20:00 GMT- July 21 (global-view.com) Forex trading hit the summer doldrums on Wednesday after position squaring started early in the week ran its full course. Once squared up, dealers moved to the sidelines ahead of key testimony by Fed Chairman Bernanke. In his comments, the Fed chief made no headlines. Curiously, it appears that some in the markets might have been expecting him to announce new actions. No professional analyst that we follow had been expecting anything from him. In the absence of fundamental news, forex markets are back following equities. Equities have been undermined by underlying numbers that suggest that the U.S. economy is slowing.
There is still a lot of lingering chatter about the European bank stress tests due at the end of this week. We would be surprised to see any market reaction as the results are being selectively leaked and are designed for banks to pass them. There are all sorts of questions about the tests as the credit standards are not being uniformly enforced within Europe. The BOJ warned again today that it is closely watching the USD. Another key focus of Forex Trading is on fixed income markets.
UPCOMING DATA HIGHLIGHTS: The Far East will see no major data Thursday. In Europe , EZ new industrial orders are due. In North America, the U.S.will see Weekly Jobless Claims and Natural Gas Inventories. Existing Homes Sales and Leading Indicators are slated. Canadawill see retail sales figures and the latest Bank of Canada policy report.
The EURUSD is now easier on the day and the GBPUSD is steady. EURGBP is up. Traders are maintaining a close watch on the European sovereign debt situation.
In the GBP, the U.K. new government is weak. A second election may not be far away. Our bias for the EURUSD and GBPUSD remains negative.
The EURCHF is has fallen. SNB intervention tactics are confusing. Periodically, the SNB has taken a strong stand in supporting the EUR against the CHF. Flows out of the EUR into the CHF remain an issue for the SNB. EURCHF is estimated to have resulted in EUR 8bln in forex losses for the SNB.
The USDJPY is down and the EURJPY cross is lower. While Japanese public finances are a mess, analysts point out that most JGBs are owned by Japanese, so Japan is not dependent on foreign investment. The government has been pressed the BOJ to promote growth and favors a lower exchange rate.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade continues to be turned on and off almost daily. As for the commodity currencies (CAD, AUD and NZD), they are up vs. the USD. The Bank of Canada raised interest rates again by 25bps. The BOC sent mixed signals afterwards. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, RBA is setting up for an August tightening. The RBNZ is also currently in a tightening mode. Oil and gold are mixed. Gold is still favored as as refuge from paper money. We have favored AUD, CAD, gold and oil recently, but doubts are creeping in as deflationary pressures mount.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed mixed to higher. European bourses are up. U.S. equities are up. The U.S. 10-yr was last 2.95%, 0 bps.
Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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Mon 23 July 2018 A 14:00 US- Existing Homes Sales Tue 24 July 2018 AFlash PMIs Wed 25 July 2018 A 08:00 DE- IFO Survey A 14:00 US- New Homes Sales A 14:30 US- EIA Crude Thu 26 July 2018 AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless A 12:30 US- Durable Goods Fri 27 July 2018 AA 12:30 US- GDP A 14:00 US- Final University of Michigan
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