Forex with Scott Greer
Teaching on the road in NC, Scott Greer takes time out of his schedule to join Merlin
for a look at the significant currency movers. Scott shares his
thoughts on the US Dollar indexes and how they should be adding more
thrust for future market moves, until ultimately hitting a wall! Scott
and Merlin take listener questions as well, shedding some light on the
current trajectory of the Cable, and Loonie.
Trading the News: Reserve Bank of New Zealand (RBNZ) Rate Decision (based on dailyfx article)
Despite expectations of seeing another 25bp rate hike from the Reserve
Bank of New Zealand (RBNZ), the forward-guidancefor monetary policy will
be the key focus as market participants see the central bank taking a
pause from its normalization cycle.
Why Is This Event Important:
Indeed, the weaker-than-expected 2Q Consumer Price Index (CPI) has
dragged on interest rate expectations as the resilience in the New
Zealand dollar dampens the outlook for price growth, and the NZD/USD may
face a larger correction over the near-term should the central bank
soften its hawkish tone for monetary policy.
The pickup in household confidence along with the ongoing improvement in
employment may encourage the RBNZ to retain a very hawkish tone for
monetary policy, and the NZD/USD may recoup the losses from earlier this
month should Governor Graeme Wheeler show a greater willingness to
deliver another rate hike later this year.
Nevertheless, the RBNZ may strike a more balanced tone for the region
amid the slowdown in private sector consumption along with the limited
pickup in price growth, and the New Zealand dollar continue to press
fresh monthly lows should the fresh batch of central bank rhetoric drag
on interest rate expectations.
How To Trade This Event Risk
Bullish NZD Trade: RBNZ Hikes to 3.50% & Retains Hawkish Forward-Guidance
2014-07-24 12:30 GMT (or 14:30 MQ MT5 time) | [EUR - Unemployment Claims]
if actual < forecast = good for currency (for USD in our case)
[EUR - Unemployment Claims] = The number of individuals who filed for unemployment insurance for the first time during the past week. Although it's generally viewed as a lagging indicator, the number of
unemployed people is an important signal of overall economic health
because consumer spending is highly correlated with labor-market
conditions. Unemployment is also a major consideration for those
steering the country's monetary policy.
Also Called = Jobless Claims, Initial Claims.
The European Union is stronger today because of U.K 's contribution
to it, European Central Bank's Jens Weidmann said in his speech at the
annual dinner of the German-British Chamber of Industry & Commerce.
"The European economy is more open and dynamic as a result of Britain's commitment to open and flexible markets - a position very much in tune with the Bundesbank's" he said.
The European Union, or EU, membership has also benefited Britain, he added.
of its trade is with the European Union, and studies suggest that EU
membership has boosted Britain's trade in goods with other EU countries
by more than 50 %"
Stressing on the need for a single market, he
said, "A lot of the potential inherent in our most important European
catalyst for growth, the single market, is still untapped."
in particular, with its advanced services sector stands to gain from
dismantling the existing barriers to cross-border trade in services.",
Also, the digital markets should be integrated into a single market, he added.
about the vulnerabilities that will arise due to the integration , "a
combination of this kind gives rise to a deficit bias, as it allows the
costs of fiscal imprudence to be shifted partially on to others. An
unsustainable fiscal situation in one country has repercussions for
monetary union as a whole. You can compare this to what economists call
the "tragedy of the commons".", he said.
"Just as overfishing
creates negative externalities for other countries, excessive public
debt harms the euro area as a whole. Excessive debt in one member state
drives up longer-term interest rates for all euro-area countries."
second, each member state issues debt in a currency it cannot create.
Hence, a high level of fiscal discipline is needed to ensure that
solvency concerns do not spiral out of control." he added.
a sustainable fiscal framework and consolidating public budgets are
only two of the numerous challenges facing the euro area in becoming
more stable." he noted.
"Equally important is to correct
macroeconomic imbalances - through the restoration of competitiveness in
those countries that have fallen behind and through a further reduction
of indebtedness in the private sector there."
Further work has to done with respect to financial regulation, not just in the euro area, but globally, Weidmann said.
key objectives in this respect are: spelling out international
standards on the loss-absorbing capacity of systemically important
banks, achieving cross-border acceptance of a bank resolution, peer
reviewing measures regulating the shadow banking sector and establishing
saver derivative markets."
Stressing on the importance of Britian
being a member of the euro area, he concluded, "If Britain continues to
make its voice heard in Europe, I am confident that the Union will
become more outward-looking, open and prosperous for that."
EUR/USD Technical Analysis (based on dailyfx article)
2014-07-25 08:00 GMT (or 10:00 MQ MT5 time) | [EUR - German Ifo Business Climate]
if actual > forecast = good for currency (for EUR in our case)
[EUR - GfK German Consumer Climate] = This survey is highly respected due to its large sample size and
historic correlation with German and wider Eurozone economic conditions.
It tends to create a hefty market impact upon release. Source changed
series from a base year of 2000 to a base year of 2005 as of May 2011. It's a leading indicator of economic health - businesses react quickly
to market conditions, and changes in their sentiment can be an early
signal of future economic activity such as spending, hiring, and
German Ifo Business Confidence Declines More Than Expected In July
confidence declined for a third successive month in July and at a
faster-than-expected pace, reports said Friday, citing the survey
results from the Ifo Institute.
The Ifo Business Climate Index
fell to 108, which was worse than the 109.4 score forecast by
economists. In June, the index had eased to a six-month low of 109.7.
current conditions index dropped to 112.9, also much below economists'
expectations for a print of 114.5. In June, the reading was 114.8.
expectations measure declined to 104.5, which was slightly above the
consensus estimate of 104.4. In June, the score was 104.8.
2014-07-25 12:30 GMT (or 14:30 MQ MT5 time) | [USD - Durable Goods Orders]
if actual > forecast = good for currency (for USD in our case)
[USD - Durable Goods Orders] = Change in the total value of new purchase orders placed with manufacturers for durable goods. It's a leading indicator of production - rising purchase orders signal
that manufacturers will increase activity as they work to fill the
U.S. durable goods orders rebound, core capital goods rise
long-lasting U.S. manufactured goods rose more than expected in June,
pointing to momentum in the economy at the end of the second quarter.
The Commerce Department said on
Friday durable goods orders increased 0.7 percent as demand increased
from transportation to machinery and computers and electronic products.
for durable goods, items ranging from toasters to aircraft that are
meant to last three years or more, were revised to show a slightly
bigger 1.0 percent fall in May.
AUDIO: 4 Years after Dodd-Frank with Paul Orme
After several years, Dodd-Frank has fallen short of its intended
goal, leaving big firms to continue to reap big rewards off the average
investor. Master instructor Paul Orme, joins the show to look at
the plans shortcomings and what investors should be doing to secure
their financial future. The duo also take a look at 401k rollovers and
what to look out for.
Trading Video: Risk Trends and Rate Expectations Amid FOMC, NFPs, GDP
With the US docket alone carrying the quarterly GDP reading, nonfarm payrolls report and FOMC
rate decision; it looks like we are set for a busy week. These and
other major fundamental catalysts are certainly high profile and easily
segue into one of the FX market's primary themes: interest rate
expectations. However, a wary eye must be kept on the current for
sentiment as a general trend is developing between bottoming volatility
indexes, consolidating carry trades and diverging performance between
risk-sensitive asset classes. As tides turn, key pairs mark progress and
event risk approaches; we discuss how to prepare in the weekend Trading
Key Fundamental Releases this Week (7/28-8/1)
Last week the USD strengthened in anticipation of this week’s FOMC
meeting. The market has replaced concerns that stemmed from poor Q1 GDP
with USD-positive reactions to Q2 data, which have been in-line or
better than expectations. The euro was a big loser last week as data
continues to suggest the ECB might need further stimulus (QE). This week
will be full of key US fundamentals. Let’s be prepared by taking a look
at this week’s key fundamental releases for the majors.
US Pending Home Sales for June, is forecast to have contracted at
-0.2%. Pending home sales have been volatile and just came off a 6.1%
gain in May. A slide in June is not the end of the world. We had 3
straight months of gains, which is something we have not seen since
2010. On the other hand, a positive reading could be USD-positive in the
near-term, given it has not already rallied sharply before the housing
US Conference Board Consumer Confidence for July is expected to edge
up to 85.5 from 85.2. This reading would reflect the strongest reading
since January 2008. It has risen sharply since the Jan. 2013 low of 58.6
and bodes well for the USD. A reading in line with forecast or better
should keep the USD-buoyed. A reading below 85.0 might weigh slightly on
the USD, but we should keep the implications in the intra-session
German Preliminary CPI for July is forecast to be 0.2% on the month,
after a 0.3% reading in June. The annual reading in June was 1.0%. If
the annual CPI reading for Germany falls below 1.0%, we might see some
more pressure on the EUR. A ready above 1.0% on the year could help EUR
consolidate, but should not be able to help EUR reverse its recent
US ADP Non-Farm Employment Change for July is a precursor to
Friday’s Non-Farm Payroll, which was hot last month. The ADP report was
hot last month too, and came in at 281K, which was the strongest reading
since December 2011, and was the 3rd strongest reading since the
financial crisis. Economists are expecting July’s job market to have
leveled off, and to have added 234K jobs, which is still a strong
US Advanced GDP for Q2 will probably trump the jobs data in terms of
importance. Q1 GDP was -2.9% at an annualized rate. This seems distant
memory now. We can’t blame the weather anymore in the second quarter,
and manufacturing, sales, and other economic data points for Q2 have not
disappointed. Economists forecast a 3.1% advanced reading. Ability to
show 3.0% and above should help the USD maintain its recent strength. A
reading below 3.0% could be seen as disappointing, and might urge
traders to pare USD’s recent gains.
The Federal Open Market Committee will conclude its monetary
policy meeting and make a statement. It will have the GDP data to talk
about. This is important because after Q1′s dismal growth data, the Fed
showed concern about Q2 data. The market will be on top of the Fed’s
reaction to the Q2 GDP and how it may affect the rate hike time-line,
which is current projected to mid-2015.
Australian Building Approvals for June is forecast to have grown
0.2%, after a strong 9.9% reading in May.The AUD has regained some
strength after seeing Australia’s annual CPI inflation grow from 2.9%
to 3.0% in Q2. The housing data should have limited impact on the
Eurozone CPI Flash Estimate for July is forecast to be 0.5% on the
year. It has been stuck at 0.5% since May. ECB president Mario Draghi
had predicted that inflation was at the bottom when it was 0.5% in
February. So far, his prediction has neither materialized or been
invalidated because the annual CPI inflation is still 0.5%. A drop
below 0.5% will very likely weigh on the EUR because the ECB’s inaction
is based on inflation not dropping further. a drop in inflation will be
further impetus for the ECB to apply more monetary stimulus.
Eurozone’s unemployment rate is expected to stay at 11.6% for the
month of July. There is more room for disappointment because the
prevailing trend has been a steady improvement, and if the reading is
11.5% for example, it would not be such a big surprise. A reading of
11.7% however will buck the trend and provide the ECB with more reason
to loosen monetary policy further.
Canadian GDP for the month of May is forecast to be 0.3%, which
would be the strongest month since January when it was 0.5%. The
monthly GDP was 0.1% for April and March. There has not been any
negative readings so far this year. If we can keep that up, the CAD
should maintain its recent strength (though it consolidated for a couple
of weeks). A negative reading might be needed to hold CAD back and
keep it in consolidation or bearish correction. A reading above 0.5%
can definitely revive CAD-strength.
US Jobless claims was at a 10-year low this week, at 284K. Next
week’s reading is expected to rise back to 306K which would still be at
the lower range of 2014-data. A reading below 300K should be positive
for the USD in the near-term. A reading above 320K might be needed to
hold USD, but only in the intra-session time-frame. This assessment is
assuming that the FOMC did not shake things up and put the USD in a
medium term bearish outlook. We are assuming the USD continues to be
Chinese Manufacturing PMI for July provided by the government, is
expected to improve to 51.4 from 51.0. This would reflect 5 straight
months of steady improvement in manufacturing, and also reflects the
quick recovery after we saw Chinese data slump in 2013. The final
version of HSBC’s Chinese Manufacturing PMI is expected to be 52.0,
which would also reflect the recovery in China’s economy.
Australia’s Producer Price Index is forecast to show inflation of
0.7% in Q2, down from 0.9% in Q1. Q1 PPI inflation compared to Q1 2013
was 2.5%. If this reading increases, we might see some AUD-strength,
and if it declines we should see AUD consolidate. It is still too early
to anticipate any economic data point to be able to put AUD into
reversal, into a bearish market.
UK Manufacturing PMI for July is forecast to be 57.2, slightly
lower than the 57.5 reading in June. This is a second tier data point
and shouldn’t have much impact on the GDP other than in the very
near-term. The market is focused on whether the Bank of England can
raise rates in 2014. Right now lack of wage growth is the concern, so
even a strong improvement in manufacturing will not ease that concern,
nor should a singular worse-than-expected reading add to that concern.
US Non-Farm Payroll report for July will be the key data point to
wrap up the week. The 288K reading for June revived USD strength.
Economists expect about a 230K reading, which is still decent. A
reading above 200K is decent, and if it is above 250K, the Fed should
have more reason to raise rates earlier than mid-2015 rather than
after. A reading below 200K however might bring USD back into at least
some short-term consolidation, especially if it has been gaining
throughout the week.