Forex Go!

With all of the talk about the risk in the Euro zone from the debt crisis, the Euro is showing remarkable resiliency. This morning’s better than expected GDP figures confirm growth in the region, and next week’s meeting of EMU Finance Ministers could produce a long-awaited solution for the debt crisis that would assuage market fears.

Yesterday’s wild market ride that started the US session in risk-aversion mode completely reversed itself and actually finished higher with risk appetite trumping aversion. This morning, a continuation of that risk appetite is present to start the day, though it is unclear if that will remain heading into the weekend and after we get the US CPI data.

The inflation data due out later this morning should show higher than expected readings, though the data was compiled prior to the commodity price sell-off. But considering that the Fed discounts Food and Energy anyway, it will be interesting to se if the apologists invoke this excuse as to why things aren’t as bad as they seem.

Elsewhere, the UK GDP estimates finally hit the tape yesterday, and showed an expected decline from the prior month’s reading. This has put some mild pressure on the Pound, as the impact of the austerity measures starts to hit the economy.

So oil prices are back to $100, gold is comfortably above $1500 and stock markets are higher to start the day. The one anomaly if you can call it that, was the Nikkei which was lower overnight, thereby boosting the Yen on the inverse correlation play. So today can neither be classified as risk taking nor risk aversion, though the US CPI data could change that in a heart-beat.

In the forex market:

Aussie : The Aussie is mostly higher as the commodities have rebounded some. While the market does have a short-term memory, the fact that the RBA may be on hold for a while in terms of rate-hikes does not change the fact the Australia enjoys one of the highest interest rate differentials.

Kiwi : The Kiwi is mostly lower as some of the risk appetite in the market to start the day has abated and yesterday’s market action could be the exact opposite of what we see today ahead of the weekend.

Loonie : The Loonie is mixed this morning as oil prices are being counter-balanced by the CPI data expectations here in the US as any signs that the US economy could be slowing further would affect the Canadian economy.

Euro : Better than expected GDP is all we need to know about Euro price action this morning, as better than expected readings from both France and Germany pushed the overall Euro zone GDP growth to a quarterly gain of .8% vs. .6%, which drove the YoY figure to 2.5% vs. an expected 2.2%. This puts potential ECB rate hikes back on the table despite the debt crisis, and if a solution can be reached soon, than things may start looking up for the Euro.

Pound : The Pound is mostly lower as yesterday’s GDP estimate showed declining growth to .3% vs. last month’s reading of .5%. If the effects of austerity indeed do come through on the official numbers, than the BOE will feel justified despite the high inflation.

Dollar : This morning’s CPI data release will be interesting as it was compiled prior to the commodity price sell-off and therefore doesn’t include the recent lower prices we have seen. But since the Fed discounts the headline figure in favor of the core number, this may be a non-issue anyway. Michigan consumer confidence figures are also due out.

Yen : The Yen is showing strength this morning as the Nikkei sold-off last night in response to a report that some banks may need to write off the bad debt incurred due to the nuclear crisis. There is also talk that further BOJ easing could create bubbles in the marketplace which would eventually could further strengthen the Yen and not help weaken it.

What a difference a day makes! Yesterday was all doom and gloom to start the morning and today is peaches and cream! But seriously, it is amazing how market sentiment can shift on a moment’s notice and reminds us that things are never as bad or as good as they seem.

This brings us back to one of the basic tenets of forex trading: that you want to buy the currency of strong economies, and sell that of the weak ones. The balance between fundamentals and risk in the market can sometimes provide for tremendous short-term gains as both have the ability to change rapidly.

And that is the beauty of the forex market. It is the purest way to play to global economic situation hands down, for traders vote with their wallets as to whom they think is doing the best.

Isn’t it time you came to see what the excitement is all about?

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