Market Outlook Jan 10th to Jan 15th 2010

 

Fridays NFP report highlighted that our recovery with be long and bumpy. European unemployment has also just hit 10%, its highest since 1998. Having said that, I personally am not a fan of the theory that we will see a ‘double dip’ recession. I just think the Fed and other world Central Banks’ will not allow that to happen. Whether or not they will have any choice in the matter is debatable but they wont let things sink back into the abyss without some kind of a fight. We will see many bumps and more shocks on our way but i believe the recovery will largely sustain.

The Dollar

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I have never really been a fan of trading the dollar, i just feel there is too many disparate forces working on it and I have always found it hard to get a read on it. This is none more so than recently with a complete breakdown in its inverse correlation with equities, gold and crude. Having said that, i think we may well see further dollar strength against the Euro in particular, it really is a case of which economy is showing the better signs of at least stopping the bleeding, and it seems the market is convinced its the U.S. Fridays NFP number may just be a bump ahead of a continued dollar rebound near term. 

The Yen 

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Now, somewhere I feel a bit more comfortable, the Yen. Japans’ new finance minister on his first day on the job all but said he wanted a weaker yen. These types of noises have been coming out of Japan for a while now, a shocking about face from when the new govt came into power last year in apparent support of stronger yen. The markets reponse to this new jpy tact has been pretty muted thus far, which i personally have found frustrating. I do however believe real yen weakness is in the post, so i will try and prepare myself as much as possible for it. i.e looking at picking up swing long gbpyen, euryen and even usdyen positions on any sign of a large dip. A further reason why i am of the opinion of more yen weakness is that there has clearly been a pullback in interest in using the dollar as a funding currency for carry trades.. this should also help the yen down a weaker path as I remain relatively bullish on equities like I have been since the low 700s. 

China 

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Just thought i would make a note of Export/import numbers posted by China over the weekend. Exports rose 17.7% and imports climbed 56% year on year. Chinese imports are now at records levels, these types of numbers are supportive that this recovery is real and that China will continue to play an increasingly significant role in it and in the broader global economic picture going foward. 

 

Pattern based trading 

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After 3 months of a dearth of 30 minute patterns, they were back last week, making at least one trader very happy. I am hoping for many more of these in the coming weeks.. and will keep anyone in chat abreast of high probability scenarios. I will trade pretty much any 90% + pattern regardless whether or not it’s against my expectation of where a pair will ultimately end up. The yen crosses have been nice and volatile last week, but still largely range bound so it has made scalping based on these pattens relatively easy. 

 

The Week ahead 

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Pretty full calendar of U.S data ahead, Trade balance on Tuesday, Beige Book Wednesday and then all sorts of fun on Thursday & Friday, Retail Sales, import prices, jobless claims, business inventories, (and Friday) Empire Manufacturing, consumer prices, industrial production and Michigan consumer sentiment index. Plenty of Fed heads due out jaw boning as well throughout the week. 

 

Significant week for the Euro-zone too, French industrial production on Monday.. French business sentiment on Tuesday, French consumer prices on Wednesday. Clearly Thursday, though is the big one, German industrial production, & consumer prices followed by ECB rate decision and press conference. I don’t however see many surprises from Trichet and market response may well be subdued. We’ll see. Euro traders should also keep and eye on Greece, their debt issues have clearly been weighing on the Euro for some time now, the ECB has been putting pressure on Greece to tighten up fiscal policy.. The Greek government has said it will reduce its budget deficit from 13% to 3% by 2012! I dont think anyone is buying that yet, so its something we are just going to have to keep an eye on. There is also sovereign debt issues in Ireland, Spain, Portugal. I don’t think the EMU is under any threat , but we do need to be wary of debt and budget related negative news out of these countries as the market has been more than willing to sell the Euro off when faced with it. 

 

Site Update 

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I am working towards redesigning and rewriting the site and reinstating full live calls as soon as i can. I know I keep promising this, but I do intend to it, thanks for your patience and loyalty. I appreciate peoples loyalty and will try to as much as i can get some forward momentum back for VeriteFX. If you can think of anyway you can help or have any ideas for other ways we can progress, I am very keen to hear from you. The site is non-profit, a hobby and learning tool for me. Ok i will leave it like that. Have a good weeks trading, I will be in chat as usual and will make a concerted effort in getting these updates out every night. If you have any questions or ideas for what to put in the updates posts, please let me know. 

note: server was down overnight because the host had unplugged a router! seems ok now. apologies for that.

Thanks. 

Conal 

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fxr@veritefx.com