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Investopedia Forex Outlook For April 2012

Investopedia Forex Outlook For April 2012 – Macro Highlights

The market has become cautiously optimistic in March, with bullish U.S. employment figures and a Greek debt deal improving the situation in Europe. Meanwhile, the MSCI global shares index is up around 10% since the beginning of the year and remains more than 20% off of its lows reached during the fourth quarter of last year. SEE: Forex Outlook For March 2012

Still, there are many risks that threaten to derail the global economic recovery, including continued turmoil in Greece, higher oil prices due to the situation in Iran, and any signs of a more severe slowdown in China. The global economy is expected to be slower this year than it was in 2011, amid less-than-spectacular emerging markets and troubles in Europe.

Macroeconomic Highlights

  •     U.S. Recovery Picks Up Steam – February was the third consecutive month of U.S. job growth over 200,000. Retail sales and consumer spending were also on the rise that month. But signs of trouble started emerging in March data, where consumer confidence fell unexpectedly as higher gasoline prices put pressure on consumers. (For related reading, see Consumer Spending As A Market Indicator.)
  •     Europe Shows Signs of Hope – The situation in the European Union (E.U.) was temporarily defused after Greece reached a restructuring agreement with bond holders that opened the doors to more bailout funds. But economists remain skeptical that the country can reach its austerity targets, given failures in the past, while additional bailout funds are likely to be required, and other countries remain in danger.
  •     Signs of Strength in Japan – Japan’s economy showed signs of strength this month, after reporting a disappointing fourth quarter gross domestic product (GDP) last month. The bullish signals led the Bank of Japan (BOJ) to avoid any additional stimulus measures for the time being, but interest rates are to be kept at near zero. The move has helped the Japanese yen recover some ground after a spectacular fall.
  •     Britain Faces Headwinds – Britain’s economy continues to struggle with a so-called “productivity puzzle,” in that its workers are failing to become more efficient during the downturn, unlike the U.S. and other countries. But Britain’s austerity efforts led to a large surplus last quarter, boosting hopes that it would opt for more economic stimulus packages that could jumpstart its economy. (For related reading, see Austerity: When The Government Tightens Its Belt.)
  •     Switzerland Recovers Alongside Europe – The Swiss economy has shown signs of recovery amid improvements in the Eurozone. Traders had been using the currency as a safe-haven investment throughout the Eurozone crisis. While the Swiss franc remains overvalued, according to the government, the Swiss National Bank (SNB) is expected to leave interest rates near zero and maintain its current monetary policy.

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Source:  investopedia.com

Investopedia’s July 2012 Forex Outlook

Investopedia’s July 2012 Forex Outlook: Macroeconomic Highlights

As we move enter July, the global economy continues to struggle amid a lackluster U.S. recovery and ongoing indecision and banking problems in the eurozone. Asia has also started to feel the slowdown after posting several years of strong growth rates, which could pose further problems for the financial markets, taking away a key source of global growth.

Macroeconomic Highlights

U.S. Slows, Extends Operation Twist
The U.S. economy appears to be slowing by many accounts. On June 20, the U.S. Federal Reserve lowered its outlook for the year to 2.4% from its 2.9% projection earlier this year. Unemployment isn’t expected to improve much either, with the jobless rate expected to fall no lower than 8% by the end of the year, according to the same report by the central bank.

Many U.S. economic indicators have also confirmed this slowdown. The U.S. manufacturing sector grew at its slowest pace in 11 months in June, while new unemployment claims fell only marginally in recent weeks. Meanwhile, existing home sales fell 1.5% to a 4.55 million annual rate in May, according to the National Association of Realtors.

As a result, the Federal Reserve opted to extend its bond-buying program known as “Operation Twist” until the end of the year in response to this slowdown. Under the program, the central bank will continue purchasing U.S. Treasury Bonds. But while the news came as a surprise, the effects were short-lived, and the stock market reversed within hours of the announcement.

Euro Worries Persist, Calls on Germany

Spain’s bailout may have averted a near-term crisis, but the lack of a cohesive rescue plan means worries still persist. Bond yields for troubled countries like Spain and Italy remain near unsustainable levels, despite a brief reprieve. Meanwhile, Moody’s recently downgraded 15 of the world’s largest banks, adding to concern in the financial markets.

The most popular solution to these woes are so-called Eurobonds that would be jointly guaranteed by all members of the monetary union. Former British PM Tony Blair perhaps said it best: “The only thing that will save the single currency now is in a sense a sort of grand plan in which Germany is prepared to commit its economy fully to the single currency.”

Unfortunately, Germany remains very resistant to the idea. German Chancellor Angela Merkel has shown no signs of budging on Eurobonds or bank guarantees amid pressure from newly elected French President Francois Hollande. Merkel instead insists that euro states must agree to much deeper fiscal integration before such financial pledges are made.

Asian Growth Continues to Stumble
Asia may be the world’s growth driver, but those rates appear to be slowing. Chinese manufacturing activity weakened to a seven-month low in June, according to an HSBC survey, indicating deterioration in business conditions at factories. Meanwhile, there are also some concerns that government data may be overly optimistic.

A notable exception is Japan’s economy, which is expected to continue seeing a modest recovery driven by strong consumer spending and rebuilding efforts. Recently, the government also upgraded its outlook on capital spending for the first time in three months, citing a pick-up in corporate profits and support from the reconstruction.

Britain’s Signs of Recovery After Double-Dip
Britain has taken a unique approach to combatting its economic decline. Unlike the U.S. and eurozone, the region has instead opted to impose austerity measures and hike taxes. While it recently slipped into a double-dip recession, the country’s leaders insisted this was primarily due to higher commodity prices, a weak banking sector, and the eurozone crisis.

Despite the slowdown, there are also some signs of a turnaround after new lending and infrastructure initiatives were implemented. Retail sales increased in May after a weak showing in April, with the Office for National Statistics showing a 1.4% gain in May. These figures were above economist forecasts of a 1.2% increase for the same period.

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Source:  investopedia.com

Investopedia’s September 2012 Forex Outlook

Introduction

The global markets largely stayed the course in August, but uncertainty in the eurozone remains a top concern for the financial markets. In the U.S., unemployment continues to hamper a stronger recovery, but growth appears to remain on track. In Europe, sovereign bond yields have improved, but the region still faces greater uncertainty than ever before.

Forex traders will be primarily watching the situation in Europe and the recovery in the U.S. for any signs of improvement, as well as possible quantitative easing or other programs being implemented in Britain and Japan, where growth is ebbing.

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Source:  investopedia.com

Investopedia’s Forex Outlook For October 2012

Introduction

The U.S. and Japanese economies appears to be stalling again, just as the eurozone reached a definitive agreement and Britain may finally be back on track. However, one thing is certain: Monetary policy remains loose worldwide, after the U.S. Federal Reserve, European Central Bank and Bank of Japan all introduced new stimulus packages designed to boost their respective economies.

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Source:  investopedia.com

Investopedia’s Forex Outlook For November 2012

Macroeconomic Highlights

The global economy has continued its slow recovery, but the bullish effects from September are beginning to wear off. The U.S. experienced a slew of positive economic data, but the three-month rally seems to be a bit stalled. Additional uncertainty surrounds the European, Japanese and British economies that all seemed to move sideways in October.

Macroeconomic Highlights

U.S. Investors Shrug Off Recovery
The United States has experienced many signs of a recovery over the past month, with the unemployment rate falling to 7.8% in September and housing starts jumping 2.3% in August to a seasonally adjusted annual rate of 750,000. However, despite this seemingly great news, the S&P 500 has remained roughly even and the U.S. dollar has actually depreciated.

So, why is the market so lethargic?

Capital market investors are likely deterred by a few different things. First, there are many indications that a quick recovery is simply unlikely based on historical trends and these upticks may be simply bumps along the road. Secondly, many investors are taking profits off the table after the run-up between June and September that was driven by stimulus and bond buying.

Forex traders have a number of other reasons to be concerned about the U.S. dollar’s health moving forward. Namely, the U.S. Federal Reserve seems set on maintaining an easy money policy for the foreseeable future. In fact, New York Fed President William Dudley suggested in a speech that even a recovery wouldn’t necessarily result in any meaningful tightening.

Europe Takes Baby Steps Forward
The European Union may have won the Nobel Peace Prize this year, but investors aren’t so concerned that they’ll be able to maintain the peace for long. After instituting an unlimited bond buying program last month, the eurozone has managed to tame rising bond yields in troubled countries, but a lack of cohesion still threatens to derail the progress made so far.

The financial markets will be closely watching Spain, in particular, as it has refused to accept any aid from the eurozone’s monetary authorities thus far. While officials are reportedly in talks to accept aid in November, the indecision has left Spanish bond yields still near 5.6%, despite a new 2013 budget that the country hoped would assist in lower rates more.

Of course, convincing Spain to accept aid isn’t exactly solving a problem entirely. The region still suffers from chronically high unemployment and anemic economic growth, with the exception of Germany, which has fared quite well with the low euro valuation. And investors seem to realize this fact, with U.S. and Swiss bond yields remaining near record lows.

Japan Sees Divided Successes
Japan’s economy has struggled over the past few months, with slowing demand in key end markets and the end of recovery-related spending. Recently, the country’s government cut its forecast for factory output for a third month in a row, as business moods also appear to be on the decline, according to a survey by the Bank of Japan.

Despite the turmoil in the economy, there seems to be at least one bright spot thanks to the yen’s dynamics. A high valuation for the currency has led to an extraordinary number of mergers and acquisitions, including Softbank’s $10 billion bid to acquire 70% of Sprint/Nextel. These mergers could add to economic growth over the long-term.

Forex traders will be closely watching the Bank of Japan for any further signs of monetary easing, which would be a logical way to boost its economy. These easing policies could involve additional intervention in the forex market – a scenario certainly worth watching.

Britain’s Economy Grows More Uncertain
Britain’s economy appears to be improving after jobless claims and consumer spending both showed some signs of improvement. Unemployment in the region fell to a 15-month low during the quarter to August, causing the official unemployment rate to drop to just 7.9% from 8.1% during the quarter to July and the lowest rate since March and May 2011.

Unfortunately, the improvements probably won’t be enough to prevent a 0.2% fall in 2012 gross domestic product (GDP) or enough to prevent the government’s 95 billion pound deficit target. Worse, it could be just enough to convince the government to forego additional stimulus spending that could provide the boost needed to revive the economy.

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Source:  investopedia.com