The question of market timing is an
important one, as we pointed
out recently. Yesterday was a case in point, at least with regard to those currency
pairs that involve the US dollar and the Euro.
While there were a number of economic
announcements, none of them would be regarded as major market movers in the
normal scheme of things. At 9:00 AM GMT we had the Eurozone Purchasing Managers
Index (PMI), which was disappointing but not dramatically so. It was preceded
by a price range in EURUSD and other pairs in the previous hour that gave added
meaning to the idea that one should stay out of the market until such time as
the big players start activities in London. They seem to get going in earnest
at 9:00AM.
The next report was retail sales in
the UK, a very good figure, which gave Sterling a boost and lifted the Euro in
sympathy. Then there was inflation data from the US, which was unchanged from
the previous outcome. The most important report was that giving initial jobless
claims. The fact that this came at sub 300k for the third month in a row added
to the allure of the US dollar. It started to move the EURUSD pair in the
downward direction at the start of business in New York. It was not, however,
until Chicago came on line an hour later that this move got legs.
The activities of futures dealers in
the Windy City can have a profound effect on exchange rate movement at the
start of their morning, and on many occasions the resulting move is totally in
the opposite direction to what it had been up to that point in the day. One
needs to be aware of these matters when trading Forex.
Iron
Ore falls further, and takes the Aussie with it
Iron Ore took another deep knock
yesterday, falling over 3% on the day to $70.00 per tonne. This is just about
half of where it was this time last year, and considerably lower than it was
before that.
The really fast fall in recent times
has come about because the biggest miners in Australia, BHP Billiton and Rio
Tinto, decided some time ago to modernise and expand their production facilities
in order to cut production costs. It is a common risk where new capacity can
only be implemented in large increments, which takes time, that demand might
have diminished when the work is complete. That is what has happened here.
Chinese demand in particular has tapered off. Rio and BHP, however, are not
about to mothball their mines. They have decided to make use of the situation
to pump even more product into the market. They can afford to do this even as
the price plummets and will thereby “increase market share”, which in reality
means sending smaller producers out of the business. Ironically, many of these
are in China. A recent survey by the Chinese National Bureau of Statistics indicates
that as many as 20% of indigenous Chinese Iron Ore miners are losing money at
the current price.
And yes, the Aussie dollar is also
suffering from the Iron Ore price collapse. The commodity is still important to
the Australian economy. The Australian dollar is now flirting with lows against
the US dollar that have not been seen for four years. That this situation is in
accord with the wishes of the Aussie authorities means that the fall could
continue.
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