Another lesson in Trading - Watch the Aussie this week

In a demonstration of what the Forex markets have been about lately, instant gratification, the dollar rose against the most currencies in what was seen as profit taking from the traders’ venture into risk appetite late last week.

Forex online Traders are hoping for some sign that all will be well this coming week when the US Federal reserve meets and this has hampered volume on Monday, as trading was extremely light, about 1/3rd less than what it normally is.

It seems that when there is nothing to report, the Dollar has a good day and analysts make excuses such as profit taking using big words like risk aversion. Don’t be fooled, the Dollar went up today because stocks got hammered, and this is the clearest most consistent indicator in the Forex market.

The Dow Jones Industrial Average fell over 200 points as the US business community is becoming more afraid of the changes that President Obama is seeking to bring. With the Congressional Budget Office (CBO) sobering up the healthcare debate with an estimate for over a trillion dollars that will be needed to overhaul it, the healthcare and medical and banking sectors got destroyed.
And as I try to do regularly with these entries is show everyone how to trade – more specifically, what news to trade on. If you missed Monday, don’t worry, Wednesday will be much of the same – I have not decided on Tuesday yet as it seems likely that a bounce is coming, but gloal events such as Iran and North Korea might change that.

Coming as a pleasant surprise to the Forex trading community was news from Germany that its business sentiment was higher. Being that the German banks are in dire straits and that the EU’s largest economy is in the worst shape it has been in since reunification in the early 90’s, I don’t want to see poll numbers – look at the real numbers and stay away from the Euro for a bit until they become clearer.

The place to be still in my mind is the Aussie, the high yields and the rising price of oil will help sustain the currency as the economy down under goes through some rough times. The Canadian Dollar as well looks like a good buy as well to me, but I am not as enamored with it because of its proximity to the US. The auto maker issue is still weighing heavily on the economy and you will see an spike in unemployment – which might offset the jump in commodity prices.

All in all, this will be a week of waiting – nothing really will happen until Wednesday’s fed meeting and so we wait. And while we do so, we try to make a quick buck – good luck.

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US Retail Sales Fall Unexpectedly, along with UK's Hope for Speedy Recovery

USD

The Dollar rallied late Wednesday after US retail sales showed a .4% decline against what was widely anticipated to be a flat outcome. The Dollar had been down most of the session after a report in the Financial Times said that the US could lose its AAA credit rating. However, renewed fears about the state of the economy were sparked by the sales data, pushing safe-haven flows back into the dollar and lifting the USD out of a four month low against a basket of currencies and a seven week slide against the Euro.

At 11:00PM GMT, the Dollar was up .4% to the Euro to 1.3592, down 1.2% to the Japanese Yen to 95.25, up .8% to 1.5152 versus the Sterling, up 1.16% against the Canadian Dollar to 1.1762 and up 1.75% to the Australian Dollar to .7515.

GBP

The Bank of England announced that they expect a slower recovery than originally predicted. The BOE revealed that inflation remains below the target level and that suggests that the loose monetary policy of the BOE will remain in effect for now. The figures showed a 4.5% decrease in economic activity for the second quarter and predict an early 2010 recovery. UK interest rates remain at a record low .5% and the British government recently expanded their asset purchasing program to 125 Billion Pounds, however Mervyn King, the BOE Governor said that the recovery will be slow and uncertain, highlighting this by declaring "We may get a recovery that will prove to be sustained and then again we might not."

At 11:20PM GMT, the Pound Sterling was down .4% to the Euro to .897, down .7% to the Swiss Franc to 1.6769, down 2.1% to the Japanese Yen to 144.33, up .2% to the Canadian Dollar to 1.78 and up .9% to the Australian Dollar to 2.0145.

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Cheers Turn to Jeers as D-day Nears!

EUR

The Euro gained early in Tuesdays session only to give it back later on as the US markets opened and investors began taking profits and returned to the safe haven Dollar in advance of Thursday’s US stress test release and the European Central Bank’s decision on interest rates and stimulus. The past few sessions saw the Euro benefit from the positive sentiment on the street as traders took advantage of good economic news to come out from hiding behind the stalwart Dollar and Yen. However, as Thursday’s ECB meeting comes close, investors who traded the Euro in recent days are cashing in and taking cover once more. We, forex online traders can expect to see strength in the Euro should there be signs that the ECB will not adopt and aggressive policy – a topic that has been widely debated in recent weeks and seemingly dominated the market news.

At 11:00PM GMT, the Euro was trading down .4% to the Yen to 131.88, down 1.1% to the Sterling to .8831, down .4% to the Canadian Dollar to 1.567, down 1.2% to the Australian Dollar to 1.7926 and flat to the Swiss Franc after an up and down session to 1.5102.

USD

Federal Reserve Chairman Ben Bernanke said that it was his assessment that the economy is “turning the corner” and that the US could see growth in the second half of this year. This testimony in front of the US Congress contradicted his last month’s report when he declared that it could take until mid-2010 before any growth is seen. What should have been good news was muted by jitters over the release of the stress test this coming Thursday and an announcement by President Obama that he intends to raise business taxes by 5% in the short term to help cover the ever growing national debt. It is thought that 10 of the 19 banks that submitted to the US Treasury’s stress test will have to raise additional revenue in order to remain solvent, however to what degree these companies are struggling was the source of much debate on Tuesday.

At 11:20PM GMT, at broker trading boards, the US Dollar was down .7% to the Euro to 1.3315, up .22% to the Yen to 98.68, down .45% to the British Pound, down .2% to the Canadian Dollar to 1.1746, up .6% to the Swiss Franc to 1.1325, and down .8% to the New Zealand Dollar to .581.

AUD

The Reserve Bank of Australia held interest rates today at 3% after the members said that signs that the recession has grown in Australia are not present and in fact, there are positives that can be interpreted as strength. The Australian Dollar has benefitted lately as investors tested their risk appetite and moved to the higher yielding Aussie Dollar in order to lock in some larger profits.

At 11:40PM GMT, in addition to being up to the Euro, the Australian Dollar rose .45% to the US Dollar to .7421, up .65% to the Yen to 73.52, down .06% to the Pound to 2.034 and down .3% to the New Zealand Dollar to 1.2791.

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Keep an eye out for the Kiwi and Aussie as the tides start turning on the Dollar

Monday saw US stocks fall the their lowest level in nearly 11 years after early indications showed that the markets would respond well to the US’s purchase of close to 40% of Citigroup. Monday also saw the Dollar losing steam against many currencies as the brokers trading the USD decided to take their chances somewhere else. President Obama has the economic world puzzled, on one hand he is spending like there is no tomorrow (by telling his citizens that if he does not spend like this there will be no tomorrow) and on the other hand he is promising to cut the deficit in half within two years.

This is one reason I always stress to people to not only listen to what someone is saying, but hear it too – President Obama’s actual words when announcing this yesterday was “I will work to reduce the deficit I inherited by half…” – the key part of that sentence is “I inherited”. While the US runs up a three Trillion Dollar debt in Obama’s first month, he is talking about lowering the debt he came into office with, which was 1 Trillion Dollars. So if you put the numbers together, he is looking to shave 500 Billion off of a 4 Trillion Dollar debt – which leaves 3.5 Trillion Dollars left owed to whoever buys up the bonds and treasury bills. 3.5 Trillion is larger than the entire fiscal budget for the whole of South America to put this number into perspective. It is enormous and it is this ultimate number that has many people scared.

The US Secretary of State was in China last week practically begging China to continue buying their debt – ironic that the capitalistic US is asking the communist China to basically fund all the activity that the communists have been preaching against since Lennon. I think we can begin to watch the Forex Online traders and investors’ shying away from the Greenback in the near future – as big spending and higher taxes to offset the big spending does not work well and from all indications, this is what Obama will be doing.

As for Europe, they are in for a rough ride. The Brokers trading the Euro woke up yesterday to news that Fitch (another feared rating company) is warning that Austria’s ‘AAA’ rating is in jeopardy – now even I know that this is not good – Austria was typically a well-to-do nation. Also, there is speculation that some of Spain’s largest banks might be insolvent – and the financial misery in Europe is worse than a Norwegian Winter. Forex Online traders were not too happy that the EU leaders met in Germany to talk about a game plan for the April G20 meeting – and not the pending doom that is facing Europe or a possible solution.

I still believe there is money to made down under – keep an eye out for the Kiwi and Aussie as the tides start turning on the Dollar.

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Currency Market Updates & USDJPY Chart analysis

US Policy: Aggressive Spending

Brokers trading the dollar helped it climb on Wednesday to a new six week high against the Yen an a new 2 ½ week high against the Euro as US President Obama announced a new 80 Billion Dollar mortgage bailout bill. The new bill is expected to help close to 9 million families either restructure or refinance their mortgages in order to avoid foreclosure.

At 5PM GMT, the Dollar was up 1 ¼% to the Yen at 93.56 and ½ of a percent versus the Euro to 1.2523 after hitting 1.2557 – its lowest level since early December. The US is continuing its aggressive spending policy to shore up its economic situation, a tactic that might prove detrimental to the valuation of the Dollar down the road. For now, those Investing and trading the greenback see the US doing something and is banking on the possibility that it will work to help stave off a worsened situation.

GBP: Bank of England Might Consider a Further Interest Rate Cut in March

Forex traders took the Sterling down marginally against the Euro and Dollar as the Bank of England released minutes of this past month’s interest rate meetings. The record showed that the BOE members voted unanimously for the policy of “quantitive easing” by purchasing other securities and Gilts. The fear was that based on the minutes and the unanimity of the vote, the Bank of England might consider a further interest rate cut in March.

At 5:15 GMT, the Sterling was off .33 of a percent to the USD at 1.4189 and 1/10^th of a percent to the Euro at .8824.

Chart Analysis: More USD/JPY – this time a 5 month look

As we said yesterday, the deviation of Dollar/Yen with respect to its historical patterns in terms of its connection with the risk appetite of Forex traders is a problem that could mean additional weakness for the Japanese currency. Its break above 92.40 is significant technically. This is now the new support level and the JPY/USD is setting its sights on the moving average for the past 100 days, somewhere near 94.00 as well as the 2009 high up at 94.62.

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Dollar Shining After Obama Inaugural

The British Pound Sterling is falling today, down to a 7 ½ year low against the dollar and the Euro has fallen to a new six week low against the currency of Obama as well. Banking woes, economic uncertainty, lack of faith in England’s new bailout plan are all contributing to the downslide while the US is tapering some of its inauguration day losses while Forex Brokers are scrambling to find something that is stable in what has been a highly volatile week. At the moment, the Sterling is trading against the dollar at $1.3718, a 1.2% drop bringing it back to 2001 levels.

But it is not only the US Dollar that is benefitting from the British currency’s woes, the Yen, much to the chagrin of the Japanese government which wants to keep the currency from getting too strong, reached a record high against the Sterling today – up over 1% to 123.53. In what Forex Brokers see as a response that is not in line with the wants of the Bank of Japan, the Yen is gaining strength against the majors – also hitting a 13 year high against the dollar. Today, the BOJ will be coming out with a plan to boost lending to businesses (aka commercial paper) in order to thwart ill effects of this credit crisis. Look for the YEN to pare some its recent gains as the BOJ’s hidden agenda is to stem the growth of the YEN in order to protect exports as well.

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My Forex updates

These are some of my daily FX updates I summarized for all my readers.

· After a week which saw traders dumping the Dollar in advance of a dismal employment report, the dollar rallied on Friday after that report showed a better than expected number from the Labor Department. Granted, the number was still miserable at 524,000, however considering the street was expecting a 550,000 number traders found a positive in the Dollar.

· The Euro fell more than 1% on Friday against the dollar on the employment report capping a 2.9%+ loss for the week against the dollar. It will open the next session at 1.3473 where it will try and regain some of its strength in its battle against the greenback. As economic data continues to confirm what everybody already knows – the recession is here to stay for a little bit – the Euro finds itself under more and more pressure. The fact that a dismal US employment report came in less dismal than expected, rallied the dollar against the Euro is more a testament to the poor state of the economies with the EU.

· German industrial production reports showed a higher decline than expected, -3.1% against a forecast of -2.0%. The retail sales report for November showed a more distinct decline of 3% against a forecast of a 0% decline. As one of the largest economies, the German decline is having a serious impact on the Euro as a whole. Traders are now biting their nails over the estimates for the future data reports and revising expectations.

· While the Euro was falling, the British Sterling showed why it is beloved by her countrymen and investors alike. In response to the Bank of England easing up on interest rate reductions, the Pound ended the week with the largest rise against the Dollar in 2 decades and the biggest weekly advance against the Euro. England has their own problems to face, but compared to the struggles going on in the Eurozone and the US, England looks rosy.

· The Canadian Dollar gave back some of its gains early in the week against the US Dollar on reports that the unemployment number was higher than expected and that the housing market had experienced lower than expected sales. Pressure is likely to continue on the CAD this week as investors continue to watch the happenings in the US.

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