October 2012 – Page 23 – InvestMacro Forex News

October 10, 2012

Spain and Greece Concerns Continue to Affect Euro Zone Trading

News out of Europe affected yesterday’s trading as most major pairs turned bearish due to concerns about Spain and Greece. A speech from European Central Bank President Draghi during morning trading kept the major pairs from huge declines, though some currencies and commodities recovered better than others. Today, investors will want to monitor Industrial Production numbers out of the euro zone, which can indicate trends for currencies and commodities. For U.S. dollar, traders will want to watch the bond auction and beige book releases.

Economic News

USD – U.S. Indictors for Interests Released Today

After posting modest gains during morning trading yesterday, the AUD/USD turned bearish during the afternoon session. Also, the GBP came under increased downside pressure against the greenback as risk aversion among investors occurred following ECB President Draghi’s speech before the European Parliament. The GBP/USD fell some 40 pips before finding support at 1.6000 and bouncing back to the 1.6030 level. By the end of European trading, the pair was back at 1.6010.

Turning to today, investors will want to keep an eye on the US 10-yr Bond Auction set to be released at 17:00 GMT, followed by the Beige Book analysis being released by the Federal Reserve today at 18:00 GMT. These both are good indicators of U.S. future interest rates, and tend to generate volatility in the marketplace.

EUR – Euro falls on Greek and Spanish concerns

The euro fell Tuesday, pulling away from its recent highs as uncertainty about Spain’s bailout and new concerns about Greece weighed on investors. The EUR/USD and EUR/JPY fell more than 80 pips during yesterday morning’s trading. European Central Bank President Mario Draghi’s reiteration that the ECB’s financial support for the trouble euro zone states was unlimited helped limit the losses.

Today investors will want to watch the French and Italian Industrial Production numbers being released at 6:45 and 8:00 GMT, respectively. These percentages are a leading indicator of the economic health. If these numbers are higher than expected, the euro may make back some of the gains it lost in yesterday’s trading.

Gold – Gold sees a drop due to EU news

The price of gold fell by more than $7.50 an ounce yesterday, as news out of the euro-zone continued to generate risk aversion in the marketplace. Despite hitting an 11-month high last week, gold has taken fairly significant losses in recent days due to concerns regarding the pace of the global economic recovery. By the end of the European trading, prices were steady at the $1766 level.

Today, investors will want to watch for any announcements out of the euro zone. Positive news may generate risk taking among investors, which could lead to an increase in demand for gold. At the same time, traders will want to note that any disappointing announcements could result in additional losses for gold.

Crude Oil – Crude Oil Recoups Losses in Afternoon Trading

The price of crude oil took minor losses during early morning trading yesterday, as euro-zone news led to risk aversion among investors. After falling by almost $1 a barrel to trade as low as $89.26, the commodity was able to bounce back to the $90.70 level by the end of the European session.

Today, investors will want to pay attention to US news. Any better than expected data could lead to speculations that demand in the US will increase, which could help oil extend yesterday’s upward movement.

Technical News

EUR/USD

The weekly chart’s Slow Stochastic appears close to forming a bearish cross, signaling the possibility of a downward correction in the coming days. In addition, the Williams Percent Range on the same chart has crossed into overbought territory. This may be a good time for traders to open short positions.

GBP/USD

While the Williams Percent Range on the daily chart has dropped into oversold territory, indicating that an upward correction could occur shortly, most other long term technical indicators show this pair range trading. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself in the near future.

USD/JPY

Most long term technical indicators, including the daily chart’s Relative Strength Index which remains steady at the 60 level, show this pair range trading. With a defined trend difficult to determine at this time, traders may want to take a wait and see approach for this pair.

USD/CHF

The daily chart’s Relative Strength Index is approaching oversold territory, while the same chart’s MACD/OsMA appears close to forming a bullish cross. Traders will want to keep an eye on both of these indicators, as they may point to a possible upward correction in the near future.

The Wild Card

EUR/SEK

The Relative Strength Index on the daily chart is approaching the overbought zone, indicating that downward movement could occur in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bearish cross. This may be a good time for forex traders to open short positions ahead of a possible downward breach.

Forex Market Analysis provided by ForexYard.

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.

October 10, 2012

Dollar Set to Gain Against Euro on Stronger US Growth

By TraderVox.com

Tradervox.com (Dublin) – John Taylor, the Founder and CEO of FX Concepts LLC currency hedge fund, has advised that investors should remain bullish on the US dollar as issues plaguing the US economy fade when compared with those in Australia and Europe. Talking about the current US dollar exchange rate, Taylor said that the dollar seems to be in a box between the important technical level of $1.29 against the euro and the downtrend levels of $1.3050 to $1.31. He noted that a close below $1.29 will be very bad technical signal, saying that a break out of this range will allow the dollar to make significant move.

The Dollar Index has dropped for the last two months and is set to decline in October. Efforts that are being taken in Europe to sustain the monetary union may yield fruits, as German Chancellor, Angela Merkel, have met with the Greek Prime Minister to discuss austerity measures and encourage the country to stay in the region. Taylor also said in an interview that staying bullish on the dollar is a good short-term and long-term play as the US economy is looking much better than other economies around the world. Citing slowing Chinese growth, Taylor said that Australia may have a hard time as the dollar appreciates and demand for raw material from Australia diminishes.

Taylor, whose company manages $3 billion of hedge fund, noted that the price of Australian commodities and exports is declining while the housing sector remains overpriced. The Australian dollar declined by 3.5 percent in the last quarter while the dollar declined by 0.9 percent. Yesterday, the dollar rose against the euro by 0.6 percent to trade at $1.2885 during the morning session in New York after it had strengthened to $1.2877. The US currency dropped against the yen by 0.1 percent to 78.23 yen as investors preferred the safety of the yen over that of dollar assets.

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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October 10, 2012

Central Bank News Link List – Oct. 10, 2012: Brazil central bank weighs new rate cut

By Central Bank News

Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

www.CentralBankNews.info

October 10, 2012

Central Bank News Link List – Oct. 9, 2012: Brazil central bank weighs new rate cut

By Central Bank News

www.CentralBankNews.info

October 10, 2012

Market Review 10.10.12

Source: ForexYard

The EUR/USD fell to a 10-day low during overnight trading, as investor concerns regarding Spanish and Greek debt led to an increase in risk aversion. After hitting the 1.2834 level, the pair was able to stage a slight upward correction to reach its current level of 1.2865. Commodities and precious metals also took minor losses during Asian trading. The price of gold fell close to $5 an ounce to trade as low as $1760 before bouncing back to its current level of $1763. Meanwhile, crude oil lost about $0.55 a barrel to reach $91.68 before reversing to its current level of $92.20.

Main News for Today

US Beige Book- 18:00 GMT
• The Beige Book is an analysis the FOMC uses to make a decision regarding interest rates
• Should the Beige Book signal any improvements in the US economy, investors may shift their funds to riskier assets, which could help the euro recover some of its recent losses

Euro Drops against Majors Prior to Industrial Production Data

By TraderVox.com

Tradervox.com (Dublin) – The 17-nation currency fell for the third day against major peers as speculation of poor industrial output data increased fears that euro zone debt crisis is weighing on the region’s economy. The euro dropped to the lowest against the yen in a week prior to reports from France and Italy expected to show industrial production declined in August. The Japanese currency has gained against most majors as risk appetite diminished pushing safe haven currencies high. Euro’s decline was limited as Spanish Prime Minister Mariano Rajoy prepares to meet with Francois Hollande, the French President. Investors are waiting to see where Spain will ask for bailout.

According to Marito Ueda, who is the Senior Managing Director at FX Prime Corp in Tokyo, the 17-nation currency has lost its attractiveness in the market as there are concerns about the economic situation in the region. This has boosted the attractiveness of safe haven currencies like USD and yen. Ueda went ahead to forecast that the euro may fall to below $1.20 by the end of the first quarter next year. The currency dropped as Asian stocks declined, with MSCI Asia Pacific Index declining for the third day, sliding by 0.8 percent. The S&P 500 Index dropped by one percent. In addition, implied volatility among Group-Seven-Currencies used by the JPMorgan Chase & Co rose to 7.7 percent from 7.5 percent reached on October 5, which is the lowest it has been in five years.

The euro dropped by 0.2 percent against the dollar to trade at $1.2859 during mid day trading in Tokyo from its New York close of $1.2835 the lowest it has been since October 1. The single currency declined against the yen to trade at 100.44 before advancing to 100.64, which is 0.2 percent lower than its close yesterday in New York. The declines came as Industrial production data from France is expected to show a decline in industrial output of 0.3 percent in August after increasing by 0.2 percent in July. The Italian industrial output is expected to drop by 0.5 percent in the same month.

October 10, 2012

Don’t Fall for the Interest Rate Con

By MoneyMorning.com.au

As you probably know, the Reserve Bank cut interest rates last week. The official rate is now 3.25%. It’s just 25 basis points away from the ‘emergency’ level of 3% reached in 2009.

There’s always a lot of hysteria around interest rate cut time. Much of the commentary is completely uninformed. So I want to ignore the noise and hype and tell you exactly what I think it all means.

The first point to note is that the RBA got it wrong. After spending 2012 being sanguine about China/the commodity boom and telling everyone that we’ve never had it so good, interest rates are now close to levels where we’ve never had it so bad.

With the recent plunge in bulk commodity prices, the RBA is now much more bearish on the outlook for the Aussie economy. It sees downside risks for the international economy. It’s now much more concerned about China than it was a few months ago. It got China badly wrong too.

How the RBA Got it Wrong

I suspect the RBA thought China would just opt for more stimulus efforts to offset its downturn — like every good Western central banker does — but that hasn’t transpired.

In ways they didn’t think possible, China is proving ‘different’ after all.

Here’s the relevant excerpt from its statement:

‘Growth in China has also slowed, and uncertainty about near term prospects is greater than it was some months ago. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.’

How uncertainty about China’s prospects is greater than it was a few months ago is a mystery to me. The RBA simply underestimated the China slowdown and the Chinese response to it. As a result, it now thinks that:

‘…the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.’

In other words, we need to juice up other parts of the economy because the mining boom is just about over. On this basis, I expect more cuts to interest rates in the months ahead.

If you’ve been following the China bust story, none of this will really come as a surprise to you. But with all the media hype that comes with an interest rate cut, I do want to reiterate the story.

That is, interest rates are heading lower because the outlook is deteriorating. It’s because national income growth (as measured by gross domestic incomes) is non-existent.

This is due to the effects of a falling terms of trade. Along with weak credit growth, contracting national income means Australia is at risk of falling into recession in 2013.

The RBA (belatedly) recognises this. It’s trying to ramp up credit growth to offset the coming fall in national income. Recently released credit growth data for the month of August was very weak. In particular, housing credit growth is in the mire.

There will be a lot of talk about how lower interest rates will push house prices higher. For example, the Financial Review last week had an article that stated:

‘House prices, already rising at their fastest rate in more than two years, could gather more pace thanks to the Reserve Bank of Australia’s cut in interest rates.’

This commentary is straight from the spruikers handbook. Interest rates are falling because national income growth has stalled. To focus just on the interest rate cut, and not on the reason behind the cut, is low-grade analysis.

Watch Out for Real Estate in 2013

It’s the large and persistent rise in national incomes behind the historic bull market in house prices. National incomes surged nearly 6% in 2011 and nearly 4% in 2012. As that robust income growth flows through the economy (with a nearly 12 month lag) you’re seeing excitement in the property market again.

And with interest rate cuts again in the news, you’re going to see a lot of commentary about a resurgent housing market. Don’t fall for such shallow and self-serving analysis.

In my report for Sound Money Sound Investments last month I wrote:

‘…the big rebound in national income in 2011 (very strong at nearly 6%) is probably the reason behind the current tentative ‘recovery’ talk about residential property.’

The interest rate cut will just add fuel to the fire of this misguided analysis. As I said, don’t fall for it.

Getting back to the credit growth numbers and why they’re important…

Consider this. For the 12 months to August 2012, total housing credit growth (loans extended to owner-occupiers and investors) was just 4.8% — the lowest rate of growth since 1977, which is as far back as the RBA data goes.

In other words, in the 12 months to August, residential property loan growth was the lowest ever recorded!

So demand for credit is clearly not the reason behind the renewed (and apparent) increase in house prices.

I believe any tentative increase in prices (and that’s all it is) is entirely due to a big increase in national income (which was nearly 10% in the two years to June 2012, a huge rise).

The only problem is this income growth is about to go into reverse.

That being the case, you should take any burst of optimism over house prices with a large grain of salt. The reality of weaker or contracting income growth is in the pipeline NOW. It’s just a matter of time before it flows through the system.

The RBA knows it and wants to reignite credit growth from its current anaemic levels. With Australia’s mortgage debt-to-GDP ratio amongst the highest in the world, I’d be surprised if credit growth will fire back up again.

If I’m right, you’ll see the initial euphoria subside and bearish housing market headlines emerging again by early-to-mid 2013.

Greg Canavan
Editor, Sound Money. Sound Investments.

From the Archives…

Beer and Tax in Retirement
5-10-2012 – Nick Hubble

Possibly the Most Important Thing You Will Ever Read in Money Morning
4-10-2012 – Nick Hubble

What Central Bank Money Printing Means for Small-Cap Stocks
3-10-2012 – Kris Sayce

This is What a Million Dollars of Liquid Gold Looks Like
2-10-2012 – Dr. Alex Cowie

Japan’s Energy Crisis and the Take Away for Aussie Investors
1-10-2012 – Dan Denning

Don’t Fall for the Interest Rate Con

October 10, 2012

What to Expect When the Reign of the US Dollar Comes to an End

By MoneyMorning.com.au

Lloyd Blankfein has got it all wrong again.

Speaking last week, the Chief Executive of Goldman Sachs claimed that if the “fiscal cliff” of tax increases and spending cuts go into effect on January 1, the US dollar would lose its reserve currency status.

As the Vampire Squid’s representatives often do, Blankfein actually has it backwards.

Contrary to what Blankfein thinks, a legitimate movement to deal with the fiscal cliff would cut the [US] federal deficit in half, make the country more or less solvent and strengthen the US dollar.

However, the problem is that the fiscal cliff involves pain. And since politicians like to delay pain as long as possible, the chances are good the fiscal cliff will be postponed again.

Instead, the country will likely continue to run trillion-dollar deficits in the hopes that Ben Bernanke can finance them through even more quantitative easing. It’s the only play in the Keynesian playbook.

Unfortunately, that is the policy most likely to crash the US dollar — and it’s headed our way.

So what will the world look like when the US dollar has crashed, and international investors and traders have lost all of their confidence in the greenback?

The truth is if that happens it won’t be like anything we’ve seen within living memory.

Before the Rise of the US Dollar

Ever since the Bretton Woods agreement in 1945, the US dollar has been the world’s reserve currency. So far, that role has been relatively unquestioned.

But prior to that, beginning in 1914, the world had relied on two reserve currencies. One was a declining British sterling. The other was a rising US dollar.

Oddly enough, the sterling was the stronger of the two in the 1930s, after Britain went off the gold standard in the 1920s. That’s largely because while the US suffered through the Great Depression, Britain managed to enjoy something of an economic renaissance.

Before 1914 though, the British gold pound was the world’s main reserve currency for over 100 years – ever since the Napoleonic Wars.

Just as with the US dollar today, when it came to true international transactions and investments, there was no real alternative to sterling at the time.

However, that wasn’t always the case, either. History is full of examples where there was no one true reserve currency like the US dollar or the gold pound.

Before 1800, the pound was important, but scarce – the main British gold coin of the time was the guinea, worth 1.05 pounds.

In the American colonies, however, British gold coinage hardly circulated at all, because gold was scarce. Instead Spanish silver coins — “pieces of eight,” or 8 Spanish reals – were the main coinage for trade, investment and, of course, piracy.

When Long John Silver’s parrot squawked “Pieces of eight,” the intelligent bird was simply expressing a preference for the medium in which it wanted its pirate treasure to be paid!

Around the same time, after a 1751 re-coinage, the thaler issued by the Austrian empress Maria Theresa become the common currency for the German-speaking world.

Strangely, this common currency continued after Maria Theresa’s death in 1780, spreading to Africa and the Middle East. The British government, in particular went on coining Maria Theresa thalers, basically counterfeit (though made of real silver) until as late as 1962, continuing to date them 1780.

In fact, when my father made his first trip to Saudi Arabia in 1963 he brought one back. He said they were still using them in a big way there.

The point is that if the US dollar becomes no longer credible, other currencies will have to do the job – like they have throughout history.

The problem is that there is no obvious single alternative to the US dollar today.

The euro is a mess, the sterling has the same problems as the dollar, Japan has a humongous debt problem, and China’s currency isn’t freely traded and is endangered by a huge black hole in its banking system.

Living in a World Without a Strong US Dollar

In a world without the US dollar, it’s likely that smaller currencies would have to be used.

Doubtless some of these would be “specialist currencies,” tailored to the needs of different users.

For instance, asset-only savers would want a currency that is a truly reliable store of value, with rock-solid monetary policies like the US in the days of Fed chairman Paul Volcker.

Meanwhile, traders would be partial to a currency that is as close as possible to a median between the various economic blocs, so that neither buyers nor sellers are disadvantaged.

Debtors undoubtedly would want a currency with sloppy Bernanke-ite monetary policies and very low interest rates.

When they find it, they will combine with the hard-sell operators on Wall Street to stuff it into unsuspecting investors’ portfolios, especially investors like insurance companies and pension funds, which try to match assets and liabilities.

Of course, like clockwork every now and then confidence in a particular currency would collapse.

You see, none of these currencies would be backed by a hard asset, like pieces of eight or the Maria Theresa thaler. They are paper money.

That’s why we are likely to re-learn some painful eighteenth century lessons…

Eventually, over the wailing protests of the world’s economists and central bankers, we may move to an eighteenth century solution – a gold standard.

That’s the only thing that could truly be used to replace the greenback as the world’s reserve currency.

It’s why the soaring price of gold is not an anomaly.

Martin Hutchinson
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

Beer and Tax in Retirement
5-10-2012 – Nick Hubble

Possibly the Most Important Thing You Will Ever Read in Money Morning
4-10-2012 – Nick Hubble

What Central Bank Money Printing Means for Small-Cap Stocks
3-10-2012 – Kris Sayce

This is What a Million Dollars of Liquid Gold Looks Like
2-10-2012 – Dr. Alex Cowie

Japan’s Energy Crisis and the Take Away for Aussie Investors
1-10-2012 – Dan Denning

What to Expect When the Reign of the US Dollar Comes to an End

October 9, 2012

AUDUSD moves sideways in a range between 1.0149 and 1.0274

AUDUSD moves sideways in a range between 1.0149 and 1.0274. Key resistance remains at the downward trend line on 4-hour chart, as long as the trend line resistance holds, the price action in the range is treated as consolidation of the downtrend from 1.0624, one more fall to 1.0000-1.0100 area to complete the downward movement is possible after consolidation. On the upside, a clear break above the trend line resistance will indicate that the downward movement has completed at 1.0149, then further rise towards 1.0624 previous high could be seen.

audusd

Daily Forex Forecast

October 9, 2012

Daily Update for the Major Markets (Video)

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