Approaching an Action Packed Week

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Old May 31, 2009, 9:51am   #1
Joined Jan 2009
Approaching an Action Packed Week

Approaching an Action Packed Week

Once a trader has been active in the markets for a while, he/she normally becomes quite familiar with the economic calendar and market events, knowing which results tends to have an effect on the markets and which events are just there for the show. While some economic events might receive high importance, the event itself is often already baked into the market’s price. This can often confuse traders and even a result diverging from the expected figure fails to have any major impact on the price movement.

It is important to note that while news events can have a major impact on the intraday trend; individual events fail to shift the overall momentum in the markets.

Last week economic data was brushed aside as the major stock indices took their cue from the U.S market, drifting into sleep mode. The ranging pattern that occurred on stocks had its affect on the major currency pairs, as volatility remained low during the first part of the trading week, only to pick up towards the weekend. General Motors grabbed the center of attention as news headlines released that the large company is expected to file for bankruptcy (chapter 11) on Monday, emerging in 3-6 months as a new company. The major problem that caught news headlines during the week was the disagreement between bond holders and the company, as up until now there has been a major conflict between the two. Bond holders are concerned that they will lose much more than only their rights and assets in the company, as the new structure will empower the government as the prime owner of the massive auto maker. Despite all the concerns, the U.S government’s main aim is to restructure the company turning it into a profitable one again, by producing more eco-efficient cars. One way that the Obama administration is currently pushing for is via cooperation with Italy’s Fiat.

Friday’s session presented more thrilling movements as inflation data from Europe showed that the price of goods hadn’t changed on a yearly basis, during the month of May. Even though the Euro-zone is still dealing with economic contraction investors were relieved that inflationary pressures are not stirring and that the next couple of months could show a slight turnaround in economic activity. One must note that commodity prices have steeply climbed over the last couple of week, with crude oil reaching $65 per barrel. A rising commodity market along with low inflation levels gives the European central bank some room to work with, something that could prevent them from decreasing their rates this time round.

In addition, GDP result from the U.S showed that the economy had shrunk during the first quarter by a whopping 5.7%. Even though the result was better than the fourth quarter’s 6.3% and better than the 6.1% result, that was published a month ago, the revised figure still showed that the economy is in dire straits and that a healthy recovery is still far away. Stocks climbed at the opening bell on Friday despite the gloomy figure.

4 Rate Decisions and Much More.

Since the beginning of March Dollar counterparts have rallied, correlated with a rising stock market. Despite all the economic data and bad new events, showing a deteriorating world economy, money has rushed into the Euro, Pound, Australian and Canadian Dollar. Even low yielding currencies such as the GBP and the CAD, whose economies are presenting a mere 0.5% rate return, have found strength against the Dollar as risk appetite has increased dramatically. The market reaction over the last 2 months has been quite promising as the currency pairs have rallied despite mixed data. While major economic events are showing a deteriorating economy, the last few weeks have started to present a slight turn around in certain sectors, as they have shown minor signs of a pickup.
This has raised many questions among analysts as to the strength of current trends.

If analysts are correct, meaning that an economic turnaround will occur during 2010, will further improvement in the economy, reflected in improving data, help the current 2 month trend, pushing it even higher? Will current trends present only minor corrections up until a full recovery?
Interest rates could present the pull back

This week’s trading sessions are going to be action packed, with Australia scheduled first to take the stage. As all the central banks are expected to hold this time round, intraday movements could present traders with potential setups, especially for swing traders. In addition to the rate decisions, GDP figures are expected to be released in a few of the regions, while England will be releasing its inflation numbers. Towards the end of the week the U.S will release the catalyst; the NFP result- known to be a major market shaker. Non-farm payrolls are expected to show a lower contraction compared to last month’s figure while the unemployment rate is expected to jump to a whopping 9.2%.
It is important to note that even though the unemployment rate has been increasing on a monthly basis, investors are pushing the data aside, still heading back into riskier assets.

Due to recent price movement it now seems more important to ask when economic data will start to show major improvement, giving the current rally some major
backing, driving it even higher.

Enjoy dodjit
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