Fundamentals Matter - Live FX rates

21:00 GMT- Jan 29  Forex market have become incredibly complex for many traders not keeping abreast of the fundamentals but trading on Live FX Rates.  The fundamentals are not simply economic statistics. They also encompass capital flows, psychology and political factors. Economic trends tend to change very slowly so they really are more a background factor than something in the foreground.
 

Broad economic patterns remain the same with the U.S. and U.K. on slow recovery paths, Europe has been rebounding and Asia (ex-Japan) has been doing very well. Japan remains a basket case while China is at the point of taking steps to contain bubbles in sectors of its economy. Those policy tightening actions by China have been impacting overseas markets. The most immediate impact has been sharp declines in Asian equity markets and pressure on the commodity currencies recently. 

One complicating political factor all month has been severe budget problems within the Eurozone. The focus of a lot of worry has been Greece with many finding not only its budget deficit a major worry, but also its economic statistics are seen as questionable. There are also worries that some of the other smaller economies in the Eurozone, the PIGS (Portugal, Ireland, Greece and Spain) could be at risk as well. The EU has been taking a hard public stance vs. Greece in the press, but will help it as needed in the end.  This issue has been weighed on the EUR over the past several weeks and falls in the realm of political factors.  
 

Another political factor that should be a USD negative has been the skeptical trader response to the inconsistent economic agenda of President Obama. On Wednesday, the President said that his top priority is job creation in the U.S., but a good part of his program includes tax hikes that will adversely impact job growth. The markets are now saying that flowery rhetoric will no longer cut it. The Congress and administration has already frittered away a year and massive amounts of funds with its far- left agenda, outrageous pork barrel spending and brainless populism. Politicians will have to get serious about credible policies that will work immediately to create jobs or see themselves out of office in the fall. Financial  markets will be only impressed by concrete actions with a high probability of success.

Related to this, Fed Chairman Bernanke was reconfirmed by the Senate overwhelmingly just shy of an end of January deadline. A rejection of his renomination would have been disastrous for U.S. financial markets and was never a serious political threat. The last minute suspense about his renomination by the Senate turned out to be just a political game.

Capital flows have been key factors this week as well. Sometimes they are hard to track because for obvious reasons they are not announced.  There has been chatter of capital reflows into the JPY related to structural changes in the Japanese financial system. The GBP was said to be in demand this week also due to flows related to the Kraft take-over of Cadbury. Clearly there have been flows related to the worries about Greece out of the Eur. Late in the day Friday, the SNB conducted surprise intervention in the key EURCHF cross.

John M. Bland has been involved in the forex market for more than 30 years, including as a corporate advisor, institutional trader, fund manager and independent trader. He is a co-founder of Global-View.com, the leading forex discussion site and home of the original forex forum. Global-View is a place where forex traders come for currency trading , the Live fx rates, breaking news and forex trading flows.