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Blogs about basic information in forex trading, forex participants and how to earn big in forex trading.This morning’s US CPI data came in at -.1% (MoM) showing signs that prices are declining.  This lends credence to the deflationista’s, who are projecting lower prices after the removal of government stimulus.  This should not come as a surprise, as government spending was intended


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This morning’s US CPI data came in at -.1% (MoM) showing signs that prices are declining.  This lends credence to the deflationista’s, who are projecting lower prices after the removal of government stimulus.  This should not come as a surprise, as government spending was intended to induce price stability.

In addition, CPI data in New Zealand came in lower than expected as well, perhaps giving reason for no further rate hikes at the next policy meeting.

Earnings reports in the US show declining revenues, as both Citigroup and GE show signs of potential weakness.

This has induced risk-aversion this morning; with both stocks and commodities lower.  Today also marks option expiration, so this could cause some volatility throughout the day.  Whether or not the stock market can reverse remains to be seen, and the added risk of holding over the weekend is also apparent.

In the forex market:

Aussie (AUD):  The Aussie is lower this morning on risk aversion, breaking near-term support at 87.50 vs. USD as Asian stocks fell overnight.

Kiwi (NZD): The Kiwi is the biggest loser this morning after CPI data showed a gain of .3% vs. expectations of .4%.  This “buys time” for rate hikes in NZ; and likely takes a hike off the table for the next policy meeting.

Loonie (CAD):  The Loonie is lower as well, following risk aversion themes and lower oil prices.  However, the index of leading economic indicators advanced for a 13th straight month, led by manufacturing.  However, economic slowdown is also weighing heavily upon the Loonie.

Euro (EUR):   The Euro is mostly higher but giving back gains against USD.  It briefly touched 1.30 earlier in the European session.  The market is gaining confidence in the Euro, as next week’s bank stress tests are being touted as positive.

Pound (GBP):   The Pound is lower this morning after three days of gains, after traders remain cautious over the global economic picture.  Despite better than expected jobs numbers and economic data from earlier this week, a former BOE policy-maker claims that the BOE should be cautious with policy as recent economic strength is likely the result of government stimulus.

Dollar (USD):   The Dollar is mostly higher this morning benefiting from its safe haven status despite the negative news from its economy.  Less than expected CPI data and mixed corporate earnings report have heightened risk-aversion going into the weekend.

Yen (JPY):  The Yen has been on fire as of late, reaching new 2010 highs vs. USD, currently at 86.40.  The Nikkei was lower overnight, and bad CPI data from New Zealand reduced the demand for carry trades.  It will be interesting to see what (if anything) the BOJ does to halt recent Yen strength.  The Japanese have been known to intervene in its currency, as a stronger Yen becomes a threat to exports.

It was only a matter time of time before the markets caught on to the fact that reduced government spending was going to depress prices.  Duh!  However, the hope was that US corporate earnings would be strong enough to carry the stock market to present the guise of economic growth.

For we are all aware of the corporate bailouts that have occurred to foster “economic stability”, yet the number of unemployed keeps growing, albeit at a slower pace.

With so many out of work or scared that their jobs may be in jeopardy, the prevailing (and prudent) thought is to save more.  However, this will have dilatory effects on the economy, which will cause growth to slow.

At this point the government may be hoping that it was able to prop up prices enough so that the resultant and inevitable reduction does not cause too much pain.  However, with the massive amount of debt “band-aids” applied to the economy, it may hurt too much to pull them off.

So expect another push for “extend and pretend” policies, hope that indeed the economy is on firm ground.  Otherwise, the next leg down could be a significant.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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