Peter Marsden's Forex Blog

What a couple of weeks it has been in the forex market. We have had a lot of volatility on the run upto Christmas. Historically, December has often produced many surprises in the market as many of the big players are out so volumes are lower. We have seen many central banks cut interest rates to in an attempt to prevent a major economic slowdown brought on by many factors including high oil prices and credit losses. [Read more →]

The Canadian central bank unexpectedly cut interest rates today in a bid to support economic expansion. Exports have been threatened due to the strong currency. Today the Canadian Dollar fell sharply against all the major currencies. USD/CAD moved up a sharp 70 pips or so in the first minute on the news release. Could this be the end of the long term downward trend for USD/CAD? It is a possibility, although the US fundamentals look rather weak. Especially as some speculators are turning to the US Dollar for carry trades as I posted a while ago. [Read more →]

Good day for the stock markets today, The dow is currently up around 3%. The British FTSE is also closed well up. Investors and speculators appear to be less risk adverse at present. This reduced risk adversity seems to have spurred on the carry trades. The Japanese Yen and Swiss Franc have fallen sharply today against all the higher yielding currencies. We are seeing the return of risk appetite in the stock markets, which if continues could certainly be benefit for the carry trades and the higher yield currencies in general. However, there is still a lot of uncertainly surrounding the subprime issues so the longer term future of these markets is still very much unknown, but today was unquestionably the best day for the stock markets and the carry trades for quite a while. GBP/JPY is currently up a whopping 600 pips or approximately 2.75%.

People who are invested in mutual funds may feel a little easier after today, but as always tomorrow could be completely different.

Lots of data out today. Firstly this morning we had the German Ifo Business Climate Index which came in above expectiations at 104.2. Also, the US national home price index which was slightly better than expectations coming in at -4.9. We also had the US consumer confidence which some times provides a big move coming in at 87.3, this is much lower than the expected 91.5.

There is a lot more news this week, perhaps some of it will produce a trigger to get the majors out of their fairly tight range. We we see..

As you are probably aware, The Japanese Yen and Swiss Franc has been used to fund carry trades a lot in the last few years. It has been highly appealing due to Japanese benchmark currently being 0.5% and the benchmark rate in Switzerland only 2.75%. [Read more →]

There seems to be an ever increasing number of brokers out there chasing your business. After spending time reading public forums, it is clear that many forex traders start their journey with a very small account balance.

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Today we had the MPC meeting. This is a report that releases the results of the vote regarding the Bank of England base rate decision. There are nine members on the committee and the vote was 7-2 in favour of no change. This was inline with expectations. However, the pound did fall on the news. Some speculators were expecting a surprise to the downside, but it didn’t happen.

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As mentioned in a previous post, there is a very clear head and shoulders pattern on the weekly GBP/JPY chart. A head and shoulders pattern often suggests a reversal is coming. We have certainly seen a lot of volatility in the global stock markets on credit fears. The dow and the yen pairs have a considerable degree of correlation, this is due to the fact there is a lot of borrowed yens that have been place in the stock market. If the carry trades do unwind a big fashion, we would probably also see the dow lose a lot a ground too.

If we take a look at the chart above, We can a February low of 221.23 and the July low of 219.28. These points will probably act as support for the pair. If these are broken there could potentially be more downside to come, possibly even a lot more.

The Bank of England released a bombshell today. They signal led there is room for at least one interest rate cut in 2008. They currently believe this may be necessary to encourage growth without leading to increased inflationary pressures. This is a very different picture the bank is painting to that of just a few months ago, when they said inflation will be a big issue until 2009 and more rate hikes would be necessary to slow things down. The pound dropped sharply against the dollar and the euro on the news.

Other news from the UK was benefit claims were down 9900 to 824,000, this is the lowest level for two and a half years.

Today the British CPI numbers came out. CPI year on year came in at 2.1%, higher than the expected 1.9%. This all but ends any speculation that the Bank of England will cut rates this year. Personally I expected a surprise to the upside this time because of surging oil prices. The full extent of the near record oil prices is not fully priced into the CPI figure yet, as the figures are always lagged to a degree. It can often take several months for events to fully price themselves into the figures.

A cut may be on the cards next year if inflationary pressures ease, but currently inflation is back above the central banks 2% target.

The pound has soared today, currently up well over 200 pips or 1% for the day after it’s biggest dip over the past few days for quite a while.