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Source: ForexYard
Worse than expected euro-zone data, specifically the German Flash Manufacturing PMI, led to moderate risk aversion during mid-day trading yesterday. Fears that the euro-zone debt crisis could be spreading beyond Greece and Spain were reinforced following the news, which signaled that German manufacturing has hit a three-year low. As we close out the week, traders will want to pay close attention to the German Ifo Business Climate, set to be released at 8:00 GMT. Should the indicator come in below the forecasted level, traders may continue shifting their funds to safe-haven assets.
The US dollar was able to stage an upward recovery against several of its main currency rivals during European trading yesterday, following the Fed’s decision to hold off on announcing a new round of quantitative easing earlier in the week. In addition, poor economic news out of the euro-zone caused investors to revert their funds to safe-haven assets. After spiking close to 75 pips during early morning trading to reach as high as 1.5731, the GBP/USD staged a downward correction and eventually stabilized at 1.5685. Against the Japanese yen, the dollar advanced close to 60 pips, eventually reaching the 80.12 level, a one-month high.
Turning to today, traders will want to pay attention to the German Ifo Business Climate, set to be released at 8:00 GMT. Investors are concerned that the euro-zone crisis could be spreading to the region’s wealthiest country. If today’s news disappoints, investors may continue shifting their funds back to safe-haven assets which could result in upward movement for the greenback to close out the week. At the same time, any better than expected euro-zone news could help higher-yielding currencies recoup their losses, which would turn the dollar bearish.
The euro saw a mixed session yesterday, as it took moderate losses against US dollar while gaining on the Japanese yen. Against the USD, the common-currency fell following news out of Germany and Spain which signaled that the euro-zone debt crisis may be spreading. The EUR/USD fell as low 1.2622, down close to 80 pips for the day. The euro had slightly better luck against the Japanese yen. The EUR/JPY was up more than 90 pips during mid-day trading, eventually reaching as high as 101.61, before staging a mild downward correction during the afternoon session.
As we close out the week, euro-zone news is once again forecasted to create market volatility. The German Ifo Business Climate, which ranks current business conditions in Germany, is considered a valid indicator of overall economic health. Should today’s news come in below the forecasted level of 106.2, fears concerning the euro-zone crisis spreading to Germany may increase, which could in turn weigh down on the euro.
The Fed’s decision not to initiate a new round of quantitative easing earlier in the week led to significant losses for gold during European trading yesterday. Investors, who now feel US interest rates could go up sooner than expected, went bearish on the precious metal, eventually bringing it down more than $25 an ounce. Gold eventually stabilized at $1584.
Turning to today, gold traders will want to pay attention to euro-zone news which has the potential to lead to risk aversion in the marketplace. Should investors determine that the euro-zone crisis is spreading to other countries in the region, they may choose to place their funds back with safe-haven assets which could help gold recoup some of yesterday’s losses.
A higher than expected US Crude Oil Inventories figure released earlier in the week resulted in crude oil extending its bearish trend yesterday. Oil stockpiles in the US, the world’s largest energy consuming country, are near an 18-year high. More supplies are often taken as a sign of lower demand. As a result, the price of oil slipped below the psychologically significant $80 a barrel during afternoon trading.
As we close out the week, analysts are skeptical about whether crude oil will be able to recoup its recent losses. With negative data having been released from the US and euro-zone in recent days, investors continue to shift their funds to safe-haven assets. That being said, should German news come in above expectations, oil may be able to stage a moderate recovery to finish out the day.
While the Williams Percent Range on the daily chart has crossed over into the overbought zone, indicating that a downward correction could occur in the near future, most other long-term technical indicators show this pair trading in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The Slow Stochastic on the daily chart has formed a bearish cross, indicating that this pair could see a downward correction in the near future. Furthermore, the Williams Percent Range on the same chart has crossed into overbought territory. Traders may want to go short in their positions for this pair.
The Bollinger Bands on the weekly chart are narrowing, indicating that this pair could see a price shift in the coming days. In addition, the Slow Stochastic on the same chart has formed a bullish cross, signaling that the price shift could be upward. Opening long positions may be the wise choice for this pair.
Long-term technical indicators are providing mixed signals for this pair. On the one hand, the weekly chart’s MACD/OsMA appears close to forming a bearish cross. On the other hand, the daily chart’s Williams Percent Range is currently in oversold territory. Traders may want to take a wait and see approach for this pair.
The MACD/OsMA on the daily chart has formed a bullish cross, indicating that upward movement could occur in the near future. In addition, the Williams Percent Range on the same chart has drifted into oversold territory. This may be a good time for forex traders to open long positions ahead of a possible bullish correction.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
Source: ForexYard
The safe-haven US dollar made significant gains across the board in overnight trading amid a credit rating downgrade of 15 global banks and growth worries in China, the euro-zone and the US. The EUR/USD has fallen close to 130 pips over the last 24 hours, eventually reaching as low as 1.2542 during the Asian session. Crude oil also took significant losses last night. The commodity fell as low as $77.85 a barrel before staging a slight upward correction.
Main News for Today
German Ifo Business Climate-08:00 GMT
• The indicator is a survey of business conditions in Germany, the euro-zone’s biggest economy
• Should the survey come in below the forecasted 106.1, it may lead to additional fears that the euro-zone crisis is spreading to Germany. In such a case, the euro could take additional losses
ECOFIN Meetings- All day
• The meetings involve talks between leaders of Germany, France, Italy and Spain regarding the economic crisis in the euro-zone
• Investors will be watching the meetings because Spain may formally request a bailout for its banking sector
• Should Spain request a bigger than expected bailout, riskier currencies like the euro and AUD could drop further
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
By Central Bank News
Fortescue Metals [ASX: FMG] has today filed documents in the High Court of Australia, accusing the government of breaching section 51(ii) of the Australian Constitution.
What’s that all about? More below…
In 1850, British philosopher and sociologist Herbert Spencer wrote:
‘If every man has freedom to do all that he wills, provided he infringes not the equal freedom of any other man, then he is free to drop connection with the State, to relinquish its protection and to refuse paying towards its support. It is self-evident that in so behaving he in no way trenches upon the liberty of others; for his position is a passive one, and, whilst passive, he cannot become an aggressor.’
Remember that the State is the aggressor in over 99% of cases. The most obvious is the violent way in which it levies taxes against individuals and businesses.
And the way it forces its will on individuals and businesses regardless of whether they approve. If they disagree with the State action they are punished: fined or sent to jail.
Yet if the State infringes on the individual or business, what’s the penalty?
Compensation? Maybe. But most likely, the government will just change the law so it can pursue what the court had previously deemed unlawful.
But what’s this about Fortescue Metals and the Constitution?
This morning, Fortescue lodged a constitutional challenge to the government’s Minerals Resource Rent Tax (MRRT). The press release states:
‘Fortescue…today lodged a challenge in the High Court of Australia against the Federal Government’s Minerals Resource Rent Tax (MRRT) on constitutional grounds.
‘Fortescue Chief Executive Officer Nev Power said Fortescue has taken legal advice and is challenging the tax on the grounds that the MRRT:
- Discriminates between the States contrary to section 51(ii) of the Constitution;
- Curtains State sovereignty contrary to the Melbourne Corporation principle;
- Gives preference to one State over another contrary to section 99 of the Constitution; and
- Restricts a State’s ability to encourage mining contrary to section 91 of the Constitution.’
Hats off to Fortescue for challenging the State. But we don’t fancy their chances. As we say, the State can do anything.
Evidence of that is in a successful challenge in the High Court earlier this week to a different government program. A father of four from Queensland had taken the government to court, claiming the Commonwealth chaplaincy program was unconstitutional.
The court agreed. It meant the government had acted illegally and should stop spending taxpayer dollars on this program.
The government’s response? As you’d expect, according to the Sydney Morning Herald yesterday:
‘Attorney General Nicola Roxon has told reporters in Canberra the government would continue funding the program, despite the landmark ruling.’
In other words, the State can do what it wants. It makes up laws and passes them, so it can do what it wants. Sometimes it doesn’t even make a law, it just goes ahead anyway. If the courts invalidate a program the State ignores the court or passes a law to legalise its previously illegal actions.
It’s a nice power to have, for a megalomaniac.
So while we’re pleased to see someone stand up to the brutality and aggressiveness of the State, we don’t hold out much hope that Fortescue will actually achieve anything…although they may get a moral victory if they win the case.
The fact is, government influence and interference is only going in one direction.
The BBC reports on a speech given by Alec Ross, a senior advisor to US Secretary of State, Hilary Clinton. In the speech he said:
‘As power is shifting from hierarchies to citizens, and networks of citizens, governments tend to feel overwhelmed. They feel over-run by this change. As governments accelerate; as revolutions increasingly make use of connective technologies; as pieces of legislation with massive corporate backing get shot in the head because of citizen-centred networks, what you should anticipate is a lashing back from government.’
We don’t expect Mr. Ross to stay in work for long with that kind of anti-government, pro-freedom talk.
Even though his main target are unelected dictatorships, what he says holds true for elected dictatorships in so-called democracies, too.
The UK is on the path to allowing the government to monitor all Internet and email usage. The US government is doing goodness knows what to infringe on the liberty of its own citizens (despite having a Nobel Peace Prize winner as President).
And the Aussie government is ploughing ahead with the National Broadband Network, which will inevitably allow the government to snoop on what you read, look at and watch.
Doubtless the Statists will say, ‘If you’re doing nothing wrong, you’ve nothing to worry about.’
That’s hardly the point. Individuals should have the freedom to do as they please without a busy-body bureaucrat snooping over their shoulder.
So, what does any of this have to do with investing and stock markets falling? Directly, not a great deal. But indirectly it is a big deal.
Investors need to get used to creeping socialism. That is, the more you earn the less the government will allow you to keep it, and the more you’ll be expected to fund the lifestyles of those who suck resources from taxpayers via the State.
That means doing as much as you can to control your own life. And doing as much as you can to prevent the government from stealing your wealth.
Make no mistake, the problems you see in the US and Europe (and soon enough in Australia) are a direct result of too much government involvement in national economies. And yet those governments believe they can correct things by getting more involved…hence the socialisation of wealth.
Eventually things will turn around, after governments have over-reached. But until then, expect more of the same…including volatile and risky stock markets.
Cheers,
Kris.
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The outlook is gloomy for investors hanging on for the next QE.
Investors are starting to realise that Sunday’s Greek election result was about the worst outcome they could have ended up with.
If Greece had out-and-out rejected austerity, we’d have had some panic – but we might have had some progress too.
Faced with plunging markets and the threat of an imminent Greek exit, central bankers around the world would have had their fingers poised over the ‘print’ button. Perhaps the Europeans might even have felt a bit of pressure to make something resembling a concrete decision.
As it stands, Greece’s indecision has left markets in limbo. Things aren’t great, but the threat of a Lehman moment has passed. That means central bankers just can’t justify another spending spree.
Federal Reserve chief Ben Bernanke still tried to toss investors a bone. But the market sulkily spat it right back at him…
The Fed hasn’t pressed the emergency button – yet.
Instead of printing more money – QE3 – the Federal Reserve has opted to extend ‘Operation Twist’, which was originally meant to finish at the end of this month.
‘Twist’ involves the Fed trying to keep longer-term interest rates down; it does this by selling short-term debt and using the funds to buy US Treasuries with maturities of six to 30 years.
So “Twisting” doesn’t add more money to the system, it just takes it out of one end and puts it in at another. Trying to suppress interest rates over a longer period should ‘help to make broader financial conditions more accommodative,’ as the Fed puts it – but it doesn’t provide the caffeine jolt of fresh new money that the markets clearly crave.
Investors probably shouldn’t have been as surprised as they were – the fact is, things just aren’t that bad yet.
We seem to have forgotten that quantitative easing (QE) was at one point a potentially deadly monetary experiment – a desperate measure designed to prevent the complete collapse of civil society. Now every time the S&P 500 looks like losing a few points, or a bit of bad economic data comes out, it’s a case of ‘let’s just whack a little more plutonium in the fuel tank’.
The US is certainly slowing down, there’s no doubt about that. Fed officials cut their growth estimates for the US quite sharply: they reckon it will grow at between 1.9% and 2.4% this year, rather than 2.4% to 2.9%. And there are plenty of smart people who think that the US is already in recession and has been for a long time (although this uses a broader definition of recession than the usual ‘two shrinking quarters in a row’ notion).
However, while growth concerns are real, the Fed needs a more concrete panic phase to launch anything as drastic as QE3 – a more rebellious Greek vote, sparking a rush for liquidity and a sharp market plunge, might have done it. As it is, investors have gone from fearing the end of the world last week to being paralysed with indecision.
They’re too afraid to buy in case something nasty happens. And they’re too afraid to be out of the market because if something nasty happens, they think that policymakers will flood the world with money.
As far as I can see, investors are right to feel indecisive. It’s possible that the US economy doesn’t “need” QE3, but Ben Bernanke will take any excuse he can get to err on the side of caution.
And he’ll probably get that excuse later in the year. The economy is slowing down right across the globe, not just in Europe and the US: China saw manufacturing sector activity shrink for the eighth month in a row in June.
As a result, life is getting tougher for companies. The latest company to warn on profits is US consumer goods giant Procter & Gamble. Some of its woes are self-inflicted, but the wider picture is pretty grim too.
As James Mackintosh notes in his FT column, operating profits globally are ‘now falling at an annual rate of 5%’. That’s similar to the sort of fall seen at the start of recessions in the 1990s and the 2000s.
Combine all this with the potential for an ongoing, rolling panic in Europe, and Ben is bound to come up with a reason to provide more QE.
John Stepek
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek (UK)
From the Archives…
The Problem With the Spanish Bailout
2012-06-15 – Keith Fitz-Gerald
Australian Housing – How to Avoid This Pauper’s Retirement Trap
2012-06-14 – Kris Sayce
Why Warren Buffett is Loading Up on Tungsten
2012-06-13 – Don Miller
China’s Economic Data Statistics: Just Add Salt
2012-06-12 – Dr. Alex Cowie
Why Graphite is One of the Few Places For Savvy Investors to Make Money
2012-06-11 – Dr. Alex Cowie
While everyone is focusing on Europe, a far more dangerous debt crisis is developing, says a former adviser to billionaire investor George Soros. Takeshi Fujimaki now runs his own investment company in Japan, but is best known for helping the legendary Hungarian-American investor.
Fujimaki thinks that Japan’s debt situation is far worse than Europe’s: ‘Japan is likely to default before Europe does, which could be in the next five years’, he told Bloomberg.
If Japan’s economy was to default, it would have a huge impact on the world’s financial system. At $10 trillion, the country’s debt pile is the second biggest in the world. Compared to the size of the economy, the situation is even worse. It is 236% of GDP, compared to 153% in Europe’s most-indebted country, Greece.
‘The yen and the JGB [Japanese government bond] market are in a bubble’, Fujimaki said. ‘With the gigantic debt Japan has accumulated, a thin needle, or even a gentle breeze may pop this. Events in Europe can possibly trigger this to blow up.’
His advice? Investors should look for stronger currencies, such as the US dollar, Swiss franc, Canadian and Australian dollars, and even sterling. Fujimaki says that he is already buying dollars ‘in case of an emergency’.
Of course, Japan’s mammoth debt levels are no secret. Until now markets have remained sanguine about default because only about 7% of it is held by international investors. The rest is owned by domestic savers who have remained faithful buyers, keeping yields low.
However, Fujimaki thinks that faith will not last forever. ‘There’s no way out of Japan’s crisis,’ he said. ‘The only option left for Japan is either default or print money into hyper-inflation.’
A Japanese default would rattle investor confidence and almost certainly send stock markets plunging in the short term. But it could also provide opportunities. For example, Fujimaki thinks the value of the yen would collapse, from the current rate of about 80 per dollar to around 500. That would be great for some of the country’s exporters.
James McKeigue
Contributing Writer, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek (UK)
From the Archives…
The Problem With the Spanish Bailout
2012-06-15 – Keith Fitz-Gerald
Australian Housing – How to Avoid This Pauper’s Retirement Trap
2012-06-14 – Kris Sayce
Why Warren Buffett is Loading Up on Tungsten
2012-06-13 – Don Miller
China’s Economic Data Statistics: Just Add Salt
2012-06-12 – Dr. Alex Cowie
Why Graphite is One of the Few Places For Savvy Investors to Make Money
2012-06-11 – Dr. Alex Cowie
Our old pal, Slipstream Trader, Murray Dawes made a guest appearance in yesterday’s Australian Small-Cap Investigator weekly update.
In it he wrote:
‘I believe the odds of a huge, eminently tradeable market move just got stronger…
‘This is a stage where a few smart trades could make you an incredible amount of money. That’s the good news.‘The bad news is that while I’m certain this breakout will happen, the fact that [US Federal Reserve chairman, Ben] Bernanke has kept the helicopter on the helipad means it’s still a waiting game. But it also means you still have time to get the right positions on before the big move happens.’
Last night the Dow Jones Industrial Average fell 250 points, and today the Aussie market is also down in early trade. Is this the big tradeable move Murray is waiting for?
We asked Murray this morning. His reply? ‘No, Thursday night was just a tip-toe through the tulips. It’ll get worse.’
Look out for a special report from Murray over the next few days.
Cheers,
Kris.
Related Articles
Market Pullback Exposes Five Stocks to Buy
Don’t Let the Fed Fool You, This Isn’t the Time to Abandon the Market
Australian Housing – How to Avoid This Pauper’s Retirement Trap
GBPUSD breaks below 1.5600 support, suggesting that a cycle top has been formed at 1.5776 on 4-hour chart. Now the pair is facing the support of the upward trend line on 4-hour chart, as long as the trend line support holds, the fall from 1.5776 could be treated as consolidation of the uptrend from 1.5268, and one more rise to 1.5900 is still possible. On the downside, a clear break below the trend line support will indicate that the uptrend from 1.5268 has completed at 1.5776 already then the following downward movement could bring price back to test 1.5268 previous low support.
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