Friday, July 9, 2010

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Forex Trading Strategies
Market Comments:

The Asian session was dominated by the Australian jobs report and this came in very strong. A solid 45.9k jobs were added in June, the fourth straight month of gains, and beat market expectations by a large margin. In the details, 18.4k full-time jobs were added and part-time saw 27.5k added. The participation rate rose to 65.2% from 65.1% while unemployment eased off to 5.1%. Certainly the data laid to rest early-week chatter of the RBA cutting rates (!) with risks now skewing towards further tightening. The yield curve’s negative pricing has been completely erased and markets scaled up the chance of an August hike to 19%. The next data point to monitor will be the RBA minutes on July 20 and Q2 CPI on July 28 ahead of the next meeting on August 3.

Yesterday’s session was a painful day for bears as the risk rebound extended to another session. Sentiment took positives from emerging details of the EU bank stress tests, with German sources saying tests will not include a haircut on German sovereign bonds while Spanish debt will only receive a 3% haircut versus 17% for Greece. EUR traded firmer with reported options expiries at 1.26 a magnet, even though German factory orders were a slight disappointment (-0.5% m/m vs. +0.3% expected) while final EU GDP was on the nose. GBP continued to shine with a brief foray above 1.52 as the USD slid broadly.

There were no US data releases so Fed speakers grabbed the headlines. Hoenig, a recognized and regular hawk, called for a Fed rate hike saying 1% rates would not hurt the economy. He was downbeat on inflation and growth and fellow member Fischer echoed the inflation sentiments, suggesting deflation was the greater tail risk than inflation. Wall St has a resounding day with impressive gains following very positive guidance from State Street Bank (note Q2 reporting season kicks off next week). Financials were up 4.4% (State Street up 10%) and this pulled broader indices higher.

The strong Oz data spurred another round of risk appetite during the Asian session with risk currencies surging to the next level. EUR managed stops above 1.2665-70, AUDUSD crushed MA res and double-bottom technical targets while JPY cross buying lifted USDJPY through 88.0

The IMF was also on the wires upgrading its forecast for global growth this year, citing a stronger- than-expected first half but at the same time warning that financial market turmoil has increased the risks to the recovery. The IMF estimates that the world economy will expand 4.6% in 2010, the biggest gain since 2007, compared with an April projection of 4.2%. Growth next year is projected to be 4.3%, unchanged from the April forecast.

For today’s session attention switches to the central bank meetings from the BOE and ECB. Neither is expected to produce any changes to rates or QE measures but the ECB press conference may expand on the EU stress test theme. Elsewhere in Europe, we see Swiss unemployment, German trade data and IP, Sweden CPI and UK industrial production data. North America sees Canadian new housing prices along with the weekly US initial jobless claims.

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