FOREX SETS

Азиатская Сессия - November 18, 2009 6:02 AM

2009-11-18T05:57:00.003-08:00

Сегодняшний день в Азии был, мягко говоря, не вдохновляющий, так как валютные рынки стали жертвой узких диапазонов и отсутствия каких либо важных данных или новостей. В основном, трейдеры сидели сложа руки и ждали сигналов от предстоящих данных, включая протокол заседания Банка Англии по монетарной политике в Великобритании, и потом чуть позже, индекс потребительских цен США и данные количества разрешений на строительство новых домов из Нью-Йорка. Full text »

London Session - November 18, 2009 5:56 AM

2009-11-18T05:57:00.001-08:00

Gains in EUR/USD accelerated in European hours before EUR buyers emerged at 1.4960. Softer stocks in Japan kept the lid on the risk trade in Asian hours but a better tone in European equities indices has coincided with a softer USD against the EUR, AUD and the NZD. Sterling has been subjected to a choppy morning. The pound initially plunged on the back of the release of the Nov MPC minutes. However, the unit has subsequently recovered. The softer USD has spurred gold to a high of USD1148.10 /troy ounce this morning. Full text »

Asia Session - November 18, 2009 1:44 AM

2009-11-18T05:56:00.005-08:00

Today was not an exciting day in Asia by any stretch of the imagination as currency markets were victim of tight ranges and a lack of any meaningful data or news. Traders mostly sat on their hands and waited for signals from upcoming data including the Bank of England’s monetary policy minutes out of the UK, and a little further down the road, the US CPI and Building Permits data out of New York. Full text »

New York Session - November 17, 2009 4:48 PM

2009-11-18T05:56:00.003-08:00

Poor economic data out of the US coupled with more jawboning in favor of the US dollar elicited a lackluster day for equities and resurgence in the buck. Stock markets closed up a smidge as a late day rally helped erase sharp losses early in the session. EUR/USD remained extremely well correlated with the risk trade and the pair squeezed down from a NY session open by 1.4880/90 towards the 1.4870 zone at last look. The recovery in stocks helped the pair come off the lows just above the crucial 1.4800 support level. Full text »

U.S. Dollar Moves Higher in Currency Trading

2009-11-18T05:56:00.001-08:00

Modest rally helps greenback in forex trading

The U.S. dollar is moving higher in currency trading on the FX market today. The euro is faltering in forex trading, and the greenback is gaining the upper hand — at least for now.

Yesterday, the story was different. Ben Bernanke tried to buoy up the dollar with rhetoric, but largely failed as the greenback tanked in forex trading, heading to 15-month lows.

Today, though, things are looking a little different. With equity markets pulling back and commodities losing ground, the U.S. dollar is finding support. However, this support may not last long, as it is expected that fundamentals will once again assert themselves as economic recovery progresses.

Euro Heads Lower in Forex Trading

2009-11-18T05:55:00.005-08:00

Euro drops below 1.4900

The euro is heading lower in forex trading on the currency market today. After seeing a rally yesterday, the euro is pulling back as the U.S. dollar takes the upper hand.

Part of the reason is likely due to some profit taking. Another issue is the fact that equity markets are falling right now, and the euro generally derives support from strong stocks. And, of course, the pace of economic recovery remains in doubt.

FX Street offers a look at the technical side of the euro in forex trading:

Ian Coleman, Analyst at Turtle Futures, comments: “We have hit some resistance at 1.4920 (was resistance now support). I am expecting a break here then looking to take off half the trade at 1.4893 (which is the daily trend line). If we break there it should be impulsively and take us down to 1.4696, my third wave target, pretty quickly.”

London Session - November 17, 2009 6:09 AM

2009-11-18T05:55:00.003-08:00

EUR/USD has drifted lower from its 1.5000 overnight high aided by comments from the ECB’s Trichet and a weaker tone in stock markets. The move back to USD1.500 wiped out any evidence of the fact that Fed Chairman Bernanke broke with convention yesterday to make mention of the USD. Bernanke’s acknowledgement of the headwinds that face the economy will continue to warrant low rates for an extended period effectively snuffed out any support for the USD. Full text »

Asia Session - November 17, 2009 1:50 AM

2009-11-18T05:55:00.001-08:00

The US Dollar was able to take a step back from lows but was still precariously close to them in a day that saw light flows and little action. The US Federal Reserve spent most of the NY day emphasizing the fact that rates in the US will remain low for an extended period of time, talk that would do nothing to buoy the sinking dollar. Further comments by Fed Chairman Bernanke that looked to reinforce the central bank’s “Strong dollar policy” fell mostly by the wayside. Full text »

New York Session - November 16, 2009 4:45 PM

2009-11-18T05:54:00.001-08:00

Better economic data and a rather status-quo Bernanke helped risk assets extend gains in NY trading, sending the US dollar commensurately lower. Headline retail sales blew away expectations, rising 1.4% in October on a pop in auto sales. Moreover, the “control” retail sales number (ex gasoline, auto dealers and building materials) was actually up a decent +0.5% on the month and this follows +0.4% in September and +0.5% in August. This really limited the downside for risky assets all day. Equities liked the details of the report even more than the headline and were up about 1.5% by the time the dust settled. Full text »

U.K. Pound Moves Higher in Forex Trading

2009-11-18T05:53:00.000-08:00

Sterling gains agains greenback in currency trading

The U.K. pound is moving higher in forex trading on the currency market today as risk appetite makes an appearance. High beta currencies are moving higher as equities around the world rally. Indeed, the sterling is seeing some benefit against the greenback in currency trading due to the gains by equities, including the fact that U.S. stock futures point to a higher open.

Retail sales in October showed improvement, led by auto sales, which are no longer receiving help from Cash for Clunkers. The U.S. dollar is down across the board, with a drop even against the Japanese yen, which is getting support on the strength of GDP growth.

For now, sterling is likely to remain well bid in currency trading. However, troubles in the British economy are far from over, and that could make a difference for the U.K. pound in forex trading going forward.

Interview with Edward Hugh: The Dollar’s Demise is Vastly Overstated

2009-11-18T05:52:00.000-08:00

Today, we bring you an interview with Edward Hugh, a macro economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows. Edward is based in Barcelona, and is currently engaged in research into the impact of aging, longevity, fertility and migration on economic growth. He is a regular contributor to a number of economics blogs, including India Economy Blog, A Fistful of Euros, Global Economy Matters and Demography Matters. [The interview will be presented in two parts, with the first part printed below].

Forex Blog: I’d like to begin by asking if there is any significance to the title of your blog (”Fistful of Euros”), or rather, is it only intended to be playful?

Obviously the title is a reference to the Segio Leone film, but you could read other connotations into it if you want. I would say the idea was basically playful with a serious intent. Personally I agree with Ben Bernanke that the Euro is a “great experiment”, and you could see the blog, and the debates which surround it as one tiny part of that experiment. As they say in Spanish, the future’s not ours to see, que sera, sera. Certainly that “fistful of euros” has now been put firmly on the table, and as we are about to discuss, the consequences are far from clear.

Forex Blog: You wrote a recent post outlining the US Dollar carry trade, and how you believe that the Dollar’s decline is cyclical/temporary rather than structural/permanent. Can you elaborate on this idea? Do you think it’s possible that the fervor with which investors have sold off the Dollar suggests that it could be a little of both?

Well, first of all, there is more than one thing happening here, so I would definitely agree from the outset, there are both cyclical and structural elements in play. Structurally, the architecture of Bretton Woods II is creaking round the edges, and in the longer run we are looking at a relative decline in the dollar, but as Keynes reminded us, in the long run we are all dead, while as I noted in the Afoe post, news of the early demise of the dollar is surely vastly overstated.

Put another way, while Bretton Woods II has surely seen its best days, till we have some idea what can replace it it is hard to see a major structural adjustment in the dollar. Europe’s economies are not strong enough for the Euro to simply step into the hole left by the dollar, the Chinese, as we know, are reluctant to see the dollar slide too far due to the losses they would take on dollar denominated instruments, while the Russians seem to constantly talk the USD down, while at the same time borrowing in that very same currency – so read this as you will. Personally, I cannot envisage a long term and durable alternative to the current set-up that doesn’t involve the Rupee and the Real, but these currencies are surely not ready for this kind of role at this point.

So we will stagger on.

On the cyclical side, what I am arguing is that for the time being the US has stepped in where Japan used to be, as one side of your carry pair of choice, since base money has been pumped up massively while there is little demand from consumers for further indebtedness, so the broader monetary aggregates haven’t risen in tandem, leaving large pools of liquidity which can simply leak out of the back door. That is, it may well be one of the perverse consequences of the Fed monetary easing policy that it finances consumption elsewhere – in Norway, or Australia, or South Africa, or Brazil, or India – but not directly inside the US.

This is something we saw happening during the last Japanese experiment in quantitative easing (from 2002 - 2006) and that it has the consequence, as it did for the Yen from 2005 to 2007, that the USD will have a trading parity which it would be hard to understand if this were not the case. I am also suggesting that this situation will unwind as and when the Federal Reserve start to seriously talk about withdrawing the emergency measures (both in terms of interest rates and the various forms of quantitative easing), but that this unwinding is unlikely to be extraordinarily violent, since the Japanese Yen can simply step in to plug the gap, as I am sure the Bank of Japan will not be able to raise interest rates anytime soon given the depth of the deflation problem they have. Indeed, investors will once more be able to borrow in Yen to invest in USD instruments, to the benefit of Japanese exports and the detriment of the US current account deficit, which is why I think we are in a finely balanced situation, with clear limits to movements in one direction or another.

Forex Blog: In the same post, you suggested that the Fed will be the first to raise interest rates. Why do you believe this is the case? How will this affect the Dollar carry trade?

Well, I would want to qualify this a little, becuase things are not that simple. In fact, as Claus Vistesen argues in this post, the ECB has rather “locked itself in” communicationally, and by talking up the eurozone economies they now have markets expecting clear exit road maps and even pricing in interest rate rises from the third quarter of next year. But if we look at the underlying weaknesses in some of the Eurozone economies – evidently Spain, but Italy is hardly likely to have a strong robust recovery, and the German economy needs exports and hence customers to really return to growth – it is hard to see monetary tightening being applied with any kind of vigour at the ECB, so they may move up somewhat – say to 2% – and then stop for some time.

I was also suggesting that in the short run they may do this to assist in the process of unwinding the global imbalances, since allowing the Fed to lead the world out of the monetary easing cycle would almost certainly provoke a rebound in USD, and problems for correcting the US current account deficit.

Really none of the developed economies (not even Norway) seem to be looking at the sort of really strong “V” shaped rebound some investors were anticipating, and it is more a question of who is weaker among of the weak. But if we look a little further ahead, at potential growth and inflation dynamics, then it is clear that the deflationary headwinds are stronger in Europe, while headline GDP growth may well turn out to be stronger in the US, and both these factors suggest that the Fed will at sometime be tightening faster than the ECB, in a repetition of what we saw from 2002 to 2005.

Forex Blog: You have pointed out that fiscal problems are not unique to the US. While the UK and Japan are certainly in the same fiscal boat, there seem to be plenty of examples of economies that aren’t, or at least not to the same extent, such as the EU. Do you think, then, that the long-term prospects for the Euro (especially as a global reserve currency) are necessarily brighter than for the Dollar?

Well, actually I wouldn’t say the UK and Japan are in the same fiscal boat. Let me explain. The UK evidently has severe short term problems (as does the US) with its sovereign debt, due to the high cost of resolving the lossses produced by the current crisis. But Japan has still not resolved debt problems which were produced in the crisis of the late 1990s, and indeed both gross and net debt to GDP simply continue to rise there. So I would say – as long as they can weather the present storm – the outlook for US, UK and French sovereign debt is rather more positive than it is for Japan. Indeed in the longer term it is hard to see how Japan can resolve its problems without some kind of sovereign default. This is the problem with deflation, as nominal GDP goes down, debt to GDP simply rises and rises.

But the principal reason I am rather more positive on UK, US and French sovereign debt in the mid term is simply the underlying demographic dynamic. These countries have a lot more young people (proportionately) than the Germany’s, Japan’s and Italy’s of this world, and hence their elderly dependency ratios (which are the important thing when we come to talk about structural deficits into the future) will rise more slowly.

It is also important to realise that the EU – at this point at least – is not a single country in the way the US is, and indeed there is strong resistence among European citizens to the idea that it should be. So it is impossible to talk about the EU as if it were one country. That being said, the lastest forecast from the EU Commission suggests that average sovereign debt to GDP will breach the 100% threshold across the entire EU by 2014, so I would hardly call the situation promising. Basically some cases are much worse than others. In the East there are countries like Latvia and Hungary which are currently implementing IMF-lead structural transformation programmes, ut it is far from clear that these programmes will work, and sovereign debt to GDP has been rising sharply in both cases. In the South a similar problem exists, with Greek gross sovereign debt to GDP now expected by the Commission to hit 135% by 2011, and Italian debt set to increase significantly over the 110% mark. At the same time the future of government debt in Spain and Portugal is becoming increasingly uncertain. I would also point to the strong gamble Angela Merkel is making in Germany, and indeed ECB President Jean Claude Trichet singled the German case out during the last post rate-decision-meeting press conference for special mention in this regard. The future of German sovereign debt is far from clear, and markets certainly have not taken in this underlying reality.

So basically, and I think I have already explained my thinking on this in earlier questions, we have a structural difficulty, since I am sure the way out of Bretton Woods II will not be found by simply substituting the Euro for the USD. Europe is aging far more rapidly than the US, and the dependency ratio problems are consequently significantly greater.

Emerging Markets Bubble Continues to Inflate, but for How Long?

2009-11-18T05:50:00.000-08:00

Yesterday, emerging markets (proxied by the MSCI Emerging Markets Index) recorded their biggest fall since July, ending a week of solid gains. Still, this one-day slide of 1.4% pales in comparison to the nearly 100% gain that the index has achieved since bottoming last March. In other words, while investors might be starting to pull back, the direction of asset prices is still upward.

As for what’s causing this across-the-board appreciation, that was the subject of my previous post (Inverse Correlation between Dollar and Everything Else…Still), in which I merely stated the obvious; that the Fed’s year-long program of negative real interest rates and quantitative easing (i.e. wholesale money printing) has unleashed a flood of cash into global capital markets. Since we’re not just talking about the Dollar, here, it makes sense to point out that the Fed’s easy money policies have been copied by Central Banks in most other industrialized countries, including the UK, Canada, Switzerland, Sweden, and to a lesser extent, the EU.

As for why emerging market assets and currencies seem to be outpacing appreciation in other asset classes, that’s also not difficult to explain. First of all, by some measures, emerging market stocks have hardly outperformed other assets. Oil, for example, has risen by 131% in less than a year, to say nothing of other commodities. Still, by other measures, growth has been remarkable. Most emerging market stock indexes and currencies have fully erased (or come close to erasing) the losses recorded during the peak of the credit crisis. Bonds, meanwhile, have gone one step further. Yields are collapsing, and prices have exploded – by 25% in the last year, sending the JP Morgan Emerging Market Bond Index to a new record.

Is it safe to call this a bubble? Intuition would suggest so; given that all assets are rising across the board, without regard to particular fundamentals, it would seem that only a herd/bubble mentality could offer an explanation. Some analysts, in fact, have given up completely on fundamental analysis, instead using fund inflows (i.e. investor demand) to predict whether some emerging market assets will continue rising. As Nouriel Roubini (the NYU economist that famously predicted the credit crisis) summarizes: “Traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade.” P/E ratios are nearly twice as high in some emerging markets, compared to stocks in the S&P 500.

On the other side of the equation are the bulls and the efficient market theorists.”By historical price-to-earnings ratios — the ratio of stock prices to per-share profits — these levels can be justified, if the economic recovery continues. With massive layoffs, business costs have been cut sharply. “The hope is that when consumers and companies start spending, the added sales will drop quickly to the bottom line [profits].” Other proponents argue that the rise in asset prices is exactly what the Fed wants, since it implies that the markets are once again characterized by stability and liquidity.

Regardless of whether growth materializes, however, that doesn’t change the fact that the free ride can’t and won’t last forever. At some point, Central Banks will be forced to raise interest rates and start withdrawing Trillions of Dollars from global capital market. This will cause the Dollar to rise, and investors to rapidly unwind their carry trade positions. Warns Roubini, “A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.”

If the tech-bubble and real-estate bubble taught us anything, it is that there is no free lunch in the markets. It is not possible for all investors in all assets classes to simultaneously win. At least, in the long-term. In the short-term, meanwhile – it pains me to say this – let the party continue. My only warning is this: when the music stops, don’t be the one caught with your pants down…

Cowabunga System Daily Update: Thursday, 11/05/09

2009-11-11T14:50:00.001-08:00

If this is your first time visiting this blog, read this first!

Main Trend

Current Trend

The trend stayed up the entire day.

Today I only looked for long trades.

News events to watch for today :

4:30am EST- UK Manufacturing Production; Industrial Production
7:00am EST- Bank of England Interest Rate Decision
8:30am EST- US Non-Farm Productivity

Today's Surf

12:00am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up, but MACD was already negative. This cancelled out the signal and I did not enter.

3:15am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up, but MACD was already negative. This cancelled out the signal and I did not enter.

6:30am EST- No entry before news

10:30am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD was negative and gaining value. This was a valid entry

The entry was at the close of the candle at 1.6608 with a stop at the most recent low at 1.6535. Since I was 42 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6650.

Entry: Long at 1.6608 Stop: 1.6535 Target: 1.6650

1:00pm EST- My target was not hit by this time. Since it was late in the day, I went ahead and cut my losses and exited out at 1.6580.

Trade Result: -28 pips (NOT INCLUDING SPREAD) R-Multiple: -0.38

News events to watch for tomorrow:

4:30am EST- UK PPI Input m/m
8:30am EST- US Non-Farm Employment Change

For a complete list of news events check out our Forex Economic Calendar.
Questions? Read the Cowabunga FAQ.
Want to discuss the Cowabunga System? Visit our Forex Forums.

Daily Economic Roundup - November 11, 2009

2009-11-11T14:49:00.001-08:00

What's on the Economic Horizon

Volatile GBP Ahead: Labor Market Statistics and Inflation Report on Tap
NZD: Retail Sales Due Late Tonight
US Veterans Day Holiday: Light Volatility Ahead?

United States

Ho hum, quiet trading for most of the majors yesterday. Save for the USDCAD and GBPUSD, the rest of the pairs were range-bound since the US economic schedule was relatively light. Still, the USD was able to lock in humble gains as investors took some profits off the table. More...

Euro zone

Relatively quiet Monday on the European front yesterday, as traders kept EUR pairs in check yesterday. The EURUSD bounced between a tight range of about 70 pips for most of the day. Could yesterday's consolidation lead to a breakout today? More...

Japan

The lack of any fundamental catalyst kept yen pairs in trading in tight ranges yesterday. Japan's economic calendar is once again empty of any important release today so expect the yen's price action to be largely dependent on risk sentiment. More...

United Kingdom

The pound took an early hit yesterday when Fitch commented on the possibility of a downgrade in UK's "AAA" sovereign rating. The GBP/USD was trading just a few pips below 1.6800 prior the comment and dropped to a low of 1.6602 before creeping up slowly to 1.6700 as the day went by. More...

Canada

The CAD moved sideways for the most part of yesterday before making a late push to close higher than the USD. The USDCAD pair fell to a low of 1.0488 but closed at 1.0500. More...

Australia

The Aussie flirted again with its yearly high in yesterday's trading. The AUDUSD, however, fell short and closed at 0.9302. In any case, it is possible for the pair to set a new yearly high since its longer term uptrend is still very much intact. More...

New Zealand

There was some hesitance to bring the Kiwi higher yesterday, as traders left the NZDUSD stuck in the mud. Kiwi trading was tight, which left the pair to close at 0.7418, just a few pips from its opening for the day. More...

Switzerland

The USDCHF was stuck in a 50-pip range as it bounced up and down from support at 1.0060 and resistance at 1.0110. The US economic schedule was relatively light yesterday while Switzerland's was free from any reports. More...

G20: The Silent Treatment

2009-11-11T14:48:00.000-08:00

Once again, most finance moguls and central bank officials from the G20 kingdoms pledged their allegiance to their stimulus programs, claiming that it was still too early to implement exit strategies. According to the G20 summit, the recent economic recovery depends largely on easing policies and that high unemployment could undermine growth. Keeping their stimulus programs in place would provide support for the economy until it can stand on its own.

We've been hearing these same old words from the G20 leaders since their September meetings in London and Pittsburgh. Back then, it seemed prudent for them to continue implementing their easing policies in order to spur economic recovery. Now that we've seen plenty of signs of economic growth, aren't they getting tired of the usual sit-and-wait strategy? Did anything new come up this time?

There was one particular event (or rather, non-event) that set this November summit apart from the preceding meetings. Instead of discussing their concerns on the dying dollar, the G20 nations decided to avoid the issue completely. Quite odd, considering that some of the participants of the summit have shown a lot of unease on how the dollar is recently trading in the foreign exchange market.

Take for instance Canada. The BoC has been saying time and time again on how the persistent strength of the Canadian dollar would put a strain on their exports and would eventually stunt growth. ECB President Jean-Claude Trichet also said before that a strong dollar is extremely important now that the global economy is starting to recover. On the other side of the world, the RBNZ, although not part of the G20, has been echoing the same concerns as the BoC.

Hmmmm... pretty interesting don't ya think? Just when major economies all over the world start distressing about the dollar's value, they suddenly go mute when the opportunity to talk about the issue TOGETHER comes along...

Traders saw this lack of currency talks as a deliberate exclusion from their meeting's agenda, employing some sort of passive action - a silent treatment. Perhaps they just want the invisible hand to work its magic? Are the G20 nations letting the markets do their own thing while they lean on the side of caution?

The G20's commitment to keep stimulus programs in place, particularly by US Treasury hotshot Timothy Geithner, also contributed to the broad-based dollar selling. The Dollar Index slipped back to its 2009 lows, losing about 1% of its value.

The global capitals markets, including treasuries, commodities, and the "anti-dollar" currencies all staged strong rallies against the greenback. Almost all majors went soaring! Gold flew to a new historical high at $1,111.70/ounce before closing at $1,101.40/ounce. Oil also soared above $80/barrel before settling at $79.43/barrel. The Fiber (EURUSD) rose back to the 1.50 handle once again. The Aussie even gapped up before revisiting its yearly high around 0.93. The Kiwi, similar to the Aussie, bypassed some pips to close around 0.74. The Swissy, on the other hand, stepped a day-range closer to parity.

What could be in store for future meetings? Their next agenda might depend on what news and dominate sentiment in coming the months. If data supports that the economies are indeed improving, would we finally hear about the gang's potential exit strategies? Chances are, however, that the G20 nations would continue to sit on their hands until they grow numb. In the past few months, we've seen officials from different central banks express "cautious-optimism". Are those nervous smiles that I see?

Word on the street is that they will be focusing on the climate financing issue, as the 'richer' economies (like the G7) want emerging nations like Brazil, India and China to pay more towards future costs associated with climate change. With this in mind, I don't think we'll be hearing any talks about currency levels or the weakness of the dollar. We might just be in for another non-currency-event the next time the G20 party rolls around...

Daily Chart Art - November 11, 2009

2009-11-11T14:46:00.000-08:00

AUDUSD: 1-Hour

Good morning forex friends! Let's start today by looking at the AUDUSD's 1-hour chart. As you can see, the pair fell back to its 50% Fibonacci retracement level after climbing to 0.9324. It can revisit yesterday's high at 0.9324 if the uptrend support holds, and possibly move even higher if it breaks above the said level. However, if the pair breaks below the rising trendline drawn on the chart, sellers could push the Aussie back to retest the minor support at 0.9260.

EURUSD: 1-Hour

Next is the EURUSD on the 1-hour chart. After breaking free from the 1.4900 resistance, the pair continued to head north where it flirted with the 1.5000 handle once again. Presently, the pair is trading just below the mentioned price level, but it still has an upward bias since the uptrend line is still unbroken. If buyers continue to push the pair north, we may see a break of this year's high. On the other hand, just like the AUDUSD, if it does break below the rising trendline, we could see a retest of yesterday's low, minor support around 1.4950.

USDCAD: 1-hour

The CAD was one of the strong performers yesterday as the USDCAD dipped to a low of 1.0485. However, the selling pressure seems to be exhausted now that the stochastics are in the oversold area. Bullish divergence, with the price showing lower lows and the oscillator drawing higher lows, also hints that the pair could move higher. Drawing a Fibonacci tool on the latest swing move shows that the 38.2% retracement level is nearly in line with previous support just a few pips above the psychological 1.0600 handle. If that area fails to serve as resistance, the pair could climb but encounter another resistance level at the 61.8% Fibonacci level, which is aligned with previous minor resistance at 1.0668.

The Yen vs. the Dollar - Double Entendre?

2009-11-11T14:42:00.000-08:00

US Treasury Secretary Timothy Geitner was in Japan talking with Japanese reporters today, where he stated "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar."

Meanwhile the question that remains is whether the Bank of Japan intervene if the USD/JPY breaks below 88.00 as they have in the past. The bank is silent on this subject at the moment.

Which brings us to this week's truth-telling Fibs.

On October 7th, price reached a low at the end of a long-term downtrend at 88.03 By October 27th price had bounced up hitting a high of 92.33

As you can see on the chart, price looks as though it may be hitting a double-bottom with strong resistance at the 61.8 retracement level at 89.76

If price continues up from here, a very long-term target would be 94.98. Closer resistance levels to watch include 90.18, 90.69, 91.31 and 92.33, which would bring us back to the previous high.

If price finally does break this support level, the USD/JPY could go back to the 88.03 level, potentially pausing at additional support along the way at 88.95 - at which point we would find out what the Bank of Japan intends to do.

Forcing Trades

2009-11-11T14:41:00.001-08:00

I was watching the Lakers play the other night on the tube. While I'm a big fan of Kobe Bryant, I was getting frustrated at him during the game because he seemed to, at least in my opinion, force too many shots. His teammate would pass him the ball, four defenders would run over and smother him, essentially giving him a .01% chance of scoring, but did he decide to pass the ball to an open man?

Eight times out of ten, that would be a negative. He loves to be in his "I'll score and not look for anyone else" mode. Kobe believes he always has a shot whether it's one guy defending him or five, whether he's dislocated his right shoulder, or broke his left foot. He will still shoot the ball and think he can still make it.

The scary thing is he probably could. I wouldn't bet against him. He's the greatest.

But that's not the point.

The point is because he forces so many shots when he could easily pass the ball to a teammate who is open for a shot that has a higher probability of going in, the Lakers lose.

You will get a similar outcome if you force your trades. I've learned the hard way not to execute trades just because I'm bored and there's nothing to do. The market doesn't always have a trade available so sometimes the best thing to do is the same thing Kobe should do...pass it up!

As a trader, what you should do is absolutely NOTHING! Be patient. The best action at times is no action at all.

What happens when Kobe forces a shot? He usually causes a turnover where the opposing teams rebounds the missed shot and scores on the other end. What does Kobe do after this happens? He gets the ball and tries to force another shot.

It's the same when trading. What happens when you force a trade? You lose and you force again and then lose again.

The key to becoming a successful trader is knowing when to stop yourself. You must know how and when to stop trading and stay out of the market. It's tough to stop but it's crucial to stop and walk away when the trades aren't going your way. You don't want a couple losing trades to turn into a losing streak like the Lakers seem to regularly be in.

If you can't stop trading, you will eventually stop...when your account runs out of money.

Unfortunately, it's not as simple a solution for Kobe. I doubt he'll quit forcing shots. It's a good thing they have Andrew Bynum, Lamar Odom and Pao Gasol to grab offensive rebounds.

Who is the greatest basketball player ever?

Kobe Bryant
Larry Bird
LeBron James
Magic Johnson
Michael Jordan
Other:

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USDCAD - Close Open Orders

2009-11-11T14:40:00.002-08:00

Close Open Orders: 2009-11-04 13:42

Welps...it looks like USDCAD was ready to breakout, but to the downside! Positive ISM data from the US brought back the risk bulls out, taking traders away from greenback and moving back to the Loonie. The pair broke well below the rising trendline and finally found support at 1.0600. Needless to say, it's time to close my open orders, especially ahead of the upcoming FOMC event.

Closed Open Orders. No trade.

Alrighty, nothing to do now but wait for the FOMC meeting before making any moves. Stay tuned and be safe in these wild and crazy markets!

Trade Idea: 2009-11-03 04:22

Good morning Forex friends! For this week, I am watching USDCAD for a potential breakout on a classic chart pattern setup. Are currencies ready to move with all the major data coming out this week?

First, the technicals. I have the one hour chart up and we can see an ascending triangle forming. This shows buyers growing in strength, jumping back in on every dip, but sellers have been able to hold buyers off around 1.0800 - 1.0850. Sooner or later, sellers wouldn't be able to hold back the buyers and a reakout may occur. Will we see a breakout? Not sure, but the current market sentiment may give us a clue.

This past week, we have seen a return to risk aversion sentiment across the global markets on continuing economic weakness concerns. This has traders selling "riskier" assets (like commodities, equities, and "high-yielding" currencies), and flocking back towards "safe haven" assets like the Greenback. Are traders right in that we will see further weakness? There's so much data out there pointing to one way or another that it is difficult to weed out what really matters.

For me, I'm basing my bias on this one thought - if the economy is getting better, why do governments need to extend stimulus programs like unemployment benefits, home buyer credits, and quantitative easing measures? Makes no sense. While I think governments have been a little slow in the recent past to recognize potentially dire situations, I would have to agree with what their actions are saying - the economy is weak and cannot survive without its help. I think risk aversion behaviors in the markets are likely to continue in the short to medium term, and I'm willing to take a calculated risk on it.

Last factor to take note of is this week's major economic events. Most notable include the FOMC interest rate decision and the US and Canadian employment reports. I'm not going to try to forecast numbers, but I will say that they have the potential to facilitate a breakout move, depending on the final reads and market reactions. Check out our Forex calendar for specific data and times of these releases.

So, I am taking a long trade in USDCAD based on my technical analysis and fundamental outlook. I will buy above the resistance area, just above last week's high point. My stop will be 150 pips (daily average true range and below the rising trendline) and I will target the area of last resistance between 1.1000 to 1.1100. Here is what I am going to do:

Long USDCAD at 1.0875, stop at 1.0725, pt1 at 1.1000, pt2 at 1.1100

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.

An interesting week ahead of us with the potential for some really nice trades! Thanks for checking out my blog and stay tuned for updates and adjustments!

BabyPips.com USDCAD Forums
BabyPips.com Forex Chatroom

Will USDCAD break above or below the ascending triangle?

Above
Below
Continues to Consolidate

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Back To The Classics: USDCHF

2009-11-11T14:40:00.001-08:00

The first day of the week got pretty hectic for me because, well, people needed their coffee to wipe out their Monday blues! I got home late last night and, after freshening up, I decided to read up on what happened in the forex world...

It seems that dollar weakness dominated on Monday, after reports indicated that G20 nations want to keep stimulus and interest rates at current levels. I don't think this is too good for the dollar... Just yesterday, we saw the greenback get dumped! Also, with more and more people speculating that US interest rates will stay low until 2010, then fewer people would want to invest in the USD, right?

Anyway, when I looked at the charts, I noticed a nice setup on the USDCHF 1-hour chart. The pair just broke below support at 1.0130 and tumbled down. The 50% Fibonacci retracement level of the latest swing move is nearly in line with the broken support level. This level also coincides with the previous week low. Given this, I suspect a lot of sellers are just waiting to short the pair at a much better price, especially since the pair is forming a bearish divergence.

The pair moves, on average, 100 pips per day so I will place my stop at 1.0185. I believe that, assuming the trade gets triggered, the pair only has 50 pips to climb before the buying pressure gets exhausted. In addition, 1.0185 is also beyond the 61.8% Fibonacci retracement level.

Here's what I will do:

Short at 1.0125, profit target at 1.0050, stop at 1.0185.

As usual, I will adjust my position size to make sure I risk only 1% of my account. I also plan to close the trade before the European session ends.

I hope my trade gets triggered this time. Wish me luck! I'll keep y'all posted!

Interest in Forex Grows with Fear

2009-11-11T14:35:00.002-08:00

There’s a correlation between fear of worsening economic conditions and the interest in forex trading. This can be seen in figures disclosed by big forex portals and also in my internal statistics.

Forex trading is at many times an alternative to stock markets. Many forex brokers tease potential customers by pointing out that their stock portfolios are plunging. Forex still didn’t reach out to the masses, but it did draw more money and more interest following the crisis.

Francesc Riverola, CEO of the popular forex portal FXStreet, recently published a post which showed that October saw the highest traffic since March.

Ben Bernanke stunned the markets in March, by announcing the trillion dollar printing program. Since then, the dollar fell and stock markets rallied. Interest in forex fell, according to FXStreet.

And when was the new peak? In another post, Riverola shows that it was on the last week of October. This was the best week of traffic on FXStreet This specific week saw panic return to the markets. Riverola’s transparency is impressing.

Fears of a double-dip recession, Roubini’s scary prophecies and sent the markets down and the dollar up. At the end of that week, I was wondering if the tables are turning.

Here at Forex Crunch, I also had a peak week on the last week of October, significantly better than previous weeks. Monday, October 26th saw a peak of 7,000 page views.

Also in a much smaller site like mine, the fear was felt in the interest in forex trading. Thanks to all my readers!

Looking at my favorite portal, Forex Factory, you can see that the highest number of concurrent users was last Friday, when US unemployment rate rose above 10% – quite gloomy.

I believe that other forex blogs and portals are also seeing the same equation: bad economic situation = good times for forex.

Thanks to Michael Greenberg that pointed out Francesc Riverola’s blog. Read more about the situation of forex portals in Michael’s blog.

Forex Daily Outlook – November 11th 2009

2009-11-11T14:35:00.001-08:00

It’s Remembrance Day in many countries in the Western hemisphere, so forex trading will be rather light today. In Britain, there’s no holiday, and there are major employment events. Let’s see what’s on the menu today:

Both the US and Canada are on holiday, but this doesn’t mean that USD/CAD won’t shake, after breaking the support line yesterday.

An influx of data arrives from China. The most important figure is Industrial Production. The growth rate is expected to rise from 13.9% to 15.3%, showing that the Asian giant is in full strength. Also note Trade Balance, which is expected to show a higher surplus.

Good figures from China are good for the Aussie. For more on the Australian dollar, read the weekly AUD/USD forecast.

New: An outlook video from my partners:

Big day in Britain

Britain’s Claimant Count Change is the earliest and most important employment figure. The rise in unemployed people softened last month, helping the Pound. It’s expected to remain stable at around 20.2K. And there’s more in the UK…

At the same time, 9:30 GMT, the Unemployment Rate is released. This related to the previous month – September. Despite the late release, this figure, which surprised twice, has a great influence on cable as well. It’s expected to edge up from 7.9% to 8%.

Later in Britain, the Bank of England will release the quarterly BOE Inflation Report. It’s expected to show that Britain is on the verge of deflation, with slowing price rises. Mervyn King, governor of the BoE, will hold a press conference immediately after the release of the report. He will state policy related to inflation (or deflation), something that will rock the Pound.

For more on the British Pound, check out the weekly GBP/USD forecast.

In Europe, despite the holiday, a speech from Axel Weber, head of the German Budesbank is expected. He’s one of the strongest people at the European Central Bank.

For more on the Euro, I suggest reading Casey Stubbs’ recent EUR/USD technical analysis and my EUR/USD weekly forecast.

Near the end of the day, New Zealand will release a major figure: retail sales. They’re expected to rise by 0.5%, about half of last month’s rise. Core retail sales are predicted to rise by 0.4%, much less than 1.2% that was recorded last month.

That’s it for today. Happy forex trading!

USD/CAD breaking minor support – the move is fragile

2009-11-11T14:33:00.002-08:00

The Canadian dollar built up strength from a few factors and managed to break a minor support line. It’s now back to the levels that it was before the greenback comeback, but has bumps on the way.

USD/CAD now trades at 1.0520, after touching the round number of 1.0500. Since the beginning of the week, it made a move of over 200 pips downwards, and there are various reasons.

The drop began yesterday with the general dollar weakness. The G20 ministers are allowing the dollar to fall. This took USD/CAD down to 1.06, the support line mentioned in the weekly USD/CAD forecast.

Canadian housing starts, which disappointed many times in recent months managed to meet expectations and rise to 157K. The publication sent USD/CAD below the 1.06 support line, but it stalled at around 1.0540.

In today’s New York session, a fresh new wave of dollar weakness sent USD/CAD to 1.05, but it bounced and went higher again.

The Canadian economy is recovering slowly, similar to the American one. The recent negative monthly GDP hurt the Canadian dollar that had many reasons to rise. This wasn’t the only problem. Mark Carney, head of the BOC, released a as a dovish rate decision.

The latest disappointment in Canada was quite big: the Canadian job market lost over 40,000 jobs, more than the gains in the previous months.

The Canadian economy is recovering quite slowly, and the recent move downwards is mostly attributed to the weakness of the US dollar, rather than the strength of the Canadian one.

USD/CAD must close the week under the 1.06 line in order to convince traders that the Canadian dollar is strong, aiming for parity.

Forex Daily Outlook – November 10th 2009

2009-11-11T14:33:00.001-08:00

Lots of economic indicators are published today, with the German ZEW Economic Sentiment standing out. Let’s see what’s up for dollar continue the plunge?

British figures start the day: BRC Retail Sales Monitor serves as the “mini retail sales” release. It rose by 2.8% last month, and is expected to keep on growing. The RICS House Price BalanTce shows that more areas are reporting a rising in price. The positive number of 22% is expected to be followed by 29% this time.

Later in Britain, Trade Balance is predicted to remain stable, at a deficit of around 6.2 billion. The CB Leading Index, which is based on data that has already been released, is expected to rise again, despite the recent fall in GDP.

GBP/USD broke the resistance line and is making a sharp move north. For more on the British Pound, read the GBP/USD Forecast.

New: A daily outlook from my partners:

In Japan, the Economy Watchers Sentiment is predicted to rise cautiously to 43.9 points. Near the end of the day, Core Machinery Orders are expected to jump by 3.7%.

Australia’s NAB Business Confidence will be released, and it’s expected to resume rising, after dropping last month. The Aussie is doing well.On the other side of the day, Westpac Consumer Sentiment is expected to continue rising, following last month’s 1.7% rise.

For more on the Australian dollar, read the AUD/USD Forecast.

In Europe, German Final CPI is expected to confirm the early read of a 0.1% – too low for thinking about a rate hike. Following yesterday’s nice rise in the German industrial production, France is also expected to show a rise – but only 0.9%.

The bigger event in Europe is the release of the German ZEW Economic Sentiment. This highly regarded indicator is predicted to fall from 56 to 55.2 points, showing that the recovery in Europe’s largest economy is still slow. The all-European figure is expected to rise to 58.9 points.

For more on the Euro, read the EUR/USD Forecast.

In the US, the falling dollar still doesn’t receive any significant indicators this week, but there a few notable speeches: FOMC members Dennis Lockhart, Janet Yellen and Daniel Tarullo will be speaking today.

Towards the end of the day, kiwi traders will receive the RBNZ Financial Stability Report which is a good indicator the whole economy. NZD/USD made a huge leap in yesterday, and owes some of these gains to the local dairy company of Fonterra, which increased its payout to farmers.

Forex Daily Outlook – November 9th

2009-11-11T14:32:00.000-08:00

The week begins with renewed risk appetite. The dollar loses ground across the board on optimism from China. Let’s review the events that will impact forex trading in the wake of the new week:

In Australia, Home Loans rose significantly more than expected – by 5.1%. On the other hand, ANZ Job Advertisements disappointed by falling by 1.7% after two months of gains.

AUD/USD looked at the bright side, and rose to 0.9250, under the resistance line. For more on the Aussie’s week + technical analysis, read the AUD/USD Forecast.

In Europe, German Trade Balance is expected to show a higher surplus, rising from 10.6 billion to 11.8 billion Euros. The all-European Sentix Investor Confidence is expected to edge up, but still remain in the negative zone – 11.2 points.

New: A daily outlook from my partners:

The more important release in Europe is the German Industrial Production. It’s predicted to post a second month of growth and rise by 1.2%. The publication at 11:00 GMT will move the Euro. EUR/USD is currently at 1.4937, higher than last week’s highs.

For more on the Euro’s week + technical analysis of EUR/USD, read the EUR/USD Forecast. I also suggest looking into Casey Stubbs’ latest EUR/USD analysis.

In Canada, Housing Starts are an important release for the Canadian dollar. They’re expected to rise up to 157K, after a slow cautious upwards move in previous months. Also the loonie enjoys the greenback’s weakness, with USD/CAD under 1.07.

For more on the Canadian dollar’s week, and a technical analysis for USD/CAD, check out the USD/CAD Forecast.

That’s if for today. The next days are more interesting, especially from Britain. Check out the GBP/USD Forecast for the events in Britain and a GBP/USD technical analysis

British Pound Outlook – November 9-13 2009

2009-11-11T14:31:00.000-08:00

After enjoying a rather positive rate decision, big tests await the Pound – employment figures. Will the Pound enjoy them as well? Or will the ongoing British recession be reflected in these numbers as well? Here’s an outlook for the main events in Britain, and updated technical analysis for GBP/USD:

GBP/USD chart with support and resistance lines marked on it:

The previous rate statement already contained hidden hints about expanding the QE program. Last week’s decision brought an expansion, but at smaller scale – 25 billion, and this helped the Pound. Bad Non-Farm Payrolls in the US didn’t stop the Pound. All eyes are on this week’s Claimant Count Change, and there are other events. Let’s review them:

BRC Retail Sales Monitor: The British Retail Consortium publishes this report, which is an unofficial alternative to the official releases, beating it by more than a week. Last month’s report showed a rise of 2.8%, after a drop in the previous month. It’s expected to edge up this time. Published on Tuesday at midnight GMT.
RICS House Price Balance: This indicator by RICS shows the percentage of British areas reporting a rise (or fall) in prices. After many months of a negative figure, this indicator was positive in the past two months, beating expectations 7 times in a row. 22% last month is expected to be followed by 29% this time. Published on Tuesday at midnight GMT, together with the previous figure.
Trade Balance: British trade balance is traditionally negative – meaning there’s a deficit. This deficit has slightly squeezed in recent months, edging down to 6.2 billion pounds. It’s predicted to edge down some more, to 6.1 billion. A smaller deficit will help the Pound. Published on Tuesday at 9:30 GMT.
CB Leading Index: This composite index is based on figures that have already been released, but can still surprise in its overview of the British economy. It showed growth in the past 5 months, rising 0.9% last time. It’s predicted to continue rising. Published on Tuesday at 10:00 GMT.
Claimant Count Change: This is the most important employment release in Britain, and related to the previous month – October in this case. The number of people claiming unemployment benefits has risen constantly from April 2008. Last month showed a rise of 20.8K people, significantly less than expected, and the lowest in 14 months. It’s expected to stay stable, and move to 20.2K. The Pound will shake in any case. Published on Wednesday at 9:30 GMT.
Unemployment Rate: This employment figure, released with the Claimant Count Change, relates to the month before the previous one – September in this case. Despite being a late release, this figure is highly quoted by the media, and impacts the Pound. In the past two months, the unemployment rate “refused” to rise to 8%, beating economists’ expectations and standing on 7.9%. Predictions are for a rise to 8%. Again.
BOE Inflation Report: The Bank of England publishes this important quarterly report on Wednesday at 10:30 GMT. Prices are slowing down in Britain in recent months, together with the economy. The BoE might miss the 1-3% inflation target. This report goes beyond inflation and dives into the whole economic situation and monetary policy. Britain is still in recession. Mervyn King, governor of the BoE, will follow this report with a press conference to explain the report and answer questions.

GBP/USD Technical Analysis

After weathering the dollar’s strength in the previous week, the Pound made a nice rise this week. It initially fell down to 1.6260, but recovered quickly, riding on the positive rate decision, to close the week at 1.6610.

I’ve updated some of the support and resistance lines from last week’s GBP/USD outlook. Looking up, a strong Pound will meet the 1.67 line, which served as a strong resistance line in many occasions this year.

Further above, 1.7042 was the peak during August, and will serve as a resistance line if the Pound rallies.

Looking down, 1.6110 is the first significant support line, serving as a resistance line before the Pound made its comeback, and serving as support beforehand. Below that, 1.5720 is a major support line, holding the Pound’s downfall a few weeks ago, and also earlier this year.

Despite the Pound’s recent strength, and also the relatively positive rate decision, the British economy is still in trouble. My bearish sentiment holds on.

Only very strong employment figures, such as a fall in the Claimant Count Change could convince me that something is getting better in Britain.

EUR/USD Outlook – November 9-13 2009

2009-11-11T14:30:00.002-08:00

After a good week, the Euro expects a week full with indicators, with GDP numbers kept for Friday. The Euro is slowly climbing again, but it still seems out of fuel. Here’s an outlook for the events in the Euroland and an updated technical analysis for EUR/USD.

Arabic version of the EUR/USD Forecast.

EUR/USD forex chart with support and resistance lines marked on it:. Click to enlarge:

Germany and France are already out of recession, but the continent as a whole still isn’t there. Will the Euro zone get out of recession in Q3? These releases are on Friday, and there’s lots more before that. Let’s review the events:

German Trade Balance: Europe’s largest economy enjoys a surplus in its trade balance. This surplus is on the rise, but fell last month down to 10.6 billion. It’s expected to return back up to 12 billion, showing the steady growth of the German economy. Published on Monday at 7:00 GMT.
Sentix Investor Confidence: 2800 experts are surveyed about their current sentiment towards the European economies. This index is negative, meaning a pessimistic sentiment for almost a year and a half. In recent months it has improved, reaching -12.6 points. It’s predicted to edge up to -10.8 points. Published on Monday at 9:30 GMT.
German Industrial Production: Returning to Germany, it’s industrial production is published earlier than other countries. This indicator went up and down in recent months, posting a neat 1.7% rise last time. This month, the rise is expected to continue – by 1.4%. Published on Monday at 11:00 GMT.
German Final CPI: Deflation is a serious problem in Europe. Germany’s Consumer Price Index is around zero in recent months, falling by 0.4% last month and rising by 0.1% this time, according to the preliminary release. This 0.1% rise is expected to be confirmed on Tuesday at 7:00 GMT.
French Industrial Production: Europe’s second largest economy has an industrial production that is more stable. It posted growth in the past 4 months, with a surprising 1.8% last time. Half of this growth is expected this time – 0.9%. Published on Tuesday at 7:45.
German ZEW Economic Sentiment: This release is very important for the Euro. 350 senior investors and analysts are surveyed for their sentiment. This indicator fell to 56 points last time, taking it two months backwards. The disappointment hurt the Euro. Expectations have been modified, and another fall is predicted this time – to 55 points. EUR/USD will shake during the release, on Tuesday at 10:00 GMT. Note that the same indicator will be published for the whole continent, but it’s less accurate. The all-European figure is predicted to rise from 56.9 to 58.9 points.
Axel Weber talks: The president of Germany’s central bank, Axel Weber, is an influential member of Jean-Claude Trichet’s ECB. His words might indicate future policy. He’ll make two public appearances this week: on Wednesday at 17:00 GMT, and on Friday (following the GDP numbers) at 13:15 GMT. His speech on Friday is more important.
ECB Monthly Bulletin: This report gives us an insight to the numbers that the ECB members were checking out before making their recent decision, which wasn’t very exciting. Published on Thursday at 9:00 GMT.
Industrial Production: At the time of the all-European release, industrial production numbers have already been published in Germany and France. As we see in the GDP, there’s a significant difference between the large and strong economies to all the rest. The all-European figure is predicted to rise by 0.6%, following a nice 0.9% last time.
Jean-Claude Trichet talks: The president of the ECB, JEan-Claude Trichet will speak on Thursday at 19:00 GMT. In speech addressing the future beyond the lost year of 2009, he might hint about the timing of a rate hike, something that probably won’t happen in the near future.
German Prelim GDP: The main course of the week is served on Friday at 7:00 GMT. After a year of recession, Germany got out of it in the second quarter of 2009 – posting growth of 0.3%. The resilient German economy is predicted to show a faster pace of growth in Q3 – 0.8%, according to the initial release. EUR/USD will shake.
French Prelim GDP: Europe’s second largest economy is also out of recession, posting the same growth rate as Germany. Here, third quarter growth is expected to be less than Germany – 0.6%. Published on Friday at 7:50 GMT.
Flash GDP: As aforementioned, the whole Euro-zone hasn’t see the end of recession. The Euro-zone’s economy squeezed by 0.2% in Q2. Optimism rules here as well, and a growth rate of 0.6% is predicted. This preliminary release is due on Friday at 10:00 GMT.

EUR/USD Technical Analysis

The Euro had a bad start to the week, failing to enjoy good figures and break the resistance line. It then fell below previous levels, bottoming at 1.4626. It made a strong comeback, rising as high as 1.4917, before closing at 1.4846.

The resistance line of 1.4842, that was mentioned in last week’s EUR/USD outlook was eaten from all directions, and doesn’t appear in the graph.

Looking up, I marked 1.4917 as the immediate minor resistance line. It was this week’s peak, and also back in August last year.

Higher above, this year’s high of 1.5060 is the next resistance line. Even higher, 1.5144 was a support line when the Euro was going up and now serves as a resistance line.

Looking down, I’m keeping 1.4683 and taking the dip as temporary. It’s a minor support line. Further below, 1.4444 was a huge resistance line in recent months, and continues to be a major support line.

For more technical insight, I suggest reading Casey Stubbs’ most recent EUR/USD analysis. Another great read is Mohammed Isah’s EUR/USD strategic analysis. Also check out a The Geek Who Knows, with an interesting EUR/USD technical analysis of his own.

I remain neutral on EUR/USD. The fear of an ongoing crisis in the world, as seen in the bad employment numbers from the US, make the steady European recovery not enough to push the currency much higher.

Australian Dollar Outlook – November 9-13 2009

2009-11-11T14:30:00.001-08:00

After another rate hike, the Aussie finishes the week higher, looking forward to a week of many indicators, including the all-important employment figures. Here’s an outlook for 9 important events for the Aussie, and an updated technical analysis for AUD/USD.

AUD/USD chart with support and resistance lines marked:

Australia’s interest rate is very high, and is going higher, but this was already anticipated by the markets, which initially sent AUD/USD lower. The strength of the Aussie was seen at the end of the week, when it continued rising despite the scary employment figures from the US. Now, it’s Australia’s turn to publish employment figures, that will impact it directly. And there are more events…Let’s see them:

Home Loans: The number of loans for homes is directly linked with the housing sector, where most home buyers take a mortgage. The housing sector impacts the whole economy. In the past two months, home loans fell in Australia and lagged behind other economic indicators. This time, a return to growth is expected, with a rise to 3.1%. Published on Monday at 00:30 GMT.
ANZ Job Advertisements: At the same time as the Home Loans release, another important indicator is published. The number of jobs that are advertised in Australian newspapers are an indicator of employment. After many months of downfall, the past two month have seen nice growth, above 4%. Growth is expected this time as well. This early release comes well before the official employment figures on Thursday.
Philip Lowe talks: RBA Assistant Governor Phillip Lowe is an influential member of Glenn Stevens’ RBA. In a recent speech about Asia’s role in the Australian economy, Lowe said that his country is well placed to benefit from Asia. Will he be hawkish this time as well? Answers on Monday at 3:30 GMT.
NAB Business Confidence: The National Australia Bank releases this indicator on Tuesday at 00:30 GMT. Their survey of about 350 businesses has been positive in the past 4 months, rising up o 18 before dropping to 14 points this month. It’s expected to resume growing this time.
Chinese Industrial Production: A lot of indicators are released from China on Wednesday, with industrial production being the most important one, published at 2:00 GMT. After growing by 13.9% (annualized), expectations are very high this time, with a jump to 15.3%. Australia depends on trade with China, and this publication will instantly move the Aussie.
Westpac Consumer Sentiment: This survey comes from another major bank, the Westtpac Banking Corporation, and it survey 1200 consumers. Australian consumers have shown confidence in their economy during most of the year, with rising numbers. Last month’s relatively mild rise of 1.6% is expected to be followed by a similar rise this time. Published on Tuesday at 23:30 GMT.
MI Inflation Expectations: The Melbourne Institute hasn’t changed their inflation expectations in the past three months – an annual price rise of 3.5%. Higher inflation expectations are needed for the RBA to move faster on the interest rate. Published on Thursday at midnight GMT.
Employment Change: The net change of jobs in Australia has been a see-saw in the last months, switching from positive to negative. Last month saw a huge positive surprise with a rise of 40.6K jobs, beating expectations of a drop. This doesn’t convince economists, which are pessimistic again, and expect a fall of 10K. A surprise sure is possible. Published on Thursday at 00:30 GMT.
Unemployment Rate: The twin figure of the employment change, published at the same time is the unemployment rate. This figure also surprised economists in the past months. This included a drop from 5.8% to 5.7% last month – the second drop this year. Expectations are for a return to 5.8% this time. A better result will boost the Aussie.

AUD/USD Technical Analysis

The Australian dollar began the week with a break of the 0.8950 support line, a break which proved false. It later made a nice rise and rose steadily rose up to 0.9188.

As in last week’s AUD/USD outlook, I continue to mark the 0.8950 as the initial and important support line. The Aussie bounced off this line a few weeks ago on the way up. Below that, 0.85 was the previous resistance line, and now serves as a support line.

Looking up, I’ve added 0.9280 as the first resistance line. It served as a support line the during last year. A little higher, this YTD high of 0.9327 is the next resistance line.

A stronger resistance line is at 0.95 – this was a major resistance line in 2008, and is also a round number. A collapse of the dollar will stop there.

My trend remains the same: I’m bullish on the Aussie. The Australian economy continues to enjoy Asia’a growth and also a very high interest rate.

Canadian Dollar Outlook – November 9-13 2009

2009-11-11T14:29:00.001-08:00

The loonie had a good week, until the Canadian employment figures were released. These bad numbers sent USD/CAD back up. Here’s an outlook for the upcoming week, and an updated technical analysis for USD/CAD.

USD/CAD chart with support and resistance lines:

The bad employment figures not only disappointed the markets, but also erased all of last month’s job gains that boosted the Canadian dollar. Let’s review the events this week:

Housing Starts: Canadian Housing Starts have risen in the past months, and stabilized at 150K. The housing sector was slow to recover, and the hesitant rise shows it. This time, Housing Starts are predicted to rise up to 157K. Published on Monday at 13:!5 GMT.
NHPI: The second housing figure for the week is published on Thursday at 13:30. After many months of downfall, the New Housing Price Index has been positive in recent months, rising 0.1% last month. This housing indicator is also important for the loonie. It’s expected to rise by 0.2% this time.
Trade Balance: 5 months of consecutive trade deficit will probably be followed by a sixth one. The fall in the prices of commodities has hurt the Canadian exports, and the deficit has deepened to 2 billion C$. It’s expected to ease this time, and show a deficit of 1.5 billion. Publishe on Friday at 13:30 GMT, together with the American Trade Balance. This double feature event makes the release time very sensitive for USD/CAD.

USD/CAD Technical Analysis

The Canadian dollar started the week with some nice strength: USD/CAD fell as low as 1.0594, flirting with the support line. The disappointing job figures in Canada on Friday erased the gains, and USD/CAD ended the week at 1.0750, a relatively small drop.

I’ve updated some of the support and resistance lines from last week’s USD/CAD outlook. Looking down, this week’s low area of 1.06 is the first support line. It was also a support line in September.

Further below, 1.02 is this year’s bottom for USD/CAD and serves now a strong support line. Further below, parity, 1:1 is a huge support line. This level was last seen last summer.

Looking up, a strengthening greenback will find resistance at 1.0850, the peak of the last weeks. Further above, 1.1130 is a major resistance line, that wasn’t reached since July, and was tested many times.

Following last week’s change, I remain neutral on the pair. The negative change in the Canadian dollar’s direction was done also by the falling GDP. Now it was confirmed by this week’s bad employment figures.

Free Training Video From Technical Analysis Guru John Murphy

2009-11-11T14:27:00.001-08:00

I'm just writing a quick blog post today to tell you about a special free offer that may be of interest to you. It's basically a 90 minute video/seminar (that you can watch online) from legendary technical analysis expert John Murphy.

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So this free video is an excellent opportunity to pick up some invaluable trading tips from one of the very best technical analysis experts. Plus if that wasn't enough, you can also access three additional training videos including 'Market Wizard Insights' from Jack Schwager.

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How To Trade RSI And MACD Divergence

2009-11-11T14:26:00.004-08:00

Divergence is undoubtedly one of the most effective trading patterns because it basically tells you when a trend is starting to run out of momentum. Therefore when it looks like a reversal is about to happen, you can have a great deal more confidence entering a trade at the start of this new trend.

These divergence patterns occur on every different time frame and they are fairly easy to spot. You can use a variety of different technical indicators to help you, but I personally think the RSI and MACD indicators are two of the best ones you can use for spotting these divergence patterns.

What you are basically looking for is for the price to be going up (and ideally making new highs), but for the RSI and MACD indicators to be failing to make new highs. The fact that these indicators are failing to make new highs tells you that the upward trend is running out of steam, and could be about to reverse.

Similarly if you are looking to go long in a downward trending market, you want the price to be making new lows, whilst the RSI and MACD indicators are both failing to make new lows.

I probably haven't explained that very well so let me give you two recent examples from the daily GBP/USD chart.

In the first example, indicated by points 1 and 2 you can see that when the price headed up towards 1.6750 (at point 2), both the RSI and MACD were lower than they were at point 1. Therefore although this wasn't a perfect divergence pattern because the price didn't actually make new highs, it was still an excellent trading signal to go short when the MACD crossed downwards (indicated by the red arrow).

The second example, indicated by points 3 and 4, was more of a classic divergence pattern because the price made a new low at point 4 but the RSI and MACD were actually higher at this point than they were at point 3. So this was another indication that this trend was running out of momentum, and indeed you can see that when the MACD crossed upwards (indicated by the green arrow), there was a very nice reversal to the upside.

So as I say, these divergence patterns happen on every different time frame and can be extremely profitable. However in my experience it's generally best to use them on the longer time frames so you avoid getting a lot of false signals.

Is The EUR/USD Pair Finally About To Turn Bearish?

2009-11-11T14:26:00.003-08:00

The EUR/USD pair has been in an upward trend (according to the Supertrend indicator on the daily chart) since 8th May. However in the last few weeks it's been quite hard to trade because this upward move seems to be slowly running out of momentum, and today it looks like the trend could be about to change at long last.

The reason I say that is because the daily Supertrend indicator, which I've just mentioned, looks like it's about to change from green to red. In order for that to happen the EUR/USD pair needs to close the day below it's current level of 1.4669.

At the moment it looks like it's going to be tight because the current price at the time of writing is 1.4660. However if it doesn't happen today, I'm sure it's going to happen in the next few days.

If it does, I shall automatically be looking to go short on the 4 hour chart (as per my trading strategy), and longer term I wouldn't be surprised to see the price continue heading downwards towards the EMA (200), which is currently around the 1.4170 level.

Whatever happens I'm sure there will be some decent trading opportunities to be had providing this downward trend is confirmed either today or in the near future.

Fibonacci In Action - EUR/USD And Gold

2009-11-11T14:26:00.001-08:00

The various different fibonacci levels are generally very useful, particularly when you are trading the long-term daily charts. To demonstrate this point I suggest you look at the daily chart of both gold and the EUR/USD currency pair because the price bounced nicely off some key fibonacci levels this week.

If you watch this short trading video, you can see that gold fell quite sharply this week but soon moved back upwards again after it touched the 50% retracement level, and you will also see that the EUR/USD pair fell to around the 1.47 level before staging a recovery, which interestingly enough was exactly where the 61.8% retracement level was.

So the point is that these fibonacci levels are worth watching not because of any mystical powers they may have, but because of how the markets react when these key levels are reached. The 50% and 61.8% retracement levels, in particular, often act as turning points, as demonstrated in these two examples.

Inverse Correlation between Dollar and Everything Else…Still

2009-11-11T14:24:00.003-08:00

Almost two months ago, I wrote a series of posts (Dollar Down, Everything Else Up and Dollar Down, Gold Up) with self-explanatory titles. Last week, the Wall Street Journal finally got around to covering this story, and were able to quantify the extent of the trend with the use of statistical analysis. Accordingly, they observed an incredible 71% correlation between the Dollar and the S&P 500, compared to an average correlation of 2%. This implies that every 1% rise in the S&P is matched by a .71% fall in the value of the Dollar, and vice versa.

Furthermore, this trend appears to be both strengthening and spreading. The average correlation between the Dollar and stocks since July is 60%; given that it’s now 71%, this suggests that it was closer to 50% over the summer. In addition, the correlation between stocks and oil has touched 75%, the highest level since 1995. By extension, this implies a proportionately high correlation between the Dollar and gold. In short, the notion that as the Dollar is tanking, virtually every other commodity/asset under the sun is rising, now has some weight behind it.

Understanding the basis for this relationship is not complicated. You can think of it in terms of the Fed’s liquidity program or in terms of the carry trade, but regardless of what you call it, the concept is the same. Basically, the Federal Reserve Bank has printed nearly $2 Trillion as part of its quantitative easing program. For better or worse, most of this money found its way into the markets, rather than into the economy. Investors have been faced with the dilemma of either holding the currency in cash or investing it. (Here, I would argue that “speculate” is a more appropriate descriptor than “invest,” but anyway…) The simultaneous rise in stocks, bonds, emerging market currencies, commodities, and even real estate is proof enough about where that money went.

Stepping outside of forex markets a moment, the fact that all asset prices are rising in unison suggests that a new bubble is forming. Normally, one would expect that in a bull market, some assets would outpace others, but in this case, it seems that fundamentals are being pushed to the backburner, and investors are piling into anything and everything that’s liquid. Even traditional relationships, like that which leads bond prices to fall as stock prices rise seems to have broken down.

Getting back to the Dollar, the fact that bubbles are forming in stocks/bonds/commodities probably means that an inverse bubble is forming under the Dollar. One can draw understanding from last year’s partial collapse of the Yen carry trade, which began to deflate after several reliably strong years. The same could very well happen to the Dollar carry trade.

If and when the Fed raises interest rates, and/or begins to draw the excess liquidity out of the markets by offloading its inventory of securities, well, the markets should witness a simultaneous correction. How violent the correction is depends largely on the degree to which the markets anticipated it as well as the finesse of the Fed. If everybody rushes for the exits at the same time, it could create the same kind of panic that ensued after Lehman Brothers went bankrupt, whereby asset prices collapsed and the markets flooded into the Dollar.

History is never far from repeating itself.

Forex Implications of China-US Economic Codependency

2009-11-11T14:24:00.001-08:00

The Economist recently published a special report on China and America (”Round and round it goes“). As the title suggests, the article described the increasing interdependency between the economies of the US and China. In a nutshell, China maintains an undervalued currency, in order to stimulate exports. The resulting overseas (American) demand puts upward pressure on the RMB, which China defuses by buying US Treasury securities. This results in artificially low US interest rates, causing American consumers to import more, putting even more pressure on the RMB, which is further defused by buying more US Treasuries. And the cycle continues ad nauseum.

The article focused primarily on the political side of this precarious relationship, at the expense of the financial implications. It got me thinking about the forex forces at work, and how a disruption in the cycle could have tremendous ramifications for currency markets. It’s clear that in its current form, this system keeps the Yuan artificially low, but does that means that the Dollar is also being kept artificially high.

Given the depreciation of the Dollar over the last six months, this seems almost hard to believe. Over the same time period, though, China (as well as many other Central Banks) have vastly increased their Treasury holdings. This would seem to imply that indeed, the Dollar’s fall has been slowed to some extent by the actions of China. It’s kind of a paradox; as US consumers recover their appetite for Chinese goods, the Dollar should decline. But as China responds by plowing all of those Dollars back into the US, then the net effect is zero.

As the Economist article intimated, there are a couple of developments that would seem to upset this equilibrium. The first would be if the Central Bank of China began diversifying its forex reserves into other currencies. By definition, however, it would be impossible for China to continue pegging the RMB to the Dollar without simultaneously buying Dollars. Thus, the day that China stops recycling its export proceeds into the US, the RMB would start to appreciate, almost instantaneously. In addition, the sudden surcease in US Treasury bond purchases would cause interest rates to rise. Both higher rates and a more expensive currency would presumably result in lower demand for Chinese exports, and hence eliminate some of the need to recycle its trade surplus back into the US. In this way, we can see that China’s Treasury purchases are actually self-fulfilling. The sooner it stops purchasing them, the sooner it will no longer need to purchase them.

I’m tempted to elaborate further on this point, but it seems that I’ve already taken it to its logical conclusion. China must recognize the dilemma that it faces, which is why it refuses to break from the status quo. If it allows the Yuan to appreciate, it will naturally face a decline in exports AND the relative value of its US Treasury holdings will decline in RMB terms. Both would be painful in the short-run. However, by refusing to concede the un-sustainability of its forex/economic policy, China is merely forestalling the inevitable. With every passing day, the adjustment will only become more painful.

How will Foreign Investment Tax Affect the Real?

2009-11-11T14:23:00.001-08:00

On October 20, the executive office of the government of Brazil enacted an emergency measure, calling for a 2% tax on on all foreign capital inflows. And with one foul swoop, this year’s 35% rise in the Real had come to an end, right?

The tax certainly took investors by surprise, with the Brazilian stock market falling by 3% and the Real falling by 2%, the largest margins for both in several months. The tax is comprehensive and applies to essentially to all foreign capital deployed in Brazilian capital markets, whether fixed income, equities, or currencies. While the tax doesn’t apply to those currently invested in Brazil, the possibility that it would cause potential investors to stay away was enough to cause a sell-off.

The ostensible reason for the tax levy is to prevent a further rise in the Real. By most measures, the currency’s rise has been excessive, more than erasing the losses incurred during the credit crisis. The concern is that a more expensive currency will derail the Brazilian economic recovery before it has a chance to firmly get off the ground. “Brazil’s currency needs to weaken as much as 19 percent for sustainable economic growth, said Nelson Barbosa, the Brazilian Finance Ministry’s top policy adviser.”

According to cynics, however, the tax is a backhanded effort to raise revenue to fund a growing budget deficit. The government continues to spend money (perhaps to offset the negative impact on exports brought on by the Real’s rise) as part of its stimulus plan, but is increasingly tapping the bond markets to do so. The tax is expected to bring in an impressive $2.3 Billion over the next year, which could go part of the way towards fixing the government’s fiscal problems.

The real question, of course, is how the Real will fare going forward. The initial reaction, as I said, was ‘The Party’s over…‘ But investors with a longer-term horizon aren’t fretting. “In the medium term, the measure will have a limited impact. The fundamentals point to a stronger real, with commodities rising and the dollar weakening globally,” asserted one economist. While investors aren’t happy about paying an arbitrary 2% fee to the government, such pales in comparison to the 10%+ returns that investors still aim to reap from investing in Brazil over the long-term.

Ignoring the possible bubbles forming in Brazilian capital markets (admittedly, a dubious suggestion), Brazil still looks like a good bet, especially on a comparative basis. Interest rate futures point to a benchmark interest rate of 10.3% at this time next year, compared to ~1% in the US. Even after accounting for inflation and the 2% tax levy, the yield spread between Brazil and the US remains impressive. For that reason, the Real has already stalled in its expected fall against the US Dollar, standing only 1.7% below where it was on the day the tax was declared.

It’s unclear how determined the Brazilian government is towards pushing down the Real. The comments by its finance minister suggest that the consensus is that it is not slightly – but extremely overvalued. Thus, it’s likely that the government will enact other aggressive measures to prevent it at least from rising further. It continues to buy Dollars on the spot market, and is trying to make it easier for Brazilians to take money out of Brazil. It is not yet ready to tamper with its floating currency, but by its own admission, the “government was studying additional measures to regulate the heavy inflow of foreign investments and its impact on the country’s currency.”

There are also implications for other (emerging market) currencies. As I wrote earlier this week (”Central Banks Prop Up Dollar“) a number of Central Banks have already intervened or are currently mulling intervention in forex markets, to push down their currencies. You can be sure that other governments will be studying the situation in Brazil closely, with the possibility of implementing such policies themselves.

Central Banks Prop Up Dollar

2009-11-11T14:22:00.000-08:00

By all accounts, the decline of the US Dollar has been measured, and without incident. This, despite the fact that most investors reckon the Dollar is doomed, both from a long-term and a short-term perspective. What, then, is preventing an all-out collapse?

Personally, I think the best answer is that Central Banks (and their sponsoring governments) don’t want the Dollar to collapse. In other words, a schism is forming between private investors and public government, whereby investors (on a net basis) are rooting against the Dollar, while Central Banks are rooting for it. That’s not to say that there is a global conspiracy involving Central Banks, designed to prop up the Dollar. Rather, it is that Central Banks are simply trying to protect their short-term financial interests, and long-term economic interests. By this, I mean simply that foreign Central Banks have everything to gain from a strong Dollar, and seemingly everything to lose from its collapse.

From an economic standpoint, foreign Central Banks also benefit from a strong Dollar, especially those whose economies are powered by exports. “A stronger local currency relative to the dollar attracts foreign investment and tempers domestic price pressures by keeping import prices in check, but also cuts into the competitiveness of the country’s export sector.” Given that inflation is currently a moot issue whereas economic growth remains tenuous, Central Banks have made it clear that they currently favor weak currencies. “If (their currencies have) too much strength and the U.S. recovery falters, it’s bad for emerging market growth,” and could even lead to a so-called “double-dip recession.”

In order to alleviate this possibility, many Central Banks have intervened directly in forex markets and depressed their currencies through the purchase of Dollars. During only one trading session earlier this month, “Asian central banks said to be intervening in currency markets overnight by buying dollars included South Korea, Hong Kong, Taiwan, Thailand, the Philippines and possibly, Indonesia, according to analysts.”

Meanwhile, Central Banks in industrialized countries are using increasingly strong rhetoric to try to talk down their currencies. The Banks of Canada and England have achieved modest success in the last few weeks in convincing investors that overvalued currencies would be met with decisive action. The Royal Bank of Switzerland has intervened several times, while the European Central Bank has expressed concerns about “volatility” (code for the rapid appreciation in the Euro) in forex markets. It’s still not clear where the Bank of Japan stands. The newly appointed Finance Minister has already flip-flopped several times, settling finally on a course of action that would prevent the Yen from rising too high and threatening the nascent recovery.

Consider also foreign Central Banks’ collective holdings of US Treasury securities, which increased by nearly $800 Billion over the last year, a large portion of which was accounted for by the Banks of China and Japan. According to the most recent Federal Reserve data, they are collectively adding to their stockpile at a pace of $10 Billion per week. As the WSJ explains, “The inflows highlight the challenges facing nations with large dollar holdings, particularly developing countries. A weaker dollar is, in theory, bad for their investments as it eats into returns when translated back into local currencies.”

In other words, continued foreign Central Bank investment in US Treasury securities is perhaps rooted less in investment strategy, then in the simple desire to prevent their current holdings from depreciating. At the same time, those banks that intervene directly in forex markets often have little choice other than to hold their forex reserves in US Treasuries.

You can see from this that the idea of an alternative reserve currency would actually run counter to the interests of many of these Central Banks. With the exception of a few (i.e. Iran, and to a lesser extent, China) that would like to see the Dollar fail for political reasons, the vast majority of banks have a vested interest in the Dollar remaining where it is. Otherwise, they would witness the value of their Dollar-denominated assets collapse, as well as a collapse in exports to the US.

It looks like, then, there will be a showdown at some point between the Central Banks and investors. If you accept the notion of efficient markets, then it should be obvious who will win in the long-term. On the other hand, you can’t underestimate the determination of some of these banks.

Sterling Heads Lower in Currency Trading

2009-11-11T14:21:00.003-08:00

Forex trading with the U.K. pound

The sterling is heading lower in currency trading on the FX market, even though the FTSE 100 and other equities are heading higher. One of the reasons for the U.K. pound to see difficulty in forex trading is due to the recent inflation report from the Bank of England.

Policymakers expect economic recovery to be quite gradual in Britain, and this is stymieing the sterling in currency trading. Instead of heading higher, the pound is moving lower.

The euro is having no such trouble in forex trading. While sterling struggles against the dollar, the euro is finding strength. Dollar weakness seems to be a fixture against the euro right now. If the British economy can start a recovery in earnest, though, the expectation is that things will look up for the pound.

Forex Trading Forecast: Chinese Yuan

2009-11-11T14:21:00.001-08:00

Yuan growth expected to be regulated

Even though individuals cannot trade the Chinese yuan on the currency market, it still has an effect on a number of other currency performances, as well as being a major player in the dynamics of financial markets and currency interactions. Many are hoping that the Chinese yuan will begin appreciating as the economy picks up, but the truth is that things are likely to be tightly regulated.

However, there are other implications for other currencies. GFT’s Boris Schlossberg reports in FX360 on the effect Chinese growth will have on the Aussie:

However, given the history of Chinese currency management we believe that any appreciation in the yuan will be gradual and measured at best, as authorities make sure that the rise does not hurt the prospects further growth. A rise in the yuan should help boost domestic demand, assuming global recovery trends remain on track and one side beneficiary of this dynamic will the Aussie as Chinese investors continue to pour capital into the country’s natural and real estate resources.

Indeed, the forex trading forecast shows more support for the Aussie right now. While there is some downside risk, and the upside is likely to be somewhat limited going forward, there is still no getting around the fact that the Aussie just reached a yearly high against the U.S. dollar.

Asia Session - November 11, 2009 1:47 AM

2009-11-11T14:20:00.001-08:00

The US Dollar was pushed lower once again as stronger than projected retail sales and industrial production out of China helped push risk higher. The risk appetite was short lived however once traders were able to digest the full bag of data and realize that poor bank lending rendered the compilation of data as mixed. The lackluster reaction of Chinese equities helped to reinforce the mindset that overall the data release could be deemed neutral until further investigation. Equities out of Shanghai eventually turned red, helping to pull other indexes in Asia close to flat on the day. Full text »

London Session - November 11, 2009 6:11 AM

2009-11-11T14:18:00.003-08:00

The risk trade was boosted overnight by a decent set of data from China. Retail sales, production data and the trade surplus all beat market forecasts and strengthened the belief that China continues to drive the global economic recovery. Banking lending in China while strong expanded at a slower pace underpinning forecasts that this may be tightened to ward off inflationary pressures. Japanese machine orders (+10.5% m/m in Sep) also outshone market forecasts as did this morning’s release of UK labour data. The fly in the ointment was the drop in Australian consumer confidence which fell back in Nov, probably in response to this quarter’s two rate rises from the RBA. The better tone in Asian stocks was followed by an upward push in European equity indices which found further support in a spate of solid bank earnings from France, Italy and the Netherlands. EUR/USD pushed back above 1.5000 in early London hours to touch an intraday high of USD1.5045 providing support for the view that as long as risk appetite holds and expectations for Fed rates remain distant, the USD will remain the whipping boy Full text »

New York Session - November 10, 2009 5:05 PM

2009-11-11T14:18:00.001-08:00

The price action remained on the painful side in NY trading as another day devoid of major economic news made for some range-bound markets. The under the radar releases included the NFIB small business optimism index which rose modestly to 89.1 in October from 88.8 prior. The reading is still extremely dismal and well below the 100 historical average. The IBD/TIPP economic optimism index was also out and it sank to 47.9 in November from a 48.7 read the previous month. The market was looking for an increase. The personal finances component slipped to 52.5 from 54.2 last month and 57.0 in September. This deterioration in personal balance sheets is occurring just in time for the holidays and points to some disappointment in store for the retail sector. Full text »

Reasons For Possible Continued Dollar Weakness

2009-11-11T14:17:00.004-08:00

Will the greenback remain weak in currency trading?

For now, the U.S. dollar is a little bit higher in forex trading on the currency market. The euro is struggling to maintain 1.50, and the U.K. pound is struggling as data continues to show that it has the least stable of economic recoveries underway. But that doesn’t mean that the greenback is headed for a stronger trend in currency trading.

Indeed, there are reasons that dollar weakness could remain the overall story in forex trading. GFT’s Kathy Lien offers in FX360 these five reasons that the greenback could remain weak in currency trading:

1. Dollar carry trade could be overused but not overplayed.
2. G20 could continue to support economic stimulus measures.
3. Timothy Geithner may avoid talking about the dollar in forex trading.
4. Economic fundamentals may bring the reality of a weakened environment to the fore.
5. Little technical support for the greenback in currency trading.

Any of these reasons could add to dollar weakness in forex trading. However, if all five combine, there is little hope in the near future for the greenback to regain a position of strength in currency trading.

Euro Tries to Maintain 1.50 Level

2009-11-11T14:17:00.003-08:00

Risk trade takes a hit this morning

The euro is attempting to maintain its level at 1.50 this morning. With the risk trade taking a hit, the euro is finding it more difficult to maintain in forex trading. However, the U.S. dollar has pared some of its earlier gains. But it remains to be seen whether or not the euro can hold on after the stock market opens — and possibly does so at a lower rate. If the market can hold on, though, there is a good chance that the euro will find more support.

GFT’s Boris Schlossberg reports in FX360 on the issues facing the risk trade:

Risk currencies ran into a wall of disappointing data along with unexpected comments from Fitch ratings regarding UK debt causing the dollar to strengthen slightly in early morning European session. Fitch noted that UK was the most vulnerable of the G-4 economies to a ratings downgrade given its perilous fiscal position and those comments sent sterling tumbling nearly 200 points in late Asian trade before the unit finally stabilized. EUR/USD also had trouble gaining any traction stalling at 1.5000 level after a mixed ZEW report.

London Session - November 10, 2009 6:01 AM

2009-11-11T14:17:00.001-08:00

The rally in risk that pushed US stocks significantly higher into the close last night begun to dwindle in Asian hours. Asian stocks closed higher on the day but well off their intraday highs and European stock indices are mixed to lower. EUR/USD pushed lower in Asian hours as stocks started to lose support. In London, USD sellers started to re-emerge as HSBC’s trading statement reassured investors but EUR/USD again fell back from 1.500 on the back of a worse than expected German Nov ZEW survey (51.1 from 56.0 in Oct). EUR/JPY had remained little changed from last night’s close through most of the session but jumped sharply mid-morning amid talk of a flow linked to a Sovereign bond flow allowing EUR/USD to move off its post ZEW low. Full text »

Asia Session - November 10, 2009 1:50 AM

2009-11-11T14:16:00.001-08:00

The US Dollar remained heavy in Asia as it hovered near NY lows for the majority of the day. Equities continued the strength begun earlier on Wall Street to the tune of 1% while risk demand followed the moves higher. With stronger demand for commodities and risk assets, the dollar continued to be sold to fund these trades due to its low interest rate and the assumption that it will not be changing anytime soon. Full text »

Euro Optimism (And not just Dollar Pessimism)

2009-10-27T13:23:00.001-07:00

According to a recent Merril Lynch (Bank of America) survey, Europe has officially returned to favor among investors. “A net 30% of global portfolio managers see euro-zone equities as undervalued relative to other regions, the highest reading since April 2001. A net 11% are overweight Europe, the first overweight allocation in nearly two years, said Baker.”

The numbers, meanwhile, reflect this perception. Over the last month, investors have poured a net (inflows minus outflows) $2.1 Billion into EU capital markets, an impressive sum when you consider that the figures for Japan and the US were both negative. Meanwhile, stock markets in the region are up by 50%+ since bottoming last March. When you account for currency fluctuations (i.e. Euro appreciation), stock market comparisons between the US and EU start to look pretty lopsided.

According to a WSJ report, there’s no mystery behind the European stock market rally: “Even though prices have risen sharply since March, valuations aren’t stretched. Average price-to-earnings ratios in Europe, on a trailing 12-month basis, are about 16, up from seven back in March, according to Citigroup…On a price-to-book ratio, stocks are trading about 15% below their long-term average, and dividend yields compared to government bond yields are historically still very attractive.”

At this point, you’re probably wondering, “Why the long preamble on European stocks?” Because, it’s easy to forget that there are inherently two sides to every currency pair. In the case of the USD/EUR (the most frequently traded pair in the world), most of the recent commentary has focused exclusively on Dollar-negatives, portraying the dynamic as a depreciation in the Dollar. In this context, it’s easy to forget that the Dollar’s depreciation implies an appreciation in the Euro. Duh?! But seriously, for every Dollar bear, it seems there is at least one Euro bull.

To be fair, those who don’t see much to be excited about in the Euro can be forgiven. After all, the European economy is technically still mired in recession, and isn’t projected to return to growth until 2011. While some of the intangible indicators are improving, others continue to stagnate. “Industrial output in the euro zone is 20% lower than its February 2008 peak, despite some recent improvements.” In addition, the appreciation in the Euro threatens to choke off exports and stifle the recovery before it has a chance to get off the ground.

Speaking of which, the European Central Bank (ECB) will probably hold of on raising rates because of the strong currency. A more valuable Euro keeps inflation in check (via cheap imports). Besides, higher interest rates would attract carry traders hungry for yield, and would make it even more difficult to keep the Euro in check. Many EU monetary officials (including ECB President Jean-Claude Trichet) have already made their concerns about the Euro’s appreciation clear. If they are able to succed in halting its rise, that could make investing in Europe a lot less exciting…

Prospects for Chinese Yuan Revaluation Improve

2009-10-27T13:22:00.000-07:00

In its semi-annual report to Congress, the Treasury Department once again failed to officially label China (or any country for that matter) a currency manipulator. No surprise there. While it’s self-evident that China manipulates the RMB (via the peg with the US Dollar), the political implications of such a label prevent it from being used except in the most extreme cases. Nonetheless, there is mounting pressure on China, both domestic and international, to “adjust” the peg and allow the Yuan to move closer to its fundamental value.

Most of the international pressure has been soft, coming in the form of roundabout pleas for China to allow the Yuan to float “for the sake of global stability.” Said one US Senator weakly, “I hope that with strong leadership from the United States, the G-20 nations and our international institutions will undertake what has been missing — a focused, sustained and meaningful multilateral engagement to address currency manipulation and current imbalances.” At the same time, some of this rhetoric has recently been translated into action. Last month, the Obama Administration enacted a 35% tariff on Chinese tire products. Other countries have also begun to raise concerns about Chinese dumping, and bringing their cases to the WTO for good measure.

Many of these countries are in fact suffering more than the US. Since the Yuan is effectively pegged to the Dollar, the decline of the latter has been mirrored by the former. Since many other currencies of developing countries are also fixed, this leaves only a handful to absorb the shock. For example, the Euro and Yen have both risen about 15% against the RMB over the last year, in line with their appreciation against the Dollar. The handful of floating currencies in the region, such as the Korean Won, Indian Rupee, Malaysian Ringhit, etc. have also faced strong upward pressure. For them, it is not so much the weak Dollar that they fear so much as the weak RMB, since China is a direct competitor to all of them.

More importantly, there are now voices within China’s ruling Communist party that have also begun to press for a stronger Yuan. The Nationalist camp, for example, is pressing for China to make the Yuan a more prominent currency on the international trade scene. While such doesn’t inherently require a floating currency (in fact, all of the trade/swap agreements involving Yuan are based on fixed exchange rates), a loosening of capital controls and liberalizing of financial markets would probably bring about a stronger Yuan.

The other group pushing for a stronger Yuan is doing so on more fundamental, economic grounds. Just-released 2009 Q2 GDP data showed prelimenary growth estimates of a whopping 8.9%! Not bad, especially when you consider that the rest of the world remains mired in recession. Chinese economists largely ignore the political implications of the notion that this growth probably came at the expense of the rest of the world, and focus instead on the economc implications.

First is that the economy remains hopeless dependent on exports to drive growth, which can only be remedid through a stronger Yuan. Second, it heralds the coming of inflation. Many foreigners continue to pour “hot money” into Chinese asset markets hoping to reap the upside from both asset and currency appreciation. In response, “Analysts say China could let the yuan appreciate to help restrain inflation, since a stronger yuan would reduce the cost of imports. But some caution that Beijing tried a similar strategy in early 2008, but didn’t achieve great success in containing inflation or stemming the inflows.”

While analysts don’t expect the Bank of China to allow the RMB to rise until after the Chinese New Year in January, investors are pricing in incremental appreciation every month beginning with the next. In fact, futures prices already reflect the expectation that the RMB will rise 3% over the next twelve-months. My bet is that this will be kicked off by another one-off appreciation, in the same vein as July 2005. Now as was the case then, China needs to make up for lost time.

New York Session - October 21, 2009 5:06 PM

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Earnings continued to dominate and remain mixed overall. Despite a stellar 18% bottom-line beat in earnings thus far this reporting season, the sales numbers have actually disappointed and are tracking -0.2% below conservative estimates. This suggests a similar situation to what we saw in 2Q when earnings expansion was driven by cost cutting (especially on the employment front) and not organic growth. Full text »

U.K. Pound Continues Rally in Currency Trading

2009-10-21T14:47:00.003-07:00

Forex trading with the sterling

The U.K. pound is continuing its rally in currency trading on the FX market today. Yesterday in forex trading, the sterling gained some ground, and today the pound is solidifying its gains. The risk trade is alive and while, in spite of the fact that equities and commodities are lower today.

The sterling is being helped by the fact that the Bank of England is adopting a more hawkish tone right now. The end of Britain’s quantitative easing program is in sight, and that is providing some help for the U.K. pound in currency trading.

Another helpful factor is the expected emergence of China. Right now, China is a key to the risk trade in forex trading, sending sterling higher as traders look to the emerging markets to lead us out of the global recession. With China’s economic growth, it is expected to help stimulate global trade and get economic recovery moving.

London Session - October 21, 2009 6:19 AM

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Sterling has managed significant gains this morning on the back of more optimistic comments from the BoE. Cable ratcheted gains up to 1.6589 before meeting resistance; EUR/GBP is back below 0.9025. In his speech in Scotland last night Governor King remarked that “recent months have brought better news” and suggested that in the second half of this year the UK economy will return to positive growth. This speech was followed by an article for The Herald newspaper which reportedly suggested that at some point rates would go higher. This is another statement of the obvious, nevertheless, on top of the less pessimistic tone of King’s speech this was taken as a signal that the BoE could becoming less dovish. This morning’s releases of the minutes of the October MPC also reflected a more upbeat tone with respect to the UK economic outlook. That said, uncertainty over the robustness of the economic outlook was clear in both King’s speech and in the minutes and the latter also confirmed that there were differences of views on the inflation outlook suggesting that an extension to QE is still possible next month. This morning’s CBI Industrial trends data brought fresh support to sterling late in the morning. Survey data has suggested that tomorrow’s Sep retail sales data could also be strong (median +0.5% m/m). However, another disappointment in Friday’s Q3 GDP release could undermine sterling’s newly found confidence. Full text »

Asia Session - October 21, 2009 2:01 AM

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The Dollar sellers took a breather today in Asia. The battered buck hovered near late NY levels after poor US data and equities sent it safely away from recent record lows. Despite solid earnings on Wall Street, poor housing starts and PPI data quashed any chance of positive gains in equities, and as stocks fell, the dollar pulled back from the abyss. The EUR/USD that spent the day flirting with 1.5000 was suddenly a big figure lower. The pair opened in Asia nearer to 1.4945, and after a quick dip to 1.4890, was just shy of opening levels by the session’s close. Full text »

Sterling Holds Gains in Forex Trading

2009-10-21T14:46:00.001-07:00

U.K. pound in currency trading

The sterling is managing to hold its gains in forex trading on the currency market today. The U.K. pound has been having a little bit of trouble, thanks to economic data coming out of Britain. However, sterling is managing to maintain the upper hand due to dollar weakness.

Indeed, dollar weakness has been an issue as we start this week, against currencies in Europe, as well as against the Japanese yen. Comments from Japanese minister Fujii are causing problems on the front, while European rhetoric has been unable to provide support for the dollar.

In the end, the sterling is managing to retain the upper hand on dollar weakness in currency trading, as well as interest in the risk trade as the stock market rallies and investors seek better returns.

Yen Volatility Due, In Part, to Finance Minister Fujii

2009-10-21T14:45:00.004-07:00

Yen moves higher in currency trading

The yen is moving higher in currency trading on the FX market today, driven by remarks from Japanese Finance Minister Fujii. There had been expectations that economic data coming out of the U.S. would help the USD/JPY currency pair, but Fujii’s ill-timed and insensitive remarks continue to encourage yen volatility and dollar weakness.

Indeed, Fujii has been making a lot of mistakes lately with regard to comments on the forex market. GFT’s Boris Schlossberg reports on Fujii’s most recent remarks and their implications:

Mr. Fujii stated that, “The United States is caught in a dilemma. You can’t deny that the current yen rise was caused by a weak dollar." His remarks sent USD/JPY& to 90.10 in a knee jerk reaction as traders once again interpreted Mr. Fujii’s words as an open invitation to push the pair lower. Although Mr. Fujii was simply reiterating the obvious, his leaden ear to the sensitivity of the market continues to create volatility for the yen.

London Session - October 20, 2009 6:00 AM

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EUR/USD reached a high of 1.4994 in Asia but, while tantalisingly close, has lacked the incentive to push through the psychologically important 1.50 level. Unsurprisingly, the Ecofin meeting provided a platform for ECB President Trichet to reiterate support for the US Treasury’s strong USD policy. Such comments have arguably slowed the pace of the gains in EUR/USD but, while the EUR nominal effective exchange rate is approaching the highs of the past year, the market sees no great risk that the ECB will put its money where its mouth is to prevent the EUR for moving higher. As a consequence a break above 1.500 remains likely near term assuming risk appetite holds up. Stocks this morning are trading lower in Europe despite the gains registered in Asia overnight. The dip in risk appetite is supporting the USD for now. The continued flow of US Q3 earnings will likely have a determining impact on EUR/USD this afternoon. Full text »

Asia Session - October 20, 2009 2:08 AM

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The Dollar’s woes continued once again today in Asia as it hit new lows for 2009. The causes for the fall differed, with many traders citing the fact that interest rates in the US look to remain low into 2010 while conversely, the RBA minutes showed a hawkish stance that could see rates raised two more times before the year’s end. Added to this mix were higher equities in the US, and that wave of optimism and opportunity that spilled over into Asian equity trading.
Full text »

New York Session - October 19, 2009 5:25 PM

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Currencies remain beholden to the goings on in the equity space and the rally in stocks continued to lead the riskier currencies higher. US equities closed up nearly 1% in the face of a weaker than expected housing number as the Fed signaled yet again that it is not ready to withdraw stimulus. The homebuilder sentiment index (NAHB) printed 18 in October while the market had forecast an increase to 20 from 19 the prior month. The homebuyer traffic number sank from 17 to 14 and the weakest read since July – looks like that looming expiry of the homebuyer tax credit is starting to bite. Full text »

Euro Eyes 1.50 in Forex Trading

2009-10-21T14:26:00.000-07:00

Will EUR/USD break through 1.50 in currency trading?

Right now, the euro is eying the 1.50 level in forex trading against the U.S. dollar. With gold higher today, after closing last week on a new record high, it is little surprise that some are wondering if EUR/USD, which is often supported by gold prices, is ready to make the move.

The euro has broken above 1.49 in forex trading on the currency market, and now there is speculation that the psychologically important level of 1.50 could be reached. This move would herald the true beginning, in some minds, of a definite beginning to the economic recovery, with the U.S. dollar on the defensive.

It will be interesting to see how things play out, with Barrons calling for a rate hike to 2% and Ben Bernanke expected to address a conference in San Francisco at 11 a.m. Eastern.

Dollar at a (Technical) Crossroads

2009-10-21T05:00:00.002-07:00

I deliberately concluded my last post (US Dollar: Same Old Story) on a somewhat ambiguous note; even though though the deck is stacked against the Dollar, its 14% decline in 2009 has left it perilously close to record lows, and traders are nervous about pushing the limits further.

On the one hand, everyone believes that the Dollar is fundamentally still in a weak position. The US balance of trade remains deep in deficit. Government spending has exploded, with record-setting deficits and an expansion in the national debt. Interest rates are at rock bottom, and are by some measures, the lowest in the world. Despite signs of life, the economy remains mired in recession. The money supply has also expanding, to the extent that some long-term investors are wondering out loud about the possibility of future inflation.

As a result, the decline in the Dollar since last spring has suffered very few blips, with volatility declining at the same pace as the currency, itself. “There seems to be a paradigm shift underway where more and more foreign investors are becoming concerned that the long-term path of the dollar is downward,” summarized one analyst. The consensus among investors is almost eerie. “Speculators betting that the dollar index will fall outnumber those betting that it will rise by nearly 2 to 1, according to the Commodity Futures Trading Commission.”

Some (mainstream) analysts have even begun to open consider the possibility of a crash in the Dollar, a view that had previously been relegated to conspiracy theorists and doomsday scenarists. “In a run on the dollar, that thinking would create a cascade — fearful global investors would shy away from dollars, expecting further steep declines, creating a self-fulfilling prophesy.” Adds a former Chief Economist of the IMF, “Every time the dollar starts depreciating there is angst and everybody starts raising the question what happens if there is a collapse.” While the majority of Dollar-watchers still believe that a Dollar crash is unlikely, the point is that they are now discussing it actively.

Despite the fact that all of these factors are already in place, the Dollar remains relatively buoyant. Personally, I think this is because investors don’t really want to acknowledge that this is a real possibility. For one thing, the alternatives aren’t any better. While forex investors in recent years have enjoyed ganging up on the Dollar, the fact remains the fundamentals for the other major currencies remain just as weak. For example, a model of purchasing power parity developed by “the Organization for Economic Cooperation and Development finds the dollar is worth roughly 0.85 euro, compared with its market valuation of 0.67 euro, suggesting that the euro is 21% overvalued.” Likewise, the Yen is held to be 22% undervalued.

As a result, the market as a whole is having trouble pushing the boundaries. The Dollar has approached the psychologically important level of $1.50/Euro on several occasions, but has retreated each time. “People are wondering whether we’re going back to $1.46 in euro/dollar or heading toward $1.54. But one thing is for sure, as we head toward $1.50, we’re going to experience a lot of volatility,” summarized one analyst.

“Risk reversals, a measure of currency sentiment in the options market derived by looking at the difference in implied volatility between out of the money calls and out of the money puts, show a bias for euro puts, trading at a mid-market level of 0.2. That means investors are hedging their short dollar positions with bets for a euro downside even though no one expects the euro to fall.” Meanwhile, volatility has edged up slightly, reflecting an increased level of uncertainty surround the near-term direction of the Dollar. It could be the case that if the Euro breaks through $1.50, heartened investors will send the currency up even higher, while a failure to break through means investors just aren’t read to commit. A classic technical crossroads!

US Dollar: Same Old Story

2009-10-21T05:00:00.001-07:00

These days, it’s hard to offer a fresh perspective on the Dollar. The factors driving its short-term momentum – namely low interest rates and its perception as a financial safe haven – have been in place for nearly a year. It’s long-term prognosis, meanwhile, also hasn’t changed much. Since the beginning of the decade, the Greenback has been in a state of perennial decline as a result of its twin deficits and the related notion that it will be soon be replaced as the world’s pre-eminent currency.

Since the last time I posted about the Dollar (October 6: Dollar’s Role as Reserve Currency in Jeopardy), then, there haven’t been many developments. Fears that oil will one day be priced and settled in an alternative currency – such as the Euro – continue to reverberate through the markets. Several ministers from OPEC countries have already officially dismissed such claims as baseless. A parallel debate is now taking place on the sidelines as to whether or not such a shift even matters.

Dean Baker argued in a recent article for Foreign Policy magazine, that pricing oil in Dollars represents a mere “accounting convention,” adopted by most simply by default, since the US is the cornerstone of the world economy. Argues Baker, “World oil production is a bit under 90 million barrels a day. If two-thirds of this oil is sold across national borders, then it implies a daily oil trade of 60 million barrels. If all of this oil is sold in dollars, then it means that oil consumers would have to collectively hold $4.2 billion to cover their daily oil tab.”

Unfortunately, Baker’s “simple arithmetic” is both erroneous and slightly irrelevant. Assuming a price of only $100 per barrel (pretty conservative if you believe the notion of peak oil), current consumption of 85 million barrels per day implies a daily turnover of $8.5 Billion per day, or $3+ Trillion per year. If the price doubles to $200 per barrel….well, you get the point.

Taking this line of reasoning further becomes somewhat problematic, however. First of all, while OPEC members currently hold the majority (70%+) of there reserves in Dollar-denominated assets, it’s unclear how this would change in the event that oil was no longer priced in Dollars. It’s conceivable that just as many of these Central Banks currently diversify their Dollar-denominated proceeds into other currencies, that they would “diversify” Euro-denominated proceeds back into the Dollar. Of course, it’s also conceivable that a combination of inertia and investment strategy would cause them to hold a larger portion of there reserves in Euros.

If OPEC Central banks continue to prefer Dollars, than Baker is right in arguing that the currency in which oil is priced has no implications outside of accounting. If, on the other hand, he is wrong, and a change in pricing causes/coincides with changing preferences, then the implications for the Dollar would be disastrous. [Consider that $3 Trillion/per year which is at stake currently represents more than 15% of total foreign ownership of US assets.] The problem is that we just don’t know.

Regardless, the status quo favors the Dollar, since creating a new reserve currency would take at least a decade, if not more. For that reason, the World’s Central Banks (we’re not just talking about OPEC anymore) continue to prefer Dollars. “In the five weeks through Oct. 7, foreign central banks bought more than $48.55 billion in Treasury securities, an average of $9.71 billion per week, according to the latest data from the Federal Reserve.” In addition, “Finance Minister Hirohisa Fujii said he expects the dollar will remain the key reserve currency for some time to come.” Private foreign investors, meanwhile, are dragging their heals a bit, perhaps waiting for the Dollar to fall further before jumping in. Asks one columnist rhetorically, “Why buy now if the dollar might be even weaker in six months’ time?”

What else is new? The US budget deficit came in at $1.4 Trillion for the fiscal year, the highest level since World War II. On the bright side, the deficit was $200-400 Billion less than earlier estimates. Meanwhile, members of the Federal Reserve’s Board of Governors restated the unlikelihood of higher rates in the immediate future. “Richard Fisher, president of the Dallas Fed and thought to be a rare hawk on the Fed’s Open Market Committee, chimed in that no one at the Fed thinks this is the time to raise interest rates.” Finally, the US trade deficit is once again narrowing, due in no small part to the declining Dollar.

At this point, it seems reasonable to assume that much of the bad news has already been priced into the Dollar. Sure, the Australian rate hikes came as a surprise and forced many to rethink their calculations. Investors have already begun to separate the healthy currencies from the sick (to borrow an analogy from a previous post), but that the Dollar would be grouped with the “sick” currencies has long been anticipated. Given that the currency has already fallen by double digits in 2009 and is nearing the record lows of 2008, some are wondering how long it can continue.

Japan Flip-Flops on Forex Intervention

2009-10-21T04:58:00.000-07:00

In my report on last month’s Japanese election, I noted that the newly-appointed Japanese finance minister, Hirohisa Fujii, had spoken out against forex intervention. With that, it seemed the matter was closed.

But not so fast! Over the following few weeks, Fujii (as well other members of the new administration) moved to clarify his position, backtracking, sidestepping, contradicting, but never going forward. The following is a summary of selected remarks, beginning with the original statement against intervention and ending in what seems like a promise to intervene:

September 15: “I basically believe that, in principle, it’s not right for the government to intervene in the free-market economy using its money, either in stock or foreign-exchange markets.”
September 27: [The Yen's rise is] “not abnormal…in terms of trends.”
September 28: “That’s not to say I approve of the yen’s rise.”
September 28: “I don’t think it is proper for the government to intervene in the markets arbitrarily.”
September 29: “If the currency market moves abnormally, we may take necessary steps in the national interest.”
October 3: “As I have said in Tokyo, we will take appropriate steps if one-sided movements become excessive.”
October 5: “If currencies show some excessive moves in a biased direction, we will take action.”

Confused? I know I am. Is it possible to glean any semblance of meaning from these remarks? Summarized one columnist, “Hirohisa Fujii has gone through several cycles of remarks that first appeared to favor a strong yen and then seemed to backpedal after markets took him at his word and sent the Japanese currency soaring.”

I think this encapsulates the regret that Minister Fujii must have felt, after his original comments were taken a little too seriously. In hindsight, it appears that Fujii attempted to convey the new administration’s stance on forex, in a nutshell, and certainly didn’t expect that investors would run wild and send the Yen up another 4%, bringing the year-to-date appreciation against the Dollar to 15%. In the words of the same columnist cited above, “Japan’s finance minister has been rudely reminded of the cardinal rule when speaking to markets — less is more.”

So where does Fujii actually stand? I would personally hazard to guess that his original explication is still the most accurate portrayal of how he will tend to the Yen while in office. The former Liberal Democratic Party (LDP) administration intervened several times while in office (once under the direction of Fujii himself!) and most recently in 1994. Despite spending trillions of Yen, the campaign only marginally stemmed the rise of the Yen.

Meanwhile, the Japanese economy has been mired in what could be termed the “world’s longest recession, dating back to the 1980’s. It’s clear that the cheap-Yen policy, designed to promote exports, hasn’t benefited the Japanese economy. The new administration, hence, has indicated a shift in strategy, away from export dependence and towards domestic consumption.

Ironically, the nascent Japanese economic turnaround is once again being driven by exports. Fujii is no doubt cognizant of this, and doesn’t want to jeopardize the recovery for the sake of ideology. For example, Toyota Corporation has indicated that a 1% appreciation in the Yen against the Dollar costs the company $400 million in operating income. In addition, while a strong Yen increases the purchasing power of Japanese consumers, an overly strong Yen can lead to deflation, as consumers forestall spending in anticipation of lower prices down the road.

In other words, Fujii is certainly not a proponent of Japan’s recent runup, but his stance is more nuanced than initially understood. “Fujii is basically saying currencies should reflect economic fundamentals and that it is wrong to manipulate their moves to lower the yen for the sake of exporters,” offered one strategist. This, the markets finally seem to understand, and the Yen has actually reversed course over the last week. After all, “A yen in the 80s is excessive,” given the context of record low interest rates and a economy that is still contracting.

In the near-term, then, it doesn’t even make sense to talk about intervention. It seems the markets were getting ahead of themselves in this regard. It doesn’t make sense to price out the possibility of intervention when interevention shouldn’t be a factor in the first place. If on the other hand, the Yen continues to appreciate, then Fujii may have consider how fixed his principles really are.

Here's A Free 10-Part Trading Course…

2009-10-15T08:49:00.001-07:00

This is a guest post from Adam Hewison - the creator of INO TV and Marketclub. In this post Adam introduces himself first of all and then talks about his free 10-part trading course, which covers a wide range of different subjects. (The link to the free course is at the bottom of the page if you are in a hurry).

First of all I want to thank you for having me as a guest today.

My name is Adam Hewison and I'm the creator of INO TV and Marketclub.

There are plenty of people out there that create 'exclusive email courses' with little or no credentials to actually backup their teachings. So I think it's right that I share a little bit about myself with you before we even start.

I was a former floor trader on the IMM, IOM, NYFE and LIFFE as well as a risk manager of a large, multinational corporation in Geneva, Switzerland. I have also written books on forex trading and trend following. In 1995, I founded INO.com and later co-founded MarketClub. I’ve been in the trading business for over 30 years now and have pretty much seen it all. I created this course as a way of giving something back, and to share with you some effective tips and techniques that I still use in my trading today.

In my Free Trading Course, I will talk about the tools and strategies you need to increase your overall success rate when trading the markets. In fact to give you some more details, let me share with you the various subjects that I cover in this free email course:

1. The importance of psychology in price movement.

2. How to spot mega trends.

3. Understanding of technical price objectives.

4. How to picture price objectives.

5. How to trade with moving averages.

6. How to use point and figure trading techniques.

7. How to use the RSI indicator.

8. How to correctly use stochastics in your trading.

9. How to use the ADX indicator to capture trends.

10. How to capitalize on natural market cycles.

In addition you will also learn all about fibonacci retracements, MACD, Bollinger Bands and much more.

Just fill out the form and we’ll get you started right away:

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Every success,
Adam Hewison
President, INO.com & Co-Creator, MarketClub

GBP/USD Analysis - Keep An Eye On The EMA (200)

2009-10-15T08:46:00.003-07:00

First of all I want to thank you for having me as a guest today.

My name is Adam Hewison and I'm the creator of INO TV and Marketclub.

1. The importance of psychology in price movement.

2. How to spot mega trends.

3. Understanding of technical price objectives.

4. How to picture price objectives.

5. How to trade with moving averages.

6. How to use point and figure trading techniques.

7. How to use the RSI indicator.

8. How to correctly use stochastics in your trading.

9. How to use the ADX indicator to capture trends.

10. How to capitalize on natural market cycles.

In addition you will also learn all about fibonacci retracements, MACD, Bollinger Bands and much more.

Just fill out the form and we’ll get you started right away:

- Free 10-Part Trading Course

Every success,
Adam Hewison
President, INO.com & Co-Creator, MarketClub

London Session - October 15, 2009 6:06 AM

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Big moves in cable and the AUD today Full text »

Asia Session - October 15, 2009 1:52 AM

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Reserve Bank of Australia Governor Glenn Steven sent the Aussie Dollar to a 14 month high today with hawkish commentary that almost guaranteed a rate hike come November. Comments stating that the RBA “can’t be too timid” in regard to raising the key Australian interest rate helped to reinforce the RBA’s stance as a frontrunner of the G20 nations trying to shrug off the stench of the global credit crisis. AUD/USD took off from early session lows near 0.9145 on its trek to highs over the 0.9220 levels. Early 2009 lows close to 0.6250 have long been forgotten on the Aussie’s ride toward parity. AUD/JPY was able to post a 70 pip gain to just over 82.45 on the move. Full text »

New York Session - October 14, 2009 5:01 PM

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Better earnings from JP Morgan drove risk assets higher in NY trading and US dollar bears were out in full force once again. The bank not only reported better bottom line results, but also blew right through revenue estimates. Should earnings continue to show top line expansion, we would look for equity marts to remain better bid into the end of the month. One of the big stories was the Dow Jones re-gripping the 10K handle as stocks added about 1.5% on the day. Gold was practically flat but remains better bid while above the 60 area. Full text »

Donald Kohn Sabotages the U.S. Dollar in Currency Trading

2009-10-15T08:45:00.001-07:00

Greenback tanks in forex trading

Federal Reserve Vicechairman Donald Kohn has played a rolling in today’s unceremonious tanking of the greenback in forex trading. The U.S. dollar is markedly lower today against the euro in forex trading as traders digest dovish comments made by Kohn.

After much effort has gone into upbeat statements on the U.S. economy and talk of exit from stimulus measures — not to mention some verbal intervention on the dollar’s behalf from Europe — Kohn has managed to undo all of that. GFT’s Boris Schlossberg reports in FX360 on Kohn’s effect on the dollar in currency trading:

Mr. Kohn’s cautious rhetoric stands in contrast to the more upbeat assessments recently made by Chairman Bernanke and St Louis Fed President James Bullard and has now managed to sabotage any efforts by US monetary officials to stabilize the greenback through jawboning. With EUR/USD within striking distance of the 1.50 barrier the temptation to run stops through that level will escalate as the day progresses.

Not even the new that, without auto sales, retail sales improved in September can help. It appears likely that the EUR/USD currency pair could make a run at 1.50 soon, breaking through a psychologically important barrier.

Retail Sales Dip without Cash for Clunkers

2009-10-15T08:44:00.004-07:00

Economic data out of the U.S.

September retail sales data is in for the United States, and it appears as though there has been an overall decrease. However, it is worth noting that, if auto sales are taken out of the picture, retail sales were actually up.

Clearly, Cash for Clunkers had a great deal to do with how well retail sales did overall in August. Without the program, it appears that auto dealers are suffering a bit. However, the news that retail sales without autos are up. It means that other consumer spending may be on the rise.

The news hasn’t done much in the way of helping the U.S. dollar, however. Yesterday the euro moved higher, and it appears that today will continue the rally for the euro in forex trading against the greenback.

London Session - October 14, 2009 6:06 AM

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The combination of risk appetite and dovish comments from the Fed’s Kohn has lifted EUR/USD to a 14 mth high of 1.4910 this morning. On the back of the weak USD, gold touched the 1070.00 level this morning before being subjected to some profit-taking. Cable pushed back above the 1.600 level supported by better than expected UK jobs data and AUD/USD is holding around 0.9150 as optimism in Australian economic prospects receives another boost. Full text »

Asia Session - October 14, 2009 1:49 AM

2009-10-15T08:44:00.001-07:00

The US Dollar was once again demoralized in Asia as it fell to fresh 13 month lows against the Euro. Investors continued to shun the greenback in favor of the higher yielding commodity currencies as the low interest rate in the US currency makes a favorable funding option. EUR/USD pushed to new 2009 highs near 1.4888, culminating a move in Asia that began in the 1.4830 ballpark. The push in the Euro helped to pull Gold to fresh all time highs just a few cents shy of the 70.00 mark. Full text »

New York Session - October 13, 2009 4:56 PM

2009-10-15T08:43:00.000-07:00

Risk traded relatively sideways but the market found a reason to sell the USD nonetheless. Equities slipped about -0.3% in broad terms but bonds were also lower, confounding the direction of risk overall. Gold caught another bid and was resting nearly higher by the 65 area. The seasonal pattern here is a major risk to out contrarian 4Q gold call. The trend over the last two decades suggests a short-term correction to around 0/940 early in 4Q but then a rally into the end of the year towards the 50 area. Full text »

Euro Breaks $1.48 in Forex Trading

2009-10-15T08:42:00.000-07:00

Currency trading with EUR/USD

The euro is on the rise in forex trading on the currency market today. Optimism about global equities is helping, as is the fact that gold prices are surging to new records today. In currency trading, EUR/USD normally moves in tandem with gold prices.

Euro is getting a great deal of support right now in forex trading as the risk trade moves forward. And the euro isn’t the only currency benefiting from the current state of affairs: The U.K. pound is also heading higher in currency trading on the FX market.

As commodities improve, and as the global economic recovery creates demand for commodities, the U.S. dollar is expected to continue moving lower in currency trading.

Sterling Moves Higher in Forex Trading as Risk Trade Gains Momentum

2009-10-15T08:41:00.000-07:00

U.K. pound in currency trading

The sterling is moving higher in forex trading on the currency market as the risk trade gains momentum today. The U.K. pound has been struggling in currency trading lately, and this is probably a positive thing for those who like the currency.

Even earlier today, the sterling was punished in forex trading. However, things are changing as the risk trade moves to the forefront. After dropping to below .58, the sterling is rising again, heading toward .59.

Part of the help for the U.K. pound in currency trading on the FX market is coming from the fact that commodities are on the rise. As a risk trade currency, the sterling does well when equities and commodities are rising. With gold prices setting new records, and oil prices approaching a barrel, it is little surprise that the sterling is trying to move out of its funk.

AUDUSD - Trade Closed

2009-10-11T03:42:00.001-07:00

Trade Closed: 2009-10-08 01:25

Good evening! Things were looking good for my trade as the pair met resistance and consolidated around .8900. Unfortunately, Australian jobs surprised to the upside with an increase of 40.6K jobs versus the forecasted decline of 10K jobs. The jobless rate also ticked lower from 5.8% to 5.7%.
Needless to say, this was very positive for the Aussie and the pair jumped above .9000 soon after the report was released. I was stopped out at that level for a small loss on the day.
Total: -100 pips/ -0.50% loss
My mistake on this trade was thinking that we would see job losses like in the US, but apparently things are going really, really well in Australia. No worries though as I know going against the grain was a bit riskier, which is why I reduced my normal position size.
Well, it looks like there's no stopping the Aussie from pushing higher from this point on. Of course, if the Aussie goes too high in value, it may hinder exports, but that may not come any time soon.
So, no luck on the counter trend trade, and for now I will be looking for dips to buy into the the Aussie rally. Stay tuned!
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Trade Idea: 2009-10-07 01:08

Good evening everyone! It's been quite a day for the Aussie and today's rally after interest rate hike has brought a counter trend, technical trade setup to my attention. Time for a pull back after the strong moves?
This is a simple technical setup on the 4-hour chart and using a mix of trendlines and anoscillator to indicate AUDUSD may have a swing lower. Today's rally has brought AUDUSD up to the rising trendline drawn on the chart where the pair has met resistance and reverse in previous encounters. Stochastics are indicating the pair may be short term overbought and that we may see a swing lower. I used the Fibonacci retracement tool on the current rally to show points of possible support and profit taking area.
Because this is a counter trend trade, I will reduce my position size to risk only 0.50% of my account on this trade. My stop will be above the rising trendline at the next major psychologically significant round number of .9000 and I will target the potential support area around the 38% Fibonacci retracement level. Here's what I am going to do:
Short AUDUSD at market (.8900), stop at .9000, pt at .8800
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
If the pair does reach .8800 I will definitely look to go long after I take profits. Stay tuned!

Daily Chart Art - October 9, 2009

2009-10-11T03:41:00.002-07:00

AUDUSD: Daily

There's no stopping the Aussie! The AUDUSD once again hit a new high for the year, touching at 0.9092. With stochastics showing overbought conditions, could buyers take a break? If sellers do bring in their A game, they could bring price back down to the 0.8900 price area, which seems to be a previous minor resistance point. It also lines up closely with the 38.2% Fibonacci retracement level. The pair could also find more support near the 61.8% Fibonacci level, at 0.8780, and at 0.8700, which will intersect the rising trend line. On the other hand, if buying is still in the cards, price action may bust pass through the 0.9100 handle, and possibly test for new highs around 0.9200.
USDJPY: 4-Hour

Let's take a look at how things are going in the USDJPY 4-hour chart... The pair has been on a downtrend for quite a while now and a descending trend line can be drawn connecting the highs of the pair. Right now, the stochastics seem ready to climb out of the oversold area, suggesting that upward price movement could take place. If it does, the pair could move all the way up and retest the descending trend line. Who knows if the USDJPY will be able to break it this time? However, there seems to be some psychological resistance at 90.00. But if the pair heads down, it might find support at the previous low of 88.15 or at the psychologically significant 88.00 level.
USDCAD: Daily

How low is it going to go? I don't know but we all know it's not nice to stand in front of speeding truck... If you're sick of my corny metaphors, I'm talking about the USDCAD which has consistently made new yearly lows week after week. Now, there's a bearish flag chart pattern that popped out in the daily chart after the pair's sharp drop last July. Notice how the pair consolidated and bounced around a channel from August to September. From the looks of it, if the flag breaks to the south, sellers could push the pair all the way to 1.0300 before encountering buying support. On the other hand, if the pair heads north, resistance could be found at 1.0600.

Daily Economic Roundup - October 9, 2009

2009-10-11T03:41:00.000-07:00

United States
The US capitals markets marked its fourth straight advance yesterday which consequently pulled the USD down. Except for some sudden spikes during the euro session, the USD pretty much exhibited a broad-based weakness for the most part of the day. More...
Euro zone
The EURUSD seemed to be confused about which direction to take based on ECB President Trichet's comments. The ECB left rates unchanged at 1% as expected but what caused the up-and-down movement in the EURUSD was the ECB press conference held a few hours after the rate statement. More...
United Kingdom
Chop chop! GBPUSD trading was choppy yesterday, probably because of anticipation of the BOE interest rate decision. Still, the volatile movement was to the topside and the pair hit a monthly high before cooling off and ending the day at 1.6073, a gain of over 100 pips on the day. More...

Japan
The yen was like an assorted sushi platter yesterday, as it went through some mixed trading. The yen posted minimal gains against the dollar, with the USDJPY pair closing at 88.48, but fell slightly against the EUR, as the pair rose to 130.77. More...

Canada
The Loonie, like its fellow commodity-based currencies, set another yearly high against the dollar yesterday. The USD/CAD pair traded as low as 1.0506 before giving up some ground and ending the US session at 1.0523. More...
Australia
The Aussie continued to flex its muscles against the Greenback yesterday as the country's employment report surprised to the upside. The AUD/USD made it all the way to 0.9092 before retracing some of its gains and ending the US session at 0.9056. More...
New Zealand
It seems like the Kiwi just can't get enough of hitting new highs! The NZDUSD reached a high of 0.7454 as Australia, its good ole Oceanic neighbor, reported a huge improvement in employment. More...
Switzerland
It was the Euro and not the dollar that dictated the Swissy as it reflected the Euro's volatile movement in yesterday's action-packed trading. After making some sudden swings on both directions, the CHF finally closed yesterday on a higher note against the USD. More...
Pipnoculars: What's on the Economic Horizon
Joblessness in Canada Expected to Worsen
UK Producer Prices Probably Fell in Sept
Trichet To Reiterate His Pro-USD Stance?
US Trade Deficit Seen to Expand

Cross-Eyeing: EURJPY - Closed Trade

2009-10-11T03:40:00.001-07:00

Closed Trade: 2009-10-07 12:32

Good afternoon! My long position was triggered at 130.00 and after consolidating for a short period of time, buyers pounced on EURJPY and quickly pushed the pair back up to 131.00. Unfortunately, that's where sellers were ready to take control and push the pair back lower.
This price action tells me that there are still plenty of Yen bulls across the board and that while we may see further efforts to push EURJPY higher, Yen strength will continue to persist. I have decided to close down my trade to avoid losing any further profits.
Closed trade at 130.30
Total: +30 pips/ 0.20% gain
Massive US Dollar selling has strengthened the Japanese Yen across the board, and until we see the possibility of currency intervention from the Bank of Japan or a return to safe haven play on the Greenback, Yen strength should continue. If it does, I will look to short EURJPY if the pair stays below 130.00. We'll have to wait and see if it does. Stay tuned!
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Trade Idea: 2009-10-05 10:09

What's crackalackin! I am eyeing a potential swing in EURJPY as the pair is throwing a couple indications that support may push the pair higher from its current levels. Time for me to long EURJPY?
My trade is based on the Daily chart above and I have highlighted a few technical signals that support a potential move higher. First, the pair has run into a rising trendline where it has found previous support and now consolidating price action. Stochastics are in oversold territory indicating that the move lower may be running out of steam and running out of sellers. Lastly, we can see bullish divergence as the pair creates lower "lows" while stochastics are creating higher "lows" - highlighted with the red lines on the chart.
So, plenty of technical arguments for a rally in the pair, but I will wait to see if the psychological level of 130.00 is retested before going long. My stop will be 150 pips, the average daily range of EURJPY, and I will ultimately target 135.00 as it is the previous swing high and a psychological number itself. Here is what I am going to do:
Long EURJPY at 130.00, stop at 128.50, pt1 at 131.50, pt2 at 135.00
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Not much on the Forex calendar in the way of major events with the exception of the ECB interest rate decision on Thursday. Also, US third earnings are set to be released this month and they have the potential to affect global risk sentiment if we see worse than expected earnings data.

Gold soaring, paper plunging, and that dog won't hunt!

2009-10-11T03:39:00.001-07:00

Key News

Federal Reserve Chairman Ben S. Bernanke said the central bank will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.” (Bloomberg)
China will carry on with its fiscal stimulus and loose monetary policy as the country's economic recovery is not yet on a solid footing, Chinese Vice President Xi Jinping said on Friday. (Reuters)
German exports unexpectedly fell for the first time in four months in August. (Bloomberg)

Quotable
“How many millions of jobs? In the George W. Bush years, we lost 5.3 million manufacturing jobs, one-fourth to one-third of all we had in 2001.
“And our dependence on China is growing. Where Beijing was responsible for 60 percent of the U.S. trade deficit in manufactured goods in 2008, in the first six months of 2009, China accounted for 79 percent of our trade deficit in manufactured goods.
“How can we end this dependency and begin building factories and creating jobs here, rather than deepening our dependency on a China that seeks to take our place in the sun? The same way Alexander Hamilton did, when we Americans produced almost nothing and were even more dependent on Great Britain than we are on China today.
Let us do unto our trading partners as they have done unto us. As they rebate value-added taxes on exports to us and impose a value-added tax on our exports to them, let us reciprocate. Impose a border tax equal to a VAT on all their goods entering the U.S. and cut corporate taxes on all manufacturing done here in the United States.
“Where they have tilted the playing field against us, let us tilt it back again.”
Pat Buchanan, American Conservative magazine
FX Trading - Gold soaring, paper plunging, and that dog won't hunt!
A lot of people believe the stock market peaked around October 2007. In the proverbial nominal terms, that is true. But if we consider the two major classes of assets: real stuff (which is real tangible value best depicted by gold) and paper (which is real intangible promissory notes) the real value of the stock market peaked way back in the year 2000. From 2000 onward, it marked era of real stuff dominating paper—reflecting a decline in real wealth as so measured.
The valuation of paper peaked with E-mania (the reason paper was valued was because real wealth supporting those promises was created, to a degree), you remember those years toward the end of the Nasdaq boom. That’s when E-Whatever was soon going to obsolete real brick and mortar stores such as Home Depot and Walmart. The model was burn through cash as fast as you can, give away stuff for free, and your stock price will soar. But to be fair, the E-mania craze was near the end, pushing valuations into silly season.
The boom in technology/telecom sector in the US during the 90’s drew in lots of capital investment and created real wealth (and boosted the dollar). Incidentally, the US dollar was in a major bull market during the 90’s in case you are a believer that stocks can only based on the canard of a weak dollar.
The Nasdaq bubble went pop in 2000. That is when our illustrious central banks put the pedal to the metal and started creating free credit to save us from ourselves. Of course the run up in stocks after the bust to their 2007 peak was proof that our central banks succeeded. But as you can see in the chart below, measured in real stuff there was no such success. Proof positive again that real wealth is not created by artificially lowering the rate of interest (a lesson the Keynesian crowd for some unknown reason keep forgetting).
S&P 500 Index divided by Gold:

So, to say the price of gold has gone up is the same as saying the value of paper has gone down; or tangible value is more highly sought than paper promises.
This circles back to the debate today. To continue to issue paper promises in an effort to create wealth is proven a dismal failure. More paper supply and promises means lower prices on said paper (not just US paper, the biggest supplier, but all paper). It just so happens that the biggest supplier of paper is the one taking an inordinate amount of hits, as it should.
Take a look at the chart above again. Notice the nice looking symmetry. The left side looks a lot like the right side. If the time period is similar, it means we have another 10-years of paper falling in value relative to stuff (into 2020), though the majority of the move has passed, assuming we only sink to 1980 level valuations. Problem is there is no reason to suggest we can’t go much lower than 1980 levels. [The symmetry argument may not hold as we know valuations fall faster than they rise, but we shall see.]
I think the average person realizes his wealth had eroded despite being told how rosy everything was, even before the credit crunch. Financial types did well thanks to paper, and many are doing well again, thanks to taxes siphoned from the average person and of course, more paper.
Maybe this post credit crunch period will succeed in intensifying what the market might have been telling us since late 2000—there is a secular change in attitudes toward paper promises. It would help explain why the stimulus isn’t simulating. And it may help explain why consumer installment credit outstanding is tumbling fast for the first time in forever despite the fact we continue to be told recovery is here, please start dancing in the streets.
1943-2009:

The average guy, not having a chance to view the S&P 500/Gold chart was told by all the “free trade” mantra chanting types (which includes almost everyone in the media and economics at any level) that he was really adding wealth during the boom—pre crisis propaganda—and that the intensity of “free trade” and all those goods flowing in freely from China were really “enhancing” his purchasing power. It was no matter Mr. Average was finding his ability to obtain a high value-added manufacturing job shrinking by the day, as so-called platform companies made the only choice good for shareholders profits, transfer lock-stock-and barrel US manufacturing to our “friends” in China.
Friends indeed they are for the same power elite that have continued to position real asset investments in China—the Kissingers’, Bushes’, Gates, Feinsteins’, and Buffets’ of the world, and almost every major US multinational worth its salt. The point being a political and economic class all singing from the same sheet of music despite being on different spectrums of the political isle—supposedly. But they are all on the same side of the isle when they worship at the Church of Free Trade—the money isle. Who can blame them….Dog eat dog…Social Darwinism and all that…
All this wealth being created supposedly as the dollar becomes the sacrificial lamb of “free trade.” Because a lower dollar means more US trade, and wealth, despite the fact that it’s not true.
What is interesting, is that if we compare the Asset Accumulation chart of China from 2000 onward (below), it matches up pretty well with decline if US real wealth beginning in 2000 per the S&P/Gold chart above and the massive ramp up in all types of US dollar-based credit.
Chinese Assets

Maybe that is some evidence of a wholesale transfer of wealth from the US to China, sacrificed at the altar of “free trade”? Nah…it couldn’t be. Well, something just doesn’t wash. I do remember my old accounting professor saying to me once summing up proper accounting practice: “Don’t worry; sooner or later it all comes out in the wash.”
And that something, I think, is a realization by the average guy, no matter which side of the political isle he is seated, that things just aren’t right.
Of course the Adam Smith and David Ricardo (free traders that likely wouldn’t recommend national suicide in place of free trade) enthusiasts i.e. all Wall Street and think tank economists on the right or left will throw out the argument that the global economy is not a zero-sum game, producing a bevy of statistics to prove China’s gain is a US gain too. There are good arguments on that side of the fence—real free trade is not zero-sum when it crates wealth for both trading partners.
But when real wealth in the guise of “free trade” is siphoned off one country and almost literally deposited wholesale in another because of the interest of those “connected,” it becomes almost a zero-sum game. Thus, it is the real stuff wealth transfer that has created the massive global imbalances we are now trying to alleviate. The “free traders” will tell you it is all something completely different than a transfer of wealth that created the problem, despite that fact one can point to deep loss of manufacturing jobs and skills and decline in real wealth for most of the populace.
All of this stuff is complicated. But angst is felt in the belly of the average person even though he or she may not be able to verbalize the economics. Deep down, I think this is why there is so much concern about the US dollar and the potential for crisis. The disastrous wealth crushing policies of the US government, through many administrations consecutively is likely why gold is crushing their promises in a big way.
Being from, and living most of my life in the South (but born in the all-knowing all-seeing Northeast corridor), I have many wise friends that would never make it on Wall Street. They don’t know that stuff or care that much about it. They’d rather go huntin or fishin or watch a game and drink some beer; and be left alone to just do it. This doesn’t make them any less smart though about the ways of the world. They do clearly understand that something isn’t right—they don’t need a degree in economics to know what that something is—no good jobs.
Maybe the dollar catches a bounce. And maybe the dollar starts to look good against other paper that starts to look relatively worse, and does rally for a while.
But until there is a clear policy change in terms of papering over the world to create wealth, economists can talk all they want about recovery. My friends would say this, “That dog won’t hunt.”
Have a great weekend.

The MetaTrader 4 Platform - A Complete Guide

2009-10-11T03:35:00.003-07:00

I've got a guest article for you today. This particular one is from John Robinson (forextraders.com) and is all about the MetaTrader 4 platform, which I know is popular with a lot of my readers and subscribers. I don't use this particular platform myself but hopefully this article will give you all the information you need.

Due to the large number of brokers that are active in the field of forex trading, there is a large number of software and trading platforms available to traders. Similar to the case with brokers, some of these platforms offer very effective, competent solutions to the problems faced by a trader, while others are barely capable of meeting the basic requirements of analysis and the presentation of information. Fortunately, the MetaTrader Platform, which is becoming more and more popular with brokers these days, offers an excellent and innovative solution to the problems of forex trading while setting the bar at a very high level for the other offers in the market.

The main advantage of the MetaTrader 4 platform is its extremely successful combination of great functionality with exceptional ease-of-use. The simple and elegant interface of the platform hides the powerful features offered by it to both the professional and novice trader. The standard package comes equipped with such useful tools like the Ichimoku cloud, and the Alligator indicators, along with all the standard items like the RSI or moving averages, plus five different types of Fibonacci Series based indicators. And it is also possible to create your own indicators, or even install and use tools created by fellow traders online.

Prices are listed on the left-side graph in a simple yet clear form, while the main panel of the software allows the depiction of many price charts at the same time. You can monitor all of your favorite pairs in the same window by using this great flexibility of the interface. The standard package also includes an efficient expert advisor which lets you test your strategies in light of past price action with a single click.

Also, if you have any desire of creating presentations for your own use, or for the benefit of friends or clients, the descriptive powers of the platform are simply matched by no other offer in the market at the moment. Everything from triangles to up and down arrows indicating direction and momentum of a trend, horizontal and vertical lines that allow the depiction of the price action with great precision are implemented as part of the standard package, and a vast degree of customization, it is possible through the use of the various colors and sizes available for the creation of a chart form that suits your tastes and sensibilities.

The MetaTrader 4 platform is undoubtedly one of the most thorough and efficient solutions to the trade software problem, and it is getting more and popular with every forex broker and trader each passing day. Rest assured that if you choose a broker that makes use of this platform you will have little to complain about, and every reason to be proud of your trouble-free and profitable trading experience.

Weekly Trading Update - 05-09 October 2009

2009-10-11T03:35:00.001-07:00

Well it's been a pretty decent trading week for me this week with 3 winners out of 3 so I have nothing to complain about. Two of the trades didn't generate as much profit as I would have liked but one trade did work out very nicely.

Let's start with this trade first of all. It was on the USD/JPY pair and it occurred on Monday evening. I was looking for the EMAs to cross downwards on the 4 hour chart because the daily Supertrend indicator was still indicating a downward trend, and after doing so I went short at 89.62. I then closed half the position for 46 points the next day and let the other half run, finally closing out the position at 88.50.

The two trades that didn't go to plan occurred on the GBP/USD and GBP/JPY pairs. Again I was looking to go short on both these pairs and after the EMAs crossed downwards I entered short positions at 1.5930 and 142.78 respectively after waiting for a slight pull-back. Thankfully they did both reach their initial profit targets of 50 and 70 points but the second half of the position was automatically closed out at break-even on both positions.
So overall it was a decent enough week and I'm more than happy with those returns. There's actually a few crossovers happening as I speak on the GBP/USD, GBP/JPY, EUR/GBP and USD/JPY pairs but as it's Friday afternoon (here in the UK) I think I'm going to call it quits and start again next week.
Have a great weekend.
(If you would like full details of my main 4 hour trading strategy, you can access it for free when you subscribe to my newsletter. Simply fill in the short form above).

The USD/JPY Pair - A Classic Example Of Why You Should Always Follow The Trend

2009-10-11T03:34:00.002-07:00

Today I want to demonstrate why it's always more profitable to trade in the same direction as the overall trend, using the USD/JPY pair as an example. I like to determine the trend by simply using the Supertrend indicator on the daily chart - a red line indicates a bearish trend and a green line indicates a bullish trend.
In the case of the USD/JPY pair the Supertrend has been red since August 27^th so since that time I have only been looking for short positions on the 4 hour chart.
If you're familiar with my 4 hour trading system (see right for more details), you will know that I use an EMA crossover system to enter my positions. So by looking at the 4 hour chart below you will see the 3 short positions that were triggered when the shorter-term EMA (blue) crossed below the longer-term EMA (green).
With the USD/JPY pair I usually close half the position for 40 points and let the other run for as long as possible (moving my stop loss to break-even). So you can see that each of these positions would have generated a profit of at least 40 points if you had entered a position close to the short-term EMA for maximum value.
Furthermore the final EMA crossover in particular would have been extremely profitable because it's currently around 140 points in profit at the time of writing (although I actually closed my position at 88.50 earlier this morning, which was still an excellent profit).

Anyway the point I want to make is that if you had been looking to trade against the trend and go long when the EMAs crossed upwards, you would have lost out on all 3 trades because none of them managed to reach the initial 40 point target, never mind generate some meaningful profits.

So it always pays to trade with the trend rather than against it.

10/04/2009 - Dollar stays weak, but holds key levels

2009-10-11T03:34:00.000-07:00

* Dollar stays weak, but holds key levels
* US retail sales and consumer prices in the crosshairs
* UK CPI may upset cable
* Bank of England and ECB previews
* Eurozone sentiment and EUR strength
* Key data and events to watch next week
The short answer to that is a definitive, unequivocal ‘maybe.’ The first day of October saw risk assets take a beating for apparently no good reason. True, weekly US jobless claims rose and the ISM manufacturing index disappointed, but we knew from the Chicago PMI that ISM was likely to be weaker, and the jobless claims was not a major jump. Complicating matters further, we had month/quarter-end to contend with the day before and Sept. NFP the day after Oct. 1. Overall, though, we are left with the impression that October has begun on an inauspicious note for risk appetites and risky assets, such as stocks and commodities. If so, we could see further USD strength and potentially signal a multi-week USD low was seen a few weeks ago. Full text »

10/11/2009 - Dollar stays weak, but holds key levels

2009-10-11T03:33:00.001-07:00

* Dollar stays weak, but holds key levels
* US retail sales and consumer prices in the crosshairs
* UK CPI may upset cable
* Eurozone sentiment and EUR strength
The financial media was all atwitter over USD weakness this past week, but the buck managed to hang on despite reports of its imminent demise. The greenback got off to a weak start after a less than supportive G7 statement retained the same language on FX as the April communiqué, rather than a more strongly worded vote of confidence. The dollar then took a beating on the back of a report by a prominent UK journalist that secret meetings between mid-East oil producers and Russia, Japan, and France, among others, were held to discuss pricing oil in a basket of currencies, including gold, and not in US dollars. Those reports were later denied by most of the countries mentioned, but the dollar continued to slide, while gold prices surged higher to new all time highs of around 1061/62. USD sentiment remains undeniably bearish, excessively so in our view, but it’s important to note that the USD tested key support levels (EUR/USD key highs at 1.4850/70; USD/JPY 88.00; and US dollar index at 75.80/90) and ultimately held. Full text »

Canadian Dollar Heads Higher in Currency Trading

2009-10-11T03:32:00.005-07:00

Loonie reaches fresh yearly highs on the forex market
The Canadian dollar is significantly higher in currency trading on the forex market today. Even though the greenback is bouncing against other currencies today, it remains lower against the loonie on the forex market.
The Canadian dollar is getting a great deal of help from the fact that employment numbers are better than expected. As a result of this, and other signs that the Canadian economy is stabilizing, the loonie has reached a new high against the U.S. dollar.
It will be interesting to see if this stronger loonie persists with its currency trading gains, or if things turn around as the general global economy recovers.

Dollar Bouncing Today in Forex Trading

2009-10-11T03:32:00.003-07:00

Greenback heads higher in currency trading
The dollar is bouncing today in forex trading today on the currency market. After the risk trade made an appearance yesterday, the dollar is heading higher.
One of the main reasons for the greenback’s rise in currency trading is the fact that Fed chair Ben Bernanke has hinted that an exit strategy from economic stimulus measures are likely on the way. GFT’s Boris Schlossberg reports in FX360 on the effect of Bernanke’s remarks:

Although the Fed chief’s comments broke no new ground, the mildly hawkish tone of the message prompted a short covering rally especially in USD/JPY which spiked to 89.40 on fears that US rates may begin to rise sooner than the market expected sabotaging the dollar carry trade.

It appears that, for now, the dollar carry trade is off. However, it could come back into favor if the Fed is slow to exit from economic stimulus, and if the risk trade regains popularity.

London Session - October 9, 2009 5:53 AM

2009-10-11T03:32:00.001-07:00

EUR/USD has traded sideways in European hours after the USD received a boost in Asian hours from comments from the Fed’s Bernanke. The Fed Governor did little more but to state the obvious – that he would be ready to tighten policy when the economy improves to prevent the emergence of an inflation problem down the road. But the very fact that he is considering the timing of the first rate hike was enough to excite the fx market into covering short USD positions. His comments were given added momentum by those of White House Economic Advisor Larry Summer who repeated the Treasury’s commitment to its strong USD policy. That said, the inability of the USD to maintain its upside momentum against the EUR during European hours reflects the fact that there has been no real change in the fundamental backdrop from yesterday. While it is likely that the next Fed move will be a hike, it is possible that this may not be before Q3 next year. Full text »

Asia Session - October 9, 2009 12:02 AM

2009-10-11T03:31:00.005-07:00

The main theme for the final Asia session of the week was the USD reversal from highly publicized weakness over the past few days. After sinking to even lower lows in NY, the pair began its rebound against most of the majors with the help of both Ben Bernanke and Larry Summers talking up the greenback, and also some Fed members chiming in over the wires. USDJPY shot higher, breaking through the 89.00 handle and continuing upward. Euro also felt the pressure, with EURUSD giving back some NY gains, and dealing towards 1.4700. The comments alone were enough to ignite the dollar, with a lack of data in the session to propel any movement. XAUUSD even saw a bit of retreat, after seeing soaring prices off of dollar fears and what turned out to be unsubstantiated rumors. Full text »

New York Session - October 8, 2009 5:55 PM

2009-10-11T03:31:00.003-07:00

The dollar doldrums continued in NY trading as currency markets remained beholden to the equity market gyrations. Stocks in the US added 0.8%, paring about half of the intraday gains in the latter part of the session. Better than expected US initial jobless claims provided the catalyst as the weekly number printed just 521K after a 554K result the prior week. The seasonal factors next week become a little tricky on the back of the Columbus Day holiday and we are actually looking for a substantial rebound here. Full text »

Risk Trade is the Story for Today’s Currency Market

2009-10-11T03:31:00.001-07:00

Forex trading with risk currencies
The risk trade is the way to go on the currency market today. In forex trading, risk currencies are heading higher as risk appetite takes over. The U.S. dollar is heading lower as the stock market rallies and investors look for higher returns.
Risk currencies like the U.K. pound and the Australian dollar are heading higher today, getting a boost from the optimism pervading the markets today. There is hope for economic recovery.
In Britain, the news that Lloyds is looking to get out from under government asset protection is helping the sterling on the currency market. For the Australian dollar, news that Chinese demand is ready to pick up is providing some helpful momentum. So is the fact that the Reserve Bank of Australia just raised interest rates. As long as things remain promising, the risk trade should continue to do well.

U.S. Dollar Trade Likely to Be Driven By Interest Rate Differentials

2009-10-11T03:30:00.003-07:00

Greenback in forex trading
The U.S. dollar trade in currency trading on the FX market has been largely determined by interest rate differentials lately. And as long as we see consistency in the way things are going right now, it is quite likely that this state of affairs will continue.
Right now, the Federal Reserve has an interest in keeping a certain amount of weakness with the U.S. dollar. Additionally, among the developed nations, the greenback has one of the lowest interest rates. In currency trading, this makes the dollar attractive as a funding currency for the carry trade.
With risk appetite strong right now, thanks to a rally in the U.S. stock market and in other equity markets around the world, things are unlikely to change for the U.S. dollar anytime soon.

London Session - October 8, 2009 5:41 AM

2009-10-11T03:30:00.001-07:00

Full text »

Pound, Dollar are ‘Sick’ Currencies

2009-10-11T03:27:00.002-07:00

A theme in forex markets (as well as on the Forex Blog) is that as the Dollar has declined, virtually every other asset/currency has risen. The rationale for this phenomenon is that the global economic recovery is boosting risk appetite, such that investors are now comfortable looking outside the US for yield. However, this market snapshot may have to be tweaked slightly, in accordance with a recent WSJ article (Sterling Looks Ready to Join the Sick List).
According to the report, “Similar to how investors sorted good banks from bad banks earlier this year, foreign-exchange buyers are starting to sort strong currencies from weaker currencies. The pound appears to be joining the dollar in the weak camp. Both countries have near-zero interest-rate targets, an aggressive policy aimed at boosting the economy, and yawning deficits.” In contrast, the article continues, the Yen and the Euro have risen, as have so-called commodity currencies.

While there’s no question that British economic and forex fundamentals are abysmal, it’s a bit hard to understand why the markets are picking on the Pound now. After all, the Euro, Swiss Franc, and Yen, for example, are plagued by some of the same fundamental problems: growing national debt, sluggish growth, low interest rates, etc. Investors can borrow in Yen nearly as cheaply as they can borrow in Dollars or Pounds, and the Bank of Japan is likely to keep rates low at least as long as the Bank of England (BOE), if not longer. Meanwhile, price inflation remains practically non-existent, which means that any capital that investors stash in the UK should be safe.
Perhaps, then, investors are zeroing in on the BOE’s Quantitative Easing program, which is the point of greatest overlap with the US Dollar. Relative to GDP, both currencies’ Central Banks have spent by far the most of any industrialized countries, in pumping newly printed money into credit markets. The BOE, in particular, is actually thinking about expanding its program. At a recent meeting, Mervyn King, Chairman of the Bank, led the opposition in voting for a 15% expansion, but was voted down by a majority of the bank’s other members. “The ‘next decision point‘ will be the Nov. 5 meeting,” said a former Deputy Governor of the Bank, at which point “Bank of England policy makers will consider expanding their bond purchase plan….on concern the economy’s recovery may be a ‘false dawn.’ ”

The government meanwhile has demonstrated a certain ambivalence when it comes to the program. The head of the UK Debt Management Office indirectly encouraged the BOE to continues its purchases of bonds, for fear that stopping doing so could cause yields to skyrocket and make it difficult for the government to fund its activities. “A rapid sell-off could create a downward spiral of gilt prices which would make life harder for both it and the DMO.” On the other hand, one of the leaders of Britain’s conservative party – which is projected to take office after next year’s elections – has criticized the program on the grounds that it will lead to inflation.
From the BOE’s standpoint, it’s a no-win situation. Continue the policy, and you risk inflation and further invoking the ire of politicians. Wind it down, and you could tip the economy back into recession. For better or worse, it seems the BOE will err on the side of the former: “If we stopped supporting the economy now it would crash. Every country in the world and just about every informed commentator is saying the same thing. The job is not finished.” Given that inflation is projected to hover around 0% for the next two years, the BOE still has some breathing room.
As for the charge that the surfeit of cash flowing into markets is weakening the Pound, ‘So be it,’ seems to be the attitude of Mervn King who suggested that, “The weaker pound was ‘helpful’ to efforts to rebalance the British economy toward exports.” While he backtracked afterward, it still stands that the BOE hasn’t made any efforts to stem the decline of the Pound, and is at best indifferent towards it.
Regardless of where the BOE stands, the Pound is not being helped by the weak financial and housing sectors, which during the bubble years, comprised the biggest contribution to UK growth. Exports are weak, and domestic manufacturing activity has yet to stabilize. As a result, “The British economy will contract 4.4 percent this year before expanding 0.9 percent in 2010, the International Monetary Fund predicts.”
Objectively speaking, then, it makes sense to call the Pound sick. Still, many other currencies are just as sick. I guess the perennial lesson is that in forex, everything is relative.

Interview with Howard Lindzon: “I am Optimistic About Forex”

2009-10-11T03:27:00.000-07:00

Today we bring you an interview with hedge fund manager Howard Lindzon, author of The WallSTRiP Edge and co-founder/CEO of StockTwits. Below, Howard discusses his interest in currency trading, as well as his general approach to investing.
Forex Blog: As a forex blogger, I am eager to hear how and why you developed a sudden interest in forex.

It is not a sudden interest in forex. For years, I had money with trend following managers and slowly saw the way people traded currencies. My new fascination comes from all the people on stocktwits talking currencies at odd hours

Forex Blog: Does your primary interest lie in currencies, themselves, or rather in the people that trade them? In other words, is it your intention to invest directly in currencies or instead to identify companies that successfully market services to currency traders? Perhaps a combination of both?

I own the Canadian Dollar right now and also gold so my fascination is in the way different things move different markets. Currencies move from macro policies and they seem to trend better. For me, It’s now a combination of both. I am learning to get a feel for currencies as I hear individuals on stocktwits actually talk about them.

Forex Blog: While it’s true that forex remains off the radar screen of many retail investors, I must point out that it’s already by the far the largest market in the world, with an estimated $4 Trillion in daily turnover. In spite of this, it seems you’re still quite optimistic about its prospects for growth?

I am optimistic because of many trends. The online brokers are way behind and must catch up. The forex brokers are way behind and see the retail consumer as a growth market and there seems to be chaos so it should be interesting which new winners emerge.
The world has indeed flattened and shrunk and currencies should be a more exciting topic as governments collide more often.

Forex Blog: Are there specific currencies that you are interested in, and/or that you believe are currently undervalued?

It is really exciting to watch the action in the dollar. I try to see the big picture. We are printing money and our policies are not changing. it seems the us government wants a cheaper dollar which would be fine, but they are also manufacturing it, so I don;t think it will work out well for it. I just don’t have a timeframe.

Forex Blog: As some of your readers pointed out, the forex market is currently saturated with fraud. New regulation is expected to clamp down on unethical business practices, but could also lower the appeal of forex by cutting leverage from 200:1 to levels associated with trading stocks retail. How will changes in regulation factor into your investment approach?

The regulation on our little community comes from the community itself. If I am learning, I think I can get others excited about learning…if not to trade, than to see how the currencies and government policies affect stock prices and other markets. I try not to worry about regulation…my size also keeps me out of the stress of it as I am too small.

Forex Blog: Shifting gears a bit, why did you decide to found/back StockTwits, a self-described “community-powered idea and information service for investments?”

I founded stocktwits to help me better track my ideas from a trusted source of friends. It’s about getting the info i want, when I want it, on any device, from the group I want it from. All that has happened is that thousands of others want info the same way. With the new filters and discovery features of twitter and now stocktwits, the speed to knowledge is faster than ever and its fun.

Forex Blog: How would summarize the growing appeal of StockTwits to its users? In other words, how does StockTwits (intend to) distinguish itself from the hundreds of other popular forums and message boards dedicated to the art of investing?

Community is the real differentiator. Every community is different. Ours just has some pretty cool features in it and i love the context our ticker has and the breadth of knowledge. I also believe in the ‘farm system’ of distributed talent and having an expert pop up out of nowhere and get rushed to the top. It’s like…oh my god…we need a doctor…BOOM, thousands of people are asking around for a doctor and then you get one right away. It’s social leverage at work.

Forex Blog: If StockTwits expanded to the point where user comments/activity influenced asset prices (as happens occasionally with RagingBull and Jim Cramer’s Mad Money), would you view this is as a positive or negative development?

If we move markets, that’s good; it’s an evolution. I doubt we will and if we do, I am hopeful it is for the right reasons and we will do everything within our power to nudge the community in the win/win, do the right thing way. We are going to be wrong all the time too so moving the market is not something people should be worried about.

Forex Blog: Finally, what advice to you have for investors that want to beat the market (any market, really) during the credit crisis?

I have never routinely beat the market. I invest heavily and with a long term time frame when I feel I have an edge. I want to beat the market not daily, weekly or yearly, but over decades. You need to pick the asset classes that jibe with your passion, thinking, energy, risk levels, liquidity needs and then passionately chase the returns.

Do You Use Forex Trading Strategy?

2009-10-06T11:59:00.001-07:00

According to many Forex guides, tutorials and manuals, the trading strategy is the backbone of the successful trading behavior. The most obvious reason to have a well-defined Forex strategy is to stop relying on bare luck and move from the Forex gambling to the actual Forex trading. With a strategy it’s much easier to analyze the trading performance, its rights and wrongs. It also becomes easier to keep a Forex trading journal if you use some system for entering and exiting the market. Unfortunately, it’s not very easy to follow a strategy, especially if it allows some losing periods. Some traders (including me) are prone to the constant changing of a strategy, which is not always upgrading it but often degrades the strategy. And how about you? Is it more simple to trade with a Forex strategy for you?

Russian Forex Broker with CFD and Futures

2009-10-06T11:58:00.002-07:00

EXNESS is a Russian Forex broker that has only recently gone on-line with its website and is offering trading services in the traditional currency pairs and also in CFDs for many global stock markets, as well as in the futures contracts for commodity and index exchanges. Overall it’s a good broker to start with (only $100 minimum and 1:200 leverage), if you aren’t very paranoid about the broker’s regulation because currently there is no institution in Russia that would regulate on-line Forex trading specifically. Other interesting features of this Forex broker are:

MetaTrader 4 platform
11 ways to fund your trading account
2 pips average variable spread on EUR/USD
Trade in gold and crude oil

Forex Technical Analysis for 10/05—10/09 Week

2009-10-06T11:58:00.001-07:00

EUR/USD trend: sell.
GBP/USD trend: sell.
USD/JPY trend: buy.
EUR/JPY trend: hold.

Floor Pivot Points
Pair	3rd Sup	2nd Sup	1st Sup	Pivot	1st Res	2nd Res	3rd Res
EUR/USD	1.4223	1.4352	1.4463	1.4591	1.4703	1.4831	1.4943
GBP/USD	1.5411	1.5590	1.5767	1.5946	1.6124	1.6303	1.6480
USD/JPY	86.36	87.29	88.54	89.47	90.72	91.66	92.91
EUR/JPY	126.28	127.66	129.26	130.64	132.24	133.62	135.23

Woodie’s Pivot Points
Pair	2nd Sup	1st Sup	Pivot	1st Res	2nd Res
EUR/USD	1.4347	1.4455	1.4587	1.4695	1.4827
GBP/USD	1.5589	1.5767	1.5946	1.6123	1.6302
USD/JPY	87.37	88.70	89.55	90.88	91.74
EUR/JPY	127.71	129.38	130.70	132.36	133.68

Camarilla Pivot Points
Pair	4th Sup	3rd Sup	2nd Sup	1st Sup	1st Res	2nd Res	3rd Res	4th Res
EUR/USD	1.4443	1.4509	1.4531	1.4553	1.4597	1.4619	1.4641	1.4707
GBP/USD	1.5749	1.5847	1.5880	1.5912	1.5978	1.6010	1.6043	1.6141
USD/JPY	88.59	89.19	89.39	89.59	89.99	90.19	90.39	90.99
EUR/JPY	129.23	130.05	130.32	130.60	131.14	131.42	131.69	132.51

Fibonacci Retracement Levels
Pairs	EUR/USD	GBP/USD	USD/JPY	EUR/JPY
100.0%	1.4720	1.6125	90.41	132.01
61.8%	1.4628	1.5989	89.57	130.87
50.0%	1.4600	1.5947	89.31	130.52
38.2%	1.4571	1.5905	89.06	130.17
23.6%	1.4536	1.5853	88.74	129.73
0.0%	1.4480	1.5769	88.22	129.03

EUR/USD Jumps Up on Deteriorating Economic Conditions

2009-10-06T11:57:00.001-07:00

The euro rose against the U.S. dollar today despite the unexpectedly bad values reported on the two important macroeconomic indicators in United States. With each new trading session it looks like the dollar is becoming more and more positively correlated with the U.S. economy, losing when the fundamentals are bad and gaining when they are good. EUR/USD is now trading near 1.4594.

Nonfarm payrolls were reported at -263k for September — that’s worse than -201k reported for July and -175k value of the forecast. Unemployment r

USD Gains vs. Euro on Positive Income & Spending

2009-10-06T11:56:00.000-07:00

EUR/USD dropped today, going below the yesterday’s positive trading session’s open level. The traders probably react on the improved personal income and spending growth report, betting for the faster U.S. economy’s recovery. On the other hand, a growth of the dollar may be a result of the bad jobless claims report. Currently EUR/USD is trading near 1.4554, it also reached it’s lowest level since September 14th today — 1.4518.

Personal income rose by 0.2% in August in United States. Personal spending increased by 1.3% in that month. Income growth remained the same as in July, while the spending growth accelerated from 0.3%. Forecast for personal income gain was at 0.1% and the forecast for spending was at 1.1%.

Initial jobless claims went up from 534k to 551k last week. That was an unexpected gain as only 535k claims were forecasted for today’s report.

ISM PMI fell from 52.9% to 52.6% in September. This is a signal of stagnation for the U.S. manufacturing industry, but while it’s still above 50% it’s a good signal overall. Traders expected a gain to 54.0% from this report.

Pending home sales index rose by 6.4% in August, following 3.2% gain in July. The market analysts predicted a growth by 1%. At 103.8 pending home sales index is now above the average level of 2001.

Construction spending in U.S. rose by 0.8% in August compared to July. This growth followed 1.1% drop in July. Forecasted change was at -0.1%.

Dollar’s Role as Reserve Currency in Jeopardy

2009-10-06T11:53:00.000-07:00

I concluded my last post by promising to discuss the implications of a change in the status quo, regarding the Dollar’s role as the world’s reserve currency. As it turns out, the last few days have witnessed a few developments on this front.

First of all, the G7 concluded its latest round of talks. Despite previous indications to the contrary, the organization continued its practice of releasing a communique. in which it noted that global economic balances persist and that policymakers should work together to mitigate them. While seemingly benign and desirable, the proposition couldn’t have come at a worse time for the Dollar.

The only reason why the Dollar hasn’t collapsed completely is because economies largely continue to recycle their surplus wealth and trade surpluses back into Dollar-denominated assets. One columnist connects the dots with regard to the forex implications: “Less Chinese intervention to prevent yuan strength would mean China, slowly over time, would build up fewer dollar reserves.” In other words, economies no longer concerned with pegging their currencies would have very little reason to build up large pools of reserves.

In fact, China is fully on board with this notion. Following the G7 talks, Chinese officials announced that it would support a stronger Yuan as soon as the global economic crisis resolved itself. By its own reckoning, this would facilitate a shift in its economy, from one dependent on exports for growth to one focused around domestic consumption. Still, obstacles remain, and “It is far from clear how China can engineer a shift up for the yuan against the dollar, which analysts note would almost certainly translate into a gain against other currencies as well.”

Speaking of China, it is also among the most vocal of nations laboring for alternatives to the Dollar. Towards this end, it has reportedly formed a secret coalition with the other BRIC countries (Brazil, India, and Russia), as well as Japan. The goal is to end the pricing of oil in Dollars by 2018. That the group has given itself nine years to complete this task speaks to its extraordinary ambition.

The implications for the Dollar cannot be understated. A handful of oil-producing nations in the Middle East hold a combined $2.1 Trillion in Dollars, which are solely a product of selling oil in exchange for Dollars. Already, the government of Iran has mandated that in the future, all of its reserves be held in non-Dollar-denominated assets. Thus far, no other countries have followed suit. China is aware that pushing for further developments could roil the US, which would be unlikely to sit on the sidelines and watch its currency be summarily jettisoned. “Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East.”

Robert Zoellick, president of the World Bank, doesn’t harbor any illusions, and announced during a recent speech that the a decline in the role of the Dollar is inevitable. “He said the United States ‘would be mistaken to take for granted the dollar’s place as the world’s predominant currency. Looking forward there will increasingly be other options to the dollar,’ ” such as the Chinese Yuan and the Euro.

Zoellick’s warnings were prescient, when you consider that the IMF just announced that the share of Dollars in global foreign exchange reserves declined significantly in the most recent quarter, perhaps to its lowest share since the Euro was introduced in 1999. [The latter, however, has yet to be confirmed]. “The dollar’s share in global reserves declined to 62.8% from 65.0%…The euro’s share increased to 27.5% from 25.9%.”

JP Morgan’s research team has discovered a similar trend- that accumulation of US assets accounts for only half of the global increase in global forex reserves. “Quantifying this trend is always imprecise. But the circumstantial evidence — official buying of U.S. assets runs at only half of the pace of global reserve accumulation — suggests that diversification has accelerated since June.”

So, there you have it. The Dollar’s demise (to borrow a characterization by one of the columnists featured in this post) is no longer theoretical. It may have already begun…

G7 Ditches Currency Communique

2009-10-06T11:52:00.000-07:00

The semiannual meetings of the “G” countries – whether the G7, G8, G20, etc. – are always closely monitored by currency analysts. Especially close attention is paid to the official communique, which often includes an assessment of current exchange rates.

The communique is rarely so straightforward as to indicate if, when, and where the Gs will intervene. Nonetheless, it is often full of intimations, and analysts often spend days parsing its rhetoric for clues. During this period, it’s not uncommon for the forex markets to witness increased volatility, as investors try to come to consensus about what to expect in the months following the meeting. This is because unlike Central Banks, which often face difficulties in unilaterally trying to influence their currencies, the G7 is usually able to achieve its desired goal: “A study last year by ECB economist Marcel Fratzcher found the G7 was successful in moving within a year currencies on 80 per cent of the 29 occasions it tried to do so since 1975.”

However, the current meeting, which is being held in Instanbul, Turkey,may break from this tradition. It’s not clear exactly what motivated the (potential) decision not to release a communique, which has been an important policy tool for the last three decades. Perhaps, policymakers have realized that their are other, better forums to discuss currency issues, namely the G20, which met last week in Pittsburgh, USA.

The timing of the decision is somewhat odd, given that exchange rate and other economic imbalances are proliferating. In fact, in press conferences held before and after the official G7 meetings, policymakers and Central Bankers have been forthcoming about such imbalances. Jim Flaherty, Finance Minister of Canada, sounded off on the RMB, which has stalled in its appreciation for over a year: “They (China) have a position that they are relaxing their currency, relaxing the restrictions on their currency gradually over time,” he said. Meanwhile, ECB Governor Jean-Claude Trichet voiced concerns about the Dollar, which has slide 15% against the Euro so far this year.

Ironically given the G7’s refusal to act, there is actually a strong conensus that the Dollar’s slide is generally bad for the global economy, especially in the context of the nascent recovery. A cheaper Dollar not only affects the export competitiveness of countries in Asia, but is also partially responsible for surging commodity prices. There is also a general belief that volatile (perhaps unstable is a better word) exchange rates are not conducive to economic and financial stability.

At this point, it doesn’t seem likely that either the G7 or the G20 will take the extreme step of intervening on behalf of the Dollar, which remains well below the record lows of 2008. If the Buck continues to slide, however, especially to the point where its role as global reserve currency is in jeopardy…well…that is a different story, and fodder for next year’s meetings, which will be held in Canada. Then again, it may be taken up by the G4, a still-hypothetical group which would consist of the US, China, Japan, and a representative from the EU. It is alos the intended subject of my next post…stay tuned!