Saturday, April 30, 2011

FOREXYARD: Forex News Blog

FOREXYARD: Forex News Blog

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US Dollar Stabilizes as Britain Celebrates Royal Wedding

Posted: 29 Apr 2011 09:00 AM PDT

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The price of the US dollar versus a number of its primary currency rivals appears to have leveled off on Friday. The recent plummet brought about by the Federal Reserve's latest policy statement may still have momentum, but today's suppressed market liquidity is helping the greenback consolidate around its current price levels.

Affecting the market in today's trading sessions primarily is the Royal Wedding in Great Britain, which has closed all banks in Britain and captivated an international audience. The result has been limited trading among European investors leading to corrective price movements in the forex market.

Also limiting in this morning's Asian session was a major bank holiday in Japan which kicked off a week of holidays known as Golden Week in the island economy. With Japanese banks largely absent until after May 5, yen movements will likely be driven by the effects wrought by the USD in next week's trading sessions.

The stability of the US dollar in today's trading, however, is more likely associated with thin trading than with market fundamentals, many analysts have said. The start of next week should see the return of relatively normal liquidity which in turn will likely push back down on the greenback as the week progresses.

Canadian Economy in Contraction

Posted: 29 Apr 2011 08:56 AM PDT

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Those following the singular economic publication out of Canada today were likely too bamboozled by the punditry strangling the US dollar to consider what happened. The Canadian economy, as represented by today's GDP report, appears to have contracted by 0.2% this quarter.

The giant sitting atop the United States (geographically, that is) has been heralding solid growth for years now. The surge in oil prices, among other factors, has also helped lift the Canadian dollar (CAD) to its recent highs. Now this growth appears to have come to a halt. What happened?

Traders do not appear concerned with the economic contraction in Canada over the last quarter. Basically, exports are down internationally from climbing oil and gas prices, and global industry is experiencing a rapid downturn. These factors, combined with depressed consumer spending and sentiment, group together to form the backdrop to this Canadian story.

Gross Domestic Product (GDP) is a measure of the change in inflation-adjusted value for all goods produced by a nation's economy. Declines in manufacturing and industrial orders worldwide has attributed to the minor downturn in Canadian GDP while high oil prices continue to support the oil-linked CAD. Traders are not likely to see any downward movement in the loonie next week as a result of this contraction, but may expect to witness minor consolidation trends in the short-term.

Golden Week Holiday Removes Japan from Market Liquidity

Posted: 29 Apr 2011 08:49 AM PDT

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Today kicks off the beginning of Golden Week in Japan with the observance of Showa Day, previously celebrated as the Emperor's Birthday. As a series of back-to-back holidays, Golden Week is a busy tourist period in Japan that leaves the marketplace devoid of Japanese liquidity.

With the yen fluctuating strongly amid this past week's market events, the impending absence of their market influence, along with Britain's absence in celebration of the Royal Wedding, means the United States will likely lead next week's market movements.

The Japanese yen continued to hold its ground versus the US dollar amid a rapid sell-off in the greenback brought on by this week's Fed statements. As Japan enters Golden Week, this trend may find itself reversed if the greenback undergoes a corrective movement at the start of next week.

Though analysts are hesitant to make a forecast for a bullish USD, a technical retracement or consolidation appears imminent on a number of charts. Whether this move occurs is another story, but worth contemplating after today's largely bullish data releases out of the American economy.

Investors interested in trading the Japanese yen should bear in mind the absence of their home liquidity until after May 5, the last day of holidays during Golden Week. The holidays which occur over the next several days in Japan are: Showa Day (April 29), Constitution Day (May 3), Greenery Day (May 4), and Children's Day (May 5).

Today’s Summary: Industry Faltering, GDP Sluggish, Dollar Bearish

Posted: 28 Apr 2011 12:25 PM PDT

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An ominous trend has developed among the top global economies in regards to industrial production. Great Britain initially published a report which showed industrial order expectations sinking rapidly for the month of April. Then the euro zone released its industrial new orders report on Wednesday, revealing slower growth than was expected, and coming alongside a sluggish core durable goods report from the United States.

This morning's sharp downturn in Japanese industrial production, linked with those similar downturns in Great Britain, Europe and the United States, has now emerged and together paints a grim picture. On the currency side, the yen still suffers from its own economic concerns, but dollar bears outpaced the yen's in this morning's trading hours, helping to sink the USD/JPY temporarily despite Japan's dire economic outlook. The pair also looks to be continuing this movement for the foreseeable future given the shift in sentiment away from the US dollar.

But the JPY did lose ground against almost all of its rivals yesterday partially as a result of the industrial downturn, but also as an S&P downgrade of Japan's debt outlook from 'stable' to 'negative' caused a shift away from the island economy in the short- to mid-term.

The recent wave of industrial reports, revealing a global faltering among the industrial sector, may also be connected with recent GDP figures out of Britain and the United States. British Prelim GDP showed little movement, but remains at a dismal 0.5%. US Advance GDP, however, came out below expectations at 1.8%; pathetic when compared with Q4 2010 GDP, which published growth of 3.1%.

Being the first of three GDP reports from the US means the American economy still has time to lift this figure to an acceptable level. The downshift away from the greenback should help in the next few months by lifting exports. And this means traders should be able to profit from short dollar trades over the next few weeks, according to our analysts.

US Housing Sector to Grow in May?

Posted: 28 Apr 2011 12:20 PM PDT

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Today's strongly optimistic housing data out of the United States' economy gives reason to breathe for many long-term investors. The Pending Home Sales report, published by the National Association of Realtors, measures the change in total number of housing sales which are in final processing and only require the closing transaction.

It is a report measuring percentage changes from month-to-month so as to highlight the level of expansion and contraction in the housing market. This month's figure showed a booming 5.1% expansion in pending home sales for the month of April, up significantly from last month's 0.7% expansion.

The summer months are usually when new homes are purchased; making this figure less dramatic than it would be in a winter month. But the data is relevant when connected with statements by Federal Reserve Board Chairman Ben Bernanke about American economic recovery yesterday. If the housing market truly is on the path to recovery, then the US economy is not in as bad as shape as some may have initially thought. The US dollar is likely to persist in its recent bearishness, but this data gives cause for a breather among the recent series of high tension, pessimistic reports.

Japanese Spending in Sharp Decline

Posted: 28 Apr 2011 12:16 PM PDT

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The Japanese economy rarely publishes enough data to drive the direction of its foreign capital flows. That being said, this morning's unusual string of data out of the island economy has filled in several numerical gaps in our analysis.

Three figures from the reports of the last two days stuck out for me. The first was yesterday's dismal retail sales data, which revealed an 8.5% decline, year-on-year, for the month of April. Given the recent earthquake, tsunami, and reconstruction efforts, a nation "caught in the headlights" may be an apt metaphor for these murky figures.

Japanese industry no doubt took a hit from this recent disaster, as revealed in today's industrial production report, and which has likely seeped into the various sectors of the Japanese economy and psyche, so much so that other numbers should be seen in decline for the next month or two. But most ominous is the sudden flight to personal savings that could have the effect of weakening the Japanese recovery.

The other two figures from this morning tell the rest of the story. Along with the massive slump in retail sales data was a concurrent dip in household spending. The household spending report measures the total level of consumer spending, adjusted for inflation, for the previous month. It also revealed an 8.5% decline, year-on-year, for the month of April. The last figure is an odd 180 degree flip in housing starts, which switched from a 10.1% expansion in March to a 2.4% contraction in April.

In short, it appears the Japanese people have reduced their spending dramatically as their economy falters. The explanation is likely that the Japanese are putting money into savings to protect against future calamities like the recent earthquake/tsunami. But the result is a weakened economy, depressed further by a pessimistic outlook among its consumers. Look to short the yen as a result.
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