Forex Market Outlook 12/30/11
Let’s just get it over with! That’s what the markets are thinking when looking back at 2011. The S&P 500 stock index is finishing the year essentially flat, posting neither significant gains nor losses. If you are a stock market investor, perhaps you are just thankful to get out with your account in tact. But with Treasury yields near all-time lows, and traditional bank accounts not paying interest, what’s a person to do?
Well those of you reading this are probably already aware of the tremendous opportunities available in the forex market as an alternative to “traditional” investments. 2011 has been a tough year indeed and based on today’s information, next year doesn’t look to be much better.
The obvious overhang in the markets is the Euro debt crisis and the impact of a likely recession in the Euro zone and how it will affect the global economy and global banking system. Meanwhile, European banks are still very nervous so they are parking their cash at the ECB for fear about counter-party risk.
The Italian bond auctions were not well received, though yields were lower. There is an obvious penchant toward shorter-term maturities as there way too much risk to take a long-term view. So this saga may continue to play out not just in Italy but in the other debt-laden countries as well. This means we could see very choppy markets going forward, even if things appear to be getting better.
While there is not a lot of news today, the economic data in the US continues to show improvement, marked by the pending home sales figures yesterday that came in much higher than expected. Markets rebounded yesterday from the prior day’s sell-off, and this morning’s US open look to be positive.
Overnight, Japanese PMI figures came in at 50.2 vs. last month’s 49.1 which means that expansion is taking place. ‘50’ is the magic number for expansion vs. contraction. In China, Manufacturing PMI came in at 48.7 which was better than last month’s 47.7 which shows that contraction is slowing.
These figures helped push both the Aussie and Kiwi higher as did yesterday’s market rise, and the Aussie has traded back to pre-Wednesday levels. Yet the Euro and Pound are still lower, though the former is faring worse than the latter.
The Pound’s strength vs. the Euro is interesting considering that home prices in the UK fell for the first time in 4 months last night showing signs of economic contraction. What was interesting to note is that Wednesday’s sell-off was actually lead by the Pound and not the Euro, despite the fact that it was concerns from the Euro zone that caused the risk aversion. The thought behind that move was that UK bank exposure to the European debt was great and they do not have a seat at the table and would have to bail themselves out if a problem occurred.
The last thing the market is looking at is the release of the balance sheet from the Swiss National bank that will show their potential ability to continue to weaken the franc vs. the Euro as risk continues to emanate due to the debt crisis. If there is weakness in the balance sheet, then traders may try to challenge the SNB intervention.
But that’s really it for 2011. There is no scheduled data due out in the US today so today is likely to be a slow day. Then again, I said that on Wednesday.
Happy New Year to all and I wish you good trading in 2012!