measures. We wonder how much it is costing the SNB to keep the EUR/CHF cross propped above 1.2000, especially in these intense risk-off markets. At this point, the Euro should accelerate to test the yearly lows from January by 1.2625, although any additional declines from there would be hard to comprehend in light of the severely oversold daily technical studies.

Elsewhere, US equities are now testing some key support levels, while gold has finally found some bids ahead of $1500. It certainly isn’t common to see so many analysts bearish on the Euro and risk in general. We have seen even the most aggressive Euro bulls retract their positions, and these include some larger banks, hedge funds and even central banks.

Moving on, Moody’s downgrade of 16 Spanish banks, along with Spanish yields rising back above 6% has not helped matters, while comments from Greek SYRIZA leader Tsipras that his party will not join the any pro-bailout coalition only weighs further on risk sentiment. European leadership needs to step up and offer a solution; otherwise, we could see additional risk liquidation over the coming hours. It is more than likely that the burden will fall on the European Central Bank, and the introduction of a Eurobond or additional bond buying could offer some relief. Other tools at the ECB’s disposal include the LTRO and the ability to cut rates, both of which would also likely be viewed as a risk positive. One thing is for sure, the G8 Summit kicks off today and we should expect nothing from this front in terms of any helpful solutions.

 

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market remains under intense pressure and the focus for now is squarely on a retest of the 2012 lows from January at 1.2625. While we would not rule out a possibility of a test of this level over the coming sessions, short-term technical studies are well oversold and are showing a need for some form of a corrective bounce from where a fresh lower top is sought out. Ultimately however, any rallies should now be very well capped by previous support turned resistance at 1.3000 in favor of additional weakness over the medium-term that projects deeper setbacks into the lower 1.2000′s.

USD/JPY: The market continues to consolidate around 80.00 and is in the process of looking for a medium-term higher low ahead of the next major upside extension back above the yearly highs at 84.20 and towards 90.00 further up. However, for the time being it remains in question whether the market will still head lower towards the 200-Day SMA by 78.50 before ultimately reversing higher. The key level to watch above comes in by 80.60, and a break and close above this level will officially alleviate downside pressures and suggest that a higher low has now been carved in the 79.00′s.

GBP/USD: The market remains under intense pressure since breaking back below 1.6000 and setbacks could now extend towards next key support in he 1.5600 area over the coming sessions. Still, daily studies are now stretched and we would prefer looking to sell into rallies towards 1.5900 where a fresh lower top is sought out.

USD/CHF: Overall the structure remains highly constructive and we continue to project additional upside over the coming months back above parity. For now, the latest break and close above 0.9335 is expected to accelerate gains for a retest of the yearly highs by 0.9600, while any intraday pullbacks should be very well supported ahead of 0.9200. Ultimately, only back under 0.9000 would negate outlook and give reason for pause.

 

— Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

Loonie heads higher in currency trading

Canadian dollar is getting a boost in forex trading on the currency market today, heading higher on better economic news, and higher commodities.

Loonie is getting help as the CPI rises in Canada. The news once again underscores the relative strength of the Canadian economy, especially when compared to the United States, or to the eurozone.

Also helping the loonie in currency trading is the fact that commodities are rising. Gold prices are higher today, and oil prices -- after days of disappointment -- are gaining. Canadian dollar receives special support from oil prices, since oil is one of Canada's major resources.

And, of course, the greenback is down on general optimism and risk appetite stemming from today's Facebook IPO. 

See Also

• Canadian Dollar in Forex Trading Currency market news

World shares slid and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece’s future in the euro zone and lacklustre U.S. data bolstered safe-haven assets.

World stocks, as measured by the MSCI index, dropped 0.7 percent and are now below where they began the year, having relinquished all the first-quarter gains fuelled by the European Central Bank’s injection of more than a trillion euros of three-year money.

That rally is now a distant memory as an ugly week for stock markets looked likely to end even uglier.

Across the board, riskier assets from commodities such as oil and currencies like the euro and the Australian dollar were all heading for big weekly losses.

While U.S. stock futures pointed to a modestly higher open on Wall Street, following a sharp drop on Thursday, the FTSEurofirst 300 of leading European shares slid 0.6 percent to 975.71 by 1130 GMT, falling for a fifth day running and taking its weekly loss so far to nearly 5 percent.

Facebook will make its Wall Street debut after the world’s No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at just 0.028 percent.

Investors were spooked by a ratings downgrade of 16 Spanish banks by Moody’s Investors Service – although the move had been expected – and an unexpected contraction in U.S. regional factory activity reported on Thursday.

Reuters

U.S. banks increased sales of protection against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the last quarter of 2011 as the European debt crisis escalated.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose 10 percent from the previous quarter to $567 billion, according to the most recent data from the Bank for International Settlements. Those guarantees refer to credit-default swaps written on bonds.

JP Morgan and Goldman Sachs Group Inc., two of the top CDS underwriters in the U.S., say they have bought more protection than they sold, indicating they may benefit from defaults in the region. That outcome is called into question by JPMorgan’s $2 billion loss on similar derivatives, which shows that risks don’t vanish when offsetting bets are taken, said Craig Pirrong, a finance professor at the University of Houston.

“All these hedges trade one risk for another,” said Pirrong, whose research focuses on derivatives markets. “The banks say they’re flat on European risk, but that’s based on aggregated positions. We don’t know how those will hold off if the European crisis blows up.”

JPMorgan Chairman and Chief Executive Officer Jamie Dimon said last week that the bank was trying to reposition a portfolio of corporate credit derivatives and used a flawed trading strategy. The lender, the largest in the U.S. by assets, is believed to have sold protection on an index of corporate debt and bought protection on the same index to hedge its initial bet, according to market participants who asked not to be identified because their trading strategies aren’t public.

The two bets moved in opposite directions this year, causing losses and proving that even hedges that look perfect can break down, Pirrong said.

Bloomberg

Gold gained for a second day in New York as concern Europe’s sovereign-debt crisis is worsening spurs demand for the metal as a protection of wealth.

The euro reached a four-month low versus the dollar after Fitch Ratings downgraded Greece’s long-term credit rating, citing heightened risk that the nation may not be able to sustain membership in the monetary union. Bullion jumped 2.5 percent yesterday, the most since October, as a U.S. report showed manufacturing in the Philadelphia region unexpectedly shrank in May for the first time in eight months.

“To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner,” Edel Tully, an analyst at UBS AG in London, wrote in a report today. “Follow-through buying will have to kick in to encourage investors to jump in.”

Gold for June delivery gained 1 percent to $1,590.70 an ounce by 7:58 a.m. on the Comex in New York. Prices are up 0.4 percent this week. Bullion for immediate delivery was 1.1 percent higher at $1,591.70 in London

Gold is up 1.5 percent this year after 11 consecutive annual increases. It slumped the previous two weeks as a stronger dollar cut demand for the metal as an alternative asset. Holdings in bullion-backed exchange-traded products rose 3.3 metric tons to 2,381.8 tons yesterday, about 1.2 percent below the March 13 record, data compiled by Bloomberg show.

Gold reached the lowest price this year on May 16 as Greece’s inconclusive May 6 election sparked political turmoil and reignited concern the country will renege on pledges to cut spending as required by the two separate rescue packages. In Spain, the cost of insuring against a default jumped to a record. Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday.

Silver for July delivery rose 1.4 percent to $28.405 an ounce. Palladium for June delivery was little changed at $605.15 an ounce. Platinum for July delivery gained 0.5 percent to $1,460.80 an ounce.

Bloomberg

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The third largest IPO in corporate history, the largest in tech, is about to make a few specs very wealthy today. Frantic Facebook Friday’s enthusiasm does not seem to be spilling over to disrupt the dour mood of FX. The 50% of Americans who believe that Facebook is a fad, will not be allowed to gatecrash today’s party. The EUR bull thought they caught a break with yesterday’s dismal US data potentially opening the Q3 flood gates. That euphoric feeling has been short lived, flames finally doused by rabid credit agency action in the overnight session. Currently, there is no noticeable peripheral spread narrowing to support this equity led risk rally.

Moody’s has been kept busy in the overnight session, downgrading 16 Spanish banks by one to three notches, with ten of the institutions left on negative outlook. Without going into too much detail, the downgrades reflect each bank’s operating conditions, rapid asset quality deterioration (long too many holiday homes on their books), funding concerns and finally, each entities creditworthiness of the Spanish sovereign. This final point is probably the most significant, analysts note that it affects the ability of the government to support banks. Moody’s is currently Euro country hopping, and this will not be the last of the European banks to be downgraded in this cycle.They have eleven more EU member announcements to handle before the end of next month. Not to be left in the cold, Fitch cut Greek long-term sovereign rating to CCC from B-, bringing its rating in line with S&P’s.

The Greek radicals under Tsipras believe they still have the hammer over the rest of the Europe, presuming that fellow members will not roll the dice and cut off funding to his country. His party believes a financial collapse in Greece would drag his compatriots down as well. Obviously quoting Hollande visions, Europe must consider more growth oriented policies for his homeland. Coming back to the EUR reality, there is no alternative for Greece, she must stick to the deal that has been agreed. Other Euro policy makers concur that this is the country’s only rational option. It’s no wonder that contingency plans are being drawn up in case Greece were to exit the Euro-zone. Their woes reinforce the dollar bull views that the single currency will struggle to make it back above 1.30 even if the polls start to signal a greater chance of a pro-EMU composition of the Greek parliament. Any Greek coalitions will still have to face a difficult negotiation on a modified austerity plan. The thought of an ECB easing, to promote growth, does not strengthen the currency either!

The position ratios continue to show that the market has been quietly gathering EUR’s ahead of this years low print of 1.2624. The EUR bears are happy to pare some of their ‘one directional’ trade positions to at least recycle said funds. There are a few significant strikes occurring today. The larger sizes will only increase short term spot gravitation of certain levels (specifically, 1.27 and 1.2725). Single currency supply is expected to be on hand as the market approaches 1.2750. The longer term focus still remains fixated on breaching the psychological 1.26 barrier below. It will not be unusual for the markets to see the EUR rally intraday, cutting some of the record short positions ahead of this weekends G8 meetings. It’s always prudent to play the percentages in case of event risk. Obviously counteracting this will be the possibility of fresh Euro negative news occurring during the weekend from any embattled member. The trend remains your friend and having cash to recycle also feels good!

Other Links: EUR Short Squeeze Too Far?