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Forex News Top Stories Forex Market Outlook 11/16/11

Buy the dips and sell the rips.  That is exactly how one should navigate this forex market as headline risk from the Euro zone is countered by the US need for stock prices to go higher.  So the market action of late has been selling in the Euro session and buying in the US.

This has obviously left trend-traders and longer-term investors scratching their heads as there has been great range-bound volatility with no longer-term patterns emerging.  In short, take what the market gives you.

What we received overnight out of the UK was more of the same, as the BOE inflation report suggested that further stimulus was needed to ward off the effects of a Euro zone recession and that inflation would be back under 2%– in 2 years time!  What will happen in those two long years is anyone’s guess but it should be noted that they reported 5% headline inflation just yesterday.

And also speaking of inflation, the Euro zone reported in-line CPI data with the headline figure at 3% and the core figure of 1.6%, as was expected.

In the US, the headline figure came in lower than expected at 3.5% vs. an expected 3.7% and the core figure was expected at 2.1%.  Yet here we are with oil prices back up above $100 (see chart of the day) and all the talk is that we are facing further recession.

Inflation is coming folks despite Central bank efforts to help economic recovery.  Stagflation is actually more likely and is exactly what the UK is experiencing right now.  The unemployment rate in the UK ticked higher to 8.3% vs. an expected 8.2% as only 5300 jobs were added vs. a pipe-dream hoped for expectation of 21K.

Let’s remember, these data points are backward looking and do not forecast the future, so in the grand scheme of things they are pretty immaterial other than talking points that allow Central bankers to point their policies as not being destructive.  One does not need to be a rocket scientist to know that as oil prices go, so goes everything else as the cost to produce and transport are greatly impacted by energy costs.

Perhaps its time to throw another $500 billion at failed solar companies to relieve the pain?  But seriously, the problem is the Fed and cheap money policy trying to offset the disaster that is fiscal policy here in the US.  Every day the news that the super-committee may fail becomes louder and louder thereby making their failure a foregone conclusion.

Meanwhile, don’t think that I’m going to ignore the European crisis that is now spreading to the banks that own a lot of this bogus sovereign debt.  The bond vigilantes are in full-force as I mentioned yesterday and are selling out of this junk causing yields to rise and making financing costs nearly impossible to service.

The failure of the ECB to step in as the buyer of last resort and their daily attempts at meekly purchasing some of the Italian and Spanish debt are pathetic at best.  If they want the Euro zone to continue, they need to make a forceful statement that they will step in and buy to provide confidence to otherwise fearful market.

The new governments in both Greece and Italy face political challenges and it will be interesting to see if they can garner enough support to enact the measures that are necessary to save themselves. 

In other words, just another ordinary day in the forex market!