Aug 28, 2010

Forex Crunch Forex Weekly Outlook – August 30 – September 3

Forex Crunch Forex Weekly Outlook – August 30 – September 3

Forex Weekly Outlook – August 30 – September 3

Posted: 28 Aug 2010 02:00 AM PDT


The summer ends with a very busy week, including GDP releases, the European rate decision and many American figures culminating in the king of forex – Non-Farm Payrolls. Here’s an outlook for the 14 major market moving events.

The notion of a double dip recession in the US strengthened in the past week, especially with disastrous number from home sales, and even though Bernanke made an effort to calm the markets. The question is - Will the US economy fall alone? This storm of negative numbers, such as the downwards revision of GDP, will probably continue pouring in this week.

  1. US Personal Spending: Published on Monday at 12:30 GMT. This figure is an important gauge for consumers’ mood. Growth in spending slowed down and stalled last month. Now, there’s fear that spending will squeeze, but economists still hope for a 0.4% rise.
  2. European Unemployment Rate: Published on Tuesday at 9:00 GMT. While Germany enjoyed stellar growth in Q2, and also enjoys dropping unemployment, the rest of the continent still suffers with an unemployment rate of 10%. This figure is published about an hour after the German Unemployment Change figure, and will emphasize the gap, slowing Euro bulls.
  3. Canadian GDP: Published on Tuesday at 12:30 GMT. Canada’s unique monthly release of the GDP provides action for the USD/CAD more frequently. After a great first quarter, the Canadian economy slowed down in Q2. This release is for the month of June, closing the second quarter and is of high importance. A 0.2% rise is expected.
  4. US CB Consumer Confidence: Published on Wednesday at 14:00 GMT. This wide survey of 5000 households always rocks the markets. After topping 63 points two months ago, confidence fell quickly and dropped to 50.4points last month. Another small rise to 51.3 points is hoped for now.
  5. US FOMC Meeting Minutes: Published on Tuesday at 18:00 GMT. Two weeks after the groundbreaking FOMC statement, we’ll get to see how worried the members are and if there are differences between them. The Federal Reserve expressed concerns about the recovery and renewed the bond buying program in the last meeting – a move that eventually sent the dollar skyrocketing for a few days.
  6. Australian GDP: Published on Wednesday at 1:30 GMT. Australia, which was never officially in a recession, has also seen slower growth in Q1 – only 0.5% after 1.1% in Q4 of 2009. This important figure will probably be stronger now – a growth rate of 0.9%. This  will rock both the Aussie and the kiwi.
  7. US ADP Non-Farm Employment Change: Published on Wednesday at 12:15 GMT. This indicator for the private sector continues to be of high importance for the Non-Farm Payrolls, as the overall figure is still distorted by the decennial census. ADP showed four months of small gains in jobs. A smaller figure than last month’s 42K gain is likely now – 22K.
  8. US ISM Manufacturing PMI: Published on Wednesday at 14:00 GMT. This is one of the indicators that didn’t disappoint last month – it surprised with 55.5 points – showing that the manufacturing sector is still expanding at a good rate. This survey of 400 purchasing managers is now expected to dip. The big question is if it will drop under the critical 50 point mark meaning contraction. Expectations stand on a drop to 53.6 points.
  9. European rate decision: Published on Thursday at 11:45 GMT. Jean-Claude Trichet has a great second quarter and higher inflation on one hand, and great concerns for the future and high unemployment rate on the other hand. The result will probably be leaving the European Minimum Bid Rate unchanged once again on 1% but expressing higher concerns in the press conference, due 45 minutes after the rate announcement.
  10. US Unemployment Claims: Published on Thursday at 12:30 GMT. After topping 500K two weeks ago, jobless claims dipped to 473K last week, giving some relief. This is the last job-related figure before the Non-Farm Payrolls. Another rise above 500K will be problematic, while only a drop under 430K will provide hope.
  11. US Pending Home Sales: Published on Thursday at 14:00 GMT. Pending home sales, like the whole housing sector, is dependent on government aid. Without it, we’ve seen a 30% drop in pending sales two months ago, another drop of 2.6% last month, and huge drops in existing and new home sales reported last week. Another drop is expected now – 1.5%.
  12. Swiss GDP: Published on Thursday at 6:45 GMT. The Swiss economy saw three quarter of growth after the recession, with a 0.4%growth rate in Q1. Growth is expected to continue in this stable country also in Q2, and it could even be stronger – 0.8%.
  13. US Non-Farm Payrolls: Published on Friday at 12:30 GMT. The king of forex trading was disappointing last month – yet another big drop in jobs – 131K. The effect of the decennial census was still felt then, and will be felt now as well, since 200,000 workers were still employed around the census as of last month. So, also now the focus will be on the private sector change. A drop in jobs in the private sector can sure happen now, after all of August’s figures have been terrible. Consensus for the headline figure stand on a drop of 100,000. The accompanying figure – the unemployment rate, will probably remain around 9.5% and will leave the focus on the NFP.
  14. US ISM Non-Manufacturing PMI: Published on Friday at 14:00 GMT. Complementing the manufacturing sector, the services sector has also been good last month (54.3 points) and will probably dip this time to 53.6 points. It’s importance is lower this month, as it’s released after the NFP.

That’s it for the major events this week. Stay tuned for in-depth coverages of specific currencies.

Further reading:

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Forex Reads for the Weekend – August 28

Posted: 27 Aug 2010 02:00 PM PDT


Before diving into a very busy week of forex trading that will close the summer, it’s time to sit back and enjoy some interesting long term articles from the web. Here are my picks. Enjoy!

  • Larry Greenberg has an overview of the fading thrill of global growth. Will the US fall alone?
  • Andriy presents a rather unknown indicator – Quantitative Qualitative Estimation Indicator.
  • Jay Norris looks at long term charts and states that we are at the right place in the right time.
  • James Chen discusses the two extremes that traders can fall to – paralysis by analysis or extinct by instinct, and tries to find the path in the middle.
  • Adam Kritzer talks about the Pound rally running out of steam.
  • Francesc Riverola reports about the head of Crown Forex S.A being sentenced to 25 years in prison for a major forex scam.
  • Michael Greenberg reports that Forex Club awarded fastest growing forex broker in America.
  • Macro Man discusses Australia’s hung parliament and the implications for the Aussie.
  • Forex Alliance, a new forex portal has launched. It will be interesting to see how it evolves.

Don’t forget to participate in the forex trivia quiz. You can win cash prizes!

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Lifting Inflation Goals? Bernanke Hints Awful US Situation

Posted: 27 Aug 2010 07:30 AM PDT


Ben Bernanke talks about adding more stimulus steps if necessary, and mentions a surprising option of lifting inflation goals to boost the economy. While he said this step doesn’t have support in the FOMC, the fact that he even mentioned it is a big surprise. This is his subtle way of saying that the situation is dire and that drastic massive dollar printing steps are considered. More trouble in the US means a global slowdown. The fear triggered by his speech sends the dollar higher. EUR/USD fell 50 about pips to 1.2675 and then slightly recovered. Analysis of Bernanke’s speech:

As Bernanke’s words always have some mystery in them, it’ll take time until the market fully digests the meaning of his words. There are more factors to weigh in:

On the other hand, Bernanke did talk about good growth in 2011 and onwards. This is currently dismissed by the markets, but it sure serves as a serious balance to the hint about further stimulus if necessary.

In his speech, he said the central bank still has many tools. In the past he talked about three tools, and he repeated them again now. He also introduced a fourth tool:

A rather different type of policy option, which has been proposed by a number of economists, would have the Committee increase its medium-term inflation goals above levels consistent with price stability. I see no support for this option on the FOMC. Conceivably, such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations. Also, in such a situation, higher inflation for a time, by compensating for the prior period of deflation, could help return the price level to what was expected by people who signed long-term contracts, such as debt contracts, before the deflation began.

Yet again, in order to balance this surprising option of lifting inflation, a surprise indeed, Bernanke immediately said that this isn’t necessary and that there’s no support for such a move in the FOMC.

But he did mention it. What is the meaning of lifting inflation goals? How can the bank lift inflation – with much more quantitative easing – much more dollar printing. Is the situation so bad? Probably not yet, but mentioning this option sure is a surprise.

The last two hours of Friday’s London session are always messy, as many traders hurry to close positions before the weekend.

In addition, the market is still digesting the GDP downgrade that the US received earlier today. The second release for the second quarter showed a downside revision of the GDP from 2.4% to 1.6% (annualized). This was marginally better than expected. At first, the dollar gained against the Euro, but then these gains were erased, as the tension was mounting towards Bernanke’s words.

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US GDP Sharply Revised Downwards – Trading Remains Tight

Posted: 27 Aug 2010 05:33 AM PDT


The second release of GDP for the second quarter was indeed bad – a downwards revision from 2.4% to 1.6%, slightly better than a revision to 1.5%. The initial reaction was dollar positive, but this was quickly erased.

EUR/USD was down from 1.2720 (almost the resistance line) to 1.27. This drop was very limited and the pair returned upwards. The market is still awaiting Ben Bernanke’s speech in Jackson Hole. He’ll have something to relate to.

GBP/USD dropped to the support line of 1.5470 immediately after the release. AUD/USD rises towards 89 cents. USD/CAD is down just under 1.06. All have recovered in the meantime. Tension is high. As aforementioned, these moves are limited as the result was quite accurately predicted, and Bernanke’s speech at 14:00 GMT is awaited.

Earlier this week, we received another bunch of terrible American figures. The one figure that stood out was existing home sales, that plunged by 27% and shocked the markets, suggesting the US could fall alone.

Also sales of new homes dived more than expected. Durable goods orders rose by only 0.3% (exp. +2.9%) and core durable goods orders, the more important figure, dived by 3.8% A rise was predicted. The only light in the dark tunnel was a small drop in unemployment claims, although last week’s figure was revised higher.

These figures, together with others from previous weeks such as the Non-Farm Payrolls from August 6th, raised the fear of a double-dip recession in the US. Nouriel Roubini, also known as Dr. Doom, said there’s now a 40% chance of double-dip recession, something that is very rare.

With the growth rate quickly deteriorating from over 5% in Q4 2009 to over 3% in Q1 and just over 1% in Q2, a negative growth figure in Q3 cannot be ruled out, especially if employment remains so weak.

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