Tuesday, March 29, 2011

They’re Buying What?

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By Mike Conlon | March 29, 2011

Just when you think you know what is going on in the marketplace, you get thrown for a loop. Apparently now the market believes that the safest place to be is in US stocks. No matter what the situation or risk in the market, stocks seem to keep climbing higher.

Last night President Obama gave his speech on why the US is involved in Libya and at the end of the day he should be afforded the same leeway as every other president who takes military action.

Oil prices are pulling back some, stocks in Europe and Asia are lower, yet US stock futures are higher to start the morning.

IN the UK, GDP figures came in slightly better than expected, posing a decline of .5% vs. an expectation of a .6% decline, with the YoY number coming in as expected at 1.5%. This isn’t too bad considering that the austerity measures are starting to kick in. Right now, the market is expecting the ECB to raise rates before the BOE does, despite the high inflation in the UK.

US home price figures are due out later this morning, s are US consumer confidence figures. It will be interesting to see whether US stocks can hang on, or if the Dollar turns around and weakens.

In the forex market:

Aussie (AUD): The Aussie is lower this morning after putting in a multi-decade high vs. USD. The Aussie had put in 6 days of gains prior to today’s pullback.

Kiwi (NZD): The Kiwi is lower against all but the Yen as overnight trade balance figures came in lower than expected. However, both imports and exports were higher, showing the potential for economic growth.

Loonie (CAD): The Loonie is higher across the board despite lower oil prices to start the day. With relatively little news out of Canada, this appears to be more of a fundamental play on the perceived strength of the Canadian economy. (Click chart to enlarge)


Euro (EUR): The Euro is mostly lower as Dollar strength is driving the forex market this morning.  While there is an expectation that the ECB will raise rates at the April 9th meeting, they first have to navigate the Irish bank stress-tests.

Pound (GBP): The Pound is also some strength, higher against all but the Dollar as the GDP figure came in slightly better than expected. A call for measured rate hikes from a hawkish BOE policy-maker were countered by a statement from the BOE dove who said he would resign if inflation didn’t come back to normal levels this year.

Dollar (USD): The Dollar is stronger across the board despite higher stocks to start the day. Home price figures and consumer confidence numbers are due out later this morning.

Yen (JPY): The Yen is weaker across the board this morning as no additional news about the nuclear crisis has induced Yen buying. The Yen should be weakening after the G-7 intervention, and last night employment figures came out that showed that the economy was actually improving prior to the earthquake. (Click chart to enlarge)


Sometimes the market doesn’t behave as we would expect it to and that is something that all traders have to deal with. Correlations that we rely on sometimes break down and as the saying goes, “the correlations work great until they don’t.”

So it is important to remember to look at the technicals of each pair individually, as anything can happen. Be married to a certain view can sometimes prove dangerous.

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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