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Holiday Warning: Beware...

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Holiday Warning: Beware...

Post by Sean on Tue Dec 23, 2008 11:10 am

Holiday Trading on Steroids
Why Forex Markets Will Be Even More Volatile
Than Usual This Christmas Week


Good Day Currency Traders,

The Big Bosses are all off for Christmas this week - not just here, but at trade desks around the world. This means backup staff will be running all major Forex desks worldwide. So you can expect volume will be lighter, and that can sometimes lead to an increase in volatility.

The traders who are in the office will be waiting for all the new tradable data that's hitting the Forex markets this week. The data calendar is chock full both tomorrow and Christmas Eve.

The markets will be closed on Christmas day, and most markets will be closed again on the day following Christmas (known as "Boxing Day" in the U.K., Australia, Canada, New Zealand and several other countries).

Just tomorrow, we'll see the U.S.'s GDP, personal consumption, U of Michigan consumer confidence, new homesales, existing home sales, the house price index, ABC consumer confidence and the Richmond Fed Man.Index (which shows us manufacturing numbers from the Fed Reserve of Richmond).

Then on Christmas Eve, the U.S. will release MBA mortgage applications, personal income, personal spending, PCE deflator, durable goods orders, and the weekly jobs numbers. I told you we will be packing in a week's worth of data in the next two days!
Over as Dozen Tradable Numbers,
Only One Conclusion

I expect all of this data will just shine the spotlight on the still weakening U.S. economy. Third quarter GDP is expected to show a drop of .5%, and personal consumption is expected to have dropped 3.7% during last quarter.

The housing industry continues to weaken, which will be reflected in this week's data. Personal income is expected to be flat, with spending in the U.S. to show a slight decrease.

Durable goods orders will probably show a drop of 3%, and the weekly jobs data will likely show further weakness in the U.S. labor market. The bias for the U.S. dollar will continue to be negative, as the next two days of economic data will confirm just how bad the state of the U.S. economy still is.

Of course, we'll see all this data while the Big Bosses are all out of the office. As I mentioned, trading will be thinner, so I imagine that all this extra data will just make the currency movements more extreme in the next few days.

If you are trading this week, be aware that volatility could be even worse than usual for a holiday.

From the U.S. to Australia - Where the Majors Stand

I'm assuming you'll be away from the markets for a few days yourself as you spend time with your families this holiday week. So before we all take a nice break, let me give you a wrap-up of where currencies stand right now.

First of all, the mighty dollar settled in at the slightly higher levels that the greenback reached on Friday morning. Right now, the buck is trading in a narrow range heading into a holiday-shortened week.

In fact, all the currency markets are trading in a tight range. Commodity currencies like the Canadian dollar, South African Rand, and the Australian dollar are leading the pack.

The Japanese yen weakened slightly, trading back above 90 yen per dollar. The yen weakened as investors slowly moved back into risk trades. We saw this happening last week as a U.S. bailout of GM and Chrysler moved closer to reality. The yen stayed lower vs. the U.S. dollar as China announced an interest rate cut in order to try and support its economy.

The Australian and New Zealand dollars rose as the Fed's bailout pushed traders back towards risky markets. These currencies have been two of the biggest recipients of 'carry trade' flows, and the expected rescue of U.S. automakers gave currency investors confidence to move back into these higher yielding currencies.

Even after aggressive rate cuts in both South Sea nations, benchmark rates are still over 400 basis points better than in the United States.

If commodity prices can start to rebound, the combination would be very good for both the Aussie dollar and New Zealand dollar. I still prefer the Australian currency over the New Zealand dollar. New Zealand has a much larger current account deficit, which will need to be funded with foreign capital flows.

That's it for today...

Hope everyone has a Marvelous Teusday and a Wonderful Holiday!

Sean

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