Casual Forex Trader

This is the weekly summary for July 17th. It is a way for you to get all the posting information over the week without having to read it all. You can read about what you want and decide which one excites you the most. Use Forex Killer to help yourself make more profitable trades. Click here to get it.

Bernanke May Speak of Exit Strategy – People are waiting to hear the exit strategy of the Fed from the market. A lot of investors are sitting on the sidelines waiting to hear what is going to happen. There is obviously a distortion in the currency market with this.

Canadian Dollar Gains After Central Bank Surveys – The Canadian dollar has been flying all this week because of a lot of positive news coming out of Canada. The economy is expected to have decent growth for the second half of this year.

US Dollar Getting Pounded – All this week the US dollar has been getting beat up and pounded on. it has fallen and that isn’t good for the forex traders that are trying to profit with it.

China $2 Trillion Reserves Keeping the US Stimulus Afloat – China is really the only reason that treasury bonds are being bought. No one else seems to want them at all, so that isn’t good.

I hope you’ve been following the news lately because all of this is very important stuff. US treasury bonds haven’t been selling that well. People just haven’t been throwing money in to help fund all the government debt and that debt has to come from somewhere. China is really the only country in the world that is full of US dollars and they’re really the only ones buying up all the treasury bonds, which lead to all the government spending. This is also important to pay attention to because this all plays on the currency market in the United States. The fact that the Federal Reserve is doing quantitative easing should devalue the dollar. QE is really just a fancy way of saying they’re printing off money and letting the government spend it.

July 16 (Bloomberg) — China’s foreign-exchange reserves are surging again, helping the Obama administration sell unprecedented amounts of debt as it seeks to drag the world’s biggest economy out of a recession.

Stockpiles of currency rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People’s Bank of China said yesterday. The amount is close to two-thirds the size of China’s economy and the equivalent of Italy’s gross domestic product in 2006.

The cash holdings are growing as the central bank sells its currency, the yuan, to prevent an appreciation that would make the country’s exports more expensive. The yuan sales mean for all the calls by China and other emerging markets for an alternative to the dollar as the world’s reserve currency, it has little choice but to keep buying U.S. government assets.

“People are talking about whether the Chinese may actually one day dump the dollar and Treasuries because of the problem in the U.S., but they are missing the point,” said Stephen Jen, head of macroeconomics and currencies in London at BlueGold Capital LLP, which manages $1.1 billion. “The reserves are so big because China needs to keep the exchange rate stable for its exports. Therefore, they have to keep buying dollar assets.”

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Wow, it’s actually funny watching the move in the US dollar. If you compare it to the Canadian dollar which has been falling due to the falling oil prices, you’re going to notice an odd thing. The Canadian dollar has been flowing up nearly a 3 pennies over the last few days against the US dollar. Investors are worried that the US dollar isn’t that hot anymore since the economy isn’t expected to recover quite as fast and demand in the US is going to be weak.

It’s tough trading the US dollar now because it’s hard to figure out the direction. Sometimes investors are dumping money into the US dollar when the economy looks bad and takes it out when it looks good. This is the complete opposite.

July 15 (Bloomberg) — Investors are turning less bearish on Treasuries and the dollar as signs the global economic recovery may not be as quick as anticipated bolsters demand for U.S. assets, a survey of Bloomberg users showed.

Participants lowered their expectations for how high yields on 10-year Treasuries will rise and how far the dollar will fall over the next six months after the U.S. unemployment rate approached 10 percent and global stocks declined, according to 2,738 respondents from New York to Tokyo to London in the Bloomberg Professional Global Confidence Index. The outlook on the pound fell from the most bullish level since November 2007 to neutral, while optimism toward Brazil’s real faded.

“Market expectations for a robust recovery are premature,” said Paresh Upadhyaya, who helps manage $21 billion in currencies as senior vice president at Putnam Investments in Boston and took part in the survey. “You’re starting to see the market tone down their expectations. The risk is in the real short term that the dollar may benefit from any bouts of risk aversion.”

Treasuries have returned 0.6 percent in July, their best performance since March as record borrowing by President Barack Obama to stimulate the economy and finance the budget deficit failed to dissuaded buyers. An auction of $19 billion of 10-year notes last week drew the most demand ever, as measured by the amount of bids relative to the securities offered for sale.

Investors became less confident about the global economic recovery, according to the survey. Participants’ confidence in the global economy declined to 39, from 43.6, the highest level since November 2007.

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There has been a little bounce with the Canadian dollar after it found that Canadian businesses were actually very optimistic about how their sales were going to be. It’s actually up a few pennies since it had a low at about 85 cents.

July 13 (Bloomberg) — Canada’s dollar strengthened from near the weakest since May after quarterly central bank surveys showed the nation’s businesses were the most optimistic in almost a decade on sales prospects, and stocks climbed.

The Canadian currency, known as the loonie, appreciated 1.1 percent to C$1.1512 per U.S. dollar at 4:34 p.m. in Toronto, from C$1.1638 on July 10. It touched C$1.1509, the strongest since July 2, after trading earlier at C$1.1671. The loonie reached C$1.1725 on July 8, the weakest intraday level since May 18. One Canadian dollar buys 86.86 U.S. cents.

“There’s a shift in sentiment,” said Brendan McGrath, senior currency trader at Custom House in Victoria, British Columbia, which handles about C$200 million ($173 million) a day in foreign-exchange transactions. “It’s definitely starting to turn.”

Canada’s dollar was the best performer today among the 16 most-active currencies tracked by Bloomberg, after six straight weekly losses it capped on July 10. The decline, its longest losing streak since December 2007, came as concern a global economic recovery will be delayed crimped stocks and commodities. Oil, Canada’s biggest export, fell the most last week since January.

Sixty-one percent of executives said their sales will grow over the next year versus 23 percent who expect declines, the biggest gap since 1999, according to the Business Outlook Survey released today by the Bank of Canada.

A separate survey showed the percentage of loan officers who said credit was harder to get outnumbered those saying it was easier by 33 percentage points, less than the 60 percent in April’s questionnaire.

Stocks, Oil

The central bank’s surveys were “definitely contributing” to the Canadian dollar’s move higher, Custom House’s McGrath said. “We’ve been telling exporters, anyone who has U.S. dollars to sell, now would be the time.”

The Standard & Poor’s 500 Index rebounded after four weeks of losses, surging 2.5 percent. Crude oil for August delivery pared losses and was little changed at $59.91 a barrel on the New York Mercantile Exchange.

Canada’s government bonds lost investors 1.6 percent so far this year, according to a Merrill Lynch & Co. index. The 10-year note’s yield rose four basis points today, or 0.04 percentage point, to 3.31 percent. The price of the 3.75 percent security maturing in June 2019 fell 33 cents to C$103.66.

The Canadian dollar will strengthen to C$1.12 by year-end, according to the median forecast of 34 economists and analysts surveyed by Bloomberg News.

‘Trend Change’

A failure by U.S. dollar bulls to push the greenback higher against the loonie means “we could very well be at a trend change,” said Camilla Sutton, director of currency strategy at Scotia Capital Inc. in Toronto. “What we need to see is the market confirming the outlook for global growth.”

Canada’s statistics agency is scheduled to release reports on vehicle sales tomorrow, manufacturing shipments the day after and consumer prices on July 17.

For the U.S. dollar against the Canadian dollar, “the recent trend higher appears to be flattening out and short-term price action still reflects a potential top in formation,” meaning the greenback’s rally against the loonie may reverse, Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., wrote in a note to clients today. The firm is a unit of Canada’s second-largest bank. “We still prefer to sell rallies.”

Canada’s dollar underperformed its commodity-linked counterparts this year in Australia and New Zealand, which also tend to trade in tandem with commodities and equities. Australia’s dollar rose 11 percent against the greenback, and New Zealand’s advanced 9.2 percent, versus a 5.8 percent gain by the loonie.

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For a lot of us free marketers, we’ve been looking to hear about an exit strategy. The government just can’t get involved, dumping all of this free cash into the market place and “stimulate” the economy. We all know that this has to come to an end. They have to stop doing what they’re doing. The real question is how they’re going to get out and what kind of damage will it cause. I’m also interested in hearing what will happen to the US dollar in the process.

July 13 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke probably will show how the central bank will exit the biggest monetary expansion in history when he reports to Congress next week, economists said.

The Fed pumped $1 trillion into the banking system over the past year through bond purchases and emergency loans, doubling assets on its balance sheet. Reassuring investors that inflation won’t exceed forecasts once the recession ends will give the Fed more credibility, said Dean Maki, chief U.S. economist at Barclays Capital Inc. While policy makers have spoken about specific tools they may use, they haven’t laid out a strategy.

“Now is the time to articulate the exit strategy,” said Vincent Reinhart, former monetary-affairs director at the Fed and now resident scholar at the American Enterprise Institute in Washington. “The Federal Reserve doesn’t speak with one voice and the testimony is an opportunity to present the consensus view.”

The Federal Open Market Committee will release updated economic forecasts on July 15. At their April meeting, officials anticipated inflation of between 1 percent and 1.6 percent in 2010, up from 0.6 percent to 0.9 percent this year. Their long- run forecast is for price increases of 1.7 percent to 2 percent.

Investor expectations for inflation have increased this year, as measured by the gap between yields on 10-year U.S. government notes and 10-year Treasury Inflation-Protected Securities. The spread widened to 1.52 percentage point at the end of last week from 0.09 percentage point in January.

This is another forex weekly summary that should keep you up to date on this weeks events.

Expect a Fundamentals Rise in the US Dollar – There is a rise expected in the fundamentals of the US dollar. I think that things are going to improve in the value of it, so you should take advantage of this information and profit.

Euro Gains Versus The Dollar – There has been a push up in the value of the Euro after there was better manufacturing numbers in Europe. It was a little unexpected.

Yen Climbs to Six Week High – The US dollar is supposed to move, but it is the yen that has been really on the move. It has been on a long run, so how much longer will it keep going?

G8 Leaders Dodge The US Dollar Debate – A lot of people were expecting some discussion from the G8 summit on whether there should be an alternative reserve currency besides the US Dollar. A lot of these concerns were coming from China, but no one seemed to be interested in the discussion.

If you haven’t been pay attention, a lot of people have been questioning the power of the US dollar and whether it should be used as a reserve currency by countries. The main country that is making headlines for this is China because they have a lot of treasury bonds that they’re afraid are going to get destroyed with negligent monetary policy.

Either way, people seem to think that the G8 leaders would talk about it at their event. I think it is no surprise that this wouldn’t be talked about. I thought I’d just point this out. source

July 9 (Bloomberg) — Leaders of the world’s biggest developed and emerging nations avoided a debate over the dollar’s role in the global economy as they agreed not to devalue their currencies to promote their exports.

With officials from Brazil, India, China and Russia pushing consideration of alternative reserve currencies, their joint statement’s language on foreign exchange echoed an agreement at an April summit of the Group of 20.

The leaders agreed to “refrain from competitive devaluations of our currencies,” according to the statement released after their meeting today at the G-8 summit in L’Aquila, Italy. They also agreed to “promote a stable and well-functioning international monetary system.”

The global financial crisis and the surge in U.S. borrowing have prompted Russian President Dmitry Medvedev to advocate diversification away from the dollar. Russia and its counterparts have yet to come up with a viable alternative.

British Prime Minister Gordon Brown told reporters today “there was not a serious discussion” about the topic.

“To talk about the long-term future of the world economy and the arrangements that are necessary is something that world has got to do, but I don’t want to give the impression that there’s a major change about to happen around the corner which will mean that present arrangements are disturbed,” Brown said.

The Yen has been on a climb. You can tell from my other post on Monday when I said the US dollar would be heading up, the Yen was still pushing higher despite that. I’m not exactly sure why the Japanese currency is moving up because it seems to be a pretty soft economy that has a stock market trending downwards over the last 20 years. I can frankly admit that I don’t understand the fundamentals behind the Yen, but who knows. It’s doing what it is doing, so profit.

July 8 (Bloomberg) — The yen rose to a six-week high against the euro and the dollar as stocks fell and Japanese machinery orders unexpectedly declined, stoking demand for the currency as a refuge from the economic turmoil.

The yen climbed against all 16 of the most-traded currencies for a second day on speculation the worldwide slump will sap corporate profit as earnings season gets underway. The dollar fell for a third day against the Japanese currency on concern the greenback’s role as the world’s reserve currency will be questioned at a Group of Eight meeting starting today.

“Money is gradually being pulled out of risk assets and that benefits the yen,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-largest foreign-exchange trader. “People have been hoping that the world will become a better place after the crisis, and now reality is catching up.”

The yen strengthened to 130.95 per euro as of 9:56 a.m. in London, from 132.13 yesterday in New York. It earlier climbed to 130.42, the strongest since May 21. Japan’s currency advanced to 94.23 per dollar, after reaching 94.08, the highest since May 22. The euro fell to $1.3899 from $1.3924.

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The Euro is on the rise versus the dollar after manufacturing orders jumped. I thought this was at least interesting compared to my yesterday post with the US dollar running in a forward direction due to oil taking a dip.

It’s hard to predict exactly what is going to happen because everything seems to get highly motivated by any little piece of information. I hope you’re watching the news as frequently as I am. I try to get all the news I need, so I can at least make the most profitable decisions about my trades.

July 7 (Bloomberg) — The euro rose after a government report showed manufacturing orders in the region’s biggest economy jumped the most in almost two years, adding to signs the worst economic slump in a generation is abating.

The common currency climbed against the dollar, yen and pound as every stocks market in Europe advanced as the Economy Ministry in Berlin said German factory orders increased 4.4 percent from April, the biggest gain since 2007.

“If there’s anything that gives the euro support today, it’s the combination of the German data and the rebound in stocks,” said Geoffrey Yu, a currency strategist in London at UBS AG.

The euro rose to $1.4043 per dollar as of 7:37 a.m. in New York, from $1.3984 yesterday. It climbed to 133.83 yen from 133.34. The dollar was little changed at 95.32 yen, from 95.35.

The yen and the dollar rose earlier on speculation that European finance ministers will repeat today that the global economic recession is far from over. Luxembourg Finance Minister Jean-Claude Juncker said at a meeting of regional counterparts yesterday that “we are still in the middle” of the worldwide financial crisis.

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I was looking at the future contracts this Monday morning and it looks like we’re going to see a rise in the US dollar based completely off the fundamentals of this economic recession.

Currently all the US equities are pushing down.
Currently oil is down over 4%.
Currently gold is down nearly $10.

For some reason people just love throwing their money into the US dollars when things go to complete crap.

The US dollar is doing well against the Euro and the Pound, but it’s losing ground against the Yen. I’m not too worried about the yen because I rarely ever trade it. But there is definitely going to be a sharp move with the US dollar that you can take advantage of and definitely profit from.

In other news:

July 6 (Bloomberg) — FX Concepts Inc., the world’s largest currency hedge fund, says it lost 5.4 percent in this year’s first five months. John W. Henry & Co.’s foreign-exchange fund told investors it lost 2 percent, after 2008’s 76 percent gain, the best since its 1986 launching.

Both use computer models to spot currency trends and, along with other momentum chasers, are getting hammered by this year’s lack of clear direction as the markets are pulled in opposing directions. Deflationary pressure from the first global recession since World War II is being countered by the inflationary forces of record stimulus spending and currency printing across the globe.

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A lot of businesses are having trouble following the “fundamentals” during this economic downturn, so you have to watch yourself. It’s hard to stay ahead of the curve.