Forex Investing Blog

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Tomorrow, the FOMC meeting taking place has brought about speculation that the Fed may increase quantitative easing to “stimulate” the economy after a recent round of deteriorating economic data.  While the current “extend and pretend” policies our government is following have failed to help people find jobs, the Fed may take it upon itself to further these policies going into the fall election cycle.



The economic data the current administration was counting on have not followed through and have not been supportive of the path they have chosen.  With public outrage at massive government spending at an all-time high, any further move in this direction could be seen as overly negative which could in turn send the Dollar lower.

Meanwhile in the Euro zone, Germany has reported better than expected exports and a better than expected trade balance report which shows that their economy is on the mend.  Investor confidence increased to the highest levels in nearly 2 years, as the path the EU is on is favored over US policy.  EU GDP figures are due out on Friday and could surprise to the upside.

On Wednesday, the UK quarterly inflation report is due out and if inflation is still seen as outside of the BOE’s preferred target, then speculation of a rate hike could heat up.  Jobless claims are also on the docket.

In the forex market:

Aussie (AUD):   The Aussie is higher this morning on risk appetite, despite the fact that home loan approvals declined 3.9%, showing that recent rate hikes may be effective in cooling housing demand.  Consumer confidence figures are due out on Wednesday, followed by the employment change on Thursday.  (Click chart to enlarge)



Kiwi (NZD):   The Kiwi is lower this morning despite mild risk appetite as housing price gains rose at the slowest pace since December.  Housing prices advanced 4.1% in July, after gaining 5.2% in June.  This could set-up a pause in future rate hikes.

Loonie (CAD):  The Loonie is slightly higher to start the US session, as oil prices have climbed back to the 81.50 range.  Last week’s dismal jobs report has failed to dissuade the market that future rate hikes are off the table.

Euro (EUR):   The Euro is mostly lower this morning as European stock markets broke a two-day decline and traded higher.  Sentix Investor Confidence Reading came in at 8.5 vs. an expectation of 1.6, handily beating, yet the market is still concerned about the prospects of the global economy.

Pound (GBP):  The Pound is higher this morning as speculation of further FOMC stimulus is sending cable to near 6 month highs of 1.60.  Wednesday’s jobless claims and quarterly inflation report will provide further insight into the health of the UK economy.  (Click chart to enlarge)

Dollar (USD):   The Dollar is surprisingly higher this morning as mild risk appetite is driving markets.  Tomorrow’s FOMC meeting will induce major volatility as speculation of easing monetary policy further has the market on edge.  Yet some are betting that the Dollar could rebound from recent oversold conditions if the Fed does not provide further easing and stimulus.

Yen (JPY):   The Yen is lower this morning despite overnight declines in the Nikkei, as the Japanese current account surplus narrowed showing signs that the Japanese economy is slowing.  In addition, the Japanese government is saying that monetary policy alone cannot combat deflation.  Tomorrow’s rate decision and government economic report could prove interesting.  (Click chart to enlarge)



To ease or not to ease, that is the question.  The FOMC meeting tomorrow is an important one as there are both negative and positive implications to further quantitative easing.  On the one hand, further easing would show the frailty of the US economy and should send the Dollar lower, yet there could be Dollar gains if the market perceives this to be a major risk event.

If the Fed doesn’t ease, then the dollar could rebound on the fundamentals, yet it will be difficult to convince the market that all is well in the US economy.  Adding to the mix are the political implications of further stimulus, and the actual need for further easing to combat potential deflation and give the economy the added boost it might need.

Japanese economic weakness due to a higher Yen vs. the Dollar may cause the government to act; and tomorrow is the Cabinet Office monthly economic report and the BOJ interest rate decision is expected to leave rates unchanged.

Expect the commodity currencies to trade on risk themes, and look for the Euro and the Pound to be the beneficiary of any Dollar weakness.

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