Month: May 2012

By MoneyMorning.com.au

While keeping expenses below revenues seems simple enough, many people today live beyond their means. Due to misguided monetary policy, society has favoured debt accumulation over saving.

And as a strategy, it has worked well for decades. That’s because the return on assets (shares, property, bonds etc) were well in excess of the cost of debt. So leverage worked.

Borrowing at 7 per cent to purchase an asset growing at 10 per cent – or more – is an easy way to make money. And as more people borrowed, the weight of money kept pushing asset prices up. This was particularly the case in residential property – the most leveraged of asset classes.

Reverse Compounding and Property Investments

Home loan borrowing costs are around 7 per cent. Assuming you put down a 10 per cent deposit and borrow the rest, you’ll need an annual return of at least 6.3 per cent to keep your head above water. If house prices fall (which is a likely scenario after years of increases) reverse compounding kicks in.

For example, if you put a 10 per cent deposit down when buying a house, it would only take a 10 per cent decline to wipe out all your equity. Meanwhile you continue to pay 7 per cent interest on the debt. Reverse compounding.

Reverse Compounding and Share Investing

I believe borrowing to buy shares is only slightly less risky. This relates to the differences in the cycles between property and shares. Share prices peaked in October 2007. House prices peaked around midway through 2010. In other words, shares offer better relative value than housing.

However, margin loans (borrowing to buy shares) are expensive. The interest rate charged can be as high as 10 per cent. If you buy opportunistically, I think shares have the potential to beat that 10 per cent hurdle over the long term.

But not by much. And with the market expected to remain volatile, there is a very good chance of getting margin calls (being forced to sell) at precisely the wrong time.

Compounding – Weighing Up Risk and Reward

In other words, it’s a bad risk/ reward trade-off. Borrowing to buy assets in the hope of making easy money is yesterday’s strategy. It won’t work in the years ahead.

You can see the very nasty effects of reverse compounding in Europe. Take Spain’s economy for example. While Spanish government debt is still relatively low, the market knows the banking sector in Spain is insolvent and will require government money at some point. So Spain’s debt situation is much worse than it looks.

These countries got to this point from years of over spending. They financed this ‘dis-saving’ by borrowing more and more. Their debt compounded until the market finally decided to turn the easy money tap off.

Now they are at the point of bankruptcy and social upheaval. Reverse compounding is as nasty as compounding is beneficial.

A Look at Reverse Compounding in the US

Consider the US, which is on the path to taking the concept of reverse compounding to epic levels:

It has total outstanding federal public debt of US$15.6 trillion.

In 2011, despite low interest rates, the interest expense on the debt hit a record US$454.4 billion. Given the size of the US economy is around US$15 trillion, interest expense is still manageable, representing about 3 per cent of national output.

But as a percentage of total Federal tax revenue the situation doesn’t look so benign. It’s estimated the government will extract US$2.5 trillion in taxes in 2012. If we assume interest expense of around US$450 billion, nearly 20 per cent of the tax take goes towards debt servicing. It can only get worse from here.

I think the US is still a few years away from a genuine debt crisis. But if it keeps compounding its debt it is a certainty to get there. And it will come quickly when it does.

A huge debt pile is manageable when interest rates are very low. But if interest rates all of a sudden went to 6 per cent because of a loss of confidence, US debt-servicing costs would be well over US$1 trillion per year. At that point, the option would be to raise taxes sharply or print money to pay for the interest expense. Neither of these is good.

Are You Safe From Reverse Compounding?

Unfortunately, you cannot entirely avoid the deleterious effects of reverse compounding at a national or international level. When financial ignoramuses run governments around the world there’s not a lot you can do to avoid the fallout.

I bring up reverse compounding because it’s an obstacle you need to consider in your own path the wealth creation. You can avoid reverse compounding at an individual level by simply staying away from debt. Or only get into debt when you have a high level of confidence it will work for you. (I would include debt to finance your own business in this definition.)

But this strategy will not work in the coming decade. Borrowing to purchase assets will result in reverse compounding in the years ahead.

The Compounding Strategy For the Future

What will work in this coming decade is a simple compounding strategy.

Which brings me to the most important – and simplest – point when it comes to compounding. It’s called saving. If you don’t save you can’t compound your wealth.

Successfully compounding your wealth in this sort of economic environment is difficult. But it can be achieved if you keep three things in mind:

• Invest internationally – I think the Australian index will meander in a wide range and ultimately go nowhere. I also think the Aussie dollar is overvalued against a range of currencies. Given this view, I think you need to look further afield for opportunities. Adding some international companies to your portfolio will add currency diversity too.
• Be patient. Wait for opportunities. Focus on quality business rather than a cheap stock price.
• Buy gold. It’s one investment that many people dismiss as being over. But this metal is quietly going about its business of getting rid of as many investor as it possibly can before resuming its next leg up.

Compounding requires patience. Whereas most people want to get rich quick. That’s fine. But understand getting rich quick is a low probability outcome.

Growing your wealth through compounding has a very high probability outcome. If you’re prepared to save and keep my three guidelines in mind, I have no doubt you will become – and more importantly stay – wealthy.

Greg Canavan
Editor, Sound Money. Sound Investments.

From the Archives…

What Newton Knew About House Prices …That the IMF Should
2012-05-11 – Kris Sayce

Why a Greek Exit From the Eurozone Could Be Great News For Markets
2012-05-10 – John Stepek

Why Europe Will Ditch Green Energy
2012-05-09 – Kris Sayce

Why It’s Time to Buy Gold
2012-05-08 – Dr. Alex Cowie

Why You Should Be Watching Japan’s Economy
2012-04-07 – Dan Denning

Why Reverse Compounding is the Road to Rags… Not Riches

Article by Investment U

Facebook is a cloud computing company. Profit from the Facebook IPO by buying the companies that provide Facebook's cloud computing infrastructure.

Over the last couple of weeks, investors have been hearing a lot about the Facebook IPO and the accompanying high-profile road show.

For those who are confused, the road show is a planned set of meetings where the management team of the company going public, accompanied by its investment bankers, shares the investment merits of its about-to-be traded stock and why you, the investor, should buy in on the IPO.

It is not about whether the CEO of said company is wearing a suit, or a “hoodie,” or will even show up at all.

What’s challenging about the Facebook IPO isn’t whether this is a leading company in the new field of social media – oh, it certainly is. And it isn’t, in our opinion, about whether Facebook will continue to get “eyeballs” to its site – oh, it will.

What’s more meaningful to us is simply: Can an entire industry or company that has been in existence for less than 10 years continue to grow at its current torrid pace? Will social media continue to stay “hot hot hot” or will it merge into the mainstream? If it takes a company seven years to “rule the world,” how long could it take a competitor to come in and simply be cooler or just plain better?

And the more important question to us is: Should I even be asking those questions?

“Arms Suppliers”

This brings me back to a recent essay I wrote about cloud computing…

Facebook’s stock may go up or it may go down. But how do I profit from that when the largest institutional investors in the country get to see whether Mark Zuckerberg is wearing a “hoodie” or a suit? What advantage can I gain over them?

The honest answer for me is, “I don’t have any advantage,” and, sorry to say, neither do you.

So, let’s take a step back and look at Facebook another way. In its barest form, what is it? It’s a company offering a service by utilizing the internet. In the cloud computing essay, we defined cloud computing as “simply any technology service, such as an application, infrastructure, or platform that’s offered to customers over the internet.”

Sounds like Facebook to me!

And in that same note, I suggested investors look to the stocks of the “arms suppliers” to the big guys already at war. Make no mistake about it – Facebook’s war is no longer with the Winklevoss twins – it’s now with Google (Nasdaq: GOOG), LinkedIn (NYSE: LNKD), Apple (Nasdaq: AAPL) and even Microsoft (Nasdaq: MSFT), despite any appearances of cooperation. All these companies seek world domination in their sectors.

In the movie Social Network, the Zuckerberg character, irate because someone had threatened the website’s availability, states, “Facebook does not go down, Facebook never goes down,” or words to that effect.

So who are the arms suppliers to a company whose website “can’t go down?” There are a number of different areas in addition to those mentioned in our earlier note.

Infrastructure Management

Admittedly, this term sounds about as sexy as a burlap sack covering a Sumo wrestler. But it is important, and these are the companies that help a company like Facebook stay “up” and performing to expectations.

What are some of the weapons required?

• Suite-based infrastructure management – Companies like CA Technologies (Nasdaq: CA), BMC Software (Nasdaq: BMC), Hewlett-Packard (NYSE: HPQ) and even IBM (NYSE: IBM) sell entire suites of products aimed at keeping data centers up and running.

• Website performance management – If Facebook users in Boston are having problems with the site, but users in San Francisco are fine, what early detection mechanisms are available? Companies like Keynote Systems (Nasdaq: KEYN) and Compuware (Nasdaq: CPWR) have utilities that can monitor this constantly and give the site operator early notification if there is a particular problem in a particular location.

• Application performance – There’s a group of companies that focus on monitoring and managing the performance of applications. Facebook likely has hundreds, if not thousands, of individual applications, and they need to be monitored. Companies like OPNET Technologies (Nasdaq: OPNT), as well as Compuware and Keynote, help with this.

• Network performance – What if there’s something wrong in the network? Companies like NetScout Systems (Nasdaq: NTCT), OPNET, Hewlett-Packard, Cisco (Nasdaq: CSCO) and the other suite vendors can give visibility into what’s going on in the network.

Don’t try to keep up with what the big guys know about Facebook. Figure out what’s going on behind the scenes that makes Facebook work.

You’ll find the grounds far less crowded, and you may make a pretty penny along the way. And you won’t have to figure out if the “hoodie” is going to be the next big fashion trend, either.

Good Investing,

Gary Spivak

Article by Investment U

Article by Investment U

Gas drillers and other companies are looking with intense interest at CNG-based transport and storage technology.

Pity the poor North Slope of Alaska…

The region produces 600,000 barrels of oil a day, accruing millions of dollars for the state’s treasury as the crude is pumped through the Trans-Alaska Pipeline System. But its 35 trillion cubic feet in natural gas reserves are essentially a wasted resource.

For years, Alaskan authorities hoped a 1,700-mile natural gas pipeline, costing up to $40 billion by some estimates, might be the answer for tapping U.S. energy demand. Alas, gas in the Lower 48 is too cheap, and the pipeline too expensive. The overland-to-Alberta project was scrapped earlier this month. For now, the North Slope’s gas reserves remain in the ground, without a viable way to get to market.

It’s not just Alaska’s problem…

Stranded Gas

A 2007 EIA study concluded that, out of an estimated 6.1 trillion cubic feet of global natural gas reserves, roughly one-half is considered “stranded.” Remote and lightly populated regions like eastern Canada, northern Australia, Vietnam, Indonesia and parts of Russia’s Siberia are all mentioned as having massive reserves of stranded gas.

And then there’s the problem of “associated gas.” That’s the name drillers give for the stuff that comes up the pipe in oil drilling operations. In 2010, one French oil company estimated that 30% of its greenhouse gas emissions – about 15 million metric tons of “carbon equivalent” – were the result of flaring off associated gas at its drill sites. There just isn’t an economical and safe way to do anything else but burn it as a waste by-product.

But new transport and storage technologies for CNG might just offer new answers to these old problems…

Enter the Coselle

Coselle ™ stands loosely for “coiled pipe in a carousel.” It’s being commercialized by Alberta-based Sea NG. What exactly is the system? Imagine a giant hexagonal-shaped garden hose reel, around 50 feet wide and 10 feet tall. Let’s fill that “reel” with 13 miles of tightly wrapped six-inch diameter steel pipe, capable of holding four million cubic feet of compressed natural gas. That’s “a Coselle.”

Still with me? If you stack a bunch of these “Coselles” inside the hull of a specially-built “Coselle Ship,” you have a vessel capable of carrying up to 500 MMcf of CNG.

That’s smaller than what an LNG ship carries. But here’s the trade-off: LNG requires a large technical infrastructure, mainly because of the liquefaction facilities necessary to convert the gas to liquid form. Liquefaction plants are the biggest cost component of any LNG project, with a price tag of up to $4 billion. For those reasons, LNG ships are used mainly for high volume, high-demand shipping routes. CNG ships of the kind envisioned for these new transport technologies are positioned for shorter, lower volume transits of up to 1,200 miles.

So are Coselle-equipped ships the “missing link” to the problem of stranded natural gas? Perhaps. Sea NG is a private firm, but it has two publicly-held heavyweights in pipeline and ocean transport: Enbridge (NYSE: ENB) and Teekay Corp. (NYSE: TK) as investors.

It’s also why gas drillers and other companies are looking with intense interest at this CNG-based transport and storage technology:

• PLN (Indonesia’s state-run power company) signed a deal in January to transport natural gas, via CNG ships, to a peaking plant on the island of Lombok. The first shipments are scheduled tentatively for 2013.
• Centrica Energy (UK) is weighing the use of CNG ships for transport from its gas fields in offshore Tobago. Neighboring Trinidad has an LNG facility, but concerns about its capacity, and the shipping distance for processing, has Centrica looking at CNG instead.
• Husky Energy (Canada) sees CNG as “the leading technology at present” to get natural gas from its fields off Newfoundland, where the company believes it has reserves of 2.3 trillion cubic feet.

Nor is Sea NG the only company out there pushing a CNG solution to the problem of stranded gas. A rival firm, Houston-based EnerSea Transport LLC, has a patented system called VOTRANS ™ which claims to transport larger volumes and lower operating pressures by optimizing the pressure and temperature conditions of the stored gas. EnerSea is backed by a Mitsui & Company Ltd., K Line Shipping (a Japanese shipping giant), Citigroup and Singapore-based Tanker Pacific.

Keep in mind, CNG ships as a concept have been around for years, but always with what’s called a “bottle” design. If you think of a series of immensely tall steel tanks – giant versions of the propane tank in your barbeque grill – that can fit in the hull of a ship, you get the idea. The drawback of a “bottle ship” is the cost and complexity of all the valves and piping, so each tank can be filled and drained, independent of all the others.

These new-generation gas technologies, on the other hand, are designed to make a CNG vessel much cheaper to build and operate. The American Bureau of Shipping, which sets the design, construction and operational standards for marine vessels and offshore platforms, has already approved designs for ships fitted for Coselle and VOTRANS technology. The main question now is when the first of these new ships is commissioned and built to tap into the world’s reserves of stranded gas.

Good Investing,

Jeff Yastine

Article by Investment U

By The Sizemore Letter

This week, Charles Sizemore discusses investment options for the remainder of 2012 with Mike Robertson, host of the “Straight Talk About Money” radio show on Houston’s 1110AM/KTEK.

To hear the inteview, follow this link:Mike Robertson’s Straight Talk Radio

Source: ForexYard

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Forex Market Analysis provided by ForexYard.

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London Gold Market Report
from Adrian Ash
BullionVault
Thurs 17 May, 08:30 EST

THE WHOLESALE MARKET gold price jumped at the start of New York trade on Thursday, cutting the week’s previous 3.3% dive to 5-month lows in half as the Euro fell and Eurozone stock markets slumped once again.

The gold price touched $1558 per ounce before easing $3 lower. Silver did not follow, failing to break this morning’s earlier Dollar high at $27.86 per ounce.

German Bund yields fell to fresh record lows, but Spain had to offer investors in new 3-year debt an annual yield of 4.37%, up from the 2.89% charged at the last comparable sale in April.

The European Central Bank confirmed it has ceased working with some Greek banks because it believes them to be insolvent, while Portugal’s Diario Economico newspaper claimed a joint visit by the ECB, IMF and European Union to assess Lisbon’s €78 billion bail-out will also discuss contigency plans should Greece quit the single currency.

Greece’s interim cabinet of academics, lawyers and diplomats was today sworn in, pending fresh elections in four weeks’ time.

The gold price in Euros jumped 1.9% from Wednesday’s low, trading above last week’s closing level.

France’s new finance minister, Pierre Moscovici, today said the socialist government of Françoise Hollande will not ratify the European Union’s fiscal pact agreed by 25 out of 27 member states last December.

Gold’s Relative Strength Index – a technical measure of the speed and size of price change – “is approaching extreme oversold territory,” says the latest technical note from bullion bank Scotia Mocatta, “but there are no warning signs yet of a change in trend.”

“Gold is definitely in oversold territory, and there should be some good buying interest around the low in December,” Bloomberg quotes Dong Zhuying at Haitong Futures Co.

“Paring its losses near key support at $1525,” says Ed Meir at Intl FC Stone, the gold price likely saw “a decent amount of short-covering” by bearish traders on Wednesday, if not “fresh buying” after it held that level.

European stock markets fell again Thursday, losing value for the 8th session out of 11 in May so far and taking Madrid’s Ibex 35 index down to a fresh 9-year low, some 3.4% down on the day.

Crude oil slipped to new 6-month lows after data on Wednesday showed US energy stockpiles more glutted than any time since 1990.

Commeting on gold’s 20% drop from last summr’s all-time highs, “I believe gold will become a haven again, especially if you see fragmentation in the Eurozone,” said the World Gold Council’s Marcus Grubb to Bloomberg TV this morning, launching market-development group’s latest Gold Demand Trends report.

“Because then you’re going to get currency depreciation, you may get inflation in some countries, deflation in others…and you’ll see gold’s attributes as a hedge come to the fore.”

In the first quarter of 2012, global gold investment demand rose 13% by weight and 38% by Dollar value from the Jan-March period last year, says the report. In the jewelry sector, “Gold is underpined now by two large markets and China is playing catch up to India,” says Grubb, also speaking to Reuters this morning.

“Per capita gramme consumption rates are rising in China.”

Acknowledged as the leading authority on global demand and supply analysis, the World Gold Council says that China’s gold demand again beat India in the first quarter of 2012.

“You’re going to see China become the largest gold market overall by the end of this year for the first time,” Grubb believes. “It’s worth remembering that growth rates are still in the 7-8% range. So people are getting wealthier, and they will continue to buy gold strongly we believe.”

Beijing last month halved the rate of import rates on gold jewelry. So far in 2012, India has quadrupled its gold bullion import tax.

After last weekend’s cut by China’s central bank to the reserve ratio requirement – easing credit by enabling commercial banks to lend out more of the cash deposits they take – the State Council of China said Wednesday it will spend CNY36.3 billion ($5.7bn) over the next 12 months subsidizing household purchases of large electrical items, fuel-efficient cars and energy-saving lightbulbs.

Despite the cut in the reserve ratio requirement, however, lending by China’s four largest banks has “been flat so far this month” says the Shanghai Securities Journal.

Both the central and commercial banks were net sellers of foreign currency in April, the People’s Bank of China said this week, indicating an outflow of capital.

China’s 12-month trade surplus has halved from its peak above $300 billion of early 2009, according to data cited by the Financial Times.

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By The Sizemore Letter

With Greece again roiling world financial markets, it can be useful to step back and get an historical perspective.  Greece has been here before, and if history is any guide this will not be the last time.

If Greece has developed something of a bailout culture, it is because there has always been a Western power with a geopolitical interest in bailing the country out.  Whether it was Britain attempting to keep Tsarist Russia in check or the United States looking to best the Soviets in the Cold War, Greece has always had a patron.  By virtue of its strategic location in the Eastern Mediterranean, Greece mattered.

I’ve written favorably about geopolitical forecasting firm Stratfor and its prolific founder, George Friedman.  I wrote reviews of Friedman’s two most recent books (“Book Review: The Next 100 Years“ and “Book Review: The Next Decade“) and continue to recommend both.

Today, I recommend you read Stratfor’s analysis of Greece’s debt woes, which first appeared on Stratfor.com as “Greece’s Continuing Cycle of Debt and Default“:

The ongoing financial crisis in Greece is a familiar situation for Athens. Greece has been in debt since its war for independence from the Ottoman Empire in the 1820s, which means international creditors and foreign sponsors have played a role in Greek finances, politics and economic development since then. Even though Greece has failed to achieve the expected gains from the reforms its Western creditors have demanded it make in order to pay back its loans, foreign powers have always had a strategic need for Greece and have thus refinanced or forgiven its debts despite numerous defaults.

Indebted from the Start

The modern state of Greece was born after 11 years of fighting against the Ottoman Empire (from 1821-1832). However, it was not until Western intervention in 1827 that the conflict turned decidedly in Greece’s favor. The war had disrupted commerce in the Eastern Mediterranean, and France and the United Kingdom were concerned that a power vacuum in the region would give the Russian Empire an opportunity to expand and gain direct access to the Mediterranean. They thus sought to balance any expansion of Russian power by positioning themselves strongly in a newly independent Greek states. When Greece finally achieved its independence, it was these three Great Powers — France, the United Kingdom and Russia — that negotiated the terms of that independence.

Despite the nationalist origins of the Greek conflict, the Treaty of Constantinople — negotiated by the Great Powers in 1832 — declared the Kingdom of Greece an absolute monarchy and appointed a Bavarian prince, Otto, as monarch. Since the 17-year-old Prince Otto was a minor when he was named monarch, a council of regents consisting of three Bavarian advisers who came to be known as the “Troika” — incidentally, the same term used for the International Monetary Fund (IMF), European Central Bank and European Union officials today — were appointed to rule in Otto’s name. One member of the Troika was particularly instrumental in establishing the framework for the new country: former Bavarian Finance Minister Josef Ludwig von Armansperg, who ultimately was appointed prime minister of Greece when Otto assumed the throne.

During the fight against the Ottomans, Greece accumulated a large external debt — a debt on which it defaulted in 1826, greatly restricting the new country’s ability to access international credit. The United Kingdom, France and Russia agreed to loan the new country 600 million francs. As a condition of the loan, the three countries maintained diplomatic representatives in Athens who were heavily involved in the creation and oversight of the Greek government. The Great Powers wanted to see immediate returns on their loans after the new country began taking shape. However, the only immediate source of internal revenue for Greece was agriculture. Loans were given to farmers to expand cultivation on land that was nationalized after the war. The financing terms of the state loans, which required a 3 percent down payment in cash, combined with an immediate and heavy tithe on the lands’ production, forced most agriculture laborers to borrow from the few private individuals who had access to large amounts of capital — mostly the wealthy members of the Greek diaspora and the merchant class. This created a cycle of debt wherein the state’s attempts to pay off its international debt resulted in an increasingly indebted population…

Greece in Modern Times

By the end of World War II, Greece, along with its European sponsors, was in economic ruins. In March 1947, the United Kingdom had to end the financial assistance it had provided Greece in varying degrees since the 1820s. However, the Communist insurgency that engulfed Greece immediately after World War II once again presented the threat of Russia (now the Soviet Union) controlling strategic points in the Eastern Mediterranean. This made Greece strategically critical to the single remaining Western superpower: the United States, whose military and economic aid to Greece during the Cold War prevented Communist forces from gaining influence in the country. In 1981, Greece became the 10th member of the European Economic Community (the predecessor of the European Union). After this, Greece received large loans and subsidies from the European bloc in addition to aid from the United States. Nonetheless, by the early 1990s, Greece’s lack of economic growth and massive budget deficit led the IMF and European Commission to supervise the country’s finances.

A Familiar Position for Athens

Greece’s current problems — a large external debt, high defense expenditures, a political system entrenched by its ability to provide its supporters with continual patronage, a capital-poor and import-dependent economy, an ineffective tax collection system, exclusion from international credit markets and the forfeiture of its fiscal sovereignty to external creditors — are problems Greece has faced throughout its modern existence. It has been in major powers’ strategic interest to ensure Greece’s stability since its independence from the Ottoman Empire, but it seems that nearly 200 years of international interest in developing the Greek economy has not done much to change Greece’s circumstances.

Article by Stratfor.  Full article can be viewed at “Greece’s Continuing Cycle of Debt and Default.”

Some things never change, though Greece’s strategic importance to the West perhaps has.  Greece has far less value as a military, diplomatic, or trading partner than, say, neighboring Turkey.  It will be interesting to see if, for the first time in two centuries of welfare payments, the West finally cuts Greece loose.

By TraderVox.com

Tradervox (Dublin) – This week has seen major changes in currency trend as the EUR/USD pair remained under the uptrend support of 1.30 on Greece exit concerns. The GBP/USD pair has broken the 1.60 level to trade at mid 1.59 during the most of the week. The yen and the dollar have enjoyed bullish rally but is this going to continue to next week? Here is some technical analysis of major pairs.

EUR/USD: The pair has been bearish for most of the week due to concerns in the euro area. The pair has fallen to as low as 1.2681 close to 1.2660 level it touched twice in January. With few major event expected from the euro area during next week. The pair’s outlook remains bearish; we expect to see the currency reach 1.2623 which is this year’s lowest level.

GBP/USD: we expected the pair to remain neutral at mid 1.60 but recent data from Britain has caused the pair to go below this level. The pair is currently trading at 1.5832, but it is expected to remain at mid 1.59 during the next week. We have a bearish outlook for this cross during the next week.

USD/JPY: the pair is currently trading above the 80 level due to concerns that the BOJ might add stimulus next week. We are bullish on this cross and we might see the pair rise to 82.87 level which would expose the minor line of resistance of 83.50.

USD/CHF: the cross showed some movement during the week but it has remained unchanged over the week as demand for safe haven currencies increases. The pair opened the week at 0.9266 and later dropping to 0.9194. However, the resistance level of 0.9317 has remained firm and it is expected to continue during the next week as safe haven demand increases. Turmoil in Greece is expected to push the Swiss franc but the haven demand will be shared between the two currencies. We remain neutral on this pair.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
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Source: ForexYard

Higher yielding currencies, namely the EUR and AUD, remained bearish during European trading yesterday, as fears that Greece will have to leave the euro-zone led to risk aversion in the marketplace. Investors are now worried about what the possible effects of a Greek exit from the euro-zone would be for other indebted countries, including Spain and Italy. Today, traders will want to note that there is a bank holiday in France, Germany and Switzerland. That being said, news out of the US may lead to market volatility. The Unemployment Claims figure and Philly Fed Manufacturing Index are both forecasted to show US economic growth. If true, the USD could see gains during the afternoon session.

Economic News

USD – Manufacturing Data Could Result in Dollar Gains Today

The dollar was able to benefit yet again from risk aversion in the marketplace yesterday, as worries about the Greek political situation caused investors to abandon higher yielding assets. The EUR/USD dropped to a fresh four-month low during the morning session, reaching 1.2679 before staging an upward correction. The pair eventually peaked at 1.2758. The greenback also saw gains against the Australian dollar. The AUD/USD fell as low as 0.9868 before moving upward during mid-day trading.

Turning to today, dollar traders will want to pay attention to the US Unemployment Claims figure at 12:30 GMT, followed by the Philly Fed Manufacturing Index at 14:00. Despite a lack of overall growth in the US labor market in recent months, the number of people claiming unemployment insurance in the US has remained relatively steady. Should today’s news come in below the forecasted 368K, the greenback could see gains vs. its main rivals. With regards to the manufacturing index, analysts are predicting the news to come in at 10.3, well above last month’s figure. If true, the USD/JPY could turn bullish as a result.

EUR – EUR/JPY Drops to 3-Month Low

The possible effects of a Greek exit from the euro-zone sent the common currency to fresh lows against several of its main rivals during trading yesterday. In addition to the EUR/USD, which hit a four-month low, the EUR/JPY dropped to its lowest level in three-months. The pair dropped to 101.89 at the beginning of the European session before staging a mild correction and stabilizing at 102.40. The euro had better luck against the British pound, following a warning from the Bank of England Governor that the euro-zone crisis could impact growth in the UK. The EUR/GBP advanced close to 60 pips, reaching as high as 0.8006 during the afternoon session.

Turning to today, euro traders will want to continue monitoring any announcements out of the euro-zone. Analysts are warning that the currency still has the potential to sink further as long as the prospect for a Greek exit from the euro-zone exists. Furthermore, the possible negative effects the current political crisis can have on other euro-zone countries, notably Spain and Italy, may result in additional risk aversion in the marketplace, which could cause the euro to fall further.

JPY – JPY Sees Mild Losses vs. USD

The USD/JPY advanced close to 30 pips during European trading yesterday, reaching as high as 80.54. The dollar was able to benefit from better than expected news out of the US, which placed the currency well above the psychologically significant 80.00 level. The yen also took losses against the Australian dollar. The AUD/JPY was up over 80 pips during mid-day trading, reaching as high as 80.15 before staging a slight downward correction.

Turning to today, JPY traders will want to pay attention to news out of the US, specifically the Philly Fed Manufacturing Index. The index is forecasted to show significant growth in the US manufacturing sector. If the indicator comes in at or above the forecasted 10.3, the yen may fall further against its US counterpart.

Crude Oil – Crude Oil Falls Following US Inventories Report

After moving up for most of the European trading session, crude oil once again turned bearish following a higher than forecasted US Crude Oil Inventories figure. The indicator was taken as a sign that demand for oil in the US continues to fall. While the commodity reached as high as $94.10 a barrel during mid-day trading, it eventually began falling later in the day, reaching as low as $92.73 by the end of European trading.

Turning to today, oil traders will want to continue monitoring developments out of the euro-zone. The political uncertainty in Greece has resulted in significant aversion to risk over the last several weeks, which has caused the price of oil to tumble. Any additional negative news today could result in the commodity taking further losses.

Technical News

EUR/USD

Most long-term technical indicators place this pair in oversold territory, indicating that upward movement could occur in the near future. The Williams Percent Range on the weekly chart is currently at -90, while the daily chart’s Slow Stochastic has formed a bullish cross. Traders may want to go long in their positions.

GBP/USD

While the daily chart’s Slow Stochastic has formed a bullish cross, most other technical indicators place this pair in neutral territory. This includes the weekly chart’s Relative Strength Index and MACD/OsMA. Taking a wait and see approach may be the wise choice for this pair.

USD/JPY

The Williams Percent Range on the daily chart has drifted into overbought territory, indicating that this pair could see downward movement in the near future. Additionally, a bearish cross on the weekly chart’s MACD/OsMA has formed. Traders may want to go short in their positions.

USD/CHF

A bearish cross on the daily chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. Additionally, the Relative Strength Index on the same chart is currently in the overbought zone. Opening short positions may be the wise choice for this pair.

The Wild Card

AUD/CAD

The Williams Percent Range on the daily chart is currently in oversold territory, indicating that upward movement could occur in the near future. Additionally, a bullish cross on the same chart’s Slow Stochastic has formed. This may be a good time for forex traders to open long positions ahead of a possible upward correction.

Forex Market Analysis provided by ForexYard.

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