Forex Crunch Extra Leverage for Forex Winners

Extra Leverage for Forex Winners
Britain’s Hiring – Pound Unexcited
Fed Decision – No Middle Ground
Forex Daily Outlook – December 16th 2009

Posted: 16 Dec 2009 02:10 AM PST

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Britain’s Hiring – Pound Unexcited

Posted: 16 Dec 2009 01:49 AM PST

British employment figures supplied a big surprise by turning around! Less people asked for unemployment benefits, after 18 months of rises. This hardly moved the Pound. Not really. Everybody is waiting for Ben Bernanke. These numbers could help the Pound later.

British Claimant Count Change fell for the first time this year: The number of people claiming for unemployment benefits fell.. This is far better than the expectations for a 13,900 rise.

It’s important to note also the revision to last month’s positive figures. The initial report talked about a rise of 12,900, and now it was revised to a rise of only 5,900.

Claimant Count Change relates to November that ended recently. This early release makes it important.

The other figure is a late one, relating to October, but still very important: the unemployment rate. It rose from 7.8% to 7.9%, a little better than the early expectations that spoke of a rise to 8%.

GBP/USD initially rose from 1.6250 to 1.63, but lost most of these gains quite quickly. Also last month, the gains that followed good employment numbers in Britain didn’t hold their ground.

The markets are waiting for the Fed decision this evening. This is a crucial rate decision this time, as there is no consensus on the outcome. No result can fall within expectations. Here’s my preview for the FOMC Meeting.

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Fed Decision – No Middle Ground

Posted: 16 Dec 2009 01:37 AM PST

There is no consensus about the outcome of the FOMC Meeting. This makes any decision a market major market mover. The option of a calm reaction in the forex market doesn’t exist. Here’s a preview for the upcoming FOMC meeting.

Image credit: Gage Skidmore

There is a consensus about the unchanged interest rate. It won’t be raised now. The wording of the FOMC Statement isn’t known – and this is what matters.

Before the previous FOMC meeting, I mentioned four scenarios. The outcome was the one with the highest probability was the copy-paste scenario – no change in the wording.

The bottom line of Ben Bernanke’s statement was that the interest rate would stay low for an extended period of time.This expected decision didn’t really impact forex trading, and the event turned into a non-event.

No option for non-event

Things have dramatically changed since then:

US Non-Farm Payrolls that showed almost no job losses. This publication, on December 4th, was a small earthquake. It sent the dollar up. This normal behavior of good American data that sends the dollar up was hardly seen in forex trading since the beginning of the crisis. Good data would raise the appetite for risk and send the dollar down. In addition, the improving employment situation made traders think of a possible rate hike.
Bernanke’s speech: On a speech on December 7th, Bernanke was rather dovish on the economy, and still talked about the problems that face the US. This downplayed the option of a rate hike. Only temporarily.
Retail Sales were an excellent surprise last Friday, December 11th. This could be explained by Thanksgiving sales or by a correction of sales after many months of modest data. It didn’t really matter to forex traders: the dollar strengthened across the board, sending EUR/USD down. Since then, the dollar continued strengthening, breaking long term patterns in some currency pairs.
Inflation: Producer Price Index rose more than expected. Although this isn’t the most important economic indicator out there, it is an inflation measure. If inflation is lifting its head, Bernanke can use the rate tool at his hand. Consumer prices will be published before the rate decision and are unknown at the moment. I’ll update this post with the figures.

So, we’re down to two scenarios this time:

New wording – dollar up: So, on one hand we have improving economic indicators, and maybe even fresh inflation. This could lead Bernanke to omit the word “extended” from his FOMC statement and the dollar would get a huge boost, continuing the trend from the last days.
Old wording – dollar down: On the other hand, Bernanke’s recent speech suggests that nothing has changed and this could lead to a repeat of the “extended period of time of low rates” wording. This would send the dollar down.

Maybe Bernanke has a totally different decision in mind. That would also be a surprise.

Update: Also on poll I ran with Currensee’s community, I got 53% thinking that the dollar will go up following the decision, and 47% that think that it will go down. Also the comments on the poll were split.

Forex Daily Outlook – December 16th 2009

Posted: 15 Dec 2009 02:00 PM PST

A very long day expects forex traders, with the FOMC meeting in the limelight. Also note British unemployment, Australian GDP, and many more important figures. Let’s see what’s awaiting us:

Australia provides a very strong start for the day, with the release of GDP for the third quarter. Australia, that never dipped into an official recession, is predicted to post 0.4% growth in the GDP, less than last month’s 0.6% expansion.

After the somewhat dovish meeting minutes yesterday, RBA Deputy Governor Ric Battellino will make a public appearance. He has shown optimism in the past and can push the Aussie higher.

For more on the Aussie, read the AUD USD forecast.

In Europe, purchasing managers’ numbers will be released: French Flash Manufacturing PMI and Flash Services PMI start, and then the same figures are published in Germany. Finally the numbers for the whole continent are released. All the scores are above 50, indicating expansion, and most of them are expected to rise.

European prices are finally expected to grow: CPI is expected to be confirmed with a rise of 0.6% (annualized). Core CPI is expected to be confirmed at an annual rise of 1.2%.

For more on the Euro, read the EUR USD forecast.

In Britain, we have the all-important Claimant Count Change, which is the earliest indicator of employment. Last month’s number of people claiming unemployment benefits rose only by 12.9K. This was significantly better than the early expectations. This time, they’re predicted to rise to 14.2K.

The British Unemployment is published for the previous month, but is of high importance. Yet again, economists expect a rise from 7.8% to 8%, but learning from the near past, this could be better.

In Canada, Manufacturing Sales are predicted to rise by 0.5%, less than last month’s rise of 1.4%. The Canadian dollar is doing OK this week. The governor of the Bank of Canada, Mark Carney, will speak later on in the day, and might complain again about the strong currency.

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

US figures: Ben Bernanke, housing and inflation

Moving to the US, we have lots of figures. In the housing sector, Building Permits are predicted to rise from 550,000 to 580,000 which will show continued stability. Housing Starts are expected to make a bigger jump, from 530,000 to 590,000. Stronger figures were seen in home sales, so maybe we’ll get better numbers also here.

American CPI is predicted to rise by 0.4%, more than last month’s 0.3% rise. Core CPI, no less important, is predicted to rise by 0.2%, exactly like last month. Prices need to rise at a faster pace for a rate hike to come earlier.

The main dish for today is the FOMC Statement: While Ben Bernanke and his colleagues aren’y expected to raise the Federal Funds Rate, there are high expectations to change the wording of the FOMC Statement.

The focus will be on the specific words about the “extended period” of low rates. Following the excellent Non-Farm Payrolls and the good retail sales, he might omit these words – this will push the dollar higher. Copy-pasting the same statement will be dollar negative.

Read more about the Fed decision, where’s there’s middle ground.

That’s it for today, a long day indeed. Happy forex trading!

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