The 4Xlounge.com ‘Week in Review’ takes a look back at a number of the most significant economic reports that we have discussed over the course of the past week. Here we strive to create a narrative to better understand the fundamental forces that go to influence the long-term trends that develop in the Forex market.
On Wednesday evening Australia’s Unemployment Rate was reported to have risen to 5.2% from the previous month’s 5.1% level, which represents a general short-term trend to the upside that has emerged in Australia’s jobless rate over the course of the past few months. Taking into consideration the Reserve Bank of Australia’s (RBA) recent interest rate reductions, traders hope to see the Unemployment Rate reverse to the downside in search of confirmation that the now, lower rates are helping to stimulate their domestic economic conditions. However if the jobless rate continues to rise in the months to come, traders may conversely begin to anticipate even lower rates in the time to come.
Just a few hours later the Bank of Japan (BOJ) met as it was announced their key benchmark interest rate would remain near record lows for another month. Historically the JPY currency tends to represent a ‘safe-haven’ of investment capital during times of duress in other economies. Therefore traders may anticipate many “JPY crosses” such as the USD/JPY and AUD/JPY to rise as global economic conditions improve, and decline accordingly as well.
On Friday in Switzerland the Producer and Import Price Index (PPI) on a month-over-month basis was reported to have declined at a rate of –0.3% following the previous month’s –0.2% level. As this barometer of the Swiss economy has continued to decline at a steady rate of the course of several months, traders may interpret this as a sign that the Swiss National Bank (SNB) is even further away from increasing borrowing costs.
Later on the same day in the US the Producer Price Index also on a month-over-month basis rose at a rate of 0.1% following the previous month’s decline of –1.0%. Although a positive development, we can see today’s report shows that Producer Prices are barely in positive territory, and must surely rise higher before there is a real expectation of an improving (US) economy and higher domestic interest rates.
Looking back over the course of this week, as the Fed published the minutes of their most recent meeting in June revealed that the economic conditions are not necessarily improving in the US, and while the Fed has left the door open for further stimulus efforts such as Quantitative Easing III, this may not occur in the foreseeable future, at least unless economic conditions deteriorate much further. These poor economic conditions are not contained solely within the US. While the Unemployment Rate in Australia unexpectedly rose and the Bank of Japan maintained interest rates at record lows, the most recent Swiss and US inflation data shows a decline or at the best a very small degree of growth. To the Forex trader we may use this information to position our accounts accordingly, in the same direction as the long-term trends that are well underway. This also provides us with the ability to constantly evaluate economic conditions and spot early signs of a change in the fundamental trend that will eventually result in a chart reversal.