Ralph Shell @ 1:00 PM, Friday February 11 2011
With this week winding down, the economic numbers early next week may stir up some early week action in the Forex markets. This is a good thing. With the football season finally over, and baseball and basketball's March madness weeks away, things are slow for Vinnie the bookmaker and his patrons.
Shorty after the trading commences Sunday evening, Japan will announce preliminary GDP estimates. The guess for the GDP is a -0.5%, down from a +1.1% in the previous quarter. The deflationary trend in Japan makes the preliminary y/y price index come in -1.5%, not good but slightly better than - 2.4% in the previous reporting period.
If the numbers come in as anticipated, there is no reason to think the Monetary Policy Statement, and the Bank of Japan will have any reason to alter the overnight call rate, currently at .10%. Continuation of the near zero interest rate should enhance the yen's appeal as a funding currency. The gradual global economic recovery diminishes Japan's appeal as a safe have for scared money. Neither scenario is yen friendly.
Tentatively scheduled for release Sunday and Monday are a series of Chinese economic reports. The trade balance is important, estimated to be +$10.3B down from the previous period's $13.1B. Chinese reports on new loans, and the M2 money supply are interesting but not market drivers. On Monday PM the inflation numbers are released. The CPI y/y is estimated at +5.5%, up from 4.6% in the previous period. The yearly PPI is forecast
+ 6.2%, higher than the +5.9% in the prior period. If the inflation rates are as forecast, this implies further Chinese efforts to cool that economy. The three rate hikes by the Chinese are symbolic, and more aggressive action is needed, before the populace, confronted with higher food costs get unruly.
Who knows if the Chinese can maneuver a soft landing for their over heated economy. The liquidity the Chinese bankers pumped into their economy to overcome the global economic contraction was huge, inflating property values as well as staples. Economic growth in an emerging capitalistic economy usually has boom and bust cycles, painful, but necessary to purge the economy of excesses. Will a mixed economy with the government involved in many projects have any more success smoothing the business cycle?
Slower Chinese growth has implications for their trading partners. A prime beneficiary of the booming resurgence in China has been Australia, because of their bountiful supply of commodities. Last year's move in the A$ from .8050 to 1.0250 was a dynamic move, and for good reasons. Market, however, do not discount the same news twice, especially when they are already loaded with believers. Since November the AUD/USD has traded above the parity level numerous times, churning without the strength to carry the bull move further. Sometimes markets that are unable to go up......go down. A weekly chart is shown below.
The weekend events in the Mid East will prove to be interesting. There are reports that Egyptian President Hosni Mubarak has left the unhappy masses behind in Cairo, and moved to his palace in Sharm El-Sheikh, a favorite destination on the Red Sea for jet setters. This has sent the West Texas crude tumbling to under 86, and caused a little rally in equities. Experts have claimed the Suez situation is bearish on the USD, and then bearish on the euro. They are probably right.
Have a great weekend.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.