US shutdown boosts RBI chance to shore up forex cover: BofA-ML
MUMBAI: Brokerage firm Bank of America Merrill Lynch (BofA-ML) today said the ongoing US government shutdown is positive for the country, as it gives additional time to recoup the forex reserves. "Our base case is that the US shut down persisting for a fortnight to push Fed tapering into January. RBI Governor Raghuram Rajan should get more time to raise forex reserves if the tapering is deferred to January," it said in a note.
"We expect the RBI to capitalise on the postponement of Fed tapering to
recoup forex reserves," it said, noting that it is necessary as the
import cover has dwindled to seven months, last seen in 1998. A
two-week shutdown, however, will have little impact on the country's
growth, it said, holding on to its earlier estimate of 4.6 per cent GDP
growth for FY'14. The postponement of the taper should provide
the Reserve Bank necessary time to ease the debt limits for foreign
institutional investors to list government bonds in emerging market bond
indices to attract more benchmark funds, it added. If the
ongoing FCNR(B) deposit mobilisation scheme is successful, investor
confidence will get boosted and assuming that the country gets a 10 per
cent weighting in the indices, the RBI can mop-up up to USD 25 billion
in reserves through the route. The RBI will most likely start buying dollars once rupee
stabilises at the 62 level against the dollar, it said. It can be noted
that the Reserve Bank took a series of unconventional moves in face of
the heavy depreciation in the rupee, which touched a lifetime low of
68.85 to the dollar late August. Among the steps it announced
were liquidity tightening measures and also a special window to banks
for swapping fresh dollar deposits of over three years at a concessional
rate. Governor Rajan last Friday said USD 5.6 billion had been
collected through the aforesaid swap window, while analysts expect it
to touch around USD 10 billion by November, till when the window is
open. The liquidity tightening measures announced in July will be reversed by December, the note added.
USD/CAD Still Supported on Dips
Trading Strategy: Flat
LEVELS: 1.0181 1.0232 1.0264 | 1.0336 1.0355 1.0409
The Lifeblood of the US Economy: The Consumer
One of the best aspects of the Forex market is that is so accurately
reflects how globalization has changed the world. If you view economics
solely from the position of an equity trader, you’re bound to view the
world through rose-colored glasses; focusing on just one of the many
economies that make up the world financial system.
But in the forex market, a data print in one continent can send a
currency across the world flying to the moon, or dropping through the
floor. Price action can tell us where prices have moved in the past, but
fundamental analysis is what molds future price movements.
The reason for this is rational. In the Forex market, everything is
traded in pairs, unless a system like a currency basket is being used.
But, more to that point is the fact that what benefits one economy may
Nowhere are these impacts more evident than during the release of
Non-Farm Payrolls each month. This is simply the number of jobs added to
American payrolls in the previous month. There is a litany of
criticisms of the statistic, but this is often the first glimpse the
marketplace receives of employment data for the month prior. NFP is
usually issued on the first Friday of every month, and the data pertains
to the most recent month.
But volatility can be seen all over the place, not just in USD-related
pairings. Take, for example, the EURJPY during the release of the August
2013 NFP report.
So, the number of new jobs added in the United States can be used as
somewhat of a barometer for global economic health. After all, if
employment is improving in the United States that means more people will
have money to buy goods and services. Many of those goods and services
are being imported from foreign countries, and the proceeds of those
sales can go into the pockets of the workers in those foreign countries
to spend on other goods and services.
You can probably tell from this relationship, that there is another important factor in the function of economics: The consumer.
While employment can be a great gauge of economic health and a fantastic
pre-cursor of future economic growth - consumer activity plays an
equally vital role in the global economy. Consumer spending makes up
over 2/3rds of all US economic activity!
And this is a good thing, because consumers spending money means that
business make more profits; profits which can be re-invested in the
business by hiring more workers, expanding operations, and increasing
investments; all of which serve to create a synergistic effect of more
consumer activity, more spending, and more growth.
Much like the number of jobs added in the largest national economy in
the world can be used to gauge global economic health, consumer activity
in the United States can tell economists quite a bit about what might
be expected in quarters to come.
Advance Retail Sales
This is the report probably closest to Non-Farm Payrolls regarding
amount of volatility that it may produce, and impact that it may have.
Like NFP, Advance Retail Sales is an early look at the most recent month
passed, and this is both a blessing and a curse for the indicator. On
the upside, the timeliness of this information is what makes it so
important, and so widely awaited for by traders. However, because it is
so timely, that leads to the one downside: volatility. This number is
often met with numerous revisions in future months (also like NFP), and
those revisions could potentially be massive. In some cases, revisions
can cause a firmly positive number to become a negative number.
Advance Retail Sales is usually reported on the 13th of each month, for
data pertaining to the month prior. The release of Advance Retail Sales
can see massive volatility enter the Forex market; case in point, the
AUDUSD during the release of August Advance Retail Sales:
US Consumer Confidence
This is a figure that is produced by the independent economic research
organization, The Conference Board. The data is produced through mail-in
surveys of 5,000 respondents, and asks for opinions on current business
conditions, as well as expectations for future economic outlook.
The survey asks respondents to rate ‘positive,’ ‘neutral,’ or
‘negative,’ regarding their outlooks on 5 topics. And like Advance
Retail Sales, releases of the Consumer Confidence Index can see massive
volatility enter markets. For example, during the release of last
month’s Consumer Confidence number, the GBPJPY saw movement of 50 pips
right after the release, only to see a 120 pip retracement shortly in
Consumer Confidence can produce massive volatility :
2013-10-08 06:00 GMT (or 08:00 MQ MT5 time| [EUR - German Trade Balance]
if actual > forecast = good for currency (for EUR in our case)
German Exports Recover In August
Germany's overall exports recovered in August from July, while the
growth in imports increased marginally, data from the Federal
Statistical Office showed Tuesday.
Exports advanced 1 percent
month-on-month, offsetting July's 0.8 percent fall. Meanwhile, imports
rose 0.4 percent, slightly faster than the 0.3 percent increase seen in
Despite an increase in exports, the foreign trade surplus
declined to EUR 13.1 billion in August from EUR 16.2 billion in July. On
a seasonally and calendar adjusted basis, the surplus totaled EUR 15.6
Likewise, the current account surplus decreased to EUR 9.4 billion from EUR 14.2 billion in July.
On a yearly basis, exports decreased 5.4 percent and imports dropped 2.2 percent in August.
2013-10-08 06:00 GMT (or 08:00 MQ MT5 time| [CAD - Trade Balance]
if actual > forecast = good for currency (for CAD in our case)
USD/CAD slightly higher in early trade
The U.S. dollar was slightly higher against the Canadian dollar in early
trade on Tuesday, but the pair looked likely to remain locked in recent
ranges as concerns over political deadlock in Washington continued. USD/CAD hit 1.0334 during early U.S. trade, the session high; the pair subsequently consolidated at 1.0322, easing up 0.11%.The pair was likely to find support at 1.0290, Monday’s low and resistance at 1.0355, the high of October 2.The
greenback found some support after President Barack Obama repeated
Monday that he is willing to negotiate with congressional Republicans on
a range of topics, including healthcare and energy policy, but only
after the government is reopened.President Obama also called on
Congress to raise the government borrowing limit ahead of the October 17
deadline, when the Treasury Department has estimated the U.S.
government will not have enough cash to pay its bills.The
Canadian dollar showed little reaction after official data showed that
the country’s trade deficit widened unexpectedly in August, expanding to
CAD1.31 billion from a deficit of CAD1.19 billion in July. Analysts had
expected the deficit to narrow to CAD1.0 billion.A separate
report showed that Canadian housing starts rose to 193,600 units last
month from 184,000 units in August. Analysts had expected housing starts
to increase to 185,000 units in September. The loonie, as the Canadian dollar is also known, was slightly lower against the euro, with EUR/CAD easing up 0.12% to 1.4020. International
Monetary Fund Chief Economist Olivier Blanchard said Tuesday that a
prolonged failure to raise the U.S. debt ceiling would "almost certainly
derail the recovery", and warned the U.S. to slow the pace of its
deficit reduction program.The IMF downgraded its forecasts for
the global economy, saying it now expects growth of 2.9% this year, down
from 3.1%. It expects growth of 3.6% in 2014, down from 3.8%.
IMF Cuts Global Growth Forecast On Rising Risks
The International Monetary Fund on Tuesday trimmed its global growth
forecasts for this year and next, given the policy challenges in the
U.S. and slowing growth in the emerging markets.
its latest World Economic Report, the lender cut its growth forecast
for this year to 2.9 percent from 3.1 percent seen in July. The outlook
for 2014 was lowered to 3.6 percent from 3.8 percent.
trimmed its growth forecast for the sixth time in a row. The improvement
next year is expected to be driven largely by advanced economies.
"Global growth is in low gear, the drivers of activity are changing, and downside risks persist," the IMF report said.
weakness in emerging markets was partly attributed to a natural cooling
in growth following the stimulus-driven surge in activity after the
Great Recession, the IMF report said.
"This transition is leading
to tensions, with emerging market economies facing both the challenge of
slowing growth and changing global financial conditions," IMF Chief
Economist Olivier Blanchard said.
The U.S. economy
is expected to grow 1.6 percent this year and 2.6 percent in 2014. In
July, the IMF had predicted growth of 1.7 percent and 2.8 percent,
While the IMF expects the federal government
shutdown in the world's largest economy to be short, it warned that "a
failure to promptly raise the debt ceiling, leading to a U.S. selective
default, could seriously damage the global economy."
for Eurozone was raised to 0.4 percent contraction this year from 0.6
percent seen earlier. In 2014, the 17-nation economy will likely exit
recession and grow 1 percent, the IMF said, which is slightly better
than the 0.9 percent expansion seen in July.
Growth forecasts for
Germany and France were also upgraded. Spain is expected to contract
less this year compared to the earlier projection and grow slightly
faster in 2014. Forecasts for Italy were left unchanged.
growth outlook for this year was trimmed slightly to 2 percent from 2.1
percent. Next year, the economy is expected to grow 1.2 percent.
Indexes continue to sputter on news out of Washington
While the indexes continue to sputter on news out of Washington, we
continue to focus on the charts and trade with the trend and what we
As usual, the media is playing with human emotions – Fear. As talked
about before, fear in my opinion the most powerful emotion and force in
the financial market. So when true fear hits the country it will be
clear to see, but right now, investors are in no rush to sell their
positions in stocks just yet.
If our leaders fail to come to some agreement in the next couple weeks the question many want to
How Will We Trade This Event/News?
The answer: we ignore it. Though we could reduce position sizes to be safe when the time comes on Oct 17th.
During most bull markets, there is typically a “wall of worry” to
traders and investors climb. The details are different every time, but
there are usually one or two major “risk factors” that investors worry
about when the broad market is trending higher.
Traders and investors who focus on doom and gloom headlines are more
than likely to be shaken out of their long positions…especially those
who lack conviction in their trading system.
Conversely, I focus on individual price and volume action of leading sectors and ETFs.
Holding long positions through market corrections is never easy, but it is NOT our job to decide when a trend is over.
If we approach trading with a clear and objective mindset, the stock
market will always tell us what to do, based on the price, cycles and
volume action. If our ETF positions sell off to trigger our protective
stops, we will simply be forced into 100% cash position.
The beauty of such a rule-based trading is that it removes some human emotion and guesswork from trading.
This increases our long-term trading success, and the added benefit of
being calmer and stress-free, regardless of what is happening in the
Trading Plans …
If you are new to swing trading, or have had little success in the past
with trading, it is a great idea to get in the habit of planning your
trades (trading rules) and trading your plan.
You must continually try to identify all potential outcomes before entering a trade.
If you do, then you should not be surprised when price moves because you
realize that anything is possible, and you have already accounted for
it and used proper position management to protect capital and lock in
Trading with rules allows you to prepare and worry before the trade
takes place, so that you can focus on executing the plan when the time
Above all, focus on the price, momentum and volume action, rather than
the amount of profit or loss a trade is showing in your account.
If you focus on proven trading rules and execution, consistent trading profits will eventually and inevitably follow.
2013-10-09 08:30 GMT (or 10:30 MQ MT5 time| [GBP - Industrial Production]
if actual > forecast = good for currency (for GBP in our case)
U.K. Industrial Output Logs Unexpected Fall; Visible Trade Gap Narrows
U.K. industrial production declined unexpectedly in August and at
the fastest pace since September 2012, driven by downward contributions
from all main sectors, especially the dominant manufacturing activity,
official data showed.
In the same month, the visible trade gap
narrowed from July, but the shortfall for the three months to August
increased, raising concerns about the third quarter growth.
production declined unexpectedly by 1.1 percent in August from July,
the sharpest fall in 11 months, following a modest 0.1 percent rise in
July, data from the Office for National Statistics showed Wednesday.
was a 1.2 percent fall in manufacturing output after two consecutive
increases of 0.2 percent and 2 percent in July and June, respectively.
Economists had forecast industrial and manufacturing output to grow 0.4
percent each in August.
The latest data put a dent into hopes that the British economy
may have grown by as much as 1 percent quarter-on-quarter in the third
quarter, IHS Global Insight's Chief UK economist Howard Archer said.
British Chambers of Commerce yesterday said economic growth will be
around 0.9 percent to 1 percent in the third quarter and signaled hopes
of upward revisions to the whole-year forecast.
Monetary Fund on Tuesday upgraded the outlook for the U.K. growth to
1.4 percent this year from 0.9 percent. In 2014, growth is seen
accelerating to 1.9 percent.
Samuel Tombs at Capital Economics
also pointed out that today's figure dampen hopes that the recovery
picked up much more pace in the third quarter as well as undermines
hopes that the economy is finally rebalancing.