Archive for analysis
Uncertainty in the Euro- Pullback or a trend change? – Weekly Forex Fundamental Analysis Forecast 08/11/10
The Euro has been climbing on bad US news and some good interest rate expectations in Europe, but we now see some negative price action this week and a weak reaction to NFP- Watch the video for some ideas on how to play this!
AUD plummets on surprise on inflation- will there be a second wave? – Weekly Forex Fundamental Analysis Forecast 07/29/10
The Aussie dollar has been on a rally for the last few weeks but cannot push past the 0.90 key level, and in fact rejected the level after the disappointing CPI number yesterday. Should we expect a second wave with further weakness? Watch this forex fundamental analysis video.
Euro is taking a hit: how to play – Weekly Forex Fundamental Analysis Forecast 07/21/10
As I said last week, positive sentiment would continue in the Euro, however it would face some trouble at 1.30 and start to weaken. Indeed that happened, but the question is what to expect going forward? Watch the forex fundamental analysis video here.
What could derail the Euro? – Weekly Forex Fundamental Analysis Forecast 07/14/10
The Euro has been moving up the last month and a half but it is approaching very dangerous territory. Check out these forex trading tips for the week ahead to be prepared on how to react to what the Euro does to make money trading forex.
300 pips! Weekly AUD/JPY Forex Fundamental Analysis Forecast
Last week I talked about how we should expect a big upside bounce in this pair and we’ve already seen a 300 pip bounce! I hope you are able to use this information to learn how to identify better forex trading opportunities. Sentiment in this pair is generally recovering. Watch the video to to get an objective view on sentiment and fundamentals to incorporate into your forex trading strategy
Imbalance alert: AUD/JPY fundamentals and sentiment analysis video
We saw some wild price action over the last few weeks. I talked to my friend who mans one of the trading desks at JP Morgan last week and he wasn’t allowed to leave the screen for hours on end. His boss said that he wanted to be able to go to the bathroom and eat lunch without losing millions of dollars so he wanted an eye on the market constantly! Anyway I hope you can appreciate how huge the volatility was.
But you know what? While the rest of the market is scared, volatility brings opportunity. The recent volatility has blessed us with imbalances in such pairs as the AUD/JPY, where the fundamentals haven’t been as affected by what’s happening in Europe, yet the pair got over punished. Furthermore, by spying on the market with COT data, one can realize a divergence in net positioning in the JPY and price action. Watch the forex fundamental analysis forecast for the AUD/JPY for more detailed information on this potentially profitable imbalance!
Weekly Forex Fundamental Analysis Forecast for the AUD/USD Pair, 5/10/10
The AUD/USD recovered from its low at 0.87 after the Greek panic last week. Is this recovery only temporary or is it here to stay? Watch the “Outside the Box” Trading Report with Kris Matthews to find out.
Forex Fundamental Analysis Forecast for the EUR/USD pair, 04/22/10
Outside the Box Trading Report Video
The EUR/USD rally last week proved to be short lived as Greek 10 yr bonds have gone through the roof- at 433 basis points above German bunds, this signals risk and anxiety in the Eurozone and is very bearish for the EUR/USD. Watch the video for further analysis and how to trade this currency pair. I also consider possible risks to the upside for this currency pair so you know what to expect in any situation.
Forex Fundamental Analysis Forecast: EUR/USD 04/13/2010
The “Outside the Box” Trading Analysis Video is designed to assist you in selecting the right direction in your trading, a critical skill for successful forex trading.
The Euro hit lows at below 1.33 last week but made a turnaround on “positive” developments on the Greece story. Is this rally here to stay? Let’s see what the forex options market and credit markets have to say…
Forex Fundamental Analysis: View on the Yen with Paul Stafford
I must admit that I have a hard time maintaining an open mind on the yen. I see so many issues impacting the currency relative to the other G-7 that when good news does happen, I tend to discount it (my own “confirmatory bias” peeking through). So let’s start with my predilection that the Yen is due for a fall, and then try to discredit it.
The fundamentals certainly do give one pause. The central bank rate has been 0.1% for years, and of course gave rise to the Carry Trade. With the recent increases moving short term US interest rates above Japanese rates, a resurgence of the Carry Trade will drive the Yen lower. Other measures of the economy are woeful too. The GDP took the worst fall of all the G-7 last year (-12.7% annualized in March 2009), and monthly change in GDP remains negative, although improved from a year ago. Amongst the G-7, the budget deficit is third worst (behind the US and UK) at -7.8%.
The CPI has been negative for over a year, and remains so even though other nations are have been seeing positive numbers for a while now. Of and by itself, a negative CPI is no crime, but the deflation it indicates has plagued Japan for several decades now, and unless policy changes, will sap the strength of the economy.
The last few years of Yen strength have severely impacted Japan’s export economy. As you can see from the chart, the Yen is still near historic highs against the $. That is important. The US, consuming 20% of Japanese exports, is Japan’s largest trading partner by far (China comes in 2nd at 15%, and the Yuan is pegged to the $).
USD/JPY Chart
The recent $56B increase in the borrowing limits for the foreign exchange special account indicates to me that intervention is a distinct possibility. The Bank of Japan has done it before, they will do it again.
Sovereign risk, as measured by CDS rates, remains among the highest in the G-7 (recently 63 bps, compared to the US at 48 bps, Germany at 34 and France at 43 bps), only recently being eclipsed by the UK. This is probably a result of the absolutely huge public debt that Japan has, forecast to exceed 225% of GDP by the end of this year. In a similar measure, Standard and Poors recently downgraded the outlook from stable to negative. While Japan’s debt still carries an AAA rating, the UK is the only other G-7 country with a negative outlook.
The long term macro view is hardly any better. Everyone is familiar with the serious demographic issues facing Japan. Its population is both shrinking (forecast -.2%/yr) and aging (30% of the population is over 60). Because of its unique culture, net immigration is negligible. Japan imports more than 80% of its energy needs, and so is very sensitive to the price of oil. The huge public debt overhangs it all. The Nikkei 225 is 25% of its 1990 high (chart courtesy yahoo finance)
Japan Nikkei Chart
A good trader always looks for data opposing his view. On the plus side, unemployment in Japan is only 7.8%, and Japan also carries a positive current account balance. Sentiment indicators are still bullish Yen, with the last 25 Delta risk reversal I saw on the $/JPY at -1.25 (quote from Super Derivatives), and CME futures are roughly 2:1 long Yen. The huge public debt is mainly held domestically, as opposed to the huge US public debt, which is mainly held offshore. With a growing China as a trading partner, exports should strengthen, and the recent increase in renminbi short-term forwards indicating a potentially stronger Chinese currency should also help.
In spite of those contra indications, my expectation for a weaker Yen remains. A stronger Yen hurts the export economy, and exacerbates the deflation currently strangling Japan. Monetary policy must move for a weaker Yen. Only risk aversion, which paradoxically (to me) benefits the Yen) can keep the Yen in its current range.
Paul Stafford
For more strategies on how to capitalize on this move go here
