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On Friday there are multiple economic releases that deserve attention and will provide some insight into how the US economy is doing. The headlines will gravitate towards the retail sales figures. They are expected to show a 4th consecutive month of increased consumption, although down from the breakneck speed of +1.6% m/m in March. For my money though the indicator to watch is Capacity Utilization. This will be released at 9.15 am est. It can be seen on Currensee on the Research Dashboard as well as on the Feeds widget with expected independent reporting and analysis.

Capacity Utilization is just what it sounds like and in the Fed’s own words it is “an estimate of sustainable potential output”. It is also released monthly as compared to the GDP report or corporate profit reports which can also be used to gauge the economy but are released quarterly instead. Economists expect another improvement in utilization to 73.6% which would mark a 10th consecutive monthly improvement. This is very simple to understand, the economy is improving. If you ask me that should be the economic headline going int the weekend. The bottom in utilization of the current downturn was at 68.3% last June. Thus if markets are expected to be forward looking they did their job last year when risk started to turn around last March/April. By comparison analyzing the retail sales figures will produce a much cloudier picture as they are constantly revised and inherently include inflation.

What will a rebound in Capacity Utilization mean for the FOMC and any change to policy right now? Probably zero. The Fed has signaled quite clearly that they are in no rush to withdraw their extraordinary accommodation any time soon. Should they be hiking? Some would suggest yes, absolutely before they have a repeat of what occurred earlier this decade under Chairman Greenspan. The chart below compares Capacity Utilization and the Federal Funds rate since 2000. My focus today is on our expanding economy thus on the chart focus on 2003 until 2006. This is when it was argued that the FOMC was too lenient on policyd for too long. Fast forward to 2009 and 2010 we appear to be in the early stages of another ultra accommodating period.

This has some suggesting that the FOMC cannot wait too long before they remove their extraordinary policy. Others would argue that the economy is fragile and will head back towards a double-dip recession scenario. Nobody knows. That is precisely why these Capacity Utilization numbers are so important. They will become increasingly important if they head up towards 78 or fall back to 70. It is worth mentioning again that these figures are released by the Federal Reserve.

What does this mean now and in the future to traders? Higher rates in the US as compared to its peers in the UK and elsewhere should bode well for the US Dollar when considering interest rate differentials. Of course you have to be on the lookout for the next credit or Greek crisis, but I think that is understood by now.

The next time you are asked what you think of the economy answer with economic data that the Federal Reserve provides.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

‘The thrill of victory and the agony of defeat’. I’m not sure if the American Broadcasting Company created that saying or just made it famous, either way it is an accurate depiction of sports competed at the highest level. This past weekend was the Masters of course which is Golf played at the highest level. Mickelson was making his putts which put him in the winners circle and the leaderboard reflected some personal bests by more than a few top golfers.

Ironic though that the coverage, at least here in the US, was mainly centered on Tiger and his comeback after his well known 5 month hiatus. Not just the coverage on Tiger but coverage on how fans would react, how his peers would react, how his putting would react…

Not exactly ‘the thrill of victory’ that the popular press was focused on. Are the financial markets any different? Let’s see. Over the last 2 weeks Australia, Canada, Germany and the US have released reports showing improved employment conditions. We haven’t been able to say that it over 2 years. Reports out of Beijing are that China is in the midst of 12% growth despite efforts to cool down their economy. Countries such as Norway are hiking rates as the latest commodity boom has their central banks worried about over-heating conditions.

Yet what are the financial headlines? Greece, upcoming higher US taxes, hung Parliament in the UK… In short finance is little different that sports at times as there tends to be a focus on the negatives. This in part may be keeping investors from reentering the markets.

Traders though have to be noticing the positives. Last Friday the Dow Jones closed on a strong note, a few points shy of 11k. More importantly this occurred after a topsy-turvy week. It was late in the session on Friday the Dow Jones made a clear move higher and this could have been seen using the ‘Dow Jones chart for today’ widget on Currensee.

What does this mean to forex traders? As I’ve stated previously a pickup in risk-taking should bode well for currencies with higher yields than Japan and make for gains in that particular currency against the Yen. Equities love the extremely accommodating conditions being presented by the major central banks right now and risk-takers have benefited.

It is as simple as that? Just go Long and walk away. Not likely. There are many fine points to consider as well. At some point in time higher US taxes will hurt consumer spending and corporate profits and this occur when the FOMC starts to hike interest rates. How about the Yuan? Typically China allows for 5% appreciation in the CNY against the US Dollar per year but is it time for more? And when they do revalue their currency when will they announce that change and how much will it impact the Yen? Let’s not forget about Greece and the sustainability of the aforementioned job creation.

The ‘Feeds’ widget on Currensee will filter these stories, some which will include instant analysis as well. These are not far-off worries but many could happen any day now.

Well so much for the ‘thrill of victory’ I guess that as a trader even I worry about the ‘agony of defeat’.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Although I primarily invest in equities and trade foreign exchange it is hard not to notice the recent bounce in Crude Oil. For me as soon as I log in to Currensee I have my Commodities Market widget right smack in the middle of the screen and Crude is right on top. The Commodities Market widget lists the prices of multiple oil prices, gasoline, heating oil, natural gas, coffee and coal to mention just a few.

I bring this up because it was just a few weeks back that crude was sub $70, equities were correcting and the dollar was making gains. Since then Crude has bounced back above $80 yet EUR/USD continues to hover around the 1.36 area. Of course the Canadian Dollar has been outperforming during this time, especially against the Euro where it has made tremendous strides this year. Still I’m alluding to the larger picture of global risk-taking and when many commodities rebound, including crude, then normally EUR/USD will rebound as well. Much of this stems from the US being an equity surplus country and the potential for leveraged equity returns elsewhere during times of risk-taking. When risk is on demand picks up and prices reflect that.

So why is crude higher and EUR/USD still hovering around 1.36 creating a correlation gap? Last week saw the surprise announcement from the Fed when they hiked the discount rate to 0.75%. The US Dollar reacted initially but since then it has given up much of those gains. Speculation is high that China will make an aggressive move with their Yuan policy; this should initially boost the Yen but then I would expect that the Euro would tumble on risk-aversion. This as the markets would try and gauge how this will impact corporate profits, equity prices and how often Yuan policy will change in the future as well.

That said we’ve heard about potential changes in Yuan policy now for years. We also know that the FOMC will be taking its time in returning policy towards normalization with an approximate 10% unemployment rate in the US. Trading on speculative moves by either central bank, especially speculation which may be months down the road, usually does not yield the most favorable of results.

Therefore from the currency side it appears as if there certainly is a gap in the correlation between Crude Oil and EUR/USD. This has not been lost on the Currensee community though. On the ‘Market Watch’ table 75% of traders are Long EUR/USD. This encompasses nearly 350 traders so it’s a nice sample indeed.

What are their targets? Are they short-term traders or long-term investors? There is only one way to find out which is by starting a discussion and asking them. On the Currensee Community Historical Volatility widget it shows support and resistance levels as determined by the community’s historical trade. There is a resistance level at 1.36159 at the time of writing. Will more traders become long if EUR/USD closes above starts to close the current gap with Crude Oil? Is there an opportunity right now in the foreign exchange market? That is for you to decide but the community will be watching.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Last week’s comment circled around the outlook for the Dollar and saw how various macro events were negative for Canada, Australia and the Euro, whilst being positive for the Dollar and Yen.  Pretty much all of this has panned out so far, but what was the key point last week and what is the focus for the coming week? For me, the highlight was the minutes from the FOMC (Federal Open Market Committee) meeting, where inexplicably all reference to the woes of the housing market were completely removed. This, in a week when the stats from Case Shiller Home Price Index continued to drift lower and the 4 week average of mortgage applications made fresh lows since the downturn began. The key to any economic recovery is personal spending and consumption, and with a jobless recovery combining with falling wage growth, it is difficult to see how recovery can accelerate. The huge stimulus can be likened to pushing on a piece of string, and any hint of removal can lead to an overreaction in negative sentiment. It seems that the Fed’s statement was more of a political than an economic one, and was duly punished with equity weakness once the statement had been digested the following day. Whilst the GDP numbers appeared strong, a large percentage of that increase was due to a rise in inventories, which simply don’t correlate to the business inventories for October and November (December still has be released). The rise shown in the 4th quarter inventories implies a complete reversal of the previous 4 quarters’ decline, which seems unlikely.

After sharp falls, equity markets find themselves at a critical juncture with support weak and distant across many indices, meaning that the new month needs to see a swift recovery that overcomes the huge blocks of time that are above.

For currencies it has been a relatively subdued week with the trends hinted at last week slowly continuing. In fact, the lack of volatility has been surprising with Cable the notable exception. It has been pushed up and down by weak GDP numbers one day, a BOE member saying they were not a true reflection on the U.K’s economic outlook the following day, whilst it was rumoured that much of the strength was due to the conclusion of the Kraft takeover of Cadbury’s, which injected 7 Billion into the market.

For the week ahead, the early focus will be on the Aussie Dollar as there is employment data and an interest rate decision. Regardless of how the market interprets the data, the currency technically remains weak with support distant at 0.8742. Falls could be swift, especially if equities resume their slide. 0.9038 needs to cap any bounce to maintain the negativity.  From there focus will inevitably shift to Non-Farm Payrolls once again, but ahead of that the major support in the Eurodollar at 1.3830 to 10 should cause at least a temporary bounce, such is its power.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.