Forexs Climate Change

No, I’m not talking about the Al Gore hocus-pocus with regard to global warming, err make that cooling, no it’s warming—but rather the changes taking place in Washington DC. Just yesterday a new Congress was sworn in after last year’s elections with the intentions of promoting a more friendly business environment which will hopefully put more people back to work and improve economic conditions.

This week the employment reports are hopefully going to show an increase in positive sentiment as the market is anticipating policies intended to help business, not attack it. Yesterday’s ADP employment change figures were a step in the right direction, coming in nearly 3 times higher than the expectation.

This morning, the weekly jobless claims came slightly higher than expected, but back in the 400K range as opposed to the last reading which was revised higher to 391K. I believe last week’s number to be a bit of an anomaly, as we were dealing with holiday-shortened weeks.

Tomorrow’s NFP report will show where we really stand as 140K jobs were expected to be added, with the unemployment rate ticking lower to 9.7%.

Employment figures are also due out for Canada tomorrow as well.

In the Euro zone, retail sales figures came in worse than expected, as did consumer confidence. But economic and industrial confidence came in higher than expected, so it’s a bit of a wash.

Commodities are lower to start the day but equities are higher, which is a continuation of recent patterns. Dollar and Yen strength highlight the early action.

In the forex market:

Aussie (AUD): The Aussie is lower to start the morning as building approvals fell 4.2% from the previous month, slightly higher than expectations. In addition, lower commodities prices (particularly gold) are still weighing on the Aussie.

Kiwi (NZD): With lower commodities prices to start the morning, one would think that the Kiwi would follow suit with the Aussie lower, but this is not the case. The Kiwi is actually higher across the board, and I can’t find any news that would support a reason for this. This could be part of a re-allocation trade, led by China diversifying its holding.

Loonie (CAD): The Loonie is lower taking its cues from oil which is trading just below $90 a day ahead of the Canadian employment report. The expectation is that 20K jobs are to be added with the unemployment rate ticking slightly higher to 7.7% from a current 7.6%.

Euro (EUR): The Euro is lower across the board as slightly negative economic data is outweighing the positive data. German factory orders came in much better than expected, but retail sales figures came in much worse. The Euro has been trading lower on Dollar strength due to promising US economic data points, though Irish bailout bonds were snapped up by Asian investors. (Click chart to enlarge)

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Pound (GBP): The Pound is mixed this morning with Cable running positive. The PMI Services reading came in lower than expected, posting a reading of 49.7 vs. an expected 52.8. However, it has since rebounded as risk appetite is apparently increasing this morning. (Click chart to enlarge)

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Dollar (USD): The Dollar is giving back earlier morning gains as the weekly jobless claims came basically on point. It has been interesting to see how the Dollar has been reacting to risk sentiment as of late, and may be a little while before things shake out and become more “normal”.

Yen (JPY): Yen is mostly higher today after a few days of weakness as it appears to be trading today like a more classic risk aversion scenario. With no news out of Japan this week, it is difficult to gauge how the yen is going to trade.

Markets are forward looking so sometimes what takes place today is not indicative of today’s news, but rather a hope for tomorrow. It appears as though classic risk themes are somewhat muddled, with stock markets somewhat decoupled.

For example, in the past when there was good economic data, stocks and commodities would move higher, with the Dollar moving lower. Carry trades take place and yield seeking investors are willing to take on risk.

But what we are seeing of late is a scenario with commodities lower, but stocks HIGHER. The Dollar is has been trading closer to its classic inverse relationship with commodities, and usually by day’s end there is some reversion to mean.

What this means is that there is great opportunity as a trader of ANY market to profit from these movements. In today’s global macro trading environment, it is important to have an understanding of ALL markets and how they affect one another.

And it all starts with the forex market. By understanding how currencies move, you can position yourself to take advantage of anomalies and correlations in world markets.

Isn’t time you found out how the currency market works?