Wednesday, June 2, 2010

Inside Day!

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By Mike Conlon | June 2, 2010

Today I’m calling the early market action an “inside day”.  While potentially not technically true, today represents a pause in market action from the overall down trend.  So today looks like a mild risk-taking event but in reality it’s more of a pause than anything.

From the “when the going gets tough the tough get around to resigning… dept”.: Japanese Prime Minister Hatoyama called it quits after only nine months of ineffectiveness.  I have to say, there is something about Japanese humility that strikes a chord with me; perhaps US leaders might take a note.

Other than that, the world didn’t destruct overnight, giving traders a reason to try to put risk back on the table.

Today is not a big news day, as Australian GDP came in a tad better than expected, and Euro zone PPI came in a bit higher as well.

Taking cues from the “no news is good news” mantra, risk trades appear to be happening.

In the forex market:

Aussie (AUD):  Australian GDP expanded for the fifth straight quarter coming in at an expected .5%.  The economic story down under is a good one, only derailed by Euro weakness and a potential Chinese slowdown.  If things start to settle down and global risk abates, a rate hike may be forthcoming at the July meeting.

Loonie (CAD):  Yesterday’s news of the rate hike was largely expected and somewhat disappointing as risk aversion ended up winning the tug of war.  The BOC put the proverbial kibosh on further rate hikes citing global instability (Euro) as the main driver of policy.

Kiwi (NZD):  The Kiwi is receiving a bid today for 2 main reasons: Yen weakness after the Prime Minister’s resignation and the fact that Canada raised rates yesterday.  While traders may be speculating that a rate hike in NZ is forthcoming at the June 10th policy meeting; I think it is highly unlikely based on the fundamentals and risk themes globally.

Euro (EUR):  Thankfully, there is not a ton of news coming from the Euro zone.  PPI figures came in a little hotter than expected, but inflation may be the pill to be swallowed as EU banks attempt to fix themselves and avert a debt crisis.  The trend is still down for the Euro.

Pound (GBP):  The Pound is showing some strength as it is becoming more apparent that the UK, despite its flaws, is still a better place to invest than the Euro zone.  Mortgage approvals were higher, showing signs that recovery may be happening.

Dollar (USD):   Traders are selling the Dollar today as the lack of world risk is encouraging yield-seeking behavior.  Home sales figures are due out today but regardless of the outcome, short-term recovery appears to have gained some traction.

Yen (JPY):  The big news out of Japan is that the Prime Minister Hatoyama resigned.  Only slightly less important is that speculation over his successor has placed Finance Minister Kan at the head of the pack.  Kan is known for his weak yen stance, which may be helping Yen selling today.

I love days like today where there is nothing in the news that could interrupt what I call the “natural” course of action.  Basically, currency behavior is predictable.

As of late, the forex market has been moving at warp speed as every tiny detail is analyzed and as result becomes meaningful.  Overall market trends appear to be stable, and the market is pausing to re-evaluate its stance.

Every day that the market can get by without negative news is good for global stability.

And while I enjoy the frantic pace of the market most days, a rest is appreciated as well.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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