Daily Forex News

By Barbara Zigah

As seems to have been the pattern over the past several weeks, global markets turn their focus to Washington in advance of next week’s Federal Open Market Committee meeting.  What is being sought are clues as to the FOMC’s intent regarding the expected stimulus package that will, hopefully, do what it’s supposed to do, specifically, stimulate the flagging U.S. economy.

Stimulus In Japan

No matter where in the world you look, governments are attempting to revive their respective flailing economies.  Earlier this week, it was reported that the government of Japan announced a new stimulus scheme, aimed at fighting deflation and preventing the Yen from further appreciation. In Addition the BoJ has an asset purchasing program of ¥5Trillion to support credit and tackle the weakness in credit supply. Nevertheless the Yen still remains firm and closed the week with a positive gain, as investors remain skeptic on Yen weakness.

Austerity In Europe

In France, the proposal and approval by the French Parliament of pension reform as a component of the austerity measures being considered has resulted in both public and private sector dissention; the effect of which is exacerbating the problem daily.  And in the United Kingdom, the 3^rd quarter’s slow 2.8% GDP growth is prompting many to wonder if additional austerity measures might need to be considered if the country hopes, among other things, to preserve its current AAA sovereign debt rating.

November 3rd On The Radar

While this week’s release of positive economic indictors from the U.S., such as Monday’s improved numbers in new homes sales and today’s Commerce Department report on the slow but steady GDP growth in the third quarter, were encouraging, per se, they were still nothing to get excited about.  Nor, were they strong enough to cast (too) much doubt on the need for Fed action. With the FOMC meeting scheduled for the 3^rd of November, only a few days remain until any doubts, concerns and worries are put to rest.

Copyright 2010 eToro Blog

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By Barbara Zigah

As economists, analysts and market players have all been expecting, the U.S. Commerce Department reported earlier today that 3^rd quarter GDP growth was 2.0%.  While better than the 2^nd quarter’s relatively dismal 1.7% (annualized) growth, it is a far cry from the 1^st quarter growth of 3.7%, and suggests that 2010 will finish off worse than it started.  The positive economic data from the past week notwithstanding, the 3^rd quarter GDP growth still falls far short of what analysts believe necessary for the Federal Reserve to consider anything other than more quantitative easing.

Immediately following the release of the GDP numbers, the greenback slipped broadly; EUR/USD traded lower at $1.3906, while the USD/JPY traded at 80.620 Yen as markets continue to move cautiously ahead of next week’s  highly anticipated FOMC announcement.  Most major indices, including the DJIA, traded lower on the news.

While the economy has grown over the past four quarters, the rate of growth has been too weak to help lower the 9.6% unemployment rate.  That high unemployment rate and fear of job loss has Americans holding their purse strings a little bit tighter, because while consumer spending rose marginally in the 3^rd quarter, analysts suggest that it needs to be doubled in order to truly help push through an economic rebound.  Americans have been saving more for an emergency rather than spending.  And, considering that spending represents a major portion of GDP, it does not bode well for 4^th quarter growth.

Economists will likely take the weekend to scrutinize these GDP numbers for a clue as to the Fed’s intentions.  And, markets will continue to exercise caution, awaiting affirmation from the Federal Reserve that the QE speculation is, indeed, valid.  Fortunately, the wait may soon be over, as the Fed’s Federal Open Market Committee meets on Tuesday and Wednesday, and the QE announcement, barring any unforeseen event, is expected immediately upon the conclusion of the policy meeting.

Copyright 2010 eToro Blog

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سجل الدولار انخفاضاً مع جني المستثمرين للأرباح الناتجة عن تحسن أوضاع الدولار الطويلة

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By Barbara Zigah

Tomorrow, Eurostat – the gleaner and disseminator of all important statistical factoids from the Eurozone – will release the E.U.’s unemployment figures for the month of September.  Most analysts expect very little change, likely holding at 10.1% for the Eurozone; the highest it’s been in more than a decade.  With the exception of regional powerhouse Germany, who proudly touted a 7.5% unemployment rate, most nations in the Eurozone continue to struggle with high unemployment.  France, for example, is experiencing unemployment in the 10% range, with the number of people looking for work last month is at a 5-year peak.

In response to the struggling economy and the high unemployment rate in France, the French President has proposed, and Parliament has approved, some austerity measures that are proving to be a little too difficult for the French citizenry to accept.  The news, especially, of reform to the country’s pension provision, which would raise the minimum age at which one can retire with partial benefits to 62 from 60 years (notably, still among the lowest legal retirement age in all of the Eurozone) and the age at which one receives full retirement benefits to 67 from 65, has resulted in all manner of civil and not-so-civil disobedience.

Furious workers are blocking production at the nation’s oil refineries which has lead to fuel shortages, which in turn are severely affecting transportation links, as well as private and public services.  By government estimates, the disruptions are costing France nearly $560 million per day.

Since the Greek debt crisis months ago, the common currency Euro has been in a fragile state; any gains against the U.S. Dollar over the last few weeks has only been as a function of dollar weakness, not Euro strength.  While public demonstrations against perceived injustice may be coded into French DNA, they’re its seems public resistance to Budget austerities in a pan European issue. The question is will the EU eventually be able to tackle this obstacle, with the sustainability of Euro zone at stake and with it the strength of the Euro.

Copyright 2010 eToro Blog

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By Barbara Zigah

Friday’s release of actual U.S. GDP growth by the Federal Reserve Bank is not expected to have any major impact on the upcoming FOMC decision for additional quantitative easing measures, given these current predictions.  A recent poll of economists forecasts the U.S. economy to have experienced marginal growth, estimated at 2%, for the 3^rd quarter of 2010.  Analysts attribute the growth to a rise in business inventory rebuilding coupled with a slight increase to 2% in consumer spending. In spite of the recent string of encouraging economic news, including last week’s better than expected labor data, higher existing homes sales, and this predicted 3^rd quarter GDP growth, most analysts and market players agree it will not be enough to alter the urgent need for additional easing measures. The Federal Open Market Committee will be meeting on November 2^nd and 3^rd and only then will details surface regarding their intent.  Speculation exists that the Fed will ease the estimated $750 billion bond-purchase scheme in gradually, up to $250 billion per quarter, continuing through the second quarter of 2011.  It’s been suggested that the Fed is making an effort to ensure that the scheme is flexible enough that it can be modified as and when needed. The markets have been waiting nearly two months for next week’s meeting; in that time the DJIA has seen a 12% rise, commodities such as gold and oil have seen higher prices on speculator demand, and the U.S. Dollar has slipped broadly, losing approximately 10% of its value against the Euro, with EUR/USD currently trading at $1.3812. While the Fed bond-purchase scheme is being met by some skepticism, even critics acknowledge that the weak condition of the economy dictates that something must be done.But the Question FX Traders wait ask themselves is how much will be done?

Copyright 2010 eToro Blog

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By Barbara Zigah

At this past weekend’s meeting of the Group of 20, the nations together pledged that they would avoid competitively devaluing their respective currencies and escalating the so-called currency wars.  One has to wonder why, then, is the Bank of Japan still bandying about the threat of another intervention?  Perhaps because deflationary pressures still persist, and the Japanese Yen has continued to appreciate gaining almost 4% versus the U.S. Dollar since August ending, and thus far in 2010, approximately 13%.  When the Japanese Ministry of Finance last intervened in mid-September (some suggest bowing to pressure from Japanese exporters), they flooded the forex markets with more than ¥2 trillion; just prior to intervention, USD/JPY was trading at ¥82.88.  Currently, the USD/Yen is holding near ¥81.50, not far off a 15-year high.

Yesterday, the Japanese government announced plans for a new stimulus package; with dual goals of fighting deflation and holding the strong Yen at bay (or if possible, even devaluing it). At current levels, the Yen has effectively reduced the country’s competitiveness in the all-important export market, a major driver of the Japanese economy.

Tomorrow, the Bank of Japan will issue the semiannual Outlook Report, and by all accounts (and considering the timing of the new stimulus package announcement) the Consumer Price Index will likely fall for the third consecutive year; original estimates had a decline of 0.4%, but analysts speculate that a larger decline is anticipated.

Policy makers at the Japanese central bank continue to warn that they will take whatever steps required, as and when it becomes necessary (to counteract a strengthening Yen).  Only time will tell whether or not the stimulus package is effective, but it is certain that, one way or another, something will be done to curtail the Yen’s rise against major currencies.

Copyright 2010 eToro Blog

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The export-driven German economy, considered by many investors to be Europe’s most “important” nation and key to economic recovery in the region, continues to be the pride of the Eurozone and the envy of the rest of the developing world.  It’s no wonder according to a recent survey, with annual GDP forecast to grow an enviable 3.4%, business sentiment recently striking the highest point in more than 3 years, and consumer confidence levels holding steady again in November at 4.9 points.

Overall, according to the survey, the outlook for the German economy has improved even while personal income expectations have shown a slight decline.  Ahead to 2011, while GDP growth is expected to slow somewhat to 2%, a rise in private consumption is expected to nearly offset the decline.

In large part, confidence levels can be attributed to a robust labor market; according to Ursula von der Leyen, the German Minister of Labor, unemployment levels have slipped well below 3 million, a number that she believes will endure for many months to come, even as the winter months approach.  In September, the jobless rate fell to the lowest point in 18 years, and forecasters predict that Germany’s unemployment rate is expected to remain well below 8%; actual figures from the German Department of Labor are due out tomorrow.  Compare that with some other Eurozone nations (and the U.S.), many of which struggle to keep their respective unemployment rates to 10%.

The strong German economy is essentially fuelling the Eurozone recovery, and the rise in the value of the common currency Euro over the past five weeks is testament to that, despite this week’s relative softness against the greenback.  One council member for the European Central Bank recently commented that the Euro was among the world’s most stable currencies.

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