FOREX TRADING

From trough to peak (March 10 – August 5), the Cable British Pound appreciated by a whopping 25%, its strongest performance in such a short period of time since 1985. The Pound has fallen mightily since then, and most factors point to a continued decline.

On nearly every front, the Pound is being buried under a mound of bad news. UK economy is presently one of the weakest in the world, particularly compared to other industrialized countries; on a quarterly basis, UK economy is contracting at the fastest rate in over 60 years. Forecasts for UK economic growth are commensurately dismal: “Median estimates in Bloomberg economist surveys see the U.S. shrinking 2.6 percent in 2009 and expanding 2.2 percent in 2010, compared with a 4.1 percent contraction followed by 0.9 percent growth in the U.K.” (more…)

Yesterday’s bearish behavior by the GBP was felt by many traders as the Bank of England’s (BOE) Monetary Policy Committee (MPC) released the minutes from a recent meeting regarding interest rates and quantitative easing. There was a hint of dissension among the policymakers with some calling for a greater extension of the quantitative easing program which ended up pumping an additional 50 billion Pounds into the UK market recently. Fears over weak inflationary growth and market downturns have some MPC members lobbying for more aggressive measures, which puts pressure on the Pound. (more…)

The Cable held on to the 1.65 level versus the Greenback after coming off the late NY-session high in overnight trading ahead of a report that is set to show Retail Sales grew for the second consecutive month in July. Switzerland’s Trade Balance and ZEW survey of investor confidence are also on tap.

Key Overnight Developments

• Australia Recalls Ambassador to China for ‘Urgent Meeting’
• RBA Sold A$705 Million into Currency Markets in July

• Euro, British Pound Yield Flat Result After Choppy Session (more…)

As Central Banks have all of the time featured heavily in the minds of forex traders, their actions have taken on a whole new significance of late. Financial reporters have also been generous in doling out space to stories about Central Banks, writing stories with headlines like “Central bankers add to equities’ momentum” and “Currency Traders Hold Fire, Await Central Banks.”

Why are forex traders eye to Central Banks? Traditionally, forex traders eyed Central Banks for one reason: interest rates. The theory was simple: currencies with higher interest rates tended to outperform in the short term. This trend was particularly reliable in the years leading up to the housing bubble, as carry traders ensured that high-yielding currencies rose while low-yielding currencies stagnated or fell. (more…)

In forex, timing is everything. If I had written this post a couple weeks ago, the headline would read “Euro Touches 2009 High.” Perhaps if I had waited another week, it would have read, “Euro Approaching 2009 High.” But alas, I chose today to write about the Euro, and the headline I chose is probably the most appropriate under the circumstances. (more…)

Yesterday’s sudden advance in equity markets global has facilitated drive many of the riskier currencies, such as the EUR and GBP, higher against their primary currency rivals. Safe-havens such as the US Dollar and Yen took a small beating yesterday as well from this news. With investor confidence on the climb in Europe, a rally for the European currencies may be overdue. This in turn could also push commodity prices higher in the short-term. (more…)

The Cable British Pound is in focus in the European trading session as the Bank of England releases minutes from its August policy meeting when it unexpectedly boosted its quantitative easing program by 50 billion pounds. German Producer Prices are also set for release.

Key Overnight Developments

• New Zealand Wholesale Inflation Slips Again in Second Quarter
• Australian Leading Index Grew in June, Says Westpac

• N.Z. PM Key Seeks Single Market with Australia, FinMin Decries Spending (more…)

The Greenback came slightly off highs versus major currencies on Monday, after a report that showed improved manufacturing conditions in the New York region in August. The Dollar earlier received a boost as commodities sold off following a sharp drop in Chinese equities overnight. Today the US Dollar declined before the Commerce Department reports housing data at 12:30 GMT on speculation the U.S recession likely eased further. The affect of a stronger- then-expected number will be positive from a risk point of view, analysts said, therefore reducing demand for the dollar as a refuge. (more…)

The Euro and the British Pound tested higher in Asian trading but failed to retain momentum, retreating versus the Greenback ahead of the UK Consumer Price Index and German ZEW survey of investor confidence due in European hours.

Key Overnight Developments

• RBA Weighs Risk of ‘Choking’ Demand If Rates Rise Too Soon

• Euro, British Pound Try Higher But Fail to Build Momentum (more…)

Only once it appeared like the carry trade was back for good and whole signs pointed to a Yen depreciation, out of nowhere came a series of surprise developments, propping the Yen back up. Spanning finance, economics, and politics – a Forex Trifecta – these developments moved swiftly through the markets, making optimism for the Yen where before there was only pessimism. Naturally, it’s possible that this bump will prove irregular, and a reversal could transpire just as quickly. (more…)

The Greenback gained against the EUR but extended losses versus the JPY since Friday, after the U.S. Consumer Sentiment index unexpectedly declined in early August. The data aided the Dollar, which in many instances has tended to move in the opposite direction to its economy, due to higher risk aversion. The most significant data anticipated today is the Empire State Manufacturing Index and TIC Long-Term Purchases from the U.S. at 12:30 GMT and 13:00 GMT. It’s suggested that you open big positions in the USD’s main pairs now, as market volatility builds up today. (more…)

It appears as though the momentum has shifted away from the Dollar. Don’t say I didn’t warn you all. The problem is, and it was evident in my last few posts before I embarked on week’s respite, that all these officials, also known as politicians, are making big and bold statements that are not supported by fact.

Two weeks ago had I said to you that the unemployment situation in the US was bad and getting worse you might have laughed – after all the initial numbers two Thursday’s ago were great, less people were filing for unemployment. (more…)