Forexs Who’s A PIIG

Portuguese Problem?Not from where I am standing, nor where the French or Germans are concerned either. Portugal successfully auctioned off more of its debt which was oversubscribed; and both the French and Germans praised Portugal for going above and beyond in trying to get their fiscal house in order. This is a far cry from the rumors spread over the weekend, and it appears that for now Portugal may be safe.

This has buoyed the markets higher this morning, as risk appetite has increased on this news as well as better than expected US corporate earnings. No surprise that oil is higher this morning as well (see my previous article) in that the snowy weather on the East Coast increases perceived demand.

The economic data and news out this morning is relatively benign, with no big market moving or earth shattering impact expected.

Euro zone officials will meet next week to discuss what other measures should be taken to help shore up the Euro and provide a stable environment for the debt-laden countries to meet their debt obligations as well as reduce the size of their deficits.

So today seems like a bit of a relief rally—as stocks are higher around the globe as the market is “relieved” that Portugal was successful in its offering.

In the forex market:

Aussie (AUD): The Aussie has bounced back from overnight lows just above .98 vs. USD as risk appetite has increased in the market. The flooding in Australia continues to be a problem, with some estimates claiming that it could shave 1% off of GDP. Higher than expected home loan approvals though show that there is still demand, and overall risk taking has boosted the Aussie. Tomorrow brings the Australian employment figures. (Click chart to enlarge)

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Kiwi (NZD): The Kiwi is surprisingly lower this morning on no news despite the risk appetite in the market. The reason for Kiwi weakness may be that money flows from the Aussie may be reversing as recent down beat economic data was reported in NZ, and they may be on hold for a while with rate hikes.

Loonie (CAD): The Loonie is higher as oil prices have surged back to just under 92 on the back of snowy weather and the Alaskan pipeline situation. The Loonie is back to two and half year highs vs. USD. (Click chart to enlarge)

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Euro (EUR): The Euro has moved higher on the successful Portuguese bond auction, though there are still stories being floated that some may want the Portuguese to take a bailout. This appears very unlikely to happen at this time.

Pound (GBP): The Pound is higher as today is setting up as a “classic 2010″ risk-taking scenario despite the fact the UK trade balance figures came in worse than expected. Tomorrow is the BOE rate policy decision.

Dollar (USD): The Dollar is lower this morning as today is a “classic 2010″ risk-taking scenario. By this I mean that we entered a condition in 2011 where both stocks and commodities AND the US dollar were rising simultaneously when there was risk appetite was increased, as opposed to the Dollar weakness we would see last year under similar circumstances. Perhaps this was a function of Euro weakness (due to debt fears) and individual, regional weakness. It will be interesting to note how the correlations shake out as the year progresses.

Yen (JPY): The Yen is lower across the board on risk appetite, despite the fact that bank lending fell for the 13th straight month. The Japanese trade surplus and trade balance fell slightly.

So what’s in store for the Dollar in 2011? We’ve obviously seen some aberration from what we would normally expect from the risk themes in the market. Does the Dollar now go up with the stocks and commodities market, or does it still go down?

Asset allocation to start the year may have been an early driver, though it is important to know that correlations in the market work great—until they don’t! What I mean is that it is easy to get in a mindset that if X happens, Y will follow. Resist the urge to be that black and white, and use that knowledge to identify potential market plays.

While I’m not certain that there will be certainty in the inter-relationships between different markets and currencies, what I do know is that there will be TONS of opportunities via increased volatility!

Are you prepared to take advantage of these forex market moves?

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!