Markets Await Jobs Tally
With a hopeful eye on tomorrow’s employment numbers from the U.S. L
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Are Forex Markets Underpricing Volatility?
This question has been raised by several market commentators, including The Wall Street Journal. Its recent analysis, entitled “Currency Investors: What, Me Worry?” wondered whether the forex markets might not have become too complacent about risk and have seriously underestimated the possibility of another shock. First, some basics. There are two principal volatility measurements: implied volatility and realized volatility. The former is so-called because it must be deduced indirectly. In the Black-Scholes model for pricing options, volatility is the only unknown variable and thus is implied by current market prices. It serves as a proxy for investor expectations for volatility over the period for which the option is valid. Realized volatility is of course the actual volatility that is observed in currency markets, calculated based on the size of fluctuations over a given period of time. When fluct Read the full article…
Forex Markets Look to Interest Rates for Guidance
There are a number of forces currently competing for control of forex markets: the ebb and flow of risk appetite, Central Bank currency intervention, comparative economic growth differentials, and numerous technical factors. Soon, traders will have to add one more item to their list of must-watch variables: interest rates.
Interest rates around the world remain at record lows. In many cases, they are locked at 0%, unable to drift any lower. With a couple of minor exceptions, none of the major Central Banks have yet raised their benchmark interest rates. The same applies to most emerging countries. Despite rising inflation and enviable GDP growth, they remain reluctant to hike rates for fear that they will invite further speculative capital inflows and consequent currency appreciation.
Emerging markets countries can only toy with inflation for so long.
Mid-Day Report: Euro Mildly Lower on German Data, Markets Consolidate
The markets are relatively quiet and mixed today. Euro is mildly weaker after weak German production data but loss is so far limited. Sterling attempted to strengthen, in particular in crosses, today on rate views but there isn’t follow through buying yet. Dollar is facing some mild pressure on rising commodities as copper hits another record high today. No important event is scheduled for the US today and we’d probably see the greenback consolidations further. Nevertheless, attention should be paid to US treasury yield, which could trigger some dollar strength in case yields extend Friday’s jump.
Data from Germany saw factory orders dropped more than expected by -3.4% mom in December. Annual rate was down to 18.70%. Though, Eurozone Sentix investor confidence rose strongly from 10.6 to 16.7 in February.
Bernanke Juices Markets!
This morning Fed Chairman Bernanke is doing his best to juice the markets higher during a speech he is giving in Boston. With “news” such as this, the markets can be extremely volatile as they hang on his every word. Some of the key phrases being reported are Central Bankers around the globe should be concerned with inflation that is “too low” and the uncertainty surrounding QE2 is less about “if” and more about “how much”.
In this regard, he is all but saying that QE2 is going to happen, but much like any Fed-speak, I’ll wait until I see it to believe it. These government and banker types are sometimes a lot of talk and little action. What I find striking coincidental is that the November elections are taking place on the 2nd, and the next FOMC meeting occurs on the 3rd. I have a feeling that the outcome of those elections may play a role in the QE2 decision.
In the middle of the Bernanke speech, a slew of economic data reports came out which are contributing to volatility. First, retails sales figures came in at .6%, besting the expectation of .4%, but CPI data came in slightly lower than expected at 1.1% vs. the expectation of 1.2%.
Markets Take A Break!
Today is seemingly setting up as an “inside day” as there are no major forces causing either major risk-taking or risk-aversion. It really is interesting to watch how global markets can fluctuate between both themes on a daily basis, and my personal opinion is that there is no better time to be a trader in the currency market.
Overnight, Japan reported .4% grown for the quarter meeting analyst expectations but besting last quarter’s growth of .1%.
In Canada, the employment picture is back on track as they added more jobs than were expected, however the unemployment rate grew as more people entered the workforce.
In the UK, PPI figures increased at the slowest pace in nearly 6 months, increasing the speculation that the BOE can maintain accommodative monetary policy going forward.
In New Zealand, higher export prices because of increased demand has made the Kiwi the largest gainer this morning, as mild risk taking appears to be the theme to start the US trading session.
In the forex market:
Aussie (AUD): The Aussie is higher this morning, as mild risk appetite combined with Japanese yen weakness has provided the Aussie with a bid. In ad
Mid-Day Report: Yen Volatility to Remain in Focus after Markets Digest Mixed US Data
Markets are overwhelmed by the sharp reversal in Japanese yen today and it remains the main theme in early US session. USD/JPY dropped from intraday high of 85.89 and reaches as low as 84.54 so far, a 135 pts swing after BoJ emergency announcement. Mixed data from provides little inspiration to markets and selling in yen crosses somewhat stabilizes a bit. Though, development in risk sentiments in US session would probably trigger another round of yen crosses in general.
US personal spending rose more than expected by 0.4% in July but income lagged behind by rising 0.2% only. PCE core was steady at 1.5% yoy while headline PCE climbed slightly to 1.5%. Canada current account deficit widened to CAD -11b in Q2. IPPI and RMPI rose 0.1% mom and 1.8% yoy respectively in July. Eurozone confidence indicators generally showed improvements in August. New Zealand reported first trade deficit in 7 months at NZD -186m in July.