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Currency Trading Update -12/1/08

We may have been away for the Thanksgiving holiday, but it doesn't mean our contestants were. While the Million Dollar Portfolio Challenge wasn't open for long on Friday due to the holiday, many of the top 5 contestants managed to get a few trades in and they've been just as active this morning. In fact, contestant number 1 seems very likely to hold on to his lead based on one winning trade: a large GBP/JPY short position that netted $121,360.56. This was easily his most profitable trade yet, but with a full 10 weeks left in the contest, there is plenty of time for our other contestants to catch up.

Now on to the economic indicators that have the potential to be market-moving during the next 24 hours:

Asian Trading Session
12/01/08, 22:30 ET
Reserve Bank of Australia Rate Decision - The Reserve Bank of Australia is anticipated to cut rates for the fourth time in as many months, with a Bloomberg News poll of economists calling for a 75 basis point reduction to a more than 6-year low of 4.50%. However, there is some potential for an even more aggressive move, as Credit Suisse overnight index swaps are pricing in at least a 100 basis point cut, which would bring the RBA's cash rate target to the lowest since December 2001. Overall, Australia is facing major headwinds from financial market instability, which has led to tighter credit conditions, as well as from both domestic and foreign demand. Indeed, global slowdown is hurting exports, something the Australian economy depends on for employment and broad growth. The situation has not been helped by significantly lower commodity prices, though it has served to cool inflation pressures, which leaves the RBA additional leeway to make monetary policy more accommodative in coming months.

European Trading Session
12/02/08, 5:00 ET
Euro-zone Producer Price Index (PPI) - The Euro-zone's producer price index for the month of October is forecasted to fall negative for the third consecutive period at a rate of -0.3%, while the annual rate is anticipated to cool to 7.0% from 7.9%. Weaker commodity prices have helped to drive input costs lower, and when you take into account falling demand in the Euro-zone and abroad, producers are finding themselves with little in the way of pricing power. A decline in PPI in line with or more than expectations will only add to speculation that the European Central Bank will cut rates by at least 50 basis points on Thursday to a more than 2-year low of 2.75%, especially as last week's Euro-zone CPI estimates showed inflation falling back towards the ECB's 2.0% target.

US Trading Session
12/02/08, 11:30 ET - 12:30 ET
US Treasury Secretary Paulson, Philadelphia Fed President Plosser to Speak - There are no major economic releases on Tuesday, but speeches by government and Federal Reserve officials can be just as market-moving for the US dollar and stock markets. At 11:30 ET, US Treasury Secretary Henry Paulson is due to speak on the US-China Strategic Economic Dialogue, which could provide some insight on future stimulus plans in the US and abroad. At 12:30 ET, Philadelphia Federal Reserve President Charles Plosser will speak on the economy. Regarding both Mr. Paulson and Mr. Plosser, comments that reflect information the markets are already aware of will not illicit much reaction, but if they issue dour outlooks for growth or suggest any new policies, volatility could increase rapidly.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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