Currency Market Fundamental Outlook August 10, 2009
The main event last week was undoubtedly the Nonfarm Payroll changes, which not only went against the ADP release on Wednesday, but it was a landslide surprise that changed the predominant USD trend yet again.
If you remember the effect on the NFP report back in June and the market reaction in the subsequent week that follows, you’d see a likely pattern emerging, and that pattern is clearly going to be USD strength.
Although many analysts and nay-sayers may argue that this optimism is purely unfounded, and we are still looking at a long, arduous recovery ahead. But if you understand anything about Futures trading, you’ll know that sometimes perception may not be the truth, but it may be everything that a trader needs to make his/her decision.
As U.S. President Obama quickly politicized this release and took credit for the modest improvements, investors around the world also jumped in and drove carry trades, Yen crosses, and other commodity currencies to the top of the range, positioning for a strong breakout in the weeks to come.
Nonfarm Payroll Changes Analysis
But before we also jump on this bandwagon, let’s take a look at the actual release numbers and how that affects the perception of investors:
July Changes in Nonfarm Payroll -247K Versus -325K expectation
Changes in Manufacturing Payroll -52K Versus -100K expectation
Prior Revision of NFP -467K to -443K
July Unemployment Rate 9.4% Versus 9.6% expectation
Now if you would look at these numbers closely, you’d see that not only we’ve got a better NFP release, but the prior revision was also positive, along with the Unemployment Rate reducing for the first time since June of 2008. All of these may be premature to call that the economy is recovering, but nonetheless they are indeed positive data for the U.S.
If we could learn anything from the market reaction to the June release (similar to the August release of a much better NFP figure), we’d expect to see at least a couple of weeks of Bullish Sentiment on the US Dollar and possibly a divergence between risk aversion and the demand for USD.
Yes, I think it is possible that USD maybe on its way to become the preferred currency over all European currencies for risk appetite sentiments, as USD may be perceived to lead global economic recovery; not only this belief has long been in the minds of investors ever since the Fed’s aggressive rate easing cycle at the height of Credit crisis back in 2008, but with these recent numbers confirming that very possibility, USD could be regarded as not only safe, but also as a sound investment as the recovery gets on the way.
However, I do think that commodity currencies such as NZD, AUD, and CAD will probably remain strong, considering the fundamental outlook for these currencies, especially both Australia and Canada, still outshines that of the U.S.
How Major Currencies Traded Against USD Last Week.
Let’s take a look at how the market ended last week:
- EUR lost 0.5% against USD
- GBP lost 0.1% against USD
- CAD lost 0.5% against USD
- AUD gained 0.1% against USD
- NZD gained 1.5% against USD
- CHF lost 1.5% against USD
- JPY lost 3.0% against USD
As we can clearly see, market was indeed in a US bullish frenzy; most of these moves took place on Friday, and as risk appetite sentiment drove the market, only AUD and NZD managed to hold their position against USD due to their high-yield (interest rate) status.
Clearly in the weeks to come we will likely see fundamental factors play bigger role in the market. As risk sentiment became the focus and the primary driver of currency market, fundamental outlook has been hit or miss due to most investors just don’t give a flying rat’s rear-end about it… they are more interested in 1) Protect Investment or, 2) Fear of Opportunities Missed. Starting with NFP and maybe other news events to come, we could expect to see investors paying more attention on fundamentals as they will want to pick and choose the best looking currency pairs to trade, instead of just following market emotion.
As news traders this is excellent news. It means that not only we’ll get more news to trade as investors pay more attention to news events, but our analysis will also be more accurate as sentiment won’t be the only driver. And of course, my signature trade of “Sentiment Trading” will once again work since speculators will once again do their thing, which is pricing in the effects of the news before the actual release. So all in all I welcome this change and look for a more profitable second half of the year.
U.S. Equity Market Week Wrap-up
Let’s also take a look at how the Equity market traded last week:
- DJIA gained 2.1%
- S&P 500 gained 2.3%
- NASDAQ gained 1.1%
I don’t think this end of the week result surprised anyone as the market is positioned for further breakout in the weeks to come. I don’t day trade stocks, but I do have an IRA account for investment, and personally I think once the emotion sets in and big monies return to the market, we could see the same intensity in recovery as in the decline. Some financial stocks lost about 95% of its value in less than 12 months, so it is very likely we will see those companies lead the equity market to recovery and surprise all analysts with their recovery.
That’s all I have to say for the beginning of the week… However, you can get a complete list of recommendations and the full report by subscribing to my Weekly Outlook Report. For more details, visit http://www.newsprofiteer.com
Henry Liu
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{ 2 comments… read them below or add one }
Hi Henry,
It is one day after the posting of your Weekly Outlook newsletter 10th August. As usual, your insight and understanding of the market with a great call on dollar strength was spot-on. Well Done! Thanks for the pips.
Cheers,
Bruce
what is the meaning of setiment and appetile in the market