Casual Forex Trader

Based on the so called fundamentals that we have been experiencing during these tough economic times, we should see a rise in the US Dollar. This is based on a few things, so let me explain it for any of those readers that are new to the blog. First, every time there is some sort of rally in the stock market, people seem to dump the US dollar. It’s been a correlation that has been going on for some time now. Futures are already up significantly this morning for the Dow Jones and S&P 500, so I assume that the dollar will take a dip.

Commodities are also showing strength, which is obviously another reason why the US dollar would dip. Both gold and oil are up. Basically, I’d expect the US dollar to have a pullback today.

Remember, the information I’m giving you here today is purely for educational purposes only. Just watching the market as a non-participating observer should demonstrate what I’m saying, but like any market there is no guarantee of the outcome.

The US dollar seems to be breaking the downward trend that has been occurring over the last few weeks. It has started to move up today. It’s not making any big gains as of yet, but at least it is moving in the right direction for once. I think it is important to pay attention to the stock markets in the United States and around the world to see what is going to happen. I think there is going to be some sort of pull back in the US stock market, but I’m not exactly sure when that will occur though.

It’s tough to call these plays since everything sort of up in the air. For every positive indicator in the market, there is another indicator that is weighing down on it. I’m not saying that we won’t come out of this recession, I just see relatively poor growth, maybe even stagflation.

July 29 (Bloomberg) — The yen and the dollar rose as Asian stocks declined and economists said a report will show orders for U.S. durable goods fell last month, curbing demand for higher-yielding assets.

The Japanese currency also advanced amid speculation domestic investors are repatriating earnings. The Australian dollar fell from near its strongest level this year against the U.S. currency. South Korea’s won ended a two-day advance as the Shanghai Composite Index led a decline in the region’s stocks, tumbling the most in eight months.

“With equities softer, risk currencies are coming off and the dollar and the yen are benefiting,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Anything that suggests expectations for growth in China are lower today than yesterday is going to hit the risk currencies.”

The yen strengthened to 94.73 per dollar as of 10:50 a.m. in London, from 94.55 yen yesterday in New York. It was at 133.96 per euro from 133.95. The euro fell to $1.4143, from $1.4167 yesterday. The 16-nation currency traded in July in a range of $1.3833 to yesterday’s high of $1.4304, the strongest level since June 3.

Australia’s currency fell to 82.00 U.S. cents, from 82.68 cents yesterday, when it rose to 83.38 cents, the highest level since Sept. 29.

The Canadian dollar also ended it’s 7 day rally yesterday. Surprisingly the Loonie only fell 1/5 of a cent, even though oil took a dive. That’s good news for the Canadian dollar and economy.

July 28 (Bloomberg) — Canada’s dollar was little changed against its U.S. counterpart, after rising for seven straight days, as stocks and crude oil declined and traders speculated recent gains in the currency may have outpaced economic growth.

The Canadian currency, nicknamed the loonie, earlier touched the strongest level in almost 10 months before tumbling after a report showed U.S. consumer confidence dropped in July more than economists forecast.

The US dollar is continuing to take its noise dive downward. The way it has been currently working is that as the market showed improvement, the dollar went down. Basically people were dumping money into treasury bonds and the US dollar while things were looking bad, but now that the market is showing a little life the money is moving out of the dollar and into other investments. This is leading to the dollar declining and continuing to go down.

I suspect there will be a correction once we see a correction in the stock market because this rally seems over the top. People seem to think things are improving, but companies are merely beating overly pessimistic forecasts. And really that is only a guess on performance. Outperforming a guess doesn’t mean things are good. Profits are down year over date.

July 28 (Bloomberg) — The Dollar Index fell to the lowest level this year as investors bought higher-yielding assets on speculation improved earnings signal the recession is easing. Aluminum rose for an 11th day, leading a rally in metals.

The U.S. currency declined as much as 0.9 percent versus the Australian dollar and 0.5 percent against the New Zealand dollar as of 10:48 a.m. in London. Stocks in Europe fluctuated between gains and losses, leaving the Dow Jones Stoxx 600 Index little changed. The MSCI World Index of 1,654 companies in 23 developed nations added 0.3 percent, extending the best winning streak since June 2003.

“With the risk-appetite switch jammed on, pressure on the dollar and the yen continues to mount,” Steve Pearson, a strategist at Bank of America Securities in London, wrote in a note today. “The move is being led by the commodity block.”

More than half of the 86 companies in Europe’s Dow Jones Stoxx 600 Index that reported results since July 8 have beaten analysts’ predictions, according to data compiled by Bloomberg. Companies in the Standard & Poor’s 500 Index have beaten estimates by an average of 11 percent. The U.S. economy probably shrank at a 1.5 percent pace in the second quarter, following a 5.5 percent contraction in the first three months, according to the median forecast of 66 economists surveyed by Bloomberg News.

The Dollar Index, which tracks the U.S. currency against six peers including the yen, pound and Swedish krona, fell to 78.315 today, the lowest level since Dec. 18.

The Canadian dollar has been on a rather large positive move over the last two weeks. It has been able to gain back virtually all of the losses over the last few months. That’s pretty amazing since most of those gains came over 5 days of gains.

The loonie is outperforming 16 other currencies against the US dollar making it the best performing currency currently out there. The reason for this is that oil’s climatic drop has stopped and there is a lot of optimistic news coming out about the Canadian economy. Even businesses are looking to make money in the future, so things are looking at least positive in Canada.

July 22 (Bloomberg) — Canada’s dollar traded near the strongest in more than five weeks as U.S. stocks and crude oil, two of its main drivers, swung between gains and losses.

The loonie, as the currency is called for the aquatic bird on the dollar coin, is the best performer versus the U.S. dollar among the 16 most-traded currencies so far this month. In June it was the laggard. It tends to rise and fall with stocks and commodity prices as a proxy for investors’ appetite for risk.

“Commodity currencies are starting to lose momentum,” said Ian Stannard, a currency strategist in London at BNP Paribas SA, France’s biggest bank. “Caution with long positions is currently the way to play things.” A long position is a bet a currency will rise.

The Canadian currency appreciated 0.3 percent to C$1.1001 per U.S. dollar at 4:43 p.m. in Toronto, compared with C$1.1037 yesterday. It touched C$1.0951, the strongest since June 11, after falling earlier as much as 0.5 percent. One Canadian dollar buys 90.90 U.S. cents.

“A daily close below C$1.0920 is needed to accelerate U.S. dollar losses,” CIBC World Markets analysts Shane Enright in Toronto and Adam Fazio in New York wrote in a note to clients today. The recent U.S. dollar declines “favor an eventual move” toward C$1.0590, they wrote.

Crude oil for September delivery fell 0.5 percent to $65.31 a barrel in New York after tumbling as much as 2.8 percent and rising as much as 0.2 percent. Raw materials including oil account for more than half of Canada’s export revenue.

The Canadian dollar has been on the move for the last 7 days. It has been moving really fast. As you can tell, I was talking about it yesterday. There could be another way to sneak in and get a gain today. Or there could be a sell off. It’s hard to say.

The Bank of Canada is expected to speak today on the state of the economy, so everyone will be listening. I’m going to basically state what I think will be said. Basically they’ll have a very positive and optimistic look for the Canadian economy, but they’ll see a threat with the Canadian dollar advancing so fast.

It’s hard to gauge what they’ll do though. The central bank doesn’t want to get into the game of fixing currency prices or play in that game, but it is obvious that the economy in Canada can’t deal with huge fluctuations in currency since a huge part of their GDP comes from exporting raw material.

I guess time will tell on what will happen, but there has been big moves for the Canadian dollar and if things keep looking good for the Canadian economy we could see it continue to run up.

July 21 (Bloomberg) — The Bank of Canada will probably keep its benchmark interest rate at a record low today, and may say the strengthening Canadian dollar threatens a recovery that has been stronger than policy makers expected.

The target rate for overnight loans between commercial banks will stay at 0.25 percent in a decision due at 9 a.m. New York time, said all 23 economists surveyed by Bloomberg News. The central bank will probably reiterate a plan to keep that rate unchanged through June 2010, economists said.

“There is room to bring in a slightly more optimistic tone, but caution is the overarching theme,” said Stewart Hall, an economist at HSBC Securities in Toronto. “There is no interest in withdrawing stimulus anytime soon,” he said, because “there are gobs of excess capacity not only in the Canadian economy but the U.S. economy.”

Governor Mark Carney predicted in April the economy will shrink 3 percent this year, the most since 1933 during the Great Depression, and recent figures suggest the economy may soon expand again.

The economy will grow at a 1 percent annualized pace this quarter, said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, compared with the central bank’s April prediction of a 1 percent contraction. The median estimate of economists surveyed by Bloomberg is for a 0.5 percent expansion.

Economists surveyed by Bloomberg predict the economy will shrink by 2.4 percent this year, less than the 3 percent the Bank of Canada forecast last quarter.

The Canadian dollar has been really pushing up fast last week. It is already up to 90.5 cents US already today. That’s a pretty fast move considering just the other week it was at 85 cents US.

Personally, I’m not really sure how long this optimism will last. It just seems so stupid. Like stocks and currencies are moving on beating expectations, but if you put expectations low enough you’re bound to beat them. It doesn’t mean things are necessarily improving. The fact of the matter is the root cause is still in play. Banks still have toxic assets on their books. Foreclosures are actually growing and housing prices are still falling.

July 18 (Bloomberg) — Canada’s currency registered its first five-day increase since May, ending a six-week losing streak, as investors raised bets on higher-yielding assets on speculation the global recession is easing.

The Canadian dollar, which was the worst performer last month among the world’s most-traded currencies, strengthened 4.5 percent as crude oil and other commodities that historically benefit from economic recovery advanced. Raw materials account for more than half of Canada’s export revenue.

“You must remember what happened in June,” said Krishen Rangasamy, an economist in Toronto at CIBC World Markets Inc., a unit of Canada’s fifth-largest bank. “This is a recovery from those low levels. We’ve seen in improvement in optimism.”

Canada’s currency, known as the loonie for the aquatic bird on the one-dollar coin, appreciated to C$1.1134 per U.S. dollar in Toronto, from C$1.1638 on July 10. Its last weekly gain, a 2.6 percent increase, was posted May 29. One Canadian dollar buys 89.81 U.S. cents.

The loonie remained below an eight-month high it touched on June 1, C$1.0785, after gaining the most in May since 1950.

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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.