{"id":18294,"date":"2011-01-19T09:25:50","date_gmt":"2011-01-19T14:25:50","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=18294"},"modified":"2011-01-19T09:25:50","modified_gmt":"2011-01-19T14:25:50","slug":"this-weeks-forex-commentary-with-john-kicklighter-from-dailyfx","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/01\/19\/this-weeks-forex-commentary-with-john-kicklighter-from-dailyfx\/","title":{"rendered":"This Week\u2019s Forex Interview & Market Commentary with John Kicklighter from DailyFx"},"content":{"rendered":"

By Zac, CountingPips.com<\/strong><\/p>\n

Today, I am pleased to share a forex interview<\/a>\/commentary on this week’s major events and forex trends with the Senior Currency Strategist at DailyFx.com<\/span><\/a>, John Kicklighter. John’s specializes in combining fundamental and technical analysis with money management while his analysis for DailyFx regularly includes G10 fundamental forecasts, risk sentiment analysis and carry trade analysis.<\/p>\n

Q: This week we do not have a lot of major economic releases out of the United States. What do you feel could be the possible drivers of the major currencies this week, especially the direction of the US dollar? <\/strong><\/p>\n

A:<\/strong> A lack of major event risk from the US docket can actually work in favor of developing meaningful trends and volatility for the greenback. If we consider the impact that an indicator like NFPs plays, expectations heading into the release act as a distraction for the market and often sideline developing nascent breakouts and trends. What\u2019s more, \"\"<\/a>given this indicator\u2019s Friday release time, its impact is often constrained to a few active hours.<\/p>\n

In the absence of big ticket US event risk, the market will focus on larger themes (which offer a better platform for trend development). Discussion surrounding the stimulus efforts made by the Fed continue to have a remarkable impact on fundamental expectations; but interest in the European financial troubles will likely carry more weight (as the euro and dollar act as each others\u2019 primary counterparts). \u00a0A more topical concern exists in the US 4Q earnings season. We have had an off and on interest in health updates; but with the market growing more skeptical of performance, the bar is being raised. Finally, we have the 4Q Chinese GDP release coming up soon. This country represents the benchmark for the global economy and the source of many investors\u2019 hopes for return.<\/p>\n

Q: <\/strong>Last week we saw the euro gain against the US dollar for its biggest weekly increase in over a year. Are we likely to see a follow through and more euro gains or should we look for a pullback for the European currency? <\/strong><\/p>\n

A: <\/strong>The European Union\u2019s policymakers have been trying to put out fires for nearly a year now; and in that process have ramped up incredible support programs. Yet, inevitable outcome with each of these efforts has been the same \u2013 continued deterioration in confidence and financial conditions. With this new effort, the promises being floated by some are sizable; but traders are more skeptical of what can actually be passed by all the important players. The sheer scope of the proposals being made and initial talk of ECB interest rate concerns can contribute to a euro bid; but a lack of progress on either\/both front will quickly let the euro down.<\/p>\n

Q: <\/strong>Is this a potentially good opportunity to short the EUR\/USD considering the sovereign debt crisis?<\/strong><\/p>\n

A: <\/strong>An excessive sense of \u2018hope\u2019 that European officials will be able to come to a quick solution on a problem that has proven extremely complex and fraught with contradictions suggests the market hasn\u2019t fully accounting for the fundamental troubles ahead for the euro. What\u2019s more, an inevitable correction in risk appetite (which could easily turn into a true reversal) would quickly undermined the unstable outlook for the shared currency. That makes EURUSD an appealing short over the medium-term. Yet, like any other trade, timing is key. We need to see a few events line up to really put this pair on a bearish track.<\/p>\n

Q: <\/strong>The Australian dollar has been on the defensive since the beginning of the new year basically across-the-board against the major currencies. Do you think this was a natural pullback from its lofty levels, can we attribute this to the floods, is this a result of Chinese tightening or something else? <\/strong><\/p>\n

A: <\/strong>In fact, the Australian dollar\u2019s troubles are likely a mixture of all three. Having put in for an impressive rally, the pair was by many accounts significantly overbought. The sense that it had moved beyond a reasonable measure of fair value was likely furthered by the ongoing efforts made by China to curb its explosive growth and asset price inflation. Yet, it took a tangible event like the flood (as unfortunate and devastating as it is) to finally push the currency back.<\/p>\n

Q: <\/strong>Where does the Australian dollar go from here? Can we look for a pullback in the EUR\/AUD and GBP\/AUD which have both risen quickly since the beginning of the month?<\/strong><\/p>\n

A: <\/strong>Rather than a question of direction, we should look at the Australian dollar\u2019s path from here as a factor of pace and timing. The Aussie dollar is likely to retrace further as interest rate expectations have been capped for the foreseeable future and fundamental traders are starting to take note of the fundamental hardships on the horizon. Perhaps the greatest threat to this currency though is the possibility of a significant reversal in risk appetite (seen in equities and other benchmarks) that drags down the Aussie\u2019s carry trade appeal. A meaningful correction is needed to pull the currency back to a level where the masses can say it is \u2018cheap\u2019 for an entry to a very attractive carry.<\/p>\n

Q: <\/strong>The Chinese GDP is expected to be released for the fourth quarter of 2010 on Thursday. The daily FX calendar shows an expectation of a 9.4 percent advance following a 9.6 percent rise in the third quarter. How much can we expect this release to impact the markets and\/or major currencies this week in terms of risk appetite versus risk aversion?<\/strong><\/p>\n

A: <\/strong>The Chinese GDP figure is important in its own right; because China is seen as the wellspring of growth and return for the world (though to an extent it just represents strong emerging market performance in general). This number will compliment the US earnings season well and set a benchmark for the advanced economy GDP readings that will trickle in over the coming weeks. However, for immediate impact; there may be greater interest in the CPI figures. Inflation is proving a global scourge; and Chinese policy officials have failed to rein it in domestically.<\/p>\n

Thank you John for taking the time for participating in this week’s forex interview<\/a>. To read John\u2019s latest currency analysis and trading strategies you can visit DailyFx.com<\/a>.<\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

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