Apr 9, 2010

Forex Crunch Loonie Retreats from Parity on Jobs

Forex Crunch Loonie Retreats from Parity on Jobs

Loonie Retreats from Parity on Jobs

Posted: 09 Apr 2010 04:06 AM PDT


Canadian jobs didn’t were slightly disappointing, with a smaller than expected gain in jobs. This sent USD/CAD above parity. The battle around parity isn’t over.

Canadian Employment Change showed a gain of 17,900 jobs, worse than last month’s 20,900 gain and the early expectations that stood on 25,900. The unemployment rate remained unchanged at 8.2%. Some economists expected this rate, while others predicted a drop to 8.1%, following last month’s drop in the unemployment rate.

All in all, loonie traders were used to positive surprises with these figures in recent months, and now the results fell short of expectations. This took its toll on the currency:

USD/CAD that stood on 0.9990 before the release, jumped as high as 1.0050, before relaxing at 1.0030. The reaction is still going on. I’ll update this post if necessary.

Earlier this week, USD/CAD parity became a reality, after 20 months. This came after a leap in oil prices and also on the greenback’s weakness at the beginning of the week. After dropping below 1, the pair went as low as 0.9977 but then retreated.

USD/CAD reached 1.01 due to renewed dollar strength. This rise stopped after the Ivey PMI came out better than expected – 57.8 instead of 55.1 points. The turn in the markets near the end of the week sent the dollar down, and USD/CAD fell below 1 once again.

Below 1, the next support line is 0.98, followed by 0.97, which is a strong line. Kathy Lien talked about a correlation between $92 per oil barrel and 0.97 for USD/CAD. This will still take some time, but many factors support the loonie’s strength.

Looking above, greenback strength will meet resistance at 1.02, which was last year’s year-to-date low and then 1.04.

Taking a peak at next week’s calendar, there are quite a few events to move the loonie. I’ll post the outlook during the weekend.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Interests Rates: Looking Through the Fed’s Eyes

Posted: 09 Apr 2010 12:04 AM PDT


Guest post by David Leal, Market Analyst – IntegrityFXPlus.com

Like any other good, the value of a currency is determined by the forces of supply and demand. However, in currencies the supply of currencies is controlled by the central banks. They are the single most influential entity on a currencies value. So, it is obviously advantageous to any trader to be able to see through the eyes of a central bank.

The Federal Reserve controls the US dollar, giving it the most influence on the market. According to its mandate the Federal Reserve has two goals, to maintain price stability (i.e. low inflation) and to maintain sustainable output (i.e. low unemployment). However, their actions reveal that their primary goal is to prevent deflation of the dollar (a situation with a strengthening value of the dollar and increasingly high interest rates). Of course this is related to maintaining low inflation, but the difference is that high inflation is embraced, while any level of deflation is feared like the plague. Remember that deflation takes power away from a central bank, while inflation strengthens it.

This is why the Federal Reserve prefers the dollar to lose value (there is also the fact that a weakening currency is beneficial for borrowers, i.e. the government, but that's a topic for another day).This includes the dollar's value against other currencies. But this poses a problem, other central banks want to devalue their currency as well, and due to the nature of the foreign exchange market, a loss in value of a currency is necessarily a gain in value for another currency. This puts the central banks at odds with each other.

When the world is relatively calm and in a sort of equilibrium, the Federal Reserve has the upper hand. When they do the dollar slowly devalues (except of course for the yen, since everyone borrows yen). But, when things begin to look bad and the demand for currencies begins to have a larger impact reducing the effectiveness of controlling the supply of a currency. This is what the situation has been in the last two years.

So here we stand today, the dust slowly clearing from the mess, and the Fed once again beginning to gain a firm grasp on its dollar manipulation. But it does not have that control yet. The situation in Greece put a huge dent in the Fed's progress, and potential new problems still stand in the way (Australian housing bubble anyone?). The timing on interest rate hikes is unclear, but one thing is certain, the Fed will not be raising them until there is little risk of the dollar gaining value as a result.
So, put yourself in the shoes of the Federal Reserve and ask yourself what you would do to debase the value of the currency you oversee.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – April 9th 2010

Posted: 08 Apr 2010 01:00 PM PDT


The volatile week ends with important speeches and the Canadian employment figures among other events. Let’s see what’s awaiting us today:

Federal Reserve Chairman Ben Bernanke will speak in Washington about the economic policy and can move the dollar during the Asian session.

In Europe, German Trade Balance is expected to rise from 8.7 to 11.5 billion. French Industrial Production is expected to rise by 0.4%, much slower than last month’s rise.

The beaten Euro might also move by a speech from Jean-Claude Trichet, which will talk in Milan towards the end of the day.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs’ latest analysis.

In Britain, PPI Input is expected to rise by 1.2%, a leap when comparing last month’s rise. Also note PPI Output which will probably rise by 0.4%.

For more on the Pound, read the GBP/USD forecast.

USD/CAD parity looks distant once again. The important employment figures have a chance of bringing the pair back there. Canadian Employment Change is expected to show a rise of 25,200 jobs, while the Unemployment Rate will probably remain unchanged at 8.2%.

For more on the loonie, read the USD/CAD forecast.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

What will move the Pound out of range?

Posted: 08 Apr 2010 07:47 AM PDT


The British Pound received good figures today, such as the GDP estimate, but is still bound in a range. Here are 3 things that push it up, three things that push it down, and some thoughts on what will move it away from the range – with the downside seeming more likely.

GBP/USD is trading almost perfectly between 1.5110 and 1.53. Here are some of the reasons for this see-saw:

The good:

  1. Economy growing – the NIESR GDP estimate pointed to a 0.4% growth rate in Q1 of 2010, which is quite good. They also revised the previous version, of the months ending in February to 0.4%.
  2. House prices rising: Halifax HPI showed a rise of 1.1% in house prices, better than expected (0.6%), and showing that last month’s drop was probably a one-time dip.
  3. Strong industry: Manufacturing Production showed a rise of 1.3%, double the early expectations. Great data indeed.

The bad:

  1. Rate decision: Although there were no news, the bank decided to move the next decision to after the elections. Are they delaying difficult decisions to a less sensitive period? Mervyn King wants a weak currency.
  2. Dollar strength: the greenback’s strength amidst the fresh global fears weighing on the dollar as well.
  3. Elections: The great uncertainty about the outcome of the general elections on May 6th aren’t good for the currency.

The range:

As aforementioned, GBP/USD is trading in a range. But the borders of the range aren’t equal: a little above the range – at 1.5350, the border is very tough – this is an important resistance line that holds the Pound low.

On the other hand, the bottom border, 1.5110, is just a minor resistance line. The Pound was below the bottom border less than 10 years ago, while it didn’t breach the top border in 6 weeks.

So, I tend to see a break out of the range to be downwards – below 1.5110 and towards 1.4780, the year-to-date low.

Another leap in employment could help the Pound, but employment figures are due only on April 21st. Last time they only caused a false break. Till then, the dollar’s moves will probably dominate the Pound’s trading. With its inherent weakness, I see the Pound going.

The big event that will unleash GBP/USD either up or down is the publication of the election results on May 6th. But there will sure be enough action till then.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.
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