Forex Outlook

May 20, 2016 (Commerzbank AG) – This weekend, the people of Austria might well elect a eurosceptic president – and the next general election could see the election of a chancellor who is best described as euro-wary. Anti-EU forces are also on the march in other core euro zone countries. These countries pose much greater risks to the future of monetary union than those peripherals that have no desire to leave EMU. More than ever, the ECB will have to clear up the mess.

Further topics:

Fed: How high is the bar to a rate hike in June?

The majority on the Federal Open Market Committee wants to raise interest rates in June if economic data has improved by then. This is evident in the minutes of the April meeting that were released on Wednesday. We analyse how high the bar to a move in June is likely to be. All in all, we still believe the Fed is more likely to continue waiting. But there is a considerable risk that a rate hike is imminent.

Outlook for the week of 23 to 27 May 2016

  • Economic data: The euro zone purchasing managers’ indices have been moving sideways since the start of 2015, arguing against a major acceleration of growth. This is unlikely to change with the May data, due out next week. .
  • Bond market: Even though Fed rate hike risks are staging a comeback, current 10y Bund yields around 0.20% should attract investor interest. We hence expect recent trading ranges to remain intact though euro zone yields should tend to the downside again.
  • FX market: Uncertainty over the Fed’s future course of action should remain high, partly because of the UK’s approaching referendum on EU membership, which will keep volatility in sterling exchange rates at elevated levels.
  • Equity market: Discussions about a looming bear market are intensifying. But we believe such concerns are overdone and look to the pickup in global M1 money growth as an indication that sentiment is likely to turn more positive.
  • Commodity market: Crude oil prices look set to rise again next week as production losses, notably in Canada, continue to support the market.

USA 

May 7, 2016 (Commerzbank AG) – In the last three months, commodity prices have staged a sharp rally which raises the question of whether this marks the turnaround or just a temporary recovery in an unbroken downward trend. In the short and medium term, there is a risk of stronger price corrections. In the long term, however, we expect commodity prices to rise again because demand is picking up once more and (over)capacity on the supply side is being reduced.

Outlook for the week of 16 to 20 May 2016

  • Economic data: Although oil is giving upward momentum to US CPI inflation, underlying price pressure is likely to remain moderate.
  • Bond market: Market focus is likely to settle on US and euro area CPI data and central bank minutes from both the FOMC and ECB. Bond trading may prove fairly technical, and major support/resistance marks in 10y Bund yield are in for a renewed test.
  • FX market: In the week ahead, EUR-USD will likely be range bound. No top-tier economic data are up for release and the minutes of the FOMC and the ECB are also unlikely to provide any new impulses. The yen, though, remains interesting, given that it is still trading at high levels with respect to growth and inflation.
  • Equity market: The disappointing DAX trend since the start of this year is still reminiscent of the miserable stock market year 2008. But valuations are much more attractive than in 2008 and the DAX has strong valuation support in the range 8,800 to 9,000.
  • Commodity market: Contracting shale oil production and falling US crude oil stocks will likely support oil, whilst zinc and platinum group metals should also find support.

The Bank of Japan (BoJ) has either made a “fateful miscalculation,” as Goldman Sachs said – or made a tactical decision to stun markets by holding interest rates in April.

Not only did BoJ continue its -0.1% deposit rate and its 80 trillion yen ($800 billion) base money target, they also cut its inflation and economic growth forecasts for 2016-17.

While there’s ample reasons for concerned parties to be frustrated by BoJ’s inaction – currency traders be they binary option or traditional forex investors are excited by the potent volatility of the USD/JPY currency pair.

Analysts Surprised & Disappointed

Market watchers had predicted that stimulus measures would be introduced on par with the magnitude of Japan’s fiscal issues but BoJ astonished everyone by taking no action and essentially calling for patience. For years BoJ has been promising to do whatever it takes to push inflation toward 2%

The yen – already way up in recent months – rallied further. Of course, equity markets plummeted. Some analysts believe that the BoJ decision wasn’t an error at all but a tactical one. As everyone was expecting a move, the BoJ likely preferred to wait for maximum effect and not satisfy investors who sought to pressure the bank.

Is BoJ timing their move to coincide with the probable US Federal Reserve’s summer rate rise? Or is the BoJ trying to pressure the government to make wider economic adjustments? There’s no way to be absolutely sure but such tactical decisions could be dangerous as Japan’s larger strategic goals seem muddled – which shakes the confidence of citizens and investors alike.

While the Japanese government is expected to reveal new steps in May about the time of the G7 summit (which will be in Japan), there’s little optimism that big reforms will be initiated.

USD/JPY Now Super Volatile

As far as more practical matters – global markets have reacted, with the Nikkei index down about 8% since the BoJ pronouncement. As far as the Japanese yen – it quickly gained ground after the meeting. That trend is continuing as the US dollar dropped below ¥106 – the lowest since September 2014 and below the ¥111+ before the BoJ decision.

Nevertheless, some experts think that this is a currency crisis in the making. After all, Japan has an export-based economy – so a Japanese manufactured car that sells for $20K that would ordinarily make ¥240,000 a few months ago (after paying employees and suppliers in weaker yen) is now a car that will only make ¥216,000 – ultimately erasing all of their profit on the vehicle.

Analysts believe that the USD/JPY will continue tumbling in the near-term but will eventually climb considerably higher. This volatility is very likely to continue and will affect the two entwined currencies for some time until the BoJ decides to pull the trigger and use its ammo to make adjustments – or until the Japanese government reforms its runaway economic policies. In the meantime – the BoJ seems to be content in just keeping their gunpowder dry.

The Bottom-Line for Currency Traders

Currency traders are going to have a field day for the next several months as the fluctuations in USD/JPY continue. As profits can be earned whether this currency pair goes up or down – many investors are already taking advantage of the ongoing volatility.

Naturally, there are other factors that can affect USD/JPY including a wide-variety of capital and asset markets, sectors, commodities, indices, stocks, etc. These numerous factors only adds fuel to the already flammable volatility and to the conducive trading environment.

May 7, 2016 (Commerzbank AG) – The economic data of recent weeks suggest that unlike the US, China and the euro zone are faring better than expected. However, we have adopted a more cautious line. In fact, growth in China has probably continued to slow down, and the initial estimate of euro zone GDP is likely to have exaggerated the underlying pace of growth. We expect the ECB to continue buying bonds across the board and to opt for more quantitative easing by the end of the year. The US economy, though, is doing far better although we have cut our 2016 growth forecast to 1.8%, and now envisage only two further rate hikes by end-2017.

Outlook for the week of 9 to 14 May 2016

  • Economic data: We look for Q1 German GDP to show a gain of 0.6% versus Q4, even though industrial production probably dropped sharply in March. In the euro zone, initial Q1 growth estimates are likely to be corrected down by 0.1 percentage points to 0.5%. In the US, April retail sales are expected to point to a marked rise in consumption.
  • Bond market: Today’s US labour market report will set the tone for US Treasuries and euro area government bonds next week. A range of offsetting factors suggest that USTs and Bunds should trade range-bound.
  • FX market: After the Fed’s rate decision and the employment report due today, fresh impetus for USD exchange rates are unlikely to materialise in the next few days. Dollar pairs will thus be dominated by the outlooks of other central banks.
  • Equity market: MDAX companies have tended to outperform their DAX peers during the Q1 reporting season. However, the strengthening of the euro, particularly against the dollar, since the start of the year is likely to keep weighing on German corporate earnings.
  • Commodity market: Energy agencies will further dampen sentiment by confirming current high oversupply on the oil market. Base metal prices are also likely to retreat following lower Chinese copper imports in April.

The developed nations have lately got away with throwing vast amounts of Quantitative Easing money into the system only because the results have not yet come home to roost;  but once more other people are paying the price…

Powered by Guardian.co.ukThis article titled “Quantitative easing and common sense” was written by Letters, for The Guardian on Wednesday 7th October 2015 18.34 UTC

Zoe Williams (It’s fine to print money, so long as it’s not for the people, 5 October) raises an important question about quantitative easing (QE). In the wake of the global financial crisis, it was adopted by the Bank of England. Capital markets had ceased to function. The banking system was in deep crisis. In the US and Britain, governments were driven to inject equity into the collapsing banking system. These huge outlays had to be funded by the issuance of public debt. The Bank made clear to the prime brokers (mainly the major commercial banks) that they would be offered access to zero-cost funds in order to bid in Treasury auctions. These funds were provided electronically by the Bank into the accounts of those banks held with it.

These no-cost credits enabled the prime brokers to purchase the government debt, and by agreement swap back the debt to the Bank at a modest profit. Once this happened, the electronic advances made by the Bank were cancelled. The net effect was threefold. First, the government’s solvency was preserved. Second, the prime brokers were able to secure profit from guaranteed transactions to replace more traditional forms of lending. Third – the odd bit – the Bank ultimately ended up holding the debt of the British government, not the private sector of the economy.

This reveals the “efficient secret” of central banking. The Bank is effectively financing the state through the indirect purchase of government debt. Zoe Williams asks the question: why can’t this “mechanism” be used to finance other major projects? The answer is that it could. QE involves little or no monetary expansion. It has no inflationary consequences. But these matters are not widely understood. Time for a reasoned debate on the merits of its wider use in these most unusual times.
Richard Tudway
Centre for International Economics

• Zoe Williams says “all money is created from nowhere”. She is talking through her hat. The basis of money, which is gold or, in some cases, other commodities (mainly metals) is as founded in the real world as any other product. To find, mine, refine and distribute gold requires vast amounts of human labour, which is why it is valuable – all value coming from the labour embedded in something.

Paper money and credit is simply a claim on real money, a paper or electronic token which saves carrying around bags of gold and it runs back to real money eventually. Issuing more tokens than there is gold is a large part of credit and banking, relying on everyone not turning up at the same time to claim it. It has a place and helps the world economy spin round, but detach it too far from real value (print too much) and it starts to create problems – like raging inflation, bank defaults etc.

When Richard Nixon took the dollar off the gold standard, the US was effectively bankrupt, surviving only by devaluing its debts and reneging on the agreed price for its imports. It has continued doing so ever since. Someone pays the price, and that is the developing world mainly. And eventually it collapses anyway, like it did in 2008.

The capitalist world has lately got away with throwing vast amounts of QE into the system only because the results have not yet come home to roost; but once more other people are paying, such as the Greek workers, the Middle East and, above all, China soaking up the paper money.

It cannot go on much longer. Even the Guardian routinely points out the imminence of further crisis. So, no, more of the same, however it is directed, solves nothing.
Don Hoskins
Economic and Philosophic Science Review

• How refreshing to read some common sense on macroeconomic policy. As long ago as 1948, Dudley Dillard (The Economics of John Maynard Keynes) was saying similar things: “Is there any necessity for subsidising the commercial banks by paying them huge amounts of interest to create the new money which is required for economic expansion? Is not the creation of new money properly a government function?” He clearly advocates “people’s QE”, though it is not called that. To the extent that there are underemployed resources and supply is responsive, it should not be inflationary.
John Levi
(Retired economics lecturer), Abingdon, Oxfordshire

• Zoe Williams’ article about printing money which does not grow on trees reminds me of an incident that took place in my university days. On a family visit to Cambridge, I had seen some rather expensive books which would help my studies. Over a cup of tea, I asked my father (a fruit grower, who specialised in apples) if he would kindly buy them for me. He replied that he had no money. “You must have,” I said. “You have just sold a whole cold store of apples.” He indignantly exclaimed: “Apples don’t grow on trees, you know.” I got my books.
Gillian Caddick
Peterborough, Cambridgeshire

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Finance institute forecasts net capital outflow from emerging markets for first time since 1988 leaving states vulnerable to capital drought. The IIF’s analysts say the current reversal is the latest wave of a homegrown downturn…

Powered by Guardian.co.ukThis article titled “Global investors brace for China crash, says IIF” was written by Heather Stewart, for theguardian.com on Thursday 1st October 2015 18.34 UTC

Global investors will suck capital out of emerging economies this year for the first time since 1988, as they brace themselves for a Chinese crash, according to the Institute of International Finance.

Capital flooded into promising emerging economies in the years that followed the global financial crisis of 2008-09, as investors bet that rapid expansion in countries such as Turkey and Brazil could help to offset stodgy growth in the debt-burdened US, Europe and Japan.

But with domestic investors in these and other emerging markets squirrelling their money overseas, at the same time as international investors calculate the costs of a sharp downturn in Chinese growth, the IIF, which represents the world’s financial industry, said: “We now expect that net capital flows to emerging markets in 2015 will be negative for the first time since 1988.”

capital flows to emerging markets set to turn negative

Capital flows to emerging markets look set to turn negative. Photograph: IIF

Unlike in 2008-09, when capital flows to emerging markets plunged abruptly as a result of the US sub-prime mortgage crisis, the IIF’s analysts say the current reversal is the latest wave of a homegrown downturn.

“This year’s slowdown represents a marked intensification of trends that have been underway since 2012, making the current episode feel more like a lengthening drought rather than a crisis event,” it says, in its latest monthly report on capital flows.

The IIF expects “only a moderate rebound” in 2016, as expectations for growth in emerging economies remain weak.

Mohamed El-Erian, economic advisor to Allianz, responding to the data, described emerging markets as “completely unhinged”, and warned that US growth may not be enough to rescue the global economy. “It’s not that powerful to pull everybody out,” he told CNBC.

Capital flight from China, where the prospects for growth have deteriorated sharply in recent months, and the authorities’ botched handling of the stock market crash in August undermined confidence in economic management, has been the main driver of the turnaround.

“The slump in private capital inflows is most dramatic for China,” the institute says. “Slowing growth due to excess industrial capacity, correction in the property sector and export weakness, together with monetary easing and the stock market bust have discouraged inflows.”

At the same time, domestic Chinese firms have been cutting back on their borrowing overseas, fearing that they may find themselves exposed if the yuan continues to depreciate, making it harder to repay foreign currency loans.

The IIF’s analysis shows that portfolio flows – sales of emerging market stocks and bonds – have been more important than the reversal of foreign direct investment (for example, multinationals closing down plants or business projects) in the recent shift.

It warns that several countries are likely to find their economies particularly vulnerable to this capital drought.

“Countries most in jeopardy from emerging-market turbulence include those with large current account deficits, questionable macro-policy frameworks, large corporate foreign exchange liabilities, and acute political uncertainties. Brazil and Turkey combine these features.

This warning echoed a one from the International Monetary Fund last week, that rising US interest rates could unleash a new financial crisis, as firms in emerging economies find themselves unable to service their debts.

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October 22, 2014 – (ATFX Currency Management) – With the Fed’s October 28-29 meeting right around the corner, we examine the prospects for an end of the U.S. central bank’s Quantitative Easing program and its potential impact on the U.S. dollar.

Here is the FOMC meeting outlook from the research team at ATFX Currency Management.

All you have to do is look at futures bets to gauge where the market feels the Fed is at this point. Bets on a Fed rate hike in October 2015 currently stand at 49 percent, down from 85 percent at the end of September.

Although the Fed’s outlook will be cautious, given the global economic slowdown, there is no reason for the U.S. central bank to stop tapering at this point.

So, the Fed will most likely announce the end of QE altogether with a final $15 billion reduction in the monthly asset purchases, while at the same time stating its usual promise to keep rates near zero for a “considerable time”.

The odds of a dovish Fed are high, but the USD could still get a boost from the end of QE.

August 29, 2014 (ATFX Currency Management) – The September meetings of the European Central Bank and the Bank of England, coupled with the U.S. Nonfarm Payrolls report will take the center stage in the week ahead. Here is what to expect and the outlook from the strategy team at ATFX Currency Management.

BoE

We now know that there were two MPC members at the Bank of England who voted for a rate hike in August and they will probably cast the same vote in September. Of course, the majority of the nine MPC members are still not in a hurry to raise rates, but if the two “hawks” are joined by one or two more, the market will begin to price expectations of a shift in the policy makers’ views which could lead to a rate hike in the early part of next year. Naturally, such expectations should be supportive of the GBP. However, we will probably not see significant GBP strength until the Scottish independence vote on September 18 is behind us. Provided that the vote is not a “yes” (which will really complicate things for the U.K. and its currency) the GBP would be able to clear a major obstacle to its future appreciation.

ECB

The drop in eurozone inflation and the stagnation of the economy in Q2 have increased the odds of more easing by the European Central Bank. The ECB President Draghi has also been very clear in recent speeches that the door is wide open to easing monetary policy further. In fact the ECB has announced recently that it is looking to hire consultants to advise the central bank on QE strategies. With the ECB one step closer to launching a QE program, the divergence in the monetary policies between the ECB and other central banks is becoming bigger and even more visible, which should keep the EUR under pressure.

NFP

We expect the U.S. economy to deliver another, seventh consecutive month of job creation above 200k. Our forecast is for up to 230K new jobs in August from 209k in July, while the unemployment rate inches lower to 6.1% from 6.2%. Another positive nonfarm payrolls report should keep the Fed on track with the pace of tapering, leading to the eventual end of its QE program by the end of 2014. The USD will be likely to continue to attract bids with the trend accelerating when we get within a 6-month range from the Fed’s first rate hike.

ATFX is an alternative investment manager specializing in currency investment strategies and portfolio diversification through exposure in the FX market. The firm is registered as a Commodity Trading Advisor and is an approved member of the National Futures Association (ID# 0466436). Clients are individuals and institutions, including pension funds, charities, foundations, endowments, as well as corporations and family offices. For more information, visit www.atfx.co.

August 3, 2014 (Allthingsforex.com) – On August 16, 2014, ShowFx Asia invites everyone with a shared interest in the FOREX and financial markets to Marina Bay Sands for its annual Conference in Singapore.

The Conference aims to hone the skills of traders of all proficiency levels and to unite in one place all members of the Forex community: brokers, dealing desks, trading experts and of course, individual traders.

Why the Conference is worth attending

As the Forex community in Singapore and Asia is growing, there’s quite a wide range of trading seminars and workshops taking place in the area. However, this show is one of a kind as the organizers have managed to engage a great panel of speakers to provide education and trading advice based on years of their experience. At the Conference traders will:

- learn how to recognize and neutralize trading mind traps

- discover the most practical and time-saving strategies

- get tips on building a trading plan

- meet face to face with top Forex experts

- get trading bonuses from Forex brokers

- enjoy raffles and prize draws

Forex experts

Stuart McPhee, OANDA (Keynote speaker)

OANDA’s Senior Currency Technical Analyst Stuart McPhee is the author of several bestselling trading books, most recently the fourth edition of his popular book “Trading in a Nutshell”. Stuart will focus on a set of trading rules which, compiled together, make for a profitable trading, as well as on the processes one has to go through to form his trading strategy.

Bert Antonik, Online Trading Academy

Toh Shun Gui, Forex Asia Academy

Arief Makmur, InstaForex

Hairul Azman Bin Mohammed, InstaForex

The organizers carefully selected speakers to maximize value for every attendee. Most seminars will provide detailed analysis of real strategies sifting out important information applicable to currency trading, as well as to the stocks and commodities markets.


Free Forex education 

ShowFx Asia believe that Forex education should be available to everyone, that’s why the entrance to the Conference is FREE! To RSVP, click here.

Traditional prize draws and raffles are planned for all conference visitors.

 

First, it was unexpectedly low growth of only 0.1% q/a, then the numbers were revised down to show the U.S. economy contracting. Some economists claim the drop in the U.S. Q1 GDP is a minor blip, but it’s not altogether clear how the U.S. will bounce back…

 


Powered by Guardian.co.ukThis article titled “The US GDP puzzle: is this a temporary drop or something more serious?” was written by Heidi Moore, for theguardian.com on Thursday 29th May 2014 18.13 UTC

Is the US economy on the cusp of great growth? Or is it being pulled back into a morass of recession?

That debate has been reignited today as it was revealed that the US economy, which is supposed to be growing more robust, actually contracted in the first three months of the year, according to the Commerce Department. The sharp pullback – which would equal a 1% loss to economic power if extrapolated over the year – is the first major economic contraction since 2011. Another measure, gross domestic income, also fell sharply after years of growth.

The clearest reaction that sums it all up came from Pantheon Macroeconomics founder Ian Shepherdson in a note to clients on Thursday: “Ouch”.

The discussion is a weighty one. GDP, a measure number-crunched by the Commerce Department every three months, is the economic data point that policymakers most trust to gauge the health of the US economy. It takes into account everything from goods bought and sold to business investment to trade and export.

It’s also a political football. The growth of the economy could prove an influential data point in the midterm US elections this fall, in which the White House will want to show the economy is improving in order to win more seats for Democrats. Many Democrats and partisan economists, including Paul Krugman, have argued that the batch of austerity measures passed over the past three years by the US Congress would hurt economic growth.

As a result, a scrum of economists and pundits tried to make sense of the sharp, unexpected drop in growth, offering competing narratives around what it means. Many economic experts waved away the fall in GDP away as an anomaly, but did not offer much in the way of explanation about where future growth would come from.

The most popular conclusion among economists writing on Thursday was that GDP was hit by a short-term decline in inventories stocked by businesses during the first three months of the year. Inventories rose by only $49bn in the first quarter, not $87.4bn as previously thought, when GDP numbers were first announced in early May.

Yet inventories aren’t a completely neat explanation. The Federal Reserve, analyzing the numbers last month, attributed the decline to a decrease in net exports and the effect of bad winter weather, both of which may have also played a part. Enemies of austerity may also note that local government spending also dropped, contributing to that lower economic growth number.

In fact, many experts saw the drop in GDP as a good sign – interpreting it as proof that the economy is cleaning out all the dross before bouncing back, bigger than ever, in just a few months.

“First-quarter real GDP growth was revised downward,” wrote Doug Handler, chief economist of IHS Global Insight. “However, the nature of the revisions helps build the economic case for much stronger growth in the second quarter and through the remainder of the year.”

Others took it further. Goldman Sachs economists predicted in an outlook on May 9 that the economy would grow at a whopping 3.5% in the second half of the year, due to more consumer spending, greater housing growth, more industrial activity, and a bigger labor market.

That remains to be seen. For the time being, the fall in GDP was sufficiently surprising that some economists did not seem to believe their own eyes. Deutsche Bank’s economics team argued that the statistics will be revised twice more, on June 25 and July 30, and that the result may show better news for the economy. They seemed to see the GDP numbers as a contradiction to an overall trend in growth:

“A Q1 decline in real GDP does not jibe with some key metrics of the economy. Case in point, nonfarm payrolls expanded by +190k per month in Q1. At the same time, the ISM manufacturing survey averaged just under 53, and both retail sales (+1.0%) and manufacturing industrial production (+2.1%) eked out annualized gains in the quarter. ”

Yet others don’t seem so confident that the shoddy showing in GDP is easily dismissed. Former Federal Reserve chairman Ben Bernanke has been giving speeches telling hedge-fund managers to expect lower GDP for some time to come.

The broad-based recovery that many had hoped for has no doubt taken a hit in recent months.

For instance, inventories are only one element of GDP. Other elements of GDP that measure business confidence are only “less worse” in the words of Lindsey Group chief marketing analyst Peter Boockvar. For instance, fixed investment, which measures business spending on real estate and equipment, fell only 2.3% compared to a more recent fall of 2.8% – an improvement, but still overall, dropping.

Another aspect of economic health, housing, has also been showing weak growth, with some Fed officials “caught off guard” by the turnaround. Janet Yellen, the chair of the Fed, suggested to Congress in early May that negative housing growth could hurt the economic recovery.

And the employment picture, while apparently improving with lower jobless rates, is still very weak. The majority of jobs growth has been in low-paying part-time jobs, and over 10 million people are still out of work. In addition, labor force participation – which measures what percentage of Americans are working – has been at levels not seen since the stagnant economy of the 1970s.

In addition, it seems US households just have less to spend.

“The median annual income is 7.5% lower (about $4,309) than its interim high in January 2008,” said Sentier Research.

Many still argue for growth up ahead. But, with incomes down, housing suffering, and businesses still wary of hiring, it’s not clear where that growth will come from.

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