Forex Online Story: The Cat has Come Out of the Bag

The funny thing about statistics is that they can be manipulated to tell a story that is contrary to the actual truth. The fact is that for the past few weeks we have been seeing data coming out from government agencies and corporations that provide investors a glimmer of hope that the economic situation is changing. While international organizations like the IMF warn of trouble ahead, companies like General Electric, Citigroup, Goldman Sachs along with various governmental statistical divisions provide the online Forex world with “positive” numbers. I became suspicious of these numbers when Citigroup, a recipient of “bailout” money only three months ago, and only a few weeks ago considered a “zombie” (dead but living on the fat of the US government) announced a pretty healthy profit expectation. It was reinforced when they announced that sales figures in the EU shot up drastically in January.

Well, the cat has come out of the bag. Forex traders and brokers who have been watching this happen and acting on the data will be happy to know that the reason for all of this good news is the result of number manipulation. Let’s start with the sales data, which showed a 30% rise in January. The reality here is that until January, they used to report the numbers YOY or year over year, reflecting the performance of one month against the same month in the previous year. Now this number is reported month over month – meaning January sales rose 30% against one of the worst months for sales in recorded history.

Next, this past weekend I read in the Wall Street Journal that the Goldman Sachs profit increase from 4th quarter 2008 to first quarter 2009 excluded the miserable month of December that Goldman had – thus making the losses in Q4 of 2008 much less. This was allowed because in the change of status that the bank made from investment bank to “savings” bank in order to qualify for federal deposit insurance protection. Because the change was made mid-December, they were allowed to omit Decembers numbers from the report. Nothing changed other than the legal classification of the bank, but it resulted in a major change to its on-paper bottom line.

This week as the world begins to digest this, we will see some volatility and signs that things are slowing down again. The euphoria has left the building along with Elvis and reality is creeping in again. It can be seen on the unemployment lines and in the empty shelves of stores going out of business and on the foreclosure signs lining the streets of what was once thought to be prosperous neighborhoods.

Trade well – and don’t believe the hype until you know the full story.

Read more...

You know you are in trouble when.....

There is a growing sense of unease that I have every time I read about the US Federal reserve buying US Treasury debt. It is like paying your Mastercard with your Visa, something we are told from early on in school is just jot a smart way to handle your money. I have written about this several times and am doing so again because last Friday, the US Fed policy maker warned that the US was flirting with severe inflation if it did not stop spending so much. Actually, the term that was used was the US needed to start "winding down" its spending habits or it runs the risk of "a hyper-inflationary surge."

Now, Forex traders and online Forex buffs know much about what hyperinflation can do to a country - just look at Zimbabwe. But for this to happen to the US would be devastating. The fact is that the US has spent nearly 12 Trillion Dollars so far this year, and their gross GDP is 14 Trillion. The question has to be asked, is it too late to stop the inflation or will we see it anyway. At the rate that the US has spent, and the means by which they have done it, specifically monetizing their own debt (probably because nobody else would at this point) and the fact that the US is the most significant player in the financial world, what would hyper-inflation look like there?

Another worrying trend for Forex traders and brokers to consider is the fact that China has just reached 1.9 Trillion Dollars worth of foreign debt holdings. That is to say, US debt holdings. That number is correct - China holds in their hands roughly 15% of the US GDP in debt form - this should trouble us all - especially when China is suggesting a new reserve currency for the world to use. Perhaps it would be the Yuan if they would stop tinkering with it to make their goods so cheap.

Late last week a large US bank that received 25 Billion Dollars in US aid in November 2008, announced they would be turning a profit of 3 Billion in the first quarter of 2009. One needs to wonder if that includes the 25 Billion they got from the US taxpayers - and if not, why did they need the money in the first place? With everyone thinking that the economy has turned a corner, no one is looking at the big picture. This is going to be a hectic week for the Forex - with the Dollar holding high against the Yen, watch the Euro and GBP in play.

And please. When you read a piece of good news - ask questions, don't just look at what is being said, look at what is not.

Read more...

USD/YEN, EUR/GBP, GBP/USD Analysis

USD/YEN

The dollar and yen were both up yesterday with recession worries on the minds of traders and investors after newly released data showed that the Japanese economy had fallen off more than expected in the last few months of 2008. Support for both currencies also came after the G& failed to mention anything about currency valuations or volatility nor had they mentioned a possible solution to the current economic crisis.

The Japanese data that was released showed a historical decline in exports which caused their economy to contract by more than 3% from October to December. This was the biggest fall since the 1974 oil crisis. Forex traders believed that it was fear that was dominating investor sentiment and thus supported a rally in the yen and dollar, with very little seen being able to turn that around in the short-term.

EUR/GBP

The euro neared a two month low versus the USD that was first reached in the beginning of February, while the Pound Sterling was coming close to a two week low against the USD. Both currencies were hampered by a increase in risk aversion within the markets as many of the larger European Stocks were declining.

The Euro was also pressured by fresh worries about the Western European banks that are exposed to troubles in Eastern Europe as the S&P rating agency warned it could cut the debt rating of Ukraine based on concerns that they will not be able to refinance. To highlight the issue, government debt within the EU did poorly against other riskier equity funds.

As of 5PM GMT, The euro fell ½ of a percent to 1.281 against the USD, as did the pound to 1.4303. Against the yen, the euro dropped to 117.44 a .33% drop, while the dollar traded flat versus the Japanese currency at 91.67.

Volumes were very thin due to holidays in the United States and Canada.

Chart – GBP/USD 5 Day Performance

Several weeks ago, analysts predicted the slide of the Sterling to record lows, perhaps down to 1.20 or worse, 1.00 against the US Dollar. With the banks in England reporting huge losses and very little room for interest rate cuts, are we seeing the beginning of the slide for the Pound? The chart below shows that in the past five days, the Euro has lost more than 4% to the dollar and analysts are saying there is no end to this slide in the near future.

Watch Daily FX Updates at: http://www.finexo.com/marketReview

Read more...