20:00 GMT (Global-View.com) Sep 23- Thursday was an eventful session. The focus of trade has changed since the FOMC policy statement on Tuesday. The Fed opened the door to another round of quantitative ease (QE2) should the economy not improve. As a result the markets, are now acutely aware of data releases and what they imply for future policy. All year, weekly jobless claims have been the best barometer of the economy, and they unexpectedly increased in the latest week, while previous claims were revised higher. Bottom-line they have shown no improvement from December of last year. Existing homes sales improved modestly from a sharp decline two months earlier. If the economic data remain on this track additional QE is inevitable.
Something difficult to predict in the current environment is the market reaction to news. Since all the markets have become much more tightly interconnected than ever before, traders have to figure out how equities, fixed income markets, commodities etc are going to react to a piece of news. Clearly all will have to be watched.
Following poor flash manufacturing and service PMI data on Thursday from the E-Z, the major focus Friday will be on the German IFO data early in the day. U.S. data due later will be another key piece of the puzzle.
UPCOMING DATA HIGHLIGHTS Far East will see no major data on Friday. In Europe , the closely watched German survey will be released. In North America, the U.S.will release Durable Goods Orders and New Homes Sales are due.
The EURUSD is down on the day and the GBPUSD is up. The EURGBP cross is off. Traders are still watching the European sovereign debt situation.
In the GBP, markets are keeping an eye on the U.K. economy.
The USDCHF is steady and EURCHF is softer. The SNB strong stand in supporting the EUR against the CHF has waned after massive FX losses. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is unchanged 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 mixed vs. the USD. The Bank of Canada recently has been sending mixed policy signals. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, the RBA is likely to tighten in October. The RBNZ is now in a reduced tightening mode. Oil and gold are up. Gold is still favored as a refuge from paper money.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed mixed. European bourses were weaker. U.S. equities are down. The U.S. 10-yr was last 2.56%, 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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