Forexs Currency Games

There is a “game” being played in the market place involving the Euro zone countries and it goes something like this: A debt-troubled nation is due to issue debt sometime during the week so the rumors start that the country may need to access the emergency facility so that yields will be pushed higher thereby increasing the rate of return to potential investors. It is then up to Germany to decide if they want to try to defend those nations or allow the ruse to spiral out of control.

Well if you are a country that has an extremely low corporate tax rate and “steals” businesses from Germany, then chances are you will fall by the wayside. Sorry, Ireland. If on the other hand, you are the smallest of three countries looking to peddle debt in the same week, then you will get a helping hand. So Portugal survives another day, as a counter-rumor is floated that the EU is thinking of expanding the emergency facility. As a result the Euro is higher this morning, despite the obvious risk.

Some other items of note this morning are that China has a trade balance that came in much lower than expected. As is always the case with the Chinese, this come ahead of an important meeting with the West and will surely be used as the reason why China can’t do anything about its currency peg to the Dollar. The game just continues.

Meanwhile, housing prices in the UK are falling as the austerity measures kick in ahead of this Thursday’s BOE rate decision. I’m expecting no further change in policy, but be on the lookout for a potential policy statement (different than the official release of the meeting minutes) to see if they may need to be more accommodative to offset fiscal austerity.

In the forex market:

Aussie (AUD): The Aussie is lower to start the morning despite higher commodities prices as global stocks are lower after news out of China and the EU. Retail sales figures came in as expected.

Kiwi (NZD): The Kiwi is mostly higher after reporting trade balance figures that came in better than expected. Aussie and Loonie weakness are helping to encourage money flows to NZ. (Click chart to enlarge)

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Loonie (CAD): The Loonie is lower as building permits figures came in way worse than expected, posting a decline of 11.2% vs. an expectation of a gain of 1.5%. An oil leak in the Alaskan pipeline has halted supply so this could affect prices going forward. Oil is trading higher this morning.

Euro (EUR): The Euro is higher despite all of the chatter surrounding Portugal, as French Industrial and Manufacturing Production figures came in much better than expected. Talk of expanding the EFSF has prevented the Euro from decline, and Portugal, Spain, and Italy are due to auction some 33 billion euro in debt this week.

Pound (GBP): The Pound is mixed this morning as house prices declined more than expected, showing a decrease of 1.4% vs. an expected .4% decrease. This Thursday will be the BOE rate decision but don’t expect any change to policy.

Dollar (USD): The Dollar is mostly higher as the market determines the real risk in Portugal. With no economic data on tap for the US today, keep your ears open for Fedspeak—that is our Central bankers attempting to allay the markets—ahead of Friday’s busy calendar.

Yen (JPY): The Yen is showing some strength today as risk themes and a potential Chinese slowdown have increased demand for the safe haven status of the Yen. (Click chart to enlarge)

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With all of the different games that go on in the market, one must have a clear understanding of how these games work in order to profit from them. While there is still considerable risk in the global economy, the constant media obsession helps speed up the game. If sovereigns or investors are slow to react, then the results could be disastrous.

Meanwhile, it is no secret that austerity measures are taking place in some regions around the globe, so it is extremely naïve to think that there won’t be some type of slowdown. Yet the market insists that someone has to pick up the slack, and Central bankers around the world believe that they can manage the ebb and flow of the global economy.

So the game continues, yet there are rule-changers, cheaters, liars, speculators, and those just happy to be at the table. How this group is going to figure out how to place nice is beyond me.

In the meantime, I will continue to take advantage of this motley bunch and the global inefficiencies that they create!