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Trading News Report

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EUR/USD: Trading the European Central Bank Interest Rate Decision

Thu, Apr 2 2009, 06:17 GMT
by Daily FX Research Team

DailyFX

Trading the News: European Central Bank Rate Decision

What’s Expected

Time of release: 04/02/2009 11:45 GMT, 07:45 EST

Primary Pair Impact : EURUSD

Expected: 1.00%

Previous: 1.50%

Impact the European Central Bank Rate Decision has had on EURUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Mar 2009	03/05/2009 11:45 GMT	1.50%	1.50%	-37	12
Feb 2009	02/05/2009 12:45 GMT	2.00%	2.00%	-72	-19

March 2009 European Central Bank Rate Decision

The European Central Bank lowered the benchmark interest rate by 50bp in March to a record low of 1.50% in an effort to mitigate the downside risks for growth and inflation. As the euro-region faces its worst recession in over half a century, economic activity across the 16-nations operating under the single-currency has weakened considerable, and as ECB President Trichet continues to reinforce his reluctance to over shoot the interest rate, the policy stance help by the central bank could prolong the downturn in Europe as the board underestimate the depth of the financial crisis. Moreover, market participants have argued that the central bank needs to adopt additional tools to soften the landing of the economy, and that the ECB’s sit-and-wait approach could pose a threat to long-term stability as the central bank fails to realize the severity of the recession.

February 2009 European Central Bank Rate Decision

ECB President Trichet and Co. held the key interest at the record-low of 2.00% in February, which was in-line with expectations, but is likely to cut borrowing costs further in March as economists forecast the euro-region to face its worst economic downturn since World War II. The lack of urgency in President Trichet’s policy to restore confidence in the economy has spurred criticism that the central bank has done too little too late, and that they are failing to realize the severity of the recession. Nevertheless, the central bank head signaled that the board may lower rates by 50bp in March to 1.50%, which would be the lowest level since the euro was introduce in 1999.
Meanwhile, Mr. Trichet remained reluctant to over shoot the interest rate even as the IMF expects the annual rate of growth to contract 2.0% this year, stating that zero rates are not ‘appropriate at this stage.’

What To Look For Before The Release

Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.

How To Trade This Event Risk

The European Central Bank is widely expected to lower the benchmark interest rate by 50bp to a record-low of 1.00% as the outlook for growth and inflation falter. A Bloomberg News survey shows that 49 of the 55 economists polled forecast the central bank to lower borrowing costs further as the region faces its worst economic downturn in over half a century however, as ECB President Trichet remains reluctant to over shoot the interest rate, the board may implement new tools to stimulate the ailing economy rather than cutting the rate further as the central bank avoids being stuck in a ‘liquidity trap.’ As the board contemplates the adverse effects of a zero interest rate policy and struggle to meet on common ground, market participants speculate that policymakers could opt to extend the maturity of its refinancing programs for banks in an effort to restore confidence in the financial markets, while ECB Vice-President Lucas Papademos said that the central bank could purchase ‘private debt securities in the secondary market in order to improve its liquidity.’ On the other hand, some have argued that the ECB will ultimately adopt policies in-line with the Fed and the Bank of England as the downturn in the global economy intensifies, while others see the possibility for the central bank to purchase Eastern European currencies in an attempt to stem the systematic risks for the Euro-Zone economy. Meanwhile, as the Organization for Economic Cooperation and Development expects economic activity in the region to contract 4.1% this year and forecasts inflation to grow at an annualized pace of 0.6%, the group has called for the ECB to lower rates quickly and to purchase securities through open market operations in order to drive up the money supply, and went onto say that the governments in the region should expand their fiscal stimulus objectives to jump-start the economy. As a result, comments from President Trichet following the rate decision are likely to move the markets, and may help to shed some light for future policy however, if the central bank head fails to provide a concrete plan to counter the downturn in the economy and focuses on implementing the extraordinary measures already taken by the board, fears of a deepening recession paired with the weakening outlook for price growth is likely to weigh on the exchange going forward. At the same time, if the ECB concludes its easing cycle, and provides a sturdy outlook for future policy, a rise in market sentiment could boost demands for the single-currency.

Trading the given event risk may not be as clear cut as some of our other trade but nevertheless, as market participants expect the ECB to conclude its easing cycle and anticipate the central bank to hold the benchmark interest at the record-low of 1.00% over the medium-term, long-term expectations for higher interest rates could spark a rally in the euro. Therefore, we will look for a green, five-minute candle following the release to consider a buy entry on two lots of EUR/USD however, we would recommend wait for further confirmation before entering the position as President Trichet holds the Q&A session at 12:30 GMT. If market conditions pave the way for a long euro trade, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in an effort to preserve our profits, we will move the stop on the second lot once the first trade reaches its target.

On the other hand, as the outlook for growth and inflation remains bleak, increased risks for deflation could warrant another rate cut by the ECB, and if President Trichet drops his reluctance to lower the benchmark interest rate further, we would certainly favor a bearish forecast for the euro. As a result, if the central bank head reinforces expectations for lower borrowing costs, we will look to sell the single-currency, and will follow the same strategy for a short euro-dollar trade as the long position mentioned above, just in reverse.

Published on Thu, Apr 2 2009, 06:17 GMT

EUR/USD: Trading the U.S. ISM Manufacturing Report

Wed, Apr 1 2009, 06:33 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. ISM Manufacturing

What’s Expected

Time of release: 04/01/2009 14:00 GMT, 10:00 EST

Primary Pair Impact : EURUSD

Expected: 36.0

Previous: 35.8

Impact the U.S. ISM Manufacturing has had on EURUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	03/02/2009 14:00 GMT	33.8	35.8	-6	-19
Jan 2009	02/02/2009 15:00 GMT	32.5	35.6	18	248

February 2009 U.S. ISM Manufacturing

The ISM report showed that manufacturing in the U.S. contracted for 13 consecutive months in February, but fell at a slower pace from the previous month as the index increased to 35.8 from 35.6 in January. The breakdown of the report showed new orders ticked lower to 33.1 from 33.2, while the employment component slipped to 26.1 from 29.9, which is the lowest since recordkeeping began in1948, and the data continues to foreshadow a deepening recession in the world’s largest economy as the labor market deteriorates at a record pace. As households continue to face falling home prices paired with fading demands for employment, the outlook for private-spending remains weak, and conditions are likely to get worse as firms continue to cut back on production and investment in response to the downturn in global trade.

January 2009 U.S. ISM Manufacturing

Manufacturing activity in the U.S. dropped at a slower pace in January after falling to its weakest level in 28-years during the previous month, and economic activity in the region is likely to remain subdued in the months ahead as businesses continue to face fading demands from home and abroad. The ISM index increased to 35.6 from a revised reading of 32.9 in December as new orders increased to 33.2 from a record-low of 23.1 in the previous month. A deeper look at the report showed that new export orders increased to 37.5 from 35.5, while inventories slipped to 37.5 from 39.6, which is the lowest since July 2001, and conditions are likely to get worse throughout the first half of the year as the world’s largest economy faces its longest recession in over a quarter century. As turmoil in the banking sector intensifies while the outlook for growth and inflation falter, the Fed is likely to step up its efforts as policy makers attempt to steer the economy out of a deepening economic downturn.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Manufacturing activity in the U.S. is expected to contract for the fourteenth consecutive month in March as businesses face fading demands from home and abroad however, the data could foreshadow a stabilizing market as economists forecast the ISM index to increase to 36.0 from 35.8 in February. The final GDP reading for the fourth quarter showed that the world’s largest economy grew at its slowest pace since 1982 as personal consumption, one of the biggest drives of growth, plunged 4.3% from the previous quarter to mark its worst slump since record keeping began in 1947, and business may continue to cut back on production and investments as private-sector demands falter. As a result, factory orders fell for the sixth month in January as demands slipped another 1.9% after falling 4.9% in December, while wholesale sales plunged four times faster than stockpiles in January, and the data continues to emphasize the dire state of the economy as businesses slash their inventories at a record pace in an effort to reduce costs. Moreover, industrial outputs in February plunged 11% from the previous year, which is the biggest drop since 1975, while vehicle sales slipped to 9.1M during the month to reach its lowest level since 1981, and households are likely to curb their temperament for spending as they face a weakening labor market. On Friday, we are likely to see the annual rate of unemployment surge to a 25-year high as non-farm payrolls are expected to fall another 659K in March, and the ISM’s employment component could reinforce fears of a deepening downturn in the labor market if the gauge slips below 26.1, which is the lowest since the series began in 1948. Nevertheless, Fed Chairman Ben Bernanke spurred hopes for a swift recovery during an interview earlier this month, stating that ‘the recession will probably end this year and the economy will expand in 2010’as policy makers take unprecedented steps to stimulate the ailing economy however, the Organization for Economic Cooperation and Development said that the top 30 industrialized nations of the world will contract 4.3% this year and forecasts a 0.1% decline in 2010, and went onto say that ‘macroeconomic stimulus is also critical to cushion the fall in aggregate demand as the downturn in the global economy accelerates. Meanwhile, as G20 leaders hold a summit in London this week in response to the financial crisis, hopes for coordinated action by policymakers paired with support for a new reserve currency could weigh on the U.S. dollar however, if the group utterly fails to meet on common ground, a rise in risk aversion would bolster the greenback as it continues to benefit from its safe-haven status.

Ongoing weakness in manufacturing favors a bearish outlook for the U.S. dollar as growth and inflation falter however, an enhanced ISM report paired with a rebound in the employment would certainly set the stage for a long dollar trade for the given event risk. Therefore, if the index rises to 36.5 or higher with all of the sub-components increasing, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in an effort to preserve our profits.

On the other hand, fading demands from home and abroad paired with expectations for further weakness in the global economy could weigh on business, and a drop in the index would lead us to short the greenback. As a result, if the ISM falls to 35.6 or lower, we will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.

Published on Wed, Apr 1 2009, 06:33 GMT

EUR/USD: Trading the Change in the German Unemployment Report

Tue, Mar 31 2009, 05:47 GMT
by Daily FX Research Team

DailyFX

Trading the News: German Unemployment Change

What’s Expected

Time of release: 03/31/2009 07:55 GMT, 03:55 EST

Primary Pair Impact : EURUSD

Expected: 52K

Previous: 40K

Impact the German Unemployment Change has had on EURUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/26/2009 08:55 GMT	60K	40K	21	18
Jan 2009	01/29/2009 08:55 GMT	30K	56K	-11	-73

February 2009 German Unemployment Change

The German labor market weakened for the fourth consecutive month in February as unemployment increased 40K to 3.31M.
The data foreshadows a deepening recession throughout the region, and the outlook for growth and inflation remains bleak as trade conditions falter. Fading demands from home and abroad has certainly taken a toll on businesses throughout the fourth quarter, and firms may continue to cut back on production and employment as the downturn in the global economy intensifies. Meanwhile, the International Monetary Fund said that they expect Germany to contract 2.5% in 2009, which would be the biggest drop in growth since World War II, and as a result, the European Central Bank is widely expected to lower the benchmark interest rate by 50bp in March to a record-low of 1.50% after holding rates steady this month as policy makers attempt to stimulate the ailing economy.

January 2009 German Unemployment Change

German unemployment surged 56K to 3.27M in January, which raised the jobless rate to 7.8% from 7.7% in the previous month, and conditions are likely to get worse as the government expects the annual rate of growth to contract 2.25% this year. Despite the weakening outlook for Germany, Chancellor Angela Merkel said that Europe’s largest economy is ‘fundamentally strong,’ and remains hopeful that economic activity will recover by the second-half of the year as the government provides a second-round of fiscal stimulus to jump-start the economy. Moreover, the European Central Bank is expected to ease policy further next month as the outlook for growth and inflation falter however, as President Trichet remains reluctant to overshoot the interest rate, he said that the next ‘important’ board meeting will be in March, which suggests that policy makers may keep rates on hold in February as they continue to weigh the risks for long-term stability.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The German labor market is expected to weaken for the fifth consecutive month as economists forecast unemployment to rise another 52K in March, and conditions are likely to get worse throughout the first half of the year as Europe’s largest economy faces its worst recession in more than half a century. The final GDP reading for the region showed that the annual rate of growth contracted 2.1% in the fourth quarter, which was the largest drop since 1987, as exports plunged 7.2% during the period, and the outlook for growth and inflation remains bleak as trade conditions falter. Industrial outputs tumbled 7.5% in January, which is the biggest drop since recordkeeping began in 1991, while factory orders plunged 38% from the previous year to mark the biggest decline since recordkeeping began in 1991 as foreign demands plunged 4.4% during the same period. Moreover, the IFO business confidence survey fell to 82.1 from 82.6 in February, which is the lowest reading since the series began in 1982, while retail spending unexpectedly dropped 0.6% in January, and firms are likely to turn increasingly pessimistic towards the economy as demands from home and abroad falter. Meanwhile, as the European Central Bank forecasts economic activity within the euro-region to contract between 2.2%-3.2% this year and projects price growth to ‘remain well below 2% in 2009 and 2010,’ fears of a deepening recession has raised bets for a 50bp rate cut to a record-low of 1.00% this week as growth and inflation falter however, as President Trichet continues to emphasize his reluctance to overshoot the interest rate and expects the economy to recover in the second-half, the optimistic outlook held by the central bank head could drag on the outlook for long-term stability as market participants argue that the ECB continues to underestimate the depth of the economic crisis in the global economy. Nevertheless, a Bloomberg News survey shows that 49 of the 55 economists polled forecast the central bank to lower borrowing costs by another 50bp on Wednesday as price pressures deteriorate, fundamental headwinds paired with fading demands for higher-yielding assets are likely to weigh on the exchange rate over the week.

Trading the given event risk clearly favors a bearish outlook for the single-currency as the jobless rate in Germany is anticipated to push higher however, an enhanced labor report would certainly set the stage for a long euro-dollar trade following the release. Therefore, if unemployment rises 30K or less in March, we will look for a green, five-minute candle following the release to generate a buy entry on two-lots of EUR/USD. Once this conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, as businesses continue to cut back on spending and production in response to the downturn in the global economy, weakening trade conditions paired with fears of a deepening recession could lead firms to slash their labor force as economic activity in the region deteriorates at a record pace. As a result, an in-line print or a rise of more than 52K in unemployment would lead us to short the euro, and we will follow the same strategy for a short euro-dollar trade as the long position listed above, just in reverse.

Published on Tue, Mar 31 2009, 05:47 GMT

EUR/USD: Trading the Euro−Zone Economic Confidence Report

Mon, Mar 30 2009, 05:53 GMT
by Daily FX Research Team

DailyFX

Trading the News: Euro-Zone Economic Confidence

What’s Expected

Time of release: 03/30/2009 12:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: 65.8

Previous: 65.4

Impact the Euro-Zone Economic Confidence has had on EURUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/26/2009 10:00 GMT	68.5	65.4	-18	-8
Jan 2009	01/29/2009 100:00 GMT	65.4	68.9	24	-83

February 2009 Euro-Zone Economic Confidence

Economic sentiment in the Euro-Zone unexpectedly slipped to 65.4 from a revised reading of 67.2 in January, which is the lowest reading since recordkeeping began in 1985, and the data reinforces a dour outlook for the region as growth prospects deteriorate at a record pace. Weakening fundamentals paired with increased turmoil in the banking sector continues to weigh on households and business, and as the outlook for growth and inflation falter, fears of a deepening recession could lead the European Central Bank to step up their efforts as the region is expected to face its worst economic downturn since World War II. As a result, market participants anticipate the ECB to lower borrowing costs by another 50bp in March as households and businesses turn increasingly pessimistic towards the economy, and may adopt unconventional tools to stimulate the ailing economy as the interest rate falls close to zero.

January 2009 Euro-Zone Economic Confidence

Confidence in the Euro-Zone fell to a record low of 68.9 from a revised reading of 70.4 in December, and conditions are likely to get worse as the International Monetary Fund forecasts the annual rate of growth to contract 2.0% this year. Rising unemployment paired with fading demands from home and abroad has certainly dragged on the economy throughout the second half of 2008, and the outlook for growth and inflation remains bleak as trade conditions falter. The data continues to reinforce fears of a deepening downturn in the region, and the European Central Bank is expected to lower the benchmark interest further in the months ahead as price pressures alleviate.
ECB President Trichet said that price growth could reach ‘very low levels’ by the middle of the year, and as the central bank maintains its one and only mandate to ensure price stability, the board may continue to ease policy further as the downside risks for inflation intensify.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Economic confidence in the Euro-Zone is expected to improve in February as policymakers step up their efforts to restore confidence in the financial markets however, as the region faces its worst economic downturn in over half a century, fears of a deepening recession could weigh on households and businesses as the outlook for growth and inflation falter. The preliminary GDP reading for the euro-region showed that the economy contracted 1.5% in the fourth quarter, which was the biggest drop since recordkeeping began in 1995, while the annual rate of growth slipped to -1.3% from an initial estimate of -1.2% to mark its first full-year contraction.
The breakdown of the report showed that household spending plunged 0.9% from the previous quarter, which is the biggest drop in consumption on record, and was followed by a 2.7% drop in business investments. In addition, industrial outputs in January dropped 17.3% from the previous year to mark its largest decline since comparable records began in 1986, and conditions are likely to get worse as trade conditions falter. A report by the European Union showed that the Euro-Zone’s trade deficit widened to 5.5B in January from a revised reading of 1.7B in the previous month as exports to the U.S., the nation’s second-largest trading partner, fell the most in five-years, while private spending declined for the eighth consecutive month in January, and the data continues to reinforce a dour outlook for the economy as growth prospects deteriorate at a record pace. Despite fears of a deepening recession, European Central Bank President Trichet continued to emphasize his reluctance to overshoot the interest rate during an interview with the Wall Street Journal, but went onto say that the board will ‘continue to do whatever we think optimizes our situation’ as the region faces its worst economic downturn since World War II. As result, market participants expect the ECB to continue its easing cycle in April, and Bloomberg News survey shows that 42 of the 50 economists polled forecast the central bank to lower the benchmark interest rate by 50bp to a record-low of 1.00%. Nevertheless, as risk trends continue to dictate price action in the currency markets, a rise in risk appetite would boost the appeal of the euro as investors move into higher-yielding assets.

Expectations for a rebound in confidence favors a bullish forecast for the single-currency, and a significant improvement in sentiment would certainly set the stage for a long euro-dollar trade for the given event risk. Therefore, if the index rises to 66.0 or higher, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, fears of a deepening recession paired with increased turmoil in the banking sector are likely to weigh on households and businesses, and a drop in economic sentiment would lead us to sell the euro as the outlook for growth and inflation falter. As a result, if the index falls to a fresh low, we would look to short the single-currency following the release, and will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.

Outlook for Growth Improves - Stronger Than Expectations

Confidence Falters – Lower Than Expectations

Published on Mon, Mar 30 2009, 05:53 GMT

NZD/USD: Trading the New Zealand GDP Report

Fri, Mar 27 2009, 06:10 GMT
by Daily FX Research Team

DailyFX

Trading the News: New Zealand Gross Domestic Product

What’s Expected

Time of release: 03/26/2008 21:45 GMT, 17:45 EST

Primary Pair Impact : NZDUSD

Expected: -1.1%

Previous: -0.4%

Impact the broad New Zealand growth report had on NZDUSD over the last 2 quarters


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q 2008	12/22/2008 21:45 GMT	-0.5%	-0.4%	2	5
2Q 2008	09/25/2008 22:45 GMT	-0.5%	-0.2%	48	26

3Q 2008 New Zealand Gross Domestic Product

The third quarter GBP report for New Zealand showed that the annual rate of growth contracted another 0.4% after falling 0.2% in the previous quarter, and conditions are likely to get worse as the economy faces its first recession in a decade. As a result, RBNZ Governor Alan Bollard is widely expected to lower the official cash rate by 50bp to a record-low of 4.50% next month in an effort to stimulate the ailing economy, and may continue to ease policy further over the medium-term as trade conditions falter. Despite the weakening outlook for growth and inflation, Governor Bollard said that he expects the economy to recover in the second half of 2009 as a result of the extraordinary efforts taken on by the central bank however, as households and business face a deepening economic downturn, policy makers could be forced to step up their efforts as they attempt to steer the economy out of the recession.

2Q 2008 New Zealand Gross Domestic Product

Despite signaling a technical recession, the 2Q GDP reading of -0.2% was better than the -0.5% that was expected. The New Zealand economy continues to be impacted by freefalling commodity prices and the global slowdown. Although the growth numbers surprised to the upside they did little to change expectations that the RBNZ would lower rates again in October. Indeed, consumer confidence fell to a 17 year low in the second quarter as soaring food and energy prices sapped purchasing power and the economic outlook dimmed.
Therefore, expectations that domestic growth would weakened has raised expectations that the central bank would need to cut rates further. Yet, the better than expected growth number was enough to spark bullish price action and lead to at least 25 points in profit.

What To Look For Before The Release

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the NZD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on NZDUSD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the NZD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on NZDUSD ahead of the data release.

How To Trade This Event Risk

The New Zealand dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast the GDP report to show a 1.1% contraction in the fourth quarter, which would be the biggest drop in growth since the first quarter of 1991. Fading demands from home and abroad has certainly dragged on the region throughout the second half of 2008, and as the $128B economy faces its worst recession in over a quarter century, the outlook for growth and inflation remains bleak. Private-sector spending, which accounts for more than half of the economy, slipped another 0.6% after falling 0.9% in the third quarter to mark the fourth consecutive quarterly decline in 2008, which is the worst slump since recordkeeping began in 1995, and as a result, manufacturing activity held flat in the same period, while business confidence dropped to -41.2 from -35.0 in January to reach the second-worst reading on record. Moreover, a report by Statistics New Zealand showed that the jobless rate surged to a five-year high of 4.6% from 4.2% in the third quarter, while private-wages in the region grew at a slower pace in the fourth quarter, and the data continues to reinforce a dour outlook for the isle-nation as households face fading demands for employment. Accordingly, the Reserve Bank of New Zealand lowered the benchmark interest rate by 50bp to a record-low of 3.00% earlier this month in an effort to jump-start the ailing economy, and may continue to ease policy further in the month ahead as economists forecast a global recession for this year. Nevertheless, comments by Governor Alan Bollard suggests that the central bank is nearing the end of its easing cycle as he sees the interest rate at a ‘very stimulatory’ level, and continued to reinforce expectations for an economic recovery in the second-half as he projects the economy to start growing in the third quarter. Despite the positive outlook held by the central bank head, trade conditions continue to falter, while credit markets remain under pressure, and the data foreshadows a deepening recession in the region as households and businesses turn increasingly pessimistic towards the economy. Meanwhile, a Bloomberg News survey shows that economists expect the RBNZ to lower the cash rate by another 25-50bp at the next board meeting in April, and expectations for lower borrowing could weigh on the exchange rate going forward however, the New Zealand dollar may continue to advance against its currency counterparts over the near-term as investors raise their appetite for higher-yielding assets.

Expectations for a 1.1% drop in the growth rate clearly favors a bearish outlook for the New Zealand dollar however, an enhanced GDP reading would certainly set the state for a bullish kiwi trade as investors boost their willingness to hold higher-yielding currencies. Therefore, if the growth rate falls 0.5% or less in the fourth quarter, we will look for a green, five-minute candle following the release to validate a buy entry on two-lots of NZDUSD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, as private-sector spending falters while trade conditions deteriorate, fears of a deepening recession are likely to weigh on the outlook for future growth, and a dismal GDP reading would certainly lead us to short the New Zealand dollar as the economy faces its worst economic downturn in over 30 years. As a result, an in-line print or a drop of more than 1.1% in the growth rate would lead us to sell the kiwi-dollar, and we will follow the same strategy for a short NZDUSD trade as the long position mentioned above, just in reverse.

Published on Fri, Mar 27 2009, 06:10 GMT

EUR/USD: Trading the U.S. 4Q GDP Report

Thu, Mar 26 2009, 05:55 GMT
by Daily FX Research Team

DailyFX

The final GDP reading for the U.S. is likely to reinforce a dour outlook for the world’s largest economy as economists forecast the annual rate of growth to contract 6.6% in the fourth quarter.

Trading the News: U.S. Gross Domestic Product (Annualized)

What’s Expected

Time of release: 03/26/2009 12:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -6.6%

Previous: -6.2%

Impact the U.S. GDP has had on EURUSD over the last 2 quarters


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q 2008	12/23/2008 13:30 GMT	-0.5%	-0.5%	-4	-65
2Q 2008	09/26/2008 13:30 GMT	3.3%	2.8%	-56	-21

3Q 2008 U.S. Gross Domestic Product

The final GDP reading for the U.S. showed that the economy contracted 0.5% in the fourth quarter, which was the biggest drop in growth since 2001, and conditions are likely to get worse as economists expect the world’s largest economy to face its worst recession in over a quarter century. The breakdown of the report showed that personal consumption plunged 3.8% from the previous quarter to mark the biggest decline since 1980, and the outlook for private-spending remains bleak households face a weakening labor market paired with falling home prices. Mounting growth fears paired with increased turmoil in the banking sector led the Federal Reserve to lower the benchmark interest to a record low of 0-0.25% earlier this month, and the central bank is expected to hold borrowing costs near zero for sometime as policy makers employ all of their available tools in an effort to steer the economy out of a deepening recession.

2Q 2008 U.S. Gross Domestic Product

The annualized growth rate for the U.S. slipped to 2.8% from an initial estimate of 3.3% as household spending grew at a slower pace in the second quarter. A deeper look at the GDP report showed that personal consumption fell to 1.2% from a preliminary reading of 1.7%, and the data foreshadows a dour outlook for growth and inflation as private-sector spending accounts for more than two-thirds of the economy. As households face a weakening labor market paired with tightening credit conditions, Fed Chairman Ben Bernanke warned that the outlook for private consumption is ‘sluggish at best,’ and pushed Congress to pass a $700B bank rescue plan as he saw ‘grave threats’ for the financial system. As the world’s largest economy is expected to face a deepening economic downturn paired with increased turmoil in the financial sector, the FOMC is likely to lower the benchmark interest rate next month in an effort to mitigate the downside risks for growth and inflation.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The final GDP reading for the U.S. is likely to reinforce a dour outlook for the world’s largest economy as economists forecast the annual rate of growth to contract 6.6% in the fourth quarter. Personal consumption, which is one of the biggest drivers of growth, is expected to fall 4.4% from the previous quarter as households face a weakening labor market paired with falling home prices, and economic activity is likely to deteriorate throughout the first half of the year as consumer confidence remains at its lowest level since records began in 1967. As firms struggle with fading demands from home and abroad, industrial outputs in February plunged 11% from the previous year to mark the biggest decline since 1975, while vehicle sales slipped to 9.1M during the month to reach its lowest level since 1981, and businesses may continue to cut back on production and employment as trade conditions falter. The data clearly highlights the dire state of the economy, and the outlook for growth and inflation remains bleak as market participants anticipate the U.S. to face its worst recession since World War II.
Meanwhile, after holding the benchmark interest rate at the record-low, the Federal Reserve announced that it would expand its balance sheet by up to $1.15T and would purchase nearly $300B in government debt in an effort to lower borrowing costs further, while the U.S. Treasury plans to purchase toxic assets in order to restore confidence in the financial markets, and the unprecedented steps taken on by the central bank and Secretary Geithner should help to soften the landing of the economy however, deteriorating fundamentals are likely to reinforce fears of a deepening economic downturn as the IMF and World Bank forecasts a global recession for 2009. Moreover, Fed Chairman Ben Bernanke spurred hopes for a speedy recovery during an interview earlier this month, stating that ‘the recession will probably end this year and the economy will expand in 2010’ if policy makers succeed in stabilizing the financial markets but nevertheless, as investors continue to weigh the viability of American institutions, a dismal growth reading could spark a rise in risk aversion, which would boost the appeal of the U.S. dollar as the reserve currency benefits from safe-haven flows.

Expectations for a downward revision in the GDP figure clearly favors a bearish forecast for the U.S. dollar however, an enhanced growth reading would certainly set the stage for a bullish dollar trade as market participants hold a dour outlook for growth and inflation. Therefore, if the final reading shows that annualized growth rate fell 6.2% or less in the fourth quarter, we will look for a red, five-minute candle to confirm a sell entry on two-lots of EURUSD. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, as private demands falter, economic activity is likely to fall further, and a dismal fourth quarter growth reading would certainly lead us to short the greenback as the world’s largest economy faces a deepening recession. As a result, an in-line print or a fall of more than 6.6% in GDP would lead us to sell the dollar following the release, and we will follow the same strategy for a long euro-dollar trade as the short position mentioned above, just in reverse.

Published on Thu, Mar 26 2009, 05:55 GMT

EUR/USD: Trading the US Durable Goods Orders Report

Wed, Mar 25 2009, 05:57 GMT
by Daily FX Research Team

DailyFX

Trading the News: US Durable Goods Orders

What’s Expected

Time of release: 03/25/2009 12:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -2.5%

Previous: -5.2%

Effects of US Durable Goods Orders on EURUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/26/2009 13:30 GMT	-2.5%	-5.2%	-20	90
Dec 2008	01/29/2009 13:30 GMT	-2.0%	-2.6%	2	-180

January 2009 US Durable Goods Orders

Demands for U.S. durable goods fell for the sixth consecutive month in January as orders plunged 5.2% after falling 4.6% in the previous month, and marked the worst slump since recordkeeping began in 1992. A deeper look at the report showed that orders for non-defense capital goods excluding aircrafts slipped another 5.4% after posting a 5.8% drop in the previous month, while demands for transportation equipments dove 13.5% during the month, and conditions are likely to get worse as households and businesses face a deepening economic downturn paired with tightening credit conditions. Nevertheless, as President Obama pledges to steer the economy out of the recession, the extraordinary efforts taken on by the Administration and the Federal Reserve should help to mitigate the downside risks for growth however, as trade conditions falter, fading demands from the global economy is likely to weigh on business spending.

December 2008 US Durable Goods Orders

Business spending in the U.S. fell for the fifth month in December as durable goods orders slipped another 2.6% to mark its worst slump since 1992. The breakdown of the report showed that demands for capital goods fell 1.1% during the month after falling 3.2% in November, while orders for transport equipment rose 0.6% after falling 9.8% in the previous month. The data continues to reinforce a dour outlook for the world’s largest economy as private-demands falter, and as global trade conditions falter, economic activity throughout the region is likely to deteriorate further as firms continue to cutback on production and employment in an effort to reduce costs. Nevertheless, as signs of a deepening recession emerge, the Fed is likely to hold the benchmark interest rate at the record low for some time, and is may adopt unconventional measures over the coming months in order to simulate the ailing economy.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The U.S. dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast demands for durable goods to contract another 2.5% in February as private-sector spending falters. The preliminary GDP reading for the fourth quarter showed that the annual rate of growth contracted the most since 1982, while personal consumption dropped 4.3% from the third quarter to mark the largest decline since 1980, and conditions are likely to get worse as households turn increasingly pessimistic towards the economy. A report by the Conference Board showed that consumer confidence fell to its lowest level since recordkeeping began in 1967, which foreshadows a weakening outlook for personal spending, and growth prospects for the world’s largest economy are likely to deteriorate throughout the first half of the year as the labor market weakens at a record pace. U.S. non-farm payrolls plunged another 651K in February following a 655K drop in the previous month, which marked the worst slump recordkeeping began in 1939, while the unemployment rate surged to a 26-year high of 8.1% from 7.6% in January, and the data continues to reinforce fears of a deepening recession as firms continue to cut back on production and employment in an effort to weather the economic downturn. Furthermore, industrial outputs in February slipped 11% from the previous year , which was the largest decline since 1975, while vehicle sales slipped to 9.1M during the same period, which is the lowest since 1981, and the outlook for growth and inflation remains bleak as households and businesses are expected to face the worst recession since 1946. Meanwhile, the Federal Reserve announced that it would expand its balance sheet up to $1.15T and would purchase nearly $300B in government debt after holding the benchmark interest rate at the record-low as credit conditions remain far from normal, and the unprecedented measures taken on by the board should certainly help to soften the landing of the economy however, as the World Bank forecasts a global recession for 2009, economic activity throughout the region is likely to weaken further as trade conditions deteriorate. Nevertheless, as risk trends continue to dictate price action in the currency market, a rise in risk appetite would certainly weigh on the U.S. dollar as investors increase their willingness to hold higher-yielding assets.

Trading the given event risk clearly favors a bearish forecast for the U.S. dollar as private demands falter however, an enhanced durable goods report would certainly set the stage for a bullish dollar trade following the release. Therefore, if orders falls less than expected (contracts 1.0% or less), we will look for a red, five-minute candle subsequent to the event to generate a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in an effort to preserve our profits.

Conversely, as households and businesses face a deepening recession, demands for durable goods are likely to fall further, and a dismal release would lead us to hold a bearish outlook for the greenback as economists forecast the world’s largest economy to face its worst economic downturn since 1946. As a result, an in-line print or a drop of more than 2.5% in orders would lead us to short the dollar, and we will follow the same strategy for a long euro-dollar trade as the short position mentioned above.

Published on Wed, Mar 25 2009, 05:57 GMT

GBP/USD: Trading the UK Consumer Price Index

Tue, Mar 24 2009, 05:48 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.K. Consumer Price Index

What’s Expected

Time of release: 03/24/2009 09:30 GMT, 05:30 EST

Primary Pair Impact : GBPUSD

Expected: 2.6%

Previous: 3.0%

Effects the U.K. Consumer Price Index had over GBPUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/17/2009 09:30 GMT	2.7%	3.0%	137	72
Dec 2008	01/20/2009 09:30 GMT	2.6%	3.1%	37	49

January 2009 U.K. Consumer Price Index

The U.K. consumer price index fell another 0.7% in January, which lowered the annual rate to a nine-month low of 3.0% from 3.1% in December, and the outlook for price growth remains bleak as the economy heads into a deepening recession. The breakdown of the report showed clothing and footwear led the decline as prices slipped 4.7% from December, while prices for alcohol and tobacco increased 1.9% during the month. The data continues to reinforce a dour outlook for growth and inflation as economic activity deteriorates at a rapid pace, and price pressures are likely to fall further as global commodity prices remain weak. As a result, BoE Governor Mervyn King said that the central bank may have to increase the money supply in order to keep prices from falling too far below the 2% target for inflation, and forecasts price growth to reach an annual rate of 0.5% by the end of 2010.

December 2008 U.K. Consumer Price Index

Consumer prices in the U.K. fell 0.4% in December to an annual rate of 3.1% from 4.1% to mark its biggest decline since 1997. A deeper look into the report showed that clothing and footwear led the decline as prices slipped 4.2% during the month as retailers slashed prices to lure potential shoppers, which lowered the core rate of inflation to a two-year low of 1.1% from 2.0% in November. As price pressures weaken at a rapid pace, the Bank of England is widely expected to lower the benchmark interest rate further in an effort to stimulate the ailing economy as the central bank maintain its dual mandate to ensure price stability while fostering economic growth, and may adopt a zero interest rate policy over the near-term as Europe’s second largest economy is expected to face its worst economic downturn since World War II.

What To Look For Before The Release

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on GBPUSD ahead of the data release.

How To Trade This Event Risk

Price growth in the U.K. is expected to fall further as economists forecast the consumer price index to fall to an annual rate of 2.6% from 3.0% in January, and as the outlook for growth and inflation falter, fundamental headwinds are likely to weigh on the British pound as market participants anticipate the region to face its worst recession since World War II. The preliminary GDP report for Great Britain showed that the annual rate of growth contracted 1.9% in the fourth quarter, which was the biggest drop since 1980, and as economic activity deteriorates at a record pace, price pressures are likely to weaken further as firms continue to lower the costs of goods in an effort to spur domestic demands. The producer price index fell to an annual rate of 3.1% from 3.5% in January, while the core rate of inflation slipped to 3.7% from a revised reading of 4.0% in the previous month, and the data foreshadows a deepening downturn in the economy as the Bank of England forecasts the annual rate of growth to contract 4.0% in the first quarter and projects price growth to reach 0.5% by the end of 2010. As the central bank hold a dour outlook for growth and inflation, policy makers are likely to employ all of their available tools to stimulate the ailing economy as the board maintains their dual mandate to ensure price stability while fostering economic activity. At the same time, we may see the BoE expand its policy for quantitative easing as the benchmark interest rate holds at a record low, and may extend its purchase to a broad array of assets in the months ahead as the MPC attempts to stem the risks for deflation. BoE Governor Mervyn King said that the unprecedented step taken on by the central bank was crucial ‘to keep inflation at target in the medium-term,’ and went onto say that the inflation outlook ‘provides a natural guide’ for monetary policy. Nevertheless, as the board sets up a three-month timeframe to carry out the new policy objectives, deteriorating fundamentals are likely to weigh on the exchange rate as economic activity weakens at a record pace however, a rise in risk appetite would certainly help to bolster the appeal of the British pound as investors turn bullish against higher-yielding assets.

Expectations for weaker prices certainly favors a bearish forecast for the British pound however, as global commodity prices creep higher with the Bank of England expanding the money supply, an enhanced CPI would set the stage for a long pound-dollar trade following the release. Therefore, if the CPI holds steady at an annual rate of 3.0% or falls to 2.9%, we will look for a green, five-minute candle subsequent to the event to confirm a buy entry on two lots of GBPUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account) and this risk will determine our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, fears of a deepening recession paired with increased turmoil in the global financial market is likely to weigh on economy, and as growth prospects deteriorates at a rapid pace, price pressures are likely to fall further as demands from home and abroad falter. As a result, an in-line print or a CPI reading below 2.6% would lead us to sell the British pound, and we will follow the same setup for a short pound-dollar trade as the long position listed above, just in reverse.

Price Growth Improves - Stronger Than Expectations

Increased Risks for Deflation – Lower Than Expectations

Published on Tue, Mar 24 2009, 05:48 GMT

USD/CAD: Trading the Canadian Retail Sales Report

Thu, Mar 19 2009, 05:49 GMT
by Daily FX Research Team

DailyFX

Trading the News: Canadian Retail Sales

What’s Expected

Time of release: 03/20/2009 12:30 GMT, 08:30 EST

Primary Pair Impact : USDCAD

Expected: 1.0%

Previous: -5.4%

Effect the Canadian Retail Sales had on USDCAD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	02/23/2009 13:30 GMT	-2.7%	-5.4%	-27	-4
Nov 2008	01/22/2009 13:30 GMT	-2.0%	-2.4%	34	-121

December 2008 Canada Retail Sales

Retail sales in Canada plunged 5.4% in December to mark its biggest decline since January 1991, and conditions are likely to get worse as the world’s eighth largest economy heads into a deepening recession. The breakdown of the report showed that gasoline receipts slipped another 11.7% after falling 15.1% in the previous month, while demands for building supplies fell 5.6% during the month, and was followed by a 3.7% drop in clothing sales. The data continues to reinforce a dour outlook for growth as households face a weakening labor market paired increased turmoil in the banking sector, and as a result, the Bank of Canada is widely expected to lower the benchmark interest rate by 50bp to a record low of 0.50% in an effort to jump-start the economy and may adopt unconventional policy tools to counter the recession as borrowing costs fall close to zero.

November 2008 Canada Retail Sales

Private spending in Canada fell at its fastest pace in over a decade as sales plunged 2.4% in November, and the outlook for economy remains bleak as Finance Minister Jim Flaherty expect the annual rate of growth to contract 0.4% in 2009. A deeper look into the report showed that the decline was driven by a 7.1% drop in auto sales, which was followed by a 14.9% contraction in gasoline receipts, while discretionary spending of clothing slipped another 0.2% after falling 2.0% in the previous month. The data suggests that the world’s eighth largest economy is headed into a deepening recession as economic activity deteriorates at a record pace, and the outlook for growth remains bleak as global trade conditions falter. As a result, the Bank of Canada is expected to continue its easing cycle over the coming months, and may adopt unconventional measures to stimulate the economy as the benchmark interest heads closer to zero.

What To Look For Before The Release

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCAD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCAD ahead of the data release.

How To Trade This Event Risk

A Bloomberg News survey shows that economists forecast retail sales in Canada to increase 1.0% in January even as demands dropped at a record pace in the previous month however, as households face a deepening recession paired with a weakening labor market, private-sector spending is likely to remain subdued throughout the first half of the year as the outlook for growth and inflation falter. The Canadian GDP report showed that the economy contracted 3.4% in the fourth quarter to mark its biggest decline since 1991, which was well below the Bank of Canada’s forecast for a drop of 2.3%, and conditions are likely to get worse throughout the first half of the year as the labor market deteriorates at a rapid pace. A report by Statistics Canada showed that the economy lost another 82.6K jobs in February after shedding 129.0K jobs in the previous, which was the biggest decline since comparable records began in 1976, and raised the annual rate of unemployment to a six-year high of 7.7% from 7.2% in December, which foreshadows a weakening outlook for private-spending as households face fading demands for employment. Moreover, a separate report showed that wholesales sales in the region fell the most since 2003 as demands drop 3.4% in December, and as the economic docket continues to reinforce fears of a deepening downturn in the region, policy makers may continue to lower borrowing costs and adopt additional policy tools to stimulate the ailing economy as the interest rate falls close to zero. As a result, BoC Governor Mark Carney dropped his opposition to use exceptional measures beyond the interest rate to shore up the economy, and said that the central bank stands ready to ‘provide additional monetary stimulus, if required’ through the use of credit and quantitative easing as policy makers employ all of their available tools to mitigate the downside risks for growth. Moreover, the board stated that they will hold the key rate ‘at this level or lower’ in an effort to jump-start the economy however, as the trade conditions deteriorate, weakening fundamentals are likely to weigh on the exchange rate going forward. Nevertheless, as risk trends continue to dictate price action in the currency market, the Canadian dollar is likely to hold its bearish trend against the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.

Expectations for a rebound in retail sales certainly favors a bullish outlook for the Canadian dollar, and an in-line print or a rise of more than 1.0% in household spending would set the stage for a short dollar-loonie trade. Therefore, with our expectations at hand, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of USDCAD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be base on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, as households face a weakening labor market paired with tightening credit conditions, private-demands are likely to weaken further as the economy faces a deepening recession, and a dismal sales report would certainly favor a bearish trade for the commodity currency. As a result, a drop of 0.2% or more in retail spending would lead us to short the loonie, and we will follow the same strategy for a long USDCAD position as the short trade mentioned above, just in reverse.

Published on Thu, Mar 19 2009, 05:49 GMT

EUR/USD: Trading the FOMC Interest Rate Decision

Wed, Mar 18 2009, 05:54 GMT
by Daily FX Research Team

DailyFX

Trading the News: FOMC Interest Rate Decision

What’s Expected

Time of release: 03/18/2009 18:15 GMT, 14:15 EST

Primary Pair Impact : EURUSD

Expected: 0.25%

Previous: 0.25%

Effect the FOMC rate decision had over EURUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	01/28/2008 19:15 GMT	0.25%	0.25%	-147	-96
Dec 2008	12/16/2008 19:15 GMT	0.50%	0.25%	202	217

The FOMC held borrowing costs at the record low in January, and said that the central bank has arranged to purchase ‘longer-term Treasury securities’ in an effort to ‘support the functioning of the financial market.’ The extraordinary efforts taken on by the MPC has inflated the Fed’s balance sheet by more than $1T, and the central bank expects the figures to say at a ‘high level’ as they attempt to jump-start the ailing economy. The minutes of the board meeting showed that Richmond Fed President Jeffrey Lacker was the only dissenter to oppose the new policy objectives taken on by the FOMC, and said that he prefers buying ‘Treasuries rather than through targeted credit programs.’ Meanwhile, the board also saw ‘some risk’ for deflation as they expect price growth to hold below the 2% target over the next two years, and may continue to expand the money supply at a rapid pace to stem the downside risks for inflation.

December 2008 FOMC Rate Decision

The Federal Reserve lowered the benchmark interest rate to a target range of zero and 0.25% for the first time in its history as they saw ‘substantial’ downside risks for growth, and went on to say that the central bank may keep borrowing costs at the record low ‘for some time’ as the economy faces its longest recession in over a quarter century. The committee said that they will consider ‘various quantitative measures’ in an effort to foster economic activity, and discussed setting near-term price targets in order to anchor the outlook for inflation. The FOMC did not present a growth forecast for 2009, but said that the Fed’s ‘balance sheet would need to be maintained at a high level’ as the central bank adopt a zero interest rate policy, and said that they ‘will employ all available tools’ as the MPC maintains their dual mandate to ensure price stability while supporting economic growth.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Federal Reserve is widely expected to hold the benchmark interest rate steady at the record low this month as policy makers attempt to steer the world’s largest economy out of a deepening recession, and may expand its purchases of asset-backed securities as the outlook for growth and inflation falter. The preliminary GDP reading for the fourth quarter showed that the annual rate of growth contracted the most since 1982, while personal consumption dropped 4.3% from the third quarter to mark the largest drop in private-spending since 1980, and conditions are likely to get worse as households turn increasingly pessimistic towards the economy. A report by the Conference Board showed that consumer confidence fell to its lowest level since recordkeeping began in 1967, which foreshadows a weakening outlook for personal spending, and growth prospects are likely to deteriorate further as the labor market weakens at a record pace. U.S. non-farm payrolls plunged another 651K in February following a 655K drop in the previous month - the biggest contraction since 1949 - and marked the worst slump in employment since recordkeeping began in 1939. As a result, the annual rate of unemployment surged to a 26-year high of 8.1% from 7.6% in January, and the data continues to reinforce fears of a deepening recession as firms continue to cut back on spending and employment in an effort to reduce costs. Meanwhile, falling price pressures continued to raise the risks for deflation as the core personal consumption expenditures price index slipped below the Fed’s 2% target to reach an annualized rate of 1.6% from 1.7% in December, and as the central bank expect price growth to remain subdued over the next two-years, policy makers could be forced to take an aggressive approach to shore up the economy as credit conditions remain far from normal. Nevertheless, Fed Chairman Ben Bernanke reinforced hopes for a speedy recovery during an interview on Sunday, stating that ‘the recession will probably end this year and the economy will expand in 2010’ if policy makers succeed in stabilizing the financial markets however, as investors continue to weigh the viability of U.S. banks, the FOMC may opt to step up its rate of purchase as the banking industry remains under pressure. Moreover, market participants have argued that the drop in the Fed’s balance sheet to $1.90T from $2.31T in December underscores fading demands for the central bank’s lending procedures currently in place, which could lead the board to shift into overdrive as they employ all of their available tools to avoid a deepening downturn in the economy. Despite the unprecedented measures taken on by the government and the central bank, as investors remain risk adverse, the U.S. dollar is likely to hold its bullish trend against its counterparts over the near-term as the reserve currency continues to reap the benefits of its safe-haven status.

Trading the given event risk may not be as clear cut as some of our other trades as investors expect the Fed to hold rates steady however, commentary following the rate decision is likely to spark volatility in the U.S. dollar as market participants weigh the effectiveness of the new policy. Therefore, if the FOMC fails to expand its rate of purchases, we should see a rise in risk aversion as investors remain skeptical of the central bank’s approach to stimulate the economy, and will look for a red, five-minute candle following the release to generate a sell entry on two lots of EURUSD. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, mounting turmoil in the banking sector paired with a dour outlook for growth and inflation could lead the committee to set up their efforts to jump-start the economy, and may opt to increase its rate of purchase as the economy faces a deepening recession. As a result, if the FOMC addresses the need for further action and states that they will boost purchases of asset-backed securities, a rise in risk appetite would lead us to short the greenback, and we will follow the same strategy for a long euro-dollar trade as the short position mentioned above, just in reverse.

Published on Wed, Mar 18 2009, 05:54 GMT

GBP/USD: Trading the U.K. Jobless Claims Change Report

Tue, Mar 17 2009, 06:02 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.K. Jobless Claims Change

What’s Expected

Time of release: 03/18/2009 09:30 GMT, 05:30 EST

Primary Pair Impact : GBPUSD

Expected: 84.8K

Previous: 73.8K

Effects the change in Jobless Claims had over GBPUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/11/2009 09:30 GMT	89.0K	73.8K	107	-38
Dec 2008	01/21/2009 09:30 GMT	81.0K	77.9K	44	-27

January 2009 U.K. Jobless Claims Change

Jobless claims in the U.K. increased 73.8K to 1.23M in January, which is the highest level since July 1999, and conditions are likely to get worse in the months ahead as the International Monetary Fund expect the economy to face its worst economic downturn since 1946. BoE Governor Mervyn King said that he expects the U.K. to face a ‘deep recession’ this year as the MPC forecasts the economy to contract at an annualized pace of 4.0% in the first quarter, and as the outlook for growth and inflation remains bleak, policy makers in the region are likely to adopt unconventional measures to stimulate the ailing economy as the benchmark interest rate holds at its lowest level since the central bank was founded in 1694. As market participants expect the BoE to keep borrowing costs at the record low for some time, deteriorating fundamentals are likely to weigh on the exchange rate.

December 2008 U.K. Jobless Claims Change

Claims for unemployment benefits in the U.K. increased 77.9K in December to 1.16M, which is the highest level since 2000, and raised the annual rate of unemployment to 3.6% from 3.3% in the previous month. The data continues to foreshadow a deepening recession throughout the region as the labor market deteriorates at a record pace, and conditions are likely to only get worse as the European Commission forecasts the economy to contract 2.8% this year, which would the lowest level of growth since 1946. As a result, the Bank of England is expected to ease policy further at next month’s policy meeting in an effort to steer the economy out of the recession, and the extraordinary efforts taken on by policy makers should help to stem the downside risks for growth, but as the IMF forecasts a global recession for 2009, the outlook for improved growth remains bleak.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The British pound is likely to face increased selling pressure over the week as economists forecast jobless claims in the U.K. to rise another 84.8K in February, and the labor market is likely to weaken further throughout the year as Europe’s second largest economy is expected to face its worst recession since World War II. The preliminary GDP report for the region showed that the annual rate of growth contracted 1.9% in the fourth quarter, which was the biggest drop since 1980, and conditions are likely to get worse in the months ahead as firms continue to cut back on production and employment in an effort to reduce costs. A report by the Office of National Statistics showed that manufacturing outputs plunged 6.4% during the three-months through January, which is the biggest decline since recordkeeping began in 1968, while a separate report showed that business investments slipped another 3.9% in the fourth quarter after falling 2.1% in the previous quarter. The data continues to reinforce fears of a deepening recession as households face fading demands for employment paired with increased turmoil in the banking sector, and as the Bank of England holds a dour outlook for growth and inflation, policy makers are likely to step up their efforts in an attempt to soften the landing of the economy. As the MPC forecasts the annual rate of growth to contract 4.0% in the first quarter and projects price growth to reach 0.5% by the end of 2010, the central bank is likely to use all of their available tools to stimulate the economy as the board maintains their dual mandate to ensure price stability while fostering economic activity. At the same time, we may see the BoE expand its policy for quantitative easing as the benchmark interest rate holds at a record low, and may purchase a broad array of securities in the months ahead as credit conditions remain far from normal. Nevertheless, as the board sets up a three-month timeframe to carry out the new policy objectives, fundamental headwinds are likely to weigh on the exchange rate as economic activity deteriorates at a record pace, and the Sterling is expected to hold its bearish trend against the greenback as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish forecast for the British pound as economists expect claims for unemployment benefits to rise another 84.8K in February however, an enhanced labor report would certainly set the stage for a long pound trade following the release.
Therefore, if jobless claims rises less than 80.0K during the month, we will look for a green, five-minute candle subsequent to the event to confirm a buy entry on two lots of GBPUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target.

Conversely, fading demands from home and abroad paired with expectations for a global recession is likely to weigh on businesses, and as firms slash their labor force in an effort to reduce costs, claims for unemployment benefits are likely to trend higher throughout the year. As a result, an in-line print or a rise of more than 84.8K in jobless claims will favor a bearish outlook for the British, and we will follow the same strategy for a short pound-dollar trade as the long position mentioned above, just in reverse.

Published on Tue, Mar 17 2009, 06:02 GMT

EUR/USD: Trading the German ZEW Investor Confidence Survey

Mon, Mar 16 2009, 06:02 GMT
by Daily FX Research Team

DailyFX

Trading the News: German ZEW Survey (Econ. Sentiment)

What’s Expected

Time of release: 03/17/2009 10:00 GMT, 06:00 EST

Primary Pair Impact : EURUSD

Expected: -6.5

Previous: -5.8

Effect the ZEW survey had over EURUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/17/2008 10:00 GMT	-25.0	-5.8	15	-65
Jan 2009	01/20/2008 10:00 GMT	-43.1	-31.0	19	-4

February 2009 German ZEW Survey

The German ZEW investor confidence survey rose to -5.8 from -31 in January, marking the biggest jump in sentiment since July 1993, as Chancellor Angela Merkel plans to spend nearly EUR 80B to stimulate the ailing economy. Meanwhile, the gauge for current conditions slipped to a five-year low of -86.2 from -77.1 in the previous month, which suggests that investors are rising their outlook for future growth as policy makers employ all of their available tools to steer the economy out of a deepening recession. Despite the unprecedented steps taken on by the government, activity in the global economy remains weak, and as trade conditions falter, the outlook for growth and inflation remains bleak. As a result, the ECB is expected to ease policy further in an effort to shore up the economy, and may adopt unconventional policy tools in the months ahead as the benchmark interest rate draws close to zero.

January 2009 German ZEW Survey

Investor confidence in Germany rose more than expected as the ZEW survey for future expectations surged to -31.0 from -45.2 in December amid forecasts for a rise to -43.1. The extraordinary efforts taken on by the European Central Bank and the second-round of fiscal stimulus offered by Chancellor Angela Merkel has certainly helped to taper the downside risks for growth in the economy, but as the European Commission forecasts economic activity to contract 2.3% this year, the outlook for future growth remains bleak. Moreover, as trade conditions continue to deteriorate, fears that the region may face its worst recession since World War II could lead the ECB to ease policy further over the coming months to avoid deep and prolonged downturn in the economy, and is likely to hold borrowing costs at a lower rate throughout the foreseeable future as policy makers try to restore confidence in the financial markets.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The German ZEW investor confidence survey is expected to fall to -6.5 in March from -5.8% in the previous month as market participants expect Europe’s largest economy to face its worst recession since World War II, and the outlook for growth and inflation remains bleak as the European Union fails to allocate resources to stem the economic slump in Central and Eastern Europe. The final GDP reading for the region showed that the economy contracted 2.1% in the fourth quarter, which was the largest drop since 1987, as exports plunged 7.2% during the period and conditions are likely to get worse as trade conditions falter. Industrial outputs tumbled 7.5% in January, which is the biggest drop since recordkeeping began in 1991, and as business confidence remains at a 26-year low, firms may continue to cut back on production and employment as demands from home and aboard deteriorate. A report by the Federal Statistics Office showed that retail sales in Germany unexpected declined 0.6% in January, which lowered the annualized figure to -1.3% from a revised reading of 0.4% in the previous month, and the data continues to reinforces a dour outlook for private-spending as households face a weakening labor market. Moreover, a separate report by the Federal Labor Agency showed that the jobless rate pushed higher for the fourth consecutive month in February as 40.0K additional workers filed for unemployment, which raised the annual rate to 7.9% from 7.8%, and foreshadows a weakening outlook for the Euro-Zone as households and businesses remain pessimistic towards the economy. Meanwhile, as the European Central Bank expects GDP to contract between 2.2%-3.2% this year, and forecasts price growth to ‘remain well below 2% in 2009 and 2010,’ the central bank may opt for further easing in an effort to stimulate the ailing economy however, as ECB President Trichet remains reluctant to over shoot the interest rate, market participants have argued that the board has underestimated the potential impact of the global crisis, and remains well behind in the yield curve. As a result, fundamental headwinds are likely to weigh on the exchange rate going forward, and as investors continue to curb their appetite for risky assets, the euro is likely to face increased selling pressures against the greenback as the reserve currency continues to benefit from safe-haven flows.

At first glance, trading the given event risk may call for a bearish euro trade as economists expect investors to turn increasingly pessimistic towards the economy however, an unexpected rise in the ZEW survey would certainly set the stage for a long euro trade following the release. As a result, if the survey shows a rise in confidence, we will look for a green, five-minute candle following the event to confirm a buy entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, increased turmoil in the banking sector paired with fears of a deepening downturn in the global economy is likely to weigh on investors, and a drop in the survey would certainly set the stage for a bearish euro trade for the given event risk. Therefore, a drop to -6.5 or lower would lead us to sell the euro-dollar, and we will follow the same setup for the short trade as the long position listed above, just in reverse.

Published on Mon, Mar 16 2009, 06:02 GMT

USD/CAD: Trading the Canada Net Change in Employment Report

Fri, Mar 13 2009, 05:49 GMT
by Daily FX Research Team

DailyFX

Trading the News: Canada Net Change in Employment

What’s Expected

Time of release: 03/13/2009 11:00 GMT, 07:00 EST

Primary Pair Impact : USDCAD

Expected: -55.0K

Previous: -129.0K

Impact Canada’s change in employment had over USDCAD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/06/2009 12:00GMT	-40.0K	-129.0K	85	-173
Dec 2008	01/09/2009 12:00GMT	-20.0K	-34.4K	-36	31

January 2009 Canada Unemployment Rate

Canada lost 129.0K jobs in January, which marked the largest drop in employment since comparable records began in 1976, and pushed the jobless rate to a four-year high of 7.2% from 6.6% in December, and conditions are likely to get worse as the region faces its first recession since 1992. The breakdown of the report showed that full-time positions fell another 113.9K after posting a 70.7K drop in December month, while part-time jobs slipped 15.1K from the previous month. The data continues to reinforce a dour outlook for growth and inflation, and undermines the BoC’s encouraging forecast for a pronounced recovery in 2010, which could lead policy makers to adopt a zero interest rate policy over the near-term in order to avoid a deepening recession. As a result, the BoC is likely to lower the key rate to 1.00% next month, which would be the lowest level since the central bank was established in 1934.

December 2008 Canada Unemployment Rate

The Canadian labor market shed 34.4K jobs in December amid expectations for a 20.0K drop in employment, which raised the annual rate of unemployment to a three-year high of 6.6% from 6.3% in the previous month. A deeper look at the report showed that the full-time jobs slipped another 70.7K during the month after falling 32.4K in November, while part-time positions increased 36.2K from the previous month as firms sought additional workers during the holiday season, and conditions are likely to get worse in the months ahead as Finance Minister Jim Flaherty expects a ‘substantial’ rise in the jobless rate this year. Fears of a deepening recession in the world’s eighth largest economy led BoC Governor Mark Carney and Co to lower the benchmark interest rate by 75bp to 1.50% last month, which is the lowest since 1958, and is likely to continue its easing cycle throughout the first half of the year in an effort to stimulate the ailing economy.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Expectations for a 55.K drop in employment is likely to weigh on the Canadian exchange rate over the next 24 hours of trading, and would reinforce the dour outlook for growth and inflation held by the Bank of Canada as the world’s eighth largest economy faces a deepening recession. The GDP report for the fourth quarter showed that the annual rate of growth contracted 3.4% after expanding 0.9% in the third quarter, which was the biggest drop since 1991, and conditions are likely to get worse as trade conditions falter. A report by Statistics Canada showed that the nation posted its first trade deficit since 1976 as exports plunged 9.7% in December, which was the largest drop in foreign demands since 1982, and firms are likely to cut back on production and employment this year as firms face fading demands from home and abroad. Meanwhile, a separate report showed that private-sector spending within the region fell 5.4% from November, marking its biggest contraction since 1991, and foreshadows further weakness in the domestic economy as households face a weakening labor market paired with increased turmoil in the banking sector. As growth prospects deteriorate at a record pace, the BoC may continue to ease policy further even after lowering the benchmark interest rate to a record low of 1.00% this month, and is likely to adopt unconventional policy tools to stimulate the ailing economy as policy makers expect the economic downturn to intensify throughout the first-half of the year. As a result, BoC Governor Mark Carney dropped his opposition to use exceptional measures beyond the interest rate to shore up the economy, and said that the central bank stands ready to ‘provide additional monetary stimulus, if required’ through the use of credit and quantitative easing as policy makers employ all of their available tools to mitigate the downside risks for growth. Moreover, the board stated that they will hold the key rate ‘at this level or lower’ in an effort to jump-start the economy however, as the International Monetary Fund forecasts a global recession for 2009, fundamental headwinds are likely to weigh on the Canadian dollar going forward. Moreover, as investors continue to curb their appetite for risky assets, the U.S. dollar is likely to hold its bullish trend against the loonie over the near-term as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish Canadian dollar trade as economists expect the jobless rate to push higher but nevertheless, an enhanced labor report would certainly set the stage for a long loonie trade, Therefore, if employment falls less than 20.0K or unexpectedly increases in February, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of USDCAD. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to safeguard our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, mounting fears of a deepening recession paired with further weakness in the labor market is likely to lower the outlook for future growth, and would certainly lead us to short the Canadian dollar following a dismal release. As a result, an in-line print or a drop of more than 55.0K in employment would lead us to sell the loonie, and we will follow the same strategy for the long USDCAD trade as the short position listed above, just in reverse.

Published on Fri, Mar 13 2009, 05:49 GMT

EUR/USD: Trading the U.S. Advanced Retail Sales Report

Thu, Mar 12 2009, 05:55 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. Advance Retail Sales

What’s Expected

Time of release: 03/12/2009 12:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -0.5%

Previous: 1.0%

Impact the U.S. retail sales report had over EURUSD for the past 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/12/2009 13:30GMT	-0.8%	1.0%	-72	17
Dec 2008	01/14/2009 13:30GMT	-1.2%	-2.7%	-56	19

January 2009 U.S. Retail Sales

Retail sales in the U.S. unexpectedly increased 1.0% in January to snap a six-month slump in private-spending however, domestic demands are likely to weaken further in the months ahead as households continue to face a weakening labor market. The breakdown of the report showed that the rise in consumption was driven by a 2.6% rise in gasoline receipts, which was followed by a 2.6% increase in electronics, while discretionary spending on clothing increased 1.6% during the month. Private-sector spending is likely to weaken further throughout the first half of the year as economists forecast the unemployment rate to push higher, and as the world’s largest economy faces its worst economic downturn in over a quarter century, the outlook for future growth remains bleak.

December 2008 U.S. Retail Sales

Private spending in the U.S. plunged 2.7% in December, marking its worst string of declines since comparable records began in 1992, and domestic demands are likely to deteriorate further as consumers continue to face a weakening labor market paired with tightening credit conditions. A deeper look into the report showed that sales at gasoline stations slipped another 15.9% after falling 18.3% in the previous month, while discretionary spending on clothing fell 2.5% during the month.
The data foreshadows a deepening recession in the economy as private-sector spending, which is one of the biggest drivers of growth, falters, and will certainly weigh on the Obama Administration’s ability to jump-start the world’s largest economy as growths prospects deteriorate at a record pace.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Retail spending in the U.S. is expected to drop 0.5% in February as the world’s largest economy faces its worst economic downturn in over a quarter century, and the outlook for growth and inflation remains bleak as economic activity deteriorates at a record pace. The preliminary GDP reading showed that the annual rate of growth slipped 6.2% in the fourth quarter, which was the biggest economic contraction since 1982, while personal consumption dropped 4.3% from the third quarter to mark the largest drop in spending since 1980. Furthermore, a report by the Conference Board showed that consumer confidence fell to its lowest level since recordkeeping began in 1967, which foreshadows a weakening outlook for private-spending, and conditions are likely to get worse throughout the first half of the year as households face a weakening labor market. A government report released last week showed that non-farm payrolls plunged another 651K in February following a 655K drop in the previous month - the biggest contraction since 1949 - and marked the worst slump in employment since recordkeeping began in 1939. As a result, the annual rate of unemployment surged to a 26-year high of 8.1% from 7.6% in January, and the data continues to reinforce fears of a deepening recession as firms continue to cutback on spending and employment in an effort to reduce costs. Demands for durable goods slipped another 5.2% in January after falling 4.6% in the previous month, while factor orders dropped 1.9% during the same period, which continues to reflect a negative outlook for private-spending. Meanwhile, as the Federal Reserve holds a dour outlook for growth and inflation, and is widely expected to hold the benchmark interest rate at the record-low for ‘some time’, the unprecedented use of the central bank’s balance sheet paired with the rise in the government’s budget has stoked fears that the aggressive measures taken on by policy makers could pose a threat for long-term stability, which could weigh on the appeal of the greenback however, as risk sentiment continues to dictate price action in the currency market, the U.S. dollar is likely to hold its bullish trend over the near-term as the reserve currency continues to benefit from safe-haven flows.

Expectations for a drop in private-spending clearly favors a bearish outlook for the greenback however, an unexpected rise in retail sales like we saw in the previous month would lead us to enter a long dollar position for the given event risk. Therefore, if retail spending rises for the second month, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of EURUSD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, fears of a deepening downturn in the economy paired with a weakening labor market is likely to weigh on household spending, and a drop in sales would certainly lead us to short the dollar. As a result, an in-line print or a drop of more than 0.5% in sales would set the stage for a short euro-dollar trade, and we will follow the same strategy as the long position mentioned above, just in reverse.

Published on Thu, Mar 12 2009, 05:55 GMT

AUD/USD: Trading the Australia Employment Change Report

Tue, Mar 10 2009, 11:30 GMT
by Daily FX Research Team

DailyFX

Trading the News: Australia Employment Change

What’s Expected

Time of release: 03/12/2009 00:30 GMT, 20:30 EST

Primary Pair Impact : AUDUSD

Expected: -20.0K

Previous: 1.2K

Impact the Australia Employment Change had on AUDUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/12/2009 00:30GMT	-18.0K	1.2K	55	59
Dec 2008	01/15/2009 00:30GMT	-20.0K	-1.2K	9	-11

January 2009 Australia Employment Change

The Australian economy added 1.2K jobs in January amid expectations for a 18.K drop in employment, and the unexpected improvement in the labor market suggests that the isle-nation may be able to avoid a recession as RBA Governor Glenn Stevens continues to take unprecedented steps to shore up the economy. Meanwhile, the breakdown of the report showed that full-time positions increased 33.7K during the month, while part-time employment slipped 32.6K from the previous month. Despite the improved outlook for the Australian labor market, policy makers still expect the jobless rate to ‘increase materially over the year ahead’ as firms continue to face fading demands from the global economy, and as trade conditions deteriorate, businesses are likely to slash their labor force as they cutback on production and investment in an effort to reduce costs.

December 2008 Australia Employment Change

The Australian labor market shed 1.2K jobs in December, which was much lower than the 20K drop projected by economists, as firms increased part-time hiring for the holiday season. A deeper look into the report showed that part-time positions increased 42.8K during the month, while full-time jobs fell 43.9K from November. As a result, the drop in full-time employment pushed the annual rate of unemployment to a two-year high of 4.5% from 4.4% in the previous month, and conditions are likely to get worse as the economy teeters on the brink of a recession for the first time since 1991. In an effort to stem the downside risks for the $1T economy, RBA Governor Glenn Stevens stated that the central bank’s policy objectives are now ‘expansionary,’ and is widely expected to lower the benchmark interest rate further in order to keep the nation afloat however, as trade conditions falter, the outlook for the export-driven economy remains bleak.

What To Look For Before The Release

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on AUDUSD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on AUDUSD ahead of the data release.

How To Trade This Event Risk

The Australian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to fall 20.0K in February and project the annual jobless rate to rise to a three-year high of 5.0% from 4.8% in the previous month, which would reinforce a dour outlook for future growth as the $1T economy teeters on the brink of a recession. The GDP report for the isle-nation showed that the economy contracted for the first time in eight-years as economic activity slipped 0.5% in the fourth quarter, which lowered the annual rate of growth to 0.3% from a revised reading of 1.8% in the third quarter, and conditions are likely to get worse in the months ahead as the outlook for growth and inflation falter. A report by the Bureau of Statistics released earlier this month showed that company operating profits fell 6.5% from the third quarter, marking its first decline in over a year, while job advertisements in the region fell at a record pace in February, and the data suggests that households may turn increasingly pessimistic towards the economy as firms continue to scale back on production and employment in an effort to reduced costs. Despite the weakening outlook held by businesses and households, the Reserve Bank of Australia decided to adopt a neutral policy stance going forward as they expect the extraordinary measures taken on by the central bank and the government to provide ‘significant support’ to the economy, and held the benchmark interest rate steady at the 45-year low of 3.25% this month. As RBA Governor Glenn Stevens moves to the sidelines, long-term expectations for higher rates has certainly increased the appeal of the high-yielding currency however, as the International Monetary Fund forecasts a global recession for 2009, trade conditions are likely to deteriorate further, which should continue to weigh on the export-driven economy throughout the year. As the private-sector continues to face fundamental headwinds paired with increased turmoil in the banking sector, market participants have argued that the monetary approach taken on by the RBA underestimates the impact of the global crisis, and will ultimately fail to avoid a recession this year. As investors remain skeptical of the actions taken on by Governor Stevens, deteriorating fundamentals are likely to weigh on the exchange rate, while at the same time, as investors remain risk adverse, the aussie is likely to weaken further against the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish forecast for the Australian dollar however, an unexpected rise in employment or an enhanced labor report like we’ve seen in the previous month will set the stage for a long aussie trade. Therefore, if employment falls 10.0K or less or pushes higher during the month, we will look for a green, five-minute candle following the release to confirm a buy entry on two lots of AUDUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be base on distraction, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.

On the contrary, economic activity is expected to weaken further as households face fading demands for employment, and as the outlook for global growth remains bleak, the labor market is likely to weaken further as businesses continue to cutback on spending. As a result, and in-line print or a drop of more than 20.0K in employment will lead us to sell the aussie-dollar, and we will follow the same setup for a short trade as the long position mentioned above, just in reverse.

Published on Tue, Mar 10 2009, 11:30 GMT

NZD/USD: Trading the RBNZ Interest Rate Decision

Tue, Mar 10 2009, 10:28 GMT
by Daily FX Research Team

DailyFX

Trading the News: Reserve Bank of New Zealand Interest Rate Decision

What’s Expected

Time of release: 03/11/2009 20:00GMT, 16:00

EST Primary Pair Impact : NZDUSD

Expected: 2.75%

Previous: 3.00%

Impact the Reserve Bank of New Zealand Interest Rate Decision had on NZDUSD through the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	01/09/2009 20:30GMT	4.00%	3.50%	-8	-41
Dec 2008	12/03/2009 20:30GMT	5.00%	5.00%	66	33

January 2009 Reserve Bank of New Zealand Interest Rate Decision

The Reserve Bank of New Zealand lowered the benchmark interest rate by another 150bp to a record-low of 3.50%, and is anticipated to lower borrowing costs further as policy makers utilize all of their available tools to pull the economy out of its worst recession in nearly two-decade. Governor Alan Bollard said that the central bank will take ‘a more stimulatory position’ to shore up the economy, and stated that they will move ‘quickly’ to stimulate the ailing economy in order to avoid a deep and prolonged recession throughout the region.
Meanwhile, the International Monetary Fund said that they expected the global economy to grow at an annual pace of 0.5% in 2009, which is the lowest level since World War II, and as trade conditions deteriorate, the outlook for the export-driven economy remains bleak. As a result, the RBNZ is expected to hold a dovish outlook going forward, and is likely to cut rates further to avoid a deepening recession.

December 2008 Reserve Bank of New Zealand Interest Rate Decision

RBNZ Governor Alan Bollard and Co. lowered borrowing costs at a record pace in December in an effort to steer the $128B economy out of its worst economic slump in 18 years. The central bank cut the official cash rate by 150bp to 5.00%, which is the biggest reduction since policy makers began using the official cash rate to manage monetary policy in 1999, and is widely expected to reduce the interest rate further as the RBNZ ‘takes monetary policy to an expansionary position.’ Dr. Bollard stated that ‘some further but significantly smaller reductions in interest rate may be warranted’ as the outlook for growth and inflation falter, and went onto say that he expects economic activity to contract 0.2% and forecasts the annual rate of inflation to fall to 1.5% throughout the first-half of the year as the global economy faces its worst financial crisis since the Great Depression.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Reserve Bank of New Zealand is widely expected to lower the benchmark interest rate by another 50bp to a record-low of 3.00% in an effort to steer the economy out of deepening recession, which is likely to weigh on the exchange rate as policy makers hold a dour outlook for growth and inflation. A Bloomberg News survey shows that the median forecast held by the 13 economists polled project the RBNZ to lower the cash rate by 50bp this month however, as the $128B economy faces its worst economic slump in nearly two-decades, Governor Alan Bollard may surprise the markets with a larger-than-expected rate cut in order to stimulate the ailing economy. Business confidence in the region fell to -41.2 from -35.0 in January, which is the second-lowest reading on record, and firms are likely to turn increasingly pessimistic towards the economy as demands from home and abroad deteriorate. Retail spending in the fourth quarter slipped another 0.6% after falling 0.9% in the previous quarter to mark its first full-year contraction on record, and conditions are likely to get worse as consumer confidence holds at a 10-year low. Moreover, home sales in January fell 28.5% from the previous year to reach an annual pace of 3,706, which is the lowest level since 1989, and demands for real estate purchases are likely to fall further over the year as households face a weakening labor market. The jobless rate rose to a five-year high of 4.6% in the fourth quarter as firms continued to cutback on employment to reduce costs, and as trade conditions deteriorate, economic activity within the export-driven economy is likely to weaken further throughout the first half of the year. As a result, the RBNZ may continue its easing cycle in the months ahead with the government pushing for additional stimulus to shore up the economy as market participants anticipate the region to face a deepening recession. As the economic docket continues to reinforce fears of a prolonged downturn in the isle-nation, mounting growth concerns paired with a weakening outlook for inflation should continue to drag on the exchange rate, and as investors remain risk adverse, the kiwi is expected to hold its bearish trend against the U.S. dollar as the reserve currency continues to benefit from safe-have flows.

Expectations for a 50bp rate cut by the RBNZ clearly favors a bearish forecast for the given event risk however, if Governor Bollard reinforces his previous statements for ‘significantly smaller reductions in interest rate’ and lowers the cash rate by 25bp, we will look for a green, five-minute candle to confirm a buy entry on two lots of NZDUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on purely on discretion, and in and effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, as the outlook for growth and inflation falter, the central bank may continue to lower borrowing costs at a rapid pace and may leave the door open for further easing as policy makers utilize all of their available tools to stimulate growth. As a result, if the RBNZ lowered the cash rate by 50bp or more, and reinforces a weakening outlook for interest rates, we will look to sell the kiwi-dollar, and will follow the same setup for a short trade as the long position mentioned above, just in reverse.

Published on Tue, Mar 10 2009, 10:28 GMT

EUR/USD: Trading the Euro−Zone Sentix Investor Confidence Survey

Mon, Mar 9 2009, 06:42 GMT
by Daily FX Research Team

DailyFX

Trading the News: Euro-Zone Sentix Investor Confidence Survey

What’s Expected

Time of release: 03/09/2009 09:30 GMT, 05:30 EST

Primary Pair Impact : EURUSD

Expected: --

Previous: -36.1K

Impact the Sentix report had on EURUSD through the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2008	02/09/2009 09:30GMT	-31.5	-36.1	30	147
Jan 2008	01/05/2009 09:30GMT	_ _	-34.4	5	-110

February 2009 Euro-Zone Sentix Investor Confidence

Investor confidence in the Euro-Zone weakened further in February as the Sentix indicator slipped to -36.1 from -34.4 in the previous month. A deeper look into the report showed current business conditions fell to -52.25 from -37.25, which is the lowest reading since records began in 2003, while a gauge for future expectations rose for the third consecutive month to -18.25 from -31.50 in January. The data continues to reflect the dire state of the economy however, the rise in expectations suggests that investors are raising their outlook for future growth as a result of the extraordinary efforts taken on by policy makers around the globe. Despite the improved outlook, investors are likely to face increased headwinds over the coming months as turmoil in the banking sector intensifies, which should weigh on the markets as the global economy faces its worst financial crisis since the 1940’s.

January 2009 Euro-Zone Sentix Investor Confidence

The Euro-Zone Sentix investor confidence survey snapped back after falling for the past seven-months as the index jumped to -34.4 from record low reading of -42.3 in January. Meanwhile, the breakdown of the report showed that the gauge for future expectations rose to -31.5 from -42.0 in the previous month, but as the index remains deep in negative territory, the probability for a rebound in business investments remains unlikely. Nevertheless, increased efforts by European policy makers to stimulate the economy has certainly helped to boost sentiment throughout the region, but despite the rise in the survey, the outlook for growth remains bleak as the European Central Bank forecasts the annual rate of growth to contract 0.5% this year.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Deteriorating fundamentals paired with increased turmoil in the banking sector is likely to weigh on European investors, and a drop in the Sentix indicator could stoke increased selling pressures for the single-currency as the outlook for future growth turns increasingly bleak. The economic slump in Central and Eastern Europe has certainly raised the downside risks for the euro-region, and as the European Union fails to allocate resources to stem fears of a deepening downturn, investors are likely to cut their growth forecasts as the economy is projected to face its worst recession since World War II. The preliminary GDP reading for the euro-region showed that the economy contracted 1.5% in the fourth quarter, which was the biggest drop since recordkeeping began in 1995, while the annual rate of growth slipped to -1.3% from an initial estimate of -1.2% to mark its first full-year contraction. In addition, economic confidence in the region slipped to a record low in February while the jobless rate pushed to a two-year high in January, and conditions are likely to get worse throughout the year as the economy faces a deepening recession. Meanwhile, after lowering the benchmark interest rate by 50bp to a record-low of 1.50%, the European Central Bank is expected to lower borrowing costs further as they forecast the annual rate of growth to contract between 2.2%-3.2% this year, but President Trichet remained reluctant to over shoot the interest rate even as he expect price growth to ‘remain well below 2% in 2009 and 2010.’ The comments by the central bank head suggests that the recent actions taken on by policy makers will suffice to shore up the economy going forward however, as market participants perceive that the ECB continues to undermine the potential of the global crisis and remains well behind in the yield curve, expectations for further easing by the European policy makers is likely to weigh on the exchange rate going forward. Moreover, as risk sentiment continues to dictate price action in the currency market, the U.S. dollar is likely to hold its bullish trend against the euro over the near-term as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk may not be as clear cut as some of our other trade but nevertheless, a rise in confidence could spur a rise in the euro. Therefore, if the Sentix survey rises to -30 or higher, we will look for a green, five-minute candle following the release to confirm a buy entry on two lots of EURUSD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on purely on discretion, and in and effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, a drop in investor confidence is likely to weigh on the euro, and would lead us to short the euro-dollar. Therefore, if the survey falls further into negative territory or reaches the record-low reading of -42.3 seen in January, we will look to sell the single-currency, and will follow the same strategy for a short trade as the long position mentioned above, just in reverse.

Published on Mon, Mar 9 2009, 06:42 GMT

EUR/USD: Trading the Non−Farm Payrolls Report

Fri, Mar 6 2009, 05:53 GMT
by Daily FX Research Team

DailyFX

Trading the News: US Change in Non-Farm Payrolls

What’s Expected

Time of release: 03/06/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -650K

Previous: -598K

Impact the US NFP report had on EURUSD through the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	02/06/2008 13:30GMT	-540K	-598K	73	123
Dec 2008	01/09/2008 13:30GMT	-525K	-524K	-162	269

January 2009 US Change In Non-Farm Payrolls

Payrolls in the U.S. fell 598K in January, which was the biggest monthly decline since 1974, and raised the annual rate of unemployment to a 16-year high of 7.6% from 7.2% in the previous month. As fears of a deepening recession intensify, firms are likely to cutback on production and employment in an effort to reduce costs, and the labor market is expected to weaken further throughout 2009 as the world’s largest economy faces its worst financial crisis since the Great Depression. The data certainly reinforces the dire state of the economy, and fears of a prolonged economic downturn is likely to stoke increased pressures for the U.S. Congress to approve President Obama’s $900B stimulus package, which should help to mitigate the downside risks for growth, but as the banking sector remain under pressure, the outlook for improved growth remains bleak.

December 2008 US Change In Non-Farm Payrolls

The world’s largest economy shed another 524K jobs in December to raise the 2008 total to 2.589M, which raised the jobless rate to a 15-year high of 7.2% from a revised reading of 6.8% in November, and marked the biggest annual contraction in employment since 1945. Meanwhile, the FOMC lowered their outlook for growth as the central bank projects unemployment to ‘rise significantly into 2010,’ and as signs of a deepening recession emerge, policy makers may continue to step up their efforts in order to soften the landing of the economy.
Nevertheless, as President-elect pledges to save or create 3M jobs over the next two-years, efforts by the new Administration could certainly help to mitigate the downside risks for growth, but may have little or no impact on the real economy as it faces its longest recession in a quarter century.

What To Look For Before

The Release Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The U.S. dollar may face increased selling pressures over the next 24 hours of trading as economists forecast non-farm payrolls to drop 650K in February, which would be the biggest contraction in employment since 1949, while the jobless rate is expected to reach a 25-year high of 7.9% during the same period as firms continue to slash their labor force in an effort to reduce costs. The ISM manufacturing report for February showed that the employment component fell to its lowest level since recordkeeping began in 1948, while the ADP labor report released earlier this week showed that private-sector employment dropped another 697K during the same period after falling 614K in the previous month. Furthermore, jobs cuts in February increased 158.49% after rising 222.40% in the previous month, and the labor market is likely to weaken further throughout the year as the world’s largest economy faces its worst economic slump in over a quarter century. The preliminary GDP reading for the U.S. showed that the annual rate of growth slipped 6.2% in the fourth quarter, which is the biggest economic contraction since 1982, and the data continues to reinforce fears of a deepening recession as households turn increasingly pessimistic towards the economy. A report by the Conference Board showed that consumer confidence fell to its lowest level since recordkeeping began in 1967, which foreshadows a weakening outlook for private-spending, and the outlook for improved growth remains bleak as turmoil in the banking sector intensifies. Meanwhile, as the FOMC holds a dour outlook for growth and inflation, and is expected to hold the benchmark interest rate at the record-low for ‘some time’, the unprecedented use of the central bank’s balance sheet paired with the rise in the government’s budget has stoked fears that the aggressive measures taken on by policy makers could pose threats for long-term stability, which could weigh on the appeal of the greenback however, as risk sentiment continues to dictate price action in the currency market, the U.S. dollar is likely to hold its bullish trend over the near-term as the reserve currency continues to benefit from safe-haven flows.

Expectations for a 650K drop in employment clearly favors a bearish outlook for the dollar, but the unexpected rebound in service-sector employment has left the door open for an enhanced NFP reading. Therefore, if payrolls fall less that 600K, we will look for a red, five-minute candle following the event to confirm a sell entry on two lots of EURUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the second lot to breakeven once the first trade reaches its target.

On the other hand, the Fed’ Beige Book stated that the central bank has seen ‘rising layoffs’ and an increase in unemployment throughout the region, which only reinforces expectations for a dismal payrolls reading. As a result, an in-line print or a drop of more than 650K in jobs will lead us to short the dollar, and we will follow the same strategy for a long euro-dollar position as the short trade listed above, just in reverse.

Published on Fri, Mar 6 2009, 05:53 GMT

EUR/USD: Trading the European Central Bank Interest Rate Decision

Thu, Mar 5 2009, 06:04 GMT
by Daily FX Research Team

DailyFX

Trading the News: European Central Bank Rate Decision

What’s Expected

Time of release: 03/05/2009 12:45 GMT, 07:45 EST

Primary Pair Impact : EURUSD

Expected: 1.50%

Previous: 2.00%

Impact the European Central Bank Rate Decision has had on EURUSD over the last 2 months


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/05/2009 12:45GMT	2.00%	2.00%	-72	-19
Jan 2009	01/15/2008 12:45GMT	2.00%	2.00%	0	-57

February 2009 European Central Bank Rate Decision

ECB President Trichet and Co. held the key interest at the record-low of 2.00% in February, which was in-line with expectations, but is likely to cut borrowing costs further in March as economists forecast the euro-region to face its worst economic downturn since World War II. The lack of urgency in President Trichet’s policy to restore confidence in the economy has spurred criticism that the central bank is doing too little too late, and that they are failing to realize the severity of the recession. Nevertheless, the central bank head signaled that the board may lower rates by 50bp in March to 1.50%, which would be the lowest level since the euro was introduce in 1999. Meanwhile, the ECB remained reluctant to adopt a zero interest rate policy over the near-term even as the IMF expects the annual rate of growth to contract 2.0% this year, stating that zero rates are not ‘appropriate at this stage.’

January 2009 European Central Bank Rate Decision

The European Central Bank lowered borrowing costs by another 50bp to 2.00% in order to stimulate the ailing economy, but may keep rates on hold at their next policy meeting in February as President Trichet remains reluctant to overshoot the interest rate. Mr. Trichet went onto say that the outlook for medium-term inflation remains ‘broadly balanced and in line’ with their one and only mandate to ensure price stability, but as price pressures alleviate at a rapid pace, the ECB could be forced to lower rates further in order to maintain their 2% target for price growth. As the central bank is expected to revise their forecast for growth and inflation in March and expect a ‘significant’ downturn in the economy, policy makers are likely to lower the benchmark interest rate further during the first half of the year as the economy heads into a deepening recession.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

As market participants anticipate the Euro-Zone to face its worst economic downturn since World War II, the European Central Bank is widely expected to ease policy further this week, and the euro is likely to face increased selling pressures throughout the first-half of the year as the outlook for growth and inflation falter. A Bloomberg News survey shows that all of the 55 economists polled forecast the ECB to cut the benchmark interest rate by 50bp to 1.50%, which would be the lowest level since the single-currency was introduce in 1999, and may have room to lower borrowing costs further in the months ahead as price pressures alleviate. The CPI report for January showed that the annual rate of inflation grew at 1.1% during the month, which is the lowest level of growth in over a decade, and as the risks for deflation intensify, policy makers are likely to step up their efforts in order to maintain the 2% target for inflation. Meanwhile, the advanced GDP reading for the euro-region showed that the economy contracted 1.5% in the fourth quarter, which was the biggest drop since recordkeeping began in 1995, and lowered the annual rate of growth to -1.2% to mark its first full-year contraction. In addition, economic confidence throughout the region fell to a record low in February while the unemployment rate rose to a two-year high in January, and conditions are likely to get worse as the region faces a deepening recession. Despite the dire state of the economy, ECB President Trichet remains reluctant to overshoot the interest rate and continues to undermine the effectiveness of adopting a zero interest rate however, voting member Athanasios Orphanides rebutted the unconstructive attitude held by central bank head, stating that the implications for monetary policy to become ineffective as rates near is a ‘dangerous fallacy,’ which could force policy makers to lower rates further and adopt unconventional measures to stimulate the ailing economy. As a result, deteriorating fundamentals paired with increased turmoil in the banking sector will stoke increased pressures for the ECB to ease policy further as the outlook for future growth remains bleak, which is likely to weigh on the exchange rate going forward. At the same time, as investors continue to curb their appetite for risky assets, the euro should continue to hold its bearish trend against the U.S. dollar over the near-term as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish forecast for the euro as the ECB is expected to lower the benchmark interest rate to a fresh record low however, as President Trichet remains reluctant to push they key rate ‘too low,’ if the central bank head reinforces his unwillingness to lower rates close to zero and signals that the board will hold a neutral policy stance going forward, we will look for a green, five-minute candle following the decision to confirm a buy entry on two lots of EURUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will establish our first target. Our second target will be based purely on discretion, and in an effort to preserve our profits, we will move the second lot to breakeven once the first trade reaches its target.

Conversely, mounting turmoil in the banking sector paired with fears of a deepening recession may lead the ECB to take an aggressive step to shore up the economy, and may consider cutting the interest rate further as the outlook for growth and inflation deteriorate at a record pace. As a result, if the ECB lowered the key rate by 50bp or more, and raises the possibility of adopting a zero interest rate policy over the near-term, we will look to sell the single-currency, and will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.

Published on Thu, Mar 5 2009, 06:04 GMT

GBP/USD: Trading the Bank of England Interest Rate Decision

Wed, Mar 4 2009, 06:09 GMT
by Daily FX Research Team

DailyFX

Trading the News: Bank of England Rate Decision

What’s Expected

Time of release: 03/05/2009 12:00 GMT, 07:00 EST

Primary Pair Impact : GBPUSD

Expected: 0.50%

Previous: 1.00%

Impact the Bank of England Rate Decision has had on GBPUSD over the last 2 quarters


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/05/2009 12:00GMT	1.00%	1.00%	117	137
Jan 2009	01/08/2008 12:00GMT	1.50%	1.50%	199	143

February 2009 Bank of England Rate Decision

BoE Governor Mervyn King and Co. lowered the key interest rate by 50bp to 1.00%, which is the lowest level since the central bank was founded in 1694, to overcome David Blanchflower’s plea for a 100bp rate. Meanwhile, the central bank stated that the MPC ‘would need to use alternative policy measures’ to stimulate the economy as the interest rate falls close to zero, and is likely to adopt quantitative easing over the near-term in order to manage monetary policy going forward. As the outlook for growth and inflation deteriorate, the BoE is expected to take unprecedented measures to shore up the economy however, as Mr. Blanchflower expects the economic downturn to worsen ‘significantly’ during the year, the comments certainly underscore the dire state of the economy, and conditions are likely to get worse as turmoil in the banking sector intensifies.

January 2009 Bank of England Rate Decision

The Bank of England voted 8-1 to cut the benchmark interest rate by 50bp to 1.50%, which is the lowest level since the central bank was established in 1694. The minutes of the policy meeting showed that the central bank dove David Blanchflower went against the majority as he pushed for a 100bp cut, but the MPC opted for a half-point reduction in order to avoid shocks ‘in both financial markets and the real economy.’ Despite the extraordinary efforts taken on by the central bank and Prime Minister Gordon Brown, the growth outlook for the U.K. remains bleak as fundamentals deteriorate at a record pace, and conditions are likely to only get worse as Europe’s second largest economy heads into its worst recession in over a decade.
Nevertheless, the BoE noted that the outlook for inflation ‘remained to the downside’ as economic activity falters, and may continue to ease policy further in order to maintain their 2% target for price growth.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Bank of England is expected to lower the benchmark interest rate by another 50bp to 0.50%, which would be the lowest level since the central bank was established in 1694, and as market participants project the MPC to conclude its easing cycle this month, long-term expectations for higher borrowing costs could boost the appeal of the British Pound going forward. A Bloomberg News survey shows that 51 of the 60 economists polled expect the MPC to cut the key rate to 0.50% in an effort to stimulate the ailing economy however, as BoE dove David Blanchflower expects the economic downturn to worsen ‘significantly’ throughout the year, the odds for a marked recovery remains highly unlikely. The preliminary GDP report for the U.K. showed that the region posted it biggest economic contraction since 1980 as the annual rate of grow slipped to -1.9% from an advanced reading of -1.8%, and conditions are likely to get worse in the months ahead as households continue to face a weakening labor market paired with increased turmoil in the banking sector. Jobless claims in the U.K. rose to a 10-year high of 1.23M in January as 73.8K additional workers filed for unemployment benefits during the month, which raised the annualized figure to 3.8% from 3.6% in December.
Meanwhile, a separate report by the International Labor Organization showed that the annual rate of unemployment rose to 6.3% from 6.1% in November, which is the highest level since 1997, and as firms continue to face weakening demands from home and abroad, businesses are likely to slash their labor force in order to reduce costs. As the outlook for growth and inflation falter, deteriorating fundamentals paired with increased turmoil in the banking sector is likely to weigh on the exchange rate throughout the first half of the year, and policy makers are expected to take unprecedented steps to steer the economy out of its worst economic slump since World War II. At the same time, as investors remain risk adverse, the British pound should continue to hold its bearish trend against the U.S. dollar over the near-term as the reserve currency continues to benefit from safe-haven flows.

At first glance, trading the given event risk favors a bearish outlook for the British pound as the BoE is expected to slash rates to a record low however, as market participants expect the MPC to conclude its easing cycle this month, long-term expectations for higher rates could push the exchange rate higher. Therefore, if the central bank explicitly states that they will keep rates on hold going forward, we will look for a green, five-minute candle following the rate decision to generate a buy entry on two lots of GBPUSD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and we will move the second lot to breakeven once the first trade reaches its target in order to preserve our profits.

On the other hand, fears of a deepening downturn paired with increased turmoil in the banking sector may lead policy makers to utilize all of their available tools and adopts a zero interest rate policy over the near-term in an effort to stimulate the ailing economy. As a result, if the BoE lowers the benchmark interest rate by more than 50bp and continues to hold a dour outlook for growth and inflation, we will look to sell the pound-dollar, and will follow the same strategy for a short trade as the long position mentioned above, just in reverse.

Published on Wed, Mar 4 2009, 06:09 GMT

AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision

Tue, Mar 3 2009, 05:50 GMT
by Daily FX Research Team

DailyFX

Trading the News: RBA Rate Decision

What’s Expected

Time of release: 03/03/2009 03:30 GMT, 22:30 EST

Primary Pair Impact : AUDUSD

Expected: 3.00%

Previous: 3.25%

Impact the RBA Rate Decision had on AUDUSD over the last 2 quarters


Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Feb 2009	02/03/2009 03:30GMT	3.25%	3.25%	36	31
Dec 2008	12/02/2008 03:30GMT	4.50%	4.25%	42	13

February 2009 RBA Rate Decision

The RBA lowered the benchmark interest rate by 100bp to 3.25%, which is the lowest level since 1964, in an effort to keep the $1T economy afloat. In addition, the government announced that it will spend another A$42B in fiscal stimulus in response to the economic downturn in the global economy, and the central bank is expected to ease policy further in the coming months as the region teeters on the brink of a recession. Despite the extraordinary efforts taken on by policy makers, economic activity throughout the region is likely to weaken further as trade conditions deteriorate, and as the International Monetary Fund forecasts a global recession for 2009, the outlook for improved growth remains bleak.
Moreover, as growth and inflation falter, the RBA is likely to lower borrowing costs further in order to avoid a deepening contraction in the economy, and may hold borrowing costs at the 45-year low for sometime in an effort to stimulate growth.

December 2008 RBA Rate Decision

The Reserve Bank of Australia reduced the key interest rate by 75bp to a three-year low of 5.25% from 6.00% despite expectations for a 50bp cut. The minutes of the November 4th policy meeting showed that the central bank decided to take a preemptive move to support economic activity as they expected the spillover effects of the financial crisis to ‘have a significant effect on business and consumer sentiment,’ which raised speculation that the policymakers may continue to ease policy further over the coming months as fears of a global recession intensify. Moreover, the reserve bank expects economic activity to remain subdued well into the next year as the emerging economies around the Pacific find themselves in troubled waters, and may prompt policymakers to lower borrowing costs even further as demands from the global economy deteriorate.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Reserve Bank of Australia is anticipated to lower the official cash rate by another 25bp to 3.00% in an effort to keep the $1T economy afloat, and as the economy teeters on the brink of a recession, expectations for further easing is likely to weigh on the exchange rate over the next 24 hours of trading. A Bloomberg News survey shows that 7 of the 18 economists poll forecast the RBA to deliver a 25bp cut, while 7 of the remaining participants expect the central bank to lower borrowing costs by 50bp to 2.75% even as Governor Glenn Stevens remains ‘prudent’ to ease policy further. Nevertheless, as economic activity deteriorates at a rapid pace, policy makers are likely to use all of their available tools to stimulate the ailing economy, and may continue to lower the benchmark interest further over the coming months as the outlook for growth and inflation falter. Earlier this week, the Bureau of Statistics reported that company operating profits fell 6.5% from the third quarter, marking its first decline in over a year, and firms are likely to hold a dour outlook for future growth as trade conditions falter.
Moreover, the NAB business confidence index fell to a record low in January to reach its lowest level since 1989, while a separate report showed that job advertisement in the region fell for the ninth consecutive month in January, which raised the annual rate of unemployment to 4.8% from 4.5% in December. Meanwhile, consumer sentiment weakened further in February as the Westpac index slipped another 4.6% after falling 2.2% in the previous month, and as businesses and households turn increasingly pessimistic towards the economy, Australian policy makers are likely to push for additional measures to shore up the economy as market participants expect the region to face its first recession since 1991. At the same time, as investors remain risk adverse, the commodity bloc is likely to weaken further against the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.

Expectations for a 25-50bp rate cut by the RBA clearly favors a bearish outlook for the Australian dollar however, if the central bank decides to hold the benchmark interest rate steady at the 45-year low of 3.25%, we will look to enter a long aussie-dollar trade for the given event.
Therefore, if Governor Glenn Stevens remains reluctant to over-shoot the interest rate and holds a neutral outlook for the near-term, we will look for a green, five-minute candle following the decision to confirm a buy entry on two lots of AUDUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in an effort to preserve our profits.

On the other hand, the weakening outlook for growth and inflation should allow the reserve bank to ease policy further over coming months, and as investors raise bets for lower borrowing costs, the Australian dollar is likely to face increased selling pressures if Governor Stevens leaves the door open for further rate cuts. As a result, if the RBA lowered the cash rate by 25bp or more and provides a weakening outlook for interest rates, we will look to sell the higher-yielding currency, and will follow the same strategy for a short aussie-dollar trade as the long position mentioned above, just in reverse.

Published on Tue, Mar 3 2009, 05:50 GMT

USD/CAD: Trading the Canada Gross Domestic Product (GDP) Report

Mon, Mar 2 2009, 06:01 GMT
by Daily FX Research Team

DailyFX

Trading the News: Canada Quarterly Gross Domestic Product (Annualized)

What’s Expected

Time of release: 03/02/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : USDCAD

Expected: -3.2%

Previous: 1.3%

Impact the Canada GDP has had on USDCAD over the last 2 quarters


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q - 2008	12/01/2008 13:30GMT	1.1%	1.3%	-91	10
2Q - 2008	08/29/2008 12:30GMT	0.6%	0.3%	26	91

3Q 2008 Canada Gross Domestic Product

he Canadian economy grew 1.3% in the third quarter, which beat expectations for a 1.1% rise in GDP as firms raised outputs for the first time in the last five-quarters amid the slowdown in the global economy. The report showed that private spending weakened for the third consecutive quarter as demands rose 0.2%, which is the lowest level since 2003, while exports slipped another 1.4%, which was followed by a 1.6% drop in imports. Despite the enhanced growth reading for the world’s eighth larges economy, the Bank of Canada expects the annual rate of growth to slip to 0.3% in 2009, which would be the lowest level since the last recession in 1992, the central bank is likely to ease policy further in an effort to stimulate the economy. Nevertheless, as the U.S., Canada’s biggest trading partner, teeters on the brink of a recession, the outlook for future growth remains bleak as trade conditions falter.

2Q 2008 Canada Gross Domestic Product

The GDP reading for Canada showed that the economy grew at an annualized pace of 0.3% in the second quarter, which was well below expectations for a reading of 0.6%, and the outlook for growth is likely to weaken further in the months ahead as trade conditions deteriorate. The breakdown of the report showed that government spending increased to 1.3% from 0.6% in the first quarter, while household spending weakened for the third consecutive quarter to reach an annualized pace of 0.6%. Furthermore, exports plunged 1.5% from the previous quarter, while imports rose 0.6% during the previous three-months. As growth prospects deteriorate at a rapid pace, the BoC is widely expected to lower the benchmark interest in September, and may continue to ease policy further over the coming months as the central bank maintains their dual mandate to ensure price stability while fostering economic growth.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Canadian dollar is likely to face increased selling pressure over the following week as economists forecast the GDP reading to show a 3.2% contraction in the fourth quarter. Economic activity in the world’s eighth largest economy has weakened considerably throughout the second half of 2008 as a result of the downturn in the global economy, and the outlook for future growth remains bleak as trade conditions deteriorate at a record pace. A report by Statistics Canada showed that the nation posted its first trade deficit since 1976 as exports plunged 9.7% in December, which was the biggest drop since 1982, and firms are likely to slash production and employment this year as the International Monetary Fund forecasts a global recession for 2009. Meanwhile, a preceding report by the group showed that the economy lost 129.0K jobs in January, which was the largest drop in employment since comparable records began in 1976, and raised the annual rate of unemployment to a four-year high of 7.2% from 6.6% in December. Moreover, private-sector spending in the region fell 5.4% from November, marking its biggest contraction since 1991, and as households face a weakening labor market paired with financial uncertainties, fading demands from home and abroad are likely to drag on growth going forward. Accordingly, the Bank of Canada is widely expected to lower the benchmark interest rate by another 25bp to 0.75% next week, which would be the lowest level since 1958, as the economy heads into its first recession in over a decade, and the central bank may adopt unconventional measures such as quantitative easing to manage monetary policy going forward as borrowing costs get pushed closer to zero. Nevertheless, as risk trends continue to dictate price action in the currency market, safe-haven flows paired with expectations for further easing by the BoC is likely to weigh on the exchange rate over the near-term, and the reserve currency is likely to strengthen against the commodity bloc as investors remain risk adverse.

Expectations for a 3.2% contraction in GDP favors a bearish outlook for the Canadian dollar however, an enhanced growth reading would certainly set the state for a long loonie trade for the given event risk. Therefore, if GDP falls 2.9% or less, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of USDCAD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, deteriorating fundamentals paired with the downturn in global trade favors a dour outlook for the economy, and a dismal growth reading for the fourth quarter would certainly warrant a bearish outlook for the Canadian currency. As a result, a GDP reading of -3.2% or lower would lead us to short the loonie, and we will follow the same setup for a long USDCAD trade as the short position listed above, just in reverse.

Conversely, deteriorating fundamentals paired with the downturn in global trade favors a dour outlook for the economy, and a dismal growth reading for the fourth quarter would certainly warrant a bearish outlook for the Canadian currency. As a result, a GDP reading of -3.2% or lower would lead us to short the loonie, and we will follow the same setup for a long USDCAD trade as the short position listed above, just in reverse.

Published on Mon, Mar 2 2009, 06:01 GMT

EUR/USD: Trading the U.S. Gross Domestic Product (GDP) Report

Fri, Feb 27 2009, 05:56 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. Gross Domestic Product (Annualized)

What’s Expected

Time of release: 02/27/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -5.4%

Previous: -3.8%

Impact the U.S. GDP has had on EURUSD over the last 2 quarters


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q - 2008	11/25/2008 13:30GMT	-0.5%	-0.5%	188	199
2Q - 2008	08/28/2008 12:30GMT	2.7%	3.3%	41	-57

3Q 2008 U.S. Gross Domestic Product

The Commerce Department revised the GDP reading for the third quarter down to -0.5% from an advanced reading of -0.3%, marking the biggest economic contraction since 2001, as private-sector spending slipped 3.7% from the previous quarter. The bigger than expected drop in private demands marked the largest contraction is nearly three decades, and the outlook for the U.S. remains bleak as consumer spending, which accounts for more than tow-thirds of the economy, falters. Meanwhile, a rise in exports helped to keep the economy afloat in the second quarter however, as global trade conditions deteriorate, economic activity is likely to weaken further in the months ahead. As market participants expect the world’s largest economy to face a deepening recession, the FOMC is likely to adopt a zero interest rate policy over the near-term in an effort to steer the economy out of a recession.

2Q 2008 U.S. Gross Domestic Product

The preliminary GDP reading for the U.S. was revised higher to 3.3% from an initial reading of 1.9% due to an unexpected increase in exports. Despite the improvement in trade, deteriorating fundamentals has certainly raised the downside growth risks for the world’s largest economy, and conditions may only get worse over the following months as home prices fall further. Tightening credit conditions paired with mounting inventories of unsold homes has spurred fears that the U.S. may face a recession in the second half of the year, and economic activity may remain subdued throughout the rest of the year as growth prospects deteriorate. In addition, the Fed minutes highlighted weakening demands from abroad due to the slowdown in the global economy, which could lead the central bank to lower the benchmark interest rate in the months ahead as the outlook for growth turns bleak.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The preliminary GDP reading for the U.S. is likely to reinforce a dour outlook for the world’s largest economy as economists forecast economic activity to contract 5.4% in the fourth quarter. Furthermore, private-sector spending is expected to fall to -3.7% from an initial reading of -3.5%, and the outlook for future growth remains bleak as households continue to face a weakening labor market paired with fears of a deepening recession. Earlier this week, the Conference Board reported that consumer confidence fell to its lowest level since recordkeeping began in 1967, while a separate report by the Labor Department showed that continuing claims for jobless benefits surged to a record high of 4.99M in the first week of February. Moreover, personal spending dropped 1.0% in December after falling 0.8% in the previous month to mark its worst slump since 1961, and conditions are likely to get worse in the months ahead as credit conditions remain far from normal. The data continues to foreshadow the dire state of the economy as it faces its worst recession in over a quarter century, and the likelihood for improved growth remains doubtful as the International Monetary Fund expects the global economy to grow at an annual pace of 0.5% in 2009, which would be the lowest level of growth since World War II. As a result, the Federal Reserve pledged to ‘support the functioning of the financial markets and stimulate the economy’ by adopting unconventional measures, and went onto to say that the central bank will keep borrowing costs at the record-low for ‘some time’ as they expect the economic downturn to intensify during the first half of the year. The FOMC lowered their outlook for the economy as they expect growth to contact at an annual pace of 0.5% to 1.3%, and stated that ‘the economic recovery could be delayed and initially quite weak’ as the financial markets remain under stress. Nevertheless, as risk trends continue to drive price action in the foreign exchange market, safe-haven flows could lead the U.S. dollar to turn a blind eye to its own fundamentals as investors remain risk adverse.

Expectations for a 5.4% contraction in GDP clearly favors a bearish outlook for the U.S. dollar however, an enhanced growth reading would set the stage of a long dollar trade for the given event risk. Therefore, if GDP falls 4.9% or less, we will look for a red, five-minute candle following the release to generate a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, as households continue to face mounting job losses paired with financial uncertainties, the outlook for improved growth remains bleak, and a dismal growth reading for the fourth quarter is likely to weigh on the greenback as market participants expect the economy to face its worst economic contraction in over a quarter century. As a result, a GDP reading of -5.4% or lower would lead us to short the greenback, and we will follow the same strategy for a long euro-dollar position as the short trade mentioned above, just in reverse.

Published on Fri, Feb 27 2009, 05:56 GMT

EUR/USD: Trading the U.S. Durable Goods Orders Report

Wed, Feb 25 2009, 11:48 GMT
by Daily FX Research Team

DailyFX

Trading the News: US Durable Goods Orders

What’s Expected

Time of release: 02/26/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -2.5%

Previous: -2.6%

Effects of US Durable Goods Orders on EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec-08	01/29/2009 13:30GMT	-2.00%	-2.6%	2	-180
Nov-08	12/24/2008 13:30GMT	-3.00%	-1.0%	5	-4

December 2008 US Durable Goods Orders

November 2008 US Durable Goods Orders

Private-sector demands weakened at a slower pace in November as orders for durable goods fell 1.0% amid expectations for a 3.0% decline. Despite the enhanced reading for November, last month’s reading was revised down to -8.4% from an initial reading of -6.2%, which marked the biggest drop in capital spending in eight years. As credit conditions remain far from normal, business spending is likely to remain subdued over the coming months, and conditions may only get worse as the economy faces its worst recession in over a quarter century. As a result, the Fed took unprecedented steps to stimulate the slowing economy as they cut the benchmark interest rate to a target range of zero to 0.25%, which is the lowest level in the central bank’s history. As the FOMC implements a zero interest rate policy (ZIRP), Fed Chairman Ben Bernanke and Co. are likely to adopt quantitative easing in an effort to steer the world’s largest economy out of a recession.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The U.S. dollar may face increased selling pressures over the next 24 hours of trading as economists forecast durable goods orders to contract another 2.5% in January as private-sector spending falters. Fading demands from home and abroad paired with fears of a deepening recession has certainly dragged on businesses throughout the region, and the outlook for future growth remains bleak as firms continue to cutback on production and employment in an effort to reduce costs. As a result of the cost-cutting measures instituted by businesses across the country, industrial production fell to a five-year low in January as outputs dropped 1.8% during the month after posting a 2.4% decline in December, while chain-store sales slipped another 1.6% during the same period after falling 2.0% in the previous month. In addition, factory orders dropped 3.9% in December, which was followed by a 6.5% contraction in the prior month, and the data continues to reinforce expectations that the world’s largest economy will face a deepening recession as growth prospects deteriorate at a rapid pace. Moreover, mounting growth fears paired with increased turmoil in the banking sector continued to drag on the real economy as private-lending practices remain far from normal, and conditions are likely to get worse in the months ahead as households turn increasingly pessimistic towards the economy. Furthermore, the advanced GDP reading for the fourth quarter showed that the economy contracted the most since 1982 as personal consumption slipped 3.5% from the previous quarter, and the likelihood for improved growth remains bleak as the Fed sees a ‘significant risk that the economic recovery could be delayed and initially quite weak’ as the financial sector remains under pressure. The central bank went onto say that policy makers expects the economy to contract between 0.5%-1.3% this year as the credit crunch continues to drag on the real economy, and despite the extraordinary efforts taken on by the government, economic activity is likely to deteriorate further as households and businesses continue to cutback on spending and investment. Nevertheless, as investors remain risk adverse, the greenback could strengthen against its currency counterparts following the event as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish forecast for the U.S. dollar as private demands falter however, the unexpected rise in retail spending has left the door open for an upward surprise, and an enhanced durable goods report would certainly set the stage for a bullish dollar trade following the release. Therefore, if orders fall less than expected (contracts 1.5% or less), we will look for a red, five-minute candle following the event to confirm a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, as households and businesses face a deepening recession, demands for durable goods are likely to weaken further, and an inline print or a drop of more than 2.5% would favor a bearish outlook for the greenback. As a result, a dismal reading would lead us to short the dollar, and we will follow the same setup for a long euro-dollar position as the short trade listed above, just in reverse.

Published on Wed, Feb 25 2009, 11:48 GMT

EUR/USD: Trading the U.S. Existing Home Sales Report

Wed, Feb 25 2009, 06:04 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. Existing Home Sales

What’s Expected

Time of release: 02/24/2009 15:00 GMT, 10:00 EST

Primary Pair Impact : EURUSD

Expected: 1.3%

Previous: 6.5%

Effects of Existing Home Sales on EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec-08	01/26/2009 15:00GMT	-2.00%	6.50%	-8	48
Nov-08	12/23/2008 15:00GMT	-1.00%	-8.60%	-36	-51

December 2008 U.S. Existing Home Sales

Existing home sales in the U.S. unexpectedly increased in December after dropping at a record pace in the previous month as falling home prices spurred demands among potential buyers. Home purchases rose 6.5% during the month to an annual pace of 4.74M from 4.45M in November as prices dropped 15% from the previous year, which was the biggest decline since recordkeeping began in 1968. A deeper look at the report showed that sales of single-family homes rose 7.0% after falling 8.9% in November, while purchases of multi-family homes increased 2.1% after dropping 13.0% in the previous month. Despite the rebound in home sales, the data continues to reflect dour outlook for the housing market as home prices continue to fall lower, and as credit conditions remain far from normal, housing conditions are likely to deteriorate further this year.

November 2008 U.S. Existing Home Sales

The outlook for the U.S. housing market weakened further as existing home sales fell at a record pace in November.
Purchases of homes fell 8.6% after dropping 3.1% in October, and conditions are likely to get worse as prices continue to fall further. The breakdown of the report showed home prices slipped another 13% during the month, while demands for homes weakened throughout the country. Mounting growth concerns paired with the downturn in the labor market lead the FOMC to lower the benchmark interest rate to a range of zero to 0.25%, and went onto say that the central bank may increase its purchases of debt from Fannie and Freddie in an effort to reduce mortgage costs for home owners. Despite the extraordinary efforts taken on by the Fed and the U.S. Treasury, the downturn in the housing sector is likely to carry through into the next year as credit conditions remain far from normal.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Demands for existing homes in the U.S. are expected to rise for the second consecutive month in January as potential home buyers take advantage of the record drop in home prices however, as household face a weakening labor market paired with fears of a deepening recession, the outlook for the housing sector remains bleak. The S&P/Case-Shiller home price indicator showed a record drop in property values as the index slipped 18.2% in November, which was the sharpest decline since 2001, and conditions are likely to get worse in the months ahead as credit conditions remain far from normal. Increased turmoil in the banking sector continued to weigh on private lending as consumer credit fell another $6.6B in December after falling $11.0B in the previous month, which was the biggest drop since 1943, while a separate report by the Conference Board showed that consumer sentiment slipped to a record low reading of 37.7 from a revised reading of 38.6 in December, and the outlook for future growth remains bleak as the International Monetary Fund forecasts the annual rate of growth to contract 1.6% in 2009. As the world’s largest economy heads into its worst economic slump in over a quarter century, the FOMC said that there is a ‘significant risk that the economic recovery could be delayed and initially quite weak’ as the banking sector remains weak, and expects the economy to contract between 0.5%-1.3% this year as the credit crunch continues to drag on the real economy. Moreover, policy makers stated that the central bank will continue to purchase assets and use unconventional measures ‘that are likely to keep the size of the Federal Reserve’s balance sheet at a high level’ to stimulate the ailing economy, and despite the extraordinary efforts taken on by the MPC, economic activity throughout the region is likely to deteriorate further as households and businesses continue to cutback on spending and investment. Nevertheless, as risk trends continue to dictate price action in the foreign exchange market, the U.S. dollar may turn a blind eye to the event risks scheduled for tomorrow as the reserve currency continues to benefit from safe-haven flows.

Expectations for a rise in existing home sales favors a bullish forecast for the greenback, and an inline print or a rise of more than 1.3% in demands would certainly set the stage a short euro-dollar trade for the given event risk. Therefore, with our expectations at hand, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing higher (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, fears of a deepening recession paired with tightening credit conditions could weigh on demands for existing homes, and an unexpected fall in sales favor a bearish outlook for the dollar. As a result, if demands fall 0.2% or more, we will look to short the greenback, and will follow the same strategy for a long euro-dollar trade as the short position listed above, just in reverse.

Published on Wed, Feb 25 2009, 06:04 GMT

USD/CAD: Trading the Canadian Retail Sales Report

Fri, Feb 20 2009, 11:53 GMT
by Daily FX Research Team

DailyFX

Trading the News: Canada Retail Sales

What’s Expected

Time of release: 02/23/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : USDCAD

Expected: -2.4%

Previous: -2.4%

Effect the Canada Retail Sales on USDCAD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Nov 2008	01/22/2009 13:30GMT	-2.0%	-2.4%	34	-121
Oct 2008	12/18/2008 13:30GMT	-1.1%	-0.9%	37	118

November 2008 Canada Retail Sales

October 2008 Canada Retail Sales

Retail sales in Canada plunged 1.1% in October after rising 0.9% in the previous month, and conditions are likely to get worse as the world’s eighth largest economy slips into a recession. The breakdown of the report showed that demands for electronics fell 2.1% from the previous month, while discretionary spending on clothing dropped 1.5% during the month. The data reflects a dour outlook for growth as the Bank of Canada expects the economy to face its first recession in over a decade, and may lead policy makers to step up their efforts in the months ahead in order to avoid a deep and severe downturn in the economy. Meanwhile, BoC Governor Mark Carney warned that domestic demands are likely to weaken further as the unemployment rate pushes higher, and said that conditions will be ‘difficult’ in 2009 as growth prospects deteriorate at a rapid pace.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The Canadian dollar is likely to face increased selling pressures over the follow week as economists forecast retail spending to contract another 2.4% in December. As the world’s eighth largest economy faces its first economic slump since 1992, the outlook for growth remains bleak, and economic activity throughout the region is expected to weaken further as the labor market deteriorates at a record pace. A report by Statistics Canada showed that the economy lost 129.0K jobs in January, which was the biggest decline since comparable records began in 1976, and raised the annual rate of unemployment to a four-year high of 7.2% from 6.6% in December. Meanwhile, the monthly GDP report for Canada showed that economic activity contracted another 0.7% in November after falling 0.1% in the previous month, and conditions are likely to get worse as the Bank of Canada forecasts the annual rate of growth to drop 1.2% this year. Moreover, earlier this week we saw that wholesales sales in the region fell the most since 2003 as demands drop 3.4% in December, and the data reinforces a dour outlook for private spending as households continue to face financial uncertainties paired with tightening credit conditions. In an effort to stimulate the ailing economy, the Bank of Canada is widely expected to lower the benchmark interest rate by another 25bp to 0.75%, which would be the lowest level since the central bank was established in 1934, and as price growth is projected to fall below the BoC’s 2% target for inflation this year, policy makers are likely to adopt a zero interest rate policy over the near-term, and may implement unconventional measures to manage monetary policy going forward. Nevertheless, as oil prices continue to fall lower while investors remain risk adverse, safe-haven flows are could weigh on the Canadian exchange rate over the following week as the flight to quality continues.

Trading the given event risk clearly favors a bearish outlook for the Canadian dollar as market participants anticipate growth prospects to deteriorate further however, if the release crosses the wires better than expected (sales falls less than 2.0%), an enhanced sales report would set the stage for a long loonie trade. Therefore, with our expectations at hand, we will look for a red, five-minute candle following the event to confirm a sell entry on two lots of USDCAD. Once these conditions are met, we will set our initial stop at the nearby since high (or reasonable distance) and this risk will determine our first target. Our second target will be based purely on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, the record drop in employment paired with expectations of a deepening recession is likely to weigh on household spending, and a dismal consumption report would certainly favor a bearish trade for the commodity currency. As a result, an inline print or a decline of more than 2.4% in retail sales will lead us to hold a bullish outlook for the pair, and we will follow the same strategy for the long position as the short trade mentioned above, just in reverse.

Published on Fri, Feb 20 2009, 11:53 GMT

GBP/USD: Trading the U.K. Retail Sales Report

Thu, Feb 19 2009, 07:40 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.K. Retail Sales

What’s Expected

Time of release: 02/20/2009 09:30 GMT, 04:30 EST

Primary Pair Impact : GBPUSD

Expected: -0.1%

Previous: 1.6%

Effect the U.K. Retail Sales report had over EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	01/22/2009 13:30GMT	605K	550K	-51	18
Nov 2008	12/16/2008 13:30GMT	736K	625K	39	294

December 2008 U.K. Retail Sales

Private-sector spending in the U.K. unexpectedly increased 1.6% in December however, the Statistics office explicitly stated that the data should be interpreted with a grain of salt as they re-evaluate their standards for measuring seasonal changes. Nevertheless, the breakdown of the report showed that sales at food stores rose 1.0% during the month, which was followed by a 0.5% rise in demands for household goods, while discretionary spending for clothing and shoes slipped 0.8% from the previous month. Despite the rise in sales, the outlook for growth remains bleak as the economy faces a deepening recession, and the Bank of England is likely to lower rates further next month in an effort to stimulate the ailing economy.

November 2008 U.K. Retail Sales

Retail spending in Britain rose 0.3% in November amid expectations for a 0.6% decline however, economic activity is likely to deteriorate over the coming months as the outlook for future growth remains bleak. A deeper look at the report showed that demands for household goods rose 3.9% after dropping 3.6% in October, while discretionary spending on clothing and footwear slipped another 0.1% after falling 1.0% in the previous month.
Despite the enhanced sales reading, the Bank of England is widely expected lower the benchmark interest rate by 50bp to 1.50% in January as the economy heads into a deeper recession, which would be the lowest level since the central bank was established in 1694.

What To Look For Before The Release

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Pound against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release.

Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Pound against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on GBPUSD ahead of the data release.

How To Trade This Event Risk

Retail spending in the U.K. is anticipated to fall 0.1% in January as households face a weakening labor market, and a dismal sales reading would only reinforce the dour outlook held by the IMF as they expect Europe’s second largest economy to face its worst economic slump since World War II. The advanced GDP reading showed that the region posted its biggest economic contraction since 1980 as the annual rate of growth slipped to -1.8% from 0.3% in the third quarter, which was led by a 4.6% drop in manufacturing paired with a 1.0% contraction in service-based activity, and the data foreshadows a deepening recession in the country as firms continue to aggressively cutback on production and employment in an effort to reduce costs. As a result, jobless claims in the U.K. rose to a 10-year high of 1.23M in January as 73.8K additional workers filed for unemployment benefits during the month, and raised the annualized figure to 3.8% from 3.6% in December. Furthermore, a separate report by the International Labor Organization showed that the unemployment rate rose to 6.3% from 6.1% in November, which is the highest level since 1997, and conditions are likely to get worse as the Bank of England forecasts the annual rate of growth to contract 4.0% in the first-quarter amid the extraordinary efforts taken on by policy makers. The central bank said that “further easing in monetary policy may well be required” even after lowering the benchmark interest rate to a record low of 1.00% earlier this month, and as price growth is projected to reach 0.5% by the end of 2010, the MPC is likely to step up their efforts as they maintain their dual mandate to ensure price stability while fostering economic activity. Meanwhile, the BoE Minutes release earlier this morning showed that the board voted unanimously to adopt quantitative easing to better manage monetary policy, and reports have been made that Mr. King has already asked the Chancellor of the Exchequer, Alistair Darling, for additional authority to begin printing money to purchase “government and other” assets to stimulate the economy. As BoE Governor Mervyn King and Co implement unconventional means to steer the economy out of a recession, the efforts by the central bankers will certainly help to mitigate the downside risks for growth, but as the global economy slips into a deepening recession, the odds for a marked recovery this year remains highly unlikely.

Trading the given event risk may not be as a clear cut as some of our other trade, but if we see a surprising increase in private-spending as we did in the previous month, a rise of 0.1% or more in sales would certainly set the stage for a long pound trade. Therefore, with our expectations at hand, we will look for a green, five-minute candle following a rise in retail sales to confirm a buy entry on two lots of GBPUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or a reasonable distance taking volatility into consideration) and this risk will determine our first target.

On the other hand, as Governor Mervyn King’s expects “a pronounced contraction in spending and outputs” this year, a dismal sales reading would only reinforce a dour outlook for the economy, and will favor a bearish outlook for the British pound. As a result, if household spending falls 0.1% or more, we will look to sell the pound-dollar, and will follow the same strategy for the short position as the long trade listed above, just in reverse.

Published on Thu, Feb 19 2009, 07:40 GMT

EUR/USD: Trading the U.S. Housing Starts Report

Wed, Feb 18 2009, 06:06 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. Housing Starts

What’s Expected

Time of release: 02/18/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: 530K

Previous: 550K

Effect the Housing Starts report had over EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	01/22/2009 13:30GMT	605K	550K	-51	18
Nov 2008	12/16/2008 13:30GMT	736K	625K	39	294

December 2008 U.S. Housing Starts

Housing starts in the U.S. fell 16% in December, which pushed the annual rate to a record low of 550K from a revised reading of 651K in the previous month, and conditions are likely to get worse as home values continue to fall lower. A deeper look at the report showed that construction of single-family homes fell another 13.5% during the month after dropping 14.2% in November, while starts for multi-family homes plunged 20.4% following the 17.3% decline in the previous month. The data continues to foreshadow a deepening recession in the economy as housing conditions remain far from normal, and the outlook for growth remains bleak despite the extraordinary efforts taken on by policy makers. As a result, the Obama administration is widely expected to push for additional government aide to mitigate the downside risks for growth, which should help to soften the landing of the economy.

November 2008 U.S. Housing Starts

U.S. housing starts dropped 18.9% in November to an annual rate of 625K, which is the lowest level since comparable records began in 1959. The breakdown of the report showed that starts for single-family homes dropped 16.9% during the month to a record-low of 441K, while construction of multi-family homes slipped 23.3% from October to an annual pace of 184K. As falling home prices paired with tightening credit conditions continues to weigh on the world’s largest economy, the FOMC is widely expected to lower the benchmark interest rate by 50bp to a record low of 0.50% in an effort to steer the economy out of a recession, and are likely to adopt additional measures to stem the downside risks for growth as the U.S. faces its longest economic downturn in over a quarter-century.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Housing starts in the U.S. are expected to fall to an annual pace of 530K from 550K in December, which would be the lowest reading since recordkeeping began in 1959, and conditions are likely to get worse as home values continue to tumble lower. The S&P/Case-Shiller home price indicator showed a record drop in property values as the index slipped 18.2% in November, which was the biggest decline since 2001, and the housing market is likely to weaken further over this year as the International Monetary Fund forecasts the world’s largest economy to contract 1.6% in 2009. Nevertheless, the advanced GDP reading for the U.S. showed that the economy grew at its slowest pace since 1982 as the annual rate of growth fell to -3.8% from -0.5% in the third quarter, which was followed by a 3.5% drop in personal consumption, and the outlook for future growth remains bleak as consumers continue to face a weakening labor market paired with financial uncertainties.
Mounting turmoil across the financial spectrum continued to weigh on private-sector lending as consumer credit slipped another $6.6B in December to $2.56T, after falling $11.0B in the previous month, which was the biggest drop since 1943, while a separate report by the Conference Board showed that consumer confidence fell to a record low reading of 37.7 from a revised reading of 38.6 in December, and the lack of recovery in the housing and banking sector will continue to drag on households as the rate of foreclosures rise at a record pace.
Meanwhile, as President Barack Obama is scheduled to sign the $787B stimulus package later today and plans to unveil a new proposal to mitigate foreclosures, efforts by the administration should certainly help to taper the downside risks for growth, but as economic activity deteriorate further, demands for housing and construction of new homes are likely to remain subdued as a credit conditions tighten. Despite the dour outlook for the U.S. economy, as risk trends continues to drive price action in the foreign exchange market, the greenback may turn a blind eye to its own fundamentals as the reserve currency continues to benefit from safe-haven flows.

Trading the given event risk clearly favors a bearish dollar trade as market participants expect the housing market to weaken further, but an unexpected rebound in home construction could help to raise the growth outlook for the region, which would set the stage for a short euro-dollar trade. Therefore, if housing starts rise above 550K in January, we will look for red, five-minute candle following the event to confirm a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance) and this risk will determine our first target.

On the other hand, mounting turmoil in the banking sector paired with deteriorating fundamentals is likely to weigh on households, and as signs of a deepening recession emerge, the U.S. dollar may pare gains as the outlook for future growth deteriorates. As a result, if housing starts falls in-line with expectations or slips below 530K, we will look to short the greenback, and will follow the same setup for a long position as the short trade listed above, just in reverse.

Published on Wed, Feb 18 2009, 06:06 GMT

EUR/USD: Trading the German ZEW Survey Report

Mon, Feb 16 2009, 06:00 GMT
by Daily FX Research Team

DailyFX

Trading the News: German ZEW Survey (Econ. Sentiment)

What’s Expected

Time of release: 02/17/2009 10:00 GMT, 05:00 EST

Primary Pair Impact : EURUSD

Expected: -25.0%

Previous: -31.0%

Effect the German ZEW Survey report had over EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	01/20/2008 10:00GMT	-43.1	-31.0	19	-4
Dec 2008	12/09/2008 10:00GMT	-57.0	-45.2	9	62

January 2009 German ZEW Survey

December 2008 German ZEW Survey

The German ZEW confidence survey unexpectedly improved in December as the gauge for future expectations increased to -45.2 from -53.5 in the previous, which suggests that investors are holding an improved outlook for growth as the government plans to spending EUR 32B to stimulate the ailing economy.
Nevertheless, as the Bundesbank expects the economic activity to weaken further in the fourth quarter and projects the annual rate of growth to contract 0.8% in 2009, the outlook for Europe’s largest economy remains bleak as global trade conditions falter. As a result, the European Central Bank is widely anticipated to continue its easing cycle next year as economic activity deteriorate throughout the region, and may adopt a zero interest rate policy over the near-term in an effort to steer the economy out of a recession.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

Investor confidence in Germany is expected to improve for the fourth consecutive month as economists forecast the ZEW survey to rise to -25.0 from -31.0 in January, but as the International Monetary Fund projects a global recession in 2009, the odds for a marked recovery in sentiment remains unlikely. The advanced GDP reading for Europe’s largest economy showed that economic activity dropped 2.1% in the fourth quarter, which is the biggest decline since 1987, and lowered the annual rate of growth to -1.7% from a revised reading of 1.4% in the third quarter. The data foreshadows a deepening recession throughout the region as market participants expect the country to face its worst economic downturn since World War II, and the outlook for future growth remains bleak as trade conditions deteriorate at a record pace.
Stagnating demands from the global economy lowered the trade surplus to 6.9B from a revised reading of 9.9B in the previous month as exports fell another 3.7% following the record drop in November, while industrial outputs plunged 4.6% in December, marking its biggest monthly decline in 18-years. In addition, factory orders extended its worst slump on record as demands slipped another 6.9% during the same period after dropping 5.3% in November, and the lack of improvement in fundamentals reinforces a dour outlook for the economy. As growth and inflation falter, the European Central Bank is widely expected to lower the benchmark interest further next month as price growths falls below the central bank’s 2% target, and is likely to hold rates at the lower level for some time in an effort to steer the economy out of a recession. After leaving rates on hold during this month’s meeting, ECB President Trichet explicitly stated that there is a chance for a 50bp rate cut next month, but went on to say that adopting a zero interest rate policy for the 16 economies operating under the euro is not ‘appropriate at this stage.’ Moreover, a Bloomberg News survey is already showing that 24 of the 29 economists polled expect the ECB to lower borrowing costs by another 50bp to 1.50%, and as a result, expectations for a rate cut is likely to weigh on the single-currency over the near-term. Furthermore, as the central bank is also anticipated to revise their growth and inflation forecasts for the year in March, signs of a deepening downturn in the region would certainly reinforce expectations for further easing, which would only reinforce a bearish outlook for the euro going forward.

Expectations for another rise in investor sentiment clearly favors a bullish euro trade for the given event risk, and an in-line print or a survey reading above -25.0 would certainly set the stage a long euro trade following the release. As a result, we will look for green, five-minute candle following the event to confirm a buy entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Nevertheless, the downturn in global trade paired with instability across the financial markets continues to indicate a worsening outlook for the economy, and as market participants expect economic activity to deteriorate further, investors may lower their outlook for future growth as fears of a deepening downturn intensify. Therefore, a dismal confidence reading (-35.0 or lower) would set the stage for a bearish euro trade for the event, and we will follow the same setup for the short position as the long trade listed above, just in reverse.

Published on Mon, Feb 16 2009, 06:00 GMT

EUR/USD: Trading the Euro−Zone GDP Report

Thu, Feb 12 2009, 06:31 GMT
by Daily FX Research Team

DailyFX

Trading the News: Euro-Zone Gross Domestic Product

What’s Expected

Time of release: 02/13/2009 10:00 GMT, 05:00 EST

Primary Pair Impact : EURUSD

Expected: -1.3%

Previous: -0.2%

Effect the Euro-Zone Gross Domestic Product report had over EURUSD for the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q 2008	11/14/2008 10:00GMT	-0.2%	-0.2%	22	2
2Q 2008	08/14/2008 09:00GMT	-0.2%	-0.2%	0	-44

3Q 2008 Euro-Zone Gross Domestic Product

The Euro-Zone slipped into its first recession in 15-years as the advanced GDP reading for the third quarter showed that economy contracted another 0.2% from the previous quarter, which lowered the annual rate of growth to 0.7% from 1.4%.
Mounting growth fears paired with the fall in global commodity prices led the European Central Bank to lower the benchmark interest rate by 100bp over the last two-months to 3.25% after hold rates at a seven-year high of 4.25% throughout the third quarter, and the central bank is likely to ease policy further over the coming months as price pressures alleviate.
Nevertheless, as global trade conditions falter, economic activity throughout the region is likely to weaken further, and may lead policy makers to step up their efforts in the coming months in order to steer the economy out of a recession.

2Q 2008 Euro-Zone Gross Domestic Product

Economic activity in the Euro-Zone contracted for the first time in nearly a decade as mounting price pressures sapped purchasing power for households, while fading demands from the global economy pushed businesses to cutback on production and spending. The advanced growth reading for the second quarter showed that GDP fell 0.2% from the previous quarter, which lowered the annual rate of growth to 1.5% from 2.1%, and conditions are likely to get worse as the economy teeters on the brink of a recession. Higher energy costs have certainly take a toll on businesses as global trade conditions deteriorate, and reinforces ECB President Trichet’s outlook for lower growth as he expects economic activity to be ‘particularly weak’ throughout the third quarter. Despite the weakening outlook for growth, the central bank may keep rates on hold at a seven-year high of 4.25% as price growth remains well above the ECB’s 2% target for inflation.

What To Look For Before The Release

Bullish Scenario:

Bearish Scenario:

How To Trade This Event Risk

The euro is likely to face increased selling pressures over the next 24 hours of trading as market participants forecast the advanced GDP reading for the Euro-Zone to show a 1.3% contraction in the fourth quarter. Economic activity throughout the region has weakened considerably as trade conditions continue to falter, and the outlook for future growth remains bleak as the International Monetary Fund forecasts a global recession for 2009. Fading demands from abroad pushed the trade deficit to -4.9B from a revised reading of -2.1B in October as exports fell at its fastest pace in eight-years, while industrial outputs fell at a record pace from the previous year. Fears of a deepening recession paired with financial uncertainties continued to drag on the economy as the European Commission reported a record drop in economic confidence, and conditions are likely to get worse as economists anticipate the euro-region to face its most severe economic downturn since World War II. In addition, the European Central Bank monthly report released this week also foreshadowed a deepening downturn in the 16-countries operating under the euro as the survey showed the outlook for inflation slip to 0.9% from an initial forecast of 2.2% in the fourth quarter, while participants project price growth to reach 1.6% in 2010 from a previous estimate of 2.0%. Meanwhile, growth forecasts for the year fell to -1.7% from 0.3, whereas the annual rate of growth is anticipated to reach 0.6% in 2010 from an initial estimate of 1.4%. As price pressures are anticipated to fall well below the central bank’s 2% target, . As price growth is expected to fall below the central bank’s 2% target, policy makers are likely to lower the benchmark interest further in March as they maintain their one and only mandate to ensure price stability. After leaving rates on hold during this month’s meeting, ECB President Trichet explicitly stated that there is a possibility for a 50bp rate cut next month, but went on to say that adopting a zero interest rate policy ‘at this stage’ is unlikely. As a result, expectations for lower borrowing costs is likely to drag on the euro, and as the central bank is scheduled to revise their growth and inflation forecasts for the year at next month’s policy meeting, signs of a deepening recession would certainly reinforce a bearish outlook for the single currency going forward.

Forecasts for a considerable drop in GDP clearly favors a bearish euro trade for the given event risk however, the extraordinary efforts taken on by the central bank and the governments across the region could have helped to mitigate the downturn in economy, and an enhanced growth reading could spark a rally in the single-currency. Therefore, if the release tops estimates or falls in line with expectations, we will look for a green, five-minute candle following the event to confirm a buy entry on two lots of EURUSD. We will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account) and this risk will determine our first target. Our second target will be based on discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Nevertheless, deteriorating fundamentals paired with instability in the financial markets continues to foreshadow a dour outlook for future growth, and a larger than expect drop in GDP could trigger a sell-off in the euro. As a result, a dismal growth reading (economic contraction of 1.5% or greater), we will look to short the EURUSD, and will follow the same strategy as the long position mentioned above, just in reverse.

Published on Thu, Feb 12 2009, 06:31 GMT

GBP/USD: Trading the Change in U.K. Jobless Claims

Wed, Feb 11 2009, 06:13 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.K. Jobless Claims Change

What’s Expected

Time of release: 02/11/2009 09:30 GMT, 04:30 EST

Primary Pair Impact : GBPUSD

Expected: 88.0K

Previous: 77.9K

Impact the U.K. Jobless Claims Change has had on GBPUSD through the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	01/21/2008 09:30GMT	81.0K	77.9K	44	-27
Nov 2008	12/17/2008 09:30GMT	44.0K	75.7K	-117	-79

December 2008 U.K. Jobless Claims Change

Claims for jobless benefits in the U.K. increased 77.9K in December to 1.16M, which is the highest level since 2000, and raised the annual rate of unemployment to 3.6% from 3.3% in the previous month. The data continues to foreshadow a deepening recession throughout the region as the labor market deteriorates at a record pace, and conditions are likely to only get worse as the European Commission forecasts the economy to contract 2.8% this year, which would the lowest level of growth since 1946. As a result, the Bank of England is expected to ease policy further at next month’s policy meeting in an effort to steer the economy out of the recession, and the extraordinary efforts taken on by policy makers should help to stem the downside risks for growth, but as the IMF forecasts a global recession for 2009, the outlook for improved growth remains bleak.

November 2008 U.K. Jobless Claims Change

Jobless claims in the U.K. rose at its fastest pace since 1991 as applications surged 75.7K in November to reach an eight-year high of 1.07M. The downturn in the labor market pushed the unemployment rate to a seven-year high of 3.3% from a revised reading of 3.1% in October, and conditions are likely to get worse as Europe’s second largest economy faces its worst recession in over a decade. Despite the extraordinary efforts taken on by the Bank of England and the U.K. Treasury, growth prospects are likely to deteriorate further as financial uncertainties linger, and may lead the central bank to step up their efforts over the near-term as policy makers expect the annual rate of growth to contract 1.3% next year. As a result, market participants expect the BoE to continue their easing cycle over the coming months, which is likely to weigh on the British pound going forward.

What To Look For Before The Release

In an effort to mitigate risk exposure, we will monitor market depth for GBP/USD ahead of the release. Our objective is to observe normal to high (or increasing) GBP/USD liquidity, which could help to shed some light the market-moving potential of the release as well as the likely directional bias. Overall, increasing volume will telegraph likely momentum behind the move following the release. An imbalance in available liquidity on the bid versus the offer side of the market (or vise versa) will tell us what direction major institutions are likely favoring ahead of the announcement. If the offer side sees deeper markets, this means banks are selling GBP/USD and we will look to follow their lead and favor the short side. Alternatively, we will look for opportunities to go long if liquidity is deeper on the bid side. The absence of a clear imbalance (at least 2:1) or a weak uptick in volumes will signal a need for added confirmation before a trade is placed.

How To Trade This Event Risk

The British pound is likely to face increased selling pressures over the next 24 hours of trading as economists forecast jobless claims in the U.K. to rise another 88.0K in January, which would push the annual rate of unemployment to a nine-year high of 3.8% from 3.6% in the previous month. Fading demands from the global economy paired with financial uncertainties have certainly take a toll on businesses throughout the region, and the labor market is likely to deteriorate further over the coming months as firms continue to cutback on production and employment in an effort to reduce costs. As a result of the economic downturn in the global economy, manufacturing outputs fell for 10 consecutive months during 2008, marking its worst slump in nearly three decades, and the outlook for improved growth remains bleak as the European Commission forecasts Europe’s second largest economy to face its worst recession since 1946. The advanced GDP reading for the fourth quarter showed that economy contracted another 1.5% after falling 0.6% in the previous quarter, which lowered the annual rate of growth to -1.8% from 0.3% in the previous quarter, and the fundamental outlook continues to foreshadows a deepening recession throughout the region as the International Monetary Fund projects a global recession for 2009. Moreover, consumer confidence fell to a record low in January as the Nationwide index slipped to 40 from a revised reading of 48 in the previous month, and as households become increasingly pessimistic towards the economy, growth prospects are likely to weaken further as domestic demands falter. Nevertheless, the Bank of England took further steps to stimulate the ailing economy this month as the MPC lowered the benchmark interest by 50bp to 1.00%, which is the lowest level in the central bank’s history, and policy makers are likely to adopt quantitative easing in the months ahead in an effort to soften the landing of the economy. However, as price growth falls at a record pace, mounting fears for deflation could weigh on the central bank’s ability to maintain their dual mandate to ensure price stability and foster economic growth, which could stoke a bearish outlook for the British pound going forward.

Expectations for a weakening labor market clearly favors a bearish Sterling trade for the given event risk, but as we saw from the previous release, an enhanced labor reading could spark a rally in the pound-dollar. Therefore, if jobless claims rises less than expected (below 78K), we will look for a green, five-minute candle following the release to confirm a long position on two lots of GBPUSD. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance) and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, as signs of a deepening recession continue to emerge throughout the region, a dismal labor report would certainly favor a bearish forecast for the pound following the release. As a result, an inline print or a rise of more than 88.0K in jobless claims will set the stage for a short pound trade, and we will follow the same strategy for a short pound-dollar position as the long trade mentioned above, just in reverse.

Published on Wed, Feb 11 2009, 06:13 GMT

USD/CHF: Trading the Swiss Consumer Price Index Report

Tue, Feb 10 2009, 06:27 GMT
by Daily FX Research Team

DailyFX

Trading the News: Swiss Consumer Price Index

What’s Expected

Time of release: 02/10/2009 08:15 GMT, 03:15 EST

Primary Pair Impact : USDCHF

Expected: 0.6%

Previous: 0.7%

Impact of the Swiss Consumer Price Index report had on EURUSD through the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	01/08/2008 08:15GMT	0.9%	0.7%	24	-79
Nov 2008	12/02/2008 06:45GMT	2.0%	1.5%	-6	21

December 2008 Swiss Consumer Price Index

Falling oil prices lowered the annual rate of inflation in December to 0.7% from 1.5% in the previous month, and price pressures are likely to fall lower as the Swiss National Bank anticipates the economy to face a recession in 2009. A deeper look into the report showed that prices dropped 0.5% during the month, which was driven by a 13.9% fall in oil products, and was followed by a 8.0% drop in energy prices. As the central bank forecasts GDP to contract 0.5-1.0% next year, policy makers are likely to hold the 3-month LIBOR rate at 0.50% over the foreseeable future, which will certainly help to mitigate the downside risks for growth, but as global trade conditions deteriorate at a rapid pace, the growth outlook for the export-driven economy remains bleak.

November 2008 Swiss Consumer Price Index

The Swiss consumer price index marked its biggest decline in 15 years as the annual rate of inflation slipped to 1.5% from a previous reading of 2.6% in October. The breakdown of the report showed that price growth fell 0.7% during the month, which was driven by a 13.6% drop in petroleum products. As a result, the Swiss National Bank is widely expected to ease policy further as policy makers maintain a 2% target for inflation, and may adopt a zero interest rate policy over the near-term as the risks for deflation intensify. Prices pressures throughout the global economy are likely to alleviate further as commodity prices continue to fall lower while trade conditions deteriorate, and as the SNB forecasts the export-based economy to face a recession in 2009, the central bank may increase its efforts over the coming months in order to steer the economy out of a recession.

What To Look For Before The Release

In an effort to mitigate risk exposure, we will monitor market depth for EUR/USD ahead of the release. Our objective is to observe normal to high (or increasing) EUR/USD liquidity, which could help to shed some light the market-moving potential of the release as well as the likely directional bias. Overall, increasing volume will telegraph likely momentum behind the move following the release. An imbalance in available liquidity on the bid versus the offer side of the market (or vise versa) will tell us what direction major institutions are likely favoring ahead of the announcement. If the offer side sees deeper markets, this means banks are selling EUR/USD and we will look to follow their lead and favor the short side. Alternatively, we will look for opportunities to go long if liquidity is deeper on the bid side. The absence of a clear imbalance (at least 2:1) or a weak uptick in volumes will signal a need for added confirmation before a trade is placed.

How To Trade This Event Risk

The consumer price index for Switzerland is expected to show a weakening outlook for price growth as economists project the annual rate of inflation to fall to 0.6% in December from a previous reading of 0.7%, and the outlook for prices remains decisively to the downside as the International Monetary Fund forecasts a global recession for 2009. Fading demands from abroad has certainly taken a toll on the Swiss economy as it failed to grow in the third quarter, and conditions are likely to only get worse as trade conditions falter. The Swiss trade surplus narrowed to 0.22B from a revised reading of 2.25B in November, which was driven by a record breaking 13.3% drop in exports, while the downturn in trade pushed the annualized reading for producer and import prices to 0.4% from 1.1% during the same period. The data foreshadows a deepening a recession throughout the region, and as the risks for deflation intensify, the Swiss National Bank is likely to step up their efforts as policy makers forecast the annual rate of growth to contract 0.8% this year. As a result, SNB President Pierre Roth said that he expects ‘rate will remain low for a relatively long period of time’ at the World Economic Forum in Davos, Switzerland as the central bank attempts to steer the economy out of a recession, but as risk trends continue to dictate price action in the financial markets, the rise in the exchange rate could weigh on the export-based economy going forward. SNB Vice-Chairman Philipp Hildebrand said that the central bank may use ‘innovative and extensive monetary measures’ in an effort to restore confidence in the financial system during a speech in Zurich, and reinforced his earlier comments by stating that policy makers will utilize all the available tools to ‘fulfill’ their dual mandate to ensure price stability while fostering economic growth. Nevertheless, as investors continue to curb their appetite for risky assets, safe-haven flows are likely to strengthen the Swiss franc against its currency counterparts however, expectations for an intervention by the SNB could certainly limit the appeal of the low-yielding currency over the near-term.

Trading the given event risk may not be as clear cut as some of our other trades as investors weigh the likelihood for an intervention by the SNB, but as market participants project a weakening outlook for inflation, an unexpected rise in prices would certainly leave the door open for a fall in the exchange rate. Therefore, if the annualized CPI reading pushes higher or holds at 0.7%, we will keep an eye out for red, five-minute candle following the release to confirm a short entry on two lots of USDCHF. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance) and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, as fears for deflation intensify, the Swiss franc could face increased selling pressures following the event as market participants raise bets for the SNB to intervene in the currency market. As a result, if the annualized reading for inflation falls below 0.6%, we will look to go short the franc, and will follow the same strategy for a long dollar-franc franc trade as the short position listed above, just in reverse.

Published on Tue, Feb 10 2009, 06:27 GMT

EUR/USD: Trading the Euro−Zone Sentix Investor Confidence Survey

Mon, Feb 9 2009, 06:42 GMT
by Daily FX Research Team

DailyFX

Trading the News: Euro-Zone Sentix Investor Confidence

What’s Expected

Time of release: 02/09/2009 09:30 GMT, 04:30 EST

Primary Pair Impact : EURUSD

Expected: -30.0

Previous: -34.4

Impact of the Euro-Zone Sentix Investor Confidence report had on EURUSD through the past 2 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2008	01/05/2008 09:30GMT	- -	-34.4	5	-110
Dec 2008	12/08/2008 09:30GMT	-40.0	-42.3	-4	39

January 2008 Euro-Zone Sentix Investor Confidence

The Euro-Zone Sentix investor confidence survey snapped back after falling for the past seven-months as the index jumped to -34.4 from record low reading of -42.3 in January.
Meanwhile, the breakdown of the report showed that the gauge for future expectations rose to -31.5 from -42.0 in the previous month, but as the index remains deep in negative territory, the probability for a rebound in business investments remains unlikely. Nevertheless, increased efforts by European policy makers to stimulate the economy has certainly helped to boost sentiment throughout the region, but despite the rise in the survey, the outlook for growth remains bleak as the European Central Bank forecasts the annual rate of growth to contract 0.5% this year.

December 2008 Euro-Zone Sentix Investor Confidence

Investor confidence in the Euro-Zone slipped to a record low in December as the European Central Bank forecasts the annual rate of growth to contract 0.5% in 2009. The headline reading for the Sentix survey plunged to -42.3 from -36.4 in November, while a gauge for future expectations ticked higher to -42.00 from -42.75. Deteriorating fundamentals paired with financial uncertainties have weighed on the outlook for growth throughout the region, and as the economy faces a recession for the first time in over a decade, European policy makers may continue to ease policy further as price growth falters. Falling commodity prices paired with the downturn in the global economy have certainly tapered the upside risks for inflation, and as the central bank maintains a 2% target for price stability.

What To Look For Before The Release

How To Trade This Event Risk

Investor confidence in the Euro-Zone is expected improved in February as policy makers throughout the region increased their efforts to stimulate the ailing economy, but as global trade conditions falter, the odds for a marked recovery in sentiment remains unlikely. Fading demands from abroad pushed the trade deficit to -4.9B from a revised reading of -2.1B in October as exports fell at its fastest pace in eight-years, and conditions are likely to get worse as the International Monetary Fund forecasts the annual rate of growth to contract 2.0% in 2009. As the region is expected to face its worst recession since World War II, public and private entities are likely to scale back on spending in an effort to reduce costs, and as global credit conditions remain far from normal, investment lending practices are likely to remain subdued throughout the year. In addition, fears of a deepening recession paired with financial uncertainties continued to drag on the economy as the European Commission reported a record drop in economic confidence, while a separate report by the European Union showed a weakening outlook for price growth. The Euro-Zone CPI estimate slipped to 1.1% from 1.6% in December to reach its lowest level since the single-currency was introduced in 1999, while the core measure for inflation continued to fall below the European Central Bank’s 2% target as the annual rate dropped to 1.8% from 1.9% in November. As price growths falls below the desired level, policy makers are expected to lower the benchmark interest further in March as they maintain their one and only mandate to ensure price stability. After leaving rates on hold during this month’s meeting, ECB President Trichet explicitly stated that there is a chance for a 50bp rate cut next month, but went on to say that adopting a zero interest rate policy for the 16 economies operating under the euro is not ‘appropriate at this stage.’ As a result, expectations for lower borrowing costs are likely to stoke increased selling pressure for the euro during the month, and as the central bank is scheduled to revise their growth and inflation forecasts for the year at the next policy meeting, signs of a deepening recession would certainly reinforce a bearish outlook for the single currency going forward.

Expectations for a rise in investor confidence clearly favors a bullish euro trade for the given event risk, and an in-line print or a survey reading above -30.0 would support a long euro trade following the release. As a result, we will look for green, five-minute candle following the improved release to confirm a buy entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, deteriorating fundamentals paired with instability in the global financial markets continues to foreshadow a deepening recession throughout the region, and as trade conditions falters, investors are likely to hold a dour outlook throughout the foreseeable future. Therefore, a dismal confidence reading (below -35.0) would set the stage for a bearish euro trade, and we will follow the same setup for the short as the long position listed above, just in reverse.

Published on Mon, Feb 9 2009, 06:42 GMT

EUR/USD: Trading the Change in U.S. Non−Farm Payrolls

Fri, Feb 6 2009, 05:47 GMT
by Daily FX Research Team

DailyFX

Trading the News: US Change in Non-Farm Payrolls

What’s Expected

Time of release: 02/05/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -540K

Previous: -524K

Impact of the US employment report had on EURUSD through the past 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	01/09/2008 13:30GMT	-525K	-524K	-162	269
Nov 2008	12/05/2008 13:30GMT	-335K	-533K	27	47
Oct 2008	11/07/2008 13:30GMT	-200K	-240K	13	-18

December 2008 US Change In Non-Farm Payrolls

The world’s largest economy shed another 524K jobs in December to raise the 2008 total to 2.589M, which raised the jobless rate to a 15-year high of 7.2% from a revised reading of 6.8% in November, and marked the biggest annual contraction in employment since 1945. Meanwhile, the FOMC lowered their outlook for growth as the central bank projects unemployment to ‘rise significantly into 2010,’ and as signs of a deepening recession emerge, policy makers may continue to step up their efforts in order to soften the landing of the economy. Nevertheless, as President-elect pledges to save or create 3M jobs over the next two-years, efforts by the new Administration could certainly help to mitigate the downside risks for growth, but may have little or no impact on the real economy as it faces its longest recession in a quarter century.

November 2008 US Change In Non-Farm Payrolls

U.S. Non-farm payrolls fell the most in 34 years as the world’s largest economy shed 533K jobs in November. In addition, the employment reading for October was revised sharply lower to -320K from an initial reading of -240K, which raised the number of total job losses in 2008 to 1.91M. The rapid deterioration in the labor market pushed the unemployment rate to a 15 year high of 6.7% from 6.5% in the previous month. As the U.S. economy faces its longest recession in over a quarter century, conditions are likely to get worse, which foreshadows a dour outlook for the labor market. Meanwhile, President-elect Obama said that the rise in unemployment reflects the ‘urgent’ need for a stimulus plan in response to the significant downturn in the global economy, and plans to create 2.5M jobs over the next two years.

October 2008 US Change In Non-Farm Payrolls

The U.S. economy lost 240K jobs in October following a loss of 284K in the previous month, which raised the unemployment rate to a 14 year high of 6.5% from 6.1% in September. Moreover, mounting job losses pushed the total number of unemployed workers to a 25 year high of 10.08M in October, and conditions may only get worse as demands from home and abroad falter. Deteriorating fundamentals have certainly stoked fears that the U.S. will ultimately face its most severe recession in 25 years. Despite the extraordinary efforts taken on by policymakers, fears of a protracted downturn has already raised bets that the Fed will continue to ease policy further over the coming months, and would lower the interest rate below 1.00% at the December 16th policy meeting.

How To Trade This Event Risk

The U.S. labor market is expected to weaken further as economists forecast non-farm payrolls to drop another 540K In January after falling 524K in the previous month, which would raise the annual jobless rate to a 16-year high of 7.5% from 7.2%. Fears of a deepening recession paired with financial uncertainties have certainly dragged on business throughout the second half of 2008, and conditions are likely to get worse as Fortune 500 firms such as Boeing, Caterpillar, Target, along with many others slash their earnings forecast for the year. As firms continue to face weakening demands from home and abroad, business have been aggressively cutting their work force in an effort to reduce costs, which raised continuing claims for unemployment benefits to its highest level since 1967, and firms are likely to cutback on employment and production further as the International Monetary Fund forecast the annual rate of growth for the world’s largest economy to contract 1.6% this year. The advanced GDP reading for the fourth quarter showed that economic activity plunged 3.8% after falling 0.5% in the previous quarter, while personal spending slipped another 3.5% after posting a 3.8% drop in the third quarter. In addition, the Commerce Department also reported that retail spending fell for the sixth consecutive month in December, which marked the worst slump in domestic demands since records began in 1992, and as private-spending accounts for nearly two-thirds of GDP, firms are likely to boost cost-cutting measures over the first half of the year as growth prospects deteriorate at a record pace. Meanwhile, earlier this week we saw that job cuts in January more than tripled from the previous year to reach a seven-year high, while a separate report showed that private payrolls slumped 522K during the same period amid expectations for a 535K decline. The data certainly foreshadows the dire state of the labor market, and as President Obama pledges nearly $800B to simulate the economy, efforts by the Administration will certainly help to mitigate the downside risks for growth, but may fall short to meet expectations to jump-start the economy as the financial markets remains under stress. As the growth outlook for the U.S. economy remains bleak, a rise in unemployment could spur increased selling pressures for the dollar, but as risk trends continue to dictate price action in the forex market, the reserve currency may continue to benefit from save haven flows.

Trading the given event risk clearly favors a bearish forecast for the U.S. dollar as market participants anticipate the jobless rate to surge higher, but the better than expected ADP release has left the door open for an enhanced payrolls reading, which would certainly increase the appeal of the greenback. As a result, if the employment data crosses the wires stronger than expected (less that -500K), we will keep an eye out for a red, five-minute candle following the release, which could support a short entry (long dollar) on two lots of EURUSD. Once these conditions are met, we will place our initial stop above the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, the slew of job cuts by Fortune 500 firms during the previous month reinforces the likelihood for further weakness in the labor market, and an inline print or a drop of more than 540K in payrolls would clearly favor a short dollar trade for the given event risk. Therefore, a dismal payrolls release would set the stage for a long EURUSD trade, and we will follow the same strategy for the long position as the short trade mentioned above, just in reverse.

Published on Fri, Feb 6 2009, 05:47 GMT

GBP/USD: Trading the Bank of England Interest Rate Decision

Thu, Feb 5 2009, 05:53 GMT
by Daily FX Research Team

DailyFX

Trading the News: Bank of England Rate Decision

What’s Expected

Time of release: 02/05/2009 12:00 GMT, 07:00 EST

Primary Pair Impact : GBPUSD

Expected: 1.00% Previous: 1.50%

Impact the Bank of England Rate Decision has had on GBPUSD after the last 3 releases


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Jan 2009	01/08/2008 12:00GMT	1.50%	1.50%	199	143
Dec 2008	12/04/2008 12:00GMT	2.00%	2.00%	77	229
Nov 2008	11/06/2008 12:00GMT	4.00%	3.00%	25	-50

January 2009 Bank of England Rate Decision

The Bank of England voted 8-1 to cut the benchmark interest rate by 50bp to 1.50%, which is the lowest level since the central bank was established in 1694. The minutes of the policy meeting showed that the central bank dove David Blanchflower went against the majority as he pushed for a 100bp cut, but the MPC opted for a half-point reduction in order to avoid shocks ‘in both financial markets and the real economy.’ Despite the extraordinary efforts taken on by the central bank and Prime Minister Gordon Brown, the growth outlook for the U.K. remains bleak as fundamentals deteriorate at a record pace, and conditions are likely to only get worse as Europe’s second largest economy heads into its worst recession in over a decade. Nevertheless, the BoE noted that the outlook for inflation ‘remained to the downside’ as economic activity falters, and may continue to ease policy further in order to maintain their 2% target for price growth.

December 2008 Bank of England Rate Decision

BoE Governor Mervyn King and Co pushed borrowing costs to its lowest level since 1951 as they voted unanimously to cut the benchmark interest rate by 100bp to 2.00%. The minutes of the rate decision showed that the MPC considered an even larger reduction in the key rate in order to meet their dual mandate to ensure price stability while fostering economic growth, but concerns of an ‘excessive’ drop in the U.K. currency lead policymakers to hold off from such an aggressive move as it would ‘undermine confidence in the economy more widely,’ the MPC said. Moreover, the BoE stated that rates may have to go lower as they perceive significant ‘downside risk to inflation,’ and went on to say that ‘without further policy action, inflation would substantially undershoot the target in the medium term.

November 2008 U.K. Bank of England Rate Decision

U.K. policymakers voted 9-0 to lower the benchmark interest rate by 150bp to 3.00%, but considered an even larger cut as the headline reading for inflation fell at a record pace in October. Falling oil prices paired with the significant slowdown in the economy lowered consumer prices to an annual growth rate of 4.5% from 5.2% in September, with policymakers forecasting price growth to fall ‘well below’ the central bank’s 2% target in 2009, which would lead the BoE to continue their easing cycle over the coming months. Governor Mervyn King noted that he is ready and willing to lower borrowing costs to ‘whatever level is necessary’ in order to meet the bank’s dual mandate, which supports the MPC’s argument that rates will have to fall lower as Europe’s second largest economy faces its worst recession in over a decade.

How To Trade This Event Risk

The British pound may face increased selling pressures over the next 24 hours of trading as market participants forecast the Bank of England to lower the benchmark interest rate by another 50bp to 1.00%, which would be the lowest level in the central bank’s history. A Bloomberg News survey shows that 56 of the 61 economists polled expect the central bank to cut borrowing costs to 1.00% however, as investors expect the BoE to conclude its easing cycle this month, long-term expectations for higher rate could push the Sterling higher following the rate decision. Nevertheless, as the International Monetary Fund expect the U.K. to face a deepening recession and projects the economy to contract 2.8% this year, deteriorating fundamentals paired with financial uncertainties will continue to drag on the outlook for growth and may lead policy makers to ease policy further as Europe’s second largest economy heads into its worst recession since World War II. The advanced GDP reading for the fourth quarter showed that economy contracted another 1.5% after falling 0.6% in the previous quarter, and conditions are likely to only get worse as the National Institute of Economic and Social Research anticipates the economy to contract until the fourth quarter, and forecasts the annual rate of growth to fall 2.7% in 2009. Economic activity throughout the region has weakened considerably throughout the second half of 2008 as jobless claims in the U.K. surged to an eight year high of 1.16M during the year, which pushed the annual rate of unemployment rate to 3.6% from 3.3% in November. As a result, consumer confidence fell to a record low in January as the Nationwide index slipped to 40 from a revised reading of 48 in the previous month, and as households become increasingly pessimistic towards the economy, the outlook for improved growth remains bleak. Consequently, the MPC may lower borrowing costs further in an effort to stimulate the economy, and is likely to adopt a zero interest rate policy over the near-term in order to avoid a deepening recession.

Trading the given event risk clearly favors a bearish forecast for the British pound and may not be as clear cut as some of our other trades, but as market participants expect the Bank of England to conclude its easing cycle, investors are likely to adjust their interest rate outlook for the U.K., which could trigger a rally in the pound-dollar. Therefore, if the MPC delivers a 50bp cut and states that they will keep rate on hold for the foreseeable future, we will look for a green, five-minute candle following the decision to confirm entry on two lots of GBPUSD. We will place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first lot reaches its target.

On the other hand, mounting growth concerns paired with the rising risk for deflation is likely to weigh on the economic outlook, which could lead BoE Governor Mervyn King and Co to drag borrowing costs below 1.00% over the coming months. As a result, if the central bank reinforces their outlook for lower inflation and holds a dour outlook for future growth, the British pound is likely to face increased selling pressures following the decision, and we will follow the same strategy for a short trade as the long position listed above, just in reverse.

Published on Thu, Feb 5 2009, 05:53 GMT

AUD/USD: Trading the Australian Retail Sales Report

Wed, Feb 4 2009, 05:51 GMT
by Daily FX Research Team

DailyFX

Trading the News: Australia Retail Sales Trend

What’s Expected

Time of release: 02/04/2009 00:30 GMT, 19:30 EST

Primary Pair Impact : AUDUSD

Expected: 0.3%

Previous: 0.1%

Effect the Australia Retail Sales Trend had over AUDUSD for the past 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Nov 2008	01/07/2008 00:30GMT	0.1%	0.1%	18	5
Oct 2008	12/02/2008 00:30GMT	0.1%	0.2%	36	33
Sep 2008	11/03/2008 00:30GMT	0.2%	0.2%	63	114

November 2008 Australia Retail Sales Trend

Private-sector spending in Australia rose 0.1% in November after rising 0.2% in the previous month, and sales conditions are likely to get worse as consumers continue to face deteriorating fundamentals paired with financial uncertainties.
A deeper look into the report showed that discretionary spending on household goods fell another 1.0% during the month, which was followed by a 0.4% decline in department store sales. The extraordinary efforts taken on by policy makers has certainly helped to mitigate the downside risks for growth, but as the labor market weakens with consumers looking to save rather than spend, growth prospects for the $1T economy are likely to deteriorate further as global trade conditions remain far from favorable. Nevertheless, as growth fears intensify, the Reserve Bank of Australia is likely to continue its easing cycle over the coming months in an effort to keep the economy afloat.

October 2008 Australia Retail Sales Trend

Retail spending rose 0.2% in October amid expectations for a 0.1% gain. The breakdown of the report showed that discretionary spending on clothing fell 0.2%, while food sales rose another 0.6% from September. Weakening demands from home and abroad have certainly lowered growth prospects for the export-driven economy and conditions are likely to get worse as global credit conditions remain far from normal. In response to the significant downturn in the global economy lead the RBA to lower the benchmark interest rate by 100bp to an eight year low of 4.25% in December, and may continue to ease policy over the coming months in order to avoid a recession. Mounting growth fears paired with a narrowing interest rate outlook suggests that the Australian dollar is likely to weaken further against its currency counterparts as investors curb their appetite for risk.

September 2008 Australia Retail Sales Trend

The Australian retail sales trend index rose 0.2% in September as policymakers increased their efforts in response to the downturn in the global economy. A deeper look into the report showed that demands for household goods fell 0.6%, while spending of food rose 0.6% from the previous month. RBA Governor Glenn Stevens lowered the benchmark interest rate by 100bp to 6.00% during the month, which was the largest reduction since 1992, and is widely expected to cut borrowing costs further in order to keep the $1T economy afloat. Despite the extraordinary efforts taken on by the central bank, fading demands from abroad will continue to drag on the export-oriented economy, and as inflation remains well above the RBA’s 2-3% target, policymakers will have a difficult time in balancing their dual mandate to ensure price stability while fostering economic growth.

How To Trade This Event Risk

Consumer spending in Australia is expected to improve as economists forecast retail sales to increase 0.3% in December on the back of falling prices, but as consumers continue to face deteriorating fundamentals paired with financial uncertainties, the outlook for the retail sector remains bleak as the $1T economy teeters on the brink of a recession. The significant downturn in the global economy paired with falling commodity prices pushed the quarterly growth rate to its lowest level in eight years as the economy grew 0.1% from the second quarter, and conditions are likely to get worse over the year as growth prospects deteriorate at a record pace. The Westpac leading index slipped 1.0% to 253.5 points in November after falling 0.2% in the previous month, and pushed the annualized reading into negative territory for the first time since 2001, which reinforces a worsening outlook for the domestic economy as the International Monetary Fund forecasts a global recession for 2009. Meanwhile, fading demands from home and abroad pushed firms to cutback on production and employment, which raised the jobless rate to a two-year high of 4.5% from 4.4% in November, and labor conditions are likely to deteriorate further as businesses continue to hold a dour outlook for future growth. Moreover, bank lending throughout the region fell for the first time since 1992, and as the financial markets remains under pressure, tightening credit conditions are likely to drag on the real economy throughout the first half of the year. As a result, the Reserve Bank of Australia lowered the benchmark interest rate by a 100bp to 3.25% this week to its lowest level in 45 years in an effort to ‘cushion’ the landing of the economy, and may continue to ease policy further over the coming months to maintain their dual mandate to ensure price stability while fostering economic growth. In addition to lower borrowing costs, the government announced that it will increase fiscal spending by another $27B in order to keep the economy afloat, which should help to boost consumer confidence, but as households look to save rather than spend during economic uncertainties, efforts by policy makers may fail to encourage an increase in private consumption.

The preemptive approach taken on by RBA Governor Glenn Stevens and Co has certainly helped to mitigate the downside risks for growth, and lower living costs should help consumers to weather the downturn in the economy. As a result, an inline print or a gain of more than 0.1% in private spending would set the stage for a long aussie trade, and with our expectations at hand, we will look for a green, five-minute candle following the release to confirm an entry on two lots of AUDUSD. Our initial stop will be placed at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Despite the extraordinary efforts taken on by the central bank and the government, mounting growth fears paired with a weakening labor market is likely to weigh on consumers as the economy heads into its first recession since 1991. As a result, a dismal sales reading (contraction of 0.2% or more) would certainly favor short aussie trade, and we will follow the same setup as the long trade listed above, just in reverse.

Published on Wed, Feb 4 2009, 05:51 GMT

EUR/USD: Trading the German Retail Sales Report

Tue, Feb 3 2009, 06:02 GMT
by Daily FX Research Team

DailyFX

Trading the News: German Retail Sales

What’s Expected

Time of release: 02/03/2009 07:00 GMT, 02:00 EST

Primary Pair Impact : EURUSD

Expected: 0.5%

Previous: 0.7%

Effect the German Retail Sales had over EURUSD for the past 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Nov 2008	01/09/2008 07:00GMT	0.5%	0.7%	5	-174
Oct 2008	12/01/2008 07:00GMT	0.5%	-1.6%	10	-44
Sep 2008	10/31/2008 07:00GMT	-1.0%	-2.3%	-9	-31

November 2008 German Retail Sales

German retail sales rose 0.7% in November amid expectations for a 0.5% gain on the back on falling oil prices, but the outlook for growth remains as the data showed that private spending fell 3.0% from the previous year. The breakdown of the report showed that discretionary spending for clothing and shoes rose 1.2% after falling 4.9% in October, while demands for furniture increased 1.5% during the month. As Euro-region faces a recession for the first time in over a decade, growth prospects are likely to deteriorate further as demands from the global economy deteriorate, and may lead the European Central Bank to step up their efforts in the months ahead in an effort to avoid a deepening recession. The extraordinary efforts taken on by the central bank has certainly helped to mitigate the downside risks for growth, but as economic activity deteriorates throughout the global economy, growth prospects are likely to weaken further throughout the first half of 2009.

EURUSD

October 2008 German Retail Sales

Private-sector spending in Germany dropped another 1.6% in October despite expectations for a 0.5% gain, and conditions are likely to get worse over the coming months as Europe’s largest economy faces its worse recession in over a decade.
Economic activity contracted 0.5% in the third quarter, and the growth outlook remains bleak as Bundesbank President Axel Weber expects the economy to weaken further in the fourth quarter. Meanwhile, prices pressures in Germany fell at a record pace during the second half of the year as the headline reading for inflation slipped to 1.5% from 2.5% in October, and the upside risks for inflation is likely to weaken further over the remainder of the year as oil prices continue to fall further. As a result, the ECB is widely expected to hold a dovish outlook going forward, and may ease policy further over the coming months in order to stave off a severe downturn in the economy.

EURUSD

September 2008 German Retail Sales

Retail sales in Germany plunged 2.3% in September as financial uncertainties pair with mounting growth concerns pushed consumers to cutback on spending. Fading demands from home and abroad have certainly dragged on the economy throughout the second half of the year, and conditions are likely to get worse as Europe’s largest economy heads into a recession. As a result, German policymakers lowered their outlook for growth as they expect the economy to expand 0.2% next year, which could lead the European Central Bank to lower the benchmark interest rate further over the coming months as price pressures alleviate. The ECB, joined the Fed on October 8th in a coordinated rate cut and lowered borrowing costs for the first time since 2003 as they anticipate price pressures to weaken further, and the central bank is likely to ease policy further over the coming months as the upside risks for inflation diminish.

EURUSD

How To Trade This Event Risk

Retail spending in Germany is expected to improve for the second month as economists forecast sales to increase 0.5% in December after rising 0.7% in the previous month. Falling oil and food prices have certainly helped consumers and businesses to weather the significant downturn throughout Europe, but as the International Monetary Fund expects the economy to contract 2.5% this year, which would be the lowest level of growth since World War II, the outlook for growth remains bleak. Stagnating demands from the global economy pushed firms to lower outputs for the third month in November as industrial production dropped another 3.1% during the month to mark its worst slump since 1991, while factory orders fell another 6.0% during the same period after dropping 6.3% in October. Moreover, unemployment in the economy rose 56K in January after posting a 33K increase in the previous month, which raised the jobless rate to 7.8% from a revised reading of 7.7% in December. The data continues to reflect a deepening recession in Germany, and conditions are likely to get worse as policy makers expect growth prospects to deteriorate throughout the year. Bundesbank President Axel Weber reinforced a worsening outlook for Europe’s largest economy even as the government pledged 1.6% of GDP in fiscal stimulus, stating that the growth rate may fall more than the central bank had initial expected, and he went on to say that ‘negative annual inflation rates are possible’ this year as global commodity prices remain low, which could lead the European Central Bank to ease policy further as they carryout their one and only mandate to ensure price stability. As a result, ECB President Jean-Claude Trichet said that he does not exclude the possibility for the interest rate to fall below 2.0% at the World Economic Forum in Davos, Switzerland, and went onto note that the central bank has and will continue to use ‘non standard measures’ to support economic activity as the global financial system remains ‘too fragile.’ As consumers continue to face financial uncertainties paired with fears of a deepening recession, private-sector spending is likely to remain subdued throughout the first half of the year, which is likely to weigh on the euro going forward.

Deteriorating fundamentals paired with expectations for lower borrowing costs have certainly weigh on the euro throughout the second half of 2008, but as the ECB is widely expected to hold the benchmark interest rate steady this week, an improved sales reading could certainly help to bolster the appeal of the currency. Therefore, an inline reading or a rise of more than 0.5% in retail sales would set the stage for a long euro-dollar trade, and with our expectations at hand, we will look for a green, five-minute candle following the release to confirm an entry on two lots of EURUSD. We will place our initial stop at the nearby swing low (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

Conversely, a weakening labor market paired with expectations for a deepening recession could weigh on consumers, and a dismal sales reading would clearly support a bearish forecast for the euro as growth prospects for Germany deteriorate further. As a result, a contraction of 0.2% or more in retail spending would favor a short EURUSD trade for the given release, and we will follow the same strategy as the long position mentioned above, just in reverse.

Published on Tue, Feb 3 2009, 06:02 GMT

AUD/USD: Trading the RBA Interest Rate Decision

Mon, Feb 2 2009, 06:06 GMT
by Daily FX Research Team

DailyFX

Trading the News: RBA Rate Decision

What’s Expected

Time of release: 02/02/2009 03:30 GMT, 22:30 EST

Primary Pair Impact : AUDUSD

Expected: 3.25%

Previous: 4.25%

Effect the RBA Rate Decision had on AUDUSD over the past 3 releases


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	12/02/2008 03:30GMT	4.50%	4.25%	42	13
Nov 2008	11/04/2008 03:30GMT	5.50%	5.25%	-98	35
Oct 2008	10/07/2008 03:30GMT	6.50%	6.00%	43	48

December 2008 RBA Rate Decision

RBA Governor Glenn Stevens and Co. continued their easing cycle as they lowered the benchmark interest rate by 100bp to a six-year low of 4.25%, and is likely to lower borrowing costs further over the coming months as the $1T economy teeters on the brink of a recession. Falling home prices throughout the region paired with fading demands from the global economy has certainly dragged on the outlook for growth, and as global trade conditions remain far from favorable, economic activity is likely to weaken further throughout the first half of 2009. Mr. Stevens said that the rate cut ‘was warranted now, to take monetary policy to an expansionary setting,’ and went on to say that the outlook for growth could weaken further as policy makers expect firms to cutback on ‘plans for investment and hiring.’

November 2008 RBA Rate Decision

The RBA reduced the key interest rate by 75bp to a three-year low of 5.25% from 6.00% despite expectations for a 50bp cut.
The minutes of the November 4th policy meeting showed that the central bank decided to take a preemptive move to support economic activity as they expected the spillover effects of the financial crisis to ‘have a significant effect on business and consumer sentiment,’ which raised speculation that the policymakers may continue to ease policy further over the coming months as fears of a global recession intensify.
Moreover, the reserve bank expects economic activity to remain subdued well into the next year as the emerging economies around the Pacific find themselves in troubled waters, and may prompt policymakers to lower borrowing costs even further as demands from the global economy deteriorate.

October 2008 RBA Rate Decision

The Reserve Bank of Australia lowered the benchmark interest rate by 100bp for the first time since 1992 as fears of a global meltdown intensified. The RBA minutes showed that the central bank slashed borrowing costs for the second consecutive meeting to lower the interest rate to 6.00%, stating that the unexpected move was ‘appropriate’ in order to stave off further downturns in the $1T economy. Meanwhile, Governor Glenn Stevens said that the risk of a ‘global catastrophe’ has died down as a result of the extraordinary efforts taken on by policy makers worldwide, but has raised speculation that the RBA will continue to ease policy further as the major economies around the world slip into a recession.

How To Trade This Event Risk

The Australian dollar is likely to face increased selling pressures over the following week as the Reserve Bank of Australia is widely expected to lower the benchmark interest rate by 100bp to 3.25%, which would be the lowest level since 1963. A Bloomberg News survey shows that 11 of the 20 economists polled forecast the central bank to lower the cash rate by 1.0% as the $1T economy teeters on the brink of a recession, while Credit Suisse overnight index swaps are showing that investors expect the RBA to lower borrowing costs by more than 200bp over the next 12 months. The data suggests that policy makers will continue their easing cycle in an effort to keep the economy afloat, and despite the extraordinary efforts taken on by the government, the outlook for growth remains bleak as demands from the global economy deteriorate at a rapid pace. Consequently, the trade surplus narrowed to A$1.45B from A$2.96B in October as exports plunged 4% during the month, and growth prospects are likely to deteriorate further over the year as firms continue to hold a negative outlook for the economy. The NAB business confidence index held below zero over the last 12 months, and as sentiment remains near a record low, firms are likely to cutback on employment and spending as the leading indicator foreshadows a worsening outlook for the economy. The Westpac leading index slipped 1.0% to 253.5 points in November after falling 0.2% in the previous month, and pushed the annualized reading into negative territory for the first time since 2001, which suggests that the economy is likely to face its first recession in over a decade. Moreover, private lending in the region fell 0.3% in December, which marked the first contraction since 1992, and financial uncertainties paired with the downturn in the banking sector are likely to drag on the real economy as credit conditions remains far from normal. Nevertheless, as risk aversion remains a dominant theme across the financial markets, the higher-yielding currency could face increased headwinds throughout the first half of the year as investors continue to curb their appetite for risk assets.

Expectations for a RBA rate cut certainly favors a bearish outlook for the Australian dollar, so we would need a clear shift in the policy outlook to even consider a bullish aussie trade for the given event risk. Therefore, if the central bank explicitly states that they have concluded their easing cycle and plans to hold a neutral outlook over the near-term, we will look for a green, five-minute candle following the decision to generate a long two lots of AUDUSD. We will then place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be base on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, as central banks around the globe adopt a zero interest rate policy (ZIRP) with the International Monetary Fund forecasting a global recession, the RBA is likely to take pre-emptive move to avoid a severe downturn in the economy, and may continue to ease policy further over the coming months in order to stimulate the economy. As a result, a 100bp rate cut or greater paired with dovish commentary would certainly favor a bearish outlook for the commodity currency, and we will follow the same strategy for the short as the long position listed above, just in reverse.

Published on Mon, Feb 2 2009, 06:06 GMT

EUR/USD: Trading the U.S. Gross Domestic Product

Fri, Jan 30 2009, 06:08 GMT
by Daily FX Research Team

DailyFX

Trading the News: U.S. Gross Domestic Product (Annualized)

What’s Expected

Time of release: 01/30/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -5.5%

Previous: -0.5%

Impact the GDP has had on EURUSD after the last 3 Quarters


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
3Q - 2008	10/30/2008 12:30GMT	-0.5%	-0.3%	-97	-185
2Q - 2008	07/31/2008 12:30GMT	2.3%	1.9%	71	-2
1Q - 2008	04/30/2008 12:30GMT	0.5%	0.6%	24	51

3Q 2008 U.S. Gross Domestic Product

Economic activity in the third quarter fell less than expected as the advanced GDP reading showed that the economy contracted 0.3% amid expectations for a 0.5% decline. The breakdown of the report showed that personal consumption slipped 3.1% from the previous quarter, which foreshadows a dour outlook for growth as private spending accounts for nearly two-thirds of the economy. As growth prospects deteriorates at a rapid pace, the U.S. economy may face its longest recession in over a quarter century, and may lead the FOMC to ease policy further in an effort to avoid a deep and severe downturn in the economy. Despite the enhanced reading for growth, the outlook remains bleak as credit conditions remain far from normal, and consumers are likely to curb spending in the months ahead as they continue to face falling home prices paired with financial uncertainties.

2Q 2008 U.S. Gross Domestic Product

The advanced GDP reading for the second quarter showed that the U.S. economy grew at an annual pace of 1.9%, which crossed the wires slightly weaker than the initial estimate of 2.3% projected by economists. The data shows that the fiscal stimulus plan has certainly helped to stave off a downturn in the economy, but conditions may only get worse as the effects of the rebate checks wears off. Meanwhile, a separate report showed that jobless claims surged to a five year high during July, indicating that higher input costs are forcing firms to cutback on employment. As employment opportunities wane, private-sector spending may weaken throughout the second half of the year as higher inflation continues to sap purchasing power for consumers.

1Q 2008 U.S. Gross Domestic Product

Growth in the U.S. expanded 0.6% dispelling belief that the country was already in a recession. Although subtracting the build up in inventories the first quarter would have contracted. A 26.7% decline in investment in residential property demonstrates that the housing slump in the U.S. has continued and the economy recovery may dependent ion the stabilizing of the sector. Also, durable goods orders fell 6.1% as a weak dollar has failed to generate enough increased demand from overseas to offset the weakness domestically.
However, the news was overshadowed by a pending FOMC rate decision. Therefore, we wouldn’t have traded the release as we were focused on the larger event risk. The central bank would cut rates by 25 bps as they tried to prevent the economy from slipping into a recession.

How To Trade This Event Risk

The advanced GDP reading for the U.S. is expected to show a 5.5% contraction in fourth quarter, which would be the biggest decline since 1982, and would certainly stoke increased selling pressures for the greenback as the world’s largest economy faces its longest recession since the Great Depression. Moreover, personal consumption is expected to drop another 3.5% after falling 3.8% in the previous quarter, which would mark the worse slump in private spending since record keeping began in 1947. Instability in the credit market paired with financial uncertainties have certainly taken a toll on the real economy, and conditions are likely to get worse as the labor market deteriorates at a record pace. The world’s largest economy lost 2.58M jobs in 2008, which was the biggest annual drop in employment since the end of World War II, and pushed the jobless rate to a 15-year high of 7.2% from a revised reading of 6.8% in November. Signs of a deepening recession emerged throughout the week as Fortune 500 firms such as Boeing, Starbucks, and Sprint Nextel were not only cutting their earnings forecasts for the year, but are also planning to slashing their work forces over the coming months as demands from home and abroad weaken further. Nevertheless, as President Obama pledges $819B in fiscal stimulus to jump-start the economy, efforts by the administration may help the economy to avoid a deep and severe recession, but the prospect for accelerated growth in 2009 remains unlikely as credit and housing conditions remain far from normal. Meanwhile, the Federal Reserve held the benchmark interest rate steady at a record low in an effort to restore confidence in the financial market, and went onto say that the central bank stands ready to purchase ‘longer-term Treasury securities’ to revive bank lending. However, the MPC noted that ‘inflation could persist for a time below’ desired levels for price stability and longer-term economic growth as global commodity prices remain weak, but concluded their statement by saying that the ‘goal of policy must be to support financial markets and the economy.’ The comments suggests that the Fed will continue to expand its balance sheets exponentially in order to foster economic activity, which could weigh on the U.S. dollar as the risks for deflation intensify. Despite expectations for a dismal growth reading, as risk sentiment continue to drive price action in the forex market, the U.S. dollar may benefit from safe haven flows as risk aversion remains a dominant theme across the financial markets.

Trading the given event risk may not be as clear cut as some of our other trades as the annual rate of growth is expected to fall at a record pace, but an enhanced GDP and consumption reading could help to bolster the appeal of the greenback as market participants remain pessimistic towards the economy. Therefore, if GDP falls 4.5% or less and private spending falls less that 3.0%, we will certainly consider a long dollar trade, and will look for a red, five-minute candle following the release to confirm a short entry on two lots of EURUSD. We will place our initial stop at the nearby swing high (or reasonable distance) and this risk will determine our first target. Our second target will be based on discretion(with a mind to support and to preserve profit we will move the stop on the second lot to break even when the first half of the trade reaches its target.

On the other hand, if the growth figure contracts 5.0% or more and spending falls more than 3.0%, the greenback is likely to face increase selling pressures as investors anticipate a deepening recession, and will certainly favor a short dollar trade for the given event risk. As a result, we will follow the same strategy for a long EURUSD trade as the short position mentioned above, just in reverse.

Published on Fri, Jan 30 2009, 06:08 GMT

EUR/USD: Trading the U.S. Durable Goods Orders Report

Thu, Jan 29 2009, 08:04 GMT
by Daily FX Research Team

DailyFX

Trading the News: US Durable Goods Orders

What’s Expected

Time of release: 01/29/2009 13:30 GMT, 08:30 EST

Primary Pair Impact : EURUSD

Expected: -2.0%

Previous: -1.0%

Effect the US Durable Goods Orders had over EURUSD for the past 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Nov 2008	12/24/2008 13:30GMT	-3.0%	-1.0%	5	-4
Oct 2008	11/26/2008 13:30GMT	-3.0%	-6.2%	17	-52
Sep 2008	10/29/2008 12:30GMT	-1.1%	0.8%	19	191

November 2008 US Durable Goods Orders

Private-sector demands weakened at a slower pace in November as orders for durable goods fell 1.0% amid expectations for a 3.0% decline. Despite the enhanced reading for November, last month’s reading was revised down to -8.4% from an initial reading of -6.2%, which is the biggest drop in capital spending in eight years. As credit conditions remain far from normal, business spending is likely to remain subdued over the coming months, and conditions may only get worse as the economy faces its longest recession since the 1930’s.
As a result, the Fed took unprecedented steps to stimulate the slowing economy as they cut the benchmark interest rate to a target range of zero to 0.25%, which is the lowest level in the central bank’s history.

EURUSD

October 2008 US Durable Goods Orders

Business spending weakened further in October as durable goods orders plunged 6.2% from the previous month despite forecasts for a 3.0% drop. The breakdown of the report showed that orders excluding the volatile transportation component dropped 4.4% during the month, while demands for capital goods slipped 7.7% after rising 1.9% in September. Fading demands from home and abroad has certainly dragged on the world’s largest economy, and the outlook for growth remains bleak as consumers continue to face tighten credit conditions paired with financial uncertainties. As a result, market participants expect the FOMC to continue its easing cycle in order to avoid a deepening recession, and the central bank may adopt a zero interest rate policy (ZIRP) over the near-term as policy makers attempt to restore confidence in the global financial market.

EURUSD

September 2008 US Durable Goods Orders

Durable goods orders contracted for the second consecutive month in September as firms continued to cutback on capital investments. Orders fell 1.1% after plunging 4.1% in the previous month, while durables excluding transportation unexpectedly increased 0.8% due to an increase in aircraft demands. Fears of a global recession paired with instability in the financial market has certainly taken a toll on the world’s largest economy, and demands may weaken further over the coming months as the major economies around the world teeter on the brink of a recession. Mounting fears of a global meltdown led the Fed to lower the benchmark interest rate by 100bp during the month, and may continue to ease policy further in the months ahead as the U.S. economy growth prospects deteriorate further.

EURUSD

How To Trade This Event Risk

The U.S. dollar may face increased selling pressures over the next 24 hours of trading as economists forecast durable goods orders to drop another 2.0% in December after falling 1.0% in the previous month. Fading demands from home and abroad paired with financial uncertainties have certainly taken a toll on businesses, and firms are likely to cutback on capital spending throughout the first half of the year as the outlook for growth remains bleak. The ISM manufacturing index fell to a 28-year low in December as new orders slipped to a record low from the previous month, while factory orders dropped another 4.6% in November after falling 6.0% in the prior month. The data suggests that the world’s largest economy is facing a deepening recession, which could lead policy makers to step up their efforts in order mitigate the downside risks for growth. Meanwhile, the Fed’s Beige Book noted that ‘overall economic activity continued to weaken’ across the country, and went onto say that that ‘sales during the holiday season were generally negative’ and expects ‘continued weakness’ in the private spending. In December, retail sales weakened for the sixth consecutive month, which is the worst slump since comparable records began in 1992, and domestic demands are likely to remain subdued over the coming months as credit conditions remain far from normal.
Instability in the credit market continued to weigh on consumer as borrowing activity dropped another 7.9B in November, which is the largest decline since 1967, and lowered the annualized figure to $2.57T. Moreover, earlier this week Fortune 500 firms such as Home Depot, Pfizer, and Caterpillar announced that they will slash their labor force in an effort to cut costs, which foreshadows a dour outlook for business spending, and firms are likely to take additional measures to shore up their balance sheets as the economy faces its longest recession since the 1930’s. Nevertheless, a dismal durable goods report is likely to spur bearish sentiment for the U.S. dollar, but as investors remain risk adverse, the reserve currency may benefit from safe haven flows as risk trends continue to dictate price action in the forex market.

As the outlook for growth remains bleak, we would need to see a considerable rebound in capital spending in order for us to even consider a long dollar trade for the given event risk. Therefore, we will look for an increase of at least 0.5%, and with our expectations at hand, we will look for a red, five-minute candle following the release to generate a short entry on two lots of the EURUSD. We will place our initial stop at the nearby swing high (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its target in order to preserve our profits.

Conversely, fears of a deepening recession paired with mounting turmoil in the global financial market is likely to weigh on businesses, and a drop in durable goods would clearly favor a bearish outlook for the greenback. As a result, an inline print or a drop of 2.0% or greater in capital spending would certainly favor short dollar trade (long EURUSD), and we will follow the same strategy as long position listed above, just in reverse.

Published on Thu, Jan 29 2009, 08:04 GMT

EUR/USD: Trading the FOMC Interest Rate Decision

Wed, Jan 28 2009, 06:03 GMT
by Daily FX Research Team

DailyFX

Trading the News: FOMC Rate Decision

What’s Expected

Time of release: 01/28/2009 19:15 GMT, 14:15 EST

Primary Pair Impact : EURUSD

Expected: 0.25%

Previous: 0.25%

Impact the FOMC’s decisions have had on GBPUSD after the last 3 meetings


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	12/16/2008 19:15GMT	0.50%	0.25%	202	217
Oct 2008	10/29/2008 18:15GMT	1.00%	1.00%	-78	18
Sep 2008	09/16/2008 18:15GMT	2.00%	2.00%	47	39

December 2008 FOMC Rate Decision

October 2008 FOMC Rate Decision

The FOMC lowered the benchmark rate by 100 bps to 1.00% in October as the credit markets tightened and the economy slowed further. Indeed, the MPC would cite the impact of the Lehman brothers failure, declining industrial production, a weakening labor market and declining consumer spending as reasons for the aggressive easing. Markets were expecting the deep cut as the frozen credit markets had greatly increased the downside risks to growth. Companies had lost their ability to borrow to meet their cash flow needs increasing the speculation that they would have to cut overhead in order to free up cash. Additionally, the unwinding of the commodity bubble saw price pressures dissipate giving the central bank the room to lower rates. The expected easing would spark bullish price action resulting in no trade.

September 2008 FOMC Rate Decision

The minutes of the September 16th rate decision showed that the Federal Open Market Committee voted 10-0 to hold the benchmark interest rate steady at 2.00% for their third straight meeting. The board noted that upside prices pressure have diminished since the previous meeting as oil prices continued to pullback from its record high in July, and held a dovish outlook as they highlighted the downside risks for growth. The central bank stated that the MPC may ease policy in the coming months as mounting turmoil in the financial market continues to pose a threat to the overall economy, and went on to say that the Fed will respond as needed. The commentary suggests that the FOMC will in fact deliver a rate cut before the end of the year as fears of a recession intensify.

EURUSD

How To Trade This Event Risk

As the Federal Reserve adopts a zero interest rate policy (ZIRP), the central bank is widely expect to hold borrowing costs at a record low as the world’s largest economy faces its longest recession since the 1930’s. A Bloomberg News survey shows that 44 of the 45 economists polled forecast the FOMC to hold the benchmark interest rate between zero and 0.25%, and the comments from the MPC suggests that they will hold the rate close to zero ‘for some time’ as policy makers see ‘substantial’ downside risks for growth. The final GDP reading for the third quarter showed that personal consumption dropped the most in over two decades as private-spending slipped 3.8% from the previous quarter, while market participants expect economic activity to contract 5.5% in the fourth quarter, which would be the largest decline since 1982. Signs of a deepening recession continues to emerge as retail spending in the U.S. fell for the sixth consecutive month in December, which is the worst slump since records began in 1992, and conditions are likely to get worse as the labor market deteriorates at a record pace. The economy lost 2.58M jobs in 2008, which was the biggest annual drop in employment since the end of World War II in 1945, which pushed the jobless rate to a 15-year high of 7.2% from a revised reading of 6.8% in November, and the outlook for growth remains bleak as consumers continue to face falling home prices paired with financial uncertainties. Moreover, as the Fed considers ‘various quantitative measures’ in an effort to foster economic activity and maintain the 2% target for inflation, managing monetary policy without the use of the interest rate has made the job extremely complex, and market participants are surely to react to the commentary following the decision for further clues on the long-term objectives that held by the MPC. Meanwhile, former Fed board member Frederic Mishkin stated that the ‘more important part of policy now is managing expectations,’ and suggests that the FOMC should improve transparency by providing a longer-term outlook for growth and inflation as the central bank takes unprecedented measures to shore up the economy. Nevertheless, as risk trends continue to dictate price action in the forex market, the U.S. dollar should continue to benefit from safe haven flows as investors remain risk adverse.

Trading the given event risk may not be as clear cut as some of our other trades as the benchmark interest rate holds near zero, so we will base our trade on the growth and inflation outlook held by the central bank. Therefore, if the FOMC raises the outlook for long-term growth and takes additional steps to anchor the outlook for inflation, we will look for a green, five-minute candle following the commentary to confirm a short trade (long dollar) on two lots of the EURUSD. We will place our initial stop at the nearby swing high (or reasonable distance considering volatility), and our first target will equal this risk. Our second objective will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to break even once the first lot reaches its target.

On the other hand, a weakening outlook for the growth paired with increased concerns for deflation is likely to weigh on the U.S. dollar. As a result, if the Fed explicitly states that they will continue to increase their balance sheets and plans to boost the money supply, we will follow the same strategy for a short dollar trade as the long position mentioned above, just in reverse.

Published on Wed, Jan 28 2009, 06:03 GMT

EUR/USD: Trading the German IFO − Business Climate Report

Tue, Jan 27 2009, 06:03 GMT
by Daily FX Research Team

DailyFX

Trading the News: German IFO – Business Climate

What’s Expected

Time of release: 01/26/2009 09:00 GMT, 04:00 EST

Primary Pair Impact : EURUSD

Expected: 81.0

Previous: 82.6

Effect the German IFO – Business Climate Survey had over EURUSD for the past 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Dec 2008	12/18/2008 09:00GMT	84.0	82.6	145	-175
Nov 2008	11/24/2008 09:00GMT	88.7	85.8	59	311
Oct 2008	10/27/2008 09:00GMT	91.0	90.2	54	70

December 2008 German IFO – Business Climate Survey

Business sentiment in Germany fell to its lowest level in over a quarter century as the Bundesbank expects the economy to contract 0.8% next year. The IFO survey slipped to a record low reading of 82.6 in December from 85.8 in the previous month, while the outlook fell to 76.8 from 77.6, which is the lowest reading since records began in 1991. The data continues to reflect a dour outlook for Europe’s largest economy as growth prospects deteriorate at a record pace, and conditions are likely to get worse as economic activity weakens throughout the region. Meanwhile, German Chancellor Angela Merkel proposed a $45B stimulus package in response to the significant downturn in the domestic economy, and the European Central Bank may also step up their efforts over the coming months as economic activity weakens throughout the euro-region.

EURUSD

November 2008 German IFO – Business Climate Survey

The German IFO business confidence survey fell to a 16-year low of 85.8 from 90.2 in October, and the outlook for Europe’s largest economy remains bleak as the International Monetary Fund forecasts the annual rate of growth to contract 0.8% in 2009. Nevertheless, business expectations slipped to a record low reading of 77.6 from 81.4 in the previous month, and conditions are likely to get worse as the economy faces its worst recession in over a decade. Fading demands from the global economy paired with financial uncertainties have certainly taken a toll on the export-driven economy throughout the second half of the year, and firms are likely to hold a dour outlook over the near-term as credit conditions remain far from normal. Meanwhile, the European Central Bank is widely expected to lower borrowing costs further as growth prospects deteriorate further, which could stoke increased selling pressures for the euro over the near-term.

October 2008 German IFO – Business Climate Survey

Business confidence in German plunged to a five year low of 90.2 from 92.9 in September as fears of a global recession intensified. In addition, business expectations fell to its lowest level since recordkeeping began in 1991, which suggests that conditions will only get worse as demands from home and abroad deteriorate. Signs that the financial crisis is spilling into the real economy have certainly stoked fears that Europe’s largest economy will slip into a recession in the third quarter, and has raised expectations that the European Central Bank will continue to ease policy further over the coming months as price pressures alleviate. The significant fall in commodities paired with the downturn in the economy has helped to lower inflation throughout the Euro-Zone, which would allow the ECB to lower the benchmark interest rate at the November policy meeting in order to stave off further downturns in the economy.

EURUSD

How To Trade This Event Risk

The euro could face increased selling pressures over the next 24 hours of trading as economists forecast the German IFO business confidence survey to slip to a record low reading of 81.0 from 82.6 in November. Fading demands from the global economy paired with financial uncertainties have certainly dragged on the export-driven economy, and conditions are likely to get worse as the Bundesbank expects economic growth to contract 0.8% this year. The downturn in the global economy pushed the trade surplus to 9.7B from 16.4B in October as exports plunged 10.6% during the month, which is largest drop in foreign demands since recordkeeping began in 1990. In addition, factory orders dropped another 6.0% during the same period after falling 6.3% in October, which suggest that trade conditions may weaken further over the year as economic activity deteriorates throughout the euro-region. As a result, industrial outputs fell 3.1% in November after dropping 1.8% in the previous month, and the outlook for growth remains bleak as the economy faces its worst recession in over a quarter century. Nevertheless, mounting growth concerns for Europe’s largest economy could lead the European Central Bank to continue its easing cycle over the coming months as the European Commission forecasts the annual rate of growth to contract 1.9% in 2009 and lowered their outlook for inflation to 1.0% from 3.3% in 2008. As price growth is anticipated to fall below the central bank’s 2% target for inflation, policy makers may adopt a zero-interest rate policy (ZIRP) over the near-term in order to maintain their one and only mandate to ensure price stability. Meanwhile, Credit Suisse overnight index swaps are showing that investors expect the ECB to lower the benchmark interest rate by nearly 50bp during the year, which could drag on the euro lower throughout the first half of the year. Moreover, as risk trends continue to dominate price action in the currency market, the U.S. dollar may continue to benefit from its safe haven status as investors remain risk adverse.

As confidence remains weak throughout the region, we would need a significant rise in the IFO survey to yield a bullish euro trade for the scheduled event risk. Therefore, a confidence reading above 85.0 will set the stage for a long EURUSD trade, and with our expectations at hand, we will look for a green, five-minute candle following the release to confirm an entry on two lots of the euro-dollar. We will place our initial stop at the nearby swing low (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, the downturn in trade paired with financial uncertainties are likely to weigh on business, and may lead firms to lower their outlook for growth as fundamentals deteriorate at a record pace. As a result, an inline print or a confidence reading below 81.0 would certainly favor a short euro trade, and we will follow the same setup as the long position mentioned above, just in reverse.

Published on Tue, Jan 27 2009, 06:03 GMT

EUR/USD: Trading the U.S. Existing Home Sales Report

Mon, Jan 26 2009, 05:58 GMT
by Daily FX Research Team

DailyFX

The U.S. housing market is anticipated to weaken further as economists forecast existing home sales to drop another 2.0% in December after falling at a record pace in the previous month. Financial uncertainties paired with tighten credit conditions have certainly taken a toll on the economy since the collapse of the housing boom at the end of 2007, and the downturn may continue throughout 2009 as home values continue to tumble lower.

Trading the News: U.S. Existing Home Sales

What’s Expected

Time of release: 01/26/2009 15:00 GMT, 10:00 EST

Primary Pair Impact : EURUSD

Expected: -2.0%

Previous: -8.6%

Impact of U.S. Existing Home Sales on EURUSD over the last 3 months


Period	Data Releases	Estimate	Actual	Pips Change (1 Hour post event)	Pips Change (End of Day post event)
Nov 2008	12/23/2008 15:00GMT	-1.0%	-8.6%	-36	-51
Oct 2008	11/24/2008 15:00GMT	-3.5%	-3.1%	-38	-164
Sep 2008	10/24/2008 15:00GMT	0.8%	5.5%	19	-132

November 2008 U.S. Existing Home Sales

EURUSD

October 2008 U.S. Existing Home Sales

Purchases of existing homes in the U.S. fell 3.1% in October amid expectations for a 3.5% decline, and conditions are likely to get worse as home prices fall at a record pace. The downturn in the housing market pushed the annual rate of home sales to 4.98M from 5.18M in the previous month, while a deeper look into the report showed an 11.3% drop in prices during the month, which is the biggest decline since records began in 1968. The data continues to reflect a dour outlook for the economy as growth prospects deteriorate at a record pace, and economic activity is likely to remain subdued over the next year as the world’s largest economy faces its longest recession in a quarter century. Tightening credit conditions paired with financial uncertainties continues to hamper the outlook for housing, and as foreclosures are on the rise, conditions may only get worse as banks continue to hoard cash.

EURUSD

September 2008 U.S. Existing Home Sales

Existing home sales in the U.S. jumped 5.5% in September amid expectations for a 0.8% decline, which raised the annual rate to 5.18M from 4.91M in the previous month. The breakdown of the report showed that home prices slipped 9.1% from a year earlier, which suggests that the housing market has yet to reach a bottom as prices continue to tumble lower. Despite the unexpected rise in home purchases, increased turmoil in the financial sector paired with deteriorating fundamentals are likely to drag on growth throughout the remainder of the year, and home prices are likely to fall lower as credit conditions remain far from normal.
Meanwhile, comments from Fed Chairman Ben Bernanke reflects the dire situation of the global credit market as he saw households with ‘good credit’ were having difficulty in obtaining loans from banks.

EURUSD

FXstreet.com

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