11/01/2009 – USD Risk rally is done

October 30, 2009

* Risk rally is done
* Fed speculation is misguided
* Earnings still little to write home about
* US unemployment to hit 10% in October
* More QE from the BoE on the cards
* Sterling particularly vulnerable if PMI services disappoints
* ECB could be on the point of reining in enhanced policy measures
* Key data and events to watch next week

Last week’s lead bullet point was that the risk rally had stalled, for the moment. Lacking any solid technical indications of a reversal, we could only highlight potential for an upcoming correction in risk assets. This week, however, we have no such hesitation and a plethora of technical evidence that a multi-week top in the risk rally has been made. Ultimately, this should be USD supportive, given recent high correlations and excessive USD short positioning. However, the real driver of USD weakness is near-zero US rates, which will not be changing anytime soon. In light of that, the USD recovery should not be in a straight line, but rather fraught with continued choppiness. As a result, we will look to buy the USD on dips in the weeks ahead against all but the JPY. The JPY remains the primary funding currency, and barring a collapse in US rates in the weeks ahead, this should remain the case. As such, we will also look to re-sell JPY-crosses (EUR/JPY, AUD/JPY, GBP/JP, etc) on any rebounds, and the JPY-cross decline is likely to be the most pronounced FX outcome of any risk unwind. Lastly, the outlook for gold remains somewhat confused, given the various forces at work. But our preference is to be sellers while it holds below the 1070/75 area, and we will become more bearishly convinced on a daily close below the 1025/27 level, targeting a move lower to 970/980 initially.    Full text »

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Consider a Mini Forex Account

October 30, 2009

Trading with a mini forex account

There are different types of forex trading account, but the mini forex account can be a great way to get used to the movements of currency trading — without needing a lot of capital. 

A mini forex account is one that requires smaller amounts of money. Instead of needing ,500, as with a regular forex trading account, you only need to 0 to open a mini forex account. However, the lot sizes are also smaller: 10,000 for a mini account vs. 100,000 for a regular forex account.

This means you are using less money. While you get the same leverage, your gains (as well as your losses) will be smaller than if you use a standard forex trading account.

A mini forex account still has risks, though. You can still lose a great deal of money, and you should be sure that you understand what you are doing. But a mini forex account can be a good step when you are done with your practice forex account and ready to start trading with actual money.

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Greenback Heads Higher in Forex Trading

October 30, 2009

U.S. dollar in currency trading

The greenback is heading higher in forex trading on the currency market today as risk appetite dulls. The U.S. stock market has opened lower, unable to retain yesterday’s gains. Additionally, there are rumors that policy makers will attempt verbal intervention in order to help keep the dollar from selling off when the global economy starts to improve.

For now, though, the U.S. dollar is gaining in currency trading on the fact that investors are wary of the risk trade. With equities lower and concerns about the speed of economic recovery right now, it is little surprise that the dollar is showing some movement to the upside.

MarketWatch reports on the decline of the risk trade today on the currency market:

But willingness to continue piling into riskier assets faded in Asian trade Friday as the Japanese yen gained ground on a hawkish, or more anti-inflationary, tone from the Bank of Japan, said Boris Schlossberg, director of currency research at GFT.

An unexpected drop in German retail sales trimmed support for the euro, he said.

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London Session – October 30, 2009 7:01 AM

October 30, 2009

It is undoubtedly a good thing that the US economy pulled itself out of recession in the third quarter but market pricing this morning reflects only cautious optimism.  While stocks in Asian hours had the added benefit of some good corporate earnings, EUR/USD remains below yesterday’s best levels and the EUR has failed to gain vs the JPY.  The failure of yesterday’s ‘better than expected’ US GDP report to prompt a rally in risk reflects the support provided in Q3 by government spending  and widening doubts as to how well the global economy will perform once fiscal and monetary supports are withdrawn. Full text »

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Asia Session – October 30, 2009 1:40 AM

October 30, 2009

The week ended calmly in Asia after a return to risk appetite in the New York session once again put the dollar on the defensive. Overnight, US GDP data that showed the first quarterly growth in over a year sent equities higher and the riskier currencies skyrocketing as traders aggressively hit dollar bids throughout the day. Those moves were vibrant, and being so, flushed out the market leaving Asia quiet with tight, tired ranges. Full text »

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New York Session – October 29, 2009 5:49 PM

October 29, 2009

The upward surprise to US 3Q GDP elicited a major rebound in risk appetite and a commensurate collapse in the US dollar. The headline showed a 3.5% QoQ annualized pop in growth while the market was expecting a smaller 3.2% increase. The details, however, were not as bright. The bottom line is that autos, inventories and a weak dollar (exports) helped drive GDP in the third quarter. Not exactly what you would call organic growth. Indeed, the government’s “cash for clunkers” handout helped the auto sector contribute more than one percentage point to that headline result. Since 1985, every time autos contributed more than 1% to headline GDP we saw, on average, a negative contribution of -0.65% the following quarter. In other words, look for a big giveback from this sector in 4Q. Full text »

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Is the Kiwi Ready for a Pull Back in Currency Trading?

October 29, 2009

New Zealand dollar slows in forex trading

The kiwi looks ready for a pull back in currency trading on the FX market. The correction is probably likely due to the fact that there is slow down in New Zealand’s economic recovery. Even though there are signs of global economic recovery, things Down Under may be slowing — since New Zealand and Australia were a bit ahead of the curve.

As a result, it is little surprise that the run for the kiwi in currency trading may be coming to an end. GFT’s Boris Schlossberg reports in FX360 on the possibilities for the New Zealand dollar in forex trading:

Aside from the appreciating value of the kiwi, which the RBNZ views as a de facto tightening dynamic, another reason for the cautious attitude of central bankers in Wellington maybe due to the realization that growth in the New Zealand economy is slowing. As we pointed out yesterday, the troubling decline in the NBNZ business confidence survey – the first since December of 2007 – suggests that the recovery may be running out of steam.

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German Employment Rises

October 29, 2009

Euro finds support in forex trading

Today, the euro is finding support in forex trading as employment in Germany heads in a positive direction. The euro is gaining against the U.S. dollar, which is falling today, as better news supports high beta currencies on the FX market.

Germany is very important to the euro zone, which is why good news coming from Europe’s largest economy has such an impact. Germany influences the direction of the euro in forex trading, and the fact that the employment picture is starting to improve is good news.

Another bit of help to the euro in forex trading is the fact that the U.S. economy expanded in the third quarter. The news that GDP has expanded is helping matters, and showing that the recession is over (at least in the U.S.), and that economic recovery could be on the way.

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London Session – October 29, 2009 7:06 AM

October 29, 2009

The US Q3 GDP report isn’t even out yet but expectations that the data will confirm that the US economy climbed out of recession has drawn out signs of renewed risk appetite this morning.  The USD and the JPY have lost ground against the usual line up of high yield currencies including the AUD, CAD and NZD and the GBP.  EUR/USD is edging higher having briefly dipped below the 1.4700 level overnight.  Full text »

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Asia Session – October 29, 2009 1:56 AM

October 29, 2009

Asia saw a relatively quiet day in Asian trading with momentary bouts of action breaking the silence. One of those moments was the Reserve Bank of New Zealand’s rate decision. While the RBNZ’s conclusion to keep rates unchanged at 2.5% was of no surprise to anyone, the mostly dovish commentary that followed sent the Kiwi dollar reeling lower. Talk of keeping the cash rate unchanged until 2010 and comments that inflation was presently of no concern sent NZD/USD from pre-data highs near 0.7280 to eventual lows in the 0.7160 region. AUD/NZD was propelled over 2 big figures, from 1.2300 to just over 1.2510 over the course of the day once the data was released. Despite the great strength of AUD/NZD, the AUD/USD only managed to scratch out perhaps a 20 pip gain on the session to 0.8990. Full text »

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