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Blogs about basic information in forex trading, forex participants and how to earn big in forex trading.Just when you thought it was safe to go back into the water and dip your toe in the risk pool, the market reminds you that the sharks are still out there. Yesterday started out as a classic risk-taking day, only to end up a bit uncertain.
Yesterday I spoke about how the lack of [...]


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Just when you thought it was safe to go back into the water and dip your toe in the risk pool, the market reminds you that the sharks are still out there. Yesterday started out as a classic risk-taking day, only to end up a bit uncertain.

Yesterday I spoke about how the lack of news this week should allow the market to make gains vs. last week’s sell-off, but the fear that ruled last week is not easily forgotten. The overnight session had pushed US stock futures higher, only to watch the market give back all of those gains before finishing moderately positive. Part of the blame has been placed on a weaker than expected ISM service sector activity survey, but I suspect that it is still a hangover from last week.

So overnight, Asian markets have detected that weakness and are lower, with European markets following out of the gate.

Adding fuel to the fire is a report that China is looking to tighten liquidity in the face of a slowing economy to try to thwart inflation.

GDP figures in the Euro zone came in as expected, and the UK shop price index (a measure of retail inflation) came in lower but still positive.

In the forex market:

Aussie (AUD): The Aussie is lower on risk-aversion this morning though may be turning around as Euro zone GDP figures came in as expected. However, the Performance of Construction Index fell to 46.4, the first decline in nearly 6 months.

Kiwi (NZD): The Kiwi is also lower on risk-aversion as the market is fearing a global economic slowdown.

Loonie (CAD): The Loonie is also lower and yesterday’s building permits number showed a decline of 10.8%, much larger than expected. Unemployment figures due out on Friday will be the bell-weather of the health of the Canadian economy.

Euro (EUR): The Euro is mixed this morning trading in-line with the “risk ladder”. GDP figures came in as expected at .6%; which is seen as moderate. It’s no secret that the EU is cutting back on spending to rein in deficits; the challenge will be whether they can do so AND maintain positive growth,

Pound (GBP): The Pound is also mixed as overnight the UK Shop Price Index came in at 1.5%, down from 1.8% the previous month, showing signs that retail inflation may be shrinking. There was some concern that the BOE may need to make a change to monetary policy (raise rates) to combat inflation, but this figure shows that may not be the case. Tomorrow is the BOE rate policy meeting.

Dollar (USD): The Dollar is catching a bid from its safe-haven status as risk aversion has started the day. In a week that is light on news, there is some Fed puppet speaking today who will undoubtedly stick with the “all is well” mantra.

Yen (JPY): The Yen is higher as the carry trades that were so quickly established yesterday are being un-wound this morning due to risk-aversion.

Just as quickly as the market is willing to put on risk is it willing to take it off. While yesterday started as a classic risk-taking scenario, today can be described as classic risk-aversion, meaning all currency pairs are behaving as they are expected to.

However, I think these fears may be over-blown. The market should be expecting a global slowdown as nations around the globe have committed to reducing deficits. The trick will be whether or not they can encourage private business to fill in some of the gaps left by reduced government spending.

Those countries that appear to be pro-business will have a better chance than those that don’t. As long as the world continues to see some kind of growth, however small it may be, the market will view it as positive.

Until that time, there should be no expectations of seeing the kind of gang-busters growth that we saw in the past which was partially responsible for the mess that we’re in.

So I expect the rest of the summer to be volatile as market sentiment shifts from day to day.

Those who trade the forex market should be excited to profit from that volatility. And for those who don’t trade the market…. Well what are you waiting for????

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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