FOREXYARD: Forex News Blog

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• Swedish Krona Gouged by Risk-Off Mentality
• Italian Retail Sales Dips into Negative Growth
• Housing Demand in Australia Slumps Further
• Trichet’s Comments and Political Woes Weigh on EUR

Swedish Krona Gouged by Risk-Off Mentality Posted: 30 Aug 2011 07:20 AM PDT Despite reports of phenomenal growth in financial arenas and in GDP expansion, the Swedish krona (SEK) entered a downward slump over the past few weeks. Lying beneath this bearish groove is a history lesson that shows the krona persistently struggling during times of risk aversion. The relatively high interest rates of the Swedish economy make the currency appealing in times when risk-taking is gaining ground among investors. The speculation that the Riksbank will lift interest rates at each meeting this year merely adds to this sentiment. But the downgrade of US debt by S&P's ratings agency put global investors in a mentality of risk flight. It is true that investors have seen some mild upticks in risk sentiment over the past few days, but such broodings have yet to flood back into the SEK in the way they were just one month ago. It is largely forgotten by now that the global recession of 2008 dramatically reduced the export capacity of the Swedish economy and that fears of a double-dip recession are beginning to do the same. Growing pessimism and an outlook of impending recession are generating a lot of flight from the once-booming Swedish economy. It is true that Sweden weathered the financial storm better than most, but it is false to assume that it is above the present turmoil. The SEK may continue to see downward movement against its primary basket of currency rivals, having already shed 2% in the last two days. Read more forex trading news on our forex blog.

Italian Retail Sales Dips into Negative Growth Posted: 30 Aug 2011 07:16 AM PDT As Italy battles its debt contagion fears and struggles with its ailing financial system, a report out this morning revealed that Italians also appear to be holding on to more of their earnings than assumed. The monthly retail sales report out of Italy has less impact on the strength of the regional currency, the euro (EUR), but if the Italian economy continues to flop, larger ripples may become a cause for concern. The report was expecting approximately 0.2% growth in retail sales in Italy, up from last month's contraction of 0.2%. The actual report, however, showed an eerily similar reading of -0.2%. With spending in decline, a stimulus may become necessary to get the Italian economy going once again. Read more forex trading news on our forex blog.

Housing Demand in Australia Slumps Further Posted: 30 Aug 2011 07:14 AM PDT A building approvals report released this morning by the Australian Bureau of Statistics uncovered a slump in demand in the housing market. The monthly indicator was expected to see an uptick of approximately 2.1%. The actual result seemed to convince many investors to move away from the Australian dollar (AUD). Demand for new buildings is measured by this monthly indicator which reports on the percent change in new buildings approved for construction. The results revealed only 1.0% growth for the month of August, up from the previous month's 3.6% contraction, but still bearish when compared with estimates. The news appears to be weighing heavily on the AUD this week. Read more forex trading news on our forex blog.

Trichet’s Comments and Political Woes Weigh on EUR Posted: 30 Aug 2011 05:53 AM PDT A combination of Trichet's comments, political woes, and an Italian bond auction has all combined to create selling pressure on the EUR. On the charts an evening star pattern is beginning to take shape. Therefore, today's closing price should be closely followed. Yesterday ECB President Jean-Claude Trichet told the European Parliament that inflation risks for the medium-term are "under study" prior to the ECB's next meeting on September 8th. The comments come on the heels of yesterday's decline of -0.1% in August CPI for Germany could make market participants think twice about the ECBs next rate hike. Expectations have been built in for the ECB's third 25 bp increase in this year with most rate strategists eyeing Q4 after Mario Draghi takes over the helm of the ECB to secure his inflation fighting credentials. The August inflation data may derail those plans and reduce markets' expectations for an additional rate increase this year. Today's Italian 10-year bond auction was weaker than usual with the bid to cover ratio down at 1.27 from 1.38 despite The ECB continues to buy Italian and Spanish debt, albeit in smaller amounts. This has supported the BTP market which could be trading with a yield near 6% if it were not for the ECB holding together the ship. We may expect further deficit cutting measures by Italy given the recent demands made by the ECB. The collateral demands by Finland continue to hold up the approval of the July 21st agreement for additional Greek aid. Finnish Prime Minister Jyrki Katainen said, "the collateral agreement needs to be solved as soon as possible so Finland’s aims will not hurt other countries.” The comments were made in the newspaper Helsingin Sanomat. German Chancellor Angela Merkel continues to oppose any side pact made outside the realm of the July 21st agreement. Additional demands on Greece could further threaten Greece's ability to address its fiscal problems. Given the headwinds the EUR faces the EUR/USD has been unable to maintain a bid above 1.45 for the past 11-weeks. Today the EUR/USD was pushed as low as 1.4385 before recovering to 1.4420. Should today's candle close near this level we could have an evening star pattern, a bearish sign. Support comes in at the Thursday/Friday low of 1.4325 followed by the rising trend line off of the July low at 1.4260. Resistance is located at Friday's high of 1.4550. Read more forex trading news on our forex blog.

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FOREXYARD: Forex News Blog

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• The Bar for QE3 Remains High
• US Consumer Prices and Spending Steady in August
• Australian New Home Sales Down 8%
• German Prices in Minor Contraction

The Bar for QE3 Remains High Posted: 29 Aug 2011 06:38 AM PDT As anticipated Ben Bernanke did not offer up any new policy moves during his Jackson Hole speech. Instead he called on Congress and the President to do more for the US economy by supporting responsible fiscal policy and additional measures to stimulate economic growth. By extending the next FOMC meeting by two days the Fed chief put even more for a policy response though the bar for QE3 remains high. The lack of new policy measures was largely expected as Ben Bernanke emphasized his past statements of a slowing US economy and the Fed's ability to act if needed. Bernanke chose to highlight steps the Federal government could take to support the economy. This may now set the stage for a potential stimulus program from President Obama in his September economic speech, one factor that may ultimately help the US economy rise up from the almost 4-year downturn. Key data events this week will likely help to formulate market expectations for additional policy easing measures with the release of Thursday's ISM PMI survey and Friday's jobs report. Forecasts are steadily bearish with expectations declining by 9k between Monday morning and last Friday. In his speech Ben Bernanke did announce that the Fed's next FOMC meeting in September will be extended to a two day meeting. This hints at additional Fed action at the September meeting. But those looking for another round of quantitative easing may be getting ahead of themselves. While the Fed has reduced its expectations for US economic growth, increased inflationary pressures will likely keep any QE3 in the tool chest of the Fed until the risks of US growth expectations are affirmed to the downside or another dramatic swing lower in US equity prices. Until then the bar for QE3 remains high and the Fed will likely limit its policy moves to less controversial methods such as increasing the size of its balance sheet or extending the maturities of the US Treasuries the Fed holds. Read more forex trading news on our forex blog.

US Consumer Prices and Spending Steady in August Posted: 29 Aug 2011 06:33 AM PDT Expectations for consumer data in August were for only mild growth in spending and income levels among consumers. The monthly percent change in personal income held steady near the forecast 0.3%, but spending levels surged an unexpected 0.8%. This data outpaced last month's adjusted contraction of 0.1% in the same indicator. The reports, issued by the US Bureau of Economic Analysis, represent stability in consumer prices in the American economy. The Core Personal Consumer Expenditures (PCE) CPI reading also revealed stability as it came in at the forecast level of 0.2% growth. Though markets anticipate a downturn, price increases appear to be holding steady relative to consumer income. Read more forex trading news on our forex blog.

Australian New Home Sales Down 8% Posted: 29 Aug 2011 06:29 AM PDT A monthly report on new home sales in Australia revealed a continuation of July's dismal housing figures from the Outback economy. The Housing Industry Association (HIA) published this month's reading with no expectations priced in, as is typical, and underscored the bearish 8% contraction in new home sales. The report measures the monthly change in sales of only those homes recently constructed, not those already existing. The demand for newly built houses has declined in Australia consistently since May of this year, when it only experienced 0.2% growth. The Aussie has been falling under heavy pressure lately and this housing data will likely continue to push it further bearish. Read more forex trading news on our forex blog.

German Prices in Minor Contraction Posted: 29 Aug 2011 06:24 AM PDT Preliminary data out of Germany this morning showed a possible contraction in consumer prices as they are measured by the Consumer Price Index (CPI). Expectations were not terribly high to begin with for this reading, but a turnout of negative 0.1% may push traders out of the risk-taking sentiment they had adopted last Friday. The last time German prices turned bearish was in late-January 2011 amid a broad spike in EUR values. Fundamentals out of the euro zone have painted a rather ominous picture, though the EUR did see an upswing last Friday and this morning. Will this data offset those gains? Read more forex trading news on our forex blog.

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