By Central Bank News
Here’s today’s Central Bank News link list, click through if you missed the previous central bank news link list. The list is updated during the day with the latest news about central banks so readers don’t miss any important developments.
By Central Bank News
Turkey’s central bank kept its policy rate unchanged but is closely monitoring the economy during the current global uncertainties and will adjust funding to banks as needed.
In a statement following a meeting of the bank’s Monetary Policy Committee, the Central Bank of the Republic of Turkey said leading indicators suggested that domestic demand had recovered in the second quarter and exports continued to grow despite the weakening global outlook.
“The Committee stated that, given the prevailing uncertainties regarding the global economy, it would be appropriate to preserve the flexibility of the monetary policy. Therefore, the impact of the measures undertaken on credit, domestic demand, and inflation expectations will be monitored closely and the funding amount will be adjusted in either direction, as needed,” the bank said.
The central bank’s policy rate, the one-week repo rate, was kept at 5.75 percent and overnight rates were left unchanged with the borrowing rate at 5 percent and the lending rate at 11.5 percent.
The outlook for inflation was also favorable but the bank would continue to monitor prices closely as inflation was expected to remain above the bank’s target for some time.
“Therefore, additional monetary tightening may be implemented along the guidance presented in the April and May committee meetings,” the bank said.
The bank also said the policy committee had approved an additional increase in the flexibility regarding the allowance to hold Turkish lira reserve requirements in foreign currency and gold in order to support financial stability.
www.CentralBankNews.info
As tensions rise among Iraqi Kurds in the country’s north, Sunnis in the south and the Shi’ite-led government in Baghdad over the distribution of natural resources, Turkey is setting its sights on an unconventional alliance with the Kurdistan Regional Government (KRG).
This is a gamble Ankara is willing to take, despite the potential implications it could have for Kurds on its own territory. Indeed, as recently as 2009, Ankara had a very different view on the KRG, going as far as to label its leader, Masoud Barzani, a “bandit” who was turning a blind eye (at best) to Kurdish militants using Northern Iraq as a base to launch cross-border attacks on Turkey. The Kurdistan Workers Party (PKK) has been fighting the Turkish government for more rights for decades.
So when Ankara began announcing a series of bilateral deals with the KRG (deals that went above Baghdad’s head), everyone’s first question was why would Turkey want to align itself with an Iraqi Kurdish leadership that is clearly making a play to create a sovereign Kurdish state?
According to intelligence analysts at Jellyfish, this is not such an unexpected or even illogical development from Turkey’s standpoint. “It is important to understand that Northern Iraq is a major market for Turkish exports and that oil and gas from coming Iraqi Kurdish territory is moved on to worldwide markets through Turkey,” Jellyfish President Michael Bagley told Oilprice.com.
“From a financial and logistical standpoint, an Ankara-Erbil marriage is one of exceptional convenience. From our standpoint, Northern Iraq stands to be one of the next great investment areas in the Middle East, and so far, the KRG has managed to out-play Baghdad in the natural resources and investment game.”
Last October, the KRG signed a highly controversial deal with ExxonMobil to explore for hydrocarbons in Northern Iraq. The deal was signed without Baghdad’s consent, and without even consulting Baghdad, which perceives the deal as illegal. In May, Baghdad attempted to auction off another set of exploration blocks, but none of the big international players bid, balking at (among other things) clauses forbidding anyone to deal exclusively with the KRG.
Also in May, as reported on Oilprice.com, the KRG and Turkey announced plans to build a pipeline connecting Ceyhan, Turkey, with northern Iraq and that this pipeline could carry one million barrels of oil per day and could be completed as early as August 2013. A second addition to the pipeline would connect it directly to the existing Kirkuk-Ceyhan pipeline by 2014. The KRG plans to export crude oil to Turkey, which will be refined in Turkey and re-exported to Northern Iraq.
A highly significant but oddly underreported development that will boost the KRG’s power play for autonomy in Northern Iraq was the expression of support, in early June, by the governor of Ninewa (Ninevah) province for the KRG’s deal with ExxonMobil.
Ninewa province Governor Atheel Nujaifi–from his seat in the provincial capital of Mosul–officially aligned himself with the KRG’s oil rights moves against Baghdad, tipping the balance of power in the KRG’s favour over the issue. The Ninewa seal of approval also bodes well for Exxon as it signifies that there will be less violent opposition from local leaders over its move to court the KRG.
Here again, Baghdad loses out. Ninewa today is one of the last bastions of al-Qaeda in Iraq, and its blessing of the KRG-ExxonMobil deal is significant in terms of security.
Iraq’s oil is Iraq’s oil, as far as Baghdad is concerned, and the KRG does not have the authority to sign any export deals on its own, even if it plans to divert revenues from sales to the Iraqi central authority.
The KRG, however, has a number of major power players behind it–from Ankara to Brussels and Washington, all of whom would very much like to see Iraqi oil and gas find an easy way to Western markets.
In the end, Turkey’s stance on Northern Iraq may seem like a paradox, but it is a logical move on many levels. With Syria in a state of violent upheaval, militant Kurds that threaten Turkey from across that border are no longer a focal point or indeed even a threat by comparison. And Ankara’s burgeoning relationship with the KRG has noticeably softened Kurdish militancy aimed at Turkey in the last couple of years.
Economics has played the greatest role in forging these new relations and Northern Iraq has become a new staging ground for Turkey companies and investment, with Turks owning an estimated 50% of all major businesses operating under the KRG-controlled territory.
Furthermore, the pipeline deal announced between Ankara and the KRG in late May was in part a reaction to pressure to reduce imports from Iran, but it also follows a logical path in the Turkey-Northern Iraq relationship.
Turkey knows that the pipeline deal and other energy deals forged with the KRG will set the stage for the creation of an independent Kurdish state. But in the meantime, Turkey has made such a heavy footprint in Northern Iraq that its level of influence there is and will continue to be immense. As such, Ankara will wield much control over any potential sovereign Kurdish state.
As for the KRG, it shows no signs of backing down in the face of threats from Baghdad, and is hedging its bets that the combination of its natural resource wealth and Western power brokers on its side will give it the advantage. On 11 June, the KRG told a gathering of potential investors at a business convention in the northern capital Erbil that it expected to quadruple oil production in the next three years, and that today’s 250,000 bpd would be up to 300,000 bpd by the end of this year. The KRG is already translating this into a boom for other sectors beyond energy.
By. Jen Alic of Oilprice.com
Article by Investment U
In this market, you have to able to move a little outside your comfort zone to make any real money. It isn’t always pretty, but it’s usually profitable.
“The time to buy is when there’s blood in the streets.”
– Baron Rothschild
These days, home builders have bloodier streets than most.
The problem with this sage advice is that most investors – bond investors included – can’t follow it. It goes against everything we’re made of to buy into anything that’s still bleeding.
But, despite the overwhelming evidence against the average guy buying into a bargain, I will again make another attempt to push you towards where the big boys play.
So let’s take a look at home builders…
Talk about cheap. Especially the bonds!
Unless you believe there are now fewer people who will need a place to live than there were before the collapse, you have to agree housing is an essential commodity.
Not all builders are essential, but having a place to live is. In my thinking, that always gave builders an extra edge.
The other extra edges builders are enjoying now are ultra-low interest rates and four years of pent-up buying pressure. These things pushed their numbers back to bleeding-but-still-breathing.
Still, anything related to real estate investing leaves a bad taste in the mouths of most. That’s why there are still bargains out there.
Here’s a badly beaten-up company – Beazer Homes. Nothing went right for a long time, but that’s changing for Beazer and the whole industry.
New home starts and contracts signed are turning upward – not skyrocketing, but improving.
A number of home builders, Beazer included, are snapping up distressed homes, fixing them up and renting them. Almost a no-brainer if you have the cash.
Option activity is pointing to an improvement. This is almost exclusively institutional buying, which is usually a good signal.
We’re approaching almost five years of virtually no new building…
It has to pick up! The surplus of homes from the boom is shrinking in all but the worst hit areas.
What was bad news for home owners for five years is great news for those getting into the housing market. It’s the best buying opportunity of most of our lives. Low interest rates and prices are in the toilet.
This is a huge opportunity if you can get beyond the bad-taste stage of this industry.
Beazer currently has a cheap bond that will give you a minimum expected annual return (MEAR) of about 12% for the next six years.
Stop for a second and think about how much 12% per year is. The market is in high gear with its yo-yo imitation. Treasuries are paying nothing and have a very high capital risk at these prices. And forget CDs and savings.
The income component alone on this play has a current yield of 10.56%. That’s about 20 times money market rates.
A whopping 10.56% in income and a MEAR of 12% alone should rinse any bad taste from the past few years, but the capital gains will push you over the top on this one.
This Beazer bond is selling for about 86, or $860. At maturity, it’ll return $1,000 to its holder. That’s a capital gain of $140 per bond if all you do is go to sleep and hold it to maturity.
But the real beauty is there’s a very good chance this bond will run up in price to the par area, $1,000, long before maturity. That means you could be in the enviable position of having to decide if you should hold it for the 10.56% income for the next few years, or sell it and take the quick capital gain.
Throw me in that briar patch!
It gets better! (Don’t you love this?)
There’s a call option on this bond at 104.563, or $1,045.63, on June 15, 2014. That means the company has the right to buy back this bond on that date for 1,045.63 per bond.
If Beazer does call the bond (it isn’t a guarantee, but they could), your annual return goes up to 19.7%.
As with all bonds you should always assume you’ll hold to maturity. If things improve faster than we expect, you can take an early exit. But always assume you’ll hold it.
This makes for a more tranquil investing life and allows for all kinds of negative things to happen – short of reorganization – and you still get paid.
At maturity, here’s what your total return looks like.
You’ll receive 12 interest payments of $45.62 per bond for a total of $547.50. Plus, capital gains of $140, for a total of $687.50 from an initial investment of $864 per bond, for a total return of 79.57%.
A return of slightly over 79% from anything is enough for most investors to sit tight and wait to get paid. Most of us held stocks for at least as long and made a lot less.
The big hurdle is can you get by the bad taste of four, almost five years of a bad beating. Not to mention housing took as bad a beating as any I’ve ever seen.
But here’s the trick.
Warren Buffett said in a CNBC interview in the first week of December 2009, you remember when the abyss was right next door, “I love it when things are really bad.”
Now I’m not much a Buffett follower. What he does isn’t magic, in fact it’s usually just good old fashion solid investing. Plus, he also gets a lot of sweet deals you and I will never get in on, but on this point he’s right on the money.
In this market, bonds or stocks, you have to able to move a little outside your comfort zone to make any real money. You have to think like a skilled investor and see a beating to the other guy as an opportunity.
It isn’t always pretty, but it’s usually profitable.
The nice thing about housing is that it already bounced off the bottom. Institutions are moving in for the kill – always a good sign – and the numbers for builders have been improving for several quarters.
This is not the bloody mess it was two years ago.
As always it comes down to an investor’s level of experience and development. Have you reached the point where you see beyond the bad news and move where the big boys are already playing?
Move at your own pace, but move…
Good Investing
Steve McDonald
P.S. I just noticed the barrage of comments below about the Beazer Homes Cusip so I wanted to clarify.
The bond I mentioned above isn’t necessarily a recommendation, but rather an illustration at how cheap bonds in the housing sector are right now. For those interested anyways, the CUSIP number for the Beazer bond is 07556qav7.
For my actual high-quality recommendations you’ll want to check out my new trading service. We have to cut off enrollment by Monday June 25th though because of the limited inventory of the bonds I’m recommending.
For more information on it, click here.
Article by Investment U
Article by Investment U
Can fiscal austerity boost economic growth? There’s a movement sweeping through the debt-heavy developed world that says, “Yes!” But is there any proof of this?
In January of this year, two people were talking about the same question. However, their answers were quite different. And how this question is answered will have a dramatic affect on the world’s economy for years to come…
Famed economist Joseph Stiglitz, who won the Nobel Prize in 2001 for his work on how markets work inefficiently, has gone on record to say that imposing austerity measures as countries slow towards recession is a fundamentally flawed response.
“The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity,” Mr. Stiglitz told the Asian Financial Forum – a gathering of thousands of finance professionals, businessmen and government officials in Hong Kong.
George Osborne, Chancellor of the Exchequer of the United Kingdom, told the same forum days earlier that the United Kingdom’s fiscal austerity measures were the only way to convince the market of the UK’s economic credibility. Keep in mind these measures have been in place for over a year now while the country’s economy has tipped into recession.
“When you have a high budget deficit, if you do not have a [disciplined fiscal] plan then you will not have sustainable growth because investors will be worried about investing in your country,” said Osborne.
So that’s the debate. Here’s the question: Can austere fiscal policy boost economic growth? There’s a movement sweeping through the debt-heavy developed world that says, “Yes!” But is there any proof of this?
Since the global financial crisis of 2008 to 2009, sovereign debt in the developed world has gotten out of control. There are many factors related to the financial crisis that have fueled the debt increase, from stimulus packages to lower tax revenue.
And what’s more frightening is if these issues aren’t corrected down the road, the aging populations in advanced economies will put a strain on government debt levels that will be overwhelming.
In response to the growing concern, Europe has chosen austerity. Some experts argue that austerity programs effectively reduce debt by directly targeting the cause of high debt levels – that is, government spending that’s too high or tax revenue that’s too low.
The idea, as stated by Chancellor Osborne, is that austerity will actually increase economic growth. As the Chancellor said, his argument is that commitment to fiscal austerity will increase investor confidence in the government and thus lower the interest rates charged by investors on government bonds. If lower borrowing costs for the government also reduce interest rates for us individuals and corporations, consumer spending and investment may increase, thus you get an uptick in economic output.
On the other hand, austerity has been criticized by some economists – like Mr. Stiglitz – as possibly undermining a weak recovery from the global financial crisis. Many economists agree, however, that these programs are costly to implement.
They argue that austerity policies decrease aggregate demand in the short term. This causes the economy to contract and unemployment to go up. What can be fatal is if economic output falls faster than the debt. If this is the case, the debt-to-GDP ratio can actually rise.
And then, as we have seen in the PIIGS of the Eurozone, austerity programs can be a political nightmare to implement. Citizens don’t like it:
But is there any actual data out there to see who’s right?
Jaime Guajardo, Daniel Leigh and Andrea Pescatori of the International Monetary Fund recently studied austerity plans implemented by governments in 17 countries over the past 30 years. They tried to key in on what the government actually intended in a variety of ways. For instance, by looking at media accounts of what officials were actually saying and not just at public debt patterns. They read budget speeches, reviewed stability programs and even watched television interviews with government officials.
In order to be classified as an austerity program, the government had to hike taxes or cut spending because they viewed it as a good policy with potential long-term benefits. They tried to weed out those policies that responded to short-term economic slumps or were implemented to stop overheating. (For example, if the government believes that future economic strength may cause economic overheating and inflation, it might try to cool down domestic demand by raising taxes and lowering government spending.)
The group found a pattern where austerity caused a decrease in consumption and weakened the economy. That conclusion should be a warning to policymakers in the developed world today.
It has been two years since the austerity craze swept across Europe and nothing has gotten better. Growth in European GDP was negative in the last quarter of 2011. Unemployment in the entire Eurozone in February of 2012 was 10.8%. If you look at sovereign debt yields, no one believes that fiscal stability is right around the corner.
It makes sense to put in place austerity measures when the world believes you might be able to pay off your debts. But right now, there’s a new normal. Short-term interest rates are so low that you can’t use large rate reductions to offset the bad effects of budget cutting. The Eurozone becomes even more peculiar because of the euro. Countries can’t use monetary policy to stimulate growth.
Because of all this, austerity has been a negative for Europe. Budget cutting has killed growth and debt-to-GDP ratios in Europe are still increasing.
A lot of European countries have long-run fiscal situations that are just unsustainable and must be dealt with. And what they should do is look at the United States for the solution – but not at our dysfunctional government.
The real answer lies in the work of our independent committees (think The Bowles/Simpson Commission).
The best approach is to pass the needed budget measures now, but to phase in tax increases and spending cuts over time to give specific economies time to rebound. Economists would say, “Measures should be backloaded.”
If you look at the proposals submitted by most of the deficit commissions out there, they are for the most part specific. If you’re going to have deficit targets, you must tell everyone how you will achieve them.
And here’s how they are typically laid out:
History shows that countries have been successful implementing “backloaded measures.” Here are two relatively recent examples:
It usually happens that when you pass laws, politicians really don’t want to revisit it later on. But if you go this route, it’s important to make sure there are no legislative backdoors to get out of the needed budget cuts or tax increases.
When you study austerity, the problem you run into is that you can’t control all the variables. It’s like the argument around dynamic scoring in the budgetary process. Too many random factors can occur that may account for your findings.
Policymakers cannot afford to hold the status quo while economists come up with concrete conclusions. We may never get a definitive answer. But, what needs to be done is the establishment of long-term goals and transparency to inspire confidence. If we do that, then markets will hopefully come around.
Good Investing,
Jason Jenkins
Article by Investment U
By Chris Vermeulen, thegoldandoilguy.com
Gold and silver have taken more of a back seat over the past 12 months because of their lack of performance after topping out in 2011. Since then prices have been trading sideways/lower with declining volume. The price action is actually very bullish from a technical standpoint. My chart analysis and forward looking forecasts show $3,000ish for gold and $90ish for silver in the next 18-24 months.
Now don’t get too excited yet as there is another point of view to ponder…
My non-technical outlook is more of a contrarian thought and worth thinking about as it may unfold and catch many gold bugs and investors off guard costing them a good chunk of their life savings. While I could write a detailed report with my thinking, analysis and possible outcomes I decided to keep it simple and to the point for you.
Bullish Case: Euro-land starts to crumble, stocks fall sharply sending money into gold and silver which are trading at these major support levels which in the past triggered multi month rallies.
Bearish Case: Greece, Spain and Italy worth through their issues over the next few months while metals bounce around or drift higher because of uncertainty. But once things have been sorted out and financial stability (of some sort) has been created and the END OF THE FINANCIAL COLLAPSE has been avoided money will no longer want to be in precious metals but rather move into risk-on.
Take a look at the gold and silver charts below for an idea of what may happen and where support levels are if we do see money start to rotate out of metals in the next 3-6 months.
Over the next few months things will slowly start to unfold and shed some light on what the next big move is likely going to happen to gold and silver.
The price movements we have seen for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012/2013 or it could be a huge unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.
Only time will tell and that is why I analyze the market multiple times per week to stay on top of both long term and short term trends. So if you want to keep up with current trends and trades for gold, silver, oil, bonds and the stocks market checkout TGAOG at: http://www.thegoldandoilguy.com/free-preview.php
Chris Vermeulen
By David Banister, markettrendforecast.com
Gold has been busy consolidating in what I believe will be a 13 Fibonacci month Primary wave 4 correction. The Gold bull market I’ve been following since 2001 is a likely 13 year bull cycle that will end in 2013 or 2014 depending on how you count. This current correction pattern is working off a 34 Fibonacci month rally that took Gold from 681 to 1923 at its ultimate highs. Last fall I warned about the parabolic run likely ending in the 1908 ranges and for investors to position themselves accordingly.
Today we have Gold trading around 1600 and our recent forecast in May was for a rally into Mid June topping around 1620-1650 ranges in US Dollars. The intermediate forecast still calls for a possible drop to 1445-1455 ranges this summer, the same figures I gave out on TheStreet.Com interview last September for a Primary wave 4 low.
Only a close and a strong move over 1650 will eliminate the downside risk in my opinion. Below we can see a weekly chart showing the 34 week moving average line as well as the obvious downtrend line. The 34 week moving average line acted as support during the Primary wave 3 rally from 681-1923. It now is acting as a resistance ceiling to break through, and I don’t think we will until this fall. The likely cyclical lows for this Gold correction will be in the October window and investors should make sure they are positioned long by that time.
Subscribe to our regular updates to stay informed on a dialy basis on the SP 500 and GOLD in the meantime with a discount offer. Go to www.markettrendforecast.com to sign up or to ask for our free weekly reports.
London Gold Market Report
from Adrian Ash
BullionVault
Thurs 21 June, 08:25 EST
The WHOLESALE MARKET gold price fell further Thursday in London, falling hard to 8-session lows at $1587 per ounce following last night’s “no change” decision from the Federal Reserve on new US quantitative easing.
Major-government bond prices pushed higher, but the Euro currency retreated, down nearly 1¢ from its post-Fed high to trade back down at $1.2650.
Silver prices hit a new low for the month of June at $27.70 per ounce, while commodity indices dropped to 19-month lows and US crude fell to 7-month lows beneath $80 per barrel.
European stock markets also fell, with London’s losses led by mining equities.
“Achieving a durable and prompt exit from the Euro area crisis, as well as avoiding the US ‘fiscal cliff’ [due start-2013] is crucial for sustained global recovery,” said a new report from the International Monetary Fund on the outlook for the G20 group of large economies.
First estimates for China’s manufacturing activity in June showed an eighth month of contraction on HSBC’s purchasing manager’ index – the longest such stretch since 2008.
Germany’s PMI joined the rest of the Eurozone in showing a sharp contraction in both manufacturing and the services sector.
With the gold price slipping 2.5% for the week so far, “Hats off to the players in the gold market,” says Edward Meir for INTL FC Stone, “who had the sense not to join in on the rallies [in commodities and equities] that were taking place” before the US central bank’s Wednesday announcement.
“The high expectations in advance of the US Fed’s meeting were priced out” of other asset classes, agrees Eugen Weinberg at Commerzbank in Frankfurt.
“[But] even without unconventional monetary policy,” he adds in today’s commodity note from the German bank, “central banks are currently shoring up the gold price…by diversifying their currency reserves and continuing to buy gold.”
Russia’s central bank bought another 14 tonnes of gold bullion in May, according to data from the Interfax agency Thursday.
That takes net purchases by the official sector to almost 150 tonnes for 2012 so far, based on data compiled by the World Gold Council market-development group.
“It is clear that BRICS countries have entered the stage when they can demand to be reckoned with,” said Russia’s deputy finance minister Sergei Storchak to reporters this morning, suggesting that Brazil, Russia, China, India and South Africa may launch a joint “anti-crisis” fund to challenge the IMF in Washington.
“It will be a parallel mechanism in addition to the IMF,” said Storchak.
Between them, the so-called BRICS countries now hold over $4 trillion in central-bank reserves, including 2,650 tonnes of gold bullion – more than 8% of national gold reserves worldwide, and greater than all single hoards but the US and Germany’s.
“Despite trading well through support in the low $1600s, gold managed to close with only a small loss on the day,” says last night’s report from bullion bank Scotia Mocatta.
“The bearish trendline off the March highs should provide resistance at $1632.”
“Gold’s dip below the $1600 level has confirmed our suspicion that the market was expecting something more [from the US Fed],” says today’s analysis from Standard Bank in London, citing support for the gold price at $1585.
Any move in the gold price on news of a Spanish bank rescue “could be a knee-jerk move” Standard Bank adds, “given that markets have already discounted that Spain needs a bank bailout.”
Madrid today enjoyed strong demand for €2.2 billion of medium-term debt sold at auction, but still had to pay investors record-high interest rates of 6.07% per year on 2017 bonds – up from 4.96% at last month’s sale.
Set to announce his coalition cabinet in Athens on Thursday, new Greek prime minister Antonis Samaras will also ask Brussels to give Greece a further two years to meet its agreed government spending and debt targets, according to press reports.
Next week European Union president Herman Van Rompuy will present a “blueprint” for the Euro currency union to national leaders, according to un-named officials cited by Bloomberg.
The plan includes “jointly issued short-term bills, a debt- redemption fund and common banking supervision,” says the newswire.
“There are no concrete plans that I know,” German chancellor Angela Merkel said at a press conference in Berlin last night, “but there is the possibility of [the EU bail-out funds] buying government bonds on the secondary market.
“But that is a purely theoretical comment,” she added – contracting Italian caretaker prime minister Mario Monti’s earlier call for discussion on the issue.
“This is not a subject for debate right now.”
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 TraderVox.com
Tradervox (Dublin) – The Federal Reserve has decided to extend the current Operation Twist which was due to expire this month. In a statement given yesterday after FOMC meeting, the program has been extended with an extra $267 billion, where short term bonds are replaced with longer-term bonds to ensure interest rates on such debt are kept low. After the decision by the FOMC, the dollar dropped against most majors. The Fed also indicated the possibility of doing more if economic situation continues to deteriorate.
The euro from one-month high after German Chancellor Angela Merkel expressed doubts on the possibility of direct bond buys. The 17-nation currency also declined as speculation Greece election signaled progress in dealing with the region’s crisis receded. As the FOMC announced the continuation of Operation Twist, the yen dropped against all of its major counterparts. The extension of the program came as employment growth continued to decline in the country and the unemployment rate remained higher than the target. In the statement, the Fed also said that the household spending has declined in the recent months unlike earlier in the year.
According to Greg Anderson of Citigroup Inc, the Fed has decided to withhold QE3, to give it the ability to deal with any eventualities that may come out of Europe. Similarly, Andrew Busch, called the Fed move as “conservative” as they did not want to do additional quantitative easing without fast looking at more data from Europe and US to confirm the trend of global economy. The Fed also lowered their gross domestic product growth to 1.9-2.4 percent from the previous 2.4-2.9 percent.
The US dollar dropped by 0.2 percent against the euro to trade at $1.2707. However it rose against the yen by 0.8 percent to trade at 79.54 while the Japanese currency dropped by 0.9 percent against the euro to exchange at 101.07 per euro.
Disclaimer
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Article provided by TraderVox.com
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Source: ForexYard
Riskier currencies, including the Australian dollar and euro, were able to hold onto gains from earlier in the week during trading yesterday, as speculation that the Fed would extend its bond-buying program led to risk taking among investors. Today, attention is likely to return to the euro-zone and the ongoing debt issues in Spain and Italy. Traders will want to pay attention to any announcements regarding these two countries, as they could lead to market volatility. Furthermore, the US manufacturing and housing data could help the dollar recoup some of its recent losses if they come in above forecasted levels.
After falling as low as 78.78 in overnight trading, the US dollar was able to stage a moderate recovery against the yen over the course of European trading yesterday. The USD/JPY advanced close to 60 pips, eventually reaching as high as 79.36. The greenback was not as fortunate against its other main currency rivals, as speculation regarding the Fed extending its bond buying program led to risk taking in the marketplace. The AUD/USD advanced close to 40 pips over the course of the day, reaching as high as 1.0209. Meanwhile the GBP/USD gained close to 60 pips, eventually peaking at 1.5776.
Turning to today, dollar traders will want to pay attention to the US Philly Fed Manufacturing Index and Existing Home Sales figure, both set to be released 14:00 GMT. Both figures are considered highly significant indicators of overall economic health and have the potential to generate dollar volatility. Better than expected data out of the US could help the greenback extend its upward movement vs. the Japanese yen. Additionally, any negative data out of the euro-zone could help the dollar recover against its riskier currency rivals.
The euro saw gains against both the US dollar and Japanese yen during European trading yesterday, as news that Greek political parties have agreed to the makeup of a new government following elections over the weekend led to an increase in risk taking. The EUR/USD gained more than 50 pips over the course of the day, eventually reaching as high as 1.2723. Meanwhile, the EUR/JPY moved up over 100 pips, eventually hitting the 101.11 mark.
Turning to today, analysts are warning that with attention shifting back to the debt problems in Spain, the euro may reverse yesterday’s gains. Spanish government bond-yields recently spiked over 7%, leading to worries that Spain would soon require a much bigger bailout than originally thought. Additionally, recent German news indicates that the euro-zone debt crisis may be spreading to the region’s largest economy. Any further negative German indicators could result in heavy euro losses.
The price of gold fell during European trading yesterday, as investor risk taking in the marketplace caused safe haven assets to turn bearish. The precious metal fell as low as $1600 an ounce by the afternoon session, down more than $20 for the day.
Turning to today, gold may be able to recoup some of yesterday’s losses, as investors shift their attention to the ongoing problems in the euro-zone. With no concrete solutions to fix Spain’s debt problems, combined with fears that the region’s debt crisis could be spreading to Italy and Germany, investors may choose to revert their funds back to safe-haven assets, which could lead to gains for gold.
Crude oil gave back most of its recent gains during European trading yesterday due to the investor concerns regarding a slowdown in the US economic recovery combined with a higher than expected US inventories figure. The US added 2.9 million barrels of crude to its stockpiles last week, further signaling to investors that demand in the world’s largest oil consuming country is going down. As a result, the price of crude fell over $1 a barrel, eventually hitting $82.80.
Today, oil traders will want to pay attention to news out of the US, particularly the Philly Fed Manufacturing Index and Existing Home Sales figure. Any indication that the US economy is slowing down further may cause demand for oil to go down as well. As a result, the price of oil may continue its bearish trend.
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 Slow Stochastic on the daily chart has formed a bullish cross, signaling a possible upward correction. Furthermore, the Williams Percent Range on the same chart is currently close to the -90 level, lending further support to the theory of impending upward movement. Forex traders may want to open long positions for this pair.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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