Forexs Open For Business

Today is Martin Luther King Day here in the US and both the stock and bond markets are closed as it is a bank holiday. Yet the forex market is open for business! This really highlights the international influence of this market and why it is the largest and fast-growing financial market in the world.

Speaking of international influence; today brings a meeting of Euro area finance ministers in Brussels which the market hopes will bring about more clarity with regard to the debt crisis. However, it appears as though the market has little confidence that this will happen, as the Euro is selling off this morning.

The Pound is higher this morning a day ahead of UK CPI and retail sales data. While inflation is expected to rise, the BOE may be forced to comment on rates, though the balance between tame inflation and continued growth is so slim that they may not act at all.

Tomorrow is also the Bank of Canada rate policy meeting and while they are not expected to raise rates, the market will be on the lookout for any hawkish comments from Governor Carney.

Lastly Chinese President Hu was in town, basically saying that the US needs to cooperate more with China and telling the US to back off the rhetoric surrounding a rising Yuan. Cooperation is not very likely at this point and perhaps the US is willing to let economic forces push China to act.

In the forex market:

Aussie (AUD): An inflation gauge in Australia showed that prices increased 3.8%, marking the fourth straight month of gains. However, this reading was taken before the flooding occurred so it is uncertain what impact this may have on inflation. On the one hand, economic slowdown cause ease pressure on prices, though it seems more likely that repair costs from the flooding will actually increase demand.

Kiwi (NZD): The Kiwi is higher as it is benefitting from the uncertainty over the Australian economy so money flows are making their way to New Zealand as it is seen as more likely to strengthen in the near-term.

Loonie (CAD): The Loonie is mixed this morning as the market awaits tomorrow’s rate policy decision. While no change is expected, the policy statement going forward will determine the direction of the Loonie. In addition, mortgage lending rates were tightened in order to limit household debt and prevent rampant inflation from harming the economy.

Euro (EUR): The Euro is lower across the board as Finance honchos meet to decide how to best handle the debt crisis going forward. While there is much speculation surrounding the talks, it is unlikely that anything concrete will be determined today and the market has re-affirmed that position by selling the Euro this morning. (Click chart to enlarge)

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Pound (GBP): The Pound is higher across the board as tomorrow’s CPI release will show whether inflation is becoming unmanageable or not. While inflation has been outside of the target range for some time, any further increase may pressure the BOE to act. The Rightmove home price index rose .3%, suggesting that indeed inflation may be a problem. (Click chart to enlarge)

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Dollar (USD): The Dollar is mostly lower except against the Euro as most markets are closed here in the US so there is no news that would sway market sentiment one way or the other.

Yen (JPY): The Yen is mixed as the outlook for Japanese stocks has improved as a perceived Chinese economic slowdown may help Japan’s exports. This has encouraged carry trades with the antipodean countries, but marginal strength elsewhere.

With US markets on holiday today, volume in the US session will be greatly decreased. However, that does not mean that there will be a lack of volatility. In fact, it may actually help increase it.

Why is this important? Because volatility is a forex trader’s friend, and not to be avoided. But if you are a longer term investor, then you just may want to wait for what we call “follow through” before establishing longer term positions, as the lack of volume may provide false moves.

This week may provide further clues as to where we as a global economy stand with regard to inflation, whether anyone will (or wants to!) do anything about it is another story.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!