Recession is Bottoming Out, According to Leading Economic Indicators

One of the main things that will influence the forex trading forecast is the state of the economy. As the economy moves out of recession, the story on the currency market will change. And, according to leading economic indicators, the recession is bottoming out.

MarketWatch reports on economic indicators and what may be in store for the end of the recession:

"These numbers are consistent with the view that, after a very severe downturn, a recovery is very near," said Ken Goldstein, economist for the organization. "But the intensity and pattern of that recovery is more uncertain."

It is important to note, however, that concern over the pace of recovery, and the shape that it will take, is affecting the forex trading forecast. Right now, the risk trade is in decline as the U.K. pound struggles in forex trading and the U.S. dollar gains.

Investors are not overly optimistic that the economic recovery will be a rapid one, and that is the basis for some caution right now, and some drawing back of the enthusiasm that was seen for the last couple of weeks.

U.K. Pound Continues to Struggle in Currency Trading

The risk trade is coming to a rather dramatic end today on the FX market. Cracks in the risk trade began appearing last week, as the U.S. dollar began gaining strength in forex trading. This sent the U.K. pound lower in currency trading. And today, the greenback continues to gain as the sterling heads even lower in forex trading.

Even with economic indicators pointing to a possible bottoming out, the risk trade is not particularly popular right now. GFT's Boris Schlossberg describes in FX360 the fall of the sterling in forex trading:

Sterling was the first G-7 currency to react positively to the recovery trade at the beginning of 2009 and is now the first to lose momentum even as equity prices continue to appreciate. We have been arguing for some time that the unit may be acting as forward indicator to the overall currency market, presaging a possible broader rebound in the dollar as risk appetite begins to subside.

Retail Sales Data Sends Canadian Dollar Lower in Forex Trading

The Canadian dollar is lower in forex trading on the currency market this morning, thanks to the latest round of retail sales data. Retail sales data came in lower for August, creating a currency trading problem for the loonie.

But it may not really be a problem after all. A strong loonie has been providing inflation issues for the Bank of Canada, which is working on an exit strategy from the easing used to help stimulate the economy. GFT's Kathy Lien explains in FX360 why this turn of events might be better for the BoC:

If the Canadian dollar continues to strengthen, the BoC will only grow more uncomfortable but for the time being, they still believe that economic growth could beat their estimates in the second half of 2009. A stronger currency poses a risk to growth and to their goal of bringing inflation back to their target.

Kiwi Heads Higher in Currency Trading

The risk trade is coming back today, after taking a breather. One of the biggest reasons that the risk trade is back is thanks to the New Zealand dollar. The kiwi is heading higher in currency trading on the FX market, thanks to demand in Asia.

Asia, particularly China, represents one of New Zealand's main markets. With signs of economic recovery coming, it is no surprise that demand in Asia for New Zealand's goods is rising. One of the biggest factors right now is the price of milk. With milk rising, and Asia importing a great deal of its milk from New Zealand, it is little surprise that the kiwi is doing well in currency trading.

Right now, the carry trade is moving back into vogue, with the dollar carry trade leading the way. While this state of affairs may not last terribly long, it is clear that for now, the risk trade is back.